CONTENTS EFFICIENT GROUP TIMELINE 6

Transcription

1 Integrated Report 2015

2 CONTENTS EFFICIENT GROUP 1 KEY FACTS 2 THE YEAR AT A GLANCE 3 FINANCIAL HIGHLIGHTS 3 ABOUT THIS REPORT 4 SCOPE 4 ASSURANCE 4 BOARD APPROVAL 4 AN INTRODUCTION TO EFFICIENT 5 GROUP NATURE OF BUSINESS 5 BUSINESS MODEL 5 BUSINESS PHILOSOPHY 5 VALUE ADDED 5 EFFICIENT GROUP TIMELINE 6 BUSINESS STRATEGY 7 MATERIAL FACTORS 7 GROUP STRUCTURE 8 THE EFFICIENT FOOTPRINT 9 CHAIRMAN S REPORT 10 CHIEF EXECUTIVE 12 OFFICER S REPORT CHIEF FINANCIAL 16 OFFICER S REPORT CHIEF ECONOMIST S REPORT 22 GROUP SERVICES 28 STRUCTURE OF BUSINESS UNITS 30 FINANCIAL SERVICES 32 SERVICES AND SOLUTIONS 36 INVESTMENTS 38 CORPORATE GOVERNANCE 43 REMUNERATION AND DIRECTORS 49 INTEREST BOARD OF DIRECTORS 54 HUMAN CAPITAL MANAGEMENT 58 STAKEHOLDERS 63 VALUE ADDED STATEMENT 64 GRI G3 ASSESSMENT 65 SUMMARISED AUDITED FINANCIAL 67 STATEMENTS SHAREHOLDER ANALYSIS 91 JSE PERFORMANCE 92 NOTICE OF ANNUAL GENERAL 93 MEETING SHAREHOLDERS DIARY 101 COMPANY INFORMATION 102 FORM OF PROXY

3 EFFICIENT GROUP INTEGRATED REPORT BRAND SIGNIFICANCE The Efficient brand embodies the core of our commitments to investors and stakeholders, and serves as a benchmark for our company s products and services. It defines the values and principles of our employees and expresses our approach to performance and service delivery. OUR VISION To become a leading quality, diversified financial services business through a clientcentred and entrepreneurial business model attuned to sustainable growth and profitability. OUR MISSION To create value for our clients through a comprehensive financial services offering. Our strategy is to build a quality, diversified financial services business.

4 2 EFFICIENT GROUP INTEGRATED REPORT 2015 KEY FACTS + + Listed on the Johannesburg Stock Exchange (JSE) under the share code EFG, since Market capitalisation of R380.5 million as at 31 August shareholders + + More than clients across all sectors independent financial advisors full-time staff + + Offices throughout South Africa DIVERSIFIED FINANCIAL SERVICES GROUP OPERATING ACROSS THE ENTIRE FINANCIAL SERVICES VALUE CHAIN + + Three-pillared operational structure specifically designed to meet client needs and to align with financial services value chain + + Value added to clients through both people and processes

5 EFFICIENT GROUP INTEGRATED REPORT THE YEAR AT A GLANCE BUSINESS DEVELOPMENT + + Integration and corporatisation of newly acquired and newly established businesses. + + Operational restructuring to align structure with strategic objectives and the financial services value chain. + + Establishment of a new Services and Solutions division. + + Decentralisation of various support functions. + + Strengthening of Group control functions, namely finance and compliance. ASSET MANAGEMENT + + Exceptional growth in assets under administration and consulting. + + Boutique Collective Investments became the premier co-branded management company in South Africa. + + Boutique Investment Partners became one of the largest independent multimanagement companies in the country. OPERATIONS + + Distribution footprint strengthened and expanded on a national basis. + + Disinvestment from Marion Technology as an IT partner. + + Continued development of proprietary software. GOVERNANCE + + Formalisation of a comprehensive Investment and Corporate Governance Framework by the Board. FINANCIAL HIGHLIGHTS HEADLINE EARNINGS: HEADLINE EARNINGS PER SHARE: ASSETS UNDER ADMINISTRATION: R29 million cents R63.2 billion (2014: R7 million) (2014: 9.37 cents) (2014: R41 billion) ASSETS UNDER MANAGEMENT: ASSETS UNDER CONSULTING: ASSETS UNDER ADVICE: R18.2 billion R24 billion R12.7 billion (2014: R13.9 billion) (2014: R19.7 billion) (2014: R8.9 billion) REVENUE: PROFIT AFTER TAX: DIVIDEND (FROM 2015 PROFITS): R716 million R29 million 12 cents per share (2014: R233 million) (2014: R5 million) (2014: 2 cents per share)

6 4 EFFICIENT GROUP INTEGRATED REPORT 2015 ABOUT THIS REPORT This is the Group s annual report to shareholders and presents a holistic overview of its performance in the 2015 financial year. SCOPE It is with pleasure that we present to stakeholders the Integrated Report of the Efficient Group Limited (Efficient Group) for the period 1 September 2014 to 31 August The Efficient Group is listed on the Johannesburg Stock Exchange (JSE) in the financial services sector under the share code EFG. This is the Group s annual report to stakeholders and presents a holistic overview of its performance in the 2015 financial year. It includes reports from the Chairman, the CEO, the CFO and the Chief Economist, as well as the Group s summarised audited financial statements and a comprehensive operational report on issues material to the business. It is comparable to previous reports in terms of its scope and content. The report conforms to the requirements of both local and international governance frameworks, most notably: + + The International Financial Reporting Standards; + + The JSE Listings Requirements; + + The Companies Act of South Africa (No. 71 of 2008); + + The King Report on Corporate Governance for South Africa (King III); and + + The Global Reporting Initiative s G4 guidelines. ASSURANCE The financial statements supplied, which have been independently audited, fairly represent the financial position of the Group. The sustainability reporting has not been independently assured. The Board has reviewed the Group s combined assurance model and has decided that, at present, assurance of sustainability reporting by the Audit and Risk Committee is appropriate and sufficient. BOARD APPROVAL The Board acknowledges its responsibility for ensuring the integrity, objectivity, reliability and transparency of the Integrated Report. The Directors confirm that they have reviewed the contents and believe that they address all material issues related to the business, and fairly represent the financial, operational and sustainability performance of the Group. This report is also available on the Efficient Group website and a copy may be requested from the Company Secretary at any time. Any queries relating to this report may be directed to the Company Secretary, contact details are given on page 102.

7 EFFICIENT GROUP INTEGRATED REPORT AN INTRODUCTION TO EFFICIENT GROUP NATURE OF BUSINESS The Efficient Group is a diversified financial services group focused on providing professional advice, custom-designed products and quality service across the entire financial services value chain. Its offering includes financial planning services, financial products, value-added financial services and solutions, asset administration, asset management and asset consulting, which are offered to clients throughout South Africa. In January 2015, the Group restructured in order to reflect and support its new 5 year strategy, strategically referred to as its 2020 vision. It now has a three-pillared structure expressing how the business units are arranged to meet client needs. The three clusters are Financial Services, Services and Solutions and Investments. Only two operational functions remain centralised from a control perspective, namely finance and compliance. Further information on the nature and structure of the business is given in the Business Strategy Section. BUSINESS MODEL The Efficient Group s business model centres around its vision, mission and values, and is supported by robust corporate governance structures and processes. Its strategy is to maximise opportunities in the financial services sector, while simultaneously mitigating risks effectively. Operational and management structures are specifically designed to deliver on these objectives. The Group started out primarily as an asset management company in 1999 and listed on the JSE in The Group has always followed a sustainable growth plan incorporating strategy, knowledge, innovation and sound business practices with the objective of evolving into a multi-faceted financial solutions provider. BUSINESS PHILOSOPHY The Efficient Group s business philosophy is to meet the needs and serve the requirements of all stakeholders, including clients, shareholders, employees, government, regulatory authorities and the broader community. It is the Group s aim to remain attuned and responsive to the needs of these groups at all times. The Group is firm in its resolve to ensure that relationships with clients and employees are founded on mutual appreciation, trust and longlasting partnerships. The focus of every business unit is to create and deliver sustainable, profitable and efficient solutions for the Group s clients. VALUE ADDED The Group adds value to its clients businesses and portfolios in two key ways, through its people and through its processes. The Group s people are highlyskilled professionals with wide-ranging abilities and an unswerving dedication to what they do. Whether it is in asset management, economic research and analysis, financial planning, client portfolio administration or compliance, everyone shares the same enthusiasm and passion for service excellence. Through its processes the Group creates wealth, protects capital, reduces costs, minimises risk, increases audit and compliance efficiency, streamlines services and delivers client satisfaction. The management of each business unit has the mandate and power to organise operations as it sees fit in order to secure sustainability and deliver on its key objectives. The business units are supported by standardised and centralised processes for finance and compliance.

8 6 EFFICIENT GROUP INTEGRATED REPORT 2015 EFFICIENT GROUP TIMELINE Assets Under: Management (AUM) Administration (AUAdmin) Advice (AUA) Consulting (AUC) Revenue Acquire interest in Thebe Stockbroking Thebe Investment Corporation transaction Listed on JSE Increase distribution network through Efficient Advise Acquire Efficient Advise PE Establish Legal & Compliance division Acquire interest in Marion Create BCI and BIP Sell interest in Thebe Stockbroking Acquire Verso Investment Services Acquire interest in A S Sure Acquire interest in ARX Sell interest in Marion AUM, AUA, AUAdmin, AUC R billion Invest in building distribution Revenue R million Revenue Profit after tax (8 431) Headline earnings per share (cents) (6.71) Ordinary dividend per share (cents) Actual shares in issue (000) Market capitalisation (000) Return on shareholders equity (%) Net asset value per share (cents) Net tangible asset value per share (cents) Cash generated from operations EMPLOYEES: Number of Employees at year end Number of Advisors at year end (12.32) (71.30) ASSETS UNDER: Management Administration Advice Consulting

9 EFFICIENT GROUP INTEGRATED REPORT BUSINESS STRATEGY The business strategy of the 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 well positioned to do this, the Group restructured during the 2015 financial year, paring down from four product-focused divisions with centralised support services to three market-focused clusters of business units that are supported by standardised and centralised processes for finance and compliance. This structure is in line with international trends towards intrapreneurship, which aims to empower business units to function independently and so be more responsive to market needs. The three clusters of business units are focused on: + + Financial Services; + + Services and Solutions; and + + Investments. With these structural changes, the focus is on growing and acquiring entrepreneurial, like-minded entities to expand the Group s value chain. From a strategic perspective, the Group prefers to acquire a majority shareholding in businesses, but it will consider and pursue minority interests throughout the value chain where synergistic-, cross-sell- or future consolidation opportunities exist, or where the acquisition opportunities are accretive. The restructuring of the Group from product-focused divisions to market-focused clusters of business units also changed the Group s single brand strategy to a multi-brand strategy. A multibrand strategy supports the entrepreneurial spirit that the Group aspires to and, more importantly, will allow the Group to fill product and quality gaps within the financial services value chain by way of vertical integration and the creation of economies of scale. With this entrepreneurial approach the main focus when acquiring new companies is to retain the management, staff and clients. Consolidation under the Efficient brand is primarily reserved for the Financial Services cluster, as well as for those business units whose products or services are closely related to the personal relationship of trust that exists between financial advisor and client, such as fiduciary services. Consolidation would however only be pursued once trust in the Efficient brand has been established within a particular market segment. In support of this new structure, the Group has substantially extended its reach over the past year, specifically with reference to independent boutique asset managers. It is the intention that these boutique managers will provide access for both individual and institutional clients to quality investment solutions administered by the Group, and that the Group will be able to develop long term relationships with like-minded boutique partners, some of whom may present future consolidation opportunities. The Group is also extending its footprint into new areas, and has already launched a Fiduciary Services business unit. As part of its diversification strategy, it will in future also consider quality value propositions in the healthcare, short-term insurance, life and employee benefits areas. MATERIAL FACTORS Material issues refer to those factors and circumstances that influence and affect the Group s ability to ensure sustainable business operations. These issues are not only material from a sustainability perspective, but they also provide an indication to our stakeholders of the specific issues that would require management s attention in the foreseeable future. These issues could be perceived as risks or threats to our business operations, but they also present the Group with new opportunities and, in certain circumstances, could even enable the Group to strengthen its competitive advantage relative to peers. The material issues affecting each of the clusters within which the Group operates, are listed under the individual Business Unit Reports.

10 8 EFFICIENT GROUP INTEGRATED REPORT 2015 GROUP STRUCTURE EFFICIENT GROUP ORGANISATIONAL STRUCTURE FINANCIAL SERVICES + Financial planning + Financial products Efficient Advise (100%) Efficient Wealth (100%) Exceed Asset Management (70%) SERVICES AND SOLUTIONS + Value added financial services and solutions Naviga Solutions (100%) Efficient Board of Executors (50.01%) INVESTMENTS + Asset administration + Asset management + Asset consulting Boutique Collective Investments (100%) Boutique Investment Partners (100%) Efficient Select (100%) Exceed Private Client Services (70%) Stead Wealth (70%) Select Manager (ARX) (70%) Rudiarius Capital Management (30%) AS Sure Investment Services (25.1%)

11 EFFICIENT GROUP INTEGRATED REPORT THE EFFICIENT FOOTPRINT With its head office in Pretoria, and many regional offices and company representatives across South Africa, the Efficient Group services clients nationwide. Our executive and management teams are made up of specialists, ensuring that the same high standards are maintained throughout the Group. Clients are able to access any of our products and services by contacting any of our offices or representatives. Efficient Group HO Efficient Advise Stead Wealth BIP Naviga Solutions BCI GAUTENG LIMPOPO MPUMALANGA NORTH WEST FREE STATE KWAZULU-NATAL NORTHERN CAPE Efficient Wealth Efficient Select BCI Naviga Solutions Exceed WESTERN CAPE Select Manager EASTERN CAPE Efficient Wealth BCI Efficient Advise

12 10 EFFICIENT GROUP INTEGRATED REPORT 2015 CHAIRMAN S REPORT Steve Booysen Chairman OVERVIEW While both local and international business conditions continued to be exceptionally challenging, Efficient Group posted its highest profit in its history in Our strategic focus on streamlining operations, growing our distribution network and diversifying our product and services offering is yielding consistently positive results. Similarly, our focus on both organic growth and growth by acquisition continues to position the Group as a fully diversified financial services provider. In line with this strategic focus, we undertook a process of organisational restructuring during the course of the year, which has given us the flexibility to be more responsive to client needs. The transition to a structure reflecting client needs in Financial Services, Services and Solutions, and Investments has freed up the business units to be more entrepreneurial in their approach to doing business. This has involved the decentralisation of several support services, such as human resources and marketing, but two operational functions remain centralised from a control perspective, namely finance and compliance. The Board also adopted a comprehensive Investment and Corporate Governance Framework, which not only guides management in terms of identifying potential mergers and acquisitions and in measuring target companies against agreed benchmarks, but also serves as a first point of reference for the integration and corporatisation of new business units. While this framework provides definitive guidelines, the Board is pragmatic in its approach and will continuously review it to ensure that it remains relevant and effective. CLIENT VALUE Client value is at the centre of our business and informs everything we do. Our reputation and the trust that our clients have in us are both non-negotiable aspects of our approach to doing business. Our aim is therefore to be present to serve our clients in every possible way, especially by offering a single point of entry into the organisation, thereby providing a seamless Efficient Experience. In order to deliver on this, we are committed to a philosophy of continuous improvement, principally through implementing new technology and applying best practices. GOVERNANCE AND REGULATORY At Efficient Group, we are committed to meeting the expectations of all our stakeholders within the context of King III, and have applied the principles outlined in the report accordingly. This can be seen by the Group s King III compliance register, which is available on our website. While changes to the regulatory environment have continued to have an impact on our business and on the financial services sector in which we operate, we continue to support all efforts to maintain stability in the sector and to ensure that the operating environment is safe and fair.

13 EFFICIENT GROUP INTEGRATED REPORT For example, we actively support the consumer protection programme called Treating Customers Fairly (TCF), which was introduced by the Financial Services Board (FSB) during the course of the 2014 financial year. This campaign aligns with our client-centred ethos and ethical code of conduct. BOARD There were no changes to the membership of the Board during the course of the 2015 financial year. The Board continues to guide the Efficient Group in an increasingly uncertain and highly regulated financial services environment. TRANSFORMATION The Group has retained its Level 5 Broad-Based Black Economic Empowerment (B-BBEE) contributor status. Recruiting and developing skilled candidates with the requisite credentials and experience to manage the financial interests of our clients remain an important focus. Transformation is therefore a key component of our management scorecards. OUTLOOK As in the 2015 financial year, we anticipate that Efficient Group will continue to reap the rewards of its move towards being a fully diversified, multi-disciplinary financial services group. Having come through a period of rapid and intense change, we can now focus fully on the beneficiation of our strategy through each of our business units. We are also in a position to begin a focused expansion into areas such as healthcare and short-term insurance, which we anticipate, will not only increase revenue and profitability, but will mitigate overall business risk in an uncertain economic environment. The energy and commitment of management and staff will continue to support the Group s long-term sustainability, and provide a trusted, high-quality financial services offering to both existing and potential clients. The 2016 financial year promises to be another exciting year for all stakeholders. APPRECIATION In conclusion, I would like to take this opportunity to extend my deep appreciation and thanks to my colleagues on the Board for their support and invaluable input during the past financial year. Special thanks are due to Group Chief Executive Officer, Heiko Weidhase and the executive management team, who have steered the Group through a period of necessary but challenging change. Similar thanks are due to the CEOs, MDs and management teams in each of the business units and to every Group employee, all of whom worked so hard to live our values and deliver quality financial services to our clients. Efficient Group posted its highest profit in its history in Our strategic focus on streamlining operations, growing our distribution network and diversifying our product and services offering is yielding consistently positive results.

14 12 EFFICIENT GROUP INTEGRATED REPORT 2015 CHIEF EXECUTIVE OFFICER S REPORT Heiko Weidhase Chief Executive Officer The 2015 financial year was another eventful year for Efficient Group, and I would like to begin by thanking our clients, our employees, our shareholders, our Board, our intermediaries and our suppliers for their continued support and dedication throughout the year. At the Efficient Group, our employees are serious about their work and about delivering quality results through entrepreneurial business practices. We recognise that long term, trust-based relationships are key to our success, and that client satisfaction is fundamental to the Efficient Experience. Our corporate culture, which emphasises these key components and the regulatory environment in which we operate, is well entrenched. A particular focus is on our ethics, regulatory compliance and treating our customers fairly. Similarly, we remain cognisant of the demographics of our country, our clients and our responsibility as a good corporate citizen, and continue to focus closely on employment equity and the transformation of the Group. Managing and preserving the Group s corporate culture through periods of rapid expansion is challenging, but our formal integration programmes are designed to inform new employees and to highlight the vision and values we share. Under the guidance of management, we feel that all new personnel that came on board during the course of the year made the connection with our culture and that they will continue to build on it. OPERATIONAL OVERVIEW From a Group perspective, the main focus during the year was on the integration of newly acquired and newly established businesses. This did not only include the integration of Select Manager, Stead Wealth, Exceed Asset Management and Exceed Private Client Services, all of which were acquired during the course of the year, but also the continued integration of Efficient Wealth (formerly Verso Investment Services) and Naviga Solutions (formerly Verso Multi Manager). Boutique Collective Investments and Boutique Investment Partners also enjoyed their first full year of operations within the Efficient Group. During the financial year a decision was made to disinvest from the Group s previous IT partner and to outsource IT services to entities specialising in specific service categories in order to optimise the return on investment related to these services. Outsourcing provides the Group with enhanced flexibility and control, and allows for greater accountability from suppliers. The Group has also undergone an extensive cost and functional comparison in relation to third-party software providers as this relates to key systems requirements. As a result, a decision was made to further invest in the development of proprietary software, which will be deployed across a number of entities within the Group. The software will provide the Group with a consolidated platform to view key performance indicators across a number of subsidiaries, as well as the tools to improve efficiency and accountability across the board. Development of the solution has commenced and the Group intends to start deployment during the course of the 2016 financial year.

15 EFFICIENT GROUP INTEGRATED REPORT Another major focus was the restructuring of the Group s operations in order to align these with our strategic objectives and the financial services value chain. This process included the continued decentralisation of various support functions and the strengthening of the Group s primary control functions, namely finance and compliance. FINANCIAL SERVICES The Group s distribution footprint continued to be strengthened and expanded on a national basis. The rate of expansion was, however, not as aggressive as in previous years, mainly due to a self-enforced consolidation period. The intention of this consolidation period was to focus on increased advisor productivity, cross-selling and revenue diversification. Highlights of the year include: + + The number of financial advisors increased from 84 to 96; + + The number of financial services branches increased from 7 to 10; + + Revenue grew by 72% to R118 million; + + Assets under advice grew by 43% to R12.7 billion; + + The successful rebranding of Efficient Wealth; and + + The acquisition of Stead Wealth, Exceed Asset Management and Exceed Private Client Services. SERVICES AND SOLUTIONS In order to support the Group s extended focus and reach, and to enhance revenue diversification, a new Services and Solutions division was established following the restructuring of several business divisions and the merger of various product offerings. This division currently comprises Naviga Solutions, which packages and markets independent investment solutions in the form of unit trust funds of funds and wrap fund portfolios, as well as Efficient Board of Executors, a fiduciary services company that was recently established and which will start conducting business in the 2016 financial year. Highlights of the year include: + + Successful rebranding of Naviga Solutions; + + Preparing Efficient Board of Executors for its official launch in the 2016 financial year; + + An enhanced focus on the development of proprietary software; and + + The packaging and roll-out of proprietary investment solutions. INVESTMENTS The investment division achieved exceptional growth in assets under administration and consulting. During the course of the year, Boutique Collective Investments established itself as the premier co-branding management company in South Africa, adding 17 new Boutique Asset Manager Partners and 79 unit trust portfolios to its administrative platform. Boutique Investment Partners followed suit and established itself as one of the largest independent multimanagement companies in the country. Highlights of the year include: + + The acquisition of Select Manager; + + Assets under administration grew by 54% to R63.2 billion; FINANCIAL SERVICES VALUE CHAIN CLIENTS + Individuals + Independent Financial Advisors + Corporate Clients + Institutional Clients + Asset Managers + Asset and Investment Consultants + SMME s INTERMEDIARY + Efficient Advise + Efficient Wealth + Exceed Asset Management + Exceed Private Clients + Stead Wealth + A S Sure Investment Services MANUFACTURER + Naviga Solutions + Efficient Board of Executors ASSET MANAGER + Boutique Collective Investments + Boutique Investment Partners + Efficient Select + Select Manager + Rudiarius Capital Management

16 14 EFFICIENT GROUP INTEGRATED REPORT 2015 CHIEF EXECUTIVE OFFICER S REPORT (CONTINUED) We successfully maintained our growth momentum, growing our revenue by 207% to R716 million and our profit after tax by 491% to R29 million. + + Assets under management grew by 31% to R18.2 billion; + + Assets under consulting grew by 22% to R24 billion; and + + Revenue grew by 289% to R646 million. OPERATING ENVIRONMENT It is, of course, important to mention that the Efficient Group operates in frequently volatile financial markets and a highly regulated financial services environment. Of particular significance is that the FSB issued the Retail Distribution Review (RDR) Paper in November 2014, which outlined the results of their review of the financial services landscape in South Africa. The RDR paper identified key risks inherent in the current distribution landscape, including distribution relationships and intermediary remuneration models that contribute to poor outcomes and mis-selling of products, and ultimately put forward 55 proposals for comment. The Group has actively participated in the comment process, not only through the facilitation of industry bodies such as the Association for Savings & Investment South Africa and the Financial Planning Institute, but also by engaging directly with the FSB in areas where the Group have a strong presence within the industry, such as distribution and the co-branding of unit trust funds. The FSB is currently reviewing submissions made from across the financial services industry and any attempt to quantify the impact that RDR may have on the industry is therefore premature. For the Efficient Group, the implementation of the current proposals presented in the RDR paper will almost certainly impact on costs and cash flow and may potentially reduce our flexibility to respond to changing market needs. The opportunity that the RDR paper presents, however, is that it will in all probability act as an impetus for further consolidation within the industry. This is where several of the Group s business units are well positioned in terms of track record, reputation and settled governance structures. As such they may offer a safe haven to like-minded financial service providers that seek support and guidance within a consistently changing regulatory environment, but nevertheless want to remain entrepreneurial. We furthermore expect that the pressure on margins due to regulatory changes and the competitive nature of the financial services industry will continue, and a concerted focus on revenue diversification is therefore necessary to counteract the effects of margin pressure. Of perhaps the greatest concern to the Group is South Africa s macro-economy, which is defined by particularly low growth and savings rates, financial illiteracy and a persistently highunemployment rate. These macroeconomic challenges are reflected in the devaluation of the Rand, as more fully explained in our Chief Economist s Report. The challenge from a Group perspective is to retain our growth momentum, notwithstanding the adverse effects of a weakening economy over which the Group has no direct control. FINANCIAL OVERVIEW Notwithstanding the poor economic conditions and the highly regulated environment

17 EFFICIENT GROUP INTEGRATED REPORT within which the Group operates, the Group s performance during the 2015 financial year was nevertheless exceptional and we successfully maintained our growth momentum, growing our revenue by 207% to R716 million and our profit after tax by 491% to R29 million. As a result of this continued momentum, we achieved record growth in top-line revenue, headline earnings and cash generated from operations. The Group s sustainability was further strengthened through revenue diversification and a smaller performance fee contribution to headline earnings. THE YEAR AHEAD We are optimistic that the 2016 financial year will deliver excellent returns and results for all our stakeholders. Our key focus areas for 2016 will be the integration of recent acquisitions and the entrenchment of the new operating model. We will also continue to focus on both organic growth and growth by acquisition, specifically to support our strategic objectives of diversifying the Group and developing a full portfolio of non-asset products. We will, as always, strive to optimise our return on investments and to further enhance our relationships with our clients and key stakeholders. We will continue to nurture the entrepreneurial spirit within the Group and will focus on building our core competencies and strengths. I would like to conclude by extending an open invitation to shareholders, clients and employees to contact me with any questions, suggestions or ideas that may relate to our business.

18 16 EFFICIENT GROUP INTEGRATED REPORT 2015 CHIEF FINANCIAL OFFICER S REPORT Anton de Klerk Chief Financial Officer PRESENTATION OF FINANCIAL STATEMENTS The business activities of the Efficient Group are consolidated in the public company, Efficient Group Limited. Ownership of the Group is set out in the Shareholders Analysis on page 91 of this report. This review deals with the Group s financial performance for the 12 months ended 31 August 2015, and should be read in conjunction with the summarised financial information presented on pages 66 to 90. The Annual Financial Statements are published on the Group s website The accounting policies that have been used are consistent with those applied in the previous financial year. The financial statements are prepared on a going-concern basis using the historical cost convention, except for the fair value adjustment relating to available-for-sale assets. FINANCIAL RESULTS OVERVIEW In the 2014 financial year, the Group made several significant investments in order to expand its distribution network, grow its asset administration division and expand its product offering to include asset consulting. The full-year effect of these investments, which contributed 131% to the growth in revenue in the 2015 financial year, is evident in the higher profits and cash generated during the course of the year. During the reporting period, the Group made a further investment in expanding its distribution network and increasing assets under management (see Acquisitions on page 21). This investment was only implemented on 1 May 2015 and accounts for 7% of revenue growth. Profit after tax increased from R5 million in the 2014 financial year to R29 million in the 2015 financial year. This increase was the result of the full-year effect of the investments made in the previous financial year, organic growth and new acquisitions. The asset administration business contributed significantly to revenue growth and, as expected, posted decreased margins due to higher volumes. Increases in expenses were well maintained. The Group generated R102 million in cash from operations and increased its assets under management, administration, consulting and advice to R118 billion.

19 EFFICIENT GROUP INTEGRATED REPORT KEY FINANCIAL INDICATORS The following table provides data on key indicators for the period under review: % Change Revenue Asset management fees Performance fees Base fees Asset administration and consulting fee Financial services income Other Expense Variable expenses Fixed expenses Profit share and incentives Non-cash flow expenses (depreciation and amortisation) Operating profit/(loss) Other income/(expenses) Share of profit of associates (839) Impairments (1 289) (1 264) 21 Profit/(loss) before tax Taxation (12 207) (3 342) (265) Profit/(loss) for the year Attributable to equity holders of the parent Headline earnings/(loss) per share (cents) Net tangible asset value per share (cents) (71.30) Cash generated from operations ROE (%) REVENUE AND PROFITABILITY Revenue increased by 207%, which is attributable to the full-year effect of investments made in the 2014 financial year (131%), organic growth (69%) and the investment in Select Manager (7%), which was made during the reporting period. The investments made in growing the asset administration division and expanding the product range to include asset consulting during the course of the 2014 financial year were particularly successful. Not only did this division exceed its original target, but it also increased combined assets from R66 billion to R96 billion during the reporting period, contributing substantially to organic growth.

20 18 EFFICIENT GROUP INTEGRATED REPORT 2015 CHIEF FINANCIAL OFFICER S REPORT (CONTINUED) The other investments made in the previous financial year performed satisfactorily. The acquisition of Select Manager contributed R11.4 million in additional revenue to asset management and R5.1 million to financial services. Excluding fees received from the investment in Select Manager, asset management earned slightly lower performance fees compared to the previous reporting period. The base fee earned (after the re-allocation of the multi-manager fee to financial services) is 11% higher than the previous financial year. Lower margins can be attributed to the increase in assets under administration. Asset administration is historically a high-volume, low-margin business. Margins will remain under pressure and an important focus is therefore placed on managing expenses. The expansion of the distribution network, more specifically the agency structure, resulted in a decline in the margins of financial services. A large portion of the Group s expense base consists of variable expenses. These are normally calculated with reference to assets under management, assets under advice and assets under administration, as well as on commission received for financial services rendered. It is therefore more relevant to measure profits against gross contribution as an indication of profitability. The graph below indicates the profit margin and gross contribution of the three main business segments. Gross contribution and profit for the year R PBT Gross contribution Investments Financial Services Services and Solutions Fixed expenses associated with the organic growth of the Group increased by 8%. The full-year effect of the previous year s investments and the acquisition of Select Manager increased the fixed expense base by 22%. Staff incentives and profit-share provisions also increased as a result of the increase in operating profit. The increase in the non-cash flow expenses is due to higher amortisation charges related to the intangible assets that formed part of this year s business combinations. Management is focused on ensuring that future increases in the expense base are kept at acceptable levels. The Group reports an operating profit of R33 million (2014: R7 million) for the 2015 financial year. The following non-operational items impacted on the operating profit: + + AS Sure contributed R to profits, below agreed expectations. The result of this under performance resulted in a reversal of part of the outstanding vendor loans on this transaction and an impairment of a portion of the Group s non-controlling interest in this entity. + + During the reporting period the Group disposed of its investment in Marion Technology and recouped an amount of R2.6 million on this transaction.

21 EFFICIENT GROUP INTEGRATED REPORT The non-controlling interest in Rudiarius Fund Management contributed R to profit. + + Fair value adjustments of R2.8 million were made to the outstanding purchase price related to the Select Manager acquisition. + + Net interest received amounted to R4.4 million. The profit after tax for the year ended 31 August 2015 is R29 million (2014: R5 million). HEADLINE EARNINGS PER SHARE AND DIVIDEND PER SHARE Headline earnings per share for the year was cents (2014: 9.37 cents). No new share capital was issued during the reporting period. Volumes traded and share price increase cents September October November December January February March April May June July August 0 Volumes traded 000 Price at month-end (cents) The Group s dividend policy is to pay a dividend equal to 80% of free cash flow. Based on this policy, the Directors determined that a final dividend of 6.15 cents per share will be paid. This will be in addition to the interim dividend of 5.88 cents paid in May The Efficient Group share price increased by 27% during the reporting period to R4.20 and the volume traded as a percentage of shares issued increased to 2.89% (2014: 0.64%). Cash flow analysis R 000 Opening balance Cash generated from operations Working capital changes Other income/expenses Tax paid Investing activities Financing activities Closing balance

22 20 EFFICIENT GROUP INTEGRATED REPORT 2015 CHIEF FINANCIAL OFFICER S REPORT (CONTINUED) Headline earnings per share for the year was cents. CASH FLOW Cash of R44.5 million (2014: R18.3 million) was generated from operations during the reporting period. The decrease in working capital further increased cash and cash equivalents by R58 million. Net finance income earned contributed R4.4 million to cash flow. Tax paid reduced cash by R35 million. The cash utilised for investment activities relates mainly to the Select Manager acquisition, the acquisition of financial advisory client bases and unit trust investments. This reduced cash by R48.7 million. The investments and working capital requirements were financed through retained income and borrowings from Standard Bank. NET TANGIBLE (LIABILITY)/ASSETS PER SHARE Net tangible liabilities per share is reported at cents (2014: Net tangible assets per share of cents). The net tangible liabilities per share is as a result of cash utilised and liabilities raised to acquire intangible assets. On 31 August 2015 the Group had R211 million (2014: R126 million) of tangible assets, including cash and cash equivalents (including unit trust investments) of R97 million (2014: R34 million). It had R316 million (2014: R127 million) in liabilities. The increase in liabilities is directly related to the acquisition of Select Manager and consists mainly of vendor finance. At the end of the reporting period the Group s current liabilities exceed its current assets. Management assessed the Group s cash flow forecast and its access to credit and it is of the opinion that the Group will be able to settle its short term commitments as and when due. DEBT STRUCTURE AND FINANCIAL GEARING The Group increased its interest-bearing finance during the reporting period. The purpose of the loan taken was to provide working capital. The debt-equity ratio of the Group at 31 August 2015 was 15.8% (2014: 17%) and the debtservice ratio (free cash flow/interestbearing debt service obligation) was (2014: 2.04). The Group has recently adjusted its working capital policy with the requirements of the Financial Advisory and Intermediary Services Act (No. 37 of 2002) (FAIS), which requires financial service providers to retain liquid assets equal to eight weeks of expenses. At 31 August 2015 the Group s cash reserve was R20 million (2014: R21 million). ASSETS UNDER MANAGEMENT, ADMINISTRATION, CONSULTING AND ADVICE A substantial share of the Group s revenue accrues from the value of assets under management, assets under administration, assets under consulting and assets under advice. Assets under management 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 R million (2014: R million) under management by the end of the 2015 financial year. Assets under administration 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 of the daily pricing of unit trust funds. The Group administers assets to the value of R million (2014: R million). Assets under consulting are represented by assets on which Boutique Investment Partners supply investment consulting services. These

23 EFFICIENT GROUP INTEGRATED REPORT % Management Administration Consulting Advice A substantial share of the Group s revenue accrues from the value of assets under management, assets under administration, assets under consulting and assets under advice. consist primarily of portfolio construction, strategic and tactical asset allocation, and manager selection services. The Group consults on assets to the value of R million (2014: R million). Assets under advice are represented by client investments made on the recommendation of, or with the guidance of, financial advisors employed by the Financial Services division. Total assets under advice amount to R million (2014: R8 945 million). ACQUISITIONS On 1 March 2015 the company acquired 70% of the A-Shares issued by Select Manager for an amount of R60 million. The transaction was implemented on 27 April 2014 and R15 million of the purchase price was paid in cash. The balance of the purchase price will be paid in three instalments of R15 million each plus 25% of the outperformance of the profit target. The last instalment is payable on 28 February 2017 and the last profit adjustment on 28 February The A-Shares class is the only class of shares in this company with voting rights and represent the profits of the financial service providers in which Select Manager had a controlling interest as at 1 March On 28 February 2018, Efficient Group has an obligation to acquire the balance of the A-Shares together with the B-Shares issued by Select Manager (Phase 2). The Phase 2 purchase price is based on a predetermined formula and the profits generated by Select Manager respectively from both the A-Shares and B-Shares as at 28 February The Phase 2 purchase price will be settled in cash and through the issue of Efficient Group shares. CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS At the end of the reporting period, no capital commitments not yet contracted for had been made (2014: Nil).

24 22 EFFICIENT GROUP INTEGRATED REPORT 2015 CHIEF ECONOMIST S REPORT Dawie Roodt Chief Economist THE RAND: A PROXY FOR SOUTH AFRICA S ECONOMY This section of the Integrated Report outlines recent developments in both the local and international economy, and explains how these affect the Efficient Group and its clients. It is no secret that the South African economy is currently under some pressure, and it is equally no secret that world financial markets are in turmoil. What economists and ordinary South Africans alike are most aware of, though, is the desperate state of the local currency. This is because the Rand is much more than just the currency we use to buy and sell goods and services. It is also our collective scapegoat; a pressure-release valve that absorbs the many shocks that occur in our society. For this reason, the Rand is a good indicator of the state of the underlying economy and of general sentiment towards South Africa. Considering everything we ve seen occur in South Africa s economy in recent years, which we will discuss in more detail later, it is no wonder the Rand reached new lows against major currencies such as the US Dollar, the British Pound and the Euro during the course of This was exacerbated by certain international developments, such as the devaluation of the Chinese Yuan and the expectation of interest rate hikes in the United States. All these factors can, at least partly, be explained. However, even after the most robust analysis of hard data, there always remains an inexplicable component to exchange rate movements that is not due to economic or financial factors. This residue is called sentiment, that elusive ingredient required for a stable and strong currency. Looking at the full range of socio-economic data, it is clear that the Rand suffers from a significant sentiment deficit. To complicate matters even further, a weak currency is often seen as a panacea for a weak economy, a position that we at the Efficient Group do not agree with as, over time, this perceived benefit is quickly eroded. To elaborate, this imaginary benefit of a weak currency, especially in the case of South Africa, is not properly understood and is often used out of context. In certain cases and even to a certain degree a weaker local currency does aid an economy by making exports more competitive and imports more expensive, but this effect is at best only temporary. To prove this point, it is important to note that almost 70% of South Africa s exports are mining- and manufacturing-related. If it was true that a weaker Rand was supporting exports and, in that way, buoying up the

25 EFFICIENT GROUP INTEGRATED REPORT manufacturing sector, it would not currently be in a recession and, similarly, the mining sector would not be heading towards one. PILING ON THE RAND: LOCAL FACTORS Domestically, a number and combination of aggregates and expectations currently weigh on the exchange rate of the Rand. These include low actual economic growth and growth expectations, high inflation expectations, low business, investor and consumer confidence, persistent current account and budget deficits, and a plethora of questionable political actions, all of which affect sentiment and consequently impact on the value of the currency. South Africa s stubborn current account deficit (CAD) also emphasises our dependency on foreign capital inflows, making the impact of the sentiment deficit so much more potent. Based on purely fundamental economics, a persistent CAD is likely to lead to a consistently weaker and depreciating currency. South Africa typically reports a substantial CAD and, since 2008, it has averaged 4% of GDP. This indicates that we import more than what we export, but it also indicates that we invest more than what we save. This, in turn, points to another economic problem, our lack of sufficient local savings, which weighs heavily on the value of the Rand. In contrast, while the CAD speaks of the overall economy s ability or inability to sustainably meet the needs of a country s people, the budget balance points towards the ability of a country s government to meet spending demands from the revenue it generates. Typically, South Africa runs a sizeable fiscal deficit, although 2007 and 2008 were rare exceptions. At present, fiscal deficit, expressed as a percentage of GDP, is expected to equal approximately 5% by the end of These prevalent longerterm budget deficits eventually translate into higher levels of state debt. This, in turn, leads to ratings agencies questioning the country s ability to pay off its debt, which is currently the case in South Africa. Large long term deficits are considered an indicator of imprudent fiscal management, and raise questions about government s ability to manage its finances, which again impacts on the exchange rate. Both the CAD and the budget balance, known as twin deficits, are conventionally reported as a ratio of a country s GDP or the size of its economy. This means that should an economy expand at a brisk pace, even large nominal deficits can fall in size relative to GDP. This exposes yet another weakness in the South African economy, namely weak economic growth. The country s weak economic performance since 2008, as illustrated in Figure 1, emphasises the problems created by the twin deficits, namely the potential inability to service debt and the overall health of government finances, all of which puts pressure on the Rand. Domestically, a number and combination of aggregates and expectations currently weigh on the exchange rate of the Rand.

26 24 EFFICIENT GROUP INTEGRATED REPORT 2015 CHIEF ECONOMIST S REPORT (CONTINUED) It is for this reason that countries with strong sustainable growth are often countries with strong currencies, even if they have sizeable current account and fiscal deficits. In this regard, South Africa scores particularly badly, as Figure 1 clearly illustrates, especially in recent years. Courtesy of the World Bank, Figure 1 depicts the historic GDP growth rates of South Africa, an emerging market average and the global average. For the period South Africa s economy expanded at a rate of approximately 1.4% compared to the emerging market average of 3.4% and the world average of 3%. During the period the country s economy grew at an average of 3.6% compared to the emerging market average of 5.4% and the world average of 4%. Since 2008, South Africa s economy has only been growing at a rate of 2% compared to the emerging market average of 5.2% and world average of 3.5%. There can be no doubt that government policies that are contradictory, unclear or improperly implemented have had an impact on sentiment towards the Rand. Examples include damaging labour legislation, the suspension of mining licenses and destructive visa regulations, to name but a few. Questionable political leadership has also been evident in poor oversight over state-owned enterprises such as Eskom, PRASA and SAA, amongst many others. These local factors negatively affect foreign sentiment and deter foreign investment in both the short and long term. Negative sentiment also partly neutralises the Reserve Bank s attempts to attract foreign inflows by increasing interest rates. PILING ON THE RAND: INTERNATIONAL FACTORS Although there are many international factors affecting the Rand both directly and indirectly, the two most prominent of these are the pending interest rate hikes in the United States and China s recent devaluation of its currency. In order to explain the impact these factors have had and will continue to have on the Rand, it is helpful to think of all the currencies or the interest rates of the countries around the world being depicted along a horizontal line, with all being equal. If a major currency then decides to reduce its value overnight, other currencies become relatively more expensive. In a similar way, if the United States decides to increase its interest rates, its returns will be relatively higher than those of other countries. Higher returns attract capital, which has the effect of strengthening the US Dollar, resulting in the Rand devaluing against the Dollar. PILING ON THE RAND: SENTIMENT AND IRRATIONALITY Although we have seen a continued deprecation of the Rand over the past year, which can be attributed to local economic and political factors as well as to some international developments, we at the Efficient Group believe that the Rand may be undervalued, although a substantial improvement in the exchange rate should not be expected. It is clear that a theoretical, purchasing power parity (PPP) explanation of exchange rates cannot always explain all the variations in prices. Often sentiment or expectations also affect the exchange rate of a currency. A change in how a Figure 1: Real GDP Growth Rates (Constant 2010, Source: World Bank, EFG) % South Africa Emerging Markets World

27 EFFICIENT GROUP INTEGRATED REPORT country is perceived can have a sudden and heavy impact on exchange rates. This may occur for reasons other than changes in economic variables, such as significant social or political events. Sentiment or expectation can often be quite rational. This is particularly true when a weaker currency leads to inflationary pressures, which then weaken the currency even further. Of course, expectations can also be irrational, like the expectation that the political leadership will adopt questionable macro-economic policies. This eventually fuels inflation and the exchange rate adjusts accordingly. In the case of South Africa, the Rand has consistently depreciated by a greater amount than the inflation differential, and some of this additional depreciation can be attributed to weak sentiment. Another contributor to irrational sentiment is the state of the financial markets because, when something unexpected happens, they react with erratic volatility. This has been evident throughout the course of 2015, when we have seen global markets adjust in an attempt to realign the expectations that are factored into asset prices with the realities of struggling economies Since the global financial crisis, share prices have continued to set new record highs, buoyed by the availability of easy money and the anticipation of good times to come. However, real economies have not been able to keep up with the expectations driving this trend, giving rise to the question of whether the real economy can grow enough to meet these expectations, especially if interest rates are slated to increase. Markets have responded to this issue in a flash, over-erratic manner. The result has been that large indices fell and emerging market currencies, in particular, depreciated substantially. FORECAST VALUE Numerous economic and other variables influence the value of the Rand, and it is for this reason that we believe the currency is a reliable proxy for South Africa s economy and the sentiment towards it. There are, however, many other variables that also influence the value of the Rand, which we cannot account for. We also cannot account for the way in which certain variables affect all other variables. In the case of the Rand, a persistently weaker currency, compared to its theoretical PPP value, will add to the inflationary pressures in the country over time. Higher levels of inflation will, in turn, further weaken the currency and, in this way, a weak currency becomes part of the country s economic fundamentals. If the Rand is eventually pushed to excessively weak levels, these will become entrenched and are very unlikely to be reversed. Taking into account the pitfalls of using a strictly PPP approach to forecasting the Rand s exchange rate against major currencies, we feel it is more realistic to assume that the exchange rate reflected in the markets is, in fact, at the correct level. This level is determined by the markets and therefore includes the markets ability to price in the effect that other variables have on the Rand. The market price therefore takes into account more than just the buying power of the Rand. We at the Efficient Group believe that the Rand may be undervalued, although a substantial improvement in the exchange rate should not be expected.

28 26 EFFICIENT GROUP INTEGRATED REPORT 2015 CHIEF ECONOMIST S REPORT (CONTINUED) Figure 2: The Rand/$ Exchange Rate (Source: SARB, EFG) R Inflation Diff. Avg. Depr. ( ) Inflation Diff from 50% valuation Avg. Depr. ( ) from 50% valuation Starting at PPP + Infl Diff Figure 2 illustrates the various approaches we employed for forecasting the Rand. Assuming the Rand returns to its PPP level (R5.60) and then only depreciates by the difference in inflation, we might see the Rand trading at R14/$1 in However, we have explained the shortcomings of this approach. The second and more realistic approach assumes that the Rand is trading at its correct level (54% undervalued to the Dollar) and hence will continue to depreciate according to inflation differentials. If this is the case, the Rand might reach levels of R31/$1. However, our research has shown that even this approach has many shortfalls; the Rand has persistently depreciated by more than the difference in inflation between South Africa and the US. The final approach therefore, assumes that the Rand is currently trading at its correct level (54% undervalued against the Dollar), but that the Rand will continue to depreciate at a similar rate as it has been doing since 1990 (6.6%). By assuming that the Rand will continue to depreciate at 6.6%, we address the market s expectation of inflation differentials between South Africa and the US (4.8%) and the sentiment towards South Africa, relative to the US (an additional annual depreciation of 1.8%). With this final approach, the Rand might reach levels of R43/$1 in As a final adjustment, noting that the Rand is currently undervalued by a greater amount than its historic average, we adjust the starting point of our forecast to assume that the Rand should only be undervalued by 50% and not 54%. This final adjustment will see the Rand reach R29/$1 if the purely inflation-differential approach is used, or R40 if the sentiment-approach is used. It is very important to note that the currency can appreciate quite strongly over a short period of time if one of the underlying factors improves. As an example, we believe South Africa is doing relatively well compared to other more prominent developing countries like Russia, Brazil and even India, which have recently had to reduce interest rates even further in light of struggling local economies. In the pursuit of good returns, we believe investors still favour selected companies in South Africa over their foreign counterparts, which may also sustain the value of the Rand to a certain extent. We further believe that higher interest rates, which will most likely lead to positive real interest rates, will have a net positive effect on economies, although probably only in the long term. Conversely, it is true that the currency may weaken even further if any of the underlying factors continue to weaken, as we have seen quite frequently during the course of Also important are international factors that can affect the local currency without any obvious reason. So-called emerging economies as a group are most often affected when this happens. One of these factors is the current expectation that the United States will start to increase short-term interest rates. As previously

29 EFFICIENT GROUP INTEGRATED REPORT mentioned, interest rates have a strong influence on exchange rates as interest-rate differentials are usually in line with inflationdifferentials. In conclusion, it is fair to say that the Rand is currently undervalued and that it should theoretically be trading at much stronger levels. However, economic variables, sentiment and various international developments all suggest that the Rand is likely to remain under pressure and depreciate even further. If we therefore choose to use the Rand as a proxy for South Africa s economy, it is clear that something will have to be done to realign the country with the potential we believe it has by introducing tough, but necessary structural changes such as prudent fiscal management, improved state efficiency, labour liberalisation and positive real interest rates. CONCLUSION The Group s economics department s expectations regarding the future exchange rate of the Rand is rather negative. Apart from fundamental variables like inflation differentials an array of other economic developments, policies, as well as political leadership, are all likely to continue to weigh on the Rand exchange rate. Additionally South Africa s economic performance is likely to disappoint over the next few years. We therefore, usually recommend a diversified portfolio with a substantial off-shore component. On this matter; a large part of our business consists of advice and recommendations. It is difficult enough to make recommendations to clients in an unstable global economic environment. This instability is exacerbated by a volatile domestic economic environment. In the end this puts additional pressure on advisors, asset managers and everyone in an advisory position to make the right recommendations to their clients. Fortunately, our team has proven themselves more than capable. From our research it appears as if South Africans will have to get used to a volatile and weak currency. It also appears as if the currency is likely to continue to depreciate against hard currencies, maybe in excess of theoretical suggestions. A weaker currency, unfortunately, is not good news for a country. A weaker currency means citizens are getting poorer, inflationary pressures mount, monetary policy will have to be tightened and eventually even fiscal-, labour- and trade-policies will be influenced. Inevitably a weak currency leads to a weak economy which will impact on your company. Fortunately, Efficient Group is in a position to partly address the negative impact of a weak currency. Investments that are partly immune to a weakening currency are also available to our clients; an example is hedging against a weaker Rand. However, the reality is that companies function in an economic environment which is characterized by a weak and weakening currency. Inevitably these macro-economic forces will equally impact on companies.

30 28 EFFICIENT GROUP INTEGRATED REPORT 2015 GROUP SERVICES Rudi Barnard Chief Operating Officer Further to the Group s new three-pillared structure, the Managing Director of each business unit is responsible for setting the strategic direction of that business in alignment with the strategic direction of the Group as a whole. The MD and the executive team of each business unit are also responsible for the management and coordination of the company s business infrastructure in order to ensure the achievement of the Group s strategic objectives, including financial performance, growth, long term sustainability, market competitiveness and regulatory compliance. At Group level, the following departments assist the executive management team with Group operations: MARKETING The Group Marketing unit is responsible for all marketing, public relations and media activities related to the Group itself. These include the design and development of marketing material, the implementation and management of internal and external campaigns, media liaison, website management and branding. INFORMATION TECHNOLOGY The Group s information technology requirements are primarily outsourced to a number of specialist suppliers that are responsible for all hardware and software development, maintenance and support. The Group recently employed an IT manager, who is responsible for the Group s IT strategy, policy and alignment across business units. HUMAN RESOURCES The Efficient Group uses an outsourced human resources model to manage recruitment and employee management at Group level. At business unit level, these functions are handled internally but must comply with the HR policies and practices of the Group. The executive management of each business unit is responsible for reporting back to the Board on the management of human resources in their respective units. GROUP FINANCE Although decentralised from an operational perspective, finance is one of two core control functions over which the Group retains ultimate control. The finance function of each business unit has a dual reporting line to the Group s finance department, which enables executive management to exert internal controls and ensure independent oversight. The Group Finance division is primarily responsible for the consolidation of all financial reporting at a Group level, payroll administration, as well as for the oversight of internal controls and the coordination of audit activities.

31 EFFICIENT GROUP INTEGRATED REPORT ECONOMIC RESEARCH The Group Economic Research unit is the main source of economic information and research for the Group itself and for Efficient Select, the Group s specialist, single fund asset manager. The Economic Research department also provides economic information and research to paying customers. LEGAL AND COMPLIANCE This division provides legal guidance to the Group and its subsidiaries on corporate transactions, legal disputes, company secretarial services and regulatory compliance. As is the case with the finance function, the Board deems regulatory compliance a core control function. Business unit compliance functions therefore have a dual reporting line to the Group s compliance department, thus ensuring that regulatory compliance and the fair treatment of clients are central to strategic decision making and risk management. FINANCIAL A portion of the expenses incurred by Group Services is financed through fees recovered for economic research and presentations. The balance of shared expenses is allocated to the separate business units on an activitybased allocation methodology. PERSONNEL The Group Services staff complement, functionally categorised and including senior management, is made up as follows: Management: 3 Finance: 3 Support personnel: 6 Human resources: Economic research and analysis: 3 Legal and compliance: 1 Marketing and communications: 3 Information technology: 1 2 (Outsourced) Group Services personnel are all based at the Group s headquarters in Pretoria. Service delivery is based on the objective of treating clients fairly.

32 30 EFFICIENT GROUP INTEGRATED REPORT 2015 STRUCTURE OF BUSINESS UNITS FINANCIAL SERVICES Nature of business The delivery of a comprehensive financial planning service and customised financial products through a national network of financial advisors. Business units Efficient Advise (100%) (Majority Efficient Wealth (100%) shareholding) Exceed Asset Management (70%) Exceed Private Client Services (70%) Stead Wealth (70%) Services Financial Planning Asset Finance Investment Management Life and Business Assurance Short-term Insurance Stockbroking Cash Management Employee Benefits Healthcare Trust and Executorship Clients Private, institutional, SME and corporate clients Number of staff 197 Assets under R12.7 billion advice Revenue R118 million SERVICES AND SOLUTIONS Nature of business The delivery of customised, valueadded financial services and solutions. Business unit Naviga Solutions (100%) Services Clients Number of staff 10 Assets under management Revenue Model Portfolios (Wrap Funds) Multi Managed Funds Private, institutional and corporate clients R5.3 billion R36 million

33 EFFICIENT GROUP INTEGRATED REPORT INVESTMENTS Nature of business The administration, management and distribution of co-branded collective investments to both retail and institutional investors. Business units Boutique Collective Investments (100%) (Majority shareholding) Services Clients Number of staff 44 Assets under R12.9 billion management Assets under R63.2 billion administration Assets under R24 billion consultation Revenue R646 million Boutique Investment Partners (100%) Efficient Select (100%) Select Manager (ARX) (70%) Fund Management Private Client Wealth Management Fund Administration Investment Consulting Retail, private, institutional and corporate clients

34 32 EFFICIENT GROUP INTEGRATED REPORT 2015 FINANCIAL SERVICES This cluster is structured in such a way as to deliver comprehensive financial planning solutions and to distribute associated proprietary and external financial products to identified target markets through a national network of financial advisors. STRUCTURE The Financial Services cluster is structured in such a way as to deliver comprehensive financial planning solutions and to distribute associated proprietary and external financial products to identified target markets through a national network of financial advisors. Each business unit is independently constituted and managed, drawing on the Group s centralised assurance and governance capabilities. The Managing Director of each unit report directly to the CEO of the Efficient Group, and are responsible for all aspects of business and management reporting. STRATEGY The cluster s strategy is to: + + Grow a large retail distribution network, both organically and through acquisitions; + + Consolidate under the Efficient brand wherever it makes good business sense to do so; and + + Allow multiple brands where consolidation is not an immediate option. MATERIAL ISSUES Material issues identified by management include: + + The Retail Distribution Review (RDR); + + Robo-advice (the accelerated trend towards online and direct sales channels); + + Continuing pressure on margins; and + + The ageing demographic profile of the current client base. CURRENT AREAS OF OPERATION The cluster s current areas of operation include Financial Planning, Asset Finance, Investment Management, Life and Business Assurance, Short-term Insurance, Stockbroking and Cash Management. These services are delivered in a three-pronged way, through divisions focused on distribution, operations and business enhancement VISION The strategic focus of the Financial Services cluster is to: + + Grow assets under advice; + + Effectively exploit cross-selling opportunities; and + + Diversify revenue streams.

35 EFFICIENT GROUP INTEGRATED REPORT FINANCIAL SERVICES: BUSINESS UNITS EFFICIENT ADVISE LEADERSHIP Peter Hewett Managing Director (45) BCom, CAIB(SA), CFP YEAR IN REVIEW During the 2015 financial year, Efficient Advise continued to deliver quality financial planning and advisory products and services through its national distribution network and through a select group of associates. A particular focus has been the continued expansion of the business s geographic footprint, which has been a key component of the business strategy since Efficient Advise now has offices in all nine provinces and employs 81 financial advisors through the company s wholly-owned branch and advisory distribution infrastructure. Operational highlights during the period under review include: + + The consolidation of the sales management function; + + A comprehensive review of the sales support structure; + + The centralisation of the Corporate Cash Management function; + + Planning for the insourcing of the marketing and human resource functions; + + The establishment of a business enhancement unit; + + The outsourcing of the implementation of the Efficient Experience ; + + The change from a fixed incentive structure to a variable incentive structure; + + A continued focus on quality recruitment; + + Continued backward integration; + + Revenue enhancement through cross-selling strategies; and + + The scaling and rationalisation of the branch and advisory infrastructure. Peter Hewett was the recipient of the 2014 Financial Planning Institute of South Africa Financial Planner of the Year Award. This award is the highest accolade a professional planner can obtain in South Africa. ASSETS UNDER ADVICE: REVENUE: NUMBER OF ADVISORS: R4.4 billion R58 million 81 advisors

36 34 EFFICIENT GROUP INTEGRATED REPORT 2015 FINANCIAL SERVICES: BUSINESS UNITS (CONTINUED) EFFICIENT WEALTH LEADERSHIP Christo Burger Managing Director (44) Postgraduate Diploma in Financial Planning, CFP Nico Burger Executive Chairperson (47) YEAR IN REVIEW During the 2015 financial year, Efficient Wealth continued to deliver financial advice to individuals, as well as institutional clients, through a select group of highly qualified intermediaries. The focus to expand their client base in the high-net worth market continued to return positive results. Operational highlights during the period under review include: + + The name change from Verso Investment Services to Efficient Wealth; + + The Cape Town office moved to new premises; + + Appointment as preferred advisors of Stellenbosch University; + + Continued service offering to the Consolidated Retirement Fund members; + + Revenue increase due to substantial take on of new clients; + + The establishment of Naviga Solutions as a separate entity and the movement of key staff to this entity; and + + Exceptional growth in assets under advice. ASSETS UNDER ADVICE: REVENUE: NUMBER OF ADVISORS: R6.7 billion R55 million 11 advisors

37 EFFICIENT GROUP INTEGRATED REPORT EXCEED ASSET MANAGEMENT AND EXCEED PRIVATE CLIENT SERVICES LEADERSHIP Suzette van Niekerk Managing Director, Stead Wealth (50) BCom LLB (cum laude), FILPA and CFP INTRODUCTION AND YEAR IN REVIEW Tenk Loubser, the founder of Exceed Group Ltd, and Suzette van Niekerk, the current Chief Executive Officer, joined forces in October 2000 to provide financial services to clients of the Exceed Group, a professional firm specialising in audit, accounting, human resource and tax advisory services. This relationship led to the establishment in 2004 of Exceed Asset Management, which focuses on investments and private wealth management, and Exceed Private Client Services, which focuses on risk, health and employee benefit related services. With their head office situated in Somerset West, these companies service clients primarily in the Western Cape region, although clients are spread through-out South Africa. The merger with Efficient Group during April 2015 was well received by clients of both companies and presents new opportunities for the companies going forward. During the period under review both companies focused on client retention rather than growth in new client numbers. Both companies achieved marginal growth in revenue and Exceed Asset Management succeeded in retaining its current assets under advice. ASSETS UNDER ADVICE: REVENUE: NUMBER OF ADVISORS: R748 million R2 million 2 advisors STEAD WEALTH LEADERSHIP Peter Stead Managing Director, Stead Wealth (73) CFP INTRODUCTION AND YEAR IN REVIEW Stead Wealth has a long history in the financial services industry, having been established in 1970 by founder and current Managing Director, Pieter Stead. Pieter is one of the pioneers in the financial services industry, having been intricately involved in major industry related developments over the years. In 2008 Pieter was joined by Johan van Heerden, a Certified Financial Planner. Together they have renewed their focus on providing professional and trusted financial advice and wealth management services, primarily to clients in the more affluent market segment. With its head office in Pretoria, Stead Wealth currently services clients in Pretoria, Johannesburg and on the south-western coastal region. ASSETS UNDER ADVICE: REVENUE: NUMBER OF ADVISORS: R811 million R3 million 2 advisors

38 36 EFFICIENT GROUP INTEGRATED REPORT 2015 SERVICES AND SOLUTIONS This cluster is optimally structured to deliver customised, value-added financial services and solutions to corporate and institutional clients. STRUCTURE The Services and Solutions cluster is optimally structured to deliver customised, value-added financial services and solutions to corporate and institutional clients. As with the Financial Services cluster, each business unit is independently constituted and managed, drawing on the Group s centralised assurance and governance capabilities. The Managing Director of the unit reports directly to the CEO of the Efficient Group, and is responsible for all aspects of business and management reporting. STRATEGY The cluster s strategy is to: + + Manufacture and package quality value propositions for the retail market; + + Market and distribute these value propositions through the Group s distribution businesses and through independent financial advisors; + + Backward integration through proprietary products and services; and + + Diversify the Group s revenue streams. MATERIAL ISSUES The material issues identified by management include: + + The Retail Distribution Review; + + A lack of management experience in new market segments; and + + Integration and corporatisation risks associated with new acquisitions. CURRENT AREAS OF OPERATION Current areas of operation include model portfolio and multimanaged fund solutions, which have been subjected to a rigorous quantitative and qualitative due diligence process that is tailormade for financial planners, individuals and institutional clients needs VISION During the next five years the Services and Solutions cluster will focus on expanding the Group s proprietary products and solutions and will consider, amongst others, healthcare value propositions, employee benefit solutions, expansion into the short-term insurance market and the roll-out of the Group s newly established Fiduciary Services business, Efficient Board of Executors.

39 EFFICIENT GROUP INTEGRATED REPORT SERVICES AND SOLUTIONS: BUSINESS UNIT NAVIGA SOLUTIONS LEADERSHIP Diaan Janse van Rensburg Managing Director of Naviga Solutions (30) BCom, CFA YEAR IN REVIEW Naviga Solutions was established as discretionary manager on 1 September Naviga Solutions offers an integrated value proposition by consolidating various investment products, services and systems currently used by various Efficient Group business units in order to create an end-to-end value proposition for financial advisors that actively promotes best practice financial planning and investment principles. Operational highlights during the period under review include: + + The discretionary mandate and name change to Naviga Solutions was approved by the FSB; + + Restructured and renamed the Verso funds of funds to Naviga; + + Increased the number of investment products to cater for a variety of client investment needs; + + Launched new model portfolios under the Naviga brand; + + Established a team of qualified paraplanners to provide support to advisors; and + + Continued the development of software that will assist with financial planning, client management and reporting. ASSETS UNDER MANAGEMENT: REVENUE: R5.3 billion R36 million

40 38 EFFICIENT GROUP INTEGRATED REPORT 2015 INVESTMENTS This cluster is structured in such a way as to administer, manage and consult on proprietary and co-branded collective investments for both retail and institutional investors. STRUCTURE The investments cluster is structured in such a way as to administer, manage and consult on proprietary and co-branded collective investments for both retail and institutional investors. As with the other two clusters, each business unit is independently constituted and managed, drawing on the Group s centralised assurance and governance capabilities. The Managing Directors of each business unit report directly to the CEO of the Efficient Group and are responsible for all aspects of business and management reporting. STRATEGY The cluster s strategy is to: + + Grow assets under administration, management and consulting; + + Facilitate and identify consolidation opportunities; and + + Build a substantial multiasset class single-fund asset management business. MATERIAL ISSUES Management has identified the following factors that might have a material impact on the sustainability of business units within this cluster: + + The Retail Distribution Review; + + Pressure on margins due to regulatory reform, index tracking and growth in passive investment solutions; and + + The uncertainty in the local and global financial markets and a potentially low growth environment across asset classes over the medium to long term. CURRENT AREAS OF OPERATION The cluster s current areas of operation are collective investment scheme administration, fund and private client wealth management and investment consultation VISION Its strategic focus for the next five years is to build retail and institutional asset management capabilities in order to grow assets under administration and management. To this end, the establishment of a substantial multi-asset class single-fund asset management business remains the primary focus of this cluster.

41 EFFICIENT GROUP INTEGRATED REPORT INVESTMENTS: BUSINESS UNITS BOUTIQUE COLLECTIVE INVESTMENTS LEADERSHIP Robert Walton Chief Executive Officer of Efficient Invest, comprising Boutique Investment Partners and Boutique Collective Investments (46) BAcc (Hons), CMA, CA(SA) YEAR IN REVIEW Boutique Collective Investments (BCI) had a phenomenal 2015 financial year during which the division grew its assets under administration by more than 50% to R63.2 billion and profit after tax by approximately 450%. At the end of August, BCI had +/-70 boutique partners with more than 200 CIS portfolios across the investment risk spectrum. A number of these portfolios received various industry performance rewards during the past year. BCI is proud to be associated with its boutique partners and together the business unit continues to focus on providing its clients, the investors in its funds, with excellent service and the best tailormade investment product solutions. BCI s ultimate aim is to ensure that its clients investments are in safe hands and its clients financial well-being remains top of mind. ASSETS UNDER ADMINISTRATION: REVENUE: R63.2 billion R583 million

42 40 EFFICIENT GROUP INTEGRATED REPORT 2015 INVESTMENTS: BUSINESS UNITS (CONTINUED) BOUTIQUE INVESTMENT PARTNERS LEADERSHIP Pierre de Klerk Managing Director (43) BCom (Hons) (Act Sci), CFA YEAR IN REVIEW Boutique Investment Partners (BIP) aggregate assets under management and consulting grew by more than 31% during the 2015 financial year and profit after tax by more than 200%. With approximately 50 clients, BIP s aim is to continue to provide clients with customised investment solutions and consulting services to enhance the service and value proposition offered to its clients. During the year the business unit extended its BCI Best Blend house view unit trust range to cover the complete investor risk profile range. ASSETS UNDER MANAGEMENT: ASSETS UNDER CONSULTING: REVENUE: R8.4 billion R24 billion R37 million

43 EFFICIENT GROUP INTEGRATED REPORT EFFICIENT SELECT LEADERSHIP Brendan Vadas Chief Investment Officer (34) CFA, CAA ATPL, FAA MEI YEAR IN REVIEW 2015 resulted in challenging and volatile market conditions for investors, with the JSE All-Share Index contracting 2.23% in the reporting period. The team at Efficient Select continued to focus on delivering benchmark-beating investment returns for its clients. The outperformance is a result of the well-entrenched investment philosophy and process that has been developed and implemented over the past five years. An exceptional highlight for the year was the celebration of the 10th anniversary of the Efficient BCI Equity Fund on 17 March This fund outperformed its benchmark over the 10-year period, delivering a total cumulative return of 301%, beating both its benchmark and the category average which generated 258% and 265% in respective returns. Additionally, this credible return performance was achieved at a lower standard risk deviation than the benchmark providing Efficient Select s clients with an even better result when looking at the fund on a risk-adjusted basis. To put this performance in context, out of the 150 funds currently in the category only 52 funds have at least a 10-year trackrecord. Of these 52 funds the Efficient BCI Equity Fund ranks inside the top 20 best performers. ASSETS UNDER MANAGEMENT: REVENUE: R1.8 billion R15 million

44 42 EFFICIENT GROUP INTEGRATED REPORT 2015 INVESTMENTS: BUSINESS UNITS (CONTINUED) SELECT MANAGER LEADERSHIP Ina Dugmore Chief Executive Officer (55) Postgraduate Diploma Financial Planning YEAR IN REVIEW The purchase of Select Manager (Pty) Ltd (formerly ARX Investment Partners) and its subsidiaries, Stead Wealth Management (Pty) Ltd, Exceed Asset Management (Pty) Ltd and Exceed Private Client Services (Pty) Ltd, was successfully concluded in April Select Manager was born out of the former Insinger de Beaufort Investments (SA) (Pty) Ltd, following a management buy-out in The Select Manager product range, consisting of various unit trust funds and funds-of-funds, were officially launched in These unit trust portfolios are not only distributed by the company s wholly owned subsidiaries, but also by a group of loyal independent advisors who have been part of the Select Manager journey since its inception. During the year under review the company appointed Boutique Collective Investments as its co-naming administration partner, thereby unlocking the first of various synergies identified by the Group. From a financial perspective the company managed to maintain its profitability, although markets had a negative impact on fund performance and assets under management. ASSETS UNDER MANAGEMENT: REVENUE: R2.7 billion R11 million

45 EFFICIENT GROUP INTEGRATED REPORT CORPORATE GOVERNANCE INTRODUCTION The Efficient Group s Board of Directors is fully committed to ensuring that the Group adheres to the highest standards of corporate governance in the conduct of its business and in creating value for its clients. Our commitment to good corporate governance is demonstrated by the way in which we conduct business according to the ethical values of integrity, respect, professionalism and accountability to all stakeholders. These ethical values preserve the Group s long term sustainability by being the conduit for delivering value to clients and other stakeholders. The Board is constantly mindful of the legitimate interests and expectations of the Group s stakeholders, and ensures that its business decisions are taken in a manner that creates value for clients and promotes consideration of all stakeholders. APPLICATION OF KING III The Group applies the principles contained in the King Report on Corporate Governance (King III), and continues to further entrench and strengthen recommended practices in its governance structures. The Board is of the opinion that the Group has applied the requirements of King III as prescribed by the JSE Listings Requirements to a material degree. A fully detailed King III application register is available online at www. efgroup.co.za/investor-relations/ reports. ETHICAL LEADERSHIP The business of the Group is governed by a written Code of Conduct and Ethics Policy, approved by the Board. This articulates the Group s commitment to doing business in the right way, according to best practices and guided by the values of integrity, respect, accountability and professionalism. The fundamental objective of the Efficient Group has always been to do business ethically while building a sustainable organisation that recognises the impact of its activities on the economy, society and the environment. Further information on the Group s Code of Conduct and Ethics Policy is available online at co.za/compliance. THE EFFICIENT GROUP BOARD Efficient Group has a unitary board, comprising 11 directors. Of these, four are independent non-executive directors (including the Chairman), two are nonexecutive directors who represent significant shareholders, and five are executive directors. As such, the majority of directors are nonexecutive, the majority of whom are independent. The Board s objective is to ensure that the Group s business is conducted in a responsible manner that balances the needs of its clients and other key stakeholders, including employees, shareholders, business partners, communities and regulators. It operates in accordance with a charter that is aligned with the company s Memorandum of Incorporation, and which sets out the composition, scope of authority, responsibilities, powers and functioning of the Board. The Board has satisfied its responsibilities in compliance with the Board Charter throughout the 2015 financial year. BOARD APPOINTMENT PROCESS The Group s Nominations Committee follows a formal and transparent process in the appointment of individual directors. The selection of potential candidates is conducted under the guidance of a set of defined criteria, and involves an assessment of the needs of the Group as well as consideration of the balance of experience and skills represented on the Board. The recommendations of the Nominations Committee are presented to the Board for consideration and approval. DIRECTORS The roles and duties of the independent non-executive Chairman of the Board and of the Chief Executive Officer are separated and clearly defined. This division of responsibilities ensures a balance of authority, with no individual having unrestricted decision-making power. The Chairman is responsible for the leadership of the Board, which involves exercising sound judgement based on knowledge and experience. He is also tasked with building up the capabilities of the other directors based on an in-depth understanding of the strengths and weaknesses of each individual and by aligning them with specific tasks and goals in order to optimise performance. The Chairman further facilitates the deliberation of issues and ensures that strategic decisions are aligned with the Group s defined vision, values and objectives. The CEO, supported by the Group s Chief Financial Officer and Chief Operating Officer, is responsible

46 44 EFFICIENT GROUP INTEGRATED REPORT 2015 CORPORATE GOVERNANCE (CONTINUED) Our commitment to good corporate governance is demonstrated by the way in which we conduct business according to the ethical values of integrity, respect, professionalism and accountability to all stakeholders. for the day-to-day management of the Group, as well as the development, implementation and monitoring of the Group s strategy. BOARD PERFORMANCE ASSESSMENT The performance of the Board is appraised annually through an internal self-evaluation questionnaire. The results of this exercise are reviewed by the Nominations Committee and then translated into an action plan for Board discussion. To the extent required, the action plan is implemented in order to improve any areas of development that may have been raised in the results. The performances of the various committees of the Board are evaluated biennially, and committee members are required to assess the performances of their committee for the period. The next round of evaluations is scheduled for Based on the results of the 2015 evaluations, the Board and its individual committees are of the opinion that their performances have been satisfactory. INDEPENDENCE OF DIRECTORS The Board, through the Nominations Committee, annually assesses the independence of non-executive directors against the criteria set out in King III, the JSE Listings Requirements and the Companies Act. As part of this process, all relevant factors that may impair the independence of individual directors are considered. The Board confirms that the four directors classified as independent in this report are indeed considered independent in terms of the 2015 independence assessment. COMPANY SECRETARY All directors have access to the advice and services of the Group Company Secretary, who is responsible for providing comprehensive practical support and guidance to both the directors and the Group as a whole regarding relevant statutory and regulatory requirements, as well as matters of ethics and good governance. In order for the Board to function effectively, all directors have to have full and timely access to financial, business and market information. This includes investor communications, corporate announcements and any other information that may impact on the business and performance of the Efficient Group, its subsidiaries and its stakeholders. The Company Secretary s competence and expertise are regularly assessed in accordance with the JSE Listings Requirements and the Board is satisfied with the performance of the Company Secretary as the custodian of governance in the Group. It should, however, be noted that the Group s existing Company Secretary has recently been promoted to the position of Chief Operating Officer. This promotion impairs the Company Secretary s future independence and the Nominations Committee has accordingly recommended to the Board that a new Company Secretary be appointed to prevent potential conflicts and to ensure compliance with the requirements of the Companies Act and principles of sound corporate governance. The Board will make a final decision regarding the

47 EFFICIENT GROUP INTEGRATED REPORT appointment of a new Company Secretary in November 2015 and will publish details of its decision on SENS in due course. Notwithstanding the Company Secretary s executive duties referred to above, the Board is satisfied that the guidance and support provided by the Company Secretary, together with the expertise and input of the independent non-executive directors, Assistant Company Secretary and the Group s JSE sponsor, provide the necessary comfort that the fiduciary duties and responsibilities associated with the role of the company secretary, were duly and continuously complied with during the 2015 financial year. RISK MANAGEMENT AND COMPLIANCE Risk management and control are embedded in the operational structures of the Group. Various policies, procedures and internal control measures guide employees on a daily basis to ensure that significant risks are prevented or duly mitigated. The Efficient Group Audit and Risk Committee remains the ultimate custodian of the Group s risk management framework. From an investment risk point of view, the Committee has duly considered the potential impairment of investments made by the Group during the current or previous financial years. Please refer to the Chief Financial Officer s report for further information in this regard. In acknowledgement of the fact that the Group operates in a highly regulated environment, special attention was once again given to the Group s internal compliance framework and the controls associated with it. The Group s professional indemnity and fidelity insurance cover, as well as directors and officers liability cover, were comprehensively reviewed during the period under review. This was done to ensure that the Group, its Board and the members of its management teams would be sufficiently covered in the event of a claim for damages or losses suffered by a client or other third parties. Management maintains registers of regulatory fines and penalties as well as of all complaints received from clients. These registers are reviewed by the Audit and Risk Committee at each meeting. No financial services related regulatory fines were incurred during the course of the 2015 financial year and, having regard to client complaints, no adverse findings were made by any Ombud or other regulatory forum against any of the Group s authorised financial services providers. INTERNAL CONTROLS AND COMBINED ASSURANCE The internal control function plays an important role in providing assurance to the Board regarding the effectiveness of the system of internal controls and risk management within the Group. The Audit and Risk Committee again reviewed and monitored the appropriateness of the Group s combined assurance model, which aims to optimise the assurance coverage obtained from assurance providers on the significant risk areas affecting the Group. In this regard, the Audit and Risk Committee wishes to confirm that it is satisfied with the appropriateness of the combined assurance model currently employed by the Group, which incorporates the statutory auditors, internal auditors, external compliance officers, JSE sponsors and the Group s executive management. INFORMATION TECHNOLOGY (IT) Information Technology plays a critical role in the management and administration of the Efficient Group and its subsidiaries. The role of IT and systems management has increased considerably in recent years, which has highlighted the need to implement effective and consistent compliance processes. These processes need to align with the principles of King III and the effective implementation of the Control Objectives for Information and Related Technology Framework (COBIT 5). The design and implementation of effective IT governance frameworks contribute significantly to the Group s ability to achieve optimal efficiency and efficacy. This is an ongoing process, but measurable benefits have already been achieved through the definition and implementation of these frameworks. Due to the increasing complexity and continuous development within the Information Technology environment, a decision has been made to appoint a dedicated Group IT Manager at the beginning of the 2016 financial year. This person will be tasked with driving IT strategy as well as with developing and implementing revised policies and procedures. The purpose of this appointment is to ensure that the Group s IT policies keep pace with a changing IT landscape and to facilitate the adoption of processes to optimise business

48 46 EFFICIENT GROUP INTEGRATED REPORT 2015 CORPORATE GOVERNANCE (CONTINUED) efficiency. The IT manager shall have a direct reporting line to the CEO, who in turn reports to the Audit and Risk Committee on a quarterly basis regarding IT governance. STAKEHOLDER ENGAGEMENT The Group appreciates that the management of stakeholder relationships is an essential element of strategy implementation and supports longterm sustainability objectives. The Board is committed to sustaining the Group s established credibility amongst its stakeholders. Further information regarding stakeholder engagement is provided in the Stakeholder report on page 63. GOVERNANCE STRUCTURE The Group s governance structure is aligned with the board s main areas of responsibility, being: + + Strategy and Budget; + + Governance; + + Performance management and Reporting; and + + Assurance. Within this governance framework, the Group employs 3 levels of defence as part of its risk management framework, comprising the Efficient Group Board, executive management and operational management teams, with various assurance providers providing independent comfort to stakeholders regarding the Group s financial performance and its economic-, social and environmental contribution and impact. BOARD COMMITTEES The Board has established four committees to assist it in discharging its responsibilities, without in any way reducing its own accountability. Each committee has formal terms of reference that were approved by the Board and which are reviewed biennially to ensure ongoing relevance. The Board is of the opinion that its committees have effectively discharged their responsibilities as defined in their GOVERNANCE STRUCTURE GOVERNANCE STRATEGY AND BUDGET BOARD AND COMMITTEES Independence Culture Risk IT Regulatory Compliance Stakeholders EXECUTIVE MANAGEMENT Strategy Financial Corporate Governance Integration OPERATIONAL MANAGEMENT Operations Sustainability Regulatory Financial INDEPENDENT ASSURANCE PROVIDERS External Auditors Internal Auditors JSE Sponsors Lawyers Compliance Officers BEE Rating Agency RISK MANAGEMENT AND MITIGATION PERFORMANCE & REPORTING ASSURANCE respective terms of reference during the year under review. AUDIT AND RISK COMMITTEE Members: Joe Rosen (Chairman), Lynette Taylor, Zee Cele The Audit and Risk Committee plays a critical role in ensuring financial reporting of the highest standard. This provides the Board with assurance of the effectiveness of the internal control environment and risk management framework. The Committee is chaired by an independent non-executive director and consists exclusively of independent non-executive directors. The Chairman of the Board, the Chief Executive Officer and the Financial Director attend meetings by invitation, but do not have voting rights. In addition, representatives of both the internal and external auditors attend Committee meetings to answer queries and to report on matters within the scope of their engagements. Key discussions during the 2015 financial year: + + Reviewed the Group s risk appetite and risk- tolerance levels; + + Risk management and compliance monitoring, as more fully provided for

49 EFFICIENT GROUP INTEGRATED REPORT above under the heading Risk Management and Compliance; + + Considered and approved the Group Information Technology Governance Framework and Charter; + + Considered and approved the audit fees payable to the external auditors in respect of the year ended 31 August 2015, as well as their terms of engagement, taking into consideration factors such as the timing and scope of the audit and specific areas of concern; + + Reviewed the Group s consolidated financial results (interim and final); + + Assessed Impairment evaluations; + + Review of internal control environment and combined assurance model; + + Assessed the expertise and experience of the financial director and finance function as being adequate; and + + Considered and approved the three year internal audit plan. BUSINESS DEVELOPMENT COMMITTEE Members: Steve Booysen (Chairman), Lynette Taylor, Jerry Mabena, Joe Rosen, Abrie du Preez The role of the Business Development Committee is to review potential mergers, acquisitions, investments and other corporate transactions in line with the Group s levels of authority. The Committee is chaired by the independent Chairman of the Board and consists exclusively of nonexecutive directors, the majority of whom are independent. The executive directors are standing invitees to all of the Committee s meetings. Key discussions during the 2015 financial year: + + Considered and evaluated the viability of proposed investments, disinvestments and expansion opportunities; + + Reviewed the performance of recent investments against agreed benchmarks. NOMINATIONS COMMITTEE Members: Steve Booysen (Chairman), Lynette Taylor, Jerry Mabena The role of the Nominations Committee is to identify and nominate suitably qualified candidates to fill vacancies on the Board as and when they arise, to continually evaluate the adequacy and efficiency of the corporate governance framework and to ensure Board continuity. The Committee is chaired by the independent Chairman of the Board and consists of nonexecutive directors, the majority of whom are independent. The Chief Executive Officer and Chief Financial Officer are standing invitees to all of the Committee s meetings. Key discussions during the 2015 financial year: + + Reviewed the Group s executive succession plan; + + Reviewed the corporate governance framework; + + Reviewed the structure, size and composition of the Board and Board committees; + + Reviewed the independence of non-executive directors; and + + Facilitated the annual assessment of the Board s performance. REMUNERATION, ETHICS, AND SOCIAL COMMITTEE Members: Zee Cele (Chairperson), Steve Booysen, Thys du Preez, Jerry Mabena One of the functions of the Remuneration, Ethics, and Social Committee is to ensure that the remuneration arrangements for executive directors and senior management are linked to the achievement of strategic and operational objectives. In accordance with the Companies Act, the Committee also assists the Board in ensuring that the Group is and remains a good and responsible corporate citizen. For this reason the statutory duties and responsibilities of the Social and Ethics Committee have also been delegated to this Committee. The Committee is chaired by an independent non-executive director and consists exclusively of non-executive directors. The Chief Executive Officer and Chief Financial Officer attend the meetings by invitation, but do not participate in discussions regarding their remuneration. Key discussions during the 2015 financial year: + + Reviewed the Code of Conduct and Ethics Policy; + + Approved the Group s Ethics Risk Profile; + + Reviewed the Group s senior management succession plan; + + Reviewed the remuneration strategy; + + Reviewed HR policies and procedures; + + Considered the remuneration packages for executives; + + Considered the remuneration for non-executive directors; + + Monitored the Group s standing and progress against the Broad-Based Black Economic Empowerment Act (B-BBEE); and + + Monitored the Group s compliance with the social and ethics related duties provided for in the Companies Act.

50 48 EFFICIENT GROUP INTEGRATED REPORT 2015 CORPORATE GOVERNANCE (CONTINUED) BOARD AND BOARD COMMITTEE ATTENDANCE The Board meets at least once every quarter. Additional meetings are convened to discuss issues which arise between scheduled meetings. The table below sets out the attendance by directors at these meetings: Board Audit and Risk Remuneration, Ethics and Social Nominations Business Development Total number of meetings convened Strategic session convened 1 ## Minimum number of meetings required by the respective charters N/A Independent Non-executive Zee Cele 7/7 * 3/3 * 5/5 *+ Joe Rosen 6/7 * 3/3 *+ 3/3 * Lynette Taylor 7/7 * 3/3 * 1/1 3/3 * Steve Booysen 7/7 *+ 5/5 * 1/1 2/3 *+ Non-executive ++ Jerry Mabena 5/7 * 4/5 * 1/1 3/3 * Abrie du Preez 7/7 * 3/3 * Executive Heiko Weidhase (CEO) 7/7 * Anton de Klerk (CFO) 7/7 * Dawie Roodt 6/7 * Robert Walton 6/7 * Christo Burger 6/7 * Alternate Thys du Preez 7/7 * 4/5 * Mariam Cassim # 1/2 * Fred Liedtke # 0/2 The denominator in each case indicates the number of meetings convened while a director held office as such, or while a director was a member of a specific committee, as the case may be. * Member of Board/Committee as at 31 August Chairman of Board/Committee as at 31 August # Mariam Cassim resigned from the Board on 13 November 2014, Fred Liedtke resigned from the Board on 1 September2014. ## The strategic session was attended by all members of the board except for Jerry Mabena. Thys du Preez is the alternate for Abrie du Preez, Mariam Cassim is the alternate for Jerry Mabena and Fred Liedtke is the alternate for Christo Burger.

51 EFFICIENT GROUP INTEGRATED REPORT REMUNERATION AND DIRECTORS INTEREST The committee wishes to confirm that the remuneration of executive and non-executive directors, as well as the remuneration of the Group s prescribed officers for the past two financial years, is shown in the table below: Basic salary Other benefits (5) Bonus Profit share (6) 2015 R 000 Directors fees Sharebased payments Commission Total Executive Heiko Weidhase Anton de Klerk Dawie Roodt Robert Walton Christo Burger (1) Non-executive Steve Booysen Zee Cele Lynette Taylor Joe Rosen Abrie du Preez (4) Thys du Preez (4) Jerry Mabena (3) Prescribed officers Prescribed officer Prescribed officer Prescribed officer Prescribed officer Prescribed officer 5 (1) Prescribed officer 6 (2) Prescribed officer Total

52 50 EFFICIENT GROUP INTEGRATED REPORT 2015 REMUNERATION AND DIRECTORS INTEREST (CONTINUED) Executive Basic salary Other benefits (5) Bonus Profit share 2014 R 000 Directors fees Sharebased payments Commission Total Heiko Weidhase Anton de Klerk Dawie Roodt Robert Walton Christo Burger (1) Non-executive Steve Booysen Zee Cele Lynette Taylor Joe Rosen Abrie du Preez (4) Thys du Preez (4) Jerry Mabena (3) Prescribed officers Prescribed officer Prescribed officer Prescribed officer 3 Prescribed officer Prescribed officer 5 (1) Total CP Burger and Prescribed Officer 5 were appointed on 1 March Prescribed Officer 6 was appointed on 1 January Since 1 March 2014 directors' remuneration is paid to Thebe Investment Corporation for the directors representing Thebe Investment Corporation amounting to R for the 2014 financial year, and R for the 2015 financial year. 4. Since 1 March 2014 non-independent non-executive directors receive directors remuneration. 5. Other benefits include travel allowance, medical aid contributions, retirement fund contributions and severance pay. 6. The profit share payments are made in accordance with agreements with the management team of Boutique Collective Investment and Boutique Investment Partners.

53 EFFICIENT GROUP INTEGRATED REPORT DIRECTORS INTEREST The beneficial interests, direct and indirect, of the directors in office on 31 August 2015 or during the 12 months prior to that are as follows: Direct Indirect Total Direct Indirect Total Ordinary shares % % Executive Dawie Roodt Heiko Weidhase Anton de Klerk Robert Walton Christo Burger Non-executive Steve Booysen Abrie du Preez Thys du Preez Joe Rosen No changes in the reported interest of the directors in office were recorded since 31 August 2015 and the date of this report. The table below indicates the number of unvested share appreciation rights granted to directors: Total Allocated in grant price (cents) Heiko Weidhase Dawie Roodt Anton de Klerk ASSOCIATES OF DIRECTORS The beneficial interests, direct and indirect, of associates of the directors in office at 31 August 2015 are as follows: Direct Indirect Total Direct Indirect Total Ordinary shares % % Associated to Heiko Weidhase Dawie Roodt Abrie du Preez Thys du Preez Steve Booysen

54 52 EFFICIENT GROUP INTEGRATED REPORT 2015 REMUNERATION AND DIRECTORS INTEREST (CONTINUED) The Remuneration strategy is aligned to the strategic direction and value drivers of the Group, and provides for a balance between guaranteed and variable compensation. REMUNERATION POLICY AND PRINCIPLES The Efficient Group s remuneration philosophy, which remains largely unchanged from previous years, recognises and rewards the value that employees add to the business in a fair and equitable way. The broader objective of this philosophy is to attract, inspire and retain employees who have the right competencies into the right positions across the diversified Group. In order to build long-term relationships with employees and secure the benefits of their talents, entrepreneurial flair and loyal service on a sustainable basis, the Group offers meaningful career opportunities. REMUNERATION PHILOSOPHY The remuneration philosophy of the Group recognises that each employee is making an important contribution at a different level throughout the organisation and across all disciplines. Accordingly, its remuneration policies need to be flexible and adaptable on a situational basis. They are strongly influenced by the following set of beliefs: + + The guaranteed package must provide all employees with remuneration which is adequate, as well as with retirement provision and benefits which ensure that dependants are protected against unexpected catastrophe. + + Variable pay must incentivise both individual and team efforts. The Group s incentive schemes must serve as a tool that line managers can use to attract, motivate and retain staff of the calibre that is needed to achieve both current and future organisational goals. + + Talent must be attracted and retained at the top management level in order to ensure long-term profitability. As a general principle, aboveaverage rewards only accrue to those employees who accept the challenge of striving towards the Group s strategic objectives and who excel in achieving them. STRATEGY AFFECTING GUARANTEED PAY + + The remuneration of all employees will continue to be contracted on a total costto-company package basis. The annual package includes the cost to the Group of all forms of remuneration, including contributions by the Group to retirement savings and medical aid schemes. + + The amount of annual packages will be determined with effect from 1 March of each year based on parameters approved by the Board for each year, as well as on different pay levels, market indicators and individual performance ratings. + + The guiding reference points for guaranteed pay are the 50th percentiles of surveybased statistics by position. Pay levels are benchmarked for this purpose using a reputable salary survey. + + The competency rating of every employee is reviewed twice a year and, if a higher rating is approved, the annual package is adjusted accordingly in March of that year. + + General guidelines controlling the escalation of pay are drawn up annually for this purpose and are approved by the Board based on the recommendations

55 EFFICIENT GROUP INTEGRATED REPORT of the Remuneration, Ethics and Social Committee. These guidelines are applied with the assistance of the managing directors of each of the business units. STRATEGY REGULATING VARIABLE PAY All executives, senior managers and support staff are eligible to receive a performance bonus in November of each year, based on a formal assessment of their job-related performance during the year ending 31 August of the previous financial year. Bonuses are allocated on the following basis: + + The performance incentive reward is determined using a performance scorecard, which is used to assess performance based on both financial and non-financial criteria using a weighted basis. + + A maximum performance incentive at different levels applies to each employment category. The performance incentive of the CEO is capped at 150% (2014: 100%) of his guaranteed pay. + + Financial advisors receive unlimited variable pay based on revenue generation. + + Three share incentive schemes apply to all employees, based on allocations approved by the Remuneration, Ethics and Social Committee. The Share Appreciation Rights Scheme provides for the granting of appreciation rights to eligible executives and senior managers, commencing with an allocation of rights at the beginning of each financial year. This is done on the following basis: + + The rights entitle the recipients to a long-term incentive based on the increase in the value of linked shares over a three-year period. + + The rights are forfeited if employment is terminated during the holding period. + + The rights granted may be applied over an extended period, but not for longer than five years, and are subject to performance vesting conditions at the end of three years. The Deferred Bonus Scheme provides for a retention incentive, by means of which employees are able to acquire shares with a portion of a cash incentive bonus. After three years of service, they receive a matching award from the Group. No allocations have been made in terms of this scheme and no previous allocations are outstanding. The Group also has an approved Share Purchase Scheme, in terms of which it may facilitate the issuing of shares for cash to executive and senior management. The Remuneration strategy is aligned to the strategic direction and value drivers of the Group, and provides for a balance between guaranteed and variable compensation. Rewards are focused on performance over a longer period and provide for symmetry between short-term and long-term incentives.

56 54 EFFICIENT GROUP INTEGRATED REPORT 2015 BOARD OF DIRECTORS NON- EXECUTIVE DIRECTORS

57 EFFICIENT GROUP INTEGRATED REPORT STEVE BOOYSEN * Chairman (53) CA(SA), DCom Steve Booysen completed his articles at Ernst & Young in After spending a few years as a senior lecturer at UNISA, he joined the banking industry, where he held various positions. In 2004 he was appointed Group Chief Executive Officer of Absa Bank Limited, a position he held until February In addition to being Chairman of the Efficient Group, Steve is an honorary professor at the University of the Northwest Business School. 2. ZEE CELE * (62) BCom, Postgraduate Diploma in Taxation, Masters in Accountancy (MAcc) Zee Cele obtained a masters degree in accountancy from the University of KwaZulu- Natal, specialising in taxation. She has been practicing as a Tax Practitioner since Her achievements during her working career include being awarded the SA Woman of the Year Award in the Business Category in She was also a member of government s Standing Advisory Committee in Company Law, and continues to be a member of the SA Institute of Professional Accountants and a Commercial Member of the Tax Court. She is actively involved in community development by presenting tax and business education talks on various radio stations. 3. LYNETTE TAYLOR * (56) BJuris, LLB, LLM Admitted as an attorney of the High Court of South Africa in 1985, Lynette Taylor holds legal qualifications from the Nelson Mandela Metropolitan University, the University of Johannesburg and the University of the Witwatersrand. She spent 22 years in banking, working both as a legal adviser and holding various general management positions. As a result of her experience in both banking and law, she has been involved in a number of projects focused on implementing new legislation, assessing risk issues and reviewing credit processes. 4. JOE ROSEN * (54) BCom, BAcc, CA(SA) Joe Rosen graduated from the University of the Witwatersrand in After running his own financial services business, he joined Absa, where he worked for 15 years, first heading up the merchant bank product section and later being appointed as CEO of Absa London. In 2011, Joe left Absa to pursue his own interests, using his entrepreneurial skills to acquire and create new businesses, both locally and internationally. 5. ABRIE DU PREEZ (60) BCom (Hons), CA(SA) Abrie du Preez graduated with a BCom Honours degree from the University of Pretoria in 1978 and obtained his CA(SA) in He worked as Audit Senior at Theron van der Poel from 1979 until 1981 and then joined Prima Foods as Financial Manager. In 1984, he joined Prestasi Insurance Brokers and later became the Group Managing Director. He left Prestasi in 1992 to launch Trustee Board Investments (Pty) Ltd, of which he is the Chief Executive Officer. 6. THYS DU PREEZ (Alternate to Abrie du Preez) (68) BCom (Hons) (Acc), CA(SA) Thys du Preez graduated with a B Com Honours degree from the University of Pretoria in 1973 and obtained his CA(SA) in He became an audit partner of Ernst & Young in 1982, and started the government consulting division in From 1996, he became an executive director of Trustee Board Investments (Pty) Ltd (TBI). Thys serves as nonexecutive director of TBI and on many of TBI s investee companies and has been a director of various listed companies. 7. JERRY MABENA (45) BCom Jerry Mabena holds a BCom degree in Industrial Psychology and Economics from Rhodes University. He is the CEO of Thebe Services Division, where he is responsible for the integration and growth of the Thebe Investment Corporation s investment in the tourism, financial services and energy services industries. Jerry has experience in advertising, marketing and business management. *Independent

58 56 EFFICIENT GROUP INTEGRATED REPORT 2015 BOARD OF DIRECTORS (CONTINUED) EXECUTIVE DIRECTORS

59 EFFICIENT GROUP INTEGRATED REPORT HEIKO WEIDHASE Chief Executive Officer (51) Diploma in Business Management Heiko Weidhase has been the Chief Executive Officer of Efficient Group since Prior to that he was a partner at Philip Craib Investments, an investment management company where he was responsible for marketing, systems and finance. From 1991 to 2000 he was the Operations Director at Giants Canning (Pty) Ltd. From 1989 to 1991 he was the Factory Manager of Gants Foods (Pty) Ltd, prior to which he was the Production Supervisor. 2. ANTON DE KLERK Chief Financial Officer (41) BCompt (Hons), CTA, Advanced Certificate in Taxation, CA(SA) Anton de Klerk is a member of the South African Institute of Chartered Accountants. Before joining Efficient Group on 1 January 2008, his career included tenures as Group Accountant at DPI Plastics (Pty) Ltd, Financial Accountant at Progress Milling (Pty) Ltd and Financial Controller at Netcare Femina Clinic. He completed his articles at Van Staden & Roberts and was appointed Senior Audit Manager immediately thereafter. 3. DAWIE ROODT Chief Economist (54) MCom (cum laude) Dawie Roodt is an economist who specialises in fiscal and monetary policy. He brings invaluable exposure to the Group through his active presence in both the local and foreign media. He has been a member of the Tax Advisory Committee of the Afrikaanse Handelsinstituut and has represented Business SA at Nedlac. Dawie is an ambassador for Child Welfare (Bloemfontein), Childline (Free State) and the Adopt Moreletaspruit Forum. 4. ROBERT WALTON (46) B Acc Hons, CMA, CA(SA) Robert Walton is a respected pioneer in the financial services industry. His career in the unit trust segment spans a period of 14 years, starting at Metropolitan. He was later CEO of the collective investment businesses, building an esteemed reputation within the industry. Robert graduated from the University of Stellenbosch and he is a qualified CA(SA) and CIMA(UK) member. He has also completed various executive management courses at Harvard (USA), Duke University (USA), Stanford (USA) and at the IMD (Switzerland). 5. CHRISTO BURGER (44) Post-graduate Diploma in Financial Planning, CFP Christo Burger has a Postgraduate Diploma in Financial Planning and became a Certified Financial Planner in He started his working career at Sanlam in 1994 and later joined Alexander Forbes as a Senior Financial Planning Consultant, focusing specifically on retirement and investments. In 2004, he became a Director of Efficient Wealth. He has 20 years of experience in the financial services industry.

60 58 EFFICIENT GROUP INTEGRATED REPORT 2015 HUMAN CAPITAL MANAGEMENT EMPLOYER OF CHOICE The Efficient Group is committed to being an employer of choice by providing its employees with: + + A workplace with a stable, non-discriminatory relationship between management and employees; + + A high level of work satisfaction which translates into a high level of productivity; + + A happy workplace, based on mutual respect, fairness and integrity; and + + A diversified workplace that understands and values the different cultures, beliefs and competencies of all employees. WITH THIS IN MIND, OUR HUMAN RESOURCES POLICIES FOCUS ON: + + Attracting, retaining, developing and rewarding our employees competitively; + + Entrenching ethical behaviour; + + Continuous professional development; + + Engaging our employees to live the Group s client-centred culture; + + Access to a full range of employee benefits; and + + Advancement opportunities supported by training and career planning. PEOPLE AND CULTURE The Efficient Group s definition of success is not based solely on profits, revenue levels and market share. The satisfaction, productivity and advancement of our employees is equally important. They are the face of the Group; the people who sell our products and service our clients. Ensuring that we keep our employees happy, healthy and engaged is an ongoing process of developing new, refining existing and introducing enhanced tangible and intangible benefits. The collective power of an engaged and satisfied workforce will enable us to continue taking the Group to new levels of innovation and growth. Efficient Group s human resource management is outsourced to HR Options, who are tasked with the responsibilities of compliance with and management of all HR policies, the coordination of performance management activities and human resource management information reporting. HR Options has developed a Human Resource Strategy to create a workplace culture that is conducive for high performance, whilst ensuring compliance to legislation. HR Options also continuously provides advice and feedback on all human resource matters. The Managing Director of each business unit is responsible for the implementation and coordination of the human resources strategy in that unit. HEADCOUNT PER BUSINESS UNIT Number % Efficient Advise Efficient Advise Financial Advisors and assistants Efficient Wealth Efficient Select 11 4 Efficient Group 20 7 Boutique Collective Investments (BCI) 24 9 Boutique Investment Partners (BIP) 7 2 Naviga Solutions 10 4 Select Manager 2 1 Exceed Asset Management and Exceed Private Client Services 5 2 Stead Wealth

61 EFFICIENT GROUP INTEGRATED REPORT Headcount per business unit Efficient Advise Efficient Advise Financial Advisors and assistants Efficient Wealth Efficient Select Efficient Group Boutique Collective Investments (BCI) Boutique Investment Partners (BIP) Naviga Solutions Select Manager Exceed Asset Management and Exceed Private Client Services Stead Wealth % HR PERFORMANCE INDICATOR Gross employee growth Total employees (permanent) Employees on learnerships and under supervision Employees on fixed-term contracts Employee turnover (attrition) Internal promotions and transfers Hours spent on training Absenteeism rate (%) Lost days due to absenteeism Health and safety incidents 11. Disciplinary/grievance cases reported Discrimination/unfair labour practices reported 1. Number of employees who commenced employment between 1 September 2014 and 31 August This number includes the 12 employees who were part of the Select Manager acquisition. 2. The total number of personnel employed by the Group on 31 August This category refers to employees who wish to add new licence categories to their profiles, new entrants to the industry, and employees who are participating in the Group s transformation strategy. Efficient Advise employed three para-planners on an internship from 1 April March 2015 through Inseta. 4. Employees on fixed-term contracts increased to 15 in The reasons for the increase were operational requirements, which included: maternity leave, projects and ad hoc requirements. 5. Our attrition count for the year was 57. This number comprises 36 resignations, two mutual agreements, one deceased employee, five retrenchments, and nine terminations relating to poor performance and misconduct, and four contract expirations.

62 60 EFFICIENT GROUP INTEGRATED REPORT 2015 HUMAN CAPITAL MANAGEMENT (CONTINUED) 6. During the financial year, 15 employees were promoted, and 18 employees were transferred to different divisions, following successful applications. This is an indicator that Efficient Group provides employees the opportunity for development by providing growth opportunities within the Group. 7. During the past financial year, employees of the Group, on all job levels, participated in training events totalling 568 hours. Training events included workshops, presentations, formal training courses, campaigns, surveys and internships. 8. The process of managing absenteeism is entrenched and applied consistently throughout the Group. Our managers are committed to motivating a workforce that is happy, healthy and productive. The absenteeism rate was calculated by dividing the total number of lost days by the total number of work days for all employees. 9. The number includes employees who have missed part or full work days due to personal illness, personal business, or other reasons (excluding paid vacation). 10. The Group is committed to ensure equitable and fair people management practices that promote the wellbeing of all the employees. No injuries, occupational diseases or work-related fatalities were reported to the Group s designated Health and Safety Committee. 11. The required disciplinary procedures were followed in all matters as specified in the disciplinary code of the Group. 12. The Group values each and every employee and every effort is made to ensure that not a single employee is discriminated against on the grounds of their race, colour, sex, religion, political opinion, national extraction, or social origin. No cases were reported Total employees Total white Total black Total male Total white males Total black males Total females Total white females Total black females PEOPLE MANAGEMENT The Efficient Group employs a total of 271 people (2014: 244), of whom 100% work in South Africa. The 11% increase in personnel complement was primarily as a result of the acquisition of Select Manager and the expansion of our national advisor base. Workforce, succession and individual career plans are in place, while numerical goals relating to race, gender, age and disability have been set and are stringently monitored. The Group s recruitment and selection process is a critical means of attracting and placing competent employees in suitable positions. The principle of providing equal employment opportunities is adhered to in all recruitment practices, and is applied in a just and balanced way.

63 EFFICIENT GROUP INTEGRATED REPORT The Group s managers are not only selected to lead their business units and maximise efficiencies, they are also expected to nurture skills, develop talent and inspire results in a diverse workforce. All employees have clear job objectives and performance standards, and productivity is measured twice a year through formal performance reviews. These performance appraisals measure skills and accomplishments according to key performance indicators, and assist managers in identifying areas for performance enhancement and professional growth. Employees are eligible for performance incentives based on the financial performance of the Group, the business unit, the team and the individual. Please refer to our remuneration policies and principles on page 52. The Efficient Group s human resources policies and procedures cover all areas of professional conduct and do not discriminate against any employees. All employees are informed about policies and procedures and, as a condition of employment; everyone is required to conform to these. The disciplinary procedure intends to encourage modification of behaviour when employees transgress the Code of Conduct and Ethics Policy. Any transgressions are managed according to the disciplinary policy and all processes, complaints or grievances are recorded. Refer to page 60 for a summary of grievances and disciplinary cases during the financial year. MANAGING DIVERSITY At the Efficient Group, our basis for effective people management is our belief in the basic equality and dignity of all people, irrespective of position, race, gender, physical and mental ability, wealth, sexual orientation and age. This belief is underpinned by a respect for individuals and understanding of the negative effects of stereotyping. We believe that all employees, provided that they are managed and developed correctly, have a great deal to offer the company. We also believe that all our employees are entitled to fair labour practices and equal treatment. Our managers take personal responsibility for effective interaction with employees and for creating a dignified and respectful environment where employees are treated as equals. At the end of the 2015 financial year, the Group s employee composition (excluding independent commission-earning employees) comprised 66% female staff (2014: 53%) and 34% male staff (2014: 47%). The Group currently have a 10% (2014: 13%) non-white representation in the workforce. The proportion of women and black employees in senior leadership roles remains low. It must however be noted that acquisitions often have a negative influence on the Group s EE profile and that staff growth as disclosed on page 59 is not necessarily in indication of new recruits. The company will be submitting a new employment equity report at the end of January 2016, with updated targets. SUCCESSION PLANNING The Group s operational succession plan is intended to ensure business continuity, irrespective of who holds key management, technical, operational and specialist positions. The Group has identified the critical leadership positions as well as the competencies required if a member of our leadership team was to leave the company. Critical positions typically include the directors of the various subsidiaries, the Key Individuals registered with the Financial Services Board and executive management. The Group s succession plan is re-assessed and revised annually through the workforce planning process. CHALLENGES The skills shortage prevailing in the financial services sector, as well as the need for very specific work experience and qualifications, continue to be our key concerns. The talent pool for specialised employment equity candidates such as asset managers, analysts and financial planners remains limited.

64 62 EFFICIENT GROUP INTEGRATED REPORT 2015 HUMAN CAPITAL MANAGEMENT (CONTINUED) EMPLOYMENT PROFILE Male employees Female employees Occupational level A/C/I White Subtotal A/C/I White Subtotal Total Top management Senior management Professional * Skilled Semi-skilled Unskilled Total *Includes 94 commission earning employees. PERFORMANCE MANAGEMENT Efficient Group undertakes bi-annual performance reviews to ensure that all activities are aligned to the Group s strategy. This ensures that all employees work towards a common goal. It also creates an opportunity for open two-way communication between manager/supervisor and staff member to conduct performance criteria, review actual performance and compile an individual development plan (IDP). SKILLS, SHE AND EQUITY COMMITTEE Efficient Group established a Skills, SHE and Equity Committee that acts as the consultative forum for all Skills Development, Employment Equity, and Safety Health and Environmental issues. As part of the Human Resource strategy the committee actively pursues activities in these focus areas. The committee is made up from employees of various office locations and business units within the Group as well as different occupational levels, categories, race and gender groups. The committee members have received training to equip them with the required knowledge and skills to actively contribute to matters within the mandate of the committee. The committee members are also appointed as the Safety, Health and Environmental Representatives for their area of representation.

65 EFFICIENT GROUP INTEGRATED REPORT STAKEHOLDERS The South African financial sector, in which the Efficient Group conducts its business, has grown significantly since 1960, when it contributed 10% of the country s gross domestic product. Today the sector contributes roughly 20% of GDP and is the largest productive sector in South Africa. While the Group is only one provider in the sector, it contributes to and participates in the local economy in various ways, both directly and indirectly. Our activities impact on a wide range of stakeholders, including employees, clients, shareholders, government, communities and the environment. Stakeholder Objective Impact and commitment Employees Clients Shareholders Community and environment To attract and retain the best talent To build lasting, trusting relationships Deliver superior financial performance Participate pro-actively in a giving society We value our employees we say it often and with good reason. As the face of Efficient, they sell our products and services and serve our clients. We value their commitment, their diversity of experience, skills and ideas, their collective focus and drive to succeed. We aspire to be increasingly inclusive by identifying and eliminating barriers or biases. We celebrate and welcome differences at work and are determined to create a workplace where our employees can maximise their individual potential. We believe that working together toward a common goal, and with the collective focus of an engaged workforce, we can generate long-term value for our shareholders whilst keeping our employees focused and their interests closely aligned with those of our other stakeholders. Our dedication to building strong and sustained partnerships and creating significant value for our clients over the long term is cemented in the principle of fair treatment. Being dependent on the support of our clients guides our commitment to create and deliver sustainable, profitable and efficient solutions, whilst constantly improving our efficiencies to meet and exceed our client s expectations. The company s growth strategy is based on the maintenance of sound financial results with an emphasis on capital efficiency. We strive to deliver profits to our shareholders and maximise value. We will continue to provide accurate, consistent and transparent information to shareholders. Shareholders add value to our strategy through distribution and empowerment initiatives. Our company has a low environmental footprint, but we are nevertheless committed to lowering our environmental impact by educating our personnel and continuously implementing actions to reduce our carbon footprint. Through recycling and responsible water usage management, we aim to reduce our overhead costs. Reducing paper usage is essentially part of this exercise. During the financial year under review, the Group used (2014: 2 511) kilograms and recycled (2014: 1 095) kilograms of paper. Government Align with national priorities Technology: Efficient Group utilises technology solutions instead of preparing and printing meeting packs for management and Board meetings, thereby reducing our environmental impact. Recent regulatory developments in the financial services industry has resulted in more professional service delivery. Compliance with all applicable laws and regulations is the responsibility of every employee and a condition of the company s Code of Conduct and Ethics. The Group s expansion of corporate activities offers many employment opportunities, as confirmed by the 27 new employees who joined the Group during the year under review.

66 64 EFFICIENT GROUP INTEGRATED REPORT 2015 VALUE ADDED STATEMENT The Efficient Group creates value and wealth through its business activities and its employees, as indicated in the statement below. The statement also indicates how the wealth created is distributed between all the stakeholders. Value created by the group increased 131% in the 2015 financial year. Employees remain the largest category of beneficiaries of the wealth created, and distribution to shareholders has also increased significantly Distribution as a % of wealth created 2014 R 000 R 000 Creation of wealth Revenue generated Value added to suppliers ( ) ( ) Value added from operations Interest received, other investment income and other income 1 /(expenses) Distribution as a % of wealth created Wealth created Distribution of wealth To our employees Salaries, incentive schemes and commission paid Training and skills development To the communities To government To providers of debt and working capital To our shareholders Profit share with non-controlling shareholders Dividends paid Reinvested in the group Wealth distributed Number of employees at year-end Wealth created per employee Wealth distribution to employees per employee Wealth distributed to shareholders per share (cents per share) Notes 1. Other investment income includes profit on the sale of an associate, re-measurement of and fair value adjustments to liabilities, the impairment of intangible assets and the impairment of an investment in an associate. 2. Payments to government include taxes paid in South Africa and exclude the deferred tax charged.

67 EFFICIENT GROUP INTEGRATED REPORT GRI G3 ASSESSMENT This Efficient Group Integrated Report 2015 meets the Global Reporting Initiative (GRI) G3 requirements for Application Level C. The report was not independently assured. The reporting guidelines and principles of the GRI G3 framework have been followed in determining the scope and boundaries of this report. It focuses only on the Group itself and the entities over which it has control. In addition to this, the disclosure requirements and guidelines provided for in The King III report, The Companies Act, the International Financial Reporting Standards and the JSE Listings Requirements were followed in determining the content of this report. The Group consists of three reporting clusters. The report deals with the risks and opportunities associated with each of these clusters. Management is satisfied that the Integrated Report contains all of the relevant information required to enable its stakeholders to assess the Group s sustainability. A detailed GRI G3 table is available online at

68 FINANCIAL STATEMENTS AS AT 31 AUGUST 2015