Audited Summarised Consolidated Financial Statements for the Year Ended 30 September 2018

Transcription

1 Audited Summarised Consolidated Financial Statements for the Year Ended 30 September 2018

2 CONTENTS SYGNIA HIGHLIGHTS 2 GENERAL INFORMATION 3 DIRECTORS COMMENTARY 4 AUDITED SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION 10 AUDITED SUMMARISED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 11 AUDITED SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 12 AUDITED SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS 13 NOTES TO THE AUDITED SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS 14 1

3 SYGNIA HIGHLIGHTS FOR THE YEAR ENDED 30 SEPTEMBER

4 GENERAL INFORMATION NATURE OF BUSINESS AND Sygnia Limited and its subsidiaries ( the Group ) is a specialist financial services PRINCIPAL ACTIVITIES group headquartered in South Africa and listed on the Johannesburg Stock Exchange ( JSE ) and A2X Market. The Group focuses on the provision of investment management and administration solutions to institutional and retail clients predominantly located in South Africa. COUNTRY OF INCORPORATION South Africa AND DOMICILE DIRECTORS MF Wierzycka (CEO) HI Bhorat (Chairman) # MH Jonas (Appointed: 1 September 2018) *# DR Hufton (Appointed: 1 September 2018) M Buckham (Financial Director) KT Hopkins *# SA Zinn (Lead Independent) *# IK Moyane *# * Independent # Non-executive REGISTERED OFFICE The Foundry 7th Floor Cardiff Street Green Point Cape Town 8001 POSTAL ADDRESS PO Box Waterfront 8002 AUDITOR Deloitte & Touche 1st Floor, The Square Cape Quarter 27 Somerset Road Green Point 8005 COMPANY SECRETARY G MacLachlan Appointed: 1 November 2016 COMPANY REGISTRATION NUMBER 2007/025416/06 3

5 DIRECTORS COMMENTARY FOR THE YEAR ENDED 30 SEPTEMBER 2018 HIGHLIGHTS Assets under management and administration of R222.6 billion as at 30 September 2018 (2017: R184.3 billion), up 20.7%. Revenue of R421.9 million (2017: R333.1 million), up 26.6%. Profit after tax of R101.0 million (2017: R92.5 million), up 9.1%. Headline earnings per share of cents (2017: cents), down 0.8%, and diluted headline earnings per share of cents (2017: cents), down 0.6%. Total dividend per share of cents (2017: cents). STATE OF AFFAIRS The past year has proven to be extremely challenging for all emerging markets, including South Africa. This has made the trading environment complex to navigate, particularly for cyclical businesses like Sygnia. Global and domestic factors On the domestic front the first quarter ended on a burst of optimism as Cyril Ramaphosa replaced Jacob Zuma as the president of the ANC. The markets cheered, as did the rand. This was followed shortly thereafter with the replacement of Zuma as the President of South Africa, signifying a dawn of a new political era. The rand touched R11.70 to the US dollar, and the FTSE/JSE All Share Index reached a high of Unfortunately, the Ramaphoria was short-lived as global macro-events caught up with our domestic markets. Strong economic growth in the US, combined with tax breaks which provided an unexpected boost to corporate earnings, led to the lowest unemployment figures in recorded history, and an associated uptick in inflation, spurring the US Federal Reserve to continue increasing interest rates. This, in turn, reversed the investment flows into emerging markets, with foreigners selling off bonds and equities in an almost indiscriminate manner. Macroeconomics aside, volatility increased as US President Donald Trump took a baseball bat to global trade relationships with the imposition of trade tariffs on aluminium and steel, promising more to come. His main target was China which has enjoyed a US$30 billion a month trade surplus with the US for many years. Although the move was initially interpreted as a negotiating tactic, it soon became apparent that this was a strategy. Upsetting global trade relations has meant that all major institutions, such as the IMF and the World Bank, cut their forecasts for global growth for Risk appetite evaporated at a rapid pace. Oil prices shot up on geopolitical risks, including the US s withdrawal from the landmark 2015 nuclear deal agreed between Iran and world powers and re-imposition of sanctions, as well as the complete collapse of Venezuela s economy. Turkey also paid a price for taking on the US as the lira plunged, forcing the central bank to rapidly increase interest rates. In the Middle East, Saudi Arabia, emboldened by the prosperity of higher oil prices and perceived support from the US, murdered a dissident journalist, Jamal Khashoggi, bringing into focus just how unstable relationships with countries that do not respect human rights can be. 4

6 Developed markets have also had their share of woes with Brexit looming on the horizon without a clear deal between the UK and the European Union, and Italy, Poland and Hungary flexing the strained cords of the terms of their membership of the EU. In South Africa, political change did not bring about an economic turnaround. Battered by global events and slow progress in fighting corruption, by the third quarter we entered a recession, with unemployment at record highs and discontent growing. With the rand back at R14.20 to the US dollar, everyone feels poorer. Political rhetoric around land appropriation without compensation, the resignation of Minister of Finance, Nhlanhla Nene, and the pushback from public servants fearing prosecutions have meant less investment, more pessimism and an increasing realisation that there are no quick fixes. Regulatory changes On the regulatory front, much has changed for asset managers and financial services companies. The Default Regulations which came into force in September 2017 becomes mandatory as from 1 March 2019, as does ASISA s Retirement Savings Cost RSC Disclosure directive. This means that all asset managers and umbrella funds are obliged to disclose both TERs and TICs to the boards of trustees of retirement funds. This requirement has been a feature of the retail landscape for a number of years, but the retirement fund industry has managed to hide in the shadows. Not any longer. In addition, National Treasury increased the level of offshore investments for retirement funds to 30%, and for unit trust and insurance companies to 40%. It also made it clear that it wants to see further consolidation in the retirement fund industry, with standalone retirement funds reducing to 200. Sygnia is very well positioned for all those changes. As the lowest cost provider of financial savings and investment solutions we do not have to worry about a margin squeeze. We have also always supported full fee transparency across our product ranges and have provided this information to all our clients well in advance of regulatory requirements. Our acquisition of db X-trackers (RF) Proprietary Limited from Deutsche Bank in 2017 also positions us well for the demand for offshore investments at a reasonable cost. Our administration platforms allow for seamless integration of institutional and retail solutions, working well to deliver on the requirements of Default Regulations. We have also upgraded our stockbroking infrastructure to allow for low-cost execution of all transactions to ensure that trading costs do not erode investment outcomes. In perhaps too public a manner, after 13 years, we decided to close our hedge funds product range. We do not believe that in an environment of volatility and low growth, where every cent counts, we should facilitate product structures that allow asset managers to charge management fees, which in some cases have ranged from 5% to 10% per annum. Even if the closure was regarded as too public by many, it brought much-needed attention to the issue of fees and lack of fee transparency in the industry. Corporate activism Sygnia continued to fight corporate corruption and inefficiency. Early in 2018 we highlighted the JSE s archaic listing requirements which enabled unscrupulous corporate entities and individuals to benefit at the expense of pensioners by listing unsound vehicles. This affects every saver in South Africa. We take great pride in the fact that in September 2018 the JSE published a discussion document on strengthening its listing requirement framework. We will continue to fight to restore law and order in South Africa. It is still surprising that so many South Africans do not realise how close to an economic and political abyss we came, and what it took behind the scenes to save the day. 5

7 There are many unsung heroes and many stories still to be told. We are proud to be part of the solution rather than part of the problem. Financial performance Despite 2018 being a challenging and economically turbulent environment for growth, Sygnia continued to grow assets under management and administration to R222.6 billion as at 30 September 2018 (2017: R184.3 billion). The assets showed growth despite the challenging market environment with the FTSE/JSE All Share Index returning 3.32% over the year, the JSE All Bond Composite Index 7.14% and the MSCI World Index, in SA Rands, 15.99%. The acquisition of db X-trackers (RF) Proprietary Limited from Deutsche Bank in 2017, rebranded Sygnia Itrix, positioned Sygnia favourably for the demand for offshore investments at a reasonable cost. Sygnia s administration platforms allow for seamless integration of institutional and retail solutions, while its stockbroking infrastructure was also upgraded to allow for low-cost execution of all transactions, ensuring its trading costs have no negative effect on investment outcomes. Sygnia s investment performance remained strong despite the swings in market sentiment and maintaining its position at the forefront of technological advancements remains key to cutting costs. Sygnia s revenue in the financial year to 30 September 2018 grew by 26.6% to R421.9 million compared to the prior financial year (2017: R333.1 million). The growth in revenue was a result of a growth in existing assets under management and administration during the year, new client flows, a strong performance from Sygnia Securities in generating execution income, as well as the enhanced revenue stream from Sygnia Itrix, which was included for a full 12 months in comparison to the prior year where it was only included for three months from the date of acquisition on 1 July Total expenses, at R278.9 million, rose by 21.0% (2017: R230.4 million). Expenditure was at an increased level as a result of increased costs associated with the administration and management of the Sygnia Itrix ETFs by third party outsourced providers, as well as a general increase in the cost base of the Group as the levels of business activity grew during the year. Staff costs are a significant component of the Group s costs and these grew as certain business units recruited to prepare for growth (such as employee benefits and retail) as well as the increased costs associated with the addition of strong senior management and additions to the executive structure. Despite the increases in the cost base, positive operating leverage was achieved with a stronger growth in revenue than the growth in costs, resulting in a very pleasing growth in profit from operations of 39.2% to R143.0 million (2017: R102.7 million). Finance costs for the Group were substantially higher than the previous year due to the costs incurred on the funding structure implemented for the acquisition of Sygnia Itrix. These funding costs were only recognised for a period of three months in 2017 but have been recognised for the full year in The bulk of the finance costs relate to the preference share structure that was implemented on 31 January

8 The most significant negative impact on the financial performance of the Group during 2018 was a result of difficult market conditions leading to muted returns on invested Group capital. A very disappointing first six months of the financial year were on the way to a degree of recovery during the second half, but this was impacted due to an extremely volatile and challenging month in September. The Group capital is well diversified and conservatively allocated, however it was difficult to avoid the very difficult market conditions towards the end of the financial year. Overall, net profit after tax increased by 9.1% to R101.0 million (2017: R92.5 million), a decent performance by the Group in the context of difficult market conditions. Basic earnings per share in 2018 decreased by 0.8% to cents (2017: cents), with diluted earnings per share decreasing by 0.6% to cents (2017: cents). There were no headline earnings adjustments and therefore headline earnings and diluted headline earnings per share were the same as basic earnings and diluted earnings per share, respectively. Corporate strategy and business performance Sygnia has a very clear business strategy. We offer: Asset management services in the form of passive and multi-managed investments; A full spectrum of investment products such as unitised life funds, unit trusts, ETFs and segregated portfolios; A full range of savings products including RAs, tax-free savings accounts, endowments, living annuities and preservation funds; Institutional investment administration services; Retail LISP platform services; Treasury services; Employee benefits, including SURF; and Execution-only stockbroking. On the institutional side Sygnia attracted a significant number of appointments in the investment administration area, a low-cost service which, albeit not hugely profitable, does give us exposure to some of the largest retirement funds in South Africa. Sygnia Employee Benefits offers the lowest cost umbrella fund provider in South Africa, and continues to grow, attracting larger employers as it gains critical mass, as well as providing a comprehensive solution to mediumsized employers, increasing its assets to R4.2 billion (2017: R2.4 billion). We expect this to continue as full and honest fee disclosure comes into effect. On the asset management front, many of our innovative products, such as the Sygnia 4th Industrial Revolution Global Equity Fund, which returned 22.0% during the year and the Sygnia ForLife Annuity, a unique postretirement savings solution, continued to attract attention and inflows, as did our passive products. Our assets under management in passive strategies reached R39.3 billion as at 30 September We have also launched a Sygnia FAANG Plus Equity Fund to take advantage of the global technological boom. 7

9 On the retail side we have embarked on the process of upgrading our retail administration platform to ensure that we remain at the leading edge of technology while creating leverage for growth in the retail market. The number of clients utilising our LISP platform has grown tremendously from at the end of September 2017 to at the end of September 2018, a testament to the fact that the Sygnia brand has grown in recognition among the South African public. Our investment performance remained strong despite the randomness created by swings in market sentiment. Most importantly we believe that we are well-positioned for the future. Passive, low-cost strategies will start coming into their own and technology remains key to keeping costs under control whilst accessible offshore investments are in high demand. TRANSFORMATION AND OWNERSHIP Sygnia continues to be committed to the policy of sustainable transformation in all spheres of its operation. It is very pleasing to see that transformation and gender equality strategies have seen both black and female staff percentages at 62% and 58%, respectively, in In addition, qualifying staff with more than one year of service with the Group participate as beneficiaries of the broad-based BEE staff scheme, the Ulundi Trust, which controls 5.8% of Sygnia Limited. As the first asset manager in South Africa with a female CEO, Sygnia prides itself on gender diversity in management roles. With a strong black staff representation and an ever-growing female workforce, Sygnia remains strongly committed to racial and gender equality and transformation. It looks forward to breaking boundaries and pioneering the way within the financial services sector. FINAL DIVIDEND Sygnia is committed to rewarding its shareholders with regular distributions of free cash flow generated. Accounting for projected cash requirements, a gross final dividend (no. 2) for the financial year ended 30 September 2018 of cents per share has been declared out of income reserves, resulting in a net dividend of cents per share for shareholders subject to Dividends Tax ( DT ). Together with the interim gross dividend of cents per share, this amounts to a total gross dividend of cents per share. In compliance with the JSE Listings Requirements, the following dates are applicable: Last day to trade: Tuesday, 18 December 2018 Shares trade ex-dividend: Wednesday, 19 December 2018 Record date: Friday, 21 December 2018 Payment date: Monday, 24 December

10 Share certificates may not be dematerialised or rematerialised between Wednesday, 19 December 2018, and Friday, 21 December 2018, both dates inclusive. Dividends declared after 31 March 2012 are subject to DT, where applicable. In terms of the DT, the following additional information is disclosed : The local DT rate is 20%. The number of ordinary shares in issue at the date of this declaration is Sygnia s tax reference number is 9334/221/16/6. APPROVAL OF AUDITED SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS These audited summarised consolidated financial statements were approved by the board of directors on 29 November

11 AUDITED SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 SEPTEMBER 2018 ASSETS NOTES 2018 R000 s RESTATED 2017* R000 s Intangible assets Property and equipment Deferred tax assets Investments linked to investment contract liabilities Investments Loans receivable Taxation receivable Trade and other receivables Amounts owing by clearing houses Amounts owing by clients Cash and cash equivalents TOTAL ASSETS EQUITY Stated capital Retained income Reserves ( ) ( ) TOTAL EQUITY LIABILITIES Deferred tax liabilities Investment contract liabilities Third-party liabilities arising on consolidation of unit trust funds Loans payable Preference share liability Taxation payable Trade and other payables Amounts owing by clearing houses Amounts owing to clients Bank overdraft TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES *Restated for measurement period adjustment, refer to note 5. 10

12 AUDITED SUMMARISED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 2018 NOTES 2018 R000 s 2017 R000 s Revenue Expenses ( ) ( ) PROFIT FROM OPERATIONS Investment contract income Transfer to investment contract liabilities ( ) ( ) Interest income Other investment (loss) / income (6 979) Investment income and fair value adjustment to third-party assets Fair value adjustment to third-party liabilities - (9 575) Finance costs (14 133) (5 833) PROFIT BEFORE TAX Income tax expense (47 378) (40 804) TOTAL PROFIT AND COMPREHENSIVE INCOME FOR THE YEAR EARNINGS PER SHARE (CENTS) 7 Basic Diluted

13 AUDITED SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER 2018 STATED CAPITAL R 000's COMMON CONTROL RESERVE R 000's GROUP EQUITY ADJUSTMENT R 000's SHARE-BASED PAYMENT RESERVE R 000's RETAINED EARNINGS R 000's BALANCE AT 1 OCTOBER ( ) (307) TOTAL EQUITY R 000's Total comprehensive income Total profit and comprehensive income for the year TOTAL COMPREHENSIVE INCOME FOR THE YEAR TRANSACTIONS WITH OWNERS Dividends paid (66 683) (66 683) Share issue Share option expense Transaction costs on issue of ordinary shares (1 790) (1 790) TOTAL TRANSACTIONS WITH OWNERS (66 683) BALANCE AT 30 SEPTEMBER ( ) (307) TOTAL COMPREHENSIVE INCOME Total profit and comprehensive income for the year TOTAL COMPREHENSIVE INCOME FOR THE YEAR TRANSACTIONS WITH OWNERS Dividends paid (87 623) (87 623) Share issue Share option expense Transaction costs on issue of ordinary shares (38) (38) TOTAL TRANSACTIONS WITH OWNERS (38) (87 623) (84 888) BALANCE AT 30 SEPTEMBER ( ) (307)

14 AUDITED SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 SEPTEMBER 2018 CASH FLOWS FROM OPERATING ACTIVITIES 2018 R000's 2017 R000's Cash generated by operations Dividends received Interest received Finance costs (17 572) (323) Taxation paid (63 189) (33 167) NET CASH INFLOW FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (7 343) (7 544) Additions to intangible assets (20 939) (3 142) Purchase of investments ( ) (98 598) Proceeds on sale of investments Acquisition of subsidiary, net of cash acquired - ( ) NET CASH OUTFLOW FROM INVESTING ACTIVITIES (83 703) ( ) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (87 623) (66 683) Issue of ordinary shares Issue of preference shares Preference share redemption (10 000) - Transaction costs on issue of ordinary shares (38) (1 790) (Decrease) / increase in loans payable ( ) Post-acquisition settlement of pre-acquisition liability - (32 940) NET CASH (OUTFLOW)/INFLOW FROM FINANCING ACTIVITIES (97 353) NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS ( ) Cash and cash equivalents at beginning of the year CASH AND CASH EQUIVALENTS AT END OF THE YEAR Cash and cash equivalents at the end of the year included the following cash held on behalf of policyholders and clients NOTE TO THE STATEMENT OF CASH FLOWS: Cash held in overnight settlement accounts on behalf of policyholders of Sygnia Life and clients of Sygnia Securities is included on the face of the statement of financial position under Cash and cash equivalents with a corresponding payable to clients included in amounts owing to clients. This results in the movement in these cash amounts being disclosed in the statement of cash flows. Changes in these amounts are shown under the Changes in working capital, under the Cash flows from operating activities section on the statement of cash flows. These cash amounts fluctuate on a daily basis and can result in significant fluctuations if comparing Changes in working capital between reporting periods. 13

15 NOTES TO THE AUDITED SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER BASIS OF PREPARATION The audited summarised consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for preliminary reports, and the requirements of the Companies Act, 71 of 2008, applicable to summary financial statements. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts, and the measurement and recognition requirements of International Financial Reporting Standards ( IFRS ) and the SAICA Financial Reporting Guides as issued by the Accounting Practises Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting ( IAS 34 ). The accounting policies and methods of computation applied in the preparation of the audited summarised consolidated financial statements are in accordance with International Financial Reporting Standards and are consistent with those accounting policies applied in the preparation of the previous year s consolidated annual financial statements. The audited summarised consolidated financial statements and the full set of consolidated annual financial statements were prepared under the supervision of M Buckham, BBusSci (Finance), CA (SA), CFA (financial director), and approved by the board of directors on 29 November AUDIT OPINION The auditors, Deloitte & Touche, have issued their unmodified audit opinion on the consolidated financial statements for the year ended 30 September The audit was conducted in accordance with International Standards on Auditing. These summarised financial statements have been derived from the consolidated financial statements, with which they are consistent in all material respects. These audited summarised consolidated financial statements have been audited by the company s auditors, who have issued an unmodified opinion. Copies of the audit reports and the full consolidated financial statements are available for inspection at the company s registered office. The audit report does not necessarily cover all the information contained in this announcement. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor s work they should obtain a copy of that report together with accompanying financial information from the company s website or from the registered office of the company. Any reference to future financial performance included in this announcement has not been reviewed or reported on by the company s auditors. 3. USE OF ESTIMATES AND JUDGEMENTS The preparation of the audited summarised consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reporting amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. 14

16 Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis by the directors and management. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The significant judgements made by management in applying the Group s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 30 September 2017, except for judgements used in business combinations and estimates relating to the valuation of the share-based payment expense where inputs based on observable market data are used to estimate the fair value of the share-based payment. Critical accounting estimates are those which involve the most complex or subjective judgements or assessments. The areas of the Group s business that typically require such estimates and judgements are the determination of the fair value for financial assets and liabilities, capitalisation of development costs as intangible assets, judgements relating to goodwill arising on acquisition of a subsidiary and share-based payments. For estimates and judgements on goodwill and intangible assets related to the acquisition of Sygnia Itrix refer to note 5. Further information about the assumptions made in measuring fair values are disclosed in the notes to the audited consolidated annual financial statements, which are available for inspection. 4. SEGMENT INFORMATION The Group has identified Sygnia s executive committee as the Chief Operating Decision Maker ( CODM ). The responsibility of the executive committee is to assess performance and to make resource allocation decisions across the Group. The Group provides investment management and administration services to institutional and retail clients predominantly located in South Africa. No disaggregated information is provided to the CODM on the separate operations of the Group, and the CODM assesses operating performance and makes resource decisions about the Group based on the combined results of these operations. The Group has therefore concluded that the combined operations of the Group constitute one operating segment. 5. INTANGIBLES 2018 OPENING BALANCE AT 1 OCTOBER 2017 ADDITIONS CLOSING BALANCE AT 30 SEPTEMBER 2018 R000 s R000 s R000 s Computer software Goodwill Management contracts Customer relationships Licence

17 2018 OPENING BALANCE AT 1 OCTOBER 2017 ACCUMULATED AMORTISATION AND IMPAIRMENT ADDITIONS CLOSING BALANCE AT 30 SEPTEMBER 2018 R000 s R000 s R000 s Computer software Goodwill Management contracts Customer relationships Licence CARRYING AMOUNT Computer software Goodwill Management contracts Customer relationships Licence Goodwill consists of amounts relating to two separate cash generating units ( CGUs ), namely SURF (previously, Gallet Employee Benefits) and Sygnia Itrix. Consequently there are two separate goodwill impairment assessments relating to each of the CGUs. The carrying amount relating to SURF is R18.5 million (2017: R18.5 million) and the carrying amount relating to Sygnia Itrix is R130.8 million (2017: R130.8 million following measurement period adjustment) OPENING BALANCE AT 1 OCTOBER 2016 AT COST ADDITIONS ACQUISITIONS THROUGH BUSINESS COMBINATION MEASUREMENT PERIOD ADJUSTMENT DEFERRED TAX RELATING TO MEASUREMENT PERIOD ADJUSTMENT RESTATED CLOSING BALANCE AT 30 SEPTEMBER 2017* R000's R000's R000's R000's R000's R000 s Computer software Goodwill ( ) Management contracts Customer relationships (14 990) Licence OPENING BALANCE AT 1 OCTOBER 2016 AMORTISATION RESTATED CLOSING BALANCE AT 30 SEPTEMBER 2017* ACCUMULATED AMORTISATION AND IMPAIRMENT R000's R000's R000 s Computer software Goodwill Customer relationships *Restated for measurement period adjustment 16

18 CARRYING AMOUNT RESTATED CLOSING BALANCE AT 30 SEPTEMBER 2017* R000 s Computer software Goodwill Management contracts Customer relationships Licence *Restated for measurement period adjustment Goodwill consists of amounts relating to two separate cash generating units (CGUs), namely SURF (previously, Gallet Employee Benefits) and Sygnia Itrix. Consequently, there are two separate goodwill impairment assessments relating to each of the CGUs. The carrying amount relating to SURF is R18.5 million (2017: R18.5 million) and the carrying amount relating to Sygnia Itrix is R130.8 million (2017: R130.8 million (following measurement period adjustment). Purchase price allocation valuation at acquisition of Sygnia Itrix Included in intangible assets are amounts that were identified and measured at fair value following the acquisition of Sygnia Itrix on 1 July At 30 September 2017 the assets were provisionally fair valued in terms of IAS 38 Intangible Assets ( IAS 38 ) and IFRS 3 Business Combinations ( IFRS 3 ). The provisional process identified two intangible assets, being the client relationships associated with the investment plan that was acquired as part of the transaction, and an amount associated with the establishment costs of the Sygnia Itrix management company licence as well as the costs associated with the establishment of each of the individually listed ETFs. The client relationships were valued using a discounted cashflow methodology, where the net cashflows derived from the investment plan were estimated over a 10 year time horizon and then discounted to the date of acquisition. The net cashflows included the revenue generated from the LISP administration fees as well as the ETF investment fees generated by the AUM held by investment plan clients. An amount of R17.0 million was provisionally ascribed to the client relationships. The licence was also valued, however a cost incurred valuation basis was used in that instance and a value of R1.2 million was ascribed to the fair value of the licence. The excess of the purchase price and the net tangible and intangible assets was then allocated to goodwill, which amounted to R302.8 million under the provisional basis. Following additional consideration as to the existence of any other intangible assets that could be identified at the acquisition date and were required to be fair valued, it was considered that an additional intangible asset existed in the form of management contracts. The management contracts were identified as the contractual relationships between the management company acquired, being Sygnia Itrix, and the five ETFs that were in existence at the date of acquisition, being Sygnia Itrix Eurostoxx50, Sygnia Itrix FTSE100, Sygnia Itrix MSCI Japan, Sygnia Itrix MSCI US and Sygnia Itrix MSCI World. 17

19 It was determined that the contractual relationship between the ETFs and the management company resulted in a right for the management company to receive a revenue stream from the established ETFs and that contractual relationship represented an intangible asset that fell under the ambit of IAS 38. The methodology applied to the valuation was to determine the net cashflows attributable to the five pre-existing ETFs over a time horizon of six years. The net cashflows were determined with reference to the revenue generated by each of the ETFs, based on the AUM in existence at acquisition date, less any costs associated with the revenue generated, which included fixed and variable costs incurred in relation to the asset management and administration of the ETFs, index tracking, custody and trading costs. In determining the growth in the value of the ETF AUM over time the factors included market returns (for which historical growth in the ETF prices were used), dividend yields and the rand depreciation rate against the relevant offshore referenced currencies (which included USD, GBP, EUR and JPY). No new business flows were modelled against the growth in the AUM as they were not considered to be a component of the management contract intangible. The net cashflows over the six year time horizon, added to the terminal value at the end of the sixth year, were discounted to determine the present value of the management contract intangible asset. The factors utilised in the discounted cashflow valuation were as follows: CURRENCY DEPRECIATION RATES AGAINST THE RAND GBP 7.20% EUR 7.20% USD 5.70% JPY 8.51% MARKET GROWTH FACTORS PER ETF SYGUK 4.63% SYGEU 2.94% SYGUS 11.47% SYGWD 7.44% SYGJP 7.32% OTHER FACTORS Discount rate 20.75% Tax rate 28.00% Growth rate 6.00% Determining useful life The management contracts were determined to have an indefinite useful life. Based on the relevant factors associated with the management contracts it was clearly determined that the revenue stream to be derived from the contractual relationships with the ETFs is expected for the foreseeable future, with no limit, and there is no intention for those contracts to be terminated for any reason whatsoever. Given the nature of the ETFs, being index tracking investment products that will form a significant part of the Group s ongoing strategy of reducing the overall cost of investments to the investing public, it is clear that there is no finite date at which the intangible should be amortised to zero. 18

20 On the other hand the investment plan is deemed to have a finite life span as it is likely that clients investing through the investment plan will ultimately migrate to the lower cost Sygnia LISP. Reclassification of intangible assets As a result of the reassessment of the provisional allocation of the excess of the purchase price over the tangible assets at acquisition date, it was necessary to reclassify the provisional assets identified to the final assessed identified assets. The investment plan was assessed to have a lower value as the provisional valuation included a component of net cash flows related to the management contracts, which has been separately included in the management contract valuation. The licence valuation was unaffected. In addition to recognising the value of intangible assets in the PPAV exercise a corresponding deferred tax liability has been recognised against the identified intangibles. The difference between the purchase price and the sum of the net tangible and intangible assets has been recognised as goodwill. The effect of the measurement period adjustments is reflected in the table above. Critical accounting estimates and judgements Based on the impairment indicator tests described below, where impairment indicators were identified, management assessed the recoverable amount of the CGUs based on value-in-use calculations of the various CGUs. These calculations use cash flow projections based on financial budgets, approved by management, for a five-year planning period. Where appropriate, cash flows were extrapolated into perpetuity by using a terminal growth rate model. A key input used in the models to determine the value- in-use of the CGUs is the pre-tax discount rate applied to management s forecasted cash flows, which reflects the current market assessments of time value of money and the risk specific to the CGU. Impairment evaluation of goodwill When goodwill is evaluated for impairment on an annual basis, the value in use is assessed using a discounted cash flow-based valuation of the CGUs to which the goodwill can be allocated on a reasonable basis. These assumptions, which are benchmarked against similar entities in the industry, have been used in estimating the value in use of the CGUs to which the goodwill has been allocated: SURF SYGNIA ITRIX Risk-free rate (R186 Government Bond) 9.00% 9.00% Tax rate 28.00% 28.00% Growth rate 8.00% 6.00% Terminal growth rate 4.90% 4.90% Discount rate 20.75% 20.75% A reasonably possible change in these assumptions would not cause the carrying amount to exceed its recoverable amount. Impairment evaluation of indefinite life intangibles The management contracts intangible is determined to have an infinite life and management has conducted an assessment of whether the management contracts intangible requires impairment at 30 September

21 These assumptions, which are benchmarked against similar entities in the industry, have been used in estimating the value in use of the management contracts intangible. Risk-free rate (R186 Government bond) 9.00% Tax rate 28.00% Growth rate 6.00% Terminal growth rate 4.90% Discount rate 20.75% Impairment evaluation of finite life intangibles The carrying value of all intangibles with finite lives were assessed at 30 September 2018, and management does not deem any to be impaired. Sensitivity analysis Customer relationships are amortised over a period of nine years, which represents management s best estimate of the period over which economic benefits are expected to be derived. The amortisation charge on the customer relationships for the year ending 30 September 2018 was R1.5 million. This amortisation charge related specifically to the customer relationship intangible recognised in respect of the acquisition of Gallet in the prior year in addition to the customer relationships recognised in the valuation of the investment plan. An amortisation charge of R was recognised against the licence intangible. There was no amortisation against the management contract intangible as it was assessed to have an indefinite life. The amortisation charge of intangible assets is sensitive to the useful life, which is illustrated in the table below: ASSUMPTIONS SCENARIO 1 SCENARIO 2 SCENARIO 1 AMORTISATION CHARGE ON CUSTOMER RELATIONSHIPS WOULD HAVE INCREASED TO: 30-Sep-18 Years Years Years SCENARIO 1 AMORTISATION CHARGE ON CUSTOMER RELATIONSHIPS WOULD HAVE INCREASED TO: Amortisation period A sensitivity analysis in respect of the licence has not performed as it is immaterial. A sensitivity analysis on management contracts has also not been performed as it is an indefinite life intangible asset. 6. PREFERENCE SHARE LIABILITY R'000s R'000s Nedbank Limited

22 On 31 January 2018 Sygnia Capital, a subsidiary within the Sygnia Group, issued 320 preference shares of R each to DepFin Investments Proprietary Limited ( DepFin ), a subsidiary of Nedbank Limited, for total proceeds of R160 million. The proceeds of the preference shares were applied to settling the outstanding loan payable that was in place for the initial funding of the purchase of Sygnia Itrix. As at 30 September 2018 the preference shares issued by Sygnia Capital have been reflected in the condensed consolidated statement of financial position as a long-term liability. IAS 32 Financial Instruments: Presentation defines a financial liability as a contractual obligation to deliver cash or another financial asset to another entity. This is in contrast with an equity instrument, where the holder has a right to receive dividends or other distributions that are at the discretion of the issuer. As Sygnia Capital has a fixed contractual obligation to deliver cash to Depfin at a fixed future date. The obligation has been classified as a liability. The preference dividends are also at a fixed contractual rate and are contractually payable and therefore the accrued dividends are also reflected as a liability. These dividends are due within 12 months and are thus reflected in current liabilities. The preference shares carry a dividend of 78% of the prime rate of interest in South Africa and are payable within five days of Sygnia Capital receiving a dividend from Sygnia Itrix, which is a wholly owned subsidiary of Sygnia Capital. This dividend rate has decreased to 71% of prime subsequent to 30 September The dividends are cumulative. The accrued dividends at 30 September 2018 amount to R2.1 million. The preference shares are redeemable, in full, three years and one day after the issue date (i.e. on 1 February 2021). Sygnia Capital is also required to maintain a redemption reserve account in which it must deposit, and cede to DepFin, R10 million six months after the issue date, R22 million 18 months after the issue date and R32 million 30 months after the issue date. An amount of R10 million was redeemed, at the option of the Group, on 31 July 2018, reducing the preference share liability from R160 million to R150 million. The preference shares are secured by guarantees from Sygnia Asset Management Proprietary Limited, Sygnia Financial Services Proprietary Limited and Sygnia Alchemy Proprietary Limited, as well as pledges by Sygnia Limited of its shares in Sygnia Capital and a pledge of Sygnia Capital s shares in Sygnia Itrix. 7. EARNINGS PER SHARE AND HEADLINE EARNINGS PER SHARE R000 s R000 s Profit attributable to ordinary shareholders HEADLINE EARNINGS The weighted average number of shares and diluted weighted average number of shares were calculated as follows: NUMBER OF SHARES 2018 NUMBER OF SHARES 2017 Number of ordinary shares at the beginning of year Number of shares issued during the year Number of ordinary shares at end of year

23 Weighted average number of ordinary shares Weighted number of ordinary shares at the beginning of the year Effect of bonus shares issued in rights offer Weighted number of shares issued during the year Weighted number of shares during the period Basic and diluted earnings per share (cents) 2018 R000 s 2017 R000 s Earnings attributable to ordinary shareholders Headline earnings Weighted average number of ordinary shares in issue (basic) Weighted average number of ordinary shares in issue (diluted) CENTS CENTS Earnings per share (basic) Earnings per share (diluted) Headline earnings per share (basic) Headline earnings per share (diluted) Net asset value per share Tangible net asset value per share Net asset value per share is calculated by dividing the Group's total assets less its liabilities by the weighted average number of ordinary shares in issue. The tangible net asset value is the net asset value excluding intangible assets divided by the weighted average number of ordinary shares. 22

24 8. FAIR VALUE DISCLOSURE RELATING TO FINANCIAL INSTRUMENTS This announcement does not include the information required pursuant to paragraph 16A(j) of IAS 34. The full disclosure is contained in the consolidated annual financial statements, available on the issuer s website, at the issuer s registered offices and upon request. 9. EVENTS SUBSEQUENT TO THE REPORTING DATE The directors are not aware of any other matter or circumstances, other than listed below, arising since the end of the financial period, not otherwise dealt with in the summarised consolidated financial statements, that significantly affect the financial position of the Group or the results of its operations. During the current year an amount of USD (R ) was paid to a software vendor with respect to the implementation of a trading platform in one of the Group subsidiaries. Subsequent to the balance sheet date a decision was made to suspend the implementation and therefore the capitalised implementation cost will be impaired. The impairment will be recorded in the 2019 financial results. 10. CONTINGENT LIABILITIES During the current year Sygnia engaged with a UK-based company, FNZ (UK) Ltd ( FNZ ), a provider of an investment transaction and custodial system, called FNZ Core Platform, in order for the Group to upgrade its current retail platform offering. An Interim Services Agreement ( ISA ) was concluded between Sygnia and FNZ, which sets out the obligations for FNZ to develop and implement the platform offering over a period that extends into the latter half of The payments to be made in terms of the ISA will be contingent on the completion of various milestones as set out in the ISA and defined as the Initial Implementation Milestones. Due to the uncertainty of the specific deliverable dates of each of the milestones the timing of the payments is not certain and therefore there is no present obligation at 30 September The progressive payments during 2018/2019 do, however, represent a contingent liability as the payments are likely as the milestones are achieved and the details thereof are disclosed below. An initial payment of GBP (R11.8 million) was made on the date of signature and a further GBP1.65 million is to be settled over a period of fulfilment of milestone dates. The effect on the financial position of the company would be a recognition of the implementation costs as an intangible asset, which will be amortised over the useful life of the asset. At 30 September the amount of GBP has been recognised in Computer Software intangibles, however, it has not yet been amortised as the asset has not been brought into use. 23

25 SYGNIA LIMITED INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA REGISTRATION NUMBER: 2007/025416/06 JSE SHARE CODE: SYG ISIN CODE: ZAE ( SYGNIA OR THE COMPANY OR THE GROUP ) SPONSOR: NEDBANK CORPORATE AND INVESTMENT BANKING CAPE TOWN 7th Floor, The Foundry Cardiff Street Green Point 8001 South Africa T: +27(0) F: +27(0) E: info@sygnia.co.za JOHANNESBURG Unit 40, 6th Floor Katherine and West building West Street Sandton 2196 T: +27 (0) F: +27 (0) E: info@sygnia.co.za DURBAN Office 2, 2nd Floor Ridgeview 1 Nokwe Avenue Ridgeside Umhlanga Ridge 4319 T: +27 (0) F: +27 (0) E: info@sygnia.co.za SYGNIA LIMITED Registration No. 2007/025416/06 Share code on the JSE: SYG ISIN: ZAE ( Sygnia ) Sponsor Nedbank Corporate and Investment Banking 7th Floor The Foundry Cardiff Street Green Point Cape Town 8001 P O Box Waterfront 8002 Tel: Fax: Unit 40 6 th Floor Katherine and West Building West Street Sandton 2196 Tel: Fax: info@sygnia.co.za