integrated report 2018 - sygnia · m buckham (fd) 01/02/2017 kt hopkins *# 11/06/2015 sa zinn (lead...

Integrated Report2018

Contents

4 Scope of the report

6 Corporate structure

8 Corporate information

9 Board of directors

13 Chairman’s report

17 Chief executive officer’s report

20 Business overview

20

22

23

24

25

25

26

26

Business model

Institutional business

Retail business

Product range

Key competitive advantages

Corporate vision

Stakeholders

Customer education

29 Business performance

29

29

30

32

32

33

33

Overview

Asset growth

Investment performance

Client service

Governance

Staff satisfaction

Shareholder value

34 Future growth strategies

37 Corporate governance

42 Risk management and compliance

50 Business sustainability

60 Notice of the annual general meeting

67 Form of proxy

71 Glossary of terms

72 Audited consolidated annual financial statements

sygnia integrated report 2018 2

12 years of growth

Assets under management and administration (R billion)

Year Number of staff

223 2018 213

184 2017 181

158 2016 175

137 2015 127

113 2014 106

99 2013 81

83 2012 57

70 2011 46

52 2010 38

40 2009 34

4.5 2008 24

4.7 2007 20


Scope of the reportIntroduction

Sygnia Limited (which includes all its subsidiaries) (“Sygnia” or “the Group”) is pleased to present its Integrated Report covering the performance of the Group from 1 October 2017 to 30 September 2018. The report has been designed to communicate Sygnia’s objectives, value creation proposition and business sustainability to all stakeholders in order to enhance their understanding of the Group. In addition, the report provides an overview of the Group’s financial, governance, environmental and social components in order for stakeholders to assess the Group’s ability to create and sustain value over the short, medium and long term.

Framework and guidelines

The 2018 Integrated Report has been compiled in accordance with the International Integrated Reporting Framework (“IIRF”), discussion papers issued by the International Integrated Reporting Council (“IIRC”) and the Integrated Reporting Council of South Africa (“IRCSA”) and, as required by the applicable legislation, the report indicates how the Group has complied with the principles of the King IV Report on Corporate Governance (“King IV”). The King IV principles have been applied and explained as outlined in the relevant sections of this report.

The financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”), the Companies Act, No. 71 of 2008, as amended (“the Companies Act”) and the Listings Requirements of the Johannesburg Stock Exchange (“JSE”). The IIRC recommends reference to the six capitals or stores of value that a company can use in the production of its goods and services, namely: financial capital, human capital, intellectual capital, social and relationship capital, natural capital and manufactured capital. Only the first four are regarded as relevant to Sygnia and are thus covered in this report.

Assurance

The financial statements have been audited by Deloitte, whose unmodified opinion is included on page 83 of this Integrated Report.

Other external assurances provided in respect of aspects of this report include:

· The verification of our B-BBEE rating, performed by The Legal Verification Team Proprietary Limited; and · The actuarial valuation of Sygnia Life Limited, performed by Milliman Proprietary Limited.

Forward-looking statements

The 2018 Integrated Report contains references to forward-looking statements. These statements are subject to risks and uncertainties, which may result in the actual performance being materially different from what has been expressed or implied by such statements. Stakeholders are thus advised not to place undue reliance on any forward-looking statements. Sygnia will not update or revise any forward-looking statements, even if new information becomes available, other than as required in terms of the Listings Requirements of the JSE.

Statement of responsibility

The audit committee acknowledges its responsibility, on behalf of the Board, to ensure the integrity of this Integrated Report. The audit committee has accordingly applied its mind to the report and believes that it appropriately and sufficiently addresses all material issues, and fairly presents the integrated performance of Sygnia for the year ended 30 September 2018, within the scope and boundaries mentioned in the preceding paragraphs. The audit committee recommended this Integrated Report to the Board for approval.


Approval for publication

The board of directors is ultimately responsible to ensure the integrity of the 2018 Integrated Report and has approved the final report. The board of directors have applied their collective minds in the preparation and presentation of this report in accordance with the requirements of the IIRF and have satisfied themselves of the materiality, accuracy and balance of disclosures in terms of the performance of Sygnia for the year ended 30 September 2018. They therefore approved the 2018 Integrated Report for publication.

Magda Wierzycka Michael BuckhamChief Executive Officer Finance Director

Scope of the report/


Corporate structureThe Sygnia Group includes the holding company, Sygnia Limited, listed on the main board of the JSE and the A2X exchange, as well as the following wholly owned subsidiaries:

Sygnia Asset Management Proprietary Limited (“Sygnia Asset Management”): An asset management company that provides the following services and products to institutional and retail clients:

· Multi-manager investment solutions · Specialist and balanced index-tracking solutions · Management and administration of custom-designed investment strategies · Transition management · Investment administration services (this service is also provided to US and UK based institutional clients)

Sygnia Life Limited (“Sygnia Life Limited”)A life insurance company with a licence limited to issuing linked investment policies, used for the purposes of structuring pooled, unitised investment portfolios for institutional and retail clients, and issuing of sinking fund policies and living annuities to individual investors.

Sygnia Collective Investments RF Proprietary Limited (“Sygnia Collective Investments”)A management company that offers a range of single manager, multi-manager, fund of funds and index-tracking unit trusts to the institutional and retail market.

Sygnia Capital Proprietary Limited (“Sygnia Capital”) An entity registered for the purposes of issuing preference shares for the partial funding of the acquisition of Sygnia Itrix.

Sygnia Itrix (RF) Proprietary Limited (“Sygnia Itrix”) A management company that offers a range of Exchange Traded Funds (“ETFs”) listed on the JSE.

Sygnia Securities Proprietary Limited (“Sygnia Securities”) An execution-only stockbroker used for cost-effective trading for Sygnia’s index-tracking funds and/or transition management programmes, expanded recently to provide scrip lending services.

Sygnia Financial Services Proprietary Limited (“Sygnia Financial Services”) A Linked Investment Service Provider (“LISP”) company that offers investment administration services and savings products (retirement annuities, living annuities, preservation funds) to the retail market.

Sygnia Employee Benefits Proprietary Limited (“Sygnia Employee Benefits”) An employee-benefits administration company that offers liability administration funds and consulting services to institutional investors, as well as sponsoring the Sygnia Umbrella Retirement Fund (“SURF”) offered by the Sygnia Group to the institutional market.

Sygnia Holdings UK Limited Group (“Sygnia UK”) A group structure registered during the current year to house the individual operating entities that have been registered for the purposes of expansion into the UK. Sygnia UK contains entities that will offer investment management and financial advisory services, as well as a range of regulated savings products.

Sygnia Systems Proprietary Limited (“Sygnia Systems”) A software development company that develops all proprietary institutional market software used by Sygnia, as well as supporting its existing systems.

Sygnia Alchemy Proprietary Limited (“Sygnia Alchemy”) A software development company that develops all proprietary retail market software used by Sygnia, as well as supporting its existing systems.

Sygnia Support Services Proprietary Limited (“Sygnia Support Services”) An internal support services company that provides centralised services to the Group, including office management, IT, financial support and legal services.


Sygnia Limited (Holding Company - non operating)

100% Sygnia Asset Management(Operating Company)

100% Sygnia Life(Operating Company)

100% Sygnia Collective Investments RF(Operating Company)

100% Sygnia Capital(Operating Company)

100% Sygnia Itrix RF(Operating Company)

100% Sygnia Securities (Operating Company)

100% Sygnia Securities Nominees RF Proprietary Limited

100% Sygnia Financial Services(Operating Company)

100% Sygnia Nominees RF Proprietary Limited

100% Sygnia Employee Benefits (Operating Company)

100% Sygnia UK(Holding Company - non operating)

100% Sygnia Systems(Operating Company)

100% Sygnia Alchemy(Operating Company)

100% Sygnia Support Services(Operating Company)

Corporate structure/

In terms of operating activities, the Group has five main business units:

i. Institutional business: asset management, treasury and investment administration servicesii. Retail business: savings products and LISP administrationiii. Employee benefits: liability administration and umbrella fund servicesiv. Stockbroking: trade execution and scrip lendingv. Support business: systems development, support, life insurance licence, collective investment schemes and IT

The following diagram shows the Group’s most recent organisational structure:

Note: Insignificant and non-operating or dormant subsidiaries have not been included.


Corporate informationAnnual general meeting:11 January 2018

Share code (ordinary shares):SYG

ISINZAE000208815

Board of directors:

Name Date of appointment

HI Bhorat (Chairman) # 11/06/2015

MF Wierzycka (CEO) 17/09/2007

DR Hufton (Deputy CEO) 01/09/2018

M Buckham (FD) 01/02/2017

KT Hopkins *# 11/06/2015

SA Zinn (Lead Independent) *# 11/06/2015

IK Moyane *# 10/09/2015

MH Jonas *# 01/09/2018

* Independent # Non-executive

Transfer secretaries:Computershare Investor Services Proprietary LimitedGround Floor, 70 Marshall StreetJohannesburg, 2001

Registered office:7th Floor, The Foundry Cardiff Street Green Point 8001

Postal address:PO Box 51591 Waterfront 8002

External auditor:Deloitte & Touche1st Floor The SquareCape Quarter 27 Somerset Road Green Point 8005

Company secretary:G MacLachlan Appointed: 01/11/2016


Board of directors

Executive directors

Magdalena Franciszka WierzyckaChief Executive Officer

Magda is a Fellow of the Faculty of Actuaries (Edinburgh) and has, in the past, served as a council member of the Actuarial Society of South Africa. Magda is a member of the Africa Advisory Board for the Center for African Studies at Harvard University. She has over 23 years’ experience in the South African asset management industry and has been published widely in the field.

She started her career as a product development and investments actuary at Southern Life in 1993, followed by two years at Alexander Forbes as an investment consultant. In 1997 she joined Coronation Fund Managers as Head of Institutional Business and a director. She left Coronation in 2003 to start IQvest, a fund of hedge funds management company. Later that year, after selling IQvest to the African Harvest group, she was appointed to the position of CEO of African Harvest. After negotiating the sale of African Harvest Fund Managers to Cadiz Financial Services in 2006, she led the management buy-out of the remainder of the African Harvest group, which resulted in the formation of Sygnia. Since 2006 she has headed Sygnia as its CEO.

David Roy HuftonDeputy Chief Executive Officer

David is a Fellow of the Actuarial Society of South Africa and a Fellow of the Institute of Actuaries.

He worked at Alexander Forbes for 25 years, having held various leadership positions across the company and serving on its financial services executive committee for many years. In his final role as the National Head of Consulting, David had oversight of the Consultants & Actuaries, Umbrella Funds, Asset Consulting, Insurance Consulting and Healthcare divisions. He also chaired the Group’s actuaries committee and the committee in charge of the group’s strategic direction of its suite of umbrella retirement funds. David has vast experience as a principal employee benefits consultant, consulting actuary and valuator to large retirement funds.

David joined Sygnia in early 2016 as Head of Strategic Projects which has seen him manage the launch of the Sygnia Umbrella Retirement Fund, the expansion of existing business lines, the undertaking of operational and cost efficiency programmes, and certain business acquisitions. He was appointed Deputy CEO in July 2018.

Michael BuckhamFinancial Director

Michael qualified with a Bachelor of Business Science in Finance and Accounting from the University of Cape Town in 1994. He furthered his studies with a Post Graduate Diploma in Accounting at UCT in 1995, then qualified as a Chartered Accountant in 1998 and became a Chartered Financial Analyst charterholder in 2002.

His experience includes over 17 years in financial management in the financial services sector, with exposure to investment management, investment linked life companies, stockbroking, employee-benefit administration and retirement products. He also has experience in risk management, human resources, legal and compliance.

Michael worked for just over nine years at Prescient Limited, having joined the prelisted group in 2007. He was appointed Financial Director of the Prescient Group in 2011 and was involved in the process that led to the reverse listing of Prescient in 2012. He was also responsible for Prescient Life from an administration, accounting, compliance and operational point of view. He joined Sygnia in February 2017 as Financial Director, managing the Finance, Legal and Compliance, Risk Management and Human Resource divisions of the company.


/ Board of directors

Non-executive directors

Haroon Ismail BhoratNon-Executive Chairman

Haroon is Professor of Economics and Director of the Development Policy Research Unit at the University of Cape Town. Haroon obtained his PhD in Economics through Stellenbosch University. He studied at the Massachusetts Institute of Technology and was a Cornell University research fellow.

He has published more than 150 academic journal articles, book chapters and working papers. He holds the highly prestigious National Research Chair under the theme of Economic Growth, Poverty and Inequality: Exploring the Interactions for South Africa. Haroon is a Non-resident Senior Fellow at the Brookings Institution affiliated to the Global Economy and Development Programme and the Africa Growth Initiative. He is also a Research Fellow at IZA, the Institute for the Study of Labour in Bonn, and an Honorary Research Fellow at the Human Sciences Council. He is a member of the Board of the UNU World Institute for Development Economics Research and of the World Bank’s Advisory Board of the Commission on Global Poverty. Haroon was recently appointed an Advisor on the South African Parliament’s High Level Panel on Acceleration of Change and Transformation. He was an economic advisor to former Minister of Finance, Pravin Gordhan and former Presidents Thabo Mbeki and Kgalema Motlanthe, formally serving on the Presidential Economic Advisory Panel.

Through the interdisciplinary, inter-university State Capacity Research Project, Haroon partnered with peers at a number of South African universities to document the process that has become known in South African public discourse as “state capture”. The “explosive” research-intensive report called “Betrayal of the promise: how South Africa is being stolen” was released in May 2017 and it sets out the emergence of a Shadow State in South Africa. This document has become one of the most important documents in understanding the extent of corruption in South Africa.

Mcebisi Hubert Jonas Independent Non-Executive Director

Mcebisi served as Deputy Minister of Finance for the Government of South Africa from 2014-2016 and as a Member of the National Assembly of South Africa from 2014-2017. During this time, he also chaired the Public Investment Corporation, the state-owned pension fund manager and one of Africa’s largest investment managers. He was previously provincial minister for Economic Development and Environmental Affairs in the Eastern Cape.

He served as Chief Executive Officer of the Eastern Cape Development Corporation (ECDC), a state-owned entity, which successfully amalgamated various smaller development institutions. He also served as Chief Executive Officer of the Centre for Investment and Marketing in the Eastern Cape, developing the investment promotion agenda for the province, which resulted in the establishment of the ECDC, the Coega Industrial Development Zone and the East London Industrial Development Zone.

Mcebisi is currently one of four Presidential Investment Envoys, appointed by President Cyril Ramaphosa to attract USD100-billion to South Africa over the next five years.


/ Board of directors

Shirley Anne ZinnLead Independent Non-Executive Director

Professor Shirley Zinn has held senior executive Human Resources positions at Woolworths Holdings Limited, Standard Bank South Africa, the Standard Bank Group, Nedbank and the South African Revenue Service (SARS). Her company, Shirley Zinn Consulting, provides consulting and advisory services in HR, Transformation, Leadership and Education.

She holds a BA (University of the Western Cape); Post Graduate Higher Diploma in Education (University of the Western Cape); B.Ed. Honours (UNISA); M.Ed. (University of the Western Cape); Ed.M. (Harvard); and Doctorate in Education (Harvard).

Shirley is also an Extraordinary Professor at the University of Pretoria’s Department of Human Resource Management, and has recently been appointed as Adjunct Professor at the University of Cape Town. She is the past president of the Institute for People Management South Africa and registered as Master HR Professional with South Africa Board for People Practice.

She is currently a Non-Executive Director on the Boards of JSE listed MTN-SA, Shoprite Holdings, AdvTech (Lead Independent and Chair of Remco), and was recently appointed onto the Boards of LRMG Performance Architects, Cricket South Africa, and NPI.

She also serves as a director on the Boards of Tuesday Consulting, Empowerment Capital, Knowledge Resources, Business Engage, Community Chest, and the Boston Consulting Group SA. In addition, she is the HR Advisor to the Board of Silvertree Internet Holdings. She also serves on the Take-Over Regulation Panel Board and on the Council of the University of Cape Town. She is a Trustee on the Nedbank Eyethu Community Trust, Ambassador for the Orbis Africa Charity, and the former Chairman of Starfish Greathearts Foundation. She also serves on the Advisory Boards of Monash South Africa, and the University of Pretoria’s Faculty of Economic and Management Sciences. She is the past president for the Harvard Alumni Association South Africa and a Fellow of the Institute of Directors SA. She also previously served as the Chair of the Institute of Bankers. She was recently appointed as the Patron for South Africa Council of Business Women.

Shirley is a coach and mentor to several women across multiple industries.

Isiah Kaizer MoyaneIndependent Non-Executive Director

Kaizer is currently the Executive Head: Employee Relations & Transformation at Nedbank. He previously served as General Manager: Employee Relations at Edcon and Head of Employee Relations at Pick n Pay. He also worked at Sanlam for 10 years, first as Senior Specialist: Labour Relations and then as its Head of Labour Relations.

He qualified as an Attorney of the High Court in 1998 while working for Bowman Gilfillan Inc., where he specialised in employment law.

Kaizer serves on the governing body of the Commission for Conciliation, Mediation and Arbitration (“CCMA”), the CCMA’s Governance, Social and Ethics Committee and the CCMA’s Audit and Risk Committee. He is also the overall convenor of business in the National Economic Development and Labour Council (“NEDLAC”) and chairman of the Social and Transformation Policy Standing Committee of Business Unity South Africa (“BUSA”).

SYGNIA INTEGRATED REPORT 2018 12

Board of directors/

Kenneth Thomas HopkinsIndependent Non-Executive Director

Ken is a Chartered Accountant with over 30 years’ experience as a partner at KPMG and Deloitte, specialising in auditing and advising financial institutions in South Africa. Ken retired from KPMG in 2015 and is currently a member of several boards, audit and risk committees and also provides independent consulting services. He also specialised in ISAE 3402 reports (Service Auditor report on controls at an outsourced service provider).

He has been a past member of the SAICA interest groups for Investment Funds and Medical Schemes and was the KPMG representative on ASISA. He was the chair of both Wynberg Boys’ High and Junior Schools for many years.

Andre Crawford-Brunt (appointed 1 November 2018)Independent Non-Executive Director

Andre holds a Bachelor of Commerce degree in Commercial Law and Business Economics from Rhodes University.

Andre started his career at Ivor Jones Roy in Johannesburg in 1994 which was bought out by Deutsche Bank. He subsequently spent 22 years at Deutsche Bank, working in senior leadership roles in Johannesburg, London and New York. His final position was that of Global Head of Equity Trading. Andre left Deutsche Bank in 2015.

Andre is currently the Managing Partner at Braavos Partners, a late stage global investment and financial advisory firm focusing on biotechnology and information technology companies. In addition, he is an advisor to and an investor in the £600 million Oxford Sciences Innovation Fund, a Chairman at Osler Diagnostics, a blood diagnostic start-up company spun out of the chemistry department at Oxford University, and a Chairman of PQ Shield, a start-up company focused on post-quantum cryptography working in collaboration with the Maths Institute at Oxford University. Andre is also a director and founder investor of Deep Science Ventures, and a director of Next Biosciences, the largest cord blood tissue bank in Africa.


Chairman’s report

Despite the turbulent economic climate, it has been an exciting year for Sygnia. We extend a warm welcome to Mcebisi Jonas and Andre Crawford-Brunt to the board as non-executive directors. We also welcome David Hufton, who accepted the role of Sygnia Deputy CEO and has also joined the board.

It’s been a promising year for South Africa, too. With the appointment very early in 2018 of Cyril Ramaphosa as President, it was clear that a new period of positive possibility had been initiated for South Africa. The steady demise of institutionalised corruption - marked by the removal of key personnel within the state capture project - represented possibly the most important first signal to economic agents that a more optimal functioning, economic growth-focused state would be a feature of the Ramaphosa era. Indeed, the recent appointment of Tito Mboweni as Minister of Finance has resulted in more certainty for both foreign and domestic investors, with ratings agencies taking their proverbial foot off the downgrade pedal.

However, despite these exciting prospects, state capture and particularly that related to the South African Revenue Service (SARS), has had dire consequences for South Africa’s economy. We have witnessed a rise in VAT, a more constrained fiscal environment, and an overall low growth environment marked by a technical recession.

Unsurprisingly then, economic growth forecasts for next year are lower than that of previous years, with the IMF expecting South Africa’s economy to expand by 1.4% in 2019, down from its April projection of 1.7%. With these predicted low growth rates, it’s been a daunting task transitioning from a political solution to economic progress. This, coupled with the collapse of state-owned enterprises, means private firms now find themselves in a very difficult growth environment.

Globally, the environment has also not been easy. With a looming trade war, China’s domestic growth stalling and emerging markets in general turmoil (led by Turkey and Brazil) growth has been somewhat suppressed. The contagion effects of these forces have made for a difficult and unpredictable environment in equities markets.

Business strategy

Sygnia’s business strategy is clear, and its place in the market as a disrupter, constantly challenging the status quo, enables it to bring innovative new ideas and solutions to the financial services industry, evident in the launch of the FAANG Plus Equity Fund this year. FAANG is an acronym for Facebook, Amazon, Apple, Netflix, and Alphabet’s Google. The commitment to continue to provide low-cost, accessible and transparent savings and investment products to the South African market is what sets it apart from its competitors.

Sygnia is in the process of upgrading its retail administration platform to remain at the cutting edge of technology and create leverage for continued growth in the retail market. Proof of this is in the increase in the number of clients using the LISP platform, almost doubling from September 2017 to September 2018, and cementing the brand in the minds of the South African public.

Sygnia continues to pioneer the way in low-cost products, transparency and innovation within the financial services sector and looks forward to seeing the growth in its assets in the coming year as full and honest fee disclosure comes into effect.


/ Chairman’s report

2018 initiatives

Sygnia Securities was established four years ago as an exclusive, independent stockbroker whose primary business was execution-only transactions on the JSE as an approved JSE Member. The team has recently been strengthened with experienced traders joining from the beginning of August with a major focus on the implementation of an integrated software solution to reduce trading costs for clients in an automated environment. Furthermore, Sygnia Securities has recently implemented a scrip lending desk which will enhance returns to client portfolios.

With the granting of a Foreign Exchange Trading licence to Sygnia Asset Management, one of the Group subsidiary companies, Sygnia is far better positioned to ensure that its clients, either directly or through its foreign exchange trading on its portfolios, receive narrower pricing on foreign exchange transactions, thereby further reducing the effective cost of investing.

Sygnia also dual-listed on the A2X exchange.

The FAANG Plus Equity Fund was launched this year and is the first of its kind in South Africa. Providing exclusive access to the world’s leading companies at the forefront of social media, cloud storage, online retail and streaming entertainment.

And finally, Sygnia rebranded and now boasts a refreshed logo and uplifting bright colours. The out-of-home campaigns revealed the brand’s new look and feel, and a new communications campaign and updated marketing collateral will roll out in 2019.

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 2017.

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 2018. The bulk of the finance costs relate to the preference share structure that was implemented on 31 January 2018.

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 69.15 cents (2017: 69.72 cents), with diluted earnings per share decreasing by 0.6% to 68.42 cents (2017: 68.82 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.

Transformation

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 2018. 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.

Stakeholders

Sygnia is passionate about balancing the interests of all its key stakeholders, including clients, consumers, staff and shareholders.

Sygnia follows the principles outlined in the FSCA’s Treating Customers Fairly (“TCF”) framework. Its focus on the provision of low-cost savings products to all South Africans places Sygnia well ahead of its peers in the financial services industry. Its market disruptor model and broad-reaching, low-cost business strategies ensure that the company continues to thrive as it expands its reach and grows its visibility in the younger and more tech-savvy South African market.

Sygnia’s success can be attributed to the commitment and dedication of all its staff. Attracting and retaining staff who share Sygnia’s passion and vision remains a key objective and to this end, the company places emphasis on competitive compensation, dynamic working conditions and opportunities for personal and career growth.

Sygnia also works closely with the relevant regulators to improve the investment climate and the regulatory environment for financial services providers.



Commitment to society

Corporate Social Investment (“CSI”) is an important part of Sygnia’s corporate responsibility and is overseen by the Transformation, Social and Ethics Committee, a formal subcommittee of the board of directors.

Social challenges facing the country are considered when projects are identified, and the key focus is on education, investing in initiatives from early childhood development through to tertiary education programmes.

Sygnia collaborates with sustainable organisations and projects that focus on empowerment through education, helping previously disadvantaged individuals to actively participate in the South African economy.

Sygnia’s values and business objectives ensure its continued “good business” practice results in its ability to do “good work”.

Conclusion

The year ahead is set to be a challenging one with many opportunities. With the IMF growth forecast for South Africa of 1.4% in 2019, it suggests that the environment won’t be an easy one for emerging markets.

However, with new board member, Mcebisi Jonas, one of four independent Presidential Investment Envoys appointed by President Cyril Ramaphosa to promote foreign investment in South Africa, Sygnia remains positive that political solutions are on their way as we retain globally competitive firms in specific sectors that provide a platform for economic growth.

I would like to take this opportunity to thank the board of directors, Sygnia’s management team and all staff for their unwavering commitment and hard work during 2018 and wish them all the best for 2019.

Haroon BhoratNon-Executive Chairman


Chief executive officer’s report

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 the 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 60 225. 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 negotiation 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 2018. 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 upon 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. 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.


/ Chief executive officer’s report

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 Total Expense Ratios (“TERs”) and Transaction Costs (“TCs”) 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 1 650 stand-alone retirement funds reducing to 200.

Sygnia is very well positioned for all of 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 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. 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.

Corporate strategy

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 in South Africa, and continues to grow, attracting larger employers as it gains critical mass, as well as providing a comprehensive solution to medium-sized employers, increasing its assets to R4.2 billion (2017: R2.4 billion).


/ Chief executive officer’s report

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 post-retirement 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 2018. We have also launched a Sygnia FAANG Plus Equity Fund to take advantage of the global technological boom.

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 8 237 at the end of September 2017 to 14 058 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.

Conclusion

We enter the 2018/19 financial year with a clear brand proposition; low fees, transparency, innovation and trust.

I would like to take this opportunity to thank all our clients, our board of directors, the management team and staff for their unwavering support and hard work in 2018, and all our stakeholders for having faith in our long-term vision of democratising financial services provision.

Magda WierzyckaChief Executive Officer


Business overviewSygnia’s business philosophy is underpinned by its core principles, strategy and value proposition offered to its clients, staff and other stakeholders.

Sygnia believes:

· in empowering investors to make informed decisions through financial education; · in championing fee transparency, rigorous regulatory oversight and down-the-line accountability; · in reducing the cost of saving and investing for all South Africans; · in welcoming investors from all walks of life and treating everyone with the same care and respect; · in fair, honest and ethical business practices and conducts itself accordingly; · in placing its clients’ interests first, offering products and services designed to meet their needs and expectations,

while delivering an exceptional service at all times by employing experienced and committed staff; · that cost is one of the most significant component in determining the ultimate investment outcome for most

investors; · that technology should be harnessed to provide a superior client experience and to lower costs; · that appropriate asset allocation and global diversification are key to a winning investment strategy; · that constructive ongoing engagement with its stakeholders is essential to its future success; and, · that it is committed to providing its shareholders with a superior long-term return on their investment.

Sygnia offers:

· the lowest cost savings and investment products in South Africa to both retail and institutional investors; · full transparency of all fees and charges; · simplicity, convenience and accessibility; · the most innovative products in South Africa, supported by industry-leading technology; and, · the widest range of international products to domestic investors.

Business modelSygnia is a specialist financial services group based in South Africa and listed on the main board of the JSE and on the A2X exchange. The Group focuses on the provision of investment management and administration solutions to institutional and retail clients predominantly located in South Africa.

The main investment services provided by Sygnia include multi-manager solutions, index-tracking solutions, customised investment strategy design and management, transition management and investment administration services. In terms of access channels, Sygnia offers institutional investors direct access, unitised pooled portfolios and umbrella funds. On the retail front it offers unit trusts, a LISP and a comprehensive range of savings products. The retail distribution strategy is supplemented by the provision of investment planning advice through the Sygnia RoboAdvisor.

Sygnia’s operations date back to 2003, when the founding shareholders of Sygnia started one of the first funds-of-South African hedge-funds operations in South Africa and embarked on a process of developing systems suited to the administration of multi-manager investment product structures. In the same year both companies were acquired by African Harvest Proprietary Limited (“African Harvest”), while the majority shareholder and CEO, Magda Wierzycka, took over as the CEO of African Harvest. In 2006, the African Harvest group was broken up into two, with the active asset management business units being sold to Cadiz Proprietary Limited and the passive asset management, multi-management, funds of hedge funds and software development divisions being sold to the original founding shareholders, including Magda Wierzycka. The companies were rebranded to Sygnia and commenced operating under the Sygnia brand name on 1 November 2006.

Sygnia entered the institutional market with R2 billion in assets under management in multi-manager products, managed on behalf of a small number of retirement funds. Since then it has grown to manage and administer R222.6 billion, as at 30 September 2018, on behalf of both institutional and retail investors.


Business overview/

From its inception, innovation and market disruption have been central to Sygnia’s business strategy. Sygnia entered the institutional market by reinventing the “multi-manager” sales proposition. Instead of offering standardised “off-the-shelf” product solutions, Sygnia offered clients the opportunity to customise their investment strategies to their specific requirements and objectives, while enjoying the benefits offered by a full-service multi-manager administration platform. This approach continues to be successful in attracting interest, as it offers the benefits of complete flexibility and customisation while being more cost effective than employing traditional multi-managers. It also led to some large institutional clients appointing Sygnia for the provision of stand-alone investment administration services, leading to the formal emergence of this service in South Africa.

Services were underpinned by Sygnia’s leading-edge proprietary investment administration platform, Sygnia Platinum. Although Sygnia concentrated on the provision of customised investment and multi-manager administration services, it also launched its own range of institutional multi-manager products to compete with other multi-managers.

Since 2006, Sygnia’s multi-manager approach has involved the blending together of index-tracking and actively-managed funds. The actively-managed strategies are outsourced to third-party asset managers selected by Sygnia after thorough due diligence, while most of the passively-managed strategies are managed by Sygnia. In 2012, the company decided to launch its index-tracking funds as a stand-alone proposition. In line with its focus on innovation and in addition to funds tracking single indices, Sygnia launched the first South African risk-profiled multi-asset-class “balanced” product range managed on a passive basis, the Sygnia Skeleton Funds. A balanced product range highly suited to meeting the retirement savings needs of both institutional and retail investors, where compliance with regulatory limits is a requirement (retirement funds, umbrella funds, retirement annuities, preservation funds).

In 2012, Sygnia expanded into the retail market by launching a range of multi-manager unit trusts under the licence of Sygnia Collective Investments. In 2013 it supplemented its retail offering by launching the Sygnia LISP platform, offering clients access to a full spectrum of savings products. It also supplemented its multi-manager unit trust range with a range of balanced and specialist passively-managed unit trusts. All Sygnia’s index-tracking funds were launched at an all-in fee of 0.40% per annum inclusive of VAT. The Sygnia Skeleton Balanced Funds became the first balanced passively-managed unit trusts in South Africa and the most cost-effective form of savings for retirement in the country.

In 2014 Sygnia launched Sygnia Securities, an execution-only stockbroking firm, to support its growing index-tracking business, as well as to provide backing to the transition management requirements of Sygnia’s expanding client base. In 2015, the licence of Sygnia Securities was extended to allow for controlled client management.

In 2016, Sygnia acquired the Gallet group to fast-forward its move into the provision of umbrella retirement funds to institutional investors. In May of that year, SURF was launched to become the most revolutionary umbrella fund proposition in the country, both in terms of its leading-edge benefit design and pricing, which is more than 50% lower than that of its major competitors.

Sygnia also launched the Sygnia RoboAdvisor, the first comprehensive internet-based financial planning tool in South Africa in 2016. The Sygnia RoboAdvisor offers free financial planning advice, leading potential investors to appropriate mixes of Sygnia-managed passive investment solutions.

In 2017, Sygnia acquired db X-trackers (RF) Proprietary Limited (“DBX”) Ltd from Deutsche Bank and renamed it Sygnia Itrix. This acquisition ensured that Sygnia became the largest provider of international ETFs in South Africa, providing an excellent opportunity to build on the strong reputation and established retail and institutional client base. The acquisition placed Sygnia in a favourable position to market well-structured international index-tracking funds to its new and existing clients. Sygnia’s LISP was also expanded to offer ETFs.

In 2018, Sygnia listed on the A2X exchange.

Sygnia also closed down its Fund of Hedge Funds products, as the high fees associated with hedge funds are inconsistent with its ethos of delivering value to clients.


Business overview/

The Sygnia Securities team has grown, with a major focus on the implementation of an integrated software solution to reduce trading costs for clients in an automated environment. A scrip lending desk has also recently been established to enhance returns to clients’ portfolios.

Sygnia has grown as a result of its strong relationships with many employee-benefits consulting firms in South Africa, as well as select financial advisory businesses. Since inception, it has offered its clients flexible administration, superior investment performance, transparency of charges, cost efficiencies, sophisticated analytical tools and excellent client service.

Sygnia prides itself on being an innovator and a market disruptor within the South African financial services industry. The company views the retention of its culture and its strong entrepreneurial flair as a prerequisite for achieving its business objectives.

Institutional businessSygnia provides the following seven services to institutional clients:

· Multi-manager investment products · Index-tracking investment products · Management and administration of custom-designed investment strategies · Liability administration · Umbrella retirement funds · Treasury services · Transition management · Investment administration services

Multi-manager investment products

Sygnia structures its multi-manager funds using a blend of passive and actively-managed investment strategies. Passively-managed strategies are largely managed in-house, while the actively-managed components are outsourced to a wide range of third-party asset managers. Pooled investment products include risk-profiled balanced strategies, as well as specialist strategies.

Index-tracking investment products

Sygnia also offers institutional clients passively-managed investment products. These products include risk-profiled balanced strategies, where a number of asset-class-specific passive portfolios are blended together into a global balanced strategy, as well as specialist strategies, and are offered as pooled products and segregated client-specific accounts.

Customised multi-management

Sygnia allows institutional clients the option of designing their own investment strategies according to the risk profile and requirements of their membership or client base. Sygnia assists in the process of designing such strategies and subsequently implements, manages and administers such strategies as if they were stand-alone multi-manager products.

Liability administration

Sygnia administers stand-alone retirement funds, providing record-keeping services, benefit payment processing, fund accounting, consolidated reporting to boards of trustees and members, cash flow management, Prudential Authority reporting, pensioner administration and unclaimed benefits administration.


Business overview/

Umbrella retirement funds

Sygnia Employee Benefits offers institutional clients both pension and provident umbrella funds, with in-fund preservation and annuitisation underpinned by institutional investment products. The umbrella funds are offered at a single all-in fee, with no additional administration or consulting fees. The introduction of Default Regulations, which make it compulsory for retirement funds to offer cost effective default investment strategies and default preservation and annuitisation options, means that Sygnia expects many stand-alone retirement funds will move to umbrella funds. The fact that many corporates regularly review their umbrella fund arrangements also means that there is a vibrant “second-hand” market within the umbrella fund space.

Transition management

Sygnia Securities has extensive experience in administration and uses these capabilities to offer clients a safe and confidential transition management service, to facilitate client asset transition in a secure manner.

Treasury services

The newly-launched Treasury services include scrip lending and foreign exchange transacting.

Investment administration

Stand-alone investment administration services include:

· Multi-tier unitisation services · Monthly administration reporting · Provision of consolidated financial accounting information · Monitoring of compliance with mandates and legislation · Monitoring of management and performance fees charged by asset managers · Regulatory reporting · Performance analysis reporting · Asset liability modelling · Provision of due diligence information · Transition management

Retail businessSygnia provides the following savings products to retail clients:

· Retirement annuities · Living annuities · Preservation pension and provident funds · Tax-free savings accounts · Direct unit trust investments

The Sygnia LISP platform also offers direct investors access to Sygnia’s unit trusts via Sygnia Collective Investments’ unit trusts, as well as a comprehensive range of third-party unit trusts, managed by external asset managers. Sygnia Itrix is also available via the Sygnia LISP platform. The widening of its product offering to include ETFs is a move towards becoming a dominant passive manager in both retail and institutional markets.

The investment options mirror those offered to institutional clients, namely:

· Multi-manager unit trusts (balanced and specialist) · Index-tracking unit trusts (balanced and specialist)

Sygnia also offers investment planning advice via its digital financial planning tool, the Sygnia RoboAdvisor.


Business overview/

Product range

Institutional products

Sygnia offers the following investment products to institutional clients:

Risk Profile Multi-Manager Funds Passively Managed Funds

High risk Signature 70 Fund Skeleton 70 Fund

Synergy 70 Fund

Classic Achiever Fund

Moderate risk Signature 60 Fund Skeleton 60 Fund

Synergy 60 Fund

Moderate to Low risk Signature 50 Fund Skeleton 50 Fund

Synergy 50 Fund

Low risk Signature 40 Fund Skeleton 40 Fund

Synergy 40 Fund

Classic Protector Fund

In addition, Sygnia offers specialist and international products that can be customised to institutional clients’ requirements.

Retail products

Sygnia offers the following investment products to retail clients:

Risk Profile Multi-Manager Funds Passively Managed Funds Index-Tracking FundsSingle Manager Funds

High risk Equity FundSkeleton International Equity Fund of Funds

SWIX Index Fund Active Equity Fund

4th Industrial Revolution Global Equity Fund

Top 40 Index FundGrowth Equity Fund

FAANG Plus Equity FundListed Property Index Fund

African Equity fund

Medium to high risk CPI +6% Fund Skeleton Balanced 70 Fund DIVI Index Fund

International Flexible Fund of Funds

Skeleton Worldwide Flexible Fund

Medium risk CPI +4% Fund Skeleton Balanced 60 Fund

Low to medium risk All Bond Index Fund

Low risk CPI +2% Fund Money Market Fund

Skeleton Balanced 40 Fund


Business overview/

Key competitive advantagesThe key determinants of Sygnia’s success, and its main competitive advantages, include:

· The management team has a wealth of experience in the field of asset management and retirement fund consulting, and a deep understanding of the institutional and retail markets in South Africa.

· The management team has a successful track record of organically building entrepreneurial businesses and creating shareholder value.

· Sygnia is the lowest-cost provider of savings and investment products in South Africa. · Sygnia’s proprietary multi-manager administration system is a market leader in South Africa and makes Sygnia’s

services and operations highly scalable. · The Group has built up a strong reputation of offering client service excellence, strong performance, transparency

and fairness of costs and charges. The culture of putting the customer first is ingrained in the manner in which Sygnia operates.

· The Group has long-standing relationships with many leading employee-benefits consulting, investment consulting and financial advisory businesses in South Africa. This will support future institutional and retail growth.

· Sygnia prioritises technological innovation and proprietary systems development, and will continue to do so, releasing leading-edge systems to underpin its service offering, particularly in the retail and umbrella fund segments of the market.

· Sygnia is well-positioned to take advantage of the changing regulatory dynamics, which focus on cost of access to financial services.

· Sygnia has a reputation for being innovative and a market disruptor within the financial services industry in South Africa. The desire to innovate through well-considered, unconventional and contrarian business strategies drives the vision of the business.

· The Group has a growing revenue base, whilst being a highly cash-generative business.

Corporate visionSygnia is successfully transitioning from a medium- to a large-sized financial services company. Sygnia is a “fintech” company that embraces exponentially evolving technologies to enhance its business operations. To achieve its objectives, the Group continues to deploy a number of independent growth strategies, with the aim of offering a broad range of financial products and services to both institutional and retail markets.

Investment performance and appropriate pricing remain key to Sygnia’s future success. All products will continue to be supported by innovative software and technologies that enhance the client experience. Technological innovation has been at the core of Sygnia’s business strategy and will continue to be so going forward.

The Group also aims to grow its brand and profile in South Africa through more aggressive PR and marketing communications strategies.

The Group may acquire complementary businesses to enter certain sectors of the market faster or to build critical mass. However, the key focus of the Group remains organic growth.


Business overview/

StakeholdersSygnia views clear and transparent communication with all its stakeholders as vital to building sustainable and constructive long-term relationships. In preparing the 2018 Integrated Report, Sygnia aimed to identify and report on all matters that are material to its stakeholders, where materiality is defined as any matter which can affect the short, medium and long-term value creation by the Group.

The company’s key stakeholders include:

· Shareholders · Institutional clients and intermediaries · Retail clients and intermediaries · Staff members · Regulatory bodies

Customer educationSygnia believes that one of the drivers of future success will be broader market awareness of the impact of fees and costs on the ultimate savings benefits enjoyed by investors. In addition, satisfactory savings outcomes will only be achieved if the same investors select appropriate savings vehicles at appropriate times. Sygnia continues to be committed to educating the general consumer about all aspects of saving and investing. That education happens through various digital platforms, radio programmes, thought leadership presentations, participation in conferences and specific client functions organised by Sygnia.

Stakeholder Expectations Stakeholder engagement in 2018

Shareholders › Business sustainability

› Appropriate return on capital

› Sound corporate governance, compliance and risk management

› Clear growth path

› Good corporate citizenship

› Individual and group meetings with institutional investors

› Annual general meeting

› Investor conference presentations

› SENS announcements

› Shareholders’ section on the website

› Annual Financial Statements

› 2017 Integrated Report

› Clear and transparent policies and procedures, including those relating to Environmental, Social and Corporate Governance (“ESG”), Corporate Social Initiatives (“CSI”), ethics and transformation


Business overview/


Institutional clients and advisors

› Retirement funds

› Umbrella funds

› Life insurance companies

› Third-party multi-managers

› Third-party unit trust management companies

› Trusts

› Investment Consultants/Advisors

› Performance in line with expectations

› Provision of appropriate investment and savings products to meet evolving needs

› Client service excellence

› Administration accuracy

› Regular communication

› Reasonability of cost

› Security of assets

› Adoption of the principles of Treating Customers Fairly framework

› Dedicated client service team of well-trained investment professionals

› Regular client meetings and operational due diligences

› Quarterly report-back presentations

› Monthly administration reports, investment reports and fund fact sheets

› Quarterly regulatory reporting

› Access to daily investment and performance data via Sygnia’s portal, Sygnia Platinum Light

› Monthly economic and market commentary

› Institutional investor website (www.sygnia.co.za), which includes comprehensive product descriptions and monthly performance reports

› Formal client complaints procedure

Retail clients and advisors

› Performance in line with expectations

› Appropriate product range

› Access to savings products

› Client service excellence

› Administration accuracy

› Regular and clear communication

› Ease of transacting

› Access to financial planning advice

› Reasonability of cost

› Security of assets

› Adoption of the principles of Treating Customers Fairly framework

› Dedicated client service and business development teams

› Client Relationship Management call centre

› Quarterly investment reports distributed to clients

› Monthly economic and market commentary

› Access to daily investment and performance data via Sygnia’s portal, Sygnia Alchemy

› Sophisticated transacting functionality available via Sygnia Alchemy

› Dedicated advisor functionality within Sygnia Alchemy, which allows for bulk information retrieval and transacting

› Access to free investment planning advice via the digital financial planning tool, the Sygnia RoboAdvisor

› Retail investor website (www.sygnia.co.za), which includes comprehensive product descriptions, marketing documentation and monthly fund fact sheets

› Formal client complaints procedure


Business overview/


Staff members › Market-related remuneration

› Performance recognition

› Ongoing development and training

› Career progression

› Job security

› Comfortable working environment

› Alignment of values

› Alignment of ethical and social standards

› Market-related remuneration

› Opportunity to qualify for an annual performance-based bonus

› Ongoing internal training and development, both on-the-job as well as through the Sygnia Academy training sessions open to all staff

› External training opportunities

› Financial support for approved study courses and regulatory exams

› Biannual performance appraisals

› Team-building activities, company functions and other sponsored events

› Presentations by CEO to staff on strategy and results

› Clearly articulated codes of conduct, ethical standards and governance and risk policies

› Transparent and staff-inclusive ESG and CSI policies and practices

Regulatory bodies

› Financial Sector Conduct Authority

› South African Revenue Service

› Financial Intelligence Centre

› National Treasury

› Johannesburg Stock Exchange

› Prudential Authority

› Regulatory compliance across all aspects of the business

› Transparency

› Active engagement with the regulators on an ongoing basis

› Provision of commentary on proposed regulatory changes

› On-site visits by the regulators

› Ongoing reporting to the regulators

› Ad hoc discussions and engagement based on an open and transparent relationship with the regulators

› Participation in industry bodies, including ASISA, SAICA project groups and ASSA

› Provision of commentary on draft legislation


Business performance

OverviewThe Group’s performance can be evaluated based on six core criteria:

· Assets under management and administration growth · Investment performance · Client service · Governance · Staff satisfaction · Shareholder value

These criteria inform all of Sygnia’s long-term and short-term business strategies.

Asset growthSygnia’s revenue is linked to its assets under management and administration, and the Group is reliant on both market movements and new business inflows for growth. Sygnia’s assets under management and administration increased by 20.7% to R222.6 billion over the 12 months to end September 2018 (2017: R184.3 billion).

The institutional assets under management and administration increased by 17.0% to R195.0 billion (2017: R159.7 billion), while retail assets under management rose by 11.7% to R27.6 billion (2017: R24.7 billion). Assets under administration on the Sygnia LISP platform, launched in October 2013, and which are not included in the headline asset numbers to avoid double counting, rose from R6.6 billion a year ago to R9 billion, with an additional 5 821 accounts being opened by retail investors during the year (2017: 8 237 accounts).

Growth in assets under management and administration

*SEP 07 to SEP 18

SEP 07 SEP 08 SEP 09

Sygnia Institutional Sygnia Retail

SEP 17 SEP 18SEP 16SEP 15SEP 14SEP 13SEP 12SEP 11SEP 10

R4.7BN R4.5BN

R40.4BN

R62.7BNR70.4BN

R4.5BNR82.7BN

R5.9BNR103.0BN

R7.5BNR105.1BN

R8.7BNR127.9BN

R11.3BNR147.1BN

R24.7BNR159.7BN

R27.6BNR195.0BN

240

180

120

60

210

150

90

30

0


Business performance/

Allan Gray

3.0% 4.0% 5.0%

Risk (standard deviation)

6.0% 7.0% 8.0%

Retu

rn

11.0%

10.5%

10.0%

9.5%

9.0%

8.5%

8.0%

7.5%

7.0%

Momentum Enhanced 5

AF Investments Low Equity

AF Investments Conserver

Foord

Stanlib

Absa

Coronation

AF Investments 62.5% Equity

AF Investments 37.5% EquityAF Investments Medium Equity

Sygnia Signature 40 FundSygnia Signature 50 Fund

Sygnia Signature 60 Fund Sygnia Signature 70 Fund

Sanlam MM 60

Momentum Enhanced 6

Momentum Enhanced 3

Momentum Classic 7

Momentum Classic 6

Investec

Sanlam

Oasis

AF Investments High Equity

Sanlam MM 70

Nedgroup XS Guarded

Prudential

AF Investments Spectrum

AF Investments Performer

Momentum Flexible 6 Momentum Flexible 7OMIGSA

Momentum Enhanced 4

Momentum Enhanced 7

Sygnia Skeleton 50 Fund

Sygnia Skeleton 40 Fund Sygnia Skeleton 70 FundSygnia Skeleton 60 Fund

Sanlam MM 50

Investment performanceSygnia’s institutional products continued to deliver excellent long-term returns to clients. Although 2018 was a challenging year in terms of managing investments against a background of an emerging market sell-off, global and domestic political risks, unpredictable actions by central banks and deteriorating economic fundamentals, Sygnia’s investment performance remains highly compelling across all of its products.

Of our flagship risk-profiled multi-manager products, the Sygnia Signature 40, 50 and 60 funds ranked first, while the Sygnia Signature 70 Fund ranked second in terms of returns over one year in their respective risk categories in the Alexander Forbes MultiManager WatchTM Survey to the end of September 2018. Over five years the Sygnia Signature 40, 50, 60 and 70 funds all ranked first in their respective categories.

Sygnia Signature range forms the efficient frontier in peer group surveys

5-Year risk and return scatterplot to 30 September 2018

Source: Alexander Forbes Multi-Manager WatchTM Survey, Alexander Forbes Global Large Manager WatchTM Survey



Retail highlights:

Most of Sygnia’s unit trusts feature in the first quartile in terms of peer group performance comparisons in their respective categories.

· The Sygnia Skeleton Balanced 70 Fund, a passively managed high-equity multi-asset class unit trust, ranked 13th out of 93 unit trusts*, most of them actively managed, in the South African – Multi-Asset – High Equity category since its inception in October 2013 to September 2018.

· The Sygnia Skeleton Balanced 60 Fund, a passively managed medium-equity multi-asset class unit trust, ranked 3rd out of 56 unit trusts*, most of them actively managed, in the South African – Multi-Asset – Medium Equity category since its inception in May 2014 to September 2018.

· The Sygnia Skeleton Balanced 40 Fund, a passively managed low-equity multi-asset class unit trust, ranked 9th out of 85 unit trusts*, most of them actively managed, in the South African – Multi-Asset – Low Equity category since its inception in March 2014 to September 2018.

· The Sygnia SWIX Index Fund, a passively managed equity unit trust, ranked 31st out of 106 unit trusts*, most of them actively managed, in the South African – Equity – General category since its inception in October 2013 to September 2018.

· The Sygnia Top 40 Index Fund, a passively managed equity unit trust, ranked 3rd out of 12 unit trusts*, most of them actively managed, in the South African – Equity – Large Cap category since its inception in November 2013 to September 2018.

· The Sygnia Active Equity Fund, an actively managed equity unit trust, ranked 31st out of 117 unit trusts*, in the South African – Equity – General category since its inception in August 2014 to September 2018.

· The Sygnia Growth Fund, an actively managed equity unit trust, ranked 83rd out of 136 unit trusts*, in the South African – Equity – General category since its inception in January 2016 to September 2018.

· The Sygnia Equity Fund, an actively managed multi-manager equity unit trust, ranked 48th out of 104 unit trusts*, in the South African – Equity – General category since its inception in August 2013 to September 2018.

· The Sygnia CPI + 2% Fund, an actively managed low-equity multi-asset class unit trust, ranked 15th out of 108 unit trusts* in the South African - Multi-Asset - Low Equity category for the three years to September 2018.

· The Sygnia CPI + 4% Fund, an actively managed medium-equity multi-asset class unit trust, ranked 16th out of 65 unit trusts* in the South African – Multi-Asset – Medium Equity category for the three years to September 2018.

· The Sygnia CPI + 6% Fund, an actively managed high-equity multi-asset class unit trust, ranked 30th out of 121 unit trusts* in the South African – Multi-Asset – High Equity category for the three years to September 2018.

· The Sygnia International Flexible Fund of Funds, an actively managed global multi-asset unit trust, ranked 2nd out of 15 unit trusts*, in the Global – Multi Asset – Flexible category since its inception in June 2014 to September 2018.

· The Sygnia Skeleton International Equity Fund of Funds, a passively managed global equity unit trust, ranked 8th out of 46 unit trusts*, in the Global – Equity – General category since its inception in November 2015 to September 2018.

· The Sygnia 4th Industrial Revolution Global Equity Fund, a passively managed global equity unit trust, ranked 2nd out of 50 unit trusts*, in the Global – Equity – General category since its inception in October 2016 to September 2018.

*Source: MoneyMate



Client serviceSygnia recognises that the key to its past and future success is winning, delighting and retaining clients. Consequently, it strives to build a client-centric culture across the Group. Client service excellence is prioritised and embedded in every aspect of its interaction with external stakeholders.

Dedicated retail and institutional client service teams are staffed by professionals who are put through extensive training prior to servicing clients.

In the world of technology evolution, Sygnia is ahead of its peers in the financial services industry by offering its clients daily access to information on their investment strategies and performance. The leading-edge internet-based systems, Sygnia Platinum Light and Sygnia Alchemy, are essential components in the provision of these services. Both systems include an array of functionality, which enables clients to evaluate their investments online and helps them to make informed investment decisions. The retail portal, in particular, has expanded in 2018 with further enhancements to the financial planning tools, online transacting functionality and dedicated financial advisors’ portal reporting. Furthermore, the addition of Sygnia Itrix to the Group and hence the suite of ETFs now available on the retail platform accelerated the functionality to accommodate these additional products. There has also been considerable attention applied to the SURF functionality allowing members to access information proactively on their fund credits instead of being dependent on infrequent benefit statements.

These enhancements are all specifically added with the end goal of targeting the client service experience. The development of the online platforms is ongoing and is based on the feedback received from clients and financial intermediaries.

Sygnia’s report back presentations and monthly investment publications, and in particular its simple and clear macro-economic analysis, have become a very popular source of information for many of Sygnia’s clients. The number of requests for these presentations is growing every year, with many clients and intermediaries using the analysis as a basis for their own decision-making and advice.

GovernanceSygnia has a rigorous corporate governance framework in place, which includes a unitary board and a number of board committees, supported by the appointment of independent assurance providers.

The responsibility for the maintenance of the corporate governance framework rests with the Group’s risk, legal and compliance departments, supported by advice provided by external risk, legal, regulatory and compliance experts.

Risk management follows an integrated approach and is well entrenched in the operations of the Group.

No material issues were identified in 2018 that could expose the business to any actual or contingent risk. The board is of the opinion that the Group has applied all significant governance principles with a strong focus moving forward on supporting the practices outlined in King IV in 2018.



Staff satisfactionSygnia’s key asset is its people, who with the expertise, experience and vision of the management team will lead the business into the future. Commitment, involvement, teamwork and excellence govern all the services delivered by the company to its clients and other stakeholders.

Sygnia employs a staff complement of 213 (2017: 181). The growth in staff numbers has been steady and continues to bolster the capacity and capability of the employee benefits and retail areas of the Group. In addition, a number of executive appointments strengthened the management team. The scalability of the business infrastructure and the strong focus on training allows for the quick integration of new staff. Sygnia maintains an uncompromising focus on ensuring that all its staff share Sygnia’s passion and values. Sygnia maintains a relatively flat management structure, although the growth of the business has dictated more rigour in the manner in which divisions are set up, managed, trained and evaluated. The human resources team has also been strengthened to manage the growth in staff numbers and there has been continual roll-out of initiatives that include peer review processes, wellness evaluations and staff integration mechanisms.

Transformation and gender equality are part of the fabric of the Group, with a strong focus on attracting and promoting talented individuals from diverse backgrounds. Staff retention is critical to the success of the business.

For further details on human capital please refer to page 50.

Shareholder valueThe senior management team has successfully grown Sygnia from a start-up in 2006 to a Group with R222.6 billion in assets under management and administration as at 30 September 2018. Sygnia Limited listed on the main board of the JSE on 14 October 2015. Management and staff retained 66% of the shares after the listing (which is now at 60% as a result of the dilution due to the rights offer in 2017), and remain committed to the long-term success and growth of the business, and the corresponding shareholder value creation.


Future growth strategiesSygnia has a strong culture of innovation and entrepreneurship that over the past 13 years has led to growth in the services it offers and the clients it attracts throughout South Africa. This same culture will drive the Group going forward. The Group’s operational and systems infrastructure has proven its scalability and is an excellent foundation for the future growth areas described below. The next year is designed to focus on growth rather than on expansion of Sygnia’s footprint. The foundations have been laid and the challenge lies in growing each area into a significant competitor relative to its peers. Its low cost savings and investment products, technology and flexibility in customising solutions for investors means that it is well positioned to benefit from many regulatory changes on the horizon.

Institutional multi-manager businessSygnia’s investment performance has been consistently strong. On the multi-manager front, Sygnia is recognised as one of the leading multi-manager companies in South Africa, with many established distribution channels and products, which enjoy the support of a number of large employee benefits consulting companies. This is expected to continue.

Institutional investment administration/platform businessSygnia’s investment administration sets it apart from its competitors in the financial services industry due to its unique technology which underpins the service. The Group is thus well placed to take advantage of the growing demand for platform services among large institutional investors, including parastatals, municipalities and umbrella funds. The fee scale is expressed as a percentage of assets under administration, which despite being low-margin for Sygnia, provides excellent value for money for institutional clients. This also allows Sygnia access to large retirement funds in terms of exposing clients to its other services.

Index-trackingSygnia has a 15-year performance track record in managing index-tracking funds and the longest South African track record in managing risk-profiled balanced index-tracking products. The Group will continue to offer superior service and harness the growing demand among institutional and retail investors, who not only need to be compliant, but are also seeking value for money and low-cost investment alternatives. Demand is expected to grow exponentially, both in terms of local and offshore products, as a result of Default Regulation which obliges boards of trustees of retirement funds to consider both passive strategies as well as the management fees they are paying.

Exchange traded fundsSygnia is the second largest provider of ETFs listed on the JSE, as well as the largest provider of international ETFs, with a 12-year performance track record. The Sygnia Itrix product range offers a trusted, transparent and flexible way for South Africans to invest in overseas and domestic stock markets. These ETFs provide an enhanced suite of products across various indices. Sygnia has enlisted the services of Jane Street, one of the largest ETF market-makers in the world, to provide liquidity on the JSE through their tight bid-offer spreads, which lower the cost of access for investors. The Sygnia Itrix ETFs referencing foreign assets should also benefit from the weak demand for domestic stocks and the desire of retail investors to diversify their currency risk away from the rand. They also serve as an easy offshore access point for institutional investors. For Sygnia, the product suite ensures that it earns a substantial portion of revenue in foreign currency which provides diversification from rand-based revenue only.


/ Future growth strategies

Retail multi-manager businessSygnia’s multi-manager unit trusts continue to enjoy the support of a large group of independent financial advisors due to the cost effectiveness of the proposition, appropriate investment objectives, and good longer-term investment performance. Sygnia’s penetration of the independent financial advisory market has increased, but there is opportunity for significant additional growth.

Retail investment platformSygnia’s LISP platform remains a strategic priority and the method through which it intends to leverage its retail offering. To that effect, rather than deploying expensive local software development resources to something that can easily be licensed in the international arena, Sygnia has made a strategic decision to outsource the platform provision to the world’s leading service provider in that area. The project is well advanced and should result in Sygnia being able to offer retail investors the best platform proposition with the most scalability of any platform service provider in South Africa. As it stands the Sygnia LISP is the only platform that facilitates access to unit trusts, unitised life funds, ETFs and ETNs. The awareness of the platform is best demonstrated by the fact that the number of investors using the platform has almost doubled in the past 12 months. Sygnia expects its retail market penetration to increase significantly with the launch of a new distribution initiative later in 2018.

Sygnia Employee BenefitsThe Sygnia Umbrella Retirement Fund has significant opportunity for growth as greater consolidation is predicted due to the new Default Regulations, as well as the National Treasury’s desire to reduce the number of stand-alone retirement funds from over 1600 to 200. The increased regulatory scrutiny and requirements have made it onerous to run stand-alone funds and Sygnia expects more corporates to opt for umbrella fund arrangements. At the same time the enhanced cost disclosure requirements, which come into force on 1 March 2019, should serve as a great boost to SURF which is the most cost-effective umbrella fund arrangement in South Africa by a wide margin. SURF offers both passive and multi-manager investment options, seamless preservation and annuitisation for members leaving or retiring, and a unique Sygnia ForLife annuity option that marries the benefits of investment decision-making control whilst insuring against longevity risk.

Sygnia SecuritiesSygnia Securities continues to support Sygnia’s index-tracking products (including ETFs) and transition management services. Sygnia has invested in both the staff and technology underpinning Sygnia Securities in order to ensure that the business can expand further by servicing third-party clients. Given the size of its passive products, Sygnia introduced scrip lending as a service.

Product innovationSygnia continues to strengthen its “fintech” brand positioning and is actively exploring “new world” opportunities. The Sygnia 4th Industrial Revolution Global Equity Fund has delivered strong returns of over 22.0% over the past two years. Sygnia launched the Sygnia FAANG Plus Equity Fund in 2018 to allow investors a concentrated access to some of the world’s largest technology companies. The fund has already started to attract significant interest.


/ Future growth strategies

International expansionSygnia has developed a strategy for entering the UK market in a very low-cost, low-key manner, based on its new retail distribution business model in South Africa and a passive product offering. The UK has a similar regulatory environment to that of South Africa, and the economic impact of Brexit should create unusual opportunities that were not available before.

Regulatory changes in Sygnia’s favourThe new Default Regulations governing retirement funds present an enormous opportunity for Sygnia. All retirement funds have to introduce three new default strategies that relate to the accumulation (growth and preservation) and decumulation (retirement) phases of retirement savings. Sygnia’s house view product ranges, Sygnia Signature and Skeleton, are ideally placed to meet these default strategy requirements. In addition, given its retail administration platforms and products, Sygnia is well positioned to offer a seamless transition into the same-cost savings products to members of retirement funds when leaving employment or retiring. The deadline for compliance with the Regulation is 1 March 2019. In addition, the recent ASISA Standard: Retirement Savings Cost (“RSC”) Disclosure will come into effect on the same date. The RSC Disclosure standard sets out the minimum standards for fee disclosure in relation to asset management, savings products and umbrella funds. The level of disclosure is very onerous. Sygnia, as the lowest-cost savings provider in South Africa, has been at the forefront of fee disclosures and should benefit from the fact that its competitors now need to meet the same standards that it has been promoting for a number of years.


Corporate governanceSygnia is committed to the principles of sound corporate governance and holds itself to the highest standards of integrity and ethical behaviour.

The board of directors has established processes and policies appropriate for Sygnia to ensure that the Group applies the principles outlined by King IV. The board of directors confirms the implementation of the King Code through the application of the King Code disclosure and application regime.

Board of directorsIn compliance with the recommendations of King IV, Sygnia’s unitary board of directors comprised three executive directors, a non-executive chairman, a lead independent non-executive director and three independent non-executive directors as at 30 September 2018.

The roles of chairman and chief executive officer have been separated. An approved board charter regulates the directors’ obligations in respect of the Group, which ensures that not one director has unfettered power of decision making. The profiles of directors are detailed on pages 9 to 12.

The constitution of the board dictates that it promotes gender and race diversity among its directors. As it stands, 50% of the current board members are non-white and 25%, which includes the CEO, are women (one of whom is non-white).

In reviewing board composition, Sygnia’s nomination committee is committed to considering the benefits of all aspects of diversity, specifically gender and race diversity, in order to discharge its duties and responsibilities effectively. During the current year two new board members were appointed, including a non-executive director and an executive director. Mcebisi Jonas, former Deputy Finance Minister of South Africa, and David Hufton, Deputy CEO of Sygnia Limited, were both appointed to the board with effect from 1 September 2018. The nomination committee will discuss and agree all measurable objectives for achieving gender and race diversity on the board and recommend them to the board for adoption. The board’s long-term aim is to ensure that at least 50% of the board of Sygnia is made up of people who are non-white, and at least 33% of the board of Sygnia is made up of women.

The board is accountable to shareholders and is responsible for managing relationships with all stakeholders. It provides strategic input to management and approves the implementation of strategic plans in order to create sustainable value for all the stakeholders. In creating such value the board is, at all times, governed by the need for ethical conduct, business sustainability, strong corporate governance and rigorous risk management. The board has full and effective control of the Group, which is exercised through senior management and the subsidiary boards.

The board selects and appoints the company secretary in recognition of the importance of this role in entrenching good corporate governance. All directors have unlimited access to the services of the company secretary who, in turn, has access to appropriate resources in the provision of this support. This involves obtaining independent professional advice on any issues that may arise.

Glen MacLachlan serves as company secretary, appointed by the board, in accordance with the Companies Act. The board is satisfied as to his competence, qualifications and experience. There is an “arm’s length relationship” between the board and the company secretary in that the objectivity and independence of the company secretary is not unduly influenced.

Senior management reports to the board on the development and implementation of the Group’s strategies. The board has set up the following committees to assist in the process of monitoring the implementation of strategies and policies adopted by the board:


Corporate governance/

· Audit committee · Risk committee · Remuneration and nominations committee · Social, ethics and transformation committee · Group IT steering committee

All the committees discharge their responsibilities on behalf of the company as well as its subsidiaries.

The board and the committees are guided by their respective committee charters. The committees rely on the management of the Group for the implementation of strategies and policies.

The composition of the board and its committees, as at 30 September 2018, is detailed below.

Board of Directors

Audit Committee

Risk Committee

Remuneration Committee

Social, Ethics and Transformation Committee

Group IT steering committee

Haroon Bhorat Chair Invitee Member Member Member

Ken Hopkins Non-Executive Director

Chair Chair Member

Shirley Zinn Non-Executive Director

Member Chair Chair

Kaizer Moyane Non-Executive Director

Member

Mcebisi Jonas Non-Executive Director

Simon Peile Invitee Member

Magda Wierzycka CEO Invitee Member Member

Michael Buckham Director Invitee Member Member Member

David Hufton Director Invitee Invitee

Wojciech Wierzycki Invitee Chair

Glen MacLachlan Invitee Invitee Invitee Invitee Member

Non-Executive Director Independent Non-Executive Director Senior Executive

The board meets a minimum of four times a year to review and discuss the performance of the Group, any strategic issues and other matters regarded as material. Material decisions may also be taken between meetings through written resolutions, as provided for in the Memorandum of Incorporation.

Non-executive directors receive fees for their services, as directors of the board, and for services as members of committees.

The board has also approved the strategic direction of the Group for 2019.

The board is responsible for the appraisal of its own performance, the performance of its committees and that of the chief executive officer. A formal evaluation was performed in June 2018.



Board and committee attendanceThe attendance record relates to the current financial year to 30 September 2018. Mcebisi Jonas and David Hufton were appointed with effect from 1 September 2018. Niki Giles resigned with effect from 5 September 2018.

Board of Directors

Audit Committee

Risk Committee

Remuneration Committee

Social, Ethics and Transformation Committee

Group IT steering committee

Number of meetings held during the year

4 4 4 3 2 1

Haroon Bhorat 100% 100% 75% 100% 100%

Ken Hopkins 100% 100% 100% 67%

Shirley Zinn 100% 100% 100% 100%

Kaizer Moyane 75% 100%

Mcebisi Jonas

Simon Peile 75% 75%

Magda Wierzycka 100% 100% 100%

Michael Buckham 100% 100% 100% 100% 100%

David Hufton 100% 25% 25%

Wojciech Wierzycki 100% 100%

Glen MacLachlan 100% 100% 100% 100% 100% 100%

Niki Giles 75% 50% 100% 67% 100%

Audit committeeThe Group audit committee is chaired by an independent non-executive director, who is also the chair of the risk committee and consists of a further two independent non-executive directors. The committee meets four times a year, as well as on an ad hoc basis if required.

The audit committee is responsible for assisting the board in the oversight and review of the financial management of the Group’s activities. To achieve this the audit committee takes responsibility for ensuring the integrity of the financial reporting process, internal reporting and control processes, management of strategic and major financial risks and the external audit process.

It makes recommendations to shareholders on the appointment of the external auditors, and is responsible for the appointment of the internal auditors. It also reviews financial information and takes responsibility for the preparation of the annual financial statements and the integrated report.

In turn, management is accountable to the audit committee for ensuring that the financial risk management processes and controls are incorporated into the day-to-day activities of the business. This includes the development, implementation and monitoring of such processes and controls. The chairman of the committee reports on the status of the external and internal audit and compliance, and financial risk management functions at the board of directors’ meetings.


/ Corporate governance

The audit committee is responsible for the recommendation to shareholders of the appointment of external auditors of the Group, and as such recommended the reappointment of Deloitte as external auditors, as well as the approval of their terms of engagement. In conjunction with the risk committee, the audit committee also confirmed the reappointment of PwC as internal auditors for 2018, as well as approving the internal audit plan for the Group. The audit committee has confirmed that it has executed its responsibilities in so far as it has requested the necessary information required to assess the sustainability for appointment of the auditors and the designated individual partner.

The audit committee is satisfied that the financial director has appropriate expertise and experience to perform the duties required by the position.

Risk committeeThe risk committee is chaired by an independent non-executive director, who is also the chair of the audit committee, and includes the chairman of the board of directors, an executive director and the head of investments.

In conjunction with the audit committee, the risk committee supervises the internal audit, reviews its recommendations and advises the board of directors on the effectiveness of the Group’s internal control systems and processes, as well as on any issues that require prioritisation.

Remuneration committeeThe remuneration committee is chaired by the lead independent non-executive director, and consists of two other independent non-executive directors and one executive director. The composition of the remuneration committee will be reassessed as part of further enhancements towards King IV best practice.

The remuneration committee is responsible for the appointment of directors, who are equipped to fulfil the role with skill and integrity. It is also tasked with ensuring that the Group recruits and retains talented management and that appropriate remuneration policies and succession plans are in place to support the strategy of the Group. The committee reviews the level of executive remuneration to ensure it is market related and competitive. It also approves the overall nature and appropriateness of benefits available to staff, including long-term incentives, annual bonuses, and health and retirement benefits.

The committee may consult external experts on remuneration structures to assist it to fulfil its obligations, as well as commissioning external remuneration surveys.

In 2015, the remuneration committee recommended to the board the implementation of a share option scheme for key staff members ahead of the listing. The scheme remained in place in 2018 with no changes.



Social, ethics and transformation committeeThe social, ethics and transformation committee is chaired by an independent non-executive director and consists of one other non-executive director, who is also the chairman of the board, and the chief executive officer.

The objective of the social, ethics and transformation committee is to ensure that high ethical standards are applied across the Group, as well as to review and approve the policy, strategy and structure for managing transformation and social issues. The committee oversees the implementation, monitoring and reviewing of the Group’s activities in relation to the following key areas:

· Ethical conduct · Environmental, social and governance policies · Corporate social investment · Human resources development · Labour and employment practices, including health and safety policies · Consumer protection and relationship management · Transformation

The committee monitors and reviews all transformation strategies designed and implemented by management. It is responsible for reviewing the annual transformation scorecard and assesses and provides feedback to the board on transformation initiatives undertaken by management. The committee complies at all times with the prevailing regulatory framework, including transformation scorecards and the Group’s strategic objectives.

Group IT steering committeeThe Group IT steering committee is chaired by the Group’s head of IT and systems development, and includes one executive director. Due to the specialist nature of the committee’s work it does not include non-executive directors.

The Group IT steering committee is responsible for establishing IT and systems development strategies for the Group, including policies in respect of systems development, business continuity and systems security. The committee is also responsible for the implementation, monitoring and review of all such policies. It also determines business priorities in terms of IT investment initiatives and approves such priorities or makes recommendations to the board of directors as appropriate.

The chair of the committee reports to the board of directors and the risk committee on matters relating to IT and systems strategy and security.


Risk management and compliance

Risk managementThe risk management framework adopted by the Group recognises that risk is an unavoidable and a multi-faceted aspect of providing complex financial services. Risk management requires expert knowledge, independent review and monitoring, and frequent communication to stakeholders.

Risks need to be identified, assessed, managed and reviewed. The prioritisation of risks is important to ensure that resources are optimally allocated to support the Group’s strategic objectives. The evolving financial services landscape, changing regulation and the exponential growth of the Group, including ongoing new business initiatives undertaken by the Group, dictate that risk management is an evolutionary process, adaptable to prevailing market and business conditions and to the Group’s expansion strategies.

The board of directors is responsible for ensuring that risks are managed effectively and efficiently. In doing so, the board needs to take into account all relevant regulation.

The board’s risk profile ultimately determines the nature of business strategies adopted by the Group. The responsibility for the design and implementation of the risk management process is delegated to senior management, who are then responsible for compliance with the risk management framework. This function is subject to independent review by the Audit and Risk Committees, which ensure that consistent policies and procedures are established for measuring, managing and reporting risk.

The chairman of both committees provides feedback on risk management and compliance to the board at its regular meetings.

The group’s objectives regarding risk management and compliance are to: · Set the risk appetite for the Group · Approve the Group’s short, medium and long-term strategy after careful consideration of all the associated risks · Comply with appropriate risk management practices in terms of corporate governance guidelines and King IV · Ensure that the risks are consistent with the risk appetite and tolerance limits set by the board · Accurately and regularly identify, assess, manage and review all risks facing the Group · Continuously improve the Group’s ability to identify, assess, manage and respond to risks facing the Group · Create Group-wide awareness and understanding of all potential risks facing the Group by training and managing

staff, as well as involving them in the risk management process · Ensure that risk management and compliance form part of all daily operational processes · Instill a culture of risk management accountability at all levels within the Group · Hold management accountable for the risk management and compliance functions · Communicate the Group’s risk management framework to all stakeholders on a regular basis

Management is responsible for identifying the risks facing the Group, ensuring that the controls established to manage those risks are effective and for monitoring their application. Risks are evaluated using the approved risk measurement methodology as defined in the risk management framework. Annual risk management workshops are held with senior management to identify strategic risks and with each key department to identify operational risks. Follow-up workshops are held within six months to reassess the identified risks and detect additional risks that may have arisen. Ongoing monitoring is performed by a dedicated risk manager. Ad hoc risk workshops may be held if new business initiatives or ventures are undertaken by the Group. All risks are identified, ranked in order of materiality and then actively managed, either being terminated, tolerated or managed through mitigating controls. The effectiveness of these controls is also assessed. The results of all the workshops are presented to the risk committee and in a summary form to the board.

The Group has identified numerous risks facing the Group and is committed to continuously improving its risk management framework and instilling the risk management discipline through processes, procedures, planning, reporting and training and through integrating risk management into the Group’s corporate culture.

The board is not aware of any material issues in relation to the risk management and compliance functions that may have arisen in 2018.


Risk management and compliance/

Risk matrixThe risk matrix summarises the major risks facing the Group, as well as the mitigating controls put in place to manage the identified risks.

Risk Explanation Management And mitigation

Market risk › The risk of clients achieving poor investment performance relative to expectations, or of capital losses to the Group’s capital investments, as a result of the domestic and international financial markets’ performance.

› The investment risks are managed by an investment committee of experienced investment professionals.

› The investment team evaluates the domestic and international market conditions on a continuous basis and makes decisions based on a structured and well-established investment process and philosophy.

› In many cases the management of assets is outsourced to expert asset managers, who apply their own processes in mitigating risk of capital losses. The managers are selected and regularly monitored by Sygnia’s investment team based on predetermined criteria. This includes the assessment of their investment and risk management processes.

› The Group’s statutory capital is mostly invested in cash and money-market assets as per regulatory requirements. The balance is well diversified between asset classes and between domestic and international markets, in line with Group’s Capital Investment Philosophy.

› Frequent and transparent communication with clients.

› Complaints procedures and escalation policies facilitate swift handling by appropriate staff.




Regulatory and legal risk

› The risk of changes in legislation, regulation, supervisory requirements and industry codes by regulatory authorities having an adverse impact on the existing business of the Group.

› The risk of non-compliance with existing regulations.

› The risk of non-compliance with the requirements of the new Financial Sector Charter.

› Sygnia has a dedicated legal and compliance team in place, which monitors and assesses the impact of any regulatory change and advises management. The team also proactively engages with regulators on an ongoing basis to ensure compliance with all applicable legislation. Clarity on regulation and guidance are often sought from the regulators. The Group may seek outside counsel if required.

› The compliance officers and legal staff are members of appropriate bodies and keep abreast of all industry, legislative and regulatory changes.

› Engagement with the regulators and other participants in the financial services industry on issues of common interest through staff participation in industry bodies such as ASISA, SAICA, ASSA and the Compliance Institute of South Africa.

› Regular training of management and staff about new legislation and Financial Advisory and Intermediary Services Act No. 37 of 2002 (“FAIS”) and Financial Intelligence Centre Act No. 38 of 2001 (“FICA”) requirements.

› Ongoing monitoring of all statutory capital requirements across the Group and reporting to the board and statutory actuary.

› There is specific focus on the new Solvency and Assessment Management (“SAM”) requirements and the implementation of such within both Sygnia Life and the Group.

› Regular review of strategies put in place to maximise the Group’s status in terms of compliance with the Financial Sector Charter.

Operational risk › The risk of errors or fraud arising as a result of breakdowns in internal control functions in respect of processes, systems and people.

› Sygnia has and continues to implement automation of processes through ongoing systems development.

› All incidents are documented and automatically escalated to the internal risk and compliance committee, and the compliance officer. Mitigating controls are put in place as soon as possible.

› An internal risk and compliance committee assesses the internal controls environment, identifying areas for improvement. The committee meets monthly.

› The risk workshops held at departmental level are used to identify, assess and manage operational risks.

› Biannual type II ISAE 3402 audit is performed by Deloitte on the internal processes and controls for the purposes of independent assurance. The reports are made available to all clients.

› Insurance cover well in excess of independently recommended or regulated amounts has been put in place.

› Unethical or dishonest business practices are actively discouraged and punished, and a staff whistleblowing policy is in place.




Systems risk › The risk of IT or systems disruptions.

› Sygnia has a dedicated IT department and two software development teams supporting its IT infrastructure and systems. Dedicated staff within each systems development team support client-facing systems.

› All code and data are backed up daily and stored offsite. Hence all systems and data can be restored to previous versions if required.

› A Group IT steering committee oversees the strategy and policies in relation to IT and systems projects, as well as security.

› A comprehensive business continuity plan is in place and is tested on a regular basis.

› Software and hardware throughout the organisation is updated and tested in terms of the disaster recovery plan.

› All new codes releases and systems changes follow a strict testing protocol and sign-off before being deployed in a live environment.

› All systems documentation is in place for internally developed systems.

› All vendor software is appropriately licensed.

› All data and systems are continually monitored with respect to their exposure to cyber attacks.

Business risk › The risk that poor investment performance or administration function may result in client losses.

› The investment risks are managed by an investment committee of experienced investment professionals, who follow a structured and well-established investment process and philosophy.

› All investment decisions, as well as the state of the financial markets, are explained and communicated to clients on a regular basis.

› Third-party asset managers are monitored on a daily basis for performance deviations from expectations. Any deviations are addressed with the managers and mitigating action is taken if required.

› A client-service culture is instilled in all staff members.

› Dedicated retail and institutional client service teams are in place to deal with client service related issues and to manage relationships on a proactive basis.

› Access to daily information is provided to clients via dedicated retail and institutional internet-based platforms.

› Complaints procedures and escalation policies are in place, for both the retail and the institutional divisions, to ensure that all complaints are handled as quickly as possible by the appropriate staff.




Reputational risk

› The risk that a decision, event or action could compromise or damage Sygnia’s brand.

› The Group recognises the importance of its brand and reputation to its ability to create value for stakeholders. The management of all aspects of that reputation is vital to the Group. The highest ethical standards are required of all staff.

› Personal trading policies are in place and are monitored on an ongoing basis. The policies comply with the requirements of the General Code of Conduct for Financial Services Providers and Representatives.

› Staff are obliged to trade through the in-house stockbroker unless the requirement is explicitly waived by the Group compliance officer.

› Fit and proper policies are in place and ongoing monitoring is performed on key individuals and representatives of the Group.

› A policy is in place regarding all media or social media engagement.

› Both channels are actively monitored by dedicated staff.

› Complaints procedures and escalation policies are in place, for both the retail and the institutional divisions, to ensure that all complaints are handled as quickly as possible by the appropriate staff.

Human resource risk

› The risk of key or senior client-facing staff leaving, which could negatively affect the Group’s operations, marketing efforts and financial results.

› Sygnia’s remuneration policy is designed to attract and retain skilled and experienced staff.

› A B-BBEE staff scheme is in place for qualifying black staff. The allocations depend on seniority and risk posed by potential departure to the business.

› A share option scheme is in place for senior management and key staff.

› Post-listing, staff own approximately 66% of the Group. The majority of the shareholding rests with the key executives of the Group.

› The Group has an appropriate succession plan in place.

› The Group commits to the delivery of training of both technical competence for all staff and also development of strong supervisory skills to support the culture.




New business risk

› The risk of launching an unsuccessful new business venture or product, or an inability to grow the client base in future.

› All proposed new business ventures are subject to extensive debate, both internally and with external experts, and to thorough research. All relevant stakeholders are consulted before proceeding, including clients and business partners.

› All new proposed products follow a strict internal approval and authorisation process.

› Any unsuccessful business venture or product is terminated in a timely manner.

› Ongoing market research is undertaken to ensure that new products and business ventures are launched in response to a realistic need in the market.

› Priority is given to proactive and ongoing marketing and business development strategies.

› Dedicated business development teams are in place for both the institutional and the retail divisions.

Disaster recovery and business continuity risk

› The risk that business is unable to operate due to unforeseen events or external factors.

› A comprehensive business continuity plan is in place and is tested on a regular basis. The plan provides guidance on the restoration of the core business functions and IT infrastructure.

› All systems codes and data are backed up daily and stored offsite. Hence all systems and data can be restored to previous versions if required.

› A disaster recovery site is maintained to ensure that key management and staff can resume operations in the event of a disaster.

› Daily retail client data is stored in an offshore location by an international data storage vendor.

› Offices in Cape Town, Johannesburg and Durban are equipped with generators capable of maintaining all business processes.



AssuranceA combined assurance framework has been adopted by the Group to verify the effectiveness of the controls implemented to mitigate risk. This comprises:

· Senior management · Compliance officer, risk manager and legal advisors · Internal auditors and statutory actuaries · Risk assurance providers (ISAE3402 reporting) and external assurance provider (external auditors) · Governing bodies (board of directors, audit committee and risk committee)

These multiple lines of defence have been put in place to ensure that Sygnia’s risk management framework is collectively, but independently, stress-tested and validated. The collaboration between the role players in a combined assurance framework provides a more complete, transparent and trustworthy view of the Group’s risk profile and assurance activities to all stakeholders.

An independent internal audit function, in particular, provides the appropriate independent assurance to the board on the integrity and robustness of the risk management processes. The internal audit follows a risk-based approach to audit planning and execution. Annual risk-based internal audit plans are developed and presented for approval to the audit and risk committees.

In 2018, the internal audit function was outsourced to PwC. No material breakdowns in the risk management function, processes or systems were identified during the year and brought to the attention of management or the audit and risk committees.

ComplianceSygnia is committed to complying with all relevant regulation. It is primarily accountable to the Financial Sector Conduct Authority, the Prudential Authority, the Johannesburg Stock Exchange and National Treasury.

The compliance function is the responsibility of the board, which has appointed a head of compliance to assist them in that role. It is the responsibility of the head of compliance, with the support of the compliance team, to effectively implement regulatory policies and processes. A compliance framework and a compliance regulatory policy have been put in place to cover all aspects of compliance within the Group.

Compliance is an agenda item at all risk committee meetings, where the head of compliance tables and discusses the latest compliance reports, new legislation that affects Sygnia, any compliance breaches and all other matters relevant to compliance.

The regulatory compliance policy is embedded in all Sygnia’s systems, operations, projects and processes to ensure that there is a proactive approach to compliance and that a culture of compliance is maintained within Sygnia. Effective compliance management is the responsibility of each staff member, as it depends on an inclusive, team-based approach.

The compliance department holds an annual compliance workshop with key stakeholders in order to review the regulations applicable to the Group, identify key regulatory risks and rank those in order of priority. This forms the basis for the compliance risk monitoring plans for the year ahead. The compliance department conducts regular training for all staff on new and existing regulations, as well as on FAIS and FICA compliance. All staff are encouraged and financially sponsored to write the FAIS regulatory exams.

Sygnia has not had any regulatory penalties, sanctions or fines for contraventions or non-compliance with regulatory obligations imposed on it, or any of its directors or officers, since its inception.



Conflicts of interestSygnia strives to offer services to clients that are free of conflicts of interest and is committed to conducting business with honesty and integrity. All reasonable steps are taken to avoid practices that create conflicts of interest. Where it is not possible to avoid conflicts it takes all reasonable steps to mitigate and disclose such conflicts to stakeholders. The Group’s conflicts of interest management policy is available on its website (www.sygnia.co.za). Monitoring of compliance with the policy is the responsibility of the compliance department.

Client complaintsClient satisfaction with Sygnia’s products and services is a key component of client retention and thus the long-term sustainability of the business. Sygnia seeks client feedback at all available opportunities. Client complaints are taken very seriously and are dealt with as soon as possible. A comprehensive complaints policy is in place and is available on the company’s website (www.sygnia.co.za). An internal escalation procedure is also in place to ensure that any complaint is dealt with by an appropriate person. The cause for complaint is investigated to enable Sygnia to take mitigating action to avoid future complaints of a similar nature.

Personal account investmentsAll staff are required to comply with the Group’s personal account trading policy to ensure that clients’ interests take precedence over those of staff members. The following restrictions apply to all staff unless waived by the Group compliance officer:

· All personal account trading needs to be executed through Sygnia Securities, an internal stockbroker · All personal account trading is subject to authorisation by the head of compliance and/or head of finance. No

personal account trading is permitted in any security where there is an open client order · A minimum holding period of 12 months applies to any investment · Staff need to submit an annual declaration of investments held to the compliance department

In addition, trading in Sygnia Limited shares is strictly monitored as per the Listings Requirements of the JSE. All directors and staff are prohibited from trading in Sygnia Limited shares during closed periods. The directors and the company secretary are required to obtain prior approval from the chairman for all dealings in the company’s shares (including off-market transactions). For the chairman’s own dealings, prior approval must be obtained from an independent non-executive director.


Business sustainabilitySygnia recognises that the sustainability of the business lies in its ability to retain existing clients and to expand its client base. In order to achieve those objectives, it is essential that the company delivers consistent superior investment performance, provides appropriate products and services, delivers excellent service and treats all clients fairly. Staff retention is key to all of the above.

Human and intellectual capitalHuman and intellectual capital is a key component of the Group’s ability to deliver sustainable value to stakeholders.

Sygnia’s competitive advantage derives from the intellectual capital inherent in the experience and expertise of its management team. The Group’s focus is one of innovation, rather than imitation, within the financial services industry. This innovation includes product design, systems development and a low-cost approach to charging for savings and investment options. All three have contributed to Sygnia’s growth and positioning as a market disruptor in the industry. Future innovation will remain at the core of the Group’s value proposition.

The success of the business is also very reliant on its ability to attract and retain exceptional people, at all levels of the organisation. To achieve this the Group needs to prioritise processes and strategies that incentivise and motivate staff, from both financial and personal growth perspectives. These processes and strategies may need to evolve over time.

Recruitment, development and retentionSygnia is committed to recruiting and retaining appropriately skilled staff, and to deepening the expertise of its core management team. The retention of staff, as well as their effort and motivation to innovate, are premised on aligning the individual’s personal objectives with the Group’s culture, risk management, governance framework and ethical values, along with the individual’s ability to understand and implement the Group’s strategy and to improve Sygnia’s products, processes and services. Sygnia has introduced both short-term and longer-term incentives, as well as policies and processes to facilitate all of the above.

The management team of Sygnia has been stable, with limited turnover of key personnel since the inception of the business. This provides overall stability to the strategy of the business, as well as a long-term corporate memory of the evolution of all the business units and client relationships. The key staff are all significant shareholders in the business. The share option scheme introduced at listing should assist in retaining the broader team, as well as helping to recruit additional senior staff going forward.

The middle management team of Sygnia has also been stable, with only a few career-based departures over the years. The share option scheme introduced at listing, as well as the B-BBEE staff scheme, the Ulundi Staff Trust which was introduced in 2013, are material components in staff retention at the middle management tier.

Sygnia established the Ulundi Staff Trust to facilitate its B-BBEE transaction in 2013. The transaction was entirely vendor-financed and allowed the Ulundi Staff Trust to acquire control of a 20% shareholding in Sygnia Asset Management, which was converted to shares in Sygnia Limited on listing in 2015.

The junior staff tier, largely administrative in nature, experiences higher turnover due to the high level of competition for administrative staff within the financial services industry in Cape Town. Sygnia’s staff are generally regarded as being of a very high calibre due to the Group’s rigorous training.


Business sustainability/

The Group prioritises the employment of black candidates for all positions, with 62% of staff being black (2017: 58%). Sygnia regards rigorous internal training as key to success within the business. As such it is less reliant on finding people with suitable experience. Emphasis is rather placed on finding individuals with the potential to excel. Their progress is fast-tracked within the Group to ensure career satisfaction and retention. The Ulundi Staff Trust is an important component in the strategy to retain key black staff. The significance and transparency of the Ulundi Staff Trust, as a mechanism for wealth creation, increased materially after the listing.

A number of internship programmes have been put in place this year and more are planned for the future. The internships are used to train junior staff and, over time, identify skilled individuals who are then retained by the business.

New starters are subject to thorough on-the-job training within their divisions, as well as a corporate induction programme aimed at ensuring that they are immersed in the values and the performance-oriented culture of the business as quickly as possible.

Staff are encouraged and financially supported to pursue further training in the areas relevant to financial services and systems development. The internally-run Sygnia Academy, which convenes once a month, is used to train all staff on issues relevant to the financial services industry and to instill the culture of excellence and high ethics in all staff members.

Ownership cultureIt is of critical importance that the entrepreneurial and innovative culture of Sygnia is preserved going forward despite the rapid growth of the business and the increase in staff numbers. This is best achieved by allowing key staff members to meaningfully participate in the growth and success of the company.

After the listing on the JSE staff retained a 66% stake in the company. Although this has decreased to 60% due to some staff changes and a degree of dilution as a result of the rights offer in August 2017, many staff and senior executives (in addition to the founders) are significant shareholders in the business. Senior management and key staff members were awarded share options at listing and additional options have been granted subsequent to listing. The options vest over a five-year period. Sygnia’s qualifying black staff are beneficiaries of the Ulundi Staff Trust, which controls 5.8% of Sygnia Limited at the financial year end.

The remaining vesting period for the Ulundi Staff Trust is five years. Beneficiaries of the Ulundi Staff Trust participate in dividends provided that the financing commitments have been met. Staff members who did not qualify for the above were each granted shares to the value of R10 000 at listing. The share option scheme and the Ulundi Staff Trust have created tangible benefits for participants.

Staff remuneration

Introduction

The Sygnia Remuneration Policy (“the Policy”) sets out the policies and procedures relating to staff and directors’ remuneration. The Policy targets attracting, retaining and appropriately rewarding staff at all levels of the organisation and has been designed in line with the recommendations of King IV.

Responsibility and approval

The Policy is designed, reviewed and monitored by the Group’s remuneration committee. The Group’s social, ethics and transformation committee is responsible for reviewing fair and reasonable executive remuneration practices in the context of overall staff remuneration. The remuneration committee is chaired by the chairman of the board, and consists of two other independent non-executive directors and one executive director. The chief executive officer is not a member of the committee but attends all meetings by invitation.



The remuneration committee reviews the Policy at least annually and reports on its appropriateness to the board of directors of Sygnia. The board approves the Policy and any material changes to the Policy on an annual basis. The responsibility for implementation of the Policy has been delegated to management, who is responsible for preparing an annual implementation report.

The Policy and the implementation report are subject to separate non-binding advisory votes by shareholders every year at the annual general meeting, or whenever a material change has been approved by the board.

In the event that either the Policy or the implementation report, or both, have been voted against by 25% or more of the votes exercised, the board shall at a minimum implement the following measures in good faith and with best reasonable efforts: a) an engagement process to ascertain the reasons for the dissenting votes, and (b) appropriately addressing legitimate and reasonable objections and concerns raised, which may include amending the Policy, or clarifying or adjusting remuneration governance and / or process. The announcement of the voting results must include an invitation to dissenting shareholders to engage with Sygnia and the manner and timing of such engagement. The following should then be disclosed in the background statement of the remuneration report which follows the voting: (a) with whom Sygnia engaged, and the manner and form of engagement to ascertain the reasons for dissenting votes, and (b) the nature of steps taken to address legitimate and reasonable objections and returns.

The remuneration of the non-executive directors of the Group must be approved by a special resolution of the shareholders of Sygnia every two years or whenever a material change has been proposed by the board.

Objectives

In developing the Policy, the following objectives have been taken into account:

· The strategy and business objectives of the Group · The need to create sustainable value for all stakeholders · The need to attract and retain staff with the requisite skills · Alignment of business objectives with the interests of all stakeholders · Prevailing market conditions and market-related remuneration levels · A fair and equitable treatment of all staff · Ensuring that key staff share in the success of the Group in order to promote the culture of entrepreneurship and

ownership that has driven the Group’s success to date · Compliance with all relevant applicable laws or regulatory provisions · The Group’s transformation objectives

The Group applies the following remuneration framework for staff:

· Market-related salaries reflective of the individual’s expertise, experience and skills · Performance-related, variable and non-guaranteed bonuses paid to qualifying staff, according to the Group’s and

the individual’s performance · Internal equity and market benchmarking using independent verification

The setting of remuneration of the chief executive officer is the responsibility of the board on advice of the Remuneration Committee. The setting of remuneration of other executive staff is the responsibility of the Remuneration Committee on advice of the chief executive officer.

The Group applies the following principles in rewarding non-executive directors:

· Market-related fees reflective of the individual’s expertise, experience and skills, as well as the time required to execute their required duties and obligations

· Fees paid by other financial services companies for similar services · Basic fees are set for the year and are subject to attendance · Additional fees, set at a fixed hourly rate, may be paid for additional time spent on the Group’s affairs · All contracts are subject to a 30-day notice period with no payment related to a loss of office



Employee remuneration components

Basic salary

The Group pays market-related salaries reflective of the individual’s expertise, experience and skills. Salaries are paid on a total cost-to-company basis, incorporating basic salaries, payment of Group risk benefits and contributions to the Group retirement annuity fund and a medical aid scheme.

Pay ranges represent the level of compensation paid in respect of similar positions in the market. The Group aims to pay basic salaries between the midpoint and the first quartile of those paid by competing organisations for similar positions, with a minimum and maximum of the range informed by the lower and upper market quartile. Only in special circumstances of particularly scarce skills or experience shortages may an individual be compensated beyond the maximum of the range.

The market-related remuneration levels are determined by reference to Remchannel, which is an independent market survey, as well as by monitoring salary levels published in job advertisements and gleaned from interviews of potential candidates and through discussions with recruitment agents.

Performance-related bonuses

The Group uses a combination of discretionary bonuses and contractual 13th cheques to reward staff. The administration and systems development divisions are generally remunerated via 13th cheques, while the investment team, new business and client services teams, and management across the Group are rewarded through discretionary performance bonuses.

Annual performance bonuses and 13th cheques are declared on 1 October of each calendar year and paid on 31 December, provided the individual remains in the employment of the Group. Performance bonuses are awarded to staff, who have delivered above expectation in terms of performance and all staff, including those where contractually 13th cheque packages apply, are eligible to participate in bonuses if their performance so warrants. Performance bonuses (other than contractual 13th cheques) are fully discretionary, and are determined by department and division heads, based on biannual performance appraisals.

The following ranges normally apply to all staff other than key staff members:

· Below-expectations performance: nil bonus · Performance in line with expectations: 13th cheque · Performance above expectations: 13th and 14th cheques

The bonuses require individual motivations to be submitted to the chief executive officer of the Group, who reviews the motivations and standardises the rewards to ensure internal equality.

Key staff members are defined as all staff, whose contribution to the Group is strategic in nature and/or who would be difficult to replace due to their specific skill set, expertise and experience.

In terms of discretionary performance bonuses payable to key staff, the following factors are taken into account:

· Market-related remuneration as determined by independent remuneration surveys and market reviews · Individual performance and experience · Group’s financial performance · Sustainable value creation, including economic, social and environmental factors

Annual increases

Annual increases are granted on 1 October of each calendar year and are based on external factors, such as the prevailing rate of inflation and market forces, as well as on individual’s performance, skills, experience and effort.



Long-term incentives

In terms of longer-term incentives, eligible staff are rewarded through share options or participation in the Ulundi Share Trust. The long-term incentives are granted and reviewed annually.

The share options have a staggered vesting period over three, four and five years from the point of award. The B-BBEE share scheme has a vesting date of 2023. Both allocations are determined by senior management on the recommendation of department and division heads and are subject to a review by the Remuneration Committee and the approval of the board. The overall objective is to ensure internal equity, market-related remuneration and a sustainable set of deliverables. Relative allocations are based on an individual’s performance, expertise and seniority. Share options may be awarded on an ad hoc basis, usually related to attracting senior staff. These awards are discretionary in nature and are based on a recommendation by the chief executive officer and subject to approval by the Remuneration Committee. Annual allocations are reviewed and agreed upon by the Remuneration Committee, but will only be allocated following the publishing of the annual financial results.

The eligible staff in terms of the B-BBEE share scheme are all qualifying staff of Sygnia, with a minimum of 12 months’ service. The eligible staff in terms of the share option scheme are senior and key staff considered to be contributing to business strategy and the creation of value as reflected by the share price. Annual share option awards are limited to 1.5 times annual basic salary, unless the Remuneration Committee agrees otherwise.

Direct ownership

The Group was founded by its existing senior management, including the chief executive officer. All own direct and indirect shareholdings in Sygnia. Other staff members used the opportunity of the listing of Sygnia on the JSE to acquire shares in Sygnia. Any disposal of shares by senior management staff is subject to prior notification to the board. All dealings in Sygnia shares by members of staff are furthermore subject to the Sygnia Share-Trading Policy.

Benefits and allowances

Group Retirement Annuity Scheme: All staff contribute to the Sygnia Retirement Annuity Scheme on a salary-sacrifice basis with an option of four levels of contribution rates.

Medical Aid: The Group facilitates the contribution by staff to a Group-determined medical aid scheme on a salary-sacrifice basis. The membership of the scheme is not compulsory, however consulting services are provided to all staff to encourage participation.

Life and Disability Insurance: Eligible staff contribute to a life and disability insurance cover, which is a multiple of the basic salary. In addition the Group introduced additional cover in the form of funeral benefits, which has added an important component to the Group risk benefits.

Relocation Allowances: A fixed discretionary allowance may be granted to staff who are required to relocate from one location to another for business purposes. The allowance covers the cost of relocation only. The Group does not provide post-retirement benefits.

Progression increases

An individual promoted to a particular position, entering the appropriate range for that position, typically receives a salary toward the minimum of a market-related range for the position. Over time as they approach full competency, they move toward the midpoint through annual salary awards. Increases above the midpoint will typically be lower as performance expectations become higher. Individuals approaching the maximum of their range would usually be candidates for promotion, or are considered to be exceptionally competent and performing at a consistently high level over long periods, or have identified scarce skills.



Market and peer group comparisons

Salary benchmarking is used to determine market-related salaries and remuneration. Remchannel is the primary survey used, however other sources are utilised to provide additional data points. Senior management use the following tools to determine market-related remuneration structures:

· Independent market surveys · Publicly available information, e.g. advertised positions, company reports · Interviews with candidates for available positions · Recruitment agents

Each component of remuneration (basic salary, performance bonuses, long-term incentives and benefits) is analysed and compared with market information and the overall package is reviewed accordingly.

As the Group currently operates in South Africa, the remuneration is benchmarked to domestic levels of remuneration. The peer group comparisons are drawn from the following industries:

· Asset management companies · Administration companies · IT and software development companies

Budgeting process

Annual remuneration and relevant increases are budgeted for as part of an annual budgeting cycle. The budgeted amount takes prevailing consumer price index, market competitiveness and industry trends into account. In addition, based on past experience, the Group budgets for a bonus and 13th cheque pool of 10% of the Group’s net operating profit before tax. The actual performance bonuses granted may exceed or be lower than the budgeted amount.

Directors’ remunerationThe principles behind non-executive directors’ fees are that they are market-related and commensurate with the time required to execute the required duties and obligations. Approved fees are set for the year and are subject to attendance. Additional fees, at a fixed hourly rate, may be paid for additional time spent on Group affairs. They are not linked to the performance of the Group or the performance of the share price.

The negotiated fees are subject to a review by the remuneration committee on an annual basis. The proposed non-executive directors’ fees will be put to the shareholders’ vote at the annual general meetings going forward.

Executive directors are not remunerated separately in respect of fulfilling the roles of directors. They may also receive dividends in respect of any shares that they own in the Group.

Diversity and equal opportunitySygnia is committed to ensuring that its staff is representative of the broader South African community. Gender equality is strongly promoted with significant focus placed on the promotion of women to key management positions. The following statistics reflect that commitment:

· Sygnia’s chief executive officer and chief operating officers are women · 25% of the board of directors are women · 58% of staff are women · Many senior management positions are held by women, including Chief Operating Officer: Institutional, Chief

Operating Officer: Retail, Chief Operating Officer: SURF, Head: Human Resources, Head: Retail Sales, Head: Marketing, Group Compliance Officer, Head: Risk Management and Head: Retail Client Service.



In terms of broader staff diversity the following applies:

· 42% of Sygnia’s staff is male and 58% is female · 62% of Sygnia’s staff is black · 2 staff members are disabled

Intellectual propertySygnia owns all legal rights to its proprietary institutional and retail systems, including Sygnia Platinum, Sygnia Platinum Light and Sygnia Alchemy.

Social and relationship capitalSygnia’s success is premised on the strength of its relationships with all key stakeholders, including the communities it interacts with and on behalf of which it manages assets. It places a strong focus on client loyalty, government relationships and community acceptance. To build trust and develop relationships over time, the Group engages in a number of initiatives to ensure that it retains its social licence to operate with integrity in the financial services industry.

Treating customers fairly

Treating Customers Fairly (“TCF”) is an outcome-based regulatory and supervisory framework designed to ensure that regulated financial services companies meet specific, clearly articulated fairness outcomes in respect of financial services clients. Companies are expected to demonstrate that they deliver the six TCF outcomes through the entire product value chain and the entire product life cycle, from product design and promotion through advice and servicing to complaints and claims handling.

In adopting the TCF principles, Sygnia recognises that fair treatment of its clients is about adding value to the services it offers, by aiming to:

· Protect the interests of its clients at each stage of the product life cycle, from promotion right through to after sales services

· Strive to meet the unique needs of each client, by offering a transparent, efficient and professional service, and constantly reviewing its service to identify areas for improvement

Sygnia undertakes to meet the needs of its clients in an honest and fair manner, as client satisfaction is paramount to the sustainability of the business.

The Group strives to ensure that the TCF principles are reflected in its culture, strategies, policies, products and client service. TCF is a standing agenda item at each board meeting. The responsibility for implementation lies with the board, management and every staff member.

Outcome 1: Consumers can be confident that they are dealing with firms, where the fair treatment of customers is central to the corporate culture.

As a financial services organisation, Sygnia has a strong client focus. Responsibility is placed not only on the Sygnia Group board of directors and senior management to deliver fair outcomes for clients in a manner which does not hamper efficiency, but also includes all staff employed within the Sygnia Group.

Sygnia prides itself on full transparency of all costs and charges. That transparency was the core proposition to the institutional market, and the differentiating factor when Sygnia launched its multi-manager and customised multi-manager products and services in 2006. In 2013, Sygnia launched the most cost-effective savings and investment products in South Africa to the retail market.

The Group’s focus on offering index-tracking products to both groups of investors ensures fair treatment from both a cost and a performance expectations perspective.



Sygnia has also pioneered the concept of using institutional investment products as an underpin to retirement annuities, living annuities and preservation funds offered to members exiting occupational retirement funds through withdrawal or retirement. This ensures that clients enjoy continuity of investment strategies at a reasonable cost. This includes SURF, whereby members of SURF who leave employment through withdrawal or retirement, can remain members and enjoy the benefits of unchanged investment strategies and low fees.

Sygnia places a strong focus on educating the general consumer about all aspects of saving and investing. This is achieved through articles, radio interviews, participation in conferences and specific client functions organised by Sygnia.

Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.

All Sygnia’s products have been designed to meet specific needs. The product structure is simple and accessible. The retail products, in particular, offer different risk profiles to different target markets. A passive product range is offered alongside a blend of passive and active strategies to address the needs of different consumers and to offer a choice of different charging structures.

Sygnia’s retail products mirror the products offered to institutional investors to ensure that members of retirement funds can continue to invest in the same product structures and strategies even after they leave their occupational retirement fund, or in their discretionary capacity.

The retail portal offers clients access to financial planning tools, which help to guide their savings and investments decisions.

The Sygnia RoboAdvisor, a digital financial planning tool, offers customers the option of designing investment strategies that take personal circumstances into account, and then implements the strategies at a very low cost through passive products.

Outcome 3: Consumers are provided with clear information and kept appropriately informed before, during and after the point of sale.

All of Sygnia’s financial promotions and marketing literature are reviewed to ensure that they are clear, compliant and not misleading in any manner.

All product information is available on Sygnia’s website, as well as the retail and institutional portals, Alchemy and Platinum Light. Access to these portals allows consumers to view their transactions and investment information at any time. Development of these portals is ongoing to ensure that the needs of consumers are anticipated and addressed.

Dedicated retail and institutional client service teams are available to answer direct questions. Clients receive monthly and quarterly statements, investment reports, economic commentary and other investment-related communications from Sygnia.

Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.

Sygnia offers advice through its digital financial planning tool, Sygnia RoboAdvisor. The financial planning model that underpins the advice has been developed over a number of years by experts in the fields of financial mathematics and investments, and takes detailed information about each potential client into account prior to customising an investment strategy for that client. Ongoing advice is provided via the Sygnia Alchemy retail portal.

All product information provided by Sygnia includes investment objectives, risk profiles and benchmarks to ensure that consumers can make informed choices.

Outcome 5: Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.

Sygnia’s investment products have clear investment objectives, and specified performance benchmarks, to ensure that consumers are aware of the relevant risk and return profiles prior to investing.



Monthly fund fact sheets include comparative performance and risk statistics, cost disclosures and a summary of prevailing market conditions to ensure that performance expectations are actively managed. Sygnia’s monthly economic summary, Sygnals, provides a more comprehensive description of the global and domestic macro-environment, which helps to guide performance expectations. Retail and institutional portals provide clients with access to daily valuations, investment strategy breakdowns and performance information. Sophisticated transacting functionality allows clients to execute their investment decisions instantaneously.

Dedicated retail and institutional client service teams are well trained to handle queries and guide clients through the administration process. A dedicated call centre can deal with numerous queries at the same time.

Outcome 6: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.

Sygnia does not charge switching fees, nor impose any penalties should a client wish to switch providers. Online transacting functionality makes issuing instructions easy and quick. All claims are processed within well-explained timelines with no unnecessary delays. The complaints policy is available on the company’s website with contact details readily available to clients. All complaints are recorded by Sygnia’s compliance department and reported and analysed in the Risk and Compliance Committee meetings, management information reporting and board meetings.

Economic, social and governance factorsSygnia endorses the principles of sustainable development and supports the incorporation of economic, social and governance (“ESG”) factors in investment decision making.

As a multi-manager Sygnia monitors the ESG policies of third-party asset managers employed to manage Sygnia’s clients’ assets. ESG factors are evaluated in terms of the extent to which they are taken into account in the investment processes followed by the appointed asset managers. Managers are encouraged to become signatories to the Code for Responsible Investing in South Africa and this is taken into account in Sygnia’s manager selection process.

TransformationSygnia recognises that the sustainability of the business lies in its ability to attract and retain clients. Meeting the targets set by the Amended Financial Sector Code (“New FSC”) is an important component of client retention in the institutional market. It is also an important aspect in the context of contributing towards the broader transformation of South Africa to an integrated, balanced and growing society and economy.

Sygnia takes a holistic approach to transformation, implementing strategies across the Group and takes a long-term view on compliance with the New FSC. The ownership aspect was partially addressed through the formation of the Ulundi Staff Trust. Other B-BBEE owners have been brought on board as part of the listing process. Further strategies will be implemented in the future.

Preferential procurement has been an important aspect of the transformation strategy, with an active approach taken to ensure that procurement explicitly targets B-BBEE as a criterion for service provider selection. Sygnia has actively switched providers to those compliant with its objectives. Support for small, entrepreneurial businesses has also been a feature of the strategy. Where applicable, only Level 1- and 2-compliant stockbroking firms are used.

The empowerment credentials of all suppliers and service providers are reviewed by independent parties.

The implementation of the New FSC during our current financial year has required a substantial commitment to align all Sygnia’s processes with the new requirements, especially considering the fact that the New FSC was implemented with retrospective effect. There has been a significant amount of realignment and a continued effort will be made to ensure improvement each year.



Environmental impactSygnia acknowledges both the environment and the broader community, and shared the community’s concerns with regards to the water crisis in the Western Cape in early 2018. Sygnia actively took steps to reduce water consumption by:

· Installing additional water coolers to reduce water consumption from municipal supplies · Turning off the irrigation system and making use of grey water to water plants · Reducing water pressure in bathrooms and kitchen areas to further limit water consumption · Creating water-saving awareness among staff

The Group also takes active steps to reduce its carbon footprint, both as a corporate and staff, through encouraging and adopting measures such as:

· Minimising the amount of air travel required by utilising video conferencing facilities in our Cape Town and Johannesburg offices

· Utilising natural light as much as possible in all office buildings · Using electronic communication, reporting and data storage to limit the use of paper and electricity · Using public transport rather than rental cars when on business trips, including MyCiti buses in Cape Town and the

Gautrain in Johannesburg

The initiatives envisaged in the future include continued efforts to save water, an active recycling and waste management programme, and staff training on environmental impact issues.

Corporate social investmentSygnia’s key CSI focus is on education, investing in initiatives from early childhood development through to tertiary education programmes.

The CSI committee comprises executive management and staff, who are passionate about making a difference and building a better South Africa.

Supporting sustainable organisations and projects, Sygnia provides bursaries to scholars, and also supports outreach education initiatives in under-resourced schools. It recognises that the future of South Africa rests in the hands of its youth, who will become either the beneficiaries or victims of the 4th Industrial Revolution. Sygnia is determined to assist them to embrace this and become beneficiaries rather than victims.

Sygnia’s corporate social investment objectives aim to support:

· Programmes and organisations that facilitate the improvement and access to training and learning in South Africa · Projects that focus on the welfare and development of children · Projects where talent is recognised and developed · Projects with direct and clear delivery objectives, where administration costs are kept to a minimum


Notice of the annual general meetingNotice is hereby given that the annual general meeting (‘Meeting’) of Sygnia Limited (‘Sygnia’ or ‘the Company’) will be held, subject to any cancellation, postponement and adjournment, in the auditorium of the offices of the Company at 7th Floor, The Foundry, Cardiff Street, Green Point, Cape Town, 8001 on Wednesday, 16 January 2019 at 10:00.

The record date to receive the notice of the Meeting, determined in accordance with section 59(1)(a) of the Companies Act, No. 71 of 2008, as amended (“the Act”), is Friday, 30 November 2018, being the date on which a person must be registered as a shareholder of the Company for purposes of being entitled to receive a notice of the Meeting. The record date for the Meeting, determined in accordance with section 59(1)(b) of the Act, is Friday, 11 January 2019 , being the date on which a person must be registered as a shareholder of the Company for purposes of being entitled to participate in and vote at the Meeting. The last day to trade to be able to participate in and vote at the Meeting is Tuesday, 8 January 2019.

References to all page numbers are in relation to the Annual Financial Statements and the 2018 Integrated Report as indicated.

Votes at the Meeting will be taken by way of a poll and not on a show of hands. Any shareholder entitled to attend and vote at the Meeting is entitled to appoint a proxy or proxies to attend, speak, act and, on a poll, vote in his or her stead. The proxy so appointed need not be a shareholder of the Company. A form of proxy is attached to this notice.

Kindly note that, in accordance with section 63(1) of the Act, participants (including proxies) are required to provide satisfactory identification before being entitled to attend or participate in a shareholders’ meeting. In addition, the person presiding at the meeting must be reasonably satisfied that the right of that person to participate and vote, either as a shareholder or proxy, has been reasonably verified. Suitable forms of identification include a valid identity document, a driver’s licence or a passport.

Voting and proxiesEach ordinary resolution to be considered at the Meeting requires the support of more than 50% of the voting rights exercised on the resolution in order to be adopted, unless otherwise stipulated.

Each special resolution to be considered at the Meeting requires the support of at least 75% of the voting rights exercised on that resolution in order to be adopted.

The attention of the shareholders is drawn to the fact that, if it is to be effective, the completed form of proxy is to reach the Company’s transfer secretaries in Johannesburg before the time appointed for the Meeting (which period excludes Saturdays, Sundays and South African public holidays).

In terms of the Listings Requirements of the JSE Limited (“JSE Listings Requirements”), equity securities held by a share trust or scheme established by the Company will not have their votes at the Meeting taken into account for the purposes of resolutions proposed in terms of the JSE Listings Requirements.

Shareholders who have not dematerialised their shares or have dematerialised their shares, but with ‘own name’ registration (entitled shareholders), may appoint one or more proxies to attend, speak and vote or abstain from voting in such shareholders’ stead. A form of proxy is attached for the use of those entitled shareholders who wish to be so represented.


Notice of the annual general meeting/

Shareholders who have already dematerialised their shares (other than those with ‘own name’ registration) are required to inform their duly-appointed Central Securities Depository Participant (CSDP) or broker, as the case may be, of their intention to attend the Meeting and request that their duly-appointed CSDP or broker, as the case may be, issue them with the necessary letters of representation to attend or provide their duly-appointed CSDP or broker, as the case may be, with their voting instruction should they not wish to attend the Meeting in person, but wish to be represented thereat.

Should any shareholder (or a representative or proxy for a shareholder) wish to participate in the Meeting by way of electronic participation, that shareholder should make an application in writing (including details as to how the shareholder or its representative (including its proxy) can be contacted) to so participate to the company secretary, PO Box 51591, Waterfront, 8002, or via email: [email protected], to be received by the company secretary at least 7 business days prior to the Meeting (i.e. Tuesday 8 January 2019 in order for the company secretary to arrange for the shareholder (or its representative or proxy) to provide reasonable satisfactory identification to the company secretary for the purposes of section 63(1) of the Act and for the company secretary to provide the shareholder (or its representative or proxy) with details as to how to access the Meeting by means of electronic participation. Shareholders participating electronically will not be able to vote electronically and must follow the standard voting arrangements indicated above. The Company reserves the right not to provide for electronic participation at the Meeting in the event that it determines that it is not practical to do so, or an insufficient number of shareholders (or their representatives or proxies) request to so participate.

The purpose of the meeting is to transact the business set out below.

Presentation of audited financial statements

The audited annual financial statements of the Company for the year ended 30 September 2018, together with the reports by the directors, the external auditors and the audit committee have been approved by the board of directors of the Company on 29 November 2018, and are available on the Company’s website: www.sygnia.co.za.

Ordinary resolutions

Ordinary resolution 1: To appoint the auditor of the company

To appoint, as recommended by the audit committee, Deloitte & Touche as the Company’s registered auditor for the ensuing year ending 30 September 2019 and to note Mr Brian Botes as the designated audit partner.

Ordinary resolution 2: To elect the financial director of the company

To elect Mr Murad Sirkot as the financial director of the Company with effect from 16 January 2019 in accordance with the provisions of the Company’s memorandum of incorporation.

Profile of Mr Murad Sirkot: Mr Sirkot joins Sygnia from Investec Asset Management where he was the Global Head of Financial Reporting, Accounting, Revenue and Accounts Payable. In that position he led three finance teams spanning Cape Town, London and Hong Kong. Murad joined Investec in 2006 as the Head of Fund Accounting and Operational Risk Manager and was promoted to the position of Head of Finance for Southern Africa in 2010. Murad qualified as a CA(SA) in 2002 and spent the first years of his career as an audit executive at Ernst & Young in Cape Town and London.

Ordinary resolution 3: To re-elect the non-executive directors

To re-elect the following individuals as non-executive directors, who retire by rotation in accordance with the provisions of the Company’s memorandum of incorporation, but are eligible and available for re-election.

3.1 Mr K T Hopkins

3.2 Professor H Bhorat

A profile in respect of each director is contained on pages 9 to 12 of the 2018 Integrated Report. The re-election of the directors of the board will be conducted by way of a separate vote in respect of each individual.



Ordinary resolution 4: To re-elect the audit committee members

To elect the audit committee members as required in terms of the Act and the JSE Listings Requirements. The following individuals are recommended for election to the audit committee:

4.1 Mr K T Hopkins (chairman of the audit committee)

4.2 Mr I K Moyane

4.3 Mr A Crawford-Brunt

A profile in respect of each member recommended for election to the audit committee is contained on pages 9 to 12 of the 2018 Integrated Report. The election of the members of the audit committee will be conducted by way of a separate vote in respect of each individual.

Ordinary resolution 5: To authorise the issue of ordinary shares for cash

To resolve that the Directors of the Company be and are hereby authorised, by way of a general authority, to allot and issue ordinary shares in the capital of the Company for cash, including within the scope of such authority the ability to issue options and securities (including any convertible preference shares in the authorised share capital of the Company) that are convertible into ordinary shares, subject to the limitation set out in the Memorandum of Incorporation of the Company, the provisions of the Act and the JSE Listings Requirements from time to time on the following basis:

· the ordinary shares which are the subject of the allotment and issue for cash must be of a class already in issue, or where this is not the case, must be limited to such ordinary shares or rights that are convertible into a class of ordinary shares already in issue;

· there will be no restrictions in regard to the persons to whom the ordinary shares may be allotted and issued, provided that such shares are to be allotted and issued to public shareholders (as defined by the JSE Listings Requirements) and not to related parties (as defined by the JSE Listings Requirements);

· the total aggregate number of ordinary shares which may be issued for cash in terms of this authority may not exceed 23 243 366 ordinary shares, constituting 15% of the aggregate number of ordinary shares in issue as at the date of notice of the Meeting. The number of ordinary shares which may be issued shall be based on the number of ordinary shares in issue at the date of this notice of Meeting, less any ordinary shares issued in terms of this authority by the Company during the current financial year;

· in the event of sub-division or consolidation of ordinary shares prior to this authority lapsing, the existing authority shall be adjusted accordingly to represent the same allocation ratio;

· the maximum discount at which the ordinary shares may be issued is 10% (ten percent) of the weighted average traded price of those ordinary shares over the 30 (thirty) business days prior to the date that the price of the issue is agreed between the Company and the party(ies) subscribing for the ordinary shares. The JSE should be consulted for a ruling if the Company’s securities have not traded in such 30 (thirty) business day period;

· this authority shall not endure beyond the earlier of the next annual general meeting of the Company or beyond 15 (fifteen) months from the date of this ordinary resolution, whichever is shorter; and

· upon any issue of ordinary shares which, together with prior issues of ordinary shares within the period that this authority is valid, constitute 5% (five percent) or more of the total number of ordinary shares in issue prior to that issue, the Company shall publish an announcement in terms of section 11.22 of the JSE Listings Requirements, giving full details thereof.

In terms of the JSE Listings Requirements, for ordinary resolution 5 to be approved by shareholders, it must be supported by at least 75% of shareholders.

Explanatory note: The board of directors, as at the date of this notice, has no definite intention of issuing further shares. However, the board of directors believes that shareholders should pass this resolution in order to enable the board of directors to issue additional shares should it be in the best interests of the Company to do so.



Ordinary resolution 6: Control of authorised but unissued shares

To resolve that all the unissued shares in the authorised share capital of the Company be placed under the control of the directors of the Company, who are authorised to allot and issue the same to such persons and on such terms and conditions as they may determine in their sole and absolute discretion, subject to the provisions of the Act and the JSE Listings Requirements.

Ordinary resolution 7: Non-binding advisory vote on the remuneration policy of Sygnia

To endorse, through a non-binding advisory vote, the Company’s remuneration policy (excluding the remuneration of non-executive directors) as contained on pages 50 to 55 of the 2018 Integrated Report.

The vote allows shareholders to express their views on the remuneration policy adopted, but will not be binding on the Company.

Ordinary resolution 8: Non-binding advisory vote on the implementation report of Sygnia

To endorse, through a non-binding advisory vote, the Company’s remuneration implementation report as contained on pages 50 to 55 of the 2018 Integrated Report.

The vote allows shareholders to express their views on the Company’s remuneration implementation report, but will not be binding on the Company.

Ordinary resolution 9: To authorise directors and the company secretary to implement special and ordinary resolutions

To resolve that each and every director of the Company or the company secretary be and is hereby authorised to do all such things and sign all such documents as may be necessary for or incidental to the implementation of the resolutions passed at this Meeting.

Special resolutions

Special resolution 1: To approve remuneration of non-executive directors

To resolve that fees payable by the Company to directors for their services as directors (in terms of section 66(9) of the Act) be and are hereby approved for a period of one year from the passing of this special resolution or until its renewal, whichever is the earlier, as follows (exclusive of VAT):

1.1 in respect of Professor Haroon Bhorat, a proposed annual fee of R500 000.1.2 in respect of Mr Mcebisi Jonas, a proposed annual fee of R1 000 000.1.3 In respect of Mr Ken Hopkins, a proposed annual fee of R 350 000.1.4 In respect of Professor Shirley Zinn- 1.4.1 A monthly retainer of R5 600 1.4.2 A quarterly fee of R44 300, payable on attendance of the required quarterly meetings of the board and

sub-committees as applicable; and 1.4.3 An hourly rate of R1 700 payable for work or meeting attendance in addition to the quarterly meetings.1.5 In respect of Isiah Kaizer Moyane- 1.5.1 A fixed annual fee of R66 400 1.5.2 A quarterly fee of R38 700, payable on attendance of the required quarterly meetings of the board and

sub-committees as applicable; and 1.5.3 An hourly rate of R1 700 payable for work or meeting attendance in addition to the quarterly meetings.

1.6 in respect of any other director, an annual fee not exceeding R500 000.



Special resolution 2: To authorise the repurchase of shares

To resolve that, in accordance with the memorandum of incorporation of Sygnia, it is hereby approved as a general authority contemplated in the JSE Listings Requirements, the acquisition by Sygnia, or any of its subsidiaries from time to time, of the issued ordinary shares of Sygnia, upon such terms and conditions and in such amounts as the directors of Sygnia may from time to time decide, but subject to the following provisions:

· This general authority shall be valid until the Company’s next annual general meeting or for 15 months from the date of this resolution, whichever period is shorter.

· The ordinary shares be purchased through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the Company and/or the relevant subsidiary and the counterparty from whom the shares are purchased.

· An announcement complying with paragraph 11.27 of the JSE Listings Requirements be published by the Company (i) when the Company and/or its subsidiaries have cumulatively repurchased 3% of the ordinary shares in issue as at the time the general authority was given (the initial number); and (ii) for each 3% in aggregate of the initial number of ordinary shares acquired by the Company and/or its subsidiaries.

· The general repurchase by the Company of its own ordinary shares shall not in the aggregate in any one financial year exceed 20% of the Company’s issued share capital of that class, provided that the acquisition of ordinary shares as treasury stock by a subsidiary of the Company shall not exceed 10% in the aggregate of the number of issued shares in the Company.

· Repurchases are not to be made at a price more than 10% above the weighted average of the market value for the ordinary shares for the five business days immediately preceding the date upon which the repurchase is effected.

· At any point in time, the Company may only appoint one agent to effect any repurchase on the Company’s behalf or on behalf of any of its subsidiaries.

· A resolution is passed by the board of directors authorising the repurchase, that the Company passed the solvency and liquidity test and that since this test was done there have been no material changes to the financial position of the Group.

· The Company and its subsidiaries do not repurchase ordinary shares during a prohibited period (as defined in the JSE Listings Requirements), unless they have in place a repurchase programme where the dates and quantities of securities to be traded during the relevant period are fixed (not subject to any variation) and has been submitted to the JSE in writing prior to the commencement of the Company’s prohibited period. The Company will instruct an independent third party, which makes its investment decisions in relation to the Company’s securities independently of, and uninfluenced by, the Company, prior to the commencement of the prohibited period to execute the repurchase programme submitted to the JSE.

· Such repurchase shall be subject to compliance with the Act, the Company’s memorandum of incorporation and the JSE Listings Requirements.

Explanatory note and the statement required in terms of paragraph 11.26 of the JSE Listings Requirements.

To grant the board of directors the general authority to contract the Company and/or any of its subsidiaries to acquire shares in the Company, should the board of directors consider it appropriate in the circumstances.

The effect of special resolution number 2 is that the directors will be granted the general authority, subject to the provisions set out in the resolution, to acquire shares in the Company, should they deem it appropriate in the circumstances and should the Company comply with the relevant statutes and authority applicable thereto.

The board of directors, as at the date of this notice, has no definite intention of repurchasing shares. However, it is proposed that the board of directors believes it to be in the best interests of the Company that shareholders pass this resolution.



Statement in terms of paragraph 11.26 of the JSE Listings Requirements.

The board of directors shall not make any payment in whatever form to acquire any shares issued by the Company contemplated in special resolution number 2 if, after the directors have considered the effects of the maximum repurchase or payment, there are reasonable grounds for believing that:

· The Company and the Group are, or will, at any time during the period of 12 months after the date of this notice, be unable, in the ordinary course of business, to repay their debts as they become due.

· The Company’s and the Group’s consolidated assets, recognised and measured according to the accounting policies used in the latest audited Annual Financial Statements and IFRS, will not be more than their consolidated liabilities for the period of 12 months after the date of this notice.

· The ordinary share capital and reserves of the Company and the Group will not be adequate for ordinary business purposes for a period of 12 months after the date of this notice.

· The Company and the Group will not have sufficient working capital to meet its needs for a period of 12 months after the date of this notice.

· Any repurchases shall comply with the limitations set out in special resolution number 2, the requirements of the JSE Listings Requirements and the Act.

In compliance with paragraph 11.26(b) of the JSE Listings Requirements, the information listed below has been included in the 2018 Integrated Report as indicated, in which this notice is included, at the places indicated:

· Major shareholders (page 153 of the 2018 Integrated Report) · Stated capital (page 121 of the 2018 Integrated Report)

Material change

Other than the facts and developments reported on in the 2018 Integrated Report, there have been no material changes in the affairs, and in the financial or trading position of the Group, since the financial period ended 30 September 2018 and the signature date of this notice.

Directors’ responsibility statement

The directors whose names are set out on page 75 of the 2018 Integrated Report collectively and individually accept full responsibility for the accuracy of the information contained in special resolution number 2 and certify that to the best of their knowledge and belief there are no other facts, the omission of which would make any statement false or misleading, and that they have made all reasonable queries in this regard and that the notice of the Meeting contains all information required by law and the JSE Listings Requirements.

Special resolution 3: To provide financial assistance to subsidiaries and related or inter-related companies

To resolve that the Company is authorised to provide any direct or indirect financial assistance as contemplated in section 45 of the Act to any related or inter-related company or juristic person, in terms of and pursuant to the provisions of section 45 of the Act.

Explanatory note: To grant the board of directors the authority to provide direct or indirect financial assistance to any company or corporation which is related or inter-related to the Company. This means that the Company is authorised to, for example, grant loans to its subsidiaries and to guarantee the debt of subsidiaries.

Special resolution 4: To provide financial assistance for the subscription or purchase of securities

To resolve that the Company is authorised to provide financial assistance as contemplated in section 44 of the Act to any person for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to be issued by the Company or a related or inter-related company, or for the purchase of any securities of the Company or a related or inter-related company, in terms of and pursuant to the provisions of section 44 of the Act.



Explanatory note: To grant the board of directors of the Company the authority to provide direct or indirect financial assistance to any company or corporation which is related or inter-related to the Company and/or to provide security to any financier for the purposes of, or in connection with, the subscription or purchase of options, shares or other securities in the Company or in any related or inter-related company. This means that the Company is, inter alia, authorised to guarantee and furnish other security for the obligations of subsidiaries where the financial assistance is directly or indirectly related to a party acquiring options, shares or other securities in the Company or in a subsidiary. The Company has no immediate plans to use this authority but is obtaining it in the interests of prudence and good corporate governance should the unforeseen need arise to use the authority.

Special resolution 5: To amend the memorandum of incorporation of the Company

To resolve that the memorandum of incorporation of the Company be and is hereby amended, in terms of section 16(5) of the Act, by deleting clause 26.4.1 in its entirety and replacing it with the following:

“26.4.1 Notwithstanding the provisions of clause 26.1.2: The board is entitled to fill any vacancy on or appoint an addition to the board on a temporary basis and its authority to do so is not restricted or varied by this Memorandum of Incorporation. A Director appointed on a temporary basis must be a person who satisfies the requirements for election as a Director and has all the powers, functions and duties, and is subject to all the liabilities, of any other Director. The appointment of a Director, whether to fill a casual vacancy, or as an addition to the board (or otherwise), must be confirmed by Shareholders at the annual general meeting following such appointment.”

Explanatory note: To amend the memorandum of incorporation to enable the board to appoint additional directors, provided such appointments are confirmed by shareholders at the subsequent annual general meeting.

The signed, amended Memorandum of Incorporation is available for inspection at the registered office of Sygnia from 30 November 2018 until the date of the AGM.

By order of the board

Glen MacLachlan Company secretary 30 November 2018

Registered office

7th Floor, The Foundry Cardiff Street Green Point 8001 South Africa


Form of proxy/

Form of proxySygnia Limited

Incorporated in the Republic of South Africa | Registration number: 2007/025416/06 Share code: SYG | ISIN: ZAE000208815 | “Sygnia” or “the Company”

For use at the annual general meeting of the Company to be held at 10:00 on Wednesday, 16 January 2019, at the offices of the Company at 7th Floor, The Foundry, Cardiff Street, Green Point, 8001 and at any cancellation, postponement or adjournment thereof.

To be completed by certificated shareholders and dematerialised shareholders with ‘own name’ registration only.

I/we (full name):

of (address):

Telephone number: Cell number:

Email address:

being a shareholder of Sygnia Limited and holding ordinary shares of the company

hereby appoint (1) or failing him/her

hereby appoint (2) or failing him/her

the chairman of the annual general meeting, as my/our proxy to act for me/us and on my/our behalf at the annual general meeting which will be held for the purpose of considering and, if deemed fit, passing, with or without modification, the ordinary and special resolutions to be proposed thereat and at any adjournment thereof; and to vote for and/or against the ordinary and special resolutions and/or abstain from voting in respect of the Sygnia ordinary shares registered in my/our name(s), in accordance with the instructions below.

Dated this day of year

Signature/s


Form of proxy/

Mark with an X whichever is applicable

Ordinary resolutions For Against Abstain

1 To appoint the auditor of the Company

2 To elect the financial director of the Company

3 To re-elect the non-executive directors

3.1 Mr K T Hopkins

3.2 Prof H Bhorat

4 To elect the audit committee members

4.1 Mr K T Hopkins

4.2 Mr I K Moyane

4.3 Mr A Crawford-Brunt

5 To authorise the issue of ordinary shares for cash

6 Control of authorised but unissued shares

7 Non-binding advisory vote on the remuneration policy of Sygnia

8 Non-binding advisory vote on the implementation report of Sygnia

9 To authorise directors and the company secretary to implement special and ordinary resolutions

Special resolutions For Against Abstain

1 To approve remuneration of non-executive directors

2 To authorise the repurchase of shares

3 To provide financial assistance to subsidiaries and related or inter-related companies

4 To provide financial assistance for the subscription or purchase of securities

5 To amend the memorandum of incorporation of the Company

Shareholders holding certificated shares or dematerialised shares registered in their own name1. Only shareholders who hold certificated shares and shareholders who have dematerialised their shares with ‘own

name’ registration may use this form of proxy.2. Each shareholder is entitled to appoint one or more proxies (none of whom needs be a shareholder of the

Company) to attend, speak and, on a poll, vote in place of that shareholder at the annual general meeting, by inserting the name of the proxy or the names of two alternate proxies of the shareholder’s choice in the space provided, with or without deleting ‘the chairman of the annual general meeting’. The person whose name stands first on the form of proxy and who is present at the Meeting will be entitled to act as the proxy to the exclusion of those whose names follow.

3. A shareholder’s instructions to the proxy must be indicated by the insertion of the relevant number of votes exercisable by that shareholder in the appropriate box(es) provided. Failure to comply with the above will be deemed to authorise the chairman of the annual general meeting, if he is the authorised proxy, to vote in favour of the resolutions at the annual general meeting, or any other proxy to vote or to abstain from voting at the annual general meeting, as he deems fit, in respect of all the shareholder’s votes exercisable thereat.


Form of proxy/

Form of proxy4. A shareholder or his proxy is not obliged to vote in respect of all the shares held or represented by him, but the

total number of votes for or against the resolutions in respect of which any abstention is recorded may not exceed the total number of votes to which the shareholder or his proxy is entitled.

5. Forms of proxy must be lodged and/or posted to the Company’s transfer secretaries (Computershare Investor Services (Pty) Ltd) at 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown 2107), to be received by the transfer secretaries by not later than 10:00 on Wednesday, 16 January 2019, or handed to the chairman of the annual general meeting at any time prior to the vote.

6. The completion and return of this form of proxy in accordance with point 5 above will not preclude the relevant shareholder from attending the annual general meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such shareholder wish to do so.

7. A minor must be assisted by the minor’s parent or guardian, unless the relevant documents establishing the minor’s capacity are produced or have been registered by the Company.

8. Any alterations or corrections to this form of proxy must be initialed by the signatory(ies).9. This form of proxy must be signed by all joint shareholders. If more than one of those shareholders are present at

the annual general meeting either in person or by proxy, the person whose name stands first in the register shall alone be entitled to vote.

10. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy unless previously recorded by the Company’s transfer office or waived by the chairman of the annual general meeting.

11. The chairman of the annual general meeting may reject or accept any form of proxy that is completed and/or received other than in accordance with these instructions, provided that he is satisfied as to the manner in which a shareholder wishes to vote.

Shareholders holding dematerialised shares1. Shareholders who have dematerialised their shares through a Central Securities Depository Participant (“CSDP”)

or broker (except those shareholders who have elected to dematerialise their shares with “own name” registration) and all beneficial shareholders holding their shares (dematerialised or certificated) through a nominee should provide such CSDP, broker or nominee with their voting instructions in sufficient time to allow them to advise the transfer secretaries of the Company of their voting instructions before the closing time as detailed in point 5 above.

2. All such shareholders wishing to attend the Meeting in person may do so only by requesting their CSDP, broker or nominee to issue the shareholder with a letter of representation in terms of the custody agreement. Such letter of representation must also be lodged with the transfer secretaries before the closing time as detailed in point 5 above.

Summary of the rights of a shareholder to be represented by proxy

Shareholders’ rights regarding proxies in terms of section 58 of the Act are as follows:

· at any time, a shareholder of a company may appoint any individual, including an individual who is not a shareholder of that company, as a proxy to participate in, and speak and vote at, a shareholders’ meeting on behalf of the shareholder.

· give or withhold written consent on behalf of the shareholder to a decision contemplated in section 60 of the Act.

A proxy appointment:

· must be in writing, dated and signed by the shareholder; and · remains valid for:

› one year after the date on which it was signed; or › any longer or shorter period expressly set out in the appointment unless it is revoked in a manner contemplated

in subsection (4)(c), or expires earlier as contemplated in subsection (8)(d) of the Act.


Form of proxy/

Except to the extent that the MOI of a company provides otherwise:

· a shareholder of that company may appoint two or more persons concurrent as proxies, and may appoint more than one proxy to exercise voting rights attached to the different securities held by the shareholder;

· a proxy may delegate the proxy’s authority to act on behalf of the shareholder to another person, subject to any restriction set out in the instrument appointing the proxy; and

· a copy of the instrument appointing a proxy must be delivered to the company, or to any other person on behalf of the company, before the proxy exercises any rights of the shareholder at a shareholders’ meeting.

Irrespective of the form of instrument used to appoint a proxy:

· the appointment is suspended at any time and to the extent that the shareholder chooses to act directly and in person in the exercise of any rights as a shareholder;

· the appointment is revocable unless the proxy appointment expressly states otherwise; and · if the appointment is revocable, a shareholder may revoke the proxy appointment by

› cancelling it in writing, or making a later inconsistent appointment of a proxy; and › delivering a copy of the revocation instrument to the proxy and to the company.

The revocation of a proxy appointment constitutes a complete and final cancellation of the proxy’s authority to act on behalf of the shareholder.


Glossary of terms

ASISA Association for Savings and Investment South Africa

AUA Assets under administration

AUM Assets under management

B-BBEE Broad-based Black Economic Empowerment

CFA Chartered Financial Analyst

Company/Group/Organisation Sygnia Limited

CRISA Code for Responsible Investing in South Africa

CSDP Central Securities Depository Participant

CSI Corporate Social Investment

ESG Environmental, Social and Governance

FSCA Financial Sector Conduct Authority (formerly the FSB)

FSC Financial Sector Code

IFRS International Financial Reporting Standards

IIRC International Integrated Reporting Council

IIRF International Integrated Reporting Framework

IRCSA Integrated Reporting Council of South Africa

ISAE International Standard on Assurance Engagements

IT Information Technology

JSE The Johannesburg Stock Exchange

King IV King Code of Governance for South Africa 2016

LISP Linked Investment Service Provider

Listing Date/Listing 14 October 2015

MOI Memorandum of Incorporation

Prudential Authority Formerly the South African Reserve Bank

SAICA South African Institute of Chartered Accountants

SAM Solvency Assessment and Management

SENS Stock Exchange News Service

TCF Treating Customers Fairly

Audited Consolidated Annual Financial Statements for the Year Ended30 September 2018

These financial statements have been prepared under the supervision of the Financial Director, M. Buckham. These financial statements have been audited in compliance with the applicable requirements of the Companies Act of South Africa.


General informationCountry of incorporation and domicile

South Africa

Nature of business and principal activities

Sygnia Limited and its subsidiaries (“the Group”) is a specialist financial services group headquartered in South Africa and listed on the Johannesburg Stock Exchange (“JSE”) and A2X Market (“A2X”). The Group focuses on the provision of investment management and administration solutions to institutional and retail clients predominantly located in South Africa.

Directors

Name Date of appointment

MF Wierzycka 17/09/2007

HI Bhorat # 11/06/2015

DR Hufton 01/09/2018

M Buckham 01/02/2017

KT Hopkins *# 11/06/2015

SA Zinn *# 11/06/2015

IK Moyane *# 10/09/2015

MH Jonas *# 01/09/2018

* Independent # Non-executive

Registered office:7th Floor, The Foundry Cardiff Street Green Point 8001

Postal address:PO Box 51591 Waterfront 8002

Auditor:Deloitte & Touche1st Floor The SquareCape Quarter 27 Somerset Road Green Point 8005

Company secretary:G MacLachlan Appointed: 01/11/2016

Company registration number

2007/025416/06

75 Directors’ responsibility for financial reporting

76 Directors’ report

81 Audit committee report

83 Independent auditor’s report

89 Consolidated statement of financial position

90 Consolidated statement of profit or loss and other comprehensive income

91 Consolidated statement of changes in equity

92 Consolidated statement of cash flows

93 Notes to the consolidated annual financial statements

153 Analysis of shareholding


Contents


Directors’ responsibility for financial reportingThe directors are responsible for the preparation and fair presentation of the consolidated annual financial statements of Sygnia Limited; comprising the consolidated statement of financial position at 30 September 2018, the consolidated statements of profit or loss and other comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows for the year, and the notes to the consolidated annual financial statements. These include a summary of significant accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards and the requirements of the Companies Act and the JSE Listings Requirements, the directors’ report, audit committee report, and the report by the company secretary.

The directors are also responsible for internal control they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and for maintaining adequate accounting records and an effective system of risk management.

The directors have made an assessment of the ability of the Company and its subsidiaries to continue as going concerns and have no reason to believe that the businesses will not be going concerns in the year ahead.

The auditor is responsible for reporting on whether the consolidated annual financial statements are fairly presented in accordance with the applicable financial reporting framework.

Approval of the consolidated annual financial statements

The consolidated annual financial statements of Sygnia Limited, as identified in the first paragraph, were approved by the board of directors on 29 November 2018 and are signed by:

Magda Wierzycka Haroon BhoratChief Executive Officer Chairman

Report by the company secretary

In terms of S88(2)(e) of the Companies Act and for the year ended 30 September 2018, I, Glen MacLachlan, in my capacity as company secretary of Sygnia Limited, hereby certify that Sygnia Limited has lodged all returns required by the Act with the Companies and Intellectual Property Commission and that all such returns are true, correct and up to date.

Company Secretary Glen MacLachlan Cape Town 29 November 2018


Directors’ reportThe directors have pleasure in presenting their report on the activities of the Group for the year ended 30 September 2018.

Main business and operations

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 69.15 cents (2017: 69.72 cents), down 0.8%, and diluted headline earnings per share

of 68.42 cents (2017: 68.82 cents), down 0.6%. · Total dividend per share of 60.00 cents (2017: 60.00 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 the 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 60 225.

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 negotiation 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 2018. 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 upon 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. 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 R14.50 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.


Director’s report/

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 TCs 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 1 650 stand-alone retirement funds reducing to 200.

Sygnia is very well positioned for all of 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 our clients well in advance of regulatory requirements. Our acquisition of db X-trackers (RF) Proprietary Limited business 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. 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%.

When we acquired Sygnia Itrix from Deutsche Bank in 2017, it positioned us favourably for the demand for offshore investments at a reasonable cost. Our administration platforms allow for seamless integration of institutional and retail solutions, while our stockbroking infrastructure was also upgraded to allow for low-cost execution of all transactions, insuring our trading costs have no negative effect on investment outcomes.

Our investment performance remained strong despite the swings in market sentiment and maintaining our position at the forefront of technological advancements remains key to cutting costs.

Sygnia’s revenue in the financial year to 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 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 2017.



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 SURF 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 there was positive operating leverage 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 prior year, directly 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 2018. The bulk of the finance costs relate to the preference share structure that was implemented on 31 January 2018.

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 69.15 cents (2017: 69.72 cents), with diluted earnings per share decreasing by 0.6% to 68.42 cents (2017: 68.82 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 we 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 remains 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 medium-sized employers, increasing its assets to R4.2 billion (2017: R2.4 billion).

We expect that 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 post-retirement 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 2018. We have also launched a Sygnia FAANG Plus Equity Fund to take advantage of the global technological boom.

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 8 237 at the end of September 2017 to 14 058 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, technology remains key to keeping costs under control and accessible offshore investments are in high demand.

Transformation and ownership

Sygnia continues to be committed to the policy of sustainable transformation in all its spheres of operation. It is very pleasing to see that transformation and gender equality strategies have seen both black and female staff percentages rise to 58% in 2018. 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. We look forward to breaking boundaries and pioneering the way within the financial services sector.

Events subsequent to the reporting date

The directors are not aware of any matters or circumstances, arising since the end of the financial period, not otherwise dealt with in the consolidated annual financial statements that significantly affect the financial position of the Group or the results of its operations.

Going concern

The consolidated annual financial statements have been prepared on the basis of accounting policies applicable to a going concern. The basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.

Stated capital

Sygnia Limited had 154 955 778 shares in issue at the beginning of the year. There were no changes to the issued share capital during the year.



Final cash 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 35.00 cents per share has been declared out of income reserves, resulting in a net dividend of 28.00 cents per share for shareholders subject to Dividends Tax (“DT”). Together with the interim gross dividend of 25.00 cents per share, this amounts to a total gross dividend of 60.00 cents per share.

Special resolutions

At the annual general meeting of the Company held on 11 January 2018, the following special resolutions were passed:

Special resolution 1: Approval of remuneration of non-executive directors

To resolve that fees payable by the Company to directors for their services as directors (in terms of section 66(9) of the Act) be approved for a period of one year from the passing of this special resolution or until its renewal, whichever is the earliest.

Special resolution 2: To authorise the repurchase of shares

To resolve that, in accordance with the memorandum of incorporation of Sygnia, it is hereby approved as a general authority contemplated in the JSE Listings Requirements, the acquisition by Sygnia, or any of its subsidiaries from time to time, of the issued ordinary shares of Sygnia, upon such terms and conditions and in such amounts as the directors of Sygnia may from time to time decide.


To resolve that the Company is authorised to provide any direct or indirect financial assistance as contemplated in section 45 of the Act to any related or inter-related company or juristic person, in terms of and pursuant to the provisions of section 45 of the Act.


To resolve that the Company is authorised to provide financial assistance as contemplated in section 44 of the Act to any person for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to be issued by the Company or a related or inter-related company, or for the purchase of any securities of the Company or a related or inter-related company, in terms of and pursuant to the provisions of section 44 of the Act.

At a special general meeting of the Company held on 5 October 2018, the following special resolution was passed:

Special resolution 5: To approve remuneration of non-executive directors

To resolve that fees payable by the Company to the following directors for their services as directors (in terms of section 66(9) of the Act) be and are hereby approved for a period of one year from the passing of this special resolution or until its renewal, whichever is the earliest, as follows:

· in respect of Professor Haroon Bhorat, a proposed annual fee of R500 000; · in respect of Mr Mcebisi Jonas, a proposed annual fee of R1 000 000.


Audit committee reportfor the year ended 30 September 2018The audit committee is a committee of the board of directors and, in addition to its statutory duties and its role in appointing and monitoring of the internal audit function, serves in an advisory capacity to the board in discharging its duties relating to the safeguarding of assets, the operation of adequate systems, risk management and internal controls, the review of financial information and the preparation of the consolidated annual financial statements. This includes satisfying the board that adequate internal, operating and financial controls are in place.

Terms of reference

The audit committee has adopted formal terms of reference that have been updated and approved by the board of directors, and has executed its duties during the past financial year, in compliance with these terms of reference.

Composition and meeting process

The current members are Mr Ken Hopkins (Chairman), Professor Shirley Zinn and Mr Kaizer Moyane. The committee comprises exclusively independent non-executive directors, and met four times during the year with senior management, including the financial director, the head of risk and certain other executive management. The external and internal auditors attend these meetings and have unrestricted access to the committee and to its chairman. Ad hoc meetings are held as required.

Statutory duties

In execution of its statutory duties, as required in terms of the Companies Act and the Insurance Act, during the past financial year, the audit committee has:

· Taken responsibility for selecting the external auditor and recommending its appointment to the shareholders. Deloitte has been the external auditor for 2 years and has the policy of rotating the designated partner every five years. The current designated audit partner is B Botes who is in his second year of his tenure.

· Monitored the external auditor and obtained and reviewed the information specified in Pararagraph 22.15(h) of the JSE Listings Requirements and is furthermore satisfied that the audit work of Deloitte and the designated audit partner are of a sufficiently high quality and are therefore suitable for reappointment. Following this the audit committee recommended the reappointment of Deloitte to shareholders.

· Confirmed that the auditors were not included in the list of auditors disqualified by the JSE. · Determined the fees to be paid to the external auditor and such auditor’s terms of engagement as well as approved

the plan for the audit. · Ensured that the appointment of the external auditor complies with the Companies Act and any other legislation

relating to the appointment of such auditors. · Determined the nature, extent and fees of any non-audit services, which the auditor may provide to the Company or

such services that the auditor may not provide to the Company or related company. · Considered the independence of the external auditor and has concluded that the external auditor has been

independent of the Company throughout the year, taking into account all other non-audit services performed and circumstances known to the committee.

· Received and dealt appropriately with any complaints relating to the accounting practices and internal audit of the Company, the content or auditing of its consolidated annual financial statements, the internal financial controls of the Company, or to any related matter.

· Made submissions to the board on any matter concerning the Company’s accounting policies, financial control, records and reporting.

· Satisfied itself that the financial director and the finance function have the appropriate expertise and experience to perform the duties required by the position.

· Received and dealt appropriately with any complaints relating to the accounting practices and internal audit of the Company, the content or auditing of its consolidated annual financial statements, the internal financial controls of the Company, or to any related matter.


/ Audit committee report

Internal controlThe committee is also responsible for reviewing the effectiveness of systems of internal control, for financial reporting and risk management, and for considering the major findings of any internal investigations into control weaknesses, fraud or misconduct, and management’s response thereto. Internal audit as part of the planned internal audit programme provide regular reports including follow ups on previously reported findings. Group Information Technology provides feedback to each meeting on the adequacy and effectiveness of the Group’s information system controls.

Combined assuranceThe Group has a combined risk assurance model. During the current year, with the assistance of the outsourced internal auditors, this model has been reviewed and refined to meet with best practice. For each risk where combined assurance is lacking an action plan is developed and monitored. Combined assurance is monitored against the approved risk appetite and tolerance levels.

Internal auditThe committee is responsible for the appointment of the outsourced internal auditors and has appointed PWC for the 2019 year. They produce a three-year rolling plan, as well as an annual plan which is approved by the committee. This annual plan is monitored at each meeting and regular reports are received from internal audit. There is an internal audit charter which is reviewed and approved by the committee annually.

Legal requirementsThe audit committee has complied with all applicable legal, regulatory, and other responsibilities for the year under review.

Consideration of key audit mattersThe audit committee specifically engaged with the external auditors with respect to the key audit matters that were raised in their report set out on pages 84 to 86. In addition, the audit committee considered the work performed in addressing those matters and is satisfied that sufficient audit evidence was obtained for the external auditors to conclude that the matters had been dealt with appropriately, in terms of accuracy of calculation, where judgements and estimates were applied, and in terms of the disclosure that had been presented for these matters.

Consolidated annual financial statementsFollowing our review of the consolidated annual financial statements for the year ended 30 September 2018, we are of the opinion that, in all material respects, they comply with the relevant provisions of IFRS and the Companies Act and the JSE Listings Requirements, and that they fairly present the financial position of the Group, at 30 September 2018, and the results of operations and cash flows for the year then ended and recommend it to the board for their approval.

Integrated reportIn compliance with the requirements of the King Report on Governance of South Africa 2016 and the JSE Listings Requirements, an Integrated Report has been compiled for the 2018 financial year in addition to these consolidated annual financial statements. The committee has reviewed the contents of the integrated report and recommend them to the board for their approval.

Chairman of the audit committee Ken Hopkins 29 November 2018


Independent auditor’s reportto the shareholders of Sygnia limited

Report on the audit of the consolidated annual financial statements

Opinion

We have audited the consolidated financial statements of Sygnia Limited (“the Group”) set out on pages 89 to 152, which comprise the consolidated statement of financial position as at 30 September 2018, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 30 September 2018, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRS”) and the requirements of the Companies Act of South Africa.

Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the consolidated annual financial statements section of our report. We are independent of the Group in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct for Registered Auditors (“IRBA Code”) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Parts A and B). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit mattersKey audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.


Independent auditor’s report/

1. Valuation of goodwill and intangibles arising from the acquisition of Sygnia Itrix (RF) Proprietary Limited (previously db X-trackers (RF) Proprietary Limited)

Key audit matter

As disclosed in note 7, the Group acquired Sygnia Itrix (RF) Proprietary Limited (“Sygnia Itrix”) for a purchase consideration of R325 million. At 30 September 2017 the accounting for this acquisition remained provisional in terms of IFRS 3 Business Combinations (“IFRS 3”).

The accounting for the acquisition is governed by IFRS 3, whose requirements can be complex and require the directors to exercise significant judgement in determining certain estimates. The most significant estimate is the determination of the Purchase Price Allocation Valuation (“PPAV”) which encompasses:

· Identifying the tangible assets and liabilities acquired and determining their fair values;

· Assessing the fair value of tangible assets and liabilities identified; and

· Determination of intangible assets and goodwill to be recognised on acquisition.

The allocation between intangible assets and goodwill could have a significant impact on future years’ results, given that goodwill is not required to be amortised (although is required to be tested annually for impairment) and the requirement to amortise intangible assets with a finite useful life.

As a result we have identified a key audit matter in relation to the allocation of the excess of purchase price over net identifiable assets to goodwill, and intangible assets.

How the matter was addressed in the audit

Our audit procedures to respond to this key audit matter included:

· Evaluating the directors’ assessment of the purchase consideration and tangible identifiable assets, resulting in the excess allocated to separately identifiable intangible assets and goodwill;

· Engaging our internal experts to perform the following: › Evaluating the completeness of the intangible

assets identified by the directors; › Considering the design of controls instituted

by the directors and how these have been implemented;

› Performing an independent calculation of the key assumptions used in the director’s calculation;

› Assessing the appropriateness of the model used by the directors in determination of the value of intangible assets; and

· Assessing of the overall appropriateness of allocation of amounts to goodwill and separately identifiable intangible assets.

We consider the accounting for this transaction to be appropriate based on the evidence obtained. We consider the disclosures related to the acquisition to be appropriate.



2. Impairment of goodwill and management contracts

Key audit matter

As detailed in notes 5 and 7, the assessment of the impairment of intangible assets relating to goodwill and management contracts is subjective and therefore requires significant judgement.

The assessment of whether there is an impairment of goodwill and management contracts is a judgemental process. This requires estimates concerning the recoverable amount of the cash generating unit, using either a discounted cash flow or earnings multiple approach.

Accordingly, due to the high estimation uncertainty and the significant judgement, the impairment assessment of these assets is considered a key audit matter.


We focused our testing of the impairment of goodwill and management contract assets on the key assumptions made by the directors. Our audit procedures included:

· Evaluating the design and testing the implementation of relevant controls in respect of the impairment assessment performed by the directors;;

· Evaluating whether the model used to calculate the value-in-use of the individual cash generating units for Sygnia Itrix and the Gallet group entities complies with the requirements of IAS 36: Impairment of Assets;

· Validating the cash flow assumptions applied and inputs to historical information and approved budgets; and

· Performing an independent calculation of the key assumptions used in management’s calculation, such as the Weighted Average Cost of Capital rate and growth rate assumptions applied by the directors.

We consider that the assumptions applied in the impairment assessments to be appropriate and are supported by historic performance and current market information. We consider the disclosures to be appropriate.



3. Calculation of management fee revenue

Key audit matter

The diversity of the Group’s activities results in a number of different revenue streams (primarily fee based), details of which are disclosed in notes 4 and 23.

With the exception of structuring and brokering services, which are transaction based, revenue is driven by the allocation of various pricing mandates related to the value of assets under management and administration and either deducted directly from the client accounts (as approved by the mandate and as reported to the clients) or by invoicing the client directly.

The calculations of a portion of management fees across the Group are complex and managed by key individuals in a standalone environment with the risk that the calculations are incorrect in the absence of a review and sign-off process.

As a result we have identified a key audit matter that there is risk that revenue from management fees is not recognised in accordance with the stated accounting policies in terms of IFRS and pricing mandates, that income is recognised in a period to which it does not relate, or that the revenue calculations contain errors.


Our audit approach responded to this key audit matter included the following procedures:

· Evaluating the design and testing of the implementation of relevant controls in respect of the initiation and recognition of revenue (especially fee calculations which are complex in nature);

· Evaluating the accounting treatment of management fee revenue against the requirements of IAS 18: Revenue (“IAS 18”);

· Evaluating the controls management has in place over the calculation of management fees; and

· Performing detailed testing of a sample of management fee and accrual calculations, taking the client mandates into consideration, by performing independent recalculations.

We found the accounting for management fees to be recognised in accordance with the stated accounting policies in terms of IFRS, pricing mandates and are accurately recorded. We consider the disclosures related to management fee revenue to be appropriate.



Other informationThe directors are responsible for the other information. The other information comprises the Directors’ Report, the Audit Committee’s Report and the Company Secretary’s Certificate as required by the Companies Act of South Africa, and the Integrated Report, which we obtained prior to the date of this report. The other information does not include the consolidated financial statements and our auditor’s report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the consolidated annual financial statements

The Directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the consolidated annual financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.



· Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

· Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the audit committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the audit committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the audit committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

In terms of the IRBA Rule published in Government Gazette Number 39475, dated 4 December 2015, we report that Deloitte & Touche has been the auditor of Sygnia Limited for two years.

Deloitte & ToucheRegistered AuditorsPer: Brian BotesPartner29 November 2018

1st Floor The SquareCape Quarter27 Somerset RoadGreen Point8005


Consolidated statement of financial positionat 30 September 2018

Notes2018

R’000sRestated 2017 *

R’000s

Assets

Intangible assets 7 436 113 420 059

Property and equipment 8 29 125 29 848

Deferred tax assets 9 7 125 3 803

Investments linked to investment contract liabilities 10.1 79 832 055 44 204 715

Investments 11 262 428 295 936

Loans receivable 12 12 738 11 043

Taxation receivable 8 486 1 066

Trade and other receivables 13 60 523 78 572

Amounts owing by clearing houses 14 9 317 14 341

Amounts owing by clients 15 46 777 76 537

Cash and cash equivalents 16 157 510 312 506

Total assets 80 862 197 45 448 427

Equity

Stated capital 17 665 901 665 939

Retained income 170 819 157 473

Reserves (212 457) (215 230)

Total equity 624 263 608 182

Liabilities

Deferred tax liabilities 9 74 847 79 628

Investment contract liabilities 10.2 78 107 787 42 967 589

Third-party liabilities arising on consolidation of unit trust funds 18 1 567 784 1 104 402

Loan payable 19 - 165 201

Preference share liability 20 150 000 -

Taxation payable 5 319 8 423

Trade and other payables 21 276 049 424 036

Amounts owing to clearing houses 14 2 550 -

Amounts owing to clients 15 53 540 90 915

Bank overdraft 16 58 51

Total liabilities 80 237 934 44 840 245

Total equity and liabilities 80 862 197 45 448 427

* Restated for measurement period adjustment, refer to note 7.


Consolidated statement of profit or loss and other comprehensive incomefor the year ended 30 September 2018

Notes2018

R’000s2017

R’000s

Revenue 23 421 913 333 143

Expenses 23 (278 886) (230 402)

Profit from operations 23 143 027 102 741

Investment contract income 22.1 4 954 592 3 486 992

Transfer to investment contract liabilities 22.2 (4 954 592) (3 486 992)

Interest income 26 432 21 470

Other investment (loss) / income (6 979) 14 975

Investment income and fair value adjustment to third-party assets - 9 575

Fair value adjustment to third-party liabilities - (9 575)

Finance costs (14 133) (5 833)

Profit before tax 148 347 133 353

Income tax expense 24 (47 378) (40 804)

Total profit and comprehensive income for the year 100 969 92 549

Earnings per share (cents) 25

Basic 69.15 69.72

Diluted 68.42 68.82

91SYGNIA INTEGRATED REPORT 2018

Consolidated statement of changes in equityfor the year ended 30 September 2018

Notes

Stated capitalR’000s

Common control reserve R’000s

Group equity adjustment

R’000s

Share-based payment reserve

R’000s

Retained earnings R’000s

Total equity

R’000s

Balance at 1 October 2016 507 729 (252 577) (307) 35 034 131 607 421 486

Total comprehensive income

Total profit and comprehensive income for the year - - - - 92 549 92 549

Total comprehensive income for the year - - - - 92 549 92 549

Transactions with owners

Dividends paid 26 - - - - (66 683) (66 683)

Share issue 17 160 000 - - - - 160 000

Share option expense 27 - - - 2 620 - 2 620

Transaction costs on issue of ordinary shares 17 (1 790) - - - - (1 790)

Total transactions with owners 158 210 - - 2 620 (66 683) 94 147

Balance at 30 September 2017 665 939 (252 577) (307) 37 654 157 473 608 182

Total comprehensive income

Total profit and comprehensive income for the year - - - - 100 969 100 969

Total comprehensive income for the year - - - - 100 969 100 969

Dividends paid 26 - - - - (87 623) (87 623)

Share option expense 27 - - - 2 773 - 2 773

Transaction costs on issue of ordinary shares 17 (38) - - - - (38)

Total transactions with owners (38) - - 2 773 (87 623) (84 888)

Balance at 30 September 2018 665 901 (252 577) (307) 40 427 170 819 624 263


Consolidated statement of cash flowsfor the year ended 30 September 2018

Notes2018

R’000s2017

R’000s

Cash flows from operating activities

Cash generated by operations 28 78 105 219 921

Dividends received 989 823

Interest received 27 719 20 066

Finance costs (17 572) (323)

Taxation paid (63 189) (33 167)

Net cash inflow from operating activities 26 052 207 320

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 (496 875) (98 598)

Proceeds on sale of investments 441 454 98 909

Acquisition of subsidiary, net of cash acquired - (320 628)

Net cash outflow from investing activities (83 703) (331 003)

Cash flows from financing activities

Dividends paid (87 623) (66 683)

Issue of ordinary shares - 160 000

Issue of preference shares 160 000 -

Preference share redemption (10 000) -

Transaction costs on issue of ordinary shares (38) (1 790)

(Decrease) / increase in loans payable (159 692) 159 692

Post-acquisition settlement of pre-acquisition liability - (32 940)

Net cash (outflow) / inflow from financing activities (97 353) 218 279

Net (decrease) / increase in cash and cash equivalents (155 004) 94 595

Cash and cash equivalents at beginning of the year 16 312 455 217 859

Cash and cash equivalents at end of the year 16 157 451 312 455

Cash and cash equivalents at the end of the year included the following cash held on behalf of policyholders and clients. 52 120 131 309

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.


Notes to the consolidated annual financial statementsfor the year ended 30 September 2018

1. Reporting entitySygnia Limited is a company domiciled in the Republic of South Africa. The consolidated annual financial statements as at and for the year ended 30 September 2018 comprise the Company and its subsidiaries (together referred to as the “Group”). The Group is primarily involved in the provision of investment management related services.

The Company is incorporated and domiciled in South Africa. The address of its registered office is 7th Floor, The Foundry, Cardiff Street, Green Point, Cape Town, 8001.

2. Statement of complianceThese financial statements comprise the consolidated annual financial statements of the Group and have been prepared in accordance with the JSE Listings Requirements and the requirements of the Companies Act. The JSE Listings Requirements require financial statements to be prepared in accordance with IFRS and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council.

3. Basis of preparationThe consolidated annual financial statements have been prepared on the basis of accounting policies applicable to a going concern. The basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.

The consolidated annual financial statements are presented in South African Rand, which is the functional currency of the companies within the Group.

The consolidated annual financial statements have been prepared on the historical cost basis, unless stated otherwise in the accounting policies. The principal accounting policies and method of computations set out have been applied consistently to all years presented in these financial statements.

4. Accounting policiesThe accounting policies and method of computations applied in the preparation of these consolidated annual financial statements conform to IFRS and are consistent with those accounting policies applied in the preparation of the consolidated annual financial statements as at and for the year ended 30 September 2017.

The principal accounting policies and method of computations set out have been applied consistently to all years presented in these financial statements.

Standards affecting amounts reported in the current year (and / or prior years)

The following amendments to standards came into effect during the current year, however they have not had a significant impact on the amounts reported or disclosed in these financial statements.


Notes to the consolidated annual financial statements/

4. Accounting policies (cont.)

IAS 7: Statement of cashflowsEffective for annual periods beginning on or after 1 January 2017

The amendments to IAS 7 Statement of Cash Flows are part of the International Accounting Standards Board’s (“IASB”) Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.

IAS 12: Income taxesEffective for annual periods beginning on or after 1 January 2017

The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explains in which circumstances taxable profit may include the recovery of some assets for more than their carrying amount.

Standards, amendments and interpretations issued, but not yet effective

At the date of authorisation of these financial statements, the following standards and interpretations that impact the Group were in issue, but not yet effective:

IFRS 2: Share-based paymentsEffective for annual periods beginning on or after 31 December 2018

The amendments are intended to eliminate diversity in practice, but are narrow in scope and address specific areas of classification and measurement.

Management has performed a high level assessment to determine the potential impact to the peformance and financial position of the Group when adopting the changes to IFRS 2. Based on this assessment, nothing has come to the attention of management that would indicate that these changes will be significant.

IFRS 9: Financial instrumentsEffective for annual periods beginning on or after 1 January 2018

This standard reflects the final phase of the IASB’s work on the replacement of IAS 39. It applies to the classification and measurement of financial assets and financial liabilities as defined in IAS 39; a new general hedge accounting model and a new expected loss impairment model.

Management has performed a high level assessment to determine the potential impact to the peformance and financial position of the Group when adopting the changes to IFRS 9. Based on this assessment, nothing has come to the attention of management that would indicate that these changes will be significant to the quantitative reporting, however it is likely that there will be additional disclosures implemented.

IFRS 15: Revenue from contracts with customersEffective for annual periods beginning on or after 1 January 2018

The standard emphasises how and when an IFRS reporter will recognise revenue, as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard applies a single, principle-based five-step model to be applied to all contracts with customers.

Management has performed a high level assessment to determine the potential impact to the peformance and financial position of the Group when adopting the changes to IFRS 15. Based on this assessment, nothing has come to the attention of management that would indicate that these changes will be significant.




Standards, amendments and interpretations issued, but not yet effective (cont.)

IFRS 16: Leases

Effective for annual periods beginning on or after 1 January 2019

The scope of IFRS 16 includes leases of all assets, with certain exceptions. A lease is defined as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. IFRS 16 requires lessees to account for all leases under a single on-balance sheet model in a similar way to finance leases under IAS 17.

The Group is currently in the process of performing a more detailed assessment of the impact of this new standard on the amounts reported in these financial statements and will provide more information in the year ending 30 September 2019 financial statements. This standard will only be effective for the first time in the 2020 financial statements.

IFRC 22: Foreign currency transactions and advance consideration

Effective for annual periods beginning on or after 1 January 2018

The interpretation clarifies that in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration.

Management has performed a high level assessment to determine the potential impact to the peformance and financial position of the Group when adopting the changes to IFRC 22. Based on this assessment, nothing has come to the attention of management that would indicate that these changes will be significant.

Implementation of standards, amendments and interpretations issued, but not yet effective

During the current year management has considered the impact of the above standards, amendments and interpretations issued, and do not believe that there are any material impacts to be noted as at the date of this report. A continual effort will be made to assess whether there is a need to revisit this determination.

Basis of consolidation

In terms of IFRS 10 Consolidated Financial Statements, subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group has power over an entity, is exposed to, or has rights to variable returns from its involvement with the entity, and has the ability to affect these returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is obtained by the Group. They are deconsolidated from the date on which control ceases.

The acquisition method of accounting is used to account for the acquisition of subsidiaries and businesses by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of acquisition, plus costs directly attributable to the acquisition. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are generally measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired, is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of the net assets of the subsidiary acquired, the difference is recognised directly in profit or loss.




Basis of consolidation (cont.)

Changes in ownership interests in subsidiaries are accounted for as Group equity adjustments if they occur after control has already been obtained and they do not result in loss of control.

Inter-company transactions, balances and unrealised gains or losses on transactions between Group companies are eliminated.

Where consolidation of unit trust funds occur by virtue of the Group’s investment into the fund, the income and expenditure components are disclosed in the statement of comprehensive income as well as the third-party share thereof. Assets and liabilities of the fund are included in the statement of financial position and the third-party liability is separately disclosed.

Property and equipment

Property and equipment is stated at historical cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All repairs and maintenance are charged to profit or loss during the financial year in which they are incurred. The useful life, depreciation method and residual value of all assets are reassessed annually.

Depreciation is calculated on the straight-line method to write off the cost of each asset to its residual value over its estimated useful life. Assets are depreciated over the following useful lives:

Artwork - installed as part of building Over the lease term

Artwork - movable 25 years

Computer equipment 3 years

Furniture and fittings 6 years

Leasehold improvements Over the lease term

Motor vehicle 5 years

Owner occupied property 50 years

Office equipment 5 years

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These are included in profit or loss.

Intangible assets

Internally-generated intangible assets – research and development expenditure

Expenditure on research activities is recognised as an expense in the year in which it is incurred.

An internally-generated intangible asset arising from the development phase of an internal project is recognised if, and only if, all of the following have been demonstrated:




Intangible assets (cont.) · The technical feasibility of completing the intangible asset, so that it will be available for use or sale. · The intention to complete the intangible asset and use or sell it. · The ability to use or sell the intangible asset. · How the intangible asset will generate probable future economic benefits. · The availability of adequate technical, financial and other resources to complete the development and to use or sell

the intangible asset. · The ability to reliably measure the expenditure attributable to the intangible asset during its development, and

it is probable that the expected future economic benefits that are attributable to the asset will flow to the Group.

The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. When the costs incurred no longer meet the recognition criteria, capitalisation of expenses cease and no internally-generated intangible asset is recognised. The development expenditure is charged to profit or loss in the year in which it is incurred. Expenditure on an intangible asset that was initially charged to profit or loss, is not recognised as a part of the cost of an intangible asset at a later date.

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as incurred.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses.

Intangible assets have a finite useful life. Amortisation is calculated on the straight-line method to write off the cost of each asset over its estimated useful life. The useful life, amortisation method and residual value of all assets are reassessed annually. This asset is amortised over the following useful life:

Internally-generated computer software: 2 years

Intangible assets are derecognised on disposal or when no future economic benefits are expected from their use. The gain or loss arising from derecognition is recognised in profit or loss.

Intangible assets acquired separately

Intangible assets with finite useful lives, that are acquired separately, are carried at cost less accumulated amortisations and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any change in estimate being accounted for on a prospective basis. This asset is amortised over the following useful life:

Purchased software: 2 years

Customer relationships

Customer relationships consist of acquired contracts with clients. These contracts with clients are shown at cost less accumulated amortisation and impairment. Amortisation is calculated using the straight-line method over their estimated useful lives. The carrying amount of each cash-generating unit is reviewed annually for impairment when an impairment indicator is identified. This asset is amortised over the following useful life:

Customer relationships: 9 years




Intangible assets (cont.)

Licence

The licence intangible asset relates to the estimated costs and management effort to establish an entity with the same licences as Sygnia Itrix, allowing it to offer ETFs to investors. This asset is amortised over the following useful life:

Licence: 10 years

Investment plan (included in customer relationships)

The investment plan intangible asset represents client relationships associated with the investment plan acquired with Sygnia Itrix. These clients are directly associated with the ownership of Sygnia Itrix and therefore required valuation in terms of the purchase price allocation valuation as a defined revenue stream was associated with those relationships.This asset is amortised over the following useful life:

Investment plan: 10 years

Management contracts

Management contracts represent the contracts between Sygnia Itrix and the 5 ETFs that were acquired with the acquisition of db X-trackers from Deutsche Bank. These management contracts represent a relationship between the ETFs and the management company and as a result there is a right for the management company to earn a revenue stream from the ETFs, which in turn will generate revenue from ETF unit holders. The management contract intangible asset has an indefinite life due to the fact that the ETFs from which the revenue stream is to be derived as a result of the management contracts will exist for the foreseeable future. It is not necessary for the life to be infinite to be an indefinite life, it simply requires that there is no terminal point known at the date of assessment.

Furthermore, the intangible asset valued as the contract to manage assets in open-ended investment vehicles without a specific termination date is generally classified as indefinite-lived. The assignment of indefinite lives to such contracts is primarily based on the following:

i. The assumption that there is no foreseeable limit to the contract period to manage these products; ii. the Company expects to, and has the ability to continue to operate these products indefinitely; iii. the products have multiple investors and are not reliant on a single investor or small group of investors for their

continued operations; iv. current competitive factors and economic conditions do not indicate a finite life.

This asset therefore has an indefinite useful life and is not amortised but is reviewed annually for impairment.

Goodwill

Goodwill represents the excess of the cost of an acquisition, over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary undertaking, at the date of acquisition. Goodwill is reported in the statement of financial position as an intangible asset. Goodwill is tested annually for impairment and is carried at cost less accumulated impairment losses, which are reflected in profit or loss. Impairment losses on goodwill are not reversed.

Goodwill is allocated to cash-generating units that are expected to benefit from the synergies of the combination for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.




Tax

Income tax expense represents the sum of the current income tax and deferred tax.

Current tax

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax

Deferred tax is recognised in relation to temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial accounting purposes. However, deferred tax is not accounted for if it arises from initial recognition of goodwill or the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is charged or credited to profit or loss, except where it relates to items recognised directly to equity, in which case the deferred tax is also recognised directly in equity. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. The change in the capital gains tax rate during the prior year, was treated as a change in estimate. The effect of the change in the tax rate on deferred tax assets and liabilities is recognised in profit or loss in the year that includes the enactment date.

Deferred tax assets relating to the carrying forward of unused tax losses are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities, and when they relate to income taxes levied by the same tax authority, and the Group intends to settle its current tax assets and liabilities on a net basis.

Financial instruments

Recognition and derecognition of financial instruments

Financial instruments are recognised when the Group becomes a party to the contractual provisions of the particular instrument.

The Group derecognises a financial asset when:

· The contractual rights to the cash flows arising from the financial assets have expired or been forfeited by the Group; or

· It transfers the financial asset, including substantially all the risks and rewards of ownership of the asset; or · It transfers the financial asset, neither retaining nor transferring substantially all the risks and rewards of ownership

of the asset, but no longer retains control of the asset.

A financial liability is derecognised when the liability is extinguished, that is, when the obligation specified in the contract is discharged, cancelled or has expired.

All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (‘regular way ’ purchases and sales) are recognised at trade date, which is the date that the Group commits to purchase or sell the asset. Otherwise such transactions are treated as derivatives until settlement occurs. Loans receivable are recognised (at fair value plus attributable transaction costs) when cash is advanced to borrowers. Trade and other receivables are recognised when the Group becomes party to the contractual provisions of the particular instrument.




Financial instruments (cont.)

Classification and measurement

Financial assets are classified at fair value through profit or loss where the financial asset is held for trading, or it is designated at fair value through profit or loss.

Financial assets held for trading

A financial asset is classified in this category if acquired principally for the purpose of selling or buying back in the short term. Financial assets held for trading include ‘investments’. Measurement is initially at fair value, with transaction costs recognised in profit or loss. Subsequently their fair values are remeasured and all gains and losses, realised and unrealised, are recognised in profit or loss in the year in which they arise, without any deduction for transaction costs it may incur on their disposal. Dividend income on financial assets held for trading is recognised in profit or loss as dividend income.

Financial assets designated at fair value through profit or loss

Financial assets designated at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in profit or loss. After initial recognition, the Group measures financial assets designated at fair value through profit or loss at fair values without any deduction for transaction costs it may incur on their disposal.

All investments linked to investment contract liabilities issued by the Group, are designated by the Group on initial recognition as at fair value through profit or loss.

Listed investments are recognised in the statement of financial position at fair value, using closing prices on share and bond exchanges. Investments in collective investment schemes are recognised at fair value using the quoted exit price provided by the fund manager. Unlisted investments are valued by the directors, taking into account prevailing interest rates, market conditions and underlying investments. Derivatives are measured by the Group on initial recognition at fair value through profit or loss.

Loans and receivables

Loans and receivables, that have fixed or determinable payments that are not quoted in an active market, are classified as loans and receivables. Loans and receivables are initially measured at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest method, less any impairment. Interest income earned on loans and receivables is recognised by applying the effective interest rate.

Amounts owing by clearing houses and clients are classified as loans and receivables, and are settled within three days after the transaction occurred in terms of the clearing house rules of the JSE.

Non-financial assets

These assets include inventory, which may include crypto-currency assets, which are not defined as cash nor financial assets in terms of International Financial Reporting Standards but have been defined by National Treasury of South Africa as a digital asset that is used as a medium of exchange. These assets are traded and marked-to-market on the basis of publicly available information and prices.

Any changes in the mark-to-market value of these assets are recognised in the statement of profit or loss.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other money market assets with less than 90 days to maturity from the date of acquisition. For the purposes of the cash flow statement, cash and cash equivalents comprise balances due from and owing to banks. Cash and cash equivalents are initially measured at fair value and subsequently measured at cost using the effective interest method.




Financial liabilities and equity instruments

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Financial liabilities at fair value through profit or lossFinancial liabilities are measured at fair value through profit or loss, where the financial liability is either held for trading or it is designated at fair value through profit or loss.

A financial liability other than a financial liability held for trading may be designated at fair value through profit or loss upon initial recognition if:

· Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

· The financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis.

Financial liabilities at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability. Investment contract liabilities issued by the Group, are designated by the Group on initial recognition at fair value through profit or loss. This designation eliminates a measurement inconsistency that would otherwise arise if these financial liabilities were not measured at fair value, since the assets held to back the investment financial liabilities are also measured at fair value.

Financial liabilities designated at fair value through profit or loss - investment contract liabilitiesIn terms of the definition of insurance contracts in IFRS 4, the contracts issued by a subsidiary of Sygnia Limited, Sygnia Life Limited, do not qualify as insurance contracts. These contracts are accounted for in terms of IAS 32 and IAS 39 on financial instruments. Amounts received under investment contracts are recorded as deposits and credited directly to investment contract liabilities. Amounts paid under investment contracts are recorded as deductions from investment contract liabilities.

The Group issues investment contracts that transfer financial risk to the holders of the instruments. All investment contracts issued by the Group are designated by the Group on initial recognition at fair value through profit or loss. This designation eliminates or significantly reduces a measurement inconsistency that would otherwise arise if these financial liabilities were not measured at fair value, since the assets held to back the investment contract liabilities are also measured at fair value.

Changes in the fair value of investment contracts are included in profit or lossDisclosure in the statement of profit or loss and other comprehensive income has been made to reflect all income, including realised and unrealised profit, relating to policyholders into one line item called, ‘Investment contract income’, and all the expenses relating to policyholders into one line item, called ‘ Transfer to investment contract liabilities’. Disclosure in the statement of financial position has been made to reflect all the policyholder assets in one line item, called ‘Investments linked to investment contracts’.




Financial liabilities and equity instruments (cont.)

Other financial liabilitiesOther financial liabilities comprise preference shares, trade and other payables, amounts owing to clearing houses, amounts owing to clients and bank overdrafts. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the statement of cash flows.

The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.

OffsettingFinancial assets and financial liabilities, and their related statement of profit or loss and comprehensive income line items are offset and the net amount reported in the statements of financial position and profit or loss and other comprehensive income only when the Group has a legally enforceable right to set off the instruments and management intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Operating leasesLeases under which the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.

Finance costsFinance costs comprise interest expense on interest-bearing borrowings and bank overdrafts and preference dividends accrued on the preference share liability.

RevenueRevenue comprises the fair value of the consideration received or receivable for the sale of services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax. Revenue is comprised of financial service fees (consisting of fees for investment management, investment administration and brokerage), IT maintenance and support fees, interest income and dividend income.

Investment management and administration fee income is recognised as the service is rendered. Fee income (including performance fee income) is recognised when the Group is unconditionally entitled to the revenue and no contingency with respect to future performance exists.

Brokerage income is recognised on the day that the purchase or sale of financial instruments is concluded, regardless of when settlement takes place.

Interest and other investment incomeInterest income is recognised in profit or loss as it accrues using the effective interest method. Other investment income comprises dividend income, realised and unrealised profits and losses on disposal, or gains or losses on revaluation of financial assets and realised and unrealised foreign exchange gains and losses.

Dividend income is recognised in profit or loss on the date the entity’s rights to receive payment is established.

Income received from collective investment schemes is recognised in profit or loss on the date when the distributed income is distributed. The relevant distinction is made between the nature of the income distributed, as is appropriate.




Impairment of non-financial assetsThe carrying amount of the Group’s assets is reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. The recoverable amount is the greater of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in profit or loss. Any reversal of losses are also recognised in profit or loss.

Impairment of financial assetsA financial asset not classified at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset can be estimated reliably. The impairment loss is the difference between the carrying amount and recoverable amount and is recognised in profit or loss. The reversal of impairment losses is also recognised in profit or loss.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows, discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and directly credited against the carrying amount of the financial asset.

DividendsDividends to holders of equity instruments of the Group are recognised in equity during the year in which they are declared.

Share-based paymentsThe Group grants share options to certain employees under an equity-settled share-based compensation scheme.

Equity-settled share-based payments are measured at fair value at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed through profit or loss, with a corresponding increase in equity, on a straight- line basis over the vesting period based on management’s estimate of the shares that will vest and adjusted for the effect of non- market-based vesting conditions. These share-based payments are not subsequently revalued.

Foreign exchange transactionsTransactions in foreign currencies are accounted for at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the reporting date. Foreign exchange gains and losses are recognised in profit or loss. Realised and unrealised exchange gains and losses relating to investment contract liabilities are recognised in investment contract income in the year in which they occur.

Managed funds and trust activitiesCertain companies within the Group operate collective investment schemes that hold and invest funds on behalf of clients. Assets and liabilities representing such activities are not reflected in the statement of financial position as these relate directly to clients, except in instances where the criteria for the consolidation of those funds is met, in which case the assets and liabilities associated with those funds are included on the statement of financial position. Income from these activities is brought to account in the period to which the service relates.




Earnings per share

The Group presents basic and diluted earnings per share and headline earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares in issue during the period. Diluted earnings per share are determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all potential dilutive instruments.

Headline and diluted headline earnings per share are calculated in accordance with Circular 4/2018 issued by SAICA.

5. Use of estimates and judgementsThe preparation of the consolidated annual 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. 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 annual financial statements for the year ended 30 September 2017, except for judgements used in business combinations, goodwill impairment, deferred tax asset 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, intangible assets, deferred tax, share-based payments and fair value refer to the accounting policies and notes 7, 9, 27 and 32 respectively.

Measurement of fair values

The Group has an established control framework with respect to the measurement of fair values. The financial director has overall responsibility for overseeing all significant fair value measurements.

The financial director regularly reviews significant unobservable inputs and valuation adjustments. If third-party information, such as broker quotes or pricing services, is used to measure fair values, then the financial director assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy, based on the inputs used in the valuation techniques.



5. Use of estimates and judgements (cont.)

Measurement of fair values (cont.)

If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in note 32.

6. Segment informationThe 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.



7. Intangible assets

2018

Opening balance at 1 October 2017

R’000s Additions

R’000s

Closing balance at 30 September 2018

R’000s

At cost

Computer software 15 695 18 804 34 499

Goodwill* 149 698 - 149 698

Management contracts 253 885 - 253 885

Customer relationships 14 176 2 135 16 311

Licence 1 170 - 1 170

434 623 20 939 455 563


R’000sAmortisation

R’000s

Closing balance at 30 September 2018

R’000s

Accumulated amortisation and impairment


Goodwill* 31 - 31

Management contracts - - -

Customer relationships 1 966 1 570 3 536

Licence - 117 117

14 565 4 885 19 450

Carrying amount R’000s

Computer software 18 733

Goodwill* 149 667

Management contracts 253 885

Customer relationships 12 775

Licence 1 053

436 113

* 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)).

Computer software has approximately one year remaining of its useful life; customer relationships have approximately seven years remaining of their useful life; and the licence has nine years remaining of its useful life.



7. Intangible assets (cont.)

2017

Opening balance at 1 October

2016R’000s

AdditionsR’000s

Acquisitions through

business combinations

R’000s

Measurement period

adjustment R’000s

Deferred tax relating to

measurement period

adjustment R’000s

** Restated closing

balance at 30 September

2017R’000s

At cost

Computer software 12 553 3 142 - - - 15 695

Goodwill * 18 896 - 302 806 (238 895) 66 891 149 698

Management contracts - - - 253 885 - 253 885

Customer relationships 12 133 - 17 033 (14 990) - 14 176

Licence - - 1 170 - - 1 170

43 582 3 142 321 009 - 66 891 434 624

Opening balance at

1 October 2016R’000s

AmortisationR’000s

** Restated closing

balance at 30 September

2017R’000s

Accumulated amortisation and impairment


Goodwill * 31 - 31

Customer relationships 640 1 326 1 966

10 973 3 592 14 564

Carrying amount R’000s

Computer software 3 127

Goodwill* 149 666

Management contracts 253 885

Customer relationships 12 209

Licence 1 170

420 059

* 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)).

** Restated for 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 2017. 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.

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.



7. Intangible assets (cont.)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.

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.



7. Intangible assets (cont.)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) 9.0% 9.0%

Tax rate 28.0% 28.0%

Growth rate 8.0% 6.0%

Terminal growth rate 4.9% 4.9%

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 2018. 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) 9.0%

Tax rate 28.0%

Growth rate 6.0%

Terminal growth rate 4.9%

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 R116 994 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 YearsScenario 1

YearsScenario 2

Years

Scenario 1: Amortisation charge on customer

relationships would have increased to:

R’000s

Scenario 2: Amortisation charge on customer

relationships would have decreased to:

R’000s

30 September 2018

Amortisation period 9 5 15 2 825 942

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.



8. Property and equipment

2018

Opening balance at1 October 2017

R’000sAdditions

R’000sDisposals

R’000s

Closing balance at30 September 2018

R’000s

At cost

Artwork 8 829 2 - 8 831

Borehole and water supply - 327 - 327

Computer equipment 8 079 1 438 - 9 517

Furniture and fittings 10 017 346 - 10 363

Leasehold improvements 32 268 5 068 - 37 336

Motor vehicle 377 - - 377

Office equipment 685 162 - 847

Owner occupied property 5 162 - - 5 162

65 417 7 343 - 72 760


R’000sDepreciation

R’000sDisposals

R’000s


R’000s

Accumulated depreciation and impairment

Artwork 2 073 371 - 2 444


Furniture and fittings 7 049 813 - 7 862


Motor vehicle 195 75 - 270


Owner occupied property 206 103 - 309

35 570 8 065 - 43 635



8. Property and equipment (cont.)Closing balance at

30 September 2018R’000s

Carrying amount

Artwork 6 387

Borehole and water supply 327

Computer equipment 2 174

Furniture and fittings 2 501

Leasehold improvements 12 497

Motor vehicle 107

Office equipment 279

Owner occupied property 4 853

29 125

2017

Opening balance at1 October 2016

R’000sAdditions

R’000s

Acquisitions through business

combinationR’000s

DisposalsR’000s

Closingbalance at

30 September 2017R’000s

At cost

Artwork 8 669 160 - - 8 829

Computer equipment 7 368 710 - - 8 078

Furniture and fittings 8 873 1 144 - - 10 017

Leasehold improvements 26 948 5 320 - - 32 268

Motor vehicle 377 - - - 377

Office equipment 474 211 - - 685

Owner occupied property 5 162 - - - 5 162

57 871 7 545 - - 65 416



8. Property and equipment (cont.)


R’000sDepreciation

R’000sDisposals

R’000s


R’000s

Accumulated depreciation and impairment

Artwork 1 686 387 - 2 073


Furniture and fittings 5 825 1 224 - 7 049


Motor vehicle 119 75 - 194


Owner occupied property 103 103 - 206

26 741 8 827 - 35 568


R’000s

Carrying amount

Artwork 6 756

Computer equipment 2 129

Furniture and fittings 2 968

Leasehold improvements 12 649

Motor vehicle 183

Office equipment 207

Owner occupied property 4 956

29 848



9. Deferred taxation2018

R’000sRestated 2017 *

R’000s

Deferred tax assets arise from the following:

Accruals 936 185

Estimated tax losses 2 277 1 324

Bonus and leave pay accruals 3 964 3 157

Deferred operating lease cash flows 523 602

Income received in advance 176 201

Prepayments (444) (586)

Intangible assets (510) (393)

Tenant installation allowance 125 159

Unrealised loss / (profit) on investments 78 (846)

7 125 3 803

Deferred tax liabilities arise from the following:

Accruals 182 153

Bonus and leave pay accruals 1 930 1 688

Deferred operating lease cash flows (26) (33)

Intangible assets (73 881) (74 834)

Prepayments - (90)

Policyholder reserve adjustment (1 461) -


Unrealised profit on investment contract assets relating to policyholders (2 304) (5 798)

(74 848) (79 628)


The estimated tax losses relate to subsidiaries of the Group and management has performed an assessment of their possible future taxable income and determined that the losses will be fully utilised and is satisfied that a deferred tax asset has been recognised.



9. Deferred taxation (cont.)

Reconciliation between deferred taxation opening and closing balances:

2018R’000s

Restated 2017 *R’000s

Deferred tax asset at beginning of the year 3 803 4 881

Accruals 751 67

Bonus and leave pay accruals 806 (69)

Deferred operating lease cash flows (79) 162

Income received in advance (25) 161

Prepayments 142 (173)

Intangible assets (117) (365)

Tenant installation allowance (33) (27)


Movement in unused assessed tax losses accrued 953 (74)

Deferred tax asset at end of the year 7 125 3 803

Deferred tax liability at beginning of the year (79 628) (18 584)

Accruals 29 79

Bonus and leave pay accruals 244 354

Deferred operating lease cash flows 7 (4)

Intangible assets 953 (71 616)

Prepayments 90 (19)

Policyholder reserve adjustment (1 461) -

Unrealised loss on investments 1 425 417

Unrealised loss on investment contract assets relating to policyholders 3 494 9 744

Deferred tax liability at end of the year (74 848) (79 628)




10. Investment contract investments and liabilities

10.1 Investments linked to investment contract liabilities

2018R’000s

2017R’000s

Domestic and international equities 16 058 702 12 882 075

Fixed interest securities 6 488 635 3 216 589

Collective investment schemes 4 691 071 3 335 325

Debentures - 9 228

Hedge funds 272 711 4 324 769

Non-financial assets 109 778 -

International investments

Collective investment schemes 38 229 734 14 040 554

Investments in insurance policies 88 776 119 099

Investments in insurance policies 9 545 729 4 068 845

Cash and cash equivalents 4 159 418 2 010 562

Investment contract portfolio debtors 93 389 162 097

Investment contract portfolio accrued interest 94 110 35 572

79 832 055 44 204 715

Derivative contracts

Exchange traded futures and options contracts are entered into for both long and short positions. The positions are covered by an initial margin deposit. Fair value movements are hedged by variation margin payments, which are settled on a daily basis. The total derivatives exposure at year end was a long position of R1.1 billion (2017: R405.8 million) and a short position of R462.2 million (2017: R20.3 million).



10. Investment contract investments and liabilities (cont.)

10.2 Investment contract liabilities

2018R’000s

2017R’000s

Balance at the beginning of the year 42 967 589 38 182 959

Contributions 44 210 955 12 509 661

Service fee rebate 1 532 560

Net investment income (note 20.1)

Interest 799 692 686 846

Dividends from listed investments 541 804 400 508

Fund balance adjusted for gross fund inflows 88 521 572 51 780 535

Withdrawals (13 604 272) (10 670 903)

Management fees (217 351) (219 894)

Portfolio expenses (228 977) (130 725)

Transaction costs (45 489) (38 624)

Taxation (4 514) (17 939)

Unutilised taxation losses transferred to corporate (352) (20)

Deferred taxation 2 034 9 744

Commission paid by policyholders

Initial - -

Ongoing (955) (1 122)

Fair value adjustment to third-party liabilities 72 995 (143 100)

Net fair value gains on investments linked to investment contract liabilities 3 613 096 2 399 638

Total policyholder investment contract liabilities 78 107 787 42 967 589

There have been no changes to the credit risk of the policyholder investment contract liabilities during the current year (2017: No change). As all liabilities are linked policies, the carrying amount of the liability is at all times equal to the underlying investments that would be required to be paid out on maturity.



11. Investments2018

R’000s2017

R’000s

Collective investment schemes 208 062 263 604

Listed equity 701 889

Hedge funds - 31 444

Non-financial assets 5 194 -

Fixed interest securities 48 471 -

262 428 295 936

The investments in collective investment schemes are in Sygnia unit trust products and are stated at fair value. The unit trusts are managed by Sygnia Collective Investments RF Proprietary Limited (a subsidiary of the Group). Refer to note 32 for fair value disclosures.

12. Loans receivable2018

R’000s2017

R’000s

ASISA Supplier Development Trust 2 132 -

Beret Properties Proprietary Limited 7 983 8 393

Izibuko Holdings Proprietary Limited 43 24

Widok Properties Proprietary Limited 2 555 2 611

Deutsche Securities 25 15

12 738 11 043

The loan to ASISA Supplier Development Trust is unsecured, interest free and repayable in the 2025 financial year.

The loan to Izibuko Holdings Proprietary Limited is unsecured, bears no interest and has no fixed repayment terms.

The loan to Beret Properties Proprietary Limited is unsecured, bears interest at the prime interest rate and is repayable in monthly instalments over 20 years, with final payment in November 2035.

The loan to Widok Properties Proprietary Limited is unsecured, bears interest at the prime interest rate less 0.5% and is repayable in monthly instalments over 20 years, with final payment in November 2035.

13. Trade and other receivables2018

R’000s2017

R’000s

Interest receivable 876 2 163

Management fees receivable 56 872 58 898

Other receivables 2 775 17 512

60 523 78 573

All management fees receivable are within their contractual terms.



14. Amounts owing by / (to) clearing houses2018

R’000s2017

R’000s

Owing by clearing houses

Equities 56 089 89 208

Futures and Yield-X products 987 2 260

57 076 91 468

Owing to clearing houses

Equities (46 772) (76 534)

Futures and Yield-X products (3 537) (593)

(50 309) (77 127)

Net amount owing by clearing houses 6 767 14 341

Reconciliation of amounts owing by clearing houses

Net amount owing by clearing houses - Equity sales and purchases 9 317 12 674

Net amount owing by clearing house - Futures and Yield-X products - 1 667

Amounts owing by clearing house 9 317 14 341

Net amounts owing to clearing houses - Futures and Yield-X products (2 550) -

Amounts owing to clearing houses (2 550) -

Net amounts owing by clearing houses 6 767 14 341

Amounts owing by / (to) clearing houses reflect unsettled client trades at reporting date.

15. Amounts owing by / (to) clientsIn terms of Section 21 of the Financial Markets Act of 2012, cash held for client accounts and in the client’s name is held with JSE Trustees Proprietary Limited (“JSE Trustees”). The amounts owing to and from clients represent unsettled exchange traded transactions at year end. At year end client money held with the JSE Trustees amounted to R79.3 million (2017: R70.4 million). The year end JSE Trustees balance does not reflect the impact of unsettled purchases between trade and settlement date of R46.8 million (2017: R76.5 million) reduced by amounts receivable from clients of R4 309 (2017: R3 775) totalling R46.8 million (2017: R76.5 million), unsettled sales between trade and settlement date of R56.1 million (2017: R89.2 million), client deposits of R669 (2017: R40 069), and a futures daily balance of R2.5 million payable (2017: R1.7 million receiveable) totalling R53.5 million (2017: R90.9 million), which have been taken into account in amounts owing to clients.



16. Cash and cash equivalents2018

R’000s2017

R’000s

Current accounts 116 190 196 660

Fixed deposits and call accounts 41 319 115 846

157 509 312 506

Bank overdraft (58) (51)

Total cash and cash equivalents 157 451 312 455

Cash and cash equivalents comprise balances with banks and exclude cash balances held in policyholder investment portfolios.

17. Stated capital

Number ofshares

StatedcapitalR’000s

Authorised

500 000 000 Ordinary shares of no par value

(2017: 500 000 000 Ordinary shares of no par value)

Issued

As at 1 October 2016 137 178 507 729

Issue of ordinary shares - 14 August 2017* 17 778 160 000

Transaction costs on issue of ordinary shares - (1 790)

As at 30 September 2017 154 956 665 939

Transaction costs on issue of ordinary shares** - (38)

As at 30 September 2018 154 956 665 901

The unissued shares at 30 September 2018 are under the control of the directors until the next annual general meeting. The directors are authorised to buy back shares under general approval subject to certain limitations and the JSE Listing Requirements.

*The issue of ordinary shares on 14 August 2017 relate to the rights offer of R160 million for the partial settlement of the bridge loan drawn for the funding of the acquisition of Sygnia Itrix. Please refer to the circular posted to shareholders on 25 July 2017 for more information.

** Share issue costs related to the rights issue.



18. Third-party liabilities arising on consolidation of unit trust funds2018

R’000s2017

R’000s

Balance at the beginning of the year 1 104 402 688 187

Capital contributions received 350 472 263 540

Fair value adjustment to third-party liabilities 72 995 143 100

Fair value adjustment to third-party liabilities linked to consolidated unit trusts - 9 575

Consolidation of additional unit trusts 39 915 -

1 567 784 1 104 402

19. Loan payable2018

R’000s2017

R’000s

Nedbank Limited - 165 201

- 165 201

The amount owing to Nedbank Limited in the prior year was settled by the issue of the preference shares as set out in note 20.

20. Preference share liability

2018R’000s

2017R’000s

Nedbank Limited 150 000 -

150 000 -

On 31 January 2018 Sygnia Capital, a subsidiary within the Sygnia Group, issued 320 preference shares of R500 000 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 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.



20. Preference share liability (cont.)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 2018. 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.

21. Trade and other payables

2018R’000s

2017R’000s

Accruals 27 244 24 931

Dividend tax payable 274 507

Investment contract portfolio creditors 114 615 146 439

Investment contract portfolio management fee accrual 14 912 13 785

Sundry creditors 12 364 7 546

Trade creditors 26 363 41 821

Unsettled trades 76 916 186 357

Value added tax payable 3 360 2 650

276 048 424 036



22. Investment contract income and transfers

22.1 Investment contract income

2018R’000s

2017R’000s

Fair value gains on investments linked to investment contract liabilities 3 613 096 2 399 638

Net investment income

Interest 799 692 686 846

Dividends from listed investments 541 804 400 508

Total investment contract income 4 954 592 3 486 992

22.2 Transfer to investment contract liabilities

2018R’000s

2017R’000s

Management fees 217 351 219 894

Service fee rebate (1 532) (560)

Portfolio expenses 228 977 130 725

Transaction costs 45 489 38 624

Taxation 4 514 17 939

Deferred taxation (2 034) (9 744)

Unutilised taxation losses transferred to corporate 352 20

Commission paid by policyholders

Initial commission - -

Ongoing commission 955 1 122

Fair value adjustment to third-party liabilities (72 995) 143 100

Increase in investment contracts 4 533 514 2 945 872

Total transferred to investment contract liabilities 4 954 592 3 486 992



23. Profit from operationsProfit from operations is arrived at after taking the following into account:

2018R’000s

2017R’000s

Income amounts

Revenue

Management fees 317 301 246 565

Administration fees 63 162 56 037

Brokerage income 40 171 28 806

Licence fees - 540

Sundry income 1 279 1 195

421 913 333 143

Expense amounts

Amortisation - computer software 3 238 2 266

Amortisation - intangible 1 647 1 326

Depreciation of property, plant and equipment 8 066 8 827

Auditor's remuneration:

Audit fees - current year 2 964 1 999

Audit fees - prior year 122 316

Audit fees - other services 2 310 988

Lease expense 14 810 14 099

Asset management fees expense 34 812 36 985

Staff costs (including directors) 107 288 92 810

Current year leave pay charge 994 468

Trading, custody and administration costs 34 755 10 817



24. Tax2018

R’000s2017

R’000s

South African normal taxation

Current tax - income 52 669 40 973

Current tax - prior year over provision (138) (48)

Deferred tax - current year (5 153) (121)

47 378 40 804

2018%

2017%

Reconciliation of tax rate

Standard rate 28.00% 28.00%

Capital gains tax differential in rates 0.18% (0.50%)

Non-taxable income - dividends (0.19%) (0.20%)

Other - 0.61%

Non-deductible expenses (finance charges) 3.08% 2.00%

Tax in policyholder funds - 0.02%

Expenses not in the production of income (legal expenses) 0.36% 0.42%

Prior year under / (over) provision 0.20% (0.04%)

Tax deductible expense not accounted for in income statement - (0.06%)

Deferred tax asset not recognised - tax loss 0.31% 0.35%

Effective rate 31.94% 30.60%

Companies in the Group have tax losses available for offset against future taxable income which amount to R19.6 million (2017: R14.7 million). A deferred tax asset was not recognised on tax losses amounting to R11.5 million (2017: R9.9 million). This relates to a subsidiary in the Group where it is unclear at year end if future taxable income will be available for offset against the loss. The tax effect amounts to R3.2 million (2017: R2.8 million).



25. Earnings and headline earnings per share

2018R’000s

2017R’000s

Profit attributable to ordinary shareholders 100 969 92 549

Headline earnings * 100 969 92 549

The weighted average number of shares and diluted weighted average number of shares were calculated as follows:

Number of shares2018

Number of shares2017

Number of ordinary shares at the beginning of the year 154 955 778 137 178 000

Number of shares issued during the year - 17 777 778

Number of ordinary shares at year end 154 955 778 154 955 778

Weighted average number of ordinary shares

Weighted number of ordinary shares at the beginning of the year 146 022 612 128 244 834

Effect of bonus shares issued in rights offer - 2 539 683

Weighted number of shares issued during the year - 1 962 166

Weighted number of shares during the period 146 022 612 132 746 682

2018R’000s

2017R’000s

Basic and diluted earnings per share

Earnings attributable to ordinary shareholders 100 969 92 549

Headline earnings * 100 969 92 549

Weighted average number of ordinary shares in issue (basic) 146 023 132 747

Potential number of shares issued in respect of diluted instruments 1 542 1 722

Weighted average number of ordinary shares in issue (diluted) 147 565 134 469

Cents Cents

Earnings per share (basic) 69.15 69.72

Earnings per share (diluted) 68.42 68.82

Headline earnings per share (basic) 69.15 69.72

Headline earnings per share (diluted) 68.42 68.82

Net asset value per share 427.52 458.15

Tangible net asset value per share 128.85 192.11

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.

* There were no headline earnings adjustments in the current or prior year.



26. Dividends

2018R’000s

2017R’000s

Dividends 87 623 66 683

60 cents per share (2017: 52 cents per share)

Dividends are not accounted for until they have been approved by the Group‘s board of directors. The board approved and declared a gross final dividend of 35 cents per share on 29 November 2018 from retained earnings for the year ended 30 September 2018.

27. Share-based payment

Employee share option scheme

During the year Sygnia made offers to participants of the employee share option scheme to acquire ordinary shares in Sygnia Limited. The options shall be exercisable as follows: 20% shall be exercisable on the third anniversary of the option date, 30% on the fourth anniversary of the option date and 50% on the fifth anniversary of the option date. Options exercised by participants once the minimum date has passed will be settled by the issue of shares in Sygnia Limited. If a participant ceases to be employed by the Group, all options held by the participant are forfeited. For the year ended 30 September 2018, the Group has recognised R2.8 million as a share-based payment expense in profit or loss (2017: R2.4 million).

Prior to the current year the following options were granted:

Allocation date 15 Aug 2017 20 Feb 2017 30 Sep 2016 1 Feb 2016 1 Oct 2015

Number of shares 279 683 315 493 1 033 422 217 413 2 595 242

Vesting period 15 Aug 2017 to 14 Aug 2022

20 Feb 2017 to 19 Feb 2022

30 Sep 2016 to 29 Sep 2021

1 Feb 2016 to 31 Jan 2021

1 Oct 2015 to 30 Sep 2020

Strike price R 10.73 R 15.85 R 14.96 R 13.80 R 5.04

Value of option R 2.40 R 4.79 R 3.51 R 4.84 R 2.63

During the current year the following options were granted:

Allocation date 4 Dec 2017

Number of shares 530 000

Vesting period 4 Dec 2017 to 3 Dec 2022

Strike price R 11.05

Value of option R 6.67

The value of the option represents the fair value on grant date in accordance with IFRS.



27. Share-based payment (cont.)These option tranches were valued using a Finite Difference Scheme under Geometric Brownian motion option pricing model. This method of valuation was used due to the fact that the Company was newly listed and it was a method preferred over a Black Scholes valuation methodology. The following inputs were used:

30 Sep 2016 1 Feb 2016 1 Oct 2015

Weighted average expected volatility* (%) 25.13% 37.47% 26.57%

Weighted average dividend yield (%) 4.10% 5.34% 7.01%

Weighted average risk-free interest rate (%) 7.69% 8.39% 7.83%

Weighted average vesting period (years) 4.3 4.3 4.3

* As Sygnia was either unlisted or newly listed when the share options were issued to staff members the volatility was determined from the share prices of companies within the same industry.

These option tranches were valued using Black Scholes option pricing model. This method of valuation was used as the Company had been listed for a sufficient length of time where market data was considered appropriate for the input parameters. The following inputs were used:

4 Dec 2017 15 Aug 2017 20 Feb 2017

90 day volatility (%) 52.05% 30.36% 30.08%

Weighted average option life (years) 4.3 4.3 4.3

Dividend yield (%) 4.23% 4.95% 3.21%

Risk-free interest rate (%) 9.23% 7.78% 8.33%

There is no provision in the rules for early exercise of options and therefore this has not been taken into account in either of the models above.

Analysis of outstanding scheme shares by financial year of maturity

Year end NumberWeighted average

strike priceRange of Strike

Price

30 September 2019 603 007 8.91 5.04 - 14.96

30 September 2020 967 609 9.41 5.04 - 14.96

30 September 2021 1 686 165 9.45 5.04 - 14.96

30 September 2022 283 747 13.72 11.05 - 15.85

30 September 2023 210 000 11.05 11.05 - 15.85

The weighted average strike price of share options granted in terms of the employee share option scheme during the year under review was R11.05 per share (2017: R13.44) with the weighted average strike price of share options forfeited during the year being R8.84 (2017: R6.99). The weighted average fair value of share options issued during the year was R6.67.

The share options at the end of the year had a weighted average strike price of R9.80 per share (2017: R9.48 per share), and a weighted average remaining contractual life of 753 days (2017: 1 036 days).

The maximum number of ordinary shares that may be utilised for purposes of the Employee Share Option Plan are 5 000 000 and this number may not be exceeded without shareholders’ approval.



27. Share-based payment (cont.)

Reconciliation of share-based payment liability:

2018R’000s

2017R’000s

Share-base payment liability at beginning of the year 3 983 1 539

Amounts expensed during the year 2 773 2 443

Share-base payment liability at end of the year 6 756 3 983

Share option movements during the period:

2018Number of shares

2017Number of shares

At beginning of the year 3 812 592 3 387 743

Allocated during the year 530 000 595 176

Forfeited during the year (592 064) (170 327)

At end of the year 3 750 528 3 812 592



28. Cash generated by operations2018

R’000s2017

R’000s

Reconciliation of net profit before tax to cash generated by operations

Profit before taxation 148 346 133 353

Adjusted for

Amortisation 4 885 3 592

Depreciation 8 066 8 827

Dividend income (989) (823)

Interest income (26 432) (21 470)

Finance costs 14 133 5 833

Share-based payment expense 2 773 2 620

Realised profit on investment portfolio (4 240) (7 887)

Unrealised fair value losses / (gains) on financial assets 11 233 (5 574)

Policyholder investment contract movements 60 014 25 067

Deferred tax included in investment contract income (2 034) (9 744)

Investment contract income (4 954 591) (3 486 992)

Net purchase of investments linked to investment contract liabilities (35 627 340) (5 151 842)

Policyholder investment contracts 35 140 197 4 784 630

Third-party liabilities arising on consolidation of unit trust funds 549 191 402 023

Transfer to investment contract liabilities 4 954 591 3 486 992

Net sales / (purchase) of investments of consolidated unit trust fund 81 163 (15 735)

Third-party liabilities arising on acquisition of unit trust fund (85 816) 4 616

Fair value adjustment to third-party liabilities - 9 575

Cash flow before tax and changes in working capital 213 136 141 996

Working capital changes (135 031) 77 926

Decrease in trade and other receivables 16 763 1 640

(Increase) / decrease in loan receivable (1 696) 396

Decrease in amounts owing to clients and clearing houses (40) (142)

(Decrease) / increase in trade and other payables (150 058) 76 031

Cash generated by operations 78 105 219 921



29. Operating lease commitments2018

R’000s2017

R’000s

Operating lease commitments

- Up to 1 year 13 912 13 864

- 1 to 5 years 21 413 20 817

35 325 34 681

The Group is obligated under a number of operating leases for properties for which the future minimum lease payments extend over a number of years. The leased properties have annual escalation clauses between 0% and 8%.

30. Related party transactions2018 2017

Services provided (by) / to related

partyAmount owed by

related party

Services provided (by) / to related

partyAmount owed by

related party

Beret Properties Proprietary Limited (1) (9 247) 7 919 (7 832) 8 393

Widok Properties Proprietary Limited (1) (4 727) 2 543 (4 294) 2 611

Izibuko Holdings Proprietary Limited (2) - 43 - 24

Sygnia collective investment scheme (3) 70 299 9 165 73 273 5 727

1. The Group rents properties from Beret Properties Proprietary Limited and Widok Properties Proprietary Limited (entities that have common directors and shareholders to Sygnia Limited). The Group also provided funding to the abovementioned companies, refer to note 12.

2. The Group provided funding to Izibuko Holdings Proprietary Limited (Common shareholders).3. Sygnia Collective Investments markets and administers the Sygnia collective investment scheme.

No expense has been recognised in the year for bad or doubtful debts in respect of the amounts owed by related parties.

All balances are unsecured and repayable on demand.

Intercompany loans arise as a result of transactions such as dividend payments and other cash requirements of the various group entities as cash management is conducted on a group basis.

Transactions with subsidiaries and consolidated structured entities have been eliminated in terms of IFRS 3. Refer to note 33 for the subsidiaries and consolidated structured entities.



30. Related party transactions (cont.)

Directors’ emoluments

Cash-based remuneration

2018 Directors’ fees Cash salary Bonus OtherTotal2018

Total2017

Executive Directors

MF Wierzycka - 3 339 - - 3 339 3 339

NJ Giles - - - - - 636

DR Hufton* - 275 1 900 - 2 175 -

M Buckham** - 2 946 - - 2 946 5 767

Non-executive directors

KT Hopkins 255 - - - 255 200

HI Bhorat 316 - - - 316 300

SA Zinn 261 - - - 261 220

IK Moyane 210 - - - 210 200

1 042 6 560 1 900 - 9 502 10 662

Equity-based remuneration

Dategranted Granted

Vesting price per share

Number of share options at 30

September 2018

Amount expensed in

2018

Fair value at 30 September

2018

Executive directors

MF Wierzycka 30 September 2016 1 000 000 14.96 1 000 000 846 1 122

M Buckham 20 February 2017 315 493 15.85 315 493 359 355

DR Hufton 1 February 2016 217 413 13.80 217 413 252 232

* Appointed as an executive director from 1 September 2018. The cash salary reflected in the table relates to the salary earned from the period 1 September to 30 September.

** Resigned as an executive director with effect from 31 December 2018. The share options have not yet reflected as forfeited but will be during the 2019 financial year.

The executive directors of the Group are employed on the same terms and conditions as other employees and do not have separate service contracts in their capacity as Group directors.

The non-executive directors are paid a monthly retainer fee as well as an attendance fee for their participation as board members and for their role in other committees.

There were no termination benefits or short-term benefits paid to the directors, other than those disclosed above, during the year ended 30 September 2018 (2017: nil).



30. Related party transactions (cont.)

Directors’ emoluments (cont.)

Key management compensation

Key management are those persons having authority and responsibility for planning, directing and controlling the activities of the Group. Key management is considered to be the board of directors.

Directors’ interest in Sygnia Limited

Number of shares held as At 30 September 2018 Dependant

Directbeneficial

Indirect beneficial Total

Percentageheld

MF Wierzycka # - 22 691 332 71 006 686 93 698 018 60.47%

M Buckham - - 568 927 568 927 0.37%

HI Bhorat - - 1 093 420 1 093 420 0.71%

DR Hufton - 1 062 145 - 1 062 145 0.69%

Number of shares held as At 30 September 2017 Dependant

Directbeneficial

Indirect beneficial Total

Percentageheld

MF Wierzycka # 13 446 22 691 332 71 006 686 93 711 464 60.48%

M Buckham - - 568 927 568 927 0.37%

HI Bhorat - - 1 093 420 1 093 420 0.71%

# The above percentages have been calculated in accordance with the Listings Requirements, which state that direct and indirect beneficial interests include that of any associates. An associate is defined so as to include an individual’s immediate family, and thus in this case MF Wierzycka, SJB Peile and the Zatoka Trust are all associates of each other.

There have been no changes in directors’ interest subsequent to year end up to the date of signing the financial statements.



31. Financial risk managementThe Group is exposed to a variety of financial risks. The most important components of financial risk are credit risk, liquidity risk and market risk (arising from changes in equity and bond prices, interest and foreign exchange rates). Market risk arises from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements and/or conditions. The Group’s risk management programme focuses on the unpredictability of financial markets and seeks to limit potential adverse effects on the Group, while operating within a framework that ensures alignment with the Group’s overall strategy and risk appetite. The responsibility for risk management rests with every individual in the Group, including board members. The risk and compliance committee is empowered by the board to develop processes that ensure that significant risks are adequately identified, evaluated and managed and effectively communicated to the various reporting structures.

Capital risk management

The Group has various subsidiaries that are regulated entities. These subsidiaries are: Sygnia Life Limited, Sygnia Asset Management Proprietary Limited, Sygnia Securities Proprietary Limited, Sygnia Financial Services Proprietary Limited, Sygnia Collective Investments RF Proprietary Limited, Sygnia Itrix (RF) Proprietary Limited, Gallet Retirement Fund Administrators Proprietary Limited, Gallet Employee Benefits Support Services Proprietary Limited, Gallet Asset Admin Proprietary Limited and Gallet Risk Admin Proprietary Limited. The capital requirements of these companies are set out by legislation. The capital adequacy requirements are monitored by management on a regular basis and the position reported to the Financial Services Conduct Authority. The abovementioned subsidiaries met the capital and liquidity requirements at 30 September 2018.

The capital risk management philosophy is to maximise the return on shareholders’ capital within an appropriate risk framework. The Group operates a risk management framework containing the following components:

· A dedicated governance committee with oversight of risk management. · A risk management committee (including an investment management sub-committee). · Methodologies that focus on risk identification, risk measurement, risk assessment, action plans, monitoring and

reporting.

In addition the CEO and Head of Investments receive a weekly schedule of Group capital and assess the positioning of Group capital in the context of prevailing macro-economic conditions.

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligation or incur a change in its creditworthiness, resulting in a financial loss to the Group.

The Group has no significant concentration of credit risk. The Group has policies in place to ensure that it deals with clients with an appropriate credit history. Cash resources and longer term investments are limited to high credit-quality financial institutions. The Group has policies in place to limit credit exposure to any one financial institution. The Group has a history of very few bad debts.

For assets recognised on the statement of financial position, the exposure to credit risk equals the carrying amount.



31. Financial risk management (cont.)The following represents the maximum exposure, at the reporting date, to credit risk relating to these assets:

2018R’000s

2017R’000s

Assets

Amounts owing by clients and clearing houses (1) 56 094 90 878

Cash and cash equivalents (2) 157 510 312 506

Loans receivable (3) 12 738 11 043

Trade and other receivables (3) 60 523 78 572

Fixed income securities 48 471 -

335 336 492 999

1. Balances due from clients and clearing houses are settled within three days of the transaction’s occurrence in terms of the clearing house rules of the JSE. Should the client default, the security to which the transaction relates will transfer to the Group.

2. Held at banks rated BB+.3. Based on past experience, the Group believes that no impairment allowance is necessary in respect of loans and

trade receivables not past due, as they relate to clients that have a good payment and credit history. Trade and other receivables consist mainly of management fee income due from policyholder investment contracts. There were no items identified as being either past due or impaired, as these balances are recovered within 15 working days after year end.

Policyholders: Potential concentrations of credit risk consist principally of debentures, fixed interest securities and investments in insurance contracts and collective investment schemes. All investments made are reviewed by management and are with entities with a high credit standing. The liability to policyholders is linked to the value of the assets held. Credit risk is therefore assumed by the policyholder.

Liquidity risk

Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The Group manages its liquidity requirements by monitoring forecasted cash flows and has made arrangements for sufficient committed credit facilities. The liquidity risk associated with the Group being contractually obligated to repay policyholders, and third-party liabilities arising on consolidation of unit trust funds on demand, is managed through the investment composition of assets included in the policyholder portfolios and by contract with the policyholders. Such contracts mitigate the liquidity risk faced by the Group and passes this on to policyholders in the ordinary course of business and in the event that substantial withdrawals require large scale disinvestment of the assets in these portfolios.

The following tables detail the maturity analysis of the Group’s financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.



31. Financial risk management (cont.)

2018On

demandDue within12 months

Due within1 - 5 years Total

Liabilities

Amounts owing to clients and clearing houses - 56 090 - 56 090

Bank overdraft - 58 - 58

Long term loans payable - - - -

Preference share liability - 22 000 128 000 150 000

Investment contract liabilities 78 107 785 - - 78 107 785

Third-party liabilities arising on consolidation of unit trust funds 1 567 778 - - 1 567 778

Trade payable and other accruals - 276 049 - 276 049

79 675 563 354 198 128 000 80 157 761

2017On

demandDue within12 months

Due within1 - 5 years Total

Liabilities

Amounts owing to clients - 90 915 - 90 915

Amounts owing to clearing houses - - - -


Long term loans payable - 165 201 - 165 201

Investment contract liabilities 42 967 589 - - 42 967 589

Third-party liabilities arising on consolidation of unit trust funds 1 104 402 - - 1 104 402


44 071 991 680 204 - 44 752 195

Cash flow risk

The Group’s income and cash flows are based mainly on contractual administration fees. The Group’s policy is to monitor its cash requirement and invest surplus cash at market rate where appropriate.

Assets under management / administration risk

A large portion of the Group’s income is derived from fees levied on the market value of the investments that it manages and administers. As the fees are dependent on the daily market value of the investments, any market movements affect the Group accordingly. This risk is mitigated through the diversification of investment mandates such that revenue is not overly exposed to any single sector of the investment market. Investment management capacity is monitored to ensure that the performance of a specific investment is not unduly compromised through excessive scale.




Assets under management / administration risk (cont.)

A 10% decrease is used when reporting AUM/AUA risk internally to key management personnel and represents management’s assessment of the reasonably possible change in AUM/AUA within a financial period.

A 10% downturn in the value of the assets that the Group manages and administers on behalf of clients would reduce the Group’s revenue by R31.6 million (2017: R22.8 million) and profits after taxation and equity by approximately R22.8 million (2017: R16.4 million).

Market risk

With regard to the subsidiary, Sygnia Life, the majority of the market risk is assumed by the policyholders and not the Group. The Group is not exposed to market risk in respect of investment contract liabilities, as the benefits under the contracts are linked to the fair value of the underlying assets. Market risk within those policies are assumed by the policyholders.

The Group, however does hold capital in order to meet regulatory requirements for regulated subsidiaries and, furthermore, capital is held by the Group in excess of regulatory requirements.

The Group capital is invested in diverse investments to minimise exposure to concentrated market risk factors, however it is still exposed to interest rate risk in respect of interest-bearing investments, currency risk in respect of foreign held capital and price risk in respect of equity investments, mutual funds and unit trusts. The following sections set out the sensitivity of Group capital to these elements of market risk.

Interest rate risk

The Group is exposed to interest rate risk through its loans receivable and bank overdraft, fixed deposits, preference share liability and current accounts with various local banking institutions and other issuers of interest bearing instruments.

The following represents the interest-bearing accounts and balances of the Group:

2018R’000s

2017R’000s

Current, fixed deposit and call accounts 157 510 312 506

Loan to Beret Properties Proprietary Limited 7 983 8 393

Loan to Widok Properties Proprietary Limited 2 555 2 611

168 048 323 510

Bank overdraft 58 51

Loans payable - 165 201

Preference share liability 150 000 -

150 058 165 252

The impact of a 100 basis point move in local interest rates at reporting date would have increased / (decreased) profits or loss after tax and equity as follows:




Market risk (cont.)

100 basis point increase

2018R’000s

100 basis pointdecrease

2018R’000s

100 basis point increase

2017R’000s

100 basis pointdecrease

2017R’000s

Interest expense (1 080) 1 080 (1 192) 1 192

Interest income 1 210 (1 210) 2 329 (2 329)

A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

Currency risk

The Group is exposed to currency risk through bank accounts and investments held in foreign currency at the reporting date. A portion of the Group’s income is derived from fees levied on the market value of foreign investments that it manages and administers and as a result is exposed to fluctuations in rates of exchange. There is no effective methodology for mitigating the exposure to this risk, however, it is considered advantageous to have a diversification of assets managed and administered by the Group towards foreign held investments.

In addition, the Group utilises foreign suppliers for the provision of certain products and services and the exposure to these suppliers results in an exposure to fluctuations in the exchange rate. In most cases the expenses are variable in nature and are directly linked to the revenue generated in foreign currency, however in circumstances where a revenue stream is not directly matched against a specific offshore denominated expense the Group will consider hedging the exposure through the implementation of currency futures.

Currency exposure2018

R’000s2017

R’000s

USD 1 416 22 119

EUR 943 353

GBP 4 139 3 163

6 498 25 635

The impact on profit or loss after tax and equity of a 20% (2017: 20%) increase / (decrease) in the various exchange rates is as follows:

20% increase2018

R’000s

20% decrease2018

R’000s

20% increase2017

R’000s

20% decrease2017

R’000s

USD 204 (204) 3 185 (3 185)

EUR 596 (596) 455 (455)

GBP 136 (136) 51 (51)

936 (936) 3 691 (3 691)

A 20% increase or decrease is used when reporting currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in the currency.




Market risk (cont.)

Price risk

The Group is exposed to price risk in respect of its investments in mutual funds, unit trusts and listed equities. A reasonable possible change in the price of the investments of 10%, with other variables held constant, would result in a corresponding gain or loss recognised in profit or loss in the case of the financial instruments designated as fair value through profit or loss.

201810% increase

R’000s

201810% decrease

R’000s

201710% increase

R’000s

201710% decrease

R’000s

Profit after tax and equity 15 405 (15 405) 21 307 (21 307)

Statement of financial position (corporate vs third party)

A subsidiary of the Group, Sygnia Life Limited is a linked insurance company and issues linked policies to policyholders (where the value of policy benefit is directly linked to the fair value of the supporting assets), and as such does not expose the business to the market risk of fair value adjustments on the financial asset, as this risk is assumed by the policyholder. Sygnia Securities Proprietary Limited (subsidiary) provides stockbroking services to clients, which results in significant working capital fluctuations due to the timing of the close of the JSE in terms of client settlements. The unsettled exchange-traded transactions are represented by money owed to clients and held with the JSE Trustees. Similarly, cash held in settlement accounts on behalf of clients related to the above-mentioned subsidiaries are considered as third-party balances.

In order to evaluate the consolidated financial position, the Group segregates the statement of financial position and the statement of profit or loss and other comprehensive income between corporate (own balances) and third-party (client-related balances).

Third-party balances represent the investment contract liabilities and related linked client assets of Sygnia Life Limited, the related portfolio debtors and creditors accounts, deferred taxation, unsettled trades and related bank accounts, as well as third-party liabilities and assets arising on consolidation of unit trust funds. Client balances in Sygnia Securities Proprietary Limited due to unsettled trades and cash held in settlement accounts on behalf of clients are included in third-party balances.


At 30 September 2018 At 30 September 2017

Consolidated R’000s

Corporatebalances

R’000s

Third-party balances

R’000sConsolidated

R’000s

Corporatebalances

R’000s

Third-party balances

R’000s

Assets

Intangible assets 436 113 436 113 - 420 059 420 059 -

Property and equipment 29 125 29 125 - 29 848 29 848 -

Deferred tax assets 7 125 7 125 - 3 803 3 803 -

Investments linked to investment contract liabilities 79 832 055 - 79 832 055 44 204 715 - 44 204 715

Investments 262 428 262 428 - 295 936 214 773 81 163

Loans receivable 12 738 12 738 - 11 043 11 043 -

Taxation receivable 8 486 8 486 - 1 066 1 066 -

Trade and other receivables 60 523 60 523 - 78 572 66 324 12 248

Amounts owing by clearing houses 9 317 - 9 317 14 341 - 14 341

Amounts owing by clients 46 777 - 46 777 76 537 - 76 537

Cash and cash equivalents 157 510 105 382 52 128 312 506 181 196 131 310

Total assets 80 862 197 921 920 79 940 277 45 448 426 928 112 44 520 314

Equity

Stated capital and reserves 624 263 624 263 - 608 184 608 184 -

Total equity 624 263 624 263 - 608 184 608 184 -

Liabilities

Deferred tax liabilities 74 847 72 543 2 304 79 628 74 248 5 380

Investment contract liabilities 78 107 787 - 78 107 787 42 967 589 - 42 967 589

Third-party liabilities arising on consolidation of unit trust funds 1 567 784 - 1 567 784 1 104 402 - 1 104 402

Loan payable - - - 165 201 165 201 -

Preference share liability 150 000 150 000 - - - -

Taxation payable 5 319 5 319 - 8 420 8 002 418

Trade and other payables 276 049 69 737 206 312 424 036 72 427 351 609

Amounts owing to clients 53 540 - 53 540 90 915 - 90 915

Amounts owing to clearing houses 2 550 - 2 550 - - -

Bank overdraft 58 58 - 51 51 -

Total liabilities 80 237 934 297 657 79 940 277 44 840 243 319 929 44 520 314

Total equity and liabilities 80 862 197 921 920 79 940 277 45 448 427 928 112 44 520 314

Notes to the consolidated annual financial statements//

SYGNIA INTEGRATED REOPRT 2018 141



Statement of comprehensive income (corporate vs. third party)

In order to evaluate the consolidated comprehensive income of the Group, the Group segregates the statement of comprehensive income between Corporate transactions and Third-Party transactions.

Where consolidation of unit trust funds occurs by virtue of the Group’s investment into the fund, the income and expenditure components are disclosed in the statement of profit or loss and other comprehensive income, as well as the third-party share thereof. These amounts are included in third-party transactions.

Year ended 30 September 2018 Year ended 30 September 2017


Corporate balances R’000s

Third-party balances R’000s


Corporate balances R’000s

Third-party balances R’000s

Revenue 421 913 421 913 - 333 143 333 143 -

Expenses (278 886) (278 886) - (230 402) (230 402) -

Profit from operations 143 027 143 027 - 102 741 102 741 -

Investment contract income 4 954 591 - 4 954 591 3 486 992 - 3 486 992

Transfer to investment contract liabilities (4 954 591) - (4 954 591) (3 486 992) - (3 486 992)

Interest income 26 432 26 432 - 21 470 21 470 -

Other investment income (6 979) (6 979) - 14 975 14 975 -

Investment income and fair value adjustment to third-party assets - - - 9 575 - 9 575

Fair value adjustment to third-party liabilities - - - (9 575) - (9 575)

Finance costs (14 133) (14 133) - (5 833) (5 833) -

Profit before tax 148 346 148 346 - 133 353 133 353 -

Income tax expense (47 378) (47 378) - (40 804) (40 804) -

Total profit and comprehensive income for the year 100 969 100 969 - 92 549 92 549 -

Notes to the consolidated annual financial statements//



32. Fair valueThe fair values of all financial instruments approximate the carrying values reflected in the statement of financial position.

Fair value measurements recognised in the statement of financial position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Valuation techniques and main assumptions used in determining the fair value of financial assets and liabilities classified within Level 1 and Level 2 can be summarised as follows:

Instrument Valuation technique Main assumption

Collective investment schemes Quoted exit price provided by the fund manager

Not applicable – prices are publicly available

Debentures Quoted net asset value provided bythe fund manager

Not applicable – underlying asset values are publicly available

Hedge funds Quoted net asset value provided bythe fund manager

Not applicable – underlying asset values are publicly available

Investments in insurance policies Prices are obtained from the insurerof the particular investment contract

Not applicable – prices provided by registered long-term insurers

Investment contract liabilities Current fair value of underlying financialasset that is linked to the liability Not applicable

Investment contract portfoliodebtors and accrued interest

Current fair value of underlying financialasset that is linked to the debtor Not applicable

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).



32. Fair value (cont.)

Financial assets at fair value through profit or loss

2018

Fairvalue

R’000sValuationmethod

Significant unobservable

inputs

Fair valuehierarchy of

inputs

Investments linked to investment contracts

Domestic and international equities 16 058 702 Quoted closing price

in active market N/A Level 1

Fixed interest securities 6 488 635 Quoted closing pricein active market N/A Level 1

Cash and cash equivalents 4 159 418 Quoted closing pricein active market N/A Level 1

Collective investment schemes 4 691 071 Quoted closing net

asset value per unit N/A Level 2

Debentures - Quoted closing netasset value per unit N/A Level 2

Hedge funds 272 711 Quoted closing netasset value per unit N/A Level 2

Collective investment schemes - International 38 229 734 Quoted closing net


Investments in insurance policies - International 88 776 Quoted closing net


Investments in insurance policies 9 545 729 Quoted closing net


Investment contract portfolio debtors and accrued interest 187 499

Current fair value of underlying financial asset that is linked to the debtor

N/A Level 2

Investments (Corporate)

Domestic equities 701 Quoted closing pricein active market N/A Level 1

Fixed interest securities 48 471 Quoted closing pricein active market N/A Level 1

Collective investment schemes 208 062 Quoted closing net





Financial assets at fair value through profit or loss

2017

Fairvalue



inputs


inputs

Investments linked to investment contracts

Domestic equities 12 882 075 Quoted closing pricein active market N/A Level 1

Fixed interest securities 3 216 589 Quoted closing pricein active market N/A Level 1

Cash and cash equivalents 2 010 562 Quoted closing pricein active market N/A Level 1

Collective investment schemes 3 335 325 Quoted closing net


Debentures 9 228 Quoted closing netasset value per unit N/A Level 2

Hedge funds 4 324 769 Quoted closing netasset value per unit N/A Level 2

Collective investment schemes - International 14 040 554 Quoted closing net


Investments in insurance policies - International 119 099 Quoted closing net


Investments in insurance policies 4 068 845 Quoted closing net


Investment contract portfolio debtors and accrued interest 197 669

Current fair value of underlying financial asset that is linked to the debtor

N/A Level 2

Investments (Corporate)

Domestic equities 889 Quoted closing pricein active market N/A Level 1

Fixed interest securities - Quoted closing pricein active market N/A Level 1

Collective investment schemes 263 604 Quoted closing net


Hedge funds 31 444 Quoted closing netasset value per unit N/A Level 2




Financial liabilities at fair value through profit or loss

2018

Fairvalue



inputs


inputs

Investment contract liabilities linked to level 1 investments

26 424 966Current fair value of underlying financial asset that is linked to the debtor

N/A Level 1


-Current fair value of underlying financial asset that is linked to the debtor

N/A Level 2

2017

Fairvalue



inputs


inputs



N/A Level 1



N/A Level 2




Categories of financial instruments

The analysis of assets and liabilities into their categories as defined in IAS 39 ‘Financial Instruments: Recognition and Measurement’ is set out in the following table. For completeness, assets and liabilities of a non-financial nature, or financial assets and liabilities that are specifically excluded from the scope of IAS 39, are reflected in the non-financial assets and liabilities category.

2018

Fair value through profit or loss

R’000s

Loans andreceivables*

R’000s

Non-financialassetsR’000s

TotalR’000s

Assets

Amounts owing by clearing houses - 9 317 - 9 317

Amounts owing by clients - 46 777 - 46 777

Cash and cash equivalents - 157 510 - 157 510

Deferred tax assets - - 7 125 7 125

Intangible asset and goodwill - - 436 113 436 113

Investments (a) 262 428 - - 262 428

Investments linked toinvestment contracts (b) 79 832 055 - - 79 832 055

Loans receivable - 12 738 - 12 738

Property and equipment - - 29 125 29 125

Taxation receivable - - 8 486 8 486

Trade and other receivables - 60 523 - 60 523

80 094 483 287 644 480 849 80 862 197

* The carrying value of financial liabilities at amortised cost approximates fair value. (a) those classified as held for trading in accordance with IAS 39. (b) those designated as such upon initial recognition.




Categories of financial instruments (cont.)

2018


R’000s

Financial liabilities amortised cost*

R’000s

Non-financial liabilities

R’000s Total

R’000s

Liabilities

Amounts owing to clients - 53 540 - 53 540

Amounts owing to clearing houses - 2 550 - 2 550


Deferred tax liabilities - - 74 847 74 847

Investment contract liabilities (a) 78 107 787 - - 78 107 787

Preference share liability - - 150 000 150 000

Taxation payable - - 5 319 5 319

Third-party liabilities arising on consolidation of unit trust funds (a) 1 567 784 - - 1 567 784


79 675 571 332 197 230 166 80 237 934

* The carrying value of financial liabilities at amortised cost approximates fair value. (a) Those designated as such upon initial recognition.

2018


R’000s


R’000s


TotalR’000s

Profit or loss movements

Realised gain of financial assets classified as held for trading 4 208 - - 4 208

Realised gain of financial assets designated at fair value through profit or loss

- - - -

Change in fair value of financial assets classified as held for trading

11 233 - - 11 233

Change in fair value of financial assets designated at fair value through profit or loss

- - - -

15 441 - - 15 441





2017


R’000s


R’000s


TotalR’000s

Assets

Amounts owing by clearing houses - 14 341 - 14 341

Amounts owing by clients - 76 537 - 76 537

Cash and cash equivalents - 312 506 - 312 506

Deferred tax assets - - 3 803 3 803

Intangible asset and goodwill (a) - - 420 059 420 059

Investments (b) 295 936 - - 295 936

Investments linked toinvestment contracts (c) 44 204 715 - - 44 204 715

Loans receivable - 11 043 - 11 043

Property and equipment - - 29 848 29 848

Taxation receivable - - 1 066 1 066

Trade and other receivables - 78 572 - 78 572

44 500 651 492 999 454 776 45 448 427

* The carrying value of financial liabilities at amortised cost approximates fair value. (a) Reclassified for measurement period of adjustment, refer to note 7. (b) Those classified as held for trading in accordance with IAS 39. (c) Those designated as such upon initial recognition.





2017


R’000s

Financial liabilities amortised cost*

R’000s

Non-financial liabilities

R’000s Total

R’000s

Liabilities

Amounts owing to clients - 90 915 - 90,915

Amounts owing to clearing houses - - - -


Loans payable - 165 201 - 165 201

Deferred tax liabilities (a) - - 79 628 79 628

Investment contract liabilities (b) 42 967 589 - - 42 967 589

Taxation payable - - 8 420 8 420

Third-party liabilities arising on consolidation of unit trust funds (b) 1 104 402 - - 1 104 402


44 071 991 680 204 88 048 44 840 243

* The carrying value of financial liabilities at amortised cost approximates fair value. (a) Reclassified for measurement period of adjustment, refer to note 7. (b) Those designated as such upon initial recognition.

2017


R’000s


R’000s


TotalR’000s

Profit or loss movements

Realised gain of financial assets classified as held for trading 7 887 - - 7 887

Realised gain of financial assets designated at fair value through profit or loss

- - - -

Change in fair value of financial assets classified as held for trading

(5 574) - - (5 574)

Change in fair value of financial assets designated at fair value through profit or loss

- - - -

2 313 - - 2 313



33. Principal subsidiaries and consolidated structured entitiesThe following represent the subsidiary companies of Sygnia:

Direct holdings in South African unlisted subsidiaries

Number of ordinary

shares

Percentage of share holding

Nature of business

Cost 2018

R’000s

Cost 2017

R’000s

Sygnia Alchemy Proprietary Limited 150 100 Software developer 50 000 50 000

Sygnia Asset Management Proprietary Limited 121 100 Asset Management 79 456 79 456

Sygnia Collective Investments RF Proprietary Limited 100 100 Asset Management - -

Sygnia Life Limited 900 100 Long Term Insurance 360 000 360 000

Sygnia Support Services Proprietary Limited 100 100 Support 108 108

Sygnia Financial Services Proprietary Limited 170 100 Asset Management 50 000 50 000

Sygnia Securities Proprietary Limited 100 100 Securities Trading - -

Sygnia Systems Proprietary Limited 100 100 Software developer 518 518

Sygnia Employee Benefits Proprietary Limited 200 100 Employee Benefits

Administrator 29 781 29 781

Sygnia Itrix (RF) Proprietary Limited 100 100 ETF Management Company 325 000 325 000

894 863 894 863

Note: Insignificant and non-operating or dormant subsidiaries have not been included.

Principal subsidiaries

The Group has access to the assets and liabilities of all principal subsidiaries other than investment contract assets and liabilities. Details of investment contract assets and liabilities are included in note 10.

Consolidated structured entities

The Group has no equity interest in the following collective investment schemes, which are consolidated based on control:

· Sygnia Skeleton Balanced 60 Fund · Sygnia International Flexible Fund of Funds · Sygnia Africa Equity Fund · Sygnia All Bond Index Fund · Sygnia Skeleton International Equity Fund of Funds · Sygnia Money Market Fund · Sygnia Skeleton Worldwide Flexible Fund · Sygnia FAANG Plus Equity Fund

The third party liabilities associated with the unit trust funds arise as a result of the continued consolidation of the collective investment schemes.



34. Events subsequent to the reporting dateThe 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 consolidated annual financial statements, that significantly affect the financial position of the Group or the results of its operations.

During the current year an amount of $234 000 (R3 001 050) 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

Final dividend

The board approved and declared a gross final dividend of 35 cents per share on 29 November 2018 from income reserves for the year ended 30 September 2018.

35. Contingent liabilitiesDuring 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 2019. 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 2018. 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 GBP650 000 (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 GBP650 000 has been recognised in “Computer Software” intangibles, however, it has not yet been amortised as the asset has not been brought into use.

36. Going concernThe consolidated annual financial statements have been prepared on the basis of accounting policies application to a going concern. The basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.


Analysis of shareholdingDistribution of shareholders

Number of shareholders %

Number of shares %

1 - 1000 Shares 1 226 40.4% 417 913 0.27%

1001 - 10 000 Shares 1 324 43.7% 4 782 832 3.09%

10 001 - 100 000 Shares 424 14.0% 11 833 399 7.64%

100 001 - 1 000 000 Shares 46 1.5% 14 142 540 9.13%

1 000 001 Shares and over 13 0.4% 123 779 094 79.88%

3 033 100.0% 154 955 778 100.0%

Shareholders with direct or indirect beneficial interest of more than 5% in shares

Number of shares %

The Zatoka Trust 45 620 000 29.44%

MF Wierzycka 22 691 332 14.64%

SJB Peile 21 841 112 14.10%

Ulundi Holdings 8 933 166 5.76%

Clifford Street Holdings Ltd 7 877 777 5.08%

Public/non-public shareholders

Number of shareholders %

Number of shares %

Non-Public shareholders 55 1.81% 101 579 422 65.55%

Directors* 6 0.20% 90 724 723 58.55%

Shares held by employees 49 1.62% 1 921 533 1.24%

Ulundi Share Trust 1 0.03% 8 933 166 5.76%

Public shareholders 2 978 98.19% 53 376 356 34.45%

3 033 100.00% 154 955 778 100.00%

* Includes directors of subsidiary companies.

Sygnia Limited

Incorporated in the Republic of South Africa

Registration number: 2007/025416/06

JSE share code: SYG

ISIN code: ZAE000208815 (“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) 21 446 4940 F: +27(0) 21 446 4950 E: [email protected]

Johannesburg

Unit 40, 6th Floor Katherine and West building West Street Sandton 2196 T: +27 (0) 10 595 0550 F: +27 (0) 86 206 5173 E: [email protected]

Durban

Office 2, 2nd Floor Ridgeview 1 Nokwe Avenue Ridgeside Umhlanga Ridge 4319 T: +27 (0) 31 001 0650 F: +27 (0) 86 206 4421 E: [email protected]

Audited Consolidated Annual Financial Statements 2018

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