| Tue 1 Dec 2009, 7:05 | | ADW - African Dawn - Audited Condensed Interim Financial Results for six months |
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ADW
ADW
ADW - African Dawn - Audited Condensed Interim Financial Results for six months
ended 31 August 2009
AFRICAN DAWN CAPITAL LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1998/020520/06)
JSE code: ADW
ISIN: ZAE000060703
("African Dawn" or "the Company" of "the Group")
Audited Condensed Interim Financial Results for six months ended 31 August 2009
Statement of Comprehensive Income Six months Six months Year ended
ended ended
31-Aug-09 31-Aug-08 28-Feb-09
(Audited) (Restated ( Restated
Reviewed) Audited)
Figures in ZAR thousands
Revenue 76,848 307,178 443,953
Operating and other expenses 56,460) (191,070) (229,502)
Profit from operations before: 20,388 116,108 214,451
Impairment of trade
receivables - increase in provision. 92,132) - -
Impairment of subsidiaries` NAV
and related goodwill (165,976) - -
Loss on disposal of treasury shares (9,969) - -
Other income 1,529 - 21,849
(Loss) / Profit before taxation (246,161) 116,108 236,300
Taxation (1,565) (27,816) (71,171)
Net (Loss) / Profit for the period for
continuing operations (247,726) 88,292 165,129
Other comprehensive income net of tax - - -
Total comprehensive Profit / (Loss)
for the year (247,726) 88,292 165,129
Minorities share of (Profits) / Losses (10) - 22,451
(Loss) / Profit attributable to:
Owners of the company (247,736) 88,292 187,580
Prior period errors - - (76,043)
Impairment of trade receivable - prior period - - (41,164)
Total comprehensive (Loss) / Profit
attributable to: (247,736) 88,292 70,373
Owners of the company (247,736) 88,292 70,373
Weighted average number of shares:
Total weighted average number of
shares in issue (`000) 211,020 214,328 209,715
Basic (loss) / earnings per share
(cents) (117.39) 41.19 33.56
Headline (loss) / earnings per
share (cents) (34.02) 41.19 30.93
Reconciliation of headline (loss) / earnings
Basic (loss) / earnings (247,726) 88,292 70,373
Non-recurring adjustments
Impairment of subsidiaries` NAV
and related goodwill 165,976 - -
Loss on disposal of treasury shares 9,969 - -
Prior period error - negative goodwill - - (5,515)
Headline (loss) / earnings (71,781) 88,292 64,858
Statement of Financial Position At At At
31-Aug-09 31-Aug-08 28-Feb-09
(Audited) (Restated (Restated
Reviewed) Audited)
Figures in ZAR thousands
Non-current assets 54,834 67,483 193,536
Property, plant & equipment 23,089 13,293 49,415
Goodwill 30,749 54,190 139,277
Deferred tax assets 996 - 4,844
Current assets 197,381 965,530 620,841
Trade & other receivables 332,071 957,923 478,953
Provision for impairment - trade
receivables (144,710) (41,499) (57,771)
Total trade and other receivables 187,361 916,424 421,182
Cash and cash equivalents 9,497 49,006 27,973
Inventories 523 101 171,685
Total assets 252,215 1,033,014 814,377
Capital and reserves 122,257 392,591 341,317
Share Capital 2,219 2,224 2,166
Share Premium 239,796 242,653 218,385
Accumulated Loss / Profit (121,215) 147,713 126,521
Minority Interest 1,457 - (5,755)
Non-current liabilities 73,703 585,846 252,371
Lease liabilities 1,783 1,216 1,120
Borrowings 71,920 584,630 251,250
Current liabilities 56,255 54,578 220,689
Trade and other payables 20,364 33,242 142,159
Short term borrowings 7,303 4,454 18,809
Taxation 28,588 16,881 59,721
Total liabilities 129,958 640,423 473,059
Total equity and liabilities 252,215 1,033,014 814,377
Ordinary shares in issue (`000) 217,347 217,032 212,129
Net asset value per share (cents) 55.58 180.89 163.61
Net tangible asset value per share
(cents) 41.43 155.92 95.24
Statements of Changes in Equity
Share Share Retained Minority
Ordinary share-
Capital Premium earnings Interest
holders equity
Figures in ZAR thousands
Balance at 29 Feb 2008 1,997 156,305 131,700 - 290,002
Prior period errors - - (72,278) - (72,278)
Restated balance at 29 Feb2008 1,997 156,305 59,422 - 217,724
Issue of Share Capital 231 110,405 - - 110,637
Net profit/(loss) for the six months - - 88,292 - 88,292
Prior period errors (5) (24,057) - - (24,062)
Balance at 31 August 2008 2,224 242,653 147,714 - 392,591
Net profit/(loss) for the six months - - (17,919) (22,451) (40,370)
Business combinations - - (3,274) 16,696 13,422
Treasury shares repurchased (58) (24,268) - - (24,326)
Balance at 28 February 2009 2,166 218,385 126,521 (5,755) 341,317
Balance as previously stated 2,171 242,442 316,007 (5,755) 554,865
Prior period errors (5) (24,057)(189,486) - 213,548
Net profit for the six months - - (247,736) - 247,736)
Transfer of treasury share 53 21,411 - - 21,464
Minority shareholding - - - 7,212 7,212
Balance at 31 August 2009 2,219 239,796 (121,215) 1,457 122,257
Statement of cash flows Six Months ended Six Months ended Year ended
31-Aug-09 31-Aug-08 28-Feb-09
(Audited) (Reviewed) (Restated Audited)
Figures in ZAR thousand
Cash flows - operating activities (6,808) 109,981 (292,015)
Cash flow from investing activities (8,081) (10,531) (29,681)
Cash flow from financing activities (3,586) (101,670) 298,443
Net cash flow for period (18,475) (2,220) (23,253)
Cash and cash equivalents at
beginning of period 27,972 51,226 51,226
Cash and cash equivalents at
end of period 9,497 49,006 27,973
Notes to the audited condensed consolidated interim financial statements
1. Reporting entity:
African Dawn Capital Limited is a company domiciled in the Republic of South
Africa. The condensed consolidated interim financial statements of the Company
as at and for the six months ended 31 August 2009 comprise the Company and its
subsidiaries (together referred to as the "Group") and the Group`s interests in
associates and jointly controlled entities. The consolidated financial
statements of the Group as at and for the year ended 28 February 2009 were
restated and are presented with the interim results as comparative figures.
2. Statement of compliance:
These audited condensed consolidated interim financial statements have been
prepared in accordance with IAS 34 Interim Financial Reporting. They do not
include all of the information required for full annual financial statements,
and should be read in conjunction with the consolidated financial statements of
the Group as at and for the year ended 28 February 2009. These condensed
consolidated interim financial statements were approved by the Board of
Directors on 27 November 2009.
3. Significant accounting policies:
Below is an extract of the most significant accounting policies of the Group.
The accounting policies applied by the Group in these audited condensed
consolidated interim financial statements are the same as those applied by the
Group in its consolidated financial statements as at and for the year ended 28
February 2009, except if stated otherwise.
Presentation of financial statements: The Group applies revised IAS 1
Presentation of Financial Statements (2007). As a result, the Group presents in
the consolidated statement of changes in equity all owner changes in equity,
whereas all non-owner changes in equity are presented in the consolidated
statement of comprehensive income. This presentation has been applied in these
condensed interim financial statements as of and for the six months period ended
on 31 August 2009. Comparative information has been re-presented so that it also
is in conformity with the revised standard.
Revenue recognition: Revenue recognition: Revenue recognition comprises the fair
value for the sale of goods and services, net of value-added tax, rebates and
discounts. After eliminated revenue within the group, revenue is recognised as
follows:
Sale of services: Sale of services are recognised in the accounting period in
which the services are rendered, by way of reference to completion of the
specific transaction assessed on the basis of the actual services provided as
portion of the total services to be provided.
Interest income: Interest income is recognised on a time-proportion basis using
the effective interest method. When a receivable is impaired, the Group reduces
the carrying amount to its recoverable amount - being the estimated future cash
flow discounted at the original effective interest rate of the instrument - and
continues unwinding the discounts as interest income. Interest income on
impaired loans is recognised either as cash is collected or on a cost-recovery
basis as conditions warrant.
C. Intangible assets - Goodwill: Goodwill is initially measured at cost, being
the excess of the business combination over the Company`s interest of the net
fair value of the identifiable assets, liabilities and intangible assets.
The excess of the Company`s interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities over the cost of the business
combination is immediately recognised in profit and loss in the
statement of comprehensive income.
Subsequent goodwill is carried at cost less any impairment.
D. Impairment of assets: Assets that have an indefinite useful
life are not subject to amortisation and are tested annually for impairment.
Assets that are subject to amortisation or depreciation are reviewed for
impairment whenever event or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for the
amount by which the asset`s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset`s fair value less cost to sell and
value in use. For the purpose of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows (cash
generating units). Management can at any stage make use of an asset specialist
to help determine the asset`s fair value.
4. Accounting Estimates:
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets and liabilities, income and expense.
Actual results may differ from these estimates. Except as described below, in
preparing these condensed consolidated interim financial statements, the
significant judgements made by management in applying the Group`s accounting
policies and the key sources of estimation certainty were the same as those that
applied to the consolidated financial statements as at and for the year ended 28
February 2009. During the six months ended 31 August 2009 management reassessed
its estimates in respect of:
the recoverable amount of goodwill and current subsidiary net asset value;
the recoverable amount of trade and other receivables in conjunction with
current economic climate;
deferred tax assets.
5. Financial risk management
Credit risk - trade and other receivables. As a result of the deteriorating
economic circumstances in 2008 and 2009, certain advancement limits have been
redefined and presented to a more stringent credit approval process. Other
aspects of the Group`s financial risk management objectives and policies are
consistent with those disclosed in the consolidated financial statements as at
and for the year ended 28 February 2009.
6. Prior Period Errors
During the course of management`s review of accounting records and current
affairs it was discovered that there are some errors that were incorrectly
accounted for and need to be adjusted in prior periods as follows:
2008 Net
Incorrect recognition of Allegro acquisition 41,000
Consolidation errors 31,278
Total for 2008 72,278
The errors relating to 2008 were adjusted in the statement of changes in equity
and the opening retained income for 2009 were restated.
2009 Net
Shares Voided* 24,062
Nexus receivables duplicated 36,932
Impairment provision underprovided 42,930
Unexplained journal entries 62,254
Consolidation errors (2,579)
Taxation (22,329)
Total for 2009 141 270
* This error relates to shares issued but not paid up. The Company intends
bringing an application to court to have these shares declared void and removed
from the share register.
The errors relating to 2009 were adjusted directly in the statement of changes
in equity (R 24,062m) relating to an error in share capital and share premium
and the remaining net of tax to the statement of comprehensive income (R
117,201m).
The prior period errors discovered are subject to a forensic investigation
audit and may change based on the outcome and findings of the investigation.
7. Goodwill
Reconciliation of carrying amount
Cost Aug 2009 Aug 2008 Feb 2009
Closing balance as previously stated 39,277 122,188 188,271
Yearly movement
- Prior period error - (67,998) (48,994)
- Impairment and write-down of Goodwill(108,528) - -
Balance at end of year 30,749 54,190 139,277
Current Goodwill comprises of:
Subsidiary Aug 2009 Aug 2008 Feb 2009
Dumont Healthcare 11,500 - 11,500
Elite Group 19,249 17,583 18,500
Allegro holdings - 16,000 62,034
Bhenka Financial Services - 20,197 20,197
Pam Golding Properties - - 678
Investment in other subsidiaries - 410 26,368
Total 30,749 54,190 139,277
Management together with specialist assessed each subsidiary`s current operating
activities, net asset value and future prospects and to the best of their
knowledge and professional scepticism together with historical and forecast
information came to the following conclusion.
All goodwill in Allegro Holdings was impaired due to the group being placed
under curatorship in the post balance sheet period.
Goodwill in Nexus Personnel Finance, Bhenka Financial Services and Pam Golding
Properties were impaired due to the current economic circumstances.
8. Share capital and share premium issuances, repurchases and repayments
Description Share Capital Share Premium Total Equity
Shares Voided - Error* (5) (24,057) (24,062)
Treasury Shares repurchased (58) (24,268) (24,326)
Total 2009 (63) (48,325) (48,388)
Description Share Capital Share Premium Total Equity
Treasury Shares transferred 53 21,411 21,464
Total 2010 53 21,411 21,464
* This error relates to shares issued but not paid up. The company intends
bringing an application to court to have these shares declared void and removed
from the share register.
9. Impairments of trade and other receivables
Due to the current economic circumstances and being in the financial services
sector it was found that an increasing number of customers were unable to
service the required instalments, interest repayments and allocated costs.
Management together with specialists assessed each individual loan separately,
as well as certain loan portfolios, determining the recoverability, future cash
flows and currently held and validated securities.
Aug Aug Feb
Impairment 2009 2008 2009
The impairments (net of tax) on
accounts receivable were estimated at: 84,603 14,557 71,515
10. Business Combinations
The Allegro Group is a wholly owned subsidiary of African Dawn Limited. As
previously reported, subsequent to February 2009, the largest funder of the
Allegro Group was placed under curatorship, effectively ceasing operations in
Allegro during the period under review. For all intents and purposes, the
curators of the CMM Group took control of Allegro during the period under
review, culminating in Allegro itself being placed under curatorship in
September2009.
Allegro was consolidated in the Group`s results for the period to February 2009,
but was impaired in full on 1 March 2009 and is not consolidated in the results
of the Group for the period to August 2009.
The assets and liabilities that have been derecognised due to the
deconsolidation are as follows:
Description Aug 2009
Non current liabilities (175,080)
Fixed assets 26,761
Goodwill 8,122
Deferred tax asset 3,572
Trade and other receivables 144,864
Cash and cash equivalents 6,877
Inventory 171,656
Trade and other payables (114,655)
Total 72,117
11. Contingent liabilities
The Group became aware that African Dawn Renovations (Pty) Ltd, a subsidiary of
African Dawn Capital Limited signed surety of R 10 million in favour of the
National Housing Finance Corporation in respect of certain developments. The
origin and validity of the surety as well as the related exposure of the Group
is still being investigated.
12. Post Balance Sheet Events
Subsequent to 31 August 2009, at the Annual General Meeting of the Company,
shareholders voted in favour of a change of the majority of the Board of
Directors. The new Board, in assuming its duty, conducted a thorough review of
the various business units of the Group, which uncovered various errors and
anomalies in the records of the Group, prompting various restatements and
revisions of previously reported financial information.
As a result of information which came to light, the Board also commissioned a
forensic audit into various areas of the Group. This investigation is ongoing
and upon finalisation may result in further adjustments to the results
presented.
13. Segmental Information
The following presents revenue and profit and certain asset and liability
information regarding the African Dawn Capital Group business segments:
Aug 2009 Bridging Personal and Other Total
finance short term finance
Revenue 36,628 31,761 8,459 76,848
Net Profit/Segment Results (234,433) (9,976) (3,327) (247,736)
Net asset value 129,506 (5,895) (2,811) 120,800
Feb 2009 Bridging Personal and Other Total
finance short term finance
Revenue 325,292 86,156 32,505 443,953
Net Profit/Segment Results as
previously stated 147,720 38,238 1,622 187,580
Prior period errors (45,186) (72,401) 380 (117,207)
Net Profit/Segment Results 102,534 (34,163) 2,002 70,373
Net asset value as previously
stated 435,266 99,934 19,665 554,865
Prior period errors (92,375) (95,852) (19,566) (207,793)
Net asset value 342,891 4,082 99 347,072
Aug 2008 Bridging Personal and Other Total
finance short term finance
Revenue 271,088 30,295 5,795 307,178
Net Profit/Segment Results 77,614 10,464 214 88,292
Net asset value as previously
stated 438,425 41,885 8,622 488,932
Prior period errors (96,341) - - (96,341)
Net asset value 342,084 41,88 8,622 392,591
AFRICAN DAWN CAPITAL LIMITED
REPORT OF THE INDEPENDENT AUDITORS
At 31 August 2009
TO THE MEMBERS OF AFRICAN DAWN CAPITAL LIMITED AND ITS SUBSIDIARIES
Report on the Condensed Interim Financial Statements
We have audited the Condensed Group Financial Statements of African Dawn Capital
Limited, which comprise the directors` commentary, the Statement of Financial
Position as at 31 August 2009, the Statement of Comprehensive Income, Statement
of Changes in Equity and Statement of Cash Flow`s for the six months then ended.
Directors` Responsibility for the Financial Statements
The company`s directors are responsible for the preparation and fair
presentation of these financial statements in accordance with International
Financial Reporting Standards and in the manner required by the Companies Act of
South Africa. This responsibility includes: designing, implementing and
maintaining internal control relevant to the preparation and fair presentation
of financial statements that are free from material misstatement, whether due to
fraud or error; selecting and applying appropriate accounting policies; and
making accounting estimates that are reasonable in the circumstances.
Auditor`s Responsibility
Our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit in accordance with International Standards
on Auditing. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on the auditor`s judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control
relevant to the entity`s preparation and fair presentation of the financial
statements 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 entity`s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our qualified audit opinion.
Basis for Qualified Opinion
The group has re-assessed its estimate in respect of provision for doubtful
debts as at 28 February 2009 and adjusted for the effects thereof as a prior
period error. In terms of IAS 39 impairment losses are incurred if, and only if,
there is objective evidence of impairment as a result of one or more events that
occurred after the initial recognition of the asset. The company`s records
indicate that had management re-assessed its estimate for the six months ended
31 August 2009, an amount of R 41 164 395 would have been required to provide
against the doubtful debt in the current year. Accordingly, provision for
doubtful debts would have been increased by R 41 164 395 and shareholders`
equity would have been reduced by the same amount. The opening retained income
and prior year net profit would accordingly also be higher by R 41 164 395.
Qualified Opinion
In our opinion, except for the effects of the matter described in the Basis for
Qualified Opinion paragraph, the financial statements present fairly, in all
material respects, the financial position of African Dawn Capital Limited as at
31 August 2009, and its financial performance and its cash flows for the six
months ended in the manner required by the Companies Act in South African and in
accordance with International Financial Reporting Standards.
Emphasis of matter
Without further qualifying our opinion, we draw attention to the fact that, as
disclosed by the directors, although the assets of the group exceed its
liabilities, the group is currently experiencing liquidity pressures, which may
require it to re-negotiate certain of its financing arrangements and/or obtain
alternative financing. Although the Board has embarked on a number initiatives
to alleviate the liquidity pressures, including engaging with existing and
potential funders`, this situation is indicative of a material uncertainty which
may cast doubt on the ability of the Group to continue as a going concern.
We further draw attention to the forensic investigation which is currently under
way into various financial matters of the Group. The finalization and outcomes
of this investigation, may require further evaluation of certain balances
contained in the Condensed Financial Statements of the Group.
Report on Other Legal and Regulatory Requirements
In accordance with our responsibilities in terms of sections 44(2) and 44(3) of
the Auditing Profession Act, we report that we have identified certain unlawful
acts or omissions committed by persons responsible for the management of African
Dawn Capital Limited which constitute reportable irregularities in terms of the
Auditing Profession Act, and have reported such matters to the Independent
Regulatory Board for Auditors.
As mentioned in the commentary to the Condensed Financial Statements, the
matters pertaining to the reportable irregularities are described below:
The company and certain of its subsidiaries have not rendered income tax returns
to the South African Revenue Services for one or more prior periods.
Possible fraudulent activities taking place in one of the subsidiaries of
African Dawn Capital Limited, which included the utilization of funds in
contravention of the specific conditions attached to those funds;
unsubstantiated journal entries; and two sets of financial statements being
issued by the subsidiary for the same reporting period.
Certain misrepresentation contained in the Annual Financial Statements for the
years ended 28 February 2008 and 28 February 2009.
During the year ended 28 February 2009, 4.9 million shares were issued for which
the company had not yet received payment, in contravention with the Companies
Act.
SAB&T Chartered Accountants Incorporated
Registered Auditors
Per: Bashier Adam
27 November 2009
119 Witch-Hazel Avenue
Highveld Technopark
Centurion, 0046
COMMENTS
The Board of Directors requested a full audit on the period under review and
presents the audited interim financial results of "African Dawn" or "the Group"
for the six months ended 31 August 2009.
NATURE OF BUSINESS
African Dawn is a specialist finance group focusing on the operational areas
listed below.
Short term secured financing
Home improvement finance
Personal and incremental loans
Support services
SHORT TERM SECURED FINANCING
This division provides
Property transfer Finance
Medical aid claim discounting for medical practitioners
Bridging finance
HOME IMPROVEMENT FINANCING
This division provides home improvement loans to a client base of households
earning between R4,000 and R12,000 per month. Loans are paid directly to the
suppliers of the products and services, are limited to a maximum of R20 000 per
client, and have a payment period of 24 months.
PERSONAL AND INCREMENTAL LOANS
This division provides personal and incremental loans to qualifying clients.
Loans are between R 3000 and R 20 000 with a payment period of between 6 to 36
months.
SUPPORT SERVICES
This division provides
Financial Services Board approved consumer education to predominantly low
literacy, previously unbanked consumers
Cellphone banking solutions; and
Marketing of properties via Pam Golding franchised estate agencies, mainly in
Attridgeville, Mamelodi and Pretoria North areas.
BOARD OF DIRECTORS UPDATE
During the six months under review the board was reconstituted following from
the removal of three executive directors at the Annual General Meeting. The
board was reconstituted on 13 October 2009 and identified several material
issues to consider and assess.
The material issues identified by the board were:
Financial Review of African Dawn for the period ending 31 August 2009;
The quality of the asset base of African Dawn;
The long term viability of the business of African Dawn;
In assessing these issues the board also had to consider the following matters:
The employment contracts of certain directors;
The financial position of Allegro;
Reportable Irregularities raised by the auditor during the audit for the six
months ended 31 August 2009; and
The findings of a forensic audit into certain matters commissioned during the
exercise.
These seven material issues are dealt with in more detail below:
FINANCIAL REVIEW FOR AFRICAN DAWN FOR THE PERIOD ENDING 31 AUGUST 2009
We refer to the audited results and would like to draw your attention to the
qualified opinion of the auditors, and emphasise that the board and auditor did
not disagree on either the rationale for, or quantum of the impairments, but
differed on the accounting timing of approximately R40 million of these
adjustments arising from the application of IFRS.
The board also wishes to draw attention to the Emphasis of Matter regarding the
ongoing availability of funding in ensuring that the group remains a going
concern. Details of the current action plan to address this issue are covered in
the rest of this announcement.
THE QUALITY OF THE ASSET BASE OF AFRICAN DAWN
The board previously announced, on 4 November 2009, a preliminary adjustment of
R450 million against the reported financial results of African Dawn, comprising
R420 million in respect of the 2009 financial year, and R30 million in respect
of the 2008 financial year. The board advises that after the completion of the
audit of the interim results for the period ended 31 August 2009 that the actual
adjustment is R455,8 million of which R72,2 million relates to the 2008
financial year, R141,2 million relates to the 2009 financial year and R242,3
million relates to the current financial year ending 28 February 2010. The
reason for recognising a significant amount in the 2010 financial year and not
in the 2009 financial year as previously reported is as a result of IFRS
compliance. The board would like to refer you to the note in the financial
statements for further detail as well as the details below:
African Dawn Adjustments
Description 2008 2009 2010 Total
R`000 R`000 R`000 R`000
Errors
Consolidation of PTF3 which is 31 278 31 278
not a subsidiary
Overstatement of investment in 41 000 41 000
Allegro
Duplication of Nexus lending 36 932 36 932
book
Issue of shares for no 24 062 24 062
consideration
Unexplained journal entries 62 254 62 254
Other consolidation errors (2 579) (2 579)
Total 72 278 120 669 - 192 947
Goodwill and subsidiary write
offs
Allegro 113 392 113 392
Benka 20 197 20 197
Nexus 26 633 26 633
Total - - 160 222 160 222
Impairments and other
Additional impairments of 42 929 102 991 145 920
receivables
Allegro liability defrayed by (12 638) (12 638)
use of treasury shares
Total - 42 929 90 353 133 282
Taxation (22 329) (8 244) (30 573)
Total Adjustments 72 278 141 269 242 331 455 878
Accounted for in Income 72 278 117 207 270 693 460 179
Statement
Accounted for directly in 24 063 (28 362) (4 301)
Equity
Total Adjustments 72 278 141 269 242 331 455 878
THE LONG TERM VIABILITY OF THE BUSINESS OF AFRICAN DAWN
The board reviewed all the material business units which included the short term
secured finance, the home improvement financing and the personal and incremental
loan financing businesses.
The personal and incremental financing business operates as a standalone
business under the Elite Group ("Elite") name. Elite has strong systems,
processes and adequate staff in place and the board is of the opinion that Elite
is a viable business. Elite will however, require more capital (both equity and
debt funding) to ensure its continued growth during the next few years.
The home improvement financing business, Nexus Personal Finance ("Nexus") is
currently funded by the National Housing Finance Corporation ("NHFC"), and is
the subject of a forensic investigation. The board engaged with the NHFC
regarding the repayment of this facility and the restructuring thereof. The
Board has concluded that this business could not continue to operate within its
previous management framework as a viable standalone business unit and
accordingly has transferred the operational management of Nexus to Elite.
The short term secured finance business, PTF, is profitable business in
conducive market conditions (i.e. high growth markets) and must be managed
prudently in a declining market. The business requires additional funding to
ensure sustainable future growth. The board is of the opinion that the short
term secured finance business is viable over the long term but must be managed
on the following basis;
Future growth to be funded mainly by equity;
Adherence to Proper lending policies and procedures; and
A prudent accounting policy;
The board has implemented an aggressive debt collection and recovery program to
enhance the liquidity of African Dawn. In addition to the collection program the
board has implemented limited staff reductions, done in such a way not to impact
the current performing business units. The successful implementation of the
collection program and staff reductions will improve the long term viability of
African Dawn.
THE EMPLOYMENT CONTRACTS OF CERTAIN DIRECTORS
Following from the repudiation of director`s remuneration by shareholders at the
AGM, the Board reviewed the employment contracts of certain directors, namely:
Marius van Tonder ("Van Tonder"), De Wet Vivier ("Vivier"), Connie van Nieuwkerk
("Van Nieuwkerk"), Steven de Bruyn ("De Bruyn"), and Johnny Ramasehla
("Ramasehla").
VAN TONDER
Van Tonder has resigned as CEO (refer announcement on 16 October 2009) and he
and the Board agreed that he would be paid his salary until 28th of February
2010. He will not receive any further payment in respect of the termination of
his service.
VIVIER
Vivier and the Board have agreed on the termination of his employment contract,
the terms of which will be implemented with immediate effect.
VAN NIEUWKERK
The board did not find anything untoward in the remuneration of Van Nieuwkerk
other than the bonus discussed below.
RAMASEHLA
The board is currently in discussion with executive director Ramasehla regarding
the termination of his positions as Deputy CEO of Afdawn and CEO of Nexus.
DE BRUYN
The board did not find anything untoward in the remuneration of De Bruyn.
BONUS RECOVERY
A bonus of R4,400,000 was paid during the 2009 financial year to Van Tonder
based on the 2008 financial results. During the same period, Van Nieuwkerk
received a bonus of R1,300,000. These payments were made on the basis of certain
financial targets being achieved. To achieve these bonuses, a 100% improvement
in the 2008 EPS over 2007 was required.
The restated audited 2008 Financial Statements (refer to paragraph 2.2) resulted
in a decline in EPS from 2007 to 2008 and accordingly the board resolved that
these bonuses were not earned and should not have been paid.
Bonus payment calculation
2007 2008
Profit previously reported 27,551,436 103,272,983
Adjustment -72,278,459
Restated Profit 27,551,436 30,994,524
Weighted Shares 129,805,914 181,179,323
Adjusted Shares 129,805,914 181,179,323
Previous EPS 0.212 0.570
Growth 169%
Restated EPS 0.212 0.171
Growth -19%
Letters of demand for repayment of the bonuses in full were issued to Van Tonder
and Van Nieuwkerk. The Board and Van Tonder have subsequently agreed to set off
the company`s claim for repayment of this amount against any termination
payments due in terms of his employment contract.
THE FINANCIAL POSITION ON ALLEGRO
The board previously announced, on 9 September 2009, that "Allegro is placed
under curatorship with immediate effect". The board decided to write off the
full investment in Allegro. The Board is aware of a letter of comfort from
African Dawn to the auditors of Allegro and has obtained legal opinion on the
risk of any potential third party claims based on this letter of comfort. Based
on this advice it is the view of the board that there is no legal basis for any
such claim. No claim of any nature as at the date of this SENS announcement has
been received by African Dawn.
THE REPORTABLE IRREGULARITIES RAISED BY THE AUDITOR DURING THE AUDIT FOR THE SIX
MONTHS ENDED 31 AUGUST 2009
During the audit process the Board was notified of the following Reportable
Irregularities:
No submission of returns and payment of Income Tax to SARS;
Irregularities in the affairs of a subsidiary company;
Misrepresentation in the Group Financial Statements for the years ending
February 2008 and February 2009: and
Shares issued not paid for.
The board would like to refer you to the audit report for more detail on the
reportable irregularities.
THE FORENSIC AUDIT INTO CERTAIN MATTERS OF AFRICAN DAWN
The board mandated Romlab Consultants, a firm of specialist forensic
accountants, to conduct a forensic investigation of the Afdawn Group of
companies. The investigation commenced on 11 November 2009. During the
preliminary investigation certain issues of concern have been identified and
reported to the Commercial Branch of the South African Police Service (`SAPS").
The Financial Services Board ("FSB") has advised African Dawn that they have
registered an investigation in terms of section 82 of the Securities Services
Act, act 36 of 2004. The Johannesburg Stock Exchange ("JSE") has also opened
their own investigation into the restatement of the previously published
financial results of the company for 2008. Romlab Consultants have undertaken
that their future investigations will be performed as far as possible in
collaboration with the Commercial Branch of the SAPS, the JSE, and the FSB.
The Board has provided fully for all known matters that are the subject of the
forensic investigations. However, further information that may be uncovered
could result in reconsideration of the quantum of such impairments.
PROSPECTS
Current economic conditions continue to have a negative impact on the business,
contributing to difficulty in recovering loans and to deterioration of the loan
to value ratio in respect of security held. The board does not expect any
further significant impairment to the asset base of African Dawn for the next
six months.
The group`s major challenge during the next six months will be managing
liquidity, and to this end the board has implemented an aggressive collection
and recovery program and limited staff reductions. In addition, the board has
embarked on discussions on securing additional funding lines from financial
institutions and/or capital from its shareholders to ensure the long term
viability of African Dawn.
Date: 01/12/2009 07:05:01 Produced by the JSE SENS Department.
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implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
