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ADW
ADW
ADW - African Dawn Capital Limited - Reviewed condensed consolidated financial
results for the year ended 28 February 2010
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")
REVIEWED CONDENSED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY
2010
Statement of Comprehensive Income
Year Year
ended ended
28-Feb-10 28-Feb-09
(Reviewed) (Restated
Reviewed)
Figures in ZAR thousands
Revenue 106,070 443,953
Operating and other expenses (78,658) (194,730)
Profit from operations before: 27,412 249,223
Impairment of trade receivables (130,106) (34,772)
Impairment of subsidiaries
and related goodwill (198,155) -
Other income 1,947 21,849
(Loss) / Profit before taxation (298,902) 236,300
Taxation (7,595) (71,171)
Net (Loss) / Profit for the period for
continuing operations (306,497) 165,129
Error - (130,363)
Net (Loss) / Profit of the group (306,497) 34,766
Minority share of losses - 22,451
(Loss) / Profit attributable to:
Owners of the company (306,497) 57,217
Revaluation of property (5,064) 5,515
Total Other comprehensive income (5,064) 5,515
Total comprehensive (Loss) / Profit
for the year attributable to
Owners of the company (311,561) 62,732
Weighted average number of shares:
Total weighted average number of
shares in issue (`000) 219,830 209,715
Basic (loss) / earnings per share
(cents) (139.42) 27.28
Headline (loss) / earnings per
share (cents) (49.28) 27.28
Reconciliation of headline (loss) / earnings
Basic (loss) / earnings (306,497) 57,217
Impairment of Subsidiary 198,155 -
Headline (loss) / earnings (108,342) 57,217
Statement of Financial Position
Year Year Year
ended ended ended
28-Feb-10 28-Feb-09 28-Feb-08
(Reviewed) (Restated (Restated
Reviewed) Reviewed)
Figures in ZAR thousands
Non-current assets 5,857 196,397 112,927
Property, plant & equipment 5,857 49,414 13,546
Goodwill - 142,213 99,381
Deferred tax assets - 4,770 -
Current assets 131,254 575,121 249,671
Trade & other receivables 321,915 478,953 242,279
Impairment-trade receivables (226,582) (103,490) (44,733)
Total trade and other receivables 95,333 375,463 197,546
Cash and cash equivalents 16,494 27,973 51,226
Inventories 6,998 171,685 899
Non current assets held for sale 12,429 - -
Total assets 137,111 771,518362,598
Capital and reserves 23,684 316,617 176,603
Share Capital 2,171 2,171 1,997
Share Premium 253,936 242,442 156,305
Accumulated Profit / (Loss) (234,253) 72,244 18,301
Reserves 451 5,515 -
Minority Interest 1,379 (5,755) -
Non-current liabilities 2,744 252,370 40,238
Lease liabilities 2,167 1,120 1,031
Borrowings - 251,250 39,207
Deffered tax liability 577 - -
Current liabilities 110,683 202,531 145,757
Trade and other payables 28,608 142,082 100,813
Short term borrowings 71,085 18,809 19,013
Taxation 10,990 41,640 25,931
Total liabilities 113,427 454,901 185,995
Total equity and liabilities 137,111 771,518362,598
Ordinary shares in issue (`000) 222,258 212,129 199,851
Net asset value per share (cents) 10.66 149.26 88.37
Net tangible asset value per share
(cents) 10.66 82.22 38.64
Statements of Changes in Equity
Share Share Retained Reserves Minority Ordinary
Capital Premium earnings interest Share
holders
equity
Figures in ZAR thousands
Balance at 29 Feb 2008 1,997 156,305 131,699 - - 290,001
Prior period errors - - (113,398) - -(113,398)
Restated balance at 29
Feb 2008 1,997 156,305 18,301 - - 176,603
Issue of Share Capital 232 110,405 - - - 110,637
Treasury shares repurchased(58) (24,268) - - - (24,326)
Total comprehensive income
for the 2009 year - - 57,217 5,515 (22,451) 40,281
Business combinations - - (3,274) 16,696 13,422
Restated Balance at 28
Feb 2009 2,171 242,442 72,244 5,515 (5,755)316,617
Total comprehensive income
for the 2010 year - - (306,497) (5,064) (311,560)
Transfer of treasury shares - 11,494 11,494
Net movement in subsidiaries 7,134 7,134
Balance at 28 Feb 2010 2,171 253,936 (234,253) 451 1,379 23,684
Statement of cash flows
Year Year Year
ended ended ended
28-Feb-10 28-Feb-09 28-Feb-08
(Reviewed) (Restated (Restated
Reviewed) Reviewed)
Figures in ZAR thousand
Cash flows - operating activities (24,358) (292,015) 100,216
Cash flow from investing activities (211) (29,681) (107,267)
Cash flow from financing activities 13,090 298,443 53,310
Net cash flow for period (11,479) (23,253) 46,259
Cash and cash equivalents at
beginning of period 27,973 51,226 4,967
Cash and cash equivalents at
end of period 16,494 27,973 51,226
INDEPENDENT AUDITORS REVIEW REPORT
"To the members of
AFRICAN DAWN CAPITAL LIMITED and its subsidiaries
Introduction
We have reviewed the accompanying condensed consolidated statement of financial
position of African Dawn Capital Limited as at 28 February 2010 and the related
condensed consolidated statement of comprehensive income, changes in equity and
cash flows for the period then ended. The company`s directors are responsible
for the preparation and presentation of this information in accordance with the
International Accounting Standard applicable to interim financial reporting and
in the manner required by the Companies Act of South Africa. Our responsibility
is to express a conclusion on this financial information based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements 2410, "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity". A review of interim financial information
consists of making inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance with
International Standards on Auditing and consequently does not enable us to
obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the accompanying financial information is not prepared, in all material
respects in accordance with International Accounting Standard applicable to
interim financial reporting and in the manner required by the Companies Act of
South Africa
Emphasis of matter
Without qualifying our opinion, we draw attention to note 16 in the board of
Directors Update which indicates the existence of a material uncertainty.This
material uncertainty, as refer to in note 16 in the board of Directors Update,
may cast significant doubt on the company`s ability to continue as a going
concern.
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 the previous auditors and 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 of Auditors. The matters pertaining
to the reportable irregularities have been described in note 8,9 and 13 in the
Board of Directors Update to the accompanying condensed consolidated financial
statements.
GRANT THORNTON
Chartered Accountants (SA)
Accredited Auditors
per EFG Dreyer
Chartered Accountant (SA)
Accredited Auditor
29 June 2010
137 Daisy Street
Sandown
Johannesburg
2196."
Basis of preparation
These financial statements have been prepared in accordance with the framework
concepts and measurement and recognition requirements of International Financial
Reporting Standards (IFRS), the AC500 standards as issued by the Accounting
Practices Board or it successor, the requirements of the South African Companies
Act, 1973, as amended, and the JSE Listings Requirements. These financial
statements have been prepared under the historical cost convention, as modified
by the revaluation of available for sale financial assets and financial assets
and financial liabilities (including derivative instruments) at fair value
through profit
or loss. The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the
Company`s accounting policies.
Notes to the reviewed condensed consolidated financial statement
1. Reporting entity:
African Dawn is a company domiciled in the Republic of South
Africa. The condensed consolidated financial statements of the Company
for the year ended 28 February 2010 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 29 February 2008 and 28
February 2009 were restated and are presented with the 29 February 2010 results
as comparative figures.
2. Statement of compliance:
These reviewed condensed consolidated financial statements have been
prepared in accordance with IAS 34 Interim Financial Reporting. These condensed
reviewed consolidated financial statements were approved by the Board of
Directors on 24 June 2010.
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 reviewed condensed
consolidated financial statements, which are in terms of IFRS, are the same as
those applied by the Group in its consolidated financials which are in terms of
IFRSfor the year ended 28 February 2009, except if stated otherwise.
Presentation of financial statements: The Group applies revised IAS 1
Presentation of Financial Statements. 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 was applied in the condensed financial
statements for the year ended 28 February 2009. Comparative information for the
previous two periods has been re-presented so that it is in conformity with the
revised standard and highlights the restated balances and movements.
Revenue recognition: Revenue recognition comprises the fair value of the sale of
goods and services, net of value-added tax, rebates and discounts. After
eliminating revenue within the group, revenue is recognised as follows. Sale of
services: Sales 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.
Intangible assets: Goodwill: Goodwill is initially measured at cost, being the
excess of the cost of the business combination over the Company`s interest in
the net fair value of the identifiable assets and liabilities assumed. The
excess of the Company`s interest in the net fair value of the identifiable
assets and 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. Impairments are recognized in profit and loss.
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 events 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 and did make use of an asset specialist to
help determine the asset`s fair value.
4. Accounting Estimates:
The preparation of 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 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 for the year ended 28 February 2009 and
six months ended 31 August 2009. During the year ended 28 February 2010
management reassessed its estimates in respect of: the recoverable amount of
goodwill and investments in subsidiary; the recoverable amount of trade and
other receivables in conjunction with current economic climate and deferred tax
assets.
5. Financial risk management
Credit risk - trade and other receivables. As a result of the deteriorating
economic circumstances in 2008,2009 and 2010 certain advancement limits have
been redefined and presented to a more stringent credit approval process. Credit
committee procedures and controls have been documented, revised and improved to
ensure a more stringent approval process. Other aspects of the Group`s financial
risk management objectives and policies are consistent with those disclosed in
the consolidated financial statements for the year ended 28 February 2009.
6. Restatement of previous reported results
Attention is drawn to the restatement of the 28 February 2008 and 28 February
2009 figures. It was reported on 24 February 2010 that some 28 February 2009
figures needed to be restated in order to comply with IFRS and the JSE Listing
Requirements. The restatements were as follows.
Reconciliation of 29 February 2008
Reconciliation of Statement of financial position
Restated Movement At
28-Feb-08 Reviewed 28-Feb-08
Figures in ZAR thousand (Reviewed) (Audited)
Non-current assets 112,927 (41,000) 153,928
Property, plant & equipment 13,546 13,547
Goodwill 99,381 (41,000) 140,381
Deferred tax assets - -
Current assets 249,671 (69,546) 319,217
Trade & other receivables 242,279 (50,659) 292,938
Impairment-trade receivables (44,733) (18,887) (25,846)
Total trade and other receivables 197,546 (69,546) 267,092
Cash and cash equivalents 51,226 51,226
Inventories 899 899
Total assets362,598 (110,547) 473,145
Capital and reserves 176,603 (113,398) 290,001
Share Capital 1,997 1,997
Share Premium 156,305 156,305
Accumulated Profit / (Loss) 18,301 (113,398) 131,699
Reserves - -
Minority Interest - -
Non-current liabilities 40,238 40,238
Lease liabilities 1,031 1,031
Borrowings 39,207 39,207
Current liabilities 145,757 2,851 142,906
Trade and other payables 100,813 100,813
Short term borrowings 19,013 19,013
Taxation 25,931 2,851 23,080
Total liabilities 185,995 2,851 183,144
Total equity and liabilities 362,598 (110,547) 473,145
Ordinary shares in issue (`000) 199,851 199,851
Net asset value per share (cents) 88.37 (56.74) 145.11
Net tangible asset value per share
(cents) 38.74 (36.13) 74.87
Reconciliation of Statement in changes of equity
Share Share Retained Reserves Minority Ordinary
Capital Premium earnings interest Share
holders
Figures in ZAR thousands equity
Previously reported
Balance 29 Feb 2008 1,997 156,305 131,699 - - 290,001
Revaluation of error (113,398) (113,398)
Restated balance at
29 Feb 2008 1,997 156,305 18,301 - - 176,603
Reconciliation of 28 Feb 2009
Reconciliation of Statement of Comprehensive Income
Restated Movement At
28-Feb-09 Restated 28-Feb-09
Figures in ZAR thousand (Reviewed) (Reviewed) (Restated)
Revenue 443,953 443,953
Operating and other expenses (194,730) (194,730)
Profit from operations before: 249,223 249,223
Impairment of trade receivables (34,772) (34,772)
Impairment of subsidiaries` NAV
and related goodwill - -
Loss on disposal of treasury shares - -
Other income 21,849 21,849
(Loss) / Profit before taxation 236,300 236,300
Taxation (71,171) (71,171)
Net (Loss) / Profit for the period for
continuing operations 165,129 165,129
Error (130,363) (54,320) (76,043)
Net (Loss) / Profit of the group 34,766 (54,320) 89,086
Minority share of losses 22,451 22,451
(Loss) / Profit attributable to:
Owners of the company 57,217 (54,320) 111,537
Total Other comprehensive income 5,515 5,515 -
Revaluation of property 5,515 5,515 -
Total comprehensive (Loss) / Profit
for the year attributable to
Owners of the company 62,732 (48,805) 111,537
Weighted average number of shares:
Total weighted average number of
shares in issue (`000) 209,715 209,715
Basic (loss) / earnings per share
(cents) 27.28 (25.91) 53.19
Headline (loss) / earnings per
share (cents) 27.28 (23.28) 50.56
Reconciliation of headline (loss) / earnings
Basic (loss) / earnings 57,217 (54,320) 111,537
Impairment of Subsidiary - 5,515 (5,515)
Headline (loss) / earnings 57,217 (48,805) 106,022
Reconciliation of Statement of financial position
Restated Movement At
28-Feb-09 Restated and 28-Feb-09
Figures in ZAR thousand (Reviewed) Reviewed (Restated)
(Reviewed)
Non-current assets 196,397 2,862 193,536
Property, plant & equipment 49,414 49,415
Goodwill 142,213 2,936 139,277
Deferred tax assets 4,769 (75) 4,844
Current assets 575,121 (88,649) 663,770
Trade & other receivables 478,953 478,953
Impairment-trade receivables (103,490) (88,649) (14,841)
Total trade and other receivables 375,463 (88,649) 464,112
Cash and cash equivalents 27,973 27,973
Inventories 171,685 171,685
Total assets 771,518 (85,788) 857,306
Capital and reserves 316,617 (65,865) 382,482
Share Capital 2,171 5 2,166
Share Premium 242,442 24,057 218,385
Accumulated Profit / (Loss) 72,244 (95,442) 167,686
Reserves 5,515 5,515 -
Minority Interest (5,755) (5,755)
Non-current liabilities 252,370 252,370
Lease liabilities 1,120 1,120
Borrowings 251,250 251,250
Deffered tax liability - -
Current liabilities 202,531 (19,923) 222,454
Trade and other payables 142,082 (77) 142,159
Short term borrowings 18,809 18,809
Taxation 41,640 (19,846) 61,486
Total liabilities 454,901 (19,923) 474,824
Total equity and liabilities 771,518 (85,788) 857,306
Ordinary shares in issue (`000) 212,129 212,129
Net asset value per share (cents) 149.26 (33.76) 183.02
Net tangible asset value per share
(cents) 82.22 (35.14) 117.36
Reconciliation of equity movement due to restatement in 2009
Share Share Retained Reserves Minority Ordinary
Figures in ZAR thousand Capital Premium earnings interest Share
Restated Balance at
28 Feb 2009 2,166 218,385 167,686 - (5,755)382,482
Restated - 2009 Error 5 24,057 (95,442) 5,515 - (65,865)
Restated Balance at 28
Feb 2009 2,171 242,442 72,244 5,515 (5,755)316,617
7. Prior Period Errors
During the course of management`s review of accounting records and current
affairs it was discovered that there were some errors that were incorrectly
accounted for and needed to be adjusted in prior periods as follows:
2008
Figures in ZAR thousandNet
Incorrect recognition of Allegro acquisition 41,000
Consolidation errors 31,278
Tax error 2,851
Nexus receivables duplicated 19,382
Impairment of receivables 18,887
Total for 2008 113,398
The errors relating to 2008 were adjusted in the statement of changes in equity
and the opening retained income for 2009 was restated.
2009
Figures in ZAR thousand Net
Impairment of shares issued but not paid 24,062
Nexus receivables duplicated 17,932
Unexplained journal entries 65,699
Consolidation errors (5,515)
Impairment of loans receivable 64,579
Taxation (41,909)
Total for 2009 124,848
Movement in 2009 profit and loss 130,363
Movements in 2009 other comprehensive income (5,515)
8. Business Combinations
The Allegro Group is a wholly owned subsidiary of African Dawn. 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 28 February 2010.
The assets and liabilities that have been derecognised due to the
deconsolidation are as follows:
Figures in ZAR thousand 28-Feb-10
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)
Minority interest 5,755
Total 77,872
9. Contingent liabilities
Please refer to the comments from the board of directors.
10. Post Balance Sheet Events
Please refer to the comments from the board of directors.
11. Segmental information
Figures in ZAR thousands
28 Feb 2010 Bridging Personal & Other Total
finance Short term
Revenue 40,602 52,954 12,513 106,070
Net Profit/Segment Results (264,724) (31,473) (10,299)(306,496)
Net asset value 41,364 (15,316) (2,362) 23,686
29 Feb 2009 Bridging Personal & Other Total
finance Short term
Revenue 325,292 86,156 32,505 443,953
Net Profit/Segment Results 147,720 38,238 1,622 187,580
Error 2009 (81,909) (45,680) (2,774)(130,363)
Net Profit/Segment Results restated 65,811 (7,442) (1,152) 57,217
Net asset value 435,266 99,934 19,655 554,855
Error and other adjustments (143,518) (85,156) (9,564)(238,238)
Net asset value restated 291,748 14,778 10,091 316,617
BOARD OF DIRECTORS UPDATE
COMMENTS
1 PREVIOUS ANNOUNCEMENTS
Shareholders are referred to the announcement, dated 1 December 2009 covering
the audited results of the first 6 months of the 2010 financial year and the
announcement, dated 24 February 2010, restating impairments between the 2009 and
2010 financial years.
2 COMPOSITION OF BOARD OF DIRECTORS
M van Tonder, C van Nieuwkerk and D Vivier were removed from the Board by
shareholders at the 2009 Annual General Meeting held on 1 October 2009. They
were replaced on 14 October 2009 by R Emslie, A Potgieter (who resigned on 7 May
2010) and C Wiese. M Patel was appointed to the board on 15 January 2009 and S
de Bruyn on 18 October 2005. S.de Bruyn is a non-executive director and the
remaining directors are independent non-executives. The company has not had a
CEO since the departure of M van Tonder. Since the departure of C van
Nieuwkerk, A Broodryk acted as CFO on a contract basis until 31 May 2010.
3 CHANGE IN AUDITORS
SAB & T resigned as auditors on 31 March 2010 and Grant Thornton was appointed.
4 NATURE OF BUSINESS
African Dawn is a specialist finance group focusing on:
*Short term secured finance including property transfer finance, medical aid
claim discounting and bridging finance
*Unsecured home improvement finance and unsecured personal loans
5 MATERIAL ISSUES
The board reported on 1 December 2009 that it considered or was in the process
of considering seven material issues:
Financial reporting
Quality of the asset base
Long-term viability of African Dawn
Employment contracts of certain directors
Financial position of Allegro
Reportable irregularities raised by the auditor
Findings of a forensic audit
The employment contracts of certain directors were adequately covered in the
announcement of 1 December 2009. The reportable irregularities were resolved or
are in the process of being resolved. This report will, amongst other issues,
provide further information on the other five issues.
6 IMPAIRMENTS AND WRITE-OFFS
..................................Year Year 6 months 6 months
Errors 2008 2009 Aug 09 Feb 10 Total
Figures in ZAR thousand
Consolidation errors 31,278 (5,515) 25,763
Overstatement in investment
In Allegro 41,000 41,000
Duplication of Nexus lending
Book 19,382 17,932 37,314
Shares issued but not paid 24,062 24,062
Impairment of loans receivable 18,887 64,579 83,466
Unexplained journal entries 65,699 65,699
Total errors 110,547 166,757 - - 277,304
2008 2009 Aug 09 Feb 10 Total
Goodwill and subsidiary write offs - - 160,220 53,935 214,155
Additional write offs of receivables 145,921 (31,815) 114,106
Tax on 2010 movement (18,023) (18,023)
Tax error 2,851 (41,909) (39,058)
Total movement 113,398 124,848 306,141 4,097 548,484
Restatements as disclosed in the announcement, dated 24 February 2010, amounted
to R 72,278 million and R 76,043 million for the 2008 and 2009 years
respectively. The additional write-offs of R41,120 million for 2008 and R54,320
million for 2009 are as a result of further detailed work done on the timing of
impairments. The company did extensive further work since reporting on the 2010
half year figures and these further restatements relate to impairments not
accounted for in the relevant years, which in turn resulted in an overstatement
of the income for the 2008 and 2009 financial years.
7 ANALYSIS OF EARNINGS
28-Feb-10
Loss attributable to shareholders of the company (306,497)
Impairment of goodwill 198,155
Headline loss (108,342)
Write off of loans receivable 130,106
Restructuring cost 3,953
Net profit before irregular expenses 25,717
8 TAXATION
It was stated in the announcement, dated 1 December 2009, that the Company and
certain of its subsidiaries had not rendered income tax returns to SARS. The
Company approached SARS and had a number of discussions with regard to the
regularisation of the Group`s tax affairs and with specific reference to the
timing of the deductions of the restated amounts for the 2008 and 2009 financial
years. No finalisation has been reached as yet with SARS on this matter. The
tax liability as reflected in the financial statements at 28 February 2010 is
based on the premise that the restated amounts are deductible in those years and
included a best estimate of a provision for penalties and interest.
9 SHARES ISSUED BUT NOT PAID
It was stated in the announcement, dated 1 December 2009, that 4,910,643 shares
in the amount R 24,062,150 were issued but not paid up and that the Company will
bring a court application to have these shares declared void. Information that
became available subsequently indicates that the cancellation of these shares
may not be possible. The matter is currently being investigated and is dependent
on third party information.
10 COST CUTTING INITIATIVES
The current staff composition of the group, after retrenchments, is
Aug 09 Feb 10
Staff complement
Micro-lending 94 83
Medical aid claim discounting 32 30
Bridging finance 10 7
Other 30 12
Total 166 132
Further retrenchment of staff will negatively impact the ability of the business
to grow to reasonable levels.
The company also sold its head office building in Dunkeld as it no longer
requires the office space.
11 Post balance sheet events
Prior to year end the directors started to seek potential buyers for the head
office building that formed part of the cost cutting strategy. The asset was
classified as being held for sale and carried at the lower of its carrying
amount and its fair value less cost to sell. The directors have signed a sales
agreement subsequent to year end and are awaiting the transfer of the property
to finalise the sale.
12 ALLEGRO
It was stated in an announcement, dated 9 September 2009, that Allegro was
placed under curatorship by the previous board and that the investment was
written off in full. This 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. Subsequent to the announcement, dated 1 December 2009, the board
initiated discussions with the curators to ascertain whether there was a basis
for any further claims. The Curators stated during these discussions that they
believe they do have further claims against the Company but offered no
information with regard to the nature and amounts thereof. To date the Company
has not received any information on such possible claim. The Company is not
aware of the basis for any such possible claims and accordingly no provision was
made for same.
13 FORENSIC INVESTIGATION
It was reported in the announcement, dated 1 December 2009, that Romlab
Consultants, a firm of specialist forensic accountants, was appointed to conduct
a forensic investigation of African Dawn. The final report has subsequently been
received by African Dawn and copies were provided to the Commercial Branch of
the South African Police Service, the Financial Services Board, the Johannesburg
Stock Exchange and the Independent Regulatory Board for Auditors. The report is
not available to the public as it forms the basis for possible criminal and
civil actions. As a result of the forensic report, the auditors reported a
reportable irregularity to the Independent Regulatory Board for Auditors.
14 LONG-TERM VIABILITY OF THE BUSINESS
The micro-lending business has adequate staff, management, products, systems and
processes to operate a successful business. It does not, however, have critical
mass and requires funding to achieve critical mass.
The medical aid claim discounting business has a basic product and systems and
processes. It does, however, require management and the product and processes
need to be upgraded. In addition, it does not have critical mass and requires
funding to achieve critical mass.
The bridging finance business has adequate staff, management, products, systems
and processes to operate successfully. The state of the SA economy negatively
impacts this business and, once again, funding is required to achieve critical
mass.
It is clear from the above that the single biggest impediment to the future
growth of African Dawn is the current lack of access to funding.
15 FUNDING STRATEGIES
The board is of the opinion that the business of the Company can achieve
critical mass provided it can secure adequate cash resources to fund growth over
the long-term. The cash requirements of the Company should be funded by means of
both equity and debt. The Company requires about R60m to fund its planned growth
activities for the 2011 financial year. Providers of debt are hesitant to
forward funding lines to the Company without it being adequately capitalised and
without the backing of a strong anchor shareholder with proven cash resources.
Notwithstanding this reluctance, the company secured R15m in debt funding to
lend to borrowers for home improvement purposes which leaves a shortfall of R45m
for the 2011 year. Shareholders were informed on 14 June 2010 that the Company
is in negotiation with another party to raise further funding comprising equity
or debt. Shareholders will be informed of the outcome of these discussions at
the appropriate time.
16 GOING CONCERN
The board is of the opinion, based on the assessment of the business in
paragraph 14 and the implementation of the fundraising strategies in paragraph
15, that it is appropriate to prepare the financial statements of the Company on
a going concern basis. The directors however draw attention to a material
creditor that existed at year end where the loan covenants have been breached.
As a result of the breach an amount of R36 million, which would otherwise be
included in long term borrowings is now current. Accordingly, there is a
material uncertainty relating to the settlement of this creditor that may cast
significant doubt on the group`s ability to continue as a going concern and
therefore to realise its assets and discharge its liabilities in the normal
course of business.The creditor is working with African Dawn, and while
reserving its right has not recalled the facility to date.
On behalf of the Board
RR Emslie
Chairman
Johannesburg
29 June 2010
Date: 29/06/2010 15:28:01 Produced by the JSE SENS Department.
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