| Fri 2 Mar 2012, 12:57 | | RBA - RBA Holdings Limited - Pro active monitoring by JSE |
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RBA
RBA
RBA - RBA Holdings Limited - Pro active monitoring by JSE
RBA Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1999/009701/06)
(JSE code: RBA ISIN: ZAE000104154)
("RBA" or "the group")
PRO ACTIVE MONITORING BY JSE
The JSE Limited ("JSE") has commenced a process to pro-actively monitor annual
financial statements ("AFS") of companies listed on the JSE. The integrity of
financial information is a critical element of a well functioning market and
the review process will contribute to the production of quality AFS`s. The
2010 AFS of RBA were recently selected for review.
The directors of RBA wish to advise shareholders of the findings of the
review. The directors are satisfied with the outcome of the review and thank
the JSE for the productive manner in which the review was handled. The items
identified by the JSE have been noted and where appropriate will be remedied
as part of RBA`s 2011 AFS.
The JSE`s review noted items that may impact on the disclosure and the
measurement within RBA`s 2010 AFS.
1. Disclosure and measurement requirements:
The review identified the following items that may affect disclosure and
measurement within the 2010 AFS:
1.1 Statement of Changes in Equity - The review identified an amount of
R2, 909, 271 reflected in the statement of changes in equity that
represents an error in the accounting treatment of investment in
associates in the prior years. In 2006 loans were extended to
associate companies and the associates made losses. RBA accounted
for its share of the losses in profit or loss. The losses eliminated
the initial loans and RBA continued to account for its share of the
losses in the 2006 and 2007 financial years. In terms of IFRS the
recognition of these losses should have been limited to the initial
loans made. This resulted in an understatement of profit in 2006 and
2007. Management and the auditors at the time were of the opinion
that the correct accounting treatment was being applied. The
associates became subsidiary companies in the 2010 financial year
and have now been fully consolidated.
The effects of the aforegoing on the 2008, 2009 and 2010 AFS`s are as
follows:
Group 2010 2009 2008
Actual As Actual As stated Actual As stated
stated
Statement
of changes
in equity
Opening 51,678, 48,769, 82,371,424 79,462,153 56,423,358 53,514,087
retained 887 616
income
Statement
of
financial
position
Investment No No 11,151,578 8,242,307 12,175,938 9,266,667
in change change
associate
Statement No No No change No change No change No change
of change change
comprehensi
ve income
1.2 SIC 12 `Consolidation Special Purpose Entities` - The employee share
trust was not consolidated in the 2010 AFS as required by IFRS. The
effect of this was not significant on the 2010 AFS as the trust was
effectively dormant and contained only an intercompany loan and
shares held in RBA. If the employee share trust was consolidated,
the investment held by the share trust would be eliminated against
share capital. The loan accounts cancel each other with the
consolidation.
The effect on net asset value (NAV) per share would have been as
follows:
2010
NAV per share as presented 14.47 cents
NAV per share after consolidation of 13.65 cents
share trust
Difference 0.82 cents
The effect on earnings per share (EPS) and headline earnings per
share (HEPS) would have been as follows:
2010
EPS as presented (3.67) cents
EPS after consolidation of share trust (3.71) cents
Difference (0.04) cents
HEPS as presented (4.89) cents
HEPS after consolidation of share (4.94) cents
trust
Difference (0.05) cents
1.3 IAS 7 `Cash Flow Statements` - requires separate presentation of
cash inflows and cash outflows regarding the purchase and sale of
investment property. Under cash flows from investing activities, the
face of the cash flow statement reflects a cash inflow of R1,
954,155 relating to investment properties. This should have been
reflected as follows:
2010
Cash inflow from sale of investment R6, 660,757
property
Cash outflow from purchase of (R4, 601, 455)
investment property
Net cash inflow R1, 954, 155
The 2010 cash flow statement reflects a realisation of the
revaluation reserve as a cash outflow of R57,152. This represents a
non-cash flow item that should have been disclosed in the notes to
the cash flow statement and not on the face of the cash flow
statement.
The 2010 cash flow statement reflects a cash inflow from changes in
shareholding of R2,004,336. This represents a non-cash flow item
that should have been disclosed in the notes to the cash flow
statement and not on the face of the cash flow statement.
The cash flow statement as presented reflects movement in stands
held for trading and movement in deposits - land and stand
allocations as investing activities. These items should be presented
as operating activities.
The 2009 cash flow statement reflects a transfer of current property
to investment property as a cash inflow of R2,163,700. This
represents a non-cash flow item that should have been disclosed in
the notes to the cash flow statement and not on the face of the cash
flow statement.
A revised group cash flow statement would be presented as follows:
2010 2009
Cash flows from operating
activities (38,164,832) (18,165,617)
Cash generated from (used in)
operations (9,551,515) 12,431,953
Interest received
470,589 150,286
Interest paid
(14,014,681) (11,651,605)
Taxation paid
(15,869) (114,012)
Movement deposits - land and
stand allocations 10,813,387 2,958,864
Movement of land for trading
(25,866,743) (21,941,103)
Cash flows from investing
activities 3,591,242 (32,425,481)
Acquisition of property, plant
and equipment (671,964) (714,011)
Proceeds on disposal of
property, plant and equipment 2,309,051 745,825
Acquisition of investment
property (4,660,757) (61,139,166)
Sale of investment property
6,614,912 28,145,529
Movement in investments in
associates - 537,596
Purchase of RBA Holdings Ltd
share incentive - (1,254)
Cash flows from financing
activities 39,943,250 43,334,537
Proceeds on share issue
990,000 -
Loans raised
38,941,509 41,433,635
Loans from directors
498,932 3,062,674
Movements in finance lease
obligations (487,191) (1,161,772)
Cash flows for the period
5,369,660 (7,256,561)
Cash and cash equivalents at
beginning of period (24,000,305) (16,743,744)
Cash and cash equivalents at end
of period (18,630,645) (24,000,305)
1.4 IFRS 3 Business Combinations, IAS 27 `Consolidated and Separate
Financial Statements` - the restructuring of the group undertaken in
2010 requires additional disclosure within the notes describing the
relevant restructuring activities.
Note 38 Group restructuring
During 2009 the Board of RBA took the strategic decision to
streamline the group structure into four operating companies with a
view to decreasing costs and increasing efficiencies. The Board of
RBA approved that the structure be simplified as follows with effect
from 1 January 2010:
- RBA Holdings Limited will remain the holding company;
- Land procurement is housed in Ground Base (Pty) Limited
("Ground Base");
- All sales activities will be housed in RBA Homes (Pty)
Limited,("RBA Homes");
- All development activities will be housed in RBA Developments
(Johannesburg) (Pty) Limited ("RBA Developments");
- All construction activities will be housed in RBA Building
Projects (Pty) Limited ("RBA Projects").
The resultant shareholdings of RBA in the abovementioned operating
companies are as follows:
- Ground Base (Pty) Limited - 87%
- RBA Homes (Pty) Limited - 51%
- RBA Developments (Johannesburg) (Pty) Limited - 93.5 %
- RBA Building Projects (Pty) Limited - 51%
All the issued shares in subsidiaries incorporated into these
companies which were not held by RBA, were acquired from the
minority shareholders.
The following table reflects the change in shareholding brought
about by the restructuring:
Company % - 31 December % - 1 January
2009 2010
RBA Developments (JHB) (Pty) Note 1 100% 93,5%
Ltd
RBA Homes (Pty) Ltd Note 2 20% 51%
Groundbase (Pty) Ltd Note 1 87% 87%
RBA Building Projects (Pty) Note 1 63% 51%
Ltd
RBA Central (Pty) Ltd Note 1 50% 100%
RBA Dev (Tshwane) (Pty) Ltd Note 1 75% 100%
Siweziwe Property Hold (Pty) Note 1 76% 100%
Ltd
RBA Tshwane Sales (Pty) Ltd Note 1 50% 100%
Origin Better Bond (Pty) Ltd Note 1 75% 100%
Mobius Eastern Cape (Pty) Ltd Note 1 76% 100%
Parkerhill Trading (Pty) Ltd Note 1 76% 100%
RBA Dev (Polokwane) (Pty) Ltd Note 1 76% 100%
RBA Executive Homes (Pty) Ltd Note 1 66% 100%
RBA Wetworks (Pty) Ltd Note 1 50% 100%
Note 1 - all of these companies were accounted for as subsidiary
companies and consolidated in the 2008, 2009 and 2010 financial
statements.
Note 2 - RBA Homes (Pty) Ltd was accounted for as an associate company in
the 2009 AFS. The change of shareholding in RBA Homes (Pty) Ltd from 20%
to 100% resulted in the company being treated as a subsidiary company and
it was fully consolidated in the 2010 AFS.
2. Disclosure requirements:
The following items in the 2010 AFS were noted that require improved
disclosure:
2.1 IFRS 8 Segment Reporting - the basis on which the group`s segments
have been determined requires additional explanation and disclosure.
The following explanation should have been disclosed:
Note 36 Segmental Reporting:
The group supplies affordable housing units for residential usage.
Some of these housing units are built and sold ("property
development activities) and some of the properties are retained and
rented ("sectional title rental activities") to create a recurring
income for the company. There are only two segments "property
development activities" and "sectional title rental activities".
2.2 IAS 40 Investment Property - requires the methods and assumptions
used in determining fair value of investment property to be
disclosed. The following information should have been disclosed:
Note 3 Investment Property:
Land and building under investment property has a fair value of R
115,227,499 (2009 - R 114,448,516, 2008 - R 78,649,987). The fair
value is based on a valuation by an independent valuer who holds a
recognised and relevant professional qualification and has recent
experience in the location and category of the investment property
being valued. Fair value adjustments are recognised in the statement
of comprehensive income.
2.3 IFRS 7 Financial Instrument Disclosure - requires disclosure of each
type of market risk to assist the users of the AFS to understand the
implications of these risks associated with the financial
instruments held within the group. Note 35 Risk Management should
have included the following disclosure:
Note 35 Risk Management:
Financial risk management
The group`s activities expose it to a variety of financial risks:
market risk (including currency risk, fair value interest rate risk
and cash flow interest rate risk), credit risk and liquidity risk.
The group`s overall risk management program focuses on the
unpredictability of financial markets and seeks to minimise
potential adverse effects on the group`s financial performance. Risk
management is carried out by senior management under policies
approved by the board. Senior management provides written principles
for overall risk management. The group does not speculate in the
trading of derivative instruments. The risk committee of the board
is headed by an independent non-executive director.
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient
cash and marketable securities, the availability of funding through
an adequate amount of committed credit facilities and the ability to
close out market positions. Due to the dynamic nature of the
underlying businesses, the group maintains flexibility in funding by
maintaining availability under committed credit lines.
The group`s risk to liquidity is a result of the funds available to
cover future commitments. The group manages liquidity risk through
an ongoing review of future commitments and credit facilities.
Cash flow forecasts are prepared and adequate and utilised borrowing
facilities are monitored.
The table below analyses the group`s non-derivative financial
liabilities into relevant maturity groupings based on the remaining
period on the statement of financial position date to the
contractual maturity date. The amounts disclosed in the table are
the contractual undiscounted cash flows.
At 31 December
2008
Less than 1 Between 1 Between 3 Over 5 year
year and 2 and 5
Borrowings (30,662,729) (19,296,204) (2,134,991) (31,903,295)
Finance lease (216,052) (1,134,821) (535,970) -
obligations
Current tax (7,947,479) - - -
payable
Trade and other (18,101,366) - - -
payables
Construction (3,038,783) - - -
contracts in
progress
Loans from - - - -
directors
Bank overdraft (17,783,487) - - -
At 31 December
2009
Less than 1 Between 1 Between 3 Over 5 year
year and 2 and 5
Borrowings (36,158,351) (17,069,934) (9,691,415) (62,946,008)
Finance lease (561,870) (115,345) (47,856) -
obligations
Current tax (6,815,685) - - -
payable
Trade and other (33,709,992) - - -
payables
Construction (851,342) - - -
contracts in
progress
Loans from (3,062,674) - - -
directors
Bank overdraft (26,045,938) - - -
At 31 December
2010
Less than 1 Between 1 Between 3 Over 5 year
year and 2 and 5
Borrowings (41,493,073) (12,535,160) (29,506,123) (81,233,997)
Finance lease (179,863) (58,017) - -
obligations
Current tax (6,612,983) - - -
payable
Trade and other (46,301,802) - - -
payables
Construction (2,929,324) - - -
contracts in
progress
Loans from (3,561,606) - - -
directors
Bank overdraft (24,465,762) - - -
Financial liability repayment
At 31 December
2008
Less than 1 Between 1 Between 3 Over 5 year
year and 2 and 5
ABSA Bank Limited (421,855) (18,054,734) (452,066) (3,892,522)
Nedbank Limited (53,407) (479,975) (1,177,137) (6,644,394)
Standard Bank (1,104,046) (700,475) (375,641) (20,350,872)
Limited
African Dawn (6,069,931) - - -
Capital Limited
Industrial (557,330) - - -
Development
Corporation
Imperial Bank - (61,020) (130,148) (1,015,508)
Limited
Investec Bank (21,256,001) - - -
Limited
Sundry loans (1,200,160) - - -
(30,662,729) (19,296,204) (2,134,991) (31,903,295)
At 31 December
2009
Less than 1 Between 1 Between 3 Over 5 year
year and 2 and 5
ABSA Bank Limited (123,495) (14,282,711) (583,343) (5,332,392)
Nedbank Limited (545,275) (580,400) (2,164,807) (6,216,293)
Standard Bank (478,001) (541,638) (1,930,758) (18,934,699)
Limited
National Housing (1,365,440) (1,638,528) (4,915,583) (21,789,251)
Finance
Corporation
African Dawn (5,678,967) - - -
Capital Limited
Industrial (327,270) - - -
Development
Corporation
Imperial Bank (24,251) (26,658) (96,924) (855,438)
Investec bank (22,739,947) - - -
Limited
International - - - (9,817,935)
Housing Solutions
Sundry Loans (4,875,707) - - -
(36,158,352) (17,069,934) (9,691,415) (62,946,008)
At 31 December
2010
Less than 1 Between 1 Between 3 Over 5 year
year and 2 and 5
ABSA Bank Limited (97,790) (176,807) (22,549,904) (15,583,627)
Nedbank Limited (607,812) (659,150) (2,330,881) (4,637,969)
Standard Bank (3,295,344) (371,502) (1,700,497) (13,606,502)
Limited
National Housing (598,475) (661,143) (2,428,569) (26,062,127)
Finance
Corporation
Industrial (296,109) - - -
Development
Corporation
Imperial Bank (25,210) (27,302) (96,272) (831,517)
Investec bank (22,164,389) - - -
Limited
International - - - (19,485,623)
Housing Solutions
Sundry Loans (14,407,943) (10,639,256) (400,000) (1,026,632)
(41,493,072) (12,535,160) (29,506,123) (81,233,997)
Interest rate risk
The group`s income and operating cash flows are affected by changes
in market interest rates as potential clients` affordability levels
are affected, which impact their ability to secure home loans. The
group`s interest rate risk arises from long-term borrowings.
Borrowings obtained at variable rates expose the group to cash flow
interest rate risk. Borrowings obtained at fixed rates expose the
group to fair value interest rate risk. During 2010, 2009 and 2008,
the group`s borrowings at variable rate were denominated in South
African Rand.
The group analyses its interest rate exposure on a dynamic basis.
Various scenarios are simulated taking into consideration
refinancing, renewal of existing positions and alternative
financing.
The scenarios are run only for instruments that represent the major
interest bearing positions.
Based on the simulations performed, the impact on post-tax profit of
a 1% shift would be an approximate increase/decrease of R2 million.
Credit risk
Credit risk consists of cash deposits, cash equivalents and amounts
receivable. The company only deposits cash with major banks with
high quality credit standing and limits exposure to any one
counterparty.
Management evaluates credit risk relating to customers on an ongoing
basis.
2.4 IAS 12 Income Tax - a tax rate reconciliation should have been
disclosed as part of note 10. A tax reconciliation was not prepared
as the company made losses in 2010 and 2009 and a tax reconciliation
would not have been meaningful to the users of the AFS. RBA also
raised a deferred tax asset in the 2010 AFS. The following factors
considered by management in justifying raising the deferred tax
asset should have been disclosed.
Note 10 Deferred Tax:
Deferred tax assets have been recognised as management expects that
future taxable profits in the subsidiaries concerned will be in
excess of the losses incurred to date.
The following key factors were taken into consideration:
- The group had a pipeline at 31 December 2010 of approved sales
awaiting registration of 394 deals and a pipeline of submitted
sales awaiting approval of 350 deals.
- Demand for affordable housing remains robust.
- Management expected the group to return to profitability in the
2011 financial year.
The following breakdown of the deferred tax asset and liability
should have been disclosed:
Deferred Tax Asset 2010
Tax losses available for set off 9,546,316
against future profits
Deferred tax on provisions 709,676
Construction contracts 831,597
11,087,589
Deferred Tax Liability 2010
Construction contracts 4,833,580
Investment Property - Revaluations 4,323,099
9,156,679
2.5 IAS 24 Related Party Disclosure - IAS 24 requires disclosure of
transactions per category of related parties. The following
information should have been disclosed:
Note 32 Related parties:
Group Compan
y
2010 2009 2008 2010 2009 2008
Related party balances:
Owing (to)/by related
parties
RBA Developments (JHB) - - - 31,664 30,336 30,558
(Pty) Ltd ,132 ,461 ,353
RBA Developments - - - (230,9 (230,9 (230,9
(Polok) (Pty) Ltd 80) 80) 80)
RBA Holdings Share - - - 3,000, 3,000, 3,000,
Incentive Scheme 000 000 000
DK Wentzel (734,9 (540, - - - -
05) 109)
BA Stegmann (1,184 (864, - - - -
,262) 175)
Owing (to)/by
associates
Orion properties 38 (833,7 (856, - - - -
(Pty) Ltd 60) 247)
Related party
transactions:
Interest paid to
related parties
DK Wentzel 194,79 40,10 - - - -
6 9
BA Stegmann 320,08 64,17 - - - -
7 5
2.6 IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors - IAS 8 requires disclosure of information relevant to
assessing the impact of the new IFRS statements on the company`s
financial statements. Management has reviewed the statements
detailed below and have concluded that these IFRS statements are not
expected to have a material impact on the group or company`s
financial statements.
Standards and interpretations effective and adopted:
- Revised IAS 24 (revised), `Related party disclosures`.
- IAS 36 (amendment), `Impairment of assets`.
- IAS 39 (amendment), Financial Instruments: Recognition and
Measurement Eligible Hedged Items.
- IFRS 2 (amendment), Group cash-settled share-based payment
transactions
- IAS 12 (Revised), Income Taxes - Deferred Tax: Recovery of
Underlying Assets.
- IAS 32, Financial Instruments: Presentation Amendment:
Classification of Rights Issues.
- 2009 Annual Improvements Projects: Amendments to IFRS 5,
Non?current Assets Held for Sale and Discontinued Operations.
- 2009 Annual Improvements Projects: Amendments to IAS 17,
Leases.
- 2009 Annual Improvements Projects: Amendments to IAS 39,
Financial Instruments: Recognition and Measurement.
- 2009 Annual Improvements Projects: Amendments to IAS 1,
Presentation of Financial Statements.
- 2009 Annual Improvements Projects: Amendments to IFRS 2, Share-
based Payment.
Standards and interpretations effective and not relevant to the
group (although they may affect the accounting for future
transaction and events):
- IFRIC 16, `Hedges of a net investment in a foreign operation`.
- IAS 38 (amendment), `Intangible assets`, effective 1 January
2010.
- IFRS 1 (amendment), Additional Exemptions for First Time
Adopters.
- IFRIC 9, `Reassessment of embedded derivatives and IAS 39,
Financial instruments: Recognition and measurement`.
- IAS 39, `Financial Instruments: Recognition and Measurement ?
Amendments for eligible hedged items`.
- IFRIC 19, `Extinguishing financial liabilities with equity
instruments`.
- Amendment to IAS 32, `Classification of rights issues`
- Amendments to IFRIC 14, `Prepayments of a minimum funding
requirement`.
- IFRIC 18, `Transfers of assets from customers`.
- 2009 Annual Improvements Projects: Amendments to IFRIC 9,
`Reassessment of Embedded Derivatives`.
- 2009 Annual Improvements Projects: Amendments to IFRIC 16,
`Hedges of a Net Investment in a Foreign Operation`.
Standards, amendments and interpretations to existing standards that
are not yet effective and have not been early adopted by the group:
- IFRS 7 (Amendment), `Financial Instruments: Disclosures -
Transfer of Financial Assets`.
- IFRS 9, `Financial instruments`. This standard is the first
step in the process to replace IAS 39, `Financial instruments:
recognition and measurement`.
- IFRS 10 - New standard that replaces the consolidation
requirements in SIC-12 `Consolidation-Special Purpose Entities`
and IAS 27 `Consolidated and Separate Financial Statements`.
- IFRS 11 - New standard that deals with the accounting for joint
arrangements and focuses on the rights and obligations of the
arrangement, rather than its legal form.
- IFRS 12 - New and comprehensive standard on disclosure
requirements for all forms of interests in other entities,
including joint arrangements, associates, special purpose
vehicles and other off balance sheet vehicles.
- IFRS 13 - New guidance on fair value measurement and disclosure
requirements.
- Amended IAS 1 - New requirements to group together items within
OCI that may be reclassified to the profit or loss section of
the income statement in order to facilitate the assessment of
their impact on the overall performance of an entity.
- Amended IAS 19 - Amendments to the accounting for current and
future obligations resulting from the provision of defined
benefit plans.
- IFRIC 20 - `Stripping Costs in the Production Phase of a
Surface Mine`.
- 2010 Annual Improvements Projects: Amendments to IAS 1,
`Presentation of Financial Statements`.
- 2010 Annual Improvements Projects: Amendments to IFRS 7
`Financial Instruments: Disclosures`.
- 2010 Annual Improvements Project: Amendments to IAS 34 `Interim
Financial Reporting`.
- 2010 Annual Improvements Project: Amendments to IAS 28
`Investments in Associates`.
- 2010 Annual Improvements Project: Amendments to IAS 31
`Interests in Joint Ventures`.
- 2010 Annual Improvements Projects: Amendments to IFRS 3
`Business Combinations`.
1 March 2012
Exchange Sponsors
Designated Adviser
Date: 02/03/2012 12:57:01 Produced by the JSE SENS Department.
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