| Wed 11 Nov 2020, 16:44 | | GEN – General –JSE decision on its proactive monitoring review for Trustco Group Holdings Limited financial results. |
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GEN – General –JSE decision on its proactive monitoring review for Trustco Group Holdings Limited financial results.
GEN – General – Trustco Group Holdings Limited
JSE decision on its proactive monitoring review for Trustco Group Holdings Limited (“Company” or
“Trustco”) financial results.
The JSE hereby informs stakeholders of the following process and decisions made in respect of the
Company:
1. In its most recent financial results (audited interim results for the 12 months ending 31 March 2020;
“2020 interim results”), published on 2 November 2020 Trustco indicates that the JSE selected and
reviewed the Company’s 31 March 2019 AFS as part of its proactive monitoring review process (“the
review process”).
Background to the review process
2. It is well known that the JSE undertakes the review process. The review process for Trustco
commenced in December 2019 and there was an exchange of letters; and meetings were held
between the Company and the JSE. During the course of the review process three, matters were
referred by the JSE to the Financial Reporting Investigations Panel (“FRIP”). The FRIP is an advisory
body to the JSE, providing technical advice on International Financial Reporting Standards (“IFRS”)
matters referred to it by the JSE. The FRIP comprises a panel of IFRS experts. Individuals are appointed
to the FRIP because they have in-depth technical knowledge of IFRS, technical accounting work
experience, and recognition from their peers that they are IFRS experts. They have both the
knowledge of, and experience in, dealing with IFRS matters. Any FRIP referral made by the JSE is
considered by a review committee consisting of at least four independent members of the FRIP.
3. The three matters referred to the FRIP are set out below:
3.1. The classification of the ‘gain’ recognised in profit and loss by Trustco, following two separate
loan waivers by the majority shareholder of the Company (Dr Quintin van Rooyen; also previous
100% shareholder of Huso Investments (Pty) Ltd an acquired subsidiary of Trustco). Trustco
accounted for the loan waivers by recognising in profit and loss:
3.1.1. a N$546m gain in the March 2019 AFS;
3.1.2. a N$1bn gain in the interim results for the 6 months ended September 2019 as well as
the subsequent interim results for the 12 months ended March 2019;
3.2. The appropriateness under IFRS of re-classifying unsold erven held by Trustco in a property
development from inventory to investment property. The reclassification triggered a N$693m
gain, which was presented as Revenue of N$984m and cost of sales of N$291m in the profit and
loss account in the Company’s 2019 AFS; and
3.3. The point in time at which the company recognises revenue in the sale of undeveloped land sales.
The Company has adopted an accounting policy to recognise revenue for such sales on the date
the purchaser signs a purchase contract.
4. The FRIP review committee convened for this matter considered the above matters and the
correspondence exchanged between the Company and the JSE. The FRIP review committee provided
a report to the JSE (“the FRIP report”) in which the review committee disagreed with the basis of
accounting applied by Trustco on all three matters referred to them. The review committee members
were unanimous in their support of the conclusions reached in the FRIP report. The FRIP report was
shared with the Company. The Company made two further submissions of additional information and
IFRS justifications to the JSE and the review committee which included oral submissions to the JSE and
FRIP chair. The further information and IFRS justifications were considered by the review committee.
The review committee unanimously concluded that the further information and IFRS justifications did
not alter its view and advised the JSE that it remained of the view that it disagreed with the basis of
accounting applied by the Company on all three matters referred to them.
JSE’s decision against the Company
5. Having carefully considered all of the facts and information presented to it, and the advice set out in
the FRIP report, the JSE found that the Company had not complied with IFRS in respect of the three
matters referred to in 3.1 – 3.3. above (“the JSE Decision”). The Company objected to the JSE Decision
in terms of paragraph 1.4 of the JSE Listings Requirements (“the Objection”), but subsequently
restated its financial results in line with the JSE’s decision on matter 3.3. The Company stated in its
2020 audited interim results that it continues to appeal the JSE decision with respect to the matters
identified in 3.1 and 3.2 above.
6. The JSE has assessed and considered the grounds and reasons for the Objection and has dismissed
the objection but has altered the corrective action that the Company is required to follow. The altered
corrective action which the Company is required to implement is the following:
A. Restating the Company’s Annual Financial Statements for the year ended 31 March 2019 to
account for the following prior period errors:
1. Reversing the N$545.6m gain previously recognised in profit and loss and recognising this
‘credit amount’ to reduce the common control reserve initially recognised in equity as a result
of the Huso acquisition (referral 1);
2. Reversing the reclassification of the Elisenheim properties (incorrectly reclassified to
investment properties) and consequently reversing the N$ 693m gain (presented as revenue
of N$984m and cost of sales of N$291m) from profit and loss (referral 2); and
B. Restating the Company’s interim results for the 6 months ended 31 September 2019 to account
for the following prior period error:
3. Reversing the N$1bn gain previously recognised in profit and loss and accounting for this as a
transaction with an equity participant i.e. recognising the credit directly in equity (referral 1).
The restatement in both the Annual Financial Statements and interims results must be effected in
accordance with IAS 8, and in particular paragraphs 42 and 49 thereof.
7. The Company has stated in its 2020 interim audited results that it will make no further adjustments
to its results for matters 3.1 and 3.2 above until the objection process is completed and that it has
exhausted all other legal avenues available to it. It also failed to make reference to the FRIP process.
Given these facts, this announcement has been released by the JSE to ensure an understanding of
both the process followed by the JSE and the details of the JSE Decision.
8. The Company has a right to appeal the JSE Decision. It remains to be seen whether the Company will
invoke this right of appeal. The JSE will update the market if the Company invokes its right of appeal.
9. The JSE notes the Company’s arguments in the 2020 interim audited results that it has sought advice
on the basis of accounting applied by the Company from an IFRS advisor and that its auditors have
not modified their audit opinion. The JSE reminds stakeholders of other high profile cases in our
market where IFRS advisors and auditors believed that an issuers results were compliant with IFRS
but this was subsequently found not to be the case.
10. The accuracy and reliability of financial information published by companies are of critical importance
in ensuring a fair, efficient and transparent market. The provisions of the Listings Requirements, which
impose various important obligations on listed companies in respect of the disclosure of financial
information, contributes to the integrity of the market and promotes investor confidence.
11 November 2020
Date: 11-11-2020 04:44:00
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