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RBA - RBA Holdings Limited - Pro active monitoring by JSE

Release Date: 02/03/2012 12:57
Code(s): RBA
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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 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or 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.

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