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ADW - African Dawn Capital Limited - Audited Condensed Consolidated Financial
Results for the year ended 29 February 2012
AFRICAN DAWN CAPITAL LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/020520/06)
JSE code: ADW
ISIN: ZAE000060703
"the company" or "the group" or "Afdawn"
Increase in Earnings per share ("EPS"), Diluted earnings per share and
increase in Headline earnings per share ("HEPS") resulted in an EPS of 3.23
cents, diluted EPS 2.79 and HEPS of 3.06 cents.
Successful recapitalisation raises R 39.9 million.
AUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION FOR THE YEAR
ENDED 29 FEBRUARY 2012
Year ended Year ended
29-Feb-12 28-Feb-11
R`000 R`000
(Audited) (Audited)
Non-current assets 1,439 3,000
Property, plant and equipment 770 2,288
Other financial assets 669 712
Current assets 120,849 124,241
Property in possession 25,662 25,344
Other financial assets 300 300
Current tax receivable 9,713 6,961
Trade and other receivables 246,902 284,146
Impairment on trade receivables (177,179) (200,665)
Net trade and other receivables 69,723 83,481
Cash and cash equivalents 15,451 8,155
Non-current assets held for sale - 1,200
Total assets 122,288 128,441
Capital and reserves 65,361 26,079
Share capital 284,634 256,107
Reserves 97 105
Accumulated (loss) (219,370) (230,133)
Non-current liabilities 21,608 11,175
Borrowings 21,590 11,124
Finance lease obligation 18 51
Current liabilities 35,319 91,187
Finance lease obligation 35 127
Borrowings 5,484 48,538
Current tax payable 20,064 18,045
Trade and other payables 9,736 11,716
Provisions - 12,484
Bank overdraft - 277
Total liabilities 56,927 102,362
Total equity and liabilities 122,288 128,441
Net asset value per share (cents) 12.9 11.7
Net tangible asset value per share (cents) 12.9 11.7
Audited Condensed Consolidated Income Statement for the year ended 29
February 2012
Year ended Year ended
29-Feb-12 28-Feb-11
R`000 R`000
(Audited) (Audited)
Revenue 31,472 42,557
Cost of sales (407) (454)
Gross profit 31,065 42,103
Other income 22,622 7,871
Operating and other expenses (39,962) (26,147)
Operating profit 13,725 23,827
Investment revenue 309 256
Fair value adjustment - (10,522)
Finance cost (3,151) (7,148)
Profit before taxation 10,883 6,413
Taxation (478) (816)
Profit from continuing operations 10,405 5,597
Profit/(Loss) from discontinued operations 358 (1,971)
Profit for the year 10,763 3,626
Weighted number of shares 332,838 253,898
Basic earnings per share from continuing and
discontinued operations 3.23 1.42
Diluted earnings per share from continuing operations 2.79 2.20
Headline earnings per share from continuing and
discontinued operations 3.06 0.90
Diluted headline earnings per share from continuing
and discontinued operations 2.72 0.90
Reconciliation of headline earnings
Basic earnings 10,763 3,626
Non-recurring adjustments
Profit on sale of subsidiary (1,021) (806)
Impairment of property, plant and equipment 249 -
(Profit)/loss on disposal of property, plant
equipment 2 (515)
Loss on disposal of non current asset
held for sale 188 -
Headline earnings 10,181 2,305
Note: The prior year`s Income Statement includes discontinued operations only
as a separate line item as per IFRS 5. Due to the Rights Issue the weighted
number of shares for 2011 financial year was adjusted as required by IAS 33,
resulting in an updated EPS, diluted EPS and HEPS.
Audited Condensed Consolidated Statements of Comprehensive Income for the
year ended 29 February 2012
Year ended Year ended
29-Feb-12 28-Feb-11
R`000 R`000
(Audited) (Audited)
Profit for the year 10,763 3,626
Other comprehensive income:
Taxation related to components of other
comprehensive income - (452)
Other comprehensive loss for the year net
of taxation - (452)
Total comprehensive income 10,763 3,174
Attributable to
Profit from continuing operations 10,405 5,597
Profit/(Loss) from discontinued operation 358 (1,971)
Owners of the parent 10,763 3,785
Non-controlling interest - (611)
Audited Condensed Consolidated Statements of Changes in Equity for the year
ended 29 February 2012
Share Share Total Accumulated Minority Ordinary
Capital Premium Reserves Loss Interest Share
Holders
Equity
Balance at 28 Feb 2010 2,221 253,886 452 (234,265) 1,379 23,673
Total comprehensive income
for the 2011 year - - (452) 4,237 (611) 3,174
Transfer to insurance reserve- - 105 (105) - -
Subsidiary sold - - - - (768) (768)
Balance at 28 Feb 2011 2,221 253,886 105 (230,133) - 26,079
Issue of ordinary share
During Rights Issue 2,853 25,674 - - - 28,527
Total comprehensive income
for the 2012 year - - - 10,763 - 10,763
Transfer from insurance reserve- - (8) - - (8)
Balance at 29 Feb 2012 5,074 279,560 97 (219,370) - 65,361
Audited Condensed Consolidated Statements of Cash Flows for the year ended 29
February 2012
Year ended Year ended
29-Feb-12 28-Feb-11
R`000 R`000
(Audited) (Audited)
Cash flow from operating activities 9,448 2,591
Cash flow from investing activities 2,694 2,987
Cash flow from financing activities (4,569) (12,855)
Net cash flow for the year 7,573 (7,277)
Cash and cash equivalents at
beginning of the year 7,878 15,155
Cash and cash equivalents at
end of the year 15,451 7,878
Basis of preparation and statement of compliance
The financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS"), IAS 34: Interim Financial Reporting,
the Companies Act, and the JSE Listing Requirements which is inclusive of (AC
500). The consolidated financial statements are prepared in accordance with
the going concern principle under the historical cost basis other than
financial assets designated as at fair value through profit and 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 group`s accounting
policies. The preparation of the group`s consolidated year end results for
financial year ended 29 February 2012 was supervised by the acting Financial
Director of the group, Mr TF Kruger.
Grant Thornton, the group`s independent auditor, has audited the consolidated
annual financial statements of Afdawn from which the condensed consolidated
financial results have been derived and have expressed an unqualified opinion
on the consolidated annual financial statements. The audit report is
available for inspection at the company`s registered offices.
Audit opinion
We have audited the group annual financial statements of African Dawn Capital
Limited, which comprised the consolidated statement of financial position as
at 29 February 2012, and the consolidated income statement, the consolidated
statement of comprehensive income, changes in equity and cash flows for the
year then ended, and a summary of significant accounting policies and other
explanatory notes, and the directors` report.
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 the requirements of the Companies Act of
South Africa and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free
from material misstatements, whether due to fraud or error.
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 judgement, 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 audit opinion.
Opinion
In our opinion, these financial statements present fairly, in all material
respects, the consolidated financial position of African Dawn Capital Limited
as at 29 February 2012, and its consolidated financial performance and
consolidated cash flows for the year then ended in accordance with
International Financial Reporting Standards, and the requirements of the
Companies Act of South Africa.
GRANT THORNTON
Chartered Accountants (SA)
Registered Auditors
E F G Dreyer
Partner
Chartered Accountant (SA)
Registered Auditor
23 May 2012
Grant Thornton Office Park
137 Daisy Street
Sandown
Johannesburg
2196
Notes to the Audited Condensed Consolidated Financial statement
1. Reporting entity:
The company is incorporated and domiciled in the Republic of South Africa.
The core business of the group is specialized financial services segmented as
bridging finance, short term unsecured finance and other financial services,
including debt collections and debt management services. The Condensed
Consolidated Financial Statements of the company for the period ended 29
February 2012 comprised of the company and its subsidiaries.
2. Significant accounting policies:
The accounting policies adopted in the preparation of the consolidated
financial information are consistent with those of the annual financial
statements for the year ended 28 February 2011.
Policies that became effective in 2012 and adopted include:
IAS 24 Related party disclosure (Revised)
IFRIC 19 Extinguishing financial liabilities with equity instruments
Amendments to IFRS 3 Business Combinations
Amendments to IFRS 7 disclosure to Financial Instruments
Amendments to IAS 1 presentation of Financial Statements
Amendments to IAS 34 Interim Financial reporting
Amendments to IAS 12 Income taxes, recovery of deferred tax asset
Below is an extract of the most significant accounting policies of the group.
Discontinued operations
A discontinued operation is a component of the group that either has been
disposed of, or is classified as held for sale, and represents a separate
major line of business or geographical area of operations.
Is part of a single coordinated plan to dispose of a separate major line of
business or geographical area of operations or is a subsidiary acquired
exclusively with a view to resale.
The profit or loss from discontinued operations, including prior years
components of profit or loss, is presented in a single amount in the income
statement.
Financial Instruments - Compounded financial instruments
If the terms of convertible instrument give rise to a non derivative
instrument containing both liability and equity components, they are treated
as compound financial instruments. The liability component of a compound
financial instrument is recognised initially at the fair value of a similar
liability that does not have an equity conversion option. The equity
component is recognised initially as the difference between the fair value of
the compound financial instrument in its totality and the fair value of the
liability component. Any directly attributable transaction costs are
allocated to the liability and equity components in proportion to their
initial carrying amounts. Subsequent to initial recognition, the liability
component of a compound financial instrument is measured at amortised cost
using the effective interest method. The equity component of a compound
financial instrument is not remeasured subsequent to initial recognition,
only derecognized on conversion or settlement.
Revenue
Revenue recognition comprises the fair value for the sale of goods and
services, net of value added tax, rebates and discounts and after eliminating
sales within the group. Revenue is recognised as follows:
Sales of services
Sales of services are recognised in the accounting period in which the
services are rendered, by reference to stage of completion of the specific
transaction assessed on the basis of the actual service provided as a
proportion of the total services to be provided.
Interest income
Interest income is recognised on a time proportion basis using the effective
interest rate 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 discount as interest income. Interest income on
impaired loans is recognised either as cash is collected or on a cost
recovery basis as conditions warrant.
Properties in possession
Repossessed properties acquired in exchange for loans as part of an orderly
realisation are reported in property in possession under the property and
possession assets class, as they are held for sale in the ordinary course of
business. The repossessed properties are recognised when the risks and
rewards of the properties have been transferred to the group. The
corresponding loans are derecognised when the group becomes the owner of the
property. The property acquired is initially recorded at cost which is the
lower of its fair value (less costs to sell) and the carrying amount of the
loan (net of impairment) at the date of transferring ownership. It is
subsequently measured at the lower of the carrying amount and its net
realisable value. No depreciation is charged in respect of these properties.
Any subsequent write down of the acquired property to net realisable value is
recognised in profit or loss. Any subsequent increase in the net realisable
value, to the extent that it does not exceed the cumulative write down, is
also recognised in impairments. Gains or losses on disposal of repossessed
properties are reported in other operating income or operating expenditure.
Financial Instruments - Impairment of financial assets
All financial assets except for those at fair value through profit and loss
are subject to review for impairment at least at each reporting date to
identify whether there is any objective evidence that the financial asset or
group of financial assets are impaired. The different criteria to determine
the impairment is for each asset class as follows:
Loans and receivables: Individual significant receivables are considered for
impairment when they are past due or when other objective evidence is
received that a specific counterparty will default. Receivables that are not
considered to be individually impaired are reviewed for impairment in groups,
which are determined by references explained in the impairment policy.
Held till maturity investments: if there is objective evidence that the
investment is impaired, determined by reference to external credit ratings,
the financial asset is measured at the present value of estimated future cash
flow. Any changes to the carrying amount of the investment, including
impairment losses are recognized in profit and loss.
Available for sale financial assets. If the fair value cannot be estimated
reliably the impairment charges are recognized in profit or loss. All other
available for sale assets are measured at fair value, gains and losses from
movement in fair value is recognized in other comprehensive income and
reported as being available for sale reserve in equity.
Significant judgements and sources of estimation uncertainty
In preparing the financial statements, management is required to make
estimates and assumptions that affect the amounts represented in the
financial statements and related disclosures. Use of available information
and the application of judgement is inherent in the formation of estimates.
Actual results in the future could differ from these estimates which may be
substantially different to the financial statements. Significant judgements
include:
Impairment on trade and other receivables
The estimation of allowances for impairments is inherently uncertain and
depends on many factors. These factors include general economic conditions,
structural changes within industries, changes in individual customer
circumstances. There are also other external factors such as legal
requirements, regulatory specifications and governmental policies that if
changed can have a significant effect on the allowances.
Trade and other receivables are stated net of impairments. The impairments
are either made on an individual receivable or impairment on collective
receivables.
Trade and other receivables are considered impaired if, and only if, there is
objective evidence of impairment as a result of events that occurred after
initial asset recognition. The event would be the loss making event and would
adversely affect the recoverability and reliability of the expected future
cashflows. These events include, but are not limited to:
Breach of contract: default or delinquency in interest or principal payments,
instalment past due date is considered a breach of contract and would affect
the reliability to measure future cash flows;
Significant financial difficulty of borrower, directly communicated to Afdawn
or probable that borrower will enter bankruptcy or financial reorganization.
Data indicating that there is a quantifiable decrease in the estimated future
cash flow and recoverability of a grouping of assets, although not yet
indentified at individual asset level. These include fraud at agent levels,
adverse change of payment status of groups, local and national conditions
relating to identifiable groups.
Indication of decrease in value of security held, especially indicators that
would adversely affect the value of properties held as security relating to
property bridging finance.
The group formally assesses its receivable portfolio for impairment on a
monthly basis based on formulated impairment formulae and judgement. The
extent to which the current carrying value exceeds the estimated recoverable
amount of advances is classified as impairment.
Impairments made on individual receivables
Substantial receivables, especially relating to property bridging
transactions are assessed on an individual basis. The impairments were
calculated, based on an approved impairment policy. The impairments were made
on judgements and formulated calculations. The impairments were made by
taking the following into consideration for each receivable: credibility of
borrower, security held, value of security, repayment history, sureties
signed and agreed settlement terms. The individual receivable values are
assessed to be at least the security value that can be realized within 3
months in an active market.
Impairments made on collective receivables
Due to the vast number and ever changing status of especially short term,
unsecured receivables, the impairments are assessed on a collective grouping
of receivables. The impairments were calculated, based on an approved
impairment policy. The grouping of the receivables are made based on specific
criteria of each receivable, these include: borrower credibility, ageing of
last receipt, arrears amount, settlement agreement, status of process to be
followed to pursue future cashflows, age of borrower, economical status,
repayment instalment. The collective receivable balances are impaired by a
percentage that was specifically awarded to the receivables within the
collection. The percentage was developed with help of specialized external
asset valuators and was based on extensive market knowledge, historical
default and recovery rates, repayment trends and statistical
techniques.Impairment calculations contain both judgemental and
nonjudgemental inputs. The extent of judgement utilised in new products is
greater than that for older products given the limited historical experience
available for the new products.
Receivables older than 90 days become collectable under the legal process of
recovery, these receivables fall within a new collection of receivables and
approved impairment percentage applied.
Provisions
Provisions were raised and management determined an estimate, based on the
information available.
Impairment testing
The recoverable amounts of cash generating units and individual assets have
been determined based on the higher of value in use calculations and fair
values less costs to sell. These calculations require the use of estimates
and assumptions.
The group reviews and tests the carrying value of assets when events or
changes in circumstances suggest that the carrying amount may not be
recoverable. Assets are grouped at the lowest level for which identifiable
cash flows are largely independent of cash flows of other assets and
liabilities. If there are indications that impairment may have occurred,
estimates are prepared of expected future cash flows for each group of
assets.
3. Discontinued operations
The board decided to sell a subsidiary of the group - Dumont Healthcare
Proprietary Limited ("Dumont") effective 29 February 2012 for a total
consideration of R1,9 million. As management decided to dispose of Dumont
during the year the company has been treated as a discontinued operation. The
disposal was part of the Afdawn strategy to rationalise and consolidate costs
within the group. Dumont is operating on a small active customer base in
Pretoria with a high cost to income ratio resulting in losses. Strategically
the current operating model requires a radical revamp enabling a low cost
infrastructure with the flexibility to significantly scale operations. The
group is pursuing a similar business model through cutting edge technology
and will not be confined to a specific geographical area in South Africa.
The discontinued loss 29-Feb-12 28-Feb-11
R`000 R`000
Revenue 3,585 5,678
Cost of Sale (574) (841)
Employee Cost (2,642) (3,167)
Depreciation (181) (180)
Finance cost (70) (113)
Bad debt provision recovered/(impaired) 190 (1,984)
Other income 14 732
Other expenses (985) (2,096)
(Loss) for the year (663) (1,971)
Gain on re-measurement of disposal 1,021 -
Taxation on sale of operations - -
Profit realised on sale of investment 358 -
4. Impairments of trade and other receivables
The majority of the impairment of trade receivables is based on default of
contractual repayment terms, underlying security value and assessed
recoverability at the time of reporting.
Impairment and provisions
29-Feb-12 28-Feb-11
R`000 R`000
Net movement in impairment (23,485) (25,917)
5. Property in possession
The company perfected its security over properties to enable value
realization in future period through sale. In the period a property - Nina
Park was sold and Volksrust properties perfected. The Green Oaks property is
being managed for rental income, until further development is possible.
29-Feb-12 28-Feb-11
R`000 R`000
Almika Properties (Pty) Ltd - Brakpan, Gauteng 7,029 7,029
Green Oaks - Centurion Gauteng 28,446 28,837
Erven 1593 to 1599, Volksrust, Mpumalanga 709 -
Impairment adjustment (10,522) (10,522)
Total 25,662 25,344
6. Segmental information
Figures in ZAR thousands
28 Feb 2012 Bridging Personal & Other Total
finance Short term Head office
Revenue, other income and interest 1,861 34,225 18,317 54,403
Segmental profit/(loss) for the year 5,311 9,165 (3,713) 10,763
Net asset value (22,837) (7,082) 95,280 65,361
28 Feb 2011 Bridging Personal & Other & Total
Finance Short Term Head office
Revenue, other income and interest 4,912 35,118 10,654 50,684
Segmental profit/(loss) for the year 4,122 448 (944) 3,626
Net asset value (28,148) (16,247) 70,474 26,079
7. Recapitalisation of the group resulting in issue of equity
Details regarding a recapitalization through a rights issue was communicated
through various announcements and circulars to shareholders in 2011 and
formally through SENS on 14 June 2011. The proposed capital raising consisted
of:
A partially underwritten rights offer to raise R 25 million;
A R 10 million convertible bond issued by Elite group (Pty) Ltd ("Elite") to
Sandown Capital (Pty) Ltd ("Sandown") which converts at 14 cents into Afdawn
shares. Subsequent to the subscription price being paid, Afdawn renegotiated
with Sandown under an Acknowledgement of debt agreement to repay a portion of
the subscription price to reduce the negative carry on the unutilised
portion, resulting in a net balance of R 4,5 million;
A R 1,7 million convertible bond issued by Afdawn to PCI Fintrade Proprietary
Limited ("PCI") which converts at 14 cents into Afdawn shares.
A detailed Circular on the rights issue was published and posted on 19 August
2011. The capital raising was completed 31 October 2011 with final results as
follows:
Rights taken up under rights offer amounted to R25,0 million (rights @ 10
cents per share);
Shares issued for cash amounted to R 3,2 million;
R 10 million by way of Convertible bond issued by Elite;
R 1,7 million by way of Convertible bond issued by Afdawn;
Total capital raised amounted to R 39,9 million;
The total cost associated to the recapitalisation amounted to R1,4 million
which leaves us with a net cash raised of R38,5 million.
The funds raised were utilised as stated in the Circular (19 August 2011),
with the exception of not settling the SARS liability as negotiations
continue as agreed with SARS.
The rights offer closed on 28 October 2011 at which time the Afdawn shares
traded at 13c translating into a discount of 23% over the rights issue price
of 10c.
The capital raising resulted in the number of shares being increased from 222
926 236 to 508 184 155.
Shares were issued as follows:
Rights offer shares subscribed for: 182 022 919 (73% take up on
available rights)
Rights offer shares underwritten: 67 977 081 (27% take up on
available rights)
Shares issued for cash to underwriters: 31 522 919Shares issued as fees for
underwriters: 3 735 000Total shares: 285 257 919
Other Notes
1. Corporate governance
The directors and senior management of the group endorse the Code of
Corporate Practices and Conduct as set out in the King III report on
Corporate Governance. Having regard for the size of the group, the Board is
of the opinion that the group complies with the Code as well as with the
Listings Requirements of the JSE Limited in all material respects. The group
performs regular reviews of its corporate governance policies and practices
and strives for continuous improvement in this regard.
2. Human resources
Ongoing skills and equity activities continue to ensure compliance with
current legislation. Plans continue in terms of initiatives embarked upon
that contribute to broader skills development and sourcing appropriately
qualified staff on an ongoing basis.
3. Dividend
The company will not pay a dividend for the 2012 financial year.
Comments from the board
The Macro-economic environment
The main factor set to dominate the South African economic environment in
2012 and 2013 is the impact of the deteriorating global economy, in
particular the ongoing European debt crisis. The year looks to be
challenging, and growth in the South African economy threatens to hold back,
following on the timid pace set in the first quarter.
Both the World Bank and the IMF have recently lowered their global growth
forecasts, projecting a slight recession for the Eurozone in 2012. The
success of the South African Economy in coping with adverse international
pressures is partly a consequence of a sound and well regulated banking
system, and well-developed financial markets permitting participants to hedge
risks effectively. These factors enhance South Africa`s standing as an
emerging economy and underpin longer term growth prospects. However, the
risks inherent in the present international context remain considerable.
The economic environment
Private credit growth has steadily accelerated, reaching +9% year on year in
March 2012 from +8% in February, +7% in January and +6% in December 2011, now
nearly matching 10% nominal GDP growth. Meanwhile, despite high energy and
food price increases, our inflation in recent months has surprised to the
downside, with CPI down to 6% and PPI to 7%.
SA`s retail banking sector faces a difficult time as pressure on household
incomes, rising unemployment and the recession in Europe dims its prospects
of increasing revenue growth. The big banks intensified the battle for market
share in the unsecured retail market as they reach saturation in the secured
lending space. Moody`s, the rating agency, expects further growth in the
unsecured retail market as more of the 11 million unbanked South Africans
enter the banking market. All the banks are developing cheaper delivery
channels, such as cellphone banking and spaza shops in the country`s
townships, to target this segment. Basel III will have a dramatic impact on
the bank`s costs structures which will necessitate a rethink in this area
which will present the group with ample opportunities.
Statistics released recently by the credit regulator show that unsecured
credit rose to R21.2 billion equivalent to a quarter-on-quarter increase of
12%. The quantum of unsecured debt is still fairly low relative to the total
amount of new debt, amounting to no more than 10% of total loans and
advances. This would amount to some R75bn, or less than 4% of total private
sector credit extension of some R2.1 trillion. The growth in unsecured debt,
specifically exposures less than R 30 000, is currently running at around 15%
year on year, which is less than the 30% growth which prevailed just before
the financial crisis of 2007/2008, per South African Reserve Bank financial
stability review, recently released. The dangers associated with unsecured
lending are related to consumers` affordability. Both the National Credit
Regulator and Consumer Protection Act set clear guidelines in assessing
consumer affordability and what constitutes reckless lending. Market
commentators warn of a possible credit bubble in the unsecured market. The
executives remain conservative in our lending criteria and will not pursue
rapid growth compromising the credit quality of our book. As long as credit
providers are vigilant in their credit assessments and refrain from providing
reckless credit, a credit bubble should not eventuate.
Strategic Intent
At the start of the year, the prospects for Afdawn were, to say the least,
challenging. The turnaround of the Afdawn group is progressing well and we
are excited as to the future prospects. Strategic emphasis will be placed on
our well managed and profitable personal finance businesses where the
potential to grow and the reward is greatest, subject to the efficient
management of the risks; an area in which the group is well versed. In the
short term, we will focus on the basics that we do well and re-establish
ourselves in the market. We will maximise the use of our skilled personnel
and systems in order to leverage our intellectual property in the sector. We
remain cognisant of cost and the reduction thereof across the group. As part
of Afdawn`s values and commitment to improving the working environment and
reduction of costs, the company moved to new premises on 15 February 2012
ensuring all the functions are accommodated under one roof. This enabled the
seamless introduction of shared services within the group which will bear
fruit in future.
It is the positive motivation and commitment of Afdawn`s people at all levels
that will make - and have already made - the current strategies not only
possible but plausible.
The basis of improvement plans that are currently being formulated and
implemented throughout the organisation will lead to performance that will be
reflected in our bottom line.
Operational review
Two crucial milestones were achieved during the year that was essential to
the successful turnaround of Afdawn. We concluded a settlement agreement
with the National Housing Finance Corporation Limited ("NHFC") on 30 May 2011
which paved the way to the successful recapitalisation of the group on 28
October 2011. The settlement comprised an upfront payment of R23 million upon
the successful conclusion of the recapitalisation and a 2 year, R5 million
interest free loan which is repayable in October 2013. The NHFC settlement
agreement novates all previous agreements between the NHFC and the group.
The recapitalisation consisted of a partially underwritten rights offer for
R25 million and two convertible bonds of R11.7 million. We were delighted at
the support shown on the rights offer with a 74% take up of rights by our
shareholders. The recapitalisation raised R39 million through the various
finance instruments. The NHFC was paid R23 million in keeping with the
settlement agreement. The cash was received in November 2011 and given the
impending festive period we applied extremely conservative lending criteria
to maintain the credit quality of our book as this period is notorious for
bad lending in the industry. The full benefit of the recapitalisation will be
reflected in the next financial year.
Elite managed to secure a profit of R1.5 million (2011 R 1.2 million) and
retained all its staff, notwithstanding the capital constraints and economic
pressures. Elite has three major business units which will be developed as
separate profit centres. The three units are, Elite Group, Elite Medical
Finance and Elite Collections. The front office operations will make every
endeavour to keep their market share and grow. The driving force in the
company will be seeded in the growth of the Call Centre`s corporate business.
With a below average cost structure, supported by easy accessible and
responsible credit, Elite will be able to secure sustainable and profitable
business in a very competitive and volatile market. It is however important
to revisit our products continuously, to ensure market relevance and the
impact on market share and profitability.
The Elite Medical Finance product is a newly developed, all inclusive product
directed at identified medical practitioners, to remove the total
administrative burdens of the practitioners on a day to day basis. The
program has been developed internally by Elite`s information specialists in
conjunction with a medical switching company. Testing has been concluded very
successfully and a qualified individual has already been employed to champion
the project. The response from the market has been very favourable.
Elite collections will expand its retail collections expertise to third party
books. The entire operation is based on sound technology that will ensure
scalability without the linear increase in cost base.
The structured finance business managed to successfully finalise the
collection of a number of debtors, however a few files prove to be more
challenging as the legal process and execution thereof are extremely
complicated. This has resulted in the companies making a profit of R5.3
million (2011 R4.1 million) for the year. We must also note that our bank
balance post balance sheet stood at R5m. Through the development of well
staffed and structured debt recovery departments in both Elite and the PTF`s,
the group is well placed to strategically pursue and to assist other
institutions with debt management. We currently manage a property book on
behalf of a hedge fund and have had a number of approaches to take on
additional books for a management fee. The structured finance business
remains as a collection book. No new loans have been advanced and we will
continue to pursue defaulters through the courts but only when the
recoverability outweighs the cost of collection. Towards the end of the year
the Afdawn board approved the new strategy for the bridging finance company
to focus exclusively on collections as a business for internal and external
clients. We have seen some promising signs for the new business as we have
been given files by prospective clients to collect and have signed a number
of confidentiality agreements to collect books for clients.
The board approved the sale of a subsidiary of the group Dumont Healthcare
Proprietary Limited "Dumont" effective on 29 February 2012 for a
consideration of R1.9 million. This resulted in an accounting profit of R0.4
million and an operating loss of R0.7 million was included in the profits of
the group for the current year.
Afdawn cost management
The board is cognisant of reducing operating costs. The controllable
operating costs were reduced by 11% over the period, excluding the
discontinued operations of Dumont. The operating cost structure will reduce
even further in the next financial year as the following non recurring cost
for 2012 will be eliminated
Dumont (discontinued operation) R 4,3 million (2011: R 6,2 million)
Recapitalisation cost of R 1,4 million
The rental savings of R 0,4 million together with savings generated
through shared services will further drive cost down.
The board will consider increasing the cost base of the group should
lucrative business opportunities present themselves.
Material transaction
Sandown and Elite Group Proprietary Limited ("Elite") have entered into an
agreement in terms of which:
Sandown will finance Elite Group Two Proprietary Limited ("Elite Two"), to
a maximum of R10 million ("the Sandown Capital Loan").
Elite shall manage Elite Two on behalf of Sandown and shall source
potential clients to provide short term personal loans.
Elite will earn a monthly management fee and will share 50/50 in the
profits of Elite Two. This will allow Elite to make use of a funding line, to
earn a management fee, to share in the returns of Elite Two and so to
continue to grow its business during the recapitalisation of the Group.
Sandown will have the option in August 2012 of selling 100% of the shares
in Elite Two to Elite for a price based on the Net Asset Value of Elite Two
("the Selling Price").
The Selling Price of the 100% interest in Elite Two hall be settled, by the
issue of shares in Elite to Sandown at an issue price of 100 cents per Elite
share, such that Sandown will acquire 30% of the issued share capital of
Elite following the Elite Two acquisition and subject to the Selling Price
not exceeding 49% of the market capitalization of Afdawn on the date of
exercise of the Sandown Option.
Should the Net Asset Value ("NAV") of Elite Two be greater or lower than
30% of the combined NAV of Elite and Elite Two at the time of the exercising
of the option referred to above, then Elite Two will be obliged to either
distribute profits and/or assets to Sandown or to recapitalise Elite Two, so
as to ensure that the NAV of Elite Two will be equal to 30% of the combined
NAV of Elite Two and Elite.
In the event that Sandown Capital exercises the Sandown Option then it will
be obligated to provide a two year funding line to Elite of R20 million which
may be drawn in tranches of a maximum of R1.5 million per month.
In the event that Sandown advises Elite and/or Afdawn of its intention to
exercise the option then Elite and/or Afdawn will have 30 days in which to
acquire Elite Two for its then NAV.
In the event that Sandown decides not to exercise its option then no new
loans will be granted from 31July 2013 by Elite Two and Elite will be
retained to manage and collect the remaining loan book so as to repay the
Sandown Capital Loan.
Elite Two is a wholly owned subsidiary of Sandown. Elite Two has therefore
not been consolidated in the financial statements.
Allegro Holdings (Pty) Limited
As mentioned in the 2010 and 2011 Annual Report, a former subsidiary company,
Allegro Holdings Proprietary Limited ("Allegro") was placed in curatorship in
2009 and was therefore deconsolidated. At that time Allegro was indebted to
Afdawn in the amount of R 3,8 million. A curator has repeatedly made verbal
statements regarding a possible claim that he claims to have against Afdawn
and/or its subsidiaries. This has been ongoing since early 2010 and,
notwithstanding written requests to the curators, no formal claim has been
forthcoming, nor have we been advised of the basis of any claim. The latest
CMM curators report to the Financial Services Board ("FSB") in November 2011,
contained no indication of a formal claim against Afdawn.
Subsequent to year end on 17 April 2012 the curators lodged a formal claim
against Absa and directors within the Allegro group at the time at which the
alleged claim arose. To the date of signing the report no claims have been
received nor have we been able to establish any basis for a potential claim
against Afdawn and therefore no provision has been made for any such
contingency.
Changes to the board of directors
The composition of the board changed since the last year end. Mr WJ
Groenewald was appointed on 17 November 2011 as non-executive director. Mr PC
Gordon resigned as executive chairman on 31 December 2011 on the successful
conclusion of the recapitalisation of the group. Mr CF Wiese was appointed as
lead independent director on 8 March 2011 and on 1 January 2012 assumed the
role of non-executive chairman. Mr TF Kruger was appointed as chief executive
officer on 1 January 2012, but continued to act as the acting financial
director. The new financial director has been indentified and Afdawn is
currently negotiating terms and conditions so that he can take up his
position in August 2012.
Appreciation
The board extends its appreciation to our management and staff for their
efforts during this reporting period. We also thank our customers and
suppliers for their continued support. To our shareholders, our gratitude in
believing and supporting the rights offer and turnaround story.
African Dawn Capital Limited
("Afdawn" or "the company" or "the group")
Registration number: 1998/020520/06
(Incorporated in the Republic of South Africa)
JSE share code: ADW ISIN code: ZAE000060703
Registered office: 1st Floor, Quadrum 4, Quadrum Office Park, 50 Constantia
Boulevard, Constantia Kloof Ext 28, 1709
Tel: +27 (11) 475 7465 Fax: +27 (11) 325 2716
Directors: TF Kruger (chief executive officer),Dr GE Stoop
(executive)(appointed 23 May 2012), L Taylor (independent non-executive), CF
Wiese (independent non-executive chairman), HH Hickey (independent non-
executive), WJ Groenewald (non-executive)(appointed 17 November 2011), PC
Gordon (executive chairman)(resigned 31 December 2011)
Company secretary: W Somerville (on behalf of Corporate Statutory Service
Proprietary Limited)(appointed 15 February 2012) replacing LW Viljoen
(resigned 15 February 2012)
Auditors: Grant Thornton
Designated Advisor: Sasfin Capital, a division of Sasfin Bank Limited
Transfer secretaries: Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg, 2001
Date: 28 May 2012
Date: 28/05/2012 10:30:02 Supplied by www.sharenet.co.za
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