Notice Of Restatement Of Prior Reported Financial Results And Trading Statement DIGICORE HOLDINGS LIMITED Incorporated in the Republic of South Africa (Registration number: 1998/012601/06) Share Code: DGC ISIN Number: ZAE000016945 ("DigiCore" or “the company” or “the group”) NOTICE OF RESTATEMENT OF PRIOR REPORTED FINANCIAL RESULTS AND TRADING STATEMENT Restatement The audit and risk committee and the board of directors of the group requested that a detailed investigation be performed into the group’s systems and operations as part of a comprehensive business review. This review included a change of management, an understanding of the costing of products and understanding the process of internal controls and accounting for transactions. As a result of this review, the following restatements to prior reported financial results were identified, which the company believes should be amended: 1. Capitalisation of development costs as part of inventories and rental units DigiCore provides a tracking solution to its customers through a tracking device paired with tracking software. When revenue is recognised, the resulting cost of sale should also be recognised for the tracking unit and the software used to provide the solution. This was previously done by the DigiCore owned factory by including a profit margin that recovers all manufacturing and development cost when tracking units were sold to other subsidiaries within the DigiCore group. The group therefore carried these tracking units in inventory and rental assets at a value inclusive of manufacturing cost and the allocated development cost. Management have performed a detailed review of this process and concluded that a more appropriate basis of capitalising these development costs as part of inventories and rental units would be to capitalise the amortisation of development costs as recognised in the financial period. This change in the accounting policy changes the manner in which the cost is allocated to inventories and rental units resulting in more relevant and reliable information about the effects of the transactions. 2. Impairment of rental units DigiCore rents a tracking solution to customers over a contract period. DigiCore will receive rental income over the duration of the contract period and the unit should be depreciated over the contract period. The accounting system for the rental units was designed in such a manner that a number of rental units that should have previously been impaired, but could not be identified from the accounting system, as the economic benefit of these assets had been depleted. The rental units have been impaired using a recoverable amount based on the estimated value in use. Controls have been implemented to improve the manner in which information from the accounting system is obtained and recorded. 3. Connection incentive bonus (CIB) DigiCore previously received a fixed commission, CIB, from the cellular network service providers on activation or renewal of a cellular line contract. Previously this commission was recognised as revenue when received by the group. The cellular providers have subsequently ceased to pay these commissions and as a direct result have significantly reduced the monthly subscription charge. Due to the availability of this information, management concluded to change the accounting policy from recognising the CIB revenue upfront to deferring the revenue over the contract period to reflect the true substance of the transaction. The following tables summarize the material impacts resulting from the above restatements on the Group’s financial position, comprehensive income and cash flows: Interim condensed Consolidated Statement of financial position As at 31 December 2012 Effect of restatements All figures in R'000 Balance as Capitalisation Impairment CIB Balance previously of development of rental Revenue Restated reported costs units Property, plant and 205 700 (26 277) (4 857) 174 566 equipment Deferred tax 29 219 6 952 7 057 43 228 Inventories 105 217 (4 203) 101 014 Total 340 136 (23 528) (4 857) 7 057 318 808 Retained income 474 275 (19 833) (3 658) (18 146) 432 638 Non-controlling (10 794) - (151) (10 945) interest Total 463 481 (19 833) (3 809) (18 146) 421 693 Current tax payable 11 500 (1 048) 10 452 Trade and other 89 975 (3 696) - 25 203 111 482 payables Total 101 475 (3 696) (1 048) 25 203 121 934 As at 30 June 2013 Effect of restatements Balance as Capitalisation Impairment All figures in CIB Balance previously of development of rental R'000 Revenue Restated reported costs units Property, plant and 201 435 (25 029) (14 163) 162 243 equipment Deferred tax 23 593 8 172 613 3 832 36 210 Inventories 104 347 (4 158) 100 189 Trade and other 249 579 (799) 248 780 receivables Total 578 954 (21 015) (14 349) 3 832 547 422 Retained income 412 532 (21 016) (15 764) (9 854) 365 898 Non-controlling 15 757 246 - 16 003 interest Total 428 289 (21 016) (15 518) (9 854) 381 901 Current tax payable 4 028 2 698 6 726 Trade and other 61 667 (1 529) 60 139 payables Deferred Income - 13 686 13 686 Total 65 695 - 1 169 13 686 80 551 As at 30 June 2012 Effect of restatements All figures in CIB Balance Balance as Capitalisation Impairment R'000 Revenue Restated previously of development of rental reported costs units Property, plant 203 730 (25 826) (4 866) 173 038 and equipment Deferred tax 29 358 7 510 8 299 45 167 Inventories 95 763 (995) 94 768 Total 328 851 (19 311) (4 866) 8 299 312 973 Retained income 468 199 (19 310) (3 029) (21 341) 424 519 Non-controlling (14 524) (14 524) interest Total 453 675 (19 310) (3 029) (21 341) 409 995 Current tax 16 222 16 222 payable Trade and other 66 279 - (1 838) 64 441 payables Deferred Income - 29 640 29 640 Total 82 501 - (1 838) 29 640 110 303 Interim condensed Consolidated Statement of comprehensive income 6 months ended 31 Effect of restatements December 2012 All figures in R'000 Balance as Capitalisation Impairment CIB Balance previously of development of rental Revenue Restated reported costs units Revenue 448 478 448 478 Cost of sales (149 292) (10 016) 4 436 (154 872) Operating expenses (249 757) - 1 899 (247 858) Depreciation and (44 553) 6 357 1 417 (36 779) amortisation Capital items 70 (1 408) (1 338) Profit before 11 606 (3 659) 1 908 4 436 14 291 taxation Taxation 1 584 1 024 (576) (1 242) 790 Profit after tax 13 190 (2 635) 1 332 3 194 15 081 Non-controlling 1 369 (151) 1 218 interest Indicator as Capitalisation Impairment CIB Indicator Earnings per share previously of development of rental Revenue Restated reported costs units Earnings per share 4.9 -1.1 0.6 1.4 5.8 (cents) Diluted earnings per 4.9 -1.1 0.6 1.4 5.8 share (cents) Headline earnings 4.5 -1.1 1.0 1.4 5.8 per share (cents) Diluted headline earnings per share 4.5 -1.1 1.0 1.4 5.8 (cents) Year ended Effect of restatements 30 June 2013 Balance as Capitalisation Impairment All figures in CIB Balance previously of development of rental R'000 Revenue Restated reported costs units Revenue 862 588 36 862 624 Cost of Sales (270 896) (14 598) 14 812 (270 682) Depreciation and (98 424) 12 232 3 263 (82 929) amortization Capital Items (60 373) (12 563) (72 936) Profit before (56 489) (2 366) (9 300) 14 848 (53 307) taxation Taxation 4 362 662 (2 085) (4 467) (1 528) Profit after tax (52 127) (1 704) (11 385) 10 381 (54 835) Non-Controlling (156) 246 90 Interest Earnings per share - Indicator as Capitalisation Impairment CIB Indicator Year ended previously of development of rental 30 June 2013 reported costs units Revenue Restated Earnings per share (21.7) (0.7) (4.9) 4.3 (22.9) (cents) Diluted earnings per (21.7) (0.7) (4.9) 4.3 (22.9) share (cents) Headline Earnings 3.3 (0.7) (0.7) 4.3 6.2 per share (cents) Diluted headline earnings per share 3.3 (0.7) (0.7) 4.3 6.2 (cents) The company`s auditors did not express an opinion on the restated results. Shareholders will be advised by the company, should the audited restated financial results differ significantly from the restated financial results presented above. Trading update: In terms of paragraph 3.4(b) of the Listings Requirements of the JSE Limited, a listed company is required to publish a trading statement as soon as it becomes aware that the financial results for the next period to be reported on will show a 20% or more difference from those of the previous corresponding period. Shareholders are advised that the company is in the process of finalising its interim financial results for the six months ended 31 December 2013 and advises that a reasonable degree of certainty exists that the group’s: - headline earnings will be between 8.0 cents and 8.4 cents per share or between 78% to 87% higher; and - attributable earnings will be between 8.0 cents and 8.4 cents per share or between 63% to 71% higher, for the comparative 6 months ended 31 December 2012, as reported on 27 February 2013. Shareholders are further advised that based on the restated financial results presented above, a reasonable degree of certainty exists that the group’s: - headline earnings will be between 8.0 cents and 8.4 cents per share or between 38% to 45% higher; and - attributable earnings will be between 8.0 cents and 8.4 cents per share or between 38% to 45% higher, for the comparative 6 months ended 31 December 2012, as restated. The improved headline earnings per share and the attributable earnings per share for the group are as a result of the restatement, increased revenue from continuing operations, cost savings and the continued reduction in cellular monthly subscription costs. The financial information on which this trading statement is based has not been reviewed or reported on by the company`s auditors. The interim results for the 6 months ended 31 December 2013 are expected to be released on or about Wednesday, 26 February 2014. Centurion 24 February 2014 Sponsor PSG Capital Date: 24/02/2014 02:00:00 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. 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