HULISANI LIMITED - Reviewed Condensed Consolidated Results for the year ended 28 February 2018

Release Date: 01/06/2018 10:48
Code(s): HUL
 
Wrap Text
Reviewed Condensed Consolidated Results for the year ended 28 February 2018

HULISANI LIMITED
Registration number 2015/363903/06
(Incorporated in the Republic of South Africa)
(“the Group” or “the Company” or “Hulisani”)
Share code: HUL
ISIN: ZAE000212072

REVIEWED CONDENSED CONSOLIDATED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2018

INTRODUCTION

In the year end under review Hulisani concluded its first investment, the viable acquisition in
the form of a 6.67% interest in the Kouga Wind Farm (Pty) Ltd, on 22 March 2017. The
transaction resulted in Hulisani ceasing to operate as a Special Acquisition Company
(“SPAC”). Since then Hulisani has concluded three additional investments; a convertible loan
to Legend Power Solution (Pty) Ltd in April 2017, and equity investments of 66% in RustMo1
Solar Farm (RF) (Pty) Ltd in June 2017 and 25% in GRI Wind Steel SA (Pty) Ltd in July 2017
respectively. The RustMo1 Solar Farm transaction is an acquisition of a controlling stake,
which results in a business combination from a financial reporting perspective.

Hulisani is listed on the JSE and trades as an investment holding company.

RESULTS

Hulisani’s performance for the year is a consolidated view of the acquired investments.
Revenue of R37m for the period under review is reported. The revenue arose from the trading
activities of RustMo1 Solar Farm. Operating expenses for the period are R57.7m.

The following table reflects the operating financial results for the year ended 28 February
2018 compared to the corresponding previous financial period:

                                     Reviewed                             Variance     Variance
 Summary of Results                       2018        Audited 2017
                                        
                                         R’000             R’000             R’000           %
 Revenue                                37,378                  -           37,378          100
 Operating expenses                   (57,699)           (31,734)         (25,965)         (82)
 Finance income                         10,107             25,726         (15,619)         (61)
 Finance costs                        (12,298)                (2)         (12,296)       (>100)
 Share of losses from
 associates                            (6,492)                  -          (6,492)       (>100)
 Impairment loss                      (60,299)                  -         (60,299)       (>100)
 Fair value adjustment                (25,055)                  -         (25,055)       (>100)
 Loss before tax                     (113,381)            (6,010)        (107,371)       (>100)

MATERIAL ITEMS

The following items have been identified as items which are material due to the significance
of the amount. They have been separately analysed to provide a better understanding of the
financial performance of the group.

                                                                                         2018
                                                                              Notes     R’000
Impairment loss on net investments from associates                              (a)    60,299
Fair value loss on financial asset at FVTPL                                     (b)    25,055

(a)     Impairment loss

Kouga Wind Farm (Pty) Ltd “Kouga”
The Kouga plant has experienced performance issues during the financial period under
review. This emanates from quality issues on certain parts which have negatively impacted
the performance of the plant. The carrying amount of the investment has been written down
to the recoverable amount of R122m, which was determined by reference to the operations’
value in use. An impairment loss of R14m has been recognised in the statement of
comprehensive income.

GRI Wind Steel SA (Pty) Ltd “GRI”
GRI is a manufacturing plant, with the initial clientele focus on the Renewable Energy
Independent Power Produce Programme (REIPPP), however this programme was put on
hold by the Minister of the Department of Energy, which impacted the business plan of GRI,
as the demand for the products slowed down. This has had an effect on the financial
performance of the company. The carrying amount has been written down to R26m, this
recoverable amount references value in use. An impairment loss of R46m has been
recognised in the statement of comprehensive income.

(b)     Fair value loss

A fair value loss of R25m was recognized in the statement of comprehensive income during
the period under review on Legend Power Solution convertible loan. The fair value loss on the
convertible loan is driven by lower revenue projections, in comparison to the initial investment
projections.

Hulisani is confident that the highlighted valuation losses will reverse in the future as the
environment improves in the investments. Furthermore, projections speak to the expected
positive changes in the energy space.

PROJECTIONS

The outlook for the South African energy space is looking very positive, with the recent
signing of Power Purchase Agreements (PPAs) for Independent Power Producers (IPPs) by
the Minister of the Department of Energy (DOE) and Eskom. Given that Hulisani’s projects
pipeline comprises of a few of the projects with recently signed PPAs, Hulisani could benefit
from the signing of the PPAs and enhance its returns. Hulisani also has a healthy pipeline of
secondary opportunities and is in a good position to target the higher yielding ones. Hulisani’s
current projects pipeline in the secondary market is approximately R2.25bn in the focus
projects – this is in relation to operating energy assets within South Africa. Hulisani is
assessing various forms of funding to enable the conclusion of the focus projects in the
pipeline.

GOING CONCERN

The reviewed condensed consolidated results for the year ended 28 February 2018, have
been prepared on a going concern basis. This basis presumes that funds will be available to
finance future operations, mainly from dividend receipts from underlying investments, and that
the realization of assets and settlement of liabilities, contingent obligations and commitments
will occur in the ordinary course of business.

DIRECTORS

The following changes to the board of directors took effect during the period under review:

MH Zilimbola                    Resigned as CEO                  01 July 2017
ME Raphulu                      Appointed as CEO                 01 July 2017
M Booysen                       Resigned as CFO                  01 August 2017
MP Dem                          Appointed as CFO                 01 July 2017
MF Modau                        Appointed as CIO                 01 July 2017
MH Zilimbola                    Appointed                        01 July 2017
B Marx*                         Appointed                        01 July 2017

* Independent Non-executive

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 28
FEBRUARY 2018
                                                                Reviewed             Audited
                                                             period ended       period ended
                                             Notes           28-Feb-2018        28-Feb-2017
                                                                    R’000              R’000

 ASSETS
 Non-current assets                                              519,658              3,106

 Property, plant and equipment                       7           133,914              2,756
 Intangible assets                                   8           152,830                  -
 Investments in associates                           5           148,810                  -
 Financial asset at FVOCI                                          8,961
 Financial asset at FVTPL                            6            75,143                350

 Current assets                                                   64,657            498,551
 Cash and cash equivalents                                        35,517            498,551
 Trade and other receivables                                      29,140                  -

 TOTAL ASSETS                                                    584,315            501,657

 EQUITY AND LIABILITIES
 Equity                                                           412,524           493,990
 Stated capital                                                   500,000           500,000
 Accumulated loss                                               (122,874)            (6,010)
 Non-distributable reserves                                           773                  -
 Non-controlling interest                                          34,625                  -

 Non-current liabilities                                         157,506                   -
 Long term borrowings                                9           121,692                   -
 Deferred tax liability                                           35,814                   -

 Current liabilities                                              14,285              7,667
 Trade and other payables                                          3,722              7,667
 Current portion of borrowings                       9            10,563                  -

 TOTAL EQUITY AND LIABILITIES                                    584,315            501,657

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE
YEAR ENDED 28 FEBRUARY 2018

                                                                    Reviewed       Audited
                                                                 period ended      period ended
                                                     Notes       28-Feb-2018       28-Feb-2017
                                                                     R’000           R’000

Revenue                                                              37,378                -
Other income                                                            977                -
Operating expenses                                                 (57,699)         (31,734)
Operating loss                                                     (19,344)         (31,734)
Finance income                                                       10,107           25,726
Finance costs                                                      (12,298)              (2)
Share of losses from associates                           5         (6,492)                -
Impairment loss                                           5        (60,299)                -
Loss before fair value adjustments                                 (88,326)            6,010
Fair value loss                                           6        (25,055)                -
Net loss before tax                                               (113,381)          (6,010)
Tax                                                                 (2,463)                -
Net loss after tax                                                (115,844)          (6,010)
Other comprehensive income                                              773                -
Total comprehensive loss for the year                             (115,071)          (6,010)

Loss for the year is attributable to:
Owners of Hulisani Limited                                        (116,864)          (6,010)
Non-controlling interest                                              1,020               -
                                                                  (115,844)          (6,010)

Total comprehensive income for the year is
attributable to:
Owners of Hulisani Limited                                        (116,091)          (6,010)
Non-controlling interest                                              1,020               -
                                                                  (115,071)          (6,010)

Basic and Diluted loss per share (cents)                 12           (234)             (13)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
28 FEBRUARY 2018
                                                                Reviewed          Audited
                                                              period ended    period ended
                                                      Notes   28-Feb-2018     28-Feb-2017
                                                                     R’000           R’000

Cash flows from operating activities
Cash generated from operations                                    (30,533)        (23,557)
Interest received                                                    8,000          25,726
Interest paid                                                      (7,895)             (2)
Net Cash inflow/(outflow) from operating activities               (30,428)           2,167

Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired          4       (100,464)               -
Acquisition of investments in associates                 5       (223,951)               -
Acquisition of financial assets                                  (108,188)               -
Acquisition of property, plant and equipment             7           (629)         (3,266)
Dividends received                                       5           8,350
Deposit lodged against bank guarantee                                    -           (350)
Net cash outflow from investing activities                       (424,882)         (3,616)

Cash flows from financing activities
Proceeds from the issue of shares                                        -         500,000
Repayment of borrowings                                  9         (2,697)
Dividends paid to non-controlling interests in
subsidiaries                                                       (5,027)               -
Net cash inflow/(outflow)from financing activities                 (7,724)         500,000

Net increase/(decrease) in cash and cash
equivalents                                                      (463,034)         498,551
Opening Cash and cash equivalents                                  498,551               -
Cash and cash equivalents                                           35,517         498,551


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR
ENDED 28 FEBRUARY 2018

                         Notes      Stated                              Non-                             Non-
                                    capital   Accumulated       distributable                       controlling
                                                     loss          Reserves             Total        interests             Total
                                    R’000          R’000               R’000           R’000            R’000             R’000
Balance at 29                           -               -                 -               -                 -                -
February 2016
Loss for the year                                                                                               -
                                                  (6,010)                            (6,010)                            (6,010)
Issue of shares                   500,000               -                 -          500,000                    -       500,000
Balance at 28
February 2017                     500,000         (6,010)                 -          500,000                    -       493,990
Arising from
Acquisition of              4           -               -                 -               -                38,632        38,632
subsidiary
Profit/(Loss)for the
year                                            (116,864)                          (116,864)                1,020     (115,844)
Other comprehensive
income                                                                  773              773                    -           773
Dividends paid                                                                                            (5,027)       (5,027)
Balance at 28
February 2018                     500,000       (122,874)               773          377,899               34,625       412,524


NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEAR ENDED 28 FEBRUARY 2018 (CONTINUED)

1. SIGNIFICANT CHANGES IN THE CURRENT REPORTING PERIOD

The purpose of Hulisani is to pursue the acquisition of, and investment in, companies focused
on, and operating in, the energy sector and which evidence good potential for growth. The
financial position and performance of the Company was affected by the following events and
transactions during the year ended to 28 February 2018:
          • The Company ceased to operate as a SPAC on 22 March 2017 when it successfully
              made a viable acquisition in the form of a 6.67% interest in the Kouga Wind Farm
              (Pty)Ltd, situated in the Eastern Cape. (See Note 5)
          • Hulisani acquired 100% of the issued ordinary shares in Momentous Technologies (Pty)
              Ltd, a holding company that owns a 66% majority stake in RustMo1 Solar Farm (Pty) Ltd
              “RustMo1”), a solar PV farm in the North-West province for a gross consideration of
              R120m. (See Note 4)
          • The Company acquired 25% stake in GRI Wind Steel South Africa (Pty) Ltd to the value
              of R82.5m. (See Note 5)
          •   Hulisani issued a convertible loan to the value of R100m to Legend Power Solution Pty)
              Ltd (“LPS”). (see Note 6)

2. BASIS OF PRESENTATION

The condensed consolidated financial statements are prepared in accordance with the
requirements of the JSE Limited Listings Requirements for provisional reports and the
requirements of the Companies Act of South Africa. The Listings Requirements require
provisional reports to be prepared in accordance with the framework concepts and the
measurement and recognition requirements of International Financial Reporting Standards
(IFRS) and the SAICA financial reporting guides as issued by the accounting practices
committee and financial pronouncements as issued by the Financial Reporting Standards
Council and to also, as a minimum, contain the information required by IAS 34 Interim
Financial Reporting.

The condensed consolidated financial statements were prepared under the supervision of the
chief financial officer, MP Dem, CA (SA).

The board of directors takes full responsibility for the preparation of the provisional report.
The financial information presented has been correctly extracted from the underlying financial
statements.

REVIEW REPORT

These condensed consolidated financial statements for the year ended 28 February 2018
have been reviewed by the Company’s auditors, PricewaterhouseCoopers Inc., which
expressed an unmodified review conclusion. A copy of the auditor’s review report is available
for inspection at the Company’s registered office together with the financial statements
identified in the auditor’s report.

The accounting policies applied in preparing the condensed consolidated financial statements
are in terms of IFRS and consistent with those applied in the previous annual financial
statements, except for the adoption of new accounting policies as set out below:

•   Subsidiaries are all entities (including structured entities) over which the Group has
    control. Subsidiaries are fully consolidated from the date on which control is transferred
    to the Group. The acquisition method of accounting is used to account for business
    combinations by the Group.
•   The Group recognises any non-controlling interest in the acquired entity on an
    acquisition-by-acquisition basis, at the non-controlling interest’s proportionate share of the
    acquired entity’s net identifiable assets.
•   Associates are all entities over which the Group has significant influence but not control
    or joint control.
•   Investments in associates are accounted for using the equity method of accounting, after
    initially being recognized at cost. The Group’s share of post-acquisition profits is
    recognized in profit or loss.
•   Revenue is measured at the fair value of the consideration received or receivable. The
    Group recognizes revenue when the amount of revenue can be reliably measured.
•   At initial recognition, the Group measures a financial asset at its fair value. Loans and
    receivables and held-to-maturity investments are subsequently carried at amortised cost
    using the effective interest method.
•   Customer contracts acquired in the business combination are recognized at fair value at
    the acquisition date. They have a finite useful life and are subsequently carried at cost
    less accumulated amortisation.
•   Development costs acquired in the business combination relate to the development
    phase of a project in the subsidiary. The costs are recognized as intangible assets on the
    basis that recognition criteria are met. The development costs intangible asset is
    recognized at fair value at the acquisition date. The asset is subsequently carried at cost
    less accumulated amortisation.
•   Borrowings are initially recognized at fair value, net of transaction costs incurred.
    Borrowings are subsequently measured at amortised cost.

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of financial statements requires the use of accounting estimates which, by
definition, will seldom equal the actual results. Management also needs to exercise
judgement in applying the Group’s accounting policies. Estimates and judgements are
continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.

The areas involving significant estimates or judgements are:

•   Estimated fair value of financial assets at fair value through profit and loss.
    Hulisani issued a convertible loan to Legend Power Solutions. The Group has elected to
    classify the financial asset at fair value through profit and loss. The fair value is
    determined by using the discounted cash flow method by discounting the dividend
    income. The expected cash flows are discounted using an appropriate discount rate. In
    determining the recoverable amount, the group made key assumptions on base revenue
    from plant operations, discount rate and period of operation.

•   Impairment of investments in associates.
    The Group recognised impairments on its investments in associates, Kouga Wind Farm
    (Pty) Ltd and GRI Wind Steel SA (Pty) Ltd. The fair value of the investment in Kouga is
    determined by using the discounted cash flow method. The expected cash flows are
    discounted using an appropriate discount rate. In determining the expected cash flows,
    the Group made key assumptions on forecasted revenue and discount rate.

•   Goodwill impairment.
    The carrying value of goodwill in the group is R44m and arose on acquisition of a majority
    stake in RustMo1 Solar Farm (Pty) Ltd. RustMo1 is considered to be a separately
    identifiable cash generating unit. The recoverable amount of goodwill was based on a
    value in use discounted cash flow method. In determining the recoverable amount, the
    group made key assumptions on forecasted revenue and the discount rate.

4. ACQUISITION OF SUBSIDIARY

On 1 June 2017, Hulisani Ltd acquired 100% of the issued ordinary shares in Momentous
Technologies (Pty) Ltd, a holding company that owns a 66% majority stake in RustMo1 Solar
Farm (Pty) Ltd, a solar PV farm in the North-West province for a cash consideration of
R120m. RustMo1 is engaged in the development, construction and operation of large scale
photovoltaic power generation for electricity in South Africa. The acquisition is part of
Hulisani’s strategy to invest in energy projects.

The acquired business contributed an incremental revenue of R37m and net profit of R7.4m
before non-controlling interest allocation. The revenue is recognised from the acquisition
date. Had the acquisition happened at the beginning of the financial period the combined
revenue for the group would have been R49.1m and net loss of R114m.

Details of the purchase consideration, net identifiable assets acquired, and goodwill are as
follows:

                                                                                        2018
Purchase consideration                                                                 R’000
Net Cash paid                                                                        119,752
Total net purchase consideration                                                     119,752

The assets and liabilities recognized as a result of the acquisition are:
                                                                                        2018
                                                                                       R’000
Property, plant and equipment                                                        137,487
Derivatives financial instruments                                                        229
Intangible assets (Note 8)                                                           113,218
Cash and cash equivalents                                                             19,287
Other current assets                                                                  12,270
Long term borrowings                                                               (134,952)
Deferred tax liability                                                              (33,356)
Other current liabilities                                                              (561)
Net identifiable assets acquired                                                     113,622

Less: Non-controlling interest                                                      (38,632)
Add: Goodwill (note 10)                                                               44,761
Net Cash consideration to acquire RustMo1                                            119,751

Purchase consideration – cash outflow                                                  R’000
Outflow of cash to acquire subsidiary, net of cash acquired
Cash consideration                                                                   119,751
Less: Cash balance acquired                                                           19,287
Net outflow of cash – investing activities                                           100,464

The Group has completed its provisional fair value assessment on the assets acquired in the
business combination and has recognized goodwill of R44m. The goodwill is mainly
attributable to the deferred tax liability recognized on the fair value of intangible assets.

5. INVESTMENTS IN ASSOCIATES

(a)     Kouga Wind Farm (Pty) Ltd

On 22 March 2017 Hulisani acquired 100% of issued shares in Red Cap Investments (Pty)
("Red Cap”) Ltd and Eurocape Renewables (Pty) Ltd ("Eurocape") for a combined cash
consideration of R142m. Red Cap and Eurocape hold 5.46% and 1.21% interest in Kouga
Wind Farm (RF) (Pty) Ltd respectively, combined to 6.67%. Red Cap and Eurocape are
investment holding companies.
                                                                                2018
KOUGA WIND FARM (PTY) LTD                                                      R’000
Balance at the beginning of the period                                             -
Addition                                                                    141,450
Impairment loss                                                             (14,314)
Profit attributable to Hulisani Limited                                        3,526
Dividends received                                                           (8,350)
Balance at the end of the period                                            122,312

Impairment
The Kouga plant has experienced performance issues in the period under review. The
carrying amount of the investment has been written down to the recoverable amount of
R122m, which was determined by reference to the operations’ value in use.

The key inputs to the discounted cash flow model are as follows:
   1. Discount rate – 13.5%
           2. Base revenue – Base revenue is determined using the PPA tariff inflated at CPI over
              the term of the PPA. The base revenue in the cash flow projections, year ending 28
              February 2018, is R470 million.

The model is most sensitive to changes in base revenue and discount rate.

      i.      If all assumptions remained unchanged, a 5% decrease in base revenue results in a
              decrease in the recoverable amount, and further impairment of R11m;
  ii.         If all assumptions remained unchanged, a 1% increase in discount rate results in a
              decrease in the recoverable amount, and further impairment of R8m.

(b)           GRI Wind Steel SA (Pty) Ltd

On 27 July 2017 the Company acquired 50% of the share capital in Pele SPV13 (Pty) Ltd for
a cash consideration of R42.5m and issued preference shares of R42.5m to Pele SPV198
(Pty) Ltd. The transaction resulted in an acquisition of a 25% stake in GRI Wind Steel South
Africa (Pty) Ltd (“GRI”). Pele SPC198 has an option to acquire 12.5% interest in GRI.

                                                                                            2018
GRI WIND STEEL SA(PTY) LTD                                                                 R’000
Balance at the beginning of the period                                                         -
Addition                                                                                  82,501
Impairment loss                                                                         (45,985)
Loss attributable to Hulisani Limited                                                   (10,018)
Balance at the end of the period                                                          26,498

Impairment
The GRI is a manufacturing plant, with the initial clientele focus on the Renewable Energy
Independent Power Produce Programme (REIPPP), however this programme was put on
hold by the Minister of the Department of Energy, which impacted the business plan of GRI,
as the demand for the products slowed down. This has had an effect on the financial
performance of the company. The carrying amount of the investment has been written down
to the recoverable amount of R26m, which was determined by reference to the fair value of
individual assets.

The impairment loss of R46m is included in the statement of profit and loss.


6. FINANCIAL ASSET AT FVTPL

Hulisani issued a convertible loan to the value of R100m to Legend Power Solution Pty) Ltd
(“LPS”). The loan participates in distributable profits available to LPS shareholders. On
maturity the loan will convert to equity in LPS. The loan is classified as a financial investment
through profit and loss, with a fair value of R75m at the end of the financial period.

                                                                                            2018
                                                                                           R’000
Balance at the beginning of the period                                                         -
Addition                                                                                 100,000
Fair value loss*                                                                         (24,857)
Balance at the end of the period                                                          75,143

* The balance of the fair value loss as disclosed in the income statement includes R198k
which relates to other fair value movements.
The fair value loss on the Legend Power Solution convertible loan is driven by lower revenue
projections, in comparison to the initial investment projections.

The fair value is determined by using the discounted cash flow method by discounting the
dividend income.

Refer to Note 11 for further information on valuation inputs.

7. PROPERTY, PLANT AND EQUIPMENT
The property, plant and equipment assets held by Hulisani increased because of the
acquisition of Rustmo1 Solar Farm (Pty) Ltd. (See note 4)
                                                               Computer
                                                 Fixtures      Equipment
                     Land &        Office        and           &                 Motor        Plant &
                    Buildings   Equipment        Fittings      Software          Vehicles     Machinery   Total
                       R'000       R'000         R'000         R'000             R'000        R'000       R'000
 Balance at 01
 March 2016

 Cost                        -          323       2,310             170           -               -        2,803
 Accumulated
 depreciation                -            -        (18)            (29)           -                         (47)
 Carrying
 amount at 28
 February 2017               -          323       2,292             141           -               -        2,756

 Year ended 28 February 2018

 Opening
 carrying
 amount                      -          323       2,292             141           -               -        2,756

 Additions                   -           49         472             108           -               -          629
 Acquisition of
 subsidiary
 (Note 4)               2,212             -           2               -         248          135,025     137,487

 Depreciation                -         (60)        (416)            (69)       (55)          (6,356)     (6,957)
 Balance at 28
 February 2018          2,212           312        2,349             179        194          128,669     133,914


 Cost                   2,212           372        2,784             278        248          135,025     140,919
 Accumulated
 depreciation                -         (60)        (435)            (98)       (55)          (6,356)     (7,004)
 Carrying
 Amount at 28
 February 2018          2,212           312        2,349             179        194          128,669     133,914

8. INTANGIBLES

The intangible assets held by Hulisani increased because of the acquisition of RustMo1 Solar
Farm (Pty) Ltd. The intangible assets consist of the development costs, customer contract,
and goodwill. (See note 4)

                                                                    Development        Customer
                                                      Goodwill             costs        contract          Total
                                                        R'000             R'000           R'000          R'000

 Opening carrying amount                                     -                -               -              -
 Additions                                              44,761                                          44,761
 Acquisition of subsidiary
 (Note 4)                                                    -           25,029          88,188        113,218
 Amortisation                                                -          (1,140)         (4,009)        (5,149)

 Balance at 28 February 2018                            44,761           23,889          84,179        152,830


 Cost                                                   44,761           25,029          88,188        157,979
 Accumulated amortisation                                    -          (1,140)         (4,009)        (5,149)
 Carrying Amount at 28 February
 2018                                                   44,761           23,889          84,179        152,830

9. BORROWINGS

Interest bearing liabilities held by Hulisani increased primarily because of the acquisition of
Rustmo1 Solar Farm (Pty) Ltd.
                                                                                        2018
                                                                                       R’000
Balance as at 01 March 2017                                                                -
Arising from Acquisition of subsidiary (Note 4)                                      134,952
Repayments                                                                           (2,697)
Balances as at 28 February 2018                                                      132,255

Non-current
IDC loan                                                                              60,977
Nedbank loan                                                                          60,715
Total non-current interest-bearing debt                                              121,692
Current
IDC loan                                                                               5,301
Nedbank loan                                                                           5,262
Total current interest-bearing debt                                                   10,563
Total interest-bearing debt                                                          132,255

IDC loan
The IDC loan is secured, bears interest at 11.61% and is payable in semi-annual instalments
over a term of 14 years.

Nedbank loan
The Nedbank loan is secured, bears interest at 11.60% and is payable in semi-annual
instalments over a term of 14 years.

10. GOODWILL
                                                                                       2018
                                                                                      R’000
Balance at 01 March 2017                                                                  -
Addition                                                                             44,761
Balance at 28 February 2018                                                          44,761

The goodwill relates to the acquisition of a subsidiary disclosed in Note 4.

Impairment of goodwill
Goodwill has been tested for impairment. The recoverable amount of goodwill was based on
a value in use discounted cash flow method. No impairment loss was recognized on goodwill
in the period under review.

The key inputs to the discounted cash flow model are as follows:
   1. Discount rate – 13.5%
   2. Base revenue - Base revenue is determined using the PPA tariff inflated at CPI over
      the term of the PPA. The base revenue in the cash flow projections, year ending 28
      February 2018, is R44.5 million.


11. FINANCIAL INSTRUMENTS FAIR VALUE MEASUREMENTS

(a)       Fair value Hierarchy

The following table presents the group’s financial assets measured and recognized at fair
value at 28 February 2018:

                                             Level 1              Level 2     Level 3              Total

  At 28 February 2018                          R'000               R'000       R'000               R'000

 Financial assets at FVPL

      -   Convertible loan                         -                   -      75,143              75,143

Financial assets at FVOCI
    - Cumulative
        preference shares                          -                   -       8,961               8,961

Total assets                                                           -      84,104              84,104


                                                                                           2018
                                                                                          R’000
Total loss for the period recognised in profit or loss under ‘Fair                      (24,857)
value loss’
Total gains for the period recognised in other comprehensive                                773
income under ‘Other comprehensive income’

(b)       Valuation techniques used to determine fair values

The fair value of the convertible loan and preference shares is determined using discounted
cash flow method.

(c) Fair value measurements using significant unobservable inputs (level 3)

                                                                      Cumulative
                                                 Convertible          preference
                                                       loan               shares           Total
 At 28 February 2018                                    R'000              R'000         R'000
 Opening balance 01 March 2017                                -                 -              -
 Acquisitions                                           100,000             8,188        108,888
 Income recognised in other
 comprehensive income                                         -               773            773
 Gains/(losses) recognised in profit
 or loss                                               (24,857)                 -       (24,857)
Total assets                                             75,143             8,961         84,104

(d) Valuation inputs and relationships to fair value


                                                                 Actual input       Relationship of
                                                                                    unobservable
                                                                                    inputs to fair
                        Fair Value     Unobservable                                 value
                             R’000        inputs
Description
Cumulative                  8,961    Discount rate         12.5%                    The higher the
preference                                                                          discount rate
shares                                                                              the lower the
                                                                                    fair value
Convertible loan           75,143    Discount rates        13.20%                   The higher the
                                                                                    discount rate
                                                                                    the lower the
                                                                                    fair value
                                     Base revenue          2.3 billion              The higher the
                                     from plant                                     base revenue,
                                     operation                                      the higher the
                                                                                    fair value
                                     Period of             30 years                 The shorter the
                                     operation                                      period, the
                                                                                    lower the fair
                                                                                    value

(e) Valuation processes

The finance department of the group obtains input from independent valuation experts in
performing valuations of financial assets required for financial reporting purposes, including
level 3 fair values. The valuations expert communicates directly with the chief financial officer
(CFO).

Financial assets are valued by using either the Discounted Cash Flow Method or the Dividend
Discount Model. The discount rates used for the valuations are the prevailing market rates at
the time of the valuations.

The Group conducts valuations twice a year, at the interim financial reporting period and also
at the year-end reporting period.

(f) Significant unobservable inputs on convertible loan

The fair value is determined by using the discounted cash flow method by discounting the
dividend income.

The key inputs to the discounted cash flow model are as follows:

    1. Discount rate – 13.2%
    2. Base revenue from plant operation – Base revenue is determined using the PPA tariff
       for Dedisa and for Avon, inflated at CPI over the term of operation. The base revenue
       in the cash flow projections of Dedisa and Avon, year ending 28 February 2018, is
       R2.3 billion.
    3. Period of operation - 30 years

The model is most sensitive to changes in base revenue from operations, discount rate and
period of operation.
If all assumptions remained unchanged, a 5% decrease in base revenue results in a further
reduction in fair value of R14m;

If all assumptions remained unchanged, a 1% increase in discount rate results in a further
reduction in fair value of R9m.

If all assumptions remained unchanged, a 5 year reduction in the period of operation results
in a further reduction in fair value of R9m.

12. EARNINGS PER SHARE

The calculation of earnings per share at 28 February 2018 was based on the loss attributable
to ordinary shareholders of Hulisani, and a weighted average number of ordinary shares. The
calculation is as follows:

                                                                     Reviewed             Audited
                                                                          2018               2017
                                                                         R’000             R’000
 Loss for the year                                                   (116,864)            (6,010)
 Adjustments:                                                                -                  -
 Listing costs                                                               -              2,365
 Loss on disposal of property, plant and equipment                           -                413
 Impairment loss                                                        60,299                  -
 Safe custody costs                                                          -              2,633
 Headline earnings                                                    (56,565)              (599)

 Number of shares in issue (‘000)                                       50,000             50,000
 Weighted numbers of shares (‘000)                                      50,000             44,795
 Basic and diluted earnings per share (cents)                            (234)               (13)
 Basic and diluted headline earnings per share (cents)                   (113)                (1)


13. RELATED PARTY TRANSACTIONS AND BALANCES

(a)        Transactions
                                                                                  2018     2017
                                                                                 R’000    R’000


Professional fees (i)                                                            1,611      456
Consulting fees (ii)                                                             4,406
Management fees (iii)                                                            3,511
Dividends paid (iv)                                                              2,514
Subleasing charges                                                                   -      994

      i.   Professional fees of R1.6m were paid for due diligence on investments; R990k to
           Uniper Energy SA (Pty) Ltd and R621k was to Mothee Consulting respectively. Both
           entities have relationships with some of the directors of Hulisani.
     ii.   Consulting fees of R4.4m we paid to GraysMaker Advisory (Pty) Ltd and Marsay (Pty)
           Ltd. The entities are owned by the directors of Hulisani subsidiaries; namely Umhlaba
           Land Lease (Pty) Ltd for GrayMaker and Optimise Advisory Services (Pty)Ltd for
           Marsay (Pty) Ltd.
    iii.   Management fees were paid by RustMo1 Farm (Pty) Ltd to Momentous Operations
           Services (Pty) Ltd; a director of RustMo1 is a shareholder of Momentous Operations.
     iv.   Dividends were paid by RusMo1 Farm (Pty) Ltd to Momentous Solar Farm (RF) (Pty)
           Ltd; a director of RustMo1 is a shareholder of Momentous Solar Farm.
      v.   The company sub leased office space for a period of eight months from non-
           executive directors. The lease period terminated on 30 November 2016. The amount
           shown are market related amounts.

(b)        Balances
                                                                                       2018
                                                                                      R’000

Loans receivables (i)                                                                   416
Other receivables (ii)                                                                5,200

      i.   The loan amount was granted by Optimise Advisory Services (Pty) Ltd to Gromac
           Holding (Pty) Limited, an associate of the Group.
     ii.   An overpayment was made to Nibira (Pty) Ltd for fees due, the amount remains
           owing to the group at the end of the financial period. Nibira (Pty) Ltd is owned by
           some of the directors who are the founding members of Hulisani.

14. DIVIDENDS

There are no dividends declared for the period.

Johannesburg
1 June 2018

On behalf of the Board
ME Raphulu
Chief Executive Officer

Registered Office:
4th Floor, North Tower, 90 Rivonia Road, Sandton, Gauteng.

Auditors
PricewaterhouseCoopers Inc.

Sponsor
PSG Capital

Transfer secretaries:
Computershare Investor Services Proprietary Limited, 70 Marshall Street Johannesburg,
2001

Company secretary
ER Goodman Secretarial Services CC, Houghton Estate Office Park, 2nd Floor, Palm Grove,
2 Osborn Road, Houghton, 2198

Directors:

ME Raphulu (Chief Executive Officer), MF Modau (Chief Investment Officer), MP Dem (Chief
Financial Officer), PC Mdoda* (Chairman), A Notshe*, MH Zilimbola*, NP Gosa*, DR
Hlatshwayo*, HH Schaaf*#, B Marx*.
* Independent Non-executive # German

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