annual report ’08 - sharedata · corporate profile 4 group structure 5 chairman’s report 14...
TRANSCRIPT
Annual Report
Simeka Business G
roup Annual Report ’08
’08
Contents Page
Vision and mission 1
Definitions 2
Financial highlights 3
Corporate profile 4
Group structure 5
Chairman’s report 14
CEO’s report 16
Executive committee 20
Directorate 21
Corporate governance report 24
Sustainability report 30
CFO’s report 35
Annual financial statements 38
Analysis of shareholders 112
Shareholders’ diary 113
JSE performance 113
Notice of Annual General Meeting 114
Form of proxy 119
Corporate information IBC
A world of
opportunities
Vision
Mission
To be number one in our chosen markets, in the eyes of our staff, customers, shareholders and business partners.
“JSE” JSE Limited
“King II Report” King Report on Corporate
Governance for South Africa 2002
“MICT” MICT Solutions Group Limited
“Mint” Mint Net (Pty) Limited
“Mithratech” Motoma Mithratech (Pty) Limited
“OEM” Original Equipment Manufacturer
“Premium Ideas” Premium Ideas (Pty) Limited and
Premium Ideas Nigeria Limited
“the previous year” The year ended 31 May 2007
“SEAL” Skills Education and Learning
“SENS” Securities Exchange News Service
“SETA” Services Sector Education
and Training Authority
“Simeka”
or “the company” Simeka Business Group Limited
“SGS” SGS SA
“Simeka Consulting” Simeka Consulting (Pty) Limited
“SUHL” SAB&T Ubuntu Holdings Limited
“the year” or
“the year under review” The year ended 31 May 2008
“Adcheck” Adcheck (Pty) Limited
“AltX” Alternative Exchange of the JSE Limited
“BEE” Black economic empowerment
“the board” The board of directors of Simeka Business Group Limited
“CEO” Chief Executive Officer
“CFO” Chief Financial Officer
“CRM” Customer Relationship Management
“CSI” Corporate Social Investment
“the current year” The year ending 31 May 2009
“the group” Simeka Business Group Limited and its subsidiaries and associates
“HP” Hewlett-Packard
“ICAS” ICAS Group Limited
“I-CSS” Midrand Computer Repair Centre (Pty) Limited formerly Independent-Computer Support Services (Pty) Limited
“ICT” Information, communications and technology
“ITQ” ITQ (Pty) Limited
“ITQ BS” ITQ Business Solutions (Pty) Limited
“IFRS” International Financial Reporting
Standards
Definitions
3
Headline earnings up 46% to R66 million from R45 million
HEPS (weighted in issue and to be issued) up to 15,5 cents from 12,0 cents
Revenue up 34%Cash flow from operations up 186%Cash resources up 83%
Financial highlights(continued and discontinued operations)
RevenueR million
0
100
200
300
400
500
600
700
200620052004 2007 2008
35,5
93,8
326,1
446,9
597,4
EBITDAR million
200620052004 2007 2008
-3,3
16,6
40,6
73
92,3100
80
60
40
20
0
-20
HEPS(weighted in issue and to be issued)Cents
200620052004 2007 2008
-2,4
7,3
9
12
15,5
18
16
14
12
10
8
6
4
2
0
-2
-4
4
Simeka is a leading black empowered outsourcing, business support services and technology group which has been listed on AltX since 2004.
Corporate profile
Business Support Services encompasses the consulting,
professional services (people) and outsourcing (process) offering
while Technology includes application and implementation and
infrastructure services.
The group has been recognised as a company of choice and
one of the fastest-growing companies on the exchange.
Simeka’s geographic presence spans across South Africa, Africa,
the Middle East and the UK.
The group is streamlined into two key business divisions:
Business Support Services and Technology.
5
Group structure
Business Support Services
Consulting and Professional Services
(People)
Application andImplementation
Outsourcing(Process) Infrastructure
Technology
Business Support ServicesConsulting and Professional Services – People
Simeka Consulting combines global knowledge, expertise and best practice with local experience to design and develop strategies which align our clients’ business strategy, business processes and technology architecture with their business requirements. We have successfully delivered business and software solutions to leading corporate organisations in Africa. We recognise that the people dimension of business is key to any successful business solution, and as such our approach is an all encompassing approach including Strategy, People, Process and Technology.
Areas of core competence include:www.simekabg.co.za
SAB&T Business Innovations Group (“BIG”) focuses on providing consulting services to both the private and public sectors. In pursuit of service excellence, BIG’s services are driven by the client’s needs with a view towards building long-term partnerships.
Services include the following:Project and Programme Management Human Capital OptimisationProcurement Management Organisation Design and Development ServicesManagement Support and Business Process Re-engineering Specialised Outsourcing Strategic Consulting ServicesDue Diligence Services Skills DevelopmentAsset Management
www.sab-t.co.za
Foster-Melliar is a leading provider of Business Service Management Solutions. The solution set comprises of three key areas: Consulting, Training and Product Solutions. The Consulting and Training areas cover best and good practice that supports Business Service Management and incorporates ITIL, COBIT and PRINCE2. Consulting Services assist customers in the adoption and incorporation programmes relating to the best practices. Training Services provides the widest range of offerings in South Africa, offering certified courses and business simulations in all of the best practices, as well as Service Excellence Programmes for customer-facing staff. The Certification is provided internationally by ISEB, EXIN, APMG and ISACA. Product Solutions provides industry-leading solutions that support Service Management.
www.simekabg.co.za
6
Applebox Training is an Authorised Pastel Training Centre, employing certified trainers and utilising Pastel-approved courseware.
www.appleboxtraining.co.za
Times Talent operates as a specialised executive search company, dedicated to managing the careers of the most exceptional ICT, Financial and Engineering professionals in the country. We are passionate about building strong, lasting relationships and developing a deep understanding of the candidate/client value chain, modus operandi and values. In doing so we invest time in getting to know the candidate and the client, which we believe leads to results that are twice as effective. To us, recruitment is about engaging in conversations of possibility – helping you manage your career or helping your company grow.
www.timestalent.co.za
Consulting and Professional Services – Resourcing
Simeka Resourcing has the expertise to offer the right people, in the right place, at the right time and is able to offer our clients an unrivalled competitive advantage with the best skills in the market. The most valuable asset our organisation possesses is the dedication and commitment of our contractors. We believe in developing long-term strategic partnerships on all our projects and define the solution by understanding our clients’ requirements. We offer full systems solutions, services, support and knowledge transfer for our clients and fulfill a spectrum of expert knowledge in the form of Project Managers, Business Analysts and Developers right down to technical experts.
www.simekabg.co.za
Founded in 1997 Contract Accountants has grown to a national recruitment company with six branches – two located in the Western Cape, one in the Eastern Cape, one in KwaZulu-Natal and two in Gauteng. Contract Accountants operates in both the permanent and the temporary/contractual recruitment arenas. Each arena is clearly defined within our business and serviced according to the unique client and candidate requirements associated with each. Staff members are selected for their specialist knowledge in the permanent as well as temporary/contractual arenas. This enables them to make informed decisions regarding the suitability of candidates for each position based on experience, client culture and qualifications. Consultants gain integral knowledge of the clients and industries in which they recruit, thereby enhancing service delivery.
www.ca.co.za
Equitemps has a mission to strive towards training unskilled workers in-house, then placing these semi-skilled workers in contractual and eventually permanent positions in order to encourage these people to become self sufficient, earn a living wage and positively contribute towards the economic wellbeing of South Africa.
www.sab-t.co.za
7
Business Support Services continued
Outsourcing – Process
Premium Ideas provides specialist packaging, fulfilment and secure print services. Since inception in 1995, Premium Ideas has grown off the back of the GSM industry in South Africa and developed a notable footprint on the African continent. We continually find new ways to expand in order to attain local presence in various parts of Africa. From our factories in South Africa and Nigeria, Premium Ideas offers a flexible packaging service tailored to customer requirements and can cater for large volumes and rapid turnaround times. In these countries, we have a client base that includes Vodacom, MTN, Celtel and Cell C. Additional clients are located across Africa and the Middle East, all with unique challenges against which we continually deliver. Our processes and premises are ISO compliant. Based on these high standards we are also able to run fast, efficient and flexible fulfilment packaging and mass customisation for SIMs, CDs, DVDs, loyalty cards, scratch cards and more.
www.premiumideas.co.za
Matomo Technologies supplies the following high quality technical services within the ICT industry:
Matomo Technologies is the assembler for sub-Saharan Africa of the ALC range of HP desktops and is a Microsoft-approved third party installer site.
www.simekabg.co.za
Mithratech is solutions-driven and specialises in the telecommunications arena. Over its five year existence Mithratech has become supplier to one of the largest GSM companies in Africa (namely Vodacom), and its footprint has expanded into and out of Africa reaching 29 networks, providing quality secure print payment solutions. The secure production environment and processes have been passed by independent auditors creating a secure plant which guarantees data integrity at all times. Due to an innovative production process, Mithratech has the ability to produce low cost ISO standard scratch vouchers, as well as vouchers tailored to suit your requirements. Our expert knowledge of fulfilment and SIM card starter packs also ensures that the best products and quality are delivered at all times. Security, quality, professionalism, timeless delivery and a quest to provide your individual solution economically is what we strive for.
www.mithratech.co.za
Outsourcing – Financial Advisory Services
Applebox Accounting offers a range of professional outsourcing services geared for the small to medium sized business. Applebox performs monthly accounting, VAT, PAYE and payroll-related services to clients, as well as Pastel training and product sales.
www.appleboxaccounting.co.za
The Data Factory is a leading outsource company specialising in providing end-to-end solutions within the retirement funding and employee benefit industries. Incorporating a contact centre, tracing, back office processes, consulting, online data verification and online data sourcing, The Data Factory’s solutions are underpinned by international best practise and a world-class technology platform.
www.datafactory.co.za
9
ITQ Business Solutions is a software development company that strives to provide cost-effective and efficient IT Solutions. Although ITQ BS offers packaged solutions in the workflow and medical-aid administration markets, we realise that these out-of-box solutions do not always meet our clients’ exact requirements. We therefore also specialise in bespoke development and apply solutions that fit with our methodology of implementing tried and trusted technologies. We do not dictate to our clients on which platform applications should be hosted or what technologies should be utilised. We will however, always apply best practice and offer guidance and advice based on our extensive experience. ITQ BS has a wealth of skills in various vertical industries as well as core competencies in the areas of Web, Client-Server and thick client development.Our technical skills include:
www.itq.co.za
Technology divisionApplication and Implementation
Red Edge is a Certified Technology and E-Business suite partner of Oracle Corporation in the Global Partner Programme. Our team of consultants is regarded as one of the strongest pools of Oracle intellect in South Africa with skills and expertise across a broad spectrum of Oracle technology disciplines and industries. We maintain our high standard of intellectual capacity by recruiting local talent and through continuous and rigorous training deliver superior services to our customers. Our Oracle capability spans the following focus areas:
www.simekabg.co.za
11
Mint helps businesses to become more productive and efficient in a connected world by moving beyond pure technology deployment and focussing on the productivity of people and the efficiency of the client’s process. Mint maps our strategies to software solutions, empowering people across an organisation by connecting them effectively to solutions and connecting the business to the entire ecosystem of partners, customers, suppliers, employees, regulatory agencies and other businesses. Mint provides solutions in the following areas:
Mint has won Microsoft awards for Enterprise Search and Customer Experience.
www.mint.co.za
Adcheck Mobile provides customers with a competitive advantage in sales force support and management with a range of integral mobile solutions. All products are based on Adcheck Mobile’s Quick Market Intelligence™ (QMI), which assists sales teams at all levels to improve their relationships with customers, products and performance in real-time – both on the road and in the office. The power within the Adcheck Mobile platform brings customers closer to suppliers in real-time. It can be customised to suit any company’s requirements, providing a cost-effective way to keep mobile workers productively engaged without wasting time on administrative tasks or losing track of their activities.www.adcheck.co.za
Technology division continued
Application and Implementation continued
Cortell Corporate Performance Management provides a suite of specialised business intelligence solutions such as budgeting, rolling forecasts, activity based costing and supply chain solutions, amongst others. The company has associates in Australia, New Zealand and North America. Cortell has 15 years’ experience with many large reference sites. It is an accredited Cognos partner and won the Cognos Summit Award for Partner Sales Excellence in 2008. Its services are offered to a variety of industries, including the public sector.
www.cortell.co.za
For more than 25 years Intergraph Systems has provided leading Enterprise Engineering Software and Geospatially Powered Solutions in Sub-Saharan Africa. We offer software and services to the process, power, offshore and marine industries through integrated lifecycle solutions for design, construction and operation of plants and ships. This technology provides a common environment for supply chain integration, promoting collaboration between service providers. Intergraph Systems is a leading provider of geospatially powered solutions to the defence and intelligence, public safety, government, transportation, utilities and communications industries. Our customers rely on Intergraph Solutions to organise vast amounts of complex data into understandable visual representations. Linking to Work Management, ERP and Tracking Systems, our customers are empowered to make better and faster operational decisions.
www.simekabg.co.za
13
Infrastructure
Advocate Solutions is a leading service provider to the IT industry. Our focus areas are primarily OEM On-Site Warranty Support and Managed Services. Our business methodology is based on a collaborative approach, and our skills base ranges from Notebooks, Desktops and servers, LANs and WANs, back office and front office, to security, Hardware and Software support. We are therefore extremely well positioned to provide true end-to-end expert advice in translating IT-related business problems into innovative solutions and to provide the means to truly deliver peace of mind. Advocate Solutions has the ability to provide solutions to meet the client’s unique IT support and maintenance needs, setting the company apart in an increasingly competitive and price sensitive marketplace.
www.simekabg.co.za
Cybernet Africa Logistics is a technical and logistics service provider specialising in:
Bloemfontein and Durban.
www.simekabg.co.za
SA Gateway is primarily an Internet Service Provider providing internet connectivity, hosting, domain registrations and WAN solutions. The company is also instrumental in providing network and connectivity support to SUHL. SA Gateway has recently become the preferred service provider to Biznet, a free e-mail and internet hosting service to First National Bank’s clients.
www.sagateway.com
Popo MolefeChairman
Simeka has matured over the past five years from a relatively
small operation to a leading business solutions provider. Our
staff complement has increased to approximately 1 200 to date,
with the deepening of the skills pool better-positioning the
group to service high demand for outsourced services.
During the year the group made a number of investments
to establish a presence in high-growth markets, and disposed
of businesses that failed to meet our long-term sustainability
criteria.
Chairman’s reportStrong performances across the board helped Simeka achieve its third consecutive year of growth in headline earnings in excess of 20%, underpinned by continued strong cash flow generation. Headline earnings rose 46% to R66,2 million. Cash on hand at year-end almost doubled to R71,0 million.
15
Simeka will continue to pursue expansion into international
markets while also investing in existing core competency.
With a staff retention of 95% year-on-year Simeka has
successfully attracted and retained skilled employees, which
we are determined will continue. To this end the group has
implemented long-term incentives and continuously invests
in leadership and skills development.
AppreciationI thank my fellow directors for their wise counsel during the
year. I further thank our business partners, suppliers, advisors,
clients and shareholders for their continued support.
Dr Popo Molefe
Chairman
25 August 2008
International expansion is a natural development of our growth
strategy. However, we have continued to focus on markets
we understand and in which we are equipped to operate
successfully. These include emerging markets in Africa and
the Middle East as well as the UK market.
BEEThe group’s BEE platform continues to be a strong competitive
advantage and a key contributor to ongoing growth. Simeka is
majority black-owned and managed, with at least 90% of the
group’s board of directors being black and 27% of directors
being black females.
ProspectsA wide client base across a number of industries and a
comprehensive range of services position Simeka well
to withstand the economic downturn. Long-term annuity
contracts in hand, worth R2 billion over the next four to
five years, are another strength in our arsenal against poor
economic conditions.
Mohammed Varachia
IntroductionThe group has been restructured into two key divisions
focusing on people and process: Business Support Services and
Technology, to give effect to our strategy of capitalising on the
local and global opportunities in outsourcing. This aligns with
our overarching strategy of collaboration between the major
brands within each focus area to offer a comprehensive and
bespoke business solution.
CEO’s reportSimeka continued its positive growth trend and again outperformed expectations, leveraging long-term contracts from a wide customer base and a diversified services offering to withstand the difficult market conditions. These secured revenues and contracts will also serve as a platform for continued growth over the next four to five years.
17
MintIn line with strategy to further grow our Microsoft
competencies, R7,0 million was spent during the year to upskill
our ability and we acquired 52% of Mint. Mint is one of the
top 5% of Microsoft premium partners globally. The purchase
consideration of R5,1 million was paid in cash and Simeka
has the option to purchase up to 80% of the shares in Mint
over time.
Our existing Microsoft division has been merged into Mint to
consolidate our Microsoft initiatives in the local, Africa and
Middle East markets and further leverage Mint’s strong brand,
accreditation and reputation.
AdcheckWe entered the high-growth, lucrative niche market of mobile
applications with the acquisition of Adcheck in April 2008 and
an initial payment of R5 million. Adcheck is a leading provider
in South Africa of customised mobile applications that enable
a company’s sales force to access and synchronise real-time
data through cellphones.
This is in line with our strategy of leveraging continued growth
globally in the telecommunications sector. The increasing move
to PDAs/cellphones from laptops/PCs is one example of the
growing move globally to more convenient, technologically
sophisticated cellphone-based solutions.
In light of the growth potential of this market, Adcheck will
serve as a strong platform for the group to build its mobile
applications services.
Financial resultsWe are proud of the results which demonstrate the group’s
strong growth over the past five years.
Further details in respect of the annual financial results
are set out in the CFO’s Report, annual financial statements
and accompanying notes.
Expansion investmentPremium IdeasA specialist in packaging fulfilment and personalising smart
cards, Premium Ideas was acquired in June 2007 and has
integrated well into the group to exceed performance targets.
The purchase consideration of R144 million was paid in cash of
R86,4 million and the balance in Simeka shares of R1,55 each,
to the value of R57,6 million.
The acquisition is an ideal complement to Simeka’s existing
airtime voucher operations such as Mithratech. It has enabled
the group to capture more of the smart card value chain
in-house and provided Simeka with the capacity to undertake
the entire process from personalising to packaging. The
acquisition also marks our further expansion into Africa
through Premium Ideas’ Nigerian operations. Going forward
this will serve as a platform for Simeka to deliver our complete
services offering on the continent.
The group is investigating extending the smart card business
to the distribution of virtual airtime for cellphones in the
year ahead.
OutlookThe outsourcing market, both locally and internationally, is at
its healthiest levels for the past five years supporting Simeka’s
strong growth prospects. The group will continue to actively
pursue expansion into international markets such as Africa, the
Middle East/Asia and the UK. Our new office in Bahrain has
already secured a number of contracts and will enable cross-
selling of all the group’s services in the region. This is part of
our strategy to penetrate the fast-growing economy in the
Middle East.
Investment in core competencies and people will continue,
specifically in Simeka’s client training capability which
includes Microsoft and Oracle. The group will also build
on the investment to date in its Microsoft Implementation
competencies including Sharepoint Portal, ERP and
CRM solutions.
Following the Adcheck acquisition we are also well-positioned
to capitalise on growing telecommunications opportunities.
Simeka’s annuity income stream is expected to be a major
growth driver. SUHL brings to the group almost R500 million
of secured contracts over the next four years, boosting our
contract revenues to more than R2 billion over the next
four to five years.
The public sector will remain a focus growth area. A number
of contracts already realised through SUHL are expected to
provide exciting opportunities in this regard.
Post-balance sheet eventsSubsequent to year-end Simeka acquired AltX business advisor
and management consultancy SUHL. The purchase price was
settled when 150 million shares were issued to SUHL
shareholders in a swap ratio of one Simeka share for every
2,1 SUHL shares. As the acquisition was finalised after year-
end, the benefits are not reflected in these results.
Going forward the incorporation of SUHL is set to strengthen
Simeka’s long-term prospects with the benefits starting to be
realised in the current year to May 2009. The acquisition has
extended our global presence through SUHL’s established
offices in the UK, and our service capability.
SUHL’s services range from business consulting to professional
services and include IT software solutions, ISP services,
resourcing and training. The acquisition has further enabled
Simeka to diversify into more general business support services.
It has also strengthened our board and management with
Bashier Adam and Nishani Singh joining the Simeka board
of directors.
Segmental analysisThe Business Support Services division contributed 70% of
group revenue, while the Technology division contributed the
balance of 30%.
CEO’s report continued
19
AppreciationI thank all our business partners, customers, suppliers and staff
for their support, effort and commitment which have been
integral to the group’s success. I welcome to Simeka all new
employees who have joined post year-end and look forward
to working together to maintain our success. Together we
will continue striving to surpass our own benchmarks and
exceed expectations.
Mohammed Varachia
25 August 2008
Executive committee
Alex Evan (Chief Legal Officer), Mohammed Varachia (CEO), Suren Singh (CFO)
David Anderson, Gerrit Olivier, Gerhard Buitendag, Noelene January (Company Secretary), Madoda Papiyana (HR Director)
Nishani Singh, Vernon Naidoo, Sherhaad Kajee
Executive Directors
Mohammed Varachia 39 (CEO)
Appointed 15 December 2005Mohammed is the co-founder of Motoma ICT Group and MICT and has established a number of companies primarily in the ICT sector. He has over 11 years’ experience in various leadership positions. Mohammed joined Simeka in 2005 as joint CEO, following the acquisition by the group of MICT, and later assumed the position of sole CEO.
Surendranath (Suren) Singh 49 (CFO)
Appointed 15 December 2005Suren has held leadership positions over more than 20 years at several large companies. Within the ICT and financial services sectors specifically, he has held the positions of Group Financial Manager, Group Financial Director and Group Executive Director Investments and Business Development. He joined Simeka in 2005 as CFO, following the acquisition by the group of MICT.
Alex Evan 43 (Chief Legal Officer)
Appointed 29 September 2006Alex has in-depth and practical experience in telecommunications regulation and legislation, having been closely involved with the evolution of critical aspects such as Interconnection, the creation of the SNO and USALs. Alex advises the group on regulatory and legal matters.
Madoda Papiyana 35 (HR Director)
Appointed 15 December 2005Madoda has 12 years’ solid experience in the field of Human Resources and Industrial Relations. He joined Simeka in 2005 as Group HR Director, following the acquisition by the group of MICT.
Directorate
Directorate continued
Bashier Adam 38
Appointed 17 June 2008Bashier is the founder of SUHL. He also serves as Deputy Regional Chairman of Nexia International, representing the Africa Middle East region, and serves on a number of boards and committees in areas relating to governance and development in the accounting profession. He joined Simeka following the acquisition by the group of SUHL in 2008.
Nishani Singh 35
Appointed 17 June 2008Nishani has been with SUHL for 11 years and has been instrumental in the growth of the management consulting division. She joined Simeka following the acquisition by the group of SUHL in 2008.
Non-executive Directors
Dr Popo Simon Molefe 56 (Chairman)Appointed 16 July 2004Dr Molefe followed a high-profile senior career in politics with a successful move into commerce. He formerly served two terms as the Premier of the North West province and is a member of the ANC’s National Executive Committee. For the past ten years he has facilitated the development of businesses in the North West province. He is currently Chairman of ARMSCOR and PETROSA, Chancellor of North-West University and CEO and founder of Lereko Investment Holdings.
Tozamile Botha 60 (Deputy Chairman)
Appointed 15 December 2005Tozamile has over 14 years’ experience in the government and private sectors. He is a co-founder and non-executive Chairman of Motoma ICT Group and MICT.
Independent Non-executive Director
Ntombizodwa (Machaka) Yvonne Mhinga 43Appointed 30 November 2006Yvonne has been dubbed the “Princess of Africa” for her musical talent. She has recently made a successful transition to commerce with a specific preference for broad-based empowerment initiatives. Yvonne acts as a brand ambassador for several global initiatives as well as large corporates.
Kobote (Bobbley) Johanna Molefe 47Appointed 3 August 2003Bobbley has held senior positions in public relations and marketing for a number of major South African corporates including arms manufacturer Denel and Howden Africa. She has extensive experience in marketing strategy and culture management. She previously served as an executive director of Simeka responsible for group marketing.
Sam Montsi 63
Appointed 8 September 2008Sam trained in development economics and is currently Executive Chairman of Montsi Investments. Formerly he was General Manager of South African Breweries, Managing Director of the Lesotho National Development Corporation and also chaired Thebe Investments in its formative years. Sam retired from the Sasol Limited board on 1 August 2008 following 11 years of service. He sits on the boards of Independent Newspapers (South Africa) and all companies in which Montsi Investments holds an interest.
independent and objective knowledge and experience to board deliberations. The non-executive directors, acting individually and jointly, contribute a wide range of skills, knowledge and experience to the group.
In terms of the Articles of Association one-third of the directors retire at each Annual General Meeting, with the newest appointees retiring first followed by the longer serving members on a rotational basis. Retiring directors are free to make themselves available for re-election at the Annual General Meeting, provided that they remain eligible as required by the Articles of Association and in compliance with the JSE Listings Requirements. Directors appointed between these meetings are required to have their appointments confirmed at the Annual General Meeting. New directors B Adam, S Montsi and N Singh will accordingly retire at the upcoming Annual General Meeting as will KJ Molefe, and being eligible will all offer themselves for re-election.
All directors have unrestricted access to the advice and services of the company secretary and to company records, information, documents and property. Non-executive directors also have unfettered access to management at any time. All directors are entitled, at the company’s expense, to seek independent professional advice on any matters pertaining to the group
where they deem this to be necessary.
The boardIn accordance with the King II Report Simeka has a unitary board structure. The board comprises six executive directors and five non-executive directors. It is chaired by non-executive director PS Molefe. A brief curriculum vitae for each director is set out on pages 21 to 23 of the annual report.
During the year Bradley Hopkinson and Kamal Ramsingh resigned as executive directors with effect from 26 February 2008 and 30 April 2008, respectively. Post year-end following the acquisition of SUHL, Bashier Adam and Nishani Singh were appointed as executive directors with effect from 17 June 2008. Sam Montsi was further appointed as a non-executive director with effect from 8 September 2008.
The responsibilities of the Chairman and CEO and the remaining executive and non-executive directors are strictly separated to ensure that no director can exercise unfettered powers of decision-making. The Chairman provides leadership and guidance to the board and encourages proper deliberation on all matters requiring the board’s attention while ensuring the board is efficient and operates as a unit. The CEO and executive directors are responsible for implementing strategy and operational decisions in respect of the day-to-day
operations, while non-executive directors contribute their
Corporate governance reportSimeka acknowledges the importance of sound corporate governance and is committed to implementing the Code of Corporate Practices and Conduct set out in the King II Report. The board is responsible for continually monitoring legal and regulatory compliance to ensure ongoing improvement of operational and corporate practices. In doing so the directors seek to identify and mitigate significant risks, promote sound decision making and ensure sustainable business practices and transparent communication with all stakeholders.
Board processesConflicts of interest and share dealingsDirectors are required to disclose their shareholdings, additional
directorships and any potential conflicts of interest to the
Chairman and the company secretary. If there is a conflict of
interest in respect of a transaction involving a director, such
director must recuse himself from deliberations in respect of
that transaction. Should the conflict of interest be ongoing, the
director must resign from the company.
In addition, directors and senior employees likely to have
access to the company’s financial results and other price-
sensitive information are prohibited from dealing in Simeka’s
shares for specified time periods preceding the relevant
announcements. Any dealings in Simeka’s shares during
appropriate times are reported to the Chairman and company
secretary, who together with the Designated Advisor ensure that
these dealings are published on SENS.
Self-evaluationThe board conducts a self-assessment or self evaluation
annually. The Chairman assesses the performance of the
individual board members while the board is responsible for
evaluating the Chairman, based on a number of factors.
New appointmentsThe board as a whole is responsible for appointing new
directors and all board members are consulted on new
appointments and are required to agree unanimously. New
appointments are considered in relation to calibre, expertise
and ability to contribute in a meaningful manner.
The Board Charter codifies the board’s composition, procedures,
duties and responsibilities as well as guidelines for the
appointment of directors, succession planning and directors’
remuneration. It sets out the primary responsibilities of the
board and includes regular review of strategic direction and
performance against approved plans, budgets and best practice
standards.
The board meets four times a year with additional meetings
convened where necessary. Attendance at board and committee
meetings during the year is set out below:
DirectorsBoard
meetings
Audit committee meetings
Remuneration committee meetings
Dr PS Molefe
* 4 (5)
4 (5) 2 (3) 4 (4)
A Evan 5 (5)
B Hopkinson
1 (5)
NY Mhinga* + 4 (5) 3 (3) 2 (4)
KJ Molefe* 4 (5) 3 (3) 4 (4)
M Papiyana 5 (5)
K Ramsingh
3 (5)
S Singh 5 (5)
M Varachia 5 (5)
The directors have unlimited access to the advice and services
of the company secretary. The company secretary also monitors
directors’ dealings in securities and ensures adherence to
“closed periods” for share trading, as defined.
Board committeesAll the committees satisfied their responsibilities during the
year in terms of their written terms of reference. These are
updated annually in order to keep pace with international
developments and best practice. The chair of each committee
reports at each scheduled meeting of the board and minutes
of the committee meetings are also provided. All committee
chairmen are non-executive directors and are required to attend
the Annual General Meetings of the company.
EXCOEXCO is chaired by the CEO and further consists of the group’s
titled executive directors, the company secretary and the
divisional managing executives. The EXCO is responsible for
the day-to-day running of the company, review of operations
and maintenance and development of group strategy. It is
further responsible for the ongoing assessment and
implementation of Simeka’s employment equity policy.
Remuneration CommitteeThe Remuneration Committee is chaired by non-executive
director T Botha and consists of a further two non-executive
directors, one of whom is independent. The committee meets at
least once a year and on an ad hoc additional basis as required.
Attendance at committee meetings is set out on page 25.
The company secretary is responsible for implementing the
formal induction programme which includes site visits,
introductions to key management and copies of interim and
annual financial statements. In addition, all new directors
compulsorily attend the four-day AltX Directors Induction
Programme run through the Wits Business School and endorsed
by the Institute of Directors. The programme is comprehensive,
covering pertinent aspects of company law, securities exchange
regulations, the roles, responsibilities and liabilities of directors,
basic techniques of financial analysis and the importance of
investor and media relations.
In addition existing directors are provided with ongoing
support and resources in order to expand and refresh their
skills, knowledge and familiarity with the company. This
includes professional development training in the form of
regular updates on changes in laws and regulations, site visits
and professional and skills training courses.
Legal and regulatory complianceThe company secretary together with key management is
responsible for monitoring the group’s compliance with the JSE
Listings Requirements and the requirements of the Companies
Act and other legislation applicable to Simeka. In this regard
the group compiles an annual compliance checklist.
Subsidiaries report to the company secretary who together with
the Group Legal Officer, reports to the board.
Company secretaryThe company secretary is responsible for informing the board
of regulatory changes or developments on an ongoing basis.
Corporate governance report continued
transactions. Further responsibilities include reviewing the
group’s adherence to the principles of corporate governance in
the King II Report, any potential acquisitions and interim and
final results.
The committee conducts an annual self-evaluation exercise to
review and assess its own performance in terms of the Charter.
Recommendations are tabled at the next meeting and actioned
as soon as possible. The external auditors report to the
committee at each meeting and the committee approves
auditing fees.
The external auditors have unrestricted access to the Audit
Committee and its chairman at all times.
Accounting and auditingExternal auditThe external auditors are responsible for reporting on whether
the financial statements are fairly presented in compliance with
IFRS. Their audit includes an assessment of internal controls.
The preparation of the annual financial statements remains the
responsibility of the directors.
Internal auditTo date the internal audit responsibilities have been managed
by the Audit Committee and executive management. In light of
the increasing size of the group a formal internal audit function
is being considered.
Remuneration philosophySimeka aims to attract and retain dedicated, entrepreneurial
candidates passionate about their job. To this end basic salaries
are as far as possible market-related with incentives based on
performance assessments against predetermined key
deliverables. Through the proposed share incentive scheme,
employees will be shareholders in the company to the extent
commensurate with their level of employment, ensuring that
they participate in wealth creation and aligning their interests
with those of all stakeholders.
Audit CommitteeThe Audit Committee is chaired by non-executive director
T Botha and comprises a further two non-executive directors,
one of whom is independent. The CEO, CFO, external auditors
and Designated Advisor are invited to attend all meetings. The
committee meets three times a year which the directors believe
is sufficient for the purpose of discharging the committee’s
responsibilities. Attendance at meetings held during the year
is set out on page 25.
The committee is governed by a Charter setting out its
composition, duties and responsibilities. In terms of the Charter
it is tasked with reviewing the effectiveness of the group’s
information systems, systems of internal control, risk
management policies and internal audit function, assessing the
effectiveness of the external auditors, making recommendations
for their retention and appointment and approving any
non-audit services to be performed by them. In addition the
committee examines the group’s accounting policies, monitors
compliance with legislation and regulatory requirements and
advises the board on the accounting implications of major
place. Key industry risks facing the group and the mitigation in
place to counter these include:
Risk Mitigation
Expanding into Africa
(e.g. Premium Idea)
operations
EMEA
Maintaining and improving
BEE of BEE and formulation of
appropriate strategies
Attracting and retaining
superior skills creation through share
incentive scheme
rewarding innovation and
challenging thought
Key management and
professional staff
entrepreneurship
Credit risk
and checks
Internal control and risk managementInternal control
The board is responsible for the group’s systems of internal
control and risk management, assisted by the Audit Committee.
These systems of internal control are designed to provide
reasonable but not absolute assurance as to the integrity and
reliability of the financial statements and to safeguard and
maintain accountability of the group’s assets. These systems
also provide reasonable but not absolute assurance regarding
compliance with statutory laws and regulations and the
maintenance of proper accounting records. The group’s systems
of internal control are further designed to detect and minimise
significant fraud, potential liability, loss and material
misstatement. There are inherent limitations to the effectiveness
of any system of internal control, including the possibility of
human error and the circumvention or overriding of controls.
The system is therefore designed to manage rather than
eliminate risk of failure and opportunity risk.
Nothing has come to the attention of the board to indicate that
there has been a material breakdown in the internal systems of
control during the year.
Risk management
The board assisted by the Audit Committee is responsible for
ensuring that appropriate risk management processes are in
Corporate governance report continued
Stakeholder communicationSimeka is committed to timely, consistent and transparent
communication with all stakeholders. A quarterly newsletter is
distributed to staff and posted on the group website for
stakeholders. Staff attend regular informal information-sharing
sessions led by the CEO, CFO and HR Director.
The CEO and CFO further meet with major shareholders,
institutional investors and analysts on an ongoing basis.
Where appropriate they liaise with the financial press in order
to ensure accurate reporting. Company announcements are
published on SENS and are available on Simeka’s website.
Financial results announcements are also posted to
shareholders who are encouraged to attend the Annual
General Meeting to enhance interaction with the board.
Code of ethics (“the Code”)Simeka is committed to conducting its business with integrity
and its business ethics are formalised in the Code. All
employees have access to the Code via the group’s intranet and
Quality Management Systems. It applies to all directors, officers
and employees in the group. The group companies’ disciplinary
codes and procedures further ensure compliance with the
underlying policies and practices contained in the Code.
Sustainability reportthrough employment equity, corporate social responsibility, affirmative procurement and enterprise development initiatives.
Simeka’s strong empowerment platform extends across all employment levels within the group – 62% of group executives are black and at least 90% of the board of Simeka is black with 27% black female representation thereon.
Employment equitySimeka is committed to non-discriminatory employment practices. To this end a formal employment equity policy is in place which takes cognisance of the diversity within the broader society and is based on equal dignity and respect for all.
Employment equity within the group is tracked on a monthly basis in order to ensure that targets are met and maintained. A formal employment equity policy sets out a fair and equitable employment strategy that emphasises internal skills development and advancement. Centralised recruitment ensures that all of these policy requirements are adhered to.
Simeka is mindful of its obligation to be a centre of excellence and maintain standards of efficiency and productivity. To this end the group endeavours to attract and retain high calibre staff.
Simeka is committed to sustainable transformation. The group has processes, programmes and initiatives in place to ensure that all components of sustainability are addressed.
The group recognises that people make a business. As a result a strong emphasis has been placed on the development and retention of staff.
Sustainable development achievements for 2008 include:
of total payroll
(“LDP”)
(“MDP”)
BEESimeka exceeds the required BEE ownership level set out in the latest ICT Charter and BEE Codes as defined by the Department of Trade and Industry, with over 60% direct BEE shareholding at group level. Notwithstanding this achievement, the group remains focused on enhancing its BEE credentials particularly
31
A table detailing Simeka’s progress towards achieving its employment equity targets is set out below:
Male FemaleAfrican Coloured Indian White Other Disabled African Coloured Indian White Other Disabled Total
Top management 1 0 2 1 0 0 0 0 0 0 0 0 4Senior management 3 5 4 26 0 0 1 2 0 9 0 0 50Professionally qualified 33 13 19 123 0 0 26 1 5 57 0 0 277Skilled and junior management 24 13 6 23 0 0 27 9 2 34 0 0 138Semi-skilled 23 10 3 2 0 0 17 24 2 12 0 0 93Unskilled 4 4 0 1 0 0 10 10 0 0 0 0 29Total permanent 88 45 34 176 0 0 81 46 9 112 0 0 591Part time/temporary contractor 79 16 23 64 1 0 62 21 0 20 0 0 286
Percentage of categorised staff: 2007 and 2008 Comparative of top and senior management: 2007 and 200850
40
30
20
10
0African Coloured Indian White
2007 2008
100
80
60
40
20
0Black top
managementBlack seniormanagement
White topmanagement
White seniormanagement
2007 2008
Sustainability report continued
Skills development and trainingSimeka is committed to empowering its employees through training, mentorship and coaching to ensure superior service. The group targets a training spend of 3%-5% of payroll. Emphasis is placed on recruiting, developing and retaining key skills in a competitive environment which is experiencing a severe skills shortage.
Simeka has successfully continued its SEAL programme which encourages employees, especially those from previously disadvantaged backgrounds, to attain better qualifications within their disciplines. The programme is focussed on client services management, Microsoft certification and Solutions Architect certification.
Staff development and training during the year included inductions, goal setting workshops, assertiveness training, presentation skills training, motivational speaking, change management workshops, personal mastery with brain profiles, diversity training, team dynamics, team building, service excellence and various other programmes such as the MDP and LDP (see below).
Development programmesSimeka has developed two programmes – the LDP and MDP – in conjunction with GIBS.
The programmes allow delegates and leading academics from GIBS to critically test the current “Way of Working” against global best practice. This helps in building new competencies and knowledge at both the interpersonal and intrapersonal level. The LDP was specifically designed for the development of Simeka’s senior managers. It gives the delegates an opportunity to work on real business challenges as identified by the Simeka board. The programme is jointly managed by Simeka’s Human Resources team and GIBS. It focuses on the following learning outcomes:
managers and the future l
Affirmative procurementThe group has a formal affirmative procurement policy in place. Centralised procurement ensures that all suppliers are vetted for their BBBEE status.
Enterprise developmentSimeka’s focus this year has been on improving its enterprise
especially SMME’s which can be helped through an incubator programme similar to the one implemented in 2007 for subsidiary Cybernet in respect of small contractors. These incubator programmes create job opportunities and economic activity for both the group and SMME’s. It is in the interest of the group to empower SMME’s which in turn funnel their competence and expertise back into Simeka.
Safety and healthSimeka is committed to the proactive management of health and safety throughout the group. A comprehensive health and safety policy is in place covering all Safety, Health, Environment and Quality (“SHEQ”) requirements. In addition each subsidiary company has a trained SHEQ representative.
HIV/AIDSSimeka recognises the potential effects of HIV/AIDS on its employees and the community at large. The formal policy provides guidelines for group employees on matters
discrimination in the workplace against those who may be
co-operation within Simeka.
Workshops are undertaken to encourage awareness about the pandemic. Mortality rates do not currently impact operational productivity in any of the group’s operations.
33
Christiaan de Vries, Peter Stock, Madeleine Pretorius
Employee participationTo counhas implemented a number of incentive schemes and training and development programmes to attract and retain key staff at all levels. These include a career development path and benefits such as medical aid and provident fund. Short-term incentives such as bonuses based on individual and company performance are further encouraged.
Third party certificationsSimeka is accredited with ISO9001/2000. This international accreditation stipulates parameters within which Simeka must operate including quality and standard controls, corrective actions and compliance with regular audits.
EnvironmentalEmphasis has been placed on the Outsource division where companies are likely to be affected by environmental activities
business units and how to drive down and execute the
across the organisation on real, current business challenges
and improve management decision making.
The programmes provide delegates with the opportunity to explore their strengths and weaknesses by scrutinising Simeka’s strategy and organisational design, as well as reviewing financial performance and debating expansion possibilities within the group. Successful participants of the programme receive a competency certificate from GIBS, which is underwritten by the University of Pretoria.
34
Sustainability report continuedas the division’s activities include the assembly of units. The formal environmental policy covers all group companies in line with ISO9001/2000.
CSITo give effect to its commitment to community upliftment, the group has established the Simeka Foundation. In addition at subsidiary level, each operation is encouraged to donate 1% of Net Profit After Tax for CSI initiatives.
During the year the group supported a number of charities and organisations including:
youth living and working on the streets with soup kitchens, shelters and drop-in centres
underprivileged children
training for children and basic adult education in underprivileged communities in the Western Cape
leukaemia
in Benoni. Simeka donated clothes, toys and food. In addition employees donate their time to assist with life skills, career guidance and training
Soweto
Social responsibility programmes run during the year aimed at employees included:
In the year ahead Simeka’s CSI programme will include support of World AIDS Day through the display of banners and various informational sessions regarding HIV/AIDS and sexually transmitted diseases in November and December. The programme will also include separate sessions for managers on legal issues and how to treat infected employees.
In addition Simeka is in the process of joining the Society for Organisational Learning (SOL). This is a NGO focused on providing skills and knowledge. Through membership Simeka intends expanding its current national and international knowledge base as well as providing support for further development of other organisations and individuals. Members currently include Worldsview and the SA Development Bank.
The year under reviewRevenue increased by 34% to R597,4 million (includes
continued and discontinued operations) (2007: R446,9 million).
Organic revenue accounted for 75% of growth and ZAR-
denominated revenue contributed 90%, with an annuity income
base in excess of 60%. Operating profit before finance costs
increased by 36% to R87,6 million (2007: R64,2 million)
with EBITDA margins increasing to 16,1% (2007: 15,8%).
Headline earnings grew by 46% to R66,2 million
(2007: R45,5 million), translating to adjusted headline
earnings per share of 16,9 cents (2007: 13,0 cents).
CFO’s reportThe year marked a milestone in Simeka’s development with the venture into new business avenues such as Adcheck, a company focusing on mobile applications based on Microsoft Windows platform for the South African, African and Middle East markets. The group further enhanced its existing business by acquiring Premium Ideas and Mint.
36
CFO’s report continued
Goodwill and impairment, amortisation and depreciationThe goodwill impairment review in terms of IFRS36 “Impairment of assets” was performed by Moore Stephens for the year. The implied fair value of goodwill exceeds the carrying value of R320,0 million. The depreciation expense is largely driven by additions and disposal through business combination of R15,6 million and capital expenditure of R8,1 million. Amortisation is provided to write-down the intangible assets on a straight-line basis to zero and the period and method for the amortisation are reviewed annually and adjusted if appropriate. For the year the group had amortised intangible assets of R1,8 million. All business combinations are accounted for by applying the purchase method and the goodwill is allocated to cash generating units and is reviewed annually and adjusted if appropriate. For the year under review the group had impairment on subsidiaries of R6,2 million resulting mainly from the discontinued operations of a division of I-CSS.
Interest, and other financial income and finance costsThe group treasury received investment income of R7,3 million (2007: R1,0 million) being interest received from banks and a finance cost of R12,6 million (2007: R7,1 million) mainly in respect of vendor and financial liabilities.
Financial structure and fundingThe financials fully represent all the group’s obligations in respect of the acquisition relating to Premium Ideas. During the year vendor and other financial liabilities increased to R154,1 million (2007: R77,0 million) due to the raising of short- and long-term debt for the settlement of the vendor obligations for the purchase of Premium Ideas.
Key financial indicators2004 2005 2006 2007 2008
EBITDA (Rm) (3,3) 16,6 40,6 73,0 92,3EBITDA margin (%) (10,7) 17,7 12,5 15,8 16,0Net profit margin (%) (8,3) 10,7 8,2 10,1 11,1Earnings per share (cents) (3,8) 8,4 11,3 12,5 13,5Adjusted headline earnings per share (cents) (3,7) 8,3 12,4 13,0 16,9Net asset value per share (cents) (1,6) 36,3 57,0 65,0 83,3Net tangible asset value per share (cents) (3,4) (16,1) (2,9) 4,2 (5,4)
continued operations.
The net tangible asset value per share of (5,4) cents resulted
from an increase of R101 million in goodwill and intangible
assets mainly from the acquisition of Premium Ideas.
Net cash generated from operating activities as a percentage
of EBITDA is 67% (2007: 34%).
Profit from segmentsEBITDA from continued operations for the Business Support
Services division accounted for 65% of group profit, with
the balance of 35% being generated by the Technology division.
37
activities amounted to R63,9 million (2007: R23,7 million).
Focus was on improving the working capital cycle and
managing any potential credit risk on an ongoing basis. In
the year ahead the group will be investing in a new voucher
manufacturing machine to be deployed in the Nigeria operation
and the upgrading of the new premises in Lagos to the value
of approximately R8,0 million.
ConclusionSimeka is positioned to leverage its existing and
new government customers and relationships through the
acquisition of SUHL with effect from 1 June 2008, its current
capabilities as well as the new offerings through its expansion
initiatives.
The year under review illustrated that in an environment with
slower economic growth and inflationary pressures, Simeka
is able to not only weather the downturn but to also increase
revenue. The group will continue to focus on improving the
financial fundamentals by increasing free cash flows, better
managing the capital deployed, reducing the net debt position
on the balance sheet and striving to attain a cost to income
ratio of not more than 85%.
Suren Singh
25 August 2008
The group also invested approximately R7,0 million in Mint. The full benefits of this investment are expected to be realised in the current year. The group’s net debt position at balance sheet date was R83,0 million (2007: R38,3 million).
Post-balance sheet date, the R46,2 million short-term obligation was converted into a long-term five year debt structure with Investec Bank Limited.
Financial instruments and risk managementSubject to SARB regulations in the various countries as well as local market condition restriction, Simeka manages foreign currency risk using forward exchange contracts and natural hedges. Where appropriate open positions are managed when the market trends are favourable. The group is also exposed to interest rate risk as it borrows and places funds, as well as credit risk and liquidity risk. All of these are managed on an ongoing basis and the group’s risk management procedures are described fully in the annual financial statements.
TaxationThe taxation expense increased by 45% to R19,4 million (2007: R13,3 million) for the year, mainly due to higher profit. The effective tax rate increased to 25% (2007: 22,7%) as the group has utilised the assessed losses from some of its subsidiary companies.
Cash flowThe group’s cash on hand at year-end was R71,0 million
(2007: R38,7 million). Net cash generated from operating
Simeka Business Group Annual Report 2008
38
Annual financial statementsFor the year ended 31 May 2008
ContentsDeclaration by company secretary ....................................................................................................38
Report of the independent auditors ...................................................................................................39
Directors’ responsibilities and approval ............................................................................................40
Directors’ report ................................................................................................................................... 41
Balance sheets ......................................................................................................................................46
Income statements ...............................................................................................................................48
Statements of changes in equity ........................................................................................................50
Cash flow statements ...........................................................................................................................52
Accounting policies .............................................................................................................................54
Notes to the annual financial statements .........................................................................................66
Declaration by company secretary
I declare that to the best of my knowledge, the company has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the South African Companies Act, 1973 and that all such returns are true, correct and up to date.
Noelene JanuaryCompany Secretary
Johannesburg25 August 2008
Simeka Business Group Annual Report 2008
39
Report of the independent auditors
TO THE SHAREHOLDERS OF SIMEKA BUSINESS GROUP LIMITED
We have audited the annual financial statements and the group annual financial statements of Simeka Business Group Limited, which comprise the director’s report, the balance sheet and the consolidated balance sheet as at 31 May 2008, the income statement and the consolidated income statement, the statement of changes in equity and the consolidated the statement of changes in equity, and cash flow statement and the consolidated cash flow statement for the year then ended, a summary of significant accounting policies and other explanatory notes, as set out on pages 46 to 111.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these annual financial statements in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa, 1973. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of annual financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s ResponsibilityOur responsibility is to express an opinion on these annual 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 annual financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the annual 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 annual 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 annual financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the annual financial statements present fairly, in all material respects, the financial position of Simeka Business Group Limited as of 31 May 2008, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, 1973.
PKF (Pta) IncorporatedRegistered AuditorsChartered Accountants (SA)Registration number: 2000/026635/21
Per: S Ranchhoojee
Pretoria25 August 2008
Simeka Business Group Annual Report 2008
40
Directors’ responsibilities and approval
The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the annual financial statements. However, any system of internal financial control can provide only reasonable, and not absolute assurance against material misstatement or loss.
The directors have reviewed the group’s cash flow forecast for the year to 31 May 2009 and, in the light of this review and the current financial position, are satisfied that the group has or has access to adequate resources to continue in operational existence as a going concern for the foreseeable future.
The auditors, PKF (Pta) Incorporated, are responsible for independently reviewing and reporting on the group’s annual financial statements. They have examined the group’s annual financial statements and their report is presented on page 39.
The annual financial statements set out on pages 46 to 111, which have been prepared on the going concern basis, were approved by the board of directors on 27 August 2008 and were signed on its behalf by:
S Singh MS VarachiaCFO CEO
Johannesburg25 August 2008
The directors are required by the South African Companies Act, 1973, to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements and related financial information included in this report. It is their responsibility to ensure that the annual financial statements fairly present the state of affairs of the group as at the end of the financial year and the results of its operations and cash flows for the period then ended, in conformity with International Financial Reporting Standards. The external auditors are engaged to express an independent opinion on the annual financial statements.
The annual financial statements are prepared in accordance with International Financial Reporting Standards and are based on appropriate accounting policies consistently applied and supported by reasonable and prudent judgments and estimates.
The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the group and place considerable importance on maintaining a strong control environment. To enable the directors to meet this responsibility, the board of directors sets standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. These standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk.
These controls are monitored throughout the group and all employees are required to maintain the highest ethical standards in ensuring the group’s business is conducted in a manner that in all reasonable circumstances is above reproach.
The focus of risk management in the group is on identifying, assessing, managing and monitoring all known forms of risk across the group. While operating risk cannot be fully eliminated, the group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.
Simeka Business Group Annual Report 2008
41
Directors’ report
data through cellphones. The transaction was a strategic investment by Simeka to enter mobile solutions, a high-growth, profitable niche area.
On 1 April 2008 Simeka acquired 50% of the shares in and claims on loan account against Adcheck. The cost of acquisition was R5,0 million up to a maximum of R45 million over a period of three years. The initial payment of R5 million is to be settled by the issue of 5 million Simeka shares at R1,00 per share.
Mint Net (Pty) Limited During the year Simeka established a Microsoft division
and in line with its strategic intention to invest further in growing its Microsoft competencies, acquired 52% of Mint with effect from 1 December 2007 for a consideration of R5,140 million. This was payable in cash. Simeka has the option to purchase up to 80% of the shares in Mint. During the year Simeka merged the existing Microsoft division into Mint for additional 20% equity in Mint to consolidate the group’s Microsoft initiatives in the local and Middle East markets and further leverage Mint’s strong brand, accreditation and reputation as being in the top 5% of Microsoft partners.
Independent-Computer Support Services (Pty) Limited On 14 December 2007 Simeka made the decision not
to renew the in-warranty bench contract with Hewlett Packard in view of the poor performance of the bench division of I-CSS and consistent margin pressure. The I-CSS bench division has subsequently discontinued trading. This resulted in an attributable loss on discontinued operations and an impairment of goodwill of R5,6 million for the year, although this had no negative effect on headline earnings or headline earnings per share.
Spec Systems Simeka concluded a sale of business agreement in respect
of Spec Systems, a division of Xantium IT Services (Pty) Limited, for a consideration of R13,6 million with effect from 1 December 2007. This resulted in a loss on sale of business and impairment of goodwill totalling R7,4 million for the year, although this had no negative effect on headline earnings and headline earnings per share.
Due to the stringent returns required by Simeka, the group decided to exit the non-performing businesses as they did not meet the group’s long-term criteria.
1. NATURE OF BUSINESS Simeka Business Group Limited is a black empowered
provider of diversified business support services and technology solutions. The group has been aligned into two key divisions: Business Support Services (People and Process) and Technology.
Simeka is able to offer bespoke comprehensive client solutions by combining the niche offerings of its major brands.
2. REVIEW OF ACTIVITIES Name change As previously announced on 22 May 2008 the change
of name from Simeka Business Solutions Group Limited to Simeka Business Group Limited was approved by shareholders at a general meeting held on that day, and came into effect on 23 June 2008.
Business Combinations Premium Ideas (Pty) Limited On 1 June 2007, Simeka acquired 100% of the shares and
voting rights in Premium Ideas and its underlying foreign operation in Nigeria. The cost of acquisition amounted to R144 million, payable in cash of R86,4 million and the balance in Simeka shares of R1,55 each to the value of R57,6 million.
50% of the purchase price was paid during the year. The balance became payable when Premium Ideas achieved certain milestones as per the sale agreement by no later than 30 June 2008, which has occurred. The outstanding cash portion of R43,2 million attracted interest at year-end of R3,5 million in terms of provisions of the sale agreement. Post year-end, an amount of R28,8 million has been settled by the issue of 18 580 645 Simeka shares and Simeka has secured a long-term loan from Investec Bank Limited for the balance of the outstanding cash amount (inclusive of interest) of R48,5 million.
Adcheck (Pty) Limited With global focus on mobile applications and the
continued growth expected in the telecommunications sector – for instance reflected in a move to PDAs/cellphones from laptops/PC’s the group invested in Adcheck. A leader in South Africa, Adcheck provides custom developed mobile applications which enable a company’s sales force to access and synchronise real-time
Simeka Business Group Annual Report 2008
42
Directors’ report continued
however, been restated in order to achieve compliance with the disclosure requirements set out in these Standards.
The following IFRS were available for early application but have not yet been applied by the group in these annual financial statements:
– IFRS 8: Operating Segments for years commencing on or after 1 January 2009.
– IFRIC 12: Service Concession Arrangements for years commencing on or after 1 January 2008.
– IFRIC 13: Customer Loyalty Programmes for years commencing on or after 1 July 2008.
– IFRS 3: revised Business Combinations and IAS 27 Consolidated and Separate Financial Statement for business combinations occurring in annual periods beginning on or after 1 July 2009.
– IFRIC 11: Group and share transactions commencing on or after 1 June 2008.
– IAS 1: revised Presentation of Financial Statements for years commencing on or after 1 January 2009.
– IAS 23: revised Borrowing Costs for years commencing on or after 1 January 2009.
– IFRIC 14: The Limit on a Defined Benefit Asset, minimum funding requirements and their interaction for years commencing on or after 1 January 2008.
– IAS 28: Investments in Associates for years commencing on or after 1 July 2009.
– IAS 31: Interests in Joint Ventures for years commencing on or after 1 July 2009.
– IFRS 2: Share-based Payment for years commencing on or after 1 January 2009.
Had IFRS 8 been applied for the year, it would not have affected the balance sheet or income statement as the Standard is concerned only with disclosure.
Management is in the process of assessing the impact of these amendments and Standards on the group.
6. SHARE CAPITAL AND VENDOR OBLIGATIONS On 1 June 2007 the authorised share capital of the
company comprised 1 500 000 000 ordinary shares, of which 385 624 976 were in issue.
ITQ Business Group (Pty) Limited ITQ, a wholly-owned subsidiary of Simeka, and Mindkey
(Pty) Limited operating as a bespoke outsource development company, have entered into a venture in terms of which the parties transferred contracts into a new company – ITQ Business Solutions (Pty) Limited (“ITQ BS”). Simeka has a 50,01% shareholding in ITQ. The transaction was effective 1 December 2007.
3. FINANCIAL RESULTS AND DIVIDEND The annual financial results of the company and group for
the year are set out in the annual financial statements and accompanying notes.
In line with group policy, no dividend has been declared for the year. The dividend policy will be reviewed during the current year.
4. GOING CONCERN The financial statements have been prepared on the basis
of accounting policies applicable to a going concern.
The basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.
5. ACCOUNTING POLICIES The group has adopted all of the new and revised
standards issued by International Accounting Standards Board and International Financial Reporting Standards that are relevant to its operations and effective for the current financial reporting period.
Specifically, the group has adopted the following standards for the year:
– IFRS 7: Financial Instruments: Disclosure. – IAS 1: (Amendment) Capital Disclosures.
The application of IFRS 7 and IAS 1 (Amendment) has not affected the amounts recognised in the balance sheet or income statement as the Standards are concerned with disclosure only. Certain comparative information has,
Simeka Business Group Annual Report 2008
43
The following ordinary shares were issued during the year: Allotment date Allotment detail Type of issue No of shares Issue price
26/6/07 ITQ vendor obligation Specific 450 000 R0,5026/11/07 Treasury shares Specific 1 800 000 R0,003/12/07 Mithratech vendor obligation Specific 15 000 000 R0,6010/12/07 Premium Ideas vendor obligation Specific 18 580 645 R1,55
At 31 May 2008 the aggregate number of ordinary shares in issue was accordingly 422 455 621. The company’s unissued shares have been placed under the control of the directors until the upcoming Annual General Meeting.
7. DIRECTORS The directors during the year and at the date of this report are as follows:
Name ClassT Botha Non-executiveA Evan ExecutiveB Hopkinson Executive Appointed 10 September 2007; Resigned 31 March 2008NY Mhinga Independent non-executiveKJ Molefe Non-executivePS Molefe Non-executiveM Papiyana ExecutiveKS Ramsingh Executive Resigned 30 April 2008S Singh ExecutiveMS Varachia Executive
During the year B Hopkinson and KS Ramsingh resigned as executive directors with effect from 26 February 2008 and 30 April 2008, respectively.
B Adam and N Singh were appointed as executive directors with effect from 17 June 2008. S Montsi was appointed as a non-executive director with effect from 8 September 2008.
New directors S Montsi, N Singh and B Adam will retire at the upcoming Annual General Meeting as will KJ Molefe, and being eligible will offer themselves for re-election. B Adam retires as an executive director and offers himself for re-election as a non-executive director.
8. DIRECTORS’ INTERESTS Directors’ interests in related parties are set out below:
Director Company Description
T Botha and MS Varachia MIGH Properties (Pty) LimitedMICT Electronic Product and Distribution (Pty) Limited
Property rentalCommission and administration fee
S Singh Unathi Gifts (Pty) Limited Corporate gifting
Simeka Business Group Annual Report 2008
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Directors’ report continued
These related parties have been fully disclosed and approved by a disinterested quorum of the board. All related party transactions are on a best price, best endeavours policy and subject to a minimum of three comparative quotes.
9. DIRECTORS’ SHAREHOLDING Directors’ shareholdings are set out in note 40.2 and 40.3
of the annual financial statements.
Since year-end until the date of this report the following changes to directors’ shareholdings took place:
– T Botha sold 22,5 million shares – PS Molefe purchased 258 000 shares – S Singh purchased 2,5 million shares and sold
1,0 million shares – MS Varachia purchased 1 million shares
10. DIRECTORS’ EMOLUMENTS Directors’ emoluments are set out in note 40 of the annual
financial statements.
11. SUBSIDIARIES, ASSOCIATES AND OTHER INVESTMENTS
Information relating to the company’s financial interest in its subsidiaries, associates and other investments is set out in notes 5 to 7 of the annual financial statements.
12. SHARE-BASED PAYMENTS During the year an Executive Share Option Scheme was
available to certain of the group’s executives and the company secretary. The Scheme comprised of 5 399 700 options issued of which one option is convertable into one ordinary share. Share options at a strike price of 80 cents, which is the market price at the time, were issued on 25 March 2008. 50% is exercisable on 1 July 2008 and 50% on 1 April 2009. The options are to be settled from equity.
The members of the Executive Share Option Scheme are as follows:
Member Share options grantedMS Varachia (Executive director) 2 288 700S Singh (Executive director) 1 213 000M Papiyana (Executive director) 668 000A Evan (Executive director) 875 000N January (Company secretary) 355 000
5 399 700
During the year, share options were granted to B Hopkinson, the group’s executive director at the time. Share options were issued to him on 15 September 2007 of which one third was exercisable immediately and the balance at each anniversary year to 15 September 2010.
The board waived the exercise date for the options vesting in the 2009 year to 30 November 2007. B Hopkinson exercised the options that vested to him up to 30 November 2007. Upon his resignation B Hopkinson forfeited the remaining 500 000 share options.
Director Strike priceShare options
granted Issue date Exercised Forfeited OutstandingB Hopkinson 1,20 1 500 000 15/9/07 1 000 000 500 000 0
Simeka Business Group Annual Report 2008
45
On 1 March 2007, the group introduced the Simeka Group Share Option Scheme which is available to the group’s general employees over a three year period. The share options were granted to employees for their loyalty and service they have provided to Simeka. The terms of the
share option agreement entitle the group to choose to either settle in cash or shares. However it is the policy of the group to settle the share option when the vesting period is reached in cash. 31 March is the first anniversary date for the Simeka Group Share Option Scheme.
The following is a summary of the Simeka Group Share Option Scheme for the year.Beginning of the year
Share optionsgranted Exercised Exercised date Forfeited Outstanding
1 339 472 2 276 967 (223 838) 31/03/08 (241 109) 3 151 492 The total number of share options granted in the current year is 9 176 667 (2007: 7 839 472).
Refer to note 22 of the annual financial statements for further details relating to share options of the group.
issuing 150 million Simeka shares to SUHL shareholders in the ratio of 1:2,1 in full and final settlement of the purchase price.
SUHL management have committed to a profit warranty of R30 million as at 31 May 2009, failing which Simeka will be entitled to claw-back up to 60 million Simeka shares.
The second payment of R72 000 000 of the vendor obligation owing to the previous shareholders of Premium Ideas has become payable as Premium Ideas has achieved the milestones set forth in the sale agreement. The amount owing will be settled by issuing 18 580 645 Simeka shares at R1,55 post year-end and securing a long-term loan through Investec Limited that will bear interest at the JIBAR rate +6,25%. Instalments are repayable quarterly over 60 months.
17. LITIGATION STATEMENT Simeka is involved in litigation regarding the use of the
name BSG. The complainant is claiming 5% of the revenue generated by Simeka for the period 12 December 2005 to date of judgement, including interest at 15,5% per annum from 27 March 2006.
Johannesburg25 August 2008
13. COMPANY SECRETARY The secretary of the company is Noelene Beryl January
whose business and postal addresses, which are also the registered addresses of the company, are set out on the inside back cover of this report.
14. AUDITORS PKF (Pta) Inc. will continue in office in accordance with
Section 270(2) of the South African Companies Act, 1973, subject to shareholder approval at the upcoming Annual General Meeting.
15. SPECIAL RESOLUTIONS A special resolution to grant general authority to Simeka
Business Group and its subsidiaries to repurchase shares was passed by the company at the Annual General Meeting on 27 November 2007.
16. POST-BALANCE SHEET EVENTS On 9 May 2008 Simeka made an offer to SUHL
shareholders for the acquisition of 100% of the issued share capital of SUHL for a purchase consideration of up to 150 million Simeka shares. The offer was accepted by 94,3% of the SUHL shareholders and accordingly Simeka invoked the provisions of Section 440k of the Companies Act. On 2 June 2008 Simeka gave notice to all the shareholders who had not accepted the offer and on that date effectively acquired 100% of SUHL issued shares by
Simeka Business Group Annual Report 2008
46
Balance sheetsAt 31 May 2008
Group Company2008 2007 2008 2007
Notes R’000 R’000 R’000 R’000
ASSETS
Non-current assets 407 933 255 521 365 559 229 394
Property, plant and equipment 2 24 839 11 308 348 247
Goodwill 3 320 069 235 378 – –
Intangible asset 4 46 635 1 136 – –
Investments 306 306
Investments in subsidiaries 5 – – 357 971 228 713
Investment in associate 7 5 476 1 380 5 476 –
Deferred taxation 8 10 608 6 319 1 458 434
Current assets 202 828 142 802 83 284 34 733
Inventories 9 11 974 15 491 – –
Trade and other receivables 10 118 380 85 712 15 727 1 236
Other financial assets 11 – 1 296 – –
Loans to other group companies 12 – – 52 380 26 888
Operating lease asset 91 80 146
Cash and cash equivalents 36 72 383 40 303 12 814 6 463
Total assets 610 761 398 323 446 560 264 127
Simeka Business Group Annual Report 2008
47
Group Company2008 2007 2008 2007
Notes R’000 R’000 R’000 R’000
EQUITY AND LIABILITIES
Capital and reserves 344 290 251 514 243 923 187 200
Share capital 14 189 818 165 392 203 418 165 392
FCTR 1 051 73 – –
Retained earnings 119 621 76 824 6 705 12 583
Amounts due to vendors 15 33 800 9 225 33 800 9 225
Minority interest (635) 1 812 – –
Total equity 343 655 253 326 243 923 187 200
Non-current liabilities 109 717 58 150 88 267 59 954
Other financial liabilities 17 92 331 56 733 51 026 59 954
Finance lease obligation 18 940 1 417 – –
Loans from group companies 37 241
Deferred taxation 8 16 446 – – –
Current liabilities 157 389 86 847 114 370 16 973
Vendor liabilities 16 46 241 5 650 46 241 5 650
Other financial liabilities 17 13 418 13 248 8 893 36
Finance lease obligation 18 1 172 798 – –
Loans from other group companies 12 – – 56 210 10 217
Trade and other payables 19 85 917 54 640 2 602 645
Provisions 20 – 450 – –
Operating lease liability 1 048 625 310 311
Current tax payable 8 235 9 827 114 114
Bank overdraft 36 1 358 1 608 – –
610 761 398 323 446 560 264 127
Simeka Business Group Annual Report 2008
48
Income statementsFor the year ended 31 May 2008
Group Company2008 2007 2008 2007
Notes R’000 R’000 R’000 R’000
CONTINUED OPERATIONSRevenue 23 584 801 393 953 19 087 8 347Cost of sales (346 630) (224 489) – –Gross profit 238 171 169 465 19 087 8 347Other income 3 341 7 198 – 2 377Other operating expenses (153 874) (112 372) (8 001) (7 365)Operating profit before finance costs 24 87 638 64 291 11 086 3 358Investment income 25 7 330 967 908 5 580Finance costs 26 (12 683) (7 135) (11 938) (4 934)Losses on non-current assets held-for-sale (5 376) – (7 433) –Income from associate 27 548 791 475 –Profit before tax 77 457 58 914 (6 902) 4 005Taxation 28 (19 419) (13 375) 1 024 434Profit for the year on continued operations 58 038 45 539 (5 878) 4 438Loss on discontinued operations 29 (17 688) (250)Profit for the year 40 350 45 289Reconciliation between earnings/(loss) and headline earnings/(losses)Earnings for the year attributable to ordinary shareholders from continued operations 54 552 44 881Impairment of goodwill 6 275 –Impairment of intangible asset – 710Loss on disposal of subsidiary 7 395 –Profit on disposal of associate (2 020) –Profit/(loss) on disposal of property, plant and equipment – (79)Headline earnings 66 202 45 512
Simeka Business Group Annual Report 2008
49
Group Company2008 2007 2008 2007
Notes R’000 R’000 R’000 R’000
Attributable to:Equity holders of the parent 42 797 44 774 (5 878) 4 438Minority interest (2 447) 515 – –Net profit/(loss) for the year 40 350 45 289 (5 878) 4 438Earnings per share (cents) 31Earnings per share 31.1 13,50 12,50Diluted earnings per share 31.2 12,80 11,80Headline earnings per share 31.3 16,40 12,60Diluted headline earnings per share 31.4 15,50 12,00Adjusted headline earnings per share 31.5 16,90 13,00
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50
Statements of changes in equityFor the year ended 31 May 2008
Attributable to equity holders of the parent
SharecapitalR’000
Sharepremium
R’000
Amounts due to
vendorsR’000
Retainedearnings
R’000
Foreign currency
translationreserve
TotalR’000
Minorityinterest
R’000
TotalequityR’000
GROUPBalance at 31 May 2006 35 138 178 27 092 32 050 – 197 355 1 672 199 027Profit for the period 44 774 44 774 515 45 289Total recognised income and expense for the period 44 774 – 44 774 515 45 289Issue of share capital 4 27 175 27 179 27 179Payment of vendor liabilities (17 867) (17 867) (17 867)Movement in translation of foreign entity 73 73 73Purchase of subsidiaries and businesses – (375) (375)Balance at 31 May 2007 39 165 353 9 225 76 824 73 251 514 1 812 253 326Profit for the period 42 797 42 797 (2 447) 40 350Total recognised income and expense for the period 42 797 – 42 797 (2 447) 40 350Issue of share capital 4 38 022 38 026 38 026Treasury shares (1) (13 599) (13 600) (13 600)Payment of vendor liabilities (9 225) (9 225) (9 225)Movement in translation of foreign entity 978 978 978Purchase of subsidiaries and businesses 33 800 33 800 – 33 800Balance at 31 May 2008 42 189 776 33 800 119 621 1 051 344 290 (635) 343 655
Simeka Business Group Annual Report 2008
51
Share capitalR’000
Sharepremium
R’000
Amounts dueto vendors
R’000
Retainedearnings
R’000
TotalequityR’000
COMPANYBalance at 31 May 2006 35 138 178 27 092 8 145 173 450Profit for the period/year 4 438 4 438Total recognised income and expense for the period 4 438 4 438Issue of share capital 4 27 175 27 179Payment of vendor liabilities (17 867) (17 867)Balance at 31 May 2007 39 165 353 9 225 12 583 187 200Profit for the period/year (5 878) (5 878)Total recognised income and expense for the period (5 878) (5 878)Issue of share capital 4 38 022 – – 38 026Payment of vendor liabilities – – (9 225) – (9 225)Purchase of subsidiaries and businesses – – 33 800 – 33 800Balance at 31 May 2008 43 203 375 33 800 6 705 243 923
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52
Cash flow statementsFor the year ended 31 May 2008
Group Company2008 2007 2008 2007
Notes R’000 R’000 R’000 R’000
Cash flows from operating activitiesCash receipts from customers 552 133 377 834 4 596 9 012Cash paid to suppliers and employees (447 456) 335 909 (6 000) (5 852)Cash generated from operations 32 104 677 41 925 (1 404) 3 160Investment income 7 330 966 908 136Taxation paid 33 (29 177) (10 227) – (676)Finance costs (9 642) (7 055) (15 980) (4 853)Net cash from operating activities – continued operations 73 188 25 609 (16 476) (2 233)Net cash from operating activities – discontinued operations (9 266) (1 861) – –Net cash from operating activities 63 922 23 748 (16 476) (2 233)Cash flows from investing activitiesProceeds on disposal of property, plant and equipment 1 548 2 262 – –Acquisition of property, plant and equipment (8 113) (4 794) (152) (239)Proceeds from sale of associate 3 400 – – –Acquisition of additional interest in subsidiary – (1 394) – –Acquisition of subsidiaries 34 (28 195) (6 000) (48 340) –Disposal of business 35 (866) – – –(Increase) in loans to group companies – – (11 892) (22 222)(Increase)/decrease in other investments (306) 34 (306) –(Increase)/decrease in financial assets 14 496 (1 296) – –Net cash used in investing activities – continued operations (18 035) (11 188) (60 690) (22 461)
Simeka Business Group Annual Report 2008
53
Group Company2008 2007 2008 2007
Notes R’000 R’000 R’000 R’000
Net cash used in investing activities – discontinued operations 425 907 – –Net cash used in investing activities (17 610) (10 281) (60 690) (22 461)Cash flows from financing activitiesProceeds from issue of share capital – 11 537 – 11 537(Decrease)/increase in financial liabilities 370 21 961 (71) 43 094Increase/(decrease) in finance lease liabilities (103) (1 358) – –Payment of vendor liabilities (5 650) (21 950) (5 650) (21 950)Increase/(Decrease) in loans from group companies – – 89 238 (1 610)Dividends received – 170 – –Dividends paid (8 600) – – –Net cash used in financing activities – continued operations (13 983) 10 360 83 517 31 071Net cash used in financing activities – discontinued operations – (1 618) – –Net cash used in financing activities (13 983) 8 742 83 517 31 071Net increase in cash and cash equivalents 32 330 22 209 6 351 6 377Cash and cash equivalents at beginning of year 38 695 16 486 6 463 86Cash and cash equivalents at end of year 36 71 025 38 695 12 814 6 463
Simeka Business Group Annual Report 2008
54
Accounting policiesFor the year ended 31 May 2008
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 material to the financial statements. Significant judgements include:
Trade and loans receivables The group assesses its trade and loans receivables for
impairment at each balance sheet date. In determining whether an impairment loss should be recorded in the income statement, the company makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from a financial asset.
The impairment for trade and loans receivable is calculated on a specific basis, based on historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence period.
Allowance for slow moving, damaged and obsolete stock An allowance for stock to write stock down to the lower
of cost or net realisable value. Management have made estimates of the selling price and direct cost to sell on certain inventory items. The write down is included in operation profit.
Fair value estimation The carrying value less impairment provision of trade
receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the company for similar financial instruments.
The accounting policies have been applied in the preparation of these financial statements and are set out below. The policies have been consistently applied to all the years presented unless otherwise stated.
1. STATEMENT OF COMPLIANCE The consolidated financial statements have been prepared
in compliance with the Companies Act of South Africa, 1973, International Financial Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards Board (IASB) and that are relevant to its operations and has been effective for the annual reporting period ending 31 May 2008.
1.1 Basis of preparation The financial statements are presented in South African
Rands (ZAR), rounded to the nearest thousand. They are prepared on the historical cost basis.
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
1.2 Significant Judgements In preparing the financial statements, management is
required to make use of estimates and assumptions that
Simeka Business Group Annual Report 2008
55
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. These calculations require the use of estimates and assumptions. It is reasonably possible that the revenue growth rates and operating margins assumptions may change which may then impact our estimations and may then require a material adjustment to the carrying value of goodwill and tangible assets.
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. In addition, goodwill is tested on an annual basis for impairment. 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. Expected future cash flows used to determine the value in use of goodwill and tangible assets are inherently uncertain and could materially change over time. They are significantly affected by a number of factors including production estimates, supply demand, project demands, tender specific jobs, operating margins and long-term contracts together with economic factors such as inflation, interest rates, exchange rates and other industry specific factors.
Provisions Provisions were raised and management determined an
estimate based on the information available.
Intangible assets on business combinations The fair value of identifiable intangible assets recognised
in the current year relating to business combinations were determined by applying various assumptions and judgements. This is a result of the fact that no active market exists for these assets. In estimating the useful
life of an intangible asset, the following factors were considered:
– the expected usage of the asset by the entity and whether the asset could be managed efficiently by another management team;
– typical product life cycles for the asset and public information on estimates of useful lives of similar assets that are used in a similar way;
– technical, technological, commercial or other types of obsolescence;
– the stability of the industry in which the assets operate and changes in the market demand for the products or service output from the asset;
– expected actions by competitors and expected competitors;
– the level of maintenance expenditure required to obtain the expected future economic benefits from the assets and the entity’s ability and intention to reach such a level;
– the period of control over the asset and legal or similar limits on the use of the asset, such as expiry dates relating to contracts;
– whether the useful life of the assets is dependent on the useful life of the entity.
Taxation Judgement is required in determining the provision for
income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The company recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
The company recognises the net future tax benefit related to deferred income tax assets to the extent that it is probable that the deductible temporary differences will
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56
Accounting policies continued
For the year ended 31 May 2008
non-current assets held-for-sale and discontinued operations, which are recognised and measured at fair value less costs to sell.
Goodwill on acquisition is recognised as an asset and represents the excess of the cost of acquiring a business over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary, associate and joint venture. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Minority interests are initially measured at the minority’s proportion of net fair value of the identifiable assets, liabilities and contingent liabilities recognised.
Associates Associates are those entities in which the group has
significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the group’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the group’s share of losses exceeds its interest in an associate, the group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the group has incurred legal or constructive obligations or made payments on behalf of an associate.
Transactions eliminated on consolidation Intra-group balances and any unrealised gains and losses
or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated to the extent of the group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only
reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the company to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the company to realise the net deferred tax assets recorded at the balance sheet date could be impacted.
1.3 Basis of consolidation Subsidiaries Subsidiaries are all entities over which the group has
the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
Investment in subsidiaries The acquisition of subsidiaries are accounted for using the
purchase method. The cost of the acquisition at the date of exchange is measured as the aggregate of the fair values of the assets given, liabilities assumed, and equity instruments issued by the group in exchange for control by the acquirer. Direct costs attributable to the business combination are included in the cost of the business combination. An adjustment to the cost of a business combination contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably.
Identifiable assets, liabilities and contingent liabilities recognised under business combinations are recognised at their fair values at the acquisition date, except for
Simeka Business Group Annual Report 2008
57
to the extent that there is no evidence of impairment. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group.
1.4 Property, plant and equipment Items of property, plant and equipment are stated at cost
as deemed cost less accumulated depreciation and impairment losses.
Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised.
The group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as an expense as incurred. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.
The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset.
The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.
Depreciation is provided on all property, plant and equipment, to write down the cost, less residual value, on a straight-line basis over their useful lives as follows: Item Average useful life
Plant and machinery 5 yearsMotor vehicles 5 yearsComputer equipment 3 yearsComputer software 5 yearsFurniture and fittings 10 yearsOffice equipment 6 yearsSecurity 5 yearsLeasehold improvements 6 yearsStudy material 3 years
The residual value and the useful life of each asset are reviewed annually and adjusted if appropriate.
Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.
1.5 Goodwill All business combinations are accounted for by applying
the purchase method. Goodwill represents the excess of the cost of acquiring a business over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or associate recognised at the date of acquisition. Goodwill is stated at cost less any accumulated impairment losses.
Goodwill is allocated to cash-generating units which are expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated shall be tested for impairment annually.
In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate.
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58
Accounting policies continued
For the year ended 31 May 2008
costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The cost includes transport and handling costs, but excludes interest charges.
Costs are determined on the following bases: – Raw materials are valued on a first-in, first-out (FIFO)
basis. – Merchandise is valued on a weighted average basis.
Write-downs to net realisable value and inventory losses are expensed in the period in which the write-downs or losses occur.
The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, are recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.
1.8 Segment reporting A business segment is a group of assets and operations
that is engaged in providing products or services that are subject to the risks and returns that are different from the those of other business segments.
A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those segments operating in other economic environments.
Assets, liabilities, revenues and expenses are not directly attributable to a particular segment are allocated between segments where there is a reasonable basis for doing so. The group accounts for inter-segmental revenues and transfers as if the transactions were with third parties at current market prices.
Segment information is reported on the business basis being its primary segment and on the geographic basis being its secondary segment. The segment reporting is
The excess of the company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of the business combination is immediately recognised in profit or loss.
Internally generated goodwill is not recognised as an asset and is expensed directly to the income statement.
When the group disposes any of its subsidiaries, joint ventures and associates, the attributable amount of goodwill will be included in the determination of the profit or loss on disposal.
1.6 Intangible assets Intangible assets are carried at cost less any accumulated
amortisation and any impairment losses.
The amortisation period and the amortisation method for intangible assets are reviewed annually and adjusted if appropriate.
Reassessing the useful life of an intangible asset with a definite useful life after it was classified as indefinite is an indicator that the asset may be impaired. As a result the asset is tested for impairment and the remaining carrying amount is amortised over its useful life.
Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance are not recognised as intangible assets.
Amortisation is provided to write down the intangible assets, on a straight-line basis, to zero as follows: Item Useful life
Contract rights 5Customer contracts 20Information technology systems 10
1.7 Inventories Inventories are valued at the lower of cost or net
realisable value. The cost of inventories comprises of all
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based on the internal structure used for management reporting.
1.9 Financial instruments Initial recognition The company classifies financial instruments, or their
component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement.
Financial assets and financial liabilities are recognised on the company’s balance sheet when the company becomes party to the contractual provisions of the instrument.
Loans to (from) group companies These included loans to holding companies, fellow
subsidiaries, subsidiaries, joint ventures and associates and are recognised initially at fair value plus direct transaction costs.
Subsequently these loans are measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts.
On loans receivable an impairment loss is recognised in profit or loss when there is objective evidence that it is impaired. The impairment is measured as the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.
Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised.
Loans to shareholders, directors, managers and employees These financial assets are initially at fair value plus direct
transaction costs.
Subsequently these loans are measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts.
On loans receivable an impairment loss is recognised in profit or loss when there is objective evidence that it is impaired. The impairment is measured as the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.
Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised.
Trade and other receivables Trade receivables are measured at initial recognition at
fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.
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Accounting policies continued
For the year ended 31 May 2008
These financial assets are not quoted in an active market and have fixed or determinable payments.
1.10 Impairment of assets The company assesses at each balance sheet date whether
there is any indication that an asset may be impaired. If any such indication exists, the company estimates the recoverable amount of the asset.
Irrespective of whether there is any indication of impairment, the company also:
– tests intangible assets with an indefinite useful life for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test is performed annually.
– tests goodwill acquired in a business combination for impairment annually.
If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined.
The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use.
If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss.
An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in profit or loss. Any impairment loss of a revalued asset is treated as a revaluation decrease.
Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash-generating
The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within operating expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in the income statement.
Trade and other receivables are classified as loans and receivables.
Trade and other payables Trade payables are initially measured at fair value, and
are subsequently measured at amortised cost, using the effective interest rate method.
Cash and cash equivalents Cash and cash equivalents comprise cash on hand and
demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value.
Bank overdrafts and borrowings Bank overdrafts and borrowings are initially measured at
fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the company’s accounting policy for borrowing costs.
Other loans and receivables Other financial assets classified as loans and receivables
are initially recognised at fair value plus transaction costs, and are subsequently carried at amortised cost less any accumulated impairment.
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units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination.
An impairment loss is recognised for cash-generating units if the recoverable amount of the unit is less than the carrying amount of the units. The impairment loss is allocated to reduce the carrying amount of the assets of the unit in the following order:
– first, to reduce the carrying amount of any goodwill allocated to the cash-generating unit; and
– then, to the other assets of the unit, pro rata on the basis of the carrying amount of each asset in the unit.
An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated.
The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods.
A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in profit or loss. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase.
1.11 Leases A lease is classified as a finance lease if it transfers
substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.
Finance lease payments Finance leases are recognised as assets and liabilities in
the balance sheets at amounts equal to the fair value of
the leased property or, if lower, the present value on the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.
The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease.
The lease payments are apportioned between the finance charge and reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate on the remaining balance of the liability.
Operating lease payments Payments made under operating leases are recognised in
the income statement on a straight-line basis over the term of the lease. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease liability. This liability is not discounted. Any contingent rents are expensed in the period they are incurred.
1.12 Provisions A provision is recognised in the balance sheet when the
group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset.
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Accounting policies continued
For the year ended 31 May 2008
Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.
Deferred taxation Deferred tax is provided using the balance sheet liability
method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for:
– the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and
– differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).
A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. A deferred
The amount recognised for the reimbursement shall not exceed the amount of the provision.
Provisions are not recognised for future operating losses.
A constructive obligation to restructure arises only when an entity:
– has a detailed formal plan for the restructuring, identifying at least:
– the business or part of a business concerned; – the principal locations affected; – the location, function, and approximate number of
employees who will be compensated for terminating their services;
– the expenditures that will be undertaken; – when the plan will be implemented; and – has raised a valid expectation in those affected that
it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.
After their initial recognition contingent liabilities recognised in business combinations that are recognised separately are subsequently measured at the higher of:
– the amount that would be recognised as a provision; and
– the amount initially recognised less cumulative amortisation.
Onerous contracts A provision for onerous contracts is recognised when the
expected benefits to be derived by the group from a contract are lower than the unavoidable cost of meeting its obligations under the contract.
1.13 Taxation Current taxation Current tax for current and prior periods is, to the extent
unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.
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If the company reacquires its own equity instruments, the consideration paid, including any directly attributable incremental costs (net of income taxes) on those instruments are deducted from equity until the shares are cancelled or reissued. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the company’s own equity instruments. Consideration paid or received shall be recognised directly in equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
1.15 Revenue Goods sold and services rendered Revenue is measured at the fair value of the consideration
received or receivable for the sales of goods and the rendering of services in the ordinary course of the group’s activities. Revenue is shown net of value-added-tax, returns, rebates and discounts. Revenue is shown after eliminating sales within the group.
The group recognises revenue the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the group’s activities as described below.
Sale of goods Revenue from the sale of goods is recognised in the
income statement when the significant risks and rewards of ownership have been transferred to the buyer. Service fees included in the price of the product are recognised as revenue over the period during which the service is performed.
Rendering of services Revenue from services rendered is recognised in the
income statement in proportion to the stage of completion
tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction that at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). A deferred tax asset is recognised for the carry forward of unused tax losses and unused STC credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused STC credits can be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.
Tax expense Current and deferred taxes are recognised as income or
an expense and included in profit or loss for the period, except to the extent that the tax arises from:
– a transaction or event which is recognised, in the same or a different period, directly in equity, or
– a business combination.
Current tax and deferred taxes are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly to equity.
Secondary taxation on companies Additional income taxes that arise from the distribution of
dividends are recognised at the same time as the liability to pay the related dividend.
1.14 Share capital and equity An equity instrument is any contract that evidences a
residual interest in the assets of an entity after deducting all of its liabilities.
Ordinary shares are classified as equity.
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64
Accounting policies continued
For the year ended 31 May 2008
The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance.
Defined contribution plans Payments to defined contribution retirement benefit plans
are charged as an expense as they fall due.
Payments made to industry-managed (or state plans) retirement benefit schemes are dealt with as defined contribution plans where the company’s obligation under the schemes is equivalent to those arising in a defined contribution retirement benefit plan.
Share-based payments The group issues equity-settled share options to its
executive employees. The fair value of options granted is recognised as an expense with a corresponding increase in equity. The fair value is measured at grant date and is spread over the period during which the employees become unconditionally entitled to payment. Fair value is measured using the Black-Scholes pricing model taking into account the term and conditions upon which the options were granted.
The group issues cash-settled share options to its group employees. The fair value of options granted is recognised as an expense with a corresponding increase in liability. The fair value is measured at grant date and is spread over the period during which the employees become unconditionally entitled to payment. The fair value of the share options is measured based on the Black-Scholes formula, taking into account the terms and conditions upon which the options were granted. Any changes in fair value of the liability are recognised to the income statement.
of the transaction at the balance sheet date. The stage of completion is assessed by reference to surveys of work performed.
Contract revenue Contract revenue comprises: – the initial amount of revenue agreed in the contract;
and – variations in contract work, claims and incentive
payments: – to the extent that it is probable that they will result
in revenue; and – they are capable of being reliably measured.
No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods also continuing management involvement with the goods.
Interest received Interest is recognised, in profit or loss, using the effective
interest rate method.
Dividends received Dividends are recognised, in profit or loss, when the
company’s right to receive payment has been established.
1.16 Employee benefits Short-term employee benefits The cost of short-term employee benefits, (those payable
within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the service is rendered and are not discounted.
The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, in the case of non-accumulating absences, when the absence occurs.
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65
financial statements are recognised in profit or loss in the period in which they arise.
When a gain or loss on a non-monetary item is recognised directly in equity, any exchange component of that gain or loss is recognised directly in equity. When a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss is recognised in profit or loss.
Cash flows arising from transactions in a foreign currency are recorded in Rands by applying to the foreign currency amount the exchange rate between the Rand and the foreign currency at the date of the cash flow.
1.19 Comparative figures When required, the group’s comparatives figures have
been adjusted to conform with the changes in presentation and disclosure in the current reporting period. Any such changes are disclosed in the applicable note to the financial statements.
Share-based payments granted that do not vest until the counterparty completes a specified period of service, the group accounts for those services as they are rendered by the counterparty on a straight-line basis over the vesting period).
The key assumptions for staff turnover per annum, early-exercise multiple, risk free rate, share price volatility and dividend yield are based on management’s best estimate at the date of valuation.
1.17 Borrowing costs Borrowing costs are recognised as an expense in the
period in which they are incurred.
1.18 Translation of foreign currencies Foreign currency transactions A foreign currency transaction is recorded, on initial
recognition in Rands, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.
At each balance sheet date: – foreign currency monetary items are translated using
the closing rate; – non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the exchange rate at the date of the transaction; and
– non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous
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Notes to the annual financial statements continued
For the year ended 31 May 2008
2. PROPERTY, PLANT AND EQUIPMENT
2008R’000
2007R’000
Cost Accumulated depreciation
Carryingvalue
Cost Accumulateddepreciation
Carryingvalue
GroupPlant and machinery 20 168 (6 335) 13 833 7 645 (1 515) 6 130Furniture and fittings 3 352 (1 180) 2 172 2 238 (717) 1 521Motor vehicles 2 170 (1 299) 871 1 739 (839) 900Office equipment 1 412 (931) 481 1 117 (645) 472Computer equipment 9 479 (5 590) 3 889 5 538 (4 262) 1 276Computer software 822 (382) 440 648 (246) 402Leasehold improvements 3 989 (906) 3 083 804 (280) 524Security 137 (120) 17 69 (37) 32Study material 111 (71) 40 71 (37) 34Signage 19 (6) 13 19 (2) 17
41 659 (16 820) 24 839 19 888 (8 580) 11 308
Reconciliation of property, plant and equipment
Openingbalance
R’000
Additionsthrough
businesscombinations
R’000
Disposalsthroughbusiness
combinations R’000
AdditionsR’000
DisposalsR’000
DepreciationR’000
Closingbalance
R’000
Group2008Plant and machinery 6 130 11 960 (911) 1 963 (489) (4 820) 13 833Furniture and fixtures 1 521 1 058 (147) 341 (138) (464) 2 172Motor vehicles 900 486 (118) 63 – (460) 871Office equipment 472 188 (95) 244 (42) (287) 480Computer equipment 1 276 2 255 (81) 3 071 (1 304) (1 328) 3 889Computer software 402 15 (30) 189 (136) 440Leasehold improvement 524 1 051 – 2 134 – (626) 3 083Security equipment 31 – – 68 – (82) 17Study material 34 – – 40 – (34) 40Signage 17 – – – (3) 14
11 307 17 013 (1 382) 8 113 (1 973) (8 240) 24 839
Simeka Business Group Annual Report 2008
67
2. PROPERTY, PLANT AND EQUIPMENT (continued)
Openingbalance
R’000
Additionsthrough
businesscombinations
R’000
Disposalsthroughbusiness
combinations R’000
AdditionsR’000
DisposalsR’000
DepreciationR’000
Closingbalance
R’000
Group 2007Plant and machinery 8 864 – – 2 505 (1 611) (3 628) 6 130Furniture and fittings 1 217 – – 568 – (264) 1 521Motor vehicles 1 184 – – 170 – (454) 900Office equipment 1 057 – – 146 (559) (172) 472Computer equipment 1 924 – – 807 (13) (1 442) 1 276Computer software 45 – – 523 – (166) 402Leasehold improvements 193 – – 555 – (224) 524Security 38 – – 19 – (25) 32Study material 58 – – – – (24) 34
– – – 19 – (2) 1714 580 – 5 312 (2 183) (6 402) 11 308
The group leases various classes property, plant and equipment under a number of finance leases. At 31 May 2008 the net carrying amount of leased property, plant and equipment is R3 629 000 (2007: R4 629 000). The leased property, plant and equipment secures the finance lease obligations. Refer to note 18.
2008R’000
2007R’000
Cost Accumulateddepreciation
Carryingvalue
Cost Accumulateddepreciation
Carryingvalue
CompanyPlant and machinery 2 – 2Furniture and fittings 200 (30) 170 200 (10) 190Motor vehicle 82 (5) 77 –Computer equipment 43 (19) 24 43 (11) 32Computer software 100 (25) 75 32 (7) 25
427 (79) 348 275 (28) 247
Simeka Business Group Annual Report 2008
68
Notes to the annual financial statements continued
For the year ended 31 May 2008
2. PROPERTY, PLANT AND EQUIPMENT (continued) Reconciliation of property, plant and equipment
Openingbalance
R’000Additions
R’000Disposals
R’000Depreciation
R’000
Closingbalance
R’000
Company2008Plant and machinery – 2 – – 2Furniture and fittings 190 – – (20) 170Motor vehicle – 82 – (5) 77Computer equipment 32 – – (8) 24Computer software 25 68 – (18) 75
247 152 – (51) 348Company2007Furniture and fittings – 200 (10) 190Computer equipment 32 7 – (7) 32Computer software – 32 (7) 25
32 239 – (24) 247
3. GOODWILL
2008R’000
2007R’000
CostAccumulatedimpairment
Carryingvalue Cost
Accumulatedimpairment
Carryingvalue
GroupGoodwill 326 344 (6 275) 320 069 235 378 – 235 378
326 344 (6 275) 320 069 235 378 – 235 378
Simeka Business Group Annual Report 2008
69
3. GOODWILL (continued) Reconciliation of goodwill
Openingbalance
R’000
Additionsthroughbusiness
combinationsR’000
AdditionsR’000
DisposalsR’000
ImpairmentR’000
Closingbalance
R’000
Group2008Goodwill 235 378 100 999 – (10 033) (6 275) 320 069
235 378 100 999 – (10 033) (6 275) 320 0692007Goodwill 207 703 27 675 – – 235 378
207 703 27 675 – – 235 378
Impairment charge The impairment loss is recognised as a cost in the income statement.
Impairment testing for cash-generating units containing goodwill For the purpose of impairment testing, goodwill is allocated to the group’s subsidiaries or group of subsidiaries which represent
the lowest level within the group at which the goodwill is monitored for internal management purposes.
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70
Notes to the annual financial statements continued
For the year ended 31 May 2008
3. GOODWILL (continued) Goodwill The aggregate carrying amounts of goodwill allocated to each unit are as follows:
2008R’000
2007R’000
Xantium CGU* 62 347 73 055MICT Solutions CGU 76 020 81 620Motoma Mithratech 26 338 26 338Simeka Consulting 33 908 33 908Simeka Resourcing Solutions 6 178 6 178Salamax 10 349 10 349Premium Ideas* 97 519 –Mint Net* 3 479 –Other subsidiaries without significant goodwill 3 931 3 930
320 069 235 378
*Goodwill arising from acquisitions performed in the 2008 financial year will be tested for impairment in the 2009 financial year.
The recoverable amount of the above cash-generating units were based on its value in use and were determined with the assistance of independent valuers. The recoverable amount of the cash-generating units was determined to be higher than its carrying amount with the exception of I-CSS and MICT VAR. I-CSS and MICT VAR were discontinued in the current financial year and an impairment loss of R5 600 000 for a division of I-CSS and R675 000 for MICT VAR (2007: nil) were recognised. The impairment loss was allocated fully to goodwill, and is included in operating expenses.
Value in use was determined by discounting the future cash flows generated from the continuing use of the units and were based on the following key assumptions:
Cash flows were projected based on actual operating results and the 2009 budget in respect of each cash generating unit. Cash flows for a further four-year period were extrapolated using a constant growth rate of 10% (with the exception of Simeka Consulting where a growth rate of 25% was used), which does not exceed the long-term average growth rate for the industry (operating cost margins were assumed to be maintained). This is also consistent with the long-term average growth rate for the industry. Management believes that this forecast period was justified due to the long-term nature of each business.
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71
3. GOODWILL (continued) Goodwill The pre-tax discount rate of 18,80% (20,68% for Simeka consulting) for each cash-generating unit was applied in determining
the recoverable amount of each cash-generating unit. The discount rate was estimated based on an industry average weighted average cost for capital, which was based on a possible range of debt leveraging of 10% at a market interest rate of 15%.
The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both external sources and internal sources (historical data).
4. INTANGIBLE ASSET
2008R’000
2007R’000
CostAccumulatedamortisation
Carryingvalue Cost
Accumulatedamortisation
Carryingvalue
GroupCustomer contracts information 45 823 (1 647) 44 176 – – –Technology Systems 2 592 (133) 2 459 – – –Contracts Rights – – – 3 521 (2 385) 1 136
48 415 (1 780) 46 635 3 521 (2 385) 1 136
Reconciliation of intangible asset
Openingbalance
R’000
Additionsthroughbusiness
combinationsR’000
DisposalsR’000
AmortisationR’000
ImpairmentR’000
Closingbalance
R’000
Group2008Customer related information – 45 823 – (1 647) – 44 176Technology Systems – 2 592 – (133) – 2 459Customer Rights 1 136 – (1 136) –
1 136 48 415 – (1 780) (1 136) 46 6352007Customer contracts 4 387 (1 426) (681) (1 144) 1 136
4 387 – (1 426) (681) (1 144) 1 136
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72
Notes to the annual financial statements continued
For the year ended 31 May 2008
5. INVESTMENTS IN SUBSIDIARIES
Nature of business
Country ofincorpo-ration if
not in RSAPercentageownership
Company2008
R’000
Company2007
R’000
CompanyDirectly heldXantium Professional Services (Pty) Limited IT Consulting 100 9 291 9 291
Xantium IT Services (Pty) LimitedIT Manufacturing, sales and distribution 100 – 21 033
Foster-Melliar (Pty) Limited IT Consulting 100 6 784 6 784Simeka Resourcing Solutions (Pty) Limited IT Resourcing 100 20 647 20 647Xantium Digital Card Services (Pty) Limited IT Sales and distribution 51 * *ITQ (Pty) Limited Software development 100 41 019 41 019ITQ Enterprise and Applications (Pty) Limited Software development 100 * *MICT Solutions Group Limited IT Investment company 100 78 000 78 000
Matoma Mithratech (Pty) LimitedIT Manufacturing, sales and distribution 100 18 000 18 000
Simeka Consulting (Pty) Limited IT Consulting 100 33 939 33 939Premium Ideas (Pty) Limited Contract packaging 100 145 151 –
Mint Net (Pty) Limited IT Consulting 52 5 140 –357 971 228 713
*Value below R1 000
MICT Solutions Group Limited is an unlisted public company.
All subsidiaries shares and claims has been ceded and pledged to Investec Bank Limited to secure loan facilities as described in note 17.
Unlimited cross suretyships between Simeka Business Group and all subsidiaries excluding Independent Computer Support Services has been pledged to Investec Bank Limited to secure loan facilities as described in note 17.
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73
6. BUSINESS COMBINATION Group Premium Ideas (Pty) Limited On 1 June 2007, Simeka Business Group Limited acquired 100% of the shares in Premium Ideas (Pty) Limited (“Premium Ideas”)
and its underlying subsidiary Premium Ideas Nigeria Limited. The cost of the acquisition amounted to R144 000 000 which is payable in cash and shares as follows:
Number ofshares
’000
SharevalueR’000
CashR’000
TotalR’000
Transaction date 18 581 28 800 43 200 72 00031 August 2008 18 580 28 800 43 200 72 000
37 161 57 600 86 400 144 000
The shares are to be issued at an issue price of R1,55.
The initial and second cash payment will be financed by securing a loan facility which will bear interest.
Goodwill of R97 519 184 arose due to expected synergy between the assets of Simeka and Premium Ideas. Premium Ideas revenue and net profit included in the group’s results from 1 June 2007.
On 1 June 2007 the fair values and carrying amounts of Premium Ideas were as follows:
CarryingvalueR’000
FairvalueR’000
Property, plant and equipment 11 746 16 245Intangible asset – 48 415Deferred taxation – (15 518)Financial assets 14 285 14 285Inventory 4 153 4 453Trade and other receivables 13 485 13 485Cash and cash equivalents 20 775 20 775Financial liabilities (35 398) (35 398)Trade and other payables 5 062 (5 062)Taxation payable (5 349) (5 349)Operating lease accrual (99) (99)Dividend payable (8 600) (8 600)
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74
Notes to the annual financial statements continued
For the year ended 31 May 2008
6. BUSINESS COMBINATION (continued) Simeka through the use of independent valuers, had undertaken to value the identifiable intangible assets of Premium Ideas. This
resulted in R48 415 000 worth of intangible assets that can be separately identifiable. These relate to cluster-related intangible assets and technology related intangible assets. No other intangible assets were identified of which the purchase price less the fair value of the net assets identified has resulted in goodwill.
Independent Computer Support Services (Pty) Limited (“I-CSS”) On 1 September 2007, MICT Solutions Group Limited, a subsidiary of Simeka acquired all of the minorities (40%) share capital
in I-CSS. The cost of acquisition amounted to R1 and was paid in cash. I-CSS loss included in the group’s income statement is R(11 755 000). Had MICT Solutions Group Limited not acquired the additional 40% shares, I-CSS’s loss that would be included in the group’s income statement would have been R(10 215 000).
Mint Net (Pty) Limited (“Mint Net”) On 1 December 2007, Simeka, acquired 52% of the shares in Mint Net. The cost of acquisition amounted to R5 140 000 and
was paid in cash. Goodwill of R3 479 262 arose due to expected synergy between the assets of Mint Net and Simeka. Mint Net’s revenue and net loss included in the group’s results is R6 452 602 and (R268 375) respectively. If Mint Net’s results were however included in the group’s results for the entire year, the amount that would have been included in the group’s results is a net profit of R293 590 and revenue of R13 068 064.
On 1 December 2007 the fair values and carrying amounts of Mint Net were as follows:
CarryingvalueR’000
FairvalueR’000
Property, plant and equipment 770 770Trade and other receivables 1 889 1 889Cash and cash equivalents 522 522Trade and other payables (1 226) (1 226)Taxation payable (294) (294)
The acquisition of the subsidiary is based on provisional fair values as the group has not yet accurately determined the identifiable assets, liabilities and/or contingent liabilities. The fair value of the subsidiary will be accurately determined by the next balance sheet date.
Simeka Business Group Annual Report 2008
75
6. BUSINESS COMBINATION (continued) Spec Systems On 1 December 2007, Xantium IT a 100% subsidiary of Simeka disposed of Spec Systems (a division of Xantium IT). The
proceeds of the disposal amounted to R13 600 000 and was received in Simeka shares at the share price of R1,70. The disposal resulted in a loss on sale of Spec Systems of R7 395 538. Spec Systems revenue and net profit included in the group’s results to 30 November 2007 is R20 779 000 and R1 471 500 respectively.
On 1 December 2007 the fair values and carrying amounts of Spec Systems were as follows:
CarryingvalueR’000
FairvalueR’000
Property, plant and equipment 1 382 1 382Deferred taxation 26 26Financial assets 1 085 1 085Inventory 5 407 5 407Trade and other receivables 7 759 7 759Cash and cash equivalents 866 866Trade and other payables (4 888) (4 888)Taxation payable (640) (640)Operating lease accrual (36) (36)
ITQ Business Group (Pty) Limited On 1 December 2007 ITQ, a wholly-owned subsidiary of Simeka and Mindkey (Pty) Limited, bespoke outsource development
company, have entered into an agreement in terms of which the parties transferred contracts into a new company called ITQ business Solutions (Pty) Limited (‘ITQ BS’). Simeka has a 50,01% shareholding in ITQ BS through ITQ and Mindkey the remaining 49,99%. ITQ BS’s revenue and net profit included in the group’s results is R32 054 000 and R5 262 000 respectively.
Simeka Business Group Annual Report 2008
76
Notes to the annual financial statements continued
For the year ended 31 May 2008
7. INVESTMENT IN ASSOCIATE
Nature ofbusiness
Percentageownership
Group2008R’000
Group2007
R’000
GroupIcentric Consulting (Pty) Limited IT Consulting 42,5 – 1 380Adcheck (Pty) Limited IT Consulting 50,0 5 476
5 476 1 380Summary of financial information of Adcheck (Pty) Limited – 100%Non-current assets 5 327 –Current assets 13 626 –Non-current liabilities 2 490 –Current liabilities 6 102 –Equity 10 362 –Profit or loss 951 –Revenue 5 964 –
The report date for Adcheck (Pty) Limited is 28 February 2008. The directors of Simeka Business Group Limited do not have the influence to change the reporting date to that of the group.
On 1 April 2008 Simeka Business Group Limited acquired 50% of the shares in Adcheck Limited. The cost of the acquisition amounted to R5 000 000 to be payable in shares.
On 1 September 2008 ITQ (Pty) Limited, a 100% owned subsidiary of Simeka Business Group, sold the investment in I-Centric (Pty) Limited for R3 400 000. The profit on disposal of the investment as disclosed in the income statement is R2 020 000.
Simeka Business Group Annual Report 2008
77
8. DEFERRED TAXATION
Group2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
Represented by:Accelerated allowances (16 993) (597) 367 48Leave pay 881 811 – –Bonus 199 – – –Leases 612 642 – –Operating lease accrual 304 180 – –Assessed loss 9 159 5 283 1 091 386
(5 838) 6 319 1 458 434
An entity shall disclose the amount of a deferred tax asset and the nature of the evidence supporting its recognition, when:
of existing taxable temporary differences; and
relates.
Deferred income taxes are calculated on all temporary differences under the liability method using an effective tax rate of 28% (2007: 29%).
9. INVENTORIES
Group2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
Raw materials 4 475 9 582 – –Work in progress 245 971Finished goods 7 547 5 410 – –Merchandise 110 124 – –
12 377 16 087 – –Inventory write downs (403) (596) – –
11 974 15 491 – –
A notorial bond has been pledged to Investec Bank Limited over inventory to secure long-term financing as described in note 17.
Simeka Business Group Annual Report 2008
78
Notes to the annual financial statements continued
For the year ended 31 May 2008
10. TRADE AND OTHER RECEIVABLES
Group2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
Trade receivables 106 310 79 795 15 558 936Deposits 1 003 642 –Prepayments 4 736 368 23VAT 1 882 2 083 –Other receivables 4 449 2 824 146 300
118 380 85 712 15 727 1 236
Accounts receivable has been ceded to Investec Bank Limited to obtain the long-term financing as described in note 17.
Trade and other receivables past due but not impaired At 31 May 2008: R88 439 000 (2007: R67 028) of trade and other receivables, less than three months past due are not considered to be impaired. The ageing of amounts past due but not impaired is as follows:1 month past due 16 532 11 1712 months past due 14 320 9 5753 months past due 17 871 12 767
Trade and other receivables impairedAs of 31 May 2008, trade and other receivables of R4 991 000 – (2007: R2 768 000) were impaired and provided for. The ageing of these loans is as follows:
3 to 6 months 1 070 1 668Over 6 months 3 921 1 100
Simeka Business Group Annual Report 2008
79
11. OTHER FINANCIAL ASSETS
Group2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
Loans receivables – 1 296 – –
The loans are unsecured, interest free with no fixed terms of repayment
12. LOANS TO/FROM GROUP COMPANIESXantium Professional Services (Pty) Limited (922) (389)Foster-Melliar (Pty) Limited (52) –Independent Computer Support Services (Pty) Limited 5 826 1 747Salamax 1840 (Pty) Limited – 2 189Advocate Solutions (Pty) Limited 1 000 900Motoma Mithratech (Pty) Limited (9 691) 949MICT Solutions Group Limited 12 217 7 556Xantium IT Services (Pty) Limited 27 328 13 547ITQ (Pty) Limited (6 267) (5 947)Simeka Resourcing Solutions (Pty) Limited (2 617) (2 604)Simeka Consulting (Pty) Limited (6 500) (1 277)Mint Net (Pty) Limited 3 820 –ITQ Enterprise and Applications (Pty) Limited 2 189 –Matomo Technologies (Pty) Limited (2 954) –Intergraph Systems Southern Africa (Pty) Limited (20 540) –Circle Way Trading (Pty) Limited (43 908) –
(41 071) 16 671Current assets 52 380 26 888Non-current liabilities (37 241) –Current liabilities (56 210) (10 217)
(41 071) 16 671
Circle Way Trading (Pty) Limited The loan is unsecured, bears interest at Jibar +5,5% and is repayable by quarterly instalments of R3 304 000 over five years
commencing on 21 March 2008.
Other group loans The loans are unsecured, interest free with no fixed terms of repayment
Simeka Business Group Annual Report 2008
80
Notes to the annual financial statements continued
For the year ended 31 May 2008
13. GROUP BALANCE SHEET – FINANCIAL INSTRUMENTS BY CATEGORY
Loans andreceivables
Financialliabilities
at amortisedcost
Held tomaturity Total
Group – 2008Financial assetsCash and cash equivalents 72 383 – – 72 383Trade and other receivables 118 380 – – 118 380Other financial assets 306 – – 306Total financial assets 191 069 – – 191 069Financial liabilitiesBank overdraft 1 358 – – 1 358Trade and other payables 85 917 – – 85 917Other financial liabilities – 105 749 – 105 749Finance lease obligation – 2 112 – 2 112Vendor liabilities 46 241 – – 46 241Total financial liabilities 133 516 107 861 – 241 377Group – 2007Financial assetsCash and cash equivalents 40 303 – – 40 303Trade and other receivables 85 712 – – 85 712Other financial assets 1 296 – – 1 296Total financial assets 127 311 – – 127 311Financial liabilitiesBank overdraft 1 608 – – 1 608Trade and other payables 85 917 – – 85 917Other financial liabilities – 69 981 – 69 981Finance lease obligation – 2 215 – 2 215Vendor liabilities 5 650 – – 5 650Total financial liabilities 93 175 72 196 – 165 371
Simeka Business Group Annual Report 2008
81
14. SHARE CAPITAL
Group2008’000
Group2007’000
Company2008’000
Company2007’000
Authorised1500 000 000 ordinary shares of R0,0001 each 150 150 150 150Issued422 455 621 (2007: 386 624 976) ordinary shares of R0,0001 each 42 39 43 39Share premium 189 776 165 353 203 375 165 353
189 818 165 392 203 418 165 392Reconciliation of number of shares issued:Reported as at 1 June 2007 386 625 345 946 386 625 345 946Issue of shares of ordinary shares 34 031 34 179 34 031 34 179Issue of shares to directors – ordinary shares 1 500 6 500 1 500 6 500Issue of shares to staff trust 300 – 300 –Treasury shares (8 933) – – –
413 523 386 625 422 456 386 625
The unissued shares are under the control of the directors until the forthcoming Annual General Meeting.
15. AMOUNTS DUE TO VENDORS
Sharesoutstanding
2008’000
Sharevalue2008R’000
Sharesoutstanding
2007’000
Sharevalue2007
R’000
For subsidiaries and businesses acquired:ITQ (Pty) Limited – – 450 225Motoma Mithratech (Pty) Limited – – 15 000 9 000Premium Ideas (Pty) Limited 18 581 28 800Adcheck (Pty) Limited 5 000 5 000
23 581 33 800 15 450 9 225
Simeka Business Group Annual Report 2008
82
Notes to the annual financial statements continued
For the year ended 31 May 2008
16. VENDOR LIABILITIES
Group2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
For subsidiaries and businesses acquired:Xantium IT Services (Pty) Limited * – 4 375 – 4 375ITQ (Pty) Limited – 1 275 – 1 275Premium Ideas (Pty) Limited 46 241 – 46 241 –
46 241 5 650 46 241 5 650Current portion included under current liabilities:Xantium IT Services (Pty) Limited * – 4 375 – 4 375ITQ (Pty) Limited – 1 275 – 1 275Premium Ideas (Pty) Limited 46 241 – 46 241 –
46 241 5 650 46 241 5 650Long-term portion – – – –
Vendor liabilities outstanding for Premium Ideas bears interest at prime -2 from the effective date of the transaction until the amount has been settled.
17. OTHER FINANCIAL LIABILITIESInterest-bearing liabilities 105 749 69 981 59 919 59 954Non-interest-bearing liabilities – – 36Total amount outstanding 105 749 69 981 59 919 59 990Less: Amount included in current liabilities (13 418) (13 248) (8 893) (36)Long-term portion outstanding 92 331 56 733 51 026 59 954
Simeka Business Group Annual Report 2008
83
17. OTHER FINANCIAL LIABILITIES (continued) On 13 October 2006 the group obtained a R34 million five-year loan facility from Investec Bank Limited for the repayment
certain vendor liabilities. The loan bears interest at prime +3,5% and is repayable in quarterly instalments of R2 165 000 commencing on 1 December 2007. The balance of the loan facility as at 31 May 2008 is R32 472 328 (2007: R35 541 000). The following security has been provided for the term loan:
– A general notorial bond over all inventory and equipment. – Cross guarantees to be provided by all Simeka Group companies – Cession of accounts receivable – Cession of all bank accounts – Cession and pledges of shares and claims in all subsidiary companies – Cession of all insurance policies – Cession and pledge of cash-backed deposit – Registration of first covering mortgage bond. – Subordination of any shareholders loans
On 13 October 2006 the group obtained a R20 million working capital loan facility from Investec Bank Limited. The loan bears interest at prime +0,25%, interest is payable quarterly. During the term of the facility, Investec Bank Limited reserves the right to call up and/or renegotiate the terms of the facility should control pass out of the hands of present controlling shareholder(s) of Simeka. The balance of the working capital facility as at 31 May 2008 is R23 355 682 (2007: R20 413 000)
On 7 June 2006 the group obtained a R4 million keyman insurance loan facility from Nedbank Limited. The loan bears interest at prime, of which the interest is payable monthly and the capital is repayable on 1 June 2011. The balance of the keyman loan facility as at 31 May 2008 is R4 000 000 (2007: R4 000 000). The following security has been provided for the loan:
– Unlimited cession of a capital guaranteed endowment policy.
Simeka Business Group Annual Report 2008
84
Notes to the annual financial statements continued
For the year ended 31 May 2008
17. OTHER FINANCIAL LIABILITIES (continued) On the 21 December 2007 the group obtained a R44,6 million five-year loan facility from Investec Bank Limited for the
repayment certain vendor liabilities. The loan bears interest at Jibar +5,5% and is repayable in quarterly instalments of R3 304 000 commencing on 21 March 2008. The balance of the loan facility as at 31 May 2008 is R43 908 073. The following security has been provided for the term loan:
– A general notorial bond over all inventory and equipment. – Cross guarantees to be provided by all Simeka Group companies – Cession of accounts receivable – Cession of all bank accounts – Cession and pledges of shares and claims in all subsidiary companies – Cession of all insurance policies – Cession and pledge of cash-backed deposit – Registration of first covering mortgage bond. – Subordination of any shareholders loans
All other interest-bearing liabilities bear interest at prime and are repayable in monthly instalments within 36 months.
The group’s borrowing powers have not been exceeded in terms of the Articles of Association of the holding company and of the underlying subsidiaries.
18. FINANCE LEASE OBLIGATION
Group2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
Total finance lease outstanding 2 112 2 215 – –Less: Amount included in current liabilities (1 172) (798) – –Long-term portion outstanding 940 1 417 – –
Simeka Business Group Annual Report 2008
85
18. FINANCE LEASE OBLIGATION (continued) Reconciliation between the total minimum lease payments and their present value
Up to1 year
2 to5 years
More than5 years Total
2008Minimum lease payments 1 342 1 318 – 2 660Finance cost (170) (378) – (548)Present value 1 172 940 – 2 1122007Minimum lease payments 893 3 293 – 4 186Finance cost (95) (241) – (336)Present value 798 3 052 – 3 850
The finance lease agreements are repayable 60 monthly instalments and bears interest at prime +1.
The group’s obligations under instalment sale agreements are secured by the lessor’s charge over the financed assets as disclosed in note 2.
19. TRADE AND OTHER PAYABLES
Group2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
Trade payables 37 665 30 004 99 380VAT 13 446 4 813 1 379 –FEC liability 76 – – –Leave pay provision 3 146 2 187 – –Bonus provision 712 160 – –Payroll accruals 6 863 4 833 1 124 35Other accruals 15 989 7 058 – 230Deferred income 8 020 5 255 – –Other payables – 330 – –
85 917 54 640 2 602 645
Simeka Business Group Annual Report 2008
86
Notes to the annual financial statements continued
For the year ended 31 May 2008
20. PROVISIONS
Group2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
Claims – 450 – –
Reconciliation of provisions
Openingbalance
R’000Additions
R’000Utilised
R’000
Closingbalance
R’000
2008Claims 450 – (450) –
450 – (450) –2007Claims – 450 – 450
– 450 – 450
21. SEGMENT REPORT
2008R’000
2007R’000
2008R’000
2007R’000
2008R’000
2007R’000
2008R’000
2007R’000
Business SupportServices Technology
Corporate and eliminations Total
RevenueExternal sales 419 369 291 598 165 432 102 369 584 801 393 967Internal sales 5 840 6 370 28 491 116 (34 332) (6 485) –Total segment revenue 425 209 297 968 193 924 102 485 (34 332) (6 485) 584 801 393 967
Simeka Business Group Annual Report 2008
87
21. SEGMENT REPORT (continued)2008R’000
2007R’000
2008R’000
2007R’000
2008R’000
2007R’000
2008R’000
2007R’000
Business SupportServices Technology
Corporate and eliminations Total
Other informationCapital expenditure 5 800 4 052 585 493 302 249 6 688 4 794Balance sheet assetsSegment assets 120 615 102 769 61 482 27 315 423 189 266 859 605 285 396 943Investment in associates 1 380 5 476 – 5 476 1 380Consolidated total assets 120 615 102 769 61 482 28 573 428 664 266 859 610 761 398 322LiabilitiesSegment liabilities 93 535 51 698 31 930 13 387 141 641 79 911 267 106 144 996Consolidated total liabilities 93 535 51 698 31 930 13 387 141 641 79 911 267 106 144 996
22. SHARE-BASED PAYMENTS The company operates the Group General Employee Option Scheme and an Executive Share Option Scheme.
‘Group General Employee Share Option Scheme’ Share options granted on 1 March 2007 are offered at 50 cents and are exercisable in three successive tranches of 33% on each
anniversary date of issue for a period of three years from the date the option was granted. The share options may be exercised from the date of vesting to the date of their expiry. The share options expire on the day after the last anniversary date.
The number of share options is calculated in accordance with group’s policy in appraising employees and as approved by the remuneration committee of the group. Upon resignation the share options will lapse immediately.
This option scheme is cash settled and is based on one share option converting into one ordinary share of Simeka Business Group Limited on exercise. The liability is recognised at balance sheet based on the measurement of the fair value of the share options.
Executive share options’ Share options were granted on 25 March 2008 to the certain directors and to the company secretary at the market price of 80c.
50% of the options are exercisable as at 1 July 2008 and the remaining 50% as at 1 April 2009 and expire on 2 April 2009.
This option scheme is equity settled and is based on one share option converting into one ordinary share of Simeka BSG.
During the year, share options were granted to B Hopkinson, the group’s executive director at the time. The scheme comprised of 1 500 000 shares which were issued to the group’s share scheme trust. Share options were issued on 15 September 2007 of which one third was exercisable immediately and that balance at each anniversary year to 15 September 2010. The board waived the exercise date for the options vesting in the 2009 year to 30 November 2007. B Hopkinson exercised the options that vested to him up to 30 November 2007. Upon his resignation B Hopkinson forfeited the remaining 500 000 share options.
Simeka Business Group Annual Report 2008
88
Notes to the annual financial statements continued
For the year ended 31 May 2008
22. SHARE-BASED PAYMENTS (continued) Details of the schemes are described below
Executive Share Option Scheme
Group General Employee Share Option Scheme
Grant date 25 March 2008 1 March 2007Expiry date 2 April 2009 29 March 2010Number of shares granted 5 399 700 3 616 439Option vesting period 1,02 years 3 yearsVesting conditions Remain in service Remain in serviceWeighted average fair value of options granted 16c 101cAverage days until fully vested 372 667Average days until expiry 373 668
Details of outstanding options for the group employee share option scheme are as follows:
2008R
2007R
Numberof options
Averageexercise
priceNumber
of options
Averageexercise
price
‘Executive Share Option Scheme’Outstanding at beginning of the year – – – –Granted 5 399 700 0,80 6 500 000 0,75Forfeited – – – –Exercised – – (6 500 000) 1,20Outstanding at end of year 5 399 700 0,80 – –Exercisable at end of year – – – –‘Group General Employee Share Option Scheme’Outstanding at beginning of the year 1 339 472 1,43 – –Granted 2 276 967 1,43 1 339 472 1,32Forfeited (241 109) 0,92 – –Exercised (223 838) 0,83 – –Outstanding at end of year 3 151 492 0,66 1 339 472 1,43Exercisable at end of year 1 205 480 0,65 – –
Simeka Business Group Annual Report 2008
89
22. SHARE-BASED PAYMENTS (continued) Details of outstanding options for B Hopkinson is as follows:
Director
Share options granted Exercised Forfeited Outstanding
B Hopkinson 1 500 000 1 000 000 500 000 –Average exercise price 1,20 1,25 1,25 –
The fair value of the options granted during the year using the Binomial Options Pricing Model that is recognised as an expense is R1 087 146,57 (2007: R332 211)
The closing carrying value of the cash-settled liability is R1 122 830 (2007: R35 684).
For the financial period ended 31 May 2007, the following assumptions were used:
Group2008
Group2007
VolatilityThe weighted average volatility assumption for the options granted is equal to: 40% 25%
Expected lifeThe expected remaining contractual life of the share options outstanding is: 2 years 3 years
Risk-free rateThe weighted average risk-free rate used to value the options issued: 9,5% 8,5%
Dividend yieldThe company currently has not issued dividends and has no dividend yield.
23. REVENUE
Group2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
Sale of goods 338 448 180 730 – –Rendering of services 246 353 213 223 19 087 8 347
584 801 393 953 19 087 1 398
Simeka Business Group Annual Report 2008
90
Notes to the annual financial statements continued
For the year ended 31 May 2008
24. OPERATING PROFIT BEFORE FINANCE COSTS
Group2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
Amortisation of intangible asset 1 780 – – –Impairment of intangible asset – – – –Impairment on subsidiaries 6 275 – – –Depreciation 8 059 6 033 51 24Auditors’ remuneration – fees– Audit fees 1 501 217 432 210Consulting fees 13 813 4 819 690 690Directors emoluments 8 086 7 111 – –Non-executive directors – –– Fees 758 611 – –Executive directors– Salaries 5 073 5 125 – –– Bonuses 824 673– Allowances 1 431 701 – –Foreign exchange (gains)/losses 351 (291) – –(Profit)/loss on disposal of property, plant and equipment – (79) – –Operating lease rentals 11 386 13 376 2 118 2 399– Premises 10 342 9 993 2 116 2 399– Equipment 982 370 2 –– Other 62 – – –Secretarial servicesStaff costs excluding directors’ emoluments 79 767 78 278 1 484 967
25. INVESTMENT INCOMEInterest received bank 7 113 967 908 80Interest received other 217 –Dividends received from subsidiaries – – 5 500
7 330 967 908 5 580
Simeka Business Group Annual Report 2008
91
26. FINANCE COSTSGroup2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
Vendor liabilities 3 041 81 3 041 81Financial liabilities 8 235 6 518 8 897 4 853Finance leases 280 418 – –Bank 1 055 83 – –Other 72 35 – –
12 683 7 135 11 938 4 934
27. INCOME FROM ASSOCIATESShare of retained profits – I-Centric 73 621 – –Share of retained profits – Adcheck 475 – 475 –Dividends received – I-Centric – 170 – –
548 791 475 –
28. TAXATIONSouth African normal tax– Current year 22 240 13 299 – –– Capital gains tax 442 464 – –Deferred taxation – – –– Temporary differences (3 481) (388) (1 039) (434)– Rate change 218 – 15 –
19 419 13 375 (1 024) (434)Reconciliation of rate of taxation % % % %South African normal tax rate 28,00 29,00 28,00 29,00Non-taxable income (6,21) (7,14) 1,68 (18,00)Non-deductible expenses 2,91 0,85 (14,90)Assessed loss raised – –Rate change 0,37 – 0,06Effective rate 25,07 22,71 14,84 11,00
The income tax rate of 29% in 2007 was reduced to 28% in 2008.
Simeka Business Group Annual Report 2008
92
Notes to the annual financial statements continued
For the year ended 31 May 2008
29. DISCONTINUED OPERATIONS On 14 December 2007, the group has decided to discontinue its operations in Independent Computer Support Services (Pty)
Limited. The decision was made by the board to discontinue these operations in view of poor performance of the bench division of I-CSS and consistent margin pressures and due to the lack of return on investment. The non-current assets are to be sold piecemeal.
Group2008R’000
Group2007
R’000
Revenue 12 595 53 032Cost of sales (10 016) (13 945)Gross profit 2 579 39 087Other income 251 –Other operating expenses (20 174) (38 521)Net interest expense (249) (173)Net profit/loss before taxation (17 593) 393Taxation (95) (643)Net loss after taxation (17 688) (250)Attributable to:Equity holders of the parent (11 755) (142)Minority interest (5 933) (108)Net loss for the year (17 688) (250)
Simeka Business Group Annual Report 2008
93
30. GAINS AND LOSSES PER CATEGORY OF FINANCIAL INSTRUMENTS
Loans andreceivables
Financialliabilities
at amortisedcost
Held tomaturity Total
Group – 2008Investment revenue 7 330 7 330Finance cost (4 168) (8 515) (12 683)Other operating income – – – –Impairments on loans and receivables (4 991) – – (4 991)Fair value adjustments in initial recognition – – – –
(1 829) (8 515) – (10 344)Group – 2007Investment revenue 967 – – 967Finance cost (118) (6 101) – (6 219)Other income 2 376 – – 2 376Impairments on loans and receivables (2 768) – (2 768)Fair value adjustments in initial recognition – (81) – (81)
(457) (6 182) – (5 725)
31. EARNINGS PER SHARE31.1 Earnings per share The calculation of earnings per ordinary share for the group is based on income attributable to ordinary shareholders of
R54 552 000 (2007: R44 881 000) and weighted average of 403 240 984 (2007: 359 146 568) ordinary shares in issue.
31.2 Diluted earnings per share The calculation of diluted earnings per share is based on an income of R54 552 000 (2007: R44 881 000) and a weighted average
of 427 404 962 (2007: 377 923 908) ordinary shares in issue and to be issued.
Simeka Business Group Annual Report 2008
94
Notes to the annual financial statements continued
For the year ended 31 May 2008
31. EARNINGS PER SHARE (continued)31.3 Headline earnings per share The calculation of headline earnings per ordinary share for the group is based on income of R66 202 000 (2007: R45 512 000)
and weighted average of 403 240 984 (2007: 359 146 568) shares in issue.
Group2008R’000
Group2007
R’000
Reconciliation between earnings/(loss) and headline earnings/(losses)Earnings for the year attributable to ordinary shareholders from continued operations 54 552 44 881Impairment of goodwill 6 275 –Impairment of intangible asset – 710Loss on disposal of subsidiary 7 395 –Profit on disposal of associate (2 020) –Profit/(loss) on disposal of property, plant and equipment – (79)Headline earnings 66 202 45 512
31.4 Diluted headline earnings per share The calculation of diluted headline earnings per ordinary share for the group is based on an income of R66 202 000 (2007: R45 512 000) and weighted average of 427 404 962 (2007: 377 923 908) shares in issue and to be issued.
31.5 Adjusted headline earnings per share The calculation of diluted headline earnings per ordinary share for the group is based on an income of R68 404 000 (2007: R46 801 000) and weighted average of 403 240 984 (2007: 359 146 568) shares in issue.Reconciliation between earnings/(loss) and headline earnings/(losses)Headline earnings 66 202 45 512Imputed interest 81Amortisation of intangible asset 1 780 600Operating leases straight-lining 422 608Adjusted headline earnings 68 404 46 801
Simeka Business Group Annual Report 2008
95
32. CASH GENERATED FROM OPERATIONSGroup2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
Operating income/(loss) before interest, impairments and taxation 77 457 58 914 (6 902) 4 005Adjustments for non-cash items:– Depreciation 8 059 6 032 51 24– Amortisation 1 780 – – –– Impairment of intangible asset – – – –– Impairment of goodwill 6 275 – – –– Investment income (7 330) (966) (908) (5 580)– Gain on saving from vendor liabilities – (2 377) – –– Finance costs 12 683 7 135 11 938 4 934– Profit/loss on foreign exchange 351 (300) – –– Profit/(loss) on disposal of fixed assets – (79) – –– Foreign currency translation movement 978 – – –– Loss on sale of business combinations 7 394 – 7 433 –– Profit on sale of associate (2 020) – – –– Operating lease accruals 269 625 (1) 311– Operating lease asset – – 66 (146)– Movement in provisions (450) (416) – –– Earnings from associate (547) (791) (475) –Operating income/(loss) before changes 104 899 67 777 11 202 3 548in working capital– Inventories (4 618) (100) – –– Accounts receivable (33 257) (14 016) (14 491) (665)– Accounts payable 37 653 (11 736) 1 885 277
104 677 41 925 (1 404) 3 160
Simeka Business Group Annual Report 2008
96
Notes to the annual financial statements continued
For the year ended 31 May 2008
33. TAXATION PAIDGroup2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
Balance at beginning of year 9 827 6 220 114 562Taxation charge as per income statement 19 419 14 018 (1 024) (434)Deferred taxation charge 3 481 317 1 024 434Rate change – – – –Taxation liability assumed on acquisition 5 643 – – –Taxation liability reduced on disposal of business (640) – – –Taxation paid from discontinued operation (318) (501) – –Balance at the end of the year (8 235) (9 827) (114) 114
29 177 10 227 – 676
Simeka Business Group Annual Report 2008
97
34. ACQUISITION OF SUBSIDIARIES
Group2008R’000
Group2007
R’000
Property, plant and equipment 17 015 –Intangible asset 48 415 –Deferred taxation (15 518) 1 776Financial assets 14 285 –Inventory 4 453 –Trade and other receivables 15 374 2 488Cash and cash equivalents 21 297 –Financial liabilities (35 398) –Related party loans – (7 105)Trade and other payables (6 288) (1 508)Taxation payable (5 643) –Operating lease accrual (99) –Dividend payable (8 600) –Minority interest* – –Total net assets purchased 49 293 (4 349)Goodwill 10 999 10 349Total purchase price 150 292 6 000Shares issued (28 800) –Deferred payments– Shares (28 800) –– Cash (43 200) –Portion of purchases price unpaid (100 800) –Total purchase price settled in cash 49 492 6 000Cash acquired in businesses (21 297) –Cash paid 28 195 6 000
*Amount below R1 000
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Notes to the annual financial statements continued
For the year ended 31 May 2008
35. DISPOSAL OF BUSINESS
Group2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
Property, plant and equipment 1 382 –Deferred taxation 26 –Financial assets 1 086 –Inventory 5 408 –Trade and other receivables 7 759 –Cash and cash equivalents 866 –Trade and other payables (4 888) –Taxation payable (640) –Operating lease accrual (36) –Total net assets purchased 10 963 –Goodwill 10 033 –
20 996 –Shares received (13 600) –
7 396 –Loss on sale of business (7 396) –Total purchase price settled in cash – –Cash sold in business 866 –Net cash outflow 866 –
36. CASH AND CASH EQUIVALENTSBank and cash balances 72 383 40 303 12 814 6 463Bank overdraft (1 358) (1 608) – –
71 025 38 695 12 814 6 463
Cash and cash equivalents has been ceded to Investec Bank Limited to secure long-term financing as described in note 17.
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37. COMMITMENTS The following operating lease charges are payable on equipment and premises
Group2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
– Due within one year 7 192 5 542 – 2 984– Due within one to five years 9 843 10 064 – 3 507– Due after five years – – – –
17 035 15 606 – 6 491The following rent on operating lease are receivable on premises– Due within one year – – 2 618 2 489– Due within one to five years – – 1 563 4 181– Due after five years – – – –
– – 4 181 6 670
38. RELATED PARTIES Related parties include shareholders, directors and companies controlled by the directors.
During the year, certain subsidiaries, in the ordinary course of business entered into various loans and transactions with related parties under terms that are no less favourable than those arranged with third parties.
Transactions with directors Simeka Business Group Limited and one if its subsidiaries entered into lease agreements for premises with a company whose
principle shareholder is Tozamile Botha the group’s non-executive director and Mohammed Varachia. The lease periods are for the three years and are entered under terms that are no less favourable to the company than those arranged with third parties. The total rent paid included in the financial statement relating to this related party transaction is:
Group2008R’000
Group2007
R’000
Company2008R’000
Company2007
R’000
Premises leased – Simeka Business Group 2 116 2 410 2 116 2 410Premises leased – Matomo Technologies 1 128 1 137 – –
3 244 3 547 2 116 2 410
Directors Executive directors are defined as key senior management. Details of the directors emoluments, shareholding and share options
are disclosed in note 40.
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Notes to the annual financial statements continued
For the year ended 31 May 2008
39. FINANCIAL RISK MANAGEMENT Introduction and overview The group is exposed to a variety of financial risks form the its use of financial assets and liabilities: – Credit risk – Liquidity risk – Market risk – Interest rate risk – Foreign exchange risk – Operational risk – Capital risk management
The note provides information about the group’s exposure to each of the above risks, the group’s objectives, policies and processes for the measurement and management of each particular risk.
Risk management The board of directors is primarily responsible for the establishment and oversight of the group’s risk management. Risk
management is pro active and anticipatory, enabling the board to achieve its objectives with greater certainty. The risk management process aims at increased awareness, transparent evaluation, and sound mitigation of risks facing the board.
The group’s risk management policies are developed to identify the risks that are faced by the group, focusing on risk analysis and responses improves the quality of risk limitations and controls.
The Audit Committee is responsible for the monitoring and compliance with the group’s risk management policies and processes, for reviewing the adequacy of the risk management framework and any action plans it wishes in institute to manage such risk.
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39. FINANCIAL RISK MANAGEMENT (continued) Credit risk Credit risk relates to the risk of financial loss to the group relating to customers, loans receivables and other financial
instruments who fail to meet their contractual obligations. The potential exposure on these financial instruments trade receivables, loans, bank and call deposits.
In order to manage the potential exposure to risk, the group structures the levels of credit risk it wishes to undertake, placing limits of risk accepted in relation to a single customer or a group of customers. The group also takes into account any impairment against non-paying accounts, where the recoverability of such amounts is considered doubtful.
Customers consist mainly of a large widespread customer base.
At the balance sheet date, the group did not consider there to be any significant concentration of credit risk which has not been adequately provided for.
The board has delegated the responsibility of managing the credit risk to the managing executives of each subsidiary. The managing executives are primarily responsible for managing and maintaining credit risk, including:
– Establishing the authorisation structure for the approval and renewal of credit facilities – Reviewing and assessing credit risk – Monitoring the financial position of customers on an ongoing basis. – Formulating credit policies in relation to the subsidiary’s business and customer base
Past due but impaired financial assets Trade and other receivables and other financial assets that are past due but the group believes that an impairment is not
necessary on based customer history and the stage of collection of amounts owed to the group.
Allowance for impairment The group establishes an allowance for impairment losses that represents is estimate loss on such amounts. The allowance
is specific to individual exposures to each account and class of transaction.
Impairment Impaired trade receivable, loans and other financial assets are amounts for which the group determines that it is not probable
to collect the amounts due.
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Notes to the annual financial statements continued
For the year ended 31 May 2008
39. FINANCIAL RISK MANAGEMENT (continued) Liquidity risk Liquidity risk is the risk that the group will encounter difficulty in meeting obligations from its financial liabilities. The group
manages liquidity risk by monitoring forecast cash flows and ensuring that adequate cash resources and unutilised borrowing facilities are maintained.
An analysis of the group’s financial assets and liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to contractual maturity date. The amounts disclosed in the analysis are discounted cashflows except if otherwise stated. Balances due within 12 months equal their carrying value as the impact of discounting is not material.
<1 year>1 year
<5 years >5 years Total
2008 – R’000Financial assetsCash and cash equivalents 72 383 – – 72 383Trade and other receivables 118 380 – – 118 380Other financial assets – –Total financial assets 190 763 – – 190 763Financial liabilitiesBank overdraft 1 358 – – 1 358Trade and other payables 85 917 – – 85 917Other financial liabilities 13 418 92 331 – 105 749Finance lease obligation 1 172 940 – 2 112Vendor liabilities 46 241 – – 46 241Total financial liabilities 148 106 93 271 – 241 377Net liquidity (gap)/excess 42 657 (93 271) – (50 614)
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39. FINANCIAL RISK MANAGEMENT (continued)
<1 year>1 year
<5 years >5 years Total
2007 – R’000Financial assetsCash and cash equivalents 40 303 – – 40 303Trade and other receivables 85 712 – – 85 712Other financial assets 1 296 1 296Total financial assets 127 311 – – 127 311Financial liabilitiesBank overdraft 1 608 – – 1 608Trade and other payables 54 640 – – 54 640Other financial liabilities 13 248 56 734 – 69 982Finance lease obligation 798 1 417 – 2 215Vendor liabilities 5 650 – – 5 650Total financial liabilities 75 944 58 150 – 134 095Net liquidity (gap)/excess 51 367 (58 150) – (6 784)
Market risk Market risk is the risk that changes in market prices, such as interest rate, equity prices, foreign exchange rates and credit
spreads will affect the group’s income or the value if its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.
Interest rate risk The group’s cashflow interest rate risk is the risk that the future cashflows of a financial instrument will fluctuate owing to
changes in the market interest rates. The fair value interest rate risk is the risk that the value of the financial instrument will fluctuate because of changes in the market interest rates. The group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both the fair value and cashflow risks. The analysis below summarises the exposure to interest rate risk. Financial assets and liabilities are categorised by the earlier on contractual re-pricing or maturity dates.
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Notes to the annual financial statements continued
For the year ended 31 May 2008
39. FINANCIAL RISK MANAGEMENT (continued)
<1 year>1 year
<5 years >5 years
Non-interest-bearing Total
2008 – R’000Financial assetsCash and cash equivalents 72 383 – – 72 383Trade and other receivables – – – 118 380 118 380Other financial assets – – – – –Total financial assets 72 383 – – 118 380 190 763Financial liabilitiesBank overdraft 1 358 – – 1 358Trade and other payables – – – 85 917 85 917Other financial liabilities 13 418 92 331 – – 105 749Finance lease obligation 1 172 940 – – 2 112Vendor liabilities 46 241 – – – 46 241Total financial liabilities 62 189 93 271 – 85 917 241 377Interest rate (gap)/excess position 10 194 (93 271) – 32 463 (50 614)2007 – R’000Financial assetsCash and cash equivalents 40 303 – – – 40 303Trade and other receivables – – 85 712 85 712Other financial assets – 1 296 1 296Total financial assets 40 303 – – 87 008 127 311Financial liabilitiesBank overdraft 1 608 – – – 1 608Trade and other payables – – 54 640 54 640Other financial liabilities 13 248 56 734 – 69 982 139 962Finance lease obligation 798 1 417 – 2 215 4 431Vendor liabilities – – 5 650 5 650Total financial liabilities 15 654 58 150 – 132 487 206 291Interest rate (gap)/excess position 24 649 (58 150) – (45 479) (78 980)
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39. FINANCIAL RISK MANAGEMENT (continued) Interest rate sensitivity analysis As at 31 May 2008, if the interest rate on: – Variable rate assets and liabilities held at amortised cost and – Assets and liabilities accounted for at fair value
had increased or decreased by 200 basis points with all other variables held constant, the impact in profit and loss would have been as set out in the table below:
2008R’000
2007R’000
Pre-tax Post-tax Pre-tax Post-tax
Increase 1 601 1 153 828 588Decrease (1 601) (1 153) (828) (588)
Foreign exchange risk The group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily
with respect to the US dollar and the UK pound. Foreign exchange risk arises from commercial transactions, recognised assets and liabilities and net investments in foreign operations.
The group has set up policies that require group companies to manage their foreign exchange risk against their functional currency. The group companies are required to hedge their foreign exchange risk exposure with financial institutions. To manage their foreign exchange risk arising from commercial transactions and recognised assets and liabilities, entities in the company use forward contracts, transacted with financial institutions. Foreign exchange risk arises when commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency.
The group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. This will have no effect on the post-tax profit as the effect of the translation is recognised directly in the foreign currency translation reserve.
Foreign exchange sensitivity analysis At 31 May 2008, if the foreign entities local currencies (Mozambique New Metical and Nigerian Naira) had weakened or
strengthened by 10% against the Rand, with all other variables held constant, the impact on profit and loss for the group would have been as follows:
2008R’000
2007R’000
Pre-tax Post-tax Pre-tax Post-tax
Weakened 721 910 664 695 96 66Strengthened (721 910) (664 695) (96) (66)
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Notes to the annual financial statements continued
For the year ended 31 May 2008
39. FINANCIAL RISK MANAGEMENT (continued) Summary of group’s foreign currency exposure on its financial assets and liabilities in Rand as follows:
2008R’000
2007R’000
Financial assetsCash and cash equivalents– Mithratech Mozambique 2 211 1 669– Premium Ideas Nigeria 12 –
2 223 1 669Trade and other receivables– Mithratech Mozambique 130 4 088– Premium Ideas Nigeria 13 060 –
13 190 4 088Total financial assets 15 413 5 757Financial liabilitiesTrade and other payables– Mithratech Mozambique 728 4 690– Premium Ideas Nigeria 6 856 –
7 584 4 690Finance lease obligation– Mithratech Mozambique – –– Premium Ideas Nigeria 141 –
141 –Total financial liabilities 7 725 4 690
Exchange rates used for conversion of foreign items to Rand were:
CurrencyClosing Average
2008 2007 2008 2007
US Dollar (USD) 7,604 7,171 – –British Pound (GBP) 15,027 14,187 – –Mozambique New Metical (MZN) 0,316 0,277 0,294 0,281Nigerian Naira (NGN) 0,066 – 0,061 –
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39. FINANCIAL RISK MANAGEMENT (continued) Capital risk The group’s objective when managing capital is to safeguard the entity‘s ability to continue as a going concern, so that it can
continue to provide returns for shareholders and benefits for others stakeholders and to provide an adequate return to shareholders by pricing products and services adequately with a level of risk.
The group sets the amount of capital in proportion to risk. The group manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the group may return capital to shareholders, issue new shares, or sell asset to reduce debt.
Consistently with others in same industry, the group monitors capital on the basis of total debt to total equity ratio. This ratio is calculated as total debt ÷ total equity.
The group’s strategy is to maintain the debt to equity ratio within a range of 1:2 to 1:4, in order to secure access finance at a reasonable cost. The debt to equity ratio as at 31 May 2008 is as follows:
Group2008R’000
2007R’000
Total debt 154 102 77 846Total equity 343 655 253 326Debt to equity ratio 1:2,23 1:3,25
40. DIRECTORS’ EMOLUMENTS40.1 Directors’ emoluments Directors emoluments of Simeka Business Group Limited for the year ended 31 May 2008 are set out below:
DirectorFees
R’000Basic salary
R’000Bonuses
R’000Allowances
R’000Total
R’000
2008Non-executiveT Botha 240 – – – 240KJ Molefe 38 – – – 38PS Molefe 240 – – – 240NY Mhinga 240 – – – 240
758 – – – 758
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Notes to the annual financial statements continued
For the year ended 31 May 2008
40. DIRECTORS’ EMOLUMENTS (continued)40.1 Directors’ emoluments (continued)
DirectorFees
R’000Basic salary
R’000Bonuses
R’000Allowances
R’000Total
R’000
2008ExecutiveB Hopkinson* – 712 – 181 893M Papiyana – 463 93 161 717KS Ramsingh* – 1 126 214 316 1 656A Evan – 726 108 – 834S Singh – 753 183 224 1 110MS Varachia – 1 293 276 549 2 118
– 5 073 824 1 431 7 328758 5 073 824 1 431 8 086
2007Non-executiveT Botha 240 – – – 240KJ Molefe 31 – – – 31PS Molefe 240 – – – 240NY Mhinga 100 – – – 100
611 611ExecutiveM Papiyana – 405 132 78 615KS Ramsingh – 1 252 – 175 1 427M Schrader* – 900 – – 900A Evan – 660 – 55 715S Singh – 728 133 123 984MS Varachia – 1 181 408 270 1 859
– 5 125 673 701 6 500611 5 125 673 701 7 111
*Resigned
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40. DIRECTORS’ EMOLUMENTS (continued)40.2 Share options Share options issued to the executive directors is included in the allocation of the 5 399 700 shares that was awarded through
the Executive Share Option Scheme detailed in note 22.
NameStrikeprice
Numberof shares
Dateof issue
Periodgranted Exercised
Net gainson options
exercisedR’000
MS Varachia 80c 2 288 700 25/3/08 1,02 years – –S Singh 80c 1 213 000 25/3/08 1,02 years – –M Papiyana 80c 668 000 25/3/08 1,02 years – –A Evan 80c 875 000 25/3/08 1,02 years – –
5 044 700 – –
The following share options were granted and exercised by the undermentioned director during the year.
NameStrikeprice
Numberof shares
Dateof issue
Exercisedate Exercised
Net gainson options
exercisedR’000
B Hopkinson 1,20 500 000 15/9/07 Immediate 500 000 251,20 500 000 15/9/07 30/11/07 500 000 251,20 500 000 15/9/07 15/09/10 Forfeited
1 500 000 1 000 000 50
The above executive director exercised his share options at a closing price of R1,25.
Upon B Hopkinson’s resignation on 31 March 2008, he forfeited his remaining 500 000 share options.
No other share option were issued to the executive directors of Simeka Business Group Limited.
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Notes to the annual financial statements continued
For the year ended 31 May 2008
40. DIRECTORS’ EMOLUMENTS (continued)40.3 Directors’ shareholding As at 31 May 2008
Director
Direct Indirect
Beneficial’000
Non-beneficial
’000Beneficial
’000
Non-beneficial
’000Total’000 %
MS Varachia – – – 37 449 37 449 8,86T Botha 41 431 – – – 41 431 9,81KJ Molefe 5 700 – – – 5 700 1,35NY Mhinga 2 000 – – – 2 000 0,47S Singh 1 000 – – 925 1 925 0,26A Evan 300 – – – 300 0,07M Papiyana 300 – – – 300 0,07
50 731 – – 38 374 89 105 20,90
As at 31 May 2007
Director
Direct Indirect
Beneficial’000
Non-beneficial
’000Beneficial
’000
Non-beneficial
’000Total’000 %
MS Varachia – – – 44 250 44 250 11,43T Botha 48 200 – – – 48 200 12,45K Ramsingh – – 4 278 – 4 278 1,11KJ Molefe – – – – – 0,00S Singh 2 000 – – 100 2 100 0,54A Evan 1 300 – – – 1 300 0,34M Papiyana 1 300 – – – 1 300 0,34
52 800 – 4 278 44 350 101 427 26,20
Since year-end until the date of this report the following changes to directors’ shareholdings took place: – T Botha sold 22,5 million shares – PS Molefe purchased 258 000 shares – S Singh purchased 2,5 million shares and sold 1,0 million shares – MS Varachia purchased 1 million shares
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41. POST-BALANCE SHEET EVENTS Simeka Business Group Limited intends to acquire 100% of the shareholding of SAB-T Ubuntu Limited. The cost of acquisition
amounts to R123 000 000, and will be paid in shares. The purchase price is also subject to certain milestones being achieved by SAB-T Ubuntu Limited. The date on which the transaction will be completed is subject certain conditions that are precedent in the agreement. The cost of acquisition will be paid as follows:
Numberof shares
’000SharesR’000
TotalR’000
Transaction date 90 000 73 800 73 80031 July 2009 60 000 49 200 49 200
150 000 123 000 123 000
The shares are to be issued at an issue price of R0,82.
The second payment of R72 000 000 of the vendor obligation owing to the previous shareholders of Premium Ideas will be settled by issuing 18 580 645 Simeka shares at R1,55 and raising a long-term loan through Investec Limited. The liability will bear interest at the JIBAR rate +6,25% and instalments are repayable quarterly over 60 months. The impact on the balance sheet after the payment of the vendor liability and providing for the Investec loan facility will be as follows:
31 May2008
31 May2007
Non-current liabilitiesOther financial liabilities 176 602 56 733Current liabilitiesVendor liabilities – 5 650Other financial liabilities 21 629 13 248
There are no other matters or circumstances arising since the end of the financial year ended 31 May 2007.
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Analysis of shareholdersAs at 31 May 2008
Number ofshareholders
% ofshareholders
Number of shares
% of issued capital
1. RANGE OF SHAREHOLDINGS1 – 1 000 125 8 81 645 01 001 – 100 000 1 257 80 24 252 859 6100 001 – 500 000 120 8 27 896 197 7500 001 – 1 000 000 21 1 15 740 410 41 000 001 and more 50 3 354 484 510 83Total 1 573 100 422 455 621 100
2. CATEGORIES OF SHAREHOLDERSIndividuals 1 381 87 145 258 703 35Nominee companies and trusts 89 6 130 259 746 31Public/private companies 75 5 124 587 328 29Other corporate bodies 28 2 22 349 844 5Total 1 573 100 422 455 621 100
3. BENEFICIAL SHAREHOLDERS HOLDING 5% OR MORE OF THE SHARE CAPITALT Botha 41 431 489 10Sanlam Funds 55 202 636 13MS Varachia Holdings Company (Pty) Limited 37 449 500 9Spyglass Funds 28 248 189 7
4. SHAREHOLDER SPREADPublic 1 562 99 323 255 612 77Non-public 11 1 99 200 009 23Directors 7 0 89 705 989 21Associate companies 4 0 9 494 020 2Total 1 573 100 422 455 621 100
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Shareholders’ diary
Financial year-end 31 MayAnnual General Meeting 27 November 2008Announcement of interim results January/FebruaryAnnouncement of annual results AugustPosting of annual report October
JSE performance
At 30 May 2008Closing price (cents) 68High for the year (cents) 167Low for the year (cents) 66Volume of shares traded (’000) during the year 244 157 912Value of shares traded (R’000) during the year 296 049 363
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Notice of annual general meeting
Non-executive director – R5 300 per meeting Audit committee chairman – R5 300 per meeting Audit committee member – R2 650 per meeting Remuneration committee chairman – R5 300 per meeting Remuneration committee member – R2 650 per meeting”
6. ORDINARY RESOLUTION NUMBER 2 Re-election of Director “RESOLVED THAT KJ Molefe who retires by rotation in
accordance with the provisions of the company’s Articles of Association, be re-elected as a director of the company.”
A brief curriculum vitae in respect of KJ Molefe is set out on page 23 of the annual report of which this notice forms part.
7. ORDINARY RESOLUTION NUMBER 3 Confirmation of appointment of Director “RESOLVED THAT the appointment of N Singh, who was
appointed as a director of the company on 17 June 2008, be and is confirmed.”
A brief curriculum vitae in respect of N Singh is set out on page 22 of the annual report of which this notice forms part.
8. ORDINARY RESOLUTION NUMBER 4 Confirmation of appointment of Director “RESOLVED THAT the appointment of B Adam, who was
appointed as a director of the company on 17 June 2008, be and is confirmed.” Noted that B Adam steps down as an executive director of the company, and offers himself to be re-elected as a non-executive director.
A brief curriculum vitae in respect of B Adam is set out on page 22 of the annual report of which this notice forms part.
Simeka Business Group Limited(formerly Simeka Business Solutions Group Limited)(Registration number 2003/012583/06)(Incorporated in the Republic of South Africa)(“Simeka” or “the company”)Share code SBG ISIN code ZAE000074878
Notice is hereby given that the Annual General Meeting of shareholders of the company will be held at Simeka Building, 2nd Floor, Quantum Leap 17, corner Rivonia and Naivasha Roads, Sunninghill, Gauteng on Thursday, 27 November 2008 at 10:00 for the purpose of considering and, if deemed fit, passing with or without modification, the following resolutions:
1. To receive, consider and adopt the annual financial statements of the company for the year ended 31 May 2008, together with the directors’ report and the report of the auditors.
2. To re-appoint PKF (Pta) Inc. as the independent auditors of the company for the ensuing year and to authorise the directors to determine the auditors’ remuneration for the past year.
3. To ratify the remuneration paid to executive directors (reflected on page 108 of the annual report of which this notice form part) for the past financial year.
4. To ratify the fees paid to non-executive directors’ (reflected on page 107 of the annual report of which this notice form part) for the past financial year.
As special business, to consider and, if deemed fit, pass with or without modification, the following resolutions:
5. ORDINARY RESOLUTION NUMBER 1 Future non-executive directors’ remuneration “RESOLVED THAT the non-executive directors be paid the
following fixed fee amount with effect from 1 June 2008: Chairman – R10 600 per meeting
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(b) the number of ordinary shares issued for cash shall not in the aggregate in any one financial year of the company (commencing 1 June 2008) exceed 50% of the company’s issued ordinary shares. The number of ordinary shares which may be issued for cash shall be based on the number of ordinary shares in issue at the date of the application, less any ordinary shares issued by the company during the current financial year, provided that any ordinary shares to be issued for cash pursuant to a rights issue (announced and irrevocable and underwritten) or acquisition (concluded up to the date of application) may be included as though they were ordinary shares in issue at the date of application;
(c) the maximum discount at which ordinary shares may be issued for cash is 10% of the weighted average traded price on the JSE of those ordinary shares over 30 days prior to the date that the price of the issue is determined by the directors of the company;
(d) after the company has issued ordinary shares for cash which represent, on a cumulative basis within a financial year, 5% or more of the number of ordinary shares in issue prior to that issue, the company shall publish an announcement containing full details of the issue, including the effect of the issue on the net asset value and earnings per share of the company; and
(e) the securities which are the subject of the issue for cash must be of a class already in issue, or where this is not the case, must be limited to such securities or rights as are convertible into a class already in issue.”
Note: In terms of the Listings Requirements of the JSE, a 75% majority of the votes cast by shareholders present or represented by proxy (excluding the Designated Advisor and the controlling shareholders together with their associates)
9. ORDINARY RESOLUTION NUMBER 5 Confirmation of appointment of Director “RESOLVED THAT the appointment of S Montsi, who was
appointed as a director of the company on 8 September 2008, be and is confirmed.”
A brief curriculum vitae in respect of S Montsi is set out on page 23 of the annual report of which this notice forms part.
10. ORDINARY RESOLUTION NUMBER 6 Control of authorised but unissued shares “RESOLVED THAT the entire authorised but unissued
share capital of the company, from time to time, be placed under the control of the directors of the company until the next Annual General Meeting with the authority to allot and issue all or part thereof in their discretion, subject to sections 221 and 222 of the Companies Act, 61 of 1973, as amended, and the Listings Requirements of the JSE Limited.”
11. ORDINARY RESOLUTION NUMBER 7 General authority to allot and issue ordinary
shares for cash “RESOLVED THAT pursuant to the Articles of Association
of the company, the directors of the company be and are hereby authorised, until the next Annual General Meeting of the company (when this authority shall lapse unless it is renewed at that Annual General Meeting, provided that it shall not extend beyond 15 months from the date of this resolution), to allot and issue ordinary shares for cash subject to the Listings Requirements of the JSE Limited (“JSE”) and the Companies Act, 61 of 1973, as amended, on the following bases:
(a) the allotment and issue of ordinary shares for cash shall be made only to persons qualifying as public shareholders as defined in the Listings Requirements of the JSE, and not to related parties;
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(d) the general repurchase by the subsidiaries of the company is limited to a maximum of 10% in aggregate of the company’s issued share capital in any one financial year;
(e) the repurchase is not made at a price greater than 10% above the weighted average of the market value for the securities for the five business days immediately preceding the date on which the transaction was effected;
(f) the repurchase does not take place during a prohibited period as defined in paragraph 3.67 of the Listings Requirements of the JSE;
(g) the company publishes an announcement after it or its subsidiaries has/have cumulatively acquired 3% of the number of ordinary shares in issue at the time that the shareholders’ authority for the purchase is granted and for each 3% in aggregate of the initial number acquired thereafter;
(h) the company remains in compliance with paragraphs 3.37 to 3.41 of the Listings Requirements of the JSE concerning shareholder spread after such repurchase;
(i) the company appoints only one agent to effect any repurchases on its behalf; and
(j) after considering the aggregate effect of the maximum repurchase permitted and the maximum general payments to shareholders, for a period of 12 months after the date of this notice of Annual General Meeting:
(i) the company and the group are in a position to repay their debt in the ordinary course of business;
(ii) the consolidated assets of the company, being fairly valued in accordance with Generally Accepted Accounting Practice, are in excess of the consolidated liabilities of the company;
(iii) the ordinary capital and reserves of the company and the group are adequate;
at the Annual General Meeting must be cast in favour of ordinary resolution number 7 for it to be approved.
12. ORDINARY RESOLUTION NUMBER 8 Signature of documentation “RESOLVED THAT a director of the company or the
company secretary be and is authorised to sign all such documentation and do all such things as may be necessary for or incidental to the implementation of ordinary resolutions numbers 1, 2, 3, 4, 5, 6 and 7 and special resolution number 1 which are passed by the shareholders.”
13. SPECIAL RESOLUTION NUMBER 1 General authority to repurchase shares “RESOLVED THAT the company approves, as a general
approval contemplated in section 85 of the Companies Act, 61 of 1973, as amended (“the Act”), the acquisition by the company (or by a subsidiary of the company) of ordinary shares issued by the company on such terms and conditions and in such amounts as the directors of the company may decide, but subject always to the provisions of the Act and the Listings Requirements of the JSE Limited (“JSE”), which general approval shall endure until the next Annual General Meeting of the company (when this approval shall lapse unless it is renewed at that Annual General Meeting, provided that it shall not extend beyond 15 months from the date of registration of this special resolution), subject to the following limitations:
(a) the repurchase of securities is implemented through the order book of the JSE trading system, without any prior understanding or arrangement between the company and the counter party;
(b) the company is so authorised by its Articles of Association;
(c) the general repurchase is limited to a maximum of 20% in aggregate of the company’s issued share capital in any one financial year;
Notice of annual general meeting continued
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LITIGATION STATEMENTThe directors of the company whose names appear on pages 21 to 23 of the annual report of which this notice forms part, are not aware of any legal or arbitration proceedings including proceedings that are pending or threatened, that may have or had in the recent past (being at least the previous 12 months) a material effect on the group’s financial position save for the matter disclosed on page 45 – Item 17 of the Directors’ Report.
DIRECTORS’ RESPONSIBILITY STATEMENTThe directors whose names appear on pages 21 to 23 of the annual report of which this notice forms part, collectively and individually accept full responsibility for the accuracy of the information pertaining to special resolution number 1 and certify that, to the best of their knowledge and belief, there are no facts that have been omitted which would make any statement false or misleading, all reasonable enquiries to ascertain such facts have been made and the special resolution contains all information required by the Act and the Listings Requirements of the JSE.
MATERIAL CHANGESOther than the facts and developments reported on in the annual report, there have been no material changes in the affairs or financial position of the company and its subsidiaries since the date of signature of the audit report and up to the date of this notice.
VOTING AND PROXIESA shareholder of the company entitled to attend, speak and vote at the Annual General Meeting is entitled to appoint a proxy or proxies to attend, speak and, on a poll, to vote in his stead. The proxy need not be a shareholder of the company. A form of proxy is attached for the convenience of any certificated shareholder and own-name registered dematerialised shareholder who cannot attend the Annual General Meeting, but who wishes to be represented.
Additional forms of proxy may also be obtained on request from the company’s registered office. The completed forms of
(iv) the available working capital is adequate to continue the operations of the company and the group; and
(v) the company’s Designated Advisor will confirm adequacy of the company’s working capital for the purposes of undertaking the repurchase of shares in writing to the JSE prior to the company (or any subsidiary) entering the market to proceed with the repurchase.”
The reason for and effect of special resolution number 1 is to authorise the company and its subsidiaries, by way of general approval, to acquire the company’s issued ordinary shares on terms and conditions and in amounts to be determined by the directors of the company, subject to certain statutory provisions and the Listings Requirements of the JSE.
DIRECTORS’ STATEMENT REGARDING THE UTILISATION OF THE AUTHORITY SOUGHTThe directors of the company have no specific intention to effect the provisions of this special resolution, but will, however, continually review the company’s position, having regard to the prevailing circumstances and market conditions, in considering whether to effect the provisions of this special resolution.
OTHER DISCLOSURES IN TERMS OF SECTION 11.26 OF THE LISTINGS REQUIREMENTS OF THE JSEThe following additional information, some of which may appear elsewhere in the annual report of which this notice forms part, is provided in terms of the Listings Requirements of the JSE for purposes of this general authority:
mpany – pages 42 and 43.
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Registered officeCorner Naivasha and Rivonia Roads(entrance in Kikuyu Street)SunninghillPO Box 4307Halfway HouseMidrand1685
Transfer secretariesLink Market Services South Africa (Pty) Limited11 Diagonal StreetJohannesburg2001(PO Box 4844, Johannesburg, 2000)
Notice of annual general meeting continued
proxy must be deposited at, posted or faxed to the transfer secretaries at the address below, to be received at least 48 hours prior to the meeting. Any member who completes and lodges a form of proxy will nevertheless be entitled to attend and vote in person at the Annual General Meeting should the member subsequently decide to do so.
On a show of hands, every shareholder of the company present in person or represented by proxy shall have one vote only. On a poll, every shareholder of the company present in person or represented by proxy shall have one vote for every share held in the company by such shareholder.
Shareholders who have dematerialised their ordinary shares through a Central Securities Depository Participant (“CSDP”) or broker, other than own-name registered dematerialised shareholders, and who wish to attend the Annual General Meeting must request their CSDP or broker to issue them with a letter of representation. Alternatively dematerialised shareholders other than own-name registered dematerialised shareholders, who wish to be represented must provide their CSDP or broker with their voting instructions in terms of the custody agreement between them and their CSDP or broker in the manner and timeframe stipulated.
By order of the board
NB JanuaryCompany Secretary
25 August 2008
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Form of proxy
Simeka Business Group Limited(formerly Simeka Business Solutions Group Limited)(Registration number 2003/012583/06)(Incorporated in the Republic of South Africa)(“Simeka” or “the company”)Share code SBG ISIN code ZAE000074878For use at the Annual General Meeting of the company to be held at Simeka Building, 2nd Floor, Quantum Leap 17, corner Rivonia and Naivasha Roads, Sunninghill, Gauteng on Thursday, 27 November 2008 at 10:00 and at any adjournment thereof.For use by the holders of the company’s certificated ordinary shares (“certified shareholder”) and/or dematerialised ordinary shares held through a Central Securities Depository Participant (“CSDP”) or broker who have selected own-name registration (“own-name dematerialised shareholders”).Not for the use by holders of the company’s dematerialised ordinary shares who are not own-name dematerialised shareholders. Such shareholders must contact their CSDP or broker timeously if they wish to attend and vote at the Annual General Meeting and request that they be issued with the necessary authorisation to do so, or provide the CSDP or broker timeously with their voting instructions should they not wish to attend the Annual General Meeting in order for the CSDP or broker to vote thereat in accordance with their instructions.I/We of (Address)
being a member/members of Simeka and holding ordinary shares in the company, hereby appoint
1. of or failing him/her2. of or failing him/her3. the chairman of the Annual General Meeting, as my/our proxy to act for me/us and on my/our behalf at the Annual General Meeting which will be held for the
purpose of considering and, if deemed fit, passing, with or without modification, the special and ordinary resolutions to be proposed thereat and at any adjournment thereof; and to vote for and/or against the special and ordinary resolutions and/or abstain from voting in respect of the Simeka ordinary shares registered in my/our name(s), in accordance with the following instructions:
Unless otherwise instructed, my/our proxy may vote as he/she thinks fit.
*Please indicate with an “X” in the appropriate spaces below how you wish your votes to be cast Number of votesFor* Against* Abstain*
Ordinary resolutions1. To adopt the 2008 annual financial statements2. To re-appoint PKF (Pta) Inc. as auditors of the company3. To ratify executive directors’ remuneration4. To ratify non-executive directors’ remuneration5. To approve future remuneration of non-executive directors6. To re-elect KJ Molefe as a director of the company7. To approve the appointment of N Singh as an executive director of the company8. To approve the appointment of B Adam as a non-executive director of the company9. To approve the appointment of S Montsi as a non-executive of the company10. To place unissued shares under directors’ control11. To allot and issue ordinary shares for cash12. To authorise the directors or the company secretary to sign documentationSpecial resolution13. To give directors general authority to repurchase company shares
Signed at (place) on (date) 2008
Member’s signature Assisted by (if applicable)
Please read the notes on the reverse.
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Notes to the form of proxy
for or against the ordinary resolutions and in respect of which any abstention is recorded may not exceed the total number of votes to which the member or his/her proxy is entitled.
7. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy, unless previously recorded by the company’s transfer office or waived by the chairman of the Annual General Meeting.
8. The chairman of the Annual General Meeting may reject or accept any form of proxy which is completed and/or received other than in accordance with these instructions, provided that he is satisfied as to the manner in which a member wishes to vote.
9. Any alterations or corrections to this form of proxy must be initialled by the signatory(ies).
10. The completion and lodging of this form of proxy will not preclude the relevant member from attending the Annual General Meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such member wish to do so.
11. A minor must be assisted by his/her parent/guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered by the company’s transfer secretaries.
12. Where there are joint holders of any shares, only that holder whose name appears first in the register in respect of such shares need sign this form of proxy.
13. Forms of proxy must be lodged with the transfer secretaries at the address given below at least 48 hours prior to the meeting:
Link Market Services (Pty) Limited 5th Floor, 11 Diagonal Street Johannesburg, 2001 PO Box 4844 Johannesburg, 2000 Telephone: 011 630 0800
1. This form proxy is to be completed only by those members who are:
a. holding shares in a certificated form; or b. recorded in the sub-register in electronic form in
their “own name”.
2. Members who have dematerialised their shares, other than “own-name” dematerialised shareholders, and who wish to attend the Annual General Meeting must contact their Central Securities Depository Participant (“CSDP”) or broker who will furnish them with the necessary authority to attend the Annual General Meeting, or they must instruct their CSDP or broker as to how they wish to vote in this regard. This must be done in terms of the agreement entered into between the members and their CSDP or broker.
3. Each member is entitled to appoint one or more proxies (who need not be a member(s) of the company) to attend, speak and, on a poll, vote in place of that member at the Annual General Meeting.
4. A member may insert the name of a proxy or the names of two alternative proxies of the member’s choice in the space provided, with or without deleting “the chairman of the Annual General Meeting”. The person whose name stands first on the form of proxy and who is present at the Annual General Meeting will be entitled to act as proxy to the exclusion of those whose names follow.
5. A member’s instructions to the proxy must be indicated by the insertion of the relevant number of votes exercisable by that member in the appropriate box(es) provided. Failure to comply with the above will be deemed to authorise the chairman of the Annual General Meeting, if the chairman is the authorised proxy, to vote in favour of the ordinary resolutions at the Annual General Meeting, or any other proxy to vote or to abstain from voting at the Annual General Meeting as he/she deems fit, in respect of all the member’s votes exercisable thereat.
6. A member or his/her proxy is not obliged to vote in respect of all the ordinary shares held by such member or represented by such proxy, but the total number of votes
Company registration number2003/012583/06
Registered office and business addressSimeka Business Group Limited(Registration number: 2003/012583/06)Simeka Business Group HouseCorner Naivasha and Rivonia Road (entrance on Kikuyu Road)Sunninghill, 2135PO Box 4307, Halfway House, 1685Tel: +27 11 231 1000Fax: +27 11 234 8023
Company SecretaryNoelene Beryl JanuarySimeka Business Group HouseCorner Naivasha and Rivonia Road (entrance on Kikuyu Road)Sunninghill, 2135(PO Box 4307, Halfway House, 1685)Tel: +27 11 231 1300Fax: +27 11 234 8023
Auditors and reporting accountantsPKF (Pta) Inc Chartered Accountants (SA)Registered Accountants and AuditorsGround Floor, 105 Club AvenueWaterkloof Heights, Pretoria, 0065(PO Box 98060 Waterkloof Heights, Pretoria, 0065Tel: +27 12 460-9000Fax: +27 12 346-2380
ISIN code: ZAE 000057386
Share code: SBG
Transfer secretariesLink Market Services (Pty) Limited(Formerly Ultra Registrars (Pty) Limited)(Registration number: 2000/007239/07)Fifth Floor, 11 Diagonal StreetJohannesburg, 2001(PO Box 4844, Johannesburg, 2000)Tel: +27 11 630 0800Fax: +27 11 834 4348
Designated AdvisorJava Capital (Pty) Limited(a Designated Advisor registered with JSE Limited)(Registration number: 2002/031862/07)2 Arnold Road Rosebank, Johannesburg 2196(PO Box 2087, Parklands, 2121, South Africa)
Commercial BankersFirstRand Limited(Registration number 1966/010753/06)Seventh Floor, 4 First Place, Bank CityCorner. Simmonds and Pritchard Streets, Johannesburg 2001PO Box 7791, Johannesburg, 2000
EnquiriesEnquiries relating to shares should be directed to the transfer secretaries. Enquiries relating to the company should be directed to the company secretary.
General information
Maxx Corporate Communications
Cnr Naivasha and Rivonia Road(entrance in Kikuyu Street)Sunninghill
PO Box 4307Halfway House1685
Tel: +27 11 231 1300Fax: +27 11 234 8023website: www.simekabg.co.za