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AFRICAN DAWN 2015 Annual Report

From the Chair Dear Fellow Shareholders The company’s vision to become an active investment holding company has become challenging to implement in the past year. This is mainly due to events surrounding Elite and the unsuccessful SARS compromise. A starting investment capital base of R50 million was considered to be sufficient to implement the strategy. A small rights issue and the proceeds of sale of Elite would have secured this amount and together with the sale of other defined non-core assets would have funded the repayment of the SARS liability. Elite The Elite management buy out transaction would have yielded R36m of investable capital. Its failure had a significant impact on the ability to implement the strategy. A smaller investment capital base and more reliance on the sale of other non-core assets was the major consequence. Furthermore, the Elite financial statements for 2014 and 2013 had to be restated due to a misstatement of debtors and an entity that was previously incorrectly not equity accounted. These restatements have resulted in the late reporting of results. However, disclosures in the financial statements have been improved and we believe that these are now of a high standard. The micro–finance industry has been in the spotlight after the collapse of major industry players and various regulatory pressures. However, Elite had foreseen changes in the industry and for this reason these changes had limited impact on the business. I am also pleased to report that considerable management effort has been invested to ensure that Elite is now able to attract investment capital. These efforts included cutting costs where appropriate, bolstering internal controls related to lending practices and an intervention to influence the culture to make it more performance orientated. All of this has been rewarded by interest from a potential investor for a meaningful stake in the business and these discussions are at an advanced stage. Knife Capital The rationale for the Knife Capital acquisition was to combine venture capital capabilities with a permanent capital provider as a first step to broaden the capability platform of the group. This transaction was also intended to give the group access to quality deal flow in the smaller transaction value range of entrepreneurial and innovative companies. It was intended that future investments would be in: • smaller early growth stage innovation-driven companies with proven traction (“Venture Investments”); and • more mature growth stage innovation-driven companies that are scalable where we can build substantial improvement in capabilities and performance. (“Growth Investments“). The Growth Investments would be larger size transactions and a combination of cash and script could be used to finance these transactions. This would be the main driver of net asset value growth of the group. Knife Capital is an investment expert and creates value by being actively involved in investments. The business’ differentiating value proposition is the dynamic growth AFRICAN DAWN 4 ANNUAL REPORT 2015


AFRICAN DAWN 2015 Annual Report
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