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AFRICAN DAWN 2015 Annual Report

Notes to the Financial Statements continued 7. Investment in associate (continued) The main terms of the agreement and subsequent events are as follows: • Sandown lent Elite Two R10 million. • Sandown owned 100% of Elite Two. • Elite and Sandown could each appoint 2 of the 4 directors of Elite Two. • Sandown financed Elite Two to a maximum of R10 million (“the Sandown capital loan”). • Elite managed Elite Two on behalf of Sandown and sourced potential clients to which it could provide short term personal AFRICAN DAWN 76 ANNUAL REPORT 2015 loans. • Elite earned a monthly management fee and shared the profits of Elite Two on a 50:50 basis with Sandown. • Elite and Sandown shared the bad debts provided they were no more than the historical amount of 3% of the receivables book. To the extent that the provision increased, Elite would be liable but only to the extent of any cumulative profits earned to date. • Sandown had the option (in August 2012) of selling 100% of the shares in Elite Two to Elite for a price based on the net asset value (“NAV”) of Elite Two (“the selling price”). The Selling Price was to be settled by the issue of shares in Elite to Sandown. The issue price was 100 cents per Elite share, such that Sandown would acquire 30% of the issued share capital of Elite following the Elite Two acquisition and subject to the selling price not exceeding 49% of the market capitalisation of Afdawn Group on the date of exercise of the Sandown option. • If the NAV of Elite Two was greater or lower than 30% of the combined NAV of Elite and Elite Two at the time of the exercising of the option referred to above, then Elite Two would be obliged to either distribute profits and/or assets to Sandown or to recapitalise Elite Two, so as to ensure that the NAV of Elite Two would be equal to 30% of the combined NAV of Elite Two and Elite. • In the event that Sandown exercised the Sandown option, it would be obliged to provide a two year funding line of R20 million to Elite which could be drawn in tranches of a maximum of R1.5 million per month. • If Sandown advised Elite and/or Afdawn Group of its intention to exercise the option then Elite and/or Afdawn group would have had 30 days in which to acquire Elite Two for its then NAV. • In the event that Sandown decided not to exercise its option then no new loans would be granted from 31 July 2013 by Elite Two and Elite would be retained to manage and collect the remaining loan book so as to repay the Sandown Capital Loan. • Over time, the Sandown Loan was extended to a R20 million facility under similar terms with Elite providing a guarantee limited to the additional R10 million facility. . The terms of the agreement gave Elite significant influence over Elite Two and it has therefore been equity accounted whereas previously a management fee was recognised. Refer to notes 42 and 43 for the prior period errors. Refer to note 1.20 for the significant judgement made in this regard. At this point, Elite Two was profitable and therefore Elite had no exposure to any losses. Elite Two is an unlisted company and there is no quoted market price available for its shares. There were no contingent liabilities relating to the Group’s interest in the associate. Elite Two February 2015 financial year At 31 October 2014, Elite Two had not yet repaid the Sandown capital loan of R10 million nor any interest thereon. By this date, Sandown had lent Elite Two an additional loan. Interest on this loan had been paid as had a portion of the capital, leaving a balance of R4 150 000. A further agreement was entered into during November 2014 in terms of which, Elite bought 100% of the Elite Two shares (refer to note 37) from Sandown on a voetstoots basis i.e. without Sandown giving any warranties or making any representations relating to the sale shares of Elite Two. Elite acknowledged that Sandown had not been involved in the day to day running or management of Elite Two (because this was done by Elite). The conversion rights into Afdawn shares and the guarantee provided by Elite fell away as part of the settlement deal.


AFRICAN DAWN 2015 Annual Report
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