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SBC Limited I Annual Report I 2013

SBC Limited

ANNUAL REPORT

2013

S W A Z I L A N D S o u t h e r n A f r i c a Wo r l d C l a s s R e g i o n a l F o c u s S E L E C T A f r i c a n L e s o t h o M i c ro f i n a n c e E c o n o m i c D e v e l o p m e n t L e s a n a P O T E N T I A L C o r p o r a t e G o v e r n a n c e C U LT U R E I n c re m e n t a l H o u s i n g F i n a n ce TRANSPARENCY Fre e d o m o f c h o i ce F inanc ia l Serv ices Urbanisat ion Technology C L I E N T FO C U S Investment Footpr int E vo lv i n g DEVELOPMENT S o c i a l R e s p o n s i b i l i t y S u s t a i n a b i l i t y T R U S T C o m m u n i t y


General information SBC Limited and its Subsidiaries

Country of incorporation and domicile Kingdom of Swaziland

Company registration number 473/2011

Nature of business and principal activities Investment holding and financial services company

Business address 2nd floor Nedbank CentreCorner Dr. Sishayi and Sozisa RoadsMbabane

Holding company Select Africa Finance Limited incorporated in the Republic of Mauritius

Ultimate holding company African Alliance Holdings Limited incorporated in the Isle of Man

Auditors KPMG Chartered Accountants (Swaziland) Registered Auditor

Bankers Nedbank (Swaziland) Limited First National Bank (Swaziland) LimitedStandard Bank (Swaziland) Limited

Functional currency The financial statements are expressed in Swaziland Lilangeni, the currency of the Kingdom of Swaziland

SBC Limited

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IndexThe reports and statements set out below comprise the annual financial statements presented to the shareholders:

Page

Financial Highlights 4-5

Vision, mission and strategy 6-7

Chairperson’s report 8

Board of Directors 9

CEO report 10-11

CFO report 12-13

Corporate governance 14-17

Corporate social investment 18-19

Annual financial statements

Directors’ responsibilities and approval 21

Independent auditor’s report 22

Directors’ report 23

Statement of financial position 24

Statement of comprehensive income 25

Statement of changes in equity 26-27

Statement of cash flows 28

Accounting policies 29-35

Notes to the annual financial statements 36-54

The following supplementary information does not form part of the annual financial statements and is unaudited:

Detailed income statement 55

Annexure A - Prime interest rates and currencies 56

Annexure B - Indirect subsidiaries 57

Annexure C - Statement of source and application of funds 58


4 Financial highlights

Ratios

Assets

Profitability

15%

Loans and advances

263,1

50,91

7

228,7

41,38

9

2013 2012

Headline earnings per share

29%

0.32

0.25

(1)%

Cash and cash equivalents

128,3

68,45

2

130,0

90,65

9

2013 2012

Return on equity

41%

8.4%

6%

2013 2012

Interest income

43% 29,71

7,938

20,82

6,727

40%

Net loan fee income

59,97

6,430

42,92

3,519

2013 20122013 2012 *

*

*

*2013 2012


5

Liabilities

Amounts owing to related parties

(67)%14,07

2,286 42

,326,3

0

2013 2012

Other financial liabilities

48%

205,5

05,61

6

138,4

24,20

9

2013 2012

Expenses to total income

Debt/equity ratio

10% 35%

39.1%

0.58

35.6%

0.43

2013 20132012 2012

Headline earnings

27%31,92

6,110

25,11

9,346

2013 2012*

* Compared to annualised figure for the 12 months ended 31 December 2012.

*

*

Taxation

15%

12,54

1,116

10,93

1,263

2013 2012

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Vision, mission and strategy

MissionTo turn our clients’ dreams

in to reality where we are strategically focused

through customised financial solutions,

whilst ensuring optimal shareholder

value.

VisionSBC aims to be a primary investment opportunity, whilst creating southern Africa’s premier financier

in our chosen sectors and markets, through

the delivery of innovative and affordable financial

services.


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StrategyAttain a strategic position in the southern African financial services environment through:

• Organic growth – growth in the Group’s loan book through innovative and competitive products and world-class service

• Acquisitions – identify and take up investment opportunities in the retail financial services sector with the aim to grow these investments into sustainable businesses

• Creatingastrongbrand identity as Africa’s premier housing micro-financier

• Becomerespectedandrenownedthought leaders in housing finance practice

• Grow the Group’s balance sheet to the point where it has sufficient critical mass to access mainstream funding options and reduce SBC’s overall cost of funding

• Contribute to the development of Swazi capital markets and allow Swazi institutional and retail investors the opportunity to share in the regional growth story by investing in SBC Limited.

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Chairperson’s report

IntroductionAs Chairperson of SBC Limited, it is my privilege to present SBC Limited’s first Annual Report as a listed entity. The SBC Limited Group of companies (“the Group”) was able to maintain a steady growth rate in the past financial year, despite a challenging trading environment for the financial services sector. Remnants of the 2008 global economic crisis still exist, with global financial markets continuing to show signs of volatility. The Eurozone’s recovery from the financial crisis is taking longer than anticipated, and the growth in the Chinese economy has started to decrease to its lowest levels since the early 90’s. This, coupled with the intention of the United States Federal Reserve to scale back its stimulus for the United States economy has placed severe pressure on the exchange rates of emerging economies. All these factors have had an impact on inflation and our customer’s disposable income. It therefore gives me great pleasure to report positive results for the year under review under these challenging circumstances.

ListingThe listing of SBC Limited has been an aim of the Group since its acquisition of Select Limited in 2012. The rationale for listing came down to several considerations. Firstly, the level of disclosure and regulation demanded by a listing on the Swaziland Stock Exchange (SSX) and the transparency provided as a result, gives investors and potential investors increased comfort in an industry which has been subject to intense scrutiny in the recent past. This increased transparency to the public enables SBC Limited to differentiate itself from its peers and competitors. In addition, SBC Limited has ambitious expansion plans for its various brands across southern Africa, which will require significant funding to achieve.

With an established business in Swaziland trading under the well-known “Select” brand, SBC Limited feels that developing the capital markets in this exciting emerging economy conveys the loyalty felt towards its host country. Further to this, the listing gives the Swazi public the opportunity to invest in a well-recognised, well-established and successful company, providing them with the prospect to, in time, participate in the growth of the business.

Year under reviewDespite the challenging trading environment, we have been able to maintain steady growth in the organisation. Our main focus has always been our clients, and the economic conditions have forced us to introduce innovative products over the past year to ensure that we continue to provide our clients with products that increase their affordability and reduce the cost of their loans. This has led to strong growth in loan disbursements, with an increase in the loan book of 18%. The decrease in our impairment for credit losses was expected following a large write-off of bad debts towards the end of the year to maintain the high quality of our loan book. The increase in sales, coupled with a continued emphasis on controlled spending has resulted to an increase in Headline Earnings per Share to E0.32 (up 28%). The futureLooking ahead, we are very excited about SBC Limited’s growth prospects. We have set specific targets to ensure that we achieve growth both organically and through acquisition. The Group continues to assess various investment opportunities in southern Africa in order to fulfil its primary objective of building a regional financial services play. Products are continuously evaluated and tailored to suit the needs of our clients in order to maintain organic growth levels. Funding of these strategies will be facilitated by debt through our subsidiary Select Limited’s Medium Term Note Programme, which is also listed on the SSX, as well as internally generated cash flows. High cash reserves have been maintained in preparation of the implementation these growth strategies.

SBC Limited is a young institution, but with an established history and a reputable brand. Even though the economy is not expected to improve at a significant rate over the next 12 months, SBC Limited can see opportunity in this tough environment, and is certain that our enthusiastic and driven management team will be able to continue delivering growth in this new chapter of the SBC Limited story.

Thulisile DladlaChairperson

The Group continues to assess various investment opportunities in southern Africa in order to fulfil its primary objective of building a regional financial services play.


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Mduduzi Dlamini SwaziIndependent, non-executive

Mr Dlamini is the Chief Executive Officer of the Swaziland National Housing Board. He has extensive experience in urban planning and property management having worked as a town planner for the Swaziland Government as well as property manager for the Royal Swaziland Sugar Corporation and the Swaziland National Provident Fund. He managed the merger of the Mhlume, Simunye and Tshaneni Property departments into the RSSC Property Services divi-sion and has led the restructuring and transformation of the Swaziland National Housing Board.

Board of Directors

S’thofeni Mfanasibili Ginindza SwaziNon-executive

Mr Ginindza holds a Bachelor’s degree in Economics and Statistics from the University of Swaziland. He further holds a Master’s degree in Economics from the University of Ottawa, Canada. He has worked as an Economist for the Development Bank of Swaziland and was attached briefly with the World Bank in Canada (1994). He joined African Alliance Swaziland in 1996. He is a Partner and Execu-tive Director of African Alliance Group and has held a number of leadership positions including Chairman of the Swaziland Electricity Company, found-ing member of the Swaziland Revenue Authority, Director of Swazi Empower-ment Limited and Chairman of The Observer.

Antonio Manuel Baptista de Castro SwaziNon-executive

Mr de Castro is the Founder, Chief Executive Officer and Senior Partner of the African Alliance Group. He has extensive experience building and managing companies in the areas of finance, energy, property and other assets.

Thulisile Dladla Chairperson, SwaziIndependent, non-executive

Ms Dladla is the Chairperson of SBC and is a Member of the Swazi Parliament. She has extensive experience in administra-tion and was Chairperson of the Oversight Committee in the Swazi Parliament known as the Public Accounts Committee. She has Bachelor’s degrees from the Universities of Botswana and Swaziland, as well as a Master’s degree from the Univer-sity of St Mary’s in Halifax, Canada. She was the CEO of the Sebenta National Institute from 1998 to 2008.

Sean O’SullivanSouth AfricanExecutive Director and Chief Executive Officer

Mr O’Sullivan has spent most of his career in financial services and related industries. Prior to joining the Group in April 2010, he was head of sales and marketing at First National Bank’s home loans division for three years, responsible for the development and management of the retail mortgage lending book and the affordable housing sector in South Africa. Before joining First National Bank, he pursued his own interests, serving as CEO of Iquad Treasury Ltd for 15 years. Iquad is a risk management company with spe-cific focus on both interest rate and currency management for large national and multi-national corporates. As part of his exit plan he listed Iquad on the JSE in 2006.

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CEO report

General economyThe Swaziland economy reflected a positive growth for the 2013 calendar year; however the economy is still lagging by the general slowdown in global economic activity. The poor performance in the EU and RSA markets, which collectively consumes approximately 70% of Swaziland’s exports, translated to a lethargic performance in the domestic economy. On a more positive note, there was an improvement in the SACU receipt inflow for the 2012/2013 fiscal year which did provide the necessary liquidity for government to operate efficiently.

Interest rates are at their lowest levels in over 40 years and have remained unchanged since July 2012 when the central bank reduced its benchmark interest rate, the repurchase (repo) rate, by 50 basis points to 5%. Rates are expected to remain low and stable in the medium-term.

Consumer price inflation (CPI) measured 4.5% in the last quarter of 2013, easing from an average of 5.9% in the third quarter of 2013; the downward trend is mainly attributed to reduced increases in the price indices for food, transport and housing utilities. The Swaziland Central Bank has however indicated that there could be potential increases in energy prices and the continued depreciation of the Lilangeni / Rand which will put pressure on the current inflationary levels. The Lilangeni / Rand has depreciated sharply against major currencies, losing approximately 20% of its value against the US dollar in the financial period.

After prolonged salary negotiations between government and public sector unions, an agreement was finally reached in June 2013. The unions accepted government’s offer of five per cent salary increment across the board, which was backdated to April 1, 2013.

In response to the rising debt levels of our customers, the abovementioned challenging trading environment and the increased competition, for the period under review the Group focussed on lowering the cost of funding and growing a sustainable loan book within acceptable risk levels.

Financial performance compared to the annualised December 2012 figuresThe Group’s strategy is aimed at delivering sustained growth in earnings to enhance long-term shareholder wealth and to create value for other stakeholders. The performance for the financial period reflects that, even in the prevailing adverse trading and consumer credit markets, the Group has continued to report competitive returns to shareholders.

With the introduction of new innovative loan products and the improved management of the loan book provisions, gross loans and advances grew 15% to E263,1 million; resulting in an increase in revenue of approximately 41% compared to the 12 months ended December 2012.

Both the operating and book expenses increased substantially in 2013, this was primarily due to the increase in the loan book growth and the related increased funding levels, coupled with the increase in our variable costs, i.e. the administration, collection and insurance related expenses.

With the abovementioned loan book growth headline earnings and headline earnings per share (HEPS) increased by 27% to E31.93 million (2012: E25.12 million) and E0.32 (2012: E0.25), respectively. The Board approved a dividend to shareholders of E0.60 per share in respect of the 2013 reporting period.

Corporate governanceThe Group aims to achieve best governance practice and recognises that sound governance has a positive impact on long-term equity performance. Governance processes are therefore continually enhanced to ensure compliance with legislation, regulation, governance codes and listings requirements. The governance framework is based on the King Code on Governance Principles

Sean O’SullivanExecutive Director and Chief Executive Officer

The Group’s strategy is aimed at delivering sustained growth in earnings to enhance long-term shareholder wealth and to create value for other stakeholders.

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forming part of the King Report on Corporate Governance for South Africa, 2009 (King III) and the management confirms that the Group has in all material respects applied the principles of the code during the financial period.

The board and management believes the Group’s remuneration processes are robust, and that the remuneration policy is aligned to the business strategy and the achievement of performance objectives to ensure continued long-term success. After engaging with shareholders the Group obtained approval at the annual general meeting held in March 2014 to introduce a new share incentive scheme for the Non-Executive Directors, we believe the new scheme will reward sustained performance and ensure that our executives share a level of personal risk with shareholders. The incentive arrangement is intended to promote the retention of ability and expertise of our board members to ensure the capital growth and profitability of SBC and its subsidiaries, and to align the interests of the Group’s non-executives and shareholders.

Management teamThe Group’s goals are to build a regional financial services play, develop the Swazi capital markets and allow Swazi institutional and retail investors the opportunity to share in the regional growth story by investing in SBC. With this in mind, management are intent on building a strong senior management team with industry-leading specialists in key positions, including its subsidiaries. In August 2013, we appointed Mr. Wesley Groening, a new senior General Manager to manage and lead our largest contributor to the Group, Select Limited.

An additional appointment was confirmed in April 2014 when Mr. Henley Rennie accepted the position of Chief Executive Officer for the Group. Mr. Rennie, an experienced banker is highly regarded in the local market and we look forward to the benefit from his astute experience and leadership.

The depth of talent and experience at senior management level should provide assurance to both the Board and shareholders on the future leadership of the Group.

Looking aheadThe local economy and operating environment in which the Group operates continue to prove challenging with potential upside inflationary risk in the next financial year due to the current subdued growth in the domestic economy, which is tracking international and regional trends and the added inflationary pressure of current oil prices and the depreciation of the Lilangeni / Rand.

Despite the abovementioned, we strongly believe that the actions taken by the Group during the 2013 and the early part of 2014 are expected to position the group positively for sustainable returns over the medium to longer term. The primary objective for the Group remains to acquire a strategic position in the regional financial services environment.

A decision by the Board was made in February 2014 for the Group to acquire Lesana Lesotho Limited (“Lesana”), a newly established Micro Finance company in Lesotho. While the cost of the acquisition is considered to be immaterial to the Group, management believe that in the medium to long term, Lesana will contribute to the growth of the Group.

AcknowledgementsThank you to my fellow management and directors for your active involvement, your valuable insight and guidance. I extend my appreciation to the management team under the inspirational leadership of Wesley Groening and all our employees for your contribution during the period.

The Group’s goals are to build a regional financial services play, develop the Swazi capital markets and allow Swazi institutional and retail investors the opportunity to share in the regional growth story by investing in SBC.

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I am pleased to present the results of the SBC Limited Group for the year ended 31 December 2013. The Group produced satisfactory results despite tough economic and trading conditions. Results for the year ended 31 December 2013 represent trading results of the Select Group of companies in Swaziland, of which SBC Limited is the controlling shareholder.

The Group changed its financial year-end to 31 December during 2012. Trading results in the audited financial statements compares the 12 months ended 31 December 2013 with the six months ended 31 December 2012.

Loan disbursementsThe value of loans disbursed to clients increased by 73% to E119,7 million. The increased disbursements are attributed to SBC Limited’s innovative product offerings that were introduced to the market in the second half of 2013. The gross loan book grew by 15% to E263,1 million, with a weighted average loan term of 50 months. Loan terms range from 1 to 60 months providing clients with the flexibility to apply for loans from a 1 month cash advance loan to a 60 month home improvement loan.

SBC Limited has become a market leader in the Swazi financial services sector, with the Group now offering products at lower rates than some of the commercial deposit-taking banks in Swaziland. SBC Limited is committed to continuing this growth in its loan book, with the acquisition of Lesana Lesotho during 2014 and planned product expansion in Swaziland expected to contribute significantly to further increasing the group’s disbursements and client base in 2014.

CFO report

Francois LangenhovenChief Financial Officer

The quality of the loan book remained satisfactory. Arrears balances decreased from E7 million at the end of December 2012 to E3,7 million after loans in arrears for more than 180 days were written off. Provisions as a percentage of the book decreased in line with the decrease in arrears, to 2,7%. The Group applies a very conservative provisioning policy and considers a loan not recoverable after three missed installments. Strict lending criteria and compliance with the Swaziland Employment Act, which regulates deductions from employee salaries, are applied to new and existing clients whenever loans are granted.

In the unfortunate event of the death of a client, the loan is recovered through credit life insurance. This insurance protects the group from bad debt losses but also benefits our clients in that no claim is made against their deceased estate and a funeral benefit payment is made to the family. We do not charge our clients an additional insurance premium for this benefit. Insurance premiums for the year amounted to E6,5 million.

Gross loan book growth

150.0

170.0

190.0

210.0

230.0

250.0

270.0

290.0 Million

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

The gross loan book grew by 15% to E263,1 million.

231.3

229.8

227.6

225.4

224.4

223.6

221.2 22

9.9

251.1 26

2.6 266.1

263.2

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Liquidity and fundingThe group maintained its conservative liquidity policy which often results in cash reserves in excess of operational and loan book growth requirements. Surplus cash is invested in highly liquid money market instruments to minimise the net carrying cost of surplus funds. Funding is raised in the capital markets through Select Limited’s Medium Term Note programme (“MTN”) which is listed on the SSX, as well as unlisted debt instruments such as promissory notes. Notes issued under the MTN programme and unlisted debt instruments typically range between E10 million and E30 million in value with tenure between 1 and 5 years.

The debt to equity ratio increased marginally from 0.4:1 to 0.6:1 due to increased funding required in preparation for planned organic loan book growth and acquisitions.

Debt instruments issued are detailed in note 13 to the financial statements.

CapitalSBC Limited remains well capitalised, with any funding required for growth available through profits and the debt instruments discussed under Liquidity and funding.

RegulatorySBC Limited applied for a Credit Institutions (“CI”) license through its subsidiary Select Limited, under the Financial Institutions Act, 2005 with the Swaziland Central Bank. The lending business in Swaziland is currently governed by the Money Lending and Credit Finance Act of 1991. Operating with a CI license will mean that the Swaziland lending business falls under the supervision of the Swaziland Central Bank, a recognised and reputable institution.

Financial performanceHeadline earnings for the 2013 financial year amounted to E31,9 million, 27% up from the comparable 12 months ended 31 December 2012. Income on the loan book increased by 15% to E92,8 million. This income represents interest on advances and book administration fees. The increase was achieved despite the rate reduction and introduction of new products during the year. The cash back product resulted in E3 million being paid back to clients qualifying for these loans.

Operational expenses were well controlled and consistent with the prior year. It represents mainly costs to maintain the Swaziland branch network and loan book administration fees. Loan book integrity is maintained by an audit process performed in the branch and verification by a third party administrator of each loan application.

Funding cost increased over the year due to more funding raised for anticipated growth and acquisitions.

DividendsThe board of directors considers the capital and funding needs of the business before declaring dividends. The directors declared an interim dividend of E0.60 per share on 11 July 2013.

Income on the loan book increased by 15% to E92,8 million.

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IntroductionSBC Limited and its subsidiaries are committed to the principles of openness, fairness, integrity, accountability, transparency and social responsibility to safeguard the interest of the Group and its shareholders and investors. The Group is committed to conduct its business in accordance with sound corporate governance practices and to balance this with the need to achieve sustainable return on shareholders’ investments.

The Board is of the opinion that the Group complies, in all material respects and unless otherwise indicated below, with the principles contained in the King Code on Governance Principles (“the Code”) forming part of the King Report on Corporate Governance for South Africa, 2009 (“KING III”) and the SSX listing requirements.

The Board of DirectorsThe Board of SBC Limited have a collective responsibility to provide effective corporate governance while providing leadership and strategic vision in driving the economic performance of the Group.

The Board of SBC Limited is represented by executive and non-executive Directors. Non-executive representation on the Boards brings external judgment on issues of strategy, performance, minority rights protections where applicable and expertise on the relevant markets the companies operate in.

The Board does not contain an executive director responsible for finance as required by King III. The Board is of the opinion that the existing executive director, Mr SK O’Sullivan, has sufficient financial acumen to fulfil this role. The Group Chief Financial Officer is invited to attend all Board meetings.

The non-executive directors are individuals who objectively contribute a wide range of industry skills, knowledge and experience to the Board and are not involved in the daily operations of the Group. All non-executive directors have unrestricted access to management at any time.

The Board meets at least quarterly or as circumstances require, and at its simplest level, the Board is responsible for:• Setting, with Management, the strategic direction of

SBC Limited;• Evaluating and providing input into SBC Limited’s

future financial/operational targets;• Reviewing performance of SBC Limited against budget

and targets;• Implementing Board plans and strategies

encompassing SBC Limited’s values, purpose and stakeholders;

• Evaluating risk Management and identifying areas of weakness / non-compliance;

• Considering and approving material transactions entered into by SBC Limited;

• Ensuring that the Group comply with all relevant laws, regulations and codes of business practice, and communicates with shareholders openly and promptly; and

Corporate governance

• Approving/dealing with any other matters required in terms of statute, regulation, sound corporate governance practices or SBC Limited’s internal policy.

In discharging these responsibilities, the Board relies on the CEO and various committees to ensure compliance with these policies and procedures established to achieve the objectives of SBC Limited in adhering to sound corporate governance. The Board is also encouraged to seek independent professional advice where necessary to ensure its responsibilities are properly discharged.

The CEO of each business plays a significant and strategic role in the operational success of SBC Limited’s business, and drives SBC Limited to achieve its financial and operating goals and objectives.

The Company Secretary plays a critical role in the Corporate Governance of the Group. She acts as an advisor to the Board, guiding individual directors and committees in areas such as Corporate Governance, updates on legal and statutory amendments and the effective execution of director’s responsibilities and fiduciary duties.

Working CommitteesThe Directors are assisted in the performance of their duties on the Board by the appointment of working committees. The Board delegates the responsibility for the implementation of strategy to the CEO. Management is also responsible for establishing and implementing effective systems of internal control and risk management procedures to ensure that the business is conducted responsibly, and for supporting the implementation of strategy.

These committees advise the Board on specialised and technical aspects of the business, and support the Board in ensuring that its oversight responsibilities are effectively discharged.

Delegation of AuthoritySBC Limited has adopted a Delegation of Authority framework that sets out the authority levels and responsibility that have been allocated to Board Committees and the CEO. Such a framework strengthens corporate governance in that responsibility and process for all levels of activity within the business is clearly identified and controlled.

The Delegation of Authority framework is divided in three sections:• Board and Board Committees responsibilities and

authority levels;• Authority levels (Monetary values) for Executives and

Management; and • Authority levels (Non-Monetary values) for Executive

and Management.

Any person or entity to whom any authority is delegated is prohibited from further delegation without the express authority to do so in writing.

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Board and Working committee mandates

Technical Advisory Committee (TAC)Independent non-executive members may be invited to join these committees adding independence and suitable industry expertise to the committees. The TAC’s act as advisory committees of SBC Limited and are responsible for:• Providing strategic, technical, advisory and operational

services to SBC Limited;• Advising on implementing SBC Limited strategy;• Considering broad business Management issues; • Monitoring internal controls and risk Management;• Advising on measures to be taken regarding

performance of business units and communicating business decisions and strategy to the various business units;

• Providing administrative, accounting, secretarial and human resource Management support relating to SBC Limited;

• Developing and implementing the business and information technology systems, procedures and controls; and

• Monitor compliance with all regulatory and legal requirements relating to the business of SBC Limited.

Executive Committee (Exco)Each business silo has an Exco for every country it operates in. Exco’s are involved in the day-to-day activities of the business, responsible for monitoring and reporting to the TAC on internal controls and Management while ensuring

the effective implementation of decisions made on such matters, and operates as a medium of communication and co-ordination between the business units, the TAC and the Board.

Remuneration CommitteeThe Remuneration Committee is established to ensure that Directors, Management and staff members of SBC Limited are fairly rewarded for their individual contributions to SBC Limited’s performance and to give stakeholders the assurance that such remuneration philosophy is set independently of Management.

DutiesThe principal duties of the Committee are as follows:• Performing an annual review of policies for all staff

members’ remuneration;• Performing an annual review of the basis of calculation

of all staff members’ remuneration to ensure the calculations are fair and reasonable;

• Reviewing current international industry practice and adjustments for local operating conditions;

• Reviewing different methods of remunerating senior executives and Directors;

• Reviewing fringe benefits; • Advising on and reviewing staff share incentive

schemes and approving the allocation of benefits to employees; and

• Assessing shareholder sentiment on remuneration packages, where appropriate.

Board of Directors

Audit Committee

Country Executive

Committee

Deal Committee

Technical Advisory

Committee

Remuneration Committee

Craig Clucas **

Sidney Place **

Tony de Castro *

Trevor Thom **

Patrick O’Flaherty **

Nigel England *

Tony de Castro *

Craig Clucas **

Sonja de Castro **

Nigel England *

Francois Langenhoven (Chief Financial Officer of SBC Limited)

Caryn Winter **

Representatives of KPMG (Auditor representative)

Executive management

Independent non-executive members (if invited)

Executive management

* Non-executive members** Independent, non-executive members

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Deal CommitteeThe Deal Committee is constituted to approve, in advance, deals and products which meet with requirements set by the committee to best serve clients and SBC Limited by leveraging on the skills base within African Alliance.

The Committee shall be chaired by a chairman appointed for the meeting, and shall comprise senior executives within the African Alliance and SBC Limited Group. The Committee will be driven by the deal proposer within SBC Limited who shall be responsible for –• convening the meeting, • ensuring all documentation is suitable, and • presenting the deal (but who shall not himself be

allowed to vote in respect of that deal).

The Committee shall consider the following:• Material SBC Limited investments. • New products.

Risk Management and Audit Committee

Objectives and AuthorityThe principal purpose of the Committee is to assist the Board in fulfilling its corporate governance and oversight responsibilities in relation to internal control systems, accounting policies and practices, internal/external audit functions as well as relevant group financial reporting and the management of risk within the Group as follows:

AuditThe committee is an advisory committee which does not relieve the directors of any of their responsibilities, but assists them to fulfil those responsibilities.

The Committee is authorised to investigate any matter within the scope of its responsibilities and make appropriate recommendations to the Board.

The Committee has unrestricted access to senior management of the Group and company records as required.

The Committee is authorised to meet with the external or internal auditors, without any other member of management being present, as the Committee deems appropriate.

The Committee is authorised to obtain any independent legal or other professional advice that it considers necessary to execute its functions.

Secure where deemed necessary, the attendance of external professional advisers at its meetings in order to perform its duties.

RiskFrom a risk perspective the Committee will:• Review and assess the integrity of the risk control

systems and ensure that the risk policies and strategies are effectively managed;

• Set out the nature, role, responsibility and authority of the risk management function within the company and outline the scope of risk management work;

• Monitor external developments relating to the practice of corporate accountability and the reporting of specifically associated risk, including emerging and prospective impacts; and

• Review the risk management framework to ensure it is updated regularly to address new elements of risk in each Silo and at Group level.

MembershipThe Committee shall consist of not less than two members appointed by the Board, possessing the necessary financial expertise in order to properly assist and advise the committee in the execution of its responsibilities. The non-executive chairman of the company, if a member of the committee, shall not be chairman of the committee.

• The Committee shall appoint a chairman from one of its members for each meeting.

• The Board shall have the power at any time to remove any members from the committee and to fill any vacancies so created.

• The Committee may, when so deemed necessary, invite any other member/s of management or staff or individual/s internal/external to the organisation to attend meetings in order to provide advice, facilitation or clarification regarding any risk related issues.

• The Committee shall normally require the Group Chief Financial Officer, the head of Group Internal Audit and from time to time, a representative of the company’s external auditors and representative(s) of the company to attend meetings or parts of meetings.

• The secretary of the Committee shall be appointed by the Committee.

Responsibilities The Audit responsibilities of the committee shall be:

External audit• To consider the appointment, independence and

retention of the external auditor(s), and any questions of resignation or dismissal of the auditor(s). This would include evaluating the performance of the external auditors.

• To discuss with the external auditor(s) before the audit commences the auditor(s) engagement letter, the nature and scope of the audit engagement, the proposed budget audit fee, and to ensure co-ordination where more than one audit firm is involved and maintenance of a professional relationship.

Financial statementsExamine the interim and annual financial statements, the accompanying reports to shareholders, the preliminary announcement of results and any other announcement regarding the company’s results or other financial information to be made public, before submission to the board, focusing particularly on:• any changes in accounting policies and practices;• any major provisions, judgmental areas and

impairments;• significant adjustments resulting from the audit;• the going concern assumption, based on short-term

financial and medium term integrated sustainability perspectives;

17


• capital adequacy;• internal control;• compliance with accounting standards, local and

international;• consider post balance sheet events and their potential

effect on the financial statements;• consider off balance sheet transactions and the

reporting thereof;• compliance with legal requirements; and• the propriety of major adjustments processed at year

end

Internal control and internal audit (when applicable)• To review Group Internal Audit’s (GIA) compliance with

its charter as set out in 9 as approved by the committee and conclusions with regard to internal control.

• To review the effectiveness of the company’s systems of internal control, including internal financial controls, fraud prevention and detection frameworks and computerised information systems’ control and security.

• To review the adequacy of corrective action taken in response to significant internal audit findings, arising from internal audits or special investigations

• To review significant cases of director or employee conflicts of interest, misconduct or fraud, or any other unethical activity by employees, the directors or the company.

• To review and approve internal audit plans, staffing and resources for GIA.

• To consider the appointment, dismissal or re-assignment of the head of the internal audit function.

• To consider and review the appointment of internal audit service providers.

Ethics• To review any statements on ethical standards for the

company.• To enquire into, and if necessary further investigate

any cases of unethical behaviour of key executives or fraud perpetuated by any employee or third party.

Financial reporting• Review financial information presented by

management, together with reports and opinions from external auditors (including letters to management and their responses thereto).

• Assess the appropriateness of accounting policies and methods chosen by management, particularly those relating to significant estimates and judgments.

• Consider and make appropriate recommendations to the Board regarding major changes to Group accounting policies and procedures.

• Review the reliability and appropriateness of disclosure in the financial statements and financial reporting to stakeholders particularly with regard to estimates and judgments.

• Review the going concern assertion for inclusion in the company’s annual report that describes the short-term financial assumptions made as well as the medium term integrated sustainability dependencies identified.

• Review a statement for inclusion in the company’s annual report that describes the audit and compliance

committee’s composition and responsibilities (including its mandate), and how these responsibilities were discharged.

• Make appropriate recommendations to the Board as to whether financial statements should be approved.

Tax matters• Enquire into the tax position of the company regarding

prior year returns, assessments and any unresolved disputes relating to normal or indirect taxes.

• The committee will monitor changes to financial legislation that impacts the company and its business.

• The committee will monitor and evaluate the performance of the internal audit function in terms of its objectives.

• The committee in carrying out its duties under the terms of this charter will have due regard to the principles of governance.

• The committee will annually evaluate its performance and the performance of its members against this charter.

• The committee shall review its terms of reference periodically, as required.

The Risk responsibilities of the Committee shall be:• Review the effectiveness of the Enterprise Risk

Management system within the Group and be assured that material risks are identified and appropriate risk, including the formulation and subsequent updating of appropriate Group policies.

• Evaluate the adequacy and effectiveness of administrative, operating and accounting controls used by the Group.

• Review actual and potential material risk exposures based on formal assessments.

• Monitor the implementation of business unit and corporate risk management plans.

• Review insurance and other risk transfer arrangements, and consider whether appropriate coverage is in place.

• Review the business contingency planning process within the Group and be assured that material risks are identified and appropriate contingency plans are in place.

• Review the performance of the Group Head of Risk and Insurance and the risk management system as well as all resources.

• Review the group risk register and ensure the maintenance thereof at both operational and strategic levels.

The committee will not be responsible for:• Becoming involved in day-to-day operations,

management functions or decision-making; and• Supervising the performance of executives.

18


SBC Limited is committed to achieving the “triple bottom line” in its operations. SBC recognises its social responsibility towards the community in which it operates, the staff which it employs, and the economic impact of being a profitable, sustainable, and successful business.

SBC Limited’s operations, where possible, provide generously to local charities and sponsorships.

During the review period, Select participated in a variety of Corporate Social Investment initiatives, most notable of which were the following:

Select General Manager, Wesley Groening, handing out gifts to children at Kwaluseni NCP.

Corporate social investment

Select staff with children in the care of the Kwaluseni Neighbourhood Care point.

Sibebe Survivor: this is a fund-raising sponsored walk promoted by the Mbabane Rotary Club. The objective is for corporate organizations to register a team, who will then hike 10km, and in the process climb what is known to be the largest granite rock in the southern hemisphere. Funds raised are used for various projects, and the focus for 2013 was to provide clean drinking water for the Mbuluzi community, through the construction of boreholes at targeted sites. Select contributed E7,500 for this initiative, and registered a team of 32 hikers for the event.

Kwaluseni Neighborhood Care Point: The neighborhood care point’s construction was fully funded by Select several years ago. In 2013, Select staff members launched an initiative to re-connect with the NCP. Staff members contributed by donating childrens’ clothing and toys, as well as food and money. A team of volunteers also cleaned up the NCP, and prepared a meal for all the children in the care of the NCP. In total, clothing and toys worth E10,000 were donated, and a total of E4,800 was raised to cater for the costs of a hot meal for the 125 children who attended the event.

19


Select staff at the Sibebe Survivor sponsored walk. Wayne Faulds (Group Head of Sales) in the back.

Lending philosophy of Select

At the heart of SBC Limited’s lending philosophy and credit practices is the establishment and maintenance of long term client relationships based on trust. This is best achieved by always keeping clients’ best interests at heart. SBC believes its clients have the right to be properly informed when making any financial decisions and SBC believes in keeping its clients informed to the best of its ability on any changes that might impact their on-going relationships with the Group. SBC allows its clients the absolute freedom of choice in choosing the best solution and provider for their needs. As a business, SBC is constantly evolving and seeking out technologies and strategies that will improve its efficiency, turnaround times and client service, enabling it to offer competitive products, while maintaining a healthy risk balance. SBC also endorses the SMART campaign of responsible lending practices (www.smartcampaign.org).

Police sponsorship: Select contributed E15,000 to purchase netball playing kits for the police force’s netball teams (male and female), and also donated 5 computers to be used in the Public Relations Office of the police headquarters. The donation of computers was prompted by the realization that the office only had 2 computers, resulting in officials in the PROs office needing to book time to use the computers, which created a lot of inefficiency in their operations. The presentation was well-received in an event hosted by the National Commissioner of Police and other senior officials within the force, as well as all local media houses.

Army sponsorship: Select contributed E15,000 to fund the purchase of a soccer kit for the local army’s soccer team, which competes in the Swazi Premier League. The presentation was received by the Deputy Commander at a breakfast meeting hosted by the army at their headquarters, in an event that was well-covered by the local media.


Annual Financial

Statements 2013

SBC Limited

21


Directors’ responsibilities and approval

The directors are required in terms of the Companies Act 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 12 months and the results of its operations and cash flows for the period then ended, in conformity with International Financial Reporting Standards. The external auditor is 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 upon 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 these responsibilities, the board sets standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. The 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.

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 12 months to 31 December 2014 and, in the light of this review and the current financial position, they are satisfied that the group has or has access to adequate resources to continue in operational existence for the foreseeable future.

The external auditor is responsible for independently reviewing and reporting on the group’s annual financial statements. The annual financial statements have been examined by the group’s external auditor and their report is presented on page 22.

The annual financial statements set out on pages 23 to 58, which have been prepared on the going concern basis, were approved by the board on 03 April 2014 and were signed on its behalf by:

________________________________________ ________________________________________Director Director

22 Independent auditor’s report

23


Directors’ report

The directors submit their report for the 12 months ended 31 December 2013.

Incorporation The company was incorporated on 13 April 2011 and obtained its certificate to commence business on the same day.

Review of activities

Main business and operations The group has investment holdings and offers financial services with operations comprising the provision of financial loans and services to individuals.

One of the group’s subsidiaries, Select Limited, applied for a credit only institutions license in Swaziland. The regulator set as a condition for approval of the license a name change from Newera Partners Limited to Select Limited. The regulator reasoned that operating as Newera Partners Limited would create confusion in the market and with current Select clients.

The group posted satisfactory results despite a very tough trading environment, and increased competition in the Swaziland micro finance space which put pressure on margins. The group’s on-going focus on lowering the cost of funding and building a solid loan book with acceptable risk levels, contributed to reducing the impact of these conditions. The directors are confident in the group’s ability to deliver a strong performance in the upcoming financial year. The operating results and state of affairs of the company are fully set out in the attached annual financial statements.

Net profit of the group was E 31 926 110 (2012: E 16 849 328 profit), after taxation of E (12 541 116) (2012: E (7 562 160)). Net profit for the company was E 24 238 982 (2012: E 45 224 576), after taxation of E nil (2012: E nil).

Variance to pre-listing statement The variance between the pre-listing statement figures and the actual figures are due to an allocation difference. In the figures presented in the pre-listing statement, book expenses of E 21 227 226 was set off against forecast revenue of E 92 764 653, resulting in an Other Income figure of E 71 537 427. In the actual figures, book expenses are included in the operating expenses line item.

Post reporting date events

The directors are not aware of any matter or circumstance arising since the end of the financial 12 months that would have materially altered the results reported.

The company’s shares were listed on the Swaziland Stock Exchange (SSX) on the 10th of February 2014.

The group commenced negotiations with Select Africa Finance Limited to acquire a stake in Lesana Lesotho Limited, a Lesotho registered micro-finance company.

Authorised and issued share capital

Changes in the authorised and issued share capital of the group during the 12 months under review are fully disclose in note 12 of the financial statements.

Dividends paid

The dividends already declared and paid to shareholders during the 12 months are as reflected in the attached statement of changes in equity, once the appropriate approval was granted by the board.

Directors

The directors of the company during the 12 months and to the date of this report are as follows: Name Nationality ChangesM M Dlamini SwaziN K Mabuza Swazi Resigned 02 July 2013T Dladla SwaziA M B de Castro Swazi Appointed 02 July 2013S M Ginindza Swazi Appointed 02 July 2013S K O’Sullivan South

AfricanAppointed 02 July 2013

Secretary

The secretary of the company is L da Camara.

Holding companyThe company’s holding company is Select Africa Finance Limited incorporated in the Republic of Mauritius.

Ultimate holding company

The company’s ultimate holding company is African Alliance Holdings Limited incorporated in the Isle of Man.

Investment in subsidiaries Name of subsidiary Country of

incorporationPercentage holding

Select Limited (Formerly known as Newera Partners Limited)

Swaziland 94,54%

Details of the company’s investment in subsidiaries are set out in note 4.

Auditors

KPMG Chartered Accountants Swaziland have indicated their willingness to continue in office in accordance with the Companies Act.

24


Statement of financial position as at 31 December 2013

Group Company

Figures in Emalangeni Note 31 December 2013 31 December 2012 31 December 2013 31 December 2012

Assets

Non-current assets

Property, plant and equipment 2 279 456 112 121 - -

Goodwill 3 209 018 117 209 018 117 - -

Investments in subsidiaries 4 - - 378 157 821 378 157 821

Deferred tax asset 5 1 840 775 3 221 885 - -

Loans and advances 6 187 725 280 155 495 910 - -

398 863 628 367 848 033 378 157 821 378 157 821

Current assets

Amounts owing by related parties 7 3 144 115 41 598 637 1 372 217 -

Current tax receivable 8 1 138 250 1 411 220 - -

Loans and advances 6 68 359 617 60 866 121 - -

Trade and other receivables 10 75 865 343 432 - -

Cash and cash equivalents 11 128 368 452 130 090 659 524 020 47 651 541

201 086 299 234 310 069 1 896 237 47 651 541

Total assets 599 949 927 602 158 102 380 054 058 425 809 362

Equity and liabilities

Equity

Share capital 12 348 329 629 362 318 769 348 329 629 362 318 769

Retained income 3 680 738 32 880 003 10 448 165 44 103 183

352 010 367 395 198 772 358 777 794 406 421 952

Non-controlling interest 26 602 924 24 811 959 - -

378 613 291 420 010 731 358 777 794 406 421 952

Liabilities

Non-Current Liabilities

Amounts owing to related parties 7 13 254 023 41 750 706 - -

Other financial liabilities 13 92 241 034 45 808 891 - -

105 495 057 87 559 597 - -

Current liabilities

Amounts owing to related parties 7 818 263 575 824 21 276 262 19 363 679

Other financial liabilities 13 113 264 582 92 615 318 - -

Current tax payable 8 295 105 94 237 - -

Trade and other payables 15 1 463 629 1 302 395 2 23 731

115 841 579 94 587 774 21 276 264 19 387 410

Total liabilities 221 336 636 182 147 371 21 276 264 19 387 410

Total equity and liabilities 599 949 927 602 158 102 380 054 058 425 809 362

25


Statement of comprehensive income for the 12 months ended 31 December 2013

Group Company

Figures in Emalangeni Note 12 months ended31 December 2013

6 months ended31 December 2012



Revenue 92 764 653 44 702 168 - -

Operating expenses (40 174 236) (18 195 694) (180 759) (134 314)

Operating profit/(loss) 17 52 590 417 26 506 474 (180 759) (134 314)

Investment revenue 19 12 985 432 5 324 854 26 427 481 46 269 232

Finance costs 20 (21 108 623) (7 419 840) (2 007 740) (910 342)

Profit before taxation 44 467 226 24 411 488 24 238 982 45 224 576

Taxation 21 (12 541 116) (7 562 160) - -

Profit for the period 31 926 110 16 849 328 24 238 982 45 224 576

Other comprehensive income - - - -

Total comprehensive income for the period

31 926 110 16 849 328 24 238 982 45 224 576

Total comprehensive income attributable to:

Owners of the parent 30 135 146 15 908 061 24 238 982 45 224 576

Non-controlling interest 1 790 964 941 267 - -

31 926 110 16 849 328 24 238 982 45 224 576

Earnings per share: Basic and diluted 0,32 0,25 - -

26


Statement of changes in equityas at 31 December 2013

Figures in Emalangeni Share capital Share premium Total share capital Retained income Total attributable to equity holders of the group /

company

Non-controlling interest Total equity

Group

Balance at 01 July 2012 10 000 362 308 769 362 318 769 19 631 162 381 949 931 23 870 692 405 820 623

Changes in equity

Total comprehensive income for the 6 months - - - 15 908 061 15 908 061 941 267 16 849 328

Dividends paid - - - (2 659 220) (2 659 220) - (2 659 220)

Total changes - - - 13 248 841 13 248 841 941 267 14 190 108

Balance at 01 January 2013 10 000 362 308 769 362 318 769 32 880 003 395 198 772 24 811 959 420 010 731

Changes in equity

Total comprehensive income for the 12 months - - - 30 135 146 30 135 146 1 790 964 31 926 110

Purchase of own / treasury shares (351) (13 988 789) (13 989 140) - (13 989 140) 1 (13 989 139)

Dividends paid - - - (59 334 411) (59 334 411) - (59 334 411)

Total changes (351) (13 988 789) (13 989 140) (29 199 265) (43 188 405) 1 790 965 (41 397 440)

Balance at 31 December 2013 9 649 348 319 980 348 329 629 3 680 738 352 010 367 26 602 924 378 613 291

Company

Balance at 01 July 2012 10 000 362 308 769 362 318 769 (1 121 393) 361 197 376 - 361 197 376

Changes in equity

Total comprehensive income for the 6 months - - - 45 224 576 45 224 576 - 45 224 576

Total changes - - - 45 224 576 45 224 576 - 45 224 576

Balance at 01 January 2013

Changes in equity 10 000 362 308 769 362 318 769 44 103 183 406 421 952 - 406 421 952


Purchase of own / treasury shares (351) (13 988 789) (13 989 140) - (13 989 140) - (13 989 140)

Dividends paid - - - (57 894 000) (57 894 000) - (57 894 000)

Total changes (351) (13 988 789) (13 989 140) (33 655 018) (47 644 158) - (47 644 158)

Balance at 31 December 2013 9 649 348 319 980 348 329 629 10 448 165 358 777 794 - 358 777 794

Note 12 12 12

27


Figures in Emalangeni Share capital Share premium Total share capital Retained income Total attributable to equity holders of the group /

company

Non-controlling interest Total equity

Group

Balance at 01 July 2012 10 000 362 308 769 362 318 769 19 631 162 381 949 931 23 870 692 405 820 623

Changes in equity

Total comprehensive income for the 6 months - - - 15 908 061 15 908 061 941 267 16 849 328

Dividends paid - - - (2 659 220) (2 659 220) - (2 659 220)

Total changes - - - 13 248 841 13 248 841 941 267 14 190 108

Balance at 01 January 2013 10 000 362 308 769 362 318 769 32 880 003 395 198 772 24 811 959 420 010 731

Changes in equity

Total comprehensive income for the 12 months - - - 30 135 146 30 135 146 1 790 964 31 926 110

Purchase of own / treasury shares (351) (13 988 789) (13 989 140) - (13 989 140) 1 (13 989 139)

Dividends paid - - - (59 334 411) (59 334 411) - (59 334 411)

Total changes (351) (13 988 789) (13 989 140) (29 199 265) (43 188 405) 1 790 965 (41 397 440)

Balance at 31 December 2013 9 649 348 319 980 348 329 629 3 680 738 352 010 367 26 602 924 378 613 291

Company

Balance at 01 July 2012 10 000 362 308 769 362 318 769 (1 121 393) 361 197 376 - 361 197 376

Changes in equity


Total changes - - - 45 224 576 45 224 576 - 45 224 576

Balance at 01 January 2013

Changes in equity 10 000 362 308 769 362 318 769 44 103 183 406 421 952 - 406 421 952


Purchase of own / treasury shares (351) (13 988 789) (13 989 140) - (13 989 140) - (13 989 140)

Dividends paid - - - (57 894 000) (57 894 000) - (57 894 000)

Total changes (351) (13 988 789) (13 989 140) (33 655 018) (47 644 158) - (47 644 158)

Balance at 31 December 2013 9 649 348 319 980 348 329 629 10 448 165 358 777 794 - 358 777 794

Note 12 12 12

28


Statement of cashflows for the 12 months ended 31 December 2013

Group Company

Figures in Emalangeni Note 12 months ended31 December 2013




Cash flows from operating activities

Cash generated from/(used in) operations

22 13 384 290 26 985 321 (204 488) (110 583)

Interest income 12 985 432 5 324 854 1 489 376 229 653

Dividends received - - 24 938 105 46 039 579

Finance costs (21 108 623) (7 419 840) (2 007 740) (910 342)

Tax paid 23 (10 685 554) (9 979 579) - -

Net cash from operating activities (5 424 455) 14 910 756 24 215 253 45 248 307

Cash flows from investing activities

Purchase of property, plant and equipment

2 (258 454) (11 817) - -

Proceeds from loans from group companies

37 195 886 53 053 134 2 003 053 1 020 812

Repayment of loans from group companies

(26 993 040) (23 981 800) (1 462 687) -

Net cash from investing activities 9 944 392 29 059 517 540 366 1 020 812

Cash flows from financing activities

Reduction of share capital or buy back of shares

12 (13 989 140) - (13 989 140) -

Proceeds from other financial liabilities

67 081 407 1 381 363 - -

Dividends paid (59 334 411) (2 659 220) (57 894 000) -

Net cash from financing activities (6 242 144) (1 277 857) (71 883 140) -

Total cash movement for the period

(1 722 207) 42 692 416 (47 127 521) 46 269 119

Cash at the beginning of the period

130 090 659 87 398 243 47 651 541 1 382 422

Total cash at end of the period 11 128 368 452 130 090 659 524 020 47 651 541

29


Accounting policies

1. Presentation of financial statements

The annual financial statements have been prepared in accordance with International Financial Reporting Standards, and the Companies Act. The annual financial statements incorporate the principal accounting policies set out below.

These accounting policies are consistent with the previous period. 1.1 New and amended standards and interpretations The financial statements have been prepared in accordance with International Financial Reporting Standards on a basis consistent with the prior year except for the adoption of the following new or revised standards in the year commencing 1 January 2013.

• IAS 1 ‘Presentation of Items of Other Comprehensive Income’ has been adopted by 1 January 2013 for the first time for the financial reporting period ending 31 December 2013. The amendment requires that items presented within OCI be grouped separately into those items that will be recycled into profit or loss at a future point in time, and those items that will never be recycled. The amendment affects presentation only and therefore has no impact on the company’s financial position or performance. The amendment has been applied retrospectively and the comparative information has been restated.

• IAS 19 (2011) ‘Employee Benefits’ has been adopted by 1 January 2013 for the first time for the financial reporting period ending 31 December 2013. The amendments eliminate the option to defer the recognition of gains and losses resulting from defined benefit plans, as well as the options for presentation of gains and losses relating to these plans. The disclosure requirements are also improved to better show the characteristics of defined benefit plans and the risk arising from these plans. The Company does not have any defined benefit obligations, therefore this amendment will have no impact on the financial performance or position.

• IAS 27 (2011) ‘Separate Financial Statements’ has been adopted by 1 January 2013 for the first time for financial reporting period ending 31 December 2013. The amended version of this standard now only deals with the requirements for seperate financial statements, while requirements for consolidated financial statements are now contained in IFRS 10. The effects of the amendment are not considered significant to the Company.

• IAS 28 (2011) ‘Investments in Associates and Joint Ventures (as revised in 2011)’ has been adopted by 1 January 2013 for the first time for the financial reporting period ending 31 December 2013. IAS 28 carries forward the existing accounting and disclosure requirements with limited amendments. The initial application of this amendment has no impact on the company’s financial statements.

• IFRS 10 ‘Consolidated Financial Statements’, IFRS 11 ‘Joint Arrangements’,IFRS 12 ‘Disclosure of Interests

in Other Entities’ has been adopted by 1 January 2013 for the first time for the financial reporting period ending 31 December 2013. IFRS 10 introduces a single control model to determine whether an investee should be consolidated. As a result the company may need to change its consolidation conclusion in respect of its investees, which may lead to changes in the current accounting for these investees. The effect is not considered significant to the Company. Under IFRS 11, the structure of the joint arrangement, although still an important consideration, is no longer the major factor in determining the type of joint arrangement and therefore the subsequent accounting. The effect is not considered significant to the Company. IFRS 12 brings together in a single standard all the disclosure requirements about an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Group is currently assessing the disclosure requirements for interests in subsidiaries, interests in joint arrangements and associates and unconsolidated structured entities in comparison with the existing disclosures. IFRS 12 requires the disclosure of information about the nature, risks and financial effects of these interests.

• IFRS 7 ‘Financial Instruments : Disclosure - Offsetting Financial Assets and Financial Liabilities’ has been adopted by 1 January 2013 for the first time for the financial reporting period ending 31 December 2013. The amendments contain new disclosure requirements for financial assets and financial liabilities that are offset in the statement of financial position; or are subject to enforceable master netting arrangements or similar agreements. The company does not apply offsetting in the financial statements and will not be required to provide additional disclosures in this regard. The amendment affects disclosure only and has no impact on the Company’s financial position or performance. IFRS 13 ‘Fair Value Measurement’ has been adopted by 1 January 2013 for the first time for the financial reporting period ending 31 December 2013.

• IFRS 13 provides a single source of guidance on how fair value is measured, and replaces the fair value measurement guidance that is currently dispersed throughout IFRS. Subject to limited exceptions, IFRS 13 is applied when fair value measurements or disclosures are required or permitted by other IFRSs. The company is currently reviewing its methodologies in determining fair values.

The following standards, amendments to standards, and interpretations, effective in future accounting periods, and which are relevant to the company have not been early adopted in these financial statements:

• IAS 32 ‘Offsetting Financial Assets and Financial Liabilities’ will be adopted by 1 January 2014 for the first time for the financial reporting period ending 31 December 2014. The amendments clarify when an entity can offset financial assets and financial liabilities. This amendment will result in the company no longer offsetting two of its master netting arrangements.

• Investment entities (Amendments to IFRS 10, IFRS

30


12 and IAS 27) will be adopted by 1 January 2014 for the first time for the financial reporting period ending 31 December 2014. The amendments clarify that a qualifying investment entity is required to account for investments in controlled entities, as well as investments in associates and joint ventures, at fair value through profit or loss; the only exception would be subsidiaries that are considered an extension of the investment entity’s investment activities. The consolidation exemption is mandatory and not optional. This amendment will result in the company having to account for investments in controlled entities, as well as investments in associates and joint ventures, at fair value through profit or loss.

• IAS 36 ‘Recoverable Amount Disclosures for Non-Financial Assets’ (amendments) will be adopted by 1 January 2014 for the first time for the financial reporting period ending 31 December 2014. The amendments reverse the unintended requirement in IFRS 13 Fair Value Measurement to disclose the recoverable amount of every cash-generating unit to which significant goodwill or indefinite-lived intangible assets have been allocated. Under the amendments, the recoverable amount is required to be disclosed only when an impairment loss has been recognised or reversed.

• IFRS 9 ‘Financial Instruments’ introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2010) introduces additions relating to financial liabilities. The IASB currently has an active project to make limited amendments to the classification and measurement requirements of IFRS 9 and add new requirements to address the impairment of financial assets and hedge accounting. The effective date of IFRS 9 was 1 January 2015. The effective date has been postponed and a new date is yet to be specified. The company will adopt the standard in the first annual period beginning on or after the mandatory effective date (once specified). The impact of the adoption of IFRS 9 has not yet been estimated as the standard is still being revised and impairment and macro-hedge accounting guidance is still outstanding. The company will assess the impact once the standard has been finalised and the effective date is known.

1.2 Consolidation Basis of consolidation The consolidated annual financial statements incorporate the annual financial statements of the company and all entities, including special purpose entities, which are controlled by the company.

Control exists when the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries are included in the consolidated annual financial statements from the effective date of acquisition to the effective date of disposal.

Adjustments are made when necessary to the annual financial statements of subsidiaries to bring their accounting policies in line with those of the group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Non-controlling interests in the net assets of consolidated subsidiaries are identified and recognised separately from the group’s interest therein, and are recognised within equity. Losses of subsidiaries attributable to non-controlling interests are allocated to the non-controlling interest even if this results in a debit balance being recognised for non-controlling interest.

Transactions which result in changes in ownership levels, where the group has control of the subsidiary both before and after the transaction are regarded as equity transaction and are recognised directly in the statement of changes in equity.

The difference between the fair value of consideration paid or received and the movement in non-controlling interest for such transactions is recognised in equity attributable to the owners of the parent.

Where a subsidiary is disposed of and a non-controlling shareholding is retained, the remaining investment is measured to fair value with the adjustment to fair value recognised in profit or loss as part of the gain or loss on disposal of the controlling interest.

Business combinations The group accounts for business combinations using the acquisition method of accounting. The cost of the business combination is measured as the aggregate of the fair values of assets given, liabilities incurred or assumed and equity instruments issued. Costs directly attributable to the business combination are expensed as incurred, except the costs to issue debt which are amortised as part of the effective interest and costs to issue equity which are included in equity.

Contingent consideration is included in the cost of the combination at fair value as at the date of acquisition. Subsequent changes to the assets, liability or equity which arise as a result of the contingent consideration are not affected against goodwill, unless they are valid measurement period adjustments.

The acquiree’s identifiable assets, liabilities and contingent liabilities which meet the recognition conditions of IFRS 3 Business combinations are recognised at their fair values at acquisition date, except for non-current assets (or disposal group) that are classified as held-for-sale in accordance with IFRS 5 Non-current assets held-for-sale and discontinued operations, which are recognised at fair value less costs to sell.

Contingent liabilities are only included in the identifiable assets and liabilities of the acquiree where there is a present obligation at acquisition date.

On acquisition, the group assesses the classification of the

Accounting policies

31


acquiree’s assets and liabilities and reclassifies them where the classification is inappropriate for group purposes. This excludes lease agreements and insurance contracts, whose classification remains as per their inception date.

Non-controlling interest arising from a business combination is measured either at their share of the fair value of the assets and liabilities of the acquiree or at fair value. The treatment is not an accounting policy choice but is selected for each individual business combination, and disclosed in the note for business combinations.

In cases where the group held a non-controlling shareholding in the acquiree prior to obtaining control, that interest is measured to fair value as at acquisition date. The measurement to fair value is included in profit or loss for the 12 months. Where the existing shareholding was classified as an available-for-sale financial asset, the cumulative fair value adjustments recognised previously to other comprehensive income and accumulated in equity are recognised in profit or loss as a reclassification adjustment.

Goodwill is determined as the consideration paid, plus the fair value of any shareholding held prior to obtaining control, plus non-controlling interest and less the fair value of the identifiable assets and liabilities of the acquiree.

Goodwill is not amortised but is tested on an annual basis for impairment. If goodwill is assessed to be impaired, that impairment is not subsequently reversed.

Goodwill arising on acquisition of foreign entities is considered an asset of the foreign entity. In such cases the goodwill is translated to the functional currency of the group at the end of each reporting period with the adjustment recognised in equity through to other comprehensive income.

1.3 Significant accounting judgements, estimates and assumptions In preparing the annual financial statements, management is required to make estimates and assumptions that affect the amounts represented in the annual 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 annual financial statements.

Significant judgements In the process of applying the Company’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements:

Functional currency The primary objective of the Company is to generate returns in Emalangeni, its capital-raising currency. The liquidity of the Company is managed on a day-to-day basis in Emalangeni. The Company’s performance is evaluated in Emalangeni. Therefore, management considers Emalangeni as the currency that most faithfully represents the economic effects of the underlying transactions, events

and conditions.

Estimates and assumptions Trade and other receivables and loans and receivables The group assesses its trade and other receivables and loans and receivables for impairment at each reporting date. In determining whether an impairment loss should be recorded in profit and loss, the group 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 other receivables and loans and receivables is calculated on a portfolio 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.

Fair value estimation The fair value of investments traded in active markets (such as trading and available-for-sale securities) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the group is the current bid price.

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 group for similar financial instruments.

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 group 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 group 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 reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the group 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 group to realise the net deferred tax assets recorded at the reporting date could be impacted.

Useful lives and residual values of property, plant and equipment and intangible assets

32


The group tests annually whether, the useful life and residual value estimates were appropriate and in accordance with its accounting policy. Useful lives and residual values of property, plant and equipment and intangible assets have been determined based on previous experience and anticipated disposal values when the assets are disposed.

1.4 Property, plant and equipment The cost of an item of property, plant and equipment is recognised as an asset when: • it is probable that future economic benefits associated

with the item will flow to the company; and

• the cost of the item can be measured reliably.

Property, plant and equipment is initially measured at cost.

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.

When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount.

Depreciation is provided to write down the property, plant and equipment, on a straight line basis, over their useful life, to their residual values, as follows:

Item Average useful life

Furniture and fixtures 6 yearsMotor vehicles 4 yearsOffice equipment 5 yearsIT equipment 3 yearsLeasehold improvements over lease term

The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting period. If the expectations differ from previous estimates, the change is accounted for as a change in accounting estimate.

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 is 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.

1.5 Investments in subsidiaries Company annual financial statements In the company’s separate annual financial statements, investments in subsidiaries are carried at cost less any accumulated impairment. The cost of an investment in a subsidiary is the aggregate of: • the fair value, at the date of exchange, of assets given,

liabilities incurred or assumed, and equity instruments issued by the company; plus

• any costs directly attributable to the purchase of the subsidiary.

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.

1.6 Financial instruments Initial recognition and measurement Financial instruments are recognised initially when the group becomes a party to the contractual provisions of the instruments.

The group 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 instruments are measured initially at fair value, except for equity investments for which a fair value is not determinable, which are measured at cost and are classified as available-for-sale financial assets.

For financial instruments which are not at fair value through profit or loss, transaction costs are included in the initial measurement of the instrument.

Financial instruments designated as at fair value through profit or loss Investments are recognised and derecognised on a trade basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned.

Investments are measured initially and subsequently at fair value with the gains and losses arising from changes in fair value being included in profit or loss for the period.

Financial instruments designated as available-for-sale These investments are measured initially and subsequently at fair value. Gains and losses arising from changes in the fair value are recognised directly in equity until the security is disposed of or is determined to be impaired.

Impairment losses recognised in profit and loss for equity investments classified as available-for-sale are not subsequently reversed through profit or loss. Impairment losses recognised in profit and loss for debt instruments classified as available-for-sale are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss.

Accounting policies

33


Amounts owing by/to related parties These include loans to and from holding companies, fellow subsidiaries, subsidiaries, joint ventures and associates and are recognised initially at fair value plus direct transaction costs.

Loans to group companies are classified as loans and receivables.

Loans from group companies are classified as financial liabilities measured at amortised cost.

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. Trade and other payablesTrade payables are measured at original invoice amount.

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 and measured at amortised cost.

Bank overdraft and other financial liabilities 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 group’s accounting policy for borrowing costs.

Other financial liabilities are measured initially at fair value and subsequently at amortised cost, using the effective interest rate method.

Loans and advances 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 impairment.

These financial assets are not quoted in an active market and do not have fixed or determinable repayments.

1.7 Tax Current tax assets and liabilities 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.

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 reporting date.

Deferred tax assets and liabilities 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 tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction 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 end of the reporting period.

Tax expenses 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, to other comprehensive income, or

• a business combination.

Current tax and deferred taxes are charged or credited to other comprehensive income if the tax relates to items that are credited or charged, in the same or a different period, to other comprehensive income.

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 in equity.

1.8 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.

34


Operating leases – lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease asset. This liability is not discounted.

Any contingent rents are expensed in the period they are incurred.

1.9 Impairment of assets The group assesses at each end of the reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the group estimates the recoverable amount of the asset.

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 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.

1.10 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.

If the group reacquires its own equity instruments, those instruments are deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the group’s own equity instruments. Consideration paid or received shall be recognised directly in equity.

1.11 Share based payments Goods or services received or acquired in a share-based payment transaction are recognised when the goods or as the services are received. A corresponding increase in equity is recognised if the goods or services were received in an equity-settled share-based payment transaction or a liability if the goods or services were acquired in a cash-settled share-based payment transaction.

When the goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, they are recognised as expenses.

For equity-settled share-based payment transactions, the goods or services received are measured, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably.

If the fair value of the goods or services received cannot be estimated reliably, their value and the corresponding increase in equity, indirectly, are measured by reference to the fair value of the equity instruments granted.

For cash-settled share-based payment transactions, the goods or services acquired and the liability incurred are measured at the fair value of the liability. Until the liability is settled, the fair value of the liability is re-measured at each reporting date and at the date of settlement, with any changes in fair value recognised in profit or loss for the period.

If the share based payments granted 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 during the vesting period, (or on a straight line basis over the vesting period).

If the share based payments vest immediately the services received are recognised in full.

1.12 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.

The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or

Accounting policies

35


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 group’s obligation under the schemes is equivalent to those arising in a defined contribution retirement benefit plan.

1.13 Revenue When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the stage of completion of the transaction at the end of the reporting period. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied:

• the amount of revenue can be measured reliably;

• it is probable that the economic benefits associated with the transaction will flow to the group;

• the stage of completion of the transaction at the end of the reporting period can be measured reliably; and

• the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognised only to the extent of the expenses recognised that are recoverable.

Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and services provided in the normal course of business, net of trade discounts and volume rebates, and value added tax.

Interest is recognised, in profit or loss, using the effective interest rate method.

Dividends are recognised, in profit or loss, when the company’s right to receive payment has been established.

1.14 Borrowing costs Borrowing costs are recognised as an expense in the period in which they are incurred.

1.15 Translation of foreign currencies

Foreign currency transactions A foreign currency transaction is recorded, on initial recognition in Emalangeni, 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 the end of the reporting period: • 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 annual 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 to other comprehensive income and accumulated in equity, any exchange component of that gain or loss is recognised to other comprehensive income and accumulated 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 Emalangeni by applying to the foreign currency amount the exchange rate between the Emalangeni and the foreign currency at the date of the cash flow.

1.16 Offsetting Financial assets and liabilities are set off and the net amount presented in the Statement of financial position when, and only when, the company has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

1.17 Comparative information Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current period.

36


Notes to the annual financial statements

Figures in Emalangeni 31 December 2013 31 December 2012

Group Cost / Valuation

Accumulated depreciation

Carrying value Cost / Valuation

Accumulated depreciation

Carrying value

Furniture and fixtures 440 058 (409 851) 30 207 440 058 (396 215) 43 843

Motor vehicles 534 496 (511 076) 23 420 534 496 (489 456) 45 040

Office equipment 404 294 (400 767) 3 527 404 294 (396 129) 8 165

IT equipment 1 331 603 (1 109 301) 222 302 1 073 153 (1 058 080) 15 073

Leasehold improvements 1 084 095 (1 084 095) - 1 084 095 (1 084 095) -

Total 3 794 546 (3 515 090) 279 456 3 536 096 (3 423 975) 112 121

Reconciliation of property, plant and equipment - Group - 31 December 2013

Opening balance

Additions Depreciation Total

Furniture and fixtures 43 843 - (13 636) 30 207

Motor vehicles 45 040 - (21 620) 23 420

Office equipment 8 165 - (4 638) 3 527

IT equipment 15 073 258 454 (51 225) 222 302

112 121 258 454 (91 119) 279 456

Reconciliation of property, plant and equipment - Group - 31 December 2012

Opening balance

Additions Depreciation Total

Furniture and fixtures 43 769 7 114 (7 040) 43 843

Motor vehicles 55 851 - (10 811) 45 040

Office equipment 7 194 4 703 (3 732) 8 165

IT equipment 20 637 - (5 564) 15 073

127 451 11 817 (27 147) 112 121

2. Property, plant and equipment

37


Figures in Emalangeni 31 December 2013 31 December 2012

Group Cost Accumulated impairment

Carrying value

Cost Accumulated impairment

Carrying value

Goodwill 209 018 117 - 209 018 117 209 018 117 - 209 018 117

Reconciliation of goodwill - Group - 31 December 2013

Opening balance

Total

Goodwill 209 018 117 209 018 117

Reconciliation of goodwill - Group - 31 December 2012

Opening balance

Total

Goodwill 209 018 117 209 018 117

The goodwill relates to the difference between the cost of the investment in Select Limited, and the net book value of Select Limited at the date of acquisition of the investment.

Name of company % holding 2013

% holding 2012

Carrying amount 2013

Carrying amount 2012

Select Limited (Formerly known as Newera Partners Limited) 94,54 % 94,54 % 378 157 821 378 157 821

All investments are shown net of impairment.

The company holds 94.54 % in Select Limited. Select Limited consists of a group of entities providing micro-finance services through-out Swaziland. Select Limited facilitated an overdraft facility by Standard Bank Kenya to Select Management Services Limited (Kenya) (“SMSK”) of KES330,500,000, by placing E35 million on call with Standard Bank South Africa. This cash can therefore not be utilised.

3. Goodwill

4. Investments in subsidiaries

5. Deferred tax asset

Group Company

Figures in Emalangeni 31 December 2013 31 December 2012 31 December 2013 31 December 2012

Deferred tax asset

Impairment for credit losses of loans and advances

1 700 841 2 895 438 - -

Tax losses available for set off against future taxable income

74 856 239 856 - -

Unrealised foreign exchange (gain)/loss

(77) (51) - -

Provisions 65 155 86 642 - -

1 840 775 3 221 885 - -

Reconciliation of deferred tax asset

At beginning of the year 3 221 885 2 903 348 - -

Timing differences (1 216 110) 108 985 - -

Tax losses available for set off against future taxable income

(165 000) 209 552 - -

1 840 775 3 221 885 - -

38


6. Loans and advances

Group Company


Advances outstanding at end of period

263 150 917 228 741 389 - -


(7 066 020) (12 379 358) - -

256 084 897 216 362 031 - -

The group makes unsecured loans to individuals who are employees of approved institutions. The group has agreements with the institutions to the effect that the institutions will deduct monthly repayments from the employees’ salaries on behalf of the companies in the group.

The advances are on terms ranging from three to sixty months and are repaid by equal monthly repayments of capital and interest on an amortised basis, over the repayment term of the advances. Interest is charged in accordance with prevailing legislation.

Movement in impairment for credit losses of loans and advances

Balance at beginning of period 12 413 797 13 406 550 - -Reversal of impairment charge to profit and loss

(5 347 777) (1 027 192) - -

7 066 020 12 379 358 - -

Specific impairment for credit losses are strictly provided on the full net book value where an employer is in financial difficulties or insolvent, has a legal case pending against him, has initiated a retrenchment plan, or stops making deductions in accordance with the deduction code.

Arrears impairment for credit losses comprises of:

Net book value for impairment purposes is aged in proportion to outstanding instalments.

(i) 100% of net book value aged 60 days and longer;(ii) 75% of the net book value where contracts are in arrears for a period of 30 days. The balance of 25% falls under the Portfolio impairment for credit losses.

Portfolio impairment for credit losses comprises of performing contracts and is calculated at 15% of net book value. It also includes 25% of the net book value currently 30 days in arrears multiplied by 15%.An emergence period of one month has been used in the impairment calculation.

The impairment for credit losses comprises the following:

Specific impairment for credit losses

(11 657) (107 731) - -

Portfolio impairment for credit losses

(5 166 582) (9 532 867) - -

Arrears impairment for credit losses

(1 887 781) (2 738 760) - -

(7 066 020) (12 379 358) - -

Non-current assets 187 725 280 155 495 910 - -

Current assets 68 359 617 60 866 121 - -

256 084 897 216 362 031 - -

Fair values

The discounted cash flows were calculated by taking the monthly instalment due, multiplied by the remaining term of the loan, and then discounting it back to a present value using the effective interest rate of the loan (This is seen as the rate which a similar loan would be obtainable at in the market). Given this, the fair value of the loan book equals the carrying amount.


39


7. Amounts owing by/(to) related parties

Group Company


Non-current

African Alliance Swaziland Limited (13 254 023) (41 750 706) - -

The loan is unsecured and bears interest at 10.5% p.a. The loan has a maturity value of E 18,642,262 on 11 December 2015.

Current

African Alliance Swaziland Limited (20 000) (26 001) (20 000) (26 001)

Select Management Services Swaziland Proprietary Limited

- - (9 000) -

African Alliance Advisory Limited (126 096) 70 600 - -


- - - (84 469)

Lesana Lesotho Limited 2 385 488 - 1 372 217 -

Select Africa Finance Limited (733 016) 23 467 672 - -

Select Africa Finance Limited 22 738 905 23 316 591 - -

Select Africa Finance Limited (21 247 262) (19 253 209) (21 247 262) (19 253 209)

Pivot Limited (648 348) (532 645) - -

Orchard Insurance Limited - (17 178) - -

Select Advisors Proprietary Limited

(23 819) 13 996 983 - -

2 325 852 41 022 813 (19 904 045) (19 363 679)

Current assets 3 144 115 41 598 637 1 372 217 -

Non-current liabilities (13 254 023) (41 750 706) - -

Current liabilities (818 263) (575 824) (21 276 262) (19 363 679)

(10 928 171) (727 893) (19 904 045) (19 363 679)

The carrying amount of loans to and from group companies are denominated in the following currencies:

Swazi Emalangeni (10 904 352) (14 724 876) (19 904 045) (19 363 679)

South African Rand (23 819) 13 996 983 - -

(10 928 171) (727 893) (19 904 045) (19 363 679)

40


8. Current tax receivable/(payable)

Group Company


Current tax receivable

South African Revenue Services 3 123 - - -

Swaziland Revenue Authority 1 135 127 1 411 220 - -

1 138 250 1 411 220 - -

Current tax payable

Swaziland Revenue Authority (293 758) (92 890) - -

Mauritian Revenue Authority (1 347) (1 347) - -

(295 105) (94 237) - -

Reconciliation of current tax

At beginning of the year 1 316 983 (781 899) - -

Swaziland Revenue Authority current tax paid

- 2 098 882 - -

Swaziland Revenue Authority current expense set off against receivable

(473 838) - - -

843 145 1 316 983 - -


41


9. Financial assets by category

The accounting policies for financial instruments have been applied to the line items below:

Group - 31 December 2013

Loans and receivables Total

Amounts owing by related parties 3 144 115 3 144 115

Loans and advances 256 084 897 256 084 897

Trade and other receivables 75 865 75 865

Cash and cash equivalents 128 368 452 128 368 452

387 673 329 387 673 329




Loans and advances 216 362 031 216 362 031

Trade and other receivables 343 432 343 432


388 394 759 388 394 759

Company - 31 December 2013



Cash and cash equivalents 524 020 524 020

1 896 237 1 896 237




10. Trade and other receivables

Group Company


Trade receivables 47 088 326 655 - -

Deposits 28 777 16 777 - -

75 865 343 432 - -

All debtors are current and no impairment is required.

42


11. Cash and cash equivalents

Group Company


Cash and cash equivalents consist of:

Cash on hand 13 300 9 200 - -

Bank balances 128 355 152 130 081 459 524 020 47 651 541

128 368 452 130 090 659 524 020 47 651 541

Select Limited facilitated an overdraft facility by Standard Bank Kenya to Select Management Services Limited (Kenya) ("SMSK") of KES330,500,000, by placing E35 million on call with Standard Bank South Africa. In exchange for this facilitation Select Limited received 12.5% equity share in SMSK. A guarantee was issued by Select Africa Finance Limited ("SEFL"), the holding company of SBC Limited ("SBCL"), to Select Limited for the amount provided as surety.

The total amount of R35 000 000 is encumbered until the facility to SMSK is settled.

Cash at bank and short term deposits, excluding cash on hand

Financial institution

African Alliance Swaziland Lilangeni Fund

86 118 853 71 421 492 496 917 28 540 056

First National Bank (Swaziland) Limited

820 825 19 589 817 27 103 19 111 485

HSBC Bank (Mauritius) Limited 12 805 111 154 - -

Nedbank (Swaziland) Limited 4 646 426 5 814 898 - -

Standard Bank (South Africa) Limited

36 548 569 32 677 419 - -

Standard Bank (Swaziland) Limited

128 598 154 102 - -

Swazi Building Society 79 076 312 577 - -

128 355 152 130 081 459 524 020 47 651 541

Currencies

Cash balances are denominated in the following currencies:

South African Rand 36 548 569 32 777 884 - -

Swazi Emalangeni 91 793 778 97 292 885 524 020 47 651 541

United States Dollars 12 805 10 690 - -

128 355 152 130 081 459 524 020 47 651 541

12. Share capital and reserves

Group Company


Authorised

120,000,000 Ordinary shares of E 0.0001 each (2012; 10,000 Ordi-nary shares of E 1 each)

12 000 10 000 12 000 10 000

Unissued ordinary shares are under the control of the directors in terms of a resolution of members passed at the last annual general meeting. This authority remains in force until the next annual general meeting.

Issued

96,490,000 Ordinary shares of E 0.0001 each (2012: 10,000 Ordi-nary shares of E 1 each)

9 649 10 000 9 649 10 000

Share premium 348 319 980 362 308 769 348 319 980 362 308 769

348 329 629 362 318 769 348 329 629 362 318 769

Share buyback in the current year: Nominal value Share premium

30 April 2013 - 3,510,000 Ordinary shares of E 0.0001 each 351 13 988 789


43


13. Other financial liabilities

Group Company


Held at amortised cost

Prime linked note - 30 325 404 - -

Fixed maturity loan repayable to the African Alliance Target Fund. The liability has a maturity value of E30,000,000 and matures on 28 September 2013. Interest is paid annually.

Medium term notes 13 130 499 303 76 224 832 - -

Zero Coupon Liability 10 184 911 - - -

Fixed maturity loan repayable to Her Majesty, the Queen Mother. The liability bears interest at 9.5 % p.a., has a maturity value of E13,320,097 and matures on 17 December 2016. Interest is pay-able on maturity date.

Promissory note - 31 873 973 - -

The note bears interest at 7.5 % p.a., has a maturity value of E32,400,000 and matures on 21 March 2013. Interest is payable on maturity date.

Promissory note 10 365 511 - - -

Fixed maturity loan repayable to the African Alliance Target Fund. The note bears interest at 11.75 % p.a., has a maturity value of E10,570,950 and matures on 28 March 2014. Interest is payable on maturity date.


Fixed maturity loan repayable to the African Alliance Lilangeni Fund. The note bears interest at 8.5 % p.a., has a maturity value of E37,975,000 and matures on 26 March 2014. Interest is payable on maturity date.


Fixed maturity loan repayable to Hlane National Park, Mkhaya Trust, Mlilwane Game Sanctu-ary, Trebecheric CC, Jabulani Mabuza and Matsapha Trading Company. The note bears interest at 8.5% p.a., has a maturity value of E17,360,000 and matures on 19 February 2014. Interest is payable on maturity date.

205 505 616 138 424 209 - -

Non-current liabilities

At amortised cost 92 241 034 45 808 891 - -

Current liabilities

At amortised cost 113 264 582 92 615 318 - -

205 505 616 138 424 209 - -

44


14. Medium term notes

15. Trade and other payables

Annual interest rate

Nominal value Maturity date 31 December 2013 31 December 2012

The medium term notes program is listed on the Swaziland Stock Exchange and has a total facility of E 200 million. The available facility at year-end was E119,067,123.

Non-current

Series

NWR 103 9,00 % 24 290 189 23 February 2014 - 28 599 863

NWR 104 8,30 % 12 000 000 3 November 2014 - 12 160 997

NWR 105 8,25 % 5 000 000 18 November 2014 - 5 048 031

NWR 201 Prime + 100 basis points

15 000 000 28 October 2016 15 253 767 -

NWR 202 10,50 % 30 100 000 30 October 2018 30 645 511 -

NWR 203 10,00 % 35 832 877 30 November 2016 36 156 845 -

82 056 123 45 808 891

Current

Series

NWR 12 9,50 % 20 000 000 29 December 2013 - 20 050 430

NWR 103 9,00 % 24 290 189 23 February 2014 31 239 238 -

NWR 104 8,30 % 12 000 000 3 November 2014 12 160 997 -

NWR 105 8,25 % 5 000 000 18 November 2014 5 042 945 -

NWR 106 8,50 % 10 140 000 31 March 2013 - 10 365 511

48 443 180 30 415 941

Total medium term notes 130 499 303 76 224 832

The funding raised will facilitate the group’s organic growth strategy of increasing penetration in the CMA region. This will be achieved through growing the client base which in turn will be supported by an improved distribution network. In addition, the group is also looking to participate in new product initiatives which will target previously unexplored sectors of the market.

Group Company


Trade payables 943 204 1 296 239 2 23 731

VAT 514 269 - - -

Witholding tax 6 156 6 156 - -

1 463 629 1 302 395 2 23 731


45


16. Financial liabilities by category

The accounting policies for financial instruments have been applied to the line items below:


Financial liabilities at amortised cost

Total

Amounts owing to related parties 14 072 286 14 072 286

Other financial liabilities 205 505 616 205 505 616

Trade and other payables 1 463 629 1 463 629

221 041 531 221 041 531



Total


Other financial liabilities 138 424 209 138 424 209

Trade and other payables 1 302 395 1 302 395

182 053 134 182 053 134



Total


Trade and other payables - -

21 276 262 21 276 262



Total


Trade and other payables 23 731 23 731

19 387 410 19 387 410

46


17. Operating profit/(loss)

18. Auditor’s remuneration

19. Investment revenue

Group Company


Operating profit/(loss) for the year is stated after accounting for the following:

Revenue

Dividends - - 24 938 105 46 039 579

Capital profit on sale of investment

- 425 000 - -

Loan and book administration fees 63 012 955 30 054 402 - -

Interest income on advances 29 717 938 14 201 735 - -

92 730 893 44 681 137 24 938 105 46 039 579

Expenditure

Operating lease chargesContractual amounts

1 007 827 497 621 - -

Bad debts written off 7 731 349 1 628 130 - -

Administration and management fees

6 938 880 3 607 020 - -

Loss on exchange differences 103 203 4 067 - -

Depreciation on property, plant and equipment

91 119 27 147 - -

Employee costs 5 795 800 2 126 849 29 000 30 000

Reversal of impairment for credit losses

(5 347 777) (1 027 192) - -

Number of employees 37 41 - -

Dividend revenue

Subsidiaries - Local - - 24 938 105 46 039 579

Interest revenue

Related parties - Instruments at amortised cost

24 6 546 661 3 151 523 3 290 -

Bank - Instruments at amortised cost

6 438 628 2 173 331 1 486 086 229 653

Other interest - Instruments at amortised cost

143 - - -

12 985 432 5 324 854 1 489 376 229 653

12 985 432 5 324 854 26 427 481 46 269 232

Audit fees 829 561 832 876 80 000 80 000


47


20. Finance costs

21. Taxation

Group Company


Related parties - Instruments at amortised cost

24 6 952 612 1 258 779 2 007 740 910 342

Bank - Instruments at amortised cost

51 1 - -

Current borrowings - Instruments at amortised cost

14 155 960 6 161 060 - -

21 108 623 7 419 840 2 007 740 910 342

Major components of the tax expense

Current

Swaziland 11 159 392 7 880 697 - -

Deferred

Swaziland 1 349 735 (286 395) - -

Mauritius 31 989 (32 142) - -

1 381 724 (318 537) - -

12 541 116 7 562 160 - -

Reconciliation of the tax expense

Reconciliation between applicable tax rate and average effective tax rate.

Applicable tax rate 27,50 % 30,00 % 27,50 % 30,00 %

Tax loss used 2,32 % 0,98 % - % - %

Deferred tax asset not recognised - % - % (27,50) % (30,00) %

29,82 % 30,98 % - % - %

48


22. Cash generated from/(used in) operations

23. Tax paid

25. Commitments

24. Earnings per share

Group Company


Profit/(loss) before taxation 44 467 226 24 411 488 24 238 982 45 224 576

Adjustments for:

Depreciation and amortisation 91 119 27 147 - -


Loss on exchange differences - unrealised

(2 563) (1 719) - -

Dividends received - - (24 938 105) (46 039 579)

Interest received (12 985 432) (5 324 854) (1 489 376) (229 653)

Finance costs 21 108 623 7 419 840 2 007 740 910 342


(5 347 777) (1 027 192) - -

Changes in working capital:

Decrease in trade and other receivables

267 567 148 998 - -

Increase/(decrease) in trade and other payables

161 234 285 748 (23 729) 23 731

Net movement in loans and advances

(42 107 056) (582 265) - -

13 384 290 26 985 321 (204 488) (110 583)

Balance at beginning of the period 1 316 983 (781 899) - -

Current tax for the period recog-nised in profit or loss

(11 159 392) (7 880 697) - -

Balance at end of the period (843 145) (1 316 983) - -

(10 685 554) (9 979 579) - -

Earnings 31 926 110 25 119 346 - -

Reconciling items - - - -

Headline earnings 31 926 110 25 119 346 - -

Operating leases – as lessee (expense)

Minimum lease payments due

- within one year 1 024 410 503 442 - -

- in second to fifth year inclusive 555 558 655 290 - -

- later than five years - - - -

1 579 968 1 158 732 - -

Operating lease payments represent rentals payable by the group for certain of its office properties. No contingent rent is payable.

Basic and diluted earnings per share are based on the total comprehensive income of E31 926 110 (2012: E25 119 346 - annualised for 12 months) and a weighted average number of shares of 98 245 000 (2012: 100 000 000).


49


26. Shareholder spread

The details of the shareholders that own more than 5% in SBC Limited are as follows:

# Domicile Percentage No of shares

African Alliance Swaziland Ligcebesha Fund 1 Swaziland 5.17% 4,990,000

Select Africa Finance Limited * 1 Swaziland 91.29% 88,085,886

Other 22 3.54% 3,414,114

Total 24 100% 96,490,000

* - Non-public shareholders

27. Related parties

Group Company


Relationships

Ultimate holding company African Alliance Holdings Limited, incorporated in the Isle of Man

Parent of the holding company Select Africa Limited, incorporated in the Isle of Man

Holding company Select Africa Finance Limited, incorporated in the Republic of Mauritius

Fellow subsidiaries of African Alliance Limited

African Alliance Advisory Limited, incorporated in the Republic of South Africa

African Alliance Swaziland Limited, incorporated in the Kingdom of Swaziland

Pivot Limited, incorporated in the Republic of Mauritius

Select Advisors Proprietary Limited, incorporated in the Republic of South Africa

Select Limited (Formerly known as Newera Partners Limited), incorporated in the Kingdom of Swaziland

Other related parties Orchard Insurance Limited, incorporated in the Kingdom of Swaziland

Related party balances

Related party transactions are set out in note 7 of the financial statements.

Related party transactions


Pivot Limited (6 938 880) (3 607 020) - -

Select Africa Finance Limited (5 813 307) (2 759 254) - -

(12 752 187) (6 366 274) - -

Insurance premiums paid

Orchard Insurance Limited (6 512 784) (3 152 496) - -

Computer expenses and commissions

African Alliance Advisory Limited (1 724 484) (2 021 343) - -

Capital profit on sale of investment

Select Africa Finance Limited - 425 000 - -

Interest received

African Alliance Advisory Limited 1 087 657 517 - -

Select Africa Finance Limited 4 416 263 2 457 237 - -

Lesana Lesotho Limited 16 562 - 3 290 -


2 031 565 36 769 - -

African Alliance Securities Trading Proprietary Limited

56 895 - - -

African Alliance Swaziland Limited 24 289 - - -

6 546 661 3 151 523 3 290 -

50


27. Related parties (continued)

28. Directors’ emoluments

29. Directors’ interests in the Company

Group Company


Interest paid

African Alliance Swaziland Limited (4 870 981) (250 706) (2 790) -

African Alliance Advisory Limited (4 482) (758) - -


- - (10 897) -

Pivot Limited (9 868) - - -

Select Africa Finance Limited (2 045 197) (1 007 315) (1 994 053) (910 342)

Orchard Insurance Limited (2 542) - - -


(19 542) - - -

(6 952 612) (1 258 779) (2 007 740) (910 342)

All group transactions are made at terms equivalent to those prevailing in arm’s length transactions. There have been no guarantees provided or received for any related party receivables or payables. The company has not recorded any impairment of receivables relat-ing to amounts owed by related parties during the period.

Non-executive2013

Directors’ fees Total

M M Dlamini 22 389 22 389

T Dladla 69 000 69 000

91 389 91 389

As at 31 December 2013, the directors of SBC Limied who held any direct or inidrect beneficial or non-beneficial interest in the Com-pany's ordinary share capital are as follows:

Director Interest 31 December 2013 31 December 2012

Antonio Baptista Manuel de Castro Director of African Alliance - -

S'thofeni Mfanasibili Ginindza Director of African Alliance - -

Sean O'Sullivan Director of Select Africa Finance Limited

- -

The following changes have occurred between 31 December 2013 and 31 May 2014:

Mduduzi Dlamini Shareholder in SBC Limited 5,000 shares -

Thulisile Dladla Shareholder in SBC Limited 1,600 shares -


51


30. Risk management

Capital risk management

The board of directors monitors the return on capital which the company defines as net operating income divided by total shareholders’ equity. The board of directors also monitors the level of dividends to ordinary shareholders.

The board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position.

There were no changes to the company’s approach to capital management during the year.

The company is not subject to externally imposed capital requirements.

Financial risk management

The group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

The group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the group’s financial performance. The group uses derivative financial instruments to hedge certain risk exposures. Risk management is carried out by a central treasury department (group treasury) under poli-cies approved by the board. Group treasury identifies, evaluates and hedges financial risks in close co-operation with the group’s operating units. The board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

The group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial li-abilities that are settled by delivering cash or another financial asset.

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of fund-ing through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, group treasury maintains flexibility in funding by maintaining availability under committed credit lines.

The group’s risk to liquidity is a result of the funds available to cover future commitments. The group manages liquidity risk through an ongoing review of future commitments and credit facilities.

The table below analyses the group’s financial liabilities and net-settled derivative financial liabilities into relevant matu-rity groupings based on the remaining period at the statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

Group

At 31 December 2013 Less than 1 year Between 1 and 2 years

Between 2 and 5 years

Over 5 years

Amounts owing to related parties 818 263 13 254 023 - -

Trade and other payables 1 463 629 - - -

Other financial liabilities 113 264 582 - 92 241 034 -



Over 5 years

Amounts owing to related parties 575 824 41 750 706 - -

Trade and other payables 1 302 395 - - -

Other financial liabilities 92 615 318 45 808 891 - -

52


Group Company


Company



Over 5 years

Amounts owing to related parties 21 276 262 - - -



Over 5 years

Amounts owing to related parties 19 363 679 - - -

Trade and other payables 23 731 - - -

Interest rate risk

The Company’s activities do not expose it to significant financial risks of changes in interest rate.

At the reporting date the interest rate profile of the Company's floating interest-bearing financial instruments was:

Variable interest rate risk

Cash and cash equivalents 128 368 452 130 090 659 524 020 47 651 541

Amounts owing by related parties 3 144 115 41 598 637 1 372 217 -

Amounts owing to related parties (14 072 286) (42 326 530) (21 276 262) (19 363 679)

Other financial liabilities (205 505 616) (138 424 209) - -

(88 065 335) (9 061 443) (19 380 025) 28 287 862

Cash flow sensitivity analysis for variable rate instruments

A change of 100 basis point in interest rates at the reporting date would have increased/(decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 31 December 2012.

100 bps increase

Variable rate instruments (880 653) (90 614) (193 800) 282 879

100 bps decrease

Variable rate instruments 880 653 90 614 193 800 (282 879)

Credit risk

Credit risk is the risk of financial loss to the company if a customer or counterparty to a financial instrument fails to meet its contractual obligations.

Credit risk consists mainly of cash deposits, cash equivalents, derivative financial instruments and trade debtors. The company only deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party.

Trade receivables comprise a widespread customer base. Management evaluated credit risk relating to customers on an ongoing basis. If customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The utilisation of credit limits is regularly monitored. Sales to retail customers are settled in cash or using major credit cards. Credit guarantee insurance is purchased when deemed appropriate.


30. Risk management (continued)

53


Group Company


Financial instrument

Loans and advances 256 084 897 216 362 031 - -

Cash and cash equivalents 128 368 452 130 090 659 524 020 47 651 541

Trade and other receivables 75 865 343 432 - -

Amounts owing by related parties 3 144 115 41 598 637 - -

The table below analyses the ageing of the group's loan book:

At 31 December 2013 Not past due Past due 30 days Past due 60 days and over

Total

Loans and advances 227 890 815 31 029 172 4 230 930 263 150 917

Arrears impairment of credit losses

(32 091) (903 562) (4 230 930) (5 166 583)

Portfolio impairment of credit losses

(1 884 564) (3 216) - (1 887 780)

Specific impairment of credit losses

(11 657) - - (11 657)

225 962 503 30 122 394 - 256 084 897

At 31 December 2012 Not past due Past due 30 days Past due 60 days and over

Total

Loans and advances 218 790 653 1 335 096 8 615 640 228 741 389

Specific impairment of credit losses

- (917 227) (8 615 640) (9 532 867)

Arrears impairment of credit losses

(2 734 624) (4 136) - (2 738 760)

Portfolio impairment of credit losses

(107 731) - - (107 731)

215 948 298 413 733 - 216 362 031

54


31. Financial instruments measured at fair value

32. Contingencies

The different levels are based on the extent that quoted prices are used in the calculation of the fair value of the financial instruments and the levels have been defined as follows:

Level 1 – fair values are based on quoted market prices (unadjusted) in active markets for an identical instrument.

Level 2 – fair values are calculated using valuation techniques based on observable inputs, either directly (ie as prices) or indirectly (ie derived from prices). This category includes instruments valued using quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3 – fair values are based on valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differ-ences between the instruments.

All the company’s financial instruments, except for the ones noted below, are measured at amortised cost. The fair value hierarchy does not apply.

Swaziland Revenue Authority

Select Limited is currently disputing a payment demand from the Swaziland Revenue Authority (“SRA”) relating to the 2008 financial year. The demand is for an amount of E 2,309,765. As per our records, Select Limited’s liability to the SRA has been settled in full. Select Limited have lodged an objection with the SRA in terms of this demand, and are awaiting their feedback.

Select Management Services Limited (Kenya) (“SMSK”) Guarantees

Select Limited has an amount of R35,000,000 on deposit with Standard Bank South Africa as surety for an overdraft facility extended by SMS Stanbic Bank Kenya to Select Management Services Limited (Kenya) (“SMSK”). Select Limited received 12.5% equity in the form of ordinary shares in SMSK in return for providing the surety.

In addition, a guarantee was issued by Select Africa Finance Limited, the holding company of SBC Limited to Select Limited for the amount provided as surety.

Group Level 1 Level 2 Level 3 Total

31 December 2013

Assets

Loans and advances - 256 084 897 - 256 084 897

Level 1 Level 2 Level 3 Total

31 December 2012

Assets

Loans and advances - 216 362 031 - 216 362 031


55


Detailed Income Statement for the 12 months ended 31 December 2013

Group Company

Figures in Emalangeni Note 12 months ended 31 December 2013

6 months ended 31 December 2012



Revenue

Fees earned 31 197 19 312 - -

Loan and book administration fees 63 012 955 30 054 402 - -

Interest received 19 12 985 432 5 324 854 1 489 376 229 653

Interest income on advances 29 717 938 14 201 735 - -

Dividend revenue 19 - - 24 938 105 46 039 579

Capital profit on sale of invest-ment

- 425 000 - -

Profit on exchange differences 2 563 1 719 - -

105 750 085 50 027 022 26 427 481 46 269 232

Operating expenses

Admin fees: Cash back payment 3 067 722 22 650 - -


6 938 880 3 607 020 - -

Advertising 431 674 335 774 - -

Auditors remuneration 18 829 561 832 876 80 000 80 000

Provision for credit losses (5 347 777) (1 027 192) - -

Bank charges 554 866 209 126 7 200 114

Commission paid 3 749 668 1 622 963 - -

Computer expenses 1 490 574 1 988 156 - -

Consultancy fees 5 813 307 2 759 254 - -

Depreciation, amortisation and impairments

91 119 27 147 - -

Employee costs 5 795 800 2 126 849 29 000 30 000

Office expenses 119 955 44 759 - -


Fines and penalties 160 - - -

Corporate social investment 12 315 - - -

Insurance 6 641 763 3 192 912 - -

Lease rentals on operating lease 1 007 827 497 621 - -

Professional fees 597 998 147 273 64 559 23 730

Loss on exchange differences 103 203 - - -

Motor vehicle expenses 49 796 40 149 - -

Postage 1 104 60 - -

Printing and stationery 81 871 40 051 - -

Repairs and maintenance 31 498 410 - -

Subscriptions 105 721 36 309 - 470

Telephone and fax 9 166 (12 097) - -

Travel - local 184 066 54 794 - -

Utilities 81 050 20 700 - -

40 174 236 18 195 694 180 759 134 314

Operating profit 17 65 575 849 31 831 328 26 246 722 46 134 918

Finance costs 20 (21 108 623) (7 419 840) (2 007 740) (910 342)

Profit/(loss) before taxation 44 467 226 24 411 488 24 238 982 45 224 576

Taxation 21 (12 541 116) (7 562 160) - -

Profit/(loss) for the year 31 926 110 16 849 328 24 238 982 45 224 576

56


Annexure A Prime interest rates and currencies

31 December 2013 31 December 2012

Prime Interest rates (as quoted by a reputable local bank):

Botswana 9,00 % 11,00 %

Ghana 16,00 % 15,00 %

Isle of Man 3,59 % 3,76 %

Kenya 16,89 % 18,70 %

Lesotho 9,92 % 10,08 %

Malawi 38,00 % 17,75 %

Mauritius 7,38 % 7,75 %

South African 8,50 % 8,50 %

Swaziland 8,50 % 8,50 %

Uganda 22,70 % 23,55 %

Zambia 9,80 % 9,30 %

Exchange rates (US Dollar equivalent):

Botswana Pula (BWP) 8,715 7,801

Common Monetary Area 10,562 8,468

Euros (EUR) 0,725 0,758

Ghana Cedi (GHS) 2,353 1,905

Great Britain Pound (GBP) 0,605 0,619

Kenyan Shillings (KSH) 86,263 86,060

Malawi Kwacha (MWK) 429,375 334,621

Mauritian Rupees (MUR) 30,093 30,902

Nigerian Naira (NGN) 160,322 156,225

Ugandan Shillings (UGS) 2 524,928 2 694,148

United States Dollars (USD) 1,000 1,000

Zambian Kwachas (ZMW) 5,520 5,234

57


Annexure B Indirect subsidiaries

Name of company Held by Country % holding 2013

% holding2012

Access Financial Services Plc Select Africa Finance Limited Uganda 95 % 95 %

Access Financial Services Plc Select Limited Uganda 5 % 5 %

Lesana Limited Select Africa Finance Limited Mauritius 100 % 100 %

Lesana Lesotho Limited Select Africa Finance Limited Lesotho 100 % 100 %

Mawana Investments (Proprietary) Limited Select Limited South Africa 100 % 100 %

Loan Book Swaziland Mauritius Limited Select Limited Mauritius 100 % 100 %

Natgilt Swaziland Limited Select Limited Swaziland 100 % 100 %

Select Limited SBC Limited Swaziland 95 % 95 %

SBC Limited Select Africa Finance Limited Swaziland 88 % 88 %

Select Advisors Limited Select Africa Holdings Limited South Africa -% 100 %

Select Advisors Limited Select Africa Finance Limited South Africa 100 % -%

Select Financial Services Limited Select Africa Holdings Limited Ghana -% 100 %

Select Financial Services Limited Select Africa Holdings Limited Malawi -% 100 %

Select Financial Services Limited Select Africa Finance Limited Ghana 100 % -%

Select Financial Services Limited Select Africa Finance Limited Malawi 100 % -%

Select Management Services Limited Select Africa Finance Limited Botswana 100 % -%

Select Management Services Limited Select Africa Finance Limited Namibia 100 % -%

Select Management Services Limited Select Africa Holdings Limited Botswana -% 100 %

Select Management Services Limited Select Africa Holdings Limited Namibia -% 100 %

Select Management Services Limited Select Limited Kenya 12 % 12 %

Select Management Services Limited Select Africa Finance Limited Kenya 88 % 88 %

58


Annexure CSource and application of funds reports

Group Company

Figures in Emalangeni Note 12 months ended 31 December 2013




Source of funds:

Profit before tax 44 467 226 24 411 488 24 238 982 45 224 576

44 467 226 24 411 488 24 238 982 45 224 576

Adjustments for items not involving the movement of funds:

Dividends paid (59 334 411) (2 659 220) (57 894 000) -


Depreciation and amortisation 91 119 27 147 - -

(Profit)/loss on exchange differ-ences - unrealised

(2 563) (1 719) - -

Purchase of property, plant and equipment

(258 454) (11 815) - -

(Reversal)/impairment for credit losses of loans and advances (5 347 777) (1 027 192) - -

Total generated from operations (12 653 511) 22 366 819 (33 655 018) 45 224 576

Application of funds

Reduction of share capital or buy back of shares

(13 989 140) - (13 989 140) -

Tax paid (10 685 554) (9 979 579) - -

Purchase of investment in subsidiary

- - - -

Amounts (paid to)/received from related parties

10 202 846 29 071 334 540 366 1 020 812

Proceeds of other financial liabilities

67 081 407 1 381 363 - -

Net movement in loans and advances (42 107 056) (582 267) - -

(2 151 008) 42 257 670 (47 103 792) 46 245 388

Increase/decrease in working capital

(Increase) in trade and other receivables

267 567 148 998 - -

(Decrease) in trade and other payables

161 234 285 748 (23 729) 23 731

(1 722 207) 42 692 416 (47 127 521) 46 269 119

Movement in net liquid funds

(Decrease)/increase in cash balance (1 722 207) 42 692 416 (47 127 521) 46 269 119

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