AFRICAN DAWN ANNUAL REPORT 2017 4 From the Chair Dear Shareholder, Progress during the last few years has been slow. There have been successes and failures, two steps forward and one step back. Progress has been arduous but we are moving forward. We believe that there is seldom success without true grit. Grit is the power of passion and perseverance to achieve the long term goal. Afdawn has grit. We will finish what we began, which is to implement the vision to become an active investment holding company. Whilst the Candlestick transaction was implemented successfully, the Elite transaction had to be cancelled after the purchaser failed to remedy the breach. We were very disappointed at having to cancel the Elite transaction, but we did this in the interest of all our stakeholders.. Elite Elite achieved respectable results given the regulatory changes, economic climate, uncertainty created by the Elite transaction and no additional funding to grow the lending book. Although revenue was lower overall, an improved business mix, lower operating cost and further reduction in liabilities resulted in a more stable business. During the year, Elite advanced R66million to its clients in the form of new loans and received payments of R88 million from its clients through its 12 branches and call centre. Some key features of the Elite results are: • R24,3million revenue and other income generated • A further lowering of operating expenses resulted in an operating profit of R3 million • A lower financial cost resulted in profit for the year of R1,56m • Provision for impairment and write off of debtors’ book increased by R3.8m • Total liabilities were further reduced by R6.4million to improve the balance sheet. • The Sandown debt repayment schedule was extended to a three-year period. This will enable Elite to maintain and grow its lending book. Elite has repaid R7.9 million of the Sandown Debt of R15m that was repayable in October 2014. The balance is repayable over the next three years. The velocity of money is an important driver in the Elite business model, as the average term of loan is three months. For every R1million of new funding, roughly R4million of new advances can be made throughout the year if the funding stays inside the business. The Elite in-house lending platform gives it the flexibility to provide simplified products to its clients and to continue to reduce the cost of production of a loan. This should result in increased benefits to all stakeholders. The passion and perseverance of the Elite team is evident in the continued focus to improve the business under very difficult circumstances. Knife Capital The Knife Capital financial results were mixed. Revenue reached R10million, the highest level since the acquisition, but this was mostly driven by carried interest received from an exit of a third-party investee company. Most of the carried interest had to be distributed to the Knife Vendors in terms of the Knife Sales Agreement, signed in March 2014, and the Knife Settlement Agreement signed in June 2015. This resulted in significant increase in employment costs (refer to note 24). Knife Capital broadened its fund management activities and launched a third-party fund, KNF Ventures. This business will generate a revenue stream that will offset the revenue stream lost from the HBD management contract which has expired. Knife Capital will earn a management fee and also carried interest when the fund successfully exits investments. Grindstone Three was successfully launched and has many interesting candidates. Consideration is being given to restructure Knife Capital so that Afdawn will take a direct stake in Grindstone and Yuedilligence. Grindstone has positioned itself as a very valuable asset that will assist in future deal flow and the capability to provide pre –and post investment interventions to investee companies. Yuedilligence has identified a new CEO who will drive the business as a separate entity and not just as a product of Knife Capital. Yuediligence will broaden its capacity to become a pure fintech platform company.
AFRICAN DAWN 2017
To see the actual publication please follow the link above