AFRICAN DAWN ANNUAL REPORT 2019 4 From the Chair Dear fellow Shareholder, We have reached the point where the focus can shift from investment readiness to creating a sustainable platform for growth. The SARS Settlement in December 2017 and the repayment of the settlement amount by February 2019 were key milestones for the Group. This enabled us to conclude the specific issue of 26 800 000 shares to Arvesco for a cash consideration of R9.38million in December 2018. The proceeds were used to reduce the Group’s obligations and to recapitalise Elite Group by R5m. With the SARS liability removed we are now in a position to build a sustainable business and pursue growth opportunities. Elite Elite Group is one of the key pillars for our future strategy. We want to build Elite as a low-cost responsible credit provider that will have a positive effect on the lives of its customers. Elite's continuous focus to reduce cost per loan during the last few years and investment in our systems will enable it to leverage its lending platform through different lower cost distribution channels other than the traditional branch network. Elite's primary focus is the one to six-month loan products via its branch network and the call centre operation. Elite has also broadened its product range to include purpose-based lending products through the call centre operation to the clients of merchants. We value our relationship with our clients and are continuously looking for ways to improve their lives. We are looking to provide our clients with access to additional non-loan products in the future. We want to pass through cost benefits we achieve by scaling up our existing and new client base. Our conservative lending criteria and focus on smaller loans ensure our clients are not over-extended. Conservative lending practices ultimately influence the quality of the debtors' book. Elite Group was negatively affected by the shortage of access to new funding. The changes in regulation and legislation also had a negative effect on margins and the legal collection process which became much longer. The recapitalisation of Elite and Afdawn will make it easier to access funding in the future. Elite advanced R53,1million (2018- R63.2million) to its clients and received R67,4 million (2018 - R81.9million) from them. Operating expenses excluding interest and bad debt provision were further reduced by R1,29million to R15,39million, respectively. Capital providers were not interested in funding Elite due to the uncertainty of the Afdawn SARS liability before the SARS settlement agreement was concluded in December 2017. Due the lack of additional funding and shortening the duration of the lending book the net trade receivables decreased from R15,8million to R10,9million. Some key features of the Elite results are: • Revenue decreased by R3,8million to R13,19million due to lack of funding to grow the lending book • Other income was R0,39million • Provision for bad debts increased by R2,05million to R11,18million. This excludes write-offs. • The further lowering of operating expenses by R2,09million to R9,75million was as results of • a decrease in employee cost by R0,37million • a decrease in operating lease charges by R0.15million • an increase in other costs by R0,54million • Cash Used by operations was R0.29million • Total liabilities were further reduced by R1,71million to improve the balance sheet.
AFDAWN AR FINAL 2019
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