Basic Financial Literacy EducationMARCH 2010

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 • Key role players

– Shareholders– Directors – Secretary– Company– Auditors

• Annual Financial Statements – Statement of comprehensive income (Income statement)

• Revenue• Operating expenses

– Statement of financial position (Balance sheet)• Assets• Liabilities• Shareholders equity / Net Asset Value

– Statement of cash flows (Cash flow statement)

Contents

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 Shareholders• Invest in the company through the purchase of shares;• Each share represents a proportionate ownership of the Company in

relation to the total number of shares issued by the Company;• In a company with 100 000 issued shares a shareholding of 10 000

shares represents a 10% ownership of that company.

Key role players

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 Benefits and risks of being a shareholder• Shareholders invest in a Company with a view of achieving a return

through dividends and capital growth:• Dividends

– A company may declare a dividend if it is allowed to by law and if the directors so decide;

– There is no guarantee that dividends will be paid annually;– Ordinary shareholders have no right to a dividend until declared by the

Company. • Capital growth

– A shareholder makes a profit if shares are worth more (or sold for) more than what the shareholder paid for the shares.

– But a shareholder can make a loss if shares are worth (or sold for) less than what the shareholder paid for the shares.

Key role players

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RandsBought 1000 shares in 2005 @ R4 per share R4 000

Dividends received – 2009 @ 12 cents per shareDividends received – 2010 @ 14 cents per share

R120R140

Total dividends (tax-free gain by shareholder) R260

Current valuation @ R21.25 per share

Capital profit (unrealised)

R21 250

R17 250

If the shareholder sells all 1000 shares in 2012, assume the selling price is R11.00 per share (hypothetical price)

therefore the realised capital profit will be

R11 000

R7 000

Example of returns for an Eyomhlaba shareholder

Key role playersReturns of a shareholder

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Attend shareholder meetings

The meetings that you as a shareholder in Eyomhlaba/Hlumisa may attend are:• The annual general meeting (AGM) • Any general meeting of shareholders

Furthermore, you are entitled to attend the above African Bank Investments Limited meetings.

Vote Special and ordinary resolutions as set out in the notice of shareholders’ meeting.

The number of votes you have is dependent on the number of shares you hold. The more shares you hold, the more votes you have.

Appoint a proxy

If you cannot attend a shareholder meeting, you can arrange for someone to go to the meeting on you behalf (appoint a proxy). When you receive the notice of a meeting you will also receive a proxy form with instructions of how to appoint a proxy.

  Key role players Rights as a shareholder

Key role playersDirectors• Appointed by shareholders to run the affairs of the Company in a

manner that enhances shareholders’ wealth;• Directors have a fiduciary duty towards the Company in terms of law

(Companies Act of 1973) (i.e. entrusted to act in the interest of the Company at all times);

• Conduct of the directors governed by the Companies Act and the Articles of Association of the Company;

• The directors approve the annual financial statements presented to the shareholders;

• Directors present a report to shareholders annually in a format prescribed by the Companies Act;

• Eyomhlaba’s and Hlumisa’s Articles provide for annual rotation of one-third of directors.

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Key role playersSecretary• Appointed by the directors;• Ensures notices of meetings are in accordance with the Companies Act; • Ensures meetings of directors and shareholders proceed in terms of the

Companies Act;• Maintains minutes of shareholders’ and directors’ meetings; and• Ensures all Company returns are lodged with the Registrar of

Companies;

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Auditors• Present an audit opinion on the Company’s directors’ report, statement of

financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows and the notes to the annual financial statements as presented in the annual report;

• An unqualified (“clean”) audit opinion signifies that shareholders can rely on the financial statements as prepared by the directors as being fairly presented;

• A qualified audit report may indicate an issue in the annual financial statements and needs to be read carefully; and

• Shareholders approve the reappointment of auditors annually at the AGM.

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Key role players

Key role playersCompany• Limited liability i.e. shareholders are not liable for the debts of the

company and stand the risk of losing only to the extent of the amounts each shareholder has invested in the Company;

• Governed by the Articles and Memorandum of Association. They prescribe the powers of the company and they regulate the relationships between the Company, its shareholders and directors;

• Eyomhlaba’s and Hlumisa’s Articles defines the Companies’ main object is that of acquiring and holding ABIL ordinary shares; and

• Any changes to the Articles must be approved by shareholders in a general meeting by special resolution (i.e. 75% of shareholders present at the meeting to approve the change).

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Statement of comprehensive income(Income statement)

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The income statement records the profit (or loss) realised (or incurred) during the previous 12 months ending 31 December.

Profit (or loss) = Revenue / Income LESS Expenses LESS Taxes

Comprehensive income (loss) = profit (or loss) plus gain/loss on revaluation of ABIL shares

Retained profits will increase the Company’s Net Asset Value (“NAV”) thereby increasing the value of each shareholder’s investment in the Company. Losses will have an opposite effect.

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The component parts of Eyomhlaba/Hlumisa’s comprehensive income for the year are:

Statement of comprehensive income

Nature

Dividends received Dividends received on the ABIL ordinary shares held during the year. The dividends received are used to purchase ABIL shares, after providing for expenses (and preference dividends)

Interest received Interest on funds invested in the various bank accountsOperating expenses Analysed belowFinance costs (Eyomhlaba only)

Preference dividend (interest) on the R150m preference shares (loan) from RMB at a fixed rate of 9,5315% p.a.

Current taxation charge Income tax calculated based on interest incomeNet gains and losses arising on revaluation of available-for-sale assets

Increases or decreases in the value of ABIL shares held

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Operating expensesOperating expenses comprise the following items:

Statement of comprehensive income

Expense type Nature of expense

Administration fees Fees paid for transfer secretary and administration services.

Audit fees Fees paid to Nkonki Inc. for auditing. The fee is paid in arrears (i.e. the amount paid in 2009 is for the 2008 financial year audit)

Courier, postage and stationery

Costs of mailing circulars, annual and interim reports to shareholders.

Directors’ fees Paid to directors that are not in ABIL’s employLegal fees Legal fees incurred on various issues. Meeting costs Costs of AGM and roadshowsPrinting and designing costs

Costs of designing and printing interim report, annual reports, prospectus, the rights offer circular (Hlumisa only), share certificates, statements, etc.

Other costs Miscellaneous costs such as branding and travel costs

Statement of financial position (Balance Sheet)• Reports the assets owned by the Company, liabilities owed by the

Company to its lenders / creditors and the shareholders equity (i.e. the difference between assets and liabilities) at year-end.

• The above can be presented as the following formula:Shareholders equity = Assets LESS Liabilities

• An asset is an item owned by the Company with an intention of realising benefits from it.

• A liability is what the Company owes to its creditors (supplier of goods and services) and/or lenders.

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Asset type Nature of assetInvestments Value of the investment in ABIL’s ordinary shares at year-end i.e.

the number of shares multiplied by the JSE closing price per share

Trade and other receivables Miscellaneous amounts owed to the companyCash and cash equivalents Cash held in various bank accountsCumulative redeemable preference shares (Eyomhlaba only)

This is similar to a long-term loan granted to Eyomhlaba by Rand Merchant Bank (“RMB”). The loan was used to buy ABIL ordinary shares in the open market. The loan is due to be repaid no later than 11 Sep 2011, but can be repaid by Eyomhlaba anytime after 11 Sep 2008. Interest (preference dividend) is paid twice a year (June and Dec) at a fixed rate of 9,5315% p.a.

Deferred taxation This is a provision for capital gains tax (“CGT”) that would be payable if all the ABIL shares held at year-end were disposed of. (Explained in detail in following slide)

Other payables Miscellaneous amounts owed by the company at year-endShareholders for dividends Represents unclaimed ordinary dividendsTaxation Income tax due to SARSScheme participants’ funds Amounts owed due to unknown deposits and repayable to

shareholders for oversubscriptions

Statement of financial position

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EyomhlabaR000

HlumisaR000

Investments at market value 1 177 326 449 871Less: Cost of investments (445 286) (93 347)Capital growth in value of the investments 672 040 356 524Portion of the gain taxable 50% 50%Amount taxable as a capital gain 336 020 178 262Company tax rates applicable at year-end 28% 28%Deferred taxation liability 94 085 49 913

Deferred taxation

The deferred tax liability at 31 December 2009 is determined as follows:

Statement of financial position

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Assets As analysed in more detail aboveLess: Liabilities As analysed in more detail aboveSHAREHOLDERS’ EQUITY Also referred to as net asset value (“NAV”).

Expressed as NAV per share, it provides an indication of the value of each shareholder’s investment.

NB: This is not the same as market value of the share as this is what is agreed between a willing buyer and a willing seller.

Shareholders’ equity

SHAREHOLDERS’ EQUITY = ASSETS LESS LIABILITIES

Statement of financial position

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Positive impact Negative impact

Increase in ABIL’s share price Decrease in ABIL’s share price

Increase in the dividend per share received from ABIL

Reduction by ABIL of the dividend per share

Reduction in operating costs Increase in operating expenses

Number of ABIL shares held (positive) Number of ABIL shares held (negative)

For Eyomhlaba and Hlumisa, the following factors impact the shareholders’ equity of the company:

Statement of financial position

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NatureCash flows from operating activities These are the cash flows from the company’s

operations which for Eyomhlaba and Hlumisa is receiving dividends and interest, paying tax and suppliers and paying preference dividends.

Cash utilised in investing activities This is the cost of ABIL shares purchased during the year.

Cash flows from financing activities These are proceeds from shares issued by the company (ordinary or preference shares), loans raised and loans/redeemable preference shares repaid.

Cash and cash equivalents at the beginning (end) of the year

Represents cash balances held by the company at the beginning and end of the year

This statements reports what cash the company has utilised, and in what activities, and what cash the company has raised and how.

The result is the cash held by the company at the end of the year.

Statement of cash flows

Thank you