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Form 8-K/A

8-K


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 5, 2015
 
NOVATEL WIRELESS, INC.
(Exact name of registrant as specified in its charter)
Delaware
000-31659
86-0824673
(State or other jurisdiction
of incorporation)
Commission file number
(I.R.S. Employer
identification number)
9645 Scranton Road
San Diego, California 92121
(Address of principal executive offices) (Zip Code)

(858) 812-3400
(Registrant’s telephone number, including area code)

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 





EXPLANATORY NOTE
On October 5, 2015, Novatel Wireless, Inc. (the “Company”) filed with the Securities and Exchange Commission a Current Report on Form 8-K, dated September 29, 2015 (the “Form 8-K”), in connection with the Company’s acquisition of DigiCore Holdings Limited, a company incorporated under the company laws of the Republic of South Africa (“DigiCore”). This Current Report on Form 8-K/A amends Item 9.01 of the Form 8-K to present certain historical financial statements of DigiCore and its consolidated subsidiaries and certain unaudited pro forma financial information of the Company relating to the effects of the acquisition and should be read in conjunction with the Form 8-K.
Item 9.01.    Financial Statements and Exhibits.
(a)    Financial Statements of Businesses Acquired.
The audited historical financial statements of DigiCore and its consolidated subsidiaries as of June 30, 2015 and 2014 and for the years ended June 30, 2015, 2014 and 2013 and related notes to the consolidated financial statements are filed as Exhibit 99.1 to this Current Report on Form 8-K/A and are incorporated herein by reference.
(b)    Pro Forma Financial Information.
The unaudited pro forma consolidated financial statements of the Company as of and for the nine months ended September 30, 2015 and for the year ended December 31, 2014, which have been prepared to give effect to the acquisition and other related transactions, are filed as Exhibit 99.2 to this Current Report on Form 8-K/A and are incorporated herein by reference. The unaudited pro forma combined condensed financial statements are presented for informational purposes only and do not purport to represent what the Company’s results of operations or financial position would have been had the transactions reflected occurred on the dates indicated or to project the Company’s financial position as of any future date or the Company’s results of operations for any future period.
(d)    Exhibits.
23.1
 
Consent of Mazars (Gauteng) Inc.
99.1
 
Audited consolidated financial statements of DigiCore Holdings Limited as of June 30, 2015 and 2014 and for the years ended June 30, 2015, 2014 and 2013 and related notes to the consolidated financial statements.
99.2
 
Unaudited pro forma combined condensed financial statements as of and for the nine months ended September 30, 2015 and for the year ended December 31, 2014.
 
 
 









SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
NOVATEL WIRELESS, INC.
 
 
By:
/s/ Lance Bridges
 
Lance Bridges
 
Senior Vice President and General Counsel
Date: December 17, 2015



 



Exhibit


Exhibit 23.1

CONSENT OF INDEPENDENT AUDITOR


We consent to the incorporation by reference in these Registration Statements (Nos. 333202648; 333190879; 333190878; 333176490; 333176489; 333163033; 333163032; 333145482; 333139730; 33353692; 333207233) on Form S8 and (Nos. 333194605; 333207255) on Form S3 of Novatel Wireless, Inc. of our report dated December 15, 2015, relating to our audit of the consolidated financial statements of DigiCore Holdings Limited as of June 30, 2015 and 2014 and for the years ended June 30, 2015, 2014 and 2013, included in this Current Report on Form 8K/A.



/s/ Mazars (Gauteng) Inc.
Mazars (Gauteng) Inc.
Director: G. Barlow-Tekie
Registered Auditor
17 December 2015
Pretoria, South Africa


Exhibit


Exhibit 99.1










DIGICORE HOLDINGS LIMITED
(REGISTRATION NUMBER 1998/012601/06)

GROUP FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2015

These Group financial statements have been audited in compliance with the applicable requirements of the
Companies Act of South Africa, 71 of 2008.






DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015
 
General Information


Country of incorporation and domicile
South Africa
 
 
Nature of business and principal activities
Manufacturing and distribution of fleet management and vehicle tracking solutions
 
 
Directors
NH Vlok
 
SS Ntsaluba
 
Prof B Marx
 
G Pretorius
 
SP Naude
 
JP duP le Roux
 
PJ Grove
 
 
Registered office
DigiCore Building, Regency Office Park,
9 Regency Drive, Route 21 Corporate Park,
Irene Ext 30, Centurion, South Africa
 
 
Postal address
PO Box 68270,
 
Highveld Park,
 
0169
 
 
Bankers
ABSA Bank Limited
 
 
Auditors
Mazars (Gauteng) Inc.
 
Chartered Accountants (S.A.)
 
Registered Auditor
 
 
Secretary
N Bofilatos
 
 
Company registration number
1998/012601/06
 
 
Preparer
The Group financial statements were internally compiled by:
 
PJ Grove CA(SA), the Group Chief Financial Officer and
 
V Venkatkumar CA(SA), the Group Financial Manager
 
 
JSE Share Code
DGC
 
 
ISIN
ZAE000016945


 
2
 

DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015
 
Index

The reports and statements set out below comprise the Group financial statements presented to the shareholders:
 
 
Index
Page
 
 
Directors' Responsibilities and Approval
4
 
 
Company Secretary’s Certification
5
 
 
Independent Auditor's Report
6
 
 
Audit & Risk Committee Report
7
 
 
Directors' Report
8 - 10
 
 
Statements of Financial Position
11
 
 
Statements of Profit or Loss and Other Comprehensive Income
12
 
 
Statements of Changes in Equity
13 - 15
 
 
Statements of Cash Flows
16
 
 
Accounting Policies
17 - 36
 
 
Notes to the Group Financial Statements
37 - 85
 
 
 
 


 
3
 



DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015
Directors' Responsibilities and Approval

The directors are required by the Companies Act of South Africa, 71 of 2008, to maintain adequate accounting records and are responsible for the content and integrity of the Group financial statements and related financial information included in this report. It is their responsibility to ensure that the Group financial statements fairly present the state of affairs of the Group as at the end of the financial year and the results of its operations and cash flows for the period then ended, in conformity with International Financial Reporting Standards. The external auditors are engaged to express an independent opinion on the Group financial statements.

The Group financial statements are prepared in accordance with International Financial Reporting Standards, the JSE Listing Requirements, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and the requirements of the Companies Act, 71 of 2008 and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements 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 Group 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 year to 30 June 2016 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 auditor is responsible for reporting on whether the annual financial statements are fairly presented in accordance with the applicable financial reporting framework. The Group financial statements have been examined by the Group's external auditors and their report is presented on page 6.

The Group financial statements set out on pages 8 - 85, which have been prepared on the going concern basis, were approved by the board on 15 December 2015 and are signed on their behalf:


/s/ PJ Grove
 
 
PJ Grove
 
 
Chief Financial Officer
 
 
 
 
 
Centurion
 
 
15 December 2015
 
 


 
4
 



DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015
Group Secretary's Certification

Declaration by the Group secretary in respect of Section 88(2)(e) of the Companies Act

In terms of Section 88(2)(e) of the Companies Act of South Africa, 71 of 2008, as amended, I certify that the Group has lodged with the Company and Intellectual Property Commission all such returns and notices as are required of a public company in terms of the Companies Act and that all such returns are true, correct and up to date.

/s/ N Bofilatos
N Bofilatos
Company Secretary to DigiCore Holdings Limited
Centurion
15 December 2015


 
5
 



    

INDEPENDENT AUDITOR’S REPORT
To the Board of Directors and Shareholders of Digicore Holdings Limited
We have audited the consolidated financial statements of Digicore Holdings Limited set out on pages 11 to 85, which comprise the statements of financial position as at 30 June 2015 and 30 June 2014, the related statements of comprehensive income, statements of changes in equity and statements of cash flows for the years ended 30 June 2015, 30 June 2014 and 30 June 2013 and the related notes.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Digicore Holdings Limited as at 30 June 2015 and 30 June 2014 and its consolidated financial performance and its consolidated cash flows for the years ended 30 June 2015, 30 June 2014 and 30 June 2013 in accordance with International Financial Reporting Standards.
 
 
Mazars (Gauteng) Inc.
 
 
Director: G. Barlow - Tekie
 
 
15 December 2015
 
 
Pretoria, South Africa
 
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015
 
Audit and Risk Committee Report


This report is provided by the audit & risk committee appointed in respect of the 2015 financial year of Digicore Holdings Limited and its subsidiaries.
1.    Objective
The objective of the committee is to perform its statutory responsibilities regarding the appointment and independence of the external auditor as per section 94 of the Companies Act, 2008 and in performance of its corporate governance responsibilities, to assist the board in discharging its duties and responsibilities relating to financial reporting, auditing and the safeguarding of the Group's assets.
2.    Members of the Audit & Risk Committee
The members of the committee are recommended by the board to the shareholders for election at the annual general meeting. The shareholders confirmed the following as members of the audit committee:
Name
Qualification
Prof B Marx
DCom (UJ), MCompt (UFS), CA(SA), RAA, ACCA (UK)
SS Ntsaluba
BCom (Hons), BCompt (Unisa),CA(SA), HDip Tax Law (UJ)
G Pretorius
BSc, BIng, LLB (Stell), PMD (Harvard)
Prof B Marx is the chairman of the committee. The committee is satisfied that the members thereof have the required knowledge and experience as set out in Section 94(5) of the Companies Act of South Africa, 71 of 2008 and Regulation 42 of the Companies Regulations, 2011.
3.    Meetings held by the Audit & Risk Committee
The committee performs the duties laid upon it by Section 94(7) of the Companies Act of South Africa, 71 of 2008 by holding meetings with the key role players on a regular basis and by the unrestricted access granted to the external auditors.
The committee held 5 scheduled meetings during the 2015 financial year and the attendance of the members is shown in the table below
 
July
2014
September
2014
November
2014
February
2015
May
2015
Prof B Marx
Attended
Attended
Attended
Attended
Attended
SS Ntsaluba
Attended
Attended
Attended
Attended
Attended
G Pretorius
Apology
Attended
Attended
Attended
Attended
4.    External auditor
The committee satisfied itself through enquiry that the external auditors is independent as defined by the Companies Act of South Africa, 71 of 2008 and as per the standards stipulated by the auditing profession. Requisite assurance was sought and provided by the Companies Act of South Africa, 71 of 2008 that internal governance processes within the firm support and demonstrate the claim to independence.
The committee in consultation with executive management, agreed to the terms of the engagement. The audit fee for the external audit has been considered and approved taking into consideration such factors as the timing of the audit, the extent of the work required and the scope thereof.
The committee has considered and pre-approved all non-audit services provided by the external auditors and the extent and scope of the work required and the fees relative there to so as to ensure the independence of the external auditors is maintained.
The committee has nominated Mazars (Gauteng) Inc. as the independent auditor and Georgina Barlow-Tekie as the designated auditor, who is a registered independent auditor, for appointment of the 2016 audit.
5.    Group Financial Statements
The committee has, based on the information provided to it by management and the external auditors, evaluated whether the financial statements is a true and fair view in all material respect, and have subsequently thereafter recommended the financial statements for approval to the board. The board has subsequently approved the financial statements which will be open for discussion at the forthcoming annual general meeting.
6.    Financial Function and Finance Office
As required by the JSE Listing Requirements, par 3.84(h), the committee has satisfied itself that the Chief Financial Officer, PJ Grove has appropriate experience and expertise. The committee has also satisfied itself regarding the experience, expertise and resources of the finance function.
On behalf of the Audit & Risk Committee,
/s/ Professor Ben Marx
Professor Ben Marx
Chairman of the Audit Committee
 
Centurion
30 September 2015

 
7
 

DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015
 
Directors Report


The directors have the pleasure in submitting their report on the Group financial statements of Digicore Holdings Limited Group for the year ended 30 June 2015.

1.    Nature of business

Digicore Holdings Limited incorporated in the Republic of South Africa on 2 July 1998, carries on the business of the manufacturing and distribution of fleet management and vehicle tracking solutions through its subsidiary companies and associated companies. The Group is listed on the JSE Limited. The Company’s registered address is Digicore Building, Regency Office Park, 9 Regency Drive, Route 21 Corporate Park, Irene Extension 30, Centurion. The Group operates in South Africa, the rest of Africa, Australia, New Zealand, the United Kingdom and Europe.

2.    Review of financial results and activities

The consolidated Group financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) and comply with the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the JSE Listings Requirements and the requirements of the Companies Act of South Africa, 71 of 2008. The accounting policies have been applied consistently compared to the prior year.

Full details of the financial position, results of operations and cash flows of the Group are set out in these consolidated Group financial statements.

3.    Share capital
 
 
 
 
 
2015
2014
 
 
 
 
 
Number of Shares
Authorised
 
 
 
 
1 000 000 000
1 000 000 000
Ordinary shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
2014
 
2015
2014
Issued
R '000
 
R '000
 
Number of Shares
Ordinary shares
249

 
248

 
248 687 128
247 669 272

Refer to note 14 of the consolidated Group financial statements for detail of the movement in authorised and issued share capital.

4.    Control over unissued shares

The unissued ordinary shares are the subject of a general authority granted to the directors in terms of section 38 of the Companies Act. This general authority remains valid only until the next AGM.

5.    Dividends

The Group's dividend policy is to consider an interim and a final dividend in respect of each financial year. At its discretion, the board may consider a special dividend, where appropriate. Depending on the perceived need to retain funds for expansion or operating purposes, the board may pass on the payment of dividends.

Given the current state of the global economic environment, the board believes that it would be more appropriate for the Group to conserve cash and maintain adequate debt headroom to ensure that the Group is best placed to withstand any prolonged adverse economic conditions. Therefore the board has resolved not to declare a dividend for the financial year ended 30 June 2015 (2014: nil).

6.    Directorate

The directors in office during the year and up to the date of this report are as follows:
Directors
Office
Designation
Changes
NH Vlok
Chief Executive Officer
Executive
 
SS Ntsaluba
 
Non-executive Independent
 
Prof B Marx
 
Non-executive Independent
 
G Pretorius
Chairperson
Non-executive Independent
 
SP Naude
 
Non-executive
Appointed 27 January 2015
JP duP le Roux
 
Non-executive
Appointed 27 January 2015
PJ Grove
Chief Financial Officer
Executive
 
JD Wiese
 
Non-executive
Resigned 26 January 2015
With effect from 26 January 2015, Adv JD Wiese tendered his resignation as a non-executive director of the board as well as chairman of the social, ethics and transformation committee.

As from 27 January 2015, SP Naude, who was previously elected as an alternate non-executive director for Adv JD Wiese, has been appointed as a permanent non- executive director to the board.

As from 27 January 2015, JP duP le Roux has been appointed as a non-executive director to the board and chairman of the social, ethics and transformation committee. The board has subsequently elected SP Naude as a chairman of the social, ethics and transformation committee and JP duP le Roux to remain a committee member.

Neither the non-executive directors nor the executive directors have fixed term employment contracts.



 
8
 

DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015
 
Directors Report


7.    Directors' interests in shares

As at 30 June 2015, the directors of the company held direct and indirect beneficial interests in 26% (2014: 20%) of its issued ordinary shares, as set out below.
Interests in shares
 
 
 
 
Directors
2015

2015

2014

2014

 
Direct

Indirect

Direct

Indirect

NH Vlok
19 442 479

19 202 728

 19 429 114

 19 082 728

Prof B Marx



46 000

G Pretorius

1 134 047


523 670

JP duP le Roux

26 021 776



JD Wiese



8 813 500

 
19 442 479

46 358 551

19 429 114

28 465 898


The register of interests of directors and others in shares of the company is available to the shareholders on request.

There have been no changes in beneficial interests that occurred between the end of the reporting period and the date of this report.

8.    Related Party Transactions

During the financial year, no contracts were entered into which directors or officers of the Group had an interest and which significantly affected the business of the Group.

9.    Interests in subsidiaries and associates

Details of material interests in subsidiary companies and associates are presented in the consolidated Group financial statements in notes 6 and 8.

10.    Borrowing powers

In terms of the Memorandum of Incorporation, the borrowing powers of the Group are unlimited. However all borrowings by the Group are subject to board approval as required by the board delegation of authority.

11.    Special resolutions

The following special resolutions were passed at the Group's AGM in November 2014.

Special Resolution number 1 - Adoption of the Memorandum of Incorporation (MOI)
It was resolved that the Group adopts a new revised MOI in order to ensure the Group's compliance with the Companies Act, the Listing Requirements and principles of good corporate governance.

Special Resolution number 2 - Granting a general authority to provide direct or indirect financial assistance to any Company or corporation which is related or inter-related to the Company
It was resolved to grant the directors of the Group the authority to provide financial assistance to any Company or corporation which is related or inter-related to the Group. This means that the Group is authorised to grant loans to its subsidiaries and to guarantee the debt of its subsidiaries. This general authority will expire at the end of two years from the date that this resolution is adopted.

Special Resolution number 3 - Approve that the Company provides any direct or indirect financial assistance for the purpose of, or in connection with the subscription of any option, or any shares or other securities or for the purchase of any securities of the Company or a related or interrelated company
It was resolved to grant the directors the authority until the next AGM to provide financial assistance to any person for the purpose of or in connection with the subscription or purchase of options, shares or other securities in the Company or any such related or inter-related company or corporation. This means that the Company is authorised, inter alia, to grant loans to its subsidiaries and to guarantee and furnish security for the debt of its subsidiaries where any such financial assistance is directly or indirectly related to a party subscribing for options, shares or securities in its subsidiaries.

Special Resolution number 4 - Approval of the remuneration payable to the non-executive directors of the Company in terms of section 66(9) of the Act
It was resolved to approve the payment of remuneration to its non-executive directors in accordance with the requirements of the Act.

12.    Events after the reporting period

Shareholders are referred to the joint announcement published by Novatel Wireless, Inc. and Digicore on 19 June 2015, in terms of which shareholders were advised that the Group has entered into a transaction implementation agreement with Novatel Wireless which constitutes notification to the Digicore board of directors of a firm intention to make an offer to acquire all the ordinary shares in the Group other than the Ordinary Shares held by any subsidiaries of the Group and the Ordinary Shares held by the Digicore Holdings Limited Share Trust, by way of a scheme of arrangement or, if specific conditions of the Scheme should not be fulfilled, to acquire all or a majority of the Ordinary Shares, excluding the Excluded Shares, by way of a substitute offer.

In addition, Digicore shareholders are referred to the joint announcement published by Novatel Wireless and Digicore on 31 July 2015, whereby shareholders were advised that a circular, setting out the terms and conditions of the Scheme and the Substitute Offer, and also incorporating a notice convening a general meeting of shareholders had been distributed to shareholders.

The directors are not aware of any other material event which occurred after the reporting date and up to the date of this report.



 
9
 

DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015
 
Directors Report


13.    Going Concern

The directors believe that the Group has adequate resources to continue in operation for the foreseeable future and accordingly the consolidated Group financial statements have been prepared on a going concern basis. The directors have satisfied themselves that the Group is in a sound financial position and that it has access to sufficient borrowing facilities to meet its foreseeable cash requirements. The directors are not aware of any new material changes that may adversely impact the Group. The directors are also not aware of any material non-compliance with statutory or regulatory requirements or of any pending changes to legislation which may affect the Group.

14.    Litigation statement

The Group is not currently involved in any such claims or lawsuits, which individually or in the aggregate, are expected to have a material adverse effect on the business or its assets.

15.    Auditors

Mazars (Gauteng) Inc. continued in office as auditors for the Group and its subsidiaries for 2015.

At the AGM, the shareholders will be requested to reappoint Mazars (Gauteng) Inc. as the independent external auditors of the company and to confirm that Mrs Georgina Barlow - Tekie as the designated lead audit partner for the 2016 financial year.

16.    Company Secretary

The company secretary is Mr N Bofilatos.
Postal address
PO Box 68270
Highveld Park
Centurion
South Africa
0169
 
 
Business address
Digicore Building A
9 Regency Drive
Route 21 Corporate Park
Irene
Centurion
0156

17.    Date of authorisation for issue of financial statements

The consolidated Group financial statements have been authorised for issue by the directors on 15 December 2015. No authority was given to anyone to amend the Group financial statements after the date of issue.

18.    Shareholders with more than 5% shareholding
Shareholder - 30 June 2015
Number of shares
 
%
Stellar Capital Partner Ltd
47 692 770
 
19,18
NH Vlok
38 645 207
 
15,54
Rational Expectations Proprietary Limited
26 021 776
 
10,46
Investec Limited
25 782 624
 
10,37
Cyrte Africa Fund
19 152 832
 
7,70
 
157 295 209
 
63,25
 
 
 
 
Shareholder - 30 June 2014
Number of shares
 
%
NH Vlok
38 511 842
 
15,55
Investec Limited
30 768 624
 
12,42
Titan Nominees Proprietary Limited
29 725 000
 
12,00
Mellon Bank (Custodian)
21 497 267
 
8,68
Coronation Fund Managers
16 855 850
 
6,81
 
137 358 583
 
55,46

19.    Corporate Governance

The Group has applied in all material respects, the principles of good corporate governance as contained in the King Code of Governance Principles (“King III”).

20.    Acknowledgements

Thanks and appreciation are extended to all of our shareholders, staff, suppliers and customers for their continued support of the Group.


 
10
 



DigiCore Holdings Limited
 
 
 
(Registration number 1998/012601/06)
 
 
 
Group Financial Statements for the year ended 30 June 2015
 
 
 
 
 
Statements of Financial Position at 30 June 2015
 
 
 
 
 
 
Notes
2015
R '000

2014
R '000

Assets
 
 
 
 
 
 
 
Non-current Assets
 
 
 
Property, plant and equipment
3
161,866

137,619

Goodwill
4
175,720

178,332

Intangible assets
5
114,207

101,671

Associates
8

11,002

Deferred taxation
10
45,289

45,350

 
 
497,082

473,974

Current Assets
 
 
 
Inventories
11
57,473

77,716

Trade and other receivables
12
163,958

182,520

Other financial assets
9
20,020


Current tax receivable
 
2,216

6,883

Cash and cash equivalents
13
76,259

19,267

 
 
319,926

286,386

 
 
 
 
Total Assets
 
817,008

760,360

 
 
 
 
Equity and Liabilities
 
 
 
 
 
 
 
Equity
 
 
 
Share capital
14
168,411

166,324

Share-based payment reserve
15
14,214

12,661

Foreign currency translation reserve
16
7,116

14,756

Retained income
 
455,022

372,238

Equity attributable to equity holders of the parent
 
644,763

565,979

Non-controlling interest
 
(1,308
)
(2,505
)
 
 
643,455

563,474

Liabilities
 
 
 
 
 
 
 
Non current liabilities
 
 
 
Other financial liabilities
17
9,710

14,135

Finance lease liabilities
18
7,232

7,990

Deferred tax
10
1,177

4,341

 
 
18,119

26,466

 
 
 
 
Current liabilities
 
 
 
Other financial liabilities
17
3,492

18,235

Current tax payable
 
2,310

5,920

Finance lease liabilities
18
9,853

9,837

Trade and other payables
20
56,738

83,331

Deferred income
21
16,655

355

Provisions
19
1,578

3,019

Bank overdraft
13
64,808

49,723

 
 
155,434

170,420

 
 
 
 
Total Liabilities
 
173,553

196,886

 
 
 
 
Total Equity and Liabilities
 
817,008

760,360



 
11
 



DigiCore Holdings Limited
 
 
 
 
(Registration number 1998/012601/06)
 
 
 
 
Group Financial Statements for the year ended 30 June 2015
 
 
 
 
 
 
Statements of Profit or Loss and Other Comprehensive Income
 
 
 
 
 
 
 
 
Notes
2015
R'000

2014
R'000

2013
R'000

Revenue
22
858,527

891,943

878,578

Cost of sales
 
(266,136
)
(325,189
)
(296,176
)
Gross profit
 
592,391

566,754

582,402

 
 
 
 
 
Other income
 
82,641

41,786

26,347

Operating expenses
 
(505,087
)
(510,050
)
(506,573
)
Depreciation & amortization
 
(75,192
)
(77,878
)
(82,597
)
Impairment of rental stock
 
(2,003
)
(4,315
)
(12,933
)
Impairment of goodwill
 


(57,500
)
Operating profit (loss)
23
92,750

16,297

(50,854
)
 
 
 
 
 
Investment revenue
24
79

3,643

216

Income from equity accounted investments
25
4,956

3,064

2,131

Finance costs
26
(11,076
)
(14,345
)
(14,378
)
Profit (loss) before taxation
 
86,709

8,659

(62,885
)
 
 
 
 
 
Taxation
27
1,201

(864
)
3,535

Profit (loss) for the year
 
87,910

7,795

(59,350
)
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
Items that may be reclassified to profit or loss:
 
 
 
 
Exchange differences on translating foreign operations
 
(7,641
)
(28,427
)
43,706

Other comprehensive income for the year net of taxation
28
(7,641
)
(28,427
)
43,706

 
 
 
 
 
Total comprehensive (loss) income for the year
 
80,269

(20,632
)
(15,644
)
 
 
 
 
 
Profit (loss) attributable to:
 
 
 
 
Owners of the parent
 
87,744

7,036

(59,194
)
Non-controlling interest
 
166

759

(156
)
 
 
87,910

7,795

(59,350
)
 
 
 
 
 
Total comprehensive (loss) income attributable to:
 
 
 
 
Owners of the parent
 
80,103

(21,391
)
(15,488
)
Non-controlling interest
 
166

759

(156
)
 
 
80,269

(20,632
)
(15,644
)
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
 
 
Per share information
 
 
 
 
Basic earnings (loss) per share (cents)
37
36.58

2.94

(24.70
)
Diluted earnings (loss) per share (cents)
37
32.42

2.83

(24.70
)


 
12
 



DigiCore Holdings Limited
 
 
 
 
 
 
 
 
 
 
(Registration number 1998/012601/06)
 
 
 
 
 
 
 
 
 
 
Group Financial Statements for the year ended 30 June 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Statements of Changes in Equity
 
 
 
 
 
 
 
 
 
 
 
Share Capital

Share Premium

Total share capital

Foreign currency translation reserve

Share-based payment reserve

Total reserves

Retained income

Total attributable to equity holders of the Group

Non-controlling interest

Total equity

 
R'000

R'000

R'000

R'000

R'000

R'000

R'000

R'000

R'000

R'000

Balance at 01 July 2012
248

166,076

166,324

(524
)
9,989

9,465

422,684

598,473

(14,524
)
583,949

 
 
 
 
 
 
 
 
 
 
 
Loss for the year






(59,194
)
(59,194
)
(156
)
(59,350
)
Other comprehensive income for the year



43,706


43,706


43,706


43,706

Total comprehensive income for the year



43,706


43,706

(59,194
)
(15,488
)
(156
)
(15,644
)
 
 
 
 
 
 
 
 
 
 
 
Acquisition of a further 25% in Alchemist House Proprietary Limited








(874
)
(874
)
Share-based payment cost




2,805

2,805


2,805


2,805

Share options cancelled




(1,859
)
(1,859
)
1,859




Ctrack Latin America S.A. - Non Controlling interest derecognized






13

13

(13
)

Sale of Worldmark SA Proprietary Limited








32,636

32,636

Acquistion of a further 27% of Ctrack Proprietary Limited






(5,568
)
(5,568
)
(1,312
)
(6,880
)
Total contributions by and distributions to owners of Group recognized directly in equity




946

946

(3,696
)
(2,750
)
30,437

27,687

Balance at 01 July 2013
248

166,076

166,324

43,182

10,935

54,117

359,794

580,235

15,757

595,992


 
13
 



DigiCore Holdings Limited
 
 
 
 
 
 
 
 
 
 
(Registration number 1998/012601/06)
 
 
 
 
 
 
 
 
 
 
Group Financial Statements for the year ended 30 June 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Statements of Changes in Equity
 
 
 
 
 
 
 
 
 
 
 
Share Capital

Share Premium

Total share capital

Foreign currency translation reserve

Share-based payment reserve

Total reserves

Retained income

Total attributable to equity holders of the Group

Non-controlling interest

Total equity

 
R'000

R'000

R'000

R'000

R'000

R'000

R'000

R'000

R'000

R'000

Balance at 01 July 2013
248

166,076

166,324

43,182

10,935

54,117

359,794

580,235

15,757

595,992

 
 
 
 
 
 
 
 
 
 
 
Profit for the year






7,036

7,036

759

7,795

Other comprehensive income for the year



(28,427
)

(28,427
)

(28,427
)

(28,427
)
Total comprehensive income for the year



(28,427
)

(28,427
)
7,036

(21,391
)
759

(20,632
)
Buyback of shares in DigiCore Fleet Management SA Proprietary Limited






5,408

5,408

(19,021
)
(13,613
)
Share-based payment cost




1,726

1,726


1,726


1,726

Total contributions by and distributions to owners of Group recognized directly in equity




1,726

1,726

5,408

7,134

(19,021
)
(11,887
)
Balance at 30 June 2014
248

166,076

166,324

14,755

12,661

27,416

372,238

565,978

(2,505
)
563,473



 
14
 



DigiCore Holdings Limited
 
 
 
 
 
 
 
 
 
 
(Registration number 1998/012601/06)
 
 
 
 
 
 
 
 
 
 
Group Financial Statements for the year ended 30 June 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Statements of Changes in Equity
 
 
 
 
 
 
 
 
 
 
 
Share Capital

Share Premium

Total share capital

Foreign currency translation reserve

Share-based payment reserve

Total reserves

Retained income

Total attributable to equity holders of the Group

Non-controlling interest

Total equity

 
R'000

R'000

R'000

R'000

R'000

R'000

R'000

R'000

R'000

R'000

Balance at 01 July 2014
248

166,076

166,324

14,755

12,661

27,416

372,238

565,978

(2,505
)
563,473

 
 
 
 
 
 
 
 
 
 
 
Profit for the year






87,744

87,744

166

87,910

Other comprehensive income for the year



(7,641
)

(7,641
)

(7,641
)

(7,641
)
Total comprehensive income for the year



(7,641
)

(7,641
)
87,744

80,103

166

80,269

Issue of shares
1

2,035

2,036





2,036


2,036

Acquisition of remaining 49% shares in Alchemist House Proprietary Limited






(5,814
)
(5,814
)
1,064

(4,750
)
Share-based payment cost




2,875

2,875


2,875


2,875

Share options cancelled




(1,271
)
(1,271
)
1,271




Share options exercised

51

51


(51
)
(51
)




Acquisition of remaining 2% in Integrated Fare Collection Services Proprietary Limited






(417
)
(417
)
(33
)
(450
)
Total contributions by and distributions to owners of Group recognized directly in equity
1

2,086

2,087


1,553

1,553

(4,960
)
(1,320
)
1,031

(289
)
Balance at 30 June 2015
249

168,162

168,411

7,114

14,214

21,328

455,022

644,761

(1,308
)
643,453

Notes
14

14

14

16 & 28

15

 
 
 
7

 

DigiCore Holdings Limited
 
 
 
 
(Registration number 1998/012601/06)
 
 
 
 
Group Financial Statements for the year ended 30 June 2015
 
 
 
 
 
 
 
 
 
Statement of Cash Flows
 
 
 
 
 
Notes
2015
R'000

2014
R'000

2013
R'000

Cash flows from operating activities
 
 
 
 
 
 
 
 
 
Cash generated from operations
29
140,076

161,793

125,620

Interest income
24
79

3,643

216

Finance costs
26
(11,076
)
(14,345
)
(14,378
)
Taxation paid
30
(3,100
)
(2,125
)
(6,861
)
 
 
 
 
 
Net cash from operating activities
 
125,979

148,966

104,597

 
 
 
 
 
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Purchase of property, plant and equipment
3
(70,271
)
(65,005
)
(98,788
)
Proceeds on sale of property, plant and equipment
3
6,371

9,169

13,656

Purchase of other intangible assets
5
(38,195
)
(36,509
)
(19,418
)
Proceeds on sale of shares in TPL Trakker Limited
8
51,911



Business combinations
 


(1,218
)
Proceeds on sale of Worldmark SA Proprietary Limited
 


9,747

 
 
 
 
 
 Net cash from investing activities
 
(50,184
)
(92,345
)
(96,021
)
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
Proceeds from other financial liabilities
 


49,883

Repayment of other financial liabilities
 
(19,168
)
(53,705
)
(18,963
)
Finance lease payments
 
(11,769
)
(16,688
)
(8,326
)
Buyback of shares in DigiCore Fleet Management SA Proprietary Limited
 

(9,706
)

Payment to non-controlling shareholders of Ctrack Proprietary Limited for 27% shareholding
 


(6,880
)
Payment to Non-controlling shareholders of Alchemist House Proprietary Limited for the remaining 49% shareholding
 
(2,714
)


Payment to Non-controlling shareholders of Integrated Fare Collection Services Proprietary Limited for the remaining 2% shareholding
 
(450
)


 
 
 
 
 
Net cash from financing activities
 
(34,101
)
(80,099
)
15,714

 
 
 
 
 
Total cash movement for the year
 
41,694

(23,478
)
24,290

Cash at the beginning of the year
 
(30,456
)
(9,511
)
(28,851
)
Effect of the exchange rate movement on cash balances
 
213

2,533

(4,950
)
 
 
 
 
 
Total cash at the end of the year
13
11,451

(30,456
)
(9,511
)


 
15
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.    Presentation of Group Financial Statements

Reporting entity
Digicore Holdings Limited is a Company domiciled in the Republic of South Africa. The company's registered office is at Digicore Building, Regency Office Park, 9 Regency Drive, Route 21 Corporate Park, Irene Ext 30, Centurion. These consolidated financial statements for the year ended 30 June 2015 comprise only the Group results. The Group is primarily involved in the manufacturing and distribution of fleet management and vehicle tracking solutions.

Statement of compliance
The annual financial statements are prepared in compliance with International Financial Reporting Standards (IFRS) and Interpretations of those standards, as issued by the International Accounting Standards Board, the JSE Listings requirements that are relevant to its operations and have been effective for the annual reporting period ending 30 June 2015, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and the South African Companies Act, 71 of 2008, as amended. The annual financial statements were approved for issue by the board of directors on 21 September 2015 and are subject to approval by the Annual General Meeting of shareholders.

Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis, except for financial instruments which have been accounted for in terms of IAS 39 Financial Instruments - Recognition and measurement.

Functional and presentation currency
These consolidated financial statements are presented in South African Rand (ZAR), which is the company's functional currency. All financial information presented in Rands has been rounded to the nearest thousand.

Going Concern
The consolidated financial statements are prepared on the going concern basis as the directors believe that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.



 
16
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.1    Financial Reporting Terms

These definitions of financial reporting terms are provided to ensure clarity of meaning as certain terms may not always have the same meaning or interpretation in all countries.

Business
An integrated set of activities and assets capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants.

Fair Value
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Financial Results
Comprise the financial position (assets, liabilities and equity), results of operations (revenue and expenses) and cash-flows of the Group.

Market Participants
Buyers and sellers in the principle (or most advantageous) market who are independent, knowledgeable and willing to exchange an asset or settle a liability in an arm’s length transaction.

Presentation Currency
The currency in which financial results of an entity are presented.

Associate
An entity, other than a subsidiary or joint venture, in which the Group, holding a material long-term interest, has significant influence, but no control, over financial and operating policies.

Company
A legal business entity registered in terms of the applicable legislation of that country.

Foreign operation
An entity whose activities are based or conducted in a country or currency other than those of the reporting entity (Digicore Holdings Limited).

Operation
A component of the Group that represents a separate major line of business or geographical area of operation; and is distinguished separately for financial and operating purposes.

Group
The Group comprises DigiCore Holdings Limited, its subsidiaries and its interest in associates and special purpose entities.

Subsidiary
Any entity over which the Group has the power to exercise control.

Special purpose entity
An entity established to accomplish a narrow and well defined objective, where the Group receives the majority of the benefits related to the operations and is exposed, or has rights, to variable returns from its involvement with the special purpose entity and has the ability to affect those returns through its power over the special purpose entity.

Acquisition date
The date on which control in subsidiaries, special purpose entities, joint control in joint ventures and significant influence in associates commences.

Cash generating unit
The smallest identifiable Group of assets which can generate cash inflows independently from other assets or Groups of assets.

Consolidated Group financial statements
The financial results of the Group which comprise the financial results of Digicore Holdings Limited and its subsidiaries, special purpose entities and its interest in associates.


 
17
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.1    Financial Reporting Terms (continued)

Control
An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Disposal date
The date on which control in subsidiaries, special purpose entities and significant influence in associates ceases.

Functional currency
The currency of the primary economic environment in which the entity operates.

Long-term
A period longer than twelve months from the reporting date.

Other comprehensive income
Comprises items of income and expense (including reclassification adjustments) that are not recognized in the statement of profit and loss and other comprehensive income and includes the effect of translation of foreign operations.

Recoverable amount
The amount that reflects the greater of the fair value less costs to sell and value in use that can be attributed to an asset as a result of its on-going use by the entity. In determining the value in use, expected future cash flows are discounted to their present values using the appropriate discount rate.

Related party
Parties are considered to be related if one party directly or indirectly has the ability to control or jointly control the reporting entity (Digicore Holdings Limited) or exercise significant influence over the reporting entity or is a member of the key management of the reporting entity.

Revenue
Comprises revenues from the sale of goods, rendering of services and rental income.

Share-based payment
A transaction in which an entity issues equity instruments, share options or incurs a liability to pay cash based on the price of the entity’s equity instruments to another party as compensation for goods received or services rendered.

Significant influence
The ability, directly or indirectly, to participate in, but not exercise control over, the financial and operating policy decisions of an entity so as to obtain economic benefit from its activities.

Financial instrument terms:

Cash and cash equivalents
Comprise cash on hand, bank overdraft and demand deposits.

Monetary asset
An asset which will be settled in a fixed or determinable amount of money.

Monetary liability
A liability which will be settled in a fixed or determinable amount of money.

Transaction date
The date an entity commits itself to purchase or sell a financial instrument.

Effective interest rate
The derived rate that discounts the expected future cash flows to the current net carrying amount of the financial asset or financial liability.

Equity instrument
Any financial instrument (including investments) that evidences a residual interest in the assets of an enterprise after deducting all of its liabilities.


 
18
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.1    Financial Reporting Terms (continued)

Financial asset
Cash or cash equivalents, a contractual right to receive cash, an equity instrument in another entity or a contractual right to exchange a financial instrument under favourable conditions.

Financial liability
A contractual obligation to pay cash or transfer other benefits or an obligation to exchange a financial instrument under unfavourable conditions.

Loans and receivables
A financial asset with fixed or determinable repayments that are not quoted in an active market, other than:
a derivative instrument

1.2    Consolidation

Basis of consolidation

The consolidated financial statements reflect the financial results of the Group. All financial results are consolidated with similar items on a line by line basis except for investments in associates, which are included in the Group’s results as set out below.

Inter-company transactions, balances and unrealised gains and losses between entities are eliminated on consolidation. To the extent that a loss on a transaction provides evidence of a reduction in the net realisable value of current assets or an impairment loss of a non-current asset, that loss is charged to the statement of profit and loss and other comprehensive income.

In respect of associates, unrealised gains and losses are eliminated to the extent of the Group’s interest in these entities. Unrealised gains and losses arising from transactions with associates are eliminated against the investment in the associate.

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial results of subsidiaries are consolidated into the Group's results from acquisition date until the date of loss of control.


 
19
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.2    Consolidation (continued)

Investment in associates

The financial results of associates are included in the Group’s results according to the equity method from acquisition date until the disposal
date.

Under this method, investments in associates are recognized initially at cost. Subsequent to the acquisition date, the Group’s share of profits or losses of associates is charged to the statement of profit and loss and other comprehensive income as profits or losses of associates is charged to the statement of profit and loss and other comprehensive income as equity accounted earnings and its share of movements in equity reserves is recognized as other comprehensive income. All cumulative post-acquisition movements in the equity of associates are adjusted against the cost of the investment. When the Group’s share of losses in associates equals or exceeds its interest in those associates, the carrying amount of the investment is reduced to zero, and the Group does not recognize further losses, unless the Group has incurred a legal or constructive obligation or made payments on behalf of those associates.

Goodwill relating to associates forms part of the carrying amount of those associates.

The total carrying amount of each associate is evaluated annually, as a single asset, for impairment or when conditions indicate that a decline in fair value below the carrying amount is other than temporary. If impaired, the carrying amount of the Group’s share of the underlying assets of associates is written down to its estimated recoverable amount in accordance with the accounting policy on impairment and charged to the statement of profit and loss and other comprehensive income. A previously recognized impairment loss will be reversed, insofar as estimates change as a result of an event occurring after the impairment loss was recognized.

The Group derecognizes its interest in associates when it ceases to have significant control. Any gains or losses arising from the derecognition of the Group's interest in associates is recognized in the statement of profit and loss and other comprehensive income.

 
20
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.2    Consolidation (continued)

Business combinations

The acquisition method is used when a business is acquired. A business may comprise an entity, group of entities or an unincorporated operation including its operating assets and associated liabilities.

On acquisition date, fair values are attributed to the identifiable assets, liabilities and contingent liabilities. A non- controlling interest at acquisition date is measured at fair value or at its proportionate interest in the fair value of the net identifiable assets of the entity acquired on a transaction by transaction basis, including that component of the non- controlling interest which has a present ownership interest.

Fair values of all identifiable assets and liabilities included in the business combination are determined by reference to market values of those or similar items, where available, or by discounting expected future cash flows using the discount rate to present values.

When an acquisition is achieved in stages (step acquisition), the identifiable assets and liabilities are recognized at their full fair value when control is obtained, and any adjustment to fair values related to these assets and liabilities previously held as an equity interest is recognized in the statement of profit and loss and other comprehensive income.

When there is a change in the interest in a subsidiary after control is obtained, that does not result in a loss in control, the difference between the fair value of the consideration transferred and the amount by which the non-controlling interest is adjusted is recognized directly in the statement of changes in equity.

The consideration transferred is the fair value of the Group’s contribution to the business combination in the form of assets transferred, shares issued, liabilities assumed or contingent consideration at the acquisition date. Any contingent consideration payable is recognized at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognized in the statement of profit and loss and other comprehensive income. Transaction costs directly attributable to the acquisition are charged to the statement of profit and loss and other comprehensive income.

On acquisition date, goodwill is recognized when the consideration transferred and the recognized amount of non- controlling interests exceeds the fair value of the net identifiable assets of the entity acquired. Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognized as a result of these transactions. The adjustments to non-controlling interest are based on a proportionate amount of the net assets of the subsidiary.

Goodwill is tested at each reporting date for impairment or more frequently if events or changes in circumstances indicate a potential impairment, and is carried at cost less accumulated impairment losses.

To the extent that the fair value of the net identifiable assets of the entity acquired exceeds the consideration transferred and the recognized amount of non-controlling interests, the excess, or bargain purchase gain, is recognized in the statement of profit and loss and other comprehensive income on acquisition date. The profit or loss realised on disposal or termination of an entity is calculated after taking into account the carrying amount of any related goodwill.


 
21
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.2    Consolidation (continued)

Foreign Operations

When the settlement of a monetary item, arising from a receivable or from a payable to a foreign operation, is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of a net investment in a foreign operation and are recognized in other comprehensive income, and are included in the foreign currency income, and are included in the foreign currency.

On consolidation, differences arising from the translation of the net investment in a foreign operation are recognized as other comprehensive income and are included in the foreign currency translation reserve.

On disposal of all of the operation, the proportionate share of the related cumulative gains and losses previously recognized in the foreign currency translation reserve through the statement of profit and loss and other comprehensive income are included in determining the profit or loss on disposal of that operation recognized in the statement of profit and loss and other comprehensive income as part of the gain or loss on the disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant portion of the cumulative foreign currency translation reserve is reattributed to non- controlling interests. When the Group disposes of only part of its investment in an associate while retaining significant influence, the relevant portion of the cumulative foreign currency translation reserve is reclassified to the statement of profit and loss and other comprehensive income.

Foreign transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group companies at exchange rates at the dates of the transactions.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences are generally recognized in profit or loss.

Non-controlling interest

Non-controlling interest is measured at their proportionate share of the acquiree's identifiable net assets at the acquisition date. Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

1.3 Financial instruments

Classification

The Group classifies financial assets and financial liabilities into the following categories:
Financial assets at fair value through profit or loss - held for trading
Loans and receivables
Financial liabilities measured at amortised cost

The classification is dependent on the purpose for which the financial asset is acquired. Management determines the classification of its financial assets at the time of the initial recognition and re-evaluates such designation at least at each reporting date.


 
22
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.3    Financial instruments (continued)

Initial recognition and measurement

Financial instruments are recognized 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 less transactions costs. Loans and receivables are subsequently stated at amortised cost using the effective interest rate method, less impairment losses.

Loans and receivables comprise loans, trade receivables, cash and cash equivalents and other receivables.

Financial liabilities are recognized on the transaction date when the Group becomes a party to a contract and thus has a contractual obligation and are derecognized when these contractual obligations are discharged, cancelled or expired.

Financial liabilities comprise, loans, borrowings, finance lease liabilities, trade and other payables and bank overdrafts. Transaction costs on financial instruments at fair value through profit or loss are recognized in profit or loss.

Subsequent measurement

Financial instruments at fair value through profit or loss are subsequently measured at fair value, with gains and losses arising from changes in fair value being included in profit or loss for the period.

Net gains or losses on the financial instruments at fair value through profit or loss exclude dividends and interest.

Dividend income is recognized in profit or loss as part of other income when the Group's right to receive payment is established.

Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses.

Financial liabilities at amortised cost are subsequently measured at amortised cost, using the effective interest method.

Derecognition

Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when the Group's obligations specified in the contract expire or are discharged or cancelled.

Impairment of financial assets

An assessment is performed at each reporting date to determine whether objective evidence exists that a financial asset is impaired. Objective evidence that financial instruments are impaired includes indications of a debtor or Group of debtors experiencing significant financial difficulty, default or delinquency of payments, the probability of a debtor entering bankruptcy, or other observable data indicating a measurable decrease in estimated future cash flows, such as economic conditions that correlate with defaults. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Where a financial asset has a variable interest rate, an impairment loss is calculated as the difference between the carrying amount and the present value of the estimated future cash flows discounted at the asset’s current effective interest rate.

Impairment losses are charged to the statement of profit and loss and other comprehensive income and are included in the allowance against loans and receivables. When a subsequent event causes the impairment loss to decrease, the impairment loss is reversed in the statement of profit and loss and other comprehensive income. Loans and receivables, together with the associated allowance, are written off when there is no realistic prospect of future recovery.


 
23
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.3    Financial instruments (continued)

Other financial assets

The Group classifies financial assets at fair value through profit or loss if they are acquired principally for the purpose of selling in the short term (held for trading). They are presented as current assets if they are expected to be sold within 12 months after the end of the reporting period; otherwise they are presented as non-current assets. The Group has elected to designate its remaining interest in TPL Trakker Limited at fair value through profit or loss. Refer to note 8 for more details.

Trade and other receivables

Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. If collection is expected in one year or less they are classified as current assets. Trade receivables are recognized initially at fair value and subsequently stated at amortised cost using the effective interest rate method, less impairment losses. An impairment loss is recognized when it is probable that an entity will not be able to collect all amounts due according to the original terms of the receivable. The amount of the impairment loss is charged to the statement of profit and loss and other comprehensive income.

Trade and other receivables are classified as loans and receivables and measured at amortised cost.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held on call with banks and bank overdrafts, all of which are available for use by the Group and have an original maturity of less than three months. Cash and cash equivalents are stated at carrying amount which is deemed to be fair value. Bank overdrafts are offset against cash and cash equivalents in the statement of cash flows. Bank overdrafts are included within current liabilities on the statement of financial position and are classified as financial liabilities measured at amortised cost.

Cash and cash equivalents are classified as loans and receivables and measures at amortised cost.

Trade and other payables

Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non- current liabilities.

Trade and other payables are classified as financial liabilities measured at amortised cost.

Borrowings

Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the statement of profit or loss and other comprehensive income over the period of the borrowings using the effective interest rate method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

Borrowings are classified as financial liabilities measured at amortised cost.


 
24
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.4    Property, plant and equipment

Property, plant and equipment are tangible assets which the Group holds for its own use or for rental to others and which are expected to be used for more than one year.

The cost of an item of property, plant and equipment is recognized as an asset when:
it is probable that future economic benefits associated with the item will flow to the Group; 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 recognized in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognized.

Property, plant and equipment is subsequently carried at historical cost less accumulated depreciation and any impairment losses.

The cost of rental assets which represents fleet management and vehicle tracking solutions installed in customers vehicles where the hardware is provided as part of a fixed term contract concluded with the customer, is capitalised to property, plant and equipment. The Group depreciates rental stock on a straight-line basis commencing on installation and is linked to the term of the contract concluded with the customer. The related depreciation is included in other expenses in the statement of profit and loss and other comprehensive income.

Property, plant and equipment are depreciated on the straight-line basis over their expected useful lives to their estimated residual value, except for land which is not depreciated.
The useful lives of items of property, plant and equipment have been assessed as follows:
 
 
Item
Depreciation Method
Average useful life
Land
Indefinite
 
Buildings
Straight line
50 years
Plant and machinery
Straight line
5 years
Furniture and fixtures
Straight line
6 years
Motor vehicles
Straight line
4 to 5 years
Office equipment
Straight line
3 to 4 years
IT equipment
Straight line
3 years
Computer software
Straight line
2 years
Leasehold improvements
Straight line
5 years
Rental assets
Straight line
3 to 4 years

The residual value and useful life 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. During the current year, no changes were noted to the residual value and useful life of each class of asset.

The depreciation charge for each period is recognized in profit or loss unless it is included in the carrying amount of another asset.

The carrying amount of property, plant and equipment will be derecognized on disposal or when no future economic benefits are expected from its use. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment and are recognized in the statement of profit and loss and comprehensive income.


 
25
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.5 Goodwill

For the measurement of goodwill at initial recognition, refer to accounting policy note 1.2.

Goodwill is measured at cost less any accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity-accounted investee.

On disposal of the relevant cash-generating unit or subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate a potential impairment. Goodwill is carried at cost less accumulated impairment losses. The carrying amount of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Impairment losses recognized as an expense in relation to goodwill are not subsequently reversed. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash generating units or Groups of cash generating units that are expected to benefit from the business combination in which the goodwill arose. Each unit or Group of units to which the goodwill is allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes. Impairments on goodwill are not reversed subsequently.

1.6    Intangible assets

An intangible asset is recognized when:
it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and
the cost of the asset can be measured reliably.

Intangible assets are initially recognized at cost.

Expenditure on research (or on the research phase of an internal project) is recognized as an expense when it is incurred.

In-house technology and product development
An intangible asset arising from development (or from the development phase of an internal project) is recognized when:
it is technically feasible to complete the asset so that it will be available for use or sale
there is an intention to complete and use or sell it
there is an ability to use or sell it
it will generate probable future economic benefits
there are available technical, financial and other resources to complete the development and to use or sell the asset
the expenditure attributable to the asset during its development can be measured reliably

Once the asset is developed for its intended use, it is amortized over its expected useful life.

Customer and Technology related contracts
Customer contracts acquired in a business combination are recognized at fair value at the acquisition date. Intangible assets are subsequently carried at cost less any accumulated amortization and any impairment losses.

The amortization period and the amortization method for intangible assets are reviewed every period-end.

Intangible assets are tested for impairment annually.

Amortization is provided to write down the intangible assets, on a straight line basis, as follows:
Item
Useful life
In-house technology and product development
4 to 5 years
Customer and Technology related contracts
6 to 8 years


 
26
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.7    Impairment of non-financial assets

The Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, to determine whether there is any indication of impairment. An impairment test is performed on all goodwill and intangible assets not yet in use.

The impairment loss charged to the statement of profit and loss and other comprehensive income is the excess of the carrying amount over the recoverable amount.

Recoverable amounts are estimated for individual assets or, where an individual asset cannot generate cash inflows independently, the recoverable amount is determined for the larger cash-generating unit to which the asset belongs. The Group’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the cash-generating unit to which the corporate asset belongs. For the purposes of goodwill impairment testing, cash generating units to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored internally.

Impairment losses recognized in respect of a cash-generating unit are first allocated to reduce the carrying amount of the goodwill allocated to the unit and then to reduce the carrying amounts of the other assets in the unit on a pro-rata basis relative to their carrying amounts.

With the exception of goodwill, a previously recognized impairment loss will be reversed insofar as estimates change as a result of an event occurring after the impairment loss was recognized. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized. A reversal of an impairment loss is recognized in the statement of profit and loss and other comprehensive income.

1.8    Subsidiaries

Company financial statements

In the company’s separate financial statements, 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.

1.9    Associates

Company financial statements

An investment in an associate is carried at cost less any accumulated impairment.


 
27
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.10    Taxation

Tax expenses

Current and deferred taxations are recognized as income or an expense and included in profit or loss for the period, except to the extent that the taxation arises from:
a transaction or event which is recognized, in the same or a different period, to other comprehensive income, or equity or
a business combination.

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

Current taxation and deferred taxes are charged or credited directly to equity if the taxation relates to items that are credited or charged, in the same or a different period, directly in equity.

Dividend withholding tax is payable at a rate of 15% on dividends distributed to shareholders. This tax is not attributable to the company paying the dividend but is collected by the company and paid to the tax authorities on behalf of the shareholder. On receipt of a dividend, the dividend withholding tax is recognized as part of the current tax.

Income taxation assets and liabilities

Income taxation for current and prior periods is, to the extent unpaid, recognized 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 recognized as an asset.

Income taxation liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities, using the taxation rates (and taxation laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and liabilities

Deferred tax is provided for using the liability method, on all temporary differences between the carrying amount of assets and liabilities for accounting purposes and the amounts used for tax purposes and on any tax losses. No deferred tax is provided on temporary differences relating to:
the initial recognition of goodwill;
the initial recognition (other than in a business combination) of an asset or liability to the extent that neither accounting nor taxable profit is affected on acquisition; and
investments in subsidiaries to the extent they will probably not reverse in the foreseeable future.

The provision for deferred tax is calculated using enacted or substantively enacted tax rates at the reporting date that are expected to apply when the asset is realised or liability settled. A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the deferred tax asset can be realised.

The provision of deferred tax assets and liabilities reflects the tax consequences that would follow from the expected recovery or settlement of the carrying amount of its assets and liabilities.

1.11    Leases

Leases where the Group assumes substantially all the benefits and risks of ownership, are classified as finance leases. Finance leases are capitalised as property, plant and equipment at the lower of fair value or the present value of the minimum lease payments at the inception of the lease with an equivalent amount being stated as a finance lease liability as part of debt.

The capitalised amount is depreciated over the shorter of the lease term and asset’s useful life unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Lease payments are allocated between capital repayments and finance expenses using the effective interest rate method.

Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under an operating lease are charged to the income statement over the lease term on a straight-line basis unless another basis is more representative of the pattern of use.


 
28
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.11    Leases (continued)

Finance leases - lessee

Finance leases are recognized as assets and liabilities in the statements of financial position at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statements of financial position as a finance lease obligation.

The discount rate used in calculating the present value of the minimum lease payments is the company's incremental borrowing rate.

The lease payments are apportioned between the finance charge and reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate on the remaining balance of the liability.

Operating leases - lessee

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

Operating lease expenses are recognized under operating expenses in the statement of profit and loss and other comprehensive income.

1.12    Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

The cost of inventories comprises of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Manufacturing costs include an allocated portion of production overheads which are directly attributable to the cost of manufacturing such inventory. The costs attributable to any inefficiencies in the production process are charged to the statement of profit and loss and other comprehensive income as incurred.

Cost is determined on a weighted average cost basis, except for Digicore Electronics Proprietary Limited, which is the Group's manufacturing entity, where standard costing is applied. The cost of finished goods includes the cost of manufacturing as charged by third parties.

1.13    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.

Ordinary shares are classified as equity. Incremental external costs directly attributable to the issue of new shares or the exercise of share options are shown in equity as a deduction, net of tax, from the proceeds.


 
29
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.14    Share-based payments

The Group operates an equity-settled share-based compensation plan, under which the entity receives services from employees as consideration for equity instruments (share options) of the Group. The equity-settled schemes allow certain employees the option to acquire ordinary shares in Digicore Holdings Limited over a prescribed period. These equity-settled share based payments are measured at fair value at grant date. The fair value determined at the grant date of the equity-settled share-based payments is charged as employee costs, with a corresponding increase in equity, on a straight-line basis over the period that the employees become unconditionally entitled to the options, based on management’s estimate of the shares that will vest and adjusted for the effect of non market-based vesting conditions. These share options are not subsequently revalued.

At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non- market vesting conditions. It recognizes the impact of the revision to original estimates, if any, in the statement of profit and loss and other comprehensive income with a corresponding entry to equity.

When the options are exercised, the Company issues new shares. The proceeds received, net of any directly attributable transaction costs, are credited to stated capital.

Fair value is measured using the Black-Scholes or Binomial tree option pricing models where applicable. The expected life used in the models has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations such as volatility, dividend yield and the vesting period. The fair value takes into account the terms and conditions on which these incentives are granted and the extent to which the employees have rendered service to the reporting date.

If the share based payments granted do not vest until the counterparty completes a specified period of service, 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 recognized in full.

If a grant of equity instruments is cancelled or settled during the vesting period (other than a grant cancelled by forfeiture when the vesting conditions are not satisfied), the Group accounts for the cancellation or settlement as an acceleration of vesting, and shall therefore recognize immediately in profit or loss, the amount that otherwise would have been recognized for services received over the remainder of the vesting period.

1.15    Employee benefits

Short-term and Long-term employee benefits

Remuneration of employees is charged to the statement of profit and loss and other comprehensive income. Short-term employee benefits are those that are expected to be settled completely within 12 months after the end of the reporting period in which the services have been rendered. Short-term employee benefit obligations are measured on an undiscounted basis and are charged to the statement of profit and loss and other comprehensive income as the related service is provided. Long-term employee benefits are those benefits that are expected to be settled more than 12 months after the end of the reporting period, in which the services have been rendered and are discounted to their present value. An accrual is recognized for accumulated leave, incentive bonuses and other employee benefits when the Group has a present legal or constructive obligation as a result of past service provided by the employee, and a reliable estimate of the amount can be made.

Defined contribution plans

Such plans are plans under which the Group pays fixed contributions into a separate legal entity and has no legal or constructive obligation to pay further amounts. Contributions to defined contribution pension plans are charged to the statement of profit and loss and other comprehensive income as an employee expense in the period in which related services are rendered by the employee.

Short Term Benefits - Bonus

The Group recognizes a liability and an expense for bonuses based on the achievement of defined key performance criteria. An accrual is recognized where the Group is contractually obliged or where there is a past practice that has created a constructive obligation.



 
30
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.16    Provisions and contingencies

Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event for which it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not recognized for future operating losses.

Provision for the estimated liability on all products under warranty is made on the basis of claims experience.

1.17    Revenue

Revenue is measured at the fair value of consideration received or receivable for the sale of goods and services by the Group in the ordinary course of its business activities. Revenue includes amounts earned from the sale of hardware, subscription revenue for vehicle tracking services provided to customers, subscription revenue for fleet management services provided to customers, revenue from the installation of vehicle tracking and fleet management solutions. Revenue is shown net of discounts, value-added taxes (both locally and internationally) and after inter-company sales within the Group have been eliminated.

1)    Hardware
Revenue from the sale of hardware is recognized when:
the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Group; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Revenue from the sale of hardware, is shown under sales of goods in Note 22.

2)    Installation
Revenue from installation of vehicle tracking and fleet management units is recognized once the installation is complete and tested successfully.

Revenue from the installation of vehicle tracking and fleet management units, is shown under sales of goods in Note 22.

3)    Subscription Revenue
Subscription based revenue for vehicle tracking and fleet management services is recognized by reference to the stage of completion of the contract at the end of the reporting period. Where hardware is provided as part of the contract concluded with the customer, the portion of the subscription relating to the recovery of the cost of the hardware is recognized as rental income and is also recognized by reference to the stage of completion of the contract at the end of the reporting period. The outcome of a subscription or rental revenue 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.

4)    Interest income
Interest is recognized, in profit or loss, using the effective interest rate method.

5)    Management fees
Management fees is charged by Digicore Holdings Limited to local Group companies on the basis of the company's profit before taxation contribution in relation to that of the Group.



 
31
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.18    Cost of sales

When inventories are sold, the carrying amount of those inventories is recognized as an expense in the period in which the related revenue is recognized. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.

The related cost of providing services recognized as revenue in the current period is included in cost of sales.

Contract costs comprise:
Airtime and data usage payable to cellular network service providers.
Direct costs associated with providing vehicle tracking and fleet management services and
Any such other costs as are specifically chargeable to the customer under the terms of the contract.

1.19    Earnings and Headline Earnings per share

Earnings per share
The Group presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. Diluted earnings per share is determined by dividing the profit or loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding, adjusted for own shares held as well as the effect of all dilutive potential ordinary shares.

Headline earnings per share
Headline earnings per share is calculated as per the rules set out in Circular 2/2013 - Headline Earnings.

1.20    Segment Reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the Group’s Chief Financial Officer to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.

The Group has identified reportable segments that are used by the Group’s Chief Financial Officer to make key operating decisions, allocate resources and assess performance. The reportable segments are based on the Group's business by service or product.

The Group’s principal activities include the distribution of manufactured fleet management and vehicle tracking solutions as well as investing in research, manufacturing and development of vehicle tracking and fleet management solutions for distribution.

Operating results are reported and reviewed regularly by the Group’s Chief Financial Officer and include items directly attributable to a segment as well as those that can be attributed on a reasonable basis, whether from external transactions or from transactions with other Group segments.

Unallocated items mainly comprise corporate expenses which do not directly relate to the operating activities of the segments or which cannot be re-allocated on a reasonable basis. Segment results are determined before any adjustment for non-controlling interests.

Segment assets and liabilities comprise those operating assets and liabilities that are directly attributable to the segment or can be allocated to the segment on a reasonable basis. Goodwill is allocated to Group services.

Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, and intangible assets other than goodwill.



 
32
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.21    Measurement of fair values

The Group Chief Financial Officer has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values.

The Group Chief Financial Officer regularly reviews significant unobservable inputs and valuation adjustments.

When measuring the fair value of an asset or liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value of the shares held for trading has been categorised as a level 1 as the fair value was derived using quoted prices in an active market.

If the inputs used to measure the fair value of an asset or liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.




 
33
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.22    Significant judgements and sources of estimation uncertainty

The Group makes judgements, estimates and assumptions concerning the future when preparing the consolidated annual financial statements. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are discussed below.

Loans and receivables

Appropriate allowances for estimated irrecoverable amounts are recognized 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 60 days overdue) are considered indicators that the trade receivable is impaired. The allowance recognized 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.

For all financial instruments carried at amortised cost where the effects of time value of money are not considered to be material the instruments are not discounted as their face values approximate their amortised cost.

The fair value of loans and receivables is estimated at the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes or when acquired in a business combination.

Available-for-sale financial assets

The Group follows the guidance of IAS 39 to determine when an available-for-sale financial asset is impaired. This determination requires significant judgement. In making this judgement, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.

If all of the declines in fair value below cost were considered significant or prolonged, the Group would suffer an additional loss of R - in its
2015 Group financial statements, being the transfer of the accumulated fair value adjustments recognized previously and in the current period to other comprehensive income on the impaired available-for-sale financial assets to profit or loss.

Allowance for slow moving, damaged and obsolete stock

An allowance for stock to write stock down to the lower of cost or net realisable value has been provided. Management has made estimates of the selling price and direct cost to sell on certain inventory items. The write down is included in the inventories note.

Options granted

Management used the Black Scholes model to determine the value of the options at issue date. Additional details regarding the estimates are included in the note 15 - Share-based payments.




 
34
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Accounting Policies


1.22    Significant judgments and sources of estimation uncertainty (continued)

Impairment testing of goodwill, tangible and intangible assets

Goodwill

The Group tests goodwill for impairment on an annual basis, in accordance with the accounting policy disclosed in Note 1.5. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations are performed internally by the Group and require the use of estimates and assumptions.

The input factors most sensitive to change are management estimates of future cash flows based on budgets and forecasts, growth rates and discount rates. Further detail on these assumptions has been disclosed in note 4. The Group has performed a sensitivity analysis by varying these input factors by a reasonably possible margin and assessing whether the changes in input factors result in any of the goodwill allocated to appropriate cash generating units being impaired. No goodwill was impaired in the current year or prior year, refer to Note 4.

In-house technology and product development

Product development cost directly attributable to the design and testing of identifiable and unique software, hardware and firmware products controlled by the Group are recorded as intangible assets by the Group when the criteria in note 1.6 have been met. The assessment as to when these criteria have been met is subjective and capitalization has been based on management’s best judgement of facts and circumstances in existence at year end.

Other intangible assets

Useful lives of other intangible assets are based on management’s estimates and take into account historical experience as well as future events which may impact the useful lives.

Provisions

Provisions raised were based on the best estimate of the obligation using information available at the reporting date. Additional disclosure of these estimates of provisions are included in note 19.

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. 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 recognizes 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 end of the reporting period could be impacted.

Residual values and useful lives of property, plant and equipment

The estimation of the useful lives of property, plant and equipment is based on historic performance as well as expectations about future use and therefore requires a significant degree of judgement to be applied by management. The depreciation rates used represent management’s current best estimate of the useful lives of the assets.

Useful lives of intangible assets

The estimation of the useful lives of intangible assets is based on historic performance as well as expectations about future use and therefore requires a significant degree of judgement to be applied by management. These rates represent management’s best estimate of the useful lives of these assets.



 
35
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2.    New Standards and Interpretations

2.1    Standards and interpretations effective and adopted in the current year

In the current year, the Group has adopted all standards and interpretations that are effective for the current financial year and that are relevant to its operations:

Amendment to IAS 19: Defined Benefit Plans: Employee Contributions

The amendment relates to contributions received from employees or third parties for defined benefit plans. These contributions could either be discretionary or set out in the formal terms of the plan. If they are discretionary then they reduce the service cost. Those which are set out in the formal terms of the plan are either linked to service or not. When they are not linked to service then the contributions affect the remeasurement. When they are linked to service and to the number of years of service, they reduce the service cost by being attributed to the periods of service. If they are linked to service but not to the number of years' service then they either reduce the service cost by being attributed to the periods of service or they reduce the service cost in the period in which the related service is rendered.

The effective date of the amendment is for years beginning on or after 01 July 2014.

The Group has adopted the amendment for the first time in the 2015 Group financial statements.

The impact of the amendment is not material.

Amendment to IFRS 3: Business Combinations: Annual improvements project

The amendment to the scope exclusions removes reference to the formation of joint ventures. It now excludes from the scope, the formation of a joint arrangement in the Group financial statements of the joint arrangement itself.

The effective date of the amendment is for years beginning on or after 01 July 2014.

The Group has adopted the amendment for the first time in the 2015 Group financial statements.

The impact of the amendment is not material.

Amendment to IFRS 3: Business Combinations: Annual improvements project

The amendment clarifies that contingent consideration in a business combination which meets the definition of a financial instrument shall be classified as a financial liability or equity. It further stipulates that contingent consideration which is required to be measured at fair value shall be done so by recognising changes in fair value through profit or loss. Reference to measuring contingent consideration to fair value through other comprehensive income has been deleted.

The effective date of the amendment is for years beginning on or after 01 July 2014.

The Group has adopted the amendment for the first time in the 2015 Group financial statements.

The impact of the amendment is not material.

Amendment to IFRS 2: Share-based Payment: Annual improvements project

Amended the definitions of "vesting conditions" and "market conditions" and added definitions for "performance condition" and "service condition."

The effective date of the amendment is for years beginning on or after 01 July 2014.

The Group has adopted the amendment for the first time in the 2015 Group financial statements.

The impact of the amendment is not material.

Amendment to IFRS 13: Fair Value Measurement: Annual improvements project

The amendment clarifies that references to financial assets and financial liabilities in paragraphs 48-51 and 53-56 should be read as applying to all contracts within the scope of, and accounted for in accordance with, IAS 39 or IFRS 9, regardless of whether they meet the definitions of financial assets or financial liabilities in IAS 32 Financial Instruments: Presentation.

The effective date of the amendment is for years beginning on or after 01 July 2014.

The Group has adopted the amendment for the first time in the 2015 Group financial statements.

The impact of the amendment is not material.


 
36
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


2.    New Standards and Interpretations (continued)

Amendment to IAS 38: Intangible Assets: Annual improvements project

The amendment adjusts the option to proportionately restate accumulated amortization when an intangible asset is revalued. Instead, the gross carrying amount is to be adjusted in a manner consistent with the revaluation of the carrying amount. The accumulated amortization is then adjusted as the difference between the gross and net carrying amount.

The effective date of the amendment is for years beginning on or after 01 July 2014.

The Group has adopted the amendment for the first time in the 2015 Group financial statements.

The impact of the amendment is not material.

Amendments to IFRS 10, IFRS 12 and IAS 27: Investment Entities

The amendments define an investment entity and introduce an exception to consolidating particular subsidiaries for investment entities. These amendments require an investment entity to measure those subsidiaries at fair value through profit or loss in accordance with IFRS 9 Financial Instruments in its consolidated and separate Group financial statements. The amendments also introduce new disclosure requirements for investment entities in IFRS 12 and IAS 27.

The effective date of the amendments is for years beginning on or after 01 January 2014.

The Group has adopted the amendments for the first time in the 2015 Group financial statements.

The impact of the amendment is not material.

Amendment to IAS 32: Offsetting Financial Assets and Financial Liabilities

Clarification of certain aspects concerning the requirements for offsetting financial assets and financial liabilities.

The effective date of the amendment is for years beginning on or after 01 January 2014.

The Group has adopted the amendment for the first time in the 2015 Group financial statements.

The impact of the amendment is not material.

Amendment to IFRS 8: Operating Segments: Annual improvements project

Management are now required to disclose the judgements made in applying the aggregation criteria. This includes a brief description of the operating segments that have been aggregated in this way and the economic indicators that have been assessed in determining that the aggregated operating segments share similar economic characteristics.

The effective date of the amendment is for years beginning on or after 01 July 2014.

The Group has adopted the amendment for the first time in the 2015 Group financial statements.

The impact of the amendment is not material.

Amendment to IAS 24: Related Party Disclosures: Annual improvements project

The definition of a related party has been amended to include an entity, or any member of a Group of which it is a part, which provides key management personnel services to the reporting entity or to the parent of the reporting entity ("management entity"). Disclosure is required of payments made to the management entity for these services but not of payments made by the management entity to its directors or employees.

The effective date of the amendment is for years beginning on or after 01 July 2014.

The Group has adopted the amendment for the first time in the 2015 Group financial statements.

The impact of the amendment is not material.


 
37
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


2.    New Standards and Interpretations (continued)

Amendment to IAS 16: Property, Plant and Equipment: Annual improvements project

The amendment adjusts the option to proportionately restate accumulated depreciation when an item of property, plant and equipment is revalued. Instead, the gross carrying amount is to be adjusted in a manner consistent with the revaluation of the carrying amount. The accumulated depreciation is then adjusted as the difference between the gross and net carrying amount.

The effective date of the amendment is for years beginning on or after 01 July 2014.

The Group has adopted the amendment for the first time in the 2015 Group financial statements.

The impact of the amendment is not material.

2.2    Standards and interpretations not yet effective

The Group has chosen not to early adopt the following standards and interpretations, which have been published and are mandatory for the
Group’s accounting periods beginning on or after 01 July 2015 or later periods:

Amendment to IFRS 7: Financial Instruments: Disclosures: Annual Improvements project

The amendment provides additional guidance regarding transfers with continuing involvement. Specifically, it provides that cash flows excludes cash collected which must be remitted to a transferee. It also provides that when an entity transfers a financial asset but retains the right to service the asset for a fee, that the entity should apply the existing guidance to consider whether it has continuing involvement in the asset.

The effective date of the Group is for years beginning on or after 01 January 2016.

The Group expects to adopt the amendment for the first time in the 2017 Group financial statements.

It is unlikely that the amendment will have a material impact on the Group's financial statements.

Amendment to IAS 19: Employee Benefits: Annual Improvements project

The amendment clarifies that when a discount rate is determined for currencies where there is no deep market in high quality corporate bonds, then market yields on government bonds in that currency should be used.

The effective date of the Group is for years beginning on or after 01 January 2016.

The Group expects to adopt the amendment for the first time in the 2017 Group financial statements.

It is unlikely that the amendment will have a material impact on the Group's financial statements.

Disclosure Initiative: Amendment to IAS 1: Presentation of Financial Statements

The amendment provides new requirements when an entity presents subtotals in addition to those required by IAS 1 in its Group financial statements. It also provides amended guidance concerning the order of presentation of the notes in the Group financial statements, as well as guidance for identifying which accounting policies should be included. It further clarifies that an entity's share of comprehensive income of an associate or joint venture under the equity method shall be presented separately into its share of items that a) will not be reclassified subsequently to profit or loss and b) that will be reclassified subsequently to profit or loss.

The effective date of the Group is for years beginning on or after 01 January 2016.

The Group expects to adopt the amendment for the first time in the 2017 Group financial statements.

The adoption of this amendment is not expected to impact on the results of the Group, but may result in more disclosure than is currently provided in the Group financial statements.




 
38
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


2.    New Standards and Interpretations (continued)

IFRS 9 Financial Instruments

IFRS 9 issued in November 2009 introduced new requirements for the classification and measurements of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a "fair value through other comprehensive income" ("FVTOCI") measurement category for certain simple debt instruments.

Key requirements of IFRS 9:
All recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the outstanding principal are generally measured at amortised cost at the end of subsequent reporting periods. Debt instruments that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and that have contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on outstanding principal, are measured at FVTOCI. All other debt and equity investments are measured at fair value at the end of subsequent reporting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income with only dividend income generally recognized in profit or loss.
With regard to the measurement of financial liabilities designated as at fair value through profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of the liability is presented in other comprehensive income, unless the recognition of the effect of the changes of the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Under IAS 39, the entire amount of the change in fair value of a financial liability designated as at fair value through profit or loss is presented in profit or loss.
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. It is therefore no longer necessary for a credit event to have occurred before credit losses are recognized.
    The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in IAS 39.
Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been replaced with the principal of an "economic relationship". Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity's risk management activities have also been introduced.

The effective date of the standard is for years beginning on or after 01 January 2018.

The Group expects to adopt the standard for the first time in the 2019 Group financial statements.

The impact of this standard is currently being assessed.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 supersedes IAS 11 Construction contracts; IAS 18 Revenue; IFRIC 13 Customer Loyalty Programmes; IFRIC 15 Agreements for the construction of Real Estate; IFRIC 18 Transfers of Assets from Customers and SIC 31 Revenue - Barter Transactions Involving Advertising Services.

The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognizes revenue in accordance with that core principle by applying the following steps:
Identify the contract(s) with a customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognize revenue when (or as) the entity satisfies a performance obligation.

IFRS 15 also includes extensive new disclosure requirements.

The effective date of the standard is for years beginning on or after 01 January 2018.


 
39
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


2.    New Standards and Interpretations (continued)

The Group expects to adopt the standard for the first time in the 2019 Group financial statements.

The impact of this standard is currently being assessed.

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortization

The amendment clarifies that a depreciation or amortization method that is based on revenue that is generated by an activity that includes the use of the asset is not an appropriate method. This requirement can be rebutted for intangible assets in very specific circumstances as set out in the amendments to IAS 38.

The effective date of the amendment is for years beginning on or after 01 January 2016.

The Group expects to adopt the amendment for the first time in the 2017 Group financial statements.

The impact of this amendment is currently being assessed.

Amendment to IAS 27: Equity Method in Separate Financial Statements

The amendment adds the equity method to the methods of accounting for investments in subsidiaries, associates and joint ventures in the separate Group financial statements of an entity.

The effective date of the amendment is for years beginning on or after 01 January 2016.

The Group expects to adopt the amendment for the first time in the 2017 Group financial statements.

The impact of this amendment is currently being assessed.

Amendments to IFRS 10, 12 and IAS 28: Investment Entities. Applying the consolidation exemption

The amendment clarifies the consolidation exemption for investment entities. It further specifies that an investment entity which measures all of its subsidiaries at fair value is required to comply with the "investment entity" disclosures provided in IFRS 12. The amendment also specifies that if an entity is itself not an investment entity and it has an investment in an associate or joint venture which is an investment entity, then the entity may retain the fair value measurement applied by such associate or joint venture to any of their subsidiaries.

The effective date of the Group is for years beginning on or after 01 January 2016.

The Group expects to adopt the amendment for the first time in the 2017 Group financial statements.

It is unlikely that the amendment will have a material impact on the Group's financial statements.





 
40
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


3.    Property, plant and equipment
 
 
 
 
 
 
 
 
2015
 
2014
 
Cost

Accumulated depreciation

Carrying value

 
Cost

Accumulated depreciation

Carrying value

 
 R'000

 R'000

 R'000

 
 R'000

 R'000

 R'000

 Land
3,560


3,560

 
3,560


3,560

 Buildings
37,491

(4,945
)
32,546

 
37,356

(4,197
)
33,159

 Plant and Machinery
8,853

(6,391
)
2,462

 
7,148

(4,798
)
2,350

 Furniture and fixtures
8,769

(7,093
)
1,676

 
8,598

(6,361
)
2,237

 Motor vehicles
31,059

(17,168
)
13,891

 
33,321

(18,309
)
15,012

 Office equipment
13,081

(11,326
)
1,755

 
16,823

(13,338
)
3,485

 IT equipment
32,515

(24,893
)
7,622

 
27,046

(23,197
)
3,849

 Computer software
36,937

(27,738
)
9,199

 
25,376

(21,605
)
3,771

 Leasehold improvements
7,299

(6,151
)
1,148

 
7,191

(6,128
)
1,063

 Rental Assets
295,925

(207,918
)
88,007

 
240,425

(171,292
)
69,133

 Total
475,489

(313,623
)
161,866

 
406,844

(269,225
)
137,619

Reconciliation of property, plant and equipment - 2015
 
Opening balance

Additions

Disposals

Foreign exchange movements

Depreciation

Impairment loss

Closing balance

 
 R'000

 R'000

 R'000

 R'000

 R'000

 R'000

 R'000

Land
3,560






3,560

Buildings
33,159

135



(748
)

32,546

Plant and Machinery
2,350

2,334

(128
)
(12
)
(2,082
)

2,462

Furniture and fixtures
2,237

427

(92
)
75

(971
)

1,676

Motor vehicles
15,012

7,403

(1,100
)
(1
)
(7,423
)

13,891

Office equipment
3,485

658

(63
)
(926
)
(1,399
)

1,755

IT equipment
3,849

6,602

(72
)
218

(2,975
)

7,622

Computer software
3,771

6,009


2,978

(3,559
)

9,199

Leasehold improvements
1,063

801

(1
)
(52
)
(663
)

1,148

Rental Assets
69,133

65,084

(2,094
)
(689
)
(41,424
)
(2,003
)
88,007

 
137,619

89,453

(3,550
)
1,591

(61,244
)
(2,003
)
161,866

Reconciliation of property, plant and equipment - 2014
 
Opening balance

Additions

Disposals

Foreign exchange movements

Depreciation

Impairment loss

Closing balance

 
 R'000

 R'000

 R'000

 R'000

 R'000

 R'000

 R'000

Land
3,560






3,560

Buildings
33,906




(747
)

33,159

Plant and Machinery
1,337

2,617

(58
)
63

(1,609
)

2,350

Furniture and fixtures
2,980

312

(16
)
177

(1,216
)

2,237

Motor vehicles
17,146

8,916

(2,365
)
(181
)
(8,504
)

15,012

Office equipment
3,230

2,207

(733
)
1,465

(2,684
)

3,485

IT equipment
4,463

2,250

(163
)
77

(2,778
)

3,849

Computer software
5,194

3,529

(669
)
(246
)
(4,037
)

3,771

Leasehold improvements
2,460

72

(462
)
23

(1,030
)

1,063

Rental Assets
87,963

59,468

(34,445
)
1,645

(41,183
)
(4,315
)
69,133

 
162,239

79,371

(38,911
)
3,023

(63,788
)
(4,315
)
137,619




 
41
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


3.    Property, plant and equipment (continued)
 
 
Property, plant and equipment encumbered as security
2015

2014

 
 R'000

 R'000

The following assets have been encumbered as security for the secured long-term borrowings - Refer to Note 18:
 
 
Buildings
32,680

33,159

The building serves as security for a mortgage bond with ABSA Bank Limited - Refer to Note 17 - Other Financial Liabilities
 
 
Net carrying amounts of leased assets - leased
 
 
Plant and machinery
523


Motor vehicles
13,023

7,448

Office Equipment
2,464


Leasehold improvements
1,148

1,063

 
17,158

8,511

Impairment

During the 2015 financial year, rental units were identified for which the revenue recognition was stopped as the rental income from customers was no longer recoverable, therefore no future benefit could be derived from these units. Accordingly, management estimated the recoverable amount of the rental units as being nil based on the value in use. An impairment loss of R2 002 997 (2014 : R4 314 656) was recognized with respect to the Rental Stock. The impairment loss has been recognized separately in the statement of profit and loss and other comprehensive income. There were no reversals of impairment during the year (2014 : Rnil).

Disposals

Property, plant and equipment amounting to R3 550 233 (2014 : R38 911 135) were disposed in the normal course of business. The segments affected for the disposals are as follows:
 
2015

2014

 
 R'000

 R'000

SA Distribution
1,510

16,699

Foreign Distribution
1,451

15,133

Product Development
589

7,079

 
3,550

38,911

Details of properties
 
 
 
 
 
Sectional Title Units 1,2,11,12 is scheme SS Regency Office Park, Route 21 Office Park
 
 
 
 
 
 - Purchase price: 30 January 2008
34,591

34,591

 - Capitalised expenditure
2,765

2,765

 
37,356

37,356

Land situated on portion 35 of the farm Merlish 205
 
 
 
 
 
 - Purchase price: 2006
3,560

3,560

4.    Goodwill
2015
 
2014
 
Cost

Accumulated impairment

Carrying value

 
Cost

Accumulated impairment

Carrying value

 
R'000

R'000

R'000

 
R'000

R'000

R'000

Goodwill
233,220

(57,500
)
175,720

 
235,832

(57,500
)
178,332

Reconciliation of goodwill - 2015
Opening balance

Foreign exchange movements

Carrying value

 
R'000

R'000

R'000

Goodwill
178,332

(2,612
)
175,720

Reconciliation of goodwill - 2014
Opening balance

Foreign exchange movements

Carrying value

 
R'000

R'000

R'000

Goodwill
158,780

19,552

178,332



 
42
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


4.
Goodwill (continued)

Goodwill has been allocated to the following cash - generating units ("CGU's") for the purposes of impairment testing:
Cash Generating Unit
2015

2014

 
R'000

R'000

 South African Operations
 
 
 DigiCore Electronics Proprietary Limited
8,953

8,953

 Ctrack SA Proprietary Limited
9,195

9,195

 DigiCore Fleet Management SA Proprietary Limited
1,458

1,458

 Alchemist House Proprietary Limited


 Overseas Operations
 
 
 Ctrack Limited
55,661

51,998

 DigiCore Europe B.V.
39,619

42,034

 Ctrack Benelux B.V.
45,598

48,032

 Ctrack Deutschland GmbH
5,243

6,055

 Ctrack UK Limited


 Ctrack Proprietary Limited
9,993

10,607

 
175,720

178,332


Impairment assessment

Goodwill is reviewed annually for impairment, or more frequently when there are indicators that impairment may have occurred, by comparing the carrying value to its recoverable amount. The impairment loss is recognized separately in the statement of profit and loss and other comprehensive income.

The recoverable amount of all cash generating units were determined to be higher than the carrying amount in the current reporting period and therefore no impairment charge emanated.

The cash generating capabilities of all CGU's were determined by discounting the future cash flows generated from continuing operations.

Key assumptions used in impairment testing for goodwill impaired in the current period

The recoverable amount of each operation's CGU is based on value-in-use calculations. The calculations are based upon discounting expected pre-tax cash flows at a risk adjusted interest rate appropriate to the cash generating unit, the determination of both of which requires the exercise of judgement. The estimation of pre-tax cash flows is sensitive to the periods for which forecasts are available and to assumptions regarding the long- term sustainable cash flows. While forecasts are compared with actual performance and external economic data, expected cash flows naturally reflect management's view of future performance. These assumptions have been consistently applied from the previous year.

South African Operations

The recoverable amount of above CGU's have been determined based on a value in use calculation. The calculation uses cash flow projections based on the 2016 financial year budgets approved by management, cash flow projections have been calculated for a further four years to 2020. The discount rate used for the determination of the value in use were between 15% and 17%. For the purposes of the calculations, cash flows beyond that period have been extrapolated using a steady 5% growth rate. The growth rate does not exceed the long-term average growth rate for the market in which the entity operates and is consistent with the long term average of the industry.

The pre-tax discount rate for each cash generating unit was applied in determining the recoverable amount of each cash generating unit. The discount rate was estimated based on an industry average weighted average cost of capital, and using a pre-tax market interest rate of 9%.

The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both external sources and internal sources (historical data).

Overseas operations

The recoverable amount above CGU's have been determined based on a value in use calculation. The calculation uses cash flow projections based on the 2016 financial year budgets approved by management, cash flow projections have been calculated for a further four years to 2020. The discount rate used for the determination of the value in use is between 6% - 8%. For the purposes of the calculations, cash flows beyond that period have been extrapolated using a steady growth rate of 4%. The growth rate does not exceed the long-term average growth rate for the market in which the entity operates and is consistent with the long term average of the industry.

The pre-tax discount rate for each cash generating unit was applied in determining the recoverable amount of each cash generating unit. The discount rate was estimated based on an industry average weighted average cost of capital, and using a pre-tax market interest rate of between 2% - 4%.

The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both external sources and internal sources (historical data).


 
43
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


5.    Intangible assets
2015
R'000
 
2014
R'000
 
Cost

Accumulated impairment

Carrying amount

 
Cost

Accumulated impairment

Carrying amount

Technology Related Contracts
968

(734
)
234

 
20,117

(19,534
)
583

Customer Contracts
45,575

(36,535
)
9,040

 
23,633

(12,234
)
11,399

In-house technology and product development
139,710

(34,777
)
104,933

 
112,285

(22,596
)
89,689

Total
186,253

(72,046
)
114,207

 
156,035

(54,364
)
101,671

Reconciliation of intangible assets - 2015
Opening balance

Additions

Foreign exchange movements

Amoritsation

Impairment loss

Closing balance

 
R'000

R'000

R'000

R'000

R'000

R'000

Technology Related Contracts
583


(67
)
(282
)

234

Customer Contracts
11,399


590

(2,949
)

9,040

In-house technology and product development
89,689

38,195

353

(22,796
)
(508
)
104,933

 
101,671

38,195

876

(26,027
)
(508
)
114,207

Reconciliation of intangible assets - 2014
Opening balance

Additions

Foreign exchange movements

Amoritsation

Closing balance

 
R'000

R'000

R'000

R'000

R'000

Technology Related Contracts
4,233


31

(3,681
)
583

Customer Contracts
11,915


2,202

(2,718
)
11,399

In-house technology and product development
69,189

36,509

2,184

(18,193
)
89,689

 
85,337

36,509

4,417

(24,592
)
101,671


1.Internally Generated

In-house technology and product development
In-house technology and product development relate to costs incurred in developing vehicle tracking and fleet management solutions for worldwide distribution. Once these projects are ready for commencement, the asset is amortized over the expected useful life of 5 years.

2.    Acquired through business combinations

Technology Related Contracts
Technology related contracts arose due to the business combinations with Ctrack UK Limited, Ctrack Ireland and Minor Planet systems B.V., which occurred in the 2011 financial year. These assets are amortized over the expected useful life of 4 years.

Customer Contracts
Customer contracts were acquired due to the business combination with Ctrack UK Limited, which occurred during the 2011 financial year. These assets are amortized over the expected useful life of 6-8 years.

Impairment
During the 2015 financial year, intangible assets under development were identified for which the Group could not recognize revenue, therefore no future benefit could be derived from these intangible assets. Accordingly, management estimated the recoverable amount of the intangible assets as nil based on the value in use. An impairment loss of R 508 375 (2014: Rnil) was recognized with respect to intangible assets under development.

The impairment loss has been recognized under operating expenses in the statement of profit and loss and other comprehensive income.



 
44
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


6.    Interests in subsidiaries including consolidated structured entities

The following table lists the entities which are controlled by the Group, either directly or indirectly through subsidiaries:
Name of company
Held by
Place of incorporation & Principle area of business
% holding
2015
% holding
2014
DigiCore Electronics Proprietary Limited
1
South Africa
100,00 %
100,00 %
Ctrack SA Proprietary Limited
1
South Africa
100,00 %
100,00 %
DigiCore Fleet Management SA Proprietary Limited
1
South Africa
100,00 %
100,00 %
DigiCore Financial Services Proprietary Limited
1
South Africa
100,00 %
100,00 %
DigiCore Properties Proprietary Limited
1
South Africa
100,00 %
100,00 %
DigiCore Management Services Proprietary Limited T/A Ctrack Mzansi
2
South Africa
51,00 %
51,00 %
Integrated Fare Collection Services Proprietary Ltd
1
South Africa
100,00 %
98,00 %
Alchemist House Proprietary Limited T/A Fleet Connect
2
South Africa
100,00 %
51,00 %
Dedical Proprietary Limited
2
South Africa
51,00 %
51,00 %
DigiCore Cellular Proprietary Limted
1
South Africa
100,00 %
100,00 %
DigiCore Technologies Proprietary Limited
1
South Africa
100,00 %
100,00 %
DigiCore Brands Proprietary Limited
1
South Africa
100,00 %
100,00 %
DigiCore International Proprietary Limited
1
South Africa
100,00 %
100,00 %
DigiCore Investments Proprietary Limited
1
South Africa
100,00 %
100,00 %
DigiCore International Holdings BV
1
Holland
100,00 %
100,00 %
Ctrack Asia Sdn Bhd
3
Malaysia
90,00 %
90,00 %
Ctrack Proprietary Limited
3
Australia
92,00 %
92,00 %
Ctrack New Zealand Limited
4
New Zealand
100,00 %
100,00 %
Ctrack Limited
5
United Kingdom
100,00 %
100,00 %
Ctrack UK Limited
5
United Kingdom
100,00 %
100,00 %
Ctrack Finance Limited
6
United Kingdom
100,00 %
100,00 %
Ctrack International Holdings Limited
1
United Kingdom
100,00 %
100,00 %
Ctrack Europe Holdings Limited
6
United Kingdom
100,00 %
100,00 %
Ctrack Eastern European Holdings Limited
5
United Kingdom
100,00 %
100,00 %
DigCore Europe BV
5
Holland
100,00 %
100,00 %
Ctrack Belgium Bvba
7
Belgium
100,00 %
100,00 %
Ctrack Deutchland GmbH
7
Germany
100,00 %
100,00 %
Ctrack France Sarl
7
France
100,00 %
100,00 %
Ctrack Polska S.p. z o.o
8
Poland
75,00 %
75,00 %
Digicore Staff Share Trust
1
South Africa
100,00 %
100,00 %
 
 
 
 
 
1 - DigiCore Holdings Limited
 
 
 
 
2 - DigiCore Fleet Management SA Proprietary Limited
 
 
 
 
3 - DigiCore International Holdings BV
 
 
 
 
4 - Ctrack Proprietary Limited
 
 
 
 
5 - Ctrack Europe Holdings Limited
 
 
 
 
6 - Ctrack International Holdings Limited
 
 
 
 
7 - DigiCore Europe BV
 
 
 
 
8 - Ctrack Eastern European Holdings Limited
 
 
 
 

There are no subsidiaries in the Group with material non-controlling interests.

Risks associated with interests in consolidated structured entities

The DigiCore Staff Share trust has been setup to facilitate the group's share based incentive scheme. The trust owns share in DigiCore Holdings Limited and when directors and/or key management personnel exercise share options awared to the them in terms of the share based incentive scheme, the shares are transferred out of the trust and to the employee concerned. When the trust was setup the group advanced a loan of R45 million to the Trust in order to acquire the shares in DigiCore Holdings Limited. The group considers the trust crucial to its responsibilities to its employees.

The group has not provided any unobligatory financial support to consolidated structured entities in a manner which resulted in previously unconsolidated structured entities being consolidated.

The group has no intentions to provide financial support to consolidated structured entities, except to the extent as disclosed above.


 
45
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


7.    Acquisition of Non-Controlling Interest

Alchemist House Proprietary Limited T/A Fleet Connect

On 25 September 2014 the Group bought a further 49% shareholding held by the non-controlling shareholders of Alchemist House Proprietary Limited. The fair value purchase consideration was set at R4 750 000, which consisted of cash of R2 714 288 and 1 017 856 shares in DigiCore Holdings Limited issued at a price of R2 each. The acquisition took the Group's shareholding in the company from 51% to 100%. The Group's share price on the date the shares were issued was R2.00.

The Group recognized an increase in non-controlling interest of R1 064 915 and a decrease in Retained earnings of R5 814 915.

The following summarises the changes in the Group's ownership interest in Alchemist House Proprietary Limited
 
2015

2014

 
R'000

R'000

 
 
 
Group's ownership interest at 01 July 2014
3,350


Effect of increase in Group's ownership interest
(1,064
)

Share of comprehensive income
5,814


Group's ownership interest at 30 June 2015
8,100


 
 
 
Schedule for effects on the equity attributable to owners of the parent of changes in its ownership interest in a subsidiary that did not result in a loss of control
 
 
 
Non-controlling interest derecognized
(1,064
)

Difference between consideration paid over non-controlling interest recognized in retained earnings
5,814


 
4,750


 
 
 
Non- controlling interest
 
 
 
 
 
Non-controlling interest, which is a present ownership interest, and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation, is measured at the present ownership interests proportionate share of the acquiree's identifiable net assets. There are no other components of non-controlling interests.
 
 
 
Acquisition date fair value of consideration paid
 
 
 
 
 
Cash
(2,714
)

Equity - 1 017 856 ordinary shares in DigiCore Holdings Limited
(2,036
)

 
(4,750
)

 
 
 
Equity issued as part of consideration paid
 
 
 
 
 
The fair value of 1 017 856 ordinary shares issued as part of the consideration for the non-controlling interest was determined with reference to the closing market price of the shares at the time when the acquisition was concluded.
 
 
 


 
46
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


7.    Acquisition of Non-Controlling Interest (continued)

Integrated Fare Collection Services Proprietary Limited

On 01 March 2015 the Group bought a further 2% shareholding held by the non-controlling shareholders of Integrated Fare Collection Services Proprietary Limited. The fair value purchase consideration was set at R450 000, which was paid in cash. The acquisition took the Group's shareholding in the company from 98% to 100%.

The Group recognized a decrease in non-controlling interest of R33 260 and a decrease in Retained earnings of R416 740.

The following summarises the changes in the Group's ownership interest in Integrated Fare Collection Services Proprietary Limited.
 
2015

2014

 
R'000

R'000

 
 
 
Group's ownership interest at 01 July 2014
5,011


Effect of increase in Group's ownership interest
33


Share of comprehensive income
417


Group's ownership interest at 30 June 2015
5,461


 
 
 
Schedule for effects on the equity attributable to owners of the parent of changes in its ownership interest in a subsidiary that did not result in a loss of control
 
 
 
Non-controlling interest derecognized
33


Excess of consideration paid over non-controlling interest recognized in retained earnings
417


 
450


 
 
 
Non- controlling interest
 
 
 
 
 
Non-controlling interest, which is a present ownership interest, and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation, is measured at the present ownership interests proportionate share of the acquiree's identifiable net assets. There are no other components of non-controlling interests.
 
 
 
Acquisition date fair value of consideration paid
 
 
 
 
 
Cash
(450
)

 
 
 

 
47
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


7.    Acquisition of Non-Controlling Interest (continued)

DigiCore Fleet Management SA Proprietary Limited

On 31 March 2014, in the previous financial year, the Group bought back the 30% shareholding held by the non-controlling shareholders of DigiCore Fleet Management SA Proprietary Limited. The fair value purchase consideration was set at R13 612 000 and was paid in cash.

The total consideration was settled in cash and this took the Group's shareholding in the company from 70% to 100%.

The Group recognized a decrease in non-controlling interest of R19 019 618 and an increase in Retained earnings of R5 407 574.

The carrying amount of DigiCore Fleet Management SA Proprietary Limited's net assets in the Group's financial statements on the date of acquisition was R30 710 962.

The following summarises the changes in the Group's ownership interest in DigiCore Fleet Management SA Proprietary Limited.
 
2015

2014

 
R'000

R'000

 
 
 
Group's ownership interest at 01 July 2013

1,477

Effect of increase in Group's ownership interest

19,021

Share of comprehensive income

(5,408
)
Group's ownership interest at 30 June 2014

15,090

 
 
 
Schedule for effects on the equity attributable to owners of the parent of changes in its ownership interest in a subsidiary that did not result in a loss of control
 
 
 
Non-controlling interest derecognized

19,021

Difference between consideration paid over non-controlling interest recognized in retained earnings

(5,408
)
 

13,613

 
 
 
Non- controlling interest
 
 
 
 
 
Non-controlling interest, which is a present ownership interest, and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation, is measured at the present ownership interests proportionate share of the acquiree's identifiable net assets. There are no other components of non-controlling interests.
 
 
 
Acquisition date fair value of consideration paid
 
 
 
 
 
Cash

(13,613
)
 
 
 




 
48
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


8.    Associates

The following table lists all of the associates in the Group:
Name of company

Held by

% Ownership interest
2015


% Ownership interest
2014


Carrying Amount
2015
R'000

Carrying Amount
2014
R'000

TPL Trakker Limited
Digicore Holdings Limited
4.85
%
25.86
%

11,002

Mega Fortris Ctrack Solution Sdn Bhd
Ctrack Asia Sdn Bhd
0
%
30.00
%


 
 
 
 

11,002


TPL Trakker Limited is incorporated in Pakistan and Mega Fortris Ctrack Solutions Sdn Bhd is incorporated in Malaysia. Unless otherwise stated, the Group's associates' countries of incorporation are also their principal place of operation. The principal activity of TPL Trakker Limited and Mega Fortris Ctrack Solutions Sdn Bhd is the installation and sale of tracking devices. This is in line with the Group's main business and strategic investments.

The Group sold 45 629 000 shares in TPL Trakker Limited during the 2015 financial year. This reduced the Group's shareholding in the company from 25.86% to 4.85%, the Group has reclassified the remaining interest in the company's share as a financial asset held for trading. Refer to the Other financial assets note 9.

The gain on the sale of the Group's interest is shown under other income in the statement of profit an loss and other comprehensive income. Refer to the operating profit note 23.

The Group sold its 30% shareholding in Mega Fortris Ctrack Solutions Sdn Bhd in May 2015.

Material associates

The following associate is material to the Group:
 
Country of incorporation
Method

% Ownership interest
 
 
2015

2014

TPL Trakker Limited
Pakistan
Equity
4.85
%
25.86
%

Summarised financial information of material associates
Summarised Statement of Profit or loss and Other Comprehensive Income
 
 
 
 
 
TPL Trakker Limited
Total
 
2015
R'000

2014
R'000

2015
R'000

2014
R'000

Revenue

205,941


205,941

Other income and expenses

(188,170
)

(188,170
)
Profit before tax

17,771


17,771

Tax expense

(5,562
)

(5,562
)
Profit (loss) from continuing operations

12,209


12,209

Total comprehensive income

12,209


12,209




 
49
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


8.    Associates (continued)
Summarised Statements of Financial Position
TPL Trakker Limited
Total
 
2015
R'000

2014
R'000

2015
R'000

2014
R'000

Assets
 
 
 
 
Non Current

337,162


337,162

Current

182,738


182,738

Total assets

519,900


519,900

 
 
 
 
 
Liabilities
 
 
 
 
Non Current

106,559


106,559

Current

149,178


149,178

Total Liabilities

255,737


255,737

 
 
 
 
 
Total net assets

264,163


264,163

 
 
 
 
 
Other key assets and liabilities
 
 
 
 
Cash and cash equivalents

9,337


9,337

Current financial liabilities (excluding trade and other payables and provisions)

40,121


40,121

Non current financial liabilities (excluding trade and other payables and provisions)

74,275


74,275

Reconciliation of net assets to equity accounted investments in associates
TPL Trakker Limited
Total
 
2015
R'000

2014
R'000

2015
R'000

2014
R'000

Interest in associates at percentage ownership

11,002


11,002

Carrying value of investment

11,002


11,002

Investment at beginning of period
11,002

7,845

11,002

7,845

Disposals
(15,958
)

(15,958
)

Share of profit
4,956

3,157

4,956

3,157

Investment at end of period

11,002


11,002


The summarised information presented above reflects the financial statements of the associates after adjusting for differences in accounting policies between the Group and the associate.

Total assets and liabilities have been translated at spot rate at 30 June 2014; and revenue and profit or loss have been translated at average rates for the 2014 financial year.

There are no significant contingent liabilities relating to the Group’s interests in these associates at the end of the current or prior year.


 
50
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

2014
R'000

 
 
 
9.    Other financial assets
 
 
At fair value through profit or loss - held for trading
 
 
Listed shares - Investment in TPL Trakker Limited
20,020


 
 
 
Current assets
 
 
At fair value through profit or loss - held for trading
20,020


 
 
 
Fair value information
 
 
 
 
 
The investment in TPL Trakker Limited is designated at fair value held for trading because the investment is managed on a fair value basis and TPL Trakker is listed on the Karachi stock exchange and the company's share price can be actively monitored.
 
 
 
At 30 June 2015 the Group owned 10 545 689 (2014: 56 174 689) shares in the company. The investment was classified as an investment in associate in 2014 and with the sale of shares the Group has re-classified due to the loss of significant influence. Refer to Note 8, Associates.
 
 
 
The closing share price on 30 June 2015 was 15.86 Pakistan Rupees (PKR). Using the spot rate of PKR0.1197 : R1 at 30 June 2015, the gain made on measurement to fair value is shown under other income in the statement of profit and loss and other comprehensive income.
 
 
 
Fair value hierarchy of financial assets at fair value through profit or loss
 
 
 
 
 
The following table shows the carrying amounts and fair values of financial assets, including their levels in the fair value hierarchy.
 
 
 
Level 1 represents those assets which are measured using unadjusted quoted prices for identical assets. The Group monitors the share price of the investment in TPL Trakker Limited in order to measure the fair value of the investment.
 
 
 
Level 1
 
 
Class 1 - At fair value through profit and loss
20,020


 
 
 
Transfers into level 1
 
 
Class 1 - At fair value through profit and loss
20,020


 
 
 
 
 
 
 
 
 


 
51
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

2014
R'000

 
 
 
10.    Deferred tax

The balance comprises
 
 
Deferred tax liabilities
 
 
Accelerated capital allowances for tax purposes
(1,177
)
(2,839
)
Prepayments

(1,502
)
Net deferred tax liabilities
(1,177
)
(4,341
)
 
 
 
Deferred tax assets
 
 
Accelerated capital allowances for tax purposes
1,997


Accrued leave pay
1,719

1,411

Provisions for credit losses
8,917

11,285

Provision for obsolete stock
5,809

8,440

Assessed Losses
26,847

22,932

Provisions

1,237

Deferred Income

45

Net deferred tax assets
45,289

45,350

 
 
 
Net deferred tax asset / (liability)
44,112

41,009

 
 
 
Reconciliation of deferred tax asset / (liability)
 
 
 
 
 
At beginning of year
41,009

37,169

Foreign currency translations
1,884

2,116

Income statement charge
(2,696
)
(6,475
)
Assessed losses
3,915

8,199

 
44,112

41,009

 
 
 
Recognition of deferred tax asset
 
 
 
 
 
Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realisation of the related tax benefit through future taxable profits is probable. The Group did not recognize deferred tax assets of R 10,594,578 (2014: R2,050,090) in respect of losses amounting to R 37,837,779 (2014: R 7,321,747) at year-end.
 
 
 
11.    Inventories
 
 
 
 
 
Raw materials
20,450

32,762

Work in progress
767

162

Finished goods
58,113

71,468

 
79,330

104,392

Inventory write downs
(21,857
)
(26,676
)
 
57,473

77,716

 
 
 
Provision for write-down of inventories
 
 
 
 
 
Opening balance
26,676

12 103

Provisions raised
5,963

24,921

Unused amounts reversed
(10,782
)
(10,348
)
 
21,857

26,676

 
 
 
The cost of inventories recognized as an expense during the period was R253,027,500 (2014: R225,529,120).
 
 
 
 
 
During the year Rnil was recognized with respect to the write-down of inventory to its net realisable value (2014: R8,154,471).

 
52
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

2014
R'000

 
 
 
12.    Trade and other receivables
 
 
Trade receivables
143,947

152,561

Prepayments
5,328

5,364

Deposits
919

11,715

VAT
2,196

1,650

Other receivables
11,568

11,230

 
163,958

182,520

 
 
 
Exposure to credit risk
 
 
The carrying amount of each class of trade and other receivables represents the maximum credit exposure.
 
 
 
 
 
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
 
 
 
 
 
Region - Amounts not impaired
 
 
South Africa
102,193

135,554

United Kingdom
23,329

6,692

Europe
18,418

21,061

Australia
11,777

10,087

Rest of world
717

2,112

 
156,434

175,506

 
 
 
Fair value of trade and other receivables
 
 
Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost. The fair value of trade and other receivables approximate their carrying values as the impact of discounting is not considered material due to the short- term nature of the receivables. The Group has recognized an allowance for impairment of R 37,002,794 (2014: R53,740,234).
 
 
 
Before accepting any new customer, the Group uses a pre-determined credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer. The average credit period on sale of goods is 60 days. Of the trade receivables balance at the end of the year R 27,367,062 is due from Discovery Insure Limited (30 June 2014: R 16,073,596), the Group’s largest customer. Discovery Insure Limited is part of the South African distribution segment. There are no other customers who represent more than 5% of the total balance of trade receivables.
 
 
 
The Group assesses its trade and loans receivables for impairment at each reporting date. In determining whether an impairment loss should be recorded in the statement of comprehensive income, the Group makes judgments 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 loans receivable is calculated on a specific basis, based on historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators present at the reporting date.
 
 
 
Trade receivables disclosed above include amounts (see below for aged analysis) that are past due at the end of the reporting period but against which the Group has not recognized an allowance for doubtful receivables because there has not been a significant change in credit quality and the amounts are still considered recoverable.
 
 
 

 
53
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

2014
R'000

 
 
 
12.    Trade and other receivables (continued)
 
 
 
 
 
Trade and other receivables past due but not impaired
 
 
Trade and other receivables which are less than 3 months past due have been assessed and are not considered to be impaired. At 30 June 2015, R44,773,994 (2014: R40,926,135) were past due but not impaired.
 
 
 
The ageing of amounts past due but not impaired is as follows:
 
 
60 to 90 days
17,924

8,016

90 to 120 days
(3,745
)
7,708

120+ days
30,595

25,202

 
44,774

40,926

 
 
 
Trade and other receivables impaired
 
 
In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the end of the reporting period. Other than the concentration mentioned above, the concentration of credit risk is limited due to the customer base being large and unrelated. As of 30 June 2015, trade and other receivables of R 37,002,794 (2014: R 53,740,234) were impaired and provided for.
 
 
 
The ageing of these receivables is as follows:
 
 
120 + days
37,003

53,740

 
 
 
Reconciliation of provision allowance for impairment of trade and other receivables
 
 
Opening balance
53,740

42,436

Provision for impairment
27,590

56,607

Amounts written off as uncollectible
(44,327
)
(45,303
)
 
37,003

53,740

 
 
 
Currencies
 
 
The carrying amount of trade and other receivables are denominated in the following currencies
(Amounts in R'000):
 
 
Rand
92,864

127,373

US Dollar
11,526

9,096

British Pound
28,657

12,056

Euro
18,417

21,796

Malaysian Ringgit
717

2,112

Australian Dollar
11,777

10,087

 
163,958

182,520

 
 
 
The maximum exposure to credit risk at the reporting date is the carrying value each class of receivable mentioned above. The Group does not hold any collateral as security.
 
 
 

 
54
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

2014
R'000

 
 
 
13.    Cash and cash equivalents
 
 
 
 
 
Cash and cash equivalents consist of:
 
 
 
 
 
Cash on hand
214

457

Bank balances
76,045

18,810

Bank overdraft
(64,808
)
(49,723
)
 
11,451

(30,456
)
 
 
 
Current assets
76,259

19,267

Current liabilities
(64,808
)
(49,723
)
 
11,451

(30,456
)

Local companies have facilities with ABSA Bank Limited and Grindrod Bank Limited.

Bank balances of the foreign subsidiaries is managed with the subsidiaries' own bankers.

Facilities granted by Grindrod Bank are unsecured.

The following has been provided as security for facilities granted by ABSA Bank Limited: For facilities granted to DigiCore Holdings Limited
-Cession of CFC accounts
-Negative pledge of assets
-Unlimited cession of loan from DigiCore Europe BV

For facilities granted to the DigiCore Group
Unlimited cross suretyship between the following entities:
-DigiCore Investments Proprietary Limited
-Ctrack SA Proprietary Limited
-DigiCore Brands Proprietary Limited
-DigiCore Properties Proprietary Limited
-DigiCore Financial Services Proprietary Limited
-DigiCore Technology Proprietary Limited
-DigiCore Electronics Proprietary Limited
-DigiCore International Proprietary Limited
-DigiCore Fleet Management SA Proprietary Limited
-DigiCore Holdings Limited

Cession of intercompany loans by:
-Ctrack SA Proprietary Limited
-DigiCore Technology Proprietary Limited
-DigiCore Electronics Proprietary Limited
-DigiCore Fleet Management SA Proprietary Limited
-DigiCore International Proprietary Limited
-DigiCore Holdings Limited

Cession of trade receivables excluding intercompany loans by:
-Ctrack SA Proprietary Limited
-DigiCore Technology Proprietary Limited
-DigiCore Electronics Proprietary Limited
-DigiCore International Proprietary Limited

Fair value of cash and cash equivalents
The carrying amount of cash approximates fair value due to the short-term maturity of these instruments.

Credit quality of cash at bank and short term deposits, excluding cash on hand
The credit quality of cash at bank and short term deposits, excluding cash on hand that can be assessed by reference to external credit ratings (if available).

Credit rating
 
 
C-
74,155

18,810


 
55
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

2014
R'000

 
 
 
14.    Share capital
 
 
 
 
 
Authorised
 
 
 
 
 
1 000 000 000 Ordinary shares of R 0.001 each
1,000

1,000

 
 
 
Reconciliation of number of shares issued:
 
 
 
 
 
Reported as at 01 July
247,669,272

247,669,272

Issue of shares - ordinary shares
1,017,856


 
248,687,128

247,669,272

 
 
 
The 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
 
 
247,687,128 Ordinary shares of R0.001 each (2014: 247,669,272 shares)
249

248

Share premium
221,408

219,322

Treasury shares
(53,246
)
(53,246
)
 
168,411

166,324

 
 
 
7,867,004 Treasury shares (2014: 8,047,004) are held by the staff share trust on behalf of employees in terms of the Groups share based payment scheme.

15.    Share based payments
Share Option
  Number
(thousands)

 Weighted exercise price

 Total value
R'000

 
 
 
 
2014
 
 
 
 Outstanding at the beginning of the year
17,557

4.39

77,092

 Granted during the year
9,070

1.50

5,881

 Forfeited during the year
(2,490
)
2.36

(6,746
)
 Expired during the year
(75
)
0.46

(35
)
 Outstanding at the end of the year
24,062

2.56

61,564

 Exercisable at the end of the year
10,736

3.32

35,642

 
 
 
 
2015
 
 
 
 Outstanding at the beginning of the year
24,062

2.56

61,564

 Granted during the year
11,600

2.73

31,718

 Forfeited during the year
(180
)
1.42

(256
)
 Expired during the year
(1,165
)
2.10

(2,444
)
 Outstanding at the end of the year
34,217

2.64

90,494

 Exercisable at the end of the year
15,294

3.05

46,576


Of the options outstanding at 30 June 2015, 19,023,500 (30 June 2014: 13,326,500) options are not yet exercisable.

The number of options which expired during the financial year was nil (30 June 2014: 75,000).

180 000 Share options were exercised in the current year. The weighted average share price at exercise date was R2.74. No share options were exercised in the 2014 financial year.



 
56
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


15.    Share based payments (continued)
Outstanding options
Exercise date within one year

Exercise date from two to five years

 Total

 
 
 
 
Options with exercise price of R2.95
120,000


120,000

Options with exercise price of R2.70
1,117,500


1,117,500

Options with exercise price of R1.50
1,734,000

5,202,000

6,936,000

Options with exercise price of R2.10
600,000

2,400,000

3,000,000

Options with exercise price of R2.85
100,000

400,000

500,000

Options with exercise price of R3.05
1,470,000

5,880,000

7,350,000

 
 
 
 
Information on options granted during the year
 
 
 
 
 
2015

2,014

Weighted fair value of options issued during the year
 
0.12

0.11


The company operates several Share Option Schemes. Share options are granted to executive directors of the company and/or its subsidiaries or key management personnel or a combination of both.

Share options vest in tranches over 4 years from the grant date on the condition that the employee remains in the Group's employment. The number of share options is calculated in accordance with Group's policy in appraising employees and as approved by the remuneration committee of the Group. Upon resignation the share options will lapse immediately. Share options remain exercisable after vesting and expire 10 years after grant date.

This option scheme is equity settled and is based on one share option converting into one ordinary share of DigiCore Holdings Limited on exercise. The reserve is recognized in the statement of financial position based on the measurement of the fair value of the share options.

Early exercising of options is not permitted. Total expenses of R2 875 073 related to equity-settled share based payments transactions were recognized in 2015 (2014 : R1 725 769).

As of the year ended 30 June 2015 the following schemes were still in effect:
-Option Scheme E - Granted to directors only on 15/12/2005 with an option price of R2.47
-Option Scheme F - Granted to directors only on 29/06/2006 with an option price of R2.79
-Option Scheme G - Granted to directors only on 07/12/2006 with an option price of R4.07
-Option Scheme H - Granted to directors and key management personnel on 30/04/2007 with an option price of R5.89
-Option Scheme I - Granted to directors only on 17/10/2007 with an option price of R8.41 only (cancelled during the 2009 financial year as the options were out of the money)
-Option Scheme J - Granted to directors and key management personnel on 12/10/2009 with an option price of R3.65
-Option Scheme K - Granted to directors and key management personnel on 06/08/2010 with an option price of R3.10
-Option Scheme L - Granted to directors and key management personnel on 14/03/2011 with an option price of R2.95
-Option Scheme M - Granted to directors and key management personnel on 02/04/2012 with an option price of R2.95
-Option Scheme N - Granted to directors and key management personnel on 29/06/2012 with an option price of R2.70
-Option Scheme O - Granted to directors and key management personnel on 10/10/2013 with an option price of R1.50
-Option Scheme Q - Granted to directors only on 02/10/2014 with an option price of R2.10
-Option Scheme R - Granted to directors only on 26/11/2014 with an option price of R2.85
-Option Scheme S - Granted to directors and key management personnel on 05/03/2015 with an option price of R3.05





 
57
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

2014
R'000

 
 
 
15.    Share based payments (continued)
 
 
 
 
 
The Group uses the Black-Scholes model to determine the fair value of options granted, the following inputs were used for option scheme Q granted during the year:
Exercise price - R2.10
 
 
Stock price - R2.85
 
 
Expected volatility - 47.78%*
 
 
Option life - 365 - 1460 days
 
 
Expected dividends - 0%
 
 
The risk-free interest rate - 7.02%**
 
 
 
 
 
The following inputs were used for option scheme R granted during the year:
 
 
Exercise price - R2.85
 
 
Stock price - R2.85
 
 
Expected volatility - 47.78%*
 
 
Option life - 365 - 1460 days
 
 
Expected dividends - 0%
 
 
The risk-free interest rate - 7.02%**
 
 
 
 
 
The following inputs were used for option scheme S granted during the year:
 
 
Exercise price - R3.05
 
 
Stock price - R3.05
 
 
Expected volatility - 42.23%^
 
 
Option life - 365 - 1460 days
 
 
Expected dividends - 0%
 
 
The risk-free interest rate - 6.90%**
 
 
 
 
 
*The expected volatility in the value of the share options granted was determined using the historical volatility of Digicore's share price from 10/12/2013 - 09/12/2014.
 
 
 
^The expected volatility in the value of the share options granted was determined using the historical volatility of Digicore's share price from 06/03/2014 - 05/03/2015.
 
 
 
** The risk free rate for periods within the contractual term of the share options was based on the South African long-term government bond rate in effect at the time of the grant.
 
 
 
16.    Foreign currency translation reserve
 
 
 
 
 
Translation reserve comprises exchange differences on consolidation of foreign subsidiaries and the translation of goodwill attributable to foreign operation to spot rate at year end.
 
 
 
 
 
Opening Balance
14,755

43,182

Exchange differences on translating foreign operations
(5,029
)
(47,979
)
Ctrack Limited - Translation of goodwill
3,663

8,677

Ctrack Benelux BV - Translation of goodwill
(2,434
)
5,572

Ctrack Deutschland GmbH - Translation of goodwill
(812
)
1,059

Ctrack Proprietary Limited - Translation of goodwill
(614
)
1,014

DigiCore Europe BV - Translation of goodwill
(2,415
)
3,230

 
7,114

14,755




 
58
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

2014
R'000

 
 
 
17.    Other financial liabilities
 
 
 
 
 
Held at amortised cost
 
 
 
 
 
Loan from shareholders of Alchemist House Proprietary Limited
 
 
The loan is unsecured and has no fixed terms of repayment. The loan bears interest at prime. The loan has been settled as part of the transaction concluded by the Group to acquire the remaining 49% shareholding in Alchemist House Proprietary Limited.

393

 
 
 
Loan from shareholders of Alchemist House Proprietary Limited
 
 
The loan is unsecured and has no fixed terms of repayment. The loan bears interest at prime plus 2%. The loan has been settled as part of the transaction concluded by the Group to acquire the remaining 49% shareholding in Alchemist House Proprietary Limited.

622

 
 
 
Mortgage bond
 
 
The loan carries interest at prime minus 1,75%. At year end this rate was 7,5% (2014: 7,25%). The current instalment is R356,789 per month and the loan is repayable in 10 years. This mortgage bond is secured by the property in the Regency Office Park. Refer to the Property, plant and equipment note number 3.
13,202

16,385

 
 
 
Merchant West Facility
 
 
This full book discounting facility is secured by the trade receivables of DigiCore Fleet Management SA Proprietary Limited and an unlimited guarantee issued by DigiCore Holdings Limited. The facility is repayable on demand. Interest is charged on the outstanding balance at prime plus 2%. The facility was settled in September 2014.

14,970

 
13,202

32,370

 
 
 
Non-current liabilities
 
 
At amortised cost
9,710

14,135

 
 
 
Current liabilities
 
 
At amortised cost
3,492

18,235

 
 
 
 
13,202

32,370

 
 
 
The Group's borrowing powers are unlimited and the Group has not exceeded the borrowing powers in terms of the Memorandum of Incorporation of the holding company and of the underlying subsidiaries.
 
 
 
The carrying values of interest bearing financial liabilities are considered to approximate the fair values of the respective liability as the interest rate approximate the market rate.
 
 
 
The carrying amounts of financial liabilities at amortised cost are denominated in the following currencies:
 
 
 
 
 
Rand
13,302

32,370



 
59
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

2014
R'000

 
 
 
18.    Finance lease liabilities
 
 
 
 
 
Minimum lease payments due
 
 
within one year
10,880

11,258

in second to fifth year inclusive
7,657

8,430

 
18,537

19,688

less: future finance charges
(1,452
)
(1,861
)
Present value of minimum lease payments
17,085

17,827

 
 
 
Present value of minimum lease payments due
 
 
within one year
9,853

9,837

in second to fifth year inclusive
7,232

7,990

 
17,085

17,827

 
 
 
Non-current liabilities
7,232

7,990

Current liabilities
9,853

9,837

 
17,085

17,827


It is Group policy to lease certain motor vehicles and equipment under finance leases.

The average lease term is 3-5 years and the average effective borrowing rate was 10% (2014: 10%).

Interest rates are linked to prime at the contract date. All leases have fixed repayments and no arrangements have been entered into for contingent rent.

The average escalation is between 8% and 12%.

The Group's obligations under finance leases are secured by the lessor's charge over the leased assets. Refer note 3.

There were no sublease agreements in place during the period.

The carrying values of finance lease obligations are considered to approximate the fair values of the liability as the interest rate implicit in the lease agreement approximates the Group's incremental borrowing rate.



 
60
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


19.    Provisions

Reconciliation of provisions - 2015
 
 
 
 Opening balance
R'000

Additions
R'000

 Reversed during the year
R'000

 Total
R'000

Product warranties
 
2,048

981

(2,055
)
974

Other Provisions
 
971

385

(752
)
604

 
 
3,019

1,366

(2,807
)
1,578

Reconciliation of provisions - 2014
 
 
 
 
 
 
 Opening balance
R'000

Additions
R'000

Utilised during the year
R'000

 Reversed during the year
R'000

 Total
R'000

Product warranties
2,379

2,151

(1,967
)
(515
)
2,048

Other Provisions
3,456

786

(2,955
)
(316
)
971

 
5,835

2,937

(4,922
)
(831
)
3,019


Provision for product warranties
The warranty provision represents management's best estimate of the Group's liability under one period warranties granted on electrical products, based on prior experience and industry averages for defective products.

Other provisions
A former employee of Ctrack France Sarl has issued a claim of R 604,337 against the entity arising out of his claim that his retrenchment was not substantially justified. The probable loss has been estimated at R 604,337 and estimated legal costs incurred to date amount to Rnil. The directors are of the opinion that the claim can be successfully resisted by the company.

The estimated timing of the above provisions to be utilised has been estimated to be within the next 12 months.



 
61
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

2014
R'000

 
 
 
20.    Trade and other payables
 
 
 
 
 
Trade payables
5,808

36,570

Value Added Taxation
7,820

9,288

Accrued Leave pay
6,139

5,040

Accrued expenses
34,064

27,668

Other payables
2,907

4,765

 
56,738

83,331

 
 
 
Fair value of trade and other payables
 
 
The average credit period on purchases of certain goods from suppliers is 2 months. No interest is charged on the trade payables outstanding balances. The Group has financial risk management policies in place to ensure that all payables are paid within the pre- agreed credit terms.

The fair value of trade payables and other payables approximates their carrying values as the impact of discounting is not considered material due to the short term nature of the Group's trade and other payables.
 
 
 
Currencies
 
 
The carrying amount of trade and other payables are denominated in the following currencies:
 
 
(Amounts in R'000)
 
 
Rand
23,238

57,500

Euro
11,592

10,311

US Dollar
4,020

1,699

British Pound
10,132

9,358

Australian Dollar
6,040

3,062

Malaysian Ringgit
1,716

1,401

 
56,738

83,331

 
 
 
21.    Deferred income
 
 
 
 
 
In the current year, Ctrack UK Limited raised deposit invoices in order to receive the consideration prior to the fitment of vehicle tracking solutions. Revenue is recognized as the vehicle tracking solutions are installed.

In the previous financial year, the Group has deferred the Connection Incentive Bonus ("CIB") received from cellular network service providers and recognized the income over the duration of the fixed term contract concluded with the customer.
 
 
 
Current liabilities
16,655

355

 
16,655

355

 
 
 


 
62
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

 
2014
R'000

 
2013
R'000

 
 
 
 
 
 
22.    Revenue
 
 
 
 
 
 
 
 
 
 
 
Sale of goods
294,213

 
324,580

 
370,587

Subscription Revenue
564,314

 
567,363

 
507,991

 
858,527

 
891,943

 
878,578

 
 
 
 
 
 
The Group has reclassified categories of revenue for better disclosure. The Group disclosed rental income as a separate category of revenue in 2014 and the Group has decided to show this category as part of subscription revenue. In 2015 R52,588,373 worth of rental income (2014: R38,770,695; 2013: 54,219,000) has been reclassified as subscription revenue.
 
 
 
 
 
 
23.    Operating profit (loss)
 
 
 
 
 
 
 
 
 
 
 
Operating profit (loss) for the year is stated after accounting for the following:
 
 
 
 
 
 
 
 
 
 
 
Operating lease charges
 
 
 
 
 
Premises
 
 
 
 
 
- Straight-line amounts
12,220

 
15,676

 
21,242

Motor Vehicles
 
 
 
 
 
- Straight-line amounts
18

 
9

 
14

Equipment
 
 
 
 
 
- Straight-line amounts
956

 
2,292

 
2,159

 
13,194

 
17,977

 
23,415

 
 
 
 
 
 
(Profit)/Loss on sale of property, plant and equipment
(2,821
)
 
1,637

 
1,448

(Profit)/Loss on sale of Worldmark SA Proprietary Limited

 

 
1,047

(Profit)/Loss on sale of Associates - TPL Trakker Ltd and Mega Fortris Ctrack Solutions Snd Dhd
(35,315
)
 

 

Impairment on property, plant and equipment
2,003

 
4,315

 
12,933

Impairment of goodwill

 

 
57,500

Impairment of intangible assets
508

 

 

(Profit) / Loss on exchange differences
(16,222
)
 
(35,316
)
 
(9,645
)
Amortization on intangible assets*
13,945

 
14,088

 
15,335

Depreciation on property, plant and equipment
61,244

 
67,592

 
67,592

Employee costs
347,036

 
344,598

 
347,008

Salaries, wages and other costs - short term benefits
326,121

 
328,157

 
330,842

Provident fund contributions - post employment benefits
18,040

 
14,715

 
13,361

Share-based payment cost - short term benefits
2,875

 
1,726

 
2,805

 
 
 
 
 
 
Net gains (losses) on financial instruments:
 
 
 
 
 
Financial assets at fair value through profit or loss - held for trading
20,020

 

 

 
 
 
 
 
 
* The amount is shown net of amortization capitalised to rental stock of R11,779,422 and amortization capitalised to inventory of R5,414,654 in the current financial year. (2014 amortization capitalised to rental stock of R5,360,480 and amortization capitalised to inventory of R5,142,432)
 
 
 
 
 
 
24.    Investment revenue
 
 
 
 
 
 
 
 
 
 
 
Interest revenue
 
 
 
 
 
Bank
79

 
3,643

 
216

 
 
 
 
 
 
25.    Income from Equity Accounted Investments
 
 
 
 
 
 
 
 
 
 
 
TPL Trakker Limited
4,956

 
3,158

 
2,250

Alchemist House Proprietary Limited

 

 
(119
)
Mega Fortris Ctrack Solutions Sdn Bhd

 
(94
)
 

 
4,956

 
3,064

 
2,131

 
 
 
 
 
 
No dividends were received from equity accounted investments (2014: R nil, 2013: R nil).
 
 
 
 
 
 
 
 
 
 
 

 
63
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

2014
R'000

2013
R'000

 
 
 
 
26.    Finance costs
 
 
 
Finance leases
1,456

2,943

1,393

Other financial liabilities
9,620

11,380

12,962

Bank

22

23

 
11,076

14,345

14,378

 
 
 
 
27.    Taxation
 
 
 
Major components of the tax expense (income)
 
 
 
Current
 
 
 
Local income tax-current period
658

907

(8,702
)
Capital Gains Tax


106

Local income tax-recognized in current tax for prior periods
1,395



Foreign income tax-current period
1,766

1,681

(711
)
 
3,819

2,588

(9,307
)
Deferred
 
 
 
Movement in Temporary difference - normal rates
2,899

6,475

5,772

Net movement in assessed losses
(3,915
)
(8,199
)
 
Foreign deferred tax
(202
)


Over provision of deferred tax in prior year
(3,802
)


 
(5,020
)
(1,724
)
5,772

 
(1,201
)
864

(3,535
)
Reconciliation of the tax expense
 
 
 
Reconciliation between accounting profit and tax expense
 
 
 
 
 
 
 
Accounting profit ( loss)
86,709

8,659

(62,885
)
 
 
 
 
Tax at the applicable tax rate of 28% (2014:28%)
24,279

2,425

(17,608
)
 
 
 
 
Tax effect of adjustments on taxable income
 
 
 
Expenses not tax deductable
1,511

2,166

6,949

Tax effect on earnings from associate


(597
)
Income not subject to taxation
(3,834
)
(52
)
(381
)
Fair value adjustment on investment in TPL Trakker Limited
(20,131
)


Share based payment cost
805

483

785

R&D cost deduction
(4,746
)
(4,850
)

Impairment of goodwill


16,100

Learnerships
(258
)


Deferred tax not recognized on assessed losses


5,171

Under provision of prior year current taxation
1,395

758


Differences between South African tax rates and foreign tax rates
(222
)
(66
)
(193
)
Over/ (Under) provision of previous years taxation


(13,761
)
 
(1,201
)
864

(3,535
)
 
 
 
 
28.    Other comprehensive income
 
 
 
 
 
 
 
Components of other comprehensive income - 2015
Gross

Tax

Net

 
 
 
 
Items that may be reclassified to profit or loss
 
 
 
Exchange differences on translating foreign operations
 
 
 
Exchange differences arising during the year
(7,641
)

(7,641
)
 
 
 
 
Components of other comprehensive income - 2014
Gross

Tax

Net

 
 
 
 
Items that may be reclassified to profit or loss
 
 
 
Exchange differences on translating foreign operations
 
 
 
Exchange differences arising during the year
(28,427
)

(28,427
)
 
 
 
 
Components of other comprehensive income - 2013
Gross

Tax

Net

 
 
 
 
Items that may be reclassified to profit or loss
 
 
 
Exchange differences on translating foreign operations
 
 
 
Exchange differences arising during the year
43,706


43,706


 
64
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

2014
R'000

2013
R'000

 
 
 
 
29.    Cash generated from operations
 
 
 
 
 
 
 
Profit (loss) before taxation
86,709

8,659

(62,885
)
 
 
 
 
Adjustments for:
 
 
 
Depreciation and amortization
75,192

88,380

82,929

Net loss (profit) on disposal of assets and liabilities
(38,136
)
1,637

1,826

(Profit) / Loss on foreign exchange
(16,222
)
(35,315
)
(9,645
)
Income from equity accounted investments
(4,956
)
(3,064
)
(2,131
)
Interest received - investment
(79
)
(3,643
)
(216
)
Finance costs
11,076

14,345

14,378

Impairment loss
2,511

4,315

12,933

Impairment of goodwill


57,500

Movements in provisions
(1,441
)
(2,816
)
(409
)
Other non-cash items - Loss on sale of Worldmark SA Proprietary Limited


1,047

Other non-cash items - Fair value adjustment on investment in TPL Trakker Limited
(20,559
)


Other non-cash items - Share based payment expense
2,875

1,726

2,805

Other non-cash items - Foreign currency translation movement


43,670

Other non-cash items - Loan decrease


1,250

Other non-cash items - Disposal of rental units

28,105

11,061

 
 
 
 
Changes in working capital
 
 
 
Inventories
30,530

9,671

5,248

Trade and other receivables
18,757

43,714

(13,339
)
Trade and other payables
(22,481
)
19,429

(4,467
)
Deferred income
16,300

(13,350
)
(15,935
)
 
140,076

161,793

125,620

 
 
 
 
30.    Tax paid
 
 
 
 
 
 
 
Balance at beginning of year
963

2,372

(13,796
)
Current tax for the year recognized in profit or loss
(3,819
)
(2,588
)
9,307

Adjustment in respect of exchange rate movements
78

(946
)

Non-cash adjustment
(416
)


Balance at end of the year
94

(963
)
(2,372
)
 
(3,100
)
(2,125
)
(6,861
)

 
65
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

2014
R'000

2013
R'000

 
 
 
 
31.    Commitments and Contingencies
 
 
 
 
 
 
 
Operating leases - as lessee (expense)
 
 
 
 
 
 
 
Minimum lease payments due
 
 
 
-within one year
12,216

13,931

10,933

-in second to fifth year inclusive
4,281

7,267

11,504

 
16,497

21,198

22,437

 
 
 
 
Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for an average term of seven years and rentals are fixed for an average of three years. No contingent rent is payable.
 
 
 
 
The average escalation is between 8% and 12%.
 
 
 
 
 
 
 
Contingencies
 
 
 
 
 
 
 
In 2013, a former customer of Ctrack New Zealand Limited made a claim for restitution and damages totalling NZ$422 000 equivalent to R3,924,009. The director’s opinion is that the claim has no merit and no provision has been made in the Group financial statements for this amount. The matter is expected to be resolved in court in December 2014. A legal opinion has been obtained, and the directors estimate that NZ$10 000 equivalent to R92,986 will be incurred as legal fees to settle the matter.
 
 
 
 




 
66
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


32.    Related parties
Relationships
 
Subsidiaries
Refer to note 6
Associates
Refer to note 8
Companies controlled by director - NH Vlok
Vepro Properties Proprietary Limited
 
Top Ten Properties Proprietary Limited
Company in which a close family member of a director of DigiCore Holdings Limited is a director - NH Vlok
Onex Power Systems Proprietary Limted
Company in which a close family member of a director of DigiCore Holdings Limited is a director - SR Aberdein
Bawco CC
Public Officer of the Group
MD Rousseau
Public Officer of the Group
D du Rand
Companies in which a close family member of a director of DigiCore Holdings Limited is a director - MD Rousseau
HT Concepts CC t/a Lifestyle Electronic Concepts
Fleet and Time Control CC t/a CAE Communications
 
2015
R'000

2014
R'000

2013
R'000

Related party balances
 
 
 
 
 
 
 
Amounts included in trade receivables (trade payables) regarding related parties
 
 
 
Fleet and Time Control CC

24


Fleet and Time Control CC

(26
)

HT Concepts CC
921

946

539

HT Concepts CC
(195
)
(189
)
(319
)
 
 
 
 
Related party transactions
 
 
 
 
 
 
 
Purchases from (sales to) related parties
 
 
 
Top Ten Properties Proprietary Limited
132

208


Fleet and Time Control CC

(54
)

HT Concepts CC
(1,384
)
(4,798
)
(1,372
)
Fleet and Time Control CC
16

122

13

HT Concepts CC
2,158

3,685

2,032

Onex Power Systems Proprietary Limted
193



 
 
 
 
Rent paid to related parties
 
 
 
Bawco Proprietary Limited
385

305

783

Vepro Properties Proprietary Limited
662

1,174

565


During the year, certain related parties in the ordinary course of business, entered into various transactions with the Group under arm's length terms no less favourable than those arranged with other third parties.

HT Concepts CC and Fleet and Time Control CC are partner fitment centres of the Group and install vehicle tracking solutions on behalf of Ctrack SA Proprietary Limited.

MD Rousseau and D du Rand are public officers and have received emoluments and share options during this year. Refer to note 33 for more details.

No bad debts have been incurred or provided for, relating to transactions with related parties.

Properties leased from related parties

DigiCore Holdings Limited and its subsidiaries entered into operating lease agreements for premises with entities whose directors and/or members are also directors of DigiCore Holdings Limited and/or its subsidiaries. These directors are:
- NH Vlok - Lease of Boksburg Branch premises in DigiCore Fleet Management SA Proprietary Limited
- SR Aberdein - Lease of factory premises in Durban in DigiCore Electronics Proprietary Limited - Bawco CC sold the premises in December 2014 and the lease has continued on the same terms and conditions with the new lessor who is not a related party to the Group.

SR Aberdein resigned as a director of the Group on 30 November 2013. Rent continued to be paid to Bawco Proprietary Limited after his resignation.

The lease periods for the properties range 3-5 years and are rented under terms that are no less favourable to the company than those arranged with 3rd parties. Total rent paid included in the financial statements relating to the aforementioned related parties amounts to R1,047,000 (2014: R1,479,000; 2013 : R1,348,000).

 
67
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


33.     Directors' and prescribed officers emoluments

The following emoluments were paid to the directors and prescribed officers during the year
Executive
 
 
 
 
 
2015
Emoluments
R'000

Provident fund contributions
R'000

Medical aid contributions
R'000

Directors' fees for services as directors of subsidiaries
R'000

Total
R'000

NH Vlok
2,685

211

87


2,983

MD Rousseau!
2,590

144

88

520

3,342

D du Rand!
2,004

153



2,157

PJ Grove
2,072

156

66


2,294

 
9,351

664

241

520

10,776


! MD Rousseau and D du Rand are prescribed officers of the Group.

2014
Emoluments
R'000

Provident fund contributions
R'000

Medical aid contributions
R'000

Bonus
R'000

Directors' fees
R'000

Directors' fees for services as directors of subsidiaries
R'000

Total
R'000

NH Vlok#
2,501

198

1


166


2,866

MD Rousseau!
1,863

133

69

3


423

2,491

AJ Voogt*
988






988

SR Aberdein^
687

54

28




769

D du Rand!
1,825

138

27

3



1,993

PJ Grove+
1,427

102

45




1,574

 
9,291

625

170

6

166

423

10,681


*AJ Voogt resigned on 31 October 2013.
^SR Aberdein resigned on 30 November 2013.
+PJ Grove was appointed on 01 November 2013.
!MD Rousseau and D du Rand are prescribed offices of the Group.
#NH Vlok fulfilled the role of chairman of the board and chief executive officer. G Pretorius was appointed as chairman of the board effective 04 April 2014.

2013
Emoluments
R'000

Provident fund contributions
R'000

Medical aid contributions
R'000

Directors' fees for services as directors of subsidiaries
R'000

Total
R'000

NH Vlok#
1,159

17



1,176

MD Rousseau
1,866

134

68

428

2,496

AJ Voogt
1,693

102



1,795

SR Aberdein
1,643

131

60


1,834

D du Rand
1,807

138

33


1,978

BC Esterhuyzen
1,289

88



1,377

J Verster
1,755

138

20


1,913

 
11,212

748

181

428

12,569


#NH Vlok's designation changed from non-executive to executive on 08 February 2013.

All executive directors emoluments are paid by subsidiaries. The Group considers provident fund contributions as post-employment benefits, all other emoluments are considered short-term benefits.



 
68
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


33.     Directors' and prescribed officers emoluments (continued)
Non-executive
 
 
 
 
 
 
 
 
 
2015
 
Directors' fees
R'000

Commitment fees
R'000

Total
R'000

SS Ntsaluba
 
130

115

245

Prof B Marx
 
147

198

345

G Pretorius
 
418

32

450

SP Naude!
 
75

30

105

JP duP le Roux!
 
75

25

100

JD Wiese^
 
72

31

103

 
 
917

431

1,348

! SP Naude and JP duP le Roux were appointed on 27 January 2015.
^ JD Wiese resigned on 26 January 2015.
 
 
 
 
 
 
 
 
 
2014
 
Directors' fees
R'000

Commitment fees
R'000

Total
R'000

SS Ntsaluba
 
34

20

54

Prof B Marx
 
68

88

156

JD Wiese
 
68

10

78

G Pretorius
 
68

36

104

 
 
238

154

392

 
 
 
 
 
 
 
 
 
 
2013
 
Directors' fees
R'000

Commitment fees
R'000

Total
R'000

NH Vlok
 
1,190


1,190

SS Ntsaluba
 
49

26

75

Prof B Marx
 
82

94

176

L Msengana-Ndlela
 
31


31

JD Wiese
 
65

6

71

G Pretorius
 
82

42

124

NA Gasa
 
25


25

 
 
1,524

168

1,692

 
 
 
 
 


 
69
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


33.    Directors' and prescribed officers emoluments (continued)

The following share options are issued to directors
30 June 2015
Date granted
Expiry date
 Strike price

 Number of options issue but not exercised

 Value
(R'000)

Options forfeited

Share options exercised

Date exercised

Gain

Number of options issued but not exercised

D du Rand
15/12/2005
15/12/2015
2.47

120,000

296





120,000

 
27/06/2006
27/06/2016
2.79

60,000

167





60,000

 
07/12/2006
07/12/2016
4.09

80,000

327





80,000

 
17/10/2007
17/10/2017
8.41








 
12/10/2009
12/10/2019
3.65

600,000

2,190





600,000

 
14/03/2011
14/03/2021
2.95

700,000

2,065





700,000

 
29/06/2012
29/06/2022
2.70

500,000

1,350





500,000

 
10/10/2013
10/10/2023
1.50

500,000

750





500,000

 
05/03/2015
05/03/2025
3.05

400,000

1,220





400,000

MD Rousseau
26/06/2005
26/06/2015
1.42

120,000

170

(120,000
)




 
15/12/2005
15/12/2015
2.47

160,000

395





160,000

 
27/06/2006
27/06/2016
2.49

80,000

199





80,000

 
07/12/2006
07/12/2016
4.09

100,000

409





100,000

 
17/10/2007
17/10/2017
8.41








 
12/10/2009
12/10/2019
3.65

600,000

2,190





600,000

 
14/03/2011
14/03/2021
2.95

1,200,000

3,540





1,200,000

 
29/06/2012
29/06/2022
2.70

1,000,000

2,700





1,000,000

 
10/10/2013
10/10/2023
1.50

500,000

750





500,000

 
05/03/2015
05/03/2025
3.05

400,000

1,220





400,000

PJ Grove
10/10/2013
10/10/2023
1.50

1,500,000

2,250





1,500,000

 
05/03/2015
05/03/2025
3.05

400,000

1,220





400,000

NH Vlok
02/10/2014
02/10/2024
2.10

3,000,000

6,300





3,000,000

 
 
 
 
12,020,000

29,708

(120,000
)



11,900,000


 
70
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


33.    Directors' and prescribed officers emoluments (continued)
30 June 2014
Date granted
Expiry Date
 Strike Price
 Number of options issue but not exercised

 Value
(R'000)

Share options forfeited

Share options exercised

Date exercised

Gain

Number of options issued but not exercised

SR Aberdein
15/12/2005
15/12/2015
2,47
160,000

395

(160,000
)




 
27/06/2006
27/06/2016
2,79
80,000

223

(80,000
)




 
07/12/2006
07/12/2016
4,09
100,000

409

(100,000
)




D du Rand
15/12/2005
15/12/2015
2,47
120,000

296





120,000

 
27/06/2006
27/06/2016
2,79
60,000

167





60,000

 
07/12/2006
07/12/2016
4,09
80,000

327





80,000

 
17/10/2007
17/10/2017
8,41







 
12/10/2009
12/10/2019
3,65
600,000

2,190





600,000

 
14/03/2011
14/03/2021
2,95
700,000

2,065





700,000

 
29/06/2012
29/06/2022
2,70
500,000

1,350





500,000

 
10/10/2013
10/10/2023
1,50
500,000

750





500,000

MD Rousseau
26/06/2005
26/06/2015
1,42
120,000

170





120,000

 
15/12/2005
15/12/2015
2,47
160,000

395





160,000

 
27/06/2006
27/06/2016
2,49
80,000

199





80,000

 
07/12/2006
07/12/2016
4,09
100,000

409





100,000

 
17/10/2007
17/10/2017
8,41







 
12/10/2009
12/10/2019
3,65
600,000

2,190





600,000

 
14/03/2011
14/03/2021
2,95
1,200,000

3,540





1,200,000

 
29/06/2012
29/06/2022
2,70
1,000,000

2,700





1,000,000

 
10/10/2013
10/10/2023
1,50
500,000

750





500,000

PJ Grove
10/10/2013
10/10/2023
1,50
1,500,000

2,250





1,500,000

AJ Voogt
14/03/2011
14/03/2021
2,95
600,000

1,770

(600,000
)




 
29/06/2012
29/06/2022
2,70
500,000

1,350

(500,000
)




 
 
 
 
9,260,000

23,895

(1,440,000
)



7,820,000




 
71
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


33.    Directors' and prescribed officers emoluments (continued)
30 June 2013
Date granted
Expiry Date
 Strike Price
 Number of options issue but not exercised

 Value
(R'000)

Share options forfeited

Share options exercised

Date exercised

Gain

Number of options issued but not exercised

SR Aberdein
15/12/2005
15/12/2015
2,47
160,000

395

(160,000
)




 
27/06/2006
27/06/2016
2,79
80,000

223

(80,000
)




 
07/12/2006
07/12/2016
4,09
100,000

409

(100,000
)




D du Rand
15/12/2005
15/12/2015
2,47
120,000

296





120,000

 
27/06/2006
27/06/2016
2,79
60,000

167





60,000

 
07/12/2006
07/12/2016
4,09
80,000

327





80,000

 
17/10/2007
17/10/2017
8,41







 
12/10/2009
12/10/2019
3,65
600,000

2,190





600,000

 
14/03/2011
14/03/2021
2,95
700,000

2,065





700,000

 
29/06/2012
29/06/2022
2,70
500,000

1,350





500,000

MD Rousseau
26/06/2005
26/06/2015
1,42
120,000

170





120,000

 
15/12/2005
15/12/2015
2,47
160,000

395





160,000

 
27/06/2006
27/06/2016
2,49
80,000

199





80,000

 
07/12/2006
07/12/2016
4,09
100,000

409





100,000

 
17/10/2007
17/10/2017
8,41







 
12/10/2009
12/10/2019
3,65
600,000

2,190





600,000

 
14/03/2011
14/03/2021
2,95
1,200,000

3,540





1,200,000

 
29/06/2012
29/06/2022
2,70
1,000,000

2,700





1,000,000

J Verster
14/03/2011
14/03/2021
2.95
1,000,000

2,950

(1,000,000
)




 
29/06/2012
29/06/2022
2,70
800,000

2,160

(800,000
)




BC Esterhuyzen
14/03/2011
14/03/2021
2,95
2,450,000

7,228

(2,450,000
)




AJ Voogt
14/03/2011
14/03/2021
2,95
600,000

1,770





600,000

 
29/06/2012
29/06/2022
2,70
500,000

1,350





500,000

 
 
 
 
11,010,000

32,483

(4,590,000
)



6,420,000



 
72
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


34.     Financial assets by category

The accounting policies for financial instruments have been applied to the line items below:
2015
Loans and receivables
R'000

Fair value through profit or loss - held for trading
R'000

Non-financial instruments
R'000

Total
R'000

Other financial assets

20,020


20,020

Trade and other receivables
156,434


7,524

163,958

Cash and cash equivalents
74,369



74,369

 
230,803

20,020

7,524

258,347

 
 
 
 
 
2014
Loans and receivables
R'000

Fair value through profit or loss - held for trading
R'000

Non-financial instruments
R'000

Total
R'000

Trade and other receivables
175,506


7,014

182,520

Cash and cash equivalents
19,267



19,267

 
194,773


7,014

201,787


35.    Financial liabilities by category

The accounting policies for financial instruments have been applied to the line items below:
2015
Financial liabilities at amortised cost
R'000

Non-financial instruments
R'000

Total
R'000

Finance lease liabilities
17,085


17,085

Other financial liabilities
13,202


13,202

Trade and other payables
8,715

48,023

56,738

Bank overdraft
64,808


64,808

 
103,810

48,023

151,833

 
 
 
 
2014
 
 
 
Finance lease liabilities
17,827


17,827

Other financial liabilities
32,370


32,370

Trade and other payables
41,335

41,996

83,331

Bank overdraft
49,723


49,723

 
141,255

41,996

183,251



 
73
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


36.    Risk management

Introduction and overview

The Group has exposure to the following risks from its use of financial assets and liabilities:
- Credit risk
- Liquidity risk
- Price risk
- Market risks (Foreign exchange risk and interest rate risk)
- Capital risk management
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital.

Risk management framework

The Group is exposed in varying degrees to a variety of financial instrument related risks. The Board has the overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established an Audit and Risk committee, which is responsible responsible for developing and monitoring the Group’s risk management policies, providing assurance that significant business risks are systematically identified, assessed and reduced to acceptable levels. A comprehensive risk management process has been developed to continuously monitor and control these risks.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The Group has a finance division that manages the financial risks relating to the Group’s operations.

The Group Audit and Risk Committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit and Risk Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

There have been no changes to the objectives, policies and processes for managing the risk and methods used to manage the risk from prior year.

Credit risk

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

Trade receivables
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk. Geographically there is no concentration of credit risk.

The Group has established a credit policy under which each new customer is analysed individually for credit worthiness before the Group’s standard payment and delivery terms and conditions are offered.

Trade and other receivables consists of a large number of customers spread across diverse industries and geographical areas. The exposure to credit risk is influenced by the individual characteristics, the industry and geographical area of the counterparty with whom we have transacted. Trade and other receivables are carefully monitored for impairment. An allowance for impairment of trade receivables is made where there is an identified loss event, which based on previous experience, is evidence of a reduction in the recoverability of the cash flows. Details of the credit quality of trade receivables and the associated provision for impairment is disclosed in note 12.



 
74
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


36.    Risk management (continued)

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. At the reporting date, the Group did not consider there to be any significant concentration of credit risk which has not been adequately provided for.

The Board has delegated the responsibility of managing the credit risk to the managing directors of each subsidiary, who are responsible for:
- Establishing the authorisation structure for the approval and renewal of credit facilities;
- Reviewing and assessing credit risk;
- Monitoring the financial position of customers on an on-going basis; and
- Formulating credit policies in relation to the subsidiary's business and customer base.

Financial assets exposed to credit risk at year end were as follows:
 
2015
R'000

2014
R'000

Financial instrument
 
 
Bank - favourable balances
76,260

19,267

Trade and other receivables
156,434

175,506

 
232,694

194,773


The maximum exposure to credit risk does not exceed the amounts mentioned above.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

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.

Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.

Cash flow forecasts are prepared and adequate utilised borrowing facilities are monitored.

The table below analyses the Group’s financial assets and financial liabilities into relevant maturity groupings based on the remaining period at the statements of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

 
Less than 1 year
R'000

Between 1 and 5 years
R'000

Over 5 years
R'000

Total
R'000

At 30 June 2015
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
76,260



76,260

Trade and other receivables
156,434



156,434

Total Financial Assets
232,694



232,694

 
 
 
 
 
Other financial liabilities
3,492

9,710


13,202

Finance lease liabilities
9,853

7,232


17,085

Trade and other payables
15,068



15,068

Bank Overdraft
62,918



62,918

Total Financial Liabilities
91,331

16,942


108,273

 
 
 
 
 
Net Liquidity Gap
141,363

(16,942
)

124,421


 
75
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


36.    Risk management (continued)
 
Less than 1 year
R'000

Between 1 and 5 years
R'000

Over 5 years
R'000

Total
R'000

At 30 June 2014
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
19,267



19,267

Trade and other receivables
175,506



175,506

Total Financial Assets
194,773



194,773

 
 
 
 
 
Other financial liabilities
20,620

13,904


34,524

Finance lease obligation
11,258

8,430


19,688

Trade and other payables
41,336



41,336

Bank Overdraft
49,723



49,723

Guarantees issued
203



203

Total Financial Liabilities
123,140

22,334


145,474

 
 
 
 
 
Net Liquidity Gap
71,633

(22,334
)

49,299


Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

The capital structure of the Group consists of debt, which includes the borrowings disclosed in notes 17 & 18, cash and cash equivalents disclosed in note 13, and equity as disclosed in the statements of financial position.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Management feels that the objectives with respect to capital risk management have been met.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio.

This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including 'current and non-current borrowings' as shown in the statements of financial position) less cash and cash equivalents. Total capital is calculated as 'equity' as shown in the statements of financial position plus net debt.

The Group's strategy is to maintain a gearing ratio of between 10% to 55%.

There are no externally imposed capital requirements.

There have been no changes to what the entity manages as capital, the strategy for capital maintenance or externally imposed capital requirements from the previous year.

The gearing ratio at 2015 and 2014 respectively were as follows:
 
 
 
2015

2014

Gearing ratio
5
%
14
%

The gearing ratio has decreased owing to facilities being repaid during the current year. Refer to note 17 and 18 for additional information.

Interest rate risk

The Group's cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate owing to changes in the market interest rates. The fair value interest rate risk is the risk that the value of the financial instrument will fluctuate because of changes in the market interest rates. The Group assumes exposure to the effects of fluctuations in the prevailing levels of market interest rates on both the fair value and cash flow risks.

The Group’s interest rate risk arises from borrowings, finance lease liabilities and cash and cash equivalents. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group policy is to maintain all of its borrowings in variable rate instruments. During 2015 and 2014, the Group’s borrowings at variable rate were denominated in the Rand only.


 
76
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


36.    Risk management (continued)

The Group analyses its interest rate exposure on a dynamic basis. The Group is not highly geared and does not hedge against fluctuations in interest rates.

At 30 June 2015, if interest rates on Rand-denominated borrowings had been 1% higher with all other variables held constant, post-tax profit for the year would have been R 1,576,340 (2014 : R 1,434,241) lower, mainly as a result of higher interest expense on floating rate borrowings.

Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, British Pound, Australian Dollar and the Euro. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies.

At 30 June 2015, if the Rand had weakened by 10% against the US dollar, British pound, Euro and Australian Dollar, with all other variables held constant, post-tax losses for the year would have been R 2,512,716 higher, mainly as a result of translation of foreign operations, foreign exchange gains or losses on translation of US dollar, British pound, Euro and Australian Dollar denominated trade receivables, borrowings and trade payables. Had the Rand strengthened by 10% against the above mentioned currencies post-tax losses would have been R 2,512,716 lower.

At 30 June 2014, post tax profits for the year would have been R 4,954,828 higher had the Rand weakened by 10% against the above mentioned currencies and R 4,954,828 lower had the Rand strengthened by 10%.
Exchange rates used for conversion of foreign items were:
 
 
2015

2014

USD -Spot Rate at year end
12.28

10.59

GBP - Spot Rate at year end
19.31

18.04

EUR - Spot Rate at year end
13.63

14.46

AUD - Spot Rate at year end
9.41

9.98

MYR - Spot Rate at year end
3.25

3.30

USD - Average Rate for the year
11.45

10.37

GBP - Average Rate for the year
18.01

16.89

EUR - Average Rate for the year
13.73

14.09

AUD - Average Rate for the year
9.55

9.53

MYR - Average Rate for the year
3.31

3.20

 
 
 
There have been no changes in the way the Group manages its exposure to foreign currency risk.
 
 

Price risk

The Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated statements of financial position at fair value through profit or loss. The Group is not exposed to commodity price risk. To manage its price risk arising from investments in equity securities, the Group monitors the securities on an active basis.

The Group's investment in the shares of TPL Trakker Limited is designated at fair value held-for-trading and gains and losses from the measurement to fair value is recognized in the statement of profit and loss and other comprehensive income. The shares of TPL Trakker Limited are publically traded on the Karachi Stock Exchange in Pakistan.

The table below summarises the impact of increases/decreases of the company's share price on the Group's post-tax profit for the year. The analysis is based on the assumption that the share price has increased/decreased by 5% with all other variables held constant:
 
Impact on post tax profit in Rand
 
Impact on other components of equity in Rand
 
 
2015
R'000

2014
R'000

2015
R'000

2014
R'000

Financial Instrument
 
 
 
 
Investment in TPL Trakker Limited
1,001






 
77
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
2015
R'000

2014
R'000

2013
R'000

 
 
 
 
37.    Earnings per share
 
 
 
 
 
 
 
Reconciliation of weighted number of shares in issue (thousands)
 
 
 
Open balance
239,607

239,607

239,607

Weighted number of shares issued for the acquisition of NCI in Alchemist House Proprietary Limited
218



Weighted number of share options exercised
44



 
239,869

239,607

239,607

 
 
 
 
 
 
 
 
Basic
 
 
 
Profit/(Loss) attributable to equity holders of the parent
87,744

7,036

(59,194
)
Weighted number of shares in issue (thousands)
239,869

239,607

239,607

Basic Earnings per share (cents per share)
36.58

2.94

(24.70
)
 
 
 
 
Diluted
 
 
 
Profit/(Loss) attributable to equity holders of the parent
87,744

7,036

(59,194
)
Weighted number of shares in issue (thousands)
239,869

239,607

239,607

Adjusted for: potentially dilutive effect of share options
30,782

9,070


Diluted weighted average number of ordinary shares in issue (thousands)
270,651

248,677

239,607

Diluted earnings per share (cents per share)
32.42

2.83

(24.70
)

Basic earnings per share is calculated by dividing the relevant earnings amount by the weighted average number of shares in issue. Diluted earnings per share is calculated by dividing the relevant earnings by the weighted average number of shares in issue after taking the dilutive impact of potential ordinary shares to be issued into account.


 
78
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


37.    Earnings per share (continued)
 
 
 
 
 
 
 
 
 
Headline Earnings per share
 
 
 
 
 
Gross
R'000

Tax effect
R'000

Non-controlling interest effect
R'000

Net
R'000

 
 
 
 
 
Reconciliation of headline earnings - 30 June 2015
 
 
 
 
 
 
 
 
 
Profit/(Loss) attributable to equity holders of the parent
87,744



87,744

Impairment of Intangible Assets
508



508

Impairment of property, plant and equipment
2,003



2,003

(Profit) on sale of property, plant and equipment
(2,820
)
789


(2,031
)
(Profit) on sale of investment in TPL Trakker Limited
(35,414
)


(35,414
)
Loss on sale of investment in Mega Fortris Ctrack Solutions Sdn Bhd
99



99

Adjustment to income from equity accounted associates - Gain on sale of associate
(1,742
)


(1,742
)
Adjustment to income from equity accounted associates - Gain on sale of property, plant and equipment
(229
)


(229
)
 
50,149

789


50,938

 
 
 
 
 
Reconciliation of headline earnings - 30 June 2014
 
 
 
 
 
 
 
 
 
Profit/(Loss) attributable to equity holders of the parent
7,036



7,036

Impairment of Property, plant & equipment
4,315



4,315

Loss on sale of Property, plant & equipment
1,638

(459
)

1,179

 
12,989

(459
)

12,530

 
 
 
 
 
Reconciliation of headline earnings - 30 June 2013
 
 
 
 
 
 
 
 
 
Profit/(Loss) attributable to equity holders of the parent
(59,194
)


(59,194
)
Loss on sale of Worldmark SA Proprietary Limited
1,047



1,047

Impairment of Goodwill
57,500



57,500

Impairment of Property, plant & equipment
12,933



12,933

Loss on sale of Property, plant & equipment
878

(246
)

632

 
13,164

(246
)

12,918

 
 
 
 
 
 
 
 
 
 
 
 
2015
R'000

2014
R'000

2013
R'000

 
 
 
 
 
Basic
 
 
 
 
Headline Earnings
 
50,938

12,530

12,918

Weighted number of shares in issue (thousands)
 
239,869

239 607

239 607

Basic headline earnings per share (cents per share)
 
21.24

5.23

5.39

 
 


 
 
Diluted
 
 
 
 
Headline Earnings
 
50,938

12,530

12,918

Diluted:weighted average number of ordinary shares in issue (thousands)
 
270,651

248 677

239 607

Diluted headline earnings per share (cents per share)
 
18.82

5.04

5.39

 
 
 
 
 


 
79
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


38.     Segment Information

Segment information is presented only at Group level, where it is most meaningful. Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision-maker in order to allocate resources to the segment and to assess its performance.

The Group has identified its operating segments based on its business by service or product and aggregated them into the following reporting segments:
South African Distribution - This operating segment focuses on distribution of manufactured fleet management and vehicle tracking solutions within the South African consumer market.
Foreign Distribution - This operating segment focuses on distribution of manufactured fleet management and vehicle tracking solutions all around the world.
Product development- This operating segment focuses on investing in research, manufacturing and development of vehicle tracking and fleet management solutions for distribution.
Group Services - This operating segment renders management services to the Group.

The Group is not reliant on any one major customer as the Group’s products are consumed by the general public in various countries.

There are varying levels of integration between the Groups segments. Inter-segment transactions are concluded on an arms-length basis.

Geographical information
The Group operates in 3 main geographical areas:
South Africa - The Group derives revenues from product manufacturing and developing and distribution of fleet management and vehicle tracking solutions within the South African Market;
United Kingdom & Europe - The Group’s activities comprise distribution of fleet management and vehicle tracking solutions to the UK & European market and;
Australia - The Group's activities comprise distribution of fleet management and vehicle tracking solutions to the Australian market.


 
80
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


38.    Segment information (continued)
 SA distribution
R'000

 Foreign distribution
R'000

 Product development
R'000

 Group services
R'000

 Eliminations
R'000

 Total
R'000

30 June 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
External revenues
524,220

296,637

26,204

11,466


858,527

Inter-segmental revenue
(10,387
)

(141,540
)
(10,329
)
162,256


Total Segment revenue
513,833

296,637

(115,336
)
1,137

162,256

858,527

 
 
 
 
 
 
 
Interest income
24

51

4



79

Interest expense
(4,059
)
(98
)

(6,919
)

(11,076
)
Depreciation & amortization
(53,950
)
(17,198
)
(20,207
)
(2,395
)
18,558

(75,192
)
Income from equity accounted investments

4,956




4,956

Other material non-cash items:
 
 
 
 
 
 
- Impairments
(2,003
)

(508
)


(2,511
)
 
 
 
 
 
 
 
Profit/(loss) before taxation
14,509

14,388

(11,763
)
70,065

(490
)
86,709

 
 
 
 
 
 
 
Other information
 
 
 
 
 
 
Capital expenditure
62,693

21,473

2,313


2,974

89,453

 
 
 
 
 
 
 
Statement of financial position
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
Segment assets
468,266

366,426

241,556

637,025

(896,265
)
817,008

Consolidated total assets
468,266

366,426

241,556

637,025

(896,265
)
817,008

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
Segment liabilities
(134,079
)
(226,696
)
(27,184
)
(264,275
)
478,681

(173,553
)
Consolidated total liabilities
(134,079
)
(226,696
)
(27,184
)
(264,275
)
478,681

(173,553
)

 
81
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


38.    Segment information (continued)
 SA distribution
R'000

 Foreign distribution
R'000

 Product development
R'000

 Group services
R'000

 Eliminations
R'000

 Total
R'000

30 June 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
External revenues
522,735

297,063

65,698

6,447


891,943

Inter-segmental revenue
(34,062
)

(123,672
)
(18,953
)
176,687


Total Segment revenue
488,673

297,063

(57,974
)
(12,506
)
176,687

891,943

 
 
 
 
 
 
 
Interest income
19

3,628

(4
)


3,643

Interest expense
(5,402
)
(163
)
(373
)
(8,407
)

(14,345
)
Depreciation & amortization
(65,583
)
(8,981
)
(1,978
)
(1,336
)

(77,878
)
Income from equity accounted investments

3,064




3,064

Other material non-cash items:
 
 
 
 
 
 
- Impairments
(4,135
)




(4,135
)
 
 
 
 
 
 
 
Profit/(loss) before taxation
(42,624
)
24,918

50,200

23,835


8,659

 
 
 
 
 
 
 
Other information
 
 
 
 
 
 
Capital expenditure
71,106

14,748

3,206

1,998

(11,687
)
79,371

 
 
 
 
 
 
 
Statement of financial position
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
Segment assets
2,223,343

297,063

857,192

1,254,860

(3,883,100
)
749,358

Investment in associates



11,002


11,002

Consolidated total assets
2,223,343

297,063

857,192

1,265,862

(3,883,100
)
760,360

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
Segment liabilities
(1,850,175
)
(285,038
)
(620,977
)
(980,728
)
3,540,031

(196,887
)
Consolidated total liabilities
(1,850,175
)
(285,038
)
(620,977
)
(980,728
)
3,540,031

(196,887
)

 
82
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


38.    Segment information (continued)
 
 
 SA distribution
R'000

 Foreign distribution
R'000

 Product development
R'000

 Group services
R'000

 Eliminations
R'000

 Total
R'000

30 June 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
 
External revenues
 
 
522,381

285,399

53,026

7,772


878,578

Inter-segmental revenue
 
 
(10,671
)
(13,584
)
(153,827
)
(23,064
)
201,146

(201,146
)
Total Segment revenue
 
 
521,710

271,815

(100,801
)
(15,292
)
201,146

1,079,724

 
 
 
 
 
 
 
 
 
Interest income
 
 
2

154

10

8,934

(8,884
)
216

Interest expense
 
 
(12,770
)
(300
)

(10,192
)
8,884

(14,378
)
Depreciation & amortization
 
 
(58,740
)
(10,316
)
(9,334
)
(4,207
)

(82,597
)
Income from equity accounted investments
 
 

2,131




2,131

Other material non-cash items:
 
 
 
 
 
 
 
 
- Impairments
 
 
(16,734
)
(53,699
)



(70,433
)
 
 
 
 
 
 
 
 
 
Profit/(loss) before taxation
 
 
(8,209
)
(60,310
)
16,317

(10,683
)

(62,885
)
 
 
 
 
 
 
 
 
 
Other information
 
 
 
 
 
 
 
 
Capital expenditure
 
 
75,003

12,337

1,609



88,949

 
 
 
 
 
 
 
 
 

 
83
 


DigiCore Holdings Limited
(Registration number 1998/012601/06)
Group Financial Statements for the year ended 30 June 2015

Notes to the Group Financial Statements


 
 2015
R'000

 2014
R'000

 2013
R'000

38.    Segment information (continued)
 
 
 
 
 
 
 
Geographical Information
 
 
 
Revenue
 
 
 
South Africa
561,890

594,880

593,179

Europe & UK
237,101

230,884

220,346

Australia
59,536

66,179

65,053

 
858,527

891,943

878,578

Profit / (Loss) before tax
 
 
 
South Africa
72,321

(41,259
)
(2,575
)
Europe & UK
14,351

48,527

(63,304
)
Australia
37

1,391

2,994

 
86,709

8,659

(62,885
)
 
 
 
 
 
 
 2015
R'000

 2014
R'000

Non-current assets other than financial instruments and deferred tax
 
 
 
South Africa
 
240,469

274,708

Europe & UK
 
82,039

93,720

Australia
 
3,237

3,698

 
 
325,745

372,126



 
84
 
Exhibit


Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The accompanying unaudited pro forma condensed combined financial statements present the pro forma combined financial position and results of operations of the combined businesses of Novatel Wireless, Inc. (the “Company”), R.E.R. Enterprises, Inc. (“RER”), which was acquired by the Company on March 27, 2015 (see Note 2, RER Acquisition), and DigiCore Holdings Limited (“DigiCore”), which the Company acquired on October 5, 2015 (the “Closing Date”). These unaudited pro forma condensed combined financial statements are based on the historical financial statements of the Company, RER and DigiCore, after giving effect to the acquisitions of both RER and DigiCore and adjustments described in the following footnotes, and are intended to reflect the impact of the DigiCore acquisition on the Company.

The Company completed its acquisition of DigiCore on October 5, 2015. The total preliminary purchase price was approximately $80.0 million and included (1) a cash payment for all of the outstanding ordinary shares of DigiCore and the purchase of in-the-money vested stock options held by DigiCore employees on the Closing Date and (2) the portion of the fair value of replacement equity awards issued to DigiCore employees that related to services performed prior to the Closing Date. There is no contingent consideration provided for in the purchase agreement.

The pro forma adjustments are preliminary and are based upon available information and certain assumptions, described in the accompanying notes to the unaudited pro forma condensed combined financial information, that management believes are reasonable under the circumstances. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined financial information has been prepared by management in accordance with the regulations of the Securities and Exchange Commission (the “SEC”) and is not necessarily indicative of the condensed combined financial position or results of operations that would have been realized had the acquisition occurred as of the dates indicated, nor is it meant to be indicative of any anticipated condensed combined financial position or future results of operations that the combined business will experience after the acquisition. In addition, the accompanying unaudited pro forma condensed combined statement of operations does not include any expected cost savings or restructuring actions which may be undertaken or achievable subsequent to the acquisition or the impact of any non-recurring activity and one-time transaction related costs.

The fair value of DigiCore’s identifiable tangible and intangible assets acquired and liabilities assumed are based on a preliminary estimate of their fair value as of September 30, 2015. Any excess of the purchase price over the fair value of identified assets acquired and liabilities assumed will be recognized as goodwill. The establishment of the fair value of consideration for acquisitions requires the extensive use of significant estimates and management’s judgment. Significant judgment is required in determining the estimated fair values of in-process research and development, identifiable intangible assets, certain tangible assets and certain liabilities assumed. Such a valuation requires estimates and assumptions including, but not limited to, determining the timing and estimated costs to complete each in-process project, estimating future cash flows and direct costs, and developing the appropriate discount rates and current market profit margins. Management believes the fair values recognized for the assets to be acquired and liabilities to be assumed are based on reasonable estimates and assumptions based on information currently available. Preliminary fair value estimates may change as additional information becomes available and such changes could be material.






Certain financial information of DigiCore as presented in its combined financial information has been adjusted to reflect certain reclassifications of DigiCores combined financial information prepared in accordance with International Financial Reporting Standards (“IFRS”) to be consistent with the Company's consolidated financial information prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for purposes of preparing the unaudited pro forma condensed combined financial information. This unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes and assumptions as well as the following information, including the applicable underlying financial information of the Company and RER or DigiCore:
Current Reports on Form 8-K (including 8-K/As) filed by the Company with the SEC on April 1, 2015, June 3, 2015, June 10, 2015, June 24, 2015, September 3, 2015 and October 5, 2015;
Unaudited Consolidated Financial Statements of the Company, and notes thereto, as of and for the three and nine months ended September 30, 2015, included in the Company's Quarterly Report on Form 10-Q filed with the SEC on November 6, 2015;
Audited Consolidated Financial Statements of the Company, and notes thereto, as of and for the year ended December 31, 2014, included in the Company's Annual Report on Form 10-K filed with the SEC on March 9, 2015;
Unaudited interim financial statements of DigiCore, and notes thereto, as of and for the six months ended December 31, 2014 and 2013, prepared in accordance with IFRS included as Annex B to the Company’s Schedule 14A filed with the SEC on July 30, 2015;
Audited financial statements of DigiCore, and notes thereto, as of June 30, 2014 and 2013 and for the years ended June 30, 2014, 2013 and 2012, prepared in accordance with IFRS included as Annex C to the Company’s Schedule 14A filed with the SEC on July 30, 2015; and
Audited financial statements of DigiCore, and notes thereto, as of June 30, 2015 and 2014 and for the years ended June 30, 2015, 2014 and 2013, prepared in accordance with IFRS and filed by the Company with the SEC concurrently with these unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined balance sheet reflects the acquisition as if it had been consummated on September 30, 2015. The Company has utilized DigiCore’s condensed combined balance sheet as of June 30, 2015 as an estimate of DigiCore’s balance sheet as of September 30, 2015. The balance sheet has been converted from South African Rand (“Rand”) to U.S. Dollars (“USD”) at the September 30, 2015 spot exchange rate of 14.0449 Rand per USD.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2014 combines each of the Company’s and RER’s historical results for the fiscal year ended December 31, 2014 with DigiCore’s historical results for the year ended December 31, 2014 as if the transactions had been consummated on January 1, 2014. DigiCore’s fiscal year-end is June 30, so the DigiCore historical statement of operations for the year ended December 31, 2014 is derived from its June 30, 2014 audited financial statements and its unaudited interim financial statements for the six months ended December 31, 2013 and 2014. The DigiCore condensed consolidated statement of operations has been converted from Rand to USD at the average daily exchange rate for the year ended December 31, 2014 of 10.8427 Rand per USD.

The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2015 combines the Company’s and RER’s historical results for the nine months ended September 30, 2015 with DigiCore’s estimated historical results for the nine months ended September 30, 2015 as if the acquisitions of RER and DigiCore had been consummated on January 1, 2015. DigiCore’s operating results for the nine months ended September 30, 2015 have been derived from its June 30, 2015 audited financial statements and its unaudited interim financial statements for the six months ended December 31, 2014. The DigiCore condensed consolidated statement of operations has been converted from Rand to USD using the average daily exchange rate for the nine months ended September 30, 2015 of 12.2492 Rand per USD.





NOVATEL WIRELESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2015
(In thousands)
 
Historical Novatel
 
Historical
DigiCore
(June 30, 2015)
(Note 3)
 
Pro Forma Adjustments
(Note 5)
 
Pro Forma Combined
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
10,219

 
$
5,430

 
$
(1,408
)
(a)
$
14,241

Accounts receivable, net
34,145

 
11,832

 

 
45,977

Inventories
40,197

 
4,092

 
4,915

(c)
49,204

Prepaid expenses and other
9,297

 

 

 
9,297

Total current assets
93,858

 
21,354

 
3,507

 
118,719

Property and equipment, net
3,869

 
11,525

 

 
15,394

Intangible assets, net
18,945

 
7,824

 
21,786

(a)(e)
48,555

Acquisition-related escrow
77,957

 

 
(77,957
)
(a)

Goodwill
3,194

 
12,511

 
7,779

(a)
23,484

Deferred taxes

 
3,225

 

 
3,225

Other assets
201

 
1,425

 


1,626

Total assets
$
198,024

 
$
57,864

 
$
(44,885
)
 
$
211,003

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Revolving credit facility, current portion
$

 
$
4,614

 
$

 
$
4,614

Accounts payable
28,057

 
4,040

 

 
32,097

Accrued expenses and other liabilities
24,483

 
2,249

 
666

(b)(j)
27,398

Taxes payable

 
164

 

 
164

Total current liabilities
52,540

 
11,067

 
666

 
64,273

Convertible notes
80,350

 

 


80,350

Deferred tax

 
84

 

 
84

Other long-term liabilities
15,851

 
1,206

 

 
17,057

Total liabilities
148,741

 
12,357

 
666

 
161,764

Non-controlling interest

 
(93
)
 
230

(a)
137

Total stockholders’ equity
49,283

 
45,600

 
(45,781
)
(a)(b)(c)(e)(j)
49,102

Total liabilities and stockholders’ equity
$
198,024

 
$
57,864

 
$
(44,885
)
 
$
211,003



See accompanying notes to unaudited pro forma condensed combined financial statements.






NOVATEL WIRELESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2014
(In thousands, except per share data)
 
Pro Forma Novatel and RER
(Note 2)
 
Historical
DigiCore
(Note 3)
 
Pro Forma Adjustments
(Note 5)
 
Pro Forma Combined
Net revenues
$
206,998

 
$
84,342

 
$
(93
)
(d)
$
291,247

Cost of net revenues
162,313

 
35,479

 
1,735

(d)(e)(g)
199,527

Gross profit
44,685

 
48,863

 
(1,828
)
 
91,720

Operating costs and expenses:
 
 
 
 
 
 
 
Research and development
35,846

 
5,175

 
368

(g)(i)
41,389

Sales and marketing
17,254

 
26,423

 
501

(g)(i)
44,178

General and administrative
18,827

 
15,944

 
1,108

(g)(i)
35,879

Amortization of purchased intangible assets
1,882

 
1,269

 
1,054

(e)
4,205

Shareholder litigation loss
790

 

 

 
790

Restructuring charges
7,760

 

 

 
7,760

Total operating costs and expenses
82,359

 
48,811

 
3,031

 
134,201

Operating income (loss)
(37,674
)
 
52

 
(4,859
)
 
(42,481
)
Other income (expense):
 
 
 
 
 
 
 
Change in fair value of warrant liability
(3,280
)
 

 

 
(3,280
)
Interest income (expense), net
(92
)
 
(896
)
 
(15,046
)
(f)
(16,034
)
Other income (expense), net
(138
)
 
2,443

 

 
2,305

Income (loss) before income taxes
(41,184
)
 
1,599

 
(19,905
)
 
(59,490
)
Income tax provision
124

 
313

 

 
437

Net income (loss)
(41,308
)
 
1,286

 
(19,905
)
 
(59,927
)
Recognition of beneficial conversion feature
(445
)
 

 

 
(445
)
Net income (loss)
(41,753
)
 
1,286

 
(19,905
)
 
(60,372
)
Non-controlling interest

 
101

 

 
101

Net income (loss) attributable to common shareholders
$
(41,753
)
 
$
1,387

 
$
(19,905
)
 
$
(60,271
)
Per share data:
 
 
 
 
 
 
 
Net income (loss) per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic and diluted
$
(0.93
)
 
 
 
 
 
$
(1.34
)
Weighted-average shares used in computation of basic and diluted net income (loss) per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic and diluted
45,010

 
 
 
 
 
45,010



See accompanying notes to unaudited pro forma condensed combined financial statements.






NOVATEL WIRELESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2015
(In thousands, except per share data)
 
Pro Forma Novatel and RER
(Note 2)
 
Historical
DigiCore
(Note 3)
 
Pro Forma Adjustments
(Note 5)
 
Pro Forma Combined
Net revenues
$
167,957

   
$
49,936

 
$
(798
)
(d)
$
217,095

Cost of net revenues
123,489

  
13,736

 
566

(d)(e)(g)
137,791

Gross profit
44,468

 
36,200

 
(1,364
)
 
79,304

Operating costs and expenses:
 
 
 
 
 
 
 
Research and development
28,655

  
3,340

 
222

(g)(i)
32,217

Sales and marketing
13,144

  
18,228

 
311

(g)(i)
31,683

General and administrative
23,580

  
13,214

 
(1,185
)
(a)(g)(i)
35,609

Amortization of purchased intangible assets
1,407

  
673

 
1,069

(e)
3,149

Restructuring charges
789

 

 

 
789

Total operating costs and expenses
67,575

 
35,455

 
417

 
103,447

Operating income (loss)
(23,107
)
 
745

 
(1,781
)
 
(24,143
)
Other income (expense):
 
 
 
 
 
 
 
Non-cash change in acquisition-related escrow
(10,317
)
 

 
10,317

(h)

Interest expense, net
(3,342
)
  
(671
)
 
(11,285
)
(f)
(15,298
)
Other income (expense), net
(655
)
  
6,922

 

 
6,267

Income (loss) before income taxes
(37,421
)
 
6,996

 
(2,749
)
 
(33,174
)
Income tax provision
139

 
(586
)
 

 
(447
)
Net income (loss)
(37,560
)
 
7,582

 
(2,749
)
 
(32,727
)
Non-controlling interest

 
(77
)
 

 
(77
)
Net income (loss) attributable to common shareholders
$
(37,560
)
 
$
7,505

 
$
(2,749
)
 
$
(32,804
)
Per share data:
 
 
 
 
 
 
 
Net income (loss) per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic and diluted
$
(0.70
)
 
 
 
 
 
$
(0.61
)
Weighted-average shares used in computation of basic and diluted net income (loss) per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic and diluted
53,843

 
 
 
 
 
53,843



See accompanying notes to unaudited pro forma condensed combined financial statements.






NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1.    DigiCore Acquisition
On October 5, 2015, the Company acquired all of the outstanding ordinary shares of DigiCore. The total preliminary purchase price was $80.0 million and included (1) cash consideration of $79.4 million for all of the outstanding ordinary shares of DigiCore at 4.40 Rand per share and the purchase of in-the-money vested stock options held by DigiCore employees as of the Closing Date and (2) $0.6 million for the portion of the fair value of replacement equity awards issued to DigiCore employees that related to services performed prior to the Closing Date.

These unaudited pro forma condensed combined financial statements are intended to reflect the impact of the DigiCore acquisition on the Company, including the convertible note offering completed on June 10, 2015 (the “Notes”), a significant amount of the proceeds of which were used to fund the acquisition.

2.    RER Acquisition
On March 27, 2015, the Company acquired all of the outstanding stock of RER. The total purchase consideration related to the acquisition was $24.7 million. The Company’s results of operations for the year ended December 31, 2014 and for the nine months ended September 30, 2015 included in the accompanying unaudited pro forma condensed combined statement of operations for the year ended December 31, 2014 and for the nine months ended September 30, 2015 assume the RER acquisition was completed as of January 1, 2014 and are on the following pages.





NOVATEL WIRELESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS - NOVATEL AND RER
YEAR ENDED DECEMBER 31, 2014
(In thousands, except per share data)
 
Historical Novatel
 
Historical
RER
 
Pro Forma Adjustments
 
Pro Forma Combined
Net revenues
$
185,245

 
$
21,753

 
$

 
$
206,998

Cost of net revenues
148,198

 
13,495

 
620

(1)(2)
162,313

Gross profit
37,047

 
8,258

 
(620
)
 
44,685

Operating costs and expenses:
 
 
 
 
 
 
 
Research and development
34,314

 
1,467

 
65

(2)
35,846

Sales and marketing
13,792

 
3,420

 
42

(2)
17,254

General and administrative
15,402

 
3,350

 
75

(2)
18,827

Amortization of purchased intangible assets
562

 

 
1,320

(1)
1,882

Shareholder litigation loss
790

 

 

 
790

Restructuring charges
7,760

 

 

 
7,760

Total operating costs and expenses
72,620

 
8,237

 
1,502

 
82,359

Operating income (loss)
(35,573
)
 
21

 
(2,122
)
 
(37,674
)
Other income (expense):
 
 
 
 
 
 
 
Change in fair value of warrant liability
(3,280
)
 

 


(3,280
)
Interest income (expense), net
(85
)
 
(17
)
 
10

(3)(4)
(92
)
Other income (expense), net
(167
)
 
29

 

 
(138
)
Income (loss) before income taxes
(39,105
)
 
33

 
(2,112
)
 
(41,184
)
Income tax provision
124

 

 


124

Net income (loss)
(39,229
)
 
33

 
(2,112
)
 
(41,308
)
Recognition of beneficial conversion feature
(445
)
 

 


(445
)
Net income (loss) attributable to common shareholders
$
(39,674
)
 
$
33

 
$
(2,112
)
 
$
(41,753
)
Per share data:
 
 
 
 
 
 
 
Net income (loss) per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic and diluted
$
(1.05
)
 
 
 
 
 
$
(0.93
)
Weighted-average shares used in computation of basic and diluted net income (loss) per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic and diluted
37,959

 
 
 
7,051

(5)(6)
45,010







Pro forma adjustments for the year ended December 31, 2014:
(1)
To record estimated amortization of definite-lived intangible assets acquired for the year ended December 31, 2014 as follows (USD in thousands):
 
Estimated Useful Life (Years)
 
Preliminary
Fair Value
 
Total Amortization Expense
 
Amortization Expense Allocation
 
 
 
 
Cost of Net Revenues
 
Operating Costs and Expenses
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
In-process research and development
 
 
$
2,020

 
$

 
$

 
$

Definite-lived intangible assets:
 
 
 
 
 
 
 
 
 
Developed technologies
6.0
 
3,660

 
610

 
610

 

Customer relationships
10.0
 
8,500

 
850

 

 
850

Trademarks
10.0
 
4,700

 
470

 

 
470

Total intangible assets acquired
 
 
18,880

 
$
1,930

 
$
610

 
$
1,320

Less: RER book value of intangible assets
 
 
(87
)
 
 
 
 
 
 
Pro forma adjustment to intangible assets
 
 
$
18,793

 
 
 
 
 
 
(2)
To record annualized share-based compensation expense for RER employees granted Company stock options at the RER closing date.
(3)
To eliminate the interest expense related to debt and certain capital leases of RER paid off at the RER closing date.
(4)
To reduce interest income due to the assumed net decrease in the Companys cash balance of $2.0 million ($10.6 million payment related to the RER acquisition, less $8.6 million in proceeds from the exercise of warrants).
(5)
To reflect the obligation to issue approximately 3.2 million shares in March 2016 to former RER shareholders which are assumed to be outstanding for the entire year for the purpose of calculating earnings per share for the year ended December 31, 2014.
(6)
To reflect approximately 3.8 million shares issued in connection with the exercise of warrants by a Company shareholder in March 2015 to partially fund the RER acquisition, which are assumed to be outstanding for the entire year for the purpose of calculating earnings per share for the year ended December 31, 2014. Since the original warrants were issued in September 2014 in connection with a transaction unrelated to the RER acquisition, no pro forma adjustments have been made in the unaudited pro forma condensed combined statement of operations for either the Companys historic “change in fair value of warrant liability” expense or its “recognition of beneficial conversion feature” expense.






NOVATEL WIRELESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS - NOVATEL AND RER
NINE MONTHS ENDED SEPTEMBER 30, 2015
(In thousands, except per share data)
 
Historical Novatel
 
Historical
RER
(1/1-3/27/15)
 
Pro Forma Adjustments
 
Pro Forma Combined
Net revenues
$
162,886

 
$
5,071

 
$

 
$
167,957

Cost of net revenues
120,461

 
2,881

 
147

(1)(2)
123,489

Gross profit
42,425

 
2,190

 
(147
)
 
44,468

Operating costs and expenses:
 
 
 
 
 
 
 
Research and development
28,135

 
505

 
15

(2)
28,655

Sales and marketing
12,403

 
731

 
10

(2)
13,144

General and administrative
23,462

 
1,529

 
(1,411
)
(2)(3)
23,580

Amortization of purchased intangible assets
1,096

 

 
311

(1)
1,407

Restructuring charges
789

 

 

 
789

Total operating costs and expenses
65,885

 
2,765

 
(1,075
)
 
67,575

Operating income (loss)
(23,460
)
 
(575
)
 
928

 
(23,107
)
Other income (expense):
 
 
 
 
 
 
 
Non-cash change in acquisition-related escrow
(10,317
)
 

 

 
(10,317
)
Interest income (expense), net
(3,319
)
 
(25
)
 
2

(4)(5)
(3,342
)
Other income (expense), net
(658
)
 
3

 

 
(655
)
Income (loss) before income taxes
(37,754
)
 
(597
)
 
930

 
(37,421
)
Income tax provision
139

 

 


139

Net income (loss) attributable to common shareholders
$
(37,893
)
 
$
(597
)
 
$
930

 
$
(37,560
)
Per share data:
 
 
 
 
 
 
 
Net income (loss) per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic and diluted
$
(0.73
)
 
 
 
 
 
$
(0.70
)
Weighted-average shares used in computation of basic and diluted net income (loss) per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic and diluted
51,648

 
 
 
2,195

(6)(7)
53,843






Pro forma adjustments for the nine months ended September 30, 2015:
(1)
To record estimated amortization of definite-lived intangible assets acquired for the period January 1, 2015 through March 27, 2015 as follows (USD in thousands):
 
Estimated Useful Life (Years)
 
Preliminary
Fair Value
 
Total Amortization Expense
 
Amortization Expense Allocation
 
 
 
 
Cost of Net Revenues
 
Operating Costs and Expenses
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
In-process research and development
 
 
$
2,020

 
$

 
$

 
$

Definite-lived intangible assets:
 
 
 
 
 
 
 
 
 
Developed technologies
6.0
 
3,660

 
144

 
144

 

Customer relationships
10.0
 
8,500

 
200

 

 
200

Trademarks
10.0
 
4,700

 
111

 

 
111

Total intangible assets acquired
 
 
18,880

 
$
455

 
$
144

 
$
311

Less: RER book value of intangible assets
 
 
(87
)
 
 
 
 
 
 
Pro forma adjustment to intangible assets
 
 
$
18,793

 
 
 
 
 
 
(2)
To record share-based compensation expense for the period January 1, 2015 through March 27, 2015 for RER employees granted Company stock options on the RER closing date.
(3)
To eliminate bonuses and transaction costs paid by former RER shareholders in connection with the sale of RER to the Company which were recorded as expenses in RER’s historical operating results for the period January 1, 2015 through March 27, 2015 but which were deducted from the purchase consideration the Company paid to the RER shareholders and transaction expenses incurred by the Company.
(4)
To eliminate interest expense related to debt and certain capital leases of RER paid off at the RER closing date.
(5)
To reduce interest income due to the assumed net decrease in the Companys cash balance of $2.0 million ($10.6 million paid related to the RER acquisition, less $8.6 million proceeds from exercise of warrants).
(6)
To reflect the obligation to issue approximately 3.2 million shares in March 2016 to former RER shareholders which is assumed to be outstanding for the entire year for the purpose of calculating earnings per share for the nine months ended September 30, 2015.
(7)
To reflect approximately 3.8 million shares issued in connection with the exercise of warrants by a Company shareholder in March 2015 to partially fund the RER acquisition, which are assumed to be outstanding for the entire nine month period for the purpose of calculating earnings per share for the nine months ended September 30, 2015. Since the original warrants were issued in September 2014 in connection with a transaction unrelated to the RER acquisition, no pro forma adjustments have been made in the unaudited pro forma condensed combined statement of operations for either the Companys historic “change in fair value of warrant liability” expense or its “recognition of beneficial conversion feature” expense.
3.
DigiCore Basis of Presentation; Adjustments from IFRS to U.S. GAAP and Foreign Currency Translation

The acquisition of DigiCore has been accounted for as a business combination using the acquisition method of accounting under the provisions of Accounting Standards Codification Topic No. 805, Business Combinations.

In accordance with South African public company reporting requirements, while listed on the Johannesburg Stock Exchange DigiCore would file audited financial statements for its fiscal year, which ended on June 30, and file six month interim unaudited financial statements for the six month periods ended December 31. DigiCore’s most recently published financial statements are as of and for the year ended June 30, 2015. DigiCore’s IFRS statement of operations for the year ended December 31, 2014 has been derived from DigiCore’s IFRS operating results for the six months ended June 30, 2014, which in turn were derived from a combination of DigiCore’s IFRS operating results for the year ended June 30, 2014 and the six months ended December 31, 2013 and 2014. DigiCore’s IFRS statement of operations for the nine months ended September 30, 2015 has been derived from DigiCore’s IFRS operating results for the six months ended June 30, 2015, which in turn were derived from a combination of DigiCore’s IFRS operating results for the year ended June 30, 2015 and the six months ended December 31, 2014. The Company has also used DigiCore’s IFRS balance sheet at June 30, 2015 as an estimate of DigiCore’s IFRS balance sheet as of September 30, 2015. The DigiCore financial information reflected in the pro forma financial information has been adjusted for differences between





IFRS and U.S. GAAP and translated from Rand into USD as noted below. In addition, certain financial statement captions were changed from DigiCore’s IFRS financial statements to conform to the Company’s financial statement captions.
Unaudited DigiCore Balance Sheet Presented in U.S. GAAP as of September 30, 2015

The following table reflects the adjustments made to DigiCore’s September 30, 2015 consolidated balance sheet to convert from IFRS to U.S. GAAP and from Rand to USD using the September 30, 2015 spot exchange rate of 14.0449 Rand per USD. The IFRS to U.S. GAAP adjustment was to eliminate the portion of intangible assets related to hardware development costs that are not allowed to be capitalized under U.S. GAAP.

DIGICORE HOLDINGS LIMITED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2015
(In thousands)
 
DigiCore
IFRS
(Rand)
 
IFRS to U.S. GAAP Adjustments
(Rand)
 
DigiCore
U.S. GAAP
(Rand)
 
DigiCore
U.S. GAAP
(USD)
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
R
76,259

 
R

 
R
76,259

 
$
5,430

Accounts receivable, net
166,174

 

 
166,174

 
11,832

Inventories
57,473

 

 
57,473

 
4,092

Total current assets
299,906

 

 
299,906

 
21,354

Property and equipment, net
161,866

 

 
161,866

 
11,525

Intangible assets, net
114,207

 
(4,326
)
 
109,881

 
7,824

Goodwill
175,720

 

 
175,720

 
12,511

Deferred taxes
45,289

 

 
45,289

 
3,225

Other assets
20,020

 

 
20,020

 
1,425

Total assets
R
817,008

 
R
(4,326
)
 
R
812,682

 
$
57,864

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Revolving credit facility, current portion
R
64,808

 
R

 
R
64,808

 
$
4,614

Accounts payable
56,738

 

 
56,738

 
4,040

Accrued expenses and other liabilities
31,578

 

 
31,578

 
2,249

Taxes payable
2,310

 

 
2,310

 
164

Total current liabilities
155,434

 

 
155,434

 
11,067

Revolving credit facility

 

 

 

Deferred tax
1,177

 

 
1,177

 
84

Other long-term liabilities
16,942

 

 
16,942

 
1,206

Total liabilities
173,553

 

 
173,553

 
12,357

Non-controlling interest
(1,308
)
 

 
(1,308
)
 
(93
)
Total stockholders’ equity
644,763

 
(4,326
)
 
640,437

 
45,600

Total liabilities and stockholders’ equity
R
817,008

 
R
(4,326
)
 
R
812,682

 
$
57,864







Unaudited DigiCore Statement of Operations Presented in U.S. GAAP for the Year Ended December 31, 2014

The following table reflects the adjustments made to DigiCore’s unaudited consolidated statement of operations for the year ended December 31, 2014 to convert from IFRS to U.S. GAAP and from Rand to USD using the historical daily average exchange rate for calendar year 2014 of Rand 10.8427 per USD. The IFRS to U.S. GAAP adjustments were (1) to reclassify the amounts shown as “operating expenses” and depreciation and amortization expenses in DigiCore’s IFRS-based statement of operations to costs of net revenues, and research and development, sales and marketing and general and administrative operating expenses and (2) to eliminate the net impact of hardware that is capitalized under IFRS but not allowed to be capitalized under U.S. GAAP. Financial information for DigiCore for the year ended December 31, 2014 has been used in preparing the unaudited pro forma condensed consolidated financial statements.
DIGICORE HOLDINGS LIMITED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2014
(In thousands, except per share data)
 
DigiCore
IFRS
(Rand)
 
IFRS to U.S. GAAP Adjustments
(Rand)
 
DigiCore
U.S. GAAP
(Rand)
 
DigiCore
U.S. GAAP
(USD)
Net revenues
R
914,497

 
R

 
R
914,497

 
$
84,342

Cost of net revenues
358,619

 
26,068

(1)(2)
384,687

 
35,479

Gross profit
555,878

 
(26,068
)
 
529,810

 
48,863

Operating costs and expenses:
 
 
 
 
 
 
 
Research and development

 
56,109

(1)
56,109

 
5,175

Sales and marketing

 
286,500

(1)
286,500

 
26,423

General and administrative

 
172,872

(1)
172,872

 
15,944

Operating expenses
504,207

 
(504,207
)
(1)

 

Depreciation and amortization
75,013

 
(75,013
)
(1)

 

Impairment of rental stock
4,054

 
(4,054
)
(1)

 

Amortization of purchased intangible assets

 
13,754

(1)
13,754

 
1,269

Total operating costs and expenses
583,274

 
(54,039
)
 
529,235

 
48,811

Operating income (loss)
(27,396
)
 
27,971

 
575

 
52

Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(9,717
)
 

 
(9,717
)
 
(896
)
Other income (expense), net
53,350

 
(26,858
)
(1)
26,492

 
2,443

Income before income taxes
16,237

 
1,113

 
17,350

 
1,599

Income tax provision
3,395

 

 
3,395

 
313

Net income
12,842

 
1,113

 
13,955

 
1,286

Non-controlling interest
1,098

 

 
1,098

 
101

Net income attributable to common shareholders
R
13,940

 
R
1,113

 
R
15,053

 
$
1,387

Per share data:
 
 
 
 
 
 
 
Net income per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic
R
0.058

 
 
 
R
0.063

 
$
0.006

Diluted
R
0.056

 
 
 
R
0.060

 
$
0.006

Weighted-average shares used in computation of basic and diluted net income per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic
239,607

 
 
 
239,607

 
239,607

Diluted
250,159

 


 
250,159

 
250,159







Unaudited DigiCore Statement of Operations presented in U.S. GAAP for the Nine Months Ended September 30, 2015

The following table reflects the adjustments made to DigiCores unaudited consolidated statement of operations for the nine months ended September 30, 2015 to convert from IFRS to U.S. GAAP and from Rand to USD using the historical daily average exchange rate for the nine month period of 12.2492 Rand per USD. The IFRS to U.S. GAAP adjustment made were (1) to reclassify the amounts shown as “operating expenses” and depreciation and amortization expenses in DigiCore’s IFRS-based statement of operations to costs of net revenues, and research and development, sales and marketing and general and administrative operating expenses and (2) to eliminate the net impact of hardware that is capitalized under IFRS but not allowed to be capitalized under U.S. GAAP. Financial information for DigiCore for the six months ended June 30, 2015 has been used in preparing the unaudited pro forma condensed consolidated financial statements for the nine months ended September 30, 2015.
DIGICORE HOLDINGS LIMITED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2015
(In thousands, except per share data)
 
DigiCore
IFRS
(Rand)
 
IFRS to U.S. GAAP Adjustments
(Rand)
 
DigiCore
U.S. GAAP
(Rand)
 
DigiCore
U.S. GAAP
(USD)
Net revenues
R
611,670

 
R

 
R
611,670

 
$
49,936

Cost of net revenues
169,331

 
(1,078
)
(1)(2)
168,253

 
13,736

Gross profit
442,339

 
1,078

 
443,417

 
36,200

Operating costs and expenses:
 
 
 
 
 
 
 
Research and development

 
40,917

(1)
40,917

 
3,340

Sales and marketing

 
223,275

(1)
223,275

 
18,228

General and administrative

 
161,863

(1)
161,863

 
13,214

Operating expenses
394,812

 
(394,812
)
(1)

 

Depreciation and amortization
57,305

 
(57,305
)
(1)

 

Impairment of rental stock
2,253

 
(2,253
)
(1)

 

Amortization of purchased intangible assets

 
8,243

(1)
8,243

 
673

Total operating costs and expenses
454,370

 
(20,072
)
 
434,298

 
35,455

Operating income (loss)
(12,031
)
 
21,150

 
9,119

 
745

Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(8,220
)
 

 
(8,220
)
 
(671
)
Other income (expense), net
105,746

 
(20,953
)
(1)
84,793

 
6,922

Income before income taxes
85,495

 
197

 
85,692

 
6,996

Income tax provision
(7,184
)
 

 
(7,184
)
 
(586
)
Net income
92,679

 
197

 
92,876

 
7,582

Non-controlling interest
(941
)
 

 
(941
)
 
(77
)
Net income attributable to common shareholders
R
91,738

 
R
197

 
R
91,935

 
$
7,505

Per share data:
 
 
 
 
 
 
 
Net income (loss) per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic
R
0.382

 
 
 
R
0.383

 
$
0.031

Diluted
R
0.357

 
 
 
R
0.358

 
$
0.029

Weighted-average shares used in computation of basic and diluted net income (loss) per share attributable to common shareholders:
 
 
 
 
 
 
 
Basic
239,869

 
 
 
239,869

 
239,869

Diluted
256,753

 


 
256,753

 
256,753






4.
Preliminary Purchase Price Allocation

The total preliminary purchase price was approximately $80.0 million and included (1) cash consideration of $79.4 million for all of the outstanding ordinary shares of DigiCore at 4.40 Rand per share and the purchase of in-the-money vested stock options held by DigiCore employees as of the Closing Date and (2) $0.6 million for the portion of the fair value of replacement equity awards issued to DigiCore employees that related to services performed prior to the Closing Date. Under the acquisition method of accounting, the total purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price was allocated using the information currently available.

The purchase price in excess of fair value of the tangible and identifiable intangible assets acquired less liabilities assumed is recognized as goodwill. The preliminary allocation of the purchase price estimated at September 30, 2015 is as follows (USD in thousands):
Estimated fair value of net tangible assets acquired and liabilities assumed:
 
 
 
Cash
$
5,430

 
 
Accounts receivable
11,832

 
 
Inventory
9,145

 
 
Property and equipment
11,525

 
 
Other assets
4,650

 
 
Revolving credit facility
(4,614
)
 
 
Accounts payable
(4,040
)
 
 
Accrued and other current liabilities
(2,413
)
 
 
Other long-term liabilities
(1,290
)
 
 
Non-controlling interests
(137
)
 
$
30,088

 
 
 
 
Estimated fair value of identifiable intangible assets acquired:
 
 
 
Developed technologies
10,640

 
 
Customer relationships
4,260

 
 
Trade name
14,710

 
29,610

 
 
 
 
Total purchase price, excluding goodwill
 
 
59,698

Goodwill
 
 
20,290

Total purchase price
 
 
$
79,988


The above preliminary purchase price allocation is based on the estimated fair value of identifiable tangible and intangible net assets as of September 30, 2015 and uses assumptions which the Company believes are reasonable based on currently available information. The Company will update these estimates and assumptions which could change significantly during the purchase price measurement period as it finalizes the valuations of the tangible and intangible assets.

5.    Assumptions for Pro Forma Adjustments
The accompanying unaudited pro forma combined condensed financial statements have been prepared as if the acquisition was completed on September 30, 2015 for balance sheet purposes and on January 1, 2014 for statement of operations purposes. The fair value allocation amounts in the unaudited pro forma condensed combined financial statements have been modified as necessary to reflect differences in fair values during the respective pro forma period and at September 30, 2015. The estimated adjustments to reflect the pro forma values are as follows:

(a)
To reflect the acquisition of DigiCore for consideration of approximately $80.0 million and the elimination of nonrecurring transaction costs incurred by the Company through September 30, 2015 of approximately $1.8 million that are directly related to the acquisition of DigiCore.

(b)
To reflect nonrecurring transaction costs of approximately $0.1 million and $0.4 million incurred by the Company and DigiCore, respectively, subsequent to September 30, 2015 that are directly related to the acquisition of DigiCore.





(c)
To record the estimated fair value adjustment of approximately $5.1 million to DigiCore’s inventory as of September 30, 2015. The statement of operations effect of the fair value step-up to increase the book value of DigiCore’s inventory is not reflected as such adjustment is non-recurring in nature. Also includes a reduction in DigiCore’s ending inventory at September 30, 2015 to eliminate the Company's gross margin on products sold to DigiCore that were still in DigiCore’s inventory at that date.

(d)
To eliminate from the Company’s revenues and DigiCore’s cost of revenues product sales transactions between the Company, as supplier, and DigiCore, as customer, of approximately $0.1 million for the year ended December 31, 2014 and approximately $0.8 million for the nine months ended September 30, 2015.

(e)
To record the estimated fair value of the DigiCore intangible assets acquired, as well as estimated amortization of definite-lived intangible assets acquired for the year ended December 31, 2014 and the nine months ended September 30, 2015 as follows (USD in thousands):

Year Ended December 31, 2014
 
Estimated Useful Life (Years)
 
Preliminary
Fair Value
 
Total Amortization Expense
 
Amortization Expense Allocation
 
 
 
 
Cost of Net Revenues
 
Operating Costs and Expenses
Definite-lived intangible assets:
 
 
 
 
 
 
 
 
 
Developed technologies
6.0
 
$
10,640

 
$
1,773

 
$
1,773

 
$

Customer relationships
5.0
 
4,260

 
852

 

 
852

Trade name
10.0
 
14,710

 
1,471

 

 
1,471

Total intangible assets acquired
 
 
29,610

 
$
4,096

 
$
1,773

 
2,323

Less: DigiCore book value of intangible assets and historical amortization expense, respectively
 
 
(7,824
)
 
 
 
 
 
(1,269
)
Pro forma adjustment
 
 
$
21,786

 
 
 
 
 
$
1,054


Nine Months Ended September 30, 2015
 
Estimated Useful Life (Years)
 
Preliminary
Fair Value
 
Total Amortization Expense
 
Amortization Expense Allocation
 
 
 
 
Cost of Net Revenues
 
Operating Costs and Expenses
Definite-lived intangible assets:
 
 
 
 
 
 
 
 
 
Developed technologies
6.0
 
$
10,640

 
$
1,330

 
$
1,330

 
$

Customer relationships
5.0
 
4,260

 
639

 

 
639

Trade name
10.0
 
14,710

 
1,103

 

 
1,103

Total intangible assets acquired
 
 
29,610

 
$
3,072

 
$
1,330

 
1,742

Less: DigiCore book value of intangible assets and historical amortization expense, respectively
 
 
(7,824
)
 
 
 
 
 
(673
)
Pro forma adjustment
 
 
$
21,786

 
 
 
 
 
$
1,069


(f)
To reflect the interest expense, including amortization of debt issuance costs and amortization of debt discount, on the Notes for the year ended December 31, 2014 and the nine months ended September 30, 2015 as follows (USD in thousands):
 
Year Ended
December 31, 2014
 
Nine Months Ended
September 30, 2015
Interest at 5.50%
$
6,600

 
$
4,950

Amortization of debt issuance costs
526

 
395

Amortization of debt discount
7,920

 
5,940

Total interest expense
$
15,046

 
$
11,285

(g)
To record additional share-based compensation expense of approximately $1.0 million for the year ended December 31, 2014 and approximately $0.7 million for the nine months ended September 30, 2015 for DigiCore employees granted Company stock options on the Closing Date.





(h)
To eliminate nonrecurring foreign exchange losses related to the acquisition-related escrow account incurred through September 30, 2015 that are directly related to the acquisition of DigiCore.
(i)
To reflect the compensation expense of cash bonuses to be paid to certain DigiCore executives in consideration of their terminating their prior employment agreements and entering into new employment agreements on the Closing Date. The bonuses are to be paid in eight equal quarterly installments with the first installment due upon the closing of the acquisition.
(j)
To reflect the accrued liability of the first installment of the executive bonuses due upon the closing of the acquisition.