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Basic Financial Literacy Education MARCH 2010. 2 Key role players –Shareholders –Directors –Secretary –Company –Auditors Annual Financial Statements –Statement.

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Presentation on theme: "Basic Financial Literacy Education MARCH 2010. 2 Key role players –Shareholders –Directors –Secretary –Company –Auditors Annual Financial Statements –Statement."— Presentation transcript:

1 Basic Financial Literacy Education MARCH 2010

2 2 Key role players –Shareholders –Directors –Secretary –Company –Auditors Annual Financial Statements –Statement of comprehensive income (Income statement) Revenue Operating expenses –Statement of financial position (Balance sheet) Assets Liabilities Shareholders equity / Net Asset Value –Statement of cash flows (Cash flow statement) Contents

3 3 Shareholders Invest in the company through the purchase of shares; Each share represents a proportionate ownership of the Company in relation to the total number of shares issued by the Company; In a company with 100 000 issued shares a shareholding of 10 000 shares represents a 10% ownership of that company. Key role players

4 4 Benefits and risks of being a shareholder Shareholders invest in a Company with a view of achieving a return through dividends and capital growth: Dividends –A company may declare a dividend if it is allowed to by law and if the directors so decide; –There is no guarantee that dividends will be paid annually; –Ordinary shareholders have no right to a dividend until declared by the Company. Capital growth –A shareholder makes a profit if shares are worth more (or sold for) more than what the shareholder paid for the shares. –But a shareholder can make a loss if shares are worth (or sold for) less than what the shareholder paid for the shares. Key role players

5 5 Rands Bought 1000 shares in 2005 @ R4 per shareR4 000 Dividends received – 2009 @ 12 cents per share Dividends received – 2010 @ 14 cents per share R120 R140 Total dividends (tax-free gain by shareholder)R260 Current valuation @ R21.25 per share Capital profit (unrealised) R21 250 R17 250 If the shareholder sells all 1000 shares in 2012, assume the selling price is R11.00 per share (hypothetical price) therefore the realised capital profit will be R11 000 R7 000 Example of returns for an Eyomhlaba shareholder Key role players Returns of a shareholder

6 6 Attend shareholder meetings The meetings that you as a shareholder in Eyomhlaba/Hlumisa may attend are: The annual general meeting (AGM) Any general meeting of shareholders Furthermore, you are entitled to attend the above African Bank Investments Limited meetings. VoteSpecial and ordinary resolutions as set out in the notice of shareholders’ meeting. The number of votes you have is dependent on the number of shares you hold. The more shares you hold, the more votes you have. Appoint a proxy If you cannot attend a shareholder meeting, you can arrange for someone to go to the meeting on you behalf (appoint a proxy). When you receive the notice of a meeting you will also receive a proxy form with instructions of how to appoint a proxy. Key role players Rights as a shareholder

7 Key role players Directors Appointed by shareholders to run the affairs of the Company in a manner that enhances shareholders’ wealth; Directors have a fiduciary duty towards the Company in terms of law (Companies Act of 1973) (i.e. entrusted to act in the interest of the Company at all times); Conduct of the directors governed by the Companies Act and the Articles of Association of the Company; The directors approve the annual financial statements presented to the shareholders; Directors present a report to shareholders annually in a format prescribed by the Companies Act; Eyomhlaba’s and Hlumisa’s Articles provide for annual rotation of one-third of directors. 7

8 Key role players Secretary Appointed by the directors; Ensures notices of meetings are in accordance with the Companies Act; Ensures meetings of directors and shareholders proceed in terms of the Companies Act; Maintains minutes of shareholders’ and directors’ meetings; and Ensures all Company returns are lodged with the Registrar of Companies; 8

9 Auditors Present an audit opinion on the Company’s directors’ report, statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows and the notes to the annual financial statements as presented in the annual report; An unqualified (“clean”) audit opinion signifies that shareholders can rely on the financial statements as prepared by the directors as being fairly presented; A qualified audit report may indicate an issue in the annual financial statements and needs to be read carefully; and Shareholders approve the reappointment of auditors annually at the AGM. 9 Key role players

10 Company Limited liability i.e. shareholders are not liable for the debts of the company and stand the risk of losing only to the extent of the amounts each shareholder has invested in the Company; Governed by the Articles and Memorandum of Association. They prescribe the powers of the company and they regulate the relationships between the Company, its shareholders and directors; Eyomhlaba’s and Hlumisa’s Articles defines the Companies’ main object is that of acquiring and holding ABIL ordinary shares; and Any changes to the Articles must be approved by shareholders in a general meeting by special resolution (i.e. 75% of shareholders present at the meeting to approve the change). 10

11 Statement of comprehensive income (Income statement) 11 The income statement records the profit (or loss) realised (or incurred) during the previous 12 months ending 31 December. Profit (or loss) = Revenue / Income LESS Expenses LESS Taxes Comprehensive income (loss) = profit (or loss) plus gain/loss on revaluation of ABIL shares Retained profits will increase the Company’s Net Asset Value (“NAV”) thereby increasing the value of each shareholder’s investment in the Company. Losses will have an opposite effect.

12 12 The component parts of Eyomhlaba/Hlumisa’s comprehensive income for the year are: Statement of comprehensive income Nature Dividends receivedDividends received on the ABIL ordinary shares held during the year. The dividends received are used to purchase ABIL shares, after providing for expenses (and preference dividends) Interest receivedInterest on funds invested in the various bank accounts Operating expensesAnalysed below Finance costs (Eyomhlaba only) Preference dividend (interest) on the R150m preference shares (loan) from RMB at a fixed rate of 9,5315% p.a. Current taxation chargeIncome tax calculated based on interest income Net gains and losses arising on revaluation of available-for-sale assets Increases or decreases in the value of ABIL shares held

13 13 Operating expenses Operating expenses comprise the following items: Statement of comprehensive income Expense typeNature of expense Administration feesFees paid for transfer secretary and administration services. Audit feesFees paid to Nkonki Inc. for auditing. The fee is paid in arrears (i.e. the amount paid in 2009 is for the 2008 financial year audit) Courier, postage and stationery Costs of mailing circulars, annual and interim reports to shareholders. Directors’ feesPaid to directors that are not in ABIL’s employ Legal feesLegal fees incurred on various issues. Meeting costsCosts of AGM and roadshows Printing and designing costs Costs of designing and printing interim report, annual reports, prospectus, the rights offer circular (Hlumisa only), share certificates, statements, etc. Other costsMiscellaneous costs such as branding and travel costs

14 Statement of financial position (Balance Sheet) Reports the assets owned by the Company, liabilities owed by the Company to its lenders / creditors and the shareholders equity (i.e. the difference between assets and liabilities) at year-end. The above can be presented as the following formula: Shareholders equity = Assets LESS Liabilities An asset is an item owned by the Company with an intention of realising benefits from it. A liability is what the Company owes to its creditors (supplier of goods and services) and/or lenders. 14

15 15 Asset typeNature of asset InvestmentsValue of the investment in ABIL’s ordinary shares at year-end i.e. the number of shares multiplied by the JSE closing price per share Trade and other receivablesMiscellaneous amounts owed to the company Cash and cash equivalentsCash held in various bank accounts Cumulative redeemable preference shares (Eyomhlaba only) This is similar to a long-term loan granted to Eyomhlaba by Rand Merchant Bank (“RMB”). The loan was used to buy ABIL ordinary shares in the open market. The loan is due to be repaid no later than 11 Sep 2011, but can be repaid by Eyomhlaba anytime after 11 Sep 2008. Interest (preference dividend) is paid twice a year (June and Dec) at a fixed rate of 9,5315% p.a. Deferred taxationThis is a provision for capital gains tax (“CGT”) that would be payable if all the ABIL shares held at year-end were disposed of. (Explained in detail in following slide) Other payablesMiscellaneous amounts owed by the company at year-end Shareholders for dividendsRepresents unclaimed ordinary dividends TaxationIncome tax due to SARS Scheme participants’ fundsAmounts owed due to unknown deposits and repayable to shareholders for oversubscriptions Statement of financial position

16 16 Eyomhlaba R000 Hlumisa R000 Investments at market value1 177 326449 871 Less: Cost of investments(445 286)(93 347) Capital growth in value of the investments672 040356 524 Portion of the gain taxable50% Amount taxable as a capital gain336 020178 262 Company tax rates applicable at year-end28% Deferred taxation liability94 08549 913 Deferred taxation The deferred tax liability at 31 December 2009 is determined as follows: Statement of financial position

17 17 AssetsAs analysed in more detail above Less: LiabilitiesAs analysed in more detail above SHAREHOLDERS’ EQUITYAlso referred to as net asset value (“NAV”). Expressed as NAV per share, it provides an indication of the value of each shareholder’s investment. NB: This is not the same as market value of the share as this is what is agreed between a willing buyer and a willing seller. Shareholders’ equity SHAREHOLDERS’ EQUITY = ASSETS LESS LIABILITIES Statement of financial position

18 18 Positive impactNegative impact Increase in ABIL’s share priceDecrease in ABIL’s share price Increase in the dividend per share received from ABIL Reduction by ABIL of the dividend per share Reduction in operating costsIncrease in operating expenses Number of ABIL shares held (positive)Number of ABIL shares held (negative) For Eyomhlaba and Hlumisa, the following factors impact the shareholders’ equity of the company: Statement of financial position

19 19 Nature Cash flows from operating activitiesThese are the cash flows from the company’s operations which for Eyomhlaba and Hlumisa is receiving dividends and interest, paying tax and suppliers and paying preference dividends. Cash utilised in investing activitiesThis is the cost of ABIL shares purchased during the year. Cash flows from financing activitiesThese are proceeds from shares issued by the company (ordinary or preference shares), loans raised and loans/redeemable preference shares repaid. Cash and cash equivalents at the beginning (end) of the year Represents cash balances held by the company at the beginning and end of the year This statements reports what cash the company has utilised, and in what activities, and what cash the company has raised and how. The result is the cash held by the company at the end of the year. Statement of cash flows

20 Thank you


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