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1 INTEGRATED ANNUAL REPORT 2015

2 View this report online:

3 TABLE OF CONTENTS 01 INTRODUCTION 02 BUSINESS OVERVIEW 03 Significant milestones 04 Group and Investees 05 Overview of Investee Companies 07 Overview of the Investment Manager 08 Our Business and investment strategy 11 Summary of financial results 13 Board report 15 Risk management 16 GOVERNANCE AND SUSTAINABILITY 17 Corporate governance report 29 Stakeholder engagement 30 Remuneration report 33 Sustainability report 35 Report of the Social and Ethics Committee 36 ANNUAL FINANCIAL STATEMENTS 37 Statement of responsibility by the Board of Directors 38 Statement by the Company Secretary 39 Report of the Audit and Risk Committee 40 Report of the Board of Directors 46 Independent Auditor s Report 47 Statement of Financial Position 48 Statement of Comprehensive Income 49 Statement of Changes in Equity 50 Statement of Cash Flows 51 Notes to the Annual Financial Statements 100 NOTICE OF ANNUAL GENERAL MEETING 101 Notice of Annual General Meeting 109 Form of proxy 111 Notes to Form of proxy CONTACT INFORMATION

4 DEFINITIONS ASOF AfrAsia Special Opportunities Fund (Pty) Ltd IE Rentals Integrated Equipment Rentals (Pty) Ltd B-BBEE Broad-based black economic empowerment IMBS Iron Mineral Beneficiation Services (Pty) Ltd Bidco Friedshelf 1678 Ltd JSE Johannesburg Stock Exchange Cadiz Cadiz Holdings Ltd (held indirectly via Bidco) King III King Code of Governance for South Africa 2009 CMS ConvergeNet Management Services (Pty) Ltd which changed its name to Stellar Management Services (Pty) Ltd after year-end Company Stellar Capital Partners Ltd Companies Act Companies Act No. 71 of 2008, as amended Consolidated Subsidiaries Subsidiaries that are not investment entities and whose main purpose and activities are providing services that relate to the Company s investment activities CSI Corporate Social Investment Digicore Digicore Holdings Ltd EBIT Earnings before interest and taxation EBITDA Earnings before interest, taxation, depreciation and amortisation FVTPL Fair value through profit or loss Goliath Gold Goliath Gold Mining Ltd Manco Thunder Securitisations (Pty) Ltd MRI Mine Restoration Investments Ltd NAV Net asset value attributable to equity owners of the parent NAVPS Net asset value per share attributable to equity owners of the parent Praxis Praxis Financial Services (Pty) Ltd Tellumat Tellumat (Pty) Ltd Torre Torre Industries Ltd SARS South African Revenue Service Stellar Capital Stellar Capital Partners Ltd VWAP Volume weighted average market trading price Group The Company, incorporating Consolidated Subsidiaries

5 INTRODUCTION Stellar Capital Partners Ltd is a Johannesburg Stock Exchange listed investment holding company with a combination of strategic and controlling stakes in a portfolio of investee companies that operate predominantly in the industrial and financial services sectors. SCOPE OF THIS REPORT The Board is committed to improving the quality of our reporting and disclosure each year so that it is increasingly meaningful and measurable for our stakeholders. The report has been prepared with guidance from the International Framework and using the recommendations of the King Code of Governance Principles for South Africa (King III). It conforms to the requirements of the South African Companies Act, No. 71 of 2008 and the JSE Listings Requirements. This report combines the financial and non-financial performance of Stellar Capital Partners Ltd and its Consolidated Subsidiaries and covers the financial year from 1 December 2014 to 30 November The Board has concluded that the report should not cover the activities of Stellar Capital s investee companies except insofar as is relevant to an assessment of the Group s investment interest in those entities. Through representation on the investee boards, however the Company exercises influence over the socio-economic, ethical and environmental policies and practices of investees. MATERIALITY The Group acknowledges that it is necessary to determine the importance of matters that are material to the Group and thus warrant inclusion in the integrated annual report. Those charged with governance are involved in the materiality determination process in order for the Group to determine how best to disclose its performance in a meaningful and transparent manner. Not all information relating to the Group and its activities is considered material for purposes of this integrated annual report. Information of significant importance in terms of its known or potential effect on value creation has been considered relevant for inclusion in this report. EXTERNAL ASSURANCE AND APPROVAL This integrated annual report has been reviewed by the Audit and Risk Committee and approved by the Board of Directors. The report has been signed on behalf of the Board by the Chairman, Mr DD Tabata and the Chief Executive Officer, Mr CE Pettit. Independent audit assurance on the consolidated annual financial statements and the company annual financial statements of Stellar Capital Partners Ltd as at 30 November 2015 has been provided by Grant Thornton Cape Inc. Their report to shareholders of the Company is on page 46. The Board decided that it was appropriate that there was no further third-party assurance in respect of this integrated annual report. CURRENCY All amounts presented in this integrated annual report are presented in South African Rands, unless otherwise stated. FORWARD LOOKING STATEMENTS The integrated annual report may contain statements regarding the future financial performance of the Group which may be considered to be forward looking statements. It is important to note that, unless otherwise indicated, forward looking statements indicate the Group s expectations and have not been reviewed or reported on. STELLAR CAPITAL PARTNERS 01

6 BUSINESS OVERVIEW 02 STELLAR CAPITAL PARTNERS

7 SIGNIFICANT MILESTONES IN CONVERTING TO AN INVESTMENT HOLDING COMPANY 2014 SEPTEMBER 2014 Detailed restructuring terms announcement, incorporating: - The transfer of the company s listing to the investment companies sub-sector of the JSE; - The disposal of the remaining operating entities within the Group and acquisition of 30% of Tellumat; - The acquisition of 19.26% of Digicore; - The acquisition of an additional 30.32% of Mine Restoration Investments; - The acquisition of an additional 21.77% of Goliath Gold Mining; - A R150 million capital raise; - Change of name to Stellar Capital Partners; and - An increase in the authorised share capital 2015 JANUARY 2015 Shareholder approval of restructuring and conversion to an investment holding company APRIL 2015 Acquisition of 16.45% of Cadiz JUNE 2015 Offer to acquire minorities in Cadiz and delist the company. Once completed Stellar Capital s stake increased to 45.99% JULY 2015 Announcement of acquisition of 34.62% of Torre Industries SEPTEMBER 2015 Shareholder approval of Cadiz delisting OCTOBER 2015 Shareholder approval of Torre Industries acquisition OCTOBER 2015 R1 billion underwritten capital raise announced, completed by way of: - R400 million underwritten rights issue; and - R600 million underwritten convertible preference share issue OCTOBER 2015 Disposal of investment in Digicore NOVEMBER 2015 Completion of R1 billion capital raise NOVEMBER 2015 Announcement of the acquisition of additional stake in Tellumat to increase total holding to 93.14%; and Announcement of the acquisition of an additional stake in Cadiz to increase total holding to 85.03% NOVEMBER 2015 Disposal of investment in Goliath Gold Mining 2016 JANUARY 2016 Acquisition of further 12.18% stake in Cadiz to increase to a total holding of 97.21% of total shares in issue (99.99% net of treasury shares) FEBRUARY 2016 Acquisition of further 6.86% of Tellumat such that it becomes a wholly-owned investment of Stellar Capital STELLAR CAPITAL PARTNERS 03

8 GROUP AND INVESTEES INDUSTRIALS AND SUPPORT SERVICES FINANCIAL SERVICES 34.62% % OTHER INVESTMENTS 99.99% 50.00% 51.00% 04 STELLAR CAPITAL PARTNERS HEAD OFFICE & MANAGEMENT SERVICES %

9 OVERVIEW OF INVESTEE COMPANIES TORRE INDUSTRIES LTD Torre Industries Ltd is a pan African industrial group which is listed on the Johannesburg Stock Exchange. Torre distributes equipment and machinery, auto parts and support services to its customers in selected high growth markets in the industrial sectors across Africa. These sectors include but are not limited to the agricultural, automotive, construction, earthmoving, engineering, mining, manufacturing, and condition monitoring industries. Torre Industries core business is the value added sale and rental of branded capital equipment and machinery, the distribution of high quality parts and components, the delivery of critical support services which are needed to support our customer s expansion programmes. CADIZ HOLDINGS LTD Cadiz Holdings Ltd is a financial services group specialising in institutional and personal investments through its wholly-owned subsidiary, Cadiz Asset Management. Today Cadiz Asset Management manages c.r13 billion in third party assets while Cadiz Corporate Solutions offers independent corporate advisory services to an extensive client base. Cadiz maintains a prudent liquid capital base which exceeds the requirements for regulatory capital adequacy. TELLUMAT (PTY) LTD Plessey plc established a SA-based subsidiary in the early 1960s. In 1989, this company was dissolved and the SA operation became an autonomous company listed on the JSE in In 1998 certain components of Plessey were acquired by the management team and delisted as Tellumat. Today Tellumat offers world-class technology products, custom solutions and services. These comprise the following entities and core capabilities: - Air traffic management: A full service offering ranging from project management, systems engineering, product upgrades, software development and installation to integration, commissioning and logistic and maintenance support. This includes ground-based air navigation; airport systems (weather information systems, airfield ground lighting); communication and recording systems; specialised fibre optic systems and radars; - Defence and security: Development, supply and support of systems and solutions for systems integrators and end users across the international aerospace and defence markets. This includes combat identification systems identification friend or foe (IFF); tactical communications data and video radio links; avionics, including unmanned aerial systems (UAS); infrastructure and security monitoring (ISM) as well as special and custom applications; STELLAR CAPITAL PARTNERS 05

10 OVERVIEW OF INVESTEE COMPANIES (CONTINUED) - Electronic manufacturing: An electronics assembly and manufacturing facility uniquely structured and equipped to provide from labour only EMS to full product life cycle support and value add services, together with state of the art full testing facilities. This includes prototyping; quick turnaround; low and high volume production and state-of-the art testing facilities in addition to assisting international original equipment manufacturers (OEMs) with the localisation and, where necessary, industrialisation of products; and - Integrated solutions: Provides dynamic and versatile full turnkey telecommunications solutions to the fixed-line and mobile telecoms, rail and mining, commercial and industrial and government and defence industries. This includes end-to-end solutions covering network design and engineering; project management; site implementation; managed services and fibre reticulation. PRAXIS FINANCIAL SERVICES (PTY) LTD Praxis is a leading provider of short term finance to the panel beating industry which provides a unique offering to address motor body repairers (MBRs) working capital needs. The business is currently financing approximately 2,000 MBR jobs per month. The company s proprietary information technology platform is being expanded to facilitate seamless interaction between MBRs, parts suppliers and insurers within the industry to drive its ultimate strategy to institutionalise the R25 billion annual MBR funding market in South Africa. INTEGRATED EQUIPMENT RENTALS (PTY) LTD IE Rentals is a specialised ICT Asset Finance Solutions company providing finance solutions to businesses in acquiring critical technology infrastructure via customized rental solutions. All equipment is maintained and serviced by Integrated Equipment IT (Pty) Ltd through dedicated maintenance and support agreements over 36, 48 or 60 months. 06 STELLAR CAPITAL PARTNERS

11 OVERVIEW OF THE INVESTMENT MANAGER INTRODUCTION Stellar Capital has appointed Thunder Securitisations (Pty) Ltd (Manco) as its dedicated investment manager to manage the portfolio of the Company in accordance with Section 15 of the JSE Listings Requirements. The Manco, in terms of its management agreement with the Company, acts on behalf of the Company in sourcing, negotiating, concluding and executing investment opportunities for the Company. All material investment decisions, including but not limited to the acquisition and disposal of investments, require the approval of the majority of the board of directors of the Company. TENURE The management agreement is perpetual, but subject to a shareholder vote at each annual general meeting whereby the shareholders of the Company, by approval of more than 50% of the votes exercised by such shareholders on the cancellation resolution, may approve the termination of the management agreement which shall terminate upon the expiry of a period of 3 months after the date on which the Company provided the Manco with written notice that the cancellation resolution was adopted. In the event of a termination in accordance with the aforementioned shareholder vote, the Company shall issue to the Manco 50 million ordinary shares (subject to adjustment for defined adjustment events) at 30-day VWAP of such shares on the business day immediately before the date of issue thereof, which shall be within 10 business days after the date of notice being given of the termination. FEES The Manco is paid a quarterly management fee in arrears which is calculated as an amount equal to 1% of NAV, other than (i) cash, which will attract a fee of 0.25%, and (ii) third party managed assets which will attract a fee of 1% less the charges levied by the funds into which such assets are invested. In addition to the management fee, the Manco is entitled to a performance fee in respect of each quarter if the NAVPS in respect of such quarter is at least 10% more than the previous highest NAVPS at the end of any previous financial year. Provided that the Manco has achieved the performance hurdle, the performance fee is calculated in accordance with the formula: a = (15/100) x [(b c) x d] e where, a, is the performance fee payable for the relevant quarter; b, is the NAVPS, as at 17:30 on the last business day of the quarter concerned; c, is the previous highest NAVPS, as recorded at the end of any preceding financial year; d, is the number of shares in issue as at the last day of the relevant quarter (adjusted for any adjustment events); and e, is the sum of the performance fees, if any, paid in respect of all of the preceding quarter(s) of the relevant financial year. INVESTMENT EXPERIENCE The key individuals of Manco are Messrs. Charles Pettit, Peter van Zyl and Jacob Wiese. The curricula vitae of Messrs. Pettit and van Zyl are summarized on pages 22 to 24. Adv Jacob Wiese serves on the investment committee of the Titan group of companies (director since 2011), the investment holding companies through which the Wiese family hold significant investment stakes in several of South Africa s largest companies. Adv Wiese also sits on the boards of numerous listed companies in his role as investment manager of the Wiese family s investment, including Shoprite Holdings Ltd (since September 2005), Pepkor Holdings Ltd (since February 2010), Invicta Holdings Ltd (since July 2010), Tradehold Ltd (since 2010), Premier Foods PLC (since 2010). In addition, Adv Wiese currently serves, and has served for over three years (since May 2011) of the board of Brait South Africa (Pty) Limited (since May 2011), a licensed financial services provider and the investment advisor to Brait SE, one of South Africa s leading investment holding companies which has dual listings on the Euro MTF Market of the Luxembourg Stock Exchange and the JSE. Adv Wiese also served as a director of the board of Paladin Capital (now PSG Private Equity), the JSE-listed PSG Group s private equity business. STELLAR CAPITAL PARTNERS 07

12 OUR BUSINESS AND INVESTMENT STRATEGY Stellar Capital is an investment company focused on investing primarily in unlisted assets, working with management teams to create market leading businesses and ultimately realising and delivering value to its shareholders. Stellar Capital believes that it has a competitive advantage through the strength of its network providing access to proprietary deal flow, coupled with a management and investment team with demonstrable track record in building value in businesses and generating exceptional shareholder return. INVESTMENT POLICY 1. Background and rationale 1.1. Stellar Capital is an investment company focused on investing primarily in unlisted assets, working with management teams to create market leading businesses and ultimately realise and deliver value to its shareholders Stellar Capital is quoted in the Equity Investment Instruments Investment Companies (8985) sector of the JSE Stellar Capital s shareholders on 16 January 2015 approved the Company s investment strategy contained in paragraph 3.1 in compliance with section 15 of the JSE Listings Requirements which deals specifically with investment companies Stellar Capital is proposing to add the matters contained in paragraphs 3.2, 3.3, 3.4, 4, 5, 6 and 7 to its existing Investment Policy as approved by the JSE and which is to be approved by the Company s shareholders in terms of section 15.7 of the JSE Listings Requirements The additions to the Investment Policy are being proposed to: elaborate on the Company s investment focus areas; define the sectors and geographies of primary interest; expand on the criteria for the Company s investment into and divestment from investments; set measurable growth targets and confirm the Company s discretionary dividend policy; and communicate the manner in which the Company will forthwith categorise and communicate corporate actions and seek shareholder approval in respect thereof. 2. Definitions 2.1. Category 1 bears the same meaning as defined in the JSE Listings Requirements; 2.2. Category 2 bears the same meaning as defined in the JSE Listings Requirements 2.3. Transaction bears the same meaning as defined in section 9 of the JSE Listings Requirements. For the avoidance of doubt, to the extent a transaction with a non-related party is concluded in the ordinary course of business in terms of paragraph 7.1 below and constitutes less than 10% of the market capitalisation of the Company, such transaction will not be categorised in accordance with the JSE Listings Requirements. 3. Investment strategy, parameters and scope 3.1. Investment strategy The investment strategy of the Company, which was formally approved by the Board on 3 December 2014 will entail the following: to grow a portfolio of equity, debt and hybrid securities, unconstrained by any particular market or sector, in listed and unlisted businesses, that will generate above average returns on capital for the Company s shareholders; to apply a hands-on investment approach, in order to assist management teams and to provide strategic input, without assuming direct operational responsibility; to apply a flexible investment approach relating to the timing and duration of investments; to actively engage with investee companies in relation to their corporate activity and other strategic initiatives; and to leverage the existing network of Manco to create a unique, well-diversified investment vehicle which will be an attractive proposition for institutional investors Investment focus Stellar Capital has been established to: hold a combination of strategic equity instrument investments as its primary objective and, as secondary objective and usually for limited periods, controlling equity investments under circumstances where the Company has obtained approval from the JSE to hold such controlling equity instrument investments; earn high levels of current income from dividends and a credit investment portfolio comprising debt and hybrid securities which supports sustainable free cash flow and dividend yield; and 08 STELLAR CAPITAL PARTNERS

13 opportunistically utilise the Company s balance sheet to generate fees for shareholders through corporate finance strategies in support of investee companies or on a standalone basis Sectors and geographies Stellar Capital will hold investments in three core areas: Industrials and Support Services; Financials; and Disruptive opportunities across all markets. This may comprise an investment in any business (typically technology related) in the process of creating a new market or value network with the potential to displace established market leaders. Stellar Capital will initially invest in South African based investments with focused international operations, whilst retaining the ability to over time invest in foreign based investments which may or may not have established operations within South Africa Other parameters Stellar Capital will: seek to invest in growth and early-maturity stage businesses in which management teams remain equity incentivised throughout the investment life cycle; establish primarily large minority equity holdings, but retain the ability to hold majority holdings, particularly during the initial stage of the investment; not retain operational management of its investees for prolonged periods, but will hold the ability do so during the initial stage of the investment or as is deemed necessary from time to time; seek board representation within its investees reporting structures without establishing board control for prolonged periods of the investment cycle; hold investments without pre-determined realisation periods; and exit investments in the event of: protracted periods of under-performance relative to criteria set by management depending on the nature, sector and stage of the investments; receipt of unsolicited offers at materially higher values than attributed by Stellar Capital; or availability of alternative investments with substantially superior returns. 4. Growth targets Stellar Capital will seek to deliver total shareholder return in the form of NAV growth and shareholder distributions (where applicable) of at least 15% and more per annum over each rolling 3 year period target. Stellar Capital will retain a discretionary dividend policy until it has reached sufficient maturity and stability in earnings from underlying investments. Cash will be retained for growth in the initial stages of development. The Board may amend the growth targets from time to time, subject to shareholder approval of material changes as required by section 15.7 of the JSE Listings Requirements. 5. Categorisation of Transactions Investment Transactions undertaken by Stellar Capital will be categorised relative to the Company s size (either market capitalisation or issued share capital as appropriate) as required by section 9 of the JSE Listings Requirements. For purposes of applying the JSE Listing Requirements and as approved by the JSE, the following investment activities are considered to be conducted in the ordinary course of business as contemplated in the JSE Listings Requirements: 5.1. The acquisition and disposal of listed and unlisted equity and hybrid instruments; 5.2. The acquisition and disposal of credit instruments, including loan notes, listed and unlisted bonds and redeemable preference shares; 5.3. The advance of (and repayment of) loans and advances to investees and third-parties; and 5.4. The underwriting of committed transactions where such underwriting commitment does not result in the acquisition or disposal of an asset. STELLAR CAPITAL PARTNERS 09

14 OUR BUSINESS AND INVESTMENT STRATEGY (CONTINUED) 6. Shareholder approvals 6.1. Shareholder approval by way of ordinary resolution will be required for all Category 1 Transactions entered into with nonrelated parties to the extent that the Transactions fall out of the provisions of this Investment Policy In respect of Transactions with related parties, shareholder approval will be obtained in accordance with the thresholds for such approvals contained in the JSE Listings Requirements Shareholder approval will not be required for non-related party Transactions of any size to the extent such Transactions fall within the approved Investment Policy Shareholder approval will not be required for Transactions triggered by the enforcement of provisions in sale and/or shareholders agreements entered into between Stellar Capital and other investee shareholders: where such Transactions are pre-approved by Stellar Capital shareholders upon initial acquisition of such investments; or where no shareholder approval is required in respect of the Transactions in accordance with paragraph 6.3 but where the terms of such shareholder s agreements have been advised to Stellar Capital shareholders despite shareholder approval not being required. It is intended that this pre-approval will relate to come along, go along, pre-emptive, put and call provisions that may be contained in agreements between Stellar Capital and other investors in investee companies. The approvals may be obtained at the time of the original Transactions or subsequently Notwithstanding the aforementioned, the JSE Listings Requirements for shareholder approvals and communications will apply if any Transaction is categorised as a reverse take-over in terms of the JSE Listings Requirements. 7. Communication of Investment Transactions 7.1. All Transactions concluded in accordance with this Investment Policy will be regarded as being in the ordinary course of business unless circumstances dictate otherwise Communications with shareholders will be made in accordance with the JSE Listings Requirements in respect of all related party Transactions (including small related party Transactions), except that: To the extent pre-approval has been obtained from the shareholders of the Company in respect of the terms of shareholder s agreements in accordance with 6.4.1, no circulars will be required for any size Transactions triggered by the enforcement provisions in relation thereto, unless the Transaction is categorised as a reverse take-over in terms of the JSE Listings Requirements; and Only a SENS announcement (and no press announcement) will be made in respect of any size Transactions triggered by the enforcement provisions in relation thereto Communications with shareholders will be made in accordance with the JSE Listings Requirements in respect of all nonrelated party Transactions, except that: no circulars will be required for any size Transaction as long as the requirements of paragraph 6.3 and 6.4 are met, unless the Transaction is categorised as a reverse take-over in terms of the JSE Listings Requirements; and while SENS announcements will be made for Category 1 and Category 2 Transactions, no press announcements will be required for Category 2 Transactions or in respect of any size Transaction triggered by the enforcement provisions of shareholder s agreements as long as the requirements of 6.4 are met Notwithstanding the provisions of 7.2 and 7.3, the information required to be disclosed for a prelisting statement must be provided if required by the JSE Listings Requirements All Transactions will be summarised for shareholders in the interim and final results announcements and in the integrated annual report. 8. Communication of Investment Policy The Investment Policy appears on Stellar Capital s website and is included in the integrated annual report. 9. Approval of Investment Policy The investment strategy detailed in paragraph 3.1 of this Investment Policy was approved by shareholders on 16 January The additional paragraphs 3.2, 3.3, 3.4, 4, 5, 6 and 7 of the Investment Policy are to be approved by shareholders at the annual general meeting on 3 June 2016 and any future material changes must be approved by shareholders by way of ordinary resolution. 10 STELLAR CAPITAL PARTNERS

15 SUMMARY OF FINANCIAL RESULTS HIGHLIGHTS: YEAR ENDED 30 NOVEMBER 2015 Successful conversion from an operating entity to an investment holding company; Completed disposals of Digicore Holdings Ltd and Goliath Gold Mining Ltd; Completed acquisition of 34.62% of Torre Industries Ltd and 45.99% of Cadiz Holdings Ltd; Raised a total of R1.15bn of new capital via the issue of R0.55bn of new ordinary shares and R0.6bn of convertible preference shares; and Increased the scale and improved the quality of the investment portfolio, setting a stronger base for the new financial year. SUM-OF-THE-PARTS NET ASSET VALUE The Group s sum-of-the-parts (SOTP) is presented as follows: 30 November 2015 % of Asset/Liability R 000 portfolio Torre Industries Ltd % Cadiz Holdings Ltd % Tellumat (Pty) Ltd % Praxis Financial Services (Pty) Ltd % Integrated Equipment Rentals (Pty) Ltd % Other Assets - Cash and Cash Equivalents % - Other financial assets % - Total loan portfolio % - Other listed investments % - Other assets % Total Assets % Convertible redeemable preference share funding ( ) Trade and other payables (42 778) Total SOTP value Shares in issue (m) SOTP value per share pre-convertible preference share conversion (Rand) 2.03 SOTP value per share post-convertible preference share conversion (Rand) Notes 1 Fair value of equity and loan to portfolio company 2 Assumed issuance of a maximum million ordinary shares at R2.78 per share in settlement of convertible preference share funding 3 The Group has no goodwill or intangible assets at year end STELLAR CAPITAL PARTNERS 11

16 SUMMARY OF FINANCIAL RESULTS (CONTINUED) Total loan portfolio 3% Other assets 2% Financial Assets 15% Torre Industries Ltd 36% Cash and Cash Equivalents 32% Cadiz Holdings Ltd 5% Tellumat (Pty) Ltd 4% Integrated Equipment Rentals (Pty) Ltd 1% Praxis Financial Services (Pty) Ltd 2% 12 STELLAR CAPITAL PARTNERS

17 BOARD REPORT 2015 FINANCIAL REVIEW Following the conversion from an operating entity to an investment holding company in January 2015, the Group completed the successful disposals of its investments in Digicore and Goliath Gold. The Group also established strategic stakes in Torre Industries (Industrials equipment and aftermarket distribution) and Cadiz (Financial Services) alongside its other core investment in Tellumat (Industrials - Electronics and Communications) which was acquired as part of the conversion to an investment entity. CAPITAL Stellar Capital completed a R0.15 billion capital raise in January 2015 and raised a further R1 billion in November 2015 by way of a R400 million rights issue and R600 million convertible redeemable preference share issue. These corporate actions significantly strengthened the Group balance sheet and provided the Company with the financial capacity to acquire the remaining stakes in Cadiz and Tellumat. The Group has further capital available to support growth in investee companies or to pursue standalone investment opportunities. NET ASSET VALUE The initial conversion to an investment holding company, subsequent acquisitions and capital raises saw the net asset value of the Group increase from R179 million to R1.88 billion in less than 12 months. The NAVPS also increased from R1.92 to R2.03 as a result of concluding transactions and issuing shares in the Company at premiums to net asset value. OTHER MATERIAL BALANCE SHEET MOVEMENTS In addition to concluding various transactions, excess capital was deployed towards high-yielding loan investments to mid-sized corporate third parties and investee companies. These loan exposures can be sold down in the event that a new investment opportunity arises, but in the interim they reduce the impact of cash drag on the Group s performance. At year end, R200 million of the R1 billion capital raised had been paid as a deposit in anticipation of the closing of the acquisition of the Cadiz and Tellumat minorities. DIVIDEND POLICY The Board has decided to retain a discretionary dividend policy in light of the very recent establishment of the investment portfolio and the capital required in terms of the growth strategies of Torre and Tellumat and turnaround strategy of Cadiz. No dividend has therefore been declared for the year under review. DIRECTORATE Stellar Capital welcomed Mr CJ Roodt to the Board during the year under review. Mr CJ Roodt contributes a wealth of experience and business understanding for which we extend our appreciation. The appointment of Mr CE Pettit as Chief Executive Officer strengthens the Group s deal-making capability, whilst Mr PJ van Zyl s move to non-executive director has ensured continuity for the Group. Mr CB de Villiers, previously part of a team which assisted the transition from operating entity to investment holding company, joined the Board as Chief Financial Officer. HUMAN RESOURCES The Group has appointed Thunder Securitisations (Pty) Ltd as dedicated investment manager. A small team of finance professionals and support staff work with the Chief Executive Officer in executing the investment strategy of Stellar Capital. The Company recovers the full payroll costs of support staff and executive director remuneration from the investment manager to the extent that it exceeds the approved non-executive remuneration level. FINANCE TEAM The finance team has been strengthened during the year under review, entrenching its role as a support function to the Chief Executive Officer. STELLAR CAPITAL PARTNERS 13

18 BOARD REPORT (CONTINUED) KEY FOCUS AREAS The Group s focus is to: Drive EBITDA growth and free cash flow conversion in underlying investees, both organically and inorganically; Generate sufficient cash flow independently from the core investee companies to service preference share dividend liabilities and ongoing operational expenses, whilst providing ongoing NAV accretion and reducing cash drag; and Constantly assess and seek to optimize the capital structure of the Group in order to enhance shareholder returns. SHAREHOLDERS The Group s shareholder base was significantly strengthened during the year with the introduction of Titan (Dr Christo Wiese) as an anchor shareholder. PROSPECTS AND KEY FOCUS AREAS FOR THE YEAR AHEAD Trading conditions in the markets in which the Group s core industrial asset Torre operates are expected to remain extremely challenging for the foreseeable future. There is deep distress in the mining sector and continued pressure in most other markets, including construction, manufacturing and consumer markets. However, Torre has a strong balance sheet and continues to pursue profit growth via a combination of market share gains and cost control. Tellumat has traded well during the year under review. The Group will seek to capitalize on this by expanding its managed services offering and partnering with key technology industry players to become a technology provider of first choice within the telecommunication, air traffic management, technology manufacturing and defense sectors. The Group may also pursue inorganic growth strategies within certain market sectors. Stellar Capital will continue to support Shawn Stockigt as he executes on the turnaround strategy at Cadiz Asset Management. In a short period of time Shawn has stabilized the team in this business, stemmed client outflows and overseen a marked improvement in investment performance. The next phase will be a return to profitable growth and we are confident that Shawn and his team will deliver for us in this regard. In addition to this organic turnaround strategy, we will continue to assess acquisition opportunities in the financial services sector should they present themselves. The Group has a strong balance sheet and ready access to additional capital and is well positioned to partner with scalable, quality businesses who are seeking a strong shareholder of reference to support their growth ambitions. APPRECIATION We are grateful for the support provided to the Group by our employees, shareholders and banking partners. The quality of both our investment portfolio and our key stakeholders allows us to move forward with confidence into the new financial year. On behalf of the Board Charles Pettit Chief Executive Officer 14 STELLAR CAPITAL PARTNERS

19 RISK MANAGEMENT The Board, supported by the Audit and Risk Committee, is tasked with the continuous monitoring of financial and reputational risks facing the Group. Given the size of the strategic stakes acquired by the Group in its investees, Stellar Capital is represented on investee boards and is able to influence and monitor decision-making in this regard, with quarterly feedback to the Group Board. The table below outlines the key risks and mitigating responses in relation to the Group: Context Context description Risk Mitigating responses NAV NAV growth drives the Group s performance - Investee underperformance - Negative micro and macro-economic climate - Financial risk management policies as detailed in note 31 of the annual financial statements - Representation on investee Boards, exco s and sub-committees with quarterly feedback to the Board of Stellar Capital - Diversification of investments across multiple industries Human Resources The Group s access to knowledgeable, experienced management teams is critical to its success - Loss of key management personnel at Group or investee level - Equity incentivisation of key Group and investee management - Continuous succession monitoring by the Nominations Committee Liquidity Access to sufficient cash flow from investments is critical to servicing preference share funding liabilities - Insufficient cash flow generation from investments - Monthly exco meetings to monitor cash flow generation from investees - Deployment of capital to loan investments to provide liquidity to service funding obligations - Retention of cash flow buffer equal to one semi-annual preference share funding obligation dividend at all times Legislation Compliance with legislation relevant to the sectors within which the Group and its investees operate is critical to the viability of the business - Non-compliance with laws and regulations and levying of penalties - Appointment of key advisors to advise directors on matters of compliance Information technology Efficient utilisation of technology to report investee performance and operations of the Group - Loss of critical Group and investee information - Interruption of operations - Monitoring of technology function by investee boards on which Stellar Capital enjoys representation - Appropriate server backups and offsite disaster recovery capability STELLAR CAPITAL PARTNERS 15

20 GOVERNANCE AND SUSTAINABILITY 16 STELLAR CAPITAL PARTNERS

21 CORPORATE GOVERNANCE REPORT STATEMENT OF COMMITMENT The Group subscribes to the principles of fairness, accountability, responsibility and transparency in its business conduct. The Board ensures that the Group is ethically managed according to prudently determined risk parameters in compliance with generally accepted corporate practices and conduct. Stellar Capital endorses the Code of Corporate Practices and Conduct as well as the King Code of Governance for South Africa The South African Companies Act No. 71 of 2008 also contains governance requirements. King III has been applied on an apply or explain basis. The Audit and Risk Committee adopted the corporate governance practices to assist the Board in its compliance with the King III and Companies Act recommendations. APPLICATION OF KING III PRINCIPLES The Group endorses the principles contained in King III. The Board is of the opinion that the Group currently complies in all respects with the material provisions of King III relating to the Board and Directors. The Company s full King III compliance checklist including detailed responses to each principle is available on the Company website ( and for inspection at the Company s offices and the offices of the Company s sponsor at no charge. A summary of the King III principles relating to the Board and Directors are explained below, including the responses thereto for the year under review. Principle Description Response 2.1 The Board acts as the focal point for and custodian of corporate governance Applied. The board meets regularly to fulfil its duties and responsibilities in terms of the adopted Board charter 2.2 The Board appreciates that strategy, risk, performance and sustainability are inseparable Applied. Progress against the adopted Group strategic plan is monitored on a continuous basis 2.3 The Board provides effective leadership based on an ethical foundation Applied. The Board observes the highest standards of ethical conduct in discharging its responsibilities 2.4 The Board ensures that the Group is and is seen to be a responsible corporate citizen Applied. The Board considers the economic, social and environmental performance of the Group and its investees 2.5 The Board ensures that the Group ethics are managed effectively Applied. The Board observes the highest standards of ethical conduct in discharging its responsibilities. The Board has established a Social and Ethics Committee to monitor compliance 2.6 The Board ensures that the Group has an effective and independent Audit and Risk Committee Applied. The committee consist of 3 independent non-executive directors. The committee meets at least 3 times a year and also meets with the external auditors without management being present 2.7 The Board is responsible for the governance of risk Applied. The Audit and Risk Committee addresses and reports on risk matters to the Board 2.8 The Board is responsible for information technology (IT) governance 2.9 The Board ensures that the Group complies with applicable laws and considers adherence to non-binding rules, codes and standards Applied. The Audit and Risk Committee addresses IT governance matters in terms of its delegated authority. Given the nature of the business of the Group, no significant IT investments or expenses have been incurred to date, nor are any planned. As such, the Board has not implemented a formal IT governance framework Applied. The Audit and Risk Committee is mandated to ensure that the Group complies with applicable laws and considers adherence to non-binding rules, codes and standards, as assisted and advised by the Company Secretary and external advisors to the extent required STELLAR CAPITAL PARTNERS 17

22 CORPORATE GOVERNANCE REPORT (CONTINUED) Principle Description Response 2.10 The Board ensures that there is an effective risk-based internal audit 2.11 The Board appreciates that stakeholders perceptions affect the Group s reputation Partly applied. The executive directors conduct an annual review of the Company s internal controls, and report their findings to the Audit and Risk Committee. This review covers financial, operational and compliance controls, as well as a review of the risk management policies and procedures of the Company. Internal audit functions are recommended and monitored at investee level and risks are reported on to the Audit and Risk Committee by way of quarterly risk report reviews or verbal feedback from Stellar Capital representatives who serve on investee sub-committees to the extent justified by the size and nature of investee operations Applied. The Board monitors the gap between stakeholder perception and performance 2.12 The Board ensures the integrity of the Group s integrated annual report 2.13 The Board reports on the effectiveness of the Group s system of internal controls Applied. The Board ensures that the integrated annual report fairly represents the Group s financial and non-financial performance Applied. The Board reports on the effectiveness hereof in the integrated annual report 2.14 The Board and its directors act in the best interests of the Group Applied. The directors exercise objective judgment on the affairs of the Group independently from management, but with sufficient information to enable proper and objective information to enable an objective assessment to be made 2.15 The Board considers business rescue proceedings or other turnaround mechanisms as soon as the Group is financially distressed as defined in the Companies Act, 71 of The Board elects a Chairman of the Board who is an independent non-executive director. The Chief Executive Officer of the Group does not also fulfill the role of Chairman of the Board 2.17 The Board appoints the Chief Executive Officer and establishes a framework for the delegation of authority 2.18 The Board comprises a balance of power, with a majority of non-executive directors. The majority of non-executive directors should be independent Applied. The Board continuously monitors the solvency and liquidity of the Group Applied. The role of the Chairman of the Board is fulfilled by Mr DD Tabata, who is an independent non-executive director. The Group CEO, Mr CE Pettit, fulfills his role separate from the Chairman of the Board Applied. The Board appoints the CEO on recommendation of the Nominations Committee Applied. The majority of directors are non-executive and independent 2.19 Directors are appointed through a formal process Applied. The appointment of directors is a matter considered by the Board as a whole, as assisted by the Nominations Committee. A formal Appointments to the Board Policy has been adopted by the Board 2.20 The induction of and ongoing training, as well as the development of directors, is conducted through a formal process 2.21 The Board is assisted by a competent, suitably qualified and experienced Company Secretary 2.22 The evaluation of the Board, its committees and the individual directors is performed every year 2.23 The Board should delegate certain functions to well-structured committees without abdicating its own responsibilities 2.24 A governance framework is agreed between the Group and its subsidiary boards 2.25 The Group remunerates directors and executives fairly and responsibly Applied. The Board has an induction programme to familiarize incoming directors. Ongoing director development is encouraged Applied. An independent Company fulfills the role as Company Secretary to the Company. This function is reviewed annually Not applied. No formal Board evaluation has been conducted during the year. Formal evaluations will be conducted on an annual basis in future Applied. The terms of reference of committees are reviewed at least annually and the committees are appropriately constituted considering any relevant legislation and objectives of the Group Applied. The Group s executive and non-executive directors represent the Company on investee boards and report the Group Board regularly. Each investee company operates within its own established governance framework Applied. The Remuneration Committee assists the Board in establishing and assessing the remuneration policies of the Group 18 STELLAR CAPITAL PARTNERS

23 Principle Description Response 2.26 The Group discloses the remuneration of each individual director and prescribed officer 2.27 Shareholders have approved the Group s remuneration policy Applied. The Group provides full disclosure of each individual executive and non-executive director remuneration in the integrated annual report Applied. The Group s remuneration policy is presented to shares as a non-binding advisory vote at each Annual General Meeting THE BOARD OF DIRECTORS The Board is responsible for: acting as the focal point for, and custodian of, corporate governance by managing its relationship with management, the shareholders and other stakeholders of the Company along sound corporate governance principles; retaining full and effective control of the Company; giving strategic direction to the Company, both long and short term; monitoring management in implementing plans and strategies as approved; creating value through social, economic and environmental performance; appointing and evaluating the performance of the Chief Executive Officer; ensuring that succession is planned; identifying and regularly monitoring key risk areas and key performance indicators of the business; ensuring that the Company complies with relevant laws, regulations and codes of business practice; ensuring that the Company communicates with shareowners and relevant stakeholders openly and promptly; identifying and monitor relevant non-financial matters; establishing a formal and transparent procedure for appointment to the Board, as well as a formal orientation programme for incoming directors; regularly reviewing processes and procedures to ensure effectiveness of internal systems of control and accept responsibility for the total process of risk management; assessing its performance, its committees and its individual members on a regular basis; ensuring that the Company is and is seen to be a responsible corporate citizen by having regard to not only the financial aspects of the business of the Company but also the impact that business operations have on the environment and the society within which it operates; ensuring that the Company s performance includes that of an economic, social and environmental perspective; ensuring that the Company s ethics are managed effectively; ensuring that the Company has an effective and independent Audit and Risk Committee; being responsible for information technology (IT) governance; appreciating that stakeholder s perceptions affect the Company s reputation; ensuring the integrity of the Company s integrated annual report; monitoring the Company s compliance with the above; acting in the best interests of the Company by ensuring that individual directors: - adhere to legal standards of conduct; - exercise the degree of care, skill and diligence that would be exercised by a reasonably individual; - act in good faith and in the manner that is in best interests of the Company; - take independent advice in connection with their duties following an agreed procedure; - disclose real or perceived conflicts to the Board and deal with them accordingly; - deal in securities only in accordance with the policy adopted by the Board; and - commence business rescue proceedings as soon as the Company is financially distressed. BOARD MEETINGS The Board met four times during the year. Teleconference meetings are held on an ad hoc basis as required. The Chief Executive Officer and Chief Financial Officer update the Board through regular reports. DIRECTORATE The Board currently comprises two executive and six non-executive directors of whom five are independent. STELLAR CAPITAL PARTNERS 19

24 CORPORATE GOVERNANCE REPORT (CONTINUED) Details of the directorate at 30 November 2015 and at the date of this integrated annual report are provided on pages 22 to 24, and the name of the Company Secretary and the registered address of the Company are provided on the inside back cover. The Board is satisfied that no individual director or block of directors has undue power of decision-making and there is a clear division of responsibilities at Board level to ensure an appropriate balance of power and authority. CHIEF EXECUTIVE OFFICER Mr CE Pettit was appointed as Chief Executive Officer with effect from 5 October DIRECTORS RETIRING BY ROTATION In terms of the Company s Memorandum of Incorporation, one-third of the directors retire by rotation and are eligible for re-election at each annual general meeting. Executive directors are not subject to rotation. Ms J de Bruyn and Mr PJ van Zyl stand for re-election at this year s annual general meeting. The Nominations Committee has considered their credentials and contributions to the Board, and Board committees and unanimously recommend them to shareholders for re-election to the Board. Refer to ordinary resolutions number 3 and 4 in the notice of Annual General Meeting on page 102. EVALUATION No formal Board evaluation was done during the reporting period. A formal evaluation is planned for the next year. COMPANY SECRETARY The Secretarial Company (Pty) Ltd, represented by Ms C du Preez was appointed as the Company Secretary on 11 May All Board members have access to the Company Secretary, who supports the Board as a whole and the Directors individually in fulfilling their duties. The Company Secretary is required to fulfil the duties as set out in section 88 of the Companies Act and the JSE Listings Requirement, and to ensure that appropriate procedures and processes are in place for Board and Shareholder proceedings in compliance with the Memorandum of Incorporation of the Company. The certificate required to be signed in terms of subsection 88(2) (e) of the Companies Act appears on page 38. The Board undertakes an annual evaluation of the Company Secretary in accordance with the JSE Listings Requirements. The evaluation criteria for the Company Secretary includes assessing the qualifications, knowledge of and experience with relevant laws, ability to provide comprehensive support to the Group and directors an ability to provide guidance to directors as to their duties, responsibilities and powers. Based on the results of the evaluation, the Board is comfortable that the Company Secretary maintains an arm s length relationship with the Board at all times, has the relevant experience to discharge her duties and is sufficiently qualified and skilled to act in accordance with and advise directors in terms of the JSE Listings Requirements and update the directors in terms of recommendations of King III and other relevant laws. DIRECTOR S INTERESTS IN CONTRACTS The following directors interest in material contracts were declared during the period: Thunder Capital (Pty) Ltd ordinary shares issued to and an amount of R1.6 million paid to Thunder Capital (Pty) Ltd, a company of which Mr PJ van Zyl is one of two directors, in lieu of underwriting fees. Mr van Zyl holds no direct or indirect beneficial interest in Thunder Capital (Pty) Ltd. Shanike Investments 322 (Pty) Ltd An amount of R3 million paid to Shanike Investments 322 (Pty) Ltd, an associate of Mr CE Pettit in lieu of underwriting fees. 20 STELLAR CAPITAL PARTNERS

25 There was no other material interest in any significant contract, other than his/her contract of employment or letter of appointment, with the Company or any of its subsidiaries during the year. Refer to the Report of the Board of Directors on page 40 and notes 27 and 28 of the annual financial statements, on pages 85 and 86. DIRECTORS SERVICE CONTRACTS Executive directors are appointed in terms of written letters of appointment, which endure until retirement and are subject to termination with up to one months notice. The terms of employment are not subject to any restraint of trade undertaking. The contractual relationship between the Company and its executive directors is controlled through the Remuneration Committee. CONFLICTS OF INTERESTS All Board members are required to report any conflicts of interest that may arise in the course of their duties. No members of the Board have actual or potential political connections or exposure. STELLAR CAPITAL PARTNERS 21

26 CORPORATE GOVERNANCE REPORT (CONTINUED) BOARD MEMBERS CHARLES PETTIT (34) Chief Executive Officer Appointed to the Board in June 2012 Charles graduated from the University of Cape Town with a First Class Honours degree and subsequently qualified as a CFA charter holder after working in London for Close Brothers Corporate Finance. At Close Brothers Charles worked on a wide range of M&A and Restructuring transactions and following his return to South Africa in 2008 established AfrAsia Corporate Finance to focus on the provision of independent advisory services to clients in the SADC region. Charles advised on the balance sheet restructuring of SA French from 2010 and led the 2011 rights issue for that company as well as its delisting and sale to Torre in He was appointed as CEO of Torre on 1 October 2012 and as CEO of Stellar on 5 October CHARL DE VILLIERS (31) Chief Financial Officer Appointed to the Board in February 2015 Charl is a qualified Chartered Accountant (SA). He holds B.Acc LLB (cum laude) and B.Acc (Hons) degrees from the University of Stellenbosch. He completed his SAICA training with Deloitte in its financial services division and was later retained as an audit manager in the same division where he serviced a portfolio of asset managers and one of South Africa s most prominent reinsurers. In May 2013, Charl joined AfrAsia Corporate Finance where he advised ConvergeNet Holdings Ltd on the sale of Sizwe Africa IT Group and other operating subsidiaries as well as the subsequent conversion of the Company to an investment entity. DUMISANI TABATA (60) Independent non-executive Chairman Appointed to the Board in January 2009 Chairman of the Nominations Committee Chairman of the Social and Ethics Committee Member of the Nominations Committee Dumisani is an admitted attorney and director and founding partner of Smith Tabata Inc. in King William s Town. As an attorney he has been involved in several Constitutional and Administrative Law related matters. In 1996 Mr Tabata was an Acting Judge of the High Court and served in the position for 3 terms, in April 1999 he was appointed by the Premier of the Eastern Cape, as one of the Joint Liquidators of the Transkei Agricultural CorporaBon. After the advent of democracy, Mr Tabata regularly acted as attorney for Government Departments, local authorities and parastatals. Dumisani was a member of the National Association of Democratic Lawyers (Border) and served on the National Executive thereof in 1998, member of the King William s Town Transitional Local Council (First Interim Phase) and member of the Council s Land Sale Committee , served as Deputy Chairman of ABSA Bank regional board, Eastern Cape, served as non-executive director and Chairman of Transactional Capital (Pty) Ltd as well as non-executive director of Amalgamated Appliances (Pty) Ltd. Currently he serves on the board of Vuwa Investments (Pty) Ltd as executive director, director of Smith Tabata Inc., Attorneys, Notaries and Conveyancers and Smith Tabata Buchanan Boyes Cape Town and Johannesburg. 22 STELLAR CAPITAL PARTNERS

27 JANINE DE BRUYN (47) Independent non-executive director Appointed to the Board in July 2014 Chairman of the Audit and Risk Committee Member of the Social and Ethics Committee Janine obtained a BCompt degree through UNISA while completing her articles at PriceWaterhouseCoopers, and a BCom (Hons) in Financial Analysis and Portfolio Management from UCT. Janine gained 6 years of investment expertise at Sanlam Investment Management and Futuregrowth Asset Management. Thereafter Janine established her own consulting firm and has spent in excess of 10 years consulting to various black economic empowerment groups, private companies, financial services businesses and renewable energy providers. Janine has gained invaluable experience in corporate governance, corporate empowerment and development finance and has held a number of directorships on infrastructure, empowerment and investee companies, as well as private equity advisory board roles. Janine has a keen interest in rural development; she mentors students and young entrants in industry as part of her commitment to good corporate citizenship. LERATO MANGOPE (52) Independent non-executive director Appointed to the Board in August 2010 Member of the Audit and Risk Committee Lerato holds a Bachelor of Arts in Economics (University of Johannesburg), a University Education Diploma (University of Johannesburg), an Investment Management Diploma (University of Johannesburg) and Post Graduate Diploma (University of Natal), and an MBA (Henley Business School (UK)). Lerato is the Head of the Corporate Funding Department at the Industrial Development Corporation SA (IDC). In her position, she deals with the planning and implementation of the borrowing plan for the IDC, management of the cost of debt, debt portfolio management, and deriving and managing the debt funding policy for all currencies. Previously, Lerato managed the Asset and Liability function of the IDC where she developed market risk policies. She held an acting position as Head of Healthcare and Head of the Agro Industries Strategic Business Units where she managed the sourcing of deals within the sectors, strategy formulation and implementation. Her previous employ include designation as Head of Credit Risk at Transnet Treasury for 7 years; responsible for both market and credit risk exposures and the treasury policy. Prior to that, she had been a credit analyst for Absa, Nedbank and the Edcon Group. She was a board member at Ubank (board risk chairperson) and currently also sits on boards of Lionshare Properties (chairperson), Tellumat and Cadiz. CORNELIUS ROODT (57) Independent non-executive director Appointed to the Board in October 2015 Member of the Remuneration Committee Member of the Nominations Committee Cornelius (Corrie) is the current Chairman of Premier FMCG and has had a successful business career which included the NASDAQ listing of First South Africa Corp. and the founding of First Lifestyle Holdings. Previously, Corrie served as a partner at PriceWaterhouse Corporate Finance and before that as audit partner. STELLAR CAPITAL PARTNERS 23

28 CORPORATE GOVERNANCE REPORT (CONTINUED) PETER VAN ZYL (39) Non-executive director Appointed to the Board in November 2013 Chairman of the Remuneration Committee Member of the Nominations Committee Peter has wide-ranging operational experience in financial management and Financial Director roles and has entrepreneurial experience, with a particular focus on the Information and Communication Technology industry. From 2004 to 2009 he was Commercial Director of Sekunjalo Investments Ltd, where he managed a wide range of transactions, including the Sekunjalo Health Care rights issue, the acquisition of a BEE stake in British Telecom and Marine Growers from Transnet, as well as the restructuring of Sekunjalo Financial Services. CLARE WIESE (33) Independent non-executive director Appointed to the Board in September 2014 Member of the Audit and Risk Committee Member of the Social and Ethics Committee Clare holds an LLB from the University of Cape Town and a BA degree in Journalism from the University of Westminster. After having worked as a magazine journalist at House & Leisure (Associated Magazines), she completed her postgraduate law degree after which she worked at Bowman Gilfillan as a litigation attorney for three years, before founding Sloane & Madison, a company which specialises in the manufacturing of Fine Jewellery. CHRISTINA WIESE (29) Independent alternate director for Clare Wiese Appointed to the Board in September 2014 Christina graduated from the University of Stellenbosch with a BA degree in Value and Policy Studies, after which she did volunteer work at the Red Cross War Memorial Children s Hospital in Cape Town. She also attended a global leadership program at the Iacocca Institute at Lehigh University in the USA. She subsequently completed her Masters degree in Management from the London School of Economics during which time she also completed an internship program at Credit Suisse in London. She has worked in the micro-finance industry and currently consults for an online retailer in South Africa. Marco Wentzel replaced Christina Wiese as the independent alternate director for Clare Wiese with effect from 11 April STELLAR CAPITAL PARTNERS

29 BOARD COMMITTEES The Audit and Risk, Remuneration, Nominations and Social and Ethics Committees are sub-committees of the Board. The Board and its sub-committees have adopted charters and terms of reference that set out their roles and a clear division of responsibilities. This ensures a balance of power and authority so that no one individual has unfettered powers of decision-making. AUDIT AND RISK COMMITTEE The Audit and Risk Committee comprises three independent non-executive directors and is chaired by Ms J de Bruyn. Audit and Risk Committee meetings are held at least 3 times per year and, where appropriate, is attended by the external auditors or the executive directors. The external auditors have unfettered access to the Chairman of the Audit and Risk Committee. The Audit and Risk Committee assists the Board in discharging its duties relating to the oversight of the following: risk management, control and governance; the quality and integrity of the Group s reporting practices and controls and the integrated reporting (including financial statements) of the Group; the external auditor s qualifications, independence, and performance; the performance of the internal audit functions, if any; and the Group s process for monitoring compliance with laws and regulations and the code of ethics. The Audit and Risk Committee considers the Group and Company annual financial statements of Stellar Capital to be a fair presentation of their financial positions at 30 November 2015 and the results of their operations, changes in equity and cash flows for the year then ended in accordance with International Financial Reporting Standards and the Companies Act No. 71 of REMUNERATION COMMITTEE The Remuneration Committee comprises three non-executive directors of whom two are independent and is chaired by Mr PJ van Zyl. Remuneration Committee meetings are held at least three times a year and where appropriate the Chief Executive Officer and Chief Financial Officer attend meetings by invitation. The Remuneration Committee is responsible for the remuneration policy and determining and approving the remuneration of the Group s executives. NOMINATIONS COMMITTEE The Nominations Committee comprises three non-executive directors of whom two are independent and is chaired by the Chairman of the Board, Mr DD Tabata. The Nominations Committee meets at least twice a year. Responsibilities of the Nominations Committee include: reviewing proposals for executive and non-executive appointments; reviewing proposals for the appointment of the Company Secretary; and performance evaluation of the Board, individual directors and the Company Secretary. The procedure for appointments to the Board is formal and transparent. Appointments are a matter for the Board as a whole which is assisted by the Nominations Committee. SOCIAL AND ETHICS COMMITTEE The Social and Ethics Committee comprises three non-executive directors of whom all are independent and is chaired by the Chairman of the Board, Mr DD Tabata. The Social and Ethics Committee monitors the Group s performance in social and economic development, good corporate citizenship and transformation. STELLAR CAPITAL PARTNERS 25

30 CORPORATE GOVERNANCE REPORT (CONTINUED) ATTENDANCE AT BOARD MEETINGS Attendance by directors at Stellar Capital Board meetings and Board committee meetings for the period under review is set out below. Various members of the Board also met informally on a number of occasions. Board of Directors Member 16 January May August November 2015 CE Pettit Yes Yes Yes Yes CB de Villiers n/a Yes Yes Yes DD Tabata (Chair) Yes Yes Yes Yes J de Bruyn Yes Yes Yes Yes L Mangope Yes Yes Yes Yes CJ Roodt~ n/a n/a n/a Yes PJ van Zyl Yes Yes Yes Yes CC Wiese Yes Yes Apologies Yes CH Wiese~ Yes Yes Apologies n/a Audit and Risk Committee Member 16 January February May November 2015 J de Bruyn (Chair) Yes Yes Yes Yes L Mangope~ n/a n/a n/a Yes CC Wiese Yes Yes Yes Yes CH Wiese~ Yes Yes Yes n/a Remuneration Committee Member 16 January May August November 2015 PJ van Zyl (Chair) Yes Yes Yes Yes J de Bruyn~ Yes Yes Yes n/a CE Pettit~ Yes Yes Yes n/a CJ Roodt~ n/a n/a n/a Yes DD Tabata Yes Yes Yes Yes CH Wiese~ Yes Yes Apologies n/a Nominations Committee Member 16 January May August November 2015 DD Tabata (Chair) Yes Yes Yes Yes CE Pettit~ Yes Yes Yes n/a CJ Roodt~ n/a n/a n/a Yes PJ van Zyl~ n/a n/a n/a Yes CC Wiese~ Yes Yes Apologies n/a 26 STELLAR CAPITAL PARTNERS

31 Social and Ethics Committee Member 16 January May August November 2015 DD Tabata (Chair) Yes Yes Yes Yes J de Bruyn Yes Yes Yes Yes L Mangope~ Yes Yes Yes n/a CC Wiese~ n/a n/a n/a Yes ~ With effect from 5 October 2015, the following Board and committee changes took place: - Mr CJ Roodt was appointed to the Board; - Ms CH Wiese became an alternate director for Ms CC Wiese and resigned from the Audit and Risk Committee and the Remuneration Committee; - Ms L Mangope was appointed to the Audit and Risk Committee; - Mr CE Pettit was appointed as Chief Executive Officer and resigned from the Remuneration Committee and the Nominations Committee and thereafter Mr PJ van Zyl became the Chairman of the Remuneration Committee; - Ms J de Bruyn resigned from the Remuneration Committee; - Mr CJ Roodt was appointed to the Remuneration Committee and Nominations Committee; - Ms CC Wiese resigned from the Nominations Committee; and - Ms L Mangope resigned from the Social and Ethics Committee and was replaced by Ms CC Wiese. ACCOUNTABILITY AND AUDIT Going Concern The directors have made an assessment of the Company and the Group s ability to continue as a going concern. The directors have every reason to believe that the Company and the Group have adequate resources in place to continue operating for the foreseeable future and the annual financial statements have been prepared on the basis of this assumption. Internal Financial Control The directors have responsibility for the Group s systems of internal controls. These are designed to provide reasonable assurance of effective and efficient operations, internal financial control and compliance with laws and regulations. The Group s system of internal controls is designed to provide reasonable, but not absolute assurance against the risk of material errors, fraud or losses occurring. Furthermore, because of changing internal and external factors, the effectiveness of an internal control system may vary over time and must be continually reviewed and adapted. The system of internal controls is monitored throughout the Group by the Audit and Risk Committee, external auditors and management as an integrated approach. The Board reports that: to the best of its knowledge and belief, no material malfunction of the Group s internal control system occurred during the period under review; it is satisfied with the effectiveness of the Group s internal controls and risk management; it has no reason to believe that the Group s code of ethics has been transgressed in any material respect; and to the best of its knowledge and belief, no material breaches of compliance with any laws and regulations applicable to the Group have occurred during the period under review. Internal Audit and Whistle-blowing Ethics Hotline Given the nature of the operations as an investment holding company, no internal audit function or whistle-blowing hotline has been instituted by the Group. The Audit and Risk Committee receive quarterly feedback from management in respect of the internal controls at investee level, assess the impact to the Group and recommend remedial actions where appropriate. STELLAR CAPITAL PARTNERS 27

32 Directors Dealings in Shares and Insider Trading The Company Secretary and Sponsor monitor directors and affected persons dealings in shares and ensures adherence to closed periods for share trading. A closed period for trading in the Group s shares is maintained for prescribed periods to prevent any insider trading of the Group s shares. Directors and members of senior management are prohibited from dealing in Stellar Capital shares during price-sensitive or closed periods. Closed periods apply at least every six months from 30 November and 30 May until the publication of the interim or annual financial results respectively. A closed period is also applicable when the Company has issued a cautionary announcement to its shareholders. Directors and members of senior management may only deal in Stellar Capital shares outside a closed period, with the approval of the Chairman, Chief Executive Officer and the Company Secretary. 28 STELLAR CAPITAL PARTNERS

33 STAKEHOLDER ENGAGEMENT The large number of corporate actions concluded during the year under review emphasised the importance of the principles of transparent and timeously stakeholder engagement subscribed to by Stellar Capital. The Company issued seven circulars to shareholders and published numerous SENS announcements and media publications to ensure that stakeholders remained informed regarding developments within the Group. The Stellar Capital Partners website ( was launched during the year under review and provides stakeholders with up to date media publications and other information regarding the Group and its investees. Shareholders can subscribe to a stakeholder distribution list on the website which sends Group communications straight to the inbox of each recipient as and when SENS announcements or financial results are published. The table below sets out the key groups or individuals with whom the Company interacts on an ongoing basis: Stakeholder Relationship Role Material matters Private shareholders and institutional investors Shareholders To provide capital and investment required to support the business strategy - Share price - NAVPS - Dividend policy - Return on investment and prospects - Management competence - Growth strategy - Acquisitions and divestitures - Management remuneration - Management company fees Stellar Capital s commitment To create a sustainable and profitable business that rewards investors in a responsible manner Appropriate communication forum - Annual General Meetings - Ad hoc meetings with investors and analysts - SENS announcements and media updates - Website - Trading statements - Integrated annual report Bankers Financiers To provide financial resources required to support the business strategy - Financial statements Accurate and timely reporting and adherence to terms of funding arrangements - Regular meetings with financiers Investee management teams Management To provide timeous, accurate and complete financial and non-financial feedback on the performance of the investments of the Group - Financial statements - Strategic initiatives - Cash flows - Operational efficiencies - Synergies with other Group investees - Transformation To provide an open-channel for two-way feedback regarding all matters pertaining to the performance of investments - Monthly exco meetings - Monthly management accounts - Representation on risk forums, Boards and sub-committees - Site visits Community Corporate Social Responsibility To provide a socially stable and sustainable environment in which to conduct business - Investee CSI programmes To be a responsible corporate citizen who operates in a socially responsible manners, cognisant at all times of the people and environment in which the Group or its investees conduct business activities - Integrated annual report Authorities and regulators Tax collector, transformation and regulator To provide a stable macro and micro economic environment with a regulatory and legislative framework that supports business strategy - Taxation and legislative requirements To comply with regulatory and legislative requirements - Statutory returns - Integrated annual report - Investee B-BBEE certification STELLAR CAPITAL PARTNERS 29

34 REMUNERATION REPORT The Remuneration Committee operates under a formal mandate that has been approved by the Board and has conducted its affairs in compliance and discharged its responsibilities as stipulated in the committee terms of reference. The purpose of the Remuneration Committee is to make recommendations on the remuneration policies and practices for the executive directors, senior management of the Group in general. Following the conversion from an operating entity to an investment holding company, the Group has appointed a dedicated investment manager which oversees certain operational and strategic functions. As a result of Group restructuring and this management arrangement, the number of people employed within the Group has been materially reduced to comprising only the Board of the Company and small number of support staff. REMUNERATION COMMITTEE MEMBERS The Remuneration Committee comprises three non-executive directors of whom two are independent and is chaired by Mr PJ van Zyl. Remuneration Committee meetings are held at least three times a year and where appropriate the Chief Executive Officer and Chief Financial Officer attend meetings by invitation. ROLES AND RESPONSIBILITIES The committee is primarily responsible for assisting the Board in carrying out the following duties: ensuring the development and alignment of the remuneration philosophy and human resources strategies and policies with the Group s business strategy and the desired culture; determining the Group s remuneration policy, including short and long term incentives, for executive and senior management for final recommendation by the Board to shareholders; Considering and recommending for approval by the Board the remuneration of the Chief Executive Officer and executive directors; Determining any grants to executive directors and other senior employees made pursuant to any Group management share option scheme that is enacted; Ensuring that the structures, policies and procedures facilitate good management and utilisation of human resources; Considering recommendations by management in relation to non-executive directors remuneration for final recommendation by the Board to shareholders; and Disclosing the required remuneration of each individual director and certain senior executives in the integrated annual report, including the requirements of the JSE Listings Requirements. The committee met four times during the 2015 financial year. In some instances the Chief Executive Officer and Chief Financial Officer attended the committee meetings by invitation and assisted the committee in its deliberations, except when issues relating to their own compensation were discussed. No director is involved in deciding their own remuneration. The Company s auditors, Grant Thornton Cape Inc, have not provided advice to the committee. However, in their capacity as Group auditors, they perform normal audit procedures on the remuneration of directors. Refer to page 26 of the Corporate Governance Report for information on the composition of the Remuneration Committee and attendance at meetings. REMUNERATION POLICY AND EXECUTIVE REMUNERATION The remuneration policy was approved by shareholders at the Annual General Meeting held on 5 June 2015 and is again being submitted to shareholders at the annual general meeting to be held on 3 June 2016 for approval by non-binding advisory vote. PRINCIPLES OF EXECUTIVE REMUNERATION The Group s remuneration policy aims to attract and retain high-calibre executives and to motivate them to develop and implement the Group s business strategy in order to optimise long-term shareholder value creation. It is the intention that this policy should conform to best practice standards and it is framed around the following key principles: Total rewards are set at levels that are competitive within the relevant market; Incentive-based rewards are earned through the achievement of demanding performance conditions consistent with shareholder interests over the short-, medium- and long-term; Incentive plans, performance measures and targets are structured to incentivize and operate consistently throughout the business cycle; and The design of the long term incentive scheme is prudent and does not expose shareholders to unreasonable financial risk. 30 STELLAR CAPITAL PARTNERS

35 ELEMENTS OF REMUNERATION The Group Remuneration comprises the following principal elements: Total Guaranteed Package; and Short term incentives. REMUNERATION PHILOSOPHY The Remuneration philosophy is as follows and is reviewed annually: SALARY STRUCTURE All executive directors and support staff are remunerated on a total cost-to-company (CTC) structure, where applicable. All employee costs, save for non-executive director fees and executive director remuneration exceeding R per month, are recovered by the Company from the Manco. SALARY BENCHMARKING To ensure autonomy, position benchmarks may be undertaken for remuneration packages, which allows for flexibility. In the event of a new appointment, a position specific benchmark report may be requested from a reputable survey company to ensure external equity. BENEFITS The CTC package may include the following benefits which must be structured over twelve months: Basic salary; and Any other benefits as determined from time to time. ANNUAL SALARY INCREASES Increases for executive directors and support staff are not guaranteed. Annual increases will be considered by the Remuneration Committee. Salaries are normally reviewed annually. Should an executive director or support staff member be granted an increase, the following factors may be considered in determining the increase: Position against the market; Performance; and Enhanced qualifications related to the position. Interim increases may be granted in exceptional circumstances where there have been consequential changes in the position such as a change in market conditions, or promotion. NON-EXECUTIVE DIRECTORS FEES The proposed fees for the forthcoming financial year which will be presented to shareholders at the next annual general meeting, are: Chairman of the Board R Non-executive Director R Chairman of Audit and Risk Committee R Member of Audit and Risk Committee R Chairman of Remuneration Committee R Member of Remuneration Committee R Chairman of Nominations Committee R Member of Nominations Committee R Chairman of Social and Ethics Committee R Member of Social and Ethics Committee R The Group pays for all travel and accommodation expenses incurred by directors to attend Board and committee meetings, as well as for site visits. Details of the executive and non-executive directors fees are detailed in note 27 on page 85. STELLAR CAPITAL PARTNERS 31

36 DIRECTORS AND PRESCRIBED OFFICERS SERVICE CONTRACTS Directors and prescribed officers contracts are all terminable with one month s notice, and are bound by signed employment contracts. None of the non-executive directors have a contract of employment with the Group, but have all signed letters of appointment which set out the duties and responsibilities expected of them. A third of the directors retire by rotation annually based on longest service. If eligible, available and recommended for re-election by the Nominations Committee, their names are submitted for re-election at the Annual General Meeting. The appointment of new directors during the year is required to be confirmed at the next Annual General Meeting and such new directors are required to retire at such Annual General Meeting, but may offer themselves for re-election. APPROVAL This remuneration report has been approved by the Board of Directors of Stellar Capital. Signed on behalf of the Remuneration Committee Peter van Zyl Chairman of the Remuneration Committee 32 STELLAR CAPITAL PARTNERS

37 SUSTAINABILITY REPORT Stellar Capital acknowledges, in line with its values, the importance that sustainability has in its decision-making and as such, ensures that it engages with all stakeholders in meaningful ways so as to continue to build and strengthen relationships. As part of the approach to sustainability, the Group has focused on the following values in achieving its mission: A commitment to ethical business practices; Strategic investments which align to the business philosophy; Good governance principles; Employment practices that are fair and above reproach; and Clear lines of communication with all stakeholders Stellar Capital is cognisant of the fact that it does not operate in isolation, but is part of a greater network of people, communities and organisations. However being an investment entity, it has no operations of its own and therefore no significant socio-economic consequences. For the same reason Stellar Capital s impact on the environment is considered to be relatively low, but where possible measures are taken to further reduce any wastage or inefficiencies that may exist. Presently, Stellar Capital as an investment holding company has not yet introduced a CSI programme, but acknowledges that the implementation of such an initiative forms part of being a responsible corporate citizen. As part of its commitment, Stellar Capital will look to explore opportunities to partner with other organisations so as to contribute towards sustainability in this respect. Whilst each investee company is responsible for its own governance policies, through representation on the various boards, Stellar Capital strives to ensure that investee companies have implemented sustainable business practices in line with those highlighted by Stellar Capital. Furthermore, investee compliance with legislation, relevant regulatory requirements and industry best practice is monitored by Stellar Capital and suggestions for improvements are made where considered necessary or appropriate. Stellar Capital also receives feedback on the CSI programmes that have been implemented by its major investee companies. TORRE INDUSTRIES LTD In its latest financial year, along with its various employee initiatives, Torre reported on three major Corporate Social Initiatives, being partnership of two of its senior managers with Partners for Possibilities (an initiative run by Symphonia), Christmas donations to St Mary s Children s Home and donations to the Sinethemba Good Samaritan Centre. Furthermore, Torre invested 2% of its after tax profits into the Set Point School of Science and the Thuto Mfundo Adult Centre for Education. CADIZ HOLDINGS LTD Cadiz has committed to a minimum annual investment of 1% of after tax profits in community support through the Cadiz Foundation. To date the foundation has supported numerous projects, including GreaterGood South Africa, Westlake United Church Trust, Cadiz Open Water Swimming Development Trust, Kids Foundation, Vista Nova, Sisters Inc, Neighbourhood Old Age Home, Western Cape Cerebral Palsy, Homestead Education Trust and the Goededacht Trust. TELLUMAT (PTY) LTD Tellumat has been involved in two major CSI programmes in its past financial year, being the Atlantis community project, a skills development programme for young people looking to study any of the technical and vocational education and training courses offered at West Coast College, and a bursary scheme which provides financial support to employee dependents with limited resources for tertiary studies. STELLAR CAPITAL PARTNERS 33

38 BROAD-BASED BLACK ECONOMIC EMPOWERMENT The Board of Stellar Capital fully endorses the B-BBEE principles and is assisted by the Social and Ethics Committee in ensuring that it continues to prioritize transformation as part of its commitment to good corporate governance. The table below illustrates the present composition of the Board: African White Foreign Male Female Male Female Male Female % 12.5% 37.5% 25% 12.5% 0% Stellar Capital monitors the B-BEE status of its major investees and is pleased to report that during the latest reported respective financial years, the Torre group achieved a Level 5 BEE Certificate, the Cadiz group achieved a Level 3 BEE Certificate and Tellumat achieved a Level 2 BEE Certificate. 34 STELLAR CAPITAL PARTNERS

39 REPORT OF THE SOCIAL AND ETHICS COMMITTEE REPORT OF THE SOCIAL AND ETHICS COMMITTEE The Social and Ethics Committee is a sub-committee of the Board. The committee meets at least twice in each financial year. The Social and Ethics Committee comprises three non-executive directors of whom all are independent and is chaired by the Chairman of the Board, Mr DD Tabata. The Social and Ethics Committee monitors the Group s performance in social and economic development, good corporate citizenship and transformation. The Committee also monitors the Group s activities, having regard to any relevant legislation, other legal requirements, or prevailing codes of best practice, with regard to matters relating to: SOCIAL RESPONSIBILITIES To monitor the Company s standing to social and economic development in terms of the goals and purposes of the: - Principles set out in the United Global Compact Principles; - Organisation for Economic Co-operation and Development (OECD) recommendations regarding corruption; - African Union; - JSE Listing Requirements; and - King Code of Governance for South Africa 2009 Endorse the Company s Public Affairs and Corporate Social Investment programs including sponsorships, donations and charitable giving; and Review annually the Company s Public Affairs and Corporate Social Investment programs; ETHICS RESPONSIBILITIES Endorse the Company s Code of Ethics (including core values) and submits same to the Board of Directors for approval; Endorse the ethics management training program; Review performance of the ethics management training program; Review results of periodic employee attitude surveys; and Identify ethics risks and opportunities; TRANSFORMATION RESPONSIBILITIES: SOUTH AFRICA Ensure that there is full integration and alignment of all transformation processes within the Company in South Africa and to monitor the Company s standing to social and economic development in terms of goals and purposes particularly in respect of: - the Employment Equity Act; - preferential procurement; - social investment; - community involvement; - the Broad-Based Black Economic Empowerment Act; and - skills development; Review targets for the Company in South Africa in respect of the above processes; Advise the Board on specific strategies for transformation; and Consider and review progress against set goals and targets in relation to all aspects of the Company s transformation strategy. Progress in terms of the matters reviewed by the committee is reported at each committee meeting and feedback is given to the Board timeously. As set out in its terms of reference the committee has an independent role with accountability to the Board. The committee does not assume the function of management, but rather a role of monitoring. The committee has discharged all of the responsibilities as set out in its terms of reference. Dumisani Tabata Chairman of Social and Ethics Committee STELLAR CAPITAL PARTNERS 35

40 ANNUAL FINANCIAL STATEMENTS 36 STELLAR CAPITAL PARTNERS

41 STATEMENT OF RESPONSIBILITY BY THE BOARD OF DIRECTORS The Directors are responsible for the maintenance of adequate accounting records and the preparation and integrity of the annual financial statements. The annual financial statements have been prepared in accordance with the Listing Requirements of the JSE Limited, International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council and the Companies Act No. 71 of 2008 and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates. The annual financial statements have been prepared on the historical cost basis, except for certain financial instruments at fair value, and incorporate the principal accounting policies set out below. They are presented in South African Rands. The annual financial statements have been prepared under the supervision of Mr CB de Villiers CA(SA), the Chief Financial Officer. The Directors are satisfied that the information contained in the financial statements fairly represents the results of operations for the period and the financial position of the Group and the Company at year-end. The Directors are also responsible for the Group s and the Company s systems of internal financial control. These are developed to provide reasonable, but not absolute, assurance regarding the reliability of the financial statements, the safeguarding of assets, and to prevent and detect misrepresentation and losses. The Directors are of the opinion that the Group and the Company will continue as a going concern in the future as it will have sufficient funds available to settle its obligations as and when they become due. The financial statements, set out on pages 47 to 99, were audited by the independent auditor, Grant Thornton Cape Inc., to whom unrestricted access was given to all financial records and related information. The independent auditor s unmodified report is presented on page 46. Signed on behalf of the Board of Directors on 24 February Dumisani Tabata Chairman of the Board Charles Pettit Chief Executive Officer STELLAR CAPITAL PARTNERS 37

42 STATEMENT BY COMPANY SECRETARY In terms of section 88(1)(e) of the Companies Act No. 71 of 2008, I certify that the Company has lodged with the Companies and Intellectual Property Commission and the Registrar all such returns as required by the Companies Act and that all such returns appear to be true, correct and up to date. Caroline du Preez Company Secretary 38 STELLAR CAPITAL PARTNERS

43 REPORT OF THE AUDIT AND RISK COMMITTEE As required by section 94 of the Companies Act No. 71 of 2008, the Audit and Risk Committee submits its report for the 2015 financial year. The committee is satisfied that it has complied with its legal, regulatory and other responsibilities. The Audit and Risk Committee has discharged the functions in terms of its charter and ascribed to it in terms of the Act as follows: Reviewed the 2015 annual financial statements, culminating in a recommendation to the Board to adopt them. In the course of its review the Committee: - Took appropriate steps to ensure that the financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act of South Africa; and - Considered and, where appropriate, made recommendations on internal financial controls; Reviewed the external audit reports on the annual financial statements; Evaluated the effectiveness of the risk management process and controls; Verified the independence of the external auditors, Grant Thornton Cape Inc., as the auditors for the company and noted the appointment of Mr Imtiaaz Hashim as the designated auditor; Approved the audit fees and engagement terms of the external auditors; and Determined the nature and extent of allowable non-audit services and approved the contract terms for the provision of non-audit services by the external auditors. MEMBERS OF THE AUDIT AND RISK COMMITTEE All Audit and Risk Committee members act independently as described in section 94 of the Companies Act. During the year under review the Audit and Risk Committee consisted of three independent non-executive directors, being Ms J de Bruyn (Chair), Ms CC Wiese and Ms CH Wiese, who was replaced by Ms L Mangope on 5 October EXPERTISE AND EXPERIENCE OF FINANCIAL DIRECTOR As required by JSE Listings Requirements 3.84(i), the Audit and Risk Committee has satisfied itself that the Chief Financial Officer has the appropriate expertise and experience. INDEPENDENCE OF EXTERNAL AUDITORS During the year under review a representation was made by the external auditors regarding their independence and the Audit and Risk Committee confirmed the independence of the Grant Thornton Cape Inc. as external auditors and Mr Imtiaaz Hashim as the Designated Auditor. Janine de Bruyn Chair of the Audit and Risk Committee STELLAR CAPITAL PARTNERS 39

44 REPORT OF THE BOARD OF DIRECTORS TO THE SHAREHOLDERS OF STELLAR CAPITAL PARTNERS LIMITED The directors have pleasure in presenting the annual financial statements of the Company and the Group for the year ended 30 November NATURE OF BUSINESS Stellar Capital Partners Ltd is a JSE listed investment holding company. Stellar Capital has appointed Manco as its dedicated investment manager to manage the portfolio of the Company in accordance with Section 15 of the JSE Listings Requirements. The Manco, in terms of its management agreement with the Company, acts on behalf of the Company in sourcing, negotiating, concluding and executing investment opportunities for the Company. The Company holds a diversified portfolio of investments spanning the industrial, engineering and communications, financial services and mining and support services sectors. CORPORATE ACTIVITY DURING THE YEAR AND UP TO THE DATE OF THIS REPORT During the year, Stellar Capital undertook a number of corporate actions, the details of which are set out below: ESTABLISHMENT OF INVESTMENT ENTITY On 16 January 2015, shareholders approved: the change of the Company s name; the transfer of the Company s listing to the Investment Companies sub-sector of the JSE; a R150 million specific issue for cash; the disposal of a 100% interest in Andrews Kit (Pty) Ltd (Contract Kitting) and Structured Connectivity Solutions (Pty) Ltd; the acquisition of an initial portfolio of investments comprising 30% of Tellumat (Pty) Ltd, 19.26% of Digicore Holdings Ltd, an additional 30.32% of Mine Restoration Investments Ltd and an additional 21.77% of Goliath Gold Ltd. All corporate actions were unconditional on 16 January 2015, save for the disposal of Contract Kitting which became unconditional on 9 February 2015 and the name change which came into effect on the JSE on 2 April CADIZ ACQUISITION On 7 April 2015, Stellar Capital acquired a 16.45% investment in Cadiz Holdings Ltd for a total consideration of R45.3 million. On 15 October 2015, Stellar Capital increased its effective holding in Cadiz to 45.99% by way of a scheme of arrangement in terms of s114 of the Companies Act. In terms of the scheme, offeree shareholders were offered 5 Stellar Capital shares at R2.00 per share for every 8 Cadiz shares at an effective price of R1.25 per Cadiz share alternatively such offerees could elect to remain shareholders in the unlisted Cadiz business by accepting 1 share in Friedshelf 1678 Ltd (Bidco) for each 1 Cadiz share held. Stellar Capital issued ordinary shares at R2.00 per share in settlement to offeree shareholders. The JSE listing of Cadiz was terminated on 3 November On 30 November 2015, Stellar Capital announced its intention to further increase its effective stake in Cadiz (through Bidco) to 85.03% for a total consideration of R114.1 million (which transaction is still conditional at the date of this report) and on 21 January 2016 announced the acquisition of a further 12.18% investment in Cadiz for an amount of R35.2 million which acquisition became unconditional on 27 January DIGICORE DISPOSAL On 15 September 2015, Stellar Capital disposed of its 19.26% investment in Digicore Holdings Ltd for a cash consideration of R209.8 million. Per paragraph of the acquisition circular which was posted to Stellar Capital shareholders on 15 December 2014, and outlined the terms of the initial acquisition of Stellar Capital s Digicore investment at an entry price of R2.50, an upward purchase price adjustment was required in respect of of the Digicore shares originally acquired in the event that an irrevocable offer was made to acquire such shares on or before 16 July 2015 at a price above R2.50 (Adjustment). As a result of the Adjustment, a further shares were issued at R2.00 per share on 5 October TORRE ACQUISITION With effect from 26 October 2015, Stellar Capital acquired a 34.62% investment in Torre Industries Ltd for a total consideration of R912.6 million settled by way of a R132.4 million cash payment and the issuance of Stellar Capital shares at R2.00 per share. 40 STELLAR CAPITAL PARTNERS

45 TELLUMAT ACQUISITION On or about 9 February 2015, Stellar Capital acquired a 30% investment in Tellumat (Pty) Ltd for a total consideration of R100 million, settled by way of the transfer of Stellar Capital s existing 100% interests in Andrews Kit (Pty) Ltd and Structured Connectivity Solutions (Pty) Ltd respectively. On 30 November 2015, Stellar Capital announced its intention to acquire an additional 63.14% investment in Tellumat for a total purchase consideration of R166.7 million. On 9 February 2016, the Company announced the acquisition of the remaining 6.86% of Tellumat for a total consideration of R12.9 million which will be settled by the issue of new shares in the Company at R2.30 per share. The acquisitions of the 63.14% and 6.86% stakes are not yet unconditional at the date of this report. CAPITAL RAISE On 22 October 2015, Stellar Capital announced a R1 billion capital raise by way of a R400 million underwritten Rights Offer and a R600 million convertible redeemable preference share issue, which was subsequently approved by shareholders on 19 November The Company issued ordinary shares at R2.30 on 30 November 2015 in terms of the Rights Offer, however (R89.0 million) of these shares related to excess applications and underwritten shares were only allotted and paid up on 2 December The Company issued 600 convertible redeemable preference shares for a total consideration of R600 million on 30 November GOLIATH GOLD DISPOSAL On 18 November 2015, Stellar Capital disposed of its 21.77% investment in Goliath Gold Ltd for R51.7 million which consideration is receivable on 6 June INTEREST IN SUBSIDIARIES, ASSOCIATES AND INVESTMENTS Particulars of the principal subsidiaries, associates and investments of the Group are provided in notes 3 and 6 on pages 59 and 69 of the consolidated annual financial statements. DIRECTOR CHANGES Mr PJ van Zyl was appointed as the permanent Chief Executive Officer of Stellar Capital with effect from 1 February On 5 October 2015, Mr CE Pettit, previously an independent non-executive director of the Company, replaced Mr Van Zyl as Chief Executive Officer. Mr Van Zyl remains on the board as a non-executive director. Mr CB de Villiers was appointed a Chief Financial Officer with effect from 1 February Mr CJ Roodt was appointed as an independent non-executive director with effect from 5 October He replaced Ms CH Wiese, who subsequently acts as an alternate director for Ms CC Wiese. COMPANY SECRETARY With effect from 11 May 2015, The Secretarial Company (Pty) Ltd, represented by Ms Caroline du Preez was appointed as Company Secretary. She replaced Mr Warwick van Breda, who represented Lavender Sky Investments 40 (Pty) Ltd. DIRECTORS EMOLUMENTS The emoluments of executive and non-executive directors are determined by the Group s Remuneration Committee. Further information related to the emoluments of directors is provided in note 27 of the consolidated annual financial statements. AUDITORS The directors recommend that Grant Thornton Cape Inc., represented by Mr Imtiaaz Hashim as Designated Auditor, continue in office in accordance with the Companies Act. The Audit Committee is satisfied with the independence of the auditors of the Group. SHARE CAPITAL The authorised and issued share capital of the Company as at 30 November 2015 is set out in note 13 of the consolidated annual financial statements. As at 30 November 2015, there were issued ordinary shares and unissued ordinary shares. The Company issued 600 convertible redeemable preference shares at 30 November No shares were issued subsequent to year-end, however ordinary shares were allotted on 2 December 2015 in terms of the Rights Offer as detailed above. STELLAR CAPITAL PARTNERS 41

46 REPORT OF THE BOARD OF DIRECTORS (CONTINUED) ISSUE AND REPURCHASE OF SHARES During the year under review the Company issued a total of ordinary shares as follows: Number of ordinary shares issued Date Issue Price (Rands) Specific issue of shares for cash (1) Jan Specific issue of shares to settle underwriting and commitment fees Jan Specific acquisition issue - Digicore Holdings Ltd Jan Specific acquisition issue - Goliath Gold Mining Ltd Jan Specific acquisition issue - Mine Restoration Investments Ltd Jan Specific issue - Digicore Holdings Ltd purchase price adjustment Oct Specific acquisition issue - Torre Industries Ltd Oct Specific acquisition issue - Cadiz Holdings Ltd Nov Issue in terms of Rights Offer Nov Issued to public shareholders, save for the issue of shares to Thunder Capital (Pty) Ltd pursuant to an underwriting agreement. Mr PJ van Zyl is one of two directors of Thunder Capital (Pty) Ltd and holds no direct or indirect beneficial interest in the company. PREFERENCE SHARE CAPITAL On 30 November 2015, the Company issued 600 convertible redeemable preference shares at R1 million each to raise R600 million. The shares are convertible into ordinary shares at the instance of the holders at R2.78 per share and are fully redeemable on 31 May Dividends on preference shares are due and payable bi-annually at a rate of 95% of Prime. DIRECTORS INTERESTS The table below set out the directors beneficial interests in share capital of the Company at 30 November 2015: Ordinary shares Preference shares Director Direct Indirect Total ordinary shares % of total issued ordinary shares Director Direct Indirect Total preference shares % of total issued preferred shares CE Pettit % CB de Villiers^ % DD Tabata (1) 1,082, % PJ van Zyl - - (2) % CJ Roodt* % CC Wiese % CH Wiese % L Mangope % J de Bruyn % CE Pettit % CB de Villiers^ % DD Tabata % PJ van Zyl - - (2) % CJ Roodt* % CC Wiese - 94 (3) % CH Wiese - 94 (4) % L Mangope % J de Bruyn % ^ CB de Villiers appointed with effect from 1 February 2015 * CJ Roodt appointed with effect from 5 October 2015 Notes: 1. Shares held through Green Tree Investments 306 (Pty) Ltd 2. Thunder Capital (Pty) Ltd, a company of which Mr PJ van Zyl is one of two directors, held ordinary shares constituting 4.70% of the Company s issued share ordinary share capital and 100 preference shares constituting 16.67% of the Company s issued preference share capital at 30 November Mr van Zyl holds no direct or indirect beneficial interest in Thunder Capital (Pty) Ltd 3. Shares held through Metcap 14 (Pty) Ltd 4. Shares held through Cream Magenta 140 (Pty) Ltd 42 STELLAR CAPITAL PARTNERS

47 Directors beneficial interests in share capital of the Company at 30 November 2014 is set out below: Ordinary shares Preference shares Director Direct Indirect Total ordinary shares % of total issued ordinary shares Director Direct Indirect Total preference shares % of total issued preferred shares CE Pettit % DD Tabata % PJ van Zyl % CC Wiese % CH Wiese % L Mangope % J de Bruyn % CE Pettit % DD Tabata % PJ van Zyl % CC Wiese % CH Wiese % L Mangope % J de Bruyn % Directors dealings in the securities of the Company during the year under review are set out below: Director Transaction Direct Indirect Date Total number of ordinary shares Price per share (Rands) Total transaction value (Rands) CB de Villiers Acquisition Aug CB de Villiers Acquisition Nov Director Transaction Direct Indirect Date Total number of preference shares Price per share (Rands) Total transaction value (Rands) CJ Roodt Acquisition Nov CC Wiese Acquisition Nov CH Wiese Acquisition Nov There were no dealings by directors in the securities of the Company during the prior reporting period. There has been no change in directors interests or any share dealings by directors subsequent to 30 November 2015 and to the date of this report. There have been no other material directors beneficial interests, whether directly or indirectly, of directors of Stellar Capital in the last 12 months (or during the prior period) in transactions that were concluded by Stellar Capital, save for: ordinary shares issued to and an amount of R1,6 million to Thunder Capital (Pty) Ltd, a company of which Mr PJ van Zyl is one of two directors, in lieu of underwriting fees. Mr van Zyl holds no direct or indirect beneficial interest in Thunder Capital (Pty) Ltd; and An amount of R3 million to Shanike Investments 322 (Pty) Ltd, an associate of Mr CE Pettit in lieu of underwriting fees. STELLAR CAPITAL PARTNERS 43

48 REPORT OF THE BOARD OF DIRECTORS (CONTINUED) SHAREHOLDER SPREAD The analysis of public and non-public shareholding of the Company at 30 November 2015 is set out below: Number of shareholders % of shareholders Number of ordinary shares % of total ordinary shares shares % % shares % % shares % % shares % % More than shares % % % % Public and Non-public Shareholding Number of shareholders Number of ordinary shares % of total ordinary shares Public % Non-public % Directors % Associates of directors % Persons interested in 10% or more of ordinary shares % Public and Non-public Shareholding Number of preference shares % of total preference shares Public % Non-public % Directors % Associates of directors % Persons interested in 10% or more of ordinary shares % The major beneficial shareholders of the securities of the Company at 30 November 2015 are set out below: Major Shareholders Number of ordinary shares % of total ordinary shares Asgard Capital Assets % SJP Capital Ltd % Thunder Securitisations (Pty) Ltd % VRE Investments (Pty) Ltd % Investec IAL Special Focus Fund % 44 STELLAR CAPITAL PARTNERS

49 Major Shareholders Number of preference shares % of total preference shares Rand Merchant Bank % Thunder Capital (Pty) Ltd % Cream Magenta 140 (Pty) Ltd % Metcap 14 (Pty) Ltd % DIVIDEND No dividend has been declared for the year under review (2014:nil). SPECIAL RESOLUTIONS The following special resolutions were passed by the Company during the year under review: Disposal in terms of s112 and 115(2)(b) of the Companies Act; Issue of more than 30% of the issued share capital of the Company in terms of s41(3) of the Companies Act; Name change of the Company in terms of s16 of the Companies Act and s11.36 of the JSE Listings Requirements; Provision of financial assistance in terms of s45(3)(a)(ii) of the Companies Act; Provision of financial assistance in terms of s44(3)(a)(ii) of the Companies Act; Increase of authorised share capital in terms of s65(9) of the Companies Act; Creation and issue of preference shares in terms of s65(9) of the Companies Act; Amendment of the Company Memorandum of Incorporation in terms of s65(9) of the Companies Act; and Issue of preference shares to related parties in terms of s41(1)(a), (b) and (c) of the Companies Act. TRADING STATEMENT RELEVANT MEASURE The directors confirm the adoption of NAVPS as the relevant measure for the purposes of trading statements. COROPORATE GOVERNANCE The directors subscribe to the values of corporate governance as embodied in the King Report on Corporate Governance in South Africa. EVENTS AFTER THE REPORTING DATE On 1 and 2 December 2015, the Company received R89 million and on 2 December allotted a further ordinary shares in respect of the Rights Offer. On 21 January 2016, Stellar Capital announced the further acquisition of 12.18% of Cadiz (held via Bidco) for R35.2 million, which acquisition became unconditional on 27 January On 9 February 2016, the Company announced the acquisition of a further 6.86% of Tellumat (Pty) Ltd for a total consideration of R12.9 million, such that following the transaction, Tellumat (Pty) Ltd will be a wholly-owned subsidiary of Stellar Capital The directors are not aware of any other events after the reporting date which have a material impact on financial statements as presented. GOING CONCERN STATEMENT To the best of its knowledge and belief, based on the above and after making enquiries, the board of directors confirm that it has every reason to believe that the Company and the Group have adequate resources in place to continue in operational existence for the foreseeable future. For this reason, the board adopted the going concern basis in preparing the consolidated annual financial statements. STELLAR CAPITAL PARTNERS 45

50 INDEPENDENT AUDITOR S REPORT TO THE SHAREHOLDERS OF STELLAR CAPITAL PARTNERS LIMITED Report on the financial statements We have audited the consolidated and separate financial statements of Stellar Capital Partners Limited set out on pages 47 to 99, which comprise the statements of financial position as at 30 November 2015, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes, comprising a summary of significant accounting policies and other explanatory information. Directors responsibility for the financial statements The company s directors are responsible for the preparation and fair presentation of these consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatements, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these consolidated and separate financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the 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 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the 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 and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of Stellar Capital Partners Limited as at 30 November 2015, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards, and the requirements of the Companies Act of South Africa. Other reports required by the Companies Act As part of our audit of the consolidated and separate financial statements for the year ended 30 November 2015, we have read the Directors Report, Audit Committee s Report and Company Secretary s Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited consolidated and separate financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between these reports and the audited consolidated and separate financial statements. However, we have not audited these reports and accordingly do not express an opinion on these reports. GRANT THORNTON CAPE INC. Chartered Accountants (SA) Registered Auditors Imtiaaz Hashim Partner Chartered Accountant (SA) Registered Auditor Cape Town 24 February STELLAR CAPITAL PARTNERS

51 STATEMENT OF FINANCIAL POSITION R 000 Group Company At At At At 30 November 30 November 30 November 30 November Notes ASSETS Non-current assets Listed investments at fair value Unlisted investments at fair value Loan investments Loans to portfolio companies Investments in Consolidated Subsidiaries Other financial assets Deferred taxation Current assets Loan investments Loans to portfolio companies Other financial assets Loans to Consolidated Subsidiaries Trade and other receivables Cash and cash equivalents Non-current assets held for sale TOTAL ASSETS EQUITY AND LIABILITIES Equity Equity attributable to owners of the parent Non-controlling interest - (14 221) - - LIABILITIES Non-current liabilities Preference share liability Current liabilities Preference share liability Current tax payable Trade and other payables Liabilities of disposal group held for sale TOTAL EQUITY AND LIABILITIES STELLAR CAPITAL PARTNERS 47

52 STATEMENT OF COMPREHENSIVE INCOME R 000 Group Company Year ended 15 months ended Year ended 15 months ended 30 November 30 November 30 November 30 November Notes Continuing operations Fair value adjustments 16 (21 334) 414 (21 948) - Interest revenue Dividends received Service revenue Cost of sales - (490) - - Gross income from investments Other income Finance costs 19 (202) (2 360) (156) (2 356) Net income before operating expenses Operating expenses Management fee 20 (8 292) - (8 292) - Impairment 21 (1 173) (2 950) (2 276) (47 661) (Loss) / profit on disposal of Consolidated Subsidiaries 22 (13 935) - 10 (18 069) Other operating expenses 23 (16 183) (12 378) (14 163) (8 697) (Loss) / profit before taxation (29 446) (15 899) (68 791) Taxation (Loss) / profit from continuing operations (27 941) (11 178) (68 791) Discontinued operations Net loss from discontinued operations 12 (8 747) (92 469) - - Loss for the period (36 688) (89 053) (11 178) (68 791) Loss for the period attributable to: (36 688) (89 053) (11 178) (68 791) Equity owners of the parent (36 688) (94 293) (11 178) (68 791) Non-controlling interest (Loss) / profit from continuing operations attributable to: (27 941) (11 178) (68 791) Equity owners of the parent (27 941) (1 824) (11 178) (68 791) Non-controlling interest Loss from discontinued operations attributable to: (8 747) (92 469) - - Equity owners of the parent (8 747) (92 469) - - Non-controlling interest Loss per share Basic and diluted loss per share (cents) 25 (12.29) (94.12) From continuing operations (9.36) (1.82) From discontinued operations (2.93) (92.30) 48 STELLAR CAPITAL PARTNERS

53 STATEMENT OF CHANGES OF EQUITY R 000 Equity Share balances Equity Ordinary Preference based Accu- attributable attributable Nonshare share Treasury payment Revaluation mulated to step-up owners of controlling Total Group capital capital shares reserve reserve loss transactions the parent interest equity Balance at 1 September (5 304) ( ) (74 411) (8 605) (Loss) / profit for the period (900) (192) (93 201) - (94 293) (89 053) Equity settled share based payments Shares vested in terms of forfeitable share plan Own shares acquired by subsidiaries, held as treasury shares - - (78) (78) - (78) Transactions with non-controlling interest (10 856) Balance at 1 December (4 032) - - ( ) (10 594) (14 221) Loss for the year (36 688) - (36 688) - (36 688) Issue of shares Capitalisation of share issue costs (19 566) (1 075) (20 641) - (20 641) Disposal of treasury shares (2 918) Disposal of subsidiary Balance at 30 November ( ) Notes R 000 Equity Share balances Equity Ordinary Preference based Accu- attributable attributable Nonshare share Treasury payment Revaluation mulated to step-up owners of controlling Total Company capital capital shares reserve reserve loss transactions the parent interest equity Balance at 1 September ( ) Loss for the period (68 791) - (68 791) - (68 791) Equity settled share based payments Balance at 1 December ( ) Loss for the year (11 178) - (11 178) - (11 178) Issue of shares Capitalisation of share issue costs (19 566) (1 075) (20 641) - (20 641) Balance at 30 November ( ) Notes STELLAR CAPITAL PARTNERS 49

54 STATEMENT OF CASH FLOWS R 000 Group Company Year ended 15 months ended Year ended 15 months ended 30 November 30 November 30 November 30 November Notes Operating activities Cash generated from / (utilised in) operations (10 436) (5 813) Interest revenue Finance costs 19 (202) (2 360) (156) (2 356) Tax paid 14 (2 522) (69) (2 522) (69) Discontinued operations Cash generated from / (utilised in) operating activities (544) Investing activities Acquisition of investments 3 ( ) (14 587) ( ) - Proceeds from disposal of investments Acquisition of loan investments 4 (51 371) - (51 371) - Loans advanced to portfolio companies 5 (74 973) - (74 973) - Net cash flow on disposal of Consolidated Subsidiaries 33 (211) Loans advanced to Consolidated Subsidiaries (81 325) (3 784) Acquisition of other financial assets 7 ( ) (22 808) ( ) - Disposal of other financial assets Discontinued operations - (1 382) - - Cash (utilised in) / generated from investing activities ( ) ( ) Financing activities Net proceeds from ordinary share issue Net proceeds from preference share issue Repayment of financial liabilities - (27 207) - (27 206) Disposal / (purchase) of treasury shares by Consolidated Subsidiary (78) - - Discontinued operations Cash generated from / (utilised in) financing activities (26 761) (27 206) Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period (377) Transferred to disposal group held for sale Total cash and cash equivalents at end of the period STELLAR CAPITAL PARTNERS

55 NOTES TO THE ANNUAL FINANCIAL STATEMENTS 1. PRESENTATION OF ANNUAL FINANCIAL STATEMENTS The separate and consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) 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 financial reporting pronouncements as issued by the Financial Reporting Standards Council, the JSE Listings Requirements and the requirements of the South African Companies Act No. 71 of The consolidated financial statements have been prepared on the historical cost basis, except for the certain financial instruments which have been measured at fair value or at amortised cost. Amounts are presented in South African Rands. The accounting policies are consistent with those applied in the previous period except for the adoption of the investment entity exemption in IFRS 10 Consolidated Financial Statements (IFRS 10) as noted in accounting policy 1.1 below. The Group has also adopted new, revised or amended accounting standards issued by the IASB and IFRS Interpretation Committee (IFRIC) which were effective and applicable to the Group from 1 January The significant accounting policies are set out below Adoption of investment entity exemption The Company has adopted the investment entity exemption in IFRS 10 as at 30 November 2015, which results in the holding company being classified as an Investment Entity. Subsidiaries that mainly perform an investment holding function are accounted for as investments at fair value through profit and loss (Investments at FVTPL). Subsidiaries that provide services to the Group or to third parties and do not hold investments continue to be consolidated Transitional provisions under IFRS 10 The directors have assessed the impact of the adoption of IFRS 10 on the prior reporting period and have concluded that the effect thereof is not material due to the investment entity exemption in IFRS 10 only being applied to investments acquired upon the conversion of the Company to an investment entity during the current period, which investments were not held by the entity during the prior reporting period. Subsidiaries that provide services to the Group or third parties held during the prior period and current period have continued to be consolidated in accordance with IFRS 10. As a result, there are no investments in subsidiaries measured at FVTPL which were previously consolidated and therefore no restatement of prior period disclosures is required under the transitional provisions of IFRS 10. The only subsidiaries of the Company held in the prior year which would have qualified as Investments at FVTPL in the current year were classified as a disposal group held for sale measured at fair value less costs to sell in accordance with the requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations and disposed of during the current financial year. The noncurrent assets and liabilities of the disposal group classified as held for sale were presented as single amounts in the statement of financial position. Should the disposal group have been held as an Investment at FVTPL in the prior reporting period, the non-current assets and liabilities of the disposal group held for sale would have been presented as a single non-current Investment at FVTPL at the same amount as disclosed in the prior reporting period due to selling costs being immaterial. The post-tax losses of the discontinued operations as well as the post-tax losses recognised on the measurement to fair value less costs to sell, which were disclosed as a single amount in the statement of comprehensive income would have been disclosed as fair value adjustments. No change would have resulted in the Group s key reporting metric of Net Asset Value per share or shareholder equity Principles of Consolidation Accounting for subsidiaries and associates Given the nature of the Group s operations, all portfolio investments are accounted for at FVTPL in terms of IAS 39 Financial Instruments: Recognition and Measurement (IAS 39), irrespective of whether they are subsidiaries or associates. Subsidiaries are entities that the Group controls by being exposed to, or having rights to, variable returns from its involvement with that entity and, where the Group has the ability to affect those returns through its power over the entity. The subsidiaries of the Group are entities that: i. comprise portfolio investments; and ii. provide services to third parties and related companies. STELLAR CAPITAL PARTNERS 51

56 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) Subsidiaries classified as (i) are classified as Investment Entities under IFRS 10. Investment Entities are exempt from consolidation and measured at fair value on date of acquisition in terms of IAS 39. Changes in fair value subsequent to acquisition, primarily driven by revaluation of portfolio investments, are recognised in profit and loss in the period of change. Subsidiaries classified as (ii) are not Investment Entities and continue to be consolidated (Consolidated Subsidiaries) in accordance with accounting policy Where the Group does not have control, but has significant influence, these investments are classified as associates. The Group does not have any joint ventures. Given the nature of the Group s operations, associates are accounted for at acquisition at FVTPL in line with the exemption from applying the equity method of accounting provided in IAS 28 Investments in Associates and Joint Ventures. Changes in fair value subsequent to acquisition are recognised in profit or loss in the period of change Accounting for Consolidated Subsidiaries On acquisition date, the assets and liabilities and contingent liabilities of a Consolidated Subsidiary are measured at their fair values. Any excess of acquisition cost over fair value of the identifiable net assets acquired, is recognised as goodwill. Any shortfall in the acquisition cost below the fair value of the identifiable net assets acquired (i.e. discount), is recognised as a gain in profit and loss in the period of acquisition. The results of Consolidated Subsidiaries are included in the consolidated financial statements from the effective date of acquisition to the effective date of disposal. Where necessary, adjustments are made to the financial statements of Consolidated Subsidiaries in order to align their accounting policies with those of the Company. Non-controlling interests in the net assets of consolidated subsidiaries are identified and recognised separately within equity. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation Segmental reporting As the Group has only one business segment which is managed as a single pool of capital irrespective of the sector in which the Group s investees trade, segmental reporting is not applicable. During the prior reporting period, as the Group had no continuing operations at 30 November 2014 pending completion of the sale of Chrystalpine Investments 9 (Pty) Ltd group and Structured Connectivity Solutions (Pty) Ltd, no segmental reporting was applicable to the prior reporting period as the key operating decision maker in the prior year, Mr PJ van Zyl, managed the continuing operations of the Group as a single segment. The Group did not manage the discontinued operations as segments during the interim period between the date of the sale agreements having been entered into and the effective date of the sale transactions Financial instruments Financial instruments include all financial assets, financial liabilities and equity instruments including derivative instruments. Financial assets and financial liabilities, are recognised on the Group s statement of financial position when the Group becomes party to the contractual provisions of the instrument. Classification depends on the purpose for which the financial instruments were obtained or incurred and takes place at initial recognition. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. The Group derecognises financial liabilities when and only when the Group s obligations are discharged, cancelled or they expire Classification 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 classified into the following categories: i. Financial assets at fair value through profit or loss; ii. Loans and receivables; iii. Financial liabilities at fair value through profit or loss; and iv. Financial liabilities measured at amortised cost. 52 STELLAR CAPITAL PARTNERS

57 Financial instruments at fair value through profit or loss (FVTPL) Financial assets or financial liabilities are classified as at FVTPL where the financial instrument is either held for trading or it is designated as at FVTPL. A financial asset is classified as held for trading if: has been acquired principally for the purpose of selling in the short term; or it has been so designated by management; or it is a derivative that is not designated as a hedging instrument. A financial asset or financial liabilities, other than a financial asset/liability held for trading, is designated as at FVTPL upon initial recognition if: the financial asset forms part of a Group of financial assets, financial liabilities or both, which is managed and its performance is evaluated on a fair value basis; or such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL. Financial assets at fair value through profit or loss are initially and subsequently recognised at fair value. Transaction costs are expensed in the statement of comprehensive income Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets classified as loans and receivables are initially recognised at fair value plus any transaction costs. Subsequent to initial recognition, loans and receivables are carried at amortised cost using the effective interest rate method, less any provision for impairment. Loans and receivables comprise loan investments, loans to portfolio companies, loans to Consolidated Subsidiaries, other financial assets and trade receivables. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset/liability and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts/payments (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset/liability, or, where appropriate, a shorter period. Interest income/expense is recognised on an effective interest basis for instruments other than those designated as at FVTPL Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value. STELLAR CAPITAL PARTNERS 53

58 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) Trade and other payables Trade and other payables are initially measured at fair value plus transaction costs and are subsequently measured at amortised cost using the effective interest method Impairment of financial assets At each reporting date the Company assesses all financial assets, other than those designated as at FVTPL, in order to determine whether there is objective evidence that a financial asset or group of financial assets is impaired at the reporting date. Impairment losses are recognised in profit or loss. The amount of the impairment is the difference between the carrying amount and the recoverable amount of the financial assets, being the present value of expected cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the financial asset s recoverable amount can be related objectively to an event occurring after the impairment was recognised, but only to the extent that the carrying amount of the financial asset at the date that the impairment is reversed does not exceed what the financial asset s carrying amount would have been had the impairment not been previously recognised. Reversals of impairment losses are recognised in profit or loss Fair value estimation Financial instruments at FVTPL are measured in accordance with IFRS 13 Fair Value Measurement (IFRS 13) at each reporting date Listed investments Listed investments are measured at each reporting date using quoted market prices using the market approach in terms of IFRS 13, except where those listed investments are either thinly traded or alternatively where management, in an orderly market transaction, assesses the transaction in listed investments to be materially impacted by the volume of the transaction, the comparability of the transaction to the asset being measured or the proximity of the transaction to the measurement date. In such instances, the investment is valued in accordance with the valuation techniques applicable for unlisted investments Unlisted investments Unlisted investments are measured using the market approach at each reporting date by primarily applying a sustainable earnings model. The sustainable earnings of an entity is derived from the latest reported Earnings Before Interest, Taxation, Dividends and Amortisation (EBITDA) for the entity, adjusted for any abnormal or non-recurring income and expenditure. Where it is not considered appropriate to use the market approach, an income or cost approach is used. The following validation checks are performed where possible: i. Discounted cash flows (income approach); ii. Net asset value and price-to-book ratio (market approach); and iii. Recent transaction prices (market approach) Property, plant and equipment The cost of an item of property, plant and equipment is recognised 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, which includes any initial acquisition or construction costs incurred. Costs incurred subsequent to initial acquisition in relation to the addition, replacement of a part of, or service of an item of property, plant or equipment are included in the cost of the item when the costs constitute a refurbishment of a major component. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised. Property, plant and equipment is carried at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is charged to profit or loss for each component of an asset on a straight-line basis over its expected useful life to estimated residual values. The residual value, the estimated useful life and depreciation method of each asset are reviewed at the end of each reporting period. 54 STELLAR CAPITAL PARTNERS

59 1.7. 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 Share capital The Company s obligation to issue or purchase a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial asset is an equity instrument of the Company Compound financial instruments Debt instruments with an embedded conversion option, such a cumulative redeemable preference shares convertible at the instance of the holders of such instruments, are treated as compound financial instruments. The liability and equity components of the instrument are separately classified as financial liabilities at amortised cost in accordance with accounting policy 1.4 and equity instruments respectively. The carrying amount of the financial liability component of the instrument are determined with reference to the fair value by discounting the net present value of future cash flows, net of transaction costs, at market rate at inception for a similar instrument without the equity conversion option. The carrying amount of the equity component of the compound financial instrument is determined by deducting the fair value of the financial liability component from the fair value of the compound financial instrument as a whole Treasury shares If the Group reacquires its own equity instruments, those instruments are deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group s own equity instruments. Consideration paid or received, including any directly attributable incremental costs (net of income taxes) is recognised directly in equity. Repurchased shares held by subsidiaries are classified as treasury shares and presented as a deduction from total equity on consolidation Dividends Dividends on the equity component of compound financial instruments are recognised as a financial liability on an accrual basis. Dividends on ordinary shares are recognised when they are approved by the directors for payment. Dividends on the financial liability component of compound financial instruments are accounted for as finance costs. Dividends on ordinary shares and the equity component of compound financial instruments are accounted for as movements in equity Share-based payments Forfeitable share plan In the prior year, the Group had an equity-settled share-based incentive scheme that was granted to certain employees of the subsidiaries in terms of its Forfeitable Share Plan (FSP). The last shares vested on 31 August The fair value of shares granted to employees were measured at grant date and are recognised as an employee expense with a corresponding increase in equity over the period during which the employees are required to provide services to the Group in order to become unconditionally entitled to the equity instruments. Fair value was measured as being the Volume Weighted Average Price of a share as quoted on the JSE for the five business days immediately preceding the date on which a grant was made Share-based payments to settle operating expenses During the prior reporting period, and in addition to the FSP, the Group entered into a further equity-settled share based payment transaction to settle corporate advisory services rendered to the Group. The fair value of the services procured was measured at the amount invoiced for such services. The services were recognized as an expense with a corresponding increase in equity at the date of the issue of the Company s equity instruments. The number of shares issued in settlement was determined by reference to the thirty day volume weighted average trading price of the Company s equity instruments as quoted on the Johannesburg Stock Exchange on the date of the invoice. STELLAR CAPITAL PARTNERS 55

60 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) Share-based payments to acquire financial assets Equity instruments of the Company issued as consideration for the acquisition of financial assets are treated as equity-settled share-based payment transactions. Equity-settled share-based payment transactions are accounted for by measuring the fair value of goods and services (including financial assets) received with a corresponding increase in equity, unless that fair value cannot be estimated reliably in which case the Company measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted Taxation Income tax expense represents the sum of the tax currently payable and deferred tax Current taxation The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of comprehensive income as it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period Deferred taxation Deferred taxation is provided using the balance sheet method based on temporary differences. Temporary differences are differences between carrying amounts of assets and liabilities for financial reporting purposes and their tax base. The amount of deferred taxation provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantively enacted at the at the reporting date. A deferred tax asset or liability is recognised for all temporary differences, except to the extent that the deferred tax it arises from the initial recognition of goodwill in a business combination or, an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting profit nor taxable profit. Furthermore, a deferred tax asset is only recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary difference can be utilised. Deferred tax assets and deferred tax liabilities are offset when the Group has a legally enforceable right to offset the current tax assets and current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. Deferred tax assets and deferred tax liabilities are not discounted Dividend withholding tax Withholding tax paid or payable to taxation authorities on dividends paid to shareholders is charged to equity as part of the dividends Revenue Revenue is recognised only when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of revenue can be reliably estimated Fair value gains / losses Financial instruments held at fair value through profit or loss are valued at each reporting date. The respective fair values are determined in accordance with IFRS 13 (refer to 1.5) Interest income Interest is recognised in profit or loss using the effective interest rate method Dividend income Dividend income is recognised in profit or loss on the date the Company s right to receive payment has been established. 56 STELLAR CAPITAL PARTNERS

61 1.11. Short-term employee benefits The cost of short-term employee benefits, (those expected to be settled within 12 months after the service is rendered, such as vacation leave and bonuses), are recognised in the period in which the service is rendered and are not discounted. The expected cost of compensated absences is recognised as an expense as the employees render services increase their entitlement or, in the case of non-accumulating absences, when the absence occurs. The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance Non-current assets or disposal Group held for sale A non-current asset or disposal Group (a business grouping of assets and their related liabilities) is designated as held-for-sale when its carrying amount will be recovered principally through a sale transaction rather than through continuing use. A non-current asset or disposal group is stated at the lower of carrying value and fair value less cost to sell. The classification as held-for-sale of a non-current asset or disposal group occurs when it is available for immediate sale in its present condition and the sale is highly probable. A sale is considered highly probable if: management is committed to a plan to sell the non-current asset or disposal group; an active divestiture programme has been initiated; the non-current assets or disposal group is marketed at a price reasonable to its fair value; and the disposal is expected to be completed within one year from classification. Upon classification of a non-current asset or disposal group as held-for-sale, it is reviewed for impairment. The impairment charged to the income statement is the excess of the carrying value of the non-current asset or disposal group over the expected net selling price (fair value less costs to sell). At each subsequent reporting date, the carrying values are reassessed for possible impairment. A reversal of impairment is recognised for any subsequent increase in net selling price, but not in excess of the cumulative impairment loss already recognised. The Group ceases the depreciation and amortisation of non-current assets from the date on which these are classified as held-for-sale. When a disposal group is classified as held-for-sale it is also necessary to assess whether or not the criteria for discontinued operations are met. A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale, and: represents either a separate major line of business or a geographical area of operations; and is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or is a subsidiary acquired exclusively with a view to resale and the disposal involves loss of control. If the criteria are met, the results of the disposal group are classified as discontinued operations in the statement of comprehensive income and the comparative amounts restated for all periods presented. No restatement of statement of financial position comparative amounts is done. The elimination journals in respect of transactions between continuing and discontinued operations are accounted for in each case based on whether the transactions are expected to continue in the future or not. Where transactions are expected to continue in the future, the eliminations are accounted for in continuing operations and where the transactions are not expected to continue in the future, the elimination journals are accounted for in discontinued operations. Taxation effects of elimination journals are accounted for in the legal entities to which they relate and the resultant differences are included in the tax rate reconciliation as the impact of discontinued operations on the taxation charge of continuing operations Significant judgements and sources of estimation uncertainty In preparing the financial statements, management is required to make estimates and assumptions that affect the amounts represented in the financial statements and related disclosures. Use of available information and the application of judgement is inherent in the formation of estimates. Actual results in the future could differ from these estimates. STELLAR CAPITAL PARTNERS 57

62 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) Judgement is primarily exercised by management in respect of: assessing the classification of the preference shares that were issued in November 2015 between debt and equity (refer to note 13); the classification of financial assets and liabilities into their relevant categories and in determining their appropriate measurement and disclosure; assessing the impact of the proximity of the acquisition of the investment in Torre Industries Ltd to the measurement date and the impact of the acquisition of the marketable, non-controlling stake (transaction volume) on the fair value of the investment; and assessing the decrease in the volume or level of activity for the Mine Restoration Investments Ltd asset and the evaluation of the impact thereof on the assessment whether quoted market prices provided by third parties are developed using current information that reflects orderly transactions. Estimation uncertainty arises in respect of the: fair valuation of financial instruments including portfolio investments held by the Group (refer to note 3), most notably the fair valuation of the listed investments Torre Industries Ltd and Mine Restoration Investments Ltd by using inputs other that quoted market prices; and recoverability of loan advances (refer to notes 4, 5, 7 and 9). 2. NEW STANDARDS AND INTERPRETATIONS 2.1. Standards and interpretations effective and adopted in the current year IFRS 10 Consolidated Financial Statements - Investment Entity exemption (Refer to accounting policy 1.1) Amendments and annual improvements: IFRS 7 Financial Instruments: Disclosures Offsetting Financial Assets and Financial Liabilities IAS 34 Interim Financial Reporting Annual improvements IFRS 10 Consolidated Financial Statements Consolidation exemption parent entities which are subsidiaries of investment entities applying IFRS IFRS 10 Consolidated Financial Statements Consolidation requirement only applies to subsidiaries who are not themselves investment entities and whose main purpose is to provide services which relate to the investment entity s investment activities Standards, interpretations and amendments not yet effective Certain new standards, amendments and interpretations to existing standards have been published but which are not yet effective and have not yet been early adopted by the Group. The impact of these standards is still being evaluated by the Group. These new standards and their effective dates for the Group s annual accounting periods are listed below: IFRS 9 Financial Instruments New requirements for classifying and measuring financial assets and liabilities (effective for periods beginning on or after 1 January 2018) The new standards, amendments and revisions and their effective dates mentioned below are not expected to have a material impact on the Group s results or financial position: IFRS 11 Joint Arrangements Accounting for Acquisitions of Interests in Joint Operations (effective for periods beginning on or after 1 January 2018); IFRS 15 Revenue from Contracts with Customers A single, principles based five-step model to be applied to all contracts with customers (effective for periods beginning on or after 1 January 2018); IFRS 16 Leases Lessees required to account for leases on-balance sheet by recognising a right-of-use asset and a lease liability (effective for periods beginning on or after 1 January 2019); IAS 27 Separate Financial Statements Equity Method in Separate Financial Statements (effective for periods beginning on or after 1 January 2016); Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization (effective for periods beginning on or after 1 January 2018); and Various improvements to IFRS. 58 STELLAR CAPITAL PARTNERS

63 3. INVESTMENTS AT FAIR VALUE Principle place of % held Nature of operations business Listed investments Torre Industries Ltd 34.62% Industrial group that distributes and South Africa rents capital equipment and supplies aftermarket parts to the mining, construction, manufacturing and industrial markets across Africa Goliath Gold Mining Ltd 21.77% Mining exploration South Africa Mine Restoration Investments Ltd 33.58% Processing and screening of coal fines, a South Africa by-product of coal mining Unlisted investments Tellumat (Pty) Ltd 30.00% Technology solutions and services in South Africa Manufacturing, air traffic control systems, defence and security and turnkey infrastructure solutions for the telecommunications industry Cadiz Holdings Ltd~ 45.99% Financial services group specialising in South Africa institutional and personal investments Integrated Equipment Rentals (Pty) Ltd 50.00% Specialised ICT Asset Finance Solutions South Africa Praxis Financial Services (Pty) Ltd 51.00% Provider of short term finance to the panel South Africa beating industry to address motor body repairers working capital needs ~ Cadiz Holdings Ltd is held indirectly via Friedshelf 1678 Ltd, which holds 100% of the issued share capital thereof. All references to Cadiz Holdings Ltd therefore refer to the indirectly held investment. Stellar Capital has applied the investment entity exemption as per paragraph 31 of IFRS 10 Consolidated Financial Statements and therefore measures investments in subsidiaries at fair value through profit or loss. Similarly, Stellar Capital measures investments in associates at fair value through profit or loss in accordance with paragraph 18 of IAS 28 Investments in Associates and Joint Ventures. As required by paragraph 9A of IFRS 12 Disclosure of Interests in Other Entities, the significant judgements and assumptions that Stellar Capital s management has made in determining that the Company qualifies as an investment entity in terms of paragraph 31 of IFRS 10, are: IFRS 10.27(a): Stellar Capital has obtained funds from one or more public investors for the purpose of providing those investors with investment management services. IFRS 10.27(b): Stellar Capital has committed to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and IFRS 10.27(c): Stellar Capital measures and evaluates the performance of substantially all of its investments on a fair value basis. STELLAR CAPITAL PARTNERS 59

64 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENTS AT FAIR VALUE (Continued) Investment Classification Assessment of control Torre Industries Ltd Associate Stellar Capital holds less than 50% of the voting rights, but more than 20% and after considering the requirements of IFRS 10, does not control the entity, but has significant influence. Goliath Gold Mining Ltd Associate Stellar Capital held less than 50% of the voting rights, but more than 20% and after considering the requirements of IFRS 10, did not control the entity, but had significant influence. Mine Restoration Investments Ltd Associate Stellar Capital holds less than 50% of the voting rights, but more than 20% and after considering the requirements of IFRS 10, does not control the entity, but has significant influence. Tellumat (Pty) Ltd Associate Stellar Capital holds less than 50% of the voting rights, but more than 20% and after considering the requirements of IFRS 10, does not control the entity, but has significant influence. Cadiz Holdings Ltd Associate Stellar Capital holds less than 50% of the voting rights, but more than 20% and after considering the requirements of IFRS 10, does not control the entity, but has significant influence. Integrated Equipment Rentals (Pty) Ltd Subsidiary Although Stellar Capital only has 50% of the voting rights, it is able to exercise control as it is responsible for the financial management of the entity and is solely responsible for the financing of the entity. Praxis Financial Services (Pty) Ltd Subsidiary Stellar Capital has the majority of voting rights with 51% and is able to exercise control of the investment. 60 STELLAR CAPITAL PARTNERS

65 3. INVESTMENTS AT FAIR VALUE (Continued) R 000 Group Company Listed investments Torre Industries Ltd Goliath Gold Mining Ltd Mine Restoration Investments Ltd Unlisted investments Tellumat (Pty) Ltd Cadiz Holdings Ltd Integrated Equipment Rentals (Pty) Ltd Praxis Financial Services (Pty) Ltd Total investments held at fair value Torre Industries Ltd (listed investment) The investment in Torre, comprising 34.62% of the ordinary issued share capital of Torre, was acquired on or about 26 October The purchase consideration was settled by way of: i. The issue of ordinary shares in the Company at R2.00 per share; and ii. Cash payment in the amount of R132.4 million, (collectively comprising the R912.6 million Transaction Value or R5.20 per Torre share). The Transaction Value represented a 16.8% premium to the 30-day VWAP of Torre on the date on which the Company published its firm intention announcement (6 July 2015 at R4.46), which management views as in line with comparable market transactions for the acquisition of marketable, non-controlling stakes in listed entities above R500 million (Market Premium). The average bid premia since 2006 for similar transactions is 26%. The Market Premium in relation to the Torre investment of 16.8% is therefore considered to be reasonable in relation to similar market transactions concluded. Management have considered the impact of the following factors in assessing the fair value of the investment in Torre: The investment was acquired in an orderly market transaction; The size of the investment acquired represents a significant marketable, non-controlling stake exceeding R500 million, which is measured by management as a single unit of account; and The investment was acquired within close proximity to the measurement date. As a result of the impact of the aforementioned factors, the Torre investment has been valued at FVTPL at R900.8 million or R 5.14 per Torre share by reference to the price of recent transactions at Transaction Value, which has been adjusted downwards in the amount of R11.7 million or 6 cents per Torre share by management for the change in the 30-day VWAP of Torre shares between the date of the firm intention announcement (6 July 2015 at R4.46 per Torre share) and the close of the financial reporting period (30 November 2015 at R4.40 per Torre share). Should management have valued the Torre investment by reference to the quoted market price at the reporting date (being a 30 day VWAP of R4.40 per Torre share), without any adjustment for the factors above, the fair value of the Torre investment would be R771.6 million. The reasonability of the fair value of the Company s investment in Torre has been tested by reference to a discounted cash flow model, the input ranges of which are set out below: STELLAR CAPITAL PARTNERS 61

66 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENTS AT FAIR VALUE (Continued) Discounted cash flow model Weighted average cost of capital (WACC) rate: 13%-14% Target debt/equity ratio: 22.40% Beta: 0.57 Unsystematic risk premium: 2.75%-3.25% Terminal growth rate: 5%-7% Enterprise value/ebitda multiple valuation The fair value of the investment in Torre represents a 14.0x enterprise value/ebitda based on the latest reported financial results of Torre. The peer group (comprising Invicta Holdings Ltd, Hudaco Industries Ltd and Eqstra Holdings Ltd) average multiple is 7.13x at the reporting date. The peer group average multiple has not been adjusted for the risk profile differential between the investment being valued and that of the peer group as the multiple has been used as an objective reasonability check and not as a primary valuation input. Due to the non-annualisation of Torre s EBITDA for acquisitions concluded during the reporting period, the enterprise value/ebitda multiple valuation method is not deemed by management to be a reliable valuation method at the reporting date. Goliath Gold Mining Ltd (listed investment) On 21 September 2015 Gold One Africa Ltd made a firm intention offer to acquire all of the shares in Goliath Gold not already owned by way of a scheme of arrangement (Offer). In terms of the Offer, shareholders may elect to receive either R1.00 per share on the implementation date, being 28 December 2015, or R1.60 per share after the expiry of a period of 18 months after the implementation date, being 6 June 2017 (Deferred Consideration). On 18 November 2015, all outstanding conditions precedent to the Scheme were fulfilled. The Company has elected to receive the Deferred Consideration in respect of its 21.77% holding in the ordinary shares of Goliath Gold. The deferred proceeds have been recognised as Other financial assets (refer to note 7). Mine Restoration Investments Ltd (listed investment) The increased investment in MRI, to 33.58% of the issued ordinary shares of MRI, was acquired on or about 16 January 2015, bringing the total investment value to R28.2 million or 10 cents per share (Transaction Value). On 20 July 2015, MRI announced that its operations had been placed under care and maintenance. As a result, management have valued the MRI investment at the R14.0 million or 5 cents per MRI share by reference to the price of recent transactions at Transaction Value, which has been adjusted downwards in the amount of 5 cents per MRI share primarily due to a lack of liquidity and market activity in MRI shares. The valuation represents a discount to the 6 cents per share closing market price of MRI shares on 30 November The adjusted market value method applied is considered to be appropriate given that while MRI s operations have been placed under care and maintenance, pricing has taken into account the announced intention to acquire a strategic stake in Iron Mineral Beneficiation Services (Pty) Ltd, which is to be funded by way of a capital raise at 7 cents per share. Tellumat (Pty) Ltd (unlisted investment) The investment in Tellumat was acquired on or about 16 January 2015 at R100.1 million (Transaction Value). The Tellumat investment has been valued at FVTPL at R100.1 million by reference to the price of recent transactions at Transaction Value. Management are not aware of any factors or circumstances which require adjustment to the carrying value of the Tellumat investment. 62 STELLAR CAPITAL PARTNERS

67 3. INVESTMENTS AT FAIR VALUE (Continued) The reasonability of the fair value of the Company s investment in Tellumat has been tested by reference to a discounted cash flow model, the input ranges of which are set out below: Discounted cash flow model Weighted average cost of capital (WACC) rate: 16.7%-18.3% Target debt/equity ratio: 10.90% Beta: 0.60 Unsystematic risk premium: 1%-2% Terminal growth rate: 5%-7% Enterprise value/ebitda multiple valuation The fair value of the investment in Tellumat represents a 9.80x enterprise value/ebitda based on the latest reported financial results of Tellumat. The peer group (comprising Amalgamated Electronics Corporation Ltd, Ansys Ltd, Reunert Ltd and Allied Electronics Corporation Ltd) average multiple is 7.08x at the reporting date. The peer group average multiple has not been adjusted for the risk profile differential between the investment being valued and that of the peer group as the multiple has been used as an objective reasonability check and not as a primary valuation input. Due to the non-annualisation of Tellumat s EBITDA for the acquisition of Andrews Kit (Pty) Ltd and Structured Connectivity Solutions (Pty) Ltd concluded during the reporting period, the enterprise value/ebitda multiple valuation method is not deemed by management to be a reliable valuation method a t the reporting date. Cadiz Holdings Ltd (unlisted investment) The investment in Cadiz, comprising a 45.99% shareholding in the ordinary shares of Friedshelf 1678 Ltd, the unlisted holding company of Cadiz, was increased to R129.4 million (Transaction Value) on or about 15 October 2015, from an initial acquisition value of R50.6 million. The Cadiz investment has been valued at FVTPL at R134.4 million by reference to the price of recent transactions at Transaction Value. Management are not aware of any factors or circumstances which require adjustment to the carrying value of the Cadiz investment. Price to book valuation The valuation of Cadiz at R134.4 million represents a 29% discount to the reported net asset value of Cadiz at its last reporting date of 31 March Integrated Equipment Rentals (Pty) Ltd (unlisted investment) The investment in IE Rentals, comprising 50% of the issued ordinary shares of IE Rentals, was acquired for a nil consideration in July 2015 as this represented the first month of trading for the company (Transaction Value). As at 30 November 2015, IE Rentals is trading materially at break -even. Assets, when fairly valued, are exceeded by liabilities in the amount of R0.1 million due to start-up costs. The EBIT of IE Rentals sufficiently covers the cash flow required to service the loan from Stellar Capital. The loan to IE Rentals (refer to note 5) is considered fully recoverable from the ordinary operating cash flows of the entity. The IE Rentals investment has been valued at FVTPL at Rnil by reference to the price of recent transactions at Transaction Value. Management are not aware of any factors or circumstances which require adjustment to the carrying value of the IE Rentals investment. Praxis Financial Services (Pty) Ltd (unlisted investment) The investment in Praxis was acquired for a nominal consideration during May 2015 (Transaction Value), during which time the company was in a period of shareholder and operational restructuring. The company has returned to marginal profitability following the period of restructuring. Assets, when fairly valued, are exceeded by liabilities in the amount of R21.7 million, mainly due to historic losses. The EBIT of Praxis sufficiently covers the cash flow required to service the loan from Stellar Capital. The loan to Praxis (refer to note 5) is considered fully recoverable from the ordinary operating cash flows of the entity. The Praxis investment has been valued at FVTPL at Rnil by reference to the price of recent transactions at Transaction Value. Management are not aware of any factors or circumstances which require adjustment to the carrying value of the Praxis investment. STELLAR CAPITAL PARTNERS 63

68 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENTS AT FAIR VALUE (Continued) R 000 Opening Proceeds from Realised Unrealised Closing Group 2015 balance Acquisitions disposals gains / (losses) (losses) / gains balance Torre Industries Ltd (1 376) 78 (11 691) Goliath Gold Mining Ltd (46 803) (17 712) - - Mine Restoration Investments Ltd (51) - (14 146) Digicore Holdings Ltd ( ) Tellumat (Pty) Ltd Cadiz Holdings Ltd Integrated Equipment Rentals (Pty) Ltd Praxis Financial Services (Pty) Ltd ( ) (534) (20 800) R 000 Opening Proceeds from Realised Unrealised Closing Company 2015 balance Acquisitions disposals gains / (losses) gains / (losses) balance Torre Industries Ltd (1 376) 78 (11 691) Goliath Gold Mining Ltd (46 803) (17 796) - - Mine Restoration Investments Ltd (51) - (14 676) Digicore Holdings Ltd ( ) 17, Tellumat (Pty) Ltd Cadiz Holdings Ltd Integrated Equipment Rentals (Pty) Ltd Praxis Financial Services (Pty) Ltd ( ) (618) (21 330) Prior to the acquisition of 34.62% of Torre Industries Ltd, shares were purchased for R1.3 million and later disposed of for R1.4 million. The total acquisition cost per the above tables include both the R1.3 million purchase and the 34.62% acquisition for R912.6 million. 2 On 18 November 2015 the Company disposed of its investment in Goliath Gold for R51.7 million, which is receivable on 6 June The present value of these proceeds (R46.8 million) has been recognised in Other financial assets (refer to note 7). 3 The acquisition cost of Digicore Holdings Ltd includes the issue of ordinary Stellar Capital shares at R2.00 per share in terms of a purchase price adjustment agreed upon with the original vendors and as detailed in the Company Circular to shareholders dated 18 August The investment in Tellumat (Pty) Ltd was acquired as settlement of the consideration due in respect of the sale of Chrystalpine (Pty) Ltd Group (incorporating Andrews Kit (Pty) Ltd) and Structured Connectivity Solutions (Pty) Ltd, which were previously classified as a Disposal Group held for sale (refer to note 12). R 000 Opening Proceeds from Realised Unrealised Closing Group 2014 balance Acquisitions disposals gains gains / (losses) balance Torre Industries Ltd (11 734) Goliath Gold Mining Ltd (93) 316 Mine Restoration Investments Ltd (353) (11 734) 860 (446) Company 2014 The Company did not hold any investments during the previous reporting period. 64 STELLAR CAPITAL PARTNERS

69 3. INVESTMENTS AT FAIR VALUE (Continued) R 000 Group Company Reconciliation of acquisition of investments for cash Total acquisitions Adjusted for non-cash acquisitions Acquisition of Tellumat in settlement of sale of Disposal Group ( ) - ( ) - Acquisitions settled by way of share issue (refer to note 13) ( ) - ( ) R 000 Group Company Reconciliation of cash proceeds from disposal of investments Total proceeds Adjusted for non-cash proceeds Transfer of Goliath Gold to Other Financial assets (refer to note 7) (46 803) - (46 803) STELLAR CAPITAL PARTNERS 65

70 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 4. LOAN INVESTMENTS R 000 Group and Company Interest Rate Loan Participation The loan was secured by corporate guarantees, cession of book Prime + 8.5% debts, insurance policies and bank accounts, a general notarial per annum bond over movable assets and a subordination of all shareholder and inter-company claims. Interest was serviced quarterly. The loan was refinanced into Loan Participation 3 on 23 April Loan Participation 2 The loan was secured by unlisted shares at a minimum cover ratio of three times the face value of the outstanding amount of debt. Interest was serviced monthly. The loan was refinanced into Loan Participation 4 on 14 August % per month Loan Participation The loan is secured by the pledge and cession in securitatem 26.5% per annum debiti of the shares in a listed entity, at a minimum cover ratio of two times, and by a corporate guarantee. Interest is serviced monthly. The loan is repayable on or before 31 August Loan Participation The loan is secured by a pledge and cession of shares in an 26.5% per annum unlisted company and a corporate guarantee. The value of the security is fully covers the loan. Interest is serviced monthly. The loan is repayable on or before 31 August Short term portion of loan investments Long term portion of loan investments Loan syndication agreements have been entered into between Stellar Capital and ASOF, whereby the Company has participated in loans advanced by ASOF to various private entities unrelated to the Company. The credit risk of the loan participations is shared by all syndicated parties in accordance with the proportion of the funding provided by each syndication party. Stellar Capital shares in 19% and 24% of the risks and rewards of Loan Participations 3 and 4 respectively, in equal measure with other participants. Balances are not considered to be past due or impaired at year end. Management have identified concentration risk in the loan participations as the ultimate borrowers form part of the same group of companies. The concentration risk was considered before each new individual loan was advanced. The carrying amount of the loan investments is considered to approximate fair value as the current interest rates charged are commensurate with the credit risks associated with each loan and are therefore considered to be marketrelated. A description of the Group s financial instrument risks, including risk management objectives and policies is detailed in note STELLAR CAPITAL PARTNERS

71 5. LOANS TO PORTFOLIO COMPANIES R 000 Group and Company Interest Rate Integrated Equipment Rentals (Pty) Ltd Initial facility The loan is secured by a cession in securitatem debiti of the 18% per annum book debts and bank accounts and a shareholder guarantee and cession in securitatem debiti of all shares in IE Rentals not held by the Company. The value of the security held is considered to cover the initial facility and the drawdown facility. Interest and capital is repaid monthly. The loan is to be fully repaid on or before 31 May Integrated Equipment Rentals (Pty) Ltd Drawdown facility In addition to the initial loan advanced above, a drawdown Prime + 5% agreement is in place, which holds the same security as the initial facility. The value of the security held is considered to cover the initial facility and the drawdown facility. Interest is serviced monthly with capital repayments being made as available cash allows. The total facility available is R25 million as at the reporting and was increased to R50 million on 22 February Each drawdown is repayable within 70 months from the advance date. The average remaining term of all drawdowns is 69 months. Mine Restoration Investments Ltd The loan is secured by subordination of Iron Mineral Prime + 2% Beneficiation Services (Pty) Ltd shareholder loans and shareholder guarantees to the value of R9.7 million and by a cession and pledge of 100% MRI shareholding of and claims against its wholly-owned subsidiary. Subsequent to year end, the loan terms were amended. With effect from 1 January 2016 the interest rate was increased to prime plus 6%. Interest accruing up until 31 December 2015 is capitalised to the loan and is only repayable on 31 March Interest accruing from 1 January to 31 March 2016 on capital of R9.5 million is repayable monthly in arrears. Remaining interest and capital is repayable on 31 March Praxis Financial Services (Pty) Ltd The loan is secured by cession of book debts, bank accounts 20% per annum and intellectual property and software, a pledge of shares in Praxis and a subordination of shareholder claims against Praxis. The value of the security held provides a 100% cover ratio. Interest is serviced monthly. The loan terms were amended with effect from 1 January 2016 as follows: interest rate was reduced to prime plus 8%; and the loan became repayable in three bullet payments of R12 million on 31 December 2016, R12 million on 31 December 2017 and the remaining balance on 31 December Short term portion of loans to portfolio companies Long term portion of loans to portfolio companies STELLAR CAPITAL PARTNERS 67

72 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 5. LOANS TO PORTFOLIO COMPANIES (Continued) Balances are not considered to be past due or impaired at year end. The carrying amount of the loan investments is considered to approximate fair value as the current interest rates charged are commensurate with the credit risks associated with each loan and are therefore considered to be market-related. A relief period was granted to Praxis from 1 January to 30 June 2015, over which time interest was not serviced monthly, but was capitalised to the loan balance. Once the relief period had ended, Praxis returned to a monthly repayment schedule and has since repaid all accrued interest to date at year end. A description of the Group s financial instrument risks, including risk management objectives and policies is detailed in note STELLAR CAPITAL PARTNERS

73 6. INVESTMENTS IN CONSOLIDATED SUBSIDIARIES R 000 Issued share Voting power Carrying amount capital (R) Held by Stellar Capital Partners Ltd: ConvergeNet Management Services (Pty) Ltd % 100% - - Chrystalpine Investments 9 (Pty) Ltd % 100% - - ConvergeNet SA (Pty) Ltd % 100% - - Northbound Communication Solutions (Pty) Ltd % 100% - - Simat Management Company SA (Pty) Ltd % 51% - - Structured Connectivity Solutions (Pty) Ltd % 100% - - Held by ConvergeNet SA (Pty) Ltd: Navix Distribution (Pty) Ltd % 100% - - Held by Chrystalpine Investments 9 (Pty) Ltd: Andrews Kit (Pty) Ltd % 100% Subsidiaries that provide support to the Company s investment activities are consolidated and referred to as Consolidated Subsidiaries. 1 During the current year, the Company sold Chrystalpine Investments Group (incorporating Andrews Kit (Pty) Ltd) and Structured Connectivity Solutions (Pty) Ltd, which were classified as a disposal group held for sale in the previous reporting period. The loss on sale of the disposal group is included in loss from discontinued operations (refer to notes 12 and 33). 2 In addition to the disposal group held for sale, the Company also disposed of ConvergeNet SA (Pty) Ltd, along with its 100% held subsidiary, Navix Distribution (Pty) Ltd, Northbound Communication Solutions (Pty) Ltd and Simat Management Company SA (Pty) Ltd (refer to note 33). R 000 Company Reconciliation of investments in Consolidated Subsidiaries Carrying value at 1 September Impairment (refer to note 21) - (34 822) Transferred to disposal group classified as held for sale (refer to note 12) - ( ) - - STELLAR CAPITAL PARTNERS 69

74 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 7. OTHER FINANCIAL ASSETS R 000 Group and Company Deposit A refundable deposit has been paid to Asgard Capital Assets, Friedshelf 1638 (Pty) Ltd and Makana Financial Services (Pty) Ltd in respect of the acquisition of an additional shareholding in Friedshelf 1678 Ltd and Tellumat (Pty) Ltd. The deposit does not accrue interest and is repayable upon completion of the transactions, which is expected to be within a period of six months. The carrying value of the receivable is considered to approximate fair value due to the short term to maturity. Rights Offer receivable As at 30 November 2015, all shares had been listed in terms of the Rights Offer, however proceeds on ordinary share issuance of R89.0 million were only received on 1 and 2 December 2015 in respect of excess applications and shares taken up by underwriters, which were allotted on 2 December The carrying value of the receivable is considered to approximate fair value due to the short term to maturity. Goliath Gold Mining Ltd deferred proceeds Proceeds of the disposal of the investment in Goliath Gold are to be received on 6 June 2017 (refer to note 3) and have therefore been discounted in order to obtain a present value. The 3-month JIBAR rate of 6.3% has been used as a discount rate. The discount rate is considered to be commensurate with the credit risk associated with the receivable, which is guaranteed by Rand Merchant Bank. The carrying value of the receivable is therefore considered to approximate fair value. Lavender Sky Investments 40 (Pty) Ltd The loan accrues interest at the prime rate and is secured by a pledge of ordinary shares in Friedshelf 1678 Ltd, which approximates the full value of the loan. The loan was repaid in January The carrying value of the loan is considered to approximate fair value due to the short term to maturity. Sizwe Africa IT Group (Pty) Ltd This relates to expenses settled on behalf of Sizwe Africa IT Group (Pty) Ltd. The loan bore no interest and was fully impaired in the current financial year. Impairment of Sizwe Africa IT Group (Pty) Ltd (1 867) (1 465) Long-outstanding amounts due from Sizwe Africa IT Group (Pty) Ltd have been fully impaired in the current financial year (refer to note 21). 70 STELLAR CAPITAL PARTNERS

75 7. OTHER FINANCIAL ASSETS (Continued) R 000 Group and Company X-DSL Networking Solutions (Pty) Ltd This loan bore interest at the prime rate and was repaid in full on 8 December Zaloserve (Pty) Ltd The loan accrued interest at prime less 2%, payable monthly in arrears, and was fully settled on 31 December Total other financial assets Short term portion of other financial assets Long term portion of other financial assets A description of the Group s financial instrument risks, including risk management objectives and policies is detailed in note 31. STELLAR CAPITAL PARTNERS 71

76 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 8. DEFERRED TAX R 000 Group Company Fair value adjustments Other financial assets Impairment of investments in Consolidated Subsidiaries Estimated tax losses Reconciliation of deferred tax asset Opening balance Originating temporary differences on investments held at fair value Originating temporary differences on other financial assets Originating temporary differences on investments in subsidiaries (Reversing) / originating temporary differences on recognition of tax losses (3 116) Reversing temporary differences on leases - (377) - - Reversing temporary differences on allowances and provisions Reversing temporary differences on intangible assets Reversing temporary differences on other assets Reversing temporary differences - discontinued operations - (5 071) - - Transfer to disposal group classified as held for sale - (3 000) A deferred tax asset has been recognised primarily in respect of unrealised losses on investments held at fair value and other financial assets. A formal process of assessment of the future profitability of the entity has been performed based on detailed cash flow forecasts and management has concluded that the deferred tax asset recognised will be utilised within one to five years. It is therefore considered appropriate to recognise a deferred tax asset for the Company which has incurred losses in the current and prior periods. The Company has estimated unutilised capital losses of R558.7 million (deferred tax asset of R104.2 million) and historic trading losses in ConvergeNet Management Services (Pty) Ltd resulted in an estimated tax loss of R11.6 million being carried forward (deferred tax asset of R3.2 million). Therefore, an estimated total of R107.4 million has not been recognised as a deferred tax asset in the Group s current financial year (2014: R15.0 million). 72 STELLAR CAPITAL PARTNERS

77 9. LOANS TO CONSOLIDATED SUBSIDIARIES R 000 Loans Opening advanced / Closing Reconciliation of loans to Consolidated Subsidiaries balance (repaid) Impairment balance ConvergeNet Management Services (Pty) Ltd ConvergeNet SA (Pty) Ltd (loan assigned^) (1 731) - Chrystalpine Investments 9 (Pty) Ltd Group 674 (674) - - Navix Distribution (Pty) Ltd 64 - (64) - Northbound Communication Solutions (Pty) Ltd Simat Management Company SA (Pty) Ltd (36) - Structured Connectivity Solutions (Pty) Ltd 500 (500) (1 831) ^As part of the disposal of the Chrystalpine Investments 9 (Pty) Ltd Group, a loan owing by ConvergeNet SA (Pty) Ltd to the Chrystalpine 9 (Pty) Ltd Group was assigned to the Company. The loan was subsequently impaired and written off upon disposal of ConvergeNet SA (Pty) Ltd. Loans Opening advanced / Closing Reconciliation of loans to Consolidated Subsidiaries balance (repaid) Impairment balance ConvergeNet Management Services (Pty) Ltd ConvergeNet SA (Pty) Ltd 684 (684) - - Chrystalpine Investments 9 (Pty) Ltd Group Navix Distribution (Pty) Ltd 499 (435) - 64 Simat Management Company SA (Pty) Ltd Structured Connectivity Solutions (Pty) Ltd (11 067) (11 067) These loans are unsecured, do not bear interest and are repayable as and when funds are available, at the discretion of the Company. The carrying amount of the loan to ConvergeNet Management Services (Pty) Ltd is considered to approximate fair value as the loan can be called upon at any time given that sufficient cash is held in the call account of CMS. STELLAR CAPITAL PARTNERS 73

78 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 10. TRADE AND OTHER RECEIVABLES R 000 Group Company Trade receivables Allowance for impairment of trade receivables (43) (2 816) (43) - Net trade receivables Other receivables Prepayment Long-outstanding trade receivables in the amount of R0.04 million (2014: R0.8 million) were impaired during the current reporting period. The carrying amount of the remaining trade and other receivables approximates its fair value due to the short period to maturity. R 000 Group Company Reconciliation of allowance for impairment Opening balance Provision for receivables impairment (refer to note 21) Receivables written off during the year (1 327) (150) - - Impaired receivables held by Consolidated Subsidiaries disposed of (refer to note 33) (2 217) Transferred to disposal group held for sale (refer to note 12) R 000 Group Company Trade receivables past due but not impaired months or more past due CASH AND CASH EQUIVALENTS R 000 Group Company Cash held at bank The Group currently does not have any overdraft facilities and does not have any restrictions over the use of its cash. A description of the Group s financial instrument risks, including risk management objectives and policies is given in note STELLAR CAPITAL PARTNERS

79 12. ASSETS AND LIABILITIES OF DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE On 5 September 2014, the Group concluded the terms of the sale of 100% of the Group s interest in Chrystalpine Investments 9 (Pty) Ltd (the 100% holding company of Andrews Kit (Pty) Ltd) and Structured Connectivity Solutions (Pty) Ltd, for R95.1 million and R5 million respectively, to Tellumat (Pty) Ltd (refer to note 33). The criteria for classification of these entities as a disposal group held for sale was met on 31 August 2014 as management was committed to a plan to sell these entities which were available for immediate sale. An active programme to locate a buyer had been initiated under the Group s restructuring mandate and negotiations in respect thereof were in an advanced stage resulting in management concluding that the sale was highly probable within 12 months of classification as held for sale. The purchase consideration was settled by Tellumat (Pty) Ltd by way of the issue of ordinary shares in Tellumat (Pty) Ltd such that the Group holds 30% of the total issued ordinary shares of Tellumat (Pty) Ltd following the share issue (refer to note 3). On 16 January 2015, shareholders approved the transaction. The sale of Chrystalpine Investments 9 (Pty) Ltd Group and Structured Connectivity Solutions (Pty) Ltd became unconditional on 9 February R 000 Group Company Assets of disposal group classified as held for sale Property, plant and equipment Goodwill and intangible assets Other financial assets Inventories Trade and other receivables Other assets Investment in Consolidated Subsidiaries Liabilities of disposal group classified held for sale Interest bearing loans and other financial liabilities Finance lease obligation Trade and other payables Disposal Group Loss for the year from discontinued operations Held for sale Revenue Other income and investment revenue 365 Expenses (32 696) Loss before taxation from discontinued operations (3 295) Taxation (605) Loss after tax from discontinued operations (3 900) Post-tax loss recognised on the sale of disposal group (refer to note 33) ( 4 847) ( 8 747) STELLAR CAPITAL PARTNERS 75

80 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 12. ASSETS AND LIABILITIES OF DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE (Continued) R 000 Telesto Disposal Sizwe Africa IT Communications group held Loss for the period from discontinued operations Group (Pty) Ltd Solutions (Pty) Ltd for sale Total Revenue Other income and investment revenue Expenses - - ( ) ( ) Profit before taxation of discontinued operations - - (12 850) (12 850) Taxation - - (5 082) (5 082) Loss after tax from discontinued operations - - (17 932) (17 932) Post-tax (loss) / profit recognised on the sale of disposal group (refer to note 33) (52 627) (18 839) (69 102) Post-tax loss on the re-measurement of assets of disposal group* - - (5 435) (5 435) (52 627) (18 839) (21 003) (92 469) *No deferred taxation asset was recognised in respect of the re-measurement of the disposal group to fair value less cost to sell as it was not expected that the Group would record future taxable capital gains against which the deferred tax asset could be utilised. 76 STELLAR CAPITAL PARTNERS

81 13. EQUITY ATTRIBUTABLE TO THE OWNERS OF THE PARENT Ordinary share capital With effect from 20 January 2015, the authorised ordinary share capital of the company was increased from ordinary shares of no par value to ordinary shares of no par value. On 19 November 2015, the authorised share capital of the Company was increased by a further ordinary shares of no par value such that the Company had authorised ordinary shares of no par value at the reporting date. During the year under review the Company issued a total of ordinary shares. R 000 Group Company Number of ordinary shares in issue In issue at beginning of the period Issue of shares for cash Issue of shares for acquisitions^ Rights Offer Share-based payment Share consolidation (10-for-1) - ( ) - ( ) In issue at end of the period Less : Shares of the Company acquired by Consolidated Subsidiaries - ( ) - - Net shares in issue 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. R 000 Group Company Issued ordinary share capital Balance at beginning of the period Issue of shares for cash Issue of shares for acquisitions^ Rights Offer Capitalisation of share issue costs (19 566) - (19 566) - Share-based payment ^ During the year under review, the Company issued shares at an issue price of R2.00 per share in order to acquire investments which are accounted for at fair value through profit or loss. The number of shares to be issued in respect of each transaction was determined by reference to the fair value of the respective investment acquired and was not adjusted for movements in the Company s listed share price between the date of announcement and the date of issue. These transactions were accounted for in accordance with IFRS 2 Share Based Payments (IFRS 2). Refer to the Director s Report for details of the shares issued during the year. R 000 Group Company Reconciliation of cash received from issue of ordinary shares Monetary value of shares issued during the year Adjusted for: Issue of shares for acquisitions ( ) - ( ) - Rights Offer receivable (88 998) - (88 998) - Share issue costs (19 566) - (19 566) R 000 Group Company Treasury shares Balance at beginning of the period (4 032) (5 304) - - Shares issued in terms of the forfeitable share plan vested during the period Odd-allotment and specific repurchase - (78) - - Disposal of treasury shares by Consolidated Subsidiaries (4 032) - - STELLAR CAPITAL PARTNERS 77

82 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 13. EQUITY ATTRIBUTABLE TO THE OWNERS OF THE PARENT (Continued) Forfeitable share plan The Company previously implemented a Forfeitable Share Plan for certain key individuals in the Group on 1 March The last tranche of shares vested on 1 September In terms of this scheme forfeitable shares were issued to participants on the terms that they may forfeit the forfeitable shares if they cease to be an employee of an Employer company before the release date which was three years after the award date. The forfeitable reward was subject to the restriction that the forfeitable shares, to which such forfeitable reward relate, may not be disposed of or otherwise encumbered at any time before the release date and are held in escrow by an escrow agent. The fair value of these shares on the respective grant dates was 34 cents and 23 cents per share (pre-share consolidation), being the volume weighted average price at which the Company s share traded the 5 days prior to the award date. This scheme constituted an equity-settled payment scheme and the cost was amortised over the vesting period with a corresponding increase in equity. As the last tranche of share vested in the previous financial period, no expense was recognised in the current year (2014: R0.2 million). Preference share capital On 30 November 2015, the Company issued 600 convertible redeemable preference shares at R1 million each to raise R600 million in funding. The preference shares were issued at a dividend rate of 95% of Prime and an initial conversion price of R2.78. The redemption date is 31 May The preference shares are convertible, at the election of the holders, into a maximum of ordinary shares. Cumulative convertible redeemable preference shares issued by the Group have been treated as compound financial instruments in accordance with IAS 32 Financial Instruments: Presentation (IAS 32). The liability and equity components of the Preference Shares have been separately classified as financial liabilities at amortised cost in accordance with the effective interest rate method and equity instruments respectively. The carrying amount of the financial liability component of the preference shares has been determined with reference to the fair value by discounting the net present value of future cash flows, net of transaction costs, at market rate at inception for a similar instrument without the equity conversion option, being 115% of Prime rate. The carrying amount of the equity component of the compound financial instrument has been determined by deducting the fair value of the financial liability component from the fair value of the compound financial instrument as a whole. 78 STELLAR CAPITAL PARTNERS

83 13. EQUITY ATTRIBUTABLE TO THE OWNERS OF THE PARENT (Continued) R 000 Group and Company Preference share capital Recognised as equity Recognised as a liability R 000 Group and Company Reconciliation of preference share liability Portion of capital raised recognised as a liability Transaction costs to the preference share liability (18 403) Short term portion of preference share liability Long term portion of preference share liability R 000 Group and Company Reconciliation of cash received from issue of preference shares Issue of shares for cash Adjusted for: Capitalisation of transaction costs to the preference share liability (18 403) - Share issue costs recognised directly in equity (1 075) CURRENT TAX PAYABLE R 000 Group Company Opening balance Tax expense (refer to note 24) Tax paid (2 522) (69) (2 522) (69) TRADE AND OTHER PAYABLES R 000 Group Company Trade payables Other payables^ Value added tax Other accrued expenses ^ During the year under review, the Company received proceeds in respect of the acceleration of a profit / loss sharing-arrangement relating to MRI shares acquired from ASOF. The Company has undertaken to sell these shares within a period of 12 months and to pay ASOF 50% of the sale proceeds thereof. At year end the Company has recognised a liability of R6 million, being 50% of the value of the MRI shares acquired from ASOF, which have an estimated fair value of 5 cents per share at year end (refer to note 3). Trade and other payables are classified as financial liabilities held at amortised cost, with the exception of value added tax. The carrying amount of trade and other payables approximates fair value because of the short period to maturity. STELLAR CAPITAL PARTNERS 79

84 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 16. FAIR VALUE ADJUSTMENTS R 000 Group Company Realised (losses) / gains on investments (refer to note 3) (534) 860 (618) - Unrealised losses on investments (refer to note 3) (20 800) (446) (21 330) - (21 334) 414 (21 948) INTEREST REVENUE R 000 Group Company Loan investments Loans to portfolio companies Other financial assets Bank OTHER INCOME R 000 Group Company Profit / loss-sharing arrangement Raising fees on loans Sundry income Write-off of loans owing Income from the profit / loss-sharing arrangement results from proceeds being received from ASOF in the amount of 10 cents per MRI share initially acquired from ASOF, less the loss recognised in respect of the recognition of a payable owing to ASOF (refer to note 15). 2 As part of the settlement of the sale proceeds of a previously Consolidated Subsidiary, loans owing to it by another Consolidated Subsidiary were written back by agreement. The loans owing were previously eliminated upon consolidation. 19. FINANCE COSTS R 000 Group Company Financial liabilities SARS interest and penalties MANAGEMENT FEE R 000 Group and Company Base fee Performance fee - - Recoveries (1 636) No performance fees were payable for the year under review. The Company incurred expenses on behalf of the Manco which were recovered from the base management fee. 80 STELLAR CAPITAL PARTNERS

85 20. MANAGEMENT FEE (Continued) On 19 November 2015, shareholders of the Company resolved to amend the terms of the management agreement entered into between Stellar Capital and Manco, as follows: Sliding scale management fee based on NAV reduced to 1% of NAV other than (i) cash, which will attract a fee of 0.25%, (ii) own managed funds which will attract a fee of 1% less the charges levied by the funds into which such funds are invested, and (iii) third-party managed assets which will attract no management fee; Performance fee reduced from 20% of NAV growth to 15% of NAVPS growth above a 10% hurdle rate. High-water-marks remain in place; Management agreement cancellation fees capped from 15% of NAV previously to 50 million ordinary shares of the Company; and Term of the management agreement amended from 3 years to perpetual, subject to annual shareholder vote which may cancel the management agreement with a 51% majority at any annual general meeting of the Company s shareholders. 21. IMPAIRMENT R 000 Group Company Intangible assets Investments in Consolidated Subsidiaries (refer to note 6) Other financial assets (refer to note 7) Loans to Consolidated Subsidiaries (refer to note 9) Trade receivables (refer to note 10) Vat receivable (refer to note 10) In the prior period, previous patents and trade names were fully impaired. Upon classification of Chrystalpine Investments 9 (Pty) Ltd (incorporating Andrews Kit (Pty) Ltd) and Structured Connectivity Solutions (Pty) Ltd as a Disposal Group held for sale (refer to note 12), the fair value of the investment in the Consolidated Subsidiaries was estimated to be R100.1 million. An impairment of R34.8 million as recognised, being the difference between the collective carrying value of the Disposal Group of R134.9 million and the estimated fair value of R100.1 million. Loans to Consolidated Subsidiaries impaired by R1.8 million in the current year (2014: R11.1 million) were subsequently written off upon disposal of the Consolidated Subsidiaries (refer to note 33) as the Company sold 100% of its shares and its claims against these Consolidated Subsidiaries. During the current year the loan to Sizwe Africa IT Group (Pty) Ltd (Sizwe) was impaired by a further R0.4 million (2014: R1.4m). The receivable is long-outstanding and the recoverable amount is estimated to be nil as there are no indications at present that the costs incurred on behalf of Sizwe will be recovered. During the current year long-outstanding trade receivables of R0.7 million in ConvergeNet SA (Pty) Ltd were no longer considered to be recoverable as these were long-outstanding. As a result these trade receivables were fully impaired. Long-outstanding trade receivables of R0.8 million in Navix Distribution (Pty) Ltd were impaired in the prior period. 22. LOSS / (PROFIT) ON DISPOSAL OF CONSOLIDATED SUBSIDIARIES R 000 Group Company Loss / (profit) on disposal of Consolidated Subsidiaries (refer to note 33) (10) (10) During the year the Company disposed of its dormant Consolidated Subsidiaries, namely ConvergeNet SA (Pty) Ltd, Navix Distribution (Pty) Ltd, Northbound Communication Solutions (Pty) Ltd and Simat Management Company SA (Pty) Ltd, including the claims held by the Company against those Consolidated Subsidiaries in respect of shareholder loans. STELLAR CAPITAL PARTNERS 81

86 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 23. OTHER OPERATING EXPENSES R 000 Group Company Audit fees Consulting and professional fees Depreciation Employee costs and director fees Operating lease Sundry operating expenses Transaction costs During the current year underwriting fees were incurred. The underwriting fees and other transaction costs directly related to the issue of ordinary shares and the equity portion of preference shares are recognised directly in equity in accordance with IAS 32. Similarly, transaction costs directly related to the liability portion of the preference shares are included in the carrying value of the liability and are amortised over the term of the liability in accordance with IAS TAXATION R 000 Group Company Major components of the tax expense Current tax Current period Prior period overprovision (421) - (421) - Deferred tax Originating and reversing temporary differences (refer to note 8) (3 810) (1 617) (7 026) - (1 505) (1 617) (4 721) - R 000 Group Company Reconciliation of the effective tax rate Tax at 28% (8 245) 504 (4 452) (19 261) Dividend income not subject to tax (2) - (419) - Capital gains tax (1 546) (11) (1 151) - Capital expenses not deductible for tax purposes Other expenses not deductible for tax purposes Loss / (profit) on sale of Consolidated Subsidiaries (2) Prior year overprovision (421) - (421) - Previously unrecognised deferred tax assets (870) - (870) - Reversal / (recognition) of estimated tax loss assets (2 949) - - Utilisation of taxable losses (81) 723 (32) 690 Derecognition of deferred tax liability - (1 629) - - Impact of discontinued operations (1 505) (1 617) (4 721) - 1 Capital expenses not deductible for tax purposes in respect of the current year consists of expenses incurred in relation to the acquisition or disposal of investments and expenses that have been deemed to be capital in nature, both of which are considered to be recurring in nature. In the previous reporting period capital expenses not deductible for tax purposes consisted of impairment of goodwill and other assets in respect of the Group and impairment of goodwill and other assets, investments in subsidiaries and impairment of loans to subsidiaries in respect of the Company. Impairments are not considered to be recurring in nature. 2 Other expenses not deductible for tax purposes in respect of the current year consists of SARS interest and penalties and Securities Transfer Tax. In the previous reporting period other expenses not deductible for tax purposes consisted of legal fees, write-off of assets, provision for doubtful debts and certain forfeitable share plan costs in respect of the Group and legal fees in respect of the Company. All items included as part of other expenses not deductible for tax purposes are not considered to be recurring in nature. 82 STELLAR CAPITAL PARTNERS

87 25. LOSS PER SHARE Reconciliation between loss and headline loss Gross Net after Tax Continuing operations Basic loss attributable to equity owners of parent (27 941) Loss on disposal of Consolidated Subsidiaries Headline loss attributable to equity owners of parent (14 006) Discontinued operations Basic loss attributable to equity owners of parent (8 747) Loss on disposal of Consolidated Subsidiaries Loss on disposal of property, plant and equipment Headline loss attributable to equity owners of parent (3 822) Reconciliation between loss and headline loss Gross Net after Tax Continuing operations Basic loss attributable to equity owners of parent (1 824) Impairment of intangible assets Headline loss attributable to equity owners of parent (1 792) Discontinued operations Basic loss attributable to equity owners of parent (92 469) Loss on disposal of Consolidated Subsidiaries Loss on disposal of property, plant and equipment Impairment of goodwill Headline loss attributable to equity owners of parent (14 510) Reconciliation of weighted average number of shares Issued shares at the beginning of the year Issue of shares Effect of forfeitable share plan shares not recognised - ( ) Effect of forfeitable share plan shares recognised Effect of own shares held - ( ) Effect of share consolidation - ( ) The issue of 600 convertible redeemable preference shares has not been treated as dilutive in calculating diluted earnings and headline earnings per share as the conversion thereof will result in a decrease in loss per share from continuing operations (i.e. the conversion is anti-dilutive) Basic and diluted loss per share for the period (cents) (12.29) (94.12) From continuing operations (9.36) (1.82) From discontinued operations (2.93) (92.30) Basic and diluted headline loss per share for the period (cents) (5.97) (16.27) From continuing operations (4.69) (1.79) From discontinued operations (1.28) (14.48) STELLAR CAPITAL PARTNERS 83

88 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 26. CASH GENERATED FROM / (UTILISED IN) OPERATIONS R 000 Group Company Notes (Loss) / profit before taxation (29 446) (15 899) (68 791) Adjustments for: Fair value adjustments Interest revenue 17 (24 308) (7 913) (22 089) (7 694) Finance costs ,356 Depreciation Write-off of loans owing 18 - (10 576) - - Impairment Loss / (profit) on disposal of Consolidated Subsidiaries (10) Impairment of investments in Consolidated Subsidiaries Impairment of group loans Equity settled share based payment Other non cash flow items (267) Changes in working capital: Increase in inventories - (31) - - Decrease / (increase) in trade and other receivables 562 (906) 32 3 Increase / (Decrease) in trade and other payables (2 185) (272) Movement in provisions - (1 046) (10 436) (5 813) 84 STELLAR CAPITAL PARTNERS

89 27. DIRECTORS EMOLUMENTS R 000 Pension and other Total Fees for services Basic salary contributions Bonuses 2015 Executive directors CE Pettit CB de Villiers PJ van Zyl Non-executive directors J de Bruyn L Mangope CE Pettit CJ Roodt DD Tabata PJ van Zyl CC Wiese CH Wiese R 000 Pension and other Total Fees for services Basic salary contributions Bonuses 2014 Executive directors H van Dyk Non-executive directors J de Bruyn L Mangope CE Pettit DD Tabata PJ van Zyl CC Wiese CH Wiese D Bisschoff NG Nika CE Pettit was appointed as Chief Executive Officer with effect from 5 October, prior to which he was a non-executive director. PJ van Zyl was the Chief Executive Officer from 1 February to 4 October 2015 and returned to a non-executive capacity thereafter. 2 The remuneration of CB de Villiers (appointed with effect from 1 February 2015) exceeding R20,000 per month is recovered directly from the Manco. During the financial year CB de Villiers was paid a total remuneration of R1.1 million, which consisted of only a basic salary. 3 CJ Roodt was appointed with effect from 5 October CH Wiese serves as an alternate non-executive director for CC Wiese with effect from 5 October D Bisschoff, H van Dyk and N Nika resigned 12 December 2013, 31 December 2013 and 3 July 2014 respectively. 6 J de Bruyn was appointed 25 July 2014 and CC Wiese and CH Wiese were appointed 8 September Key Management Personnel During the current year and prior period, the Group did not have any Key Management Personnel other than the executive directors due to the nature of the Group s operations as an investment holding company. The total remuneration paid to key management personnel during the current year was R1.3 million (2014: R0.7 million). STELLAR CAPITAL PARTNERS 85

90 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 28. RELATED PARTIES Associates Refer to note 3 Refer to note 3 Subsidiaries Refer to note 3 Refer to note 3 Consolidated Subsidiaries Refer to note 6 Refer to note 6 Management Company Thunder Securitisations (Pty) Ltd Entities with common Lavender Sky Investments 40 (Pty) Ltd Lavender Sky Investments 40 (Pty) Ltd directorships (W van Breda) (W van Breda) Shanike Investments 322 (Pty) Ltd (CE Pettit) AfrAsia Corporate Finance (Pty) Ltd (CE Pettit) Thunder Capital (Pty) Ltd (PJ van Zyl) Minority shareholders Matla Group (Pty) Ltd Matla Group (Pty) Ltd Director of Consolidated Subsidiaries W van Breda W van Breda R 000 Group Company Services provided to / (by) related parties AfrAsia Corporate Finance (Pty) Ltd Lavender Sky Investments 40 (Pty) Ltd Integrated Equipment Rentals (Pty) Ltd Praxis Financial Services (Pty) Ltd Interest received from related parties Integrated Equipment Rentals (Pty) Ltd Lavender Sky Investments 40 (Pty) Ltd Mine Restoration Investments Ltd Praxis Financial Services (Pty) Ltd Tellumat (Pty) Ltd Underwriting fees paid to related parties Lavender Sky Investments 40 (Pty) Ltd Shanike Investments 322 (Pty) Ltd Thunder Capital (Pty) Ltd Management fees paid to related parties Thunder Securitisations (Pty) Ltd Trade payables owing to related parties Lavender Sky Investments 40 (Pty) Ltd Thunder Capital (Pty) Ltd 1, Thunder Securitisations (Pty) Ltd Loans owing by related parties ConvergeNet Management Services (Pty) Ltd Integrated Equipment Rentals (Pty) Ltd Lavender Sky Investments 40 (Pty) Ltd Mine Restoration Investments Ltd Praxis Financial Services (Pty) Ltd Navix Distribution (Pty) Ltd^ Simat Management Company SA (Pty) Ltd^ Andrews Kit (Pty) Ltd~ Chrystalpine Investments 9 (Pty) Ltd~ Structured Connectivity Solutions (Pty) Ltd~ ^ Sold during the current financial year ~ Formed part of the disposal group held for sale in the previous financial period and were disposed of during the current period. 86 STELLAR CAPITAL PARTNERS

91 29. FINANCIAL ASSETS BY CATEGORY R 000 Non-financial Loans and Fair value through Group 2015 assets receivables profit or loss Total Listed investments at fair value (refer to note 3) Unlisted investments at fair value (refer to note 3) Loan investments (refer to note 4) Loans to portfolio companies (refer to note 5) Deferred tax (refer to note 8) Other financial assets (refer to note 7) Trade and other receivables (refer to note 10) Cash and cash equivalents (refer to note 11) R 000 Non-financial Loans and Fair value through Group 2014 assets receivables profit or loss Total Listed investments at fair value (refer to note 3) Unlisted investments at fair value (refer to note 3) Loan investments (refer to note 4) Loans to portfolio companies (refer to note 5) Deferred tax (refer to note 8) Other financial assets (refer to note 7) Trade and other receivables (refer to note 10) Cash and cash equivalents (refer to note 11) Non-current assets held for sale (refer to note 12) R 000 Non-financial Loans and Fair value through Company 2015 assets receivables profit or loss Total Listed investments at fair value (refer to note 3) Unlisted investments at fair value (refer to note 3) Loan investments (refer to note 4) Loans to portfolio companies (refer to note 5) Deferred tax (refer to note 8) Other financial assets (refer to note 7) Loans to Consolidated Subsidiaries (refer to note 9) Trade and other receivables (refer to note 10) Cash and cash equivalents (refer to note 11) STELLAR CAPITAL PARTNERS 87

92 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 29. FINANCIAL ASSETS BY CATEGORY (Continued) R 000 Non-financial Loans and Fair value through Company 2014 assets receivables profit or loss Total Listed investments at fair value (refer to note 3) Unlisted investments at fair value (refer to note 3) Loan investments (refer to note 4) Loans to portfolio companies (refer to note 5) Deferred tax (refer to note 8) Other financial assets (refer to note 7) Loans to Consolidated Subsidiaries (refer to note 9) Trade and other receivables (refer to note 10) Cash and cash equivalents (refer to note 11) Non-current assets held for sale (refer to note 12) FINANCIAL LIABILITIES BY CATEGORY Financial R 000 Non-financial liabilities at Fair value through Group 2015 liabilities amortised cost profit or loss Total Tax payable (refer to note 14) Trade and other payables (refer to note 15) Preference shares - liability component (refer to note 13) Financial R 000 Non-financial liabilities at Fair value through Group 2014 liabilities amortised cost profit or loss Total Tax payable (refer to note 14) Trade and other payables (refer to note 15) Liabilities of disposal group held for sale (refer to note 12) Financial R 000 Non-financial liabilities at Fair value through Company 2015 liabilities amortised cost profit or loss Total Tax payable (refer to note 14) Trade and other payables (refer to note 15) Preference shares - liability component (refer to note 13) Financial R 000 Non-financial liabilities at Fair value through Company 2014 liabilities amortised cost profit or loss Total Tax payable (refer to note 14) Trade and other payables (refer to note 15) STELLAR CAPITAL PARTNERS

93 31. RISK MANAGEMENT Capital risk management The Group manages its capital so as to ensure that it is able to continue as a going concern in order to maximise the return to shareholders and for the benefit of all other stakeholders. Capital is comprised of ordinary share capital, preference share capital and retained earnings. Neither the Company nor any of its Consolidated Subsidiaries are subject to externally imposed capital requirements. Financial risk management The Group s activities expose it to a variety of financial risks: market risk (cash flow and fair value interest rate risk, price risk and foreign currency risk), liquidity risk and credit risk. Interest rate risk Interest rate risk arises from the fluctuations in prevailing market interest rates and impacts the fair value of fixed interest-bearing financial instruments and the future cash flows of variable interest-bearing financial instruments. As part of the process of managing the Group s exposure to interest rate risk, interest rate characteristics of amounts advanced and any new borrowings are positioned according to expected movements in interest rates. Cash flow interest rate risk The Group s cash flow interest rate risk arises from loans and receivables with variable interest rates (including the loan investments, loans to portfolio companies and other financial assets), cash and cash equivalents and preference shares in issue. The following carrying values reflect the Group s exposure to cash flow interest rate risk: R 000 Group Company Loans and receivables Cash and cash equivalents Preference shares - liability component ( ) - ( ) If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Group s profit before tax for the year ended 30 November 2015 would decrease/increase by R0.7 million (2014: Rnil). Fair value interest rate risk The Group s fair value interest rate risk arises from loans and receivables with fixed interest rates (including the loan investments, loans to portfolio companies and other financial assets). The following carrying values reflect the Group s exposure fair value interest rate risk: R 000 Group Company Loans and receivables STELLAR CAPITAL PARTNERS 89

94 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 31. RISK MANAGEMENT (Continued) Price risk Price risk arises from the uncertainty of future prices of investments held by the Group. The Group is therefore exposed to price risk through movements in the fair values of the underlying investments. Where investments have been valued using quoted market prices, the fair value is dependent on stock exchange movements resulting from interest rates, sentiment, currency and other factors (whether specific to the investment or those affecting the market as a whole). The table below illustrates the Company s exposure to price risk: R 000 Group Company Effect of a 5% increase in prices Torre Industries Ltd Mining Restoration Investments Ltd Tellumat (Pty) Ltd Cadiz Holdings Ltd Integrated Equipment Rentals (Pty) Ltd Praxis Financial Services (Pty) Ltd R 000 Group Company Effect of a 5% decrease in prices Torre Industries Ltd (45 042) - (45 042) - Mining Restoration Investments Ltd (701) 16 (701) - Tellumat (Pty) Ltd (5 006) - (5 006) - Cadiz Holdings Ltd (6 720) - (6 720) - Integrated Equipment Rentals (Pty) Ltd Praxis Financial Services (Pty) Ltd (57 469) - (57 469) - Foreign currency risk Presently the Group does not enter into transactions denominated in foreign currencies and therefore is not exposed to exchange rate fluctuations. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages this risk by maintaining adequate cash reserves and through continuous monitoring of forecast and actual cash flows. The Group, excluding the discontinued operations, had no short-term facilities in the current or prior period. 90 STELLAR CAPITAL PARTNERS

95 31. RISK MANAGEMENT (Continued) The table below shows the undiscounted future cash flows: R months Beyond Group 2015 Within 6 months to 1 year 1 to 3 years 3 to 4 years 4 years Total Preference share dividend Redemption of preference shares Trade and other payables R months Beyond Group 2014 Within 6 months to 1 year 1 to 3 years 3 to 4 years 4 years Total Trade and other payables R months Beyond Company 2015 Within 6 months to 1 year 1 to 3 years 3 to 4 years 4 years Total Preference share dividend Redemption of preference shares Trade and other payables R months Beyond Company 2014 Within 6 months to 1 year 1 to 3 years 3 to 4 years 4 years Total Trade and other payables As the preference share is convertible at the election of the shareholder, the full redemption has been taken into account for the purposes of liquidity risk management. Credit risk Credit risk is the risk of financial loss to the Group if a counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group s cash and cash equivalents and loans and receivables. The carrying amount of financial assets recorded in the statement of financial position, which is net of impairment losses, represents the maximum exposure to credit risk. As at 30 November 2015, management do not consider there to be any material exposure that has not been covered by impairment. The carrying values of assets represent the maximum exposure to credit risk and are as follows: R 000 Group Company Notes Loan investments Loans to portfolio companies Other financial assets (excl. deposits) Loans to Consolidated Subsidiaries Trade and other receivables (excl. deposits) Cash and cash equivalents STELLAR CAPITAL PARTNERS 91

96 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 31. RISK MANAGEMENT (Continued) Loan investments The Group assesses the credit worthiness of any party that a loan or advance is granted to and all amounts advanced are secured. Interest and capital repayments are monitored by management on a monthly basis. Participation loans have been advanced to the respective borrowers by ASOF as primary lender. Stellar Capital participates in the loan investments as a syndication party. ASOF is responsible for monitoring the performance of the loan investments and that of the related borrowers. ASOF is also responsible for monitoring agreed-upon covenants, including key performance ratios. Where considered appropriate, an impairment allowance is made against the loan receivable to the extent that it is not considered to be recoverable. Loans to portfolio companies The Group assesses the credit worthiness of any party that a loan or advance is granted to and all amounts advanced are secured. Interest and capital repayments are monitored by management on a monthly basis. Management of the Company monitors the operations and cash generating capabilities of the portfolio companies to which loans have been advanced on a monthly basis. Where considered appropriate an impairment allowance is made against the loan receivable to the extent that it is not considered to be recoverable. Other financial assets Other financial assets exposed to credit risk excludes the refundable deposit and the receivable in respect of shares issued but not allotted as at year end. Prior to the loan being advanced to Lavender Sky Investments 40 (Pty) Ltd, management was satisfied as to the credit worthiness of the entity. The loan to Lavender Sky Investments 40 (Pty) Ltd is fully secured. During the current year the receivable from Sizwe Africa IT Group (Pty) Ltd was fully impaired as it was long-outstanding and not considered to be recoverable. The receivable recognised in respect of the deferred proceeds on the disposal of Goliath Gold Ltd is supported by a bank guarantee from Rand Merchant Bank. Loans to Consolidated Subsidiaries The Company advances loans to Consolidated Subsidiaries as and when these subsidiaries require funds for the purposes of providing services to the Company or other portfolio companies. The loan owing to the Company by CMS is considered to be fully recoverable as it is cash collateralised. Trade receivables Trade receivables comprise primarily of invoiced amounts from historic trading activities prior to the conversion of the Company from an operating entity to an investment holding company, which are immaterial to the Group as a whole. Where necessary, a provision for impairment is made. Cash and cash equivalents The Company only deposits cash with major banks with high quality credit standing and limits exposure to any one counterparty. Cash balances are held with Rand Merchant Bank of South Africa Limited which carries a Standard and Poor s rating of BBB-. 92 STELLAR CAPITAL PARTNERS

97 32. FAIR VALUE INFORMATION In accordance with IFRS 13, financial instruments measured at fair value in the statement of financial position are grouped into three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement as follows: Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets and liabilities; Level 2 fair value adjustments are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (i.e. derived from prices); and Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The table below analyses the Group s assets which are held at for value through profit or loss and therefore fall within the scope of the fair value hierarchy: R 000 Financial assets at fair value through profit or loss Level 1 Level 2 Level 3 Total Torre Industries Ltd Mine Restoration Investments Ltd Tellumat (Pty) Ltd Cadiz Holdings Ltd Integrated Equipment Rentals (Pty) Ltd Praxis Financial Services (Pty) Ltd R 000 Financial assets at fair value through profit or loss Level 1 Level 2 Level 3 Total Goliath Gold Ltd Mine Restoration Investments Ltd During the current year the fair values of Torre and MRI were determined using observable and unobservable inputs and as such have been classified as a level 3 fair value measurements, despite being listed investments. Reasons for not using quoted closing market prices at year end have been detailed in note 3. During the current year the investment of R2.9 million in MRI was transferred from level 1 to level 3. In the current year the quoted closing market price of MRI was not considered to be an appropriate basis for valuation due to lack of liquidity and market activity. The closing quoted market price was therefore adjusted accordingly and as a result the investment is classified as level 3. Transfers between levels occur when there has been an event or change in circumstances. During the year the operations of MRI were put under care and maintenance as per the SENS announcement dated 20 July R 000 Reconciliation of level 3 movements Opening balance Additions Disposals ( ) - Transfers from level Fair value losses (21 334) - Transferred to disposal group held for sale - (131) STELLAR CAPITAL PARTNERS 93

98 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 32. FAIR VALUE INFORMATION (Continued) Valuation processed used to derive level 3 fair values The Board of Directors have approved the valuation methodologies as set out in the Accounting Policies note 1.5. The Company receives reports from Investment Entities on at each reporting date, either in the form of audited financial statements or unaudited management accounts. These are then used in the primary valuation techniques used to determine fair value or in the secondary valuation techniques used in the form of a reasonability checks. The valuation techniques and inputs used for each investment held at fair value have been detailed in note 3. Sensitivity analysis of level 3 inputs The table below summarises the sensitivity of the investments classified as level 3 measurements: Reasonably Primary Significant possible Fair value as at valuation unobservable increase / 30 November 2015 technique inputs Input/s (range) (decrease) Torre Industries Ltd VWAP adjusted for Market Premium 16.8% / (38 572) Market Premium Mine Restoration Adjusted market Lack of liquidity Investments Ltd value discount -20% / (1 722) Tellumat (Pty) Ltd Discounted cash Target flows debt/equity ratio: 10.90% / (8 457) Beta: / (4 741) Unsystematic risk premium: 1-2% / (6 805) Terminal growth rate: 5-7% / (4 215) Cadiz Holdings Ltd Price to book NAV discount -29% / (9 498) Integrated Equipment - Net asset value n/a n/a n/a Rentals (Pty) Ltd Praxis Financial - Net asset value n/a n/a n/a Services (Pty) Ltd Torre Industries Ltd Torre has been valued using the price of recent transactions, which has been adjusted downwards for the change in the 30-day VWAP of Torre shares between the date of the firm intention announcement (6 July 2015) at R4.46 per Torre share and the close of the financial reporting period (30 November 2015) at R4.40 per Torre share. The reasonably possible change in fair value (holding all other variables constant) was determined with reference to an adjustment of a 5% increase / (decrease) to the Market Premium. Mine Restoration Investments Ltd The fair value of the investment has been determined using an adjusted market value. The reasonably possible change in fair value (holding all other variables constant) was determined with reference to an adjustment of a 10% decrease / (increase) to the liquidity discount. 94 STELLAR CAPITAL PARTNERS

99 32. FAIR VALUE INFORMATION (Continued) Tellumat (Pty) Ltd The Tellumat investment has been valued by reference to the price of recent transactions at Transaction Value and by using a discounted cash flow model. The reasonably possible change in fair value (holding all other variables constant) was determined with reference to adjustments to the WACC inputs as follows: A 10% increase / (decrease) to the target debt/equity ratio A 0.1 decrease / (increase) to the Beta A 1% decrease / (increase) to the range of the unsystematic risk premium A 1% increase / (decrease) to the range of the terminal growth rate Cadiz Holdings Ltd The Cadiz investment has been valued by reference to the price of recent transactions at Transaction Value and by using a discounted price to book value. The reasonably possible change in fair value (holding all other variables constant) was determined with reference to an adjustment of a 5% decrease / (increase) to the NAV discount. Integrated Equipment Rentals (Pty) Ltd The fair value is estimated to be nil given that assets, when fairly valued, are exceeded by liabilities. As a result, there are no significant inputs which are subject to a sensitivity analysis. Praxis Financial Services (Pty) Ltd The fair value is estimated to be nil given that assets, when fairly valued, are exceeded by liabilities. As a result, there are no significant inputs which are subject to a sensitivity analysis. R 000 Reconciliation of fair value measurements Opening balance Additions Disposals ( ) (11 734) Fair value (losses) / gains (21 334) 414 Transferred to disposal group held for sale - (131) Financial assets measured at amortised cost Financial assets that are not measured at fair value, namely loan investments, loans to portfolio companies, loans to Consolidated Subsidiaries, trade and other receivables and cash and cash equivalents, are categorised as loans and receivables. It has been concluded that the carrying amounts of these assets approximate their fair values (refer to notes 4, 5, 7, 9, 10 and 11). Financial liabilities measured at amortised cost Financial liabilities that are not measured at fair value, namely the preference share liability and trade and other payables, are categorised as other financial liabilities. It has been concluded that the carrying amount of these liabilities approximate their fair values (refer to notes 13 and 15). STELLAR CAPITAL PARTNERS 95

100 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 33. DISPOSALS OF CONSOLIDATED SUBSIDIARIES R 000 Northbound Simat Disposal Navix Communication Management Group ConvergeNet Distribution Solutions Company SA previously 30 November 2015 SA (Pty) Ltd (Pty) Ltd (Pty) Ltd (Pty) Ltd held for sale Total Property, plant and equipment Goodwill Intangible assets Inventories Trade and other receivables Other assets Interest bearing loans and other financial liabilities (231) (231) Finance lease obligation (295) (295) Trade and other payables (1 128) (93) (1) (337) (25 234) (26 793) Carrying value / fair value of Consolidated Subsidiary disposed of (907) (81) 5 (336) Profit / (loss) on disposal of Consolidated Subsidiary - continuing operations (refer to note 22) (1 048) (13 885) - (13 935) Loss on disposal of Consolidated Subsidiary - discontinued operations (refer to note 12) ( 4 847) (4 847) Derecognition of equity balances attributable to step-up transactions (refer to note 34) Derecognition of non-controlling interest Receipt of shares in Tellumat (Pty) Ltd (refer to note 3) ( ) ( ) Proceeds on disposal of Consolidated Subsidiary Net cash in Consolidated Subsidiary disposed of (202) ( 12) (6) (1) - (221) Net cash flow from disposals of Consolidated Subsidiaries (202) (2) (6) (1) - (211) The Disposal Group previously held for sale incorporated Chrystalpine Investments 9 (Pty) Ltd Group (incorporating Andrews Kit (Pty) Ltd) and Structured Connectivity Solutions (Pty) Ltd (refer to note 12). 96 STELLAR CAPITAL PARTNERS

101 33. DISPOSALS OF CONSOLIDATED SUBSIDIARIES (Continued) R 000 Telesto Sizwe Africa IT Communications 30 November 2014 Group (Pty) Ltd (Pty) Ltd Total Property, plant and equipment Goodwill and intangible assets Other financial assets Inventories Trade and other receivables Other assets Interest bearing loans and other financial liabilities (7 653) - (7 653) Finance lease obligation (16 477) - (16 477) Trade and other payables ( ) (1 293) ( ) Other liabilities (5 993) - (5 993) Carrying value / fair value of Consolidated Subsidiary disposed of Loss on disposal of Consolidated Subsidiary - discontinued operations (refer to note 12) (52 627) (18 839) (71 466) Additional transaction costs (2 284) (166) (2 450) Derecognition of reserves (900) (192) (1 092) Derecognition of amounts owed by Group companies (799) - (799) Derecognition of equity balances attributable to step-up transactions (refer to note 34) Proceeds on disposal of Consolidated Subsidiary Recognition of other financial assets (refer to note 7) (50 000) - (50 000) Net cash flow from disposals of Consolidated Subsidiaries DERECOGNITION OF EQUITY BALANCES ATTRIBUTABLE TO STEP-UP TRANSACTIONS R 000 Northbound Disposal Group Communication previously held for Solutions 30 November 2015 sale (Pty) Ltd Total R 000 Telesto Sizwe Africa IT Communications 30 November 2014 Group (Pty) Ltd (Pty) Ltd Total Previously, step-up transactions occurred when the Company acquired additional shareholdings in entities which were already consolidated as part of the Group. The difference between the consideration paid and the additional share of net assets acquired was accounted for in equity as part of equity balances attributable to step-up transactions. Upon disposal of these Consolidated Subsidiaries, the related equity balances have been derecognised. STELLAR CAPITAL PARTNERS 97

102 NOTES TO THE ANNUAL FINANCIAL STATEMENTS (CONTINUED) 35. GOODWILL In the previous reporting period, Chrystalpine Investments 9 (Pty) Ltd Group (incorporating Andrews Kit (Pty) Ltd) and Structured Connectivity Solutions (Pty) Ltd were classified as a disposal group held for sale (refer to note 12). The disposal group classified as held for sale was measured at the lower of its carrying amount and fair value less cost to sell and as a result an impairment loss of R 5.4 million was recognised in respect of goodwill attributable to Andrews Kit (Pty) Ltd. Subsequent to the sale of the Disposal Group classified as held for sale, the Group had no goodwill. R 000 Transferred to disposal group Reconciliation of goodwill classified as Group 2014 Opening balance held for sale Impairment Closing balance Andrews Kit (Pty) Ltd (29 387) (5 435) (29 387) (5 435) PROPERTY, PLANT AND EQUIPMENT R 000 Transferred to Reconciliation of property, disposal group plant and equipment Opening classified as Closing Group 2014 balance Additions Disposals held for sale Depreciation balance Buildings (36) (259) - Furniture and fixtures (262) (1 277) (677) - IT equipment (62) (728) (437) - Motor vehicles (557) (53) - Office equipment (318) (37) - Plant and equipment (22) (1 349) (1 038) (346) (4 265) (2 501) - R 000 Transferred to Reconciliation of property, disposal group plant and equipment Opening classified as Closing Company 2014 balance Additions Disposals held for sale Depreciation balance IT equipment (8) (8) - 98 STELLAR CAPITAL PARTNERS

103 37. COMMITMENTS Operating lease During the previous reporting period, the operating lease was terminated. Capital commitments At year end the Group had had no capital commitments. 38. CONTINGENT LIABILITIES At the reporting date, the Company has issued a limited corporate guarantee in favour of the creditors of Praxis Financial Services (Pty) Ltd in the amount of R11 million which expires on 30 September Subsequent to the reporting date, a further guarantee in the amount of R5 million was issued which expires on 8 December COMPARATIVE FIGURES Unless otherwise indicated, comparative figures refer to the fifteen months ended 30 November The financial year-end of the Company was amended from August to November during the prior reporting period. As such, the prior reporting period covers fifteen months of operations which is not directly comparable to the twelve months of trading during the current reporting period. 40. EVENTS AFTER THE REPORTING DATE On 1 and 2 December 2015, the Company received R89 million and on 2 December allotted a further ordinary shares in respect of the Rights Offer; and On 21 January 2016, Stellar Capital announced the further acquisition of 12.18% of Cadiz (held via Bidco) for R35.2 million, which acquisition became unconditional on 27 January On 9 February 2016, the Company announced the acquisition of a further 6.86% of Tellumat (Pty) Ltd for a total consideration of R12.9 million, such that following the transaction, Tellumat (Pty) Ltd will be a wholly-owned subsidiary of Stellar Capital. The directors are not aware of any other events after the reporting date which have a material impact on financial statements as presented. STELLAR CAPITAL PARTNERS 99

104 NOTICE OF ANNUAL GENERAL MEETING 100 STELLAR CAPITAL PARTNERS

105 NOTICE OF ANNUAL GENERAL MEETING DIRECTORS OF STELLAR CAPITAL DD Tabata (Chairman)# CE Pettit (CEO) CB de Villiers (CFO) CJ Roodt# J de Bruyn# L Mangope# PJ van Zyl* CC Wiese* M Wentzel (alternate to CC Wiese) *Non-executive #Independent note that access to the electronic communication will be at the expense of the shareholders who wish to utilise the facility. Agenda Presentation of the audited annual financial statements of the Company, including the reports of the directors, the Audit and Risk Committee and the independent auditors in terms of section 30(3) of the Act, together with the report of the Social and Ethics Committee in terms of Regulation 43 of the Companies Regulations 2011 for the year ended 30 November The annual report, of which this notice forms part (the Annual Report ), contains the Group financial statements and the aforementioned reports. The annual financial statements, including the unmodified audit opinion, is available on the Company s website at or may be requested and obtained in person, at no charge, at the registered office of the Company during office hours. NOTICE IS HEREBY GIVEN in terms of section 62(1) of the Companies Act No. 71 of 2008, as amended (the Act ) that the Annual General Meeting ( AGM ) of shareholders will be held at 10:00 on Friday, 3 June 2016 at the Company s offices at Third Floor, the Terraces, 25 Protea Road, Claremont, 7708, Cape Town to consider and, if deemed appropriate, to approve, with or without modification, the resolutions set out in this notice. Electronic Participation Shareholders entitled to attend and vote at the AGM or proxies of such shareholders shall be entitled to participate in the meeting by electronic communication. It should be noted, however, that voting will not be possible via the electronic facilities and for shareholders wishing to vote, their shares will need to be represented at the AGM either in person, or by proxy or by letter of representation, as provided for in this notice of AGM. Should a shareholder wish to participate in the meeting by electronic communication, the shareholder concerned should make application to the transfer secretaries, Computershare Investor Services Proprietary Limited, of 70 Marshall Street, Johannesburg 2001 or The application should be received by them by no later than 10h00 on Tuesday, 31 May The application should include all relevant contact details as well as full details of the shareholder s title to securities issued by the Company and proof of identity, in the form of certified copies of identity documents and share certificates (in the case of materialised shares) and (in the case of dematerialised shares) written confirmation from the shareholder s CSDP confirming the shareholder s title to the dematerialised shares. Upon receipt of the required information, the shareholder concerned will be provided with a secure code and instructions to access the electronic communication during the AGM. Shareholders must Note: 1. For the ordinary resolutions set out in this notice of AGM, other than ordinary resolution number 12, to be approved by shareholders, it must be supported by more than 50% of the voting rights exercised on the resolution. 2. For the special resolutions set out in this notice of AGM, as well as ordinary resolution number 12, to be approved by share holders, it must be supported by at least 75% of the voting rights exercised on the resolution. 3. Quorum requirement for resolutions to be approved: Sufficient persons being present to exercise, in aggregate, at least 25% of all voting rights that are entitled to be exercised on the respective resolutions. In terms of Section 63(i) of the Act, all meeting attendees and will be required to provide identification. Compatible forms of identification include valid identity documents, driver s licenses and passports. The Board of directors of the Company has determined that the record date for the purpose of determining which shareholders of the Company are entitled to receive notice of this AGM is Friday, 29 April 2016 and the record date for purposes of determining which shareholders of the Company are entitled to participate in and vote at the AGM is Friday, 27 May The last date to trade in order that shareholders are entitled to be registered on the share register by the record date is Friday, 20 May Accordingly, only shareholders who are registered in the register of members of the Company on Friday, 27 May 2016 will be entitled to participate in and vote at the AGM. STELLAR CAPITAL PARTNERS 101

106 NOTICE OF ANNUAL GENERAL MEETING (CONTINUED) 1 ORDINARY RESOLUTION NUMBER 1 Annual Financial Statements RESOLVED THAT, the annual financial statements of the Company and its Consolidated Subsidiaries for the year ended 30 November 2015, together with the directors report, Audit and Risk Committee report and auditors reports be received, considered and approved. Explanatory note for Ordinary Resolution Number 1 In terms of the Act, the annual financial statements are required to be presented to shareholders at the AGM for consideration. 2 ORDINARY RESOLUTION NUMBER 2 Director Appointment Ratification RESOLVED THAT in accordance with the Company s Memorandum of Incorporation ( MOI ), the appointment of Mr CJ Roodt director of the Company as from 5 October 2015 be and is hereby confirmed. The curriculum vitae for Mr Roodt is set out on page 23 of this Annual Report. Explanatory note for Ordinary Resolution Number 2 In terms of the MOI, the board is entitled to appoint any person as a director either to fill a vacancy, or as an addition to the board, subject to the maximum number of 20 directors fixed in terms of the MOI is not exceeded, and provided that such appointment is confirmed at the next AGM. The board appointed the abovementioned director as an addition to the board. This resolution confirms such appointment in accordance with the MOI. 3 ORDINARY RESOLUTION NUMBER 3 Director Re-Election RESOLVED THAT Mr PJ Van Zyl, who retires by rotation at the AGM, and has made himself available for re-election, be re-elected as a director of the Company. The curriculum vitae for Mr van Zyl is set out on page 24 of this Annual Report. 4 ORDINARY RESOLUTION NUMBER 4 Director Re-Election RESOLVED THAT Mrs J de Bruyn, who retires by rotation at the AGM, and has made herself available for re-election, be re-elected as a director of the Company. The curriculum vitae for Mrs De Bruyn is set out on page 23 of this Annual Report. Explanatory note for Ordinary Resolution Numbers 3 and 4 In accordance with the MOI, one-third of the directors is required to retire at each AGM, and may make themselves available for re-election. In terms of the MOI, executive directors, during the period of their service contract, are not taken into account when determining which directors are to retire by rotation. 5 ORDINARY RESOLUTION NUMBER 5 Appointment and Remuneration of Auditors RESOLVED THAT in terms of section 90(1) of the Act, Grant Thornton Cape Inc as auditors, with Mr Imtiaaz Hashim as the designated auditor at partner status of the Company, be reappointed. Explanatory note for Ordinary Resolution Number 5 Grant Thornton has indicated its willingness to continue as the Company s auditors until the next AGM. The Group Audit and Risk Committee has satisfied itself as to the independence of Grant Thornton. The Group Audit and Risk committee has the power in terms of the Act, to approve the remuneration of the external auditors. 6 ORDINARY RESOLUTION NUMBER 6 Appointment of Audit and Risk Committee Member J de Bruyn RESOLVED THAT Mrs J de Bruyn, be and is hereby approved to be a member of the Audit and Risk Committee with effect from the date of this AGM. The curriculum vitae for Mrs de Bruyn is set out on page 23 of this Annual Report. 7 ORDINARY RESOLUTION NUMBER 7 Appointment of Audit and Risk Committee Member L Mangope RESOLVED THAT Mrs L Mangope, be and is hereby approved to be a member of the Audit and Risk Committee with effect from the date of this AGM. The curriculum vitae for Mrs Mangope is set out on page 23 of this Annual Report. 8 ORDINARY RESOLUTION NUMBER 8 Appointment of Audit and Risk Committee Member CC Wiese RESOLVED THAT Ms CC Wiese, be and is hereby approved to be a member of the Audit and Risk Committee with effect from the date of this AGM. The curriculum vitae for Ms Wiese is set out on page 24 of this Annual Report. Explanatory note for Ordinary Resolution Numbers 6-8 In terms of Section 61 (8)(c)(ii) of the Act, shareholders are required 102 STELLAR CAPITAL PARTNERS

107 to approve the appointment of the Audit and Risk Committee members. responsibilities as may from time to time be delegated by the Board. In terms of sections 61 (8)(c)(ii) and 94(2) of the Act, audit committee members must be elected by shareholders at each annual general meeting. King III likewise requires shareholders of a public company to elect the members of an Audit and Risk Committee at each AGM. In terms of Regulation 42 of the Companies Regulations, 2011, at least one-third of the members of the Company s Audit and Risk Committee at any particular time must have academic qualifications, or experience, in economics, law, corporate governance, finance, accounting, commerce, industry, public affairs or human resource management. The proposed members collectively have experience in audit, accounting, commerce, corporate governance and general industry. 9 ORDINARY RESOLUTION NUMBER 9 Appointment of Social and Ethics Committee Member DD Tabata RESOLVED THAT Mr DD Tabata, be and is hereby approved to be a member of the Social and Ethics Committee with effect from the date of this AGM. The curriculum vitae for Mr Tabata is set out on page 22 of this Annual Report. 10 ORDINARY RESOLUTION NUMBER 10 Appointment of Social and Ethics Committee Member J de Bruyn RESOLVED THAT Mrs J de Bruyn, be and is hereby approved to be a member of the Social and Ethics Committee with effect from the date of this AGM. The curriculum vitae for Mrs de Bruyn is set out on page 23 of this Annual Report. 11 ORDINARY RESOLUTION NUMBER 11 Appointment of Social and Ethics Committee Member CC Wiese RESOLVED THAT Ms CC Wiese, be and is hereby approved to be a member of the Social and Ethics Committee with effect from the date of this AGM. The curriculum vitae for Ms Wiese is set out on page 24 of this Annual Report. Explanatory note for Ordinary Resolution Numbers 9-11 In terms of section 72(4) of the Act and Regulation 43(2) of the Companies Regulations 2011, the appointment of members of a social and ethics committee is required to hold office until the next annual general meeting of the Company and to perform the duties and responsibilities stipulated in Regulation 43(5) of the Companies Regulations and to perform such other duties and 12 ORDINARY RESOLUTION NUMBER 12 GENERAL AUTHORITY TO ISSUE SHARES FOR CASH RESOLVED THAT subject to the approval of 75% of the members present in person and by proxy, and entitled to vote at the meeting, the directors of the Company be and hereby are authorised, by way of general authority, to allot and issue all or any of the authorised but unissued shares in the capital of the Company as they in their discretion deem fit, subject to the following limitations: the shares which are the subject of the issue for cash must be of a class already in issue, or where this is not the case, must be limited to such equity securities or rights that are convertible into a class already in issue; this authority shall not endure beyond the next annual general meeting of the Company nor shall it endure beyond 15 months from the date of this meeting; there will be no restrictions in regard to the persons to whom the shares may be issued, provided that such shares are to be issued to public shareholders (as defined by the JSE Listings Requirements) and not to related parties; upon any issue of shares which, together with prior issues during the period of this authority, will constitute 5% or more of the number of shares of the class in issue prior to the issue, the Company shall by way of an announcement on the Stock Exchange News Service ( SENS ), give full details thereof, including the impact on the net asset value and earnings per share of the Company; the maximum discount at which shares may be issued is 10% of the weighted average traded price of the Company s shares over the 30 business days prior to the date that the price of the issue is determined or agreed by the directors of the Company and the party subscribing for the shares; the aggregate issue of a class of shares already in issue will not exceed 5% ( ) of the number of that class of shares as at the date of the notice of annual general meeting (including any options/securities which are compulsorily convertible into shares of that class), provided that: any equity securities issued under this authority during the period must be deducted from the number above; the calculation of the applicant s listed equity securities must be a factual assessment of the applicant s listed equity securities as at the date of the notice of annual general meeting, excluding treasury shares; and in the event of a sub-division or consolidation of issued equity securities during the period of the authority, the existing authority must be adjusted accordingly to represent the same allocation ratio. STELLAR CAPITAL PARTNERS 103

108 NOTICE OF ANNUAL GENERAL MEETING (CONTINUED) Explanatory note for Ordinary Resolution Number 12 In terms of the MOI, read with the JSE Listings Requirements, the shareholders may authorise the directors to allot and issue the authorised but unissued shares in the share capital of the Company for cash as the directors in their discretion deem fit, subject to the above limitations. 13 ORDINARY RESOLUTION NUMBER 13 Remuneration Policy RESOLVED THAT the shareholders endorse, by way of a non-binding advisory vote, the Company s remuneration policy (excluding the remuneration of the non-executive directors and the members of board committees for their services as directors and members of committees). For details of the remuneration policy refer to page 30 of this Annual Report. Explanatory note for Ordinary Resolution Number 13 Chapter 2 of King III dealing with boards and directors requires companies to every year table their remuneration policy to shareholders for a non-binding advisory vote at the AGM. This vote enables shareholders to express their views on the remuneration policies adopted and on their implementation. This ordinary resolution is of an advisory nature only and failure to pass this resolution will therefore not have any legal consequences relating to existing arrangements. However the board will take the outcome of the vote into consideration when considering the Company s remuneration policy. 14 ORDINARY RESOLUTION NUMBER 14 Amendment to the Investment Policy RESOLVED THAT the shareholders endorse, the Company s proposed amendments to the investment policy and that this policy is hereby amended and approved. For details of the amendments to the investment policy refer to page 8 of this Annual Report. Explanatory note for Ordinary Resolution Number 14 In terms of the circular dated 15 December 2014 ( Circular ) and the shareholders meeting held on 16 January 2015, the Company undertook to present its comprehensive investment policy to its shareholders at the AGM. Subsequent to the disclosure made in the Circular in respect of the investment policy, additions to the investment policy are being proposed such that the investment focus areas are elaborated, sectors and geographies of primary interest are defined, criteria for investment and divestment are outlined, measurable growth targets are set and categorisation and shareholder approvals are communicated. This resolution enables shareholders to vote on the proposed amendments to the investment policy as set out on pages 8 to 10 of this Annual Report, and permits the Company to adopt and implement the amended investment policy. 15 ORDINARY RESOLUTION NUMBER 15 Renewal of Management Agreement RESOLVED THAT the management agreement between the Company and Thunder Securitisation (Pty) Ltd ( Manco ) not be cancelled, and accordingly be renewed, until the next annual general meeting of the Company, on the basis that if this ordinary resolution is not adopted by a majority of votes exercised by shareholders on the resolution, the cancellation resolution contemplated in clause 4.3 of the management agreement will be deemed to have been adopted, and the Company shall become entitled to terminate the management agreement on 3 months notice to Manco, and if cancelled by the Company, the termination fee contemplated in clause 12 of the management agreement shall become payable by the Company. Explanatory note for Ordinary Resolution Number 15 The terms of the management agreement and the amendments thereto entered into between the Company and Manco were approved by shareholders on 16 January 2015 and 19 November 2015 respectively. The effect of ordinary resolution number 15, if approved, is that the management agreement will be renewed until the Company s next annual general meeting. 16 ORDINARY RESOLUTION NUMBER 16 Authority to Act RESOLVED THAT that any one director of the Company and/ or the Company Secretary of the Company be and is hereby authorised to do all such things and sign all such documents as deemed necessary for or incidental to the implementation of the ordinary and special resolutions as set out in this notice convening the AGM at which these resolutions will be considered and which are passed by the shareholders in accordance with and subject to the terms thereof. Explanatory note for Ordinary Resolution Number 16 To ensure that the resolutions adopted by shareholders at the AGM are duly implemented through the delegation of powers provided for in terms of the MOI. 17 SPECIAL RESOLUTION NUMBER 1 General Authority to Repurchase Shares RESOLVED THAT, subject to the approval of 75% of the members present in person and by proxy, and entitled to vote at the meeting, the Company and/or any subsidiary of the Company is hereby authorised, by way of a general authority, from time to time, to acquire ordinary shares in the share capital of the 104 STELLAR CAPITAL PARTNERS

109 Company from any person in accordance with the requirements of the MOI, the Act and the JSE Listings Requirements, provided that: any such acquisition of ordinary shares shall be effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement with the counterparty; the Company will not be permitted to acquire in excess of 20% of its issued shares under this general authority as at the beginning of the Company s current financial year; this general authority shall be valid until the earlier of the Company s next annual general meeting or the variation or revocation of such general authority by special resolution at any subsequent general meeting of the Company, provided that it shall not extend beyond 15 months from the date of passing of this special resolution number 1; an announcement will be published as soon as the Company or any of its subsidiaries have acquired ordinary shares constituting, on a cumulative basis, 3% of the number of ordinary and/or preference shares in issue and for each 3% in aggregate of the initial number acquired thereafter, in compliance with paragraph of the JSE Listings Requirements; ordinary shares may not be acquired at a price greater than 10% above the weighted average of the market value at which such ordinary shares are traded on the JSE as determined over the five business days immediately preceding the date of acquisition of such ordinary shares; the Company has been given authority by its MOI; a resolution has been passed by the board of directors confirming that the board has authorised the general repurchase, that the Company passed the solvency and liquidity test and that since the test was performed there have been no material changes to the financial position of the group; in terms of section 48 (2)(b) of the Act, the board of a subsidiary Company may determine that it will acquire shares of its holding company, but (i) not more than 10%, in aggregate, of the number of issued shares of any class of shares of a Company may be held by, or for the benefit of, all of the subsidiaries of that Company, taken together; and (ii) no voting rights attached to those shares may be exercised while the shares are held by the subsidiary, and it remains a subsidiary of the Company whose shares it holds; in terms of section 48 (8)(a) and (b) of the Act, the repurchase of any shares from a director or prescribed officer of the Company, or any repurchase which, considered alone, or together with other transactions in an integrated series of transactions, involves the acquisition by the Company of more than 5% of the issued shares of any particular class of the Company s shares, is subject to the requirements of sections 114 and 115 of the Act; at any point in time, the Company and/or its subsidiaries may only appoint one agent to effect any such acquisition; any such acquisitions are subject to exchange control regulations and approval at that time; the Company and/or its subsidiaries may not acquire any shares during a prohibited period, as defined in the JSE Listings Requirements unless a repurchase programme is in place, where the dates and quantities of shares to be traded during the prohibited period are fixed (not subject to any variation) and has been submitted in writing to the JSE writing prior to the commencement of the prohibited period. Explanatory note for Special Resolution Number 1 The reason for and effect of this special resolution is to grant the Company and its subsidiaries a general authority to facilitate the acquisition by the Company and/or its subsidiaries of the Company s own shares, which general authority shall be valid until the earlier of the next annual general meeting of the Company or the variation or revocation of such general authority by special resolution at any subsequent general meeting of the Company, provided that this general authority shall not extend beyond 15 months from the date of the passing of this special resolution number 1. In terms of the Listings Requirements of the JSE, any general repurchase by the Company must, inter alia, be limited to a maximum of 20% of the Company s issued share capital in any one financial year of that class at the time the authority is granted. Furthermore, in terms of section 48(2)(b)(i) of the Act, subsidiaries may not hold more than 10%, in aggregate, of the number of the issued shares of a Company. For the avoidance of doubt, a pro rata repurchase by the Company from all its shareholders will not require shareholder approval, save to the extent as may be required by the Act. Any decision by the directors, after considering the effect of an acquisition of up to 5% of the Company s issued ordinary shares, as the case may be, to use the general authority to acquire shares of the Company will be taken with regard to the prevailing market conditions and other factors and provided that, for a period of 12 months following such acquisition, the directors are of the opinion that: the Company and the Group will be able to pay its debts in the ordinary course of business; the Company and the Group s assets will be in excess of the liabilities of the Company and the Group for a period of 12 months after the date of the general repurchase. For this purpose, the assets and liabilities will be recognised and measured in accordance with the accounting policies used in the latest audited consolidated annual financial statements which comply with the Act; STELLAR CAPITAL PARTNERS 105

110 NOTICE OF ANNUAL GENERAL MEETING (CONTINUED) the share capital and reserves of the Company and the Group will be adequate for ordinary business purposes; and the working capital of the Company and the Group will be adequate for ordinary business purposes In addition to the below, the JSE Listings Requirements require, in terms of section 11.26, the following disclosures, which appear in this Annual Report: Major shareholders refer to pages 44 and 45 of this Annual Report. Share capital of the Company refer to pages 77 and 78 of this Annual Report. Chairman Member Board of Directors: Annual fee R R Audit and Risk Committee: Annual fee R R Remuneration Committee: Annual fee R R Nomination Committee: Annual fee R R Directors Responsibility Statement The directors, whose names appear on pages 22 to 24 of this Annual Report, collectively and individually accept full responsibility for the accuracy of the information pertaining to this special resolution number 1 and certify that, to the best of their knowledge and belief, there are no facts that have been omitted which would make any statements false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this special resolution number 1 contains all information required by law and the JSE Listings Requirements. Material Changes Other than the facts and developments reported on in this Annual Report, there have been no material changes in the financial or trading position of the Company and its subsidiaries since the date of signature of the audit report and up to the date of the notice of AGM. The directors have no specific intention, at present, for the Company or its subsidiaries to acquire any of the Company s shares but consider that such a general authority should be put in place should an opportunity present itself to do so during the year, which is in the best interests of the Company and its shareholders. The directors are of the opinion that it would be in the best interests of the Company to extend such general authority and thereby allow the Company or any of its subsidiaries to be in a position to acquire the shares issued by the Company through the order book of the JSE, should the market conditions, tax dispensation and price justify such an action. 18 SPECIAL RESOLUTION NUMBER 2 Non-Executive Directors Remuneration RESOLVED THAT, in terms of Section 66 (9) of the Act, shareholders approve, by way of a special resolution, the remuneration of directors for their services as directors, as set out below. The following annual fees are proposed for the period commencing 1 December 2015, until the next AGM: Social and Ethics Committee: Annual fee R R The Group pays for all travel and accommodation expenses incurred by directors to attend Board and Committee meetings, as well as visits to Group sites and businesses. Explanatory note for Special Resolution Number 2 In terms of sections 66(8) and (9) of the Act, the remuneration of directors for their services as directors is to be approved by shareholders by way of a special resolution. 19 SPECIAL RESOLUTION NUMBER 3 General authority to enter into funding agreements, provide loans and other financial assistance RESOLVED THAT the board of directors of the Company may, subject to compliance with the requirements of the MOI and section 45 of the Act, each as presently constituted and as amended from time to time, authorise the Company to provide direct or indirect financial assistance by way of loans, guarantees, the provision of security or otherwise, and the Company be and is hereby granted a general approval authorising the Company and or any one or more of and/or its subsidiaries incorporated in the Republic to, for a period of 2 (two) years from the date of adoption of the special resolution, enter into direct or indirect funding agreements guarantee a loan or other obligations, secure any debt or obligation, or to provide loans or financial assistance between any one or more of the subsidiaries directors, prescribed officers or a related or inter-related company from time to time, subject to the provisions of the JSE Listings Requirements, for the purpose of entering into funding agreements and otherwise as the directors in their discretion deem fit. Explanatory note for Special Resolution Number 3 The reason for special resolution number 3 is to obtain approval from the shareholders to enable the Company to provide financial 106 STELLAR CAPITAL PARTNERS

111 assistance to group companies, directors, prescribed officers or a related or inter-related company, when the need arises, in accordance with the provisions of Sections 45 of the Act. The effect of special resolution number 3 is that the Company will have the necessary authority, as and when required. 20 SPECIAL RESOLUTION NUMBER 4 General authority to provide financial assistance for the subscription of securities RESOLVED THAT, the board of directors of the Company may, subject to compliance with the requirements of the MOI and the Act, each as presently constituted and as amended from time to time, authorise the Company in terms of section 44(3)(a)(ii) of the Act, for a period of 2 (two) years from the date of adoption of the special resolution and subject to compliance with the remainder of section 44 of the Act, to provide financial assistance to any person for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to be issued by the Company or a related or inter-related company, or for the purchase of any securities of the Company or a related or inter-related company, on the terms and conditions, to the recipient/s, in the form, nature and extent, and for the amounts that the board of directors of the Company, in its discretion, may determine from time to time. Explanatory note for Special Resolution Number 4 The reason for and effect of the special resolution, if adopted, will be to confer authority on the board of directors of the Company to authorise financial assistance to any person for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to be issued by the Company or a related or inter-related company or corporation, or for the purchase of any securities of the Company or a related or inter-related company or corporation generally as the board of directors of the Company may deem fit, on the terms and conditions, and for the amounts that the board of directors may determine from time to time, for a period of 2 (two) years from the date of adoption of the special resolution, and in particular as specified in this special resolution. RECORD DATES The posting record date, being the date that shareholders must have been recorded in the register to be eligible to receive this notice of AGM, is Friday, 29 April The last day to trade in order to be eligible to vote at the AGM is Friday, 20 May The Voting Record Date, being the date that shareholders must be recorded in the register to be eligible to speak and vote at the AGM, is Friday, 27 May VOTING AND PROXIES Section 63(1) of the Act requires that meeting participants provide satisfactory identification. Accordingly, meeting participants will be required to provide proof of identification to the reasonable satisfaction of the chairman of the AGM and must accordingly bring a copy of their identity document, passport or drivers license to the AGM. If in doubt as to whether any document will be regarded as satisfactory proof of identification, meeting participants should contact the Transfer Secretaries for guidance. A shareholder entitled to attend, speak and vote at the AGM is entitled to appoint one or more proxies to attend, speak and vote in his stead. A proxy need not be a shareholder of Stellar Capital. For the convenience of certificated shareholders and dematerialised shareholders with own name registration, a form of proxy is attached hereto. Completion of a form of proxy will not preclude such shareholder from attending and voting (in preference to that shareholder s proxy) at the AGM. Duly completed forms of proxy and the authority (if any) under which it is signed must reach the Transfer Secretaries at the address given below by not later than 10:00 on Wednesday, 1 June Dematerialised shareholders without own name registration who wish to attend the AGM in person should request their CSDP or stockbroker to provide them with the necessary Letter of Representation in terms of their custody agreement with their CSDP or stockbroker. Dematerialised shareholders without own name registration who do not wish to attend but wish to be represented at the AGM must advise their CSDP or stockbroker of their voting instructions. Dematerialised shareholders without own name registration should contact their CSDP or stockbroker with regard to the cut-off time for their voting instructions. By order of the Board STELLAR CAPITAL PARTNERS LIMITED CE Pettit Chief Executive Officer 5 May 2016 Registered Office Third Floor, The Terraces 25 Protea Road, Claremont, Cape Town, 7708 Transfer Secretaries Computershare Investor Services Proprietary Limited 70 Marshall Street Johannesburg, 2001 STELLAR CAPITAL PARTNERS 107

112 108 STELLAR CAPITAL PARTNERS

113 FORM OF PROXY (FOR USE BY CERTIFICATED AND OWN NAME DEMATERIALISED SHAREHOLDERS ONLY) Stellar Capital Partners Limited (Previously ConvergeNet Holdings Limited) (Incorporated in the Republic of South Africa) (Registration number 1998/015580/06) ( Stellar Capital or the Company ) ISIN Code: ZAE Share code: SCP For use by certificated shareholders or own name dematerialised shareholders at the AGM of the Company to be held at Third Floor, The Terraces, 25 Protea Road, Claremont, Cape Town, 7708 at 10:00 on Friday, 3 June If dematerialised shareholders, other than own name dematerialised shareholders, have not been contacted by their CSDP or stockbroker with regard to how they wish to cast their vote, they should contact their CSDP or stockbroker and instruct their CSDP or stockbroker as to how they wish to cast their vote at the AGM in order for their CSDP or stockbroker to vote in accordance with such instructions. If dematerialised shareholders, other than own name dematerialised shareholders, have not been contacted by their CSDP or stockbroker, it would be advisable for them to contact their CSDP or stockbroker, as the case may be, and furnish them with their instructions. Dematerialised shareholders who are not own name dematerialised shareholders and who wish to attend the AGM must obtain their necessary Letter of Representation from their CSDP or stockbroker, as the case may be, and submit same to the Transfer Secretaries to be received by no later than 10:00, on Wednesday, 1 June This must be done in terms of the agreement entered into between dematerialised shareholders and their CSDP or stockbroker. If the CSDP or stockbroker, as the case may be, does not obtain instructions from such dematerialised shareholders, it will be obliged to act in terms of the mandate furnished to it, or if the mandate is silent in this regard, to abstain from voting. Such dematerialised shareholders, other than own name dematerialised shareholders, must not complete this form of proxy and should read note 11 of the overleaf. I/We (please print) of (address) Telephone number ( ) Cellphone number address being the holder/s of ordinary shares of no par value in Stellar Capital, appoint (see note 1): 1. or failing him/her, 2. or failing him/her, 3. the Chairperson of the AGM, as my/our proxy to act for me/us and on my/or behalf at the AGM which will be held for the purpose of considering and, if deemed fit, approving, with or without modification, the resolutions to be proposed thereat and/or at any adjournment thereof; and to vote for and/or against the resolutions and/or abstain from voting in respect of the shares registered in my/ our name/s, in accordance with the following instructions (see note 2): STELLAR CAPITAL PARTNERS 109

114 Number of Shares For Against Abstain ORDINARY RESOLUTION NUMBER 1 Annual Financial Statements ORDINARY RESOLUTION NUMBER 2 Director Ratification - CJ Roodt ORDINARY RESOLUTION NUMBER 3 Director Re-Election PJ van Zyl ORDINARY RESOLUTION NUMBER 4 Director Re-Election J de Bruyn ORDINARY RESOLUTION NUMBER 5 Appointment of Auditors ORDINARY RESOLUTION NUMBER 6 Audit and Risk Committee Appointment J de Bruyn ORDINARY RESOLUTION NUMBER 7 Audit and Risk Committee Appointment L Mangope ORDINARY RESOLUTION NUMBER 8 Audit and Risk Committee Appointment CC Wiese ORDINARY RESOLUTION NUMBER 9 Social and Ethics Committee Appointment DD Tabata ORDINARY RESOLUTION NUMBER 10 Social and Ethics Committee Appointment J de Bruyn ORDINARY RESOLUTION NUMBER 11 Social and Ethics Committee Appointment CC Wiese ORDINARY RESOLUTION NUMBER 12 General Authority to Issue Shares ORDINARY RESOLUTION NUMBER 13 Remuneration Policy ORDINARY RESOLUTION NUMBER 14 Amendment to the Investment Policy ORDINARY RESOLUTION NUMBER 15 Renewal of Management Agreement ORDINARY RESOLUTION NUMBER 16 Authorising Resolution SPECIAL RESOLUTION NUMBER 1 General Authority to Repurchase Shares SPECIAL RESOLUTION NUMBER 2 Non-Executive Directors Remuneration SPECIAL RESOLUTION NUMBER 3 General Authority to provide Financial Assistance SPECIAL RESOLUTION NUMBER 4 General Authority to provide Financial Assistance to Subscribe for Shares Signed at on 2016 Signature Assisted by me (where applicable) Name Capacity Signature 110 STELLAR CAPITAL PARTNERS

115 NOTES TO FORM OF PROXY A shareholder entitled to attend and vote at the AGM may appoint one or more persons as his proxy to attend, speak or vote in his stead at the AGM. A proxy need not be a shareholder. On a show of hands, every shareholder shall have one vote (irrespective of the number of Stellar Capital shares held). On a poll, every shareholder shall have, for each share held by him, that proportion of the total votes in Stellar Capital which the aggregate amount of the nominal value of that share held by him bears to the aggregate amount of the nominal value of all the shares issued by Stellar Capital. SUMMARY OF RIGHTS CONTAINED IN SECTION 58 OF THE ACT In terms of section 58 of the Act: a shareholder may, at any time and in accordance with the provisions of section 58 of the Act, appoint any individual (including an individual who is not a shareholder) as a proxy to participate in, and speak and vote at, a general meeting on behalf of such shareholder; a proxy may delegate his authority to act on behalf of a shareholder to another person, subject to any restriction set out in the instrument appointing such proxy; irrespective of the form of instrument used to appoint a proxy, the appointment of a proxy is suspended at any time and to the extent that the relevant shareholder chooses to act directly and in person in the exercise of any of such shareholder s rights as a shareholder; any appointment by a shareholder of a proxy is revocable, unless the form of instrument used to appoint such proxy states otherwise; if an appointment of a proxy is revocable, a shareholder may revoke the proxy appointment by: (i) cancelling it in writing, or making a later inconsistent appointment of a proxy; and (ii) delivering a copy of the revocation instrument to the proxy and to the relevant company; and a proxy appointed by a shareholder is entitled to exercise, or abstain from exercising, any voting right of such shareholder without direction, except to the extent that the MOI, or the instrument appointing the proxy, provides otherwise. Notes: 1. A shareholder may insert the name of a proxy or the names of two alternative proxies of his choice in the spaces provided with or without deleting the chairperson of the AGM, but any such deletion must be initialled by the shareholder. The person whose name appears first on the form of proxy and who is present at the AGM will be entitled to act as proxy to the exclusion of those whose names follow. 2. Please insert the number of shares in the relevant spaces according to how you wish your votes to be cast. If you wish to cast your votes in respect of a lesser number of Stellar Capital shares exercisable by you, insert the number of Stellar Capital shares held in respect of which you wish to vote. Failure to comply with the above will be deemed to authorise and compel the chairperson, if the chairperson is an authorised proxy, to vote in favour of the resolutions, or to authorise any other proxy to vote for or against the resolutions or abstain from voting as he deems fit, in respect of all the shareholder s votes exercisable thereat. A shareholder or its/his proxy is not obliged to use all the votes exercisable by the shareholder or its/his proxy, but the total of the votes cast and in respect whereof abstention is recorded may not exceed the total of the votes exercisable by the shareholder or its/his proxy. 3. Forms of proxy must be lodged with the Transfer Secretaries, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107), to be received by no later than 10:00 on Wednesday, 1 June 2016, in order to be effective. 4. Any alteration or correction made to this form of proxy must be initialled by the signatory/(ies). 5. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy unless previously recorded by the Transfer Secretaries or waived by the chairperson of the AGM. 6. The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the AGM and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such shareholder wish to do so. STELLAR CAPITAL PARTNERS 111

116 NOTES TO FORM OF PROXY (CONTINUED) 7. The chairperson of the AGM may accept or reject any form of proxy which is completed and/or received other than in accordance with these notes and instructions, provided that the chairperson is satisfied as to the manner in which the shareholder wishes to vote. 8. The appointment of a proxy shall remain valid until the end of the meeting contemplated in this appointment. 9. Joint holders any such persons may vote at the AGM in respect of such joint Stellar Capital shares as if he were solely entitled thereto; but if more than one of such joint holders are present or represented at the AGM, that one of the said persons whose name stands first in the register in respect of such Stellar Capital shares or his proxy, as the case may be, is alone entitled to vote in respect thereof. 10. Shareholders who hold Stellar Capital shares that have been dematerialised, and are registered by the CSDP on the sub-register in their own name kept by that CSDP ( own name dematerialised shareholders ), will be entitled to attend the AGM in person or, if they are unable to attend and wish to be represented thereat, must complete and return the attached form of proxy to the Transfer Secretaries in accordance with the time specified on the form of proxy. 11. Shareholders who hold Stellar Capital shares through a nominee should advise their nominee or, if applicable, their CSDP or stockbroker timeously of their intention to attend and vote at the AGM or to be represented by proxy thereat in order for their nominee or, if applicable, their CSDP or stockbroker to provide them with the necessary Letter of Representation to do so or should provide their nominee or, if applicable, their CSDP or stockbroker timeously with their voting instruction should they not wish to attend the AGM in person, in order for their nominee to vote in accordance with their instruction at the AGM. 112 STELLAR CAPITAL PARTNERS

117 NOTES STELLAR CAPITAL PARTNERS 113

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119 CORPORATE INFORMATION DIRECTORS DD Tabata (Chairman)*^, CE Pettit (Chief Executive Officer), CB de Villiers (Chief Financial Officer), CJ Roodt*^, PJ Van Zyl^, L Mangope*^, J de Bruyn*^, CC Wiese*^, M Wentzel*^~ (* Independent) (^ Non executive) (~ Alternate) COMPANY SECRETARY The Secretarial Company Empire Park Parktown Johannesburg 2193 REGISTERED OFFICE AND BUSINESS ADDRESS Third Floor The Terraces 25 Protea Road Claremont Cape Town 7708 POSTAL ADDRESS Suite 229, Private Bag X1005 Claremont Cape Town 7735 TRANSFER SECRETARIES Computershare Investor Services (Pty) Ltd 70 Marshall Street Johannesburg 2001 SPONSOR Rand Merchant Bank (a division of First Rand Bank Limited) /// DESIGN AND LAYOUT BY ONE HUNDRED PERCENT / DESIGN & BRAND CONSULTANCY /

120 PHYSICAL AND REGISTERED ADDRESS: Third Floor, The Terraces, 25 Protea Road Claremont Cape Town 7708 South Africa TELEPHONE: +27(0) WEBSITE: