ALLIANCE DATA CORPORATION LIMITED

Transcription

1 1 ANNUAL EPOT FO THE YEA ENDED 28 FEUAY 2006 CONTENTS PAGE Chairman s statement 2 Approval of the Annual Financial Statements 3 eport of the Company Secretary 4 Corporate governance 5 eport of the independent auditors 9 eport of the directors 10 Income statements 13 Balance sheets 14 Statements of changes in equity 15 Cash flow statements 16 Accounting policies 17 Notes to the financial statements 23 Subsidiary companies Annexure A 31 Shareholder information 32 Notice to shareholders Form of proxy Inserted Inserted

2 2 CHAIMAN S STATEMENT COMMENTS The Board of Directors are pleased to present the financial results for the Company for the year ended 28 February INCOPOATION AND HISTOY Alliance Data Corporation Limited ADC, was incorporated as a private company on 13 August 1997 and was converted to a public company on 9 December 2004, when each ordinary share of 1,00 was sub-divided into ordinary shares of 0.1 cent each and the authorized share capital of the company was increased from ordinary shares of 0.1 cent to shares. On 20 March 2005, the company listed on the JSE when shares were offered in terms of a private placement to selected investors. The shares were offered at 1,00 a share, which included a premium of 99.9 cents over the nominal value of the shares. NATUE OF THE BUSINESS ADC specialises in software supply and development and focuses on the development, installation and support of human resources, payroll and time and attendance computer software solutions for customers mainly in the mining industry. HIGHLIGTHS The company listed on the Altx Board of the JSE Securities exchange on 20 March 2005 at 1 per share. The company generated 4,9 million (2005: 3,7 million) after tax profits for the period under review. Earnings per share increased with 19% from 18,3 cents per share at 28 February 2005 to 21,7 cents per share at 28 February BUSINESS EVIEW AND POSPECTS ADC has entered into an agreement for the acquisition of 100% of the ordinary shares in Sindele Mining Supplies (Pty) Limited ( Sindele ) for a purchase consideration of 27 million to be settled in terms of 18 million shares at 1,50. Sindele s products and services are directed at clients that operate within the precious metals mining industry. Clients include Angloplat, Goldfieds and Harmony. These markets are currently experiencing unprecedented demand and is foreseen that the combination of the two companies will enhance the services and products offering to the current mining market. FINANCIAL EVIEW The company has realised a profit of 4,9 million for the year ended 28 February Intangible assets have decreased by 28,8 million, with the reversal being accounted for against non-distributable reserves. This adjustment has been made retrospectively and was accounted for in terms of IAS 8. Shares in issue increased as a result of 2,5 million shares being placed on listing. Management have decided that in line with future acquisition strategies, trademarks and intellectual property will not be valued in the balance sheet. Management has continued to contain operating expenses within expectations. EA de Kok Chairman 29 August 2006

3 3 APPOVAL OF ANNUAL FINANCIAL STATEMENTS AND DIECTOS ESPONSIBILITY STATEMENT The directors are solely responsible for the preparation of the annual financial statements and related financial information. They believe that the information fairly represents the affairs and results of the company. The external auditors are responsible for independently auditing and reporting on these annual financial statements, in accordance with International Standards On Auditing. The annual financial statements set out in this report have been prepared by management in accordance with International Financial eporting Standards (IFS), and in the manner required by the Companies Act of 1973 in South Africa. They incorporate full and reasonable disclosure and are based on appropriate accounting policies which have been consistently applied and which are supported by reasonable and prudent judgements and estimates. The directors are responsible for the maintenance of adequate accounting records and the preparation and integrity of the financial statements and related information. The auditors are responsible for reporting on the fair presentation of the financial statements. The directors are also responsible for the company s system of internal financial control. The financial statements have been prepared on the going concern basis, since the directors have every reason to believe that the company has adequate resources in place to continue operations for the foreseeable future. The annual financial statements and set out on pages 3 to 32 were approved by the board of directors on 29 August 2006 and are signed on its behalf by: EA de Kok Executive Director CM van Nieuwkerk Executive Director

4 4 EPOT OF THE COMPANY SECETAY To the best of my knowledge and after having made the necessary enquiries, I confirm that the company has lodged with the egistrar of Companies all such returns as required by the Companies Act and that such returns are true and correct in all material respects. CM Van Nieuwkerk 29 August 2006

5 5 COPOATE GOVENANCE INTODUCTION ADC is committed to and endorses the application of the principles recommended in the King II Code of Corporate Practice. The company has adopted and applied some of the principles as noted below. BOAD OF DIECTOS Composition of the board of directors The corporate board comprises three executive directors and one non-executive director. The non-executive directors are fully independent of management, and are free to make their own decisions and independent judgments. They enjoy no benefits from the company for their services as directors, other than their fees and potential capital gains and dividends on their interests in ordinary shares and options. These directors are drawn from diverse backgrounds and bring a wide range of experience, insight and professional skills to the board. The non-executive directors are high caliber professionals and sufficient in number for their independent views to carry significant weight in the board s deliberations and decisions. ole and function of the Board of Directors The board is responsible to all shareholders for the proper management and the ultimate control of the company and participates in discussions on, and monitor the progress of, the strategic direction and policy, strategic planning, acquisitions and disposals, the approval of major capital expenditure, consideration of significant financial matters, the monitoring of the management and administrative activities and any other matters that have a material impact on the company s affairs. The board agrees the strategic intent of the Company, and is responsible for the overall direction and control of the company. Major responsibilities of the board include the review of business plans and budgets, monitoring of company performance, approval of major policy decisions, the appointment of the Chairman and the Chief Executive Officer and other board members and agreement of the top management structure and management succession. The corporate board is responsible to shareholders. The directors are also responsible for the company s system of internal financial control. These are designed to provide reasonable, but not absolute, assurance as to the reliability of the financial statements, and to adequately safeguard, verify and maintain accountability of assets, and to prevent and detect misstatement and loss. Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review. The board retains full and effective control over the company. Apart from regular meetings, additional meetings are arranged when necessary to review strategy, planning, operations, financial performance, risk and capital expenditure, human resources and environmental management. The board is also responsible for monitoring the activities of the executive management. Directors currently do not receive appropriate training on the first occasion that they are appointed to the board, however, systems are being put in place to ensure that this is done in future. The Executive Committee The Executive Committee comprises of the three executive directors. The Executive Committee, which is responsible for the daily running of the company, regularly reviews current operations in detail, develops strategy and policy proposals for consideration by the board and then implements the directives. Directors remuneration The remuneration committee will establish the company s remuneration philosophy, review the terms and conditions of employment of the executive directors and other executives, as well as share incentive schemes. The chairman is Mr MN amasehla, a non-executive director. Directors remuneration is reviewed annually, and the fees of the directors shall be determined by the shareholders in a general meeting.

6 6 COPOATE GOVENANCE (Continued) Appointment and re-election of the directors Directors are subject to retirement by rotation and re-election by shareholders in accordance with the company s articles of association. Policies, objectives and performance measurement The philosophy, policies, values and objectives of the company are determined by the board of directors of ADC. The board sets the strategic objectives of the company and determines investment and performance criteria. Management is charged with the detailed planning and implementation of that policy in accordance with appropriate risk parameters. The achievement of objectives and compliance with policies by management is monitored by the board. Employee empowerment The company places great emphasis on the development and training of its people and endeavours to ensure that it offers staff equal opportunity and appropriate participation in decision-making processes. The environment, health and safety While the company s direct activities do not pose any threat to the environments in which they operate, ADC seeks to ensure that it invests in businesses which conform to environmental standards. Similarly, it makes investments where the health and safety of employees and the well-being of the communities in which these companies operate is recognized as an important component of corporate governance. INTENAL, FINANCIAL AND OPEATING CONTOLS The board of directors of the company acknowledges its ultimate responsibility for the company s systems of internal, financial and operating controls and the monitoring of their effectiveness. These systems are designed to provide reasonable, but not absolute, assurance against material misstatement and loss. The identification of risks and the detailed design, implementation and monitoring of adequate systems of internal, financial and operating controls to manage such risks are delegated to the executive directors and senior management. Changes in the business and operating environment could have an impact on the effectiveness of such controls, which, accordingly, will need to be reviewed and reassessed continuously. The company maintains appropriate levels of internal, financial and operating controls that are designed to provide reasonable assurance regarding: - the safeguarding of assets against unauthorised use or disposition; - compliance with statutory laws and regulation; and - the maintenance of proper accounting records. The size of the company at this point does not warrant the formalising of internal audit functions. ACCOUNTING AND AUDITING The board places strong emphasis on achieving the highest level of financial management and accounting, and reporting to shareholders. The board is committed to compliance with International Financial eporting Standards. It is the directors responsibility to prepare financial statements that fairly present: the state of affairs as at the end of the financial year under review; profit or loss for the year; cash flows for the year; and non-financial information.

7 7 COPOATE GOVENANCE (Continued) The external auditors observe the highest level of business and professional ethics and their independence is not impaired in any way. The external auditors were given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the board of directors, and committees of the board. The directors believe that all representations made to the independent auditors during their audit are valid and appropriate. ACCOUNTING AND AUDITING - continued The external auditors provide an independent assessment of systems of internal financial control to the extent necessary for the audit, and express an independent opinion on whether the financial statements are fairly presented. The external audit function offers reasonable, but not absolute, assurance as to the accuracy of financial disclosures. The Audit Committee, chaired by the non-executive director, and attended by the company s Designated Advisor, has been formed for the purposes of monitoring and reviewing: the effectiveness of the company s information systems and other systems of internal control; the effectiveness of the internal audit function; the reports of both the external and internal auditors; the annual report and specifically the annual financial statements included therein; the accounting policies of the company and any proposed revisions thereto; the external audit findings, reports and fees and the approval thereof; and compliance with applicable legislation and requirements of regulatory authorities. The internal and external auditors have unrestricted access to the Audit Committee and its chairman with the view to ensuring that their independence is not impaired. COMPANY SECETAIAL FUNCTION The company secretary is required to provide the directors of the company, collectively and individually, with guidance as to their duties, responsibilities and powers. They are also required to ensure that the directors are aware of all laws and legislation relevant to, or affecting the company and reporting to any meetings of the shareholders of the company or of the company s directors, including any failure to comply with such law or legislation. The company secretary is also required to ensure that minutes of all shareholders meetings, directors meetings and the meetings of any committee of the directors are properly recorded in accordance with section 242 of the Companies Act. All directors have access to the company secretary, who is responsible to the board for ensuring that the board procedures are followed and that the applicable rules and regulations are complied with. CODE OF ETHICS / CONDUCT The company subscribes to the highest level of professionalism and integrity in conducting its business and dealings with stakeholders. The directors acknowledge the importance of sound corporate governance and the guidelines set out in the Principles of Good Corporate Governance and Code of Best Practice. ( Combined Code ) The company is in the process of formalising a code of ethics, which will prescribe the company s approach to business ethics and its obligations to clients, shareholders, employees, representatives, suppliers, the general public and authorities. This code of ethics will specify the following basic approach to business ethics: - commercial business operates and competes in accordance with the principles of free enterprise; - free enterprise is constrained by the observance of law and of generally accepted principles governing ethical behaviour in business; - ethical behaviour is founded on the concept of utmost good faith and characterised by integrity, reliability and commitment to avoid harm; - ethical business activities benefit all participants through a fair exchange of value or satisfaction of need;

8 8 COPOATE GOVENANCE (Continued) - the company expects equivalent standards of ethical behaviour from those individuals and companies with whom it conducts business; and - it is incumbent upon every commercial enterprise to strive for excellence in its ethical standards, as in any other aspect of its activities. COMMUNICATIONS WITH STAKEHOLDES AND SHAEHOLDES The company is committed to a policy of effective communication and engagement with its stakeholders on issues of mutual interest. The company promotes a healthy, secure and participative social and working environment with its staff, business associates and at large. The duty of being a responsible, caring and exemplary corporate citizen is considered to be an obligation - and not a choice. CLOSED PEIOD The company operates a closed period prior to the publication of its provisional interim results and annual results. During the closed period, the company s directors and officers may not deal in the shares of the company.

9 9 EPOT OF THE INDEPENDENT AUDITOS At 28 February 2006 EPOT OF THE INDEPENDENT AUDITOS TO THE SHAEHOLDES OF ALLIANCE DATA COPOATION LIMITED We have audited the annual financial statements of Alliance Data Corporation Limited set out on pages 3 to 31 for the year ended 28 February These financial statements are the responsibility of the company s directors. Our responsibility is to express an opinion on these financial statements based on our audit. Scope We conducted our audit in accordance with International Standard on Auditing. Thos standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes, examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the company at 28 February 2006 and the results of its operations and cash flows for the year then ended in accordance with International Financial eporting Standards, and in the manner required by the Companies Act of South Africa. SizweNtsaluba ES Inc. Chartered Accountants (S.A.) egistered Accountants and Auditors Pretoria 29 August 2006

10 10 EPOT OF THE DIECTOS The directors present their report for the year ended 28 February NATUE OF BUSINESS ADC specialises in software supply and development and focuses on the development, installation and support of human resources, payroll and time and attendance computer software solutions for customers mainly in the mining industry. 2. FINANCIAL ESULTS The attached financial statements clearly reflect the financial results for the year under review. During 2006 the company had a net profit of 4,872,603 (2005: 3,653,024) 3. SHAE CAPITAL Total shares opening balance 20,000,000 1,000 Share conversion - 999,000 Shares issued 2,500,000 19,000,000 Total shares in issue closing balance 22,500,000 20,000, New share issue: Conversion: Converted 1,000 shares at a par value of 1 each to 1,000,000 shares at a par value of 0,1 cents - 1,000 Issued: at a par value of 0,1 cents each - 19,000 Issued: at a par value of 0,1 cents each 2,500 - Total share capital following the issue: Authorised: ordinary shares of 0,1 cents each (2005: at 0,1 cents each) Issued: ordinary shares of 0,1 cents each (2005: at 0,1 cents each) 200, ,000 22,500 20, ANALYSIS OF SHAEHOLDES The company listed on the AltX during March The following shareholders hold more than 5% of the issued share capital of the company on 28 February 2006: Alliance Data Corporation Holdings Limited 80,00% - Carl Mulock Houwer 8,89% - 5. SHAEHOLDE SPEAD At year-end, the shares of the company were held by the following categories of shareholders: Held by non-public 83,7% - Held by public 16,3% - Total 100% - The total number of public shareholders in the company was 128 on 28 February 2006.

11 11 EPOT OF THE DIECTOS 6. DIECTOATE The following changes to the board occurred during the course of the financial year: Name Position Appointed EA de Kok Chief Executive Officer 30 October 2001 CM van Nieuwkerk Financial Director 01 May 2004 MJ Garbers Director 01 August 2004 MN amasehla Non Executive Director 13 April DIECTOS INTEEST IN SHAE CAPITAL At 28 February 2006, the directors held 18,020,000 direct and indirect beneficial shares in the company and no significant changes in the shareholding have taken place subsequent to year-end. The directors had the following shareholding in the company: Beneficially held Beneficially held Directly Indirectly % Directly Indirectly % EA de Kok - 18,000,000 80,00% - 18,000,000 90% CM van Nieuwkerk 10,000-0,04% MJ Garbers 10,000-0,04% DIECTOS INTEEST IN CONTACTS No material contracts involving directors were entered into during the current year. 9. BOOWINGS The company had no borrowings outstanding at 28 February GOING CONCEN OF THE COMPANY The annual financial statements presented on pages 13 to 31 have been prepared on the going concern basis and the directors have every reason to believe that the company has adequate resources to continue operations for the foreseeable future.

12 12 EPOT OF THE DIECTOS 11. SUBSEQUENT EVENTS The company acquired at 100% interest in Sindele Mining Supplies (Pty) Ltd on 7 March 2006 for a total purchase price of 27,000,000 to be paid by the issue of 18,000,000 shares at 150 cents per share, effective from 1 March The acquisition of Sindele Mining Supplies will enable the company to diversify the business, from a supplier of IT services to the mining industry, to offering a broader range of mining services. This transaction is still awaiting final shareholders approval. On 25 April 2006 the company issued a further 10,000,000 ordinary shares at 130 cents per ordinary share by means of a general issue for cash. The issue of shares for cash will enable the company to expand its current product offering. 12. ULTIMATE HOLDING COMPANY The ultimate holding company of ADC is Alliance Data Corporation Holdings (Pty) Limited. 13. SPECIAL ESOLUTIONS No other special resolutions were passed during the current year. 14. DIVIDENDS A dividend of 15 cents has been approved by the Board and is being put forward to shareholders at the Annual General Meeting, the notice of which is included with the report. 15. AUDITOS SizweNtsaluba Es Inc. will continue in office in accordance with section 270 of the Companies Act. 16. SHAE INCENTIVE SCHEME The directors of the company have established a share incentive scheme for the benefit of executive directors and employees of the company. The scheme was inactive at year end.

13 13 INCOME STATEMENT Note evenue 2 20,426,914 19,717,513 Operating expenses (14,482,755) (14,558,067) Other income 163,959 - Profit from operations 3 6,108,118 5,159,446 Net finance income 5 249,578 59,159 Profit before taxation 6,357,696 5,218,605 Taxation 6 (1,485,093) (1,565,581) Net profit 4,872,603 3,653,024 Earnings per share (cents) 21,7 18,3

14 14 BALANCE SHEET At 28 February 2006 ASSETS Note Non-current assets 15,052,846 10,330,785 Property, plant and equipment 8 1,262,528 1,649,381 Intangible assets 9 9,458,575 6,137,980 Financial receivables 10 4,331,743 2,543,424 Current assets 6,318,656 3,199,321 Inventory ,584 2,684 Financial receivables 10 1,361, ,296 Trade and other receivables 12 2,325,914 1,220,997 Cash and cash equivalents 13 2,106,449 1,584,344 TOTAL ASSETS 21,371,502 13,530,106 EQUITY AND LIABILITIES Capital and reserves 15,962,048 9,072,420 Share capital and premium 14 2,037,625 20,000 Non-distributable reserves - - Distributable reserves 13,924,423 9,052,420 Non-current liabilities 2,961,360 1,841,394 Deferred tax 16 2,961,360 1,841,394 Current liabilities 2,448,094 2,616,292 Accounts payable 15 1,503, ,525 Bank overdraft 13 35,370 32,422 South African evenue Service 909,416 1,713,345 TOTAL EQUITY AND LIABILITIES 21,371,502 13,530,106

15 15 STATEMENT OF CHANGES IN EQUITY Share Share Non Total Capital Premium Distributable Distributabl e eserve eserve Balance at 1 March ,000-28,775,000 5,399,396 34,175,396 Share issue 19, ,000 eversal of intangible asset against ND - - (28,775,000) - (28,775,000) Net profit for the year ,653,024 3,653,024 Balance at 28 February , ,052,420 9,072,420 Share issue 2,500 2,497, ,500,000 Write-off of listing expenses - (482,375) - - (482,375) Net profit for the year ,872,003 4,872,003 Balance at 28 February ,500 2,015,125-13,924,423 15,962,048

16 16 CASH FLOW STATEMENTS Note Net cash flows from operating activities 3,280,991 4,616,301 Cash received from customers 18,197,606 19,717,513 Cash paid to suppliers and employees (13,996,537) (14,895,821) Cash generated by operations 18 4,201,069 4,821,692 Interest income 250,709 59,811 Finance costs (1,131) (652) Taxation paid (1,169,656) 264,550) Net cash flows from investing activities (4,779,459) (4,439,613) Acquisition of property, plant and equipment 11,517 (492,838) Development costs capitalised 3,320,595) (2,024,713) Increase in loans receivable (1,470,381) (1,922,062) Net cash flows from financing activities 2,017,625 (99,291) Issue of share capital 2,500 19,000 Share premium raised 2,015,125 - Long term liability - (118,291) Net increase in cash and cash equivalents at end of year 519,156 77,100 Cash and cash equivalents at beginning of year 13 1,551,922 1,474,822 Cash and cash equivalents at end of year 13 2,071,078 1,551,922

17 17 ACCOUNTING POLICIES 1. Basis of preparation These financial statements have been prepared in accordance with International Financial eporting Standards (IFS). IFS 1, First-time Adoption of International Financial eporting Standards, has been applied in preparing these financial statements. These consolidated financial statements are the first financial statements to be prepared in accordance with IFS. The financial statements until 28 February 2005 had been prepared in accordance with Generally Accepted Accounting Principles (GAAP). GAAP differs in certain respects from IFS. When preparing 2005 financial statements, management has amended certain accounting, valuation and consolidation methods applied in the GAAP financial statements to comply with IFS. The comparative figures in respect of 2005 were restated to reflect these adjustments. econciliations and descriptions of the effect of the transition from GAAP to IFS on the company s equity and its net income are given in notes 1. These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of financial statements in conformity with IFS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company s accounting policies. 2. Property, plant and equipment Land and buildings comprise mainly offices. All property, plant and equipment is shown at cost, less subsequent depreciation and impairment, except for land, which is shown at cost less impairment. Cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity and any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance expenditures are charged to the income statement during the financial period in which they are incurred. Depreciation is calculated using the straight-line method to allocate the cost of each asset to its residual value over its estimated useful life as follows: Leasehold improvements 10% Furniture and fittings 10% Computer equipments 20% Office equipment 20% Other fixed assets 10% Major renovations are depreciated over the remaining useful life of the related asset or to the date of the next major renovation, whichever is sooner. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. (See policy note 4) Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in the income statement. Borrowing costs incurred for the construction of any qualifying assets are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed.

18 18 ACCOUNTING POLICIES (continued) 3. Intangible assets esearch and development esearch expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success, considering its commercial and technological feasibility, and costs can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have a finite useful life that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years. Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised using the straight-line method over their estimated useful lives (three to five years). Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the company, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised using the straight-line method over their estimated useful lives (not exceeding three years). 4. Impairment of assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever event or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). 5. Investments From 1 January 2005: The company classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date. Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categories as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.

19 19 ACCOUNTING POLICIES (continued) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arose when the company provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are included in trade and other receivables in the balance sheet. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the company s management has to positive intention and ability to hold to maturity. During the year, the company did not hold any investments in this category. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Purchases and sales of investments are recognised on trade-date the date on which the company commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments 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. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. ealised and unrealised gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are included in the income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the company establishes fair value by using valuation techniques. These include the use of recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer s specific circumstances. The company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. 6. Leases The company is the lessee Leases of property, plant and equipment where the Company has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant

20 20 ACCOUNTING POLICIES (continued) periodic rate of interest on the remaining balance of the liability for each period. The property, pant and equipment acquired under finance leases is depreciated over the shorter of the asset s useful life and the lease term. Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight line basis over the period of the lease. The company is the lessor When the assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return. Assets leased to third parties under operating leases are included in property, plant and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. ental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term. 7. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in-first-out (FIFO) method. It excludes borrowing costs. Net realisable value is the estimated selling price n the ordinary course of business, less applicable variable selling expenses. Costs of inventories include the transfer from equity of gains/losses on qualifying cash flow hedges relating to inventory purchases. 8. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised n the income statement. 9. Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. Cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term, highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the balance sheet. 10. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares, or for the acquisition of a business, are included in the cost of acquisition as part of the purchase consideration. 11. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Preference shares, which are mandatory redeemable on a specific date, are classified as liabilities. The dividends on these preference shares are recognised in the income statement as interest expense.

21 21 ACCOUNTING POLICIES (continued) The fair value of the liability portion of a convertible bond is determined using a market interest rate for an equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders equity, net of income tax effects. Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. 12. Deferred income taxes Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affect neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the company and it is probable that the temporary difference will not reverse in the foreseeable future. 13. Provisions Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the company has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. estructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses. Where there are a number of similar obligations for example, in the case of product warranties the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. 14. evenue recognition evenue recognition comprises the fair value for the sale of goods and services, net of value-added tax, rebates and discounts and after eliminated sales within the company. evenue is recognised as follows: Sale of goods Sale of goods are recognised when a company entity has delivered products to the customer, the customer has accepted the products and collectibility of the related receivables is reasonably assured. Sale of services Sale of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.

22 22 ACCOUNTING POLICIES (continued) Interest income Interest income is recognised on a time-proportion basis suing the effective interest method. When a receivable is impaired, the company reduces the carrying amount to its recoverable amount being the estimated future cash flow discounted at original effective interest rate of the instrument and continues unwinding the discount as interest income. Interest income on impaired loans is recognised either as cash is collected or on a cost-recovery basis as conditions warrant. oyalty income oyalty income is recognised on an accruals basis in accordance with the substance of the relevant agreements. Dividend income Dividend income is recognised when the right to receive payment is established. 15. Dividend distribution Dividend distribution to the Company s shareholders is recognised as a liability in the company s financial statements in the period in which the dividends are approved by the Company s shareholders. 16. Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks 17. Financial risk management Financial risk Factors The company s activities expose it to a variety of financial risks: a) market risk (including foreign exchange and price risk), b) cash flow and fair value interest rate risk, c) credit risk, and d) liquidity risk The company s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the company s financial performance. The company uses derivative financial instruments to hedge certain risk exposures. isk management is carries out under policies approved by the board of Directors.

23 23 NOTES TO THE FINANCIAL STATEMENTS 1. TANSITIONAL ADJUSTMENTS IN TEMS OF IFS Comparative figures have been restated to reflect the transition form South African Statements of Generally Accepted Accounting Practice to International Financial eporting Standards. The adjustment represents: The reclassification of financial instruments in accordance with IAS32: Financial instruments: Disclosure and Presentation and IAS39: Financial instruments: ecognition and Measurement. These adjustments had no effect on the income statement and the effect on the balance sheet has been disclosed in the transitional reconciliations presented below. The adoption of the new interpretation of IAS17 (AC 105) Operating leases, which include fixed rental increases. The effect of the new interpretation of operating leases was found to be immaterial. The audited provisional financial statements were prepared in compliance with International Financial eporting Standards (IFS) for the first time, as well as the Companies Act. The disclosures required by IFS1 concerning the transition from South African Statements of Generally Accepted Accounting Practice to IFS are as follows: ECONCILIATION OF EQUITY AT 1 MACH 2004 (DATE OF TANSITION TO IFS) BALANCE SHEET SA GAAP 000 Effect of transition 000 IFS 000 ASSETS Non current assets 39,497-39,497 Property, plant and equipment 1,649-1,649 Intangible assets 34,913-34,913 Financial receivables 2,935-2,935 Current assets 2,808-2,808 Inventory 3-3 Trade and other receivables 1,221-1,221 Cash and cash equivalents 1,584-1,584 Total Assets 42,305-42,305 EQUITY AND LIABILITIES Shareholders Funds 37,847-37,847 Share capital and premium Distributable reserves 9,052-9,052 Non-distributable reserves 28,775-28,775 Non Current liabilities 1,841-1,841 Deferred taxation 1,841-1,841 Current liabilities 2,617-2,617 Borrowings Taxation 1,714-1,714 Trade and other payables ,305 42,305

24 24 NOTES TO THE FINANCIAL STATEMENTS (continued) 2. EVENUE Gross revenue comprises turnover, which excludes value-added tax and represents the invoiced value of goods and services supplied Total revenue comprises of: Sales 20,426,914 19,717,513 Total 20,426,914 19,717, POFIT FOM OPEATIONS The profit is stated after: Audit Fees 80,190 50,000 Depreciation owned assets 375, ,102 - Motor vehicle 170, ,614 - Furniture and fittings 59,866 54,969 - Office equipment 16,350 16,799 - Computer Equipment 126, ,270 - Other fixed assets 2,207 1,450 - Leasehold improvements 36 - Operating lease expense - Premises 338, ,738 Staff costs 11,352,765 10,549,394 Number of employees at year end DIECTOS EMOLUMENTS Paid by Alliance Data Corporation Ltd Executive directors EA de Kok 277,050 - MJ Garbers 805,618 - CM van Nieuwkerk 171,000 - Non-executive directors MN amasehla 21,400 - Executive directors received only basic salaries during the year under review. No bonuses, commissions or contributions to pensions were paid. 5. NET FINANCE INCOME Interest income 250,709 59,811 Interest expense (1,131) (652) 249,578 59,159

25 25 NOTES TO THE FINANCIAL STATEMENTS (continued) 6. TAXATION Taxation is calculated according to the South African Income Tax Act Taxes attributable to operations South African normal tax - Current tax 365, ,167 - Deferred tax 1,181, ,414 - Change in tax rate (61,380) - 1,485,093 1,565,581 The company s profit before tax differs from the theoretical amount that would arise using the basic tax rate of South Africa as follows: Profit before tax 6,357,696 5,218,606 Tax rate 29% 30% Tax calculated at tax rate 1,843,732 1,565,581 Effect of change in tax rate (61,380) - Overprovision of deferred tax (297,259) - 1,485,093 1,565,581 Effective tax rate 23% 30% 7. EANINGS PE SHAE 7.1 Basic earnings per share The calculation is based on a profit of 4,872,003 (2005 3,653,024) and weighted average number of ordinary shares in issue during the year of 22,500,000 ( ,000,000). 7.2 Headline earnings per share Headline earnings per share has been calculated in terms of Circular 7 of The calculation is based on headline earnings of 4,872,003 (2005 3,653,024).