verimark the very investment

VERIMARK

Annual Report 2006

THE VERY INVESTMENTYOU’RE LOOKING FOR

CONTENTS

1 Company Profile

2 Highlights

3 Financial Highlights

4 Directorate

6 Company History

8 Chairman’s Report

11 Chief Executive Officer’s Report

16 Corporate Governance Report

18 Independent Auditors’ Report

19 Approval of Annual Financial Statements

19 Certificate by the Secretary

20 Directors’ Report

22 Director Information

23 Shareholder Spread

24 Balance Sheets

25 Income Statements

26 Statements of Changes in Equity

27 Cash Flow Statements

28 Notes to the Financial Statements

52 Shareholders‘ Diary

53 Notice of Annual General Meeting

55 Definitions

56 Administration

Form of Proxy

QUALITY

1

COMPANY PROFILE

For close to 30 years, Verimark has searched the world for unique products

that will help improve the lives of the ever-increasing millions of consumers

who aspire to a better lifestyle.

Our passion to continuously identify and develop the very best quality

innovations, is complemented by our proven ability to produce highly effective

television commercials and other supporting marketing materials.

By ensuring ownership or control of all relevant intellectual property (IP), such

as trade marks, patents, etc. and through our continuous advertising and in-

store demonstrations; Verimark is today one of the most recognised and

trusted brands in South Africa. Not surprisingly, our brands are mostly rated

as “the best sellers” in their respective product categories.

Over the years, Verimark has pioneered many new product concepts under a

number of brands in the following categories:

• Housewares – Bastille, Bauer Pro, Floorwiz, Genesis, Steam Supreme,

Twista.

• Exercise and Fitness – Aeromax, Gymtrim, Health Walker, Maxxus, Orbitrek.

• Health and Beauty – O-2-Lean, Senzani.

• DIY and Automotive – Diamond Guard, Gorilla, Laser Level, Pool Gobbler,

Prolong.

• Educational Toys – Hovercraft, Multi Laptop.

Verimark has also pioneered a number of new business strategies in

South Africa such as:

• Marketing of the first home exercise equipment.

• Direct Response Television (DRTV).

• The distribution of DRTV products through Retail (store-within-a-store).

Our listing last year on the Johannesburg Stock Exchange (JSE) made us the

only publicly listed DRTV company in the world. We are therefore not only

recognised as the market leader locally, but also by our peers internationally.

• Revenue increased 15% to R322,2 million.

• Operating profit increased 25% to R57,1 million.

• Headline earnings increased 33% to R38,9 million.

• Headline Earnings Per share increased 30% to 34,5 cps.

• Net Asset Value Per Share doubled to 63,1 cps.

• Cash flow from operations increased 48% to R49,9 million.

• Share price increased 62% to R4,05 from the R2,50 listing price.

2

HIGHLIGHTS

3

FINANCIAL HIGHLIGHTS

2006 2005 Change

R’000 R’000 %

Group summary

Revenue 322 175 281 066 14,6

Earnings before interest, taxation, depreciation and

amortisation (EBITDA) 58 511 47 017 24,5

Operating profit 57 114 45 609 25,2

Headline earnings 38 871 29 136 33,4

Cash generated by operations 49 909 33 795 47,7

Shareholders’ equity 72 141 34 088 111,6

Total assets 113 861 85 742 32,8

Cents/share Cents/share %

Ordinary share performance

Earnings 34,3 26,5 29,4

Headline earnings 34,5 26,5 30,1

Diluted earnings 34,3 26,5 29,4

Net asset value 63,1 31,0 103,7

Financial statistics

Operating margin 17,7% 16,2%

Return on shareholders’ equity 72,9% 83,8%

Debt:Equity 1,2% 5,1%

Share statistics

Listing price R2,50

Lowest price traded R2,80

Highest price traded R4,10

Closing price R4,05

Explanatory note

In order to illustrate a fair representation of the financial highlights the results above consist of the

following:

The 2005 financial year represents the results of Verimark (Proprietary) Limited, the ’operating

company/legal subsidiary.‘

The 2006 financial year represents 12 months results of Verimark (Proprietary) Limited and eight

months results of Verimark Holdings Limited (previously Creditvision) and any other subsidiaries.

The number of issued shares for the 2005 financial year was calculated at 110 000 000, being the

number of shares issued to settle the purchase price of Verimark (Proprietary) Limited.

See further definitions on page 55.

Earnings before interest, taxation, depreciation and amortisation (EBITDA)

EBITDA 58 510 495

Interest 320 089

Depreciation (1 396 340)

Profit before tax 57 434 244

RELATIVE SHARE PRICE PERFORMANCE

Jul 05 Aug 05 Sep 05 Oct 05 Nov 05 Dec 05 Jan 06 Feb 06225

250

275

300

325

350

375

400

425

Ve

rim

ark

Sh

are

Pri

ce

Verimark All Share General Retailers

4

DIRECTORATE

1. *MICHAEL J VAN STRAATEN

CHIEF EXECUTIVE OFFICER

2. *FP DU TOIT BRITZ

FINANCIAL DIRECTOR

3. DR JAMES T MOTLATSI

NON-EXECUTIVE CHAIRMAN

4. HENRI W BONSMA

NON-EXECUTIVE DIRECTOR

5. JOHANN M PIETERSE

NON-EXECUTIVE DIRECTOR

EXECUTIVE DIRECTORS

Michael J van Straaten (52)

Chief Executive Officer – BCom Hons CA(SA)

Michael did articles with Spencer Stuart before joining his brother at Verimark in 1981 as Financial

Director. Michael became joint Managing Director in 1992, and bought out his brother’s shares in 1993 to

become sole owner up to 2005 when Verimark was listed on the JSE. He has twice been a finalist in

South Africa’s Best Entrepreneur competition, and selected as one of South Africa’s Leading Managers

by the Corporate Research Foundation.

FP Du Toit Britz (37)

Financial Director – BCom Hons MCom CA(SA)

After completing his articles with KPMG in 1993, Du Toit joined Eskom as Management Accountant while

completing a Masters degree in Business Management at RAU with a script on White Collar Crime in

South Africa. In 1995 he joined Omnia Group where he became Financial Director for several African

subsidiaries before joining Verimark in 2001 as Financial Director.

NON-EXECUTIVE DIRECTORS

Dr James T Motlatsi (55)

Non-executive Chairman – PhD Social Science

James is a founder member of the Congress of South African Trade Unions and the National Union of

Mineworkers, Deputy Chairman of AngloGoldASHANTI and a director of Shanduka Group. He is a trustee

of the Nelson Mandela Children’s Fund, and is a member of the South African Literacy Initiative and the

South African International Marketing Council. He was awarded the Order of Ramatseatsane by the King

of Lesotho, as well as a Doctorate of Philosophy in Social Sciences (Honoris Causa) by the National

University of Lesotho. James is CEO of Teba Limited.

*Executive Directors and Subsidiary Management

1 2

3

5

4

5

1. MICHAEL MACDONALD

MARKETING DIRECTOR

2. EUGENE LE MAITRE

SALES DIRECTOR

*MICHAEL J VAN STRAATEN


*FP DU TOIT BRITZ

FINANCIAL DIRECTOR

Michael MacDonald (30)

Marketing Director – BSc

Michael started his career with Reckitt Benckiser in 1998 before moving to Nestlé in 2002 as a product

manager for the South East Africa region. He joined Verimark in 2003 as Marketing Manager and was

appointed Marketing Director in 2005.

Eugene le Maitre (36)

Sales Director – BCom

Eugene started as a “runner” for Verimark at the Rand Easter Show when he was still at school and,

after a stint at SARS subsequent to his studies at RAU, joined Verimark in 1992 on a permanent basis.

He worked his way through the ranks holding several sales related positions until he was appointed to

the Board in 2001.

Henri W Bonsma (37)

Non-executive Director – BProc (Law)

Henri attained his BProc (Law) degree in 1992 and was admitted as an Attorney and Conveyancer in the

Supreme Court of South Africa in 1995. He has been a partner at Brink Bonsma & De Bruyn since 1996

and Managing Partner since 2002. He serves on various private companies’ boards including mining,

property and the financial services industry. Henri was appointed to the board of Creditvision Holdings

Limited in 2004 and stayed on as a director of Verimark Holdings with the reverse take over in 2005.

Johann M Pieterse (56)

Non-executive Director – BCom CTA M Compt CA(SA)

Johann did articles with Brink, Roos & Du Toit (now PWC) and became Managing Partner of their

Bellville office in 1983. He joined the Pepkor Group in 1985 and served as Financial Director of Pepkor

from 1988 to 1990. Johann headed up the turnaround of Van Schaiks from 1993 to 1995, and Teljoy from

1995 to 1997. When Teljoy was sold to Vodacom in January 2000, he was appointed as Managing Director

of the newly formed Vodacom Service Provider Company with responsibility to merge Teljoy, Vodac and

GSM Cellular into one company. After the successful merger, he retired from Vodacom in August 2000.

He is currently Chairman of Strategy Partners, a turnaround specialist company.

SUBSIDIARY MANAGEMENT – VERIMARK (PROPRIETARY) LIMITED

1 2

COMPANY HISTORY

1979

Pioneers the selling of

unique household

products through Retail

by in-store

demonstrators.

1977

Verimark sells its first

product at the Rand

Easter Show.

1990

First company

to distribute DRTV

products through retail

stores.

Develops, patents and

introduces the first

Home Exercise Machine

(Gymtrim) to South

Africans.

1984

Pioneers Direct

Response Television

(DRTV) advertising in

South Africa.

1989

1984

Introduces its “Store

within a Store” concept

at Retail level.

1992

1977

1992

Verimark is selected

as one of South

Africa’s Top 20 Non-

Listed Companies.

1994

Opens first own

Verimark “Direct” Store

in Sandton City.

2005

Verimark lists on

main board of the

Johannesburg Stock

Exchange.

Exhibits the Verimark

product range for the

first time at the largest

DRTV show in Las

Vegas.

1995

1997 & 1999

CEO is elected as

Finalist in SA Best

Entrepreneur Award.

1997 & 1999

1994

1999

2005

8

CHAIRMAN’S REPORT

DR JAMES MOTLATSI

NON-EXECUTIVE CHAIRMAN

With an issue price of R2,50 and a trading price of

R4,00 at the time of writing, it is easy to call the

Verimark listing a resounding success. With

hindsight this was always on the cards given the

fact that the vendor placement was nearly three

times oversubscribed. At year end, the share has

already returned 62% in capital value based on the

issue price and I am confident our shareholders will

be pleased with the 18 cps final dividend declared

bringing the total dividend for the year to 27,9 cps.

BROAD BASED BLACK ECONOMIC

EMPOWERMENT

Verimark concluded an Empowerment transaction

with Teba Development, a section 21 company,

effective 1 July 2005. In terms of IFRS2 – Share

Based payments, no costs have been recognised

in terms of this transaction as the shares were

sold to Teba Developments at a price equal to the

market value at the transaction date. This

transaction was unique in several ways:

• The transaction is vendor financed by The Van

Straaten Family Trust, and not by any financial

institution.

• Verimark’s strong cash flow and resultant high

dividend yield is sufficient to make the

transaction cash positive from the second year

already, and is expected to enable Teba to

repay the loan from dividend proceeds in about

seven years.

• Teba Development is a not-for-profit

organisation involved in rural infrastructure

development and poverty alleviation, so the

money generated from this transaction will

benefit thousands of some of the poorest

people in Southern Africa.

Teba Development is active across the whole of

Southern Africa providing education, building

schools and clinics, providing housing and water

reticulation and generally undertaking projects

which benefit rural communities.

CORPORATE GOVERNANCE

Verimark is fully committed to complying with the

JSE listing requirements and subscribes to the

principles of good corporate governance as

contained in the second King Report.

During the year Verimark had to transform from a

private company to being part of a listed entity.

I was asked to become the Chairman of the

Board, and I thank my fellow Board members for

During the year under review, Verimark (Proprietary) Limited reverse

listed into Creditvision Holdings Limited, a company previously listed in

the Venture Capital section of the JSE. The listing was moved to the

General Retailers section of the Main Board of the JSE, under the name

of Verimark Holdings Limited, on 11 July 2005.

9

the privilege and the trust placed in me. Henri

Bonsma kindly agreed to stay on as a non-

executive director, and we welcome Johann

Pieterse who joined the Board as an independent

non-executive member. Michael van Straaten

(CEO) and Du Toit Britz (Financial Director) joined

the Board as executive members.

ACKNOWLEDGMENTS

Hard work and dedication is a culture at

Verimark, and it is driven throughout the

organisation right from the very top. I would like

to place on record my appreciation of the efforts

put in by our CEO Michael van Straaten, his

management team and staff. These efforts have

combined to produce another magnificent year,

and the company seems poised to continue this

level of growth in the foreseeable future.

We also thank the professional team of sponsors,

auditors and legal advisors that helped us

through the listing process and the

implementation of our BEE transaction.

Dr James Motlatsi

(Non-executive Chairman)

Johannesburg

25 May 2006

“At year end, the share has already

returned 60% in capital value based on

the issue price and I am confident our

shareholders will be pleased with the

18 cps final dividend declared bringing

the total dividend for the year to 27,9 cps”

P R O D U C T S

QUALITY

“AS AN ‘IDEAS COMPANY’ OUR MOST

VALUABLE ASSET IS THE PEOPLE WHO NEED

TO CONTINUOUSLY CREATE THESE IDEAS”

11

CHIEF EXECUTIVE OFFICER’S REPORT

GENERAL

Although Verimark listed on a cold winter morning last year, we are proud to

announce our first annual results as a listed company – and the news is “hot”!

The very steep promises in terms of profits and dividends we made for the first

year were, in true Verimark fashion, delivered.

The transformation from a private, one-owner

company to a listed entity was challenging, but

Verimark’s strength in adapting to change over

the previous 29 years helped smooth the

transition; in fact, the realisation by all at

Verimark that we are today the only publicly listed

Direct Response Television (DRTV) marketing

company in the world has become an important

differentiator and motivating factor. Our

successful listing further confirmed Verimark’s

market leader position, not only in South Africa

but also internationally.

Most listed companies believe their company’s

detailed financial information and future

strategies for growth is sensitive information.

Verimark’s status as an “ideas-business”, with

the focus on innovation, differentiation and

Intellectual Property, makes such information

even more sensitive. However, we have not only

taken into account this sensitivity, but also your,

our valued shareholders’ need for maximum

disclosure in preparing this report.

BUSINESS ENVIRONMENT

It is by now general knowledge that 2005 was a

good trading year, as reflected in the trading

updates of many companies operating in the

retail and consumer goods market. Verimark also

benefited from this buoyancy in consumer

spending. However, since Christmas, most of the

economic news indicates that 2006 will see a

tightening up of general consumer spend.

Although economic cycles will always have a

direct effect on Verimark, our business strategy,

which is based on a direct sales model, ensures

that the company will be less affected by normal

economic downturns when they do occur.

In the past, Verimark has been, still is, and will

always be positioned as a premium brand in the

consumer’s mind. We have, however, over the last

four years noticed a substantial increase in the

spending power of what is generally identified as

the “emerging middle class” (LSM groups 5 to 7).

Given the future strategic importance of this

consumer group, Verimark is working on a

number of marketing strategies to better service

this specific market.

FINANCIAL REVIEW

We are pleased to announce our best trading

results since inception 29 years ago. The

investment community and the media received

our past track record over this period and the

targets we set for our first trading year as a

listed company, with great enthusiasm. Many

saw the potential; no wonder the original share

offering was oversubscribed nearly three times

before the listing.

MICHAEL VAN STRAATEN


12

CHIEF EXECUTIVE OFFICER’S REPORT (CONTINUED)

The specific appeal that Verimark has is:

• Its unique business model;

• The above average growth rates it should

achieve; and

• Its dividend policy of 80% payout of headline

earnings.

For those shareholders who invested at the

R2,50 offer price, thank you for the confidence in

Verimark – you deserve the excellent return on

your investment.

For the shareholders who bought into the

company recently (the share price at the time of

writing this report was R4,00), welcome to the

journey! We are, after our first year of listing,

even more convinced that Verimark should in the

long term, outperform the market.

The critical performance indicators are as

follows:

• Revenue growth from R281,1 million

to R322,2 million 15%

• Operating profit grew

from R45,6 million to R57,1 million 25%

• Headline earnings grew from

R29,1 million to R38,9 million 33%

Headline Earnings Per Share increased by 30% to

34,5 cents from 26.5 cents, and including the final

dividend of 18 cents per share the total dividend

for the year amounted to 27,9 cents.

The total dividend represents 82% of Headline

Earnings Per Share for the year.

OPERATIONAL REVIEW

The process of listing Verimark during the year

under review took up a fair amount of

management time. Notwithstanding that, by

focusing on the core drivers, we have successfully

grown our operations organically in all areas of

the business.

Verimark is a marketing driven company and it

makes sense to review our operations in our

first year as a listed company by referring to the

four (or nowadays five) “Ps” synonymous with

marketing: Product, Place, Promotion, Price

and People.

Product

Our ever-increasing product range covers a wide

spectrum of consumer needs and is selected

based on very stringent criteria: Uniqueness,

Quality, Demonstratability and Widest possible

demographic demand.

The focus on product development is threefold:

1. To grow the older and existing brands

2. To add new product innovations to existing

brands and/or categories

3. To enter new product categories.

All product categories as listed below performed

well in the period under review:

• Household

• Health and Fitness

• Beauty

• DIY and Automotive

• Educational Toys

BAUER PRO

TWISTA

GENESIS

13

A number of new products across the spectrum

were successfully introduced during the period

under review, including the Inspiration Talking

Notebook, Orbitrek Magnaforce, Jack la Lanne

Juicer, Nu Wave Oven, Deli Pro Knife Set, Twist &

Sculpt Stepper, Gorilla Laser Level, Hovacraft,

Genesis Flip-it and Genesis Lift-off.

Place (Distribution)

South Africa

(i) Retailers

We enjoyed healthy sales growth in most of

our traditional trading partners (retailers).

This growth was achieved on a store by store

basis as well as through new outlets our

retailers opened through organic growth and

by acquisition.

As we distribute product through most

leading retail groups, more focus this year

was placed on bottom line performance per

retail group rather than top line. This allowed

for more profitable growth. This continuous

emphasis will in future ensure that we focus

on growing the most profitable retail outlets

rather than the rest.

(ii) Verimark Direct Stores (Company-Owned and

Franchise)

This division also showed good growth, in

addition to a number of refurbishments and

new stores opened during the year.

Although it is a challenge to match store

sizes with continuous new product

introductions, we are confident that with our

tried and tested “Direct Store” model,

exciting future growth is possible.

International

Given the focus in the past on optimal growth

where we have a homeground advantage as the

market leader, our international expansion was

not a priority. As Verimark is one of a few DRTV

companies with a proven ability to continuously

come up with top quality, winning products and

TV commercials, we have identified our

international expansion as an important

component of our future growth strategy. We do

not see massive international turnover yet in the

next year, but rather the building of a solid

platform from where growth can be achieved in

the following two areas:

• Distribution of success proven products and TV

commercials

• Duplication of the Verimark business model

internationally.

Promotion

Product selection, as explained earlier, is based

on uniqueness or unique product features. This in

turn requires effective and continuous explanation

to make the consumer aware of the benefits of

this uniqueness.

To date, no better medium exists for this purpose

than a long form television commercial

(60 seconds to 28 minutes). Since Verimark

pioneered DRTV in South Africa (17 years ago)

through long form TV advertising, a number of

companies have followed, including more recently

financial services companies (insurance, etc.).

GENESIS

BASTILLE

MAXXUS

14

CHIEF EXECUTIVE OFFICER’S REPORT (CONTINUED)

In conjunction with TV, print advertising, the

internet (via a website) and in-store

demonstrations are important contributors,

ensuring maximum awareness and demand for

the products we market. The year under review

was no different to the past in terms of TV and

other advertising, and Verimark increased its

advertising spend in line with its turnover growth.

Price

Our pricing strategy has never been to be the

cheapest but rather to offer the best value for

money (in terms of quality and features). Contrary

to international trends in the DRTV business,

Verimark successfully established most of our

products (brands) as market leaders in their

respective product categories. This was achieved

through absolute passion for quality and our

strategy to align perceived value (as created in

the consumer’s mind through our promotional

and advertising efforts) with the retail selling

price of each Verimark product.

The South African consumer is also becoming

more aware of Verimark’s superior offerings given

our extensive quality guarantees (consumer

satisfaction and product lifespan).

During the year under review we did not see

much movement in our selling prices, as cost

prices (locally and internationally) did not change

materially. However, we did see a few small price

increases towards the end of the year. This was

the result of higher international demand for raw

materials given the general economic growth

experienced in the East. Subject to international

raw material costs staying in line, as well as no

major changes in the exchange rates, we do not

foresee much in the way of price increases in the

year ahead.

People

As an “ideas company” our most valuable asset is

the people who need to continuously create these

ideas. We define this as Intellectual Property (IP).

In our quest for perfection, we need to

continuously raise our standards. As a group, the

directors, management and the rest of the team

have ensured that the steep targets set for

ourselves for the year were met. I would like to

take this opportunity to congratulate everyone for

this achievement and thank the team for the

effort they have put in.

Although our share incentive scheme is under

development and we expect to see the first

allocations to the executive directors during the

course of the year, these shares will not impact

on you as a shareholder as they will be offered

through my Family Trust in terms of the Prelisting

Statement.

PROSPECTS

We are pleased with the results produced in our

first year as a listed company, but we are more

excited about the opportunities the future holds.

On a general macro-economic level, the view of

most business leaders and economists is that the

buoyant consumer demand will continue, but at a

lower growth rate than in the previous year. We

share this view.

Our marketing department has already identified

a number of exciting new products that will be

introduced in the new year and we plan to enter

at least one new product category. As the market

leader in South Africa we are in the fortunate

position that, in addition to our own product

developments, most new DRTV products are

offered to Verimark first, ensuring an unending

supply of new products and ideas. We are also in

discussions with several of our existing retail

partners for additional trading space and have

already confirmed additional space with one

such partner.

We are confident in our ability to outperform the

market in general over the long term.

Michael van Straaten

Chief Executive Officer

25 May 2006

“WE ARE CONFIDENT IN OUR ABILITY

TO OUTPERFORM THE MARKET OVER

THE LONG TERM”

PRODUCTSUNIQUE

16

CORPORATE GOVERNANCE REPORT

The Board of Directors subscribes to the Code of Corporate Practices and

Conduct issued by the King Commission on Corporate Governance and is

committed to the principles of good corporate governance. Our aim is to

conduct the business of the Group in accordance with the highest standards of

integrity, behaviour and ethics, and to comply with all legislation and

regulations relevant to the business.

DIRECTORS' RESPONSIBILITIES

The Board of Directors is ultimately responsible

for the performance of the Group and all its

activities. These activities include determining the

strategic direction of the Group, identifying and

managing risk areas and measuring the Group’s

operational performance against budgets and its

peer groups.

The Group maintains suitable internal control

systems and accounting records to provide

reasonable assurance that assets are

safeguarded and that transactions are executed

and recorded in accordance with Group policy.

RESPONSIBILITY FOR THE ANNUAL FINANCIAL

STATEMENTS

The directors acknowledge responsibility for the

preparation of the annual financial statements.

The directors hereby confirm that the financial

statements presented with this report fairly

present the results and cash flows of the Group

for the year ended 28 February 2006, and its

financial position at this date.

The external auditors are responsible for

reporting on the fair presentation of the annual

financial statements.

BOARD OF DIRECTORS

The company has a unitary Board structure

comprising two executive directors and three

non-executive directors. The Chairman of the

Board is a non-executive director. A brief

description of each Board member’s

qualifications and experience is available on

pages 4 and 5.

As a result of the change in control and the

reverse listing in July 2005, the Board met only

three times during 2005. A full complement of

four quarterly Board meetings is planned for

2006.

The Board retains complete effective control over

the business and initiates, evaluates and

monitors business matters, which have an impact

on the well being of the company and its

stakeholders. The daily management of the

company and of the Group’s affairs is the

responsibility of the Chief Executive Officer.

All directors have access to the advice and

services of the Company Secretary, who is

responsible to the Board for ensuring that

procedures are followed and that the applicable

rules and regulations are complied with.

At 28 February 2006 the Board and the

committees were constituted as follows:

Executive

Michael van Straaten – Chief Executive Officer

Appointed 1 July 2005

Du Toit Britz – Financial Director


Non-Executive

Dr James Motlatsi – Chairman


Henri Bonsma

Appointed 13 March 2004

Johann Pieterse

Appointed 3 November 2005

Company Secretary

Erica Schubert

Audit and Risk Committee

Johann Pieterse (Chairman)

Henri Bonsma

Dr James Motlatsi

Du Toit Britz

Remuneration and Nominations Committee

Johann Pieterse (Chairman)

Henri Bonsma

Dr James Motlatsi

Michael van Straaten

17

In line with good corporate governance it is our

aim to have more non-executive directors than

executive directors and we will, in association

with our Nominations and Remuneration

Committee, strive to keep the whole Board

involved in the nomination, selection and

appointment of directors.

Corporate Governance is a standard item on the

agenda of every Board meeting. A Corporate

Governance newsletter is circulated to every

director at each Board meeting.

Attendance at meetings

The new Board constituted in July 2005 has only

had one meeting before the year-end. All

directors except Dr Motlatsi, who apologised due

to unforeseen personal circumstances, attended

the meeting.

The diary for 2006 has already been circulated

and approved and four Board meetings, three

Audit Committee meetings and two Remuneration

and Nominations Committee meetings are

scheduled.

Audit and Risk Committee

Verimark established an Audit and Risk Committee

at a Board meeting held on 3 November 2005.

Johann Pieterse, an independent non-executive

director, was elected chairman of the committee.

The committee operates in terms of a formally

approved terms and reference sheet which clearly

sets out its roles and responsibilities.

Remuneration and Nominations Committee

Johann Pieterse also chairs Verimark’s

Remuneration and Nominations Committee.

The committee reviews and approves the

remuneration and the Human Resources policies

of the company. The committee also operates in

terms of approved terms of reference and assists

in the nomination and election of new directors.

Remuneration paid to key management and

directors is disclosed on pages 50 and 51.

Code of Ethics

The Group’s values commit employees to high

standards of integrity, behaviour and ethics in

dealing with stakeholders. The Group drafted and

accepted a new Code of Ethics on 23 March 2006.

Dr James Motlatsi

(Non-executive Chairman)

Johannesburg

25 May 2006

18

INDEPENDENT AUDITORS’ REPORT

To the members of

Verimark Holdings Limited

We have audited the Group annual financial statements and annual financial statements of Verimark Holdings

Limited set out on pages 20 to 51 for the year ended 28 February 2006. 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.

We conducted our audit in accordance with International Standards on Auditing. Those 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 principles 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.

In our opinion, the Group annual financial statements and annual financial statements present fairly, in all

material respects, the financial position of the Group and company at 28 February 2006 and the results of their

operations and cash flows for the year then ended in accordance with International Financial Reporting Standards

and in the manner required by the Companies Act in South Africa.

KPMG Inc.

Registered Accountants and Auditors

Chartered Accountants (SA)

25 May 2006

19

APPROVAL OF ANNUAL FINANCIAL STATEMENTS

The directors acknowledge responsibility for the preparation of the Group annual financial statements and annual

financial statements. The directors hereby confirm that the Group financial statements and annual financial

statements presented with this report fairly present the results and cash flows of the Group and the company for

the year ended 28 February 2006, and its financial position at this date.

The Group annual financial statements and annual financial statements were approved by the Board of directors on

25 May 2006 and are signed on its behalf by:

Michael van Straaten Du Toit Britz

CERTIFICATE BY THE SECRETARY

I hereby certify that the company has, in respect of the financial year reported upon, lodged with the Registrar of

Companies all returns required of a public company and that all such returns are, to the best of my knowledge,

correct and current.

Erica Schubert

Company Secretary

25 May 2006

20

DIRECTORS’ REPORT

FINANCIAL STATEMENTS

The company’s results and financial position are contained in the financial statements on pages 20 to 51 of the

Report.

The audited statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and

their interpretation adopted by the International Accounting Standards Board (IASB), JSE listing requirements and the

Companies Act in South Africa and remain consistent with those applied to the August 2005 Interim results published.

These are the Group’s first consolidated financial statements prepared in terms of IFRS and IFRS1 – First Time

Adoption of IFRs has been applied.

SHARE CAPITAL

The authorised share capital at 28 February 2006 consisted of 200 000 000 shares of 0,3333 cents each. The

number of issued shares decreased from 142 411 031 to 114 272 328 as a result of the following share transactions

during the year:

• The 100-for-3 consolidation of the company’s prior year authorised shares of 500 000 000 shares of 0,01 cents

each into 15 000 000 consolidated shares of 0,3333 cents each;

• The 100-for-3 consolidation of the company’s prior year issued shares of 142 411 031 into 4 272 331

consolidated shares;

• The increase of the authorised share capital to 200 000 000 shares of 0,3333 shares each by the creation of

185 000 000 shares; and

• The issue and listing of 110 000 000 new shares of 0,3333 cents each at a share premium of R2,4967.

DIVIDENDS

A dividend of 9,9 cents per share was paid to The Van Straaten Family Trust and Prime Rentals CC in respect of the

first four months of the financial year up to 30 June 2005.

Shareholders of Verimark Holdings Limited (previously Creditvision Holdings Limited) bought into Verimark

effective 1 July 2005. As a result of the capital requirements of the peak trading period around Christmas, and the

fact that new shareholders had only two months of trading profits accruing to them, the directors decided not to

pay an interim dividend. An interim dividend is envisaged for future years.

A final dividend of 18 cents per share has been declared in respect of the year ended 28 February 2006 bringing the

total dividend for the year to 27,9 cps. This represents a pay-out ratio of 82% of Headline Earnings Per Share.

SHARE INCENTIVE SCHEME

The existing share incentive scheme (The Contlan Employee Share Incentive Scheme) has been dissolved. At the

time of listing Verimark on the JSE, Mr Van Straaten undertook to utilise shares held by the The Van Straaten

Family Trust to incentivise selected senior management staff. This scheme is nearly finalised and will take effect in

the current financial year. In essence the scheme will give the selected staff members the right to buy shares from

the Van Straaten Family Trust at R2,50 with certain performance criteria and timeframes restricting access to

these shares. The proposed share incentive scheme has not been finalised at February 2006 and consequently

IFRS2 – Share Based payments, will have no impact on Verimark’s income statement for the year ended

February 2006.

As part of Verimark’s BBBEE initiative, 11 500 000 shares were sold to Teba Development. 4 000 000 of these shares

have been set aside for the benefit of Verimark’s own employees, giving them an effective holding of 3,5% in the

Group. These shares will only be available to previously disadvantaged individuals. In terms of IFRS2 – Share Based

Payments, no costs have been recognised in terms of this transaction as the shares were sold to Teba Developments at

a price equal to the market value at the transaction date.

21

DIRECTORS’ REPORT (CONTINUED)

MAJOR SHAREHOLDERS

The Van Straaten Family Trust and Prime Rental CC hold 51% of the issued share capital of the company.

The beneficiaries of the trust and close corporation are the CEO, Mr MJ van Straaten and his family.

DIRECTORS’ SHAREHOLDING

Total Percentage

Share number of issued

Beneficial Non-beneficial incentive of shares share

Director Direct Indirect Direct Indirect shares held capital

MJ van Straaten 58 000 000 58 000 000 50,76%

FPDuT Britz 1 366 000 1 366 000 1,20%

HW Bonsma 2 600 000 2 600 000 2,28%

JM Pieterse – 0%

Dr JT Motlatsi – 0%

M MacDonald* 80 000 80 000 0,07%

E le Maitre* 54 000 54 000 0,05%

*Verimark (Proprietary) Limited directors

INTERESTS OF DIRECTORS IN CONTRACTS

The directors were not interested in any transactions of significance with the company or any of its subsidiaries.

LITIGATION

The company engages in a certain level of litigation in its ordinary course of business. The directors have

considered all pending litigation and are of the opinion that none of these cases will result in a loss to Verimark.

SUBSIDIARIES

Verimark (Proprietary) Limited (Reg. No. 1989/006800/07)

Creditvision Rental Finance (Proprietary) Limited (Reg. No. 2004/011120/07)

Fullimput 173 (Proprietary) Limited (Reg. No. 1999/008624/07) (Dormant)

BORROWING POWERS

As defined by the Articles of Association, the borrowing powers of the directors shall allow them to exercise all

powers of the company to borrow money, to mortgage or encumber its undertaking and property or any part thereof,

and to issue debenture stock (whether secured or unsecured) and other securities (with special privileges, if any, as

to allotment of shares, attending and voting at general meetings, appointment of directors otherwise as may be

sanctioned by a general meeting) whether outright or as a security for any debt, liability obligation of the company or

any third party. For the purposes of this provision, the borrowing powers of the company shall be unlimited.

SUBSEQUENT EVENTS

The directors are not aware of any events or circumstances that occurred subsequent to the year-end and up to the

date of this annual report requiring disclosure in, or an adjustment to, the annual financial statements.

Signed on behalf of the Board

Dr James Motlatsi Michael van Straaten

25 May 2006

22

DIRECTOR INFORMATION

DETAILS OF DIRECTORS

Full name Age Occupation Business address

Dr JT Motlatsi 55 Non-executive Chairman 121 Eloff Street

Selby

Johannesburg

MJ van Straaten 52 Chief Executive Officer 67 CR Swart Drive

Cnr Freda Road

Bromhof

Randburg

FPDuT Britz 37 Financial Director 67 CR Swart Drive

Cnr Freda Road

Bromhof

Randburg

JM Pieterse 56 Non-executive Director 2nd Floor Tygerforum Block A

53 Willie van Schoor Avenue

Bellville

HW Bonsma 37 Non-executive Director Bank Forum Building

337 Veale Street

Brooklyn

Pretoria

23

SHAREHOLDER SPREAD

AS AT 28 FEBRUARY 2006

Number of % of Number of % of issued

holders holders shares shares

PUBLIC SHAREHOLDERS

Individual 1 115 78,69 10 886 322 9,53

Banks and nominees 23 1,62 3 749 391 3,28

Companies and other corporate 237 16,73 21 771 000 19,05

Investment trusts and pension funds 37 2,61 15 765 615 13,80

NON-PUBLIC SHAREHOLDERS

Directors 5 0,35 62 100 000 54,34

Total 1 417 100,00 114 272 328 100,00

PUBLIC

1 – 10 000 1 099 77,57 3 830 599 3,35

10 001 – 50 000 234 16,51 5 183 024 4,54

50 001 – 100 000 36 2,54 2 868 285 2,51

100 001 – 1 000 000 38 2,68 10 442 189 9,14

1 000 001 and over 5 0,35 29 928 231 26,19

NON-PUBLIC –

1 – 10 000 0 – 0 –

10 001 – 50 000 0 – 0 –

50 001 – 100 000 1 0,07 54 000 0,05

100 001 – 1 000 000 0 – 0 –

1 000 001 and over 4 0,28 61 966 000 54,23

Total 1 417 100,00 114 272 328 100,00

* Please note that this combined analysis includes information from the Strate Beneficial Download (approximately 81%

of the issued shares have been dematerialised) and we cannot guarantee the validity of the information).

24

BALANCE SHEETS

AT 28 FEBRUARY 2006

Group Company

2006 2005 2006 2005

Note R R R R

Assets

Non-current assets 17 392 547 3 598 854 284 081 872 3 960 989

Plant and equipment 2 2 346 531 2 753 809 16 904 819 477

Intangible assets 3 13 870 303 546 822 – –

Investment in subsidiary companies 4 – – 282 889 255 2 944 712

Loans receivable 5 1 175 713 – 1 175 713 196 800

Deferred taxation asset 6 – 298 223 – –

Current assets 96 468 096 82 142 887 1 101 401 3 660 881

Inventories 7 27 438 951 28 694 231 – –

Trade and other receivables 8 45 522 432 30 614 305 489 168 2 100 081

Loans receivable – – – 570 000

Prepayments 495 883 1 478 612 106 853 –

Prepaid taxation 62 572 – 62 572 –

Bank and cash balances 9 22 948 258 21 355 739 442 808 990 800

Total assets 113 860 643 85 741 741 285 183 273 7 621 870

Equity and liabilities

Equity attributable to equity holders of

the parent 72 141 338 34 087 535 280 073 191 6 109 795

Share capital 10 381 024 116 380 908 14 241

Share premium 11 37 620 827 27 320 907 316 702 119 42 068 786

Retained earnings/(accumulated loss) 34 139 487 6 766 512 (37 009 836) (35 973 232)

Non-current liabilities 254 459 20 520 795 5 109 441 1 181 032

Interest-bearing liabilities 12 244 259 912 292 – 655 673

Interest-free liabilities 13 10 200 19 608 503 – 525 359

Amounts due to subsidiary company 14 – – 5 109 441 –

Current liabilities 41 464 846 31 133 411 641 331 044

Accounts payable and accruals 24 297 125 21 518 442 641 30 534

Provisions 15 – 186 868 – –

Short-term portion of non-current

interest-bearing liabilities 12 606 941 822 028 – 255 818

Taxation payable 16 560 780 8 606 073 – 44 692

Total equity and liabilities 113 860 643 85 741 741 285 183 273 7 621 870

25

INCOME STATEMENTS

FOR THE YEAR ENDED 28 FEBRUARY 2006

Group Company

2006 2005 2006 2005

Note R R R R

Revenue 322 174 756 281 065 722 520 007 2 458 169

Cost of sales (186 965 907) (160 502 639) – –

Gross profit 135 208 849 120 563 083 520 007 2 458 169

Other operating income 2 978 760 1 814 783 222 617 328 120

Distribution expenses (24 508 400) (26 409 197) – –

Direct expenses (9 099 254) (7 666 962) – –

Other operating expenses (47 465 800) (42 692 893) (1 783 838) (3 039 273)

Operating profit before finance costs 16 57 114 155 45 608 814 (1 041 214) (252 984)

Finance income 17 1 231 287 779 281 32 588 159 466

Finance costs 17 (911 198) (2 064 166) (27 978) (134 990)

Profit/(loss) before taxation 57 434 244 44 323 929 (1 036 604) (228 508)

Income tax expense 18 (18 719 831) (15 200 000) – (37 410)

Profit/(loss) for the year 38 714 413 29 123 929 (1 036 604) (265 918)

Earnings per share 28 34,31 26,48

Diluted earnings per share 28 34,31 26,48

26

STATEMENTS OF CHANGES IN EQUITY


Retained

earnings/

Share Share (accumulated

capital premium loss) Total

Note R R R R

Group

Balance at 1 March 2004 25 116 27 320 907 8 142 583 35 463 606

Profit for the year 29 123 929 29 123 929

Dividend declared (30 500 000) (30 500 000)

116 27 320 907 6 766 512 34 087 535

Balance at 28 February 2005

Net proceeds on the issue of

share capital 380 908 10 299 920 10 680 828

Profit for the year 38 714 413 38 714 413

Dividend declared (11 341 438) (11 341 438)

Balance at 28 February 2006 381 024 37 620 827 34 139 487 72 141 338

Company

Balance at 1 March 2004 25 13 722 40 875 874 (35 707 314) 5 182 282

Loss for the year (265 918) (265 918)


share capital 519 1 192 912 1 193 431

Balance at 28 February 2005 14 241 42 068 786 (35 973 232) 6 109 795


share capital 366 667 274 633 333 275 000 000

Loss for the year (1 036 604) (1 036 604)

Balance at 28 February 2006 380 908 316 702 119 (37 009 836) 280 073 191

27

CASH FLOW STATEMENTS


Group Company

2006 2005 2006 2005

Note R R R R

Cash flows from operating activities

Cash generated by/(utilised in)

operations 21.1 49 909 305 33 794 879 1 805 525 (2 762 206)

Dividend paid 21.2 (11 341 438) (36 500 000) – –

Finance income 1 231 287 779 281 32 588 159 466

Finance costs (911 198) (2 064 166) (27 978) (134 990)

Taxation paid 21.3 (10 574 164) – (107 263) (524 135)

Net cash inflows/(outflows) from

operating activities 28 313 792 (3 990 006) 1 702 872 (3 261 865)

Cash outflows from investing

activities (18 442 206) (1 313 263) (279 944 542) (908 171)

Acquisition of plant and equipment (946 485) (998 282) – (908 130)

Acquisition of intangible assets (122 168) (406 074)

Proceeds from disposal of plant

and equipment 28 284 91 093 – –

Acquisition of subsidiaries 21.5 (17 401 837) – (282 636 850) (101)

Investment – – – 60

Decrease in loans to subsidiaries – – 2 692 308 –

Cash (outflows)/inflows from financing

activities (9 259 623) 14 951 516 277 693 678 5 175 107

Proceeds on the issue of ordinary

share capital 21.5 10 680 828 – 275 000 000 1 193 431

Increase in loans receivable (408 913) – (978 913) –

Interest-bearing liabilities (repaid)/

raised (1 107 039) (408 565) (911 491) 655 673

Interest-free borrowings (repaid)/

raised (18 424 499) 15 360 081 4 584 082 3 326 003

Net increase in cash and cash

equivalents 611 963 9 648 247 (547 992) 1 005 071

Cash and cash equivalents at

beginning of year 21 355 739 11 707 492 990 800 (14 271)

Cash and cash equivalents of

subsidiary on acquisition 21.5 980 556 – – –

Cash and cash equivalents at end

of year 21.4 22 948 258 21 355 739 442 808 990 800

28

NOTES TO THE FINANCIAL STATEMENTS


1. ACCOUNTING POLICIES

Verimark Holdings Limited is a company domiciled in South Africa. The consolidated financial statements,

comprising Verimark Holdings Limited and its subsidiaries (together referred to as “the Group”), incorporate the

following principal accounting policies, set out below.

1.1 Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial

Reporting Standards (IFRS) and its interpretation adopted by the International Accounting Standards Board

(IASB), and the requirements of the Companies Act of South Africa. These are the Group’s first consolidated

financial statements prepared in terms of IFRS and IFRS1 – First time adoption of IFRS has been applied.

An explanation of how the transition to IFRS has affected the reported financial position, financial performance

and cash flows of the Group is provided in note 24 to the consolidated annual financial statements. The date of

the Group’s transition to IFRS is 1 March 2004.

1.2 Basis of preparation

The consolidated financial statements are presented in Rand. They are prepared on the historical cost basis,

except for certain financial instruments, which are stated at fair value.

The preparation of financial statements in conformity with IFRS requires management to make judgements

estimates and assumptions that affect the application of policies and reported amounts of assets and

liabilities, income and expenses.

The estimates and associated assumptions are based on historical experience and various other factors that

are believed to be reasonable under the circumstances, the results of which form the basis of making the

judgements about carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from the estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimate is revised if the revision affects only the period,

or in the period of the revision and future periods if the revision affects both current and future periods.

Judgments made by management in the application of IFRS that have significant effect on the financial

statements and estimates with a significant risk of material adjustment in the next year are discussed in

note 26.

The accounting policies set out below have been applied consistently to all periods presented in these

consolidated financial statements and in preparing an opening IFRS balance sheet at 1 March 2004 for the

purposes of the transition to IFRS.

The accounting policies have been applied consistently by all Group entities.

1.3 Basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the company. Control exists where the company has the power, directly

or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its

activities. In assessing control, potential voting rights that are presently exercisable or convertible are taken

into account.

The financial statements of subsidiaries are included in the consolidated financial statements from the date

that control commences until the date that control ceases.

Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup

transactions are eliminated in preparing the consolidated financial statements

29

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)


1. ACCOUNTING POLICIES (continued)

1.4 Revenue

Revenue comprises the invoiced value of sales of merchandise, interest administration fees and income from

accounts receivable, financing excluding investment income, other income and Value Added Tax.

Revenue is recognised when the risks and rewards of ownership transfer, which is on the date of delivery or

the date when funds are advanced to debtors.

1.5 Net finance costs/(income)

Net finance costs comprise interest payable on borrowings calculated using the effective interest rate method,

interest receivable on funds invested, dividend income, foreign exchange gains and losses, and gains and

losses on derivative instruments that are recognised in the income statement.

Interest income is recognised in the income statement as it accrues, using the effective interest method.

Dividend income is recognised in the income statement on the date the entity’s right to receive payments is

established which in the case of quoted securities is usually the ex-dividend date. The interest expense

component of finance lease payments is recognised in the income statement using the effective interest

rate method.

1.6 Taxation

Current tax is the expected tax payable on the taxable income for the year, using the tax rates enacted or

substantively enacted at the balance sheet date, and any adjustment of tax payable in respect of previous years.

Income tax on profit for the year comprises current and deferred tax.

Income tax is recognised in the income statement except to the extent that it relates to items recognised

directly in equity, in which case it is recognised in equity.

Deferred tax is provided using the balance sheet liability method, based on temporary differences. Temporary

differences are differences between the carrying amounts of assets and liabilities for financial reporting

purposes and their tax base. The following temporary differences are not provided for: goodwill not deductible

for tax purposes and differences relating to subsidiaries to the extent that they will probably not reverse in the

foreseeable future. The amount of deferred tax 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 balance sheet date. Deferred tax is charged to the income statement. The effect on deferred tax of any

changes in tax rates is recognised in the income statement.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available

against which the associated unused tax losses and deductible temporary differences can be utilised. Deferred

tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as the

liability to pay the dividend.

1.7 Plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses.

The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion

of normal production overheads.

Depreciation is the systematic allocation of the depreciable amount of an asset over its estimated useful life.

Depreciation is charged on the depreciable amount, to the income statement, on a straight line basis over the

estimated useful lives of plant and equipment.

The depreciable amount is the difference between the cost of an item of plant and equipment and its

residual value.

Where components of an item of plant and equipment have different useful lives, they are accounted for as

separate items of plant and equipment.

30




1.7 Plant and equipment (continued)

Residual value is the estimated amount that the company would currently obtain from disposal of the asset,after deducting the estimated costs of disposal, if the asset were already of age and in the condition expectedat the end of its useful life, which currently are:

Computer equipment 3 yearsManufactured structures and handling equipment 4 – 5 yearsMotor vehicles 4 – 5 yearsMould and dies 5 yearsOffice equipment and furniture 5 – 10 years

The residual values, if not insignificant, depreciation method and useful lives of plant and equipment arereassessed annually.

Subsequent expenditure relating to an item of plant and equipment is capitalised when it is probable that futureeconomic benefits from the use of the asset will flow to the entity. All other subsequent expenditure isrecognised as an expense in the period in which it is incurred and the cost of the item can be measured reliably.Profits/(losses) on the disposal of plant and equipment are credited/(charged) to the income statement. Theprofit or loss is the difference between the net disposal proceeds and the carrying amount of the asset.

1.8 Impairment of assets

The carrying amounts of the Group’s assets, other than inventories and deferred tax assets, are reviewed ateach balance sheet date to determine whether there is any indication of impairment. If any such indicationexists the asset's recoverable amount is estimated. The recoverable amount is the higher of its fair value lesscosts to sell and its value in use. For goodwill, intangible assets with indefinite useful lives and intangibleassets that are not yet available for use the recoverable amount is estimated at each balance sheet date. Foran asset that does not generate largely independent cash inflows, the recoverable amount is determined atthe Cash Generating Unit (CGU) level to which the asset belongs.

An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount.Impairment losses are recognised in the income statement.

In assessing value in use, the expected future cash flows from the asset are discounted to their present valueusing a pre-tax discount rate that reflects current market assessments of the time value of money and therisks specific to the asset.

Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of goodwillallocated to the CGUs and then to reduce the carrying amount of the other assets in the unit on a pro-ratabasis.

A previously recognised impairment loss is reversed if there is an indication that the impairment no longerexists and the recoverable amount increases as a result of a change in the estimates used to determine therecoverable amount, but not to an amount higher than the carrying amount that would have been determined(net of depreciation) had no impairment loss been recognised in prior years.

1.9 Intangible assets

All business combinations are accounted for by applying the purchase method. Goodwill represents amountsarising on acquisition of subsidiaries, being the difference between the cost of the acquisition and the fairvalue of the net identifiable assets acquired.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill with an indefinite useful life isallocated to cash generating units and is tested for impairment at each balance sheet date and wheneverthere is an indication that goodwill has been impaired. An impairment loss is recognised in the incomestatement when the carrying amount exceeds its recoverable amount.

An impairment loss in respect of goodwill is not reversed.

Software that is acquired by the Group is stated at cost less accumulated amortisation and impairmentlosses.

Subsequent expenditure on capitalised intangible assets is capitalised when it increases the future economicbenefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

31




1.9 Intangible assets (continued)

Amortisation is charged to the income statement on a straight line basis over the estimated useful lives of

intangible assets unless such lives are indefinite, from the date they are available for use. The useful lives

are currently as follows:

Software 3 years

1.10 Inventory

Inventory is stated at the lower of cost and net realisable value. Net realisable value is the estimated selling

price in the ordinary course of business, less the estimated costs of completion and selling expenses. The

cost of inventories is determined using the weighted average cost method and includes expenditure incurred

in acquiring the inventories and bringing them to their existing location and condition.

Obsolete, redundant and slow moving inventories are identified on a regular basis and are written down to

their estimated net realisable values.

1.11 Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and balances with banks and other financial institutions,

as well as short-term call deposits with financial institutions.

Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management

are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

1.12 Leases

Finance leases

Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are

classified as finance leases. The motor vehicles acquired by way of finance leases are stated at an amount

equal to the lower of their fair value and the present value of the minimum lease payments at inception of

the lease, less accumulated depreciation (note 1.7) and impairment losses (note 1.8).

The capital element of future obligations under the leases is included as a liability in the balance sheet.

Lease payments are allocated using the effective interest rate method to determine the lease finance cost,

which is charged against income over the lease period, and the capital repayment, which reduces the liability

to the lessor.

Operating leases

Leases where the lessor retains the risks and rewards of ownership of the underlying asset are classified as

operating leases. Payments made under operating leases are charged against income on a straight line

basis over the period of the lease.

1.13 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past

events, for which it is probable that an outflow of economic benefits will occur, and where a reliable estimate

can be made of the amount of the obligation. If the effect is material, provisions are discounted at a pre-tax

rate that reflects current market assessment of the time value of money.

Product warranties

Provision is made for the Group’s estimated liability on all products still under warranty at the balance sheet

date. The provision is based on historical warranty data and returns and a weighting of all possible outcomes

against their associated probabilities.

Onerous contracts

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a

contract are lower than the unavoidable cost of meeting its obligation under the contract.

32




1.14 Financial instruments

Measurement

Financial instruments are initially measured at fair value, which includes transaction costs except for items

carried at fair value through profit and loss. Subsequent to initial recognition these instruments are

measured as set out below.

Trade and other receivables

Trade and other receivables originated by the Group are stated at amortised cost less impairment losses.

Cash and cash equivalents

Cash and cash equivalents are measured at fair value.

Financial liabilities

Non-derivative financial liabilities are recognised at amortised cost, using the effective interest rate method.

Investments

Investments in subsidiaries are carried at cost in the separate financial statements of the holding company.

Loans receivable

Interest free loans to directors classified as loans receivable are carried at amortised cost using the effective

interest rate method.

1.15 Foreign currency transactions

Transactions in foreign currencies are recorded at the rate of exchange ruling at the transaction date.

Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange

ruling at the balance sheet date. Gains and losses arising on translation are credited to or charged

against income.

1.16 Employee benefits

Short-term employee benefits

The cost of all short term employee benefits is recognised during the period in which the employee renders

the related service.

The accruals for employee entitlements to wages, salaries and annual leave represent the amount which the

Group has a present obligation to pay as a result of employees’ services provided to the balance sheet date.

The accruals have been calculated at undiscounted amounts based on current wage and salary rates.

Retirement benefits

The Group contributes to a defined contribution plan. Contributions to the defined contribution fund are

charged against income as incurred.

1.17 Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or

services (business segment), or in providing products or services within a particular economic

environment (geographical segment), which is subject to risks and rewards that are different from those

of other segments.

1.18 Trade and other receivables

Trade and other receivables are stated at their cost less impairment losses.

33



Manufacturing

structures Office

Computer and handling Moulds furniture and Motor

equipment equipment and dies equipment vehicles Total

R R R R R R

2. PLANT AND EQUIPMENT

Group

Cost

Balance at 1 March 2005 1 137 414 679 337 278 054 3 586 798 – 5 681 603

Acquired in respect of

business combination 36 808 – – 900 – 37 708

Additions 420 541 397 819 20 000 98 229 9 896 946 485

Disposals and write offs (22 517) – – (572 892) – (595 409)

Balance at 28 February 2006 1 572 246 1 077 156 298 054 3 113 035 9 896 6 070 387

Balance at 1 March 2004 740 996 808 913 207 162 3 398 759 – 5 155 830

Additions 528 894 92 405 70 892 306 091 – 998 282

Disposals and write offs (132 476) (221 981) – (118 052) – (472 509)

Balance at 28 February 2005 1 137 414 679 337 278 054 3 586 798 – 5 681 603

Accumulated depreciation

Balance at 1 March 2005 555 372 254 322 190 993 1 927 107 – 2 927 794

Acquired in respect of

business combination 12 537 – – 36 – 12 573

Disposals and write offs (5 362) – – (404 824) – (410 186)

Depreciation for the year 427 376 179 306 49 047 536 915 1 031 1 193 675

Balance at 28 February 2006 989 923 433 628 240 040 2 059 234 1 031 3 723 856

Balance at 1 March 2004 225 055 265 315 121 725 1 431 033 – 2 043 128

Disposals and write offs (60 711) (221 981) – (86 876) – (369 568)

Depreciation for the year 391 028 210 988 69 268 582 950 – 1 254 234

Balance at 28 February 2005 555 372 254 322 190 993 1 927 107 – 2 927 794

Carrying amounts

At 28 February 2006 582 323 643 528 58 014 1 053 801 8 865 2 346 531

At 28 February 2005 582 042 425 015 87 061 1 659 691 – 2 753 809

Moveable assets have been ceded as security for banking facilities (see note 9).

34



Manufacturing

structures Office

Computer and handling Moulds furniture and Motor

equipment equipment and dies equipment vehicles Total

R R R R R R

2. PLANT AND EQUIPMENT (continued)

Company

Cost

Balance at 1 March 2005 36 808 – – 900 870 422 908 130

Additions – – – – – –

Disposals and write offs – – – – (870 422) (870 422)

Balance at 28 February 2006 36 808 – – 900 – 37 708

Balance at 1 March 2004 – – – – – –

Additions 36 808 – – 900 870 422 908 130

Disposals and write offs – – – – – –

Balance at 28 February 2005 36 808 – – 900 870 422 908 130

Accumulated depreciation

Balance at 1 March 2005 8 464 – – 30 80 159 88 653

Disposals and write offs – – – – (138 176) (138 176)

Depreciation for the year 12 220 – – 90 58 017 70 337

Balance at 28 February 2006 20 684 – – 120 – 20 804

Balance at 1 March 2004 – – – – – –

Disposals and write offs – – – – – –

Depreciation for the year 8 464 – – 30 80 159 88 653

Balance at 28 February 2005 8 464 – – 30 80 159 88 653

Carrying amounts

At 28 February 2006 16 124 – – 780 – 16 904

At 28 February 2005 28 344 – – 870 790 263 819 477

35



Computer

Goodwill software Total

3. INTANGIBLE ASSETS

Group

Cost

Balance at 1 March 2005 200 000 491 628 691 628

Acquisition through business combination 13 403 978 – 13 403 978

Other acquisitions – 122 168 122 168

Balance at 28 February 2006 13 603 978 613 796 14 217 774

Balance at 1 March 2004 200 000 116 483 316 483

Acquisitions – 406 074 406 074

Disposals – (30 929) (30 929)

Balance at 28 February 2005 200 000 491 628 691 628

Accumulated amortisation

Balance at 1 March 2005 – 144 806 144 806

Amortisation for the year – 202 665 202 665

Disposals – – –

Balance at 28 February 2006 – 347 471 347 471

Balance at 1 March 2004 – 22 197 22 197

Amortisation for the year – 153 539 153 539

Disposals – (30 930) (30 930)

Balance at 28 February 2005 – 144 806 144 806

Carrying amounts

At 28 February 2006 13 603 978 266 325 13 870 303

At 28 February 2005 200 000 346 822 546 822

On 1 July 2005, Verimark Holdings Limited (formerly Creditvision Holdings Limited) acquired all the shares in

Verimark (Proprietary) Limited in terms of a reverse listing for a consideration of R275 000 000, satisfied by the issue

of 110 000 000 shares.

The company’s operations are explained on page 1. In terms of IFRS3 (Business Combinations), the legal subsidiary

is recognised as the accounting parent. The financial effects of the transaction is fully disclosed in the consolidated

annual financial statements.

36



Group Company

2006 2005 2006 2005

R R R R

4. INVESTMENT IN SUBSIDIARY COMPANIES

Number of shares held

Verimark (Proprietary) Limited 116 –

Creditvision Rental Finance (Proprietary)

Limited 1 1

Fullimput 173 (Proprietary) Limited 100 –

Motor Vision (Proprietary) Limited – 100

Percentage holding % %

Verimark (Proprietary) Limited 100 –


Limited 100 100



Cost of shares

Verimark (Proprietary) Limited 282 636 850 –


Limited 1 1



282 636 952 101

Loans to subsidiary companies


Limited 252 303 1 620 690

Motor Vision (Proprietary) Limited – 1 523 920

Financial Services of South Africa

(Proprietary) Limited – 160 704

Impairment loss – (360 703)

Net investment 282 889 255 2 944 712

5. LOANS RECEIVABLE

Unsecured local loans

Motor Vision (Proprietary) Limited 1 175 713 – 1 175 713 –

The loan to a company owned by a

director is unsecured and interest free.

The loan is repayable in five equal annual

instalments.

Creditvision Holdings Limited Share

Incentive Trust – – – 196 800

The loan to the previous Share

Incentive Trust was repaid during

the year. The loan was unsecured,

interest free and had no fixed terms

of repayment

1 175 713 – 1 175 713 196 800

37



Group Company

2006 2005 2006 2005

R R R R

6. DEFERRED TAXATION ASSET

Balance at beginning of year 298 223 6 878 887 – –

Current year movement (298 223) (6 580 664) – –

– utilisation of tax loss – (6 615 886) – –

– prior year overprovision – (219 186) – –

– net (reversing)/deductible temporary

differences (298 223) 254 408 – –

– 298 223 – –

The deferred tax asset was attributable

to the following;

Non deductible provision – 298 223 – –

– 298 223 – –

Unrecognised deferred tax assets

Deferred tax assets have not been

recognised in respect of the

following items:

Tax losses 300 615 – 300 615 –

As a result of the parent company being

expected to mainly earn non-taxable

income in the form of dividends in the

future, a deferred tax asset has not been

recognised in respect of the estimated

assessable loss of R1 036 605.

7. INVENTORY

Finished goods 20 349 915 24 501 641 – –

Goods in transit 7 089 036 4 192 590 – –

27 438 951 28 694 231 – –

No write down to net realisable value

was required at 28 February 2006.

Inventory has been ceded as security

for banking facilities (see note 9).

8. TRADE AND OTHER RECEIVABLES

Debtors are stated at cost less impairment losses. An impairment loss of R50 000 was recognised at year-end.

Included in trade and other receivables are loans to directors of the legal subsidiary company, being Verimark

(Proprietary) Limited, amounting to R80 000. The loans earn interest at prime and were repaid shortly after year-end.

Trade receivables have been ceded as security for banking facilities (see note 9).

38



Group Company

2006 2005 2006 2005

R R R R

9. BANK AND CASH BALANCES

Sanlam Collective Investments Limited 21 115 119 8 212 439 – –

Sanlam Dividend Income Fund units.

The dividends earned on the

investments for the year amounted

to R202 681 (2005: R 212 439).

Bank and cash balances 1 833 139 13 143 300 442 808 990 800

22 948 258 21 355 739 442 808 990 800

The following security has been provided

in respect of banking facilities provided

to the Verimark (Proprietary) Limited

(legal subsidiary):

– Cession of a Life Policy on

MJ van Straaten with a death value

of no less the R40 000 000;

– Unlimited cession of accounts receivable;

– General Notarial bond over inventory

and movable assets for an amount of

R10 000 000 in the bank’s favour,

supported by a cession of Fire and

SASRIA policy.

10. SHARE CAPITAL

Authorised

500 000 000 ordinary shares of 0,01 cents

each – 116 – 50 000

200 000 000 ordinary shares of

0,3333 cents each 666 667 – 666 667 –

Issued

142 411 031 ordinary shares of 0,01 cents

each – 116 – 14 241

114 272 328 ordinary shares of

0,3333 cents each 381 024 – 380 908 –

381 024 116 380 908 14 241

The unissued share capital is under the

control of the directors.

39



Group Company

2006 2005 2006 2005

R R R R

11. SHARE PREMIUM

Balance at beginning of year 27 320 907 27 320 907 42 068 786 40 875 874

Arising on issue of ordinary shares 10 299 920 – 274 633 333 1 192 912

37 620 827 27 320 907 316 702 119 42 068 786

12. INTEREST-BEARING LIABILITIES

Secured local loans

Industrial Development Corporation 851 104 1 715 781 – –

Loans obtained for franchisees, bearing

interest at a variable contractual rate of

the prime bank lending rate

less 2% and repayable in 48 equal

instalments.

Toyota Financial Services – – – 911 491

Liabilities under finance lease agreements.

The liability has been paid in full.

Investec Private Bank 96 18 539 – –

The loan bears interest at prime less

2%, is secured and is repayable in the

next 12 months.

851 200 1 734 320 – 911 491

Less: Short-term portion included in

current liabilities 606 941 822 028 – 255 818

Investec Private Bank 96 18 539 – –

Toyota Financial Services – – – 255 818

Industrial Development Corporation 606 845 803 489 – –

244 259 912 292 – 655 673

13. INTEREST-FREE LIABILITIES

Unsecured

The Van Straaten Family Trust – 16 849 883 – –

MJ van Straaten 10 200 2 758 620 – –

Callidus Consortium – – – 525 359

10 200 19 608 503 – 525 359

The loans are unsecured and interest

free with no fixed terms of repayment.

14 AMOUNTS DUE TO SUBSIDIARY

COMPANY

Verimark (Proprietary) Limited – – 5 109 441 –

The loan is unsecured and interest

free with no fixed terms of repayment.

40



Group Company

2006 2005 2006 2005

R R R R

15. PROVISIONS

Product warranty provisions

Bissel warranty

Balance at 1 March 2005 186 868 186 868 – –

Provisions (reversed)/made during the year (186 868) – – –

Balance at 28 February 2006 – 186 868 – –

16. OPERATING PROFIT BEFORE FINANCE

COSTS

Operating profit is arrived at after taking

the following items into account:

Amortisation on computer software 202 665 153 539 – –

Auditor’s remuneration 325 139 215 416 101 084 76 876

– current year 240 000 160 000 66 775 76 876

– other services 60 958 55 416 34 309 –

– prior year under provision 24 181 – – –

Bad debts expensed – 33 854 – –

Depreciation on plant and equipment 1 193 675 1 254 234 70 337 88 653

Directors’ emoluments for services as

directors 3 344 265 2 592 201 620 000 1 244 316

Employee costs 28 196 742 24 705 612 296 631 106 243

Loan to subsidiary impaired – 28 708 – –

Loss on disposal of plant and equipment 157 040 11 848 625 382 –

Operating lease charges 5 450 144 4 819 552 15 882 403

– property 3 794 848 3 569 236 – –

– vehicles 1 372 387 1 058 740 – –

– other office equipment 282 909 191 576 15 882 403

Retirement benefits 2 044 693 1 846 334 – –

Number of employees 528 432 – –

17. NET FINANCE INCOME/(COSTS)

Finance income

Interest income 232 434 566 842 32 588 159 466

Dividend income 202 681 212 439 – –

Foreign exchange profits 796 172 – – –

1 231 287 779 281 32 588 159 466

Finance costs

Foreign exchange losses – (378 321) – –

Interest expense (911 198) (1 685 845) (27 978) (134 990)

(911 198) (2 064 166) (27 978) (134 990)

Net finance income/(costs) 320 089 (1 284 885) 4 610 24 476

41



Group Company

2006 2005 2006 2005

R R R R

18. TAXATION CHARGE

South African normal taxation (16 801 402) (6 707 995) – (37 410)

– current year (16 262 557) (6 707 995) – (37 410)

– prior year under provision (538 845) – – –

Deferred taxation (298 223) (6 580 664) – –

– current year (298 223) 254 408 – –

– utilisation of tax loss – (6 615 886) – –

– prior year over provision – (219 186) – –

STC (1 620 206) (1 911 341) – –

(18 719 831) (15 200 000) – (37 410)

Reconciliation of tax rate % % % %

Current year’s charge as a percentage

of income before taxation 32,6 34,3 – 29,4

Disallowed expenditure – (0,2) – 0.6

STC (2,8) (3,7) –

Exempt income 0,1 0,1 –

Prior year under provision (0,9) (0,5) –

Standard taxation rate 29,0 30,0 – 30,0

Provision for taxation for the company

has not been made as no taxable income

was earned during the current year.

An estimated assessable loss of

R1 036 605 (2005: Rnil) is available for

set off against future periods’ taxable

income.

19. COMMITMENTS

Future operating lease commitments

Vehicles and office equipment

– payable within one year 3 326 606 2 051 926 – –

– payable between year 2 and 5 1 395 463 1 436 738 – –

4 722 069 3 488 664 – –

Property

– payable within one year 2 590 859 2 176 865 – –

– payable between year 2 and 5 3 363 211 5 556 810 – –

5 954 070 7 733 675 – –

There are no capital commitments.

42



Group Company

2006 2005 2006 2005

R R R R

20. RELATED PARTY TRANSACTIONS

20.1 Identity of related parties

Details of the company shareholders

are included in the directors’ report.

The directors of the company are

disclosed in the directors’ report.

Key management and directors’

emoluments are disclosed in

notes 30 and 31.

20.2 Related party transactions

Loans to subsidiary companies

Creditvision Rental Finance

(Proprietary) Limited 252 303 1 620 690

Motor Vision (Proprietary) Limited – 1 523 920

Financial Services of South Africa

(Proprietary) Limited – 160 704

-see note 4.

Loans to company owned by director

– H Bonsma

Motor Vision (Proprietary) Limited 1 175 713 – 1 175 713 –

The information in respect of this

loan is disclosed in note 5.

Loans from directors and

shareholders

The Van Straaten Family Trust – 16 849 883 – –

MJ van Straaten – see note 13 10 200 2 758 620 – –

Included in accounts receivable are

loans of R80 000 (2005: R60 000) to

the directors of the legal

subsidiary – see note 8

Amounts due to subsidiary company

Verimark (Proprietary) Limited – – 5 109 441 –

– see note 14

43



Group Company

2006 2005 2006 2005

R R R R

21. NOTES TO THE CASH FLOW STATEMENT

21.1 Cash generated by operations

Profit/(loss) before taxation 57 434 244 44 323 929 (1 036 604) (228 508)Adjustment for –– Depreciation on plant and

equipment 1 193 674 1 254 234 70 337 88 653– Amortisation of computer

software 202 665 153 539 – –– Loss on deregistration of

subsidiary – 28 708 – –– Finance income (1 231 287) (779 281) (32 588) (159 466)– Finance costs 911 198 2 064 166 27 978 134 990– Loss on disposal of plant and

equipment 157 040 11 848 625 382 –

Operating profit/(loss) before changes in working capital 58 667 534 47 057 143 (345 495) (164 331)

Decrease/(increase) in inventories 1 255 280 (11 881 928) – –(Increase)/decrease in trade and other receivables (13 528 798) (4 403 512) 1 610 913 (2 065 469)Decrease in loans receivable – – 570 000 –Decrease/(increase) in prepayments 982 729 (832 699) – –(Decrease)/increase in provisions (186 868) 120 000 – –Increase /(decrease) in accounts payable and accruals 2 719 428 3 735 875 (29 893) (532 407)

49 909 305 33 794 879 1 805 525 (2 762 207)

21.2 Dividends paid

Amount owing at beginning of year – (6 000 000) – –Income statement charge (11 341 438) (30 500 000) – –Amount owing at the end of year – – – –

(11 341 438) (36 500 000) – –

21.3 Taxation paid

Amount (owing)/prepaid at beginning of year (8 650 764) 13 263 (44 691) (531 417)Income statement charge (18 421 608) (8 619 336) – (37 410)Amount owing/(prepaid) at end of year 16 498 208 8 606 073 (62 572) 44 692

(10 574 164) – (107 263) (524 135)

21.4 Cash and cash equivalents

Cash and cash equivalents included in the cash flow statement comprise the following balance sheet amounts:

Bank balances 1 817 639 13 120 129 442 808 990 800Cash on hand 15 500 23 171 – –Short-term deposits 21 115 119 8 212 439 – –

22 948 258 21 355 739 442 808 990 800

44



21. NOTES TO THE CASH FLOW STATEMENT (continued)

21.5 Acquisition of subsidiaries

Verimark Holdings Limited (and its subsidiary) was acquired in terms of the reverse listing.

The acquisition had the following effect on the Group’s assets and liabilities.

Acquiree’s net assets at the acquisition date:

R

Plant and equipment 25 135

Investment in subsidiary 1 699 264

Loans receivable 766 800

Trade and other receivables 1 379 329

Cash and cash equivalents 980 556

Interest-bearing liabilities (223 919)

Interest-free liabilities (525 359)

Trade and other payables (59 255)

Taxation payable (44 692)

Net identifiable assets and liabilities 3 997 859

Less Cost of Acquisition 17 401 837

IFRS3 cost 10 680 828

Transaction cost 7 701 565

Cash acquired (980 556)

Goodwill on acquisition 13 403 978

No fair value adjustments were made as the fair value of the identifiable assets and liabilities acquired were

equal to their carrying value at the transaction date.

Group Company

2006 2005 2006 2005

R R R R

22. RETIREMENT BENEFITS

The company provides retirement benefits

for all its permanent employees through

a defined contribution pension and

provident schemes which is subject to the

Pension Funds Act, 1956 as amended.

The total value of contributions to

the above schemes were 2 044 693 1 846 334 – –

23. FINANCIAL INSTRUMENTS

Currency risk

The company incurs foreign currency risk as a result of purchases, which are denominated in a currency other than

the company’s functional currency. The currency giving rise to foreign currency risk, in which the company primarily

deals, is US Dollars.

Forward exchange contracts are used as a means of reducing exposure to fluctuations in foreign exchange rates.

Whilst these financial instruments are subject to the risk of market rates changing subsequent to acquisition, such

changes would be offset by opposite effects on the transactions being hedged.

45



23. FINANCIAL INSTRUMENTS (continued)

Currency risk (continued)

No sensitivity analysis is presented as the FEC’s (Forward Exchange Contracts) are short-term in nature and any

currency fluctuation will have an immaterial effect on the income statement.

The company has entered into forward exchange contracts to reduce exposure to fluctuations in foreign exchange

rates. The exposure on these forward exchange contracts is:

2006 2005

$ R $ R

Forward exchange contracts:

– to pay: 2 500 000 15 675 000 3 000 000 17 490 000

The Group’s exposure to interest rate risk and the effective interest rates on the financial instruments at balance

sheet date are as follows:

Interest Over 5

rate Year 1 Year 2 - 5 years Total

R R R R

Assets

Loans receivable 0% 235 143 940 570 – 1 175 713

Inventory – 27 438 951 – – 27 438 951

Trade and other receivables – 45 522 432 – – 45 522 432

Prepayments – 495 883 – – 495 883

Prepaid taxation – 62 572 – – 62 572

Short-term investment (dividend

income) No risk 21 115 119 – – 21 115 119

Bank and cash balances 6,6% 1 833 139 – – 1 833 139

96 703 239 940 570 – 97 643 809

Liabilities

Interest-bearing liabilities Prime – 2% 606 941 244 259 – 851 200

Interest-free liabilities – 10 200 – – 10 200

Accounts payable and accruals – 24 297 125 – – 24 297 125

24 914 266 244 259 – 25 158 525

Credit risk

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit

evaluations are performed on all customers requiring credit over a certain amount. Reputable financial institutions

are used for investing and cash handling purposes.

At balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is

represented by the carrying amount of each financial asset in the balance sheet.

Liquidity risk management

Liquidity risk is managed using cash flow forecasts and by the maintenance of adequate borrowing facilities with the

shareholders and the banks.

Derivative financial instruments

The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks

arising from operational activities. In accordance with its treasury policy the Group does not hold or issue derivative

financial instruments for trading purposes.

Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition derivative

financial instruments are stated at fair value. The gain or loss on re-measurement to fair value is recognised

immediately in the income statement.

46



24. EXPLANATION OF TRANSITION TO IFRS

As stated in note 1.1 above, these are the Group’s first financial statements prepared in accordance with IFRS.

The accounting policies set out in note 1 have been applied in preparing the financial statements for the year

ended 28 February 2006, the comparative information presented in these financial statements for the year ended

28 February 2005 and in the preparation of an opening IFRS balance sheet at 1 March 2004 (the Group’s date of

transition).

The transition to IFRS has had no significant impact on the company as SA GAAP was already materially aligned with

IFRS for the applicable accounting policies.

The Group has therefore made no adjustment to the opening and closing balances for retained income, property,

plant and equipment and deferred taxation amounts reported previously in financial statements prepared in

accordance with its old basis of accounting (SA GAAP).

25. APPLICATION OF IFRS3 AND REVERSE LISTING - PREPARATION AND PRESENTATION OF CONSOLIDATED

FINANCIAL STATEMENTS

In a reverse acquisition, the acquirer is the entity whose equity interest has been acquired (the legal subsidiary) and

the issuing entity (the legal parent) is the acquiree. Although legally the issuing entity is regarded as the parent and

the entity whose equity interest has been acquired is regarded as the subsidiary, the legal subsidiary is the acquirer

as it has the power to govern the financial and operating policies of the legal parent so as to obtain benefits from its

activities.

Consolidated financial statements prepared following a reverse listing are issued under the name of the legal parent,

but are a continuation of the financial statements of the legal subsidiary (i.e. the acquirer for accounting purposes).

Because such consolidated financial statements represent a continuation of the financial statements of the legal

subsidiary:

– the assets and liabilities of the legal subsidiary are recognised and measured in those consolidated financial

statements at their pre-combination carrying amounts;

– the retained earnings and other equity balances recognised in the consolidated financial statements are the

retained earnings and other equity balances of the legal subsidiary immediately before the business combination;

– the amount recognised as issued equity instruments in the consolidated financial statements shall be determined

by adding to the issued equity of the legal subsidiary immediately before the business combination, the cost of the

combination. However, the equity structure appearing in the consolidated financial statements (i.e. the number

and type of equity instruments issued) reflects the equity structure of the legal parent, including the equity

instruments issued by the legal parent to effect the combination;

– comparative information presented in the consolidated financial statements is that of the legal subsidiary.

Reverse acquisition accounting applies only in the consolidated financial statements. Therefore, in the legal

parent’s separate financial statements, the investment is accounted for in accordance with the requirements in

IAS 27 Consolidated and Separate Financial Statements on accounting for investments in an investor’s separate

financial statements.

47



26. ESTIMATION AND JUDGEMENT APPLIED BY THE DIRECTORS IN APPLYING THE ACCOUNTING POLICIES

The following estimations and judgements have been exercised in applying the accounting policies:

26.1 Impairment of investment in subsidiary companies

Management continuously considers the recoverability of investments in and loans to subsidiary companies.

If the value of any investment has decreased below the book value of the investment, the value is written down

to its recoverable amount.

26.2 Impairment of long outstanding trade receivables

Management identifies impairment of trade receivables on an ongoing basis. The estimation of the

requirement for impairment is based on the current collectibility of trade receivables, as well as our

experience of the collection history of our trade receivables. Management believes that the provision for

impairment is conservative and there are no significant trade receivables that are doubtful and have not been

impaired.

26.3 Impairment of inventory

Obsolete inventory is identified on a continuous basis. This identification is based on physical inspection as

well as the rate of sale relative to the inventory quantity on hand. Once identified, such inventory will be

offered to customers at a discount. Un-saleable inventory are scrapped and the scrap metal value recovered

where possible.

26.4 Impairment of intangible assets – goodwill

Management considers the appropriateness of the value of goodwill continuously together with the value of

investments in subsidiaries. Impairment write downs against goodwill occurs where management believes

there is a permanent reduction in the value of goodwill in a subsidiary.

27. SEGMENTAL INFORMATION

Verimark operates in the retail sector, but a small part of the business for the year still related to financing activities

conducted by the old Creditvision company. The financing activities are deemed insignificant to the Group and

therefore no segmental report is prepared.

No geographical segmental report is produced as the company operates mainly in South Africa and exports are

deemed insignificant to the Group.

48



Group Company

2006 2005 2006 2005

R R R R

28. EARNINGS/(LOSS) PER SHARE

The calculation of basic earnings per

share is based on profit after tax of

R38 714 413 (2005: R29 123 929)

attributable to the ordinary shareholders

and a weighted average of 112 848 219

(2005: 110 000 000) ordinary shares in

issue during the year.

The calculation of headline earnings

is based on the net profit attributable to

ordinary shareholders of R38 871 453

(2005: R29 135 777) and a weighted

average of 112 848 219 (2005: 110 000 000)

ordinary shares in issue during the year.

Profit/(loss) per financial statements 38 714 413 29 123 929 (1 036 604) (265 918)

Adjustments:

Loss on sale of asset 157 040 11 848 625 382 –

Doubtful loans written off – – – 355 790

Headline earnings/(loss) 38 871 453 29 135 777 (411 222) 89 872

Earnings per share 34,31 26,48

Headline earnings per share 34,45 26,49

Diluted earnings per share 34,31 26,48

There are no dilutive instruments to

both shares and earnings.

49



29. STANDARDS AND INTERPRETATIONS NOT YET EFFECTIVE

In terms of International Financial Reporting Standards, the company is required to include in its annual financial

statements disclosure about the future impact of Standards and Interpretations issued but not yet effective at the

issue date.

At the date of authorisation of the financial statements of Verimark Holdings Limited for the year ended 28 February

2006, the following Standards and Interpretations were in issue but not yet effective:

Standard/Interpretation Effective date

IFRS6 (AC 143) Exploration for and Evaluation of Mineral Resources Annual period commencing on

or after 1 January 2006

IFRS7 (AC 144) Financial Instruments: Disclosures (including Annual periods commencing on

amendments to IAS 1 (AC 101), Presentation of or after 1 January 2007

Financial Statements: Capital Disclosures)

IAS 19 (AC 119) Employee Benefits (December 2004) Annual periods commencing on

amendment or after 1 January 2006

IAS 39 (AC 133) Financial Instruments: Recognition and Annual periods commencing on

amendment Measurement(April 2005) – Cash flow hedge or after 1 January 2006

accounting of forecast intra-group transactions

IAS 39 (AC 133) Financial Instruments: Recognition and Annual periods commencing on

amendment Measurement (June 2005) – Fair value option or after 1 January 2006

IAS 39 (AC 133) Financial Instruments: Recognition and Annual periods commencing on or

& IFRS4 (AC 141) Measurement (August 2005) after 1 January 2006

Insurance Contracts – Financial Guarantee Contracts

IAS 21 (AC 112) The Effects of Changes in a Foreign Operation Annual periods commencing on or

amendment (December 2005) after 1 January 2006

IFRIC 4 (AC 437) Determining whether an Arrangement contains Annual periods commencing on or

a Lease after 1 January 2006

IFRIC 5 (AC 438) Rights to Interests arising from Annual periods commencing

Decommissioning Restoration and after 1 January 2006

Environmental Rehabilitation Funds

IFRIC 6 (AC 439) Liabilities arising from participating in a Specific Annual period commencing on or

Market – Waste Electrical and Electronic Equipment after 1 December 2005

IFRIC 7 (AC 440) Applying the Restatement Approach under IAS 29 Annual periods commencing on or

(AC 124) Financial Reporting in Hyperinflationary after 1 March 2006

Economies

IFRIC 8 (AC 441) Scope of IFRS2 (AC 139) Annual period commencing on or

after 1 May 2006

All standards will be adopted at their effective date (except for the effect of those standards that are not applicable to

the entity).

The directors have reviewed the above issued standards and are of the opinion that they are not applicable to the

business of the entity and will therefore have no impact on future financial statements.

50



Allowances Pension and

Basic salary and other Incentive medical aid

and fees benefits bonuses contribution Total

30. KEY MANAGEMENT EMOLUMENTS

GROUP

28 February 2006

Executive directors

MJ van Straaten (P) 1 443 056 615 302 – 224 141 2 282 499

FPDuT Britz (P) 483 048 197 244 270 000 91 474 1 041 766

1 926 104 812 546 270 000 315 615 3 324 265

Non-executive directors

JT Motlatsi (H) – – – – –

HW Bonsma (H) 10 000 – – – 10 000

JM Pieterse (H) 10 000 – – – 10 000

20 000 – – – 20 000

Total 1 946 104 812 546 270 000 315 615 3 344 265

28 February 2005

Executive directors

MJ van Straaten (P) 1 123 746 350 000 – 182 632 1 656 378

FPDuT Britz (P) 430 259 195 489 225 000 85 075 935 823

Total 1 554 005 545 489 225 000 267 707 2 592 201

H – Verimark Holdings Limited

P – Verimark (Proprietary) Limited

The directors of the company are regarded as key management.

51



Allowances Pension and

Basic salary and other Incentive medical aid

and fees benefits bonuses contribution Total

31. DIRECTORS’ EMOLUMENTS

GROUP

28 February 2006

Executive directors

MJ van Straaten 1 443 056 615 302 – 224 141 2 282 499

FP Du Toit Britz 483 048 197 244 270 000 91 474 1 041 766

HW Bonsma 46 681 47 719 – 5 600 100 000

KM van Nieuwenhuizen* 107 600 28 000 78 750 4 400 218 750

PW de Wet* 41 680 28 000 45 000 10 320 125 000

M Durrant* 73348 20 000 56 250 6 652 156 250

2 195 413 936 265 450 000 342 587 3 924 265

Non-executive directors

HW Bonsma 10 000 – – – 10 000

JM Pieterse 10 000 – – – 10 000

DH Cooper* – – – – –

JT Motlatsi – – – – –

20 000 – – – 20 000

Total 2 215 413 936 265 450 000 342 587 3 944 265

28 February 2005

Executive directors

MJ van Straaten 1 123 746 350 000 – 182 632 1 656 378

FPDuT Britz 430 259 195 489 225 000 85 075 935 823

HW Bonsma 140 000 143 000 – 17 000 300 000

KM van Nieuwenhuizen* 307 316 84 000 – 13 000 404 316

PW de Wet* 125 000 84 000 – 31 000 240 000

M Durrant* 220 000 60 000 – 20 000 300 000

Total 2 346 321 916 489 225 000 348 707 3 836 517

* Resigned 1 July 2005

52

SHAREHOLDERS’ DIARY

FINANCIAL YEAR-END 28 February 2006

Reports and Statements

Announcement of Audited Results 2005/2006 Published 29 May 2006

Annual Report 2005/2006 Published 31 May 2006

Interim Report 2006/2007 To be Published November 2006

ANNUAL GENERAL MEETING 22 June 2006

Dividends

Dividends Declared 25 May 2006

Last Trade Date 15 June 2006

List Date 19 June 2006

Record Date 23 June 2006

Cash Distribution Payable 26 June 2006

Kindly take note that the above dates are given as an indication only. The company reserves the right to change dates

if necessary.

53

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the Annual General Meeting of Verimark Holdings Limited will be held at 11:00 on Thursday,

22 June 2006 at the offices of PSG Capital Limited, Building 8, Woodmead Estate, 1 Woodmead Drive, Woodmead,

Sandton, for the following purposes:

ORDINARY BUSINESS

1. Ordinary resolution Number 1

To consider and adopt the audited annual financial statements for the year ended 28 February 2006.


To re-appoint KPMG as auditors of the company for the current financial year.


To re-elect and elect directors in accordance with the provisions of the company’s Articles of Association.

The following directors were appointed after the last Annual General Meeting and are eligible and offer themselves

for re-election:

Executive

MJ van Straaten (Chief Executive Officer)

FPDuT Britz (Financial Director)

Non-executive

JM Pieterse

According to the company’s Articles of Association Mr HW Bonsma retires by rotation at this annual general meeting.

A brief CV of each director standing for re-election at the annual general meeting is set out on pages 4 and 5 of the

annual report.

Special business

In addition, members will be requested to consider, and if approved, to pass the following ordinary resolutions:

4. All unissued shares under control of directors

Ordinary resolution Number 4

“Resolve: ‘That the remainder of the company’s unissued ordinary shares of 0,3333 cents each, be and they are

hereby placed under the control of the directors who are hereby authorised, subject to the restrictions contained

in sections 221 and 222 of the Companies Act, as amended, and the Listing Requirements of the JSE Limited

(“Listing Requirements”), to allot and issue such shares to such persons and upon such terms as they, at their

discretion, may decide.”

5. General authority to issue shares for cash

Ordinary resolution Number 5

“Resolve: ‘That, subject to the passing of ordinary resolution No. 4, and in terms of the Listing Requirements, the

directors are hereby authorised, as a general authority, to issue ordinary shares of 0,3333 cents each in the

authorised, but unissued share capital of the company for cash, as and when the directors’ in their discretion deem

fit, subject to the following conditions :

– that, this authority shall not be extended beyond 15 (fifteen) months from the date of this annual general meeting;

– that, in the event of a 5% or more issue, a paid press announcement giving full details, including the impact on

the company’s net asset value and its earnings per share, will be published at the time of issue;

54

NOTICE OF ANNUAL GENERAL MEETING (CONTINUED)

5. Authority to issue shares for cash (continued)

Ordinary resolution Number 5 (continued)

– the relevant shares to be issued under such authority must be of a class already in issue;

– that any issue will only be made to public shareholders as defined in the Listing Requirements, and not to any

related parties, as defined in the Listing Requirements;

– that, issues in the aggregate in any one year will not exceed 15% of the number of shares of the company’s issued

share capital; and

– that in determining the price at which an issue of shares will be made in terms of this authority, the maximum

discount permitted will be 10% of the weighted average traded price of the shares in question, as determined

over the 30 days prior to either the date of the paid press announcement or, where no announcement is required

and none has been made, the date of the issue of the shares.”

The approval of a 75% majority of votes cast by all shareholders present or represented by proxy at the Annual

General Meeting is required for this ordinary resolution to become effective.

VOTING AND PROXIES

A member entitled to attend and vote at the Annual General Meeting may appoint one or more proxies to attend, speak

and vote in his or her stead. A proxy need not be a member of the company. A form of proxy for use by certificated

shareholders and "own name" dematerialised shareholders accompanies this notice. Duly completed forms of proxy must

be deposited at the office of the Transfer Secretaries not less than 48 hours before the time appointed for the holding of

the Annual General Meeting (excluding Saturdays, Sundays and Public Holidays).

Members who have already dematerialised their shares in the company other than with "own name" registration should

advise their Central Securities Depository Participant (CSDP) or broker of their voting instructions. Members should

contact their CSDP or broker with regard to the cut-off time for their voting instructions. If, however, such members wish

to attend the Annual General Meeting in person, then they will need to request their CSDP or broker to provide them with

the necessary authority in terms of the custody agreement entered into between the dematerialised shareholder and the

CSDP or broker.

By order of the board

Verimark Holdings Limited

Erica Schubert

Company Secretary

Pretoria

25 May 2006

55

DEFINITIONS

EBITDA:

Calculated as operating profit before net finance income/(costs), taxation, depreciation and amortisation.

OPERATING PROFIT:

Operating profit is net profit after depreciation and profit/loss on sale of assets, but before interest and taxation.

HEADLINE EARNINGS PER SHARE:

Net profit after taxation adjusted to exclude profit/loss on sale of fixed assets divided by the weighted average number of

shares in issue at the end of the year.

DILUTED HEADLINE EARNINGS PER SHARE:

Ordinary shares are diluted by potential ordinary shares arising from director’s share options warrants, convertible

instruments (e.g. debentures convertible into ordinary shares), contracts, that may be settled in ordinary shares (share

based payments).

NET ASSET VALUE PER SHARE:

Net asset value is shareholders’ equity divided by the weighted average number of shares in issue at the end of the year.

RETURN ON SHAREHOLDERS’ EQUITY:

Net profit after taxation as a percentage of average shareholders’ equity.

DEBT TO EQUITY:

Total interest-bearing debt divided by total equity.

56

ADMINISTRATION

DIRECTORS Dr JT Motlatsi – Chairman

MJ van Straaten – Chief Executive Officer

FPDuT Britz – Financial Director

HW Bonsma

JM Pieterse

SECRETARY EG Schubert

Bankforum Building, Lobby 4, First Floor

337 Veale Street, Brooklyn, 0157

REGISTERED OFFICE 67 CR Swart Drive, Cnr Freda Road

Bromhof Extension 48, Randburg, 2194

AUDITORS KPMG Incorporated

KPMG Crescent, 85 Empire Road, Parktown, 2193

Private Bag 9, Parkview, 2122

TRANSFER SECRETARIES Computershare Investor Services 2004 (Pty) Limited

70 Marshall Street, Johannesburg, South Africa, 2001

PO Box 24, Newtown, 2113

BANKERS ABSA Bank Limited

3rd Floor, ABSA Towers East

170 Main Street, Johannesburg, 2001

ATTORNEYS Jowell, Glyn & Marais

Jowell, Glyn & Marais House, 72 Grayston Drive, Sandown

PO Box 652361, Benmore, 2010

COMPANY REGISTRATION NUMBER 1998/006957/06

SPONSORS PSG Capital Limited

Woodmead Estate, 1 Woodmead Drive, Woodmead,2191

PO Box 987, Parklands, 2121

Printed by Ince (Pty) Ltd

FORM OF PROXY

VERIMARK HOLDINGS LIMITED

(Previously Creditvision Holdings Limited)

(Incorporated in the Republic of South Africa)

(Registration Number: 1998/006957/06)

Share Code: VMK ISIN: ZAE000068011

ONLY FOR USE BY REGISTERED MEMBERS (CERTIFICATED SHAREHOLDERS AND DEMATERIALISED SHAREHOLDERS

WITH "OWN NAME" REGISTRATION)

This form of proxy is not for use by members who have already dematerialised their Verimark Holdings shares other than

those with "own name" registration. Such members must give their voting instruction to their CSDP or Broker. For

completion by registered members of Verimark Holdings unable to attend the Annual General Meeting of the company

who wish to be represented thereat to be held at 11.00 on Thursday, 22 June 2006 at the offices of PSG Capital Limited,

Building 8, Woodmead Estate, 1 Woodmead Drive, Woodmead.

I/We

(Name in Block Letters Please)

of (address)

Telephone: (work) Telephone: (home)

Being a shareholder of the company entitled to votes

Hereby appoint of

Or failing him of

Or failing him/her the Chairman of the Annual General Meeting as my/our proxy to attend and speak on my/our behalf at

the Annual General Meeting of the company held at PSG Capital Limited, Building 8, Woodmead Estate, 1 Woodmead

Drive, Woodmead on Thursday, 22 June 2006 at 11:00 and at any adjournment thereof and to vote or abstain from voting

as indicated on the resolutions to be considered at the said meeting:

ORDINARY BUSINESS FOR AGAINST ABSTAIN

1. Ordinary Resolution number 1

To adopt the audited financial statements for the year ended 28 February 2005


To appoint KPMG as auditors of the company.


To re-elect the following directors as nominated:

MJ van Straaten

FPDuT Britz

JM Pieterse


All unissued shares under control of directors

5. Ordinary resolution number 5:

General authority to issue shares for cash.

Please indicate with an “X” in the space above how you wish your votes to be cast. If no indication is given the proxy will

vote or abstain in his discretion.

Any member of the company entitled to attend and vote at the Annual General Meeting may appoint a proxy or proxies to

attend, speak and vote in his/her stead. A proxy need not be a member of the company.

Every person present and entitled to attend and vote at the Annual General Meeting shall, on show of hands, have one

vote only, but in the event of a poll, every share shall have one vote.

Signed at on

Name in Block Letters Signature

Full name of signatory/ies if signing in a representative capacity (see note 6)

NOTES TO FORM OF PROXY

1. A member may insert the name of proxy of the member’s choice in the spaces provided. The person whose name

stands first on the form of proxy and who is present at the meeting will be entitled to act as proxy to the exclusion of

those whose names follow. In the event that no names are indicated, the proxy shall be exercised by the Chairman of

the Annual General Meeting.

2. Please insert an “X” in the relevant spaces according to how you wish your votes to be cast. However, if you wish to

cast your votes in respect of a lesser number of shares than the total number of shares that you own in the

company, insert the number of ordinary shares held in respect of which you desire to vote. Failure to comply with the

above will be deemed to authorise the proxy to vote or to abstain from voting at the general meeting as he/she

deems fit in respect of all the member’s votes exercisable thereat. A member or his/her proxy is not obliged to use

all the votes exercisable by the member or by his/her 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 member or by his/her proxy.

3. Holders of dematerialised shares other than with "own name" registration, must inform their CSDP or broker of

whether or not they intend to attend the general meeting and obtain the necessary authorisation from their CSDP or

broker to attend the general meeting or provide their CSDP or broker with their voting instructions should they not

be able to attend the annual general meeting in person.

4. Forms of proxy must be received by the company’s Transfer Secretaries, not less than 48 hours before the time

appointed for the holding of the Annual General Meeting (excluding Saturdays, Sundays and Public Holidays).

5. The completion and lodging of this form of proxy will not preclude the relevant member from attending the general

meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof.

6. Documentary evidence establishing the authority of a person signing this form of proxy in a representative or other

legal capacity (such as a power of attorney) must be attached to this form of proxy unless previously recorded by the

company’s Transfer Secretaries or waived by the Chairman of the Annual General Meeting.

7. 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.

8. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies.

9. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal

capacity are produced.

10. The chairman of the general meeting may reject or accept a form of proxy which is completed and/or received,

other than in accordance with these notes, if the chairman is satisfied as to the manner in which the member

wishes to vote.

Office of Transfer Secretaries:

Computershare Investor Services (Pty) Limited

70 Marshall Street, Johannesburg, South Africa, 2001

(PO Box 24, Newtown, 2113)

Telephone: (011) 370 5000

Facsimile: (011) 370 5271

verimark the very investment

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