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Nova admits to valuation error, restates financials

Company appoints new directors, writes down R1.36 billion of Villa and Zambezi valuations and discloses dominant shareholding of directors.

Sharemax rescue vehicle Nova Property Group aggressively wrote down the valuations of the half-built Villa Retail Park and the Zambezi Mall by more than R1.36 billion and appointed five new directors to its board to ensure compliance with the Companies Act.

Nova also disclosed – for the first time since the company’s inception – the dominant shareholding of the four directors. They received these shares for free and fought Moneyweb for three years up to the Constitutional Court to keep it a secret.

Read:  Part 1: ‘Corporate capture’ of Sharemax rescue vehicle

Read: Part 2: Shareholder structure hides how directors acquired 87.1% of Nova shares

This was all revealed in the company’s 2017 annual financial statements, which were released earlier this week, together with the group’s circular that proposes the listing of Nova on the JSE.

These significant developments follow an “extensive investigation” by its auditor BDO into a range of potential accounting irregularities at the company that was set up to rescue investments worth over R5 billion in the failed Sharemax scheme.

The investigation by BDO was triggered late last year after Moneyweb flagged numerous accounting anomalies, including those rectified in the statements, ranging back to the original Section 311 Scheme of Arrangement. It also prompted the reporting of two Reportable Irregularities to regulatory body Irba.

Neither BDO or Nova responded to questions or requests for comment on these developments.

Revaluation of the Villa and Zambezi

The most notable impact on the restated financial statements of the company is the R1.3 billion write-down of the half-built and derelict Villa Retail Park and the Zambezi Mall developments in Pretoria.

Nova refers to this adjustment as follows in the statements:  

“The assumptions made in prior periods with regard to investment properties The Villa Retail Park and Zambezi Retail Park, in applying IFRS 13 to determine fair value, were made in error and had more appropriate assumptions been made in the unique circumstances that existed, it would have been clear that fair value as previously disclosed was not appropriate. Due to the materiality of the above matter the financial statements have been restated.”

The four Nova directors: Dirk Koekemoer, Rudi Badenhorst, Connie Myburgh and Dominique Haese.

In 2016, Nova published valuations of R1.668 billion for the Villa and R620 million for Zambezi developments and stated that these were valuations of an independent valuer.

Moneyweb later established that these valuations were not the signed valuations of the independent valuer. The new values of R616 million and R307.5 million, are values derived from the independent valuation report. The revaluation also followed after Ratings Afrika CEO and chartered accountant Charl Kocks lodged a complaint at Irba.

These adjustments saw the reversal of accumulated profits amounting by R945 million, which flowed from the historic overvaluation. This may also have played a significant role in the writeback of R11 million of accrued bonuses of the four directors – Connie Myburgh, Dominique Haese, Rudi Badenhorst and Dirk Koekemoer (see below).

Although these adjustments did not have an impact on cash flow for the operational performance of the company, it casts question marks over the management of the group and the quality of BDO’s historic audits.

New directors

Nova also appointed five new directors to its board. This was after Moneyweb cited a contravention of the Companies Act and BDO filed a Reportable Irregularity (IR) at Irba during its investigation and audit process of the 2017 statements.

Matthew Osterloh, a long-standing senior manager at Nova, was appointed as a fifth executive director to join the other four directors. Osterloh is also one of Nova’s founding shareholders who received free shares in Nova, through the 2011 Scheme of Arrangement.

Four other non-executive directors were also appointed. These directors are CNS Rembe, JG Smit, LM Mbethe and N Adriaanse. Rembe is the chairman of the audit committee and he signed the published Audit Committee report in the published financial statements.

Operational performance

Nova’s statements continue to show the dire financial state the company finds itself in. The group’s revenue – mostly rental income from tenants – declined from R98 million to R83 million. The operating profit of the previous year of R14 million slumped to an operating loss of R87 million.

The cash flow statement also shows that operating activities burnt nearly R43 million cash and continues the trend that Nova has never reported a positive operational cash flow since its inception in 2012.

For the whole year, Nova saw a cash outflow of nearly R34 million and at the end of February 2017 had only had R8.7 million in its bank account. The board also disclosed that it is currently in the process of selling the Checkers Virginia property for R36.5 million.

Interestingly, Myburgh reportedly told Rob Rose of Financial Mail this week that “People do not know what we do every single day — we work 20 hours a day, we don’t play golf.”

Salaries

Despite the poor operational performance, the four directors – who own 91% of the company’s voting rights – continued to pay themselves exorbitant salaries. They also paid themselves annual bonuses ranging from R27 000 to R82 000.

The total cash remuneration and bonuses paid to the directors amounted to R15 million, which represents 17% of the cash the company received from the tenants of its various properties.

The individual packages are listed in the table below and show that they earn between R280 000 and R336 000 per month.

These salaries and bonuses were paid despite the board’s decision to suspend interest payments to debenture holders in December last year. Haese said at the time this was necessary as the group could not secure external funding to upgrade and maintain underlying properties.

2017

Basic salary

Bonus

Accrued bonus

Total

D Haese

R4 036 036

R82 750

-R3 021 476

R1 097 310

R Badenhorst

R3 365 343

R27 292

-R2 716 608

R676 027

D Koekemoer

R3 362 266

R27 292

– R2 596 233

R793 325

C Mybugh

R4 038 042

R82 750

– R3 195 000

R925 792

 

R14 801 687

R220 084

R11 529 317

R3 492 454

         
 

Basic salary per month

Salary per day

Increase from 2016

 

D Haese

R336 336

R11 058

8%

 

R Badenhorst

R280 445

R9 220

8%

 

D Koekemoer

R280 189

R9 212

8%

 

C Mybugh

R336 504

R11 063

8%

 
 

R1 233 474

R40 553

   

Read: Staggering salaries of Sharemax rescue vehicle directors.

Silverwater and Magalieskruin

Nova announced in April that it would repay the debentures on Silverwater Crossing and Magalieskruin. These repayments were scheduled for September 30, but Nova failed to fulfil its commitment, apparently due to an incomplete FICA process of the debenture holders.

It has now become apparent that these payouts will only occur during the proposed listing when cash from a new investor would be used to settle the debentures.

Nova and BDO non-response

Moneyweb sent a set of questions to Haese and Myburgh on Wednesday in an effort to obtain some clarity on various aspects of the appointment of the directors, financial statements and the proposed listing. Neither director responded to the email.

 

Nova suspended all communication with Moneyweb late last year claiming that Moneyweb was waging a vendetta against Nova and the directors.

This was after Moneyweb revealed that the directors collectively received 87% of the issued share capital for free. (See statement below)

BDO issued a statement after the publication of the article which said: 

“As previously advised the Auditing Professions Act prohibits us from sharing client information with third parties, save with the client’s consent and we are obliged to, and will comply with these professional standards of client confidentiality. Enquiries regarding Nova, should accordingly be directed to the Nova Property Group.”

In the last communication from Nova with Moneyweb, Haese stated:

Dear Mr van Niekerk,

It is regrettable that our efforts in engaging Moneyweb openly, constructively and in a bona vide fashion has (sic) not been reciprocated. In response Moneyweb has chosen to publish articles without prior reference to us, and in breach of your undertaking to allow us to see and comment on the articles first, which articles twist the facts, articulate a number of inaccuracies and untruths and seek to slander and defame the Nova Group and its directorate. We are considering our position and our rights in this regard are reserved.

It has become clear to us that any information that is provided by us to Moneyweb, will be twisted and used out of context for the purpose of further negative reporting of and concerning the Nova Group and its directorate and given that no further productive purpose would be served in engaging with Moneyweb, the Nova Group has decided to break off all forms of communication with Moneyweb.

We will accordingly no longer respond to questions Moneyweb pose to us, requests for commentary on proposed articles or for that matter to any articles that Moneyweb might publish, subject of course to a reservation of the right to deal with any matter Moneyweb might publish, in a court of law.

Please ensure, should you elect to publish anything further regarding the Nova Group and any of its functionaries, that you include in such publication our above position, verbatim.

Yours faithfully,

Dominique Haese

CEO Nova Property Group

AUTHOR PROFILE

COMMENTS   14

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What a spectacular ongoing mess. I can’t see how listing this will work. The market will tank it permanently on day 1

To contemplate to list a property group with such rotten apples in the mix, that can’t make any net profit and that is close to total bankruptcy is ludicrous and irresponsible. The listed marked will hammer the portfolio value down to junk due to the lack of positive return on equity and the worthless properties within the asset mix (as has been the case with the listed Bonatla Property Group as one example).

And just where is the FSB as this theft continues.

It’s actually the S.A. Reserve Bank that should act. The group was under their directive and their oversight when this fraudulent scheme of arrangement were implemented. The Reserve Bank should challenge the status quo and rectify the investor shareholding interests.

Reserve Bank

Oh, that bunch of sorry crooks thats supposed to be a state/public entity but operates under a shroud of secrecy which refuses to disclose its directors, and generates punitive laws that hurt the flow of currency, as opposed to benefiting ?

Much like SARS and the rest of the SOE’s…….dont count on any integrity from them

…And we all thought the Guptas were rogues!!!
Daily we read of scam after scam, daily we hear of the general public, pensioners, etc., loosing millions due to scams, Ponzi schemes, etc. SupremeBond, MasterBond, ThreeM, Sharemax, DefenceX, Progresive Systems, etc.,…. And yet those in positions of trust, be it government or private sector, appear to get away with all manner of deceit and fraud.Court cases extend over decades during which time there are escape loopholes, i.e. Israel or Aussie.As a contributor below noted, where are the “oversight bodies”?

Totally agree…the Guptas are dirty but the dirt was within our ranks already. What this proves is that there is potentially as much corruption/fraud in the private sector as there is public.

How blind is the ombudsman? Going after the brokers, and leave the people that enjoy the feast of the spoils alone.These directors have long forgot the elderly investors that had hope to get incomes and the return of their money. Can you for one moment think they did not know what is in for them with this move? Stealing millions without anybody bringing them to book. Come on Magnus Heystek or Carte Blanche, investigate and expose them.

You would have to be a special kind of idiot to invest in this scheme or lend it money. I would think next item is that the banks drop them

Nou het ek alles gehoor: ‘n notering van hierdie bisarre oorgewaardeerde, onderbestuurde, oorbetaalde direksie-gemors? Die hartseer feit aan die ander kant is dat daar nie juis ‘n goeie opsie is om die Sharemax-gemors reg te sien nie, en vir die baie pensioenarisse wat hierin belê is, voor hulle afsterwe ten minste ‘n redelike deel terug te gee nie; maar dit sal ‘n goeie begin wees as die direkteure, hulle eie vergoeding verlaag tot iets wat daarop dui dat hulle dalk skaam kry oor wat hulle aangejaag het.

En waar is Willie Botha en André Brand wat met miljoene weggehardloop het? Dis mense soos Willie Botha wat die bourekenaarsberoep ‘n slegte naam gee.

Ryk and MW team – well done for persevering and keeping us informed as to the irregular and (dare I say it??) possibly fraudulent but certainly unethical and immoral activities of Mr Connie Myburgh and his merry looter friends. (I hope you still post this comment)
The recent actions show they want to try clean up their act and obtain investor support – not from me with the current band of /%%$#@@ in charge.
I really pity the old people who lost so badly – I wonder if Myburgh and Haese ever stop to consider the personal tragedies they created.
Keep up the good work.

i read somewhere that south African auditors were supposed to be amongst the best in the world. well I WAS a sa auditor – I am glad I am no longer. first KPMG now BDO – what a joke

The privileges of being the editor. Own article still remains editor’s second choice after 4 days of very original articles by other correspondents.

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