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Nova teetering on the verge of insolvency

Despite qualified audit opinion, directors approve R1.1m in bonuses and pocket nearly R1 of every R4 of rental income.

The latest financial statements of the Nova PropGrow Group, the rescue vehicle of the failed Sharemax investment scheme, show the company is on the verge of insolvency.

The financial statements, which were published three months late, also received a qualified audit opinion from the group’s new auditor, Nexia SAB&T. The qualified opinion not only questioned the assumptions on which Nova’s property valuations were done, but also raised concerns about the company’s ability to continue as a going concern.

However, Nova’s directors expressed their belief that the group has adequate financial resources to continue as a going concern.

Despite the audit opinion and going-concern issues, the board approved the payment of bonuses of more than R1.1 million on top of their salaries of R15.8 million for the period (see table further on).

Financial position

The financial statements show that Nova suffered an operating loss of R36 million (2017: R87 million) and a net loss of R155 million (2017: R127 million) for its fiscal year to the end of February.

The balance sheet shows Nova had assets of R2.6 billion (2017: R2.8 billion) and liabilities of R2.557 billion. The technical definition of insolvency is when a company’s liabilities exceed its assets, and in Nova’s case, the assets barely exceed the liabilities, which makes Nexia’s qualified audit opinion related to the possible overvaluation of its property portfolio even more concerning.

If the property valuations were reduced by more than R75 million, liabilities would exceed the total assets, resulting in it being technically insolvent.

The group’s cash flow position is also dire.

Its operational activities burned another R23.7 million in cash (2017: R43.5 million). It is likely that Nova will only be able to continue operations from the further sale of properties and using the proceeds to cover operational expenses. This process seems to be ongoing. During the period Nova sold Checkers Virginia for R36.4 million and announced that subsequent to year-end, three additional properties were sold for R284.5 million. These properties are Silverwater Crossing, Benoni Hyper, and properties related to Brookfield Investments.

In the board report, signed by Nova CEO and company secretary Dominique Haese, Nova states that its financial position was not as bad as it seems as the net loss of R155 million includes accounting adjustments and once-off extraordinary items, which, if excluded, would have seen the group earn a profit of R8.9 million.

Auditors report and qualified opinion

The 2018 financial year was Nexia’s first audit of Nova and follows the resignation of BDO after it signed off the 2017 statements.

Nexia’s qualified audit opinion is a serious indictment of the financial statements as it means the auditor is in disagreement with the directors’ assertion of the financial position of the company.

The qualification relates to the assumptions used to value the underlying properties, especially assumptions related to vacancy levels and capitalisation rates, two critical factors affecting the valuations.

Nexia writes in the auditor’s report: “Having assessed the various key assumptions applied in the valuation process, we were unable to satisfy ourselves that the assumptions applied accurately reflected the existing conditions of the investment properties.”

Going concern

Nexia also questions whether Nova is in a financial position to continue as a going concern. Nexia writes in the auditor’s report: “… a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern” (author’s emphasis).

Nexia bases this conclusion on Nova’s net loss and its cash flow position.

Nova’s board disagrees with Nexia’s concerns.

In the director’s report, the board expresses its belief that the group has the resources to continue operating as a going concern. “The directors have satisfied themselves that the group is in a sound financial position and that it has access to sufficient resources to meet its foreseeable cash requirements.”

Delay in the publication of the statements

Nova only published the financial statements at the end of November, nine months after its year-end and three months later than the Companies Act prescribes.

Haese  said in response to questions that the “delay was occasioned by the fact that this was the first year of audit for the group’s new auditors, who needed to acquaint themselves with the group.”

Nexia did not want to comment.

Claims of ‘irregularities’ from dismissed financial director

Nexia’s qualified audit opinion follows similar claims made by Liezl Gildenhuys in court papers related to an unfair dismissal case before the Labour Court. Gildenhuys was appointed in November 2017 as the group’s financial director but was dismissed four months later.

Read: Former finance director claims Nova ‘misrepresented’ its financial position

She claims she uncovered serious irregularities in the financial statements, accounting practices and management of Nova, and that possible fraud was committed by misrepresenting  Nova’s true financial state.

She claimed these irregularities relate to the overvaluation of properties and that the proceeds from the sale of properties were used to fund operational expenditure and not to repay debenture holders or upgrade properties.

Gildenhuys alleged that she was fired after she reported these irregularities to the Nova board, Nexia and the Independent Regulatory Board for Auditors (Irba).

In responding papers, Nova strongly denied any wrongdoing. “In particular, the allegations regarding fraud, accounting irregularities and going concern issues are specifically denied and rejected,” Haese said at the time.

Salaries

Despite the precarious financial position of the group, the executive board members continued to receive significant salaries. The table below shows the salaries disclosed in the financial statements:

 

Basic salary

13th payment

Total

D Haese

 R4 035 775

 R332 750

 R4 368 525

C Mybugh

 R4 038 042

 R332 750

 R4 370 792

R Badenhorst

 R2 521 928

 R –  

 R2 521 928

D Koekemoer

 R3 362 566

 R277 292

 R3 639 858

MJ Osterloh

 R1 845 769

 R183 666

 R2 029 435

 

 R15 804 080

 R1 126 458

 R16 930 538

According to Moneyweb’s calculations, the board’s salaries represent 23% of the total cash the group received from customers in the 2018 financial year, as well as 10.9% of total operating expenses. This means the board pocketed nearly R1 of every R4  the company received as rental income from the investment properties.

 

2016

2017

2018

Total executive remuneration

 R15 083 101

 R15 021 771

 R16 930 538

Total cash received from customers

 R86 568 329

 R92 508 191

 R74 660 769

Percentage of salaries and cash bonuses in relation to total cash received

17%

16%

23%

Total operating expenses

 R137 315 542

 R154 440 995

 R155 596 652

Percentage of salaries and cash bonuses in relation to total operating expenses

11%

9.7%

10.9%

These salaries seem exorbitant, especially if compared to other property companies. For example, Pieter Prinsloo, CEO of international property group Hyprop, earned a basic salary of R4.1 million for the company’s financial year to the end of June.

Hyprop manages a property portfolio of more than R30 billion and owns prized retail shopping centres such the Rosebank Mall, Hyde Park Corner, Clearwater Mall, The Glen Shopping Centre and Canal Walk. The company also earned a profit of R2.5 billion for the period, which contributed to Prinsloo earning a performance bonus of R3.5 million.

Moneyweb sent a list of questions related to the financial statements to Haese, Connie Myburgh (executive chairman) and Charles Rembe (chairman of the audit committee). Rembe acknowledged receipt of the questions and said management would only be able to respond to the questions when they return to the office, which may only be next week. Moneyweb will publish the response when it is received.

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“Plein boere verneukery!”

The fee structure does seem to be excessive or overdone.

But “Assets barely exceed liabilities”? thus the company is not insolvent yet.

skating on thin ice don’t need to be a genius to see what is coming

So you’re willing to invest your savings in it? I wouldn’t.

In high Dutch, it’s what is known as a ‘F#kkerij’ (fokkerij). In case there any gasps of horror, this is simply animal husbandry or breeding. Here it is boere verneukery being bred between a really slimy group of crooks. They will get their comeuppance in due course…

Don’t worry. It’ll all be sorted out when Nova lists on the JSE. Oh, wait….

Exactly, we seem to buy anything on the JSE.

We ignore Brexit, US vs China trade war, FED rate increases.

When other markets get big corrections, we keep on buying.

LOL, Just like ORTHOTOUCH, they were also going to list on the JSE, big song and dance made about it, then there was radio silence… not even an explanation whyit was not materialising! #SameSame

This is a train crash in slow motion. A drawn out disaster. The anxious passengers are sitting tight, waiting to be reimbursed for the train ticket. In the mean time the drivers are preparing to abandon the train after they have stolen all the cash. This won’t end well for the poor passengers……

These directors appear to be quite incapable of feeling any shame. Or empathy.

Julius, focus on self enrichment might have something to do with that deficiency??

Fairly easy, with hindsight, to deduce what were their intentions right from the beginning. Thus, no shame, no “Oops!”
Only “We’ve gotten away with it to now.”

In the old days they used to sacrifice heretic and criminals at the stake – maybe they need to reintroduce such punishments just to correct peoples behaviour

The Regulators have NO TEETH, so Corporate SA will keep doing as they please and pay themselves. Corporate SA will keeping showing shareholders the “middle finger”…..

Clearly, Steinheist is a contagious sickness.

SA is the “Wild, Wild West”

Anyone who invests in a share like this expecting even short term profit needs to lose their shirt. In my opinion.

In the event of insolvency, where does this leave the Debenture Holder? Also, those Debenture Holders of previously sold properties – why was the money received on the sale not invested as we were told it would be…
AA

After viewing the executive Salary-table, it’s concerning to see “R Badenhorst” has NOT received a 13th cheque, while the rest did!

This is an unacceptable & unfair staff practice. Please sort this out NOW since there seems to be enough money for all 😉

Is it mere COINCIDENCE that HANS KLOPPER, DEREK COHEN and CONNIE MYBURG (All of whom have recently resigned from involvement with ORTHOTOUCH (Ex PC/PICKVEST) were/are also involved with NOVA (Ex SHAREMAX)?? It doesn’t take rocket science to join the dots. #JustSaying …

It is mind boggling… even though the media, particularly the guys (Julius C and Ryk vN) at Moneyweb, who have been doing a sterling job with extensive investigative reporting for at least 8 years on the failed Property Syndications, that the Regulators / Justice System have not stepped in long ago to put an end to these debacles and destruction of lives? #MakesOneWonder …

I applaud your tenacity Ryk, keep up the good work and continue digging up the dirt!!

Our regulators cannot even regulate themselves. Once faced with a difficult decision, they are removed to another job. How, in all due respect,can we expect from these clueless people to dictate to a listed company. Maybe the best experience in business they have was running a Spaza shop selling airtime
and the exorbitant salaries they earn
FG

This report published in 2011…
It appears now that nothing has been or will be recued for the Investors……False hope has been given without shame
The luxurious lives of Sharemax bosses
Nov 13 2011 11:03 Jaques Pauw

Johannesburg – This is the luxury life of the two top managers of collapsed property syndication company Sharemax – while thousands of investors have lost most, if not all, of their money.

City Press has traced about R250m of assets owned by trusts and companies of Sharemax’s former managing director, Willie Botha, and his marketing manager, Andre Brand.

Botha and Brand were, for almost a decade, at the helm of Sharemax as about 40 000 people invested an estimated R5bn in the company’s 50 property syndicates.

The Reserve Bank ruled in May last year that Sharemax had contravened the Banks Act and had illegally collected deposits from investors.

City Press can reveal this week that one of Brand’s acquaintances, Wietz Nell, has handed incriminating documents and information to the police’s Hawks unit.

The Hawks would not say whether they have launched an investigation against Botha and Brand.

In the documents, Brand accused Botha in a memorandum of illegally pocketing at least R9m of money intended for investors.

Brand also alleged that Botha had, over a period of four years, pocketed R53m in “commission” from a Sharemax front company. Brand demanded a R24.5m share from Botha.

Botha this week ignored multiple attempts to get comment.

Brand said this week that Nell had obtained the documents dishonestly, but he did not deny their veracity.

Brand said that he had in the meantime cleared his complaint with Botha and that he withdrew any allegations against him. He said he now believed the money was paid legally to Botha.

Tomorrow, a group of Sharemax investors plan to bring an urgent court application to declare Sharemax bankrupt, and to freeze the assets of Botha and Brand.

Among the assets that the investors want frozen is Botha’s luxury yacht, which he keeps in the Egyptian port of Hurghada in the Red Sea.

The Italian-designed Scuba Scene is apparently worth between R120m and R150m, and is wholly owned by the Willem Botha Family Trust.

The boat has its own website and is described as “43 metres of classic nautical beauty and luxury”.

It says the Scuba Scene is a “true marvel of design, technology and style to provide all its passengers with an aesthetically pleasing masterpiece”.

The investors also want to ask the high court to prevent Brand from selling his 3 000 hectare game farm near Thabazimbi in Limpopo.

The game farm, Thaba Motswere, has been valued at R79m, and has giraffe, eland, kudu, gemsbok, cheetah and leopard.

The farm’s lodge alone cost Brand an estimated R20m to build and resembles a five-star hotel with all possible amenities.

Brand is desperate to sell the farm and even considered a price of R21.5m last month.

Botha has an equally luxurious game farm in Marken in Limpopo that is thought to be worth even more as it has the Big Five – elephant, rhino, buffalo, lion and cheetah.

Botha lives in a double-storey villa in the exclusive Silver Lakes Estate in Pretoria. Brand recently signed a contract to sell his mansion in Mooikloof in Pretoria for R15m.

Botha was in August “relieved” of his duties and resigned as director. Brand has also since left the company.

In September, the Reserve Bank put Sharemax under statutory management, ordering Sharemax to repay its investors, but there was no money left to do so.

The documents that City Press obtained shows that after Botha and Brand had left Sharemax, they were still paid R15m commission.

The company that is managing Sharemax on behalf of the Reserve Bank, Frontier Asset Management and Investments, did not respond to queries this week.

A forensic auditor, André Prakke, studied the documents obtained by City Press and concluded that there was evidence of money laundering, theft and fraud.

Prakke says that 80% of the money that was invested in Sharemax is gone.

Prakke has investigated Sharemax for many years and has submitted statements about the company to the high court.

He says that the commission that Brand refers to in his memos to Botha has never been revealed in any of Sharemax’s property portfolios.

– City Press

And the up to ten percent commission per case that each broker received on the share max cases they wrote up. Can this not be reclaimed…..?

Interesting verdict in High Court KZN case 4827/2013 where the judge found that Sharemax scheme did not fail because of reasons as widely propagated by Mr Prakke and supported by Moneyweb.

The judge found that the cause of the loss was the intervention by the Reserve Bank.

Moneyweb report and comments on this verdict would be appreciated.

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