ANNUAL REPORT 2009 - ShareData Online · Affairs’ paper-based fingerprint records is still the largest ... Management based in Cape Town. ... driver’s license card by the Department

ANNUAL REPORT 2009

Listed on the AltX board of the Johannesburg Securities

Exchange, Ideco Group Limited (IDE) is an established

leader in the application of biometric technology and

southern Africa’s sole distributor of Sagem fingerprint

biometrics.

The Group’s digitisation of The Department of Home

Affairs’ paper-based fingerprint records is still the largest

project of its kind in the world.

Through AFISwitch, Ideco operates South Africa’s only

commercially-available, automated link to the SAPS

criminal record database.

In addition to our extensive work with Government, we

are the world’s largest distributor of Sagem fingerprint

biometrics for access control and time management

solutions.

There are now over 50 000 Sagem fingerprint readers

deployed across southern Africa, securely controlling

workplace access for almost two million people in a

diverse range of professionally-managed, security-

conscious businesses.

Identity Management

The optimum identity management solutions are founded

on technologies that can accurately and consistently

confirm the identity of an individual.

Identity management solutions start by creating a unique

link between an individual and a definitive biometric

characteristic such as a fingerprint. This unique link

then enables continual identification for a wide range of

purposes.

For example, within government, biometrically-empowered

identification can be incorporated in official credentials

such as birth certificates, national ID documents, drivers’

licences, pension and health cards, passports and work-

permits. Amongst law enforcement agencies, fingerprint

biometrics have been used for decades and Ideco works

closely with such organisations in South Africa.

Commercial applications for biometrics are equally diverse.

Fingerprint biometrics are commonly used in large-scale

solutions for workplace access management where they

have an established reputation for far greater security,

accuracy, speed and integrity than traditional PINs, access

cards and passwords.

PROFILE

IDECO 2009 Annual Report 1

Contents Page

Financial highlights 1

Board of directors 2

Group structure 3

Executive chairman’s report 4

Corporate governance 8

Analysis of shareholders 11

Statement of responsibility by the board of directors 12

Statement of compliance by the company secretary 12

Independent auditor of Ideco Group Limited 13

Directors’ report 14

Income statements 16

Balance sheets 17

Statements of changes in equity 18

Cash flow statements 19

Notes to the financial statements 20

Notice of annual general meeting 51

Form of proxy Inserted

IDECO GROUP LIMITEDANNUAL REPORT 2009

FINANCIAL HIGHLIGHTS

2009 2008 2007

R’000 R’000 R’000

Revenue 83 076 113 645 209 471

Operating (loss)/profit (14 788) (563) 31 317

Total assets 121 954 85 793 55 692

Cash and cash equivalents 8 247 (2 792) 26 177

Shareholders’ equity 28 781 40 872 16 589

Number of shares in issue 202 222 222 202 222 222 25 000 000

Weighted average number of shares 202 222 222 127 550 685 25 000 000

Headline (loss)/earnings per share (cents) (5,69) (0,43) 88,84

Basic (loss)/earnings per share (cents) (5,98) 2,35 88,85

Net asset value per share (cents) 14,23 20,21 66,36

IDECO 2009 Annual Report2 IDECO 2009 Annual Report 3

GROUP STRUCTURE

Ideco Biometric Security Solutions (Pty) Limited (“IBSS”)

is the sole supplier of Sagem biometric products in

South Africa. IBSS distributes and supports Sagem’s

fingerprint scanners for access control and time-and-

attendance solutions through its partner network which

covers the entire country.

Ideco Technologies (Pty) Limited delivers large-scale

biometric and identity management projects which

typically range from 12 to 60 months in duration.

Ideco AFISwitch (Pty) Limited operates a system

developed by Ideco to provide automated criminal

background checks to the private sector and members

of the public in terms of an agreement with the South

African Police Service.

Ideco Biometrix (Pty) Limited supplies biometric

equipment to the public sector on contracts

administered by the State Information Technology

Agency and the Electronic Communication Security

Company. This equipment ranges from physical and

logical access control scanners to forensic fingerprint

acquisition stations.

Managed Integrity Evaluation (Pty) Limited (“MIE”) is the

leading provider of background and pre-employment

screening services in South Africa. MIE’s verifications

integrate seamlessly with clients’ HR decision-

making process, adhering to published service-level

agreements and adding value by managing risk. The

types of services that MIE provides include: criminal

record checks, credit record checks, motor vehicle

reports, employment verification, education verification,

reference checks, and professional certification

verifications. MIE is a registered Credit Bureau.

Ideco Identity Solutions (Pty) Limited is a newly formed

company specialising in identity management services

in the retail and financial services sectors.

IDECO GROUP LIMITED

IDECO Biometric Security Solutions

(Pty) Limited – 100%

IDECO Technologies (Pty) Limited – 100%

IDECO AFISwitch(Pty) Limited – 100%

IDECO Biometrix(Pty) Limited – 100%

Managed Integrity Evaluation


IDECO Identity Solutions


BOARD OF DIRECTORS

Vhonani Mufamadi (41)Executive chairmanBA LLB (Wits)

Vhonani completed his articles with Edward Nathan and

was admitted as an attorney to the High Court in 1991,

but left the legal profession in 1997 to follow several

investment opportunities in consumer goods distribution,

the ICT sector and infra-structure engineering.

He was one of the founding members of Ideco and served

on boards and governing structures of, inter alia, Business

Map, Tiso Group and the University of Witwatersrand.

Malose Kekana (39)Non-executive directorBComm (Witwatersrand)

Malose until recently served as chief executive officer

of the Umsobomvu Youth Fund (UYF). He had several

positions in banking before starting Prodigy Capital,

a private equity fund associated with Prodigy Asset

Management based in Cape Town. After that, he started

Baswa Investment Company to participate in Black

Economic Empowerment Transactions as a youth

investment group.

Malose serves on the Board of the Black Management

Forum Investment, Where he is the Deputy Chair and

chair of the Investment Committee since 1998. He serves

on the Council of the University of Limpopo. He was

appointed onto the Council for the Support of National

Defence which is charged with supporting the National

Reserve Force and the SA National Defence Force.

Ayanda Sisulu-Dunstan (33)Non-executive directorBachelor of Arts (Hons) (Wellesley College, Boston, USA)

Ayanda is a business development director with

responsibility for State Owned Enterprises at Rand

Merchant Bank.

She was previously a fixed income sales trader in

RMB Treasury. Ayanda began her career as a Private

Equity analyst at Brait Capital Partners and has 9 years

investment banking experience.

Rainer Troester (53) (German)Non-executive directorBBA Business Administration, Business Administration (University of Applied Sciences)

During his career he has worked in different management

positions as an employee of Siemens AG and IBM

Germany before founding his own IT technology

consultancy company in 1997.

Since 2002 he has concentrated on biometric business

in European markets. In 2006 his company merged with

idematrix from Switzerland, an established international

biometric identity management solution provider.

HB Aucamp (59)Financial directorBCom (Potch), BCompt (Hons) (Unisa), CA(SA)

After completing his articles, he joined Deloitte in

Bloemfontein as audit manager and qualified as a

chartered accountant in 1979.

After a career as financial manager in the fertilizer industry,

he set up a financial consultancy business and consulted

for various listed and unlisted companies in the fertilizer,

engineering and ICT sectors.

He has been involved with the founders of Ideco since the

early nineties and has advised them on financial matters

before and after formation of the Ideco Group.


in these sectors was also scaled down. However this

business appears to have stabilised and tracking back to

earlier levels of growth.

Compared to the previous reporting period, where sales

of biometric readers to the public sector comprised 25%

of segmental revenue, sales to the public sector for the

period under review was less than 1% of segmental

revenue. This trend tracked government expenditure

pattern in the sector, and accordingly it is expected to

recover well along with the planned increased government

spending. Many key biometric and related projects

were cancelled by government and are gradually being

reintroduced for implementation. These include the

procurement of fingerprint readers by the police for a

multiplicity of applications; and the introduction of a smart

driver’s license card by the Department of Transport.

Secure credentialing services

This segment provides fingerprint-based criminal record

checks in terms of a long-term agreement with SAPS

as well as background screening services for employers

on existing and prospective employees. The activities of

this segment are conducted in two companies: Ideco

AFISwitch (Pty) Ltd (AFISwitch) - offering criminal record

checks and MIE – offering background screening services.

The AFISwitch results were previously included in the

biometric readers and solutions segment, but AFISwitch’s

activities are more closely related to those of MIE, hence

the re-classification in this new segment.

Revenue from criminal background checks increased by

177% for the year ended 31 August 2009 compared to

the annualised revenue for the eighteen months ended

31 August 2008. This is testimony to the widening rollout

of the AFISwitch infrastructure and service, which will

drive a significant part of the Group’s future growth. The

effective date of the acquisition of MIE as a wholly-owned

subsidiary was on 1 July 2009, and therefore only two

months of that company’s results are included in the

segmental results. MIE has a strong trend of growth and

profitability over the last 21 years of its existence.

Biometric projects

Revenue generated by this segment was 4,5 times higher

than the annualised revenue for the eighteen months

ended 31 August 2008. The main reason for this increase

is the commencement of the five-year contract for the

delivery of drivers licences in Namibia in December 2008.

Financial overview

The operating loss of R563 000 for the eighteen months

ended 31 August 2008 included a once-off profit on the

sale of property of R4,1 million, making the operating

loss from trading activities for that period R3,5 million.

The operating loss of R14,8 million for the year ended

31 August 2009 was therefore effectively R11,3 million

higher than the previous 18 month reporting period. The

major contributing factors to the increase in the operating

loss were the reduced sales of biometric readers in the

government sphere and increased operating costs

Vhonani Mufamadi

Executive chairman

Introduction

Since our listing in 2007 this is our first report covering a

twelve month period of operations. The preceding report

covered a period of eighteen months following the change

of our financial year in August 2007 from the end of

February to the end of August.

The year under review

The difficult trading conditions which, for us, started in late

2008 continued well into 2009. In this time we have seen

poor sales of biometric devices and solutions in both the

private and public sectors. However the decline appears

to have bottomed out as we have been doing business

at a stable level for several months now. We are now

focusing our effort on driving growth back to pre-decline

levels and beyond. The demand for biometric devices

is getting more and more robust; and we are expanding

our criminal background checking service, as well as

acquiring new business for our solutions and services. In

this context the highlight of the year ended August 2009

was the acquisition of the 70% share in Kroll Background

Screening (Pty) Limited, which was not already held by

Ideco and thereby making it a wholly-owned subsidiary of

the Group. The company was renamed Managed Integrity

Evaluation (Pty) Limited (MIE) – thereby returning to its

South African roots when it traded as MIE until 2003.

The Group was also re-organised into three business

segments:

Biometric readers and solutions;

Secure credentialing services and

Biometric projects.

The reorganisation has been implemented to enhance the

Group’s efficiencies in operations.

Biometric readers and solutions

This segment combines the activities of Ideco Biometric

Security Solutions (Pty) Limited (IBSS) and Ideco Biometrix

(Pty) Limited (Ideco Biometrix). IBSS distributes biometric

readers through a partner channel to the private sector,

while Ideco Biometrix supplies such readers directly to

government departments.

The economic downturn resulted in a slow-down of

revenue growth in sales to the private sector, where

the growth rate decreased to 11% compared to the

annualised revenue for the eighteen months ended

31 August 2008. These biometric readers are usually

integrated into security and /or payroll solutions on the

mines, factories, office blocks and residential complexes.

As the recession entrenched in 2008/2009 expenditure

EXECUTIVE CHAIRMAN’S REPORT


Other projects and prospects

We have concluded a three year ticketing agreement

with the Bombela Operating Company in charge of

operating the Gautrain service, following the award of

the international tender to us. Ideco won this tender with

its offer of a card ticketing solution on par with similar

services in major cities such as Paris and London. This

award signals industry recognition of Ideco’s solution

offerings and expertise, and further boosts prospects

of growth in the company’s sector of activity – identity

management and related services. In this tender we

offered a solution in partnership with ASK of France,

who supply a wide variety of secure card, document and

border control solutions. Following on the early success

of this partnership, we are exploring extension of our

business cooperation in southern Africa.

The Group’s biometric solutions for specific sectors such

as retail, micro-lending and credit bureaux are gaining

momentum and management is confident that these

sectors will provide solid revenue streams in the near

future. The company is currently negotiating contracts with

specific customers for the use of its technology solutions

in these sectors. These contracts are expected to be

concluded and implementation to commence in the year

to end August 2010.

Ideco has also concluded a memorandum of

understanding with MorphoTrak Incorporated, the USA

subsidiary of Sagem Defence Securité, France to explore

the US market for the establishment of a joint venture

to distribute Sagem biometric scanners in that market.

This follows the successes of the Ideco distribution

model in the South African market which appears to have

good resonance with the access control and time and

attendance market in the USA as well. Ideco’s contribution

to this exploration has been to transfer two of its experts

into the employ of MorphoTrak for a 12 month period.

Initial reports on the viability of the venture are very

promising.

We wish to thank all our stakeholders for their support,

especially our employees who have worked hard and

remained loyal to the Group during this difficult year. We

are also grateful to our suppliers and distribution partners

whose loyalty is critical to our growth and success.

Vhonani MufamadiExecutive chairman

of R4 million for the further rollout of the criminal record

checking service. The bulk of the cost in the rollout

was rental of equipment which is being installed at 350

drivers licence testing stations. Furthermore, the Group

staff complement, excluding the new acquisition, MIE,

increased by approximately 20%, especially in the fields

of research and development and sales. The increase in

staff complement was necessary in gearing for the delivery

of the AFISwitch service and new product research and

development to stay abreast of industry development. An

increase of R3,1 million in finance charges and a reduction

of R1,5 million in investment income resulted in a loss

before tax of R16,8 million compared to a profit before tax

of R2,4 million for the eighteen months ended 31 August

2008.

Property, plant and equipment increased by R3,4 million,

mainly due to the acquisition of MIE, which includes an

unencumbered fixed property of R2,3 million. The big

increase in other non-current assets is mainly as a result

of goodwill on the acquisition of MIE. The increase in

computer software is also mainly due to the acquisition

of MIE, which owns the trademark NQR software used to

check qualifications in the background screening industry.

The right of use of R15,9 million referred to in note 10 in

the consolidated annual financial statements is in respect

of a charge by Sagem Security SA (Pty) Limited (Sagem),

which entitles AFISwitch to make use of the South

African Police Services (SAPS) Automated Fingerprint

Identification System (AFIS). The payment of this amount

is part of AFISwitch’s agreement with SAPS relating to

criminal background checking service. This amount will be

amortised over the remaining period of the agreement with

SAPS.

Inventories mainly consist of biometric readers held in

IBSS – the subsidiary focused on the access control and

time & attendance business. The inventory increased by

about 14%, which was in line with the increased revenue

of the subsidiary.

The major addition to non-current liabilities is the

cumulative redeemable preference shares issued to the

National Empowerment Fund Trust (NEF) to finance the

acquisition of MIE. The dividend rate of the preference

shares is 75% of the prime overdraft rate. The other

non-current liability consists of a bond registered over a

property in Centurion, with an outstanding balance of

R2,6 million.

Trade and other payables increased by R2,6 million, mainly

as a result of the acquisition of MIE.

The other current liabilities consist of an amount of

R24,4 million due to Sagem which was taken over in

respect of the SAPS AFIS referred to above. The balance

of R2,9 million formed part of the MIE transaction and was

repaid in October 2009.

Prospects

Biometric readers and solutions

It is expected that segmental revenue in the private

sector will remain constant until the economic recovery

is well underway. Ideco’s certified partners have however

submitted several proposals to their customers for new

biometric applications in respect of risk management and

cost control, which could make up for the lower revenue

due to the generally poor economic climate.

Ideco has also been appointed as a sub-contractor to

supply biometric components and systems by several

suppliers who are contracted by government for various

security projects. Therefore, management is confident that

stronger sales to the public sector will resume in the year

ending 31 August 2010.

Secure credentialing services

The criminal record checking service, conducted by

AFISwitch, will continue to show strong growth. This

company has commenced the implementation of the

service to the Department of Transport for Professional

Drivers Permits, which constitute approximately 50%

of the service capacity. The installation of background

checking equipment at the 350 testing stations

countrywide has begun and will continue throughout

2010. The agreement concluded in May 2009 for the

management of more than 300 000 identity profiles will

also be implemented during 2010, further providing

predictable annuity revenue flow to the Group.

The acquisition of the remaining 70% of MIE will enhance

the performance of this segment for the year ending 31

August 2010. This will be the first reporting period in which

MIE’s full year results will be included in Ideco’s Group

results. MIE has an excellent profit and revenue growth

history. MIE has gained several new customers and

has also obtained security clearance to do background

screening services for government departments.

Biometric projects

We expect to add a few more projects similar to the

Namibian drivers licence project, as more such project

tenders are adjudicated in 2010 and beyond. Most

governments in the southern African region have issued

tenders for the procurement of various biometric systems

ranging from identity to border control systems. As

biometrics gain wider usage in the world and this region,

Ideco is well positioned to capture a good share of this

business as a recognised leader in the market.


Audit and risk committee

The audit and risk committee comprises two non-executive directors Mr Malose Kekana (Chairman) and Ms Ayanda Sisulu-Dunstan as well as a representative from the company’s designated adviser, who is an invitee in terms of the JSE Listings Requirements.

The primary responsibility of the committee is to evaluate matters concerning accounting policies, internal controls, auditing, financial reporting, risk management, compliance and reviewing the annual financial statements of the Group prior to board approval. This committee also assists the board with company policies, the structure, size and effectiveness of the board and its committees, and in reviewing the Group’s governance processes. Furthermore, it establishes the formal induction process and ensures that a training and development programme is in place for committee members.

The external auditors attend the meetings and have unlimited access to the chairperson of the committee. The audit committee is responsible for recommending the use of the external auditors for non-audit services. Auditors are appointed annually based on the recommendation of the audit and risk committee.

The audit and risk committee has considered the qualifications and experience of Mr HB Aucamp, the Group’s financial director, and is of the opinion that he is suitably qualified to carry out his duties.

Remuneration committee

A remuneration committee was constituted during the year, consisting of the non-executive directors and Mr Vhonani Mufamadi . The committee is primarily responsible for formulating the remuneration strategy and policies of the Group and the terms and conditions of employment of executive directors and senior executives, whilst the board grants final approval of their recommendations. The committee has not yet had its first meeting, but will meet quarterly in future.

Nomination committee

The Group currently does not have a nomination committee. Nominations to the board are handled by the remuneration committee for the time being.

Company secretary

The Group’s financial director, Mr HB Aucamp, undertakes the duties of company secretary. While it is acknowledged that it is not recommended practice for the company secretary to also be a director of the company, it was considered more of a priority to first enhance the expertise in the finance department. This issue will be addressed when the time is appropriate.

The company secretary provides guidance to the directors on their duties and ensures awareness of all relevant statutory requirements and legislation. All directors have access to the advice and services of the company secretary. Independent professional advice will be arranged for the directors by the company secretary, at the Company’s expense, where it has been requested by the directors.

Accountability and audit

Going concern

The consolidated and company annual financial statements contained in this annual report have been prepared on the going concern basis. The directors have reviewed the Group’s budget and cash flow forecast for the year to 31 August 2010. The directors report that on the basis of this review and after making enquiries, they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Group continues to adopt the going concern basis in preparing the annual financial statements.

Auditing and accounting

The board is of the opinion that their auditors observe the highest level of business and professional ethics and that their independence is not in any way impaired. The auditors have the right of access to all information or personnel within the Group on any matter necessary to fulfil their duties. The external auditors attend audit and risk committee meetings by invitation.

Internal audit

Due to the present size of the Group, an internal audit function has not been established. This will be implemented accordingly with the Group’s expansion.

Internal control

The Company’s internal controls are designed to provide reasonable assurance to the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability of its assets. These internal controls are achieved through financial controls, operational controls, compliance with laws and regulations and risk management.

The controls and systems are designed to provide reasonable, but not absolute, assurance against misstatement of financial information or loss.

Recommendations made by the Group’s external auditors are being reviewed by the audit and risk committee, and changes to internal controls are being made where necessary.

CORPORATE GOVERNANCE

Ideco Group Limited (“Ideco” or “the Company” or “the Group”) listed on the Alternate Exchange (“AltX”) of the JSE Limited (“JSE”) on 30 October 2007 and is a public company incorporated in South Africa under the provisions of the Companies Act of 1973, as amended (“the Companies Act”).

The Group is committed to the principles established in the Code of Corporate Practices and Conduct as set out in the King II Report on Corporate Governance in South Africa (“the King II Report”), as well as to the Listings Requirements of the JSE.

Ideco is committed to the principles of transparency, integrity and accountability as advocated in the King II Report. In supporting the King II Report, the directors of Ideco recognise the need to conduct the business of the company with integrity and in accordance with generally accepted corporate practices. Therefore, Ideco subscribes to the principles of timeous, honest and objective communications with its stakeholders and the highest standards of ethics in the conduct of its business.

Board composition

Ideco has a unitary board and Mr Vhonani Mufamadi is the executive chairman of Ideco. The board has delegated certain powers to the executive chairman with due regard to the fiduciary responsibility on the one hand, and operational and strategic efficiency on the other, while simultaneously retaining effective control over the company. With a clear distinction between the respective responsibilities at board level, together with the responsibilities as delegated to the executive chairman, a balance of authority is therefore maintained and no one director is able to exercise unfettered decision-making powers.

At the last practicable date, the board of Ideco comprised five directors, with Mr HB Aucamp being the financial director and Mr Vhonani Mufamadi the executive chairman, and the balance and majority being non-executive directors. It is the intention of the group to appoint a non-executive chairman in the near future in order to comply with the King II Report. All of the members of the board of directors demonstrate the necessary caliber and credibility, skills and experience as may be expected from a director of a listed company. Ms Ayanda Sisulu-Dunstan, Mr Malose Kekana and Mr Rainer Troester meet the requirements of the JSE for independent non-executive directors.

Particulars of the directors are set out on page 2. The non-executive directors and the executive directors do not have fixed-term service contracts. In terms of the Company’s articles of association, one-third of directors shall retire from office at the annual general meeting to be

held on 16 April 2010 (or if their number is not a multiple of three then the number nearest to, but not less than one third). Retiring directors shall be eligible for re-election.

The board has a comprehensive system of controls in place to ensure that risks are mitigated and the Group’s objectives are attained. Furthermore, the board, together with senior management define levels of materiality, reviews performance, institute control measure and evaluates and monitors business matters which have an impact on the wellbeing of the Group and its stakeholders.

The board functions within a formal framework with the following terms of reference:

A board charter which sets out the responsibilities of

the board as a whole as well as for individual directors.

A trading policy to regulate the dealings in securities

by directors, directors of major subsidiaries and the

company secretary of Ideco.

A nomination policy detailing procedures for

appointments to the board.

A board charter has been adopted by the board to govern the responsibilities of the directors. Board meetings are scheduled for each quarter but the board may convene any additional meetings that may be considered appropriate or necessary. The board regularly reviews the direction of the Group, strategic issues, major contracts, acquisitions, financing and corporate governance. In addition, the board is also responsible for the relationship management and informative reporting to stakeholders. The board determines key risk areas, defines levels of materiality and ensures performance in all areas of the Group. The board has complete power and control to lead the Group but delegates certain matters with the necessary authority to management.

There were three board meetings during the year, two of which could not be attended by Mr Troester due to overseas commitments. All other directors and the company secretary attended all scheduled board meetings. There was 100% attendance at the four meetings of the audit and risk committee. Representatives from the designated advisor attend all board and audit and

risk committee meetings by invitation.

Board committees

While the board remains accountable and responsible for the performance and affairs of the Company, specific functions and responsibilities have formally been delegated to committees which operate within agreed terms of reference approved by the board. The functions of these committees are described in more detail below.


Analysis of shareholdings Number of holders

% of total shareholders

Number of shares

% of total issued share capital

1 - 10 000 98 39,04% 515 779 0,26%

10 001 - 100 000 105 41,83% 4 530 549 2,24%

100 001 - 1 000 000 41 16,33% 13 205 958 6,53%

1 000 001 - and more 7 2,79% 183 969 936 90,97%

Totals 251 100,00% 202 222 222 100,00%

Categories of shareholders

Insurance companies 1 0,40% 3 000 000 1,48%

Banks 2 0,80% 3 105 688 1,54%

Collective investment schemes and mutual funds

6 2,39% 4 433 756 2,19%

Trusts 19 7,58% 967 066 0,48%

Pension funds and medical schemes

4 1,59% 455 024 0,23%

Private companies and close corporations

18 7,17% 175 140 876 86,62%

Individuals 201 80,07% 15 119 812 7,47%

Totals 251 100,00% 202 222 222 100,00%

Shareholder spread

Public 242 96,41% 27 348 719 13,52%

Non-public 1 0,40% 1 818 182 0,90%

Directors 7 2,79% 86 005 389 42,53%

Major shareholder 1 0,40% 87 049 932 43,05%

Totals 251 100,00% 202 222 222 100,00%

Major shareholders (5% and more of the shares in issue)

Muvoni Investment Holdings (Pty) Limited

83 762 634 41,42%

Six Sis Limited 87 049 932 43,05%

ANALYSIS OF SHAREHOLDERSRisk management

Effective risk management is integral and extremely important in Ideco’s objective to continuously add value to the business in all areas of the Group’s operations. The board and management are responsible for designing, implementing and monitoring the processes of risk management incorporating it into the daily activities of the Group. The board determines the Group’s tolerance for risk and is responsible for ensuring that the Group has an effective, ongoing process in place that identifies risk factors across the Group, measuring its impact and implement what is necessary to proactively manage these risks.

Share dealings

Ideco has a closed-period policy that requires directors be precluded from dealing in the Group’s shares prior to the release of the Group’s interim and annual results. To ensure that dealings are not carried out at a time when other price sensitive information may be known, directors must at all times obtain permission from the chief executive before dealings in the shares of the Group. Approved dealings in the Group’s shares by directors are disclosed to the JSE and published on the Stock Exchange News Services (SENS). All approved dealings are reported in arrears to the regular meetings of the board. There has been no change in directors’ shareholding between 31 August 2009 and the date of this report.

People and values

Ideco’s goal is to attract and retain, at every level of the company, people who represent the highest standards of excellence and integrity. The Company is dedicated to diversity, fair treatment, mutual respect and trust. Its management practices leadership that teaches, inspires and promotes full participation and career development and encourages open and effective communication.

Broad Based Black Economic Empowerment (BBBEE)

Ideco is an equal opportunity employer and there is no distinction on the basis of ethnic origin or gender or any other manner.

Employment equity

Ideco is committed to maintaining a balanced workforce that reflects the demographic realities within South Africa, and in line with governmental guidelines prescribed in this regard.


INDEPENDENT AUDITOR’S REPORT

To the members of Ideco Group Limited

We have audited the consolidated annual financial statements and annual financial statements of Ideco Group Limited,

which comprise the consolidated and separate balance sheets as at 31 August 2009, and the consolidated and separate

income statements, the consolidated and separate statements of changes in equity and consolidated and separate cash

flow statements for the year then ended, and a summary of significant accounting policies and other explanatory notes,

and the directors’ report, as set out on pages 14 to 50.

Directors’ responsibility for the financial statements

The company’s directors are responsible for the preparation and fair presentation of these financial statements in

accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South

Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation

and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error;

selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the

circumstances.

Auditor’s responsibility

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 comply with ethical requirements

and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material

misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial

statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of

material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the

auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements

in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing

an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of

accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion

Opinion

In our opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial

position of Ideco Group Limited as at 31 August 2009, and its consolidated and separate financial performance and

consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting

Standards, and in the manner required by the Companies Act of South Africa.

BDO South Africa Incorporated

Per: J R Roberts

Registered Auditor

26 February 2010

13 Wellington Road, Parktown, 2193

STATEMENT OF RESPONSIBILITY BY THE BOARD OF DIRECTORS

The directors are responsible for the preparation and fair presentation of the consolidated annual financial statements and

annual financial statements of Ideco Group Limited, comprising the balance sheets at 31 August 2009, and the income

statements, the statements of changes in equity and cash flow statements for the period then ended, and the notes

to the financial statements, which include a summary of significant accounting policies and other explanatory notes, in

accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South

Africa.

The directors acknowledge that they are ultimately responsible for the system of internal financial control established

by the group and place considerable importance on maintaining a strong control environment. To enable the directors

to meet these responsibilities, the board of directors sets standards for internal control aimed at reducing the risk of

error or loss in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly

defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level

of risk. These controls are monitored throughout the group and all employees are required to maintain the highest

ethical standards in ensuring the Group’s business is conducted in a manner that all reasonable circumstances is above

reproach. The focus of risk management in the Group is on identifying, assessing, managing and monitoring all known

forms of risk across the Group.

While operating risk control cannot be fully eliminated, the Group endeavours to minimise it by ensuring that appropriate

infrastructure, control systems and ethical behaviour are applied and managed within pre-determined procedures and

constraints.

The directors are of the opinion, based on the information and explanations given by management that the system of

internal control provides reasonable assurance that the financial records may be relied on for the preparation of the

financial statements. However, any system of internal financial control can provide only reasonable, and not absolute,

assurance against material misstatement or loss.

The directors have reviewed the Group’s cash flow forecast for the year to 31 August 2010 and, in light of this review and

the current financial position, they are satisfied that the group has or has access to adequate resources to continue in

operational existence for the foreseeable future.

The external auditors are responsible for independently reviewing and reporting on the consolidated annual financial

statements. The consolidated financial statements have been examined by the group’s external auditors and their report

is presented on page 13.

APPROVAL OF ANNUAL FINANCIAL STATEMENTS

The consolidated annual financial statements and annual financial statements of Ideco Group Limited, for the year ending

31 August 2009 set out on pages 14 to 50 were approved by the board of directors on 26 February 2010 and are signed

on its behalf by:

V Mufamadi AX Sisulu-Dunstan

Executive chairman Non-executive director

STATEMENT OF COMPLIANCE BY THE COMPANY SECRETARY

In terms of the Companies Act, No 61 of 1973 (as amended) (“the Act”), I certify that, to the best of my knowledge, the

company has lodged with the Registrar of Companies all such returns as are required of a public company in terms of

the Act and that all such returns are true, correct and up to date.

HB Aucamp

Company secretary


special resolution passed by the shareholders of Ideco in

general meeting. No exchange control or other restrictions

exist in respect of the borrowing powers of the Group.

Dividends

No dividends have been declared to members during the

year (2008: Rnil)

Special Resolutions

Ideco Group Limited passed the following special

resolution in the twelve months to 31 August 2009:

General authority to repurchase issued shares

Post balance sheet events

During September 2009 Ideco Group Limited acquired a

25% share in a new biometric venture offering biometric

solutions to the health industry.

The repayment of the amount of R24,4 million due to

Sagem Security SA (Pty) Limited as detailed in note 20

has been rescheduled during November 2009. Of this

amount, R12,7 million is now repayable in March 2010

and the balance of R11,7 million is payable in four equal

instalments from 15 September 2010 to 15 December

2010. No interest will accrue on the outstanding amount.

Other than the above, the directors are not aware of any

post balance sheet events that require comment.

Bankers

The Group bankers are Absa Bank Limited.

Directors

The directors in office at the date of this report are:

V Mufamadi

HB Aucamp

A X Sisulu-Dunstan

M F Kekana

R Troester (German)

Secretary

HB Aucamp

Refer to corporate information on page 56.

Auditors

BDO South Africa Incorporated will continue in office in

accordance with section 270(2) of the Companies Act.

Subsidiaries

Details of the Company’s subsidiaries are set out in note 9

of these financial statements.

The group has also formed a new wholly-owned

subsidiary, Ideco Identity Solutions (Pty) Limited that will

specialise in identity management services and solutions

specifically aimed at the financial services and retail

sectors of the economy.

Acquisition of subsidiary (formerly an associate)

With effect from 1 July 2009, the group acquired the

70% of the issued share capital of MIE, not already held

by Ideco, for nil consideration. This transaction has been

accounted for using the purchase method of accounting.

The acquisition was effected by way of a share re-

purchase by MIE, which re-purchase was financed by

issuing cumulative redeemable preference shares to the

value of R40,6 million to the National Empowerment Fund

Trust.

Refer to note 28 for further details of this acquisition.

The directors have pleasure in submitting their second

report and consolidated annual financial statements and

annual financial statements of Ideco Group Limited for the

year ended 31 August 2009.

Business activities

Ideco Group Limited is an investment holding company

with investments in wholly–owned subsidiaries providing

fingerprint–solutions and logical access control, large

scale Automated Fingerprint Identification Systems (AFIS)

solutions, fingerprint scanning activities, as well as secure

credentialing services to employers.

The operating results and state of affairs of the company

are fully set out in the consolidated group annual financial

statements and do not in our opinion require any further

comment.

General review of operations

Net loss of the Group was R12,1 million (2008 profit R3,0

million), after a tax credit of R4,7 million (2008: tax credit

R0,6 million).

Going concern

The consolidated annual financial statements have been

prepared on the basis of accounting policies applicable

to a going concern. This basis presumes that funds will

be available to finance future operations and that the

realisation of assets and settlement of liabilities, contingent

obligations and commitments will occur in the ordinary

course of business.

The directors have reviewed the cash flow projections

for the year ending 31 August 2010, which are based

on new contracts being implemented, current projects

and historical trend analysis. Based on these cash flow

projections, the directors are satisfied that the going

concern principle is the correct accounting policy to be

applied by the Group.

Authorised and issued share capital

There were no changes to the share capital during the

year ended 31 August 2009. Details of the share capital

are set out in note 16 of the financial statements.

Directors’ shareholdings

As at 31 August 2009, the present directors held a total

of 86 005 389 ordinary shares in the Company. Details of

their shareholdings are set out in note 27 to these financial

statements.

Borrowing powers

The directors’ borrowing powers have not been exceeded

since Ideco’s incorporation and may only be varied by

DIRECTORS’ REPORT for the year ended 31 August 2009


INCOME STATEMENTSfor the year ended 31 August 2009

Group Company

Notes

Year ended 31 Aug 2009

R’000

18 months ended

31 Aug 2008 R’000

Year ended 31 Aug 2009

R’000

18 months ended

31 Aug 2008 R’000

Revenue 2 83 076 113 645 - -

Cost of sales 2 (48 806) (80 954) - -

Gross profit 34 270 32 691 - -

Other operating income 166 4 406 6 805 18 510

Operating expenses (49 224) (37 660) (14 753) (16 818)

Operating (loss)/profit 2 (14 788) (563) (7 948) 1 692

Investment income 3 287 1 747 34 1 051

Finance costs 4 (4 359) (1 213) (900) (1 065)

Share of profit of associated company

5 2 023 2 463 2 023 2 463

(Loss)/profit before tax (16 837) 2 434 (6 791) 4 141

Taxation credit 6 4 746 562 2 172 90

(Loss)/profit attributable to ordinary shareholders

(12 091) 2 996 (4 619) 4 231

Basic (loss)/earnings per share (cents)

7 (5,98) 2,35

BALANCE SHEETSat 31 August 2009

Group Company

Notes2009

R’0002008

R’0002009

R’0002008

R’000

ASSETS

Non-current assets 76 415 51 069 30 629 26 940

Property, plant and equipment 8 10 210 6 828 5 770 6 276

Investments in subsidiaries 9 - - 21 098 *

Investment in associate 5 - 19 075 - 19 075

Intangible assets 10 58 724 23 337 1 500 1 500

Deferred tax 11 7 481 1 829 2 261 89

Current assets 45 539 30 389 19 146 44 176

Inventories 12 12 704 11 136 - -

Loans to subsidiaries 9 - - 17 572 43 260

Trade and other receivables 13 23 894 18 955 1 265 628

Cash and cash equivalents 14 8 598 12 9 2

Taxation receivable 343 286 300 286

Non-current assets held for sale 15 - 4 335 - 282

Total assets 121 954 85 793 49 775 71 398

EQUITY AND LIABILITIES

Equity

Share capital 16 1 1 1 1

Share premium 16 21 286 21 286 21 286 21 286

Retained income 7 494 19 585 436 5 055

Shareholders’ equity 28 781 40 872 21 723 26 342

Non-current liabilities 43 357 2 639 2 396 2 639

Long-term borrowings 17 2 396 2 639 2 396 2 639

Deferred tax 11 361 - - -

Cumulative redeemable preference shares

18 40 600 - - -

Current liabilities 49 816 42 282 25 656 42 417

Loans from subsidiaries 9 - - 20 990 38 127

Taxation payable 325 392 - -

Trade and other payables 19 20 257 17 687 1 206 1 314

Current portion of long-term borrowings

17 238 172 238 172

Bank overdraft 14 351 2 804 351 2 804

Other current liabilities 20 27 291 21 227 2 871 -

Provisions 21 1 354 - - -

Total equity and liabilities 121 954 85 793 49 775 71 398

* less than R1 000


STATEMENTS OF CHANGES IN EQUITY for the year ended 31 August 2009

Ordinary share capital

R’000

Share premium

R’000

Retained earnings

R’000Total

R’000

Group

Balance at 1 March 2007 * * 16 589 16 589

Issue of shares 1 21 286 - 21 287

Profit for the period 2 996 2 996

Balance at 31 August 2008 1 21 286 19 585 40 872

Balance at 1 September 2008 1 21 286 19 585 40 872

Loss for the year (12 091) (12 091)

Total changes - - (12 091) (12 091)


Company

Balance at 1 March 2007 * * 824 824

Issue of shares 1 21 286 - 21 287

Profit for the period 4 231 4 231


Balance at 1 September 2008 1 21 286 5 055 26 342

Loss for the year (4 619) (4 619)

Total changes - - (4 619) (4 619)

Balance at 31 August 2009 1 21 286 436 21 723

* less than R1 000

CASH FLOW STATEMENTSfor the year ended 31 August 2009

Group Company

Notes2009

R’0002008

R’0002009

R’0002008

R’000

Cash utilised by operations 26.1 (11 652) (5 687) (8 082) (811)

Investment income 287 1 747 34 1 051

Finance costs (4 359) (1 213) (900) (1 065)

Dividends paid - (5 000) - (5 000)

Taxation paid 26.2 (541) (16 887) (14) (1 767)

Net cash from operating activities

(16 265) (27 040) (8 962) (7 592)

Cash flows from investing activities

Proceeds from disposal of property, plant and equipment

2 1 8 498 - 8 498

Acquisition of property, plant and equipment

2 (1 552) (9 903) (105) (9 666)

Acquisition: cash in subsidiary 28 20 093 - - -

Investment in associated company - (16 612) - (16 612)

Investment in intellectual property - (1 500) - (1 500)

Acquisition of computer software (1 725) (4 731) - -

Acquisition of right of use - (18 387) - -

Non-current assets held for sale 4 335 (3 635) 282 (282)

Net cash from investing activities 21 152 (46 270) 177 (19 562)

Cash flows from financing activities

Issue of share capital - 21 287 - 21 287

(Decrease)/increase in long-term borrowings

(177) 2 811 (177) 2 811

Movement in related party loans - (719) 8 551 (11 540)

Movement in other current liabilities 6 329 20 962 2 871 -

Net cash from financing activities

6 152 44 341 11 245 12 558

Net increase/(decrease) in cash and cash equivalents

11 039 (28 969) 2 460 (14 596)

Cash and cash equivalents at the beginning of the year

14 (2 792) 26 177 (2 802) 11 794

Cash and cash equivalents at the end of the year

14 8 247 (2 792) (342) (2 802)


Ideco Group Limited (the “Company”) is a company

domiciled in South Africa. The consolidated financial

statements of the Company as at and for the year

ended 31 August 2009 comprise the Company and its

subsidiaries (together referred to as the “Group”).

The principle accounting policies adopted in the

preparation of the financial statements are set out below.

Statement of compliance

The consolidated financial statements have been prepared

in accordance with International Financial Reporting

Standards (“IFRS”) and its interpretations adopted by the

International Accounting Standards Board (“IASB”), the

JSE Listings Requirements and the Companies Act of

South Africa.

Basis of preparation

The consolidated annual financial statements are prepared

on the historical cost basis, adjusted by the fair value of

certain assets and liabilities.

The accounting policies set out below have been applied

consistently to all periods presented in these consolidated

financial statements and have been applied consistently

by Group entities.

The financial statements are presented in Rands which

is the Company’s functional and Group’s presentation

currency, and all values are rounded to the nearest

thousand (R’000’s) except when otherwise indicated.

The Company applies the accounting policies adopted

by the Group. These accounting policies have been

applied consistently to all periods presented in these

financial statements, except in relation to the adoption

of the new IFRS 7, “Financial Instruments: Disclosures”,

the amendments to IAS 1, “Presentation of Financial

Statements” and the new IFRIC 10, “Interim Financial

Reporting and Impairment”, during the year. Adoption

of these revised standards and interpretations did not

have any effect on the financial performance or position

of the Company. They did however give rise to additional

disclosures, including in some cases, revisions to

accounting policies.

Critical accounting estimates and judgements

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 resulting accounting estimates

and judgements can, by definition, only approximate the

actual result.

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 that period, or in the

period of the revision and future periods, if the revision

affects both current and future periods.

The assumptions and estimates that have the potential

to cause a material adjustment to the carrying amount

of assets and liabilities within the next financial year are

discussed below.

Estimate of level of provision required for obsolete stock and doubtful debts

The Group estimates the level of provision required for

obsolete stock and doubtful debts on an ongoing basis

based on historical experience as well as other specific

relevant factors. A comparison between provision

and actual loss incurred is performed to assess the

reasonableness of provisions.

Estimate of taxation

The Group is subject to income tax. Corporate and

deferred taxation calculations have been determined on

the basis of prior year assessed computation adjusted for

changes in taxation legislation in the year. No significant

new transactions have been entered into in the year which

requires specific additional estimates or judgements to

be made. The Group recognises the net future benefit

related to deferred income tax assets to the extent that

it is probable that the deductible temporary differences

will reverse in the foreseeable future. Assessing the

recoverability of the deferred income tax assets requires

the Group to make estimates related to expectations of

future taxable income. Estimates of future taxable income

are based on forecast cash flows from operations and

the application of existing tax laws. To the extent that

future cash flows and taxable income differ significantly

from estimates, the ability of the Group to realise the net

deferred taxation assets recorded at the balance sheet

date could be impacted. Additionally future changes in

taxation laws in which the Group operates could limit the

ability of the Group to obtain taxation deductions in future

periods.

ACCOUNTING POLICIES for the year ended 31 August 2009

Basis of consolidation

The consolidated financial statements reflect the

financial results of the Group. All financial statements

are consolidated with similar items on a line by line basis

except for investments in associates, which are included in

the Group’s results as set out below.

Subsidiaries

Subsidiaries are those entities over whose financial and

operating policies the Group has the power to exercise

control, so as to obtain benefits from their activities. In

assessing control, potential voting rights that are currently

exercisable are taken into account.

Where an investment in a subsidiary is acquired or

disposed of during the financial year its results are

included from, or to, the date control commences or

ceases.

The Company’s investment in subsidiaries is accounted for

at cost, less accumulated impairment losses.

All companies in the Group maintain consistent accounting

policies and have the same year–end.

Associates

The financial results of associates are included in the

Group’s results according to the equity method from

acquisition date until the disposal date.

Under this method, subsequent to the acquisition date,

the Group’s share of profits or losses of associates is

charged to the income statement as equity accounted

earnings and its share of movements in equity reserves

is recognised in the statement of changes in equity. All

cumulative post-acquisition movements in the equity of

associates are adjusted against the cost of the investment.

When the Group’s share of losses in associates equals

or exceeds its interest in those associates, the Group

does not recognise further losses, unless the Group

has incurred a legal or constructive obligation or made

payments on behalf of those associates to make good any

losses.

The share of retained earnings and reserves of associates

is generally determined from the latest audited financial

statements of the associate, but, in some instances, un-

audited financial statements are used.

Where a Group entity transacts with an associate of the

Group, un-realised profits and losses are eliminated to the

extent of the Group’s interest in the respective associate.

Any excess of the cost of acquisition over the Group’s

share of the net fair value of the identifiable assets,

liabilities and contingent liabilities of the associate

recognised at the date of acquisition is recognised as

goodwill. The goodwill is included within the carrying

amount of the investment and is assessed for impairment

as part of the investment. Any excess of the Group’s share

of the net fair value of the identifiable assets, liabilities

and contingent liabilities over the cost of acquisition,

after reassessment, is recognised immediately in profit

or loss. Any impairment of goodwill relating to associates

is charged to the income statement as part of equity

accounted earnings of those associates and the carrying

value of the group’s share of the underlying assets of

associates is written down to its estimated recoverable

amount in accordance with the accounting policy on

impairment.

The company’s investment in an associate is carried at

cost less any accumulated impairment.

Distributions received from the associate reduce the

carrying amount of the investment.

All intra–group transactions and balances, and any

unrealised income and expenses arising from the

intra–group transactions, are eliminated in preparing the

consolidated financial statements.

In respect of associates, unrealised gains and losses

are eliminated to the extent of the Group’s interest in

these entities. Unrealised gains and losses arising from

transactions with associates are eliminated against the

investment in the associate.

Business combinations

The purchase method of accounting is used to account

for the acquisition of businesses by the Group. A

business may comprise an entity, group of entities or an

unincorporated operation including its operating assets

and associated liabilities.

The cost of an acquisition is measured as the fair value of

the assets given, equity instruments issued and liabilities

incurred or assumed at the date of exchange, plus costs

directly attributable to the acquisition.

Identifiable assets acquired and liabilities and contingent

liabilities assumed in a business combination are

measured initially at their fair values at the acquisition date,

irrespective of the extent of any minority interest.

ACCOUNTING POLICIES continued for the year ended 31 August 2009



The fair values of the identifiable assets and liabilities are

determined by reference to the market values of those or

similar items or by discounting expected future cash flows

using market participation assumptions.

The excess of the cost of acquisition over the fair value of

the group’s share of the identifiable net assets acquired is

recorded as goodwill. If the cost of acquisition is less than

the fair value of the net assets of the business acquired,

the difference is recognised directly in the income

statement.

Foreign currency transactions

Foreign currency transactions are translated to the

respective functional currencies of Group entities at the

rates of exchange ruling at the dates of the transactions.

Balances on monetary assets and liabilities outstanding

on foreign transactions at the end of the financial year are

translated to the functional currency at the rates ruling at

that date. Gains or losses on translation are recognised in

the income statement.

Non–monetary assets and liabilities that are measured in

terms of historical cost in a foreign currency are translated

using the exchange rate at the date of the transaction.

Non–monetary assets and liabilities denominated in foreign

currencies that are stated at fair value are translated to

Rands at the foreign exchange rates ruling at the dates the

fair value was determined.

Segmental reporting

A segment is a distinguishable component of the Group

that is engaged in providing products or services (primary

segment) within different geographical areas (secondary

segment) which are subject to risks and returns which

are different from those of other segments. The basis

of segment reporting is representative of the internal

structure used for management reporting.

Segment results, assets and liabilities include items

directly attributable to a segment as well as those that can

be allocated on a reasonable basis.

Revenue recognition

Revenue is recognised net of indirect taxes, rebates and

trade discounts and consist primarily of the sale of goods.

Revenue is recognised only when it is probable that the

economic benefits associated with a transaction will flow

to the Group and the amount of revenue can be measured

reliably. No revenue is recognised if there are significant

uncertainties regarding the recovery of the consideration

due, associated costs or the possible return of goods, and

continuing managerial involvement with the goods.

Revenue arising from the sale of goods is recognised

when the significant risks and rewards of ownership of the

goods have passed to the buyer. Revenue from the sale

of goods is measured at the fair value of the consideration

received or receivable, net of returns, trade discounts

and volume rebates and after eliminating sales within the

Group.

Investment income

Dividends

Dividends are recognised when the right to receive

payment is established, with the exception of dividends

on preference share investments which are recognised on

a time proportion basis, using the effective interest rate

method, in the period to which they relate.

Interest

Interest income is recognised in profit or loss as it accrues

using the effective interest rate method.

Exchange gains

Gains and losses on foreign currency transactions are

reported in profit or loss on a net basis and are included

under finance income.

Finance costs

Finance costs comprise interest payable on borrowings

calculated on the principal outstanding using the effective

interest rate method and is recognised in profit or loss

when it is incurred.

Taxation

The income tax expense comprises current and deferred

tax. The income tax expense is recognised in profit or loss

to the extent that it relates to items recognised directly in

equity, in which case it is recognised in equity.

Current taxation comprises taxation payable calculated

on the basis of the expected taxable income for the year,

using the taxation rates enacted or substantively enacted

at the balance sheet date, and any adjustment of taxation

payable for previous years.

Deferred taxation 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. Deferred taxation is

recognised profit or loss except to the extent that it relates

to a transaction that is recorded directly in equity or a

business combination that is an acquisition. The amount

of deferred taxation provided is based on the expected

manner of realisation or settlement of the carrying amount

of assets and liabilities using taxation rates enacted

or substantively enacted at the balance sheet date. A

deferred taxation asset is recognised to the extent that

it is probable that future taxable profits will be available

against which the associated unused taxation losses and

deductible temporary differences can be utilised. Deferred

taxation assets are reduced to the extent that it is no

longer probable that the related taxation benefit will be

realised.

Deferred taxation is not recognised for the following

temporary differences:

The initial recognition of goodwill;

The initial recognition of assets and liabilities in a

transaction that is not a business combination and that

affects neither accounting nor taxable profit; and

Differences relating to investments in subsidiaries to the

extent that the timing of the reversal is controlled by the

Group and it is probable that they will not reverse in the

foreseeable future.

Deferred tax assets and liabilities are offset, if a legally

enforceable right exists to set off current tax assets against

current income tax liabilities and the deferred income taxes

relate to the same taxable entity and the same taxation

authority.

Secondary taxation on companies (STC) is recognised in

the year dividends are declared, net of dividends received.

A deferred tax asset is recognised on unutilised STC

credits when it is probable that such unutilised STC credits

will be utilised in the future.

Dividends payable

Dividends payable and any STC pertaining thereto are

recognised in the period in which such dividends are

declared.

Lease assets

Finance leases

Leases in which the Group assume substantially all the

risks and rewards of ownership are classified as finance

leases.

Property, plant and equipment subject to finance lease

agreements are capitalised at the lower of their fair value

and the present value of the minimum lease payments

and the corresponding liability to the lessor is raised.

Lease payments are allocated using the effective interest

rate method to determine the lease finance cost, which

is charged against operating profit, and the capital

repayment, which reduces the liability to the lessor. These

assets are treated on the same basis as the property, plant

and equipment owned by the Group and is subject to

impairment losses.

Operating leases

Other leases, which do not transfer substantially all the

risks and rewards of ownership, are treated as operating

leases with lease payments charged against operating

income. Payment made under operating leases is charged

against income on a straight–line basis over the period of

the lease, irrespective of the payment terms.

Non-current assets held for sale

Non-current assets and disposal groups are classified

as held for sale if their carrying amount will be recovered

principally through a sale transaction rather than

continuing use. This condition is regarded as met only

when the sale is highly probable and the asset (or disposal

group) is available for immediate sale in its present

condition. Management must be committed to the sale,

which should be expected to qualify for recognition

as a completed sale within one year from the date of

classification.

Property, plant and equipment

Property, plant and equipment are recorded at cost, less

accumulated depreciation and impairment losses.

Cost includes expenditure that is directly attributable to

the acquisition of the asset. Purchased software that is

integral to the functionality of the related equipment is

capitalised as part of that equipment.

Land is not depreciated. Buildings, plant and equipment

are depreciated on the straight–line method over their

expected useful lives to an estimated residual value.

Leased assets are depreciated over the shorter of the

lease term and their useful lives. The current estimated

useful lives are generally:



Buildings 50 years

Furniture and fixtures 6 years

Motor vehicles 5 years

Office equipment 5 years

Computer equipment 3 years

Where the carrying amount of an asset is greater than its

estimated recoverable amount (i.e. the higher of value in

use and net fair value less costs to sell) it is written down

immediately to its recoverable amount.

The cost of replacing part of an item of property, plant

and equipment is recognised in the carrying amount of

the item if it is probable that the future economic benefits

embodied within the property, plant and equipment will

flow to the Group and its cost can be measured reliably.

The costs of the day–to–day servicing of property, plant

and equipment are recognised in profit or loss as incurred.

Where parts of an item of property, plant and equipment

have different useful lives, they are accounted for as

separate items (major components) of property, plant and

equipment. Residual values, methods of depreciation

and useful lives of property, plant and equipment are

reassessed, and adjusted if appropriate, at each financial

year–end. Depreciation of an item of property, plant and

equipment begins when it is available for use and ceases

at the earlier of the date it is classified as held for sale or

the date that it is derecognised.

An item of property, plant and equipment is derecognised

upon disposal or when no future economic benefits are

expected from its use or disposal. Gains and losses

on derecognition of property, plant and equipment are

determined by reference to their carrying amount and the

net disposal proceeds and are taken to profit or loss in the

year the asset is derecognised.

Intangible assets

Intangible assets are stated at cost less accumulated

amortisation and impairment losses. Intangible assets are

amortised on a straight–line basis over their estimated

useful lives.

Amortisation is recognised in profit or loss on a straight–

line basis over the estimated useful lives of intangible

assets from the date that they are available for use. The

current estimated useful lives of intangible assets are as

follows:

Computer software 2 years

Intellectual property rights 5 years

Right of use 15 years

Trademark 15 years

The right of use is in respect of a 15 year agreement

with the South African Police Service for access to their

fingerprint database to perform automated criminal

background checks to the private sector and members of

the public.

The estimated useful life and amortisation method are

reviewed at the end of each reporting period, with the

effect of any changes in estimate being accounted for on a

prospective basis.

Goodwill

Goodwill is initially measured at cost, being the excess of

the business combination over the company’s interest of

the net fair value of the identifiable assets, liabilities and

contingent liabilities. Subsequently goodwill is carried at

cost less any accumulated impairment.

For the purpose of impairment testing, cash generating

units to which goodwill has been allocated are tested

for impairment annually, or more frequently when there

is an indication that the unit may be impaired. If the

recoverable amount of the cash generating unit is less

than the carrying amount of the unit, the impairment loss

is allocated first to reduce the carrying amount of any

goodwill allocated to the unit and then to other assets of

the unit pro-rata on the basis of the carrying amount of

each asset in the unit. An impairment loss recognised is

not reversed in a subsequent period.

The excess of the company’s interest in the net fair value

of the identifiable assets, liabilities and contingent liabilities

over the cost of the business combination is immediately

recognised in profit or loss. Internally generated goodwill is

not recognised as an asset.

Impairment of assets

Financial assets

A financial asset is assessed at each reporting date to

determine whether there is any objective evidence that it is

impaired. A financial asset is considered to be impaired if

objective evidence indicates that one or more events have

had a negative effect on the estimated future cash flows of

that asset.


An impairment loss in respect of a financial asset

measured at amortised cost is calculated as the difference

between its carrying amount, and the present value of

the estimated future cash flows discounted at the original

effective interest rate.

Individually significant financial assets are tested for

impairment on an individual basis. The remaining financial

assets are assessed collectively in groups that share

similar credit risk characteristics.

All impairment losses are recognised in profit or loss. An

impairment loss is reversed if the reversal can be related

objectively to an event occurring after the impairment

loss was recognised. For financial assets measured at

amortised cost, the reversal is recognised in profit or loss.

In relation to trade receivables, a provision for impairment

is made when there is objective evidence (such as the

probability of insolvency or significant financial difficulties

of the debtor) that the Group will not be able to collect

all of the amounts due under the original terms of the

invoice. The carrying amount of the receivable is reduced

through use of an allowance account. Impaired debts are

derecognised when they are assessed as uncollectable.

Non–financial assets

The carrying amount of the Group’s non–financial assets,

other than inventories and deferred tax assets, are

reviewed at each balance sheet date to determine whether

there is an indication of impairment and at any time

when there is an indication of impairment. If there is any

indication that an asset may be impaired, its recoverable

amount is estimated.

The recoverable amount of an asset or cash–generating

unit is the higher of its fair value less cost to sell and its

value in use. In assessing value in use, the estimated

future cash flows are discounted to their present value

using a pre–tax discount rate that reflects current market

assessments of the time value of money and risks specific

to the asset.

A cash–generating unit is the smallest identifiable

asset group that generates cash flows that are largely

independent from other assets or groups. Impairment

losses are recognised in the income statement.

Impairment losses recognised in respect of cash–

generating units are allocated first to reduce the carrying

amount of goodwill allocated to the cash–generating units,

and then to reduce the carrying amount of other assets in

the unit on a pro–rata basis.

An impairment loss is recognised whenever the carrying

amount of an asset or its cash generating unit exceeds its

recoverable amount. Impairment losses are recognised in

profit or loss.

A previously recognised impairment loss, other than

for goodwill, is reversed if there is an indication that the

impairment loss has reversed and if the recoverable

amount increases as a result of a change in the estimates

used to determine the recoverable amount, but not to an

amount higher than the carrying amount that would have

been determined (net of depreciation or amortisation) had

no impairment loss been recognised in previous years.

Impairment losses in respect of goodwill are not reversed.

Inventories

Inventories are stated at the lower of cost or net realisable

value. Cost is determined using weighted average cost.

These costs are regularly reviewed and updated to reflect

the input costs of raw materials, direct labour, other direct

costs and related normal production overheads. Slow–

moving goods and obsolete inventories are written down

to their estimated 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.

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 resources

embodying economic benefits will be required to settle the

obligation and a reliable estimate of the obligation can be

made. If the effect is material, provisions are determined

by discounting the expected future cash flows at a pre–tax

rate that reflects current market assessments of the time

value of money and, where appropriate, the risks specific

to the liability.

Short–term employee benefits

The cost of all short–term employee benefits is recognised

as an expense during the period in which the employee

renders the related service.

An accrual is made for the estimated liability for annual

leave and performance bonuses as a result of services

rendered by employees up to the balance sheet date. The

accruals have been calculated at undiscounted amounts

based on current salary rates.



Financial instruments

Financial instruments are initially recognised at fair value and, except for financial instruments stated at fair value through profit and loss, include directly attributable transaction costs. The Group assesses whether embedded derivatives are required to be separated from host contracts when the Group first becomes party to the contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

Subsequent to initial recognition these instruments are measured as detailed below.

Financial assets

Financial assets are recognised when the Company and/or Group has rights or other access to economic benefits. Such assets consist of cash and cash equivalents, a contractual right to receive cash or another financial asset or a contractual right to exchange financial instruments with another entity on potentially favourable terms.

Loans and receivables

Trade receivables, loans and other receivables are non–derivative financial assets with fixed or determinable payments that are not quoted in an active market and are classified as loans and receivables. After initial measurement, these are carried at amortised cost, using the effective interest rate method, less impairment losses. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs.

Cash and cash equivalents

Cash and cash equivalents comprise cash and bank balances, deposits held on call with banks and in money market instruments. Bank overdrafts that are repayable on demand and form an integral part of the Group and/or Company’s cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statement. Cash and cash equivalents are measured at fair value.

Financial liabilities

Financial liabilities are recognised when there is an obligation to transfer benefits and that obligation is a contractual liability to deliver cash or another financial asset or to exchange financial instruments with another entity on potentially unfavourable terms. Financial liabilities other than derivative instruments are measured at amortised cost, using the effective interest method.

Offset

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when the Group has a legally enforceable right to set off the recognised amounts, and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Derecognition of financial instruments

Financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

the rights to receive cash flows from the asset have

expired;

the Group retains the right to receive cash flows from

the asset, but has assumed an obligation to pay them

in full without material delay to a third party under a

‘pass through’ arrangement; or

the Group has transferred its rights to receive cash

flows from the asset and either (a) has transferred

substantially all the risks and rewards of the asset, or

(b) has neither transferred nor retained substantially all

the risks and rewards of the asset, but has transferred

control of the asset.

When the Group has transferred its rights to receive cash flow from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

When continuing involvement takes the form of a written and/or purchased option (including a cash settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.


When an existing financial liability is replaced by another from the same lender of substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference is the respective carrying amounts is recognised in profit or loss.

Gains and losses on subsequent measurement

Gains and losses arising from a change in the fair value of financial instruments that are not part of a hedging relationship are recognised in profit or loss in the year in which the change arises as well as through the amortisation process, if appropriate.

Gains and losses from measuring the hedging instruments relating to a fair value hedge at fair value are recognised

immediately in profit or loss.

Share capital

Ordinary shares are classified as equity. Issued share capital is stated in the statement of changes in equity at the amount of the proceeds received less directly

attributalbe issue costs.

Preference share capital

Preference share captial is classified as a liability if it is redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Dividencds thereon are recognised as interest expense in profit or loss as accrued.

Borrowings

Borrowings, which constitute a financial liability, include short-term and long-term debt. Borrowings are initially recognised at fair value, net of transaction costs incurred and are subsequently stated at amortised cost. Borrowings are classified as short-term unless the borrowing entity has an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Borrowings are derecognised when the obligation in the contract is discharged, cancelled or has expired.

Premiums or discounts arising from the difference between the fair value of borrowings raised and the amount repayable at maturity date are charged to the income statement as finance expenses based on the effective interest rate method.

Contingencies and commitments

A contingent liability is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the group, or a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or the amount of the obligation cannot be measured with sufficient reliability. Contingencies principally consist of contract specific third party obligations underwritten by banking institutions. Items are classified as commitments where the group commits itself to future transactions, particularly in the acquisition of property, plant and equipment.

Related party transactions

All subsidiaries and associated companies of the Group are related parties. A list of the major subsidiaries are included on page 36 of this annual report. All transactions entered into with subsidiaries and associated companies were under terms no more favourable than those with third parties and have been eliminated in the consolidated Group accounts. Directors’ emoluments as well as transactions with other related parties are set out in notes 25 and 27 of this annual report. There were no other material contracts with related parties.

Earnings per share

The Group presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit and loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees that have

not yet met the applicable recognition criteria.

Headline earnings per share

Headline earnings per share is based on the same calculation as earnings per share except that attributable profit specifically excludes items as set out in Circular 8/2007 “Interpretation of Statement of Investment Practice No 1: Headline Earnings” issued by the South African Institute of Chartered Accountants. Fully diluted headline earnings per share are presented when the inclusion of potential ordinary shares has a dilutive effect on headline

earnings per share



IFRS and IFRIC interpretations not yet effective

The Group has not applied the following IFRSs and IFRIC Interpretations that are not yet effective:

Amendments to IFRS 2, “Share–based Payment” –

Vesting Conditions and Cancellations

These amendments are to be applied for annual periods beginning on or after 1 January 2009. These amendments provide further guidance and clarity regarding the treatment of vesting conditions associated of share–based payments as well as the effect of cancellations thereof.

IFRS 3, “Business Combinations”.

This standard has been revised and is to be applied for annual periods beginning on or after 1 July 2009. The standard is aimed at ensuring that an acquirer of a business recognises the assets acquired and liabilities assumed at their acquisition–date fair values and discloses information that enables users to evaluate the nature and financial effects of the acquisition. The standard states that assets and liabilities that arose from business combinations whose acquisition dates preceded the application of this IFRS shall not be adjusted upon application of this IFRS.

IFRS 7, “Financial Instruments: Disclosures:

Presentation of finance costs”.

These amendments to the standard are effective for annual periods beginning on or after 1 January 2009. This amendment deals with presentation of finance costs. A further amendment has been made that deals with enhanced disclosures about fair value measurements and liquidity risk as well as dealing with improving disclosures about financial instruments.

IFRS 8, “Operating Segments”:

This standard is new and is to be applied for annual periods beginning on or after 1 January 2009. The standard requires an entity to adopt the ‘management approach’ to reporting on the financial performance of its operating segments. It sets out requirements for disclosure of information about the entity’s operating segments and also about the entity’s products and services, the geographical areas in which it operates, and its major customers. The disclosure should enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates.

Amendment to IAS 1, “Presentation of Financial

Statements”.

This standard has been revised and is to be applied for annual periods beginning on or after 1 January 2009. IAS 1 sets overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.

Amendments to IAS 23, “Borrowing Costs”:

These amendments are to be applied for annual periods beginning on or after 1 January 2009. The standard requires that borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognised as an expense.

Amendments to IAS 27, “Consolidated and Separate

Financial Statements”

These amendments are to be applied for annual periods beginning on or after 1 July 2009. The amendments aim to reduce alternatives in accounting for subsidiaries in consolidated financial statements and in accounting for investments in the separate financial statements of a parent, venture or investor.

Amendments to IAS 32, “Financial Instruments:

Presentation” and IAS 1, “Presentation of Financial

Statements” – Puttable Financial Instruments and

Obligations Arising on Liquidation

These amendments are to be applied for annual periods beginning on or after 1 January 2009. These amendments require further detail with regards to Puttable Financial Instruments and Obligations Arising on Liquidation.

IAS 39, “Financial Instruments: Recognition and

Measurement”:

These amendments are effective for annual periods beginning on or after 1 January 2009. This amendment deals with reclassification of derivatives into or out of the classification of at fair value through profit or loss, designating and documenting hedges at the segment level and applicable effective interest rate on cessation of fair value hedge accounting. Several further amendments have been processed that are effective at different dates. Amendments effective for annual periods beginning on or after 1 January 2010 deal with treating loan prepayment penalties as closely related embedded derivatives, scope exemption for business combination contracts, cash flow hedge accounting and hedging using internal contracts. An amendment effective for annual periods beginning on or after 1 July 2009 deals with the clarification of two


hedge accounting issues surrounding inflation in a financial hedged item and a one sided risk in a hedged item. An amendment effective for annual periods ending on or after 30 June 2009 deals with embedded derivatives when reclassifying financial instruments

IFRIC 9 (amended), “Reassessment of embedded

derivatives”.

These amendments are to be applied for annual periods beginning on or after 30 June 2009.The amendment results in a mandatory assessment of any embedded derivatives following reclassification of a financial asset out of the fair value through profit or loss category. The assessment will not have taken place at initial recognition, as the entire asset was accounted for at fair value. The amendment is necessary to ensure that, following a reclassification from the fair value category, entities apply the requirements for separation of an embedded derivative that is not closely related to the host contract. The assessment should be made on the basis of the circumstances that existed when the entity first became a party to the contract. In addition, if the fair value of the embedded derivative that would have to be separated cannot be reliably measured, the hybrid financial asset in its entirety should remain in the fair value through profit or loss category.

IFRIC 15, “Agreements for the construction of real

estate”.

This interpretation is to be applied for annual periods beginning on or after 1 January 2009. The IFRIC was issued to address diversity in accounting for real estate sales. Some entities recognise revenue when risks and rewards in the real estate are transferred in accordance with IAS 18: Revenue and others recognise revenue as the real estate is developed in accordance with IAS 11: Construction Contracts. The interpretation clarifies which standard should be applied to particular transactions. The guidance is not limited to real estate sales but can be applied by analogy in other circumstances to determine whether a transaction is accounted for as a sale of a good (IAS 18) or a construction contract (IAS 11).

IFRIC 16 (amended), “Hedges of a net investment in a

foreign operation”.

This interpretation is to be applied for annual periods beginning on or after 1 October 2008. This interpretation addresses three issues: the nature of the hedged risk and amount of the hedged item for which a hedging relationship may be designated; where in a Group the hedging instrument can be held; and what amounts should be reclassified from equity to profit and loss as

reclassification adjustments on disposal of the foreign operation.

IFRIC 17, “Distribution of non-cash assets to owners”.

This interpretation is to be applied for annual periods beginning on or after 1 July 2009. This interpretation clarifies that: (1) A dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity; (2) An entity should measure the dividend payable at the fair value of the net assets to be distributed; and (3) An entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in profit and loss. The interpretation also requires an entity to provide additional disclosure if the net assets being held for distribution to owners meet the definition of a discontinued operation. The interpretation does not apply to common control transactions.

IFRIC 18, “Transfers of assets from customers”.

This interpretation is to be applied for annual periods beginning on or after 1 July 2009. This interpretation applies to agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services (such as a supply of electricity, gas or water). In some cases, the entity receives cash from a customer which must be used only to acquire or construct the item of property, plant and equipment in order to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services (or to do both). The interpretation clarifies: (1) the circumstances in which the definition of an asset is met; (2) the recognition of the asset and the measurement of its cost on initial recognition; (3) the identification of the separately identifiable services (one or more services in exchange for the transferred asset); (4) the recognition of revenue; and (5) the accounting for transfers of cash from customers.

The Group expects the pronouncements listed above to have no impact on the Group’s results, other than additional disclosures required in the Group annual financial statements in the period of initial recognition and/or for comparative periods as may be required. The Group intends to apply these statements and interpretations in the periods prescribed and required.



NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 August 2009

1. Segmental reporting

The Group is organised into three main business segments namely biometric readers and solutions, secure credentialing

services and biometric projects. Segmental reporting within geographical areas is not presented as the Group has

operated primarily in Gauteng, South Africa. For the period ended 31 August 2008, the Group was organised in two

main business segments, namely biometric readers and solutions and biometric projects. Revenue, operating results and

assets and liabilities of Ideco AFISwitch (Pty) Limited was included in the segment “Biometric readers and solutions”. The

services offered by this company can be more closely associated with the activities of the wholly-owned subsidiary, MIE,

and therefore these companies’ revenue, operating results and assets and liabilities are henceforth reported in a new

segment, “Secure credentialing services”.

Segment assets consist primarily of:

property, plant and equipment;

payment in advance;

inventories;

receivables; and

cash.

Segment liabilities consist primarily of:

borrowings; and

payables.

1. Segmental reportingBiometric

readers and solutions

R’000

Secure credentialing

services R’000

Biometric projects

R’000Corporate

R’000Total

R’000

2009

Revenue 58 571 17 716 6 789 - 83 076

Depreciation and amortisation 54 1 793 859 595 3 301

Operating profit/(loss) 2 107 (1 421) (1 526) (13 948) (14 788)

Assets 21 441 59 689 8 621 32 203 121 954

Liabilities (12 543) (71 346) (2 226) (7 058) (93 173)

2008

Revenue 106 702 4 719 2 224 - 113 645

Depreciation and amortisation 6 1 352 800 827 2 985

Operating profit/(loss) 15 585 (2 773) (2 067) (11 308) (563)

Assets 17 894 26 316 8 688 32 895 85 793

Liabilities (8 326) (28 885) (1 069) (6 641) (44 921)

Group Company

2009R’000

2008 R’000

2009 R’000

2008 R’000

2. Operating (loss)/profitis arrived at after taking into account:

Revenue 83 076 113 645 - -

sale of biometric readers and related repairs 58 571 106 702 - -

services 17 716 4 719 - -

projects 6 789 2 224 - -

Cost of sales 48 806 80 954 - -

inventory purchases expensed 45 413 80 406 - -

inventory adjustments 119 (191) - -

direct labour 3 274 739 - -

Amortisation of intangible assets 2 196 1 281 - -

Auditor’s remuneration 541 372 297 150

audit fee 502 335 284 139

other services 39 37 13 11

Depreciation of plant and equipment 1 105 1 704 595 827

immovable property 1 - - -

furniture and fittings 195 211 108 118

motor vehicles 91 130 87 130

office equipment 54 45 22 45

IT equipment 764 1 318 378 534

Directors emoluments 2 820 3 822 2 820 3 822

managerial services 2 690 3 822 2 690 3 822

as directors 130 - 130 -

Employee costs 15 929 15 193 3 256 5 109

Impairment of intangible assets 782 - - -

Operating lease charges 6 313 2 005 2 116 922

premises 2 550 1 673 1 834 852

equipment 3 763 332 282 70

Other third party payments 1 415 725 43 351

administrative 49 106 43 106

managerial 401 365 - -

technical 965 254 - 245

(Loss)/profit on disposal of property, plant and equipment (16) 4 116 (16) 4 116

3. Investment incomeBank call and deposit accounts 287 1 747 34 1 051

NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued

for the year ended 31 August 2009


5. Investment in associate 5.1 Details of associate company

Effective group holding Carrying amount Directors’ valuation

2009 2008 2009 2008 2009 2008

Unlisted

Kroll Background Screening (Pty) Limited *

- 30% - 19 075 - 20 000

- 30% - 19 075 - 20 000

* Name subsequently changed to Managed Integrity Evaluation (Pty) Limited.

Group Company

5.2 Carrying amount of associate2009

R’0002008

R’0002009

R’0002008

R’000

Carrying amount at the beginning of the year 19 075 - 19 075 -

Acquisition during the period - 16 612 - 16 612

Equity accounted earnings of associate 2 023 2 463 2 023 2 463

Disposal during the year (21 098) - (21 098) -

- 19 075 - 19 075

* Associate becomes a subsidiary

5.3 Summarised financial statements of associate2009

R’0002008

R’000

Total assets - 24 515

Total liabilities - 7 467

Plant and equipment - 1 953

Net current assets - 14 571

Issued capital - *

Reserves - 17 048

Deferred tax - 524

Revenue - 28 581

Profit before taxation - 10 681

Income tax expense - 3 099

* less than R1 000

The year-end of the associate was 31 December, therefore the summarised financial statements above for the period ended 31 August 2008 were not audited.



Group Company

2009R’000

2008 R’000

2009 R’000

2008 R’000

4. Finance costsLong-term borrowings 354 925 354 925

Bank overdraft 546 140 546 140

South African Revenue Service - 148 - -

Sagem Security S A (Pty) Limited 3 459 - - -

4 359 1 213 900 1 065

Group Company

2009 R’000

2008R’000

2009R’000

2008R’000

6. Taxation creditCurrent tax expense 452 382 - (1)

current 452 412 - -

prior year over provision - (30) - (1)

Deferred tax (5 198) (944) (2 172) (89)

origination and reversal and reversal of temporary differences

(5 239) (940) (2 172) (89)

prior year overprovision 41 (4) - -

Taxation credit in the income statement (4 746) (562) (2 172) (90)

Reconciliation of tax rate

Accounting (loss)/profit (16 837) 2 434 (6 791) 4 141

Tax thereon at 28% (4 714) 681 (1 901) 1 159

Non-deductible expenses 647 18 295 18

Exempt income (566) (1 266) (566) (1 266)

Change in tax rate - 31 - -

Other (154) - - -

Prior year under/(over) provision 41 (26) - (1)

(4 746) (562) (2 172) (90)

Group No provision has been made for 2009 tax as the group has no taxable income. The estimated tax loss available for set off against future taxable income is R28 206 433 (2008: R8 028 489). Company No provision has been made for 2009 tax as the company has no taxable income. The estimated tax loss available for set off against future taxable income is R8 318 790 (2008: R317 322).

7. Earnings per shareReconciliation of headline earnings

(Loss)/profit attributable to ordinary shareholders of the Group

(12 091) 2 996

Adjustments after tax:

Impairment of intangible assets 563 -

Profit/(loss) on sale of non-current assets 12 (3 540)

Headline loss (11 516) (544)

Number of shares in issue

Issued 202 222 222 202 222 222

Weighted 202 222 222 127 550 685

Basic (loss)/earnings per share (cents) (5,98) 2,35

Headline loss per share (cents) (5,69) (0,43)

7.1 Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Group by the weighted average number of ordinary shares in issue during the year.

7.2 Headline earnings per share is calculated by dividing the headline earnings by the adjusted weighted average number of ordinary shares in issue taking into account the conversion of all dilutive potential ordinary shares. The Group currently has no dilutive ordinary shares.




8. Property, plant and equipment

Group2009

Cost R’000

Accumulated depreciation

R’000Carrying value

R’000

Immovable property 7 003 (1) 7 002

Furniture and fixtures 1 195 (551) 644

Motor vehicles 742 (307) 435

Office equipment 319 (102) 217

IT equipment 5 061 (3 149) 1 912

14 320 (4 110) 10 210

2008

Immovable property 4 678 - 4 678

Furniture and fixtures 1 006 (356) 650



IT equipment 3 375 (2 437) 938

9 886 (3 058) 6 828

Reconciliation of property, plant and equipment

Opening balance

R’000

Business combination

R’000Additions

R’000Disposals

R’000

Transfer to non-current

assets held for sale

R’000Depreciation

R’000

Closing balance

R’000

Group2009

Immovable property

4 678 2 325 - - - (1) 7 002

Furniture and fixtures

650 102 87 - - (195) 644

Motor vehicles 506 20 - - - (91) 435

Office equipment 56 117 98 - - (54) 217

IT equipment 938 387 1 367 (16) - (764) 1 912

6 828 2 951 1 552 (16) - (1 105) 10 210

2008

Immovable property

- - 8 790 (4 112) - - 4 678

Furniture and fixtures

561 - 325 (25) - (211) 650

Motor vehicles 636 - - - - (130) 506

Office equipment 82 - 31 (12) - (45) 56

IT equipment 2 226 - 757 (27) (700) (1 318) 938

Leasehold improvements

207 - - (207) - - -

3 712 - 9 903 (4 383) (700) (1 704) 6 828



8. Property, plant and equipment

Company 2009

Cost R’000

Accumulated depreciation

R’000Carrying value

R’000


Furniture and fixtures 607 (315) 292



IT equipment 1 485 (1 125) 360

7 583 (1 813) 5 770

2008


Furniture and fixtures 578 (207) 371



IT equipment 1 481 (799) 682

7 546 (1 270) 6 276

Reconciliation of property, plant and equipment

Opening balance

R’000Additions

R’000Disposals

R’000Depreciation

R’000

Closing balance

R’000

Company2009

Immovable property 4 678 - - - 4 678

Furniture and fixtures 371 29 - (108) 292

Motor vehicles 506 - - (87) 419

Office equipment 39 4 - (22) 21

IT equipment 682 72 (16) (378) 360

6 276 105 (16) (595) 5 770

2008

Immovable property - 8 790 (4 112) - 4 678

Furniture and fixtures 330 184 (25) (118) 371

Motor vehicles 636 - - (130) 506

Office equipment 82 13 (11) (45) 39

IT equipment 564 679 (27) (534) 682

Leasehold improvements 207 - (207) - -

1 819 9 666 (4 382) (827) 6 276

Immovable property consists of the following:

Erf 316, Doringkloof Centurion, situated at 99 Jean Avenue. A bond to the value of R3 million has been registered in favour of Absa Bank Limited over the property. The net book value of the property is R4,7 million.

Acquisition of MIE (Pty) Limited: Part 149 Lyttelton farm 381 in the Tshwane Metropolitan Municipality.




Percentage holdingInterest of company

Shares at costLoans due by/(to)

subsidiaries

2009R’000

2008R’000

2009R’000

2008R’000

2009R’000

2008R’000

9. Investments in subsidiariesAll companies are registered (Pty) Limited

Name and principal activity

Ideco Biometric Security Solutions (Supply of biometric equipment and solutions to the private sector for access control)

100 100 * * 9 223 39 199

Ideco Biometrix (Supply of biometric equipment and solutions to the government sector)

100 100 * * (6 427) (3 200)

Ideco Technologies (Biometric projects)

100 100 * * (563) (34 927)

Ideco AFISwitch (Supply of biometric services related to criminal background checks)

100 100 * * 7 776 4 061

Ideco Identity Solutions (Supply of client verification services in the financial services sector)

100 - * - 573 -

Managed Integrity Evaluation (“MIE”) (Supply of reference checking and backgroundscreening services)

100 30 21 098 - (14 000) -

21 098 * (3 418) 5 133

* less than R1 000

The directors value the investment in MIE at R39 million, based on the price:earnings multiple valuation method.

The shares in MIE have been ceded to the National Empowerment Fund Trust (“NEF”) as security for the redeemable cumulative preference shares issued to the NEF as detailed in note 18.

Company

2009 R’000

2008 R’000

Interest in subsidiaries is disclosed as follows:

Investments in subsidiaries 21 098 *

Loans to subsidiaries 17 572 43 260

Loans from subsidiaries (20 990) (38 127)

17 680 5 133

* less than R1 000



CostR’000

Accumulated amortisation

R’000

Carrying amount

R’000

Company2009

Intellectual property rights 1 500 - 1 500

2008


Reconciliation of carrying amountGoodwill

R’000 Trademark

R’000

Computer software

R’000

Intellectual property

rights R’000

Right of use

R’000 Total

R’000

2009

Carrying amount at beginning of year - - 4 585 1 500 17 252 23 337

Acquisitions – internal development - - 1 593 - - 1 593

Acquisitions – external - - 132 - - 132

Impairments - - (782) - - (782)

Business combination 28 900 7 700 40 - - 36 640

Amortisation for the year - - (834) - (1 362) (2 196)

28 900 7 700 4 734 1 500 15 890 58 724

2008

Carrying amount at beginning of year - - - -

Acquisitions 4 731 1 500 18 387 24 618

Amortisation for the year (146) - (1 135) (1 281)

4 585 1 500 17 252 23 337

Computer software is amortised over the project contract period and where there is no contract over a two year period. Right of use is amortised over the unexpired 140 months of the contract period. An amount of R782 000 was expensed as it was not technically feasible to continue with the project.

MIE has registered the trademark “NQR”, which is a national qualifications register and which is maintained in terms of exclusive long-term agreements with various universities. Information contained in the “NQR” is sold as part of MIE’s background screening services to prospective employers. The estimated useful life of the NQR trademark is 15 years.

10. Intangible assets

Group2009

CostR’000

Accumulated amortisation

R’000

Carrying amount

R’000

Computer software 5 714 (980) 4 734


Right of use 18 387 (2 497) 15 890

Trademark 7 700 - 7 700

Provisional goodwill on acquisition * 28 900 - 28 900

62 201 (3 477) 58 724

2008

Computer software 4 731 (146) 4 585


Right of use 18 387 (1 135) 17 252

24 618 (1 281) 23 337

* Refer to note 28




Group Company

2009R’000

2008R’000

2009R’000

2008R’000

11. Deferred tax Balance at beginning of year 1 829 885 89 89

Current charge 5 198 944 2 172 -

intangible assets (515) (512) - -

income in advance 61 - - -

prepayments 32 (32) - -

provisions 140 (555) 140 -

sec11A expenses 80 - - -

creation of losses 5 400 2 043 2 032 -

Business combination 93 - - -

capital allowance 454 - - -

revaluations (361) - - -

7 120 1 829 2 261 89

Comprising:

tax losses available for set-off against future taxable income

7 689 2 289 2 121 89

sec11A expenses 80 - - -

provisions 224 84 140 -

prepayments - (32) - -

income in advance 60 - - -

revaluations (361) - - -

capital allowance 455 - - -

intangible assets (1 027) (512) - -

7 120 1 829 2 261 89

Deferred tax asset 7 481 1 829 2 261 89

Deferred tax liability (361) - - -

7 120 1 829 2 261 89



Group Company

2009R’000

2008R’000

2009R’000

2008R’000

12. InventoriesMerchandise 13 780 12 097 - -

Less provision for impairment (1 076) (961) - -

12 704 11 136 - -

Provision for impairment at beginning of year (961) (1 145) - -

Written off during the year 67 263 - -

Provided for during the year (182) (79) - -

(1 076) (961) - -

13. Trade and other receivablesTrade receivables 19 470 14 986 - 3

Deposits 71 71 4 4

VAT 347 762 191 -

Other receivables 1 602 1 614 1 070 621

Prepayments – Royalties payable to ZNG Technologies AG

2 404 1 522 - -

23 894 18 955 1 265 628

Trade and other receivables are ceded to Absa Bank Limited as security for a R10 million overdraft facility.

Group

2009R’000

2008R’000

Trade receivables comprise:

Gross receivables

External 24 298 19 355

Provision for impairment of trade receivables (404) (400)

23 894 18 955

The amount of the write-down of trade receivables recognised as an expense isR nil (2008: R nil). Movements in the provision for impairments of trade receivables were as follows:

Balance at beginning of year 400 400

Business combination 4 -

Charge for the year - -

404 400



Reconciliation of carrying amount

Intellectual property rights

R’000 Total

R’000

2009

Carrying amount at beginning of year 1 500 1 500

Acquisitions - -

Amortisation for the year - -

1 500 1 500

2008

Carrying amount at beginning of year - -

Acquisitions 1 500 1 500

Amortisation for the year - -

1 500 1 500


Trade receivables comprise a widespread customer base. This made up primarily of large corporate companies and government departments. The Group does not have any significant exposure to any one customer.

The maximum exposure to credit risk for trade receivables at the reporting date by geographical region was:

Group

2009R’000

2008R’000

South Africa 20 362 16 504

Foreign 3 532 2 451

23 894 18 955

Foreign receivables are Rand denominated

Management views the trade receivables days per geographic region as within expectations compared with the company’s standard payment terms for that region. Trade receivables’ terms differ in certain regions due to local economic and market conditions and the risks of trading in that geographical region.

The following table illustrates the aging of gross trade receivables. The provision for impairment of trade receivables of R404 000 (2008 – R400 000) relates to specific items under the past due 61+ days ageing category only.

Group

2009R’000

2008R’000

Not past due 12 831 9 930

Past due 0 - 30 days 5 800 5 921

Past due 31 - 60 days 1 675 729

Past due 61+ days 3 588 2 375

23 894 18 955

The increase in accounts receivable days is due to the acquisition of MIE.

Credit risk is minimised through an initial client acceptance procedure whereby potential customers are individually assessed before an appropriate credit limit is allocated to the new client. Ongoing credit evaluation of the financial position of customers is performed.

Listings of overdue customer balances are reviewed monthly and evaluated against their credit terms and limits. Any customers exceeding their credit terms or limits must settle their overdue balances before any further credit is extended. Appropriate action is taken to recover outstanding amounts, where necessary.

At 31 August 2009, management did not consider there to be any material concentration of credit risk that has not been adequately provided for. Management consider the risk of non–recoverability as low.

No provision has been made for the amounts past due, since trade receivables past due have subsequently been received and the prepayments to ZNG Technologies AG will be expunged by royalties payable to them.



Group Company

2009R’000

2008R’000

2009R’000

2008R’000

14. Cash and cash equivalentsCash on hand 11 2 5 2

Bank balances 8 587 10 4 -

8 598 12 9 2

Bank overdraft (351) (2 804) (351) (2 804)

8 247 (2 792) (342) (2 802)

15. Non-current assets heldfor saleIT equipment - 4 335 - 282

This equipment was purchased shortly before the previous year-end and has subsequently been sold at cost to a leasing company and the Group is utilising the assets under an operating lease. Refer to note 2 for details.

16. Ordinary share capital and premiumAuthorised

1 000 000 000 ordinary shares of 0,0004 cents each

4 4 4 4

4 4 4 4

Issued

202 222 222 ordinary shares of 0,0004 cents each

1 1 1 1

Share premium 22 244 22 244 22 244 22 244

Less: Listing expenses written off (958) (958) (958) (958)

21 286 21 286 21 286 21 286

Number Number Number Number

Reconciliation of issued share capital

In issue on 1 March 2007 at 100 cents per share

100 100 100 100

Issued on 14 August 2007 at 100 cents per share

628 628 628 628

728 728 728 728

Number of shares in issue

Conversion of par value shares from 100 cents per share to 0,0004 cents per share on 17 September 2007

182 000 000 182 000 000 182 000 000 182 000 000

Issue of 20 222 222 shares at 110 cents per share through private placement on 30 October 2007.

20 222 222 20 222 222 20 222 222 20 222 222

202 222 222 202 222 222 202 222 222 202 222 222




Group Company

2009R’000

2008R’000

2009R’000

2008R’000

17. Long-term borrowingsSecured at amortised cost: Absa Bank Limited

2 634 2 811 2 634 2 811

Less: Current portion included in current liabilities

(238) (172) (238) (172)

2 396 2 639 2 396 2 639

The loan is secured by a bond over Erf 316 Doringkloof, is repayable in 94 monthly instalments of R40 243 each, and bears interest at the prime overdraft rate (9,5% at 31 August 2009).

18. Cumulative redeemable preference shares1 000 cumulative redeemable “A” preference of R1,00 each

1 - - -

Premium on “A” preference shares issued to the NEF

40 599 - - -

40 600 - - -

One redeemable participating “B” preference of R1,00 issued to the NEF

* - - -

40 600 - - -

* less than R1 000

The “A” preference share dividend rate is a variable rate equal to 75% of the prime overdraft rate and is payable bi-annually at the end of February and August.

R5 million of the “A” preference dividend was redeemed on 1 November 2009, and the balance is redeemable in four equal instalments, commencing one day after the third anniversary date after issuing of the preference shares, which date is 1 September 2012. The “A” preference shares may be redeemed earlier at the option of MIE, but not before 1 September 2012.

The “B” preference share must be redeemed together with the final redemption of the “A” preference dividend and a participating dividend must be paid which is equal to the higher of a minimum of 18% internal rate of return on the “A” preference shares subscription price and the “B” preference shares subscription price (including all dividends on all preference shares) from the issue date of the preference shares to the final redemption date or a maximum of 25% of the increase in the market value of MIE the period from the issue date to the final redemption date.

The “A” and “B” preference shares must be fully redeemed on 1 September 2016.

Ideco Group Limited has entered into a suretyship agreement with the NEF as additional security for the redemption of the “A” and “B” preference shares, in terms of which it binds itself with MIE for the due, proper and timeous payments of all dividends and redemptions in terms of the preference share subscription agreement.



Group Company

2009R’000

2008R’000

2009R’000

2008R’000

19. Trade and other payablesTrade and other payables 17 287 15 764 238 140

VAT 270 942 - 942

Accrued expenses 1 192 506 555 -

Other payables 1 508 475 413 232

20 257 17 687 1 206 1 314

Trade payables are non-interest bearing and are normally settled on 30 days terms save for one liability of R12,6 million (2008:R12,2 million) which is payable on 60 day terms. Accrued expenses are non-interest bearing and have an average term of 30 days.

20. Other current liabilitiesSagem Defence Securité France - 266 - -

Kroll Associates (Pty) Limited (“Kroll”) 2 871 - 2 871 -

Sagem Security S A (Pty) Limited (“Sagem”) 24 420 20 961 - -

27 291 21 227 2 871 -

The amount due to Kroll is interest-free and is repayable on 1 October 2009.

The amount due to Sagem carries interest at 1,5% per month on the capital amount and is repayable in ten equal monthly payments.

The loan has been rescheduled during November 2009 in terms of which R12,7 million is repayable in March 2010 and the balance of R11,7 million is payable in four equal payments from 15 September 2010 to 15 December 2010. No interest will accrue on the outstanding amount from 1 November 2009 to date of final payment.

21. ProvisionsOnerous contract

At beginning of year - 1 903 - -

Utilised during the year - (1 903) - -

Incentive provision

At beginning of year - - - -

Provided for during the year 1 354 - - -

1 354 - - -

The provision is for staff and executive performance bonuses and is payable before 28 February 2010.

22. Financial InstrumentsThe Group has various financial assets, such as trade and other receivables and cash and short–term deposits, which arise directly from its operations. The Group’s principal financial liabilities, other than derivatives, comprise trade and other payables and borrowings. The main purpose of these financial liabilities is to raise finance for the Group’s operations.

The Group occasionally enters into derivative transactions, primarily forward currency contracts. The purpose is to manage the currency risk arising from the Group’s operations. It is, and has been throughout 2009 and 2008, the Group’s policy that no trading in derivatives shall be undertaken.

The main risks arising from the Group’s financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk. The board of directors reviews and agrees policies for managing such risks, which are summarised below. The provision is for staff and executive performance bonuses and is payable before 28 February 2010.




Group Company

2009R’000

2008R’000

2009R’000

2008R’000

Categories of financial instruments

The principal financial instruments used by

the group, from which financial risk arises,

are as follows:

Loans and receivables

Trade receivables 21 490 17 433 1 265 628

Cash and cash equivalents 8 598 12 9 2

Loans due by subsidiaries - - 17 572 43 260

Financial liabilities at cost

Long-term borrowings 2 396 2 639 2 396 2 639

Loans due to subsidiaries - - 20 990 38 127

Preference shares 40 600 - - -

Trade and other payables 20 257 17 687 1 206 1 314

Other current liabilities 27 291 21 227 2 871 -

Bank overdraft 351 2 804 351 2 804

Credit risk

Credit risk primarily relates to exposure on cash and cash equivalents and trade receivables. The Group only deposits cash surpluses with well established financial institutions of high credit standing. Trade receivables comprise a widespread customer base. Ongoing credit evaluation of the financial position of customers is performed, and where appropriate, credit guarantee insurance is purchased. The granting of credit is made on application and is approved by management. At 31 August 2009 management did not consider there to be any material concentration of credit risk which has not been adequately provided for. Management consider the risk of irrecoverability as low.

Further disclosure of exposure to credit risk relating to trade and other receivables is included in note 13.

Interest rate risk

The Group’s exposure to changes in the market interest rates relates primarily to the bank overdraft and long-term borrowings.

As part of the process of managing the Group’s interest rate risk, interest rate characteristics of new borrowings are positioned according to expected movements in interest rates.

Currency risk

The Group does not incur currency risk as a result of purchases, borrowings and cash held in foreign currencies.

The Group had no exposure to foreign currency as at 31 August 2009.



Interest rate sensitivity

The Group is sensitive to the movements in the ZAR interest rates which are the primary interest rates to which the Group is exposed. The Group has used a sensitivity analysis technique that measures the estimated change to the income statement of an instantaneous increase or decrease, as detailed in the table below, in market interest rates on financial liabilities from the applicable rate as at 31 August 2009. The calculations were determined with reference to the outstanding financial liability and financial asset balances for the year. This represents no change from the prior period in the method and assumptions used. This analysis is for illustrative purposes only and represents management’s best estimate of reasonably possible changes in interest rates.

2009 After tax effect on profit

and loss

2008 After tax effect on profit

and loss

2% increase R’000

1% decrease R’000

2% increase R’000

1% decrease R’000

South African lending rate

Group (Rand)

Variable rate long-term loans (646) 323 (40) 20

Cash and cash equivalents - local (6) 3 (40) 20

Company (Rand)

Variable rate long-term loans (38) 19 (89) 45

Cash and cash equivalents - local (6) 3 (40) 20




Liquidity risk

The Group monitors its exposure to a shortage of funds by regular cash flow projections. The Group considers the maturity of both its financial liabilities and financial assets (e.g. trade and other receivables and cash and cash equivalents) and projected cash flows from operations.

In terms of the Articles of Association the Company’s borrowing powers are unlimited.

The table below summarises the maturity profile of the Group’s financial liabilities at year–end, based on contractual undiscounted payments.

Carrying amount

R’000

Contractual cash flows

R’000

Less than 1 year R’000

More than 1 yearR’000

2009

Non-derivative financial liabilities

Long-term borrowings 2 634 2 634 238 2 396

Preference shares 40 600 - - -

Trade and other payables 20 257 20 257 20 257 -


50 182 50 182 47 786 2 396

2008

Non-derivative financial liabilities

Long-term borrowings 2 811 2 811 172 2 639

Trade and other payables 17 687 17 687 17 687 -


41 725 41 725 39 086 2 639

The Group had a net cash balance of R8,2 million at 31 August 2009 and has not utilised any of its bank overdraft facility (2008 – utilised R2,8 million, and had unutilised credit facilities of R10 million (2008 – R7,2 million) in respect of which all conditions precedent have been met.

The Group’s cash flow forecast for the year ending 31 August 2010 indicates that the Group will have adequate resources to continue in operational existence for the foreseeable future.

Fair value

The fair values of all financial instruments are substantially the same as the carrying amounts reflected in the balance sheet.

Capital management

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made to the objectives, policies or processes during the years ended 31 August 2009 and 2008.

Capital includes equity attributable to equity holders of the parent. Refer to note 16 for a quantitative summary of authorised and issued share capital.

As at 31 August 2009, the Group’s gearing ratio was 24% (2008: 44%) expressed as equity as a percentage of total equity and liabilities. The main reason for the decrease is the acquisition of MIE, which was funded by way of redeemable preference shares.



Group Company

2009R’000

2008R’000

2009R’000

2008R’000

23. Contingent liabilities and capital commitmentsThere were no capital expenditure authorised or contracted at 31 August 2009 (2008: R Nil)

A bank guarantee of R520,000 (2008: R520,000) issued by Absa Bank Limited on behalf of the Company to Growthpoint Properties (Pty) Limited was the only contingent liability as at 31 August 2009.

24. Operating leasesNon-cancellable operating lease rentals are payable as follows:

Less than one year 8 036 2 573 2 117 1 834

Between one and five years 9 249 5 162 1 723 3 574

17 285 7 735 3 840 5 408

25. Related partiesIdentity of related parties

Shareholders of Ideco Group Limited

Muvoni Investment Holdings (Pty) Limited

ZNG Technologies AG

Subsidiaries - Refer to note 9

Key management - Refer to note 27

Related party transactions

Management and consulting fees paid to/(received from) related parties

Ideco Biometrix (Pty) Limited - - - (4 000)

Ideco Biometric Security Solutions (Pty) Limited

- - (6 000) (9 000)

Muvoni Investment Holdings (Pty) Limited 636 900 636 900

ZNG Technologies AG 1 800 2 700 1 800 2 700

Lease agreements - Rent received from related parties

Ideco AFISwitch (Pty) Limited - - (436) (654)

Royalties paid to related parties

ZNG Technologies AG (“ZNG”) 450 - - -

Refer note 13 for balance due by ZNG




Group Company

2009R’000

2008R’000

2009R’000

2008R’000

26. Notes to the cash flow statement

26.1 Cash utilised by operations

(Loss)/profit before taxation (16 837) 2 434 (6 791) 4 141

Adjustments for:

Depreciation and impairments 1 887 1 704 595 827

Amortisation of intangible assets 2 196 1 281 - -

Profit/(loss) on sale of assets 16 (4 116) 16 (4 116)

Share of profit of associate (2 023) (2 463) (2 023) (2 463)

Investment income (287) (1 747) (34) (1 051)

Finance costs 4 359 1 213 900 1 065

Movement in provisions 140 (1 903) - -

Loss before working capital changes and other non-cash flow items

(10 549) (3 597) (7 337) (1 597)

Working capital changes

(Increase)/decrease in inventories (1 568) (6 216) - -

Decrease/(increase) in trade and other receivables

2 265 2 243 (637) (109)

(Increase)/decrease in prepayments (1 137) (1 200) - 322

(Decrease)/increase in trade and other payables

(663) 3 083 (108) 573

(11 652) (5 687) (8 082) (811)

26.2 Tax paid

Amount outstanding at beginning of year (106) (16 611) 286 (1 482)

Income statement charge (452) (382) - 1

Amount outstanding at end of year 17 106 (300) (286)

(541) (16 887) (14) (1 767)



Salary R’000

BonusR’000

Allowances R’000

Provident fund

contributionsR’000

Fees R’000

TotalR’000

27. Directors’ emoluments

2009

Executive directors

V Mufamadi 1 200 - 158 60 - 1 418

HB Aucamp 368 - 47 41 816 1 272

1 568 - 205 101 816 2 690

Non-executive directors

MF Kekana - - - - 70 70

AX Sisulu-Dunstan - - - - 30 30

R Troester - - - - 30 30

- - - - 130 130

1 568 - 205 101 946 2 820

2008

Executive directors

V Mufamadi (18 months) 1 800 - 237 - 900 2 937

HB Aucamp (11 months) 718 37 130 - - 885

2 518 37 367 - 900 3 822

Direct Non-beneficial Indirect Total

Directors’ shareholding at31 August 2009

V Mufamadi 236 384 - 83 762 634 83 999 018

HB Aucamp 1 000 000 602 010 - 1 602 010

MF Kekana 224 361 - - 224 361

AX Sisulu-Dunstan 80 000 - - 80 000

R Troester - - 100 000 100 000

1 540 745 602 010 83 862 634 86 005 389

Directors’ shareholding at31 August 2008

V Mufamadi 236 384 - 83 762 634 83 999 018

HB Aucamp 1 000 000 602 010 - 1 602 010

MF Kekana 224 361 - - 224 361

AX Sisulu-Dunstan 80 000 - - 80 000

1 540 745 602 010 83 762 634 85 905 389




NOTICE OF ANNUAL GENERAL MEETING

IDECO GROUP LIMITED(Incorporated in the Republic of South Africa)(Registration number: 2001/023463/06)(“Ideco” or “the Company” or “the Group”)Share code: IDE ISIN code: ZAE000107579

Notice is hereby given that the annual general meeting of shareholders of the Company will be held at Ideco’s business

address, Merton House, Eton Office Park East, 17 Harrison Avenue, Epsom Downs, Bryanston, on 16 April 2010, at

10:00 for the following purposes:

Ordinary business

To receive, consider and adopt the annual financial statements for the year ended 31 August 2009 of the Company 1.

and the Group, together with the directors’ and independent auditors’ reports contained therein.

To re-elect, by separate resolution, each of the following directors who retire by rotation in accordance with the 2.

Company’s articles of association:

V Mufamadi

R Troester

The retiring directors are eligible and offer themselves for re-election. Brief curriculum vitae of these directors appear on

page 2 of the annual report.

To confirm the re-appointment of BDO South Africa Incorporated as independent auditors to the Company for the 3.

ensuing financial year.

To transact any other business capable of being transacted at an annual general meeting.4.

Special business

In addition, shareholders will be requested to consider and, if deemed fit, to pass the following special and ordinary

resolutions with or without amendment:

Ordinary Resolution Number One

Control of authorised but unissued share capital

“Resolved that the unissued ordinary shares in the authorised share capital of the Company be hereby placed under the

control of the directors of the Company as a general authority to them to allot and issue the same at their discretion in

terms of and subject to the provisions of the Companies Act, Act 61 of 1973, as amended (“the Act”), the Company’s

articles of association and the Listings Requirements of the JSE Limited (“JSE”).”

Ordinary Resolution Number Two

Issue of ordinary shares for cash

“Resolved that, subject to:

the passing of Ordinary Resolution Number One above; and

not less than 75% of those shareholders of the Company present in person or by proxy and entitled to vote at this

annual general meeting, voting in favour of this resolution;

the directors of the Company are hereby authorised and empowered, by way of a general authority, to allot and issue

for cash, without restriction, all or any of the authorised but unissued ordinary shares in the capital of the Company

placed under their control as they in their discretion may deem fit, subject to the Act, the Company’s articles of

association and the provisions of the JSE Listings Requirements, namely:

R’000

Revenue 6 928

Cost of sales (2 071)

Gross profit 4 857

Other income 2

Operating expenses (2 850)

Depreciation (54)

Amortisation (22)

Operating profit 1 933

Investment revenue 228

Profit before tax 2 161

Taxation (451)

Profit contribution 1 710

If the acquisition had been completed on 1 September 2008, total group revenue for the period would have been R34,4 million higher and the loss for the period would have been R6,7 million lower.

No Competition Commission (“Commission”) approval was required for the acquisition referred to above, since MIE’s revenue is below the threshold set by the Competitions Act, but a competitor of MIE has lodged a complaint with the Commission, which ruled that the transaction must be reported to the Commission as a small merger. The required report was submitted to the Commission on 24 November 2009, and the transaction was approved by the Commission unconditionally on 18 February 2010.

28. Business combination

MIE’s carrying amount before

combination R’000

Fair value adjustment

R’000Fair value

R’000

Property, plant and equipment 1 703 1 288 2 991

Other non-current assets - 7 700 7 700

Deferred tax 281 281

Trade and other receivables 5 976 5 976

Taxation receivable 298 298

Cash and cash equivalents 20 093 20 093

Trade and other payables (2 967) (2 967)

Long-term liabilities (40 600) (40 600)

Provisions (1 214) (1 214)

(16 430) 8 988 (7 442)

Provisional goodwill arising on acquisition 28 900

Investment in MIE 21 458

Investment in MIE 21 098

Deferred tax 360

Cash consideration paid -

Cash and cash equivalents acquired 20 093

Net cash outflow arising on acquisition (20 093)

The acquisition of MIE has been provisionally accounted for, as permitted by IFRS 3. The purchase price allocation will be completed within the next 12 months and any resulting fair value adjustments to assets and the recognition of intangible assets will be accounted for accordingly.

The goodwill arising on the acquisition of MIE is attributable to the anticipated profitability of MIE and the anticipated future marketing synergies from the combination.

The results contributed by MIE for the two months between the date of acquisition and the balance sheet date were as follows:




NOTICE OF ANNUAL GENERAL MEETING continued

that this authority shall not extend beyond fifteen months from the date of this meeting or the date of the next -

annual general meeting, whichever is the earlier date;

that the issue shall be to public shareholders as defined in paragraphs 4.25 to 4.27 of the JSE Listings -

Requirements and not to related parties;

that a paid press release, giving full details, including the impact on net asset value, net tangible asset value and -

earnings and headline earnings per share be published at the time of any issue representing, on a cumulative

basis within one year, 5% or more of the number of ordinary shares issued prior to the issue;

that issues in the aggregate in any financial year, not exceed 15% of the number of ordinary shares of the -

Company’s issued share capital, including instruments which are convertible into ordinary shares. The number of

ordinary shares which may be issued shall be based on the number of ordinary shares in issue at the date of such

application less any ordinary shares issued during the current financial year, provided that any ordinary shares to

be issued pursuant to a rights issue (announced and irrevocably and underwritten) or acquisition (concluded up to

the date of application) may be included as though they were in issue at the date of application;

the equity securities which are the subject of the issue for cash must be of a class already in issue, or where this -

is not the case, must be limited to such securities or rights that are convertible into a class already in issue;

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

discount permitted be 10% of the weighted average traded price of the shares in question over the thirty business

days prior to the date that the price of the issue is agreed in writing between the issuer and the party subscribing

for the securities.”

Ordinary Resolution Number Three

Non-executive directors’ remuneration

“Resolved that the remuneration of the non-executive directors for the financial year ending 31 August 2010 be as

follows: Board As member R40 000

Audit and Risk Committee As chairman R50 000 As member R40 000

Ordinary Resolution Number Four

Authority to action all ordinary and special resolutions

“Resolved that any one director of the Company or the company secretary be and is hereby authorised to do all such

things as are necessary and to sign all such documents issued by the Company so as to give effect to special resolution

number one and ordinary resolution numbers one, two, and three.”

Special Resolution Number One

General authority to repurchase issued shares

“Resolved that the Company hereby approves, as a general approval contemplated in sections 85(2) and 85(3) of the

Act, the acquisitions by the Company, and/or any subsidiary of the Company, from time to time of the issued ordinary

shares of the Company, upon such terms and conditions and in such amounts as the directors of the Company may

from time to time determine, but subject to the Company’s articles of association, the provisions of the Act and the JSE

Listings Requirements, when applicable, and provided that –

the repurchase of securities will be effected through the order book operated by the JSE trading system and done

without any prior understanding or arrangement between the Company and the counter party;


this general authority shall only be valid until the Company’s next annual general meeting, provided that it shall not

extend beyond fifteen months from the date of passing this special resolution;

in determining the price at which the Company’s ordinary shares are acquired by the Company and/or subsidiary

of the Company, in terms of this general authority, the maximum premium at which such ordinary shares may be

acquired will be 10% of the weighted average of the market price at which such ordinary shares are traded on the

JSE, as determined over the five days immediately preceding the date of the repurchase of such ordinary shares;

the acquisitions of ordinary shares in the aggregate in any one financial year do not exceed 20% of the Company’s

issued ordinary share capital from the beginning of the financial year;

the Company and its subsidiaries will be able to pay their debts as they become due in the ordinary course of

business for a period of twelve months after the transaction;

the consolidated assets of the Company and its subsidiaries, being fairly valued in accordance with the accounting

policies used in the Company’s latest audited group annual financial statements, will be in excess of the consolidated

liabilities of the Company and its subsidiaries for a period of twelve months after the date of the transaction;

the issued share capital and reserves of the Company and its subsidiaries will be adequate for the purposes of the

business of the Company and its subsidiaries for a period of twelve months after the date of the transaction;

the working capital available to the Company and its subsidiaries will be adequate for ordinary business purposes for

a period of twelve months after the date of the transaction;

upon entering the market to proceed with the repurchase, the Company’s sponsor has confirmed the adequacy of the

Company’s working capital for the purposes of undertaking a repurchase of shares in writing to the JSE;

after such repurchase the Company will comply with the JSE Listings Requirements concerning shareholder spread

requirements;

the Company or its subsidiary are not repurchasing securities during a prohibited period as defined in the JSE Listings

Requirements unless they have in place a repurchase programme where the dates and quantities of the securities

to be traded during the relevant period are fixed (not subject to any variation) and full details of the programme have

been disclosed in an announcement over SENS prior to the commencement of the prohibited period;

when the Company has cumulatively repurchased 3% of the initial number of the relevant class of securities, and for

each 3% in aggregate of the initial number of that class acquired thereafter, an announcement will be made; and

the Company only appoints one agent to effect any repurchase(s) on its behalf.”

Reason for and effect of the Special Resolution

The reason for and the effect of the special resolution is to grant the Company’s directors a general authority, up to

and including the date of the following annual general meeting of the Company, to approve the Company’s purchase of

shares in itself, or to permit a subsidiary of the Company to purchase shares in the Company.

Certain information relating to the Company as required by the JSE Listings Requirements is set out in the attached

Annexure which forms part of this notice of annual general meeting.

Voting and proxies

Shareholders who hold their shares in certificated form or who are own name registered shareholders holding their shares

in dematerialised form who are unable to attend the annual general meeting but who wish to be represented thereat, are

required to complete and return the attached Form of Proxy so as to be received by the Company’s registrars by not later

than 10:00 on 14 April 2010.



Shareholders who have dematerialised their shares through a Central Securities Depository Participant (“CSDP”) or

broker, other than by own name registration, who wish to attend the annual general meeting should instruct their CSPD

or broker to issue them with the necessary authority to attend the meeting, in terms of the custody agreement entered

into between such shareholders and their CSDP or broker. Shareholders who have dematerialised their shares through

a CSDP or broker, other than by own name registration, who wish to vote by way of proxy, should provide their CSDP

or broker with voting instructions, in terms of the custody agreement entered into between such shareholders and their

CSPD or broker. These instructions must be provided to their CSPD or broker by the cut-off time or date advised by their

CSDP or broker for instructions of this nature.

Shareholders who have any doubt as to the action they should take, should consult their stockbroker, accountant,

attorney, banker or other professional adviser immediately.

By order of the board

H B AucampCompany secretaryJohannesburg26 February 2010

Registered office Registrars13 Wellington Road Computershare Investor Services (Pty) LimitedParktown 70 Marshall StreetJohannesburg 2193 Johannesburg, 2001 P O Box 61051 Marshalltown, 2107

General information on the company to support the resolution proposed in the notice of annual general meeting

The following information is required by the JSE Listings Requirements with regard to the resolution granting a general

authority to the Company to repurchase its securities.

The JSE Listings Requirements require the following disclosures, some of which are elsewhere in the annual report of

which this notice forms part as set out below:

Directors – page 2;

Major shareholders of the Company – page 11;

Directors’ interests in securities – page 49;

Share capital of the Company – page 41.

Litigation statement

There are no legal or arbitration proceedings, either pending or threatened against the Company or its subsidiaries, of

which the Company is aware, which may have, or have had in the last twelve months, a material effect on the financial

position of the Company or its subsidiaries.

Material change

Other than the facts and developments reported on in the annual report, there have been no material changes in the

affairs or financial position of the Company and Group since the date of signature of the audit report and the date of this

notice.

The board of directors has no immediate intention to use this authority to repurchase Company shares. However, the

board of directors is of the opinion that this authority should be in place should it become apparent to undertake a share

repurchase in the future.


Directors’ responsibility statement

The directors whose names are given on page 2 of the annual report, collectively and individually accept full responsibility

for the accuracy of the information given in this notice of annual general meeting and certify that to the best of their

knowledge and belief there are no facts that have been omitted which would make any statement false or misleading,

and that all reasonable enquiries to ascertain such facts have been made and that the notice contains all information

required by Law and the JSE Listings Requirements.

IDECO 2009 Annual Report56

CORPORATE INFORMATION

REGISTERED OFFICEIdeco Group Limited(Registration number 2001/023463/06)13 Wellington RoadParktown 2193

DESIGNATED ADVISORQuestco Sponsors (Pty) Limited(Registration number 2004/018276/07)The Campus57 Sloane Street1st Floor, Wrigley FieldBryanstonPO Box 98956Sloane Park 2152

CORPORATE LAW ADVISORSCliffe Dekker Hofmeyr Incorporated(Registration number 2008/018923/21)1 Protea PlaceSandown 2196Private Bag X7Benmore 2010

COMMERCIAL BANKERAbsa Bank of South Africa Limited(Registration number 1986/004794/06)3rd Floor, Absa Towers East170 Main StreetJohannesburg 2001

TRANSFER SECRETARIESComputershare Investor Services (Pty) Limited(Registration number 2004/003647/07)Ground Floor, 70 Marshall StreetJohannesburg 2001(PO Box 61051, Marshalltown 2107)

INDEPENDANT AUDITORBDO South Africa Incorporated(Registration number 1995/002310/21)13 Wellington RoadParktown 2193(Private Bag X60500, Houghton 2041)

COMPANY SECRETARY AND REGISTERED ADDRESSHB Aucamp, CA(SA)13 Wellington RoadParktown 2193(Private Bag X60500, Houghton 2041)

Designed by Mortimer-Harvey

NOTES

www.ideco.co.za

Documents

ANNUAL REPORT 2009 - ShareData Online · Affairs’ paper-based fingerprint records is still the largest ... Management based in Cape Town. ... driver’s license card by the Department