No accounting for JCI

JCI: still ducking and dodging. What game are Investec and Allan Gray playing with JCI’s annual accounts – and why?

By means of a strategic plan spearheaded by Investec CEO Stephen Koseff himself, Investec, with the help of fund managers Allan Gray, contrived in August 2005 to wrench control from Brett Kebble of JCI Ltd – the hub of Kebble’s criminal corporate empire.

Not long thereafter, Kebble was shot and killed by hired gunmen who claimed it was an assisted suicide. Some friends mourned his death, many more breathed a sigh of relief, assured that he would never be called to testify in a court of law.

Like all public companies, JCI is required in terms of the Companies Act to publish its audited annual accounts for approval by its shareholders within six months of the end of each financial year. Banks and auditors are supposed to be ultra compliant when it comes to company law and financial accounting. But Investec Bank and its favoured auditors, KPMG, have managed not to produce audited annual accounts for JCI for the past six years. Seeing is believing.

First, the How:

Presented here, in chronological order, are extracts from statements that have appeared on JCI’s website and in correspondence with shareholders and the Independent Regulatory Board for Auditors (IRBA) with regard to the endlessly “imminent” publication of its annual accounts. The 2011 to 2016 annual financial statements are now between 4 and 67 months overdue.

While it is intended the general reader should enjoy being taken for this two-page ride, JCI’s minority shareholders are anything but amused.

JCI 2013 Annual Financial Statements (Undated): JCI Limited has a 49% investment in [historical Cape wine farm] Boschendal and it is therefore necessary to consolidate the Boschendal (Pty) Ltd accounts into JCI Ltd. Boschendal annual financial statements will only be completed late in the third quarter of this year. Consequently the Company anticipates the audited consolidated annual financial statements for the year ended 31 March 2013 will only be finalised and signed off early in the fourth quarter of 2013. (Not Done 1.)

03 October 2013: Further to our previous notice, the 2013 accounts should be published late in the fourth quarter. The delay is due to Boschendal’s audit which has taken slightly longer than anticipated. (Not Done 2.)

17 December 2013: The accounting function of JCI has been outsourced to BDO Business Services and the secretarial function to Statucor. This has resulted in the staff complement at JCI being reduced to three. The consolidated JCI annual financial statements are virtually finalised. (Not So 3.)

The directors are endeavouring to negotiate a tax settlement with South African Revenue Services [SARS]. Finality of the tax amount is the reason for the accounts not being finalised… Shareholders are further advised that JCI has changed its year end from 31 March to 30 June.

Due to the complexity of the various past and present transactions and settlements in the JCI Group, JCI has sought legal advice on numerous tax issues. The amount owing to or due by JCI to/by SARS will be finally calculated after taking such advice into account. The amount shown as income tax payable… could be significantly lower.

[Editor’s note: In JCI Ltd’s (unaudited) Group Annual Financial Statements for the year ended 31 March 2012, completed on 6 December 2012, “Current tax payable” is put at R52,065,000.]

22 June 2014: The 2013 Annual Financial Statements are in final preparation, the delay has been caused primarily by further extensive work that has gone into the tax situation for the last 10 years. …the Company will still need to negotiate with SARS to achieve a settlement. The audited Annual Financial Statements will be posted on the website shortly. (Not Done 4.)

(Note: In “JCI Limited Audited Group Annual Financial Statements for the year ended 31 March 2013”, issued on 8 July 2014 [the statements were not in fact auditied – and did not contain an audit report], “Current tax payable” is put at R25,000,000.)

The company has submitted the tax returns of all group companies up to date and will be meeting with SARS to finalise the amounts due to or from SARS. A provision has been raised based on what is believed by the directors to be the best estimate of the tax liability, taking account of opinions received from independent tax advisors.

9 December 2014: The financial statements will be finalised and published as soon as the tax issues are resolved. (Not Done 5.)

17 August 2015: Discussions are continuing with SARS and as soon as the tax matters are resolved the Company will be in a position to complete the outstanding Annual Financial Statements. (Not Done 6.)

11 April 2016: The Board is happy to announce that the long outstanding tax issues have been resolved and the Company is now in a position to finalise the outstanding financial statements.

To avoid unnecessary expense it is intended to publish the Financial Statements for the year ending June 2016 together with the outstanding statements for previous years in the third quarter of 2016.
(Not Done 7.)

9 May 2016: Further discussions have been held with the Auditors, KPMG, who are comfortable that all the audits for the periods 2013 to 2016 will be completed by the second week of August 2016, whereafter an AGM will be called. (Not Done 8.)

The claims against the previous auditors are progressing satisfactorily. Shareholders will be kept advised. The Randgold/Goldfields matter is proceeding and the legal process is running its course. Further updates shortly.

12 August 2016: Attorneys Norton Rose (for KPMG) write to IRBA:

…JCI has been left with a small finance team responsible for the preparation of financial information and for regulatory compliance. This, together with the length of time it took to finalise the complex tax dispute, has delayed the preparation of the latest financial statements. Our client (i.e. KPMG Inc) has been advised by JCI that they are likely to be completed by the end of August 2016. Our client is reasonably confident that this deadline will be met. (Not Done 9.)

4 October 2016: In the communication to shareholders dated 9 May 2016 it was anticipated that the audits of the Company for the outstanding periods would be completed towards the end of August 2016.

The tax settlement, concluded and signed in July 2016
[but note: it was already stated in April 2016 that the tax dispute had been resolved], has created certain accounting challenges that need to be addressed.

Following the delays in addressing the complexities of the tax matters the auditors, KPMG, felt it necessary to lodge a Reportable Irregularity with the Independent Regulatory Board for Auditors (IRBA) and have requested a 30-day response which the Company will be providing. Further information will be provided once this response has been furnished.

(A meaningless response was provided on 27 October 2016 – thus effectively Not Done 10.)

27 October 2016: (Extract from JCI’s letter to KPMG dated 18 October 2016) …the [JCI] Board, without commitment but in good faith, will provide to your firm the Annual Financial Statement in question and any reasonably required and/or requested audit evidence as soon as possible. (No confirmation published by 28 November 2016 – thus effectively Not Done 11.)

31 October 2016 and 17 November 2016: Shareholder DC Palmer writes requesting publication of (1) KPMG’s reply to JCI’s letter to them of 18 October 2016 and (2) details of KPMG requirements relating to JCI’s outstanding annual financial statements that JCI is unable or unwilling to comply with. No response received.

Email from JCI to shareholder David Smyth (22 November 2016): ...there will be a meeting with the auditors today and a full response will be provided thereafter. (Not Done 12.)

5 December 2016:
The audit adjustments required as a result of the tax settlement have now been agreed with JCI’s external auditors, KPMG. The JCI team together with BDO are finalising the accounts and these should be available shortly. Once these are received they will need to be reviewed by both the directors and KPMG.

All parties remain committed to publishing the outstanding Annual Financial Statements as soon as possible. Further updates will be provided.

Noseweek’s consultant observes:

JCI is suggesting that it took some eight months to agree the entries recording the tax settlement reached in April 2016 (see above) – presumably the book entries required are: debit Provision for Tax R17 million, credit Tax Over-provided R17m.

JCI also suggest that the adjustments relating to the tax settlement were the predominant reason for delaying the finalisation of the annual financial statements. The more likely reasons: the claims from Gold Fields Operations Ltd (previously Randgold) and challenges to the validity of the indemnity JCI Ltd received from Randgold & Exploration Company Ltd (at Investec’s direction).

The accounts only went to KPMG for review more than two months later – thus effectively Not Done 13.)

1 March 2017:
Further to the communication to shareholders published on 5 December 2016, JCI is pleased to advise that the Group Annual Financial Statements for the periods 2013 to 2016 have been provided to the external auditors, KPMG, who are in the process of carrying out their audits.

It is anticipated that the audits will be completed during March and that the Annual General Meeting will be held in April 2017.
(Not Done 14.)

24 March 2017: Further to the communication published on 1 March 2017, JCI is pleased to advise that, in consultation with the Company’s auditors, the audits for the years 2013 to 2016 are well advanced and the Annual General Meeting is expected to take place in June 2017.

Notice of Annual General Meeting and the signed-off Group Annual Financial Statements will be published as required and will be available on the Company’s website in due course.

How can we possibly believe them?

Why all this? See nose212!  (Lest Barry Sergeant be forgotten)

Allan Gray
Annual Financial Statements
Company Law
South Africa
Minority Shareholders
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