INDEPENDENT AUDITOR’S REPORT

TO THE SHAREHOLDERS OF AFROCENTRIC INVESTMENT CORPORATION LIMITED

Report on the audit of the consolidated and separate financial statements

Opinion

We have audited the consolidated and separate financial statements of the AfroCentric Investment Corporation Limited (The Group and Company) set out on Consolidated and separate statements of financial position to Notes to the consolidated and separate financial statements statements, which comprises of the consolidated and separate statements of financial position as at 30 June 2024, the consolidated and separate statements of profit or loss and other comprehensive income, the consolidated and separate statements of changes in equity and the consolidated and separate statements of cash flows for the year ended, and notes to the financial statements, including a summary of material accounting policies.

In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of AfroCentric Investment Corporation Limited as at 30 June 2024, and its consolidated and separate financial performance and consolidated and separate cash flows for the year ended in accordance with the IFRS Accounting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards); the JSE Listing Requirements and the Companies Act, No 71 of 2008 of South Africa.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated and separate financial statements section of our report. We are independent of the Group and Company in accordance with the Independent Regulatory Board for Auditors’ Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa.

We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the corresponding sections of the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined that there are no key audit matters to communicate in terms of our separate financial statements.

Impairment of goodwill

Refer to the consolidated financial statements notes for more detail:

Note 1(f) (i): Material accounting policies
Note 2(a): Material accounting estimates and assumptions – Impairment of goodwill; and
Note 7: Intangible assets.

Key audit matter

The Group’s goodwill amounts to R1.33 billion as at 30 June 2024.

Management determined the recoverable amount of the various cash-generating units (“CGUs”) as being the higher of fair value less costs to sell or value in use. The value in use of the CGUs was calculated by management through the discounting of the best estimate of future cash flows attributable to the CGUs. The key assumptions and significant judgements used by management in the calculation of the value in use were as follows:

(a)	The estimated revenues to be earned from the CGUs;
(b)	The discount rate that takes into account the yield on government bonds, Beta, risk adjustment factors and a market risk premium;
(c)	Forecast period; and
(d)	An average growth rate, based on past performance and management’s expectations of future earnings.

We considered the goodwill impairment assessment to be a matter of most significance to the current year audit due to the:

Significant judgments in management’s calculation of the value in use of the CGUs; and
Recoverability of these assets is based on forecasting and discounting future cash flows which involves a high degree of judgement by management; and
Magnitude of the goodwill balance in the consolidated financial statements.

How the matter was addressed in our audit

We performed the procedures below, with the support of our own valuation experts over management’s impairment tests:

Assessed the composition of future cash flow forecasts and the underlying management assumptions by evaluating:
- the accuracy of previous forecasts of the CGU by comparing the budgets of previous financial years with actual results and by analysing deviations;
- the consistency with external market and industry resources;
- the basis for assumptions inherent in the cashflow projections assessing the reasonability of assumptions based on the business and the economic conditions expected to exist over the forecast period; and
- the cash flows to ensure that they are in nominal terms and the appropriateness of the discount rate.
Recalculated the growth rate applied to the cash flows based on the years covered by management’s approved budgets;
Assessed the basis for the discount rates used and considered the risks specific to the future cash flows and whether these are included in the discount rates;
Recalculated the carrying amount of the goodwill related to the CGUs with reference to underlying documentation, including financial information
Challenged management’s valuation analyses by performing our own sensitivity analyses based on independent inputs for key valuation assumptions;
Assessed the reasonableness of the recoverable amount calculations performed by management, compared and concluded on the differences between management’s valuation results and our internal valuation expert results.

Capitalisation of development costs relating to internally generated software and impairment assessment of internally generated software

Refer to the consolidated financial statements notes for detail:

Note 1(f)(iv): Material accounting policies
Note 1(g)(i): Impairment of non-financial assets; and
Note 2(h): Material accounting estimates and assumptions - impairment of internally generated software;
Note 7: Intangible assets.

Key audit matter

The Group’s internally generated computer software balance of R969 million as at 30 June 2024 includes current year capitalised internally generated software (“software”) amounting to R151 million. Management considers these capitalised costs to be clearly associated with identifiable products which will be controlled by the Group.

In capitalising these development costs, management considers whether the criteria in IAS 38, Intangible Assets is met and development expenditure that does not meet the above criteria are recognised as an expense in the consolidated statement of profit or loss as these are incurred.

The Group’s policy is to perform an annual impairment assessment using a discounted cash flow forecast on all software, regardless of whether an indication of impairment exists.

Key assumptions applied by management in the cashflow forecast included the following:

(a)	The estimated revenues to be earned from the use of the assets and the period over which those revenues are projected;
(b)	The discount rate; and
(c)	Risk adjustment factors used in deriving an appropriate discount rate applied to future estimated cash flows.

We considered the capitalisation of development costs relating to software and the impairment assessment of the software to be a matter of most significance to the current year audit due to the:

Significant judgements management applied in assessing whether direct development costs such as employee expenses and contractor costs of the system development team met the recognition criteria in IAS 38 for capitalisation as an asset;
Recoverability of these assets is based on forecasting and discounting future cash flows which involves a high degree of judgement by management; and
Magnitude of capitalised development costs in the consolidated financial statements.

How the matter was addressed in our audit

With the assistance of our own valuations experts, we have performed the following procedures to assess the overall reasonableness of Management’s assertions as to the value-in use estimates:

We reviewed the methodology being used to determine recoverable value and whether it is appropriate per IAS 36.
We have assessed whether the terminal growth rate and value is reasonable.
We have assessed whether cash flows have been correctly discounted to the valuation date.
We assessed whether cash flows are real or nominal and that the discount rate and terminal growth rate used are on a consistent basis.
We assessed the basis of the discount rate used by:
- Assessing whether the risk specific to the future cash flows are included in the discount rate.
- Assessing whether the risk specific to the future cash flow estimates that had been adjusted, are not duplicated in the discount rates.

We performed the following procedures to assess the overall reasonableness of the capitalisation of development costs:

We obtained the internally generated software listing and agreed the total to the trial balance to ensure it is complete.
We selected a sample of additions of capitalised development costs using statistical sampling method and vouched to corresponding invoices and earnings report.
We obtained the timesheet report to recalculate the percentage of enhancement hours which support the percentage of development costs capitalised.

Other matter

The consolidated and separate financial statements of the Group and Company as at and for the year ended 30 June 2023, were audited by another auditor who expressed an unmodified opinion on the consolidated and separate financial statements on 18 September 2023.

Other information

The directors are responsible for the other information. The other information comprises of the information included in the document titled “AfroCentric Investment Corporation Limited consolidated and separate Annual Financial Statements for the year ended 30 June 2024”, which includes the Directors’ Report, the Audit Committee Report and the Company Secretary Certificate as required by the Companies Act No 71 of 2008 of South Africa. The other information does not include the consolidated and separate financial statements and our auditor’s report thereon.

Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the consolidated and separate financial statements

The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards); JSE Listing Requirements and the requirements of the Companies Act, No 71 of 2008 of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated and separate financial statements, the directors are responsible for assessing the Group and Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group and/or company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the consolidated and separate financial statements

Our objectives are to obtain reasonable assurance that the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement in the consolidated and separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit 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 group’s and company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group and Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the group and/or company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that KPMG Inc. has been the auditor of AfroCentric Investment Corporation Limited for one year.

KPMG Inc.
Registered Auditor

Per Z.A Beseti
Chartered Accountant (SA)
Registered Auditor
Director
KPMG Crescent
85 Empire Road
Parktown
2193
South Africa
3 September 2024