ecdc_annual-report_2013_final_web by Rocky Heath

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Facilitating Real Economic Growth Ecdc profile

Board of Directors

Chairperson’s foreword

Executive management

Chief Executive Officer’s foreword

Financial review

Core operations review

Development Finance

Business Support

Special Funds

Risk Capital Facility

Investment Promotion

Market Access and Trade Promotion

Property Development and Management

Corporate Services

Human Resources Management

Information Technology

Marketing, Communication and Stakeholder Relations

Statement of responsibilities and approval

Certificate of the Company Secretary

Corporate governance

Audit and Risk Management Committee report

Directors’ report

Auditor-General's Report

101

Financial reports and annual financial statements

106

List of acronyms

Published by: Eastern Cape Development Corporation Ocean Terrace Park, Moore Street, Quigney, East London PO Box 11197, Southernwood, 5213, South Africa © Eastern Cape Development Corporation, 2013 Enquiries: Marketing & Communication Unit Eastern Cape Development Corporation Telephone: +27 43 704 5600 • Fax: +27 43 704 5700 info@ecdc.co.za • www.ecdc.co.za PR183/2013 ISBN: 978-0-621-41979-5

ECDC draws its mandate directly from the Eastern Cape Development Corporation Act (Act 2 of 1997) and is led by the economic development priorities of the provincial government, as detailed in the Provincial Growth and Development Plan (PGDP), Provincial Industrial Development Strategy (PIDS), policy statements and the budget speech of the Ministry of Economic Development, Environmental Affairs and Tourism (DEDEAT). The ECDC Act preamble states that the corporation will “plan, finance, coordinate, market, promote and implement development of the province and its people in the fields of industry, commerce, agriculture, transport and finance”.

STRATEGIC FOCUS As defined in the shareholder’s compact entered into by the ECDC Board and the MEC for DEDEAT, ECDC’s strategy focuses on it becoming a viable development finance corporation for the promotion of economic growth in the Eastern Cape by: • Stimulating economic activity through focused investment in vital sectors of the Eastern Cape economy. • Investing in intellectual leadership. • Optimising all resources to maximise investment returns and attain financial sustainability. • Building a strong brand. • Establishing integrated partnerships with stakeholders to ensure maximum leverage of resources and development outcomes.

ECDC PRODUCTS and SERVICES To be a development finance corporation for the promotion of economic growth in the Eastern Cape, the corporation renders a variety of services related to the following operational areas: • • • • • • • •

Development Finance (loans and equity) Investment Promotion Trade Promotion Enterprise Development Services Project Development Property Management and Development Special Funds (Imvaba Co-operative Fund and Job Stimulus Fund) Risk Capital Fund

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VISION To be an innovative leader in promoting sustainable economic growth and development of the Eastern Cape.

MISSION To promote sustainable economic development in the Eastern Cape through focused: â&#x20AC;˘ Provision of innovative development finance â&#x20AC;˘ Leveraging of resources, strategic alliances, investment and partnerships.

CORPORATE VALUES

In all our dealings with all people, we are known for our spirit of honour, reliability and accuracy.

We are defined by our positive, presentable demeanour and our quest for continuous improvement.

Integrity

Professionalism

We are always ready to give truthful, accurate account of our use of company time, assets and opportunities.

Accountability

None of us is as productive as all of us when we complement each other to achieve a common goal.

Teamwork

What we value we become

FACILITATING REAL ECONOMIC GROWTH

Nomfanelo Magwentshu

Prof Mkhalelwa Mazibuko

Chairperson

Deputy Chairperson

Born: 25 May 1971 Appointed: May 2011 Sub-committee Governance and Nomination Committee Qualifications • Masters in Business Administration (MBA), Gordon Institute of Business Science • Bachelor of Science (Honours) (Statistics), University of KwaZulu-Natal

• BSc (Mathematics and Statistics), Walter Sisulu University (WSU) Current position Senior Advisor: McKinsey Company Directorships • SAFCOL (South African Forestry Company) • Nampak Ltd Peregrine Holdings Ltd • Coega Development Corporation • Air Traffic and Navigation Services Company • Jessen Dakile (PTY) Ltd • Peregrine Holdings Ltd

Sitembele Mase CHIEF EXECUTIVE OFFICER Born: 20 August 1959 Appointed: July 2010 Sub-committee Governance and Nomination Committee Qualifications • Masters in Business Leadership, University of South Africa, UNISA • Post Graduate Cerificate in Investment Ethics and Portfolio Management, UNISA

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• Bachelor of Commerce Honours, UNISA • BCom, WSU Directorships • OR Tambo Development Agency • Fort Cox Agricultural College • Ilimalethu (Sec 21) • East London Industrial Development Zone (IDZ)

FACILITATING REAL ECONOMIC GROWTH

Born 11 March 1954 Appointed: May 2011 Sub-committee Funding and Investment Committee Qualifications • Bachelor of Arts (Internal Studies), Webster University • Master of Science (International Relations), University of Zimbabwe

• Masters in Natural Resources Management/Development Economic, University of Manitoba Current position Chief Executive Officer (CEO): RULIV (Promoting Rural and Urban Livelihoods) Directorships • Eastern Cape Appeal Development Tribunal • Navafrika

Nonkqubela Maliza

Nondumiso Medupe Born: 25 May 1971 Appointed: February 2013 Sub-committee • Audit and Risk Committee, Chairperson • Funding and Investment Committee Qualifications • CA (SA)

Born 28 October 1967

Current position CEO: Indyebo Consulting

Sub-committee • Human Resource and Remunerations Committee (HR & REMCO), Chairperson • Audit and Risk Committee • Governance and Nominations Committee

Directorships • SAFCOL • City Lodge

Appointed: October 2011 Sub-committee • Funding and Investment Committee, Chairperson • Audit and Risk Committee Qualifications • MBA Finance (cum laude), University of Massachusetts, Amherst

Appointed: October 2011

Qualifications • MBA, University of Cape Town

• Bachelor of Arts (Honours) (Economics), Rhodes University Current position Executive Director - Corporate and Government Affairs: Volkswagen South Africa Directorships • Volkswagen Community Trust • Rhodes University Foundation • Uitenhage Despatch Development Initiative

Sakhumzi Somyo

Loyiso Jiya Born: 11 April 1969

• Post-graduate Diploma in Accountancy • Bachelor of Accountancy

• BA (Honours) (Economics), UCT • BA (Economics and Industrial Sociology), Rhodes

Born: 21 January 1960

Current position Jiya Associates, Executive Chairman

Sub-committee • Social and Ethics Committee, Chairperson • Property Disposal Task Team, Chairperson • Funding and Investment Committee • Social and Ethics Committee

Directorships • Bannow Africa • RTI Holdings • RTI Energy Africa

Appointed: May 2011

Qualifications • BA, University of Fort Hare Directorships • South African Local Government Association (SALGA) • Amatola Water • South African Biodiversity Institute • Fort Hare Council • Local Government SETA

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Themba Fikizolo

Born 30 April 1963 Appointed: November 2012 Sub-committee • HR & REMCO Committee • Governance and Nominations Committee

Dr Somadoda Fikeni Qualifications • BA (Honours) (Labour Relations and Human Resources) • Bachelor of Law Current position Human Resources and Employee Relations Director: Union Carriage and Wagon

Appointed: November 2012 Sub-committee • HR & REMCO Committee • Funding and Investment Committee

•

Post-graduate Diploma in World Banking and Finance, The Economics Institute – University of Colorado (USA)

Current position • Age Group, Executive Chairman

Qualifications • Masters in Management, University of Witwatersrand

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Appointed: March 2009 Sub-committee • Property Disposal Task Team • Social and Ethics Committee Qualifications • Doctor of Philosophy (PhD), Michigan • MA, Queen’s (Canada) • BA (Hons), WSU

Current position Independent political analyst Directorships • Independent Development Trust, Chairman • Eminent Persons Group for Sport and Transformation

Noxolo Mteto

Reggie Naidoo Born 7 May 1961

Born: 1 October 1966

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Born 9 August 1974 Appointed: November 2009

Current position Attorney (conveyancer and public notary)

Sub-committee • Property Disposal Task Team • Audit and Risk Committee

Directorships • East London IDZ

Qualifications • Bachelor Procurationis, WSU • Post Graduate Diploma in Corporate Law, UNISA

Mandla Rayi

Bulelwa Nqadolo Born: 18 October 1957 Appointed: November 2009 Sub-committee • Audit and Risk Committee • Funding and Investment Committee

Qualifications • BCompt, UNISA Current position Chief Financial Officer: Eastern Cape Provincial Planning and Treasury

Mzuvukile Maqetuka

Born 28 January 1952 Appointed: November 2012 Sub-committee • Social and Ethics Committee • HR & REMCO Committee Qualifications • BA (Honours), University of Westminister (London, UK) • Certificate in Strategic

Born: 18 November 1959

• Adult Basic Education

Appointed: October 2011

Current position COSATU Provincial Secretary

Sub-committee • HR & REMCO Committee Qualifications • Certificate in Public Management • Diploma in Labour Law

Directorships • Eastern Cape Socio–Economic Consultative Council Board • Eastern Cape Parks and Tourism Agency

Dalubuhle Mbelani

Management, Stellenbosch Business School

Directorships • SaCOil Limited • Karoo Mining Development (PTY) • Ikhala LeMvelo Trading (PTY) LTD • Living Aloe (PTY) LTD • Ernest Maqetuka Family Trust • MaQ Couture (PTY) LTD

Company Secretary Born: 15 March 1968 Appointed: September 2011 Qualifications • Certificate in Corporate Governance, University of Johannesburg • Certified Financial Planner, University of the Free State • Buris: LLB, WSU

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It gives me great pleasure to present the annual performance report card of the Eastern Cape Development Corporation (ECDC). Serving at the helm of ECDC is a gratifying yet overwhelming experience of assignment and commission. It is gratifying because the individual members of the ECDC Board are able to use their collective wisdom to steer the organisation towards a sustained growth trajectory; it is overwhelming because on its shoulders, ECDC carries the hopes and dreams of hundreds of small enterprises. In essence, the board conducts its business acutely aware that its decisions have a direct affirming impact on the economic prospects of the province and the livelihoods of many of its people. Leading such an institution requires inspired, stable, innovative and considered leadership and clarity of thought. It requires leadership that is able to identify those areas that make the organisation work and to shed those elements of the business that are a drag on the institution.

Strategy review As such, the board took a considered decision to review and reassess the corporate strategy. This work allowed the board to identify areas of improvement and to re-examine the way the corporation conducts its business. The process gave the organisation an opportunity to reflect on the demands of its customers and the active steps the organisation ought to take to address these expectations. This was filtered down to management to further entrench ECDC as an organisation that is fit for purpose. I am pleased to announce that as a direct consequence of this review process, the corporation has reaffirmed what works and it knows which levers it needs to pull to place the organisation on a sustainable path towards being a high-performing development finance institution.

Viability model At the centre of the corporate strategy lies a viability model that provides guidelines for financial efficacy and sustainability by 2015/16. This model emphasises the prudent use of corporate resources, of skilled and energised human capital for sustained viability and economic development. It strips away those assets that generate no economic value for the corporation. It intends to reduce losses and increase profitability and efficiencies. In this regard, the corporation, with the support of the executive authority, began a process of unbundling and disposing of those noncore and non-revenue generating assets that were proving a hindrance to the development agenda. These assets, driven largely by an underperforming property portfolio, are a significant cost driver while generating minimal economic benefit for the corporation. The board resolved that ECDC should move away from the property management arena and prepare itself for a transition to a property investment dispensation. In this regard, the corporation has already begun a process of crystallising a property investment framework, which should guide and define the corporationâ&#x20AC;&#x2122;s role in this space. At the epicentre of ECDCâ&#x20AC;&#x2122;s strategic outlook lies a balance sheet that reflects ECDCâ&#x20AC;&#x2122;s development agenda. This means that 80% of the ECDC balance sheet should be a quality loan book that responds to the needs of its customers. The envisaged quality loan book should be a consequence of human capital that vigorously pursues due diligence at loan origination and monitoring and evaluation, as well as an aftercare philosophy that is calculated for maximum socio-economic impact. It is only then that the corporation can confidently claim its stake as a high-performing development financier.

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Currently, about 58% of ECDCâ&#x20AC;&#x2122;s balance sheet is made up of properties, including a significant residential property portfolio. In anticipation of an enhanced role in development finance, in the review period, the corporation began disposing of its residential property stock, which is a cash drain on the institution. The proceeds from the sale of these assets should capitalise the balance sheet to enable it to forcefully respond to its economic development mandate and ensure ECDCâ&#x20AC;&#x2122;s future financial viability.

Shareholder capitalisation Furthermore, the corporation continued to engage the shareholder for further capitalisation. While these have been challenging engagements, the corporation is convinced that it has made a clear business case for additional financial resources, which would be used for stimulating the provincial economy for growth, development and job creation.

Management stability I am also delighted to announce that the process has not only brought stability to the board, but also had a profound effect on management and the operational environment. The board identified the filling of key management positions as a critical driver for operational stability and improved efficiencies and to give effect and life to the corporate strategy. These included the appointment of a Chief Financial Officer, who is essentially at the heart of the organisation, providing a frequent diagnosis of its general health. This is a powerful support role to the Chief Executive Officer.

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High-value partnerships A crucial element for ECDC has been the continued support of various partnerships formed with other public entities and various arms of government. These highvalue partnerships are geared for productive engagements and outputs. They provide a succinct platform for cross pollination and leveraging of expertise. They are opportune in generating a total and expanded development impact. The corporation is acutely aware that its fortunes and ability to deliver on its core mandate are intertwined with those of other arms of the public sector. The value of these partnerships was particularly pronounced in the review period, leading to valuable partnerships in the areas of risk capital, development finance and business support. It is no exaggeration to say that ECDC would not have posted these encouraging results were it not for these strategic alliances. For example, ECDC received a total of R77 million in the review period from third-party funders for the testing and implementation of development projects in relation to R9.6 million spent by the corporation in this area. ECDC, together with Eastern Cape Rural Development Agency (ECRDA) secured an additional R180 million through the Development Bank of Southern Africa (DBSA) Jobs Fund. These funds respond directly to the need to stimulate those vital sectors of the economy with the potential for wealth and job creation. The funds were injected into strategic sectors, such as agroprocessing, manufacturing, tourism, forestry, renewable energy and aquaculture. ECDC intends to retain and grow this partnership tool for the better utilisation of the public purse and fiscus.

Inspired performance Testament to its development finance aspirations, ECDC approved a total of R145 million for disbursement to enterprises. A total of R130 million was disbursed to 496 businesses, an improvement from last yearâ&#x20AC;&#x2122;s

disbursement of R75 million to 330 businesses. A consequence of this development finance has been the creation or saving of 1,849 jobs. The improvement in the expertise of ECDCâ&#x20AC;&#x2122;s human capital played a central role in reducing loan impairments to R16.8 million from last yearâ&#x20AC;&#x2122;s R31.7 million. These results and reduced impairments indicate that this is a corporation moving towards achieving a solid loan book in quality and quantity as a direct response to the demands of the corporate strategy. Equally pleasing is the fact that a sizeable number of the loans, R45 million, went to youth-owned and women-owned businesses.

The corporation has continued to perform admirably in its facilitation role in attracting investment into the province and driving trade opportunities with global growth markets. In the review period, ECDC facilitated 22 new investments worth a total of R617 million into the provincial economy. The corporation facilitated a further R1.5 billion in trade. A total of 37 new exporters were established in the review period. About 144 existing exporters received ECDC assistance compared with 40 in the previous year.

health is geared towards sustained viability. Furthermore, the board will continue to advocate for high-value partnerships that have the effect of providing a greater development impact.

Appreciation On behalf of the ECDC Board, I extend my sincere gratitude to the MEC for Economic Development, Environmental Affairs and Tourism, the Honourable Mcebisi Jonas, for his policy direction and leadership. I would also like to pay tribute to the Chief Executive Officer, Sitembele Mase, and his executive management team for constructive and productive engagements, which should deliver a socio-economic dividend. Lastly, I extend my appreciation for the unwavering support of various ECDC stakeholders, who have travelled this challenging and rewarding journey with us.

Nomfanelo Magwentshu Chairperson

Outlook Looking to the future, the board will continue to monitor the pulse of the organisation to ensure that its vital organs are responding to their core function of delivering tangible economic benefits for the Eastern Cape citizenry. It will ensure that the corporation responds to the needs of the economy and that its general

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The 2012/13 financial year provided an opportunity for profound introspection and an opportunity to assess whether the corporation has lived up to its intended objectives. Similarly, the review period presented the organisation with an opportunity to assemble the buildings blocks and to perform the necessary preparatory work to realise its goal of assuming the posture of a high-performing and astute development financier. It was also a moment for the corporation to breathe life into its corporate strategy.

Responsive strategic positioning Strategy is key to performance and, subsequently, ECDC took the necessary steps to ensure that its strategy becomes a living document that speaks and responds directly to the needs of the Eastern Cape populace. The strategy is premised on the need to mould an organisation that uses its development finance armoury as an instrument for real economic growth and development of the provincial economy. That growth and development would stimulate job creation and a vibrant economic activity. This is the essence for the existence of the corporation: this is what should make it wake up in the morning. As such, the organisation resolved to take meaningful steps to realise its stated vision. Guided by its strategic positioning, the organisation focused its energies on investing its resources in the vital sectors of the economy, which will give effect to it becoming a highperforming development finance institution (DFI). Furthermore, the corporation is alive to the realisation that its strategic intent requires it to provide intellectual leadership. This is not abstract but moral intellectual leadership. This is an important pillar for the corporation. It therefore calls on the corporation and its functionaries to ensure that its operations are credible. In essence, it calls on us to say what we mean and do what we mean. It asks of us to

say what we do and do what we say we do. This means that ECDC customers should trust what we say we will do. It means that the delivery of the corporation’s services should be a lived experience, not a meaningless documented corporate conjecture. The true test of whether the corporation lives by its ethos and its strategic thrust will be through the testimony of its customers to that lived experience. By virtue of its empowering and development role, the sight of the corporation and its people should excite and entice its customers. This is only possible once we do what we are meant to do, thereby bringing strategy to life. Furthermore, to achieve its goals, the corporation is required to use its resources economically and wisely to maximise and optimise them. This talks directly to the prudent and honest use of the corporation’s resources. The corporation’s financial and investment decisions have a significant economic impact. If we are not astute and the corporation fails to act as trusted custodian of the public’s resources, the corporation will be perceived as being complicit in eroding the economic base of the Eastern Cape.

Affinity to the ECDC brand Ultimately, the organisation’s actions should be such that they bring trust and affinity to the ECDC brand. This refers to our personal conduct. Our actions as individuals have an impact on the economic development impact. The ECDC brand is emotive and should not be selfish. It should evoke affirming emotions of a reliable, credible and trusted brand to our customers. This means that the corporation is required to exercise responsibility and accountability in the way it does business and manages public funds. ECDC and its people cannot afford to be indifferent to the brand. Similarly, the organisation is acutely aware that it cannot hope to achieve a greater economic

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development impact without building strong partnerships with the public and private sectors to leverage on the expertise of others.

ratios, and missed funding opportunities. The current disposal of non-performing assets and projected revenue from the identified new revenue streams is likely to bring muchneeded relief to the cash position.

Operational performance

Financial sustainability and efficiency In the year under review, ECDC improved its loss position by 58.7%. The loss for this period is R20.5 million compared to R49.7 million in 2011/2012. Increases in the fair value of investment property and grant income from the Department of Economic Development and Environmental Affairs and Tourism (DEDEAT) were the main drivers of this improved profit position. Despite significant challenges in collecting rental, mainly from Mthatha and Butterworth, the entity has managed to maintain collections at R55 million, which represents 76% of the annual rental bill. With the exception of higher-thanprojected impairment on rental debtors, all other operational expenses were kept within budget. ECDC’s balance sheet remains strong at a net asset value position of R956 million. This is mainly supported by growth in the value of its investment property. Delays in receiving government grants had a negative effect on the entity’s financial performance during the year under review. For example, the loan book reduced from R127 million in 2011/12 to R115 million in 2012/13 as funds meant to finance the loan pipeline were used to finance the corporation’s developmental operations. ECDC’s cash position continues to be under pressure due to higher net cash outflows from operating activities. As a result, during the period under review, the corporation has experienced lower cash return on investment in the money market, pressure on liquidity

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These interventions have produced tangible and significant returns during the period under review. They are the building blocks for enhanced economic activity and robust operational efficiencies. As a result, the performance of ECDC’s loan portfolio lays the preparatory work for the attainment of an energised DFI status. In the 2012/13 financial year, the corporation approved R145 million for disbursement to enterprises, up from the previous year’s R139 million. Of this amount, R130 million was disbursed to 496 enterprises compared with the previous year’s R75.1 million disbursed to 330 businesses. This development finance injection resulted in the facilitation of the creation or saving of 1,849 jobs. The corporation is pleased that its interventions have also resulted in the reduction of loan impairments of R16.8 million compared with the previous year’s R31.7 million. This is attributable to improved monitoring of loans, as well as vigilant due diligence processes at origination. The corporation is equally delighted that a sizeable number of loans went to businesses owned by youth and women: R24 million (129 loans) to youth and R21 million (113 loans) to women. ECDC intends to grow its development finance contribution to youth and women to redress past imbalances, as well as to ensure that young people are presented with economic and wealth creation opportunities that equitably distribute the development impact. The corporation has also been entrusted by its shareholder, DEDEAT, to manage some of its special funds, such as the Imvaba Co-operative Fund and the Eastern Cape Jobs Stimulus Fund. While the Imvaba Co-operative Fund assists in the establishment of co-operatives as business vehicles to mainly stimulate the rural economy, the Jobs Stimulus Fund assists in project derisking, particularly for distressed businesses or established businesses relocating to the

Eastern Cape. A total of R6.2 million in loans was disbursed to co-operatives and a further R12.5 million in loans was disbursed as incentive grant support. For the Jobs Stimulus Fund, a total of 198 applications were received, of which 101 were approved. It is expected that this will result in a total of 6,989 jobs being created, retained and/or saved. The Jobs Stimulus Fund disbursed a total of R15.6 million during the review period, creating 1,560 jobs. The jobs target is directly related to disbursements since each job attracts a disbursement of R10,000.

During the review period, ECDC also pursued work that does not generate immediate financial returns for the corporation. This work, through its risk capital fund, generates economic benefits for the provincial economy. It stimulates economic participation and funds new growth sectors. In this way, the corporation takes risks related to the costs of economic development. The corporation has therefore spent R9.6 million on investigating projects for no financial returns in key sectors and industries, such as agro-processing, renewable energy, the green economy, the natural fibre industry and the blueberry industry. This risk can only be mitigated by the shareholder through the necessary further funding support mechanisms. The ECDC Act enjoins us to consider economic considerations in whatever we fund; therefore it is imperative that the organisation is compensated for taking these considered risks. The required capitalisation will be used to fund pipeline projects that the corporation has researched and found to be viable in certain vital sectors of the Eastern Cape economy.

In addition, the corporation attracted R77 million through third-party funding for its development projects. ECDC, jointly with the Eastern Cape Rural Development Agency, secured R180 million through the DBSA Jobs Fund. The corporation has committed an additional R24 million. These funds are geared towards forestry and agro-processing projects in the north-eastern part of the province. Thirdparty funding is crucial because it allows the corporation to share the risk with other public-private partners and to mobilise funding from other agencies where it cannot meet demand from its own funds. The corporation is thus able to tap into the varying expertise of other funders. This ultimately contributes to a development impact that is larger than what the corporation can achieve on its own. The corporation is also particularly pleased that it managed to secure investments totalling R617 million from 22 investments during the review period. The value of trade facilitated by the corporation stabilised at R1.5 billion in the period under review. The corporation generated 37 new exporters in the review period compared with the previous yearâ&#x20AC;&#x2122;s figure of 11. A significant increase was also recorded in the number of existing exporters assisted: 144 compared with 40 in the previous year.

Property management ECDC was losing money on some of its assets. In this regard, the corporation took a decision to dispose of these assets. It began a process of removing non-core and non-performing assets, such as residential properties, and some subsidiary investments, which were hurting and threatening the viability of the corporation. By the end of the financial year, ECDC had taken the first step to dispose of some of its residential properties, valued at R6.5 million. By the end of 2013/14, the corporation intends to have disposed of its entire stock of 238 stand-alone houses, which have a balance sheet value of R110 million. Already, 113 good offers have been received. During the coming year, the corporation will fast track the process of a public disposal of its 21 vacant houses with an expected selling value of R10.1 million (reserve price).

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BUILDING A CAPABLE ORGANISATION The corporation began a process of attracting quality talent, reversing the brain drain and enabling the building of human capital to support the key strategic direction and improve operational performance.

The corporation has also made a concerted effort to recruit and fill all critical positions to effect and sustain its mandate delivery. A focused approach to human capital development, leadership development, talent management and progressive training has been adopted to lay a sound foundation for a high-performing entity. Management and staff in key operational areas have received specialised training on due diligence, risk management and governance to improve decision-making processes. Study assistance has been made available to build scarce skills in risk management, finance and project management; this training is fully funded by the corporation. During the period under review, the organisation dramatically improved employee participation in decision making, strategy planning and brainstorming. Labour disputes have been reduced, thus benefitting the corporation in terms of harmonious labour relations. The organisation continues to address the interests of its employees, but has also emphasised that it

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expects its people to give back to the company in the form of discipline, high work ethic, passion, diligence and improved performance.

Information technology ECDC has begun to communicate continuously with clients and to implement organisational change and development programmes. We have also identified enablers for business improvement, change and client focus, such as the new information technology (IT) platform, the Master Systems Plan, and processes and policies to enhance performance. ECDC planned to spend R50 million in the medium term to revamp its IT system for improved efficiencies and to effect regionalisation for faster decision-making processes.

Viability model The development and approval of the ECDC viability model provides a roadmap and compass that will lead the corporation towards financial self-sustainability over the medium to long term. The viability plan provides a clear business case for financial sustainability by 2015/16. The plan emphasises spending money with a purpose to get value rather than being wasteful. It requires that the corporation reduce operational and financial losses on loans, properties, subsidiaries and fund management. In essence, the corporation will spend what it has and avoid unauthorised expenditure. The plan further underscores the disposal of non-performing assets to enable the corporation to increase its revenue streams. According to the plan, the shareholder is required to adequately capitalise the amalgamated institution, as this was never considered at its inception. The plan projects that the corporation will require about R481 million over the next three years

from external sources in order to meet its viability target. It is envisaged in the plan that revenues generated from the disposal of all non-core and non-performing assets will add approximately R600 million to the corporation’s coffers. It is hoped that this will increase ECDC’s capitalisation to R1 billion over the next three years. The expectation is to utilise such proceeds only for funding and investments in high-performing assets, the creation of alternative sources of revenues and the promotion of economic development that benefits the Eastern Cape.

viability plan, pursuing its strategies as I have set out here in order to meet its mandate and the expectations of its stakeholders.

Appreciation Finally, I take this opportunity to thank the board for its inspired leadership under the leadership of Nomfanelo Magwentshu. I also wish to thank the executive management team, the Company Secretary and the motivated ECDC family for the work done during the year under review.

Looking ahead The ECDC Board has now afforded management with the necessary space and support to discharge its executive functions to create an energised, focused, disciplined, inspired and high-performing DFI. Moving forward, the corporation will continue to focus on:

Sitembele Mase Chief Executive Officer

• Development of its people for a highly talented, disciplined and motivated workforce • Improving operational efficiencies, increasing alternative sources of revenue streams and reducing waste • Strengthening efforts to improve risk management, fraud prevention and anti-corruption measures • Strengthening of IT infrastructure and implementation of the Master Systems Plan • Leveraging of key strategic partnerships • Innovative risk capital and development finance for a greater developmental impact. The corporation will continue to take guidance from its board in the implementation of the

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ECDC’s balance sheet remains strong with a net asset value of R967 million. This net asset value is mainly driven by the high value of its investment property. The corporation’s sustainability will be realised by a strong balance sheet that reflects ECDC’s development impact. This means that ECDC must be substantially capitalised so it has a loan book large enough to make the required socio-economic impact and an impact on the bottom line. Disposal of the non-performing and non-core assets will also bring in a much-needed cash injection to ensure that ECDC realises its developmental mandate. A recently approved viability report shows that capitalisation of R481 million will be needed to ensure that the entity achieves its aspiration of being a high-performing DFI.

2013 2012 2011 2010 2009

2000

2010

2011

2012

2013

Investment property

512

544

577

605

658

Property, plant & equipment

Investment & loans in subsidiaries & associates

Investments

151

107

51 116

Loans advances

215

187

143

128

Trade & other receivables

Cash & cash equivalants

254

282

310

359

229

The balance sheet reflects the corporation’s assets; it shows a healthy cash balance and an increase in ECDC’s investment property portfolio. The property business remains ECDC’s biggest asset, accounting for R658 million of its balance sheet. Loans account for R116 million. The clarity that comes with the corporation’s refocused mandate to become a high-performing development finance institution has energised ECDC to increase the value of its loan book and equity going forward. The challenge is to convert its property portfolio into loans and equity assets to bring liquidity to the balance sheet.

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Although the corporation made a R74 million operating loss, this is a R20.6 million improvement from the previous year’s loss of R94.6 million. Sources of income (R’millions)

2013 2012 2011 2010 2009 -

100

150

Rental income

Government grants

Finance income: bank & other

Interest on loans

Other income

Rental income

200

250

Total operating income has improved by R21 million (11%) from R180 million in 2012 to R201 million in 2013. The most notable variances on the sources of income are on government grants (20% increase from 2012 to 2013). This growth is mainly attributed to project income charges for projects implemented on behalf of the shareholder the Department of Economic Development, Environmental Affairs and Tourism. Two areas contributed to the operating loss. First is higher-than-expected impairment on the rental debtors’ book (above the planned R43 million). This was due to a new approved cooperation procedure for impairment calculation on the rental debtors’ book. The new procedure takes into account the tenant payment behaviour and has resulted in a 98% impairment of ECDC’s rental debtor’s book (R284 million). Second is the rates and taxes bill, which was higher than budgeted (R14 million). We can therefore conclude that the entity continues to pay high rates and taxes for tenants who are refusing to pay rents. This current situation threatens the financial sustainability of ECDC. Impairments as a percentage of average loans advanced

2013

60%

2012

56%

2011

63%

2010

50%

2009

38% %

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FACILITATING REAL ECONOMIC GROWTH

100

Impairment as a percentage of loans advanced has deteriorated from 56% in 2012 to 60% in 2013. This is attributable to lesser loans advanced and the loan book reaching maturity. Hence, the policy decision was taken to reposition ECDC as a DFI, aiming towards increasing the loan book. Percentage return on average investment property

2013

2012

2011

10%

2010

10%

2009

10% %

The return on average investment property is stable, at an average of 9.6% for the past five years. Percentage return on average loan advances

2011

21%

2010

21%

2009

15%

2008

17%

2007

16% %

The average return on loans advanced has improved over the past two financial years and remained stable. The corporation made a substantial improvement, with the comprehensive loss position moving to R9.4 million during the year under review from R49.7 million in the previous year. The comprehensive loss refers to income items, such as adjustment to property values. A key focus for ECDC for the next few years will be on disposal of non-performing assets, establishing new revenue streams, building operations efficiencies, optimising on the assets of the entity, and achieving a cash injection through capitalisation.

Subsidiaries and associates All ECDC subsidiaries and associatesâ&#x20AC;&#x2122; balance sheets reflect that they are going concerns, with the exception of Transido (Pty) Ltd, Automotive Industry Development Centre Eastern Cape (AIDC EC) and Bushman Sands. The net liability position of both Transido and AIDC EC is due to loans owed to ECDC. ECDC does not intend to recall these loans in the near future (next 12 months). Bushman Sandsâ&#x20AC;&#x2122; net liability position is at R45 million. ECDC management is currently in discussion with Bushman Sands with the view to converting the ECDC loan (R48 million) to equity. Refer to note 6 in the annual financial statements for the details of subsidiaries.

FACILITATING REAL ECONOMIC GROWTH

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investment

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PROPERTY DEVELOPMENT AND MANAGEMENT

SPECIAL FUNDS: iMVABA CO-OPERATIVE FUND & JOBS STIMULUS FUND

BUSINESS LOANS

CORE OPERATIONS

RISK CAPITAL FACILITY

BUSINESS SUPPORT

MARKET ACCESS TRADE AND INVESTMENT

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High-performing DFI aspirations The period under review presented solid platforms and channels for the corporation to use development finance and its non-financial support mechanisms as capable stimulants for real economic growth and development of the provincial economy. ECDCâ&#x20AC;&#x2122;s small, medium and micro enterprise (SMME) support programmes are designed for maximum development impact underpinned by the realisation that it is small business that holds the key to enhanced economic growth and development prospects. In this regard, the corporationâ&#x20AC;&#x2122;s interventions were geared towards providing real support, resources, investment, capital and opportunities for small

businesses, particularly those in marginalised and depressed areas of the province. These SMME interventions are founded on an ethos that seeks to improve their global competitiveness and to ensure their longterm sustainability and growth. With its high-performing development financier aspirations in sight, the corporation committed itself to increase funding to enterprises during the period under review. Furthermore, the corporation sought to improve the quality and quantity of its loan book to reflect that of a true and energised development corporation, as well as to maximise investment returns. The spin-offs of increased funding to entrepreneurs are a superior development impact characterised by rising job creation, business sustainability and competitiveness. As such, the corporation was cognisant that it had to begin a considered process of unbundling its balance sheet and shed its non-core and non-performing assets. This process was preparatory work towards a balance sheet that responds to and reflects the provinceâ&#x20AC;&#x2122;s development finance needs. Ideally, 80% of

REAL FINANCE

the balance sheet should be made up of loans and investments if the corporation is to assume the position of a high-performing and inspired development finance institution (DFI). In addition, the corporation had to improve the core competencies of its human capital and efficiencies in its systems and processes for improved delivery. Greater focus was placed on training staff and on resourcing the regions to improve the quality of the loan book and investments. This is already bearing exciting fruits for the corporation as evidenced by its performance in the review period. Approved and disbursed loans in 2012/13 (R’million)

Approved to enterprises 4% increase from R139.6 million in 2011/12

R145

Disbursed to enterprises 73% increase from R75.1 million in 2011/12

R130

million

Solid socio-economic dividend

million

Loan disbursement per sector (R’million)

These interventions have thus yielded affirmative returns for the institution in the period under review, which have placed it on a firm footing to realise its vision of becoming a visionary steward of economic development. In the 2012/13 financial year, ECDC approved R145.5 million for disbursement to enterprises, up by 4% from the previous year’s R139.6 million. Of this amount, R130 million was disbursed to 496 enterprises compared with the previous year’s disbursement amount of R75.1 million to 330 businesses. This development finance injection resulted in the facilitation of the creation or saving of 1,849 jobs. ECDC’s interventions have resulted in a R16.8 million reduction of loan impairments, 47% lower than the previous year’s R31.7 million. This is due to better monitoring of loans and vigilant due diligence processes. Significantly, a large portion of loans disbursed went to youth and women: 129 youth-owned enterprises received loans that totalled R24 million, and R21 million in loans went to 113 women-owned enterprises. The corporation intends to grow its development finance contribution to previously marginalised groupings, such as women and people with disabilities. This would redress past imbalances, and in the case of support to youth-owned enterprises, ensure that young people have opportunities that spread the development impact. This performance is in line with the corporation’s strategic thrust as it begins to ramp up the quantity of the loan book and realises a shift towards good quality long-term loans. The significant long-term loans have gone to key strategic sectors as outlined in the corporate strategy. These sectors were identified because of their sustainable job creation potential, which responds directly to development impact and returns.

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REAL FINANCE

• Construction

R59.9 million 28 enterprises financed 669 jobs created

• Services

R37.1 million 265 enterprises financed 941 jobs created

• Agro-processing

R13.5 million 12 enterprises financed 337 jobs created

• Retail

R8.9 million 9 enterprises financed 58 jobs created

• Manufacturing

R5.6 million 11 enterprises financed 118 jobs created

• Other sectors

R18.3 million 10 enterprises

These sectors are construction, manufacturing, agro-processing, renewable energy, tourism, mining and services. For example, this is evident in the sector spread of the corporationâ&#x20AC;&#x2122;s loan disbursements. About R59.9 million went to businesses in the construction sector, R37.1 million to services, R13.5 million to agro-processing, R5.6 million to manufacturing, R2.4 million to tourism enterprises, and R8.9 million to businesses in the retail sector. The balance of R18.3 million went to information technology, aquaculture and others.

Development in sectors In relation to agro-processing, the corporation is proud that it has, among other things, played a significant role in reviving the ailing pineapple industry in the Eastern Cape. ECDC has disbursed R27 million in development loans and R954,000 in equity to Ndlambe Natural Industrial Products (NNIP) (Pty) Ltd, a pineapple beneficiation company. This transaction single-handedly saved the Eastern Cape pineapple industry. The company is currently processing pineapple juice and has recently diversified into dietary fibre. The agro-processing plant is located in East London and the farming operation is in Bathurst. This funding has created and/or saved a total of 1,200 jobs. The corporation has identified the aquaculture sector as a growth area. For example, the corporation disbursed R10 million to Oceanwise, a marine kob fish operation based at the East London Industrial Development Zone (IDZ). Oceanwise is the industry leader in South Africa with facilities comparable to those found in the established markets of the European Union and the United States. It is the only farm of its size in the country, boasting a facility rivalling the best with a production capacity of 720 tons of fish a year. Currently, it harvests about 10 tons of fish a month, which is expected to increase to about 50 tons a month by October 2013. It farms 700,000 fish in 220 tanks re-circulating 4.5 million litres of water.

Ndlambe Natural Industrial products Products

Loan

R27 million Equity

R954,000 Jobs created/saved

1,200

While the corporation has not disbursed to businesses in the mining sector, it has, however, approved R12 million for granite mining in the Butterworth area. The area from Butterworth to Willowvale has been identified as a high-quality granite zone that could be used for various by-products that have a substantial job creation potential in the rural economy. The potential of granite mining in the area is further augmented by beneficiation opportunities, which will be located in Butterworth. ECDC is making significant inroads into the renewable energy sector as a growth area. This is in order to support socio-economic and technical development in the renewable energy sector that will contribute to sustainable and affordable use of energy resources towards cleaner environment and the effective disposal of biomass. For example, it has disbursed R3.9 million and took 30% equity in Bio-Coal Manufacturers and Distributors (Pty) Ltd. The project involves the conversion of organic waste into bio-coal, which will be used as a direct replacement for A grade steam coal in the local industry and public institutions. Bio-coal is made by compressing

Ocean Wise

Loan

R10 million Production capacity

720 tons of marine kob per annum

REAL FINANCE

any plant material; this is a new technology in South Africa, but is well established in many other countries. The project will use biomass, such as sawdust, offcuts, forest waste and agricultural waste. The project area, Stutterheim, is a large forestry area, with seven existing timber mills where the offcuts and waste will be sourced. The project has created 40 direct and 100 indirect jobs.

Loan distribution by district

33.5%

2.5%

Extending ECDC’s footprint The largest portion of the disbursements went to the Amathole District, which received 44% of the total loan amount of R130 million. This is where the majority of manufacturing, aquaculture, renewable energy, granite mining and services operations take place. This region also includes rural areas and small towns, such as Butterworth, Centane, Willowvale and Stutterheim, which have benefitted from loan funding. This was followed by the OR Tambo District receiving 33.5%; it has been classified as a poverty node with a high unemployment rate. The corporation is confident that this loan facility would have made a significant contribution to the facilitation of jobs in that area. The majority of the loan funding went to construction businesses because of the school building programme, which is linked to the national infrastructure development programme. With the Industrial Development Corporation (IDC), ECDC has co-funded a private hospital that is currently under construction in Mthatha to benefit the health sector. ECDC has put R3.8 million into the Mthatha Private Hospital and took 22% equity. The Nelson Mandela Bay Metropole as a manufacturing and renewable energy hub, received 14% of disbursements. The Chris Hani District area received 9.6% and has potential for agro-processing, green energy and mining businesses. It was followed by Joe Gqabi at 4% of disbursements, Alfred Nzo at 2.5% and Cacadu at 1.5%. The low disbursements to these latter three areas are largely due to the fact that their main economic activity is primary agricultural production, while the corporation’s involvement is on value chain financing in agriculture.

Future outlook The focus of the operations will be on larger long-term loans in the key strategic sectors of the economy, mainly driven by emerging and new industries for better impact and improved financial returns. It should be noted that ECDC must grow its loan book in order to remain sustainable versus the significant current internal cost drivers and external demand. The corporation is therefore required to secure capitalisation to enable it to grow its loan book. Recent forecasts indicate that a capitalisation of approximately R481 million will be required to enable ECDC to start meeting demand, as well as to become sustainable in the long-term.

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REAL FINANCE

9.6%

44%

1.5% 14%

• • • • • • •

Amathole District OR Tambo District Nelson Mandela Bay Chris Hani District Joe Gqabi District Alfred Nzo District Cacadu District

Harnessing competitive SMMEs

mentorship and coaching, quality management support, and intellectual property management.

While financial support is a crucial element of SMME development, non-financial support is a central tool in building the competitiveness of small businesses. It ensures that the enterprise is well managed and poised for long-term growth. Non-financial support further allows the business to become market ready. ECDCâ&#x20AC;&#x2122;s non-financial support mainly includes business development services, which are aimed at building competitive enterprises, improving performance and facilitating access to markets.

During the review period, 204 SMMEs in the priority sectors outlined in the corporationâ&#x20AC;&#x2122;s strategy were provided with pre- and post-finance support. A total of R2 million was allocated for non-financial support, and this was for established and start-up businesses. Further non-financial support was directed through support provided to the National African Federated Chamber of Commerce, Foundation for African Business and Consumer Services (FABCOS) and the Border Kei Chamber of Business. The total funding support for the year under review was more than R5 million, and this has impacted on more than 700 members of the chambers. The programmes implemented included continuation of support to the Local Business Service Centre and Mentorship Programme, as well as the Buy Eastern Cape campaign.

These services can be either strategic or operational in an enterprise. They are directly aimed at improving the operations of an enterprise in order to impact positively on profitability or assist in establishing a viable enterprise. Some of the business support services offered by the corporation include business advisory support services, due diligence and feasibility studies, business planning, marketing support,

In addition, a total of 1,167 businesses received training in business skills, and a further 14 business opportunities workshops, conferences, seminars, trade fairs and exhibitions were held. Businesses supported in the creative and information and communication technology (ICT) industries recorded a total turnover of R6.6 million in the period under review. A total of 6,089 new businesses were registered in the review period. The corporationâ&#x20AC;&#x2122;s business support interventions are designed for demonstrable impact. For example, during the period under review, the corporation continued to support an ICT incubation programme, with 20

REAL BUSINESS SUPPORT

enterprises being incubated at the Eastern Cape Information Technology Initiative (ECITI). The corporation invested R2.4 million in the running of ECITI for the year under review. The incubated enterprises have generated income that exceeds R6 million, and the incubation programme created a total of 62 jobs, including 34 permanent jobs. Enterprises received training, coaching and mentorship, including facilitation of access to markets. The training received included financial management taxation and exposure to relevant platforms, such as the ICT Indaba and film festivals. A partnership has been established with Dimension Data for specialised training of enterprises in order for them to benefit from Dimension Dataâ&#x20AC;&#x2122;s skills development programme for small businesses. At the beginning of the year, ECDC signed a partnership agreement with the Tourism Enterprise Partnership in terms of which the corporation contributed R200,000 towards business management training and mentorship. The purpose of the partnership was to collaborate on the programme to support SMMEs in the tourism sector with capacity building. As a result of this partnership, more than 500 enterprises benefitted from the training programme. The training was done throughout the province, including East London, Hankey, Mthatha, Port St Johnâ&#x20AC;&#x2122;s, Graaff Reinet and Somerset East. The training included tourism awareness, service excellence, marketing toolkit, communication in tourism, quality assurance and business management. As part of the partnership, 20 enterprises were mentored for a year. The enterprises generated an income of more than R11 million, with a total of 146 employees. ECDC also continued with the publication of its SMME informative insert in regional newspapers, the Daily Dispatch and The Herald, which provided useful information on topical issues affecting small businesses. The publication, called Khula Nathi, addresses topics that relate to the regulatory environment, business tips and general developments within the SMME sector. This publication was complemented by business seminars held throughout the province. The purpose of these initiatives is to facilitate access to information that assists entrepreneurs in making and taking informed decisions. There has been continued support to enterprises within the creative industry. More than 100 enterprises throughout the province have benefitted from the programme, which mainly focused on facilitating access to markets. This programme has supported enterprises to participate in exhibitions, expos and festivals, which include the National Arts Festival in Grahamstown, East London Home Expo, Decorex Johannesburg and Cape Town, and international exhibitions in Italy and India. The majority of enterprises that participate and benefit from these programmes are owned by women.

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REAL BUSINESS SUPPORT

TOURISM partnership

R200,000

thousand towards business management training and mentorship

500 enterprises benefitted from the training programme

20 enterprises mentored for a year, and generated an income of more than R11 million, with a total of 146 employees

SUPPORTING THE CREATIVE INDUSTRY Products

more than 100 enterprises benefitted support included exhibitions, expos and festivals

ECDC has been entrusted by its shareholder, the Department of Economic Development, Environmental Affairs and Tourism (DEDEAT), to manage some of its special funds, such as the Imvaba Co-operative Fund and the Eastern Cape Jobs Stimulus Fund. While the Imvaba Co-operative Fund assists in the establishment of co-operatives as business vehicles to mainly drive the rural economy, the Jobs Stimulus Fund assists in the creation, saving and retention of jobs, particularly in distressed businesses and in established businesses relocating to the Eastern Cape.

7.3.1 IMVABA CO-OPERATIVE FUND The Imvaba Co-operative Fund is administered through a service-level agreement (SLA) with DEDEAT. During the previous year, the fund was administered in the form of a 70% loan and 30% incentive, limited to a maximum of R1.4 million per co-operative. A total of R6.2 million was disbursed to 21 co-operatives in the review period. These disbursements were a continuation from approvals in the previous year. The loan disbursements are slow due to non-compliance by cooperatives; some co-operatives take longer to meet the conditions of

REAL BUSINESS SUPPORT

approval. The fund spent a further R1.6 million on the training of cooperatives on governance, occupational health and safety (OHS) and first aid, as well as on the provision of personal protective clothing to members of funded co-operatives. A total of 37 co-operatives were trained; 464 co-operative members were trained. The co-operatives created a total of 496 jobs. The SLA, was concluded in August 2012, resulted in a change in the manner in which the fund is administered. The fund would effectively provide an incentive limited to a maximum of R500,000 per co-operative. This conversion of the policy meant that ECDC approved incentives amounting to R12.5 million for 27 co-operatives. However, funding from DEDEAT was received only at the end of October 2012 and ECDC was therefore able to resume approvals only from December 2012. As a result, the corporation disbursed R10.6 million in incentives to co-operatives, resulting in the creation of 359 jobs.

Ubusi Bemveli (natureâ&#x20AC;&#x2122;s honey) co-operative

R493,000 disbursed to 10-member co-op

Rural economy unlocked These initiatives have made real impacts on peopleâ&#x20AC;&#x2122;s lives. For example, Nkondwane Village was once silent and villagers jobless. Now, they are busy bees. Thanks to the Imvaba Co-operative Fund, life here is getting sweeter. The Ubusi Bemveli (natureâ&#x20AC;&#x2122;s honey) co-operative was officially registered in July 2011, although it had been operational for a few years. The co-operative began with only three boxes of bees and has since expanded to 34 boxes. It consists of 10 members, who are now benefitting from much-needed skills development, as well as providing cash flow for their families. The Imvaba Co-operative Fund approved R493,000 for Ubusi Bemveli, empowering its members to expand the business and improve operations. It has expanded the number of its boxes, bought harvesting equipment, and hopes to train all its members in bee-keeping. Members of the co-operative are selling the honey to people within the Nkondwane community and surrounding areas. Not only is the honey bought for its delicious taste, but community members also recognise that it has medicinal properties. In the future, the co-operative hopes to expand its client base to retail outlets in Butterworth, which have expressed interest in the product. Similarly, Poplar Grove is fertile ground in which the young people of Whittlesea are realising their dreams. The Nonkqubela Youth Agri Cooperative, established in July 2012, consists of nine young people who saw a great business opportunity in the farming industry. The community has allowed these young people to use its land for their business. The community is trying to instil a culture of self-reliance through this project. Having heard of the Imvaba Co-operative Fund through workshops and through partnering with the National Youth Development Agency, funding of R498,000 was approved for the co-operative. With the funding, it plans to install electricity and a reliable irrigation system that will address the water challenges faced by this rural community.

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REAL BUSINESS SUPPORT

Nonkqubela youth agri co-operative

R498,000 approved Imvaba funding

7.3.2 JOBS STIMULUS FUND The Eastern Cape Jobs Stimulus Fund is a ring-fenced fund administered through an SLA with DEDEAT as a stimulus incentive. It is disbursed to approved beneficiary businesses on the basis of R10,000 per job with minimum eligibility of 10 jobs. This fund was administered through three windows of application. The first window of applications was from October to November 2011, the second window from February to March 2012, and the third window from October to November 2012. A total of 198 applications were received, of which 101 were approved. The expectation is that 6,514 jobs would have been created, retained and/or saved. The Jobs Fund disbursed a total of R15.6 million during the review period, creating 1,560 jobs. The uptake of the fund is making a difference to thousands of people, particularly the youth who are unemployed or seeking permanent employment. It has also saved a significant number of jobs. For example, from the moment it took its first call in July 2011, the Discovery Call Centre knew it had struck the right chord when it made the decision to make the Eastern Cape one of its four service centres in South Africa. Starting with a modest complement of 30 staff, it has grown to 360 people in little under two years. The call centre provides services to members on the Discovery medical scheme. It handles general and admin telephonic inbound queries. The scheme previously lacked presence in the province and it soon realised the untapped market that exists in the Eastern Cape. The high unemployment rate means that the call centre has the services of highly qualified and educated graduates at its disposal. Of the 360 employees, 231 are in totally new jobs made possible with the support of R2.3 million from the fund. All the people in these jobs were sourced in the Port Elizabeth area: about 99% are youth with the average age of 24 years. In East London, Adalwa Trading has been able to remain competitive in the protective clothing industry with the help of the Jobs Stimulus Fund. The small company received a R100,000 incentive from the fund to create 10 new jobs. This has gone a long way towards generating capacity for Adalwa to service bigger clients. Currently, nurses at renowned medical institutions, such as Tygerberg, Groote Schuur and Red Cross hospitals, are wearing Adalwa-made uniforms. The company is now diversifying into bridal wear.

VeKtronix

R300,000 disbursed to East London-based electronic manufacturer, creating 30 full-time jobs

DISCOVERY CALL CENTRE

R2.3 million disbursed to Discovery Call Centre, creating 231 new jobs

REAL BUSINESS SUPPORT

To remain true to its development finance role, ECDC is obliged to increase its support to catalytic projects, which have the potential to unlock economic benefits for remote lowincome areas, thus addressing the imbalances resulting from the concentration of economic activities around the provinceâ&#x20AC;&#x2122;s two main urban centres, East London and Port Elizabeth. ECDC takes the first risk to research, develop and establish new economic growth sectors. The intention is that these will lead to crowding in of private sector capital to establish viable enterprises, expansion of existing businesses and the creation and/or saving of jobs. In this regard, in the review period, the corporation spent money and vigorously pursued support for projects that are in infancy and at the ideas phase. Through innovative risk capital, the corporation provided start-up funding of

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REAL RESOURCES

R9.6 million to support the preparation of projects for further development and research into market-ready products. The long-term objective is to develop a high-quality pipeline of loans and equity investments for ECDC. The corporation executes this role through a number of activities, such as the funding of feasibility investigations to determine whether a business idea can lead to a sustainable enterprise, ideas that need testing before they are market ready, as well as risk capital for conducting trials. This also includes the development and testing of prototypes, as well as the compilation of business plans for commercialisation.

High-risk, high-return projects ECDC provides capital to a segment of the market that is very risky because its ideas are untested. ECDCâ&#x20AC;&#x2122;s commitment to this work is driven by the structure of the Eastern Cape economy in which government services is the largest employer, followed by the automotive sector and related sectors, such as the components industry. However, government services are unsustainable due to the shrinking fiscus and competing needs, and the Provincial Growth and Development Plan (PGDP) calls for diversification of the provincial economy away from the saturated auto sector.

As such, ECDC is creating alternatives through risk capital that supports new sectors of the economy. These sectors create future high-return businesses for the corporation. Development finance institutions in general have realised that they cannot survive on interest income through their loan business only. The margins are not enough to keep them afloat. DFIs that work are those that invest in high-risk projects with a potential for high returns, which can be used to finance their development mandates. In this regard, ECDC’s approach has been to provide loan funding and equity in these high-risk, high-return projects, depending on the nature of the business. Subsequently, a total of R9.6 million was allocated to risk capital, part of which is R4.4 million from deferred funds of the previous year. A total of 17 projects were identified to benefit from the risk capital programme. Five new projects were established during the review period.

BAMBOO INDUSTRY

R3 million invested by DEDEAT and ECDC

3 pilots

RESOURCES FOR CATALYTIC PROJECTS

established in Centane, Ndakana annd Uitenhage

Establishment of niche bamboo industry

ECDC

ECDC played a central role in the establishment of the National Bamboo Association, which is now the industry body. This is a big achievement for the Eastern Cape. It has its own office in East London with an executive committee led by an Eastern Cape bamboo practitioner. The association is made up of members from KwaZulu-Natal, Western Cape, Gauteng and the Eastern Cape. ECDC and the Industrial Development Corporation (IDC) have been requested to stay on as ex officio members and to provide a support role. The work of the body is to mobilise support from its members through training and regulatory support, as well as provide a marketing platform for the products of their members.

central in establishment of National Bamboo Association

Three pilot plantation sites of five hectares each were established in Centane, Ndakana and Uitenhage, and an amount of R1 million invested. A further R2 million was received from DEDEAT to expand the Ndakana site to 100 hectares. Apart from the three plantations, a small-scale bamboo hand-weaving initiative by a women’s co-operative, the “Friends of Cintsa”, was established in May 2012. Fifteen permanent jobs have since been established in this co-operative.

Pineapple beneficiation The corporation is an equity partner with Summerpride Foods and pineapple farmers in the company, Ndlambe Natural Industrial Products (NNIP), which opened a dietary fibre factory in East London in October 2012. The factory produces extracted dietary fibre from pineapple waste for the export market. It is supplied to food manufacturers, such

pineapple benefication

R1.7 million risk capital provided for the development of fibre

R4.7 million loan provided for the factory

1,200 farm and 28 factory jobs

REAL RESOURCES

as Premier Foods. ECDC provided risk capital of R1.7 million for the development of the fibre. ECDC provided a further loan of R4.7 million for the factory. A total of 28 people are employed in the factory and 1,200 on the farms. Dietary fibre, which is necessary to help digestion in human beings, is used in fruit juices and confectionary. This is a world first: it is the only dietary fibre that is made from pineapple waste. In the review period, ECDC also successfully established a new pilot for another pineapple fibre, MCC bromelain, which will be used mainly in pharmaceutical products. Trials, which began in Bathurst in September 2012, are funded by ECDC and NNIP. A sum of R1.9 million was made available for the equipment used in testing.

Nkanya block-making

Nkanya Block-making

R1.3 million

Risk capital was further utilised to assist the Nkanya Block-making Cooperative in Elliotdale. The co-operative is being established to produce bricks for the Nkanya Lodge and for customers in the area. Nkanya Lodge will be South Africa’s first totally green hotel. ECDC has pumped R1.3 million into the Nkanya Lodge’s site development plan and environmental impact assessment (EIA).

into Nkanya Lodge’s site development plan and EIA

55 jobs

The lodge will create 55 jobs during construction and 134 when it is operational. The co-operative was funded by DEDEAT with a sum of R500,000 for equipment and working capital. The co-operative has 10 members, but it will appoint a further 14 permanent and four casual employees from the community to work on the project once training is completed. The Small Enterprise Development Agency has committed itself to providing funding for training and the branding of the cooperative.

to be created once operational

during construction

134 jobs

Buyambo Milling Enterprise ECDC is project managing the establishment of Buyambo Milling Enterprise in Lady Frere. Buyambo is a black-owned milling company that is being started when most milling enterprises have closed in the Eastern Cape. It mills all types of grain, including wheat, maize and sorghum, three times an hour. The mill also produces its own cereal brand. The corporation received R1.5 million from DEDEAT for the construction of the milling plant.

Pure Herbal Medicine ECDC is involved in the company, Pure Herbal Medicine, in Uitenhage. The corporation assisted the owner of the company to formalise his herbal medicinal business. The corporation has helped Pure Herbal Medicine

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REAL RESOURCES

PURE HERBAL MEDICINE

R1 million for plantation and equipment

R500,000 funding provided by DEDEAT

28 permanent jobs created

establish the first-ever one hectare plantation of wild Gunnera perpensa; this is at Kareedouw in the Cacadu District. The corporation also helped formalise a factory in Uitenhage to respond to new market demand. The corporation provided R1 million for the plantation and equipment in the factory. DEDEAT also provided R500,000 in funding. A total of 28 permanent jobs have been created.

Women-run poultry project Lubala Poultry is situated in Lubala Village in Mthatha. The project farms broiler chickens for the market. It has two broiler units, which take about 10,000 birds. Its operations began in September 2012. The corporation is implementing and project managing the venture with funding of R500,000 from DEDEAT. The corporation also added additional funding of R65,000 for the project. This business was assigned to the corporation as part of the presidential projects identified by the president. The womenrun project has an available market where chicken is the main source of protein. A total of 15 permanent and 10 temporary jobs have been created.

Third-party funding

karoo blue trust fish project

R1 million funding from ECDC

R2.7 million from IDC for market analysis and design of ponds

R3.5 million from DBSA for product development

ECDC attracted R77 million in third-party funding for its development projects. Third-party funding allows the corporation to share risk and mobilise funding from elsewhere, drawing on the expertise of other funders and so increase development impact.

Karoo Blue Trust fish project ECDC provided R400,000 towards a market study and the finalisation of an EIA for the Karoo Blue Trust fish project in Graaff Reinet. In the previous year, the corporation provided R600,000 for projectâ&#x20AC;&#x2122;s feasibility study and business plan. The project farms freshwater fish for canning and selling. IDC provided a further R2.7 million for the market analysis and design of the ponds. The Development Bank of Southern Africa (DBSA) also committed R3.5 million towards product development.

Outgrower blueberry scheme The corporation has put in R1 million towards the establishment of a nine hectare outgrower blueberry scheme in Gxulu Village in Keiskammahoek. This has been converted into a 30% equity stake. The Zanokhanyo Agricultural Primary Co-operative owns 70% of the project. The national Department of Agriculture provided R8.7 million for the project for building the greenhouses and purchasing of plant materials. Members of the co-operative are being trained and supervised by experts for skills transfer. The first harvest is expected in 2014. A further R11.6 million has been secured from the Department of Trade and Industry (dti).

BLUEBERRY SCHEME

R1 million from ECDC for 9ha outgrower blueberry scheme

R8.7 million from the national Department of Agriculture, Forestry and Fishing for the greenhouses and plant materials

R11.6 million from the dti

REAL RESOURCES

Boschberg Tourism Hub A total of R3.6 million was attracted from the Department of Roads and Public Works for the design and construction of roads to the Boschberg Tourism Hub in Somerset East. The hub has biking and hiking trails, picnic spots and bird-watching activities. ECDC is playing a project management role.

SOS Abattoir ECDC received third-party funding of R19.6 million from the Department of Rural Development and Agrarian Reform for the construction of the SOS Abattoir in Queenstown in the Chris Hani district. The corporation provided R800,000 for the development of the business plan and market analysis.

Giant Flag project The development corporation has injected R800,000 into an EIA for a Giant Flag project, which should transform the Graaff Reinet and Karoo economy and result in a man-made natural phenomenon that can be seen from space. A world first, the Giant Flag project will result in the creation of the worldâ&#x20AC;&#x2122;s biggest flag, a direct example of how a lowcarbon, innovation economy can function and succeed while generating a national pride campaign, the impact of which will be felt throughout the country. The ground-breaking project has already pricked the interest of major funders and players, such as ECDC, the European Union, DBSA, the Nelson Mandela Metropolitan University, an Israeli funder and the Camdeboo Local Municipality. The project, worth R170 million, comprises a 66 hectare South African flag made up of 2.5 million coloured desert plants and a four megawatt solar field; it will be established on the outskirts of Graaff Reinet. The red, blue, green and yellow parts of the flag will be provided by plants, while the black part will be a solar field that will house a conference centre, boutique hotel, SMME hub, nursery and underground reservoir for rainwater harvesting. The white part of the flag will be a road. The Giant Flag will be 1km long on either side and reach a height of 0.6km.

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REAL RESOURCES

GAINT FLAG PROJECT

R800,000 injected into EIA for the Gaint Flag Project, which should transform the Graaff Reinet and Karoo economy

66ha

South African flag made up of 2.5 million coloured desert plants and a four megawatt solar field

An anchor for the SMME sector While development finance and non-financial support remains at the core of SMME support, investment promotion, through its catalytic nature, provides substantial downstream opportunities for the development of small businesses. In essence, investment attraction and trade, through foreign and domestic direct investment inflows, act as an anchor for the establishment, growth and development of the SMME sector. ECDC’s role is to facilitate catalytic investment into the key strategic sectors of the provincial economy as outlined in the Provincial Growth and Development Plan (PGDP) and

the Department of Trade and Industry's macroeconomic strategy. The corporation’s investment and trade efforts further provide significant wealth and job creation opportunities for small businesses. Essentially, ECDC’s investment and trade promotion role complements its development finance positioning. Furthermore, the corporation aims to develop and maintain existing investments for long-term sustainability. These investments are also able to leverage from ECDC’s development finance and from investment platforms in the form of the corporation’s expansive investment property portfolio. Subsequently, in the year under review, ECDC placed significant focus on leveraging and exploiting investment and trade opportunities in the key sectors identified in the Provincial Industrial Development Strategy (PIDS) and the Industrial Policy Action Plan (IPAP). These include but are not limited to manufacturing, agro-processing, forestry, tourism, film, information and communication technology, mari and aquaculture as sectors with the greatest economic potential.

REAL INVESTMENT

Inspired investor attraction Although recovery from the recession is slow, there is an upswing, which is backed by strong investor confidence, as evidenced by the increase in the rand value of investments facilitated. The rapid roll out of the Renewable Energy Independent Power Producer Procurement Programme, jobs stimulus packages, and concerted efforts towards supporting the agro-processing, forestry and automotive sectors through various incentives have made the Eastern Cape quite attractive. As such, ECDC proactively undertook inspired investment attraction and investor servicing activities, which were geared towards the generation and retention of meaningful foreign and domestic investment inflows. This work was further supported by collaboration with the East London and Coega IDZs. As a result, the corporation facilitated investments to the value of R671 million from 22 investments, which is 9% more than amount invested in the previous year. This increase was driven mainly by the automotive, agro-processing and renewable energy sectors. The automotive sector bounced back strongly from the recession in the review period. This had a direct link to expansion in components manufacturing. A total of 1,285 jobs were facilitated through these investments.

Investment by sector

Automotive Agro-processing Energy Forestry Metals Infrastructure Aquaculture Other

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REAL INVESTMENT

31% 28% 16% 10% 8% 3% 2% 2%

A further 149 leads or new prospects were in the pipeline. In addition, 17 entrepreneurs benefitted from specialised international standard training provided across various entities involved in investment promotion, including municipalities.

Automotives The automotive sector was further boosted by the introduction of the Automotive Production Development Programme (APDP), which replaces the Motor Industry Development Plan (MIDP). The APDP provides positive affirmation of the industry and a sense of certainty through to 2020. The APDP has two major objectives. It aims to increase volumes to 1.2 million vehicles a year by 2020 and to diversify and deepen the components supply chain. The APDP provides fantastic opportunities for the Eastern Cape, which forms the backbone of Africaâ&#x20AC;&#x2122;s automotive sector. With a refined programme like the APDP, there exists an opportunity to increase local content from the current levels of 40% to 65% through various support mechanisms. With all its successes, the MIDP did not go far enough in supporting component manufacturers. The APDP strengthens this area, which is the lead player for the creation of much-needed jobs in the country. As of 2011, about 68,000 people are employed by component manufacturers and the original equipment manufacturers (OEMs) employ about 28,000.

AUTOMOTIVE

APDP aims to increase volumes to

1.2 million vehicles by 2020

The programme will include a local assembly allowance, which makes it possible for vehicle manufacturers with a plant volume of at least 50,000 units per annum to import 20% of their components duty free, reducing to 18% over three years. The APDP provides for stable import tariffs of 25% for completely built-up vehicles from 2012, and 20% for components used in vehicle assembly. An automotive investment allowance, which will take the form of a direct grant of 20% of the project over three years, will be used to support investment into new plants and machinery. Mercedes Benz South Africaâ&#x20AC;&#x2122;s investment of a further R2.5 billion into new technologies, facilities and expansion of its plant and manufacturing capacity is largely a result of these incentives. The OEM is currently making 60,000 units a year, and with this new investment, it will increase production to 100,000 units a year. This is consistent with the APDP, which at its core has the ramping up of production volumes to 1.2 million by 2020. This should come with an estimate of about 650 new jobs.

REAL INVESTMENT

Agro-processing In the agro-processing sector, ECDC played a central role in facilitating the expansion of the Clover SA UHT plant to the Port Elizabeth-based plant at Perseverance, which brought about investment of R100 million. This resulted in 100 additional jobs being created in the factory. The Nelson Mandela Bay Metropolitan Municipality provided the required incentives, which ultimately made the metro a preferred location over various competing locations in KwaZulu-Natal. The prospects are great for further expansion in the medium to long term. In addition, ECDC is negotiating with a German company to base the trials for the growing of the vitex plant in the Eastern Cape. This would be for supply in the alternate season to the existing European supplier. Vitex is a medicinal plant that is exclusively used by the company to manufacture a medicine that is already on the market. If the trials prove to be successful, it would open opportunities for local farmers to grow a high-value crop with an export off-take.

AGRO-PROCESSING

ECDC facilitated

R100 million Clover investment

ECDC, jointly with Eastern Cape Rural Development Agency, is implementing DBSA Jobs Fund-approved projects in the province. These involve forestry rehabilitation and development to the value of R113 million and the Trading Post and Maize Milling project (R91 million) over a threeyear period, which will create more than 1,000 jobs over that period.

Information and communication technology In the information and communication technology (ICT) sector, ECDC concluded a Human Capital Development Strategy that makes provision for graduate development. In order to give effect to its provisions, ECDC participated in the Monyetla Work Readiness Programme. Twenty of the 74 recruits who were awarded training grants are graduates from local further education and training colleges. A total of 22 recruits secured job placements at the conclusion of the training. Key in ECDCâ&#x20AC;&#x2122;s agenda of ensuring that the corporation invests in key economic growth sectors is economic market research and trend analysis. A notable ICT research partnership in this regard is ECDCâ&#x20AC;&#x2122;s role in facilitating broadband deployment to the value of R40 million to enhance research capacity at Fort Hare, Walter Sisulu, Rhodes and Nelson Mandela Metropolitan universities.

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REAL INVESTMENT

AGRO-PROCESSING & FORESTRY

ECDC, ECRDA secured

R204 million from the DBSA Jobs Fund for forestry rehabilitation and milling project

For the period under review, ECDC also concluded a five-year memorandum of understanding with the Council for Scientific and Industrial Research (CSIR) Meraka Institute. This collaboration will see these two institutions developing an evidence-based ICT Infrastructure Investment Plan in order to effectively leverage on public and private sector broadband initiatives implemented by such players as SANReN, SANRAL, Broadband Infraco, Dark Fibre Africa and FibreCo. The marketrelated study will be concluded in the third quarter of the new financial year.

Aquaculture The first marron (freshwater crayfish) produced by an ECDC client, Smiling Valley Marron in Kei Road, were sold on the South African market in 2012. This was the first commercial-scale product sold out of the Eastern Cape. ECDC is currently assisting its client to export marron in the new financial year. If successful, this will be the first marron ever exported from South Africa. ECDC also helped with the regulatory environment and the requirements for the access of new markets.

AQUACULTURE

Crayfish producer, Smiling Valley Marron, assisted with

access to export markets

Furthermore, the first abalone ranching rights in the province were awarded. Ranching involves the seeding of small abalone in the sea. These animals are protected by the ranching rights holder who monitors the zone. When they are of market size, they are harvested. This is a new development for South Africa and viability remains to be tested. The abalone industry has collapsed due to poaching, and ranching offers the only abalone fishery revival prospects. ECDC was involved in policy advocacy with the Department of Agriculture, Forestry and Fisheries and in working with the rights holders in resolving issues with the department.

Tourism In the tourism sector, ECDC made available funding of R200 000 to a joint marketing agreement with GoWay, a major Canadian tour marketer, in order to increase tourist numbers into the Eastern Cape from that country and the USA. This was done in conjunction with the Eastern Cape Parks and Tourism Agency (ECPTA). ECPTA has already had success with other joint marketing agreements, and future agreements are planned for the new financial year. By successful project packaging and marketing assistance, ECDC helped the community-owned Nqabara Lodge become operational in December 2012. Initiated by the Sustainable Rural Development in the Eastern Cape (SURUDEC), the project is situated on the Wild Coast at Nqabara, just south of Dwesa.

KLEINEMONDE - EASTERN CAPE

REAL INVESTMENT

Renewable energy ECDC is proud of having played a crucial facilitation role to ensure that renewable energy bidders obtained all the necessary support in the province: by the end of the financial year, 876 megawatts of the National Renewable Energy Procurement Programme had been awarded to preferred bidders in the Eastern Cape. This allocation is constituted by 10 wind farms and one solar photovoltaic farm. The province has secured a significant proportion of the national allocations due to its suitable factors, including excellent wind and solar resources by international standards, grid access, access to land and the comparative absence of competing activities or land uses. In addition to solar and wind power, the province has significant potential for biomass and biogas energy and biofuels, as well as hydro power. This lays a broad foundation for the region which, within this decade, could potentially rely on renewable energy as a significant source of power.

renewable energy

876 megawatts of the Renewable Energy Procurement Programme had been awarded to

ten wind farms

Mining ECDC has concluded the Mining Sector Plan, which confirms that the Eastern Cape is endowed with a variety of natural resources, and a number of investment opportunities have been identified in the sector and packed for investment in the province. Good opportunities have come to light, such as the supply of specialist clays to be used for the potential shale gas projects expected in the province. Soda ash production for import substitution, gypsum mining and downstream beneficiation could be viable due to low costs; bulky materials demand high transportation costs, and this could make production in the province viable for local market and export.

and a solar photovoltaic farm, all to be based in the Eastern Cape

Eastern Cape From Above In line with its mandate to market the Eastern Cape, ECDC set up the Eastern Cape from Above aerial photographic exhibition in Oldenburg, Germany, as a joint initiative with Buffalo City Municipality. The exhibition was placed on the forecourt of the Oldenburg Station, where it received a tremendous amount of attention over the month it was displayed. The exhibition both shows off industry and infrastructure, as well as tourism sites and the scenic beauty of the province.

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REAL INVESTMENT

eastern cape from above

Aerial photographic exhibition showcased in Oldenburg, Germany, as a joint initiative with the Buffalo City Municipality

During the period under review, the corporation set its sights on improved export and trade activity in the province. ECDC placed great emphasis on ensuring that its SMMEs are market ready and can compete favourably with their international counterparts. The end result of these efforts is evident in solid trade performance and outputs. The corporation is thus confident that its efforts have met the objective of increasing the value of trade and the number of exporters in the province, exploring new markets and broadening trade within Africa.

with companies from the province. The corporation also strengthened its support of the Exportersâ&#x20AC;&#x2122; Club in the province, collaborated with the Department of Trade and Industry on the review of the National Export Strategy, and collaborated with international trade bodies to facilitate access by local companies through information and networking sessions and registration on the global supply chain database.

To this end, the corporation embarked on various projects, which provided meaningful support to existing and aspiring exporters. These included conducting export awareness workshops in all districts, supporting the Nelson Mandela Bay-based Trade Point, and participating in various national pavilions

Looking to the east

These interventions resulted in the value of trade facilitated by the corporation stabilising at R1.5 billion in the period under review. ECDC facilitated the establishment of 37 new exporters in the review period compared with 11 in the previous year. A significant increase was also recorded in the number of existing exporters assisted: 144 compared with 40 in the previous year.

Perhaps the most exciting intervention was the facilitation of exhibition space for seven Eastern Cape companies at the Ningbo trade fair in China for a 30-month period. The first South African company to exhibit at the international Ningbo exhibition, ECDC hopes to open opportunities for Eastern Cape companies to access the large Chinese consumer market. Between January and July 2012, a total of US$500 million worth of

REAL TRADE PLATFORMS

imported agro-processed products went through the Harbour of Ningbo alone. The product ranges included wine, milk, fruit and seafood. Ningbo citizens alone consumed 5,415 tons of imported foods during this period. The R2 million investment will help the seven companies participating in the exhibition. They are: East London-based Oceanwise (cob fish), Gaehlercorr Industries (abalone) and Superfecta Berries (blueberries); Port Elizabeth companies, Momentoâ&#x20AC;&#x2122;s of Africa (mohair products) and Mendabath (bath resurfacing kit); and Grahamstown-based Carara (cherry peppers) and Makana Meadery (honey beer). Ningbo presents immense opportunities for the Eastern Cape as it could serve as a channel for Eastern Cape products to larger markets within China and the rest of the world. The long-term view is to attract investment from China and boost employment creation in the province by acquiring long-term contracts and new investment.

mend-a-bath

Home grown For example, being placed on a 30-month exhibition in Ningbo, China opens immense opportunities for Carara. The company produces pickled products, such as cherry peppers and patty pans, mostly for export to European markets, such as Germany, and the United Kingdom; smaller quantities go to Australia. Opportunities offered by the Chinese market are significant and Carara intends to grow in the region. At peak production, Carara is the single largest employer in Grahamstown with a full staff complement approaching 1,000. Taken together, Carara and its subsidiary facilities have created approximately 2,000 factory and 2,500 on-farm seasonal jobs. It is a highly labour-intensive business and, with its latest expansion, it will provide approximately 2,500 seasonal factory jobs and up to 3,000 seasonal on-farm jobs in the 2013 season. Carara has been with ECDC for an extended period; the corporation mainly plays an advisory role regarding access to land.

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REAL TRADE PLATFORMS

carara

two of seven companies placed at 30-month trade exhibition in Ningbo, China

During the amalgamation of development agencies from the former Transkei and Ciskei Bantustans, ECDC inherited residential, industrial, commercial and retail properties. A critical analysis of this property portfolio confirms the challenges regarding its poor financial performance. Most industrial properties are vacant and unoccupied, and therefore have not been generating income for ECDC in spite of the huge costs of holding and administering the properties. There are security costs, municipal rates, taxes and services that have been rising, as well as legal costs related to holding and rent collection.

ECDC has identified areas of maladministration, which the corporation is currently acting on; there is also a sense of entitlement regarding the allocation, ownership and transfer of these properties. Some tenants have refused to pay rent and are claiming that these properties should be transferred to them at â&#x20AC;&#x153;historical construction costs and/or gratisâ&#x20AC;?. These are some of the challenges related to managing properties at ECDC. The executive management and the accounting authority, in consultation with the executive authority, have decided to dispose of residential properties in line with ECDCâ&#x20AC;&#x2122;s policies and the Public Finance Management Act (PMFA). Proceeds from such disposal will be utilised for investments and financing of development projects (such as funding businesses, taking on catalytic projects and investing in new sectors of the Eastern Cape economy).

REAL INVESTMENT PLATFORMS

Real investment platforms In pursuit of its enhanced development finance role, ECDC is acutely aware that it ought to equally optimise returns on its investment assets. In particular, the corporationâ&#x20AC;&#x2122;s vast property portfolio presents immense opportunities for economic returns, which could be used to stimulate the core business. However, part of this process includes the corporation unbundling its balance sheet to remove non-core and non-performing assets, which are a cash drain on the institution. As such, the institution took a principled decision to dispose of assets that derive no economic value for the corporation. In this regard, the corporation began a process of disposing of its residential property portfolio in a batched approach. From November 2012 to the end of the review period, 17 properties were sold for a total R6.5 million. The intention is that by the end of the next review period, ECDC will have disposed of all its 238 stand-alone residential property units, which have a balance sheet value of R110 million. The purpose of this disposal process is to have a strong balance sheet that ECDC can utilise to leverage additional funding for more investments into the economy.

Property investment Currently, the corporation is still in the property management dispensation, which mainly involves the collection of rental. During the period under review, the corporation collected R55 million in rental revenue, a 10% improvement from the previous yearâ&#x20AC;&#x2122;s R50 million. This revenue helps the corporation maintain these properties and pay rates and taxes to the municipalities.

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REAL INVESTMENT PLATFORMS

Five-year rental revenue (Râ&#x20AC;&#x2122;million)

R56 R55 R54 R53 R52 R51 R50 R49 R48 R47 R46 2008/09

2009/10

2010/11

2011/12

2012/13

ECDC is currently in transition to a property investment dispensation and it is finalising a property investment framework, which should attract investment into the corporationâ&#x20AC;&#x2122;s vacant prime land, as well as into its commercial and industrial stock. The corporation will pursue investments where it will take equity and benefit from dividend proceeds in partnership with the private sector. Such proceeds should further boost investments and loans through which the corporation will spur further superior development impact in the Eastern Cape economy.

REAL INVESTMENT PLATFORMS

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During the review period, the corporation placed great emphasis on improving business systems that support the core business. These systems perform an enabling and capacitating support role to ensure the effective delivery of the ECDC mandate. Without these services, the corporation could not hope to adequately address the economic deficit that the Eastern Cape faces. These services ensure the efficient, effective and streamlined discharge of the core business. Crisply encapsulated into Corporate Services, the prudent utilisation of the human resources, information technology and marketing and communication functions further enhance the corporation’s economic development delivery acumen. The corporation continued to advocate for a streamlined corporate services offering, the intended effect of which is achieving and maintaining a mobilised, inspired and delivery-focused organisation.

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FACILITATING REAL ECONOMIC GROWTH

8.1 HUMAN RESOURCES MANAGEMENT The corporation continued to keep its eye on an aligned and empowered human resources (HR) management function for improved efficiencies, quality management and customer service excellence. HR management strives to attract, retain and develop a competent and dedicated workforce with qualifications, knowledge and skills that are aligned with ECDC’s strategic goals. Human resources lie at the heart of the corporation and ECDC is acutely aware that it is a skilled and talented workforce that carries the hopes and dreams of the hundreds of entrepreneurs who rely on ECDC people to help them realise their economic aspirations. In line with ECDC’s goals, HR management ensures that the structure is aligned to the corporate strategy and the management of talent by recruiting the best people for vacant positions. While the supply of talent continues to be a challenge for the province, largely due to the flight of skills to the major economic hubs of the country, ECDC has done well in attracting quality people back to the Eastern Cape. While the attraction and retention of talented people was a key delivery focal point, the training of ECDC personnel is also central. In this regard, the

corporation presented its staff with numerous opportunities to upgrade their skills base and to attract additional expertise into their arsenal. These were achieved through study assistance and various enabling programmes in key scarce skills areas, such as risk, financial and project management. ECDC is also aware that it is an involved workforce that effectively delivers on the organisation’s strategic thrust. This is why a concerted effort was made to improve employee participation in decision making, strategy planning and performance management. Labour disputes have also been reduced, ensuring a harmonious operational environment. ECDC will continue to advocate for the best interests of its people to inculcate a culture of service excellence, diligence, discipline, high work ethic and improved performance. As part of its education, training and development programme, ECDC implemented a youth learnership for 98 young people. This learnership programme offers workplace experience for unemployed graduates. This prepares them for the world of work and improves their employability in a competitive professional environment.

Stable workforce The review period presented ECDC with an opportunity to attract and retain talented individuals whose collective wisdom enhances effective delivery of the corporation’s core business. A number of critical senior management positions were filled with highly skilled professionals for improved efficiencies. ECDC is convinced that these individuals will add value to the organisation’s operations not only in their key competencies, but also in elevating ECDC to acquiring the status of a trusted, credible and admired brand. Key appointments include the appointment of an experienced Chief Financial Officer, who will play a central support role to the Chief Executive Officer and to operations. In

addition, an Executive Manager: Corporate Services was appointed to pull together the crucial human resources, information technology, legal services and marketing and communication functions for effective resource utilisation. The intended outcome is a well-oiled corporate machinery. Other senior appointments include regional managers for East London, Butterworth and Mthatha. These skilled appointments are in line with the ECDC business and should therefore result in regions having improved decision-making abilities. General management positions in operations, innovation and product development were also made. The corporation is convinced that these tested and seasoned appointments will breathe life into the delivery of the business. The appointment of a Legal Services Manager has ensured that the corporation operates within the bounds of the law and legal framework.

Organisational development Furthermore, ECDC’s organisational development exercise resulted in an operating model and strategic road map that fed into business process mapping. A memorandum of agreement was signed with the South African Bureau of Standards to have all processes certified under ISO 9001/2008. The ISO project will gain momentum in the next financial year. A skills audit was undertaken with the express aim of building human capital that will be responsive to its strategy and the province. A talent management strategy that addresses areas of concern in critical skills and positions will be presented to the ECDC Board in the next year. The corporation also embarked on building a corporate culture based on its value system and ethos. This saw 100% participation of personnel with all staff members pledging their commitment to IPAT (Integrity, Professionalism, Accountability and Teamwork). The corporation prides itself on beneficial employer-employee relations with zero disputes in the Commission for Conciliation, Mediation and Arbitration or any other court.

FACILITATING REAL ECONOMIC GROWTH

Staff complement and employment equity profile For ECDC to deliver on its mandate, it is crucial that it continues to retain the right skill levels while complying with the Employment Equity Act. As at 31 March 2013, ECDCâ&#x20AC;&#x2122;s workforce was made up of 159 permanent staff: 69 males and 90 females. Total number of employees in each of the following occupational categories as at 31 March 2013 is summarised as follows: Occupational categories

Male African

Coloured

Female Indian

White

African

Coloured

Total

Indian

White

Unskilled (Grade 2-6)

Semi-skilled (Grade 7-11)

Skilled supervision (12-16)

Senior management (Grade 17-25)

Total

159

Employees with disabilities Grand Total

Staff turnover rate and appointments The table illustrates the number of staff who left and joined the organisation during the year under review. Salary band

Number of posts filled as at 31 March 2012

Appointments and transfers into the corporation

Terminations and transfers out of the corporation

Number of employees per band as at 31 March 2013

Turnover rate %

Unskilled (Grade 2-6)

Semi- skilled (Grade 7-11)

0.6

Skilled supervision (Grade 12-16)

2.5

Top and senior management (Grade17-25)

0.6

159

TOTAL

During the year under review, 12 employees left the service of ECDC. Six were resignations, resulting in the average turnover rate of 4%; five were retirees; and one as a result of death.

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FACILITATING REAL ECONOMIC GROWTH

Gender profile

• Female • Male

Female staff by race

57% 43%

TOTAL: 159

96% • African • White 3% • Coloured 1% • Indian 0% TOTAL: 90

Male staff by race

Top and senior management by gender

• African 84% • White 10% • Indian 4% • Coloured 2%

• Males in 2012/13 • Males in 2011/12 • Females in 2012/13 • Females in 2011/12

29 (76%) 26 (79%) 9 (24%) 7 (21%)

TOTAL: 69

FACILITATING REAL ECONOMIC GROWTH

Performance management system A series of on-going interventions are underway, which are aimed at sustaining the employeeâ&#x20AC;&#x2122;s understanding of this management process, especially considering the changes in the business model. Three HR employees are internationallyaccredited trainers of maximum performance.

Training and development The table illustrates training provided between 1 April 2012 and 31 March 2013 at all levels. Occupational categories

Gender

Legislators, senior officials and managers

Female

Male

Professionals

Female

Training provided within the reporting period Learnerships

Skills programmes & other short courses & ABET

Other forms of training Study loans

Total Programmes & short courses & forms of training

Male

Technicians and associate professionals

Female

Male

Clerks

Female

Male

Female

Male

Female

Service and sales workers Sub-total

Male Total

Training provided within the reporting period

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FACILITATING REAL ECONOMIC GROWTH

Information technology (IT) plays a pertinent role as an enabler and platform for streamlined business processes. Therefore, ECDC identified a number of IT platforms intended to shape a change-focused and clientfocused organisation. These include a new IT platform, the Master Systems Plan, as well as other processes and policies. In this regard, ECDC plans to spend R50 million in the medium term to revamp its IT system to improve efficiencies and effect regionalisation for faster decision-making processes. The initiation of IT governance, which includes the approval of an IT Master Systems Plan and strategy, development of an ICT charter and establishment of an IT steering committee, were major focus areas. This critical IT governance structure was based on risk exposure at the time it was developed. It sought to resolve transparency and accountability, shareholder value on IT investments, IT performance management and compliance issues in support of ECDC’s organisational goals. An information technology policy manual has gone through the IT steering committee and is due for submission to the ECDC Board in 2013/14. The policy manual clearly sets out roles and responsibilities and sets the tone and framework for good IT governance.

IT online service catalogue

The IT unit is committed to providing a high level of service and support, and the IT online service catalogue portal will ensure that delivery to stakeholders is maintained.

Corporate Performance Management Information System (PMIS)

The PMIS portal provides a single web access point tailored to meet a coordinated manner of corporate key performance indicator reporting, while improving the consolidation process of submitting information to key ECDC stakeholders. It also provides hierarchical drill-down capabilities to view the history and performance of the core business.

IMVABA WEBSITE www.imvaba.co.za

A monthly management accounts portal was also developed.

Extranet research portal

The extranet provides value and capability to the research unit in terms of collaborating with other research clients and partners. The flexibility and convenience of sharing research material with stakeholders was a key objective in the design and development of this cost-effective portal as it leveraged the corporation’s existing investment in enterprise content management.

Imvaba Co-operative Fund and Jobs Stimulus Fund website and intranet Two key mandates of the provincial government were achieved seamlessly and cost effectively in the development of these websites, utilising ECDC’s existing experience and skills. It provided ECDC with a unique opportunity to “go to market” with confidence in IT’s ability to deliver and fulfil the shareholder’s expectations.

JOBS FUND WEBSITE www.ecjobsfund.co.za

FACILITATING REAL ECONOMIC GROWTH

The marketing and communication unit has a direct contribution to make on two of the corporate’s strategic objectives: building a strong brand, and assisting in establishing integrated partnerships with stakeholders for the maximum leverage of resources and development outcomes. In the year under review, the marketing and communication functions utilised a number of tools and instruments to build a stronger ECDC brand, managing communication with ECDC stakeholders, as well as overall stakeholder relations.

Marketing and brand management Having refreshed the corporate identity of ECDC at the end of 2011, a positioning exercise was conducted to establish ECDC’s competitive edge against similar institutions. This was conducted to ensure that ECDC adopts a position that will be believable and sustainable in the future. This led to the Real Economic Development positioning line, which underpins all the current ECDC branding and marketing activities. In May 2012, an internal marketing campaign showcasing everything “REAL” from ECDC, including its people,

Communication and stakeholder relations are key for building ECDC’s DFI posture

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FACILITATING REAL ECONOMIC GROWTH

projects, products and services, was launched across ECDC offices. The next step is to launch an external market campaign in the coming financial year. The unit further rebranded offices and other marketing material, where possible, in line with the refreshed corporate identity.

INTERNAL CAMPAIGN

Communication ECDC, through the unit, set itself a target to maintain negative publicity to no more than 5% of total coverage in the period under review. Through proactive media management, ECDC achieved 99% positive and balanced media coverage in the 2012/13 financial period, up from 97% in 2011/12. The net value of positive and balanced media coverage received by ECDC in 2012/13 was at R11 million in advertising value equivalent terms against an investment of R251,093 in media relations. This is a sign of a strong and growing brand. Only 1% of media coverage received in the year under review was negative. The top five reported topics in 2012/13 were: • ECDC’s 2011/12 annual results reporting • ECDC’s involvement in the bamboo industry establishment and development • The ECDC-managed Eastern Cape Jobs Stimulus Fund • Eastern Cape economic prospects

• ECDC property disposal strategy and outcomes.

Stakeholder relations The unit planned to conduct a baseline survey for a customer satisfaction index (CSI) in 2012/13. The intention of the CSI is to track and monitor the perception of ECDC’s customer service delivery on an annual basis. A survey of this nature has never been conducted at ECDC before, and in the absence of any reliable data, the plan was revised in the course of the financial year so that ECDC can begin with a survey that will define customer service and/or satisfaction attributes to ensure that ultimately, the survey focuses on what customers consider important and that the outcomes of the survey are able to influence the entire ECDC customer servicing model. The results of the customer service attributes exercise are expected in the first quarter of 2013/14 and the baseline survey will be conducted shortly thereafter. In the year under review, the unit was also involved in providing marketing support to 38 stakeholder engagements as mapped out in the ECDC corporate calendar, and other ad hoc engagements that ECDC was invited to participate in by stakeholders. Marketing support provided includes concept refinement, promotional material and structuring of ECDC’s presence and participation at various stakeholder engagements. These engagements include ECDC’s planned engagements, such as the annual results road shows and project launches. ECDC was also involved in various provincial and departmental engagements, for example, the Eastern Cape Renewable Energy Summit in November 2012 and taking Eastern Cape crafters to such platforms as Decorex Johannesburg and Cape Town, and the National Arts Festival in Grahamstown.

FACILITATING REAL ECONOMIC GROWTH

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In terms of the Companies Act, the Public Finance Management Act (PFMA) and the ECDC Act, the ECDC Board has the responsibility of maintaining adequate accounting records and is responsible for the content and integrity of the annual financial statements and related financial information included in this report. The directors are further responsible for ensuring that the annual financial statements fairly represent the state of affairs of the corporation as at the end of the financial year, and the results of its operations and cash flows for the period then ended, in conformity with South African Statements of Generally-Accepted Accounting Practice. The external auditors are engaged to express an independent opinion on the annual financial statements. The annual financial statements of the corporation are prepared in accordance with South African Statements of Generally-Accepted Accounting Practice and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgments and estimates. The directors place considerable importance on maintaining a strong control environment. To this end, the directors set standards for internal control aimed at reducing the risk of error or loss in a cost-effective manner. These standards include proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. During the year under review, such controls were monitored as far as reasonably possible throughout the corporation. All employees are required to maintain high ethical standards in ensuring that the corporationâ&#x20AC;&#x2122;s business is conducted in a manner that is above reproach in all reasonable circumstances. The risk management focus in the corporation is on identifying, assessing, managing and monitoring all known forms of risk across the corporation. While it is acknowledged that operating risk cannot be fully eliminated, the corporation, however, endeavours to minimise it by ensuring that appropriate infrastructures, controls, systems and ethical behaviour are applied within predetermined procedures and constraints. The directors are of the opinion that the system of internal control provides reasonable assurance that the financial records may be relied upon for the preparation of annual financial statements. Any system of internal control can, however, provide only reasonable, and not absolute, assurance against material misstatement or loss.

Nomfanelo Magwentshu Sitembele Mase Chairperson Chief Executive Officer 31 July 2013

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31 July 2013

FACILITATING REAL ECONOMIC GROWTH

31 July 2013

Sandile Sentwa Chief Financial Officer 31 July 2013

I certify that the corporation has lodged with the Companies and Intellectual Property Commission (previously the Companies and Intellectual Property Registration Office) all returns required of a public company in terms of the Companies Act, 2008, in respect of the financial year ended 31 March 2013 â&#x20AC;&#x201C; and that all such returns are true, correct and up to date.

Adv Dalubuhle Mbelani Company Secretary

FACILITATING REAL ECONOMIC GROWTH

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FUNDING (R’MILLION)

Legend

www.ecdc.co.za

ECDC

R0.4

IDC

R2.7

DBSA

R3.5

ECDC endorses the code of corporate practices and conduct as contained in the King Reports on Corporate Governance, and affirms its commitment to comply in all material respects with the principles incorporated in these reports. The corporation further subscribes to the corporate governance principles set out in the Public Finance Management Act (PFMA) and the Companies Act. ECDC is committed to good corporate citizenship and organisational integrity in the running of its affairs. This commitment provides the shareholder, customers and stakeholders with the comfort that ECDC’s affairs are being managed in an ethical and disciplined manner. ECDC’s philosophy is founded on principles of service delivery, trust, integrity, transparency, accessibility, redress and ethics.

Corporate Governance Framework The board continued to implement the Corporate Governance Framework, which consolidates the corporate governance procedures, practices and rules applied by the corporation. These are in line with best practice guidelines as contained in the King Reports on Corporate Governance and other good governance prescripts and guidelines.

Conflict of interests The corporation’s values are entrenched through an approved code of ethics, which guides employee behaviour in all internal and external stakeholder relations. In instances where a non-executive director has any direct or indirect personal or private business interest, he/she must withdraw from the proceedings when the matter is considered by the board or any of its committees, unless the board or any of its committees determines that a member’s interest in the matter is trivial or irrelevant. The company requires all employees to sign “declaration of interest” forms on an annual basis prior to the commencement of the financial year. The annual declaration of interests register for the board is noted at the beginning of the financial year or as and when a revised declaration of interest is submitted to the Company Secretary.

Company Secretarial function The Company Secretary is responsible for:

•

Ensuring that board procedures are followed and reviewed regularly and that applicable rules and regulations for the conduct of the affairs of the board are complied with

•

Guiding board members on how their responsibilities should be properly discharged in the best interests of the organisation

•

Keeping abreast of, and informing the board of current and new developments regarding corporate governance thinking and practice

•

Maintaining statutory records in accordance with legal requirements.

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The board has access to the services and advice of the Company Secretary. In addition to various statutory functions, the Company Secretary provides individual non-executive directors and the board with guidance on duties, responsibilities and powers, and the impact of regulatory developments. The board has empowered the Company Secretary with the responsibility for advising the board, through the Chairman, on all governance matters. The Company Secretary acts as the primary point of contact between the board and the company. The Company Secretary is qualified to perform the duties in accordance with the applicable legislation and is considered by the board to be fit and proper for the position.

Board composition The MEC responsible for the Department of Economic Development, Environmental Affairs and Tourism appoints the ECDC Board of Directors in terms of Section 7(3) of the Eastern Cape Development Corporation Act, 1997 (Act No 2 of 1997). The company’s memorandum of incorporation provides that there shall not be less than five and not more than 18 directors. As at 31 March 2013, the board comprised 14 directors of whom the majority (13), are non-executive, including the Chairman. The Chairman and the Chief Executive Officer’s roles and responsibilities are separate. The Chairman, Nomfanelo Magwentshu, is an independent non-executive director.

Board induction and information The Company Secretary is tasked with assisting the board with the induction of new non-executive directors and directors’ orientation. A formal induction programme introduces non-executive directors to the company’s business environment, risk management, regulatory environment, governance framework, sustainability issues and fiduciary duties as contained in the PFMA and the Companies Act. Non-executive directors are regularly kept abreast of relevant company matters and regulatory developments. The company conducted one board induction session for newly appointed non-executive directors on 13 February 2013.

Succession planning Three independent non-executive directors were appointed to the board at the annual general meeting held on 8 November 2012 and the Audit Committee Chairperson on 16 February 2013. The board in consultation with the sharholder representative, appointed one additional member. The selection of Reggie Naidoo, Themba Fikizolo and Mzuvukile Maqetuka, a structured finance expert, human resources specialist and chartered accountant, respectively, was based on the board’s skill mix at the time. Nondumiso Medupe, a chartered accountant, was appointed to ensure consistent and effective reporting to the board of audit matters. The Chairperson engages with the shareholder representative on the company’s needs and requirements as far as board matters are concerned.

FACILITATING REAL ECONOMIC GROWTH

Performance evaluation of Board and Committees The Company Secretary facilitated the self assessment of the Board, committees, individual directors and Secretariat through an independent service provider. A board workshop was convened on 27 August 2013 to present the Board Evaluation Report including a refresher training on the Directorâ&#x20AC;&#x2122;s Fiduciary Duties. The Chairperson also convened one-on-one sessions with the board members. There was general agreement with the findings. The challenges amongst others related to the strategy of the organisation as a whole notably, the implementation of the sale and/or management of the property portfolio, relationship with the subsidiaries, future funding opportunities and the overall control environment within the organisation. A plan will be put in place to rebuild the trust and confidance of the general public in the corporationâ&#x20AC;&#x2122;s ability to deliver on its mandate of providing for the developmental needs of the people of the Eastern Cape province. The board, through the Chairperson, will endeavour to ensure the shareholder buy in into the overall process.

Board and committeesâ&#x20AC;&#x2122; membership and meeting attendance The board has delegated some of its responsibilities to committees in accordance with the approved delegation of authority. Each committee acts within the ambit of clearly defined terms of reference approved by the board. These mandates are periodically reviewed and updated to address the recommendations of King III and the requirements of the Companies Act and PFMA including Protocol on Corporate Governance in the Public Sector. The board has four committees to assist it in discharging its role and responsibilities, namely: Audit and Risk Committee, Human Resources and Remuneration Committee (HR & REMCO), Funding and Investment Committee, and Property Task Team. Appropriate committee structures have been established in line with legislative requirements and business imperatives. These committees continue to operate appropriately and assist the Company with comprehensive control improvement and sound governance.

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Audit & Risk

HR & REMCO

Funding & Investment

Property Task Team

Non–executive directors

N Magwentshu (Chairperson) M Mazibuko (Deputy Chairperson)

S Fikeni

P Silinga

Y Tyantsi

N Mteto

B Nqadolo

× ×

S Somyo N Maliza

L Jiya

× ×

M Rayi

S Kondlo N Medupe

× ×

M Maqetuka

T Fikizolo

O Mabandla

R Naidoo

S Buthelezi

× ×

FACILITATING REAL ECONOMIC GROWTH

Board and committee meeting attendance Non–executive directors

Board appointment & resignation date

Board: 5 meetings

Audit and Risk: 4 meetings

HR & REMCO: 4 meetings

Funding & Investment: 4 meetings

Property Task Team: 4 meetings

Non–executive directors N Magwentshu

26/05/2011

M Mazibuko

03/11/2009

S Fikeni

20/03/2009

P Silinga*

20/03/2009 – 08/11/2012

Y Tyantsi*

03/11/2009 – 08/08/2012

N Mteto

03/11/2009

B Nqadolo

03/11/2009

S Somyo

26/05/2011

N Maliza

19/10/2011

L Jiya

19/10/2011

M Rayi

19/10/2011

S Kondlo*

19/10/2011 – 08/11/2012

N Medupe

16/02/2013

R Naidoo

08/11/2012

M Maqetuka

08/11/2012

T Fikizolo

08/11/2012

S Buthelezi*

20/03/2009 – 08/11/2012

O Mabandla*

01/01/2010 – 08/08/2012

3 1

2 1 4

1 4

1 3

J Njeke*

R Nicholls**

Executive director S Mase

*Member retired or resigned **External Audit Member

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DELEGATION OF AUTHORITY The board entrust the Chief Executive Officer who in turn delegates to the Executive Management Committee to implement and achieve the financial and operational goals and objectives of the corporation, and ensure that the day-to-day business is properly managed within the approved Delegation of Authority Framework. This framework applies to all employees of the corporation.

MATTERS AND DECISIONS RESERVED FOR THE BOARD • Approving the corporate strategy, plan, annual budgets and any subsequent material changes in ECDC’s strategic direction. • Approving annual financial statements and the declaration of dividends. • Approving any significant changes in accounting policies or practices. • Recommending the acquisition or disposal of a significant shareholding in the corporation for the shareholder’s approval. • Recommending the acquisition or disposal of a significant asset for the shareholder’s approval. • Recommending amendments to the Company’s Memorandum of Incorporation to the shareholder. • Entering into a compact with the shareholder. • Appointing and removing the Company Secretary. • Approving the terms and conditions of the corporation’s rights issues, public officers, capital issues or issues of convertible securities, including shares or convertible securities issued for acquisitions. • Recommending the approval of any ordinary or special resolutions in respect of the corporation to the Shareholder. • Appointments and changes in the composition of the board committees. • Effecting any changes in directors’ fees and benefits as recommended by the Human Resources and Remuneration Committee and approved by the shareholder. • Any amendment to such rules as recommended by the Human Resources and Remuneration Committee.

FACILITATING REAL ECONOMIC GROWTH

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We are pleased to present our report for the financial year ended 31 March 2013. The Report of the Audit and Risk Committee is required as per the Treasury Regulations 27.1.7 and 27.1.10 (b) and (c) in terms of the Public Finance Management (PFMA) Act 1 of 1999, as amended.

Audit and Risk Committee members and attendance The members of the Audit and Risk Committee are listed in the following table. As per its terms of reference, the committee is required to meet at least four times a year. During the year under review, four meetings were held. Name of member

Period of membership

29 May 2012

25 July 2012

J Njeke (Chairperson) *

01/04/2012 – 08/08/2012

R Nicholls L Jiya

25 Oct 2012

21 Feb 2013

√

01/04/2012 – 31/03/2013

√

01/04/2012 – 31/03/2013

√

S Buthelezi *

01/04/2012 – 08/12/2012

√

B Nqadolo

01/04/2012 – 31/03/2013

√

N Maliza

01/04/2012 – 31/03/2013

√

N Medupe

18/02/2013 – 31/03/2013

* Member retired from the board √ Present x Absent with apology - Did not attend

audit and risk Committee role and responsibilities The Audit and Risk Committee is a committee of the ECDC Board and has discharged its responsibilities accordingly in terms of Section 51 (1) a (ii) of the PFMA and 27.1.8 of the Treasury Regulations. The Audit and Risk Committee has formal terms of reference; has regulated its affairs in compliance with these terms of reference; and has discharged its responsibilities contained therein.

Effectiveness of internal control During the year, various reports of the internal auditors, as well as the Audit Report on the Annual Financial Statements and Management Letter of the Auditor-General, indicated that the system of internal control has shortcomings. The Audit and Risk Committee has noted these and, based on the outcome of such reviews and the information provided by management, the Audit and Risk Committee is of the opinion that the internal controls of the corporation were partially effective throughout the year under review. Monthly and quarterly performance information The Audit and Risk Committee is satisfied with the content and quality of monthly and quarterly reports prepared and issued by the corporation during the year under review.

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FACILITATING REAL ECONOMIC GROWTH

Internal audit The Audit and Risk Committee reviewed the activities of the internal audit function and has concluded the following: • The function is effective and there were no unjustified restrictions or limitations. • The internal audit reports were reviewed at quarterly meetings, including its annual work programme, coordination with the external auditors, the reports of significant investigations and the responses of management to issues raised therein. The Head of Internal Audit has direct access to the Audit and Risk Committee Chairperson and other members. The Audit and Risk Committee is also responsible for the assessment of the performance of the Head of Internal Audit, and the internal audit function. In accordance with King III, the Audit and Risk Committee has assessed the competency of the Chief Financial Officer and is satisfied that the expertise and experience of the Chief Financial Officer are appropriate to meet the responsibilities commensurate with the position.

External auditors The Auditor-General acted as the external auditors throughout the year. The Audit and Risk Committee reviewed the external auditors’ scope and work plan to ensure that key risk areas of the business were being addressed during the audit process.

Evaluation of annual financial statements The Audit and Risk Committee has: • Reviewed and discussed with the Auditor-General and the accounting authority the audited annual financial statements to be included in the annual report • Reviewed the Auditor-General’s audit report, the management letter and management responses thereto • Reviewed the significant adjustments resulting from the audit. The Audit and Risk Committee concurs and accepts the conclusions of the Auditor-General on the annual financial statements and is of the opinion that the audited financial statements be accepted and read together with the report of the Auditor-General and the directors’ report. The Audit and Risk Committee agrees that the adoption of the going concern premise is appropriate in preparing the annual financial statements.

Nondumiso Medupe Chairperson of the Audit and Risk Committee 31 July 2013

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The directors are pleased to present their report and the audited financial statements for the year ended 31 March 2013. The corporation is established by the Eastern Cape Development Corporation Act, 1997 (Act No 2 of 1997) (ECDC Act). It is listed in Schedule 3 D of the Public Finance Management Act, 1999 (Act No 1 of 1999) (the PFMA) as a Provincial Government Business Enterprise.

Shareholding The provincial government of the Eastern Cape is the sole shareholder. The shareholderâ&#x20AC;&#x2122;s representative is the Member of the Executive Council of the Department of Economic Development, Environmental Affairs and Tourism.

ECDC Board of Directors The composition of the ECDC Board, is set out on pages 5 to 8. The shareholder representative reconfigured the ECDC Board and made the following changes: Directorâ&#x20AC;&#x2122;s name

Appointment

Themba Fikizolo

8 Nov 2012

Reggie Naidoo

8 Nov 2012

Mzumvukile Maqetuka

8 Nov 2012

Nondumiso Medupe*

16 Feb 2013

Retirement

Resignation

Oyama Mabandla

8 Aug 2012

Jabulani Njeke

8 Aug 2012

Yolisa Tyantsi

8 Aug 2012

Simphiwe Kondlo

8 Nov 2012

Peppie Silinga

8 Nov 2012

Sipho Buthelezi

8 Nov 2012

* The director was appointed by the board in consultation with the shareholder representative MEC as an additional member and Chairperson of the Audit and Risk Committee in accordance with article Section 7 (2) of the ECDC Act.

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FACILITATING REAL ECONOMIC GROWTH

Performance against PLANNED targets Performance against planned targets, as contained in the Shareholderâ&#x20AC;&#x2122;s Compact, is detailed in the following table. PROGRAMME 1: DEVELOPMENT FINANCE Measurable objective

Performance indicator

Planned performance

Actual performance

% deviation

Reason for deviation

Grow returns on investments and assets and maintain adequate level of liquidity

Value of new loans disbursed

R110 million

R130 million

Target achieved. The target was revised from R210 million to R100 million due to: - Government funds received in the second half of the year (October) - Capitalisation from government was not achieved to start the new loan portfolio. - Sale of properties to unlock revenue for onlending was not achieved due to change in the disposal method. ECDC was therefore cautious not to over commit on loan approvals.

Decrease losses on operations and grow returns on investments and assets

% of the loan portfolio impaired

50%

61%

-26

Target not achieved.

Grow returns on investments and assets

Number of jobs facilitated or saved

1,300

1,849

Target achieved.

Grow as a leading financier of choice

Number of SMMEs funded

180

496

175

Target achieved.

- New loans post 2010 are performing good and paying off. - Repayment on older loans pre-2010 is slow and accruing interest on arrears. Impairment on this category of loans is 95%.

FACILITATING REAL ECONOMIC GROWTH

ADMINISTERED FUNDS (a) Imvaba Co-operative Fund Measurable objective

Performance indicator

Planned performance

Actual performance

% deviation

Reason for deviation

Provide a balanced product and market portfolio

Approved incentive

R12 million

R 12.59 million

Target achieved.

Grow as a leading financier of choice

Disbursed incentive

R12 million

R10.6 million

-12

Target not achieved. The first disbursements were only processed during the fourth quarter as the first approvals for the financial year only took place in December 2012.

Grow as a leading financier of choice

Non-financial support to funded co-ops

R7 million

R1.2 million

-83

Target not achieved.

Improve customer management

Number of co-ops approved

Target achieved.

Grow returns on investments and assets

Number of jobs created

500

359

Target achieved.

Imvaba financed the Occupational Health and Safety (OHS) site assessments of the 25 National Development Agency (NDA) funded co-operatives, as well as training on OHS, first aid and provision of personal protection equipment for the members of the 25 co-operatives. This training will be completed in April 2013 hence the delay. Therefore the final figure of the cost will be adjusted in 2013/14.

359 jobs will be created as a result of the 20 newly approved co-operatives in the fourth quarter.

(b) Jobs Fund

Measurable objective

Performance indicator

Planned performance

Actual performance

% deviation

Reason for deviation

Provide a balanced product and market portfolio

EC Jobs Fund disbursed

Fiscus dependent

R 15.6 million

N/A

Disbursements of the first window were completed in December 2012. Disbursements for second and third window clients continuing and disbursements are mainly dependent on the approved companies submitting the required documentation and compliance is of absolute importance.

Grow returns on investments and assets

Number of jobs created or saved

Fiscus dependent

1,560

N/A

The jobs targets is directly related to disbursements since each job attracts a disbursement of R10,000.

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PROGRAMME 2: INVESTMENTS (a) New product line Measurable objective

Performance indicator

Planned performance

Actual performance

% deviation

Reason for deviation

Provide a balanced product and market portfolio and maintain adequate level of liquidity

Number of new projects

-100

Target not achieved.

Maintain adequate level of liquidity and grow returns on investments and assets

Average return on investment (ROI) on new commercially viable projects

Average 10% ROI

-100

Measurable objective

Performance indicator

Planned performance

Actual performance

% deviation

Reason for deviation

Provide a balanced product and market portfolio

Number of development projects identified

Target achieved.

Grow returns on investments and assets

ECDC funding for projects scoped

R8 million

R5.19 million

-35

Target not achieved.

Product did not commence due to: - Non-availability of funding expected from capitalisation by the shareholder. - Sale of properties to unlock revenue for on-lending was not achieved due to change in disposal method.

(b) Risk Capital

Government budget allocation reduced significantly impacting projected spending. Build strategic partnerships with stakeholders

Third-party funding leveraged

Grow as a leading financier of choice

Number of development projects established

Target achieved.

Grow returns on investments and assets

Number of investment projects converted into ECDC balance sheet

-75

Target not achieved.

Number of jobs facilitated

750

Grow returns on investments and assets

R80 million

R77.55 million

-3

Target not achieved. Commitments from National Empowerment Fund, Department of Rural Development and Agrarian Reform, DEDEAT and IDC are still pending due to their internal processes.

Due to the start-up nature and commercialisation process with respect to projects it takes time to turn them around and yield profits to return to ECDCâ&#x20AC;&#x2122;s balance sheet. 569

-24

Target not achieved. Long due diligence processes by third parties delayed project implementation and therefore the realisation of jobs.

FACILITATING REAL ECONOMIC GROWTH

Performance indicator

Planned performance

Actual performance

% deviation

Reason for deviation

Decrease losses on operations and improve cost efficiency

Amount of rental collected on current rentals

R40 million

R42 million

Target achieved.

Decrease losses on operations and improve cost efficiency

Amount of arrears collected

R12 million (R1 million per month)

R12.26 million

Target achieved.

Maintain adequate level of liquidity

Value of properties sold (disposal)

R13 million

R6.66 million

-48.8

Target not achieved. The approach has changed to a batched approach which has commenced with respect to residential properties.

(d) Export Promotion

Measurable objective

Performance indicator

Planned performance

Actual performance

% deviation

Reason for deviation

Provide a balanced product and market portfolio

Amount of exports generated

R990 million

R1.51 billion

Target achieved.

Grow as a leading financier of choice

Number of existing businesses assisted with exports

144

476

Target achieved.

Improve customer management

Number of new exporters generated

Target achieved.

Grow as a leading financier of choice

Number of SMMEs supported to access trade incentives

133

Target achieved.

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FACILITATING REAL ECONOMIC GROWTH

PROGRAMME 3: BUSINESS SUPPORT Measurable objective

Performance indicator

Planned performance

Actual performance

% deviation

Reason for deviation

Decrease losses on operations

% of businesses successfully rescued post financing

55% of businesses successfully rescued

-100

Target not achieved.

Number of SMMEs provided with pre and post finance support. a) Number of existing SMMEs supported. b) Number of new SMMEs developed.

230

204

Grow as a leading financier of choice and improve customer management

Number of businesses registered (Pty)

6,000

Grow as a leading financier of choice and improve customer management

Number of businesses registered (Co-operative)

350

Build strategic partnerships with stakeholders

Number of initiatives implemented with organised business/other entities

Target achieved.

Build strategic partnerships with stakeholders

Number of new co-operation agreements entered into

Target achieved.

Grow as a leading financier of choice

Number of SMMEs trained in business skills

1,000

1,167

Target achieved.

Improve customer management

Number of business opportunities workshops/ conferences/ seminars/ trade fairs/exhibitions held

Target achieved.

Build strategic partnerships with stakeholders

Number of Supplier Development Programmes

-50

Target not achieved.

Decrease losses on operations

The workouts function has not commenced. -11

Target not achieved. The nature of this service is dependent on demand and there has been sluggishness in the demand.

(a) 184 (b) 46

-100

Target not achieved. ECDC is not responsible for registration of companies, however, 6,089 businesses were assisted to register their businesses with the Companies and Intellectual Property Commission (CIPC).

-100

Target not achieved. ECDC is not responsible for registration of cooperatives; however, 1,315 co-operatives were assisted to register their businesses with CIPC.

There have been delays in implementing this target and this will be implemented in April 2013.

FACILITATING REAL ECONOMIC GROWTH

PROGRAMME 4: CHIEF ECONOMIST OFFICE (a)

Economic Research, Analysis and Modeling

Measurable objective

Performance indicator

Planned performance

Actual performance

% deviation

Reason for deviation

Build development finance and economic intelligence

Number of periodic industry trends

Target achieved.

Increase operational productivity through streamlined innovative solutions

Number of joint research projects undertaken

Build development finance and economic intelligence

Number of new sector plans developed

Provide a balanced product and market portfolio

Number of new local beneficiation opportunities identified

Increase effective decision making

Number of upto-date regional economic profiles (REPs)

% socio-economic impact analysis report on specific interventions done

100%

Increase effective decision making

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FACILITATING REAL ECONOMIC GROWTH

Reports on tourism, agro-processing, automotive, mining, renewable energy, fisheries and aquaculture have been produced. 3

Target achieved. Joint research with the South African Institute for Aquatic Biodiversity (SAIAB) - freshwater fish markets, Rhodes University and Coega Development Corporation focussing on skills gaps for a

-50

Target not achieved. Mining and Minerals Sector Plan complete but the ICT broadband study underway.

Target achieved. Opportunities identified on marron, basalt fibre, vitex, medium and heavy commercial vehicles and aquaculture value chain analysis.

Target achieved. Two REPs were developed for OR Tambo and Joe Gqabi districts.

100%

Target achieved. Steinhoff/PG Bison impact assessment complete.

(b)

Product Development and Innovation

Measurable objective

Performance indicator

Planned performance

Actual performance

% deviation

Reasons for deviation

Effectively manage risk in all processes

Number of packaged projects/ business opportunities

Target achieved.

Increase effective decision making

Functional/ accessible and up-to-date knowledge management hub

-100

Target not achieved.

Number of annual innovation awards (in partnership with other related stakeholders)

Increase provincial footprint and footprint

Information is only accessible internally. Access to external stakeholders will be achieved in the new financial year once protocols and brand alignment are concluded. 0

-100

Target not achieved. Delays experienced due to lengthy approval processes amongst various role-players.

Performance indicator

Planned performance

Actual performance

% deviation

Reason for deviation

Build a culture of excellence and leadership

Number of leads generated (new prospects)

150

149

-1

Target not achieved.

Grow as a leading financier of choice

Value of investments

R500 million

R671.8 million

Target achieved. Automotive, agro-processing and renewable energy were leading in the year under review.

Grow returns on investments and assets

Number of jobs created/saved

1,000

1,285

Target achieved.

Build strategic partnerships with stakeholders

Number of sector workshops

150

Target achieved.

Build strategic partnerships with stakeholders

Number of clusters facilitated

Grow as a leading financier of choice

Number of entrepreneurs trained in Investment promotion

Agro-processing (focussing on organic products), Aquaculture Value Chain Round Table, Renewable Energy Conference, Marine Aquaculture Industry Liaison, Marine Finfish Association of SA (MFASSA), tourism in partnership with the Tourism Enterprise Programme (TEP), Provincial ICT Workshop with the Department of Communication (DoC) and its State-owned enterprises, Business Process outsourcing and ICT workshops. 1

Target achieved. ICT cluster facilitated in conjunction with local stakeholders, viz. ECITI, Innovation Hub, Office of the Premier, etc.

Target achieved. Specialised international standard training provided across various entities involved in investment promotion including municipalities.

FACILITATING REAL ECONOMIC GROWTH

INFRASTRUCTURE DEVELOPMENT Measurable objective

Performance Indicators

Planned performance

Actual Performance

% deviation

Comment

Provide a balanced product and market portfolio

Number of new potential infrastructure projects identified

Target achieved.

Effectively manage risk in all processes

Pre-feasibilities performed on projects

Target achieved.

Increase operational productivity through streamlined innovative solutions

Concepts developed and feasibilities performed

Target achieved.

Provide a balanced product and market portfolio

Funding approvals obtained - in principle

Target achieved.

Provide a balanced product and market portfolio

Funding approvals obtained - final

100

Written confirmation via a Memorundum of Understanding (MoU) received from the Public Investment Corporation (PIC) for the Bhisho project.

Provide a balanced product and market portfolio

Projects implementation commenced

Target achieved.

Provide a balanced product and market portfolio

Projects identified for concept development and feasibility studies must have Return on Investment (ROI)> 12%

>12%

Expected ROI of 15.4% for Bhisho project and expected ROI of 12.5% for Health

ROI for Health cannot yet be accurately determined as (1) project recently changed, (2) land availability problems and (3) phased approach. Based on current info, Health ROI expected at 12.5%

Resolutions The Memorundum of Incorporation was approved and the board has considered deregistering existing dormant subsidiary companies within the group, including the disposal of non-core and non-perfoming assets, and this will be implemented in the new financial year. In accordance with the requirements of the Companies Act, a Social and Ethics Committee was established in adittion to the existing board committees. The board approved the batched approach in respect of the disposal of property. This approach entails the packaging of properties into different portfolios for different buyers based on property usage and location.

Accounting policies The accounting policies used in the preparation of the annual financial statements for the year ended 31 March 2013 are in accordance with International Financial Reporting Standards (IFRIS) and consistent with those applied in the prior year.

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FACILITATING REAL ECONOMIC GROWTH

Critical judgments and estimations made in applying the accounting policies Judgments made by management and supported by the board in the application of IFRIS that have a significant impact on the annual financial statements are disclosed in the accounting policies.

Authorised and issued share capital The authorised share capital of the corporation remained unchanged at R1 billion worth of ordinary shares. Of this, the corporation issued R421,375,004 worth of ordinary shares to the provincial government of the Eastern Cape (Department of Economic Development, Environmental Affairs and Tourism). The issued share capital is made up of 210,687,502 “A” shares of R1 each and 210,687,502 “B” shares of R1 each.

Divisions, subsidiaries and associate companies A detailed list of subsidiaries and associate companies are contained in the supplementary information to the annual financial statements.

Dividends No dividends were declared or paid to shareholders during the year.

Judicial proceedings The annual financial statements include a best estimate of expected settlement costs for judicial proceedings entered into by ECDC, as either defendant or plaintiff, where the outcome can be assessed with reasonable certainty. These estimates take into account the legal opinions obtained for the corporation and the group. The contingent liabilities of the group have been disclosed in note 27 of the annual financial statements.

Post balance sheet events review The directors are not aware of any material matter or circumstance arising since the end of the financial year under review.

Going concern Having reviewed the corporation’s cash flow forecast for the year to 31 March 2013 and, in the light of this review and current financial position, the directors are satisfied that the corporation has or has access to adequate resources to continue its operational existence in the future.

FACILITATING REAL ECONOMIC GROWTH

EXECUTIVE Remuneration ECDC continues to regard its employees as the most valued asset of the business and the human resources (HR) strategy remains one of the pillars of the ECDC strategy and provides the framework for addressing HR challenges. The HR strategy remains focused on providing the right skills in the right place at the right time to support delivery of business objectives. ECDC recognises that remuneration is a business issue, not a purely human resources issue, as it has a direct impact on operational expenditure, organisational culture, employee behaviour and ultimately the financial sustainability of the corporation. The corporation’s approach to reward is consistent with its objectives and strategic value drivers. Accordingly, the objective of the ECDC remuneration philosophy is to: • Increase productivity by ensuring that individuals and teams are recognised and rewarded for sustained superior performance while managing the total cost of employment • Allow ECDC to compete effectively in the labour market and to recruit and retain high-calibre staff • Use reward as a strategic driver of performance to encourage and promote continuous improvement at a personal, corporate and unit level • Allow ECDC to attract, motivate and retain skilled personnel to enable the corporation to retain a competitive edge over its competitors • Allow pay that is commensurate with performance.

Executive remuneration – guaranteed The remuneration levels of ECDC executives are largely determined by the market. It is generally accepted that state-owned enterprises require people with exceptional skills to lead them competently and create employment. State-owned companies often manage businesses of the same magnitude as large as, or larger than, public listed companies. They also have the added responsibility of managing key national resources. ECDC aims to remunerate employees at the market median, and the guaranteed remuneration of executives at ECDC compares well with this median. The aim is to pay fairly for responsibility exercised and results achieved. ECDC conducts an executive remuneration benchmark exercise annually to compare the remuneration of the executive team with the external market. The executive remuneration benchmark survey is conducted based on the SA Guide to Executive Remuneration and Reward, a national remuneration survey published annually by Deloitte Consulting. The outcome of the current remuneration study by the Presidential Review Committee into the remuneration of executives at state-owned companies will, in future, also impact on the increases of executives.

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Executive remuneration – non-guaranteed Short-term incentive scheme The short-term incentive scheme was designed with the specific objective of driving the achievement of stretching business targets. • The scheme must drive employee behaviour toward the achievement of ECDC’s strategic objectives and must further ensure more equitable reward for the achievement of results. • It must further ensure more equitable reward for the achievement of results. The following principles apply to the scheme: • The achievement of corporate objectives are given a weighted score of achievement from the Auditor-General which indicate corporate performance. • Individual strategic objectives of management employees were derived from and aligned with key performance indicators as stated in the Shareholder’s Compact and Corporate Plan. Executive Management Remuneration EXECUTIVE

DESIGNATION

BASIC SALARY

ALLOWANCES

EMPLOYER CONTRIBUTION TO FUNDS

PERFORMANCE BONUS (2010/11)

TOTAL

Mase, S

Chief Executive Offcier

896 207

566 270

184 501

106 945

1 753 923

Sentwa, S*

Chief Financial Offcier

512 459

213 769

77 665

803 893

Dlulane, N**

Executive Manager: Development Investments

825 130

339 180

152 273

1 316 583

Cerff, J

Executive Manager: Infrastructure Projects

870 537

627 508

116 673

1 614 718

Ngewu, N***

Executive Manager: Corporate Services

807 522

344 418

125 243

98 729

1 375 912

Lindie, M****

Chief Economist

701 805

404 067

142 821

1 248 693

4 613 660

2 495 212

682 503

322 347

8 113 722

* ** *** ****

Appointed on 1t August 2012 Appointed on 1 February 2011 Appointed as Executive Manager: Corporate Services with effect from 3 September 2012 Appointed on 1 November 2011

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Performance reward parameters Executives and general staff qualify for an annual short-term incentive scheme payment provided that the strategic objectives, as agreed with the shareholder, have been achieved. Incentive eligibility percentages have been extensively benchmarked and are aligned with market practice. Individual bonus percentages are further modified with individual performance assessment ratings. The eligibility range of percentages linked to individual performance ratings is as follows: Employee level

At expectation

Bonus cap

13th cheque

CEO

30%

50%

Executive management

24%

40%

Non-executive directors’ remuneration Non-executive directors are appointed by the shareholder representative for a three-year term subject to annual confirmation and re-election at every annual general meeting of the company. Among the issues considered by the shareholder representative prior to re-election is the individual non-executive director’s performance and the board’s skills requirements. The shareholder representative approves, in advance, the fees payable to non-executive directors in line with National Treasury’s remuneration guidelines. Fees paid to non-executive directors vary based on their appointments to the various committees of the board. The fees of the non-executive directors were not increased during the reporting period in line with directives issued by the shareholder representative in respect of Directors’ fees.

Directors’ fees Fees were paid to directors for the board, committee and ad-hoc attendance during the financial year under review.

NAME OF DIRECTOR

BOARD COMMITTEE

AUDIT & RISK COMMITTEE

HR & REMUNERATION COMMITTEE

FUNDING & INVESTMENT COMMITTEE

PROPERTY TASK TEAM

AD HOC

TOTAL FEES

Fikeni, S

37 500

5 000

17 500

60 000

Mazibuko, M

77 500

10 000

97 500

Tyantsi,Y

12 500

7 500

5 000

30 000

55 000

Mteto, N

60 000

15 000

5 000

80 000

Somyo, S

57 500

7 500

10 000

15 000

90 000

Magwentshu, N

52 500

15 000

5 000

72 500

Maliza, N

5 000

7 500

20 000

Jiya, L

60 000

22 500

30 000

112 500

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FACILITATING REAL ECONOMIC GROWTH

NAME OF DIRECTOR

BOARD COMMITTEE

AUDIT & RISK COMMITTEE

HR & REMUNERATION COMMITTEE

FUNDING & INVESTMENT COMMITTEE

PROPERTY TASK TEAM

AD HOC

TOTAL FEES

Rayi, M

22 500

12 500

35 000

Medupe, N

12 500

Naidoo, R

27 500

10 000

7 500

45 000

Maqethuka, M

22 500

7 500

30 000

Fikizolo, T

15 000

12 500

27 500

Buthelezi, S

20 000

5 000

25 000

Njeke,J

10 000

Nicholls, R

15 000

30 000

TOTAL FEES

470 000

75 000

42 500

25 000

115 000

802 500

Financial results The results of the corporation and the group are disclosed in the annual financial statements.

Policy directives During the year under review, the corporation received no new policy directives from the Member of the Executive Council responsible for the Department of Economic Development, Environmental Affairs and Tourism.

Interest-bearing borrowings There were no new borrowings incurred during the year. The corporation continued to reduce its existing borrowings from the Development Bank of Southern Africa Limited.

Subsidiaries The corporation has interests in various subsidiaries and associates. Financial information in respect of interests of the corporation in such subsidiaries and associates is set out in note 6.

Corporate governance matters A detailed account on the corporate governance matters of ECDC is reflected in the corporate governance section of this annual report.

FACILITATING REAL ECONOMIC GROWTH

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Introduction I have audited the consolidated and separate financial statements of the Eastern Cape Development Corporation and its subsidiaries set out on pages 107 to 171, which comprise the consolidated and separate statement of financial position as at 31 March 2013, the consolidated and separate statement of financial performance, statement of changes in equity and the statement of cash flows for the year then ended, and the notes comprising a summary of significant accounting policies and other explanatory information.

Accounting authority’s responsibility for the consolidated financial statements The board of directors, which constitutes the accounting authority, is responsible for the preparation and fair presentation of these consolidated and separate financial statements in accordance with the South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and the requirements of the Public Finance Management Act of South Africa, 1999 (Act No. 1 of 1999) (PFMA), and for such internal control as the accounting authority determines is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.

Auditor-general’s responsibility My responsibility is to express an opinion on these consolidated and separate financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the General Notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and separate financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated and separate 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 consolidated and separate 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 policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated and separate financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my unqualified audit opinion.

Opinion In my opinion, the consolidated and separate financial statements present fairly, in all material respects, the financial position of the Eastern Cape Development Corporation and its subsidiaries as at 31 March 2013, and their financial performance and cash flows for the year then ended in accordance with SA Statements of GAAP and the PFMA.

Emphasis of matters I draw attention to the matters below. My opinion is not modified in respect of these matters.

Material impairments As disclosed in note19 to the financial statements, material impairments to the amount of R60.6 million were incurred as a result of impairments to rental debtors reported as trade and other receivables.

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Investment property As disclosed in note 2 to the annual financial statements, properties with a combined value of R130.3 million (2012: R100.3 million) were disclosed as being owned by government, tribal authorities and municipalities. Although the entityâ&#x20AC;&#x2122;s right to occupy these properties has not been reduced to writing, it derives economic benefits from their use and carries the risks that are incidental to ownership. The valuation method used to value these properties assumes that the corporation has the right to occupy these properties and will receive economic benefits in perpetuity.

Additional matter I draw attention to the matter below. My opinion is not modified in respect of this matter.

Other reports required by the Companies Act As part of our audit of the financial statements for the year ended 31 March 2013, I have read the directors' report and the audit committeeâ&#x20AC;&#x2122;s report for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements in respect of which I have expressed an unqualified opinion. I have not audited the reports and, accordingly, do not express an opinion on them.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In accordance with the PAA and the General Notice issued in terms thereof, I report the following findings relevant to performance against predetermined objectives, compliance with laws and regulations and internal control, but not for the purpose of expressing an opinion.

Predetermined objectives I performed procedures to obtain evidence about the usefulness and reliability of the information in the annual performance report, as set out on pages 86 to 93 of the annual report. The reported performance against predetermined objectives was evaluated against the overall criteria of usefulness and reliability. The usefulness of information in the annual performance report relates to whether it is presented in accordance with the National Treasuryâ&#x20AC;&#x2122;s annual reporting principles and whether the reported performance is consistent with the planned programmes. The usefulness of information further relates to whether indicators and targets are measurable (i.e. well defined, verifiable, specific, measurable and time bound) and relevant, as required by the National Treasury Framework for Managing Programme Performance Information (FMPPI). The reliability of the information in respect of the selected programmes is assessed to determine whether it adequately reflects the facts (i.e. whether it is valid, accurate and complete). The material findings are as follows:

Reliability of performance information Operations office The FMPPI requires that institutions should have appropriate systems to collect, collate, verify and store performance information to ensure valid, accurate and complete reporting of actual achievements against planned objectives, indicators and targets.

FACILITATING REAL ECONOMIC GROWTH

The following material targets with respect to the operations office are not reliable when compared to the source information provided: • Number of jobs facilitated or saved – funding sub-programme • Number of jobs created – Imvaba sub-programme • Number of jobs created – risk capital sub-programme • Number of business registered (Pty) – business support sub-programme • Number of business registered (cooperatives) – business support sub-programme • Amount of export generated – export development sub-programme. This was due to the lack of review of validity of reported achievements against source documentation.

Additional matters I draw attention to the matters below. These matters do not affect the findings on predetermined objectives reported above.

Achievement of planned targets Of the total number of 57 targets planned for the year, 23 were not achieved during the year under review. This represents 40% of total planned targets that were not achieved during the year under review. This was mainly due to the fact that the loan disbursements were slow due to non-compliance by co-operatives, financial constraints imposed by delays in government grant transfer from the shareholder, and a reduction in funding. Furthermore, the new product line did not commence due to financial constraints.

Material adjustments to the annual performance report Material audit adjustments in the annual performance report were identified during the audit, some of these were corrected by management and those that were not corrected are reported above under the reliability of performance information.

Compliance with laws and regulations I performed procedures to obtain evidence that the entity has complied with applicable laws and regulations regarding financial matters, financial management and other related matters. My findings on material non-compliance with specific matters in key applicable laws and regulations, as set out in the General Notice issued in terms of the PAA, are as follows:

Annual financial statements and annual report The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework, as required by section 55(1)(a) and (b) of the PFMA and section 29(1)(a) of the Companies Act. Material misstatements of investments in associates and disclosure items identified by the auditors in the submitted financial statements were subsequently corrected, resulting in the financial statements receiving an unqualified audit opinion.

Strategic and performance management The accounting authority did not ensure that the public entity had and maintained an effective, efficient and transparent system of internal control regarding performance management, monitoring and reporting, as required by section 51(1)(a)(i) of the PFMA.

Internal control I considered internal control relevant to my audit of the financial statements, annual performance report and compliance with laws and regulations. The matters reported below are limited to the significant deficiencies that resulted in the basis for

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FACILITATING REAL ECONOMIC GROWTH

unqualified opinion, the findings on the annual performance report and the findings on compliance with laws and regulations included in this report.

Leadership Senior management members did not adequately exercise their oversight responsibility over financial reporting, compliance and related internal controls, as evidenced by the errors identified in the financial statements and the performance report.

Financial and performance management The financial statements submitted for auditing were subject to amendments to ensure the achievement of fair presentation. This was a result of the consolidated financial statement preparation process being performed close to submission date and also not being subjected to adequate review to identify and correct errors. In-year performance reporting was not checked against supporting documentation to ensure that the reported performance is reliable. In addition, some of the operational processes did not establish a record of the reported performance for verification and in these instances the related system to collect, collate, verify and store performance information was not appropriate.

East London 31 July 2013

Auditing to build public confidence

FACILITATING REAL ECONOMIC GROWTH

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The reports and statements set out below comprise the consolidated annual financial statements presented to the shareholder: Statement of Financial Position

107

Statement of Financial Performance

109

Statement of Comprehensive Income

110

Statement of Changes in Equity

111

Statement of Cash Flows

115

Accounting Policies

117

Notes to the Consolidated Annual Financial Statements

129

Supplementary information

172

The consolidated annual financial statements set out on pages 107 to 171, which have been prepared on the going concern basis, were approved by the Board of Directors on 31 July 2013 and were signed on its behalf by:

Nomfanelo Magwentshu Chairperson

Sitembele Mase Chief Executive Officer

FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

Note(s)

Company

2013

2012

2011

2013

2012

2011

Assets

Non-current assets Investment property

1 725 060

1 421 303

1 428 271

658 273

604 602

568 812

Property, plant and equipment

481 812

469 062

400 247

25 740

26 907

21 853

Intangible assets

175

Investments in subsidiaries

23 006

23 002

26 120

Investments in associates

43 928

54 213

51 402

25 752

38 779

Loans to group companies

20 904

28 121

26 740

Investments

35 782

46 465

96 137

33 399

44 822

94 820

Deferred tax

582

Loans advanced

58 860

74 392

101 586

58 371

73 457

101 568

2 346 199

2 065 511

2 077 660

845 445

839 690

878 692

50 095

81 443

51 520

15 568

46 229

32 262

Current assets Current tax receivable Trade and other receivables

Loans advanced

57 286

55 251

40 935

57 286

54 048

40 935

Cash and cash equivalents

391 369

792 650

702 514

228 542

359 116

309 646

498 754

929 344

794 969

301 396

459 393

382 843

Non-current assets held for sale

16 479

11 192

7 136

16 479

11 192

7 136

2 861 432

3 006 047

2 879 765

1 163 320

1 310 275

1 268 671

Total assets

Equity and liabilities

Equity

Equity attributable to equity Holders of parent Share capital

427 590

421 375

383 548

427 590

421 375

383 548

Reserves

417 529

419 029

406 945

408 445

133 852

150 460

279 717

121 841

140 820

190 576

978 971

990 864

1 082 294

956 376

970 640

982 569

(23 444)

(14 351)

10 942

955 527

976 513

1 093 236

956 376

970 640

982 569

Retained income

Non-controlling interest

107

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FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

Note(s)

2013

Company

2012

2011

2013

2012

2011

Liabilities

Non-current liabilities Loans from group companies

Interest bearing borrowings

36 264

38 928

34 644

1 198

3 889

2 867

1 151

1 611

2 847

Retirement benefit obligation

27 830

Deferred income

1 450 041

27 620

23 308

27 830

27 620

23 308

1 259 855

1 114 375

Deferred tax

439

1 479 069

1 291 364

1 140 989

65 245

68 159

60 799

488

1 288

11 519

488

1 220

11 496

436

841

144

132

221 817

70 437

166 333

179 609

Current liabilities Interest bearing borrowings

Current tax payable Finance lease obligation Trade and other payables

103 549

259 330

Deferred income

322 336

476 579

412 060

70 774

103 923

34 198

426 836

738 170

645 540

141 699

271 476

225 303

Total liabilities

1 905 905

2 029 534

1 786 529

206 944

339 635

286 102

Total equity and liabilities

2 861 432

3 006 047

2 879 765

1 163 320

1 310 275

1 268 671

FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

Note(s)

Revenue

Other income Government grants Operating expenses

Company

2013

2012

2011

2013

2012

2011

151 727

141 926

132 511

80 764

83 518

82 142

11 965

703

9 179

8 844

4 777

7 729

236 442

252 725

216 146

111 590

92 157

84 709

(505 500)

(456 030)

(382 887)

(293 641)

(292 489)

(243 298)

Operating loss

(105 366)

(60 676)

(25 051)

(92 443)

(112 037)

(68 718)

Investment revenue

8 604

17 268

24 001

8 703

17 905

24 261

Fair value adjustments

68 180

(112 832)

(73 186)

65 526

44 844

42 182

2 948

2 811

1 929

Income from equity accounted investments Finance costs

Loss before taxation Taxation

Loss for the year

(944)

(502)

(1 604)

(766)

(468)

(1 595)

(26 578)

(153 931)

(73 911)

(18 980)

(49 756)

(3 870)

1 083

(618)

(1 268)

(25 495)

(154 549)

(75 179)

(18 980)

(49 756)

(3 870)

(16 402)

(129 256)

(81 920)

(18 980)

(49 756)

(3 870)

Loss attributable to : Owners of the parent Non-controlling interest

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(9 093)

(25 293)

6 741

(25 495)

(154 549)

(75 179)

(18 980)

(49 756)

(3 870)

Group Figures in Rand thousand

Note(s)

Loss for the year

Company

2013

2012

2011

2013

2012

2011

(25 495)

(154 549)

(75 179)

(18 980)

(49 756)

(3 870)

(1 500)

(26 995)

(154 549)

(75 179)

(20 480)

(49 756)

(3 870)

Other comprehensive income: Available-for-sale financial assets adjustments Other comprehensive income for the year net of taxation Total comprehensive loss

Total comprehensive loss attributable to: Owners of the parent Non-controlling interest

(17 902)

(408 177)

(20 480)

(49 756)

(310 597)

(9 093)

(129 256) (25 293)

6 741

(26 995)

(154 549)

(401 436)

(20 480)

(49 756)

(310 597)

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Figures in Rand thousand

Share capital

Fair value adjustment assets available - for sale reserve

Other NDR

383 548

24 173

394 856

Group Opening balance as previously reported Adjustments Prior year adjustments (refer to Note 37) Balance at 01 April 2011 as restated Loss for the year Total comprehensive Loss for the year

383 548

24 173

394 856

Issue of shares

37 827

Total contributions by and distributions to owners of company recognised directly in equity

37 827

Opening balance as previously reported

421 375

24 173

394 856

Adjustments Prior year adjustments (refer to Note 37) Balance at 01 April 2012 as restated Loss for the year

24 173

394 856

Fair value gains/Profit or (Loss)

(1 500)

Total comprehensive Loss for the year

(1 500)

Issue of shares

6 215

Prior year income from associate understated in the group but not in the entity

Total contributions by and distributions to owners of company recognised directly in equity

6 215

427 590

22 673

394 856

Balance at 31 March 2013 Note(s)

111

421 375

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Total reserves

Retained income

Total attributable to equity holders of the group /company

Non-controlling interest

Total equity

419 029

26 646

829 223

10 942

840 165

253 071

419 029

279 717

1 082 294

10 942

1 093 236

(129 256)

(25 293)

(154 549)

(129 256)

(25 293)

(154 549)

37 827

419 029

9 707

850 111

(14 351)

835 760

140 754

419 029

150 461

990 865

(14 351)

976 514 (25 495)

(16 402)

(9 093)

(1 500)

(16 402)

(17 902)

(9 093)

(26 995)

(207)

6 008

417 529

133 852

978 971

(23 444)

955 527

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Figures in Rand thousand

Share capital

Fair value adjustment assetsavailable- forsale reserve

Other NDR

383 548

24 180

384 265

383 548

24 180

384 265

Company Opening balance as previously reported Adjustments Prior year adjustments (refer to Note 37) Balance at 01 April 2011 as restated Loss for the year

Issue of shares

Total comprehensive Loss for the year

37 827

Total contributions by and distributions to owners of company recognised directly in equity

37 827

Opening balance as previously reported

421 375

24 180

384 265

421 375

24 180

384 265

Adjustments Prior year adjustments (refer to Note 37) Balance at 01 April 2012 as restated Loss for the year Fair value gains/Profit or (Loss)

(1 500)

Total comprehensive Loss for the year

(1 500)

Issue of shares

6 215

Total contributions by and distributions to owners of company recognised directly in equity

6 215

427 590

22 680

384 265

Balance at 31 March 2013 Note(s)

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Total reserves

Retained income

Total attributable to equity holders of the group /company

Non-controlling interest

Total equity

408 445

(158 333)

633 660

348 909

408 445

190 576

982 569

(49 756)

(49 756) (49 756)

(49 756)

37 827

408 445

(252 933)

576 887

393 754

408 445

140 821

970 641

(18 980)

(1 500)

(18 980)

(20 480)

6 215

406 945

121 841

956 376

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Group Figures in Rand thousand

Note(s)

2013

2012

2011

(159 741)

236 199

144 351

11 531

13 818

19 731

Dividends received

134

Finance costs

(944)

(502)

(1 604)

Cash flows from operating activities

Cash from/ (used) in operations Interest income

Tax received (paid)

Net cash from/(used) in operating activities

(360)

1 342

(148 927)

249 210

163 859

Cash flows from investing activities Purchase of property, plant and equipment

(34 966)

(85 853)

(66 309)

Sale of property, plant and equipment

502

Purchase of investment property

(249 887)

(131 776)

(89 702)

Sale of investment property

4 930

17 022

5 869

Purchase of other intangible assets

(161)

(85)

(45)

Loans to group companies repaid

Purchase of financial assets

(3 917)

(1 619)

Sale of financial assets/withdrawal from investments

11 129

7 547

13 062

Loans disbursed

(129 900)

(83 535)

(112 677)

Loans collected

147 719

91 302

129 303

Net cash (from)/generated from investing activities

(254 973)

(185 369)

(121 616)

Cash flows from financing activities 6 215

37 827

36 150

Repayment of interest bearing borrowings

Proceeds on share issue

(3 596)

(11 532)

(1 587)

Net cash from financing activities

2 619

26 295

34 563

Total cash movement for the year

(401 281)

90 136

76 806

Cash and cash equivalents at the beginning of the year

792 650

702 514

625 708

391 369

792 650

702 514

Cash and cash equivalents at the end of the year

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Company Figures in Rand thousand

Note(s)

2013

2012

2011

(172 052)

(7 715)

(58 997)

7 146

16 199

20 157

(766)

(468)

(1 595)

(165 672)

8 016

(40 435)

(797)

Cash flows from operating activities

Cash from/ (used) in operations Interest income Dividends received Finance costs Tax received (paid)

Net cash from/(used) in operating activities

Cash flows from investing activities Purchase of property, plant and equipment

(1 271)

(6 425)

Sale of property, plant and equipment

Purchase of investment property

(3 204)

(1 110)

Sale of investment property

4 930

7 107

5 869

Purchase of other intangible assets

3 054

2 345

1 898

Loans to group companies repaid Purchase of financial assets

(3 917)

(1 619)

Sale of financial assets/withdrawal from investments

11 129

7 547

13 062

Loans disbursed

(129 900)

(83 533)

(112 674)

Loans collected

146 050

91 302

129 303

Net cash (from)/generated from investing activities

30 075

15 139

33 992

6 215

37 827

36 150

Repayment of interest bearing borrowings

(1 192)

(11 512)

(1 569)

Net cash from financing activities

5 023

26 315

34 581

Total cash movement for the year

(130 574)

49 470

28 138

Cash and cash equivalents at the beginning of the year

359 116

309 646

281 508

228 542

359 116

309 646

Cash flows from financing activities Proceeds on share issue

Cash and cash equivalents at the end of the year

FACILITATING REAL ECONOMIC GROWTH

1. Presentation of Consolidated Annual Financial Statements The consolidated annual financial statements of the Eastern Cape Development Corporation have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice and in the manner required by the Public Finance Management Act (Act No. 1 of 1999, as amended) and the Eastern Cape Development Corporation Act. The consolidated annual financial statements have been prepared on the historical cost basis as modified by the revaluations of certain land and buildings, investment properties, available for sale financial assets and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of consolidated annual financial statements in conformity with South African Statements of Generally Accepted Accounting Practice requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the groupâ&#x20AC;&#x2122;s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated annual financial statements are disclosed in note 1.15. The consolidated annual financial statements have been prepared in the corporationâ&#x20AC;&#x2122;s functional currency, the South African Rand. These accounting policies are consistent with the previous financial year. Underlying assumptions The consolidated annual financial statements are prepared on the going concern basis, which assumes that the corporation will continue in operation for the foreseeable future. The consolidated annual financial statements are prepared using accrual accounting whereby the effects of transactions and other events are recognised when they occur rather than when the cash is received or paid. Assets and liabilities and income and expenses are not offset unless specifically permitted by an accounting standard. Financial assets and financial liabilities are offset and the net amount reported only when a current legally enforceable right to set off the amounts exists and the intention is either to settle on a net basis or to realise the asset and settle the liability simultaneously. Changes in accounting policies are accounted for in accordance with the transitional provisions in the applicable standard. If no such guidance is given, they are applied retrospectively unless it is impracticable to do so, in which case the change is applied prospectively. Changes in accounting estimates are recognised in profit or loss in the period they occur. Prior period errors are retrospectively restated unless it is impracticable to do so, in which case they are applied prospectively. Recognition of assets and liabilities An asset, being a resource controlled by the corporation as a result of a past event from which future economic benefits are expected to flow, is recognised when it is probable that the future economic benefits associated with it will flow to the group and its cost or fair value can be measured reliably. A liability, being a present obligation of the group arising from a past event the settlement of which is expected to result in an outflow of resources embodying economic resources from the group, is recognised when it is probable that future economic benefits associated with it will flow from the group and its cost or fair value can be measured reliably. Derecognition of assets and liabilities Financial assets or parts thereof are derecognised, i.e. removed from the balance sheet, when the contractual rights to receive the cash flows have been transferred or have expired or if substantially all the risks and rewards of ownership have passed. Where substantially all the risks and rewards of ownership have not been transferred or retained, the financial assets

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are derecognised if they are no longer controlled by the group. However, if control is retained, financial assets are recognised only to the extent of the Groupâ&#x20AC;&#x2122;s continuing involvement in those assets. All other assets are derecognised on disposal or when no future economic benefits are expected to flow to the group from their use or disposal. Financial liabilities are derecognised when the relevant obligation has either been discharged or cancelled or has expired. Post-balance sheet events Recognised amounts in the consolidated annual financial statements are adjusted to reflect events arising after the balance sheet date that provide evidence of conditions that existed at the balance sheet date. Events after the balance sheet date that are indicative of conditions that arose after the balance sheet date are dealt with by way of a note.

1.1 Investment property Investment property is held for long-term rental yields or for capital appreciation or both and comprises properties not occupied by the group. Hotel buildings held by the group are classified as investment property as the group is not involved in the hotel operations. Investment properties are initially measured at cost, including transaction costs, and are subsequently stated at fair value determined by an independent sworn appraiser, every third year. Management reviews these valuations for reasonability and adjustments are made where it is deemed to be necessary. Fair value Subsequent to initial measurement investment property is measured at fair value. Fair value gains and losses are recognised in the profit or loss for the period.

1.2 Property, plant and equipment The cost of an item of property, plant and equipment is recognised as an asset when: â&#x20AC;˘ it is probable that future economic benefits associated with the item will flow to the corporation; and â&#x20AC;˘ the cost of the item can be measured reliably. Property, plant and equipment is initially measured at cost. Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised. Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses except for land and buildings which is carried at fair value, determined by a sworn appraiser, every third year. Subsequent to initial measurement, land and buildings are carried at fair value at the date of revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount. The revaluation surplus in equity related to a specific item of property, plant and equipment is transferred directly to retained earnings when the asset is derecognised. Property, plant and equipment are depreciated over their expected useful lives to their estimated residual value.

FACILITATING REAL ECONOMIC GROWTH

The useful lives of items of property, plant and equipment have been assessed as follows: Item

Average useful life

Land

Indefinite

Buildings and infrastructure

25-50 years

Finance lease asset

5 years

Plant and machinery

4 years

Furniture and fixtures

6-10 years

Motor vehicles

4-5 years

Office equipment

4-5 years

IT equipment

3 years

Computer software

3 years

Other property, plant and equipment

5 years

The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting period. If the expectations differ from previous estimates, the change is accounted for as a change in accounting estimate. The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset. The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

1.3 Investments in subsidiaries Subsidiaries are entities, including unincorporated partnerships and companies without a share capital, that are controlled by the group. Control exists where the group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Consolidated annual financial statements The consolidated annual financial statements incorporate the assets, liabilities, income, expenses and cash flows of the corporation and its subsidiaries. The results of the subsidiaries acquired or disposed during the year are included from the date of acquisition or up to the date of disposal. Inter-company transactions and balances are eliminated on consolidation. Corporation annual financial statements In the corporationâ&#x20AC;&#x2122;s separate annual financial statements, investments in subsidiaries are carried at cost less any accumulated impairment. The cost of an investment in a subsidiary is the aggregate of: â&#x20AC;˘ the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the corporation; plus â&#x20AC;˘ any costs directly attributable to the purchase of the subsidiary. An adjustment to the cost of a business combination contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably.

1.4 Investments in associates Associates are entities, including unincorporated partnerships and companies without a share capital, over which the group exercises significant influence.

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Consolidated annual financial statements An investment in an associate is accounted for using the equity method, except when the asset is classified as held-for-sale in accordance with IFRS 5: Non-current assets held for sale and discontinued operations. Under the equity method, the investment is initially recognised at cost and the carrying amount is increased or decreased to recognise the group’s share of the profits or losses of the investee after acquisition date. The use of the equity method is discontinued from the date the group ceases to have significant influence over an associate. Any impairment losses are deducted from the carrying amount of the investment in associate. Distributions received from the associate reduce the carrying amount of the investment. Profits and losses resulting from transactions with associates are recognised only to the extent of unrelated investors’ interests in the associate. The excess of cost of acquisition over the group’s interest in the net fair value of an associate’s identifiable assets, liabilities and contingent liabilities is accounted for as goodwill, and is included in the carrying amount of the associate. The excess of the group’s share of the net fair value of an associate’s identifiable assets, liabilities and contingent liabilities over the cost is excluded from the carrying amount of the investment and is instead included as income in the period in which the investment is acquired. Corporation annual financial statements Associate companies are those companies in which the corporation holds a long-term equity interest and over which it exercises a significant influence over its financial and operating policies, other than investments in companies acquired to protect advances or as a conduit for advances. The investments in associate companies are initially recorded at cost. Subsequent to initial recognition, the investment in the associate is carried at fair value as an available for sale financial asset in accordance with the accounting policy on financial assets. If fair value cannot be measured reliably, the investment is carried at cost. An appropriate provision is made where there is considered to be a permanent diminution in the value of the investment.

1.5 Impairment of assets An impairment loss on an asset or cash-generating unit is the amount by which the carrying amount, i.e. the amount recognised on the balance sheet after deducting any accumulated depreciation and accumulated impairment losses, exceeds its recoverable amount. The recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. Value in use is the present value of future cash flows expected to be derived from an asset or cash generating unit. At each reporting date the carrying amount of the tangible and intangible assets are assessed to determine whether there is any indication that those assets may have suffered an impairment loss. If any such indication exists, the recoverable amount of the cash-generating unit to which the asset belongs is estimated. Value in use is estimated taking into account future cash flows, forecast market conditions and the expected useful lives of the assets. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount is reduced to the higher of its recoverable amount and zero. Impairment losses are recognised in profit or loss. The loss is first allocated to reduce the carrying amount of goodwill and then to the other assets of the cash-generating unit. Subsequent to the recognition of an impairment loss, the depreciation or amortisation charge for the asset is adjusted to allocate its remaining carrying value, less any residual value, over its remaining useful life. If an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, limited to the carrying amount that would have been recognised had no

FACILITATING REAL ECONOMIC GROWTH

impairment loss been recognised in prior years. A reversal of an impairment loss is recognised in profit or loss. Impairments to goodwill are not reversed in subsequent accounting periods.

1.6 Financial instruments Classification The group classifies financial assets and financial liabilities into the following categories: • Financial assets at fair value through profit or loss - designated • Held-to-maturity investment • Loans and receivables • Available-for-sale financial assets Classification depends on the purpose for which the financial instruments were obtained / incurred and takes place at initial recognition. Classification is re-assessed on an annual basis, except financial assets designated as at fair value through profit or loss, which shall not be classified out of the fair value through profit or loss category. Initial recognition and measurement Financial instruments are recognised initially when the group becomes a party to the contractual provisions of the instruments. The group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are measured initially at fair value, except for equity investments for which a fair value is not determinable, which are measured at cost and are classified as available for sale financial assets. For financial instruments which are not at fair value through profit or loss, transaction costs are included in the initial measurement of the instrument. Transaction costs on financial instruments at fair value through profit or loss are recognised in profit or loss. Subsequent measurement Financial instruments at fair value through profit or loss are subsequently measured at fair value, with gains and losses arising from changes in fair value being included in profit or loss for the period. Net gains or losses on the financial instruments at fair value through profit or loss include interest. Dividend income is recognised in profit or loss as part of other income when the group’s right to receive payment is established. Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses. Held-to-maturity investments are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses. Available for sale financial assets are subsequently measured at fair value. This excludes equity investments for which a fair value is not determinable, which are measured at cost less accumulated impairment losses. Gains and losses arising from changes in fair value are recognised directly in equity until the asset is disposed of or determined to be impaired. Interest on available for sale financial assets calculated using the effective interest method is recognised in profit or loss as part of other income. Dividends received on available for sale equity instruments are recognised in profit or loss as part of other income when the group’s right to receive payment is established.

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Impairment of financial assets At each statement of financial position date the group assesses all financial assets, other than those at fair value through profit or loss, to determine whether there is objective evidence that a financial asset or group of financial assets has been impaired. For amounts due to the group, significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and default of payments are all considered indicators of impairment. Impairment losses are recognised in profit or loss, except for available-for-sale equity investments . Impairment losses are reversed when an increase in the financial assetâ&#x20AC;&#x2122;s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the financial asset at the date that the impairment is reversed shall not exceed what the carrying amount would have been had the impairment not been recognised. Reversals of impairment losses are recognised in profit or loss except for equity investments classified as available for sale. Impairment losses are also not subsequently reversed for available-for-sale equity investments which are held at cost because fair value was not determinable. Loans to (from) group companies These include loans to and from holding companies, fellow subsidiaries, subsidiaries, joint ventures and associates and are recognised initially at fair value plus direct transaction costs. Loans to group companies are classified as loans and receivables. Loans from group companies are classified as financial liabilities measured at amortised cost. Trade and other receivables Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The allowance recognised is measured as the difference between the assetâ&#x20AC;&#x2122;s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within operating expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in the income statement. Trade and other receivables are classified as loans and receivables. Trade and other payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value.

FACILITATING REAL ECONOMIC GROWTH

Derivatives Derivative financial instruments, which are not designated as hedging instruments, consisting of foreign exchange contracts and interest rate swaps, are initially measured at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates. Derivatives embedded in other financial instruments or other non-financial host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value with unrealised gains or losses reported in profit or loss. Changes in the fair value of derivative financial instruments are recognised in profit or loss as they arise. Derivatives are classified as financial assets at fair value through profit or loss - held for trading.

1.7 Share capital and equity Ordinary share capital, preference share capital or any financial instrument issued by the group is classified as equity when: • • • •

Payment of cash, in the form of a dividend or redemption, is at the discretion of the group; The instrument does not provide for the exchange of financial instruments under conditions that are potentially unfavourable to the group; Settlement in the group’s own equity instruments is for a fixed number of equity instruments at a fixed price; and The instrument represents a residual interest in the assets of the group after deducting all of its liabilities.

The group’s ordinary share capital is classified as equity. Consideration paid or received for equity instruments is recognized directly in equity. Equity instruments are initially measured at the proceeds received less incremental directly attributable issue costs. No gain is recognised in profit or loss on the purchase, sale, issue or cancellation of the group’s equity instruments. When the group issues a compound instrument, i.e. an instrument that contains both a liability and equity component, the equity component is initially measured at the residual amount after deducting from the fair value of the compound instrument the amount separately determined for the liability component. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds. Distributions to holders of equity instruments are recognised as dividends within equity in the period in which they are payable. Dividends for the year that are declared after the balance sheet date are disclosed in the notes.

1.8 Government grants and deferred income Government includes government agencies and similar bodies whether local, national or international. Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. A government grant is assistance by government in the form of transfers of resources. When the conditions attaching to government grants have been met and the grants have been received, they are recognised in profit or loss on a systematic basis over the periods necessary to match them with the related costs. When they are for expenses or losses already incurred, they are recognised in profit or loss immediately. The unrecognised portion of project spend at the balance sheet date is presented as deferred income. No value is recognised for other government assistance Government grants are recognised when there is reasonable assurance that: • the group will comply with the conditions attaching to them; and • the grants will be received. Government grants are recognised as income over the periods necessary to match them with the related costs that they are intended to compensate.

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A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs is recognised as income of the period in which it becomes receivable. Government grants related to assets, including non-monetary grants at fair value, are presented in the statement of financial position by setting up the grant as deferred income.

1.9 Project grants The grants received and associated expenditure are not included in the income statement of the group but transferred directly to individual project fund accounts, which are reflected as a current liability. Interest received on the funds is accounted for in the fund account unless the group is entitled thereto according to the agreement. The funds are applied to either specific expenditure as directed by the funder or in terms of the agreement with the funder.

1.10 Provisions Provisions are recognised when: • the group has a present obligation as a result of a past event; • it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and • a reliable estimate can be made of the obligation. The amount of a provision is the present value of the expenditure expected to be required to settle the obligation. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision. Provisions are not recognised for future operating losses. When the group has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision. Contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in a note 27.

1.11 Revenue Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods, services and operating lease income provided in the normal course of business, net of value added tax. Interest is recognised, in profit or loss, using the effective interest rate method. Operating lease income is recognised as income on a straight-line basis over the lease term or another systematic basis, if more representative of the time pattern of the user’s benefit. Dividends are recognised, in profit or loss, when the group’s right to receive payment has been established.

1. 12 Employee benefits Short-term employee benefits Employee benefits cost include all forms of consideration given in exchange for services rendered by employees. The cost of providing employee benefits is recognised in profit or loss in the period they are earned by employees. The cost of short-term employee benefits is recognised in the period in which the service is rendered and is not discounted. The expected cost of short-term accumulating compensated absences is recognised as an expense as the employees render service that increases their entitlement or, in the case of non-accumulating absences, when the absences occur. The expected

FACILITATING REAL ECONOMIC GROWTH

cost of performance bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance. Post-employment benefit obligations The cost of providing defined benefits is determined using the projected unit credit method. Valuations are conducted annually. The amount recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses. Defined contribution plans Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to industry-managed (or state plans) retirement benefit schemes are dealt with as defined contribution plans where the groupâ&#x20AC;&#x2122;s obligation under the schemes is equivalent to those arising in a defined contribution retirement benefit plan. Defined benefit plans For defined benefit plans the cost of providing the benefits is determined using the projected unit credit method. Actuarial valuations are conducted on an annual basis by independent actuaries separately for each plan. Consideration is given to any event that could impact the funds up to the end of the reporting period where the interim valuation is performed at an earlier date. Past service costs are recognised immediately to the extent that the benefits are already vested, and are otherwise amortised on a straight line basis over the average period until the amended benefits become vested. To the extent that, at the beginning of the financial year, any cumulative unrecognised actuarial gain or loss exceeds ten percent of the greater of the present value of the projected benefit obligation and the fair value of the plan assets (the corridor), that portion is recognised in profit or loss over the expected average remaining service lives of participating employees. Actuarial gains or losses within the corridor are not recognised. Actuarial gains and losses are recognised in the year in which they arise, in other comprehensive income. Gains or losses on the curtailment or settlement of a defined benefit plan is recognised when the group is demonstrably committed to curtailment or settlement. When it is virtually certain that another party will reimburse some or all of the expenditure required to settle a defined benefit obligation, the right to reimbursement is recognised as a separate asset. The asset is measured at fair value. In all other respects, the asset is treated in the same way as plan assets. In profit or loss, the expense relating to a defined benefit plan is presented as the net of the amount recognised for a reimbursement. The amount recognised in the statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service costs, and reduces by the fair value of plan assets. Any asset is limited to unrecognised actuarial losses and past service costs, plus the present value of available refunds and reduction in future contributions to the plan.

1.13 Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

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Operating leases – lessee Rentals payable under operating leases are recognised in profit or loss on a straight-line basis over the term of the relevant lease, or another basis if more representative of the time pattern of the group’s benefit. Any contingent rents are expensed in the period they are incurred.

1.14 Tax Current tax The charge for current tax is based on the results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income. Deferred tax A deferred tax asset is the amount of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses and the carry forward of unused tax credits. A deferred tax asset is only recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised, unless specifically exempt. It is measured at the tax rates that have been enacted or substantially enacted at the statement of financial position and is not discounted. A deferred tax liability is recognised for taxable temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantially enacted at thestatement of financial position date and is not discounted. A deferred tax liability is the amount of income taxes payable in future periods in respect of taxable temporary differences. Temporary differences are differences between the carrying amount of an asset or liability and its tax base. Deferred tax arising on investments in subsidiaries, associates and joint ventures is recognised except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the forseeable future. A deferred tax asset is recognised for the carry forward of unused tax losses and unused STC credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused STC credits can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the statement of financial position date.

1.15 Key assumptions concerning the future and key sources of estimation The consolidated annual financial statements are prepared in accordance with and comply with SA GAAP for SME’s and its interpretations adopted by the Accounting Practices Board. In the preparation of the consolidated annual financial statements the corporation has assumed certain key sources of estimation in recording various assets and liabilities, as set out on page 134. Credit impairment of loans and advances The group adopted an incurred-loss approach to impairment in accordance with accounting policy 1.5. Impairment losses are incurred only if there is objective evidence of impairment as a result of one or more past events that has occurred since initial recognition. This necessitates the establishment of ‘impairment triggers’ on the occurrence of which an impairment loss may be recognised. Credit impairment is based on discounted estimated future cashflows on an asset or group of assets, where such objective evidence of impairment exists. The discount rates used to calculate the recoverable amount exclude consideration of any anticipated future credit losses.

FACILITATING REAL ECONOMIC GROWTH

The group has created a portfolio provision for incurred but not reported (IBNR) losses. The purpose of the IBNR provision is to allow for latent losses on a portfolio of loans and advances that have not yet been individually evidenced. Generally, a period of time will elapse between the occurrence of an impairment event and objective evidence of the impairment becoming evident, which is known as the ‘emergence period’. The IBNR provision is based on the probability that loans that are ostensibly performing at the calculation date are impaired, and objective evidence of that impairment becomes evident during the emergence period. The implementation of these principles is at a corporation level and will be specific to the nature of their individual loan portfolios and the loan loss data available to the lending division. Provisions, contingent liabilities and contingent assets The group, in the ordinary course of business, enters into transactions that expose the group to tax, legal and business risks. Refer to notes 27 and 28 for further information on provisions, contingent liabilities and contingent assets. Fair value of investment properties For valuation methodologies utilised to fair value investment properties, refer to note 2. Unlisted investment valuations The valuation of unlisted investments is based on the discounted free cash flows of the investments taking into account the projected future activities of the entity. These values are established either by independent valuers or management and are reviewed by the Development Investment Committee.

1.16 Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligible for capitalisation is determined as follows: • Actual borrowing costs on funds specifically borrowed for the purpose of obtaining a qualifying asset less any temporary investment of those borrowings. • Weighted average of the borrowing costs applicable to the entity on funds generally borrowed for the purpose of obtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs incurred. The capitalisation of borrowing costs commences when: • expenditures for the asset have occurred; • borrowing costs have been incurred, and • activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation is suspended during extended periods in which active development is interrupted. Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. All other borrowing costs are recognised as an expense in the period in which they are incurred.

1.17 Intangible assets Computer software Acquired computer software licences are capitalised on the basis of costs incurred to acquire and bring to use the specific software. The cost of minor software and licences are recognised in the Statement of Financial Performance as an expense when incurred. Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits

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FACILITATING REAL ECONOMIC GROWTH

embodied in the specific asset to which it relates. All other expenditure is recognised in the Statement of Financial Performance as an expense when incurred. Amortisation Amortisation is charged to the Statement of Finnacial Performance on a straight - line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life are systematically tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for sale. The estimated useful lives are as follows: Computer software, other

18 months

1.18 Non-current assets held for sale Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through 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. Non-current assets held for sale (or disposal group) are measured at the lower of its carrying amount and fair value less costs to sell. A non-current asset is not depreciated (or amortised) while it is classified as held for sale, or while it is part of a disposal group classified as held for sale.

FACILITATING REAL ECONOMIC GROWTH

1. Investment property Group

2013

Investment property

2012

Cost / valuation

Accumulated depreciation

Carrying value

Cost / valuation

Accumulated depreciation

Carrying value

1 725 060

1 421 303

Cost / Valuation

Accumulated depreciation

Carrying value

1 428 271

Group

2011

Investment property

Company

2013

Investment property

2012

Cost / valuation

Accumulated depreciation

Carrying value

Cost / valuation

Accumulated depreciation

Carrying value

658 273

604 602

Cost / Valuation

Accumulated depreciation

Carrying value

568 812

Company

2011

Investment property

Reconciliation of investment property - Group - 2013

Investment property

Opening balance

Additions

Disposals

Transfer to non-current assets held for sale

Transfers

Fair value adjustments

Total

1 421 303

249 662

(6 569)

(5 287)

(790)

66 741

1 725 060

Reconciliation of investment property - Group - 2011

Investment property

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Opening balance

Additions

Disposals

Transfers

Fair value adjustments

Total

1 396 797

89 702

(5 972)

24 889

(77 145)

1 428 271

FACILITATING REAL ECONOMIC GROWTH

Reconciliation of investment property - Company - 2013

Investment property

Opening balance

Disposals

Transfer to noncurrent assets held for sale

Fair value adjustments

Total

604 602

(6 569)

(5 937)

66 177

658 273

Reconciliation of investment property - Company - 2012

Investment property

Opening balance

Additions

Disposals

Transfer to noncurrent assets held for sale

Fair value adjustments

Total

568 812

3 204

(7 437)

44 079

604 602

Reconciliation of investment property - Company - 2011 Opening balance

Additions

Disposals

Transfer to noncurrent assets held for sale

Fair value adjustments

Total

Investment property

533 957

1 110

(5 972)

(2 465)

42 182

568 812

Opening balance

1 421 303

1 428 271

1 396 797

604 602

568 812

533 957

Disposals

(6 569)

(17 352)

(5 972)

(6 569)

(7 437)

(5 972)

Transfers

(790)

(7 469)

28 991

(4 056)

1 637

Additions

249 662

131 776

89 702

3 204

1 110

Fair value gains / (losses)

66 741

(113 923)

(77 145)

65 527

44 079

42 182

Other movements

(5 287)

(4 102)

(5 287)

(4 102)

1 725 060

1 421 303

1 428 271

658 273

604 602

568 812

These properties are situated throughout the Eastern Cape, with the majority of properties concentrated in the areas in and surrounding King Sabatha Dalindyebo, Mnquma, Buffalo City and Chris Hani municipalities. The portfolio consists mainly of industrial, residential and commercial properties. Corporation - 2013

Percentage

Value

Number

Residential

244 084

442

Commercial

315 261

356

Vacant land

71 533

934

Industrial

19 938

Type of properties

Other

7 457

100

658 273

1 806

FACILITATING REAL ECONOMIC GROWTH

Corporation - 2011

Percentage

Value

Number

Residential

222 161

481

Commercial

252 648

368

Vacant land

70 122

969

Industrial

17 688

Other

6 193

100

568 812

1 886

Type of properties

Investment properties were valued in terms of the accounting policy, which requires a value determined by a sworn appraiser every three years. Valuations are normally based on comparable sales in the area or on the income earning potential of the building. Investment properties are subject to operating leases with tenants. No rental was charged on certain properties, mainly because the properties are vacant or undeveloped land or unoccupied buildings. Freehold title is held by the corporation for the majority of properties, but not for all. Properties for which freehold title is not held are included in investment property when they are managed by the corporation and result in the receipt of economic benefits and rewards and when the corporation incurs the risks incidental to ownership. Freehold title is held as follows: Corporation - 2013

131

Percentage

Value

Number

Corporation

527 923

1 708

Government

59 468

Tribal land

33 178

Municipality

37 704

100

658 273

1 806

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FACILITATING REAL ECONOMIC GROWTH

Corporation - 2012

Percentage

Value

Number

Corporation

504 339

1 755

Government

52 997

Tribal land

30 138

Municipality

17 128

100

604 602

1 854

Percentage

Value

Number

Corporation

464 738

1 786

Government

52 971

Tribal land

29 978

Municipality

21 125

100

568 812

1 886

1. Investment property (continued) Corporation - 2011

The categories of freehold title are further described as follows: Corporation Freehold title is registered to the corporation or one of the former corporations consolidated under the corporation in terms of the Eastern Cape Development Corporation Act, No 2 of 1997, read with Proclamation 1 of 2001 Government The title over land is registered to government. The corporation is in the process of analysing the properties within this group, which comprise mainly entitlement in terms of Proclamation 1 of 2001 by the Premier of the Eastern Cape. Tribal land This group comprises mainly of properties where the corporation has assumed “Permission to Occupy”. The majority of these properties are situated on forestry estates and hotels on the Wild Coast. The corporation’s right to occupy properties to the value of R30,1 million (2012: R30,1 million) (2011: R29,9 million) included in the above, has not been reduced to writing. However, the corporation has occupied these properties for a number of years and derives economic benefits from their use and carries the risks that are incidental to ownership. The valuation method used to value these properties assumes that the corporation has the right to occupy these properties and will receive economic benefits in perpetuity. In the event that the right of occupation is disputed or expires, the valuation of these properties may be overstated. In terms of the accounting policy these rights are assessed on an annual basis and adjustments may be effected to the valuation of these properties if necessary. Municipality The title is registered to different municipalities within the Eastern Cape, but improvements have been made by the corporation.

FACILITATING REAL ECONOMIC GROWTH

2. Property, plant and equipment Group

2013

2012

Cost / valuation

Accumulated depreciation

Carrying value

Cost / valuation

Accumulated depreciation

Carrying value

Land

12 385

11 685

Buildings and infrastructure

440 055

541 215

(86 345)

454 870

508 532

(68 477)

Finance lease asset

(9)

(64)

Plant and machinery

1 841

(1 779)

1 841

(1 708)

133

Furniture and fixtures

5 997

(2 965)

3 032

5 486

(2 441)

3 045

Motor vehicles

1 697

(704)

993

1 448

(752)

696

Office equipment

1 855

(1 066)

789

1 750

(836)

914

IT equipment

30 629

(22 151)

8 478

28 910

(17 631)

11 279

Computer software

3 589

(3 512)

3 544

(3 484)

Other property, plant and equipment

3 740

(2 685)

1 055

3 555

(2 376)

1 179

603 028

(121 216)

481 812

566 831

(97 769)

469 062

Total

Group

2011

Land Buildings and infrastructure

Accumulated depreciation

Carrying value

8 272

8 272 376 043

429 004

(52 961)

Finance lease asset

(48)

Plant and machinery

1 841

(1 650)

191

Furniture and fixtures

5 332

(1 960)

3 372

Motor vehicles

1 448

(559)

889

Office equipment

1 661

(615)

1 046

IT equipment

23 023

(13 172)

9 851

Computer software

3 474

(3 459)

Other property, plant and equipment

2 760

(2 224)

536

476 895

(76 648)

400 247

Total

Company

2013 Cost / valuation

133

Cost / valuation

Accumulated depreciation

2012 Carrying value

Cost / valuation

Accumulated depreciation

Carrying value

Land

3 265

Buildings and infrastructure

23 284

(3 809)

19 475

22 741

(3 355)

19 386

Furniture and fixtures

2 194

(1 675)

519

1 786

(1 515)

271

Motor vehicles

184

(119)

184

(73)

111

Office equipment

546

(446)

100

520

(375)

145

IT equipment

9 801

(7 679)

2 122

9 690

(6 260)

3 430

Computer software

3 589

(3 512)

3 544

(3 484)

Other property, plant and equipment

1 766

(1 649)

117

1 773

(1 534)

239

Total

44 629

(18 889)

25 740

43 503

(16 596)

26 907

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FACILITATING REAL ECONOMIC GROWTH

Company

2011 Cost / valuation

Accumulated depreciation

Carrying value

Land

3 265

Buildings and infrastructure

19 535

(2 941)

16 594

Furniture and fixtures

1 734

(1 362)

372

Motor vehicles

184

(27)

157

Office equipment

527

(321)

206

IT equipment

5 862

(4 994)

868

Computer software

3 474

(3 459)

Other property, plant and equipment

1 773

(1 397)

376

Total

36 354

(14 501)

21 853

Transfers and disposals

Revaluations

Depreciation and impairments

Total

Reconciliation of property, plant and equipment - Group - 2013 Opening balance

Additions

Land

11 685

700

12 385

Buildings and infrastructure

440 055

31 892

790

(17 867)

454 870

(9)

(16)

Finance lease asset Plant and machinery

133

(71)

Furniture and fixtures

3 045

524

(537)

3 032

Motor vehicles

696

427

(8)

(122)

993

Office equipment

914

118

(243)

789

11 279

2 049

(32)

(4 818)

8 478

IT equipment Computer software Other property, plant and equipment Total

(28)

1 179

(1)

(178)

1 055

469 062

35 190

481 812

566 831

(97 769)

469 062

Reconciliation of property, plant and equipment - Group - 2012

Land Buildings and infrastructure Finance lease asset

Opening balance

Additions

Transfers and disposals

Revaluations

Depreciation and impairments

Total

8 272

3 413

11 685

376 043

78 797

765

(15 550)

440 055

(16)

Plant and machinery

191

(58)

133

Furniture and fixtures

3 372

162

(489)

3 045

889

(193)

696

Office equipment

1 046

115

(1)

(246)

914

IT equipment

Motor vehicles

9 851

5 898

(3)

(4 467)

11 279

Computer software

(25)

Other property, plant and equipment

536

809

(10)

(156)

1 179

400 247

85 851

3 399

765

(21 200)

469 062

Total

FACILITATING REAL ECONOMIC GROWTH

2. Property, plant and equipment (continued) Reconciliation of property, plant and equipment - Group - 2011 Opening balance Land Buildings and infrastructure

Additions

Transfers and disposals

Revaluations

Depreciation and impairments

Total

8 352

(80)

8 272

361 427

53 784

(27 384)

3 959

(15 743)

376 043

Finance lease asset

(16)

Plant and machinery

224

(33)

191

Furniture and fixtures

1 030

2 663

(321)

3 372

Motor vehicles

767

423

(219)

(82)

889

Office equipment

239

926

(1)

(118)

1 046 9 851

IT equipment

4 301

8 454

(36)

(2 868)

Computer software

(68)

Other property, plant and equipment

657

(5)

(130)

536

377 128

66 264

(27 725)

3 959

(19 379)

400 247

Total

Reconciliation of property, plant and equipment - Company - 2013 Opening balance

Additions

Disposals

Depreciation

Total

Land

3 265

Buildings and infrastructure

19 386

542

(453)

19 475

Furniture and fixtures

271

408

(160)

519

Motor vehicles

111

(46)

Office equipment

145

(71)

100

3 430

242

(2)

(1 548)

2 122

Computer software

(28)

Other property, plant and equipment

239

(1)

(129)

117

26 907

1 271

(3)

(2 435)

25 740

Revaluations

Depreciation

Total

IT equipment

Total

Reconciliation of property, plant and equipment - Company - 2012 Opening balance

Disposals

Land

3 265

Buildings and infrastructure

16 594

2 441

765

(414)

19 386

Furniture and fixtures

372

(153)

271

Motor vehicles

157

(46)

111

Office equipment

206

(1)

(79)

145

IT equipment

868

3 838

(3)

(1 273)

3 430

Computer software

(25)

Other property, plant and equipment

376

(1)

(140)

239

21 853

6 424

(5)

765

(2 130)

26 907

Total

135

Additions

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FACILITATING REAL ECONOMIC GROWTH

Reconciliation of property, plant and equipment - Company - 2011 Opening balance

Additions

Disposals

Depreciation

Total

Land

3 265

Buildings and infrastructure

16 985

(391)

16 594

500

(168)

372

423

(219)

(47)

157

Furniture and fixtures Motor vehicles Office equipment

150

120

(64)

206

1 301

210

(643)

868

Computer software

(68)

Other property, plant and equipment

553

(2)

(179)

376

22 837

797

(221)

(1 560)

21 853

IT equipment

Total

3. Investments in subsidiaries Group Figures in Rand thousand

2013

2012

Company 2011

2013

2012

2011

Carrying amount 2013

Carrying amount 2012

Carrying amount 2011

Investment in subsidiaries at cost

24 336

27 454

Impairment of investment in subsidiaries

24 336

27 454

(1 330)

(1 334)

23 006

23 002

26 120

Name of company (refer to supplementary information for list of subsidiaries)

Plan to dispose of the ECDC subsidiaries

Windsor Hotel (Proprietory) Limited In late 2007, the Board of Directors announced a plan to dispose of the Windsor Hotel. The disposal is consistent with the groupâ&#x20AC;&#x2122;s long-term policy to focus its activities on its core operations and rationalize those operations where it is financially viable to do so. Subsequent to a board resolution to sell Windsor Hotel (Proprietary) Limited, a suitable buyer was identified. A deed of sale was entered into however the conditions of the deed of sale have not been met. The group has not recognised any impairment losses in respect of the Windsor Hotel (Proprietary) Limited and has not reclassified the same as held for sale during or at the end of the reporting period as it does not, as yet, meet the measurement critieria per IFRS 5. Transido, USICO, TDC Properties, Transkei Share Investments In July 2006 the Board of Directors approved a strategy to focus its activities on its core operations and rationalise those subsidiary operations where it is financially viable to do so. The rationalisation process will not involve a sale to a 3rd party but rather the net assets will vest in ECDC and as such no active process was entered into to identify a buyer. During October 2008 a Board Resolution was passed that confirmed the financial viability of the rationalisation of the following

FACILITATING REAL ECONOMIC GROWTH

subsidiary entities: • Transido (Proprietary) Limited, • USICO (Proprietary) Limited, • TDC Properties (Proprietary) Limited, and • Transkei Share Investments Limited. The process of winding up was made contingent on certain internal administrative requirements being met which would assist in limiting the costs of the rationalisation thereof. These matters are still in process and as such has not reclassified the same as held for sale during or at the end of the reporting period as it does not, as yet, meet the measurement critieria per IFRS 5.

4. Investments in associates Name of company

Listed / Unlisted

Bushman Sands Development (Pty) Ltd

Carrying amount 2013

Carrying amount 2012

Carrying amount 2011

48 108

(22 356)

(9 329)

25 752

38 779

The above information is based on reconstructed management accounts of Bushman Sands Developments (Pty) Ltd for the year ended 31 March 2013. Bushman Sands Development (Pty) Ltd disposed of its shareholding in Bushman Sands Hospitality (Pty) Ltd. The group now holds a 50% (2012: 50%) (2011:50%) interest in the associate. Group Figures in Rand thousand

2013

2012

2011

Carrying amount 2013

Carrying amount 2012

Carrying amount 2011

Assets

46 277

38 307

32 056

Liabilities

10 671

8 687

7 681

Revenue

44 192

40 363

35 118

Profit for the period

5 902

5 455

3 689

Holiday Inn Transkei (Pty) Ltd

2012

Company 2011

The above information is based on the audited financial statements of Transkei Holiday Inn (Pty) Ltd for the year ended 31 March 2013. The group holds a 49.95% (2012: 49.95%) (2011:49.95%) interest in the associate of which 9.95% (2012: 9.95%) (2011: 9.95%) is held by the corporation.

5. Fair value The fair value of the underlying assets in Bushman Sands Development (Pty) Ltd were determined at the end of the reporting period. The valuation required a further impairment of the investment in Bushman Sands Development (Pty) Ltd, however due to a pending litigation in favour of the Corporation, against surety provided, the impairment was reduced by R19 million.

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FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

2013

2012

Company 2011

2013

2012

2011

6. Loans to (from) group companies Subsidiaries

Eastern Cape Marketing Authority (Pty) LTD (ECMA)

Centre for Investment and Marketing in the Eastern Cape (CIMEC)

10 266

15 775

14 349

Cimvest (PtyP LTD

(6 564)

(5 708)

Transido (Pty) LTD

78 078

78 063

78 048

Umtata Small Industries Complex (Pty) LTD (USICO)

398

397

392

Transkei Share Investment Company Limited (INTRASHARE)

(15 697)

(15 716)

(15 733)

TDC Property Investments (Pty) LTD

3 514

3 491

3 467

Transdev Properties (Pty) LTD

(20 567)

(16 648)

(13 203)

Windsor Hotel (Pty) LTD

1 022

913

1 015

Automotive Industrial Development Centre (AIDC)

2 000

4 920

5 265

4 706

4 920

5 265

4 706

4 920

5 265

4 706

63 972

67 026

69 371

(4 920)

(5 265)

(4 706)

(79 332)

(77 833)

(77 275)

(15 360)

(10 807)

(7 904)

Worthytrade 93 (Pty) LTD

4 333

Impairment of loans to associates

(4 333)

(36 264)

(38 928)

(34 644)

Non-current assets

20 904

28 121

26 740

Non-current liabilities

(36 264)

(38 928)

(34 644)

(15 360)

(10 807)

(7 904)

Magwa Enterprise Tea (Pty) LTD

Impairment of loans to subsidiaries

Associates 4 333

Reconciliation of provision for impairment of loans to group companies

Opening balance

10 157

9 598

82 166

81 608

82 844

Provision for impairment

1 499

559

501

1 499

558

(1 236)

11 656

10 157

10 099

83 665

82 166

81 608

FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

Company

2013

2012

2011

2013

2012

2011

2 383

1 643

1 317

23 500

25 000

23 500

25 000

Fixed Term Investments

48 902

60 031

64 512

48 902

60 031

64 512

Other financial assets

22 370

19 443

19 688

22 370

19 443

19 688

71 272

79 474

84 200

71 272

79 474

84 200

(61 373)

(59 652)

(14 380)

(61 373)

(59 652)

(14 380)

9 899

19 822

69 820

9 899

19 822

69 820

35 782

46 465

96 137

33 399

44 822

94 820

At fair value through profit or loss - designated

2 383

1 643

1 317

Available-for-sale

23 500

25 000

23 500

25 000

Held to maturity

9 899

19 822

69 820

9 899

19 822

69 820

35 782

46 465

96 137

33 399

44 822

94 820

35 782

46 465

96 137

33 399

44 822

94 820

7. Investments At fair value through profit or loss - designated Listed shares

Available for sale Unlisted shares

Held to maturity

Held to maturity (impairments)

Total other financial assets

Non-current assets

Fair value hierarchy of financial assets at fair value through profit or loss For financial assets recognised at fair value, disclosure is required of a fair value hierarchy which reflects the significance of the inputs used to make the measurements. Level 1 Listed shares Short-term investments Cash and cash equivalents

Level 3

139

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FACILITATING REAL ECONOMIC GROWTH

2 383

1 643

1 317

11 129

60 012

11 129

60 012

391 369

792 650

702 514

228 542

359 116

309 646

393 752

805 422

763 843

228 542

370 245

369 658

9 899

8 693

9 808

9 899

8 693

9 808

166 172

211 086

194 041

131 157

173 734

174 765

176 071

219 779

203 849

141 056

182 427

184 573

569 823

1 025 201

967 692

369 598

552 672

554 231

Group Figures in Rand thousand

2013

2012

Company 2011

2013

2012

2011

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Group - 2013

Opening balance

Gains or losses in profit or loss

Purchases

Advances, rentals and collections

Closing balance

Investment securities

8 693

(2 711)

3 917

9 899

Loans and receivables

211 083

(83 877)

38 966

166 172

219 776

(86 588)

3 917

38 966

176 071

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Group - 2012

Investment securities 9 808 (1 115) - 8 693 Loans and receivables

Opening balance

Gains or losses in profit or loss

Advances, rentals and collections

Closing balance

9 808

(1 115)

8 693

194 041

(45 782)

62 827

211 086

203 849

(46 897)

62 827

219 779

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Group - 2011

Opening balance

Gains or losses in profit or loss

Purchases

Advances, rentals and collections

Closing balance

Investment securities

8 188

1 620

9 808

Loans and receivables

233 756

(70 529)

30 814

194 041

241 944

(70 529)

1 620

30 814

203 849

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Company - 2013

Opening balance

Gains or losses in profit or loss

Purchases

Advances, rentals and collections

Closing balance

Investment securities

8 693

(2 711)

3 917

9 899

Loans and receivables

173 734

(79 594)

37 017

131 157

182 427

(82 305)

3 917

37 017

141 056

FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

2013

Company

2012

2011

2013

2012

2011

7. Investments (continued) Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Company - 2012

Opening balance

Gains or losses in profit or loss

Advances, rentals and collections

Closing balance

Investment securities

9 808

(1 115)

8 693

Loans and receivables

174 765

(47 449)

46 418

173 734

184 573

(48 564)

46 418

182 427

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Company - 2011

Investment securities 9 808 (1 115) - 8 693 Loans and receivables

Opening balance

Gains or losses in profit or loss

Advances, rentals and collections

Closing balance

9 808

(1 115)

8 693

194 041

(45 782)

62 827

211 086

203 849

(46 897)

62 827

219 779

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Group - 2011

Opening balance

Gains or losses in profit or loss

Purchases

Advances, rentals and collections

Closing balance

Investment securities

8 188

1 620

9 808

Loans and receivables

216 327

(74 738)

33 176

174 765

224 515

(74 738)

1 620

33 176

184 573

Fair value hierarchy of available-for-sale financial assets For financial assets recognised at fair value, disclosure is required of a fair value hierarchy which reflects the significance of the inputs used to make the measurements. Level 3 Investment securities

141

www.ecdc.co.za

FACILITATING REAL ECONOMIC GROWTH

23 500

25 000

23 500

25 000

Group Figures in Rand thousand

2013

2012

Company 2011

2013

2012

2011

Reconciliation of available-for-sale financial assets measured at level 3 - Group - 2013

Investment securities

Opening balance

Gains or losses in other comprehensive income

Closing balance

25 000

(1 500)

23 500

Reconciliation of available-for-sale financial assets measured at level 3 - Group - 2012

Investment securities

Opening balance

Closing balance

25 000

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Group - 2011

Investment securities

Opening balance

Closing balance

25 000

Reconciliation of available-for-sale financial assets measured at level 3 - Company - 2013

Investment securities

Opening balance

Gains or losses in other comprehensive income

Closing balance

25 000

(1 500)

23 500

Reconciliation of available-for-sale financial assets measured at level 3 - Company - 2012

Investment securities

Opening balance

Closing balance

25 000

FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

2013

2012

Company 2011

2013

2012

2011

7. Investments (continued) Reconciliation of available-for-sale financial assets measured at level 3 - Company - 2011

Investment securities

Opening balance

Closing balance

25 000

8. Deferred tax Deferred tax asset (liability) Accelerated capital allowances for tax purposes Deferred tax

(439)

582 582

(439)

582

(504)

(439)

Reconciliation of deferred tax asset (liability)

At beginning of the year Originating temporary difference on tangible fixed assets

582

9. Loans advanced Loans advanced

293 138

289 779

388 073

292 649

287 641

388 055

Impairment allowance

(176 992)

(160 136)

(245 552)

(176 992)

(160 136)

(245 552)

116 146

129 643

142 521

115 657

127 505

142 503

Loans advanced Non-current assets

58 860

74 392

101 586

58 371

73 457

101 568

Current assets

57 286

55 251

40 935

57 286

54 048

40 935

116 146

129 643

142 521

115 657

127 505

142 503

10. Trade and other receivables Trade receivables

22 460

52 198

30 141

12 395

38 672

22 613

Prepayments

3 033

3 735

644

1 685

1 930

Deposits

143

www.ecdc.co.za

FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

2013

2012

Company 2011

2013

2012

2011

10. Trade and other receivables (continued) VAT

12 604

11 654

3 160

1 420

526

901

Other receivables

11 984

13 774

17 561

5 033

8 748

50 095

81 443

51 520

15 568

46 229

32 262

11. Cash and cash equivalents Cash and cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. Cash and cash equivalents include cash on hand, bank deposits, investments in money market instruments and comprise: Bank balances

189 064

449 454

408 029

26 237

15 920

15 161

Short-term deposits

202 305

343 196

294 485

202 305

343 196

294 485

391 369

792 650

702 514

228 542

359 116

309 646

50 billion Ordinary Type A shares of 1 cent each

500 000

50 billion Ordinary Type B shares of 1 cent each

500 000

1 000 000

“A” shares of 1 cent each

213 795

210 688

191 774

213 795

210 688

191 774

“B” shares of 1 cent each

213 795

210 687

191 774

213 795

210 687

191 774

427 590

421 375

383 548

427 590

421 375

383 548

421 375

383 548

347 398

421 375

383 548

347 398

12. Share capital Authorised

Issued

Issued Reported as at 01 April 2012 Share capital received

6 215

37 827

36 150

6 215

37 827

36 150

427 590

421 375

383 548

427 590

421 375

383 548

13. Reserves Pre-incorporation reserves Pre-incorporation reserves represent the net book value of asset and liabilities transferred from previous corporations, adjusted for any changes in the value of these assets due to information which has been established during the current and prior years that refer to the value of assets taken over.

FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

2013

2012

Company 2011

2013

2012

2011

Fair value adjustment available-for-sale-assets reserve Fair value reserves comprise all fair value adjustments that are recognised directly in equity and / or transfers from retained earnings. Pre-incorporation reserve

394 856

384 265

Fair value adjustment on available-for-sale reserve

22 673

24 173

22 680

24 180

417 529

419 029

406 945

408 445

14. Interest bearing borrowings At fair value through profit or loss Finance lease Development Bank of Southern Africa

1 639

5 154

14 366

1 639

2 831

14 343

1 686

5 177

14 386

1 639

2 831

14 343

1 198

3 889

2 867

1 151

1 611

2 847

488

1 288

11 519

488

1 220

11 496

Non-current liabilities At fair value

Current liabilities Fair value through profit or loss

15. Retirement benefit obligation Defined contribution plan The corporation provides retirement benefits to employees by contributing to the Eastern Cape Development Corporation pension fund. An actuarial valuation of the fund was conducted and the actuary found the fund to be in a sound financial position. The pension fund is governed by the Pension Funds Act, 1956. Retirement benefit costs are expensed in the income statement as and when incurred. Defined benefit plan The corporation is responsible for 50% of the contributions to medical aid funds of retired employees. Present value of the defined benefit obligation Net actuarial gains or losses not recognised

(27 620)

(26 340)

(24 175)

(27 620)

(26 340)

(24 175)

(210)

(1 280)

867

(210)

(1 280)

867

(27 830)

(27 620)

(23 308)

(27 830)

(27 620)

(23 308)

(27 620)

(23 308)

(20 452)

(27 620)

(23 308)

(20 452)

Changes in present value Opening balance

145

Contributions by members

355

240

237

355

240

237

Net expense recognised in profit or loss

(565)

(4 552)

(3 093)

(565)

(4 552)

(3 093)

(27 830)

(27 620)

(23 308)

(27 830)

(27 620)

(23 308)

www.ecdc.co.za

FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

2013

Company

2012

2011

2013

2012

2011

Net expense recognised in the income statement

Current service cost

(873)

(1 542)

(1 456)

(873)

(1 542)

(1 456)

Interest cost

(2 355)

(2 361)

(2 226)

(2 355)

(2 361)

(2 226)

Actuarial (gains) losses

2 663

(649)

589

2 663

(649)

589

(565)

419 029

(3 093)

(565)

(4 552)

(3 093)

Past (accrued) and future service liability Health care cost inflation

7,13 %

8,00 %

8,25 %

7,13 %

8,00 %

8,25 %

Discount rate used

7,51 %

9,00 %

9,25 %

7,51 %

9,00 %

9,25 %

Active members

21 295

23 484

21 097

21 295

23 484

21 097

CAWMs liability

6 535

2 856

3 078

6 535

2 856

3 078

27 830

26 340

24 175

27 830

26 340

24 175

781

607

773

781

Present value of accrued liability

Effect of 1% change in assumed medical cost trend rates 1% increase - effect on current service cost & interest cost

607

773

1% increase - effect on accumulated benefit obligation

5 259

5 084

4 522

5 259

5 084

4 522

1% decrease - effect on current service cost & interest cost

(471)

(611)

(615)

(471)

(611)

(615)

1% decrease - effect on accumulated benefit obligation

(4 158)

(4 056)

(3 612)

(4 158)

(4 056)

Non-current liabilities

1 450 041

1 259 855

1 114 375

Current liabilities

322 336

476 579

1 772 377

1 736 434

Eastern Cape Development Corporation

70 774

103 923

East London Industrial Development Zone (Pty) Ltd

1 699 764

1 631 584

Automotive Industrial Development Centre

1 886

927

1 772 424

1 736 434

(3 612)

16. Deferred income

412 060

70 774

103 923

34 198

1 526 435

70 774

103 923

34 198

70 774

103 923

34 198

1 492 043

194

1 526 435

70 774

103 923

34 198

Analysis per group company

Government grants are deferred to the extent that they are un-spent

FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

2013

Company

2012

2011

2013

2012

2011

18 874

79 735

26 876

2 205

2 068

900

1 124

506

Government funds

22 209

135 385

155 251

22 530

135 385

155 251

Accrued leave pay

13 123

10 563

8 405

8 545

7 027

5 994

Accrued bonus

2 594

5 879

1 717

1 643

5 315

1 535

Accrued expenses

19 118

5 923

6 996

17 960

4 926

6 007 3 225

17. Trade and other payables Trade payables VAT

384 265

Deposits received

1 828

5 222

4 959

3 512

Other payables

24 903

15 499

17 107

17 554

8 100

6 335

103 549

259 330

221 817

70 437

166 333

179 609

Rendering of services

36 670

29 571

27 320

4 292

4 164

4 670

Rental Income

93 900

87 847

84 544

55 315

54 846

56 825

18. Revenue

Interest received on loans

21 157

24 508

20 647

21 157

24 508

20 647

151 727

141 926

132 511

80 764

83 518

82 142

19. Operating loss Operating loss for the year is stated after accounting for the following: Operating lease charges Contractual amounts

3 732

2 848

2 606

3 143

2 324

2 063

748

858

816

735

846

804

4 480

3 706

3 422

3 878

3 170

2 867

(5)

163

(5)

(161)

Loss on sale of investment property

(1 639)

(330)

(103)

(1 639)

(330)

(103)

Impairment of investment in associate

13 027

Bad debts recovered

4 777

2 994

2 637

4 777

2 994

2 637

Equipment Contractual amounts

(Loss) profit on sale of property, plant and equipment

Impairment on property, plant and equipment

(329)

Impairment on investments

977

44 160

4 500

1 713

48 393

4 500

Impairment on loans to group companies

558

501

1 499

558

Reversal of impairment on loans to group companies

(345)

(1 236)

Impairment of loans advanced

16 856

35 260

52 245

16 856

31 737

52 245

Impairment on trade and other receivables

69 296

11 300

17 866

60 611

10 183

20 546

Depreciation on property, plant and equipment

23 943

21 184

19 363

2 436

2 131

1 560

Employee costs

155 356

145 393

121 254

89 680

92 823

77 391

Direct property operating expenditure

86 697

74 071

71 883

53 046

51 031

Amortisation on intangible assets

147

www.ecdc.co.za

FACILITATING REAL ECONOMIC GROWTH

66 160

Group Figures in Rand thousand

Company

2013

2012

2011

2013

2012

2011

5 611

3 938

2 770

1 898

1 912

134

20. Auditorsâ&#x20AC;&#x2122; remuneration Fees

21. Investment revenue Dividend income Listed financial assets - Local

Interest revenue Current accounts

1 374

3 298

990

1 607

3 990

1 289

Short-term deposits

7 096

10 498

17 633

7 096

10 498

17 633

3 103

4 696

3 103

4 696

Investments Interest on Guarantee investments

314

643

314

643

8 470

17 213

23 962

8 703

17 905

24 261

8 604

17 268

24 001

8 703

17 905

24 261

65 526

44 844

42 182

22. Fair value adjustments through profit or loss Investment property Other financial assets

67 440

(113 157)

(73 313)

740

325

127

68 180

(112 832)

(73 186)

65 526

44 844

42 182

944

502

1 595

468

1 595

944

502

1 604

468

1 595

(486)

1 057

764

(597)

(439)

504

(1 083)

618

1 268

23. Finance costs Finance leases Interest on Long term Loans

24. Taxation Major components of the tax (income) expense Current Local income tax - current period

Deferred Originating and reversing temporary differences

FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

2013

2012

Company 2011

2013

2012

2011

24. Taxation (continued) Reconciliation of the tax expense Reconciliation between accounting profit and tax expense. Accounting loss

(26 578)

(153 931)

(73 911)

(18 980)

(49 756)

(3 870)

(496)

(439)

504

1 057

764

(496)

618

1 268

Tax at the applicable tax rate of 28% (2012: 28%)(2011:28%)

Tax effect of adjustments on taxable income Other temporary differences Prior yearâ&#x20AC;&#x2122;s under-provision

25. Cash (used in) generated from operations Loss before taxation

(26 578)

(153 931)

(73 911)

(18 980)

(49 756)

(3 870)

23 943

21 228

19 475

2 435

2 131

1 560

Adjustments for: Depreciation and amortisation Loss (profit) on sale of assets

1 609

335

(60)

1 642

335

264

Income from equity accounted investments

(2 948)

(2 811)

(1 928)

Dividends received

(134)

(55)

(39)

(32 689)

(41 721)

(44 609)

(28 304)

(43 776)

(44 908)

944

502

1 604

766

468

1 595

Fair value adjustments

(68 180)

112 832

73 186

(65 526)

(44 844)

(42 182)

Impairments

99 811

(24 916)

72 935

93 706

(26 282)

76 185

2 455

Movements in retirement benefit assets and liabilities

210

4 312

2 856

210

4 312

2 856

Loans written off

994

117 153

994

117 153

Other investments written off

245

Project grants written off

6 177

Trade and other receivables

(36 816)

(46 943)

(20 424)

(29 950)

(24 150)

(23 239)

Trade and other payables

(155 850)

37 515

(74 154)

(95 896)

(13 276)

(27 678)

35 943

209 999

183 243

(33 149)

69 725

420

(159 741)

236 199

144 351

(172 052)

(7 715)

(58 997)

Interest income Finance costs

Non cash movement in finance lease

Changes in working capital:

Deferred income

149

www.ecdc.co.za

FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

Company

2013

2012

2011

2013

2012

2011

Balance at beginning of the year

(841)

(144)

1 779

Current tax for the year recognised in profit or loss

502

(1 057)

(581)

432

841

144

(360)

1 342

26. Tax refunded (paid)

Reversal of tax provision (exemption granted) Prior year under-provision

FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

2013

2012

Company 2011

2013

2012

2011

27. Contingencies The group has exposure to litigation of R21.7 million (2012 R19.2 million) (2011 R18.2 million) against it, as tabulated below. Matters under consideration: 1. Claim for outstanding payment on a government contract for which ECDC issued a performance guarantee. • Approximate potential liability: R200,000 Status of matter: The matter is pending and ECDC is awaiting for a court date. 2. Claim for outstanding payment of performance bonuses - East London IDZ • Approximate potential liability: R830,118 Status of matter: The claimant is pursuing the matter. Summons have been issued to the ECDC. The matter is still pending. 3. Claim for outstanding employee transfer costs and short payment of performance bonuses. • Approximate potential liability: R1,500,000 Status of matter: The matter is going to trial during June 2013 and is being defended. 4. Claim for damages and loss of earnings/ profit for alleged breach of lease agreement • Approximate potential liability: R18,000,000 Status of matter: Summons was served on ECDC in February 2011. We have filed a plea and counter-claim for outstanding rental and eviction. ECDC is now awaiting a trial date. 5. Claim for cancellation of lease – 171 Cape Road Trust. • Approximate potential liability: R561,088 Status of matter: ECDC received summons on the 16th May 2013. ECDC will be defending the matter

151

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FACILITATING REAL ECONOMIC GROWTH

6. Claim for release of goods - P.N Bam • Approximate potential liability: R100,000 P.N Bam applied to the court for ECDC to release goods. The matter was finalised on 6 June 2013 and ECDC was ordered to pay costs of the application. 7. Claim for damages - Units (Pty) Ltd • Approximate potential liability: R500,000 This relates to a claim by Units (Pty) Ltd for goods attached by the Sherriff on the instruction of the ECDC. Although the goods were returned to Units (Pty) Ltd, the claimant alleges that they were damaged. The matter has been long outstanding and ECDC intends to apply for removal from the court roll. Group Figures in Rand thousand

Company

2013

2012

2011

2013

2012

2011

1 243

• Balance on contract work already in progress

310 606

495 009

349 816

70 774

103 923

34 198

• Loans approved not yet disbursed

29 459

29 661

7 888

29 459

29 661

7 888

- within one year

4 115

3 378

2 935

3 096

3 378

2 860

- in second to fifth year inclusive

13 743

4 952

5 635

12 554

4 952

5 635

17 858

8 330

8 570

15 650

8 330

8 495

- within one year

30 019

32 901

25 086

- in second to fifth year inclusive

58 976

77 547

80 833

- later than five years

11 317

26 130

19 349

100 312

136 578

125 268

28. Commitments Authorised capital expenditure

Already contracted for but not provided for • Purchase of shares

Operating leases – as lessee (expense)

Minimum lease payments due

Operating leases – as lessor (income)

Minimum lease payments due

FACILITATING REAL ECONOMIC GROWTH

29. Related parties Relationships Subsidiaries

Refer to Annexure 1

Shareholder

Department of Economic Development, Environmental Affairs and Tourism (DEDEAT) Refer to the Directorsâ&#x20AC;&#x2122; report

Directors

Eastern Cape Development Corporation

Key management and other senior managers

B Dlulane (Executive Manager: Development Investments) M Lindie (Chief Economist) - appointed 01 November 2011 N Ngewu (Executive: Corporate Services) S Sentwa (Chief Financial Officer) - Appointed 01 August 2012 S Mase (Chief Executive Officer) East London Industrial Development Zone (Proprietary) Limited S Kondlo (Chief Executive Officer) N Madyibi (Chief Financial Officer) J Burger (Executive Manager: Technical Services) T Gwintsa (Executive Manager: Investor Services) T Zweni (Executive Manager: Business Development) A Magwentshu (Executive Manager: Corporate Services) AIDC Development Centre Eastern Cape (Proprietary) Limited J Manilal (Chief Executive Officer)

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FACILITATING REAL ECONOMIC GROWTH

Related party balances

Subsidiaries and associates Related party balances with subsidiaries and associates are disclosed in Note 6: Loans to / (from) subsidiaries and associates. Other related parties The corporation acquires equity investments in certain entities to which it has advanced loan funds as security for these loans or as part of its investment strategy. Outstanding balances with these entities were as follows: Related party

Preference/ ordinary shares

Loan balance

Accumulated impairment

Border Copiers

7 342

1 131

Magwa Tea Enterprise (Proprietory) Ltd

4 920

192

EC Biomass

5 535

Global pack trading

4 529

3 503

48 108

Singisi Forest Products

820

Amatola berries

4 634

Ndlambe Natural Industrial Products (Proprietory) Ltd

952

4 643

49 944

35 298

16 115

Bio Coal Manufaturers and distributers (Pty) Ltd

Crossmed Health Care (Pty) Ltd Bushman Sands Development (Proprietory) Ltd

Related party transactions

Subsidiaries and associates Interest from subsidiaries

1 558

1 417

1 288

Rent paid to subsidiaries

1 614

1 820

1 654

Management fees

1 178

1 157

848

Border Copiers (Proprietory) Ltd

636

480

714

Ndlambe Natural Industrial Products (Proprietory) Ltd

338

536

757

2 921

1 783

2 290

Interest received from related parties

Operational expenditure paid on behalf of Eastern Cape Information Technology Initiative

FACILITATING REAL ECONOMIC GROWTH

Group Figures in Rand thousand

2013

2012

Company 2011

2013

2012

2011

30. DIRECTORS’ and prescribed OFFICERS’ emoluments Non-executive 2013

2012

2011

Compensation to executive management

Directors’ fees

Committees

Total

470

333

803

Directors’ fees

Committees

Total

700

663

1 363

Directors’ fees

Committees

Total

913

325

1 238

Basic Salary

Allowances

Employer contribution to funds

Performance bonus (2010/11)

Total

Mr S Mase (CEO)

896 207

566 270

184 501

106 945

1 753 923

Mr S Sentwa* (CFO) appointed 01 August 2012

512 459

213 769

77 665

803 893

Mr N Dlulane** (Executive Manager: Investments and Funding)

825 130

339 180

152 273

1 316 583

Mr J Cerff (Executive Manager: Infrastructure Development)

870 537

627 508

116 673

1 614 718

Mrs N Ngewu *** (Executive Manager: Corporate Services)

807 522

344 418

125 243

98 729

1 375 912

Mr M Lindie (**** Chief Economist)

701 805

404 067

142 821

1 248 693

4 613 660

2 495 212

682 503

322 347

8 113 722

* ** *** ****

Appointed on 1 August 2012 Appointed on 1 February 2011 Appointed as Executive Manager: Corporate Services with effect from 3 September 2012 Appointed on 1 November 2011

31. Risk management Introduction The essential function of risk management is to identify measure and monitor the risk profile of ECDC. Risk management underscores the fact that the survival of an organisation depends heavily on its capabilities to anticipate and prepare for the changes rather than waiting for the change and react to it. Enterprise risk management (ERM) ECDC has established an ERM framework that is shareholder value based, organisationally embedded, supported and assured, and reviewed on a regular basis. ERM is considered from an enterprise wide portfolio perspective satisfying three requirements, namely integration (spanning all lines of business), comprehensive (covering all types of risk) and

155

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FACILITATING REAL ECONOMIC GROWTH

strategic (aligned with the overall business strategy). The objective of ERM is to continuously provide and update risk identification, validation, management and review of these risks. The business model strives to maximise financial and development returns while maintaining and acceptable risk profile. Risk appetite The board of directors has approved a risk appetite and tolerance framework which forms the basis of the extent to which ECDC tolerates risks as described by performance indicators, operational parameters and process controls to increase shareholders value. Risk tolerance levels assists management to make better informed business decisions, focus on risks that exceeds the risk appetite and to develop a culture where management is aware of the risks taken. The key risks have been classified according to the five broad risk categories namely, Strategic, Financial, Operational, Compliance and Information Technology Governance. Risk Management Department The risk department actively monitors and oversee key risks of the corporation. The key roles and responsibilities of the unit are to: 1. Play an active role in instituting and promoting a sustainable and robust ERM process; 2. Develope corporate-wide monitoring, assurance and reporting processes for risk management; 3. Regularly reporting to the Chief Risk Officer, executive management and the Board Audit and Risk Committee and the Board of Directors on critical issues identified, on the progress in mitigating the risks and on any fundamental breaches of approved risk management policy guidelines. 4. Assist in refining the risk appetite and aligning it to the ECDC mandate, corporate and operational targets 5. Advise strategic business units on mitigating controls, processes and procedures; 6. Providing independent investment analysis for all investments proposals formally and informally; 7. Concentrate on identification and analysis; 8. Benchmark of best practice risk management activities and apply where applicable. Strategic risk Strategic risks include the failure of ECDC to fulfil on its development role in terms of shareholders expectation, macro economic conditions, reputational risks and the availability of capital. ECDC manages strategic risks by the annual review of the risk appetite and tolerance framework, establishing whether risks should be accepted, mitigated or avoided, prioritising risk identification, evaluating the efficiency of risk policies, procedures, practises and controls applied within ECDC on a day-to-day basis and by determining and reviewing of the maximum mandate levels for the various committees and staff who approves credit and assets liability decisions. Financial risk Financial risks includes credit, interest and market risk. This risk group tries to minimise losses which may result due to ECDCâ&#x20AC;&#x2122;s own funding structure and as a result of its external investment and financing activities. Financial: Credit risk Credit risk is the potential that a borrower or counter party fails to meet their obligations as per agreed terms. Credit risk is inherent to the business of lending funds and rental collections and is closely linked to market risk variables. Credit risk is a dominant risk within ECDC as the providing of

FACILITATING REAL ECONOMIC GROWTH

31. Risk management (continued) loans, equity capital and rental accommodation is the core business of ECDC. Credit risk consists of two components namely the quantity of risk measured as outstanding accounts receivable balances at the date of default and the quality of risk measured as the severity of loss defined by both the probability of default as reduced by the recoveries that could be made in the event of default. ECDCâ&#x20AC;&#x2122;s approach to credit risk management is to: 1. Establish exposure ceilings (limits) in certain categories of loans within a certain amount range. 2. Perform due diligence and investment screening on all new loan and rental applications to establish if the applications meets the basic criteria for funding (occupation). 3. Operate a multi-tier credit approving authority based on the loan amount. 4. Test the use of a risk rating model for small and medium businesses for implementation during 2013. 5. Price loans according to the severity of perceived credit risk. 6. Maximise portfolio management which emanates from the necessity to optimise benefits associated with diversification and to reduce the impact of concentration of exposures to a certain individual, sector or industry. 7. Provide a loan review mechanism to identify loans with credit weaknesses and determine the adequacy of loan impairment provisions, adherence to lending policies and procedures and to propose mitigation actions where weaknesses in systems and procedures have been established. 8. Regularly report to management on the risks identified. Financial: Market risk Market Risk is defined as the possibility of loss to ECDC caused by the changes in market variables of both on and off balance sheet positions which will be adversely affected by movements in equity and interest rate markets. Financial: Interest rate risk Interest rate risk is the potential negative impact on Net Interest Income and it refers to the vulnerability of ECDCâ&#x20AC;&#x2122;s financial condition to the movement in interest rates. Changes in interest rates affects earnings, value of assets, liability off-balance sheet items and cash flow. The objective of interest rate risk management is to maintain earnings, improve the capability and ability to absorb potential loss and to ensure the adequacy of the compensation received for the risk taken and effect risk return trade-off. ECDC and the group are exposed to interest rate risk arising mainly from exposure to the investment in development loans and investment in surplus operational cash. Liquidity risk Liquidity risk is defined as the risk of failure to meet all financial obligations on a timely basis, without incurring above normal costs. This risks specifically arises from the inability to honour obligations with respect to commitments to borrowers, lenders and investors and operational expenditure. The ECDC Investment Policy governs the liquidity requirements per investment type. Liquidity is held primarily in the form ofmoney market instruments such as call deposits and bonds. The monthly management of the required liquidity levels is reported to executive management on a monthly basis.

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Operational risk Operational risks, though defined as any risk that is not categorised as market or credit risk, is the risk of loss arising from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk but excludes systemic and reputational risk. In order to mitigate the above, an operational risk framework and risks registers have been developed per business unit to ensure that operational risks are consistently and comprehensively identified, assessed, mitigated, controlled, monitored and reported by each Business Unit Manager. Operational risk is also mitigated through: • The performance of regular internal audits • Business continuity and disaster recovery plans which are being managed through VMWARE virtualisation platform • Recruitment policies • Insurance through public liability and insurance of fixed assets • Commitment of employees to a code of conduct that encourages integrity, professionalism, accountability and teamwork • Performing fraud awareness training and the availability of a fraud reporting hotline Compliance risk ECDC is regulated through the Eastern Cape Development Corporation Act 2 of 1997 as amended. ECDC is accountable to its sole shareholder the Department of Economic Development, Environmental Affairs and Tourism. A shareholders compact entered into between the parties manages the performance as well as ECDC capital management. ECDC is not required to hold any capital in terms of the Bank Act 94 of 1990 and may gear up to 100% of the available capital. Information technology risk Technology is core to ECDC’s business. Technology governance is vital to striking the right balance between holding on to our technology lead and managing our costs. It is also fully integrated into our strategic and business processes. All IT decisions are benchmarked against best practice and according to COBIT standard where applicable. IT risk is managed by keeping up to date with the latest advances in technology and in terms of an approved IT Charter which aligns the technical strategy and business needs in by delivering value, managing performance; caters for security management, information management and business continuity management. This Charter is further strengthened by an Information Security, Internet and E-mail Policy which governs all access to information. Disaster recovery has been identified as having the highest impact on ECDC business operations and is being managed.

FACILITATING REAL ECONOMIC GROWTH

32. Financial assets by category The accounting policies for financial instruments have been applied to the line items below:

159

Group - 2013

Loans and receivables

Fair value through profit or loss designated

Held to maturity investments

Available for sale

Carrying amount

Investments

2 383

9 899

23 500

35 782

Loans advanced

116 146

Trade and other receivables

50 026

Cash and cash equivalents

391 369

166 172

393 752

9 899

23 500

593 323

Group - 2012

Loans and receivables

Fair value through profit or loss designated

Held to maturity investments

Available for sale

Carrying amount

Investments

12 772

8 693

25 000

46 465

Loans advanced

129 643

Trade and other receivables

81 443

Cash and cash equivalents

792 650

211 086

805 422

8 693

25 000

1 050 201

Group - 2011

Loans and receivables

Fair value through profit or loss designated

Held to maturity investments

Available for sale

Carrying amount

Investments

61 329

9 808

25 000

96 137

Loans advanced

142 521

Trade and other receivables

51 520

Cash and cash equivalents

702 514

194 041

763 843

9 808

992 692

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FACILITATING REAL ECONOMIC GROWTH

Company - 2013

Loans and receivables

Fair value through profit or loss designated

Held to maturity investments

Available for sale

Carrying amount

Investments

9 899

23 500

33 399

Loans advanced

115 657

Trade and other receivables

15 500

Cash and cash equivalents

228 542

131 157

228 542

9 899

23 500

393 098

Company - 2012

Loans and receivables

Fair value through profit or loss designated

Held to maturity investments

Available for sale

Carrying amount

Investments

11 129

8 693

25 000

44 822

Loans advanced

127 505

Trade and other receivables

46 229

Cash and cash equivalents

11 129

359 116

173 734

370 245

8 693

25 000

577 672

Company - 2011

Loans and receivables

Fair value through profit or loss designated

Held to maturity investments

Available for sale

Carrying amount

Investments

60 012

9 808

25 000

94 820

Loans advanced

142 503

Trade and other receivables

32 262

Cash and cash equivalents

309 646

174 765

369 658

9 808

25 000

579 231

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33. Financial liabilities by category The accounting policies for consolidated annual financial instruments have been applied to the line items below:

161

Group - 2013

Fair value through profit or loss - held for trading

Carrying amount

Interest bearing borrowings

1 713

Trade and other payables

103 434

105 147

Group - 2012

Fair value through profit or loss - held for trading

Carrying amount

Interest bearing borrowings

5 177

Trade and other payables

259 330

264 507

Group - 2011

Fair value through profit or loss - held for trading

Carrying amount

Interest bearing borrowings

14 386

Trade and other payables

221 817

236 203

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FACILITATING REAL ECONOMIC GROWTH

Company - 2013

Fair value through profit or loss - held for trading

Carrying amount

Interest bearing borrowings

1 639

Trade and other payables

70 369

72 008

Company - 2012

Fair value through profit or loss - held for trading

Carrying amount

Interest bearing borrowings

2 831

Trade and other payables

166 333

169 164

Company - 2011

Fair value through profit or loss - held for trading

Carrying amount

Interest bearing borrowings

14 343

Trade and other payables

179 609

193 952

FACILITATING REAL ECONOMIC GROWTH

34. New standards and interpretations New standards The following new standards have not been early-adopted by the group: IFRS 9 Financial Instruments The IASB has issued IFRS 9 Financial Instruments, which is the first step in its project to replace IAS 39 Financial Instruments: recognition and measurement, in its entirety. The project has three main phases: • Phase I: Classification and measurement of financial instruments; • Phase II: Amortised cost and impairment of financial assets; and • Phase III: Hedge accounting. IFRS 9, as currently issued, includes requirements for the classification and measurement of financial assets and liabilities derecognition requirements and additional disclosure requirements. The main requirements include the following: • Financial assets are to be classified and measured based on the business model for managing the financial asset and the cash flow characteristics of the financial asset. There are two measurement approaches, namely fair value and amortised cost. The financial asset is carried at amortised cost if it is the business model of the entity to hold that asset for the purpose of collecting contractual cash flows and if those cash flows comprise principal repayments and interest. All other financial assets are carried at fair value. • A financial asset that would otherwise be at amortised cost may only be designated as at fair value through profit or loss if such a designation reduces an accounting mismatch. • The classification and measurement of financial liabilities include requirements similar to those contained in the existing standard IAS 39 Financial Instruments: recognition and measurement. • For financial liabilities designated as at fair value through profit or loss, a further requirement is that all changes in the fair value of financial liabilities attributable to credit risk be transferred to other comprehensive income with no recycling through profit or losson disposal. • The requirements for derecognition are similar to those contained in the existing standard IAS 39 Financial Instruments: recognition and measurement, with certain additional disclosure requirements. Management does not anticipate these requirements to have a significant impact on the group’s consolidated annual financial statements. IFRS 9 is effective for the group for the year commencing 1 April 2013. However, the IASB adopted a phased approach for there lease of IFRS 9, with the requirements for the classification and measurement of financial assets having been released in 2009 and the requirements for the classification and measurement of financial liabilities and derecognition having been released in 2010. Accordingly, the requirements released in 2010 cannot be early-adopted without the simultaneous adoption of the 2009 requirements. However, the requirements release in 2009 may be separately early adopted. The IASB intends to expand IFRS 9 in 2011 to address 2011 to address the requirements for the offsetting of financial assets and financial liabilities, impairment of financial assets carried at amortised cost and hedge accounting. The implementation of IFRS 9 is anticipated to have a significant impact on the group’s consolidated annual financial statements. The group is evaluating the impact of the standard.

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Revised standards The following revisions to IFRS have not been early-adopted by the group: IFRS 7 Financial Instruments: disclosures The following amendments were made to this standard during the year: • Clarification of certain qualitative and quantitative disclosures relating to the nature and extent of risks. The amendment is effective for the group for the year commencing 1 April 2011. • Additional disclosure requirements relating to the transfer of financial assets. This amendment is effective for the group for the year commencing 1 April 2012. These amendments address disclosure in the consolidated annual financial statements and will therefore not affect the financial position of the group. IFRS 3 Business combinations The amendment clarifies the measurement of non-controlling interests and provides additional guidance on unreplaced and voluntarily replaced share-based payment awards. The amendment is effective for the group for the year commencing 1 April 2011 and is not expected to have a significant impact on the group. IAS 12 Income taxes The amendment provides a practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair-value model in IAS 40 Investment property. The amendment is effective for the group for the year commencing on or after 1 April 2012 and is not expected to have a significant impact on the group as the holding company is exempt from income tax. IAS 24 Related parties The amendment provides exemptions from certain disclosure requirements in respect of government-related entities and clarifies the definition of a related party. The amendment is effective for the group for the year commencing 1 April 2011. This amendment addresses disclosure in the annual financial statements and will therefore not affect the financial position of the group. Furthermore, the revisions to the disclosures are not expected to have a significant effect on the group. IAS 32 Classification of rights issues’ issued in October 2009. The amendment applies to annual periods beginning on or after 1 February 2010. Earlier application is permitted. The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8. Accounting policies, changes in accounting estimates and errors’. The group will apply the amended standard from 1 April 2011. Annual improvement project As part of its third annual improvement project the IASB has issued its 2010 edition of annual improvements. The annual improvement project aims to clarify and improve the accounting standards. The improvements include those involving terminology or editorial changes, with minimal effect on recognition and measurement. There are no significant changes in the improvement of the current year that will affect the group and the improvement is effective for the group commencing 1 April 2011.

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34. New standards and interpretations (continued) Interpretations The following interpretations of existing standards are not yet effective and have not been earlyadopted by the group: IFRIC 19 Extinguishing financial liabilities with equity instruments The interpretation addresses divergent accounting by entities issuing equity instruments to extinguish all or part of a financial liability (often referred to as ‘debt for equity swaps’). The interpretation concludes that the issue of equity instruments to extinguish an obligation constitutes consideration paid. The consideration should be measured at the fair value of the equity instruments issued, unless that fair value is not readily determinable, in which case the equity instruments should be measured at the fair value of the obligation extinguished. Any difference between the fair value of the equity instruments issued and the carrying value of the liability extinguished is recognised in profit or loss. If the issue of equity instruments is to settle a portion of a financial liability, the entity should assess whether a part of the consideration relates to a renegotiation of the portion of the liability that remains outstanding. The adoption of this standard is not expected to have a material impact on the group’s consolidated annual financial statements. The standard is effective for the group for the year commencing 1 April 2011. IFRIC 14 Prepayments of a minimum funding requirement. The amendments correct an unintended consequence of IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct this. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented. The group will apply these amendments for the financial reporting period commencing on 1 April 2011. Standards and interpretations adopted in the current year Revised standards. Standards and interpretations adopted in the current year Revised standards The following revisions to IFRS have been adopted by the group as their application has become mandatory for the reporting period: Amendments to IFRS 2 group-settled arrangements The amendment provides additional guidance on the accounting for share-based payment transactions among group entities. The most significant change is that the entity receiving the goods or services will recognise the transaction as an equity-settled share-based payment transaction only if the awards granted are its own equity instruments or if it has no obligation to settle the transaction. In all other circumstances the entity will measure the transaction as a cash-settled share-based payment. The scope of IFRS 2 has also been amended to clarify that the standard applies to all share-based payment transactions, irrespective of whether or not the goods or services received under the share-based payment transaction can be individually identified. The adoption of the amendments to the standard did not have an effect on the group’s consolidated annual financial statements as the group is not party to share based payments arrangements. IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations’.

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The amendment clarifies that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, in particular paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1. IAS 1 (amendment), ‘Presentation of financial statements’. The amendment clarifies that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or noncurrent. By amending the definition of current liability, the amendment permits a liability to be classified as noncurrent (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time. IAS 36 (amendment), ‘Impairment of assets’, effective 1 January 2010. The amendment clarifies that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment, as defined by paragraph 5 of IFRS 8, ‘Operating segments’ (that is, before the aggregation of segments with similar economic characteristics). Annual improvement project As part of its second annual improvement project, the IASB issued its 2009 edition of annual improvements. The annual improvement project aimed to clarify and improve the accounting standards. These improvements included those involving terminology or editorial changes with minimal effect on recognition and measurement. No significant changes were made to the group consolidated annual financial statements for the revisions that were effective for the year commencing 1 April 2010. Interpretations The following amended IFRIC’s have been adopted by the group as their application has become mandatory for the reporting period: IFRIC 17, ‘Distribution of non-cash assets to owners’ (effective on or after 1 July 2009). The interpretation was published in November 2008. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. The adoption of the amendments to the standard did not have an effect on the group’s consolidated annual financial statements. IFRIC 18, ‘Transfers of assets from customers’ Effective for transfer of assets received on or after 1 July 2009. This interpretation clarifies the requirements of IFRSs for 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 that 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 adoption of this interpretation did not have an effect on the group’s consolidated annual financial statements.

FACILITATING REAL ECONOMIC GROWTH

34. New standards and interpretations (continued) IFRIC 9, ‘Reassessment of embedded derivatives and IAS 39, Financial instruments: Recognition and measurement’, effective 1 July 2009. This amendment to IFRIC 9 requires an entity to assess whether an embedded derivative should be separated from a host contract when the entity reclassifies a hybrid financial asset out of the ‘fair value through profit or loss’ category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. If the entity is unable to make this assessment, the hybrid instrument must remains classified as at fair value through profit or loss in its entirety. IFRIC 16, ‘Hedges of a net investment in a foreign operation’ effective 1 July 2009. This amendment states that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or entities within the group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements of IAS 39 that relate to a net investment hedge are satisfied. In particular, the group should clearly document its hedging strategy because of the possibility of different designations at different levels of the group. IAS 38 (amendment), ‘Intangible assets’, effective 1 January 2010. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives.

35. Financial instruments at fair value Group 2013

Fixed term Investments

2012

2011

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Carrying Amount

Fair Value

11 129

60 012

Other investments

9 899

8 693

9 808

Listed shares at fair value

2 383

1 643

1 317

Unlisted shares at fair value

23 500

25 000

35 782

46 465

96 137

Interest bearing borrowings Trade and other payables

1 713

5 177

14 386

103 434

259 330

221 817

105 147

264 507

236 203

Fair Value

Carrying Amount

Fair Value

Carrying Amount

Fair Value

11 129

60 012

9 899

8 693

9 808

Company 2013 Carrying Amount Fixed term Investments Other investments Unlisted shares at fair value

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FACILITATING REAL ECONOMIC GROWTH

2012

2011

23 500

25 000

33 399

44 822

94 820

Group 2013

Interest bearing borrowings Trade and other payables

2012

2011

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Carrying Amount

Fair Value

1 639

5 177

2 831

14 343

70 369

166 333

179 609

72 008

169 164

193 952

Determination of fair value Financial instruments with short-term maturities At year end the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximated their fair values due to the short-term maturities of these assets and liabilities. Unlisted shares carried at fair value During 2012/13 the Corporationâ&#x20AC;&#x2122;s investment in Singisi Forest Products was revalued to its fair value of R 23.5 million. The minority shareholding in Singisi Forest Products (Pty) Ltd has been valued using the projected dividends receivable from free cash flows (excess cash). The downturn in the world economy coupled with continuing low foreign exchange rates and closer to home, the local building industry (residential market) also having experienced a downswing, has resulting in an oversupply of lumber in the national market. This affected the company revenueâ&#x20AC;&#x2122;s negatively experiencing both a volume and price reduction which has resulted in the marked movement in the valuation from 2010. Unlisted shares carried at cost In accordance with the accounting policy on available-for-sale financial assets, certain unlisted shares are carried at cost as their fair values could not be reliably determined, due to a lack of an active market for these instruments. Held to maturity investments, loans advanced and interest bearing borrowings The fair values of these financial instruments are determined based on discounted cash flow techniques, taking account of market related discount rates appropriate to the instrument and economic conditions current at the balance sheet date. At this date, the fair value of the financial instruments approximated their carrying values.

FACILITATING REAL ECONOMIC GROWTH

35. Other comprehensive income Components of other comprehensive income - Group - 2013 Available-for-sale financial assets adjustments

Balance

Closing balance

22 673

Opening balance

(24 173) (1 500)

Movements on revaluation Closing balance

Components of other comprehensive income - Group - 2012

Available-for-sale financial assets adjustments Closing balance

24 173

Closing balance

(24 173) -

Components of other comprehensive income - Group - 2011

Available-for-sale financial assets adjustments Closing balance

24 173

Opening balance

(24 173) -

Movements on revaluation Opening balance

(326 257)

Components of other comprehensive income - Company - 2013

Available-for-sale financial assets adjustments Closing balance

22 680

Opening balance

(24 180) (1 500)

Components of other comprehensive income - Company - 2012

Available-for-sale financial assets adjustments Closing balance

24 180

Opening balance

(24 180) -

Components of other comprehensive income - Company - 2011

Available-for-sale financial assets adjustments Closing balance

24 180

Opening balance

(24 180)

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36. Prior period errors 1.

The financial statements have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice on a basis consistent with the prior year.The fair value adjustments for Investment Properties were erroneously included in the revaluation reserves instead of profit or loss and have now been corrected. The impact in the financial statements is tabulated in the table below.

The commitments relating to contract work in progress in the ECDC Group for 2011 and 2012 were previously reported as follows: 2012 (R371,964) and 2011 (R352,547) and have now been corrected. In addition commitments amounting to R16,675 was ommitted in the East London IDZ financial statements for the year ended 31 March 2012 and have now been included, refer to note 28.

Further, the commitments for operating leases ( as lessors) for 2011 and 2012 were previously disclosed as follows: 2012 (R106,491) and 2011 (R92,302) and have now been corrected. In addition, commitments amounting to R56,511 were ommited in the East London IDZ financial statements for the year ended 31 March 2012 and have now been included, refer to note 28.

4. Contingencies relating to the East london IDZ for the year ended 31 March 2012 were erroneously excluded in note 27. The details are follows: Employee performance bonus - R1,400,000 and VAT withheld in respect of government grants - R808,070

Retained Income

140 754

253 071

393 754

348 909

Non-Distributable reserves (see paragraph 1 above)

(119 102)

(253 071)

(393 754)

(348 909)

Investment Properties (property duplicated in prior years)

(20 600)

Trade and other payables ( contract retention provision overtated in prior year)

(1 052)

Deferred income (grants released to income overstated in prior year)

213

Grant Income (grants released to income overstated in prior year)

(213)

37. Intangible assets Group

Computer software, internally generated

2013

2012

Cost / Valuation

Accumulated amortisation

Carrying value

Cost / Valuation

Accumulated amortisation

Carrying value

311

(136)

175

150

224

Group

Computer software, internally generated

2011 Cost / Valuation

Accumulated amortisation

Carrying value

(48)

FACILITATING REAL ECONOMIC GROWTH

37. INTANGIBLE ASSETS (continued) Reconciliation of intangible assets - Group - 2013 Opening balance

Additions

Amortisation

Total

161

(62)

175

Opening balance

Additions

Amortisation

Total

(26)

Opening balance

Additions

Other changes, movements

Amortisation

Total

(65)

Computer software, internally generated

Reconciliation of intangible assets - Group - 2012

Computer software, internally generated

Reconciliation of intangible assets - Group - 2011

Computer software, internally generated

Group Figures in Rand thousand

2013

2012

Company 2011

2013

2012

2011

38. non-current assets held for sale The corporation has committed to dispose of certain investment properties. Some of the non current assets held for sale have been paid for in full and therefore included in trade and other payables. The disposal, which meets the crietria in paragraphs 7 and 8 of IFRS 5 to be classified as held for sale, takes the form of two disposal groups, as set out below. Disposal groups

Carrying amount after classification as held for sale

Cash received but not yet transferred

4 841

Deed of sale signed but no cash received yet

11 638 16 479

Assets and liabilities

Non-current assets held for sale Investment property

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FACILITATING REAL ECONOMIC GROWTH

16 479

11 192

7 136

16 479

11 192

7 136

39. Supplementary information The supplementary information presented does not form part of the consolidated annual financial statements and is unaudited Group

Company

1. Subsidiaries Name of the subsidiary (consolidated)

Issued share capital

Percentage shareholding

Shares at cost less provision Indebttedness less provision

TDC property investments (Pty) Ltd

4 000

100

4 000

3 514

Transdev properties (Pty) Ltd

2 000

100

2 000

(20 567)

100

10 266

120

100

232 757

22 998 661

(15 697)

100

1 330 200

100

7 100

400

100

1 000

740

100

23 005 603

(15 384)

2013

Centre for investment and marketing in the Eastern Cape Cimvest (Pty) Ltd Transkei Share Investments Company Limited AIDC Eastern Cape Transido (Pty) Ltd Umthatha Small Industries Complex (Pty) Ltd East London Industrial Development Zone (Pty) Ltd Windsor Hotel (Pty) Ltd Eastern Cape Marketing Authority (Pty) Ltd

2012 TDC property investments (Pty) Ltd

4 000

100

3 491

Transdev properties (Pty) Ltd

2 000

100

2 000

(16 648)

100

15 775

120

100

(6 564)

232 757

22 998 747

(15 716)

100

1 330 200

100

7 495

400

100

397

1 000

740

100

913

23 001 689

(10 807)

FACILITATING REAL ECONOMIC GROWTH

39. Supplementary information (continued) 1. Subsidiaries

Name of the subsidiary (consolidated)

Issued share capital

Percentage shareholding

Group

Shares at cost less provision Indebttedness less provision Company

2011 TDC property investments (Pty) Ltd

4 000

100

3 467

Transdev properties (Pty) Ltd

2 000

100

2 000

(13 203)

100

14 349

120

100

(5 708)

232 757

26 117 248

(15 733)

100

1 330 200

100

7 479

400

100

392

1 000

740

100

1 015

26 120 190

(7 904)

The supplementary information presented does not form part of the consolidated annual financial statements and is unaudited Group

Company

Non-consolidation of equity interests exceeding 50% Certain of the groupâ&#x20AC;&#x2122;s equity investments have not been included in the consolidated annual financial statements as the group does not exercise any control over their operations. The entities affected are Magwa Enterpise Tea (Proprietary) Limited and TIDC (Association incorporated under section 21). Ikhala Aloe has not been consolidated as the shareholding was only acquired as security and the companyâ&#x20AC;&#x2122;s financial information is not material to the group.

173

www.ecdc.co.za

FACILITATING REAL ECONOMIC GROWTH

Entities which were not equity-accounted Certain equity investments in which the group holds 20% or more of the equity have not been equity accounted as the investments were only acquired to protect loan advances. The entity affected is Border Copiers. Availability of information A subsidiary, Windsor Hotel (Proprietary) Limited, and an associate, Bushman Sands Developments (Proprietary) Limited, have been consolidated on the basis of limited information due to financial statements for the year ended 31 March 2012 not being available.

2. Interest bearing borrowings

Group

Installment

Date of final payment

2013

2012

2011

Office Block Loan

713

1 427

Loan 13942/201

164

Loan 13942/301

488

2 016

1 639

2 118

2 581

10 171

2013

552

1 713

3 383

14 386

713

1 427

Development Bank of Southern Africa

Loan 13942/401 Finance lease

488

Corporation

Development Bank of Southern Africa Office block loan

Loan 13942/201

164

Loan 13942/301

488

2 016

1 639

2 118

2 581

10 171

2 831

14 343

Loan 13942/401 488

FACILITATING REAL ECONOMIC GROWTH