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SNII creates competitive and viable small businesses in the ICT sector thereby giving effect to the vision of its core funders – the Seda Technology Programme (STP) and Nelson Mandela Bay Municipality. SNII aims to build a steady pipeline of innovative small enterprises by forging high-value partnerships with Eastern Cape tertiary institutions within its reach. Its incubation programme is backed up by a system of consistent monitoring and evaluation processes. The incubator is based in Port Elizabeth, Eastern Cape, South Africa and currently serves the greater Nelson Mandela Bay Metropolitan region. SNII offers both resident and virtual incubation for its enterprises. The incubation programme ensures that the fundamentals of supported organisations are in place. This allows small businesses to ride out economic difficulties. Organisational goals • Creating enterprises in the ICT sector Assisting in the start-up process including developing a business case and implementation with measurable and managed milestones. • Supporting enterprises in the ICT sector
Through business development interventions, on-going in- house training, specialist mentoring and coaching, quality assurance as well as research and development.
Business support • Facilitation of entity registration • Feasibility studies to ensure long-term sustainability • Provision of general and specialised business mentoring and coaching
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• Provision of structured training • Facilitation of access to funding • Facilitation of access to marketing and trade networks • Quality management systems Infrastructure support • Office space • Boardrooms and meeting rooms • Administration and clerical services • Technology support • Connectivity • Telecommunications INCUBATION MODEL There are three stages with different sets of entry criteria applicable to each level: ideas
incubating enterprises
start-up
grow | mature
incubating industries sustainability
pre-incubation
incubation
accelerator
three months
24 months
six months
basis
ability
basis
•
Resource analysis
Financing/investment
Feasibility and viability studies
Increased sustainable revenue streams
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•
•
Mentorship and guidance
Financial and cash flow management
Globalisation
•
•
•
Business strategy and modelling
Quality management systems
Brand equity and management
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•
•
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Siphiwo Soga
Lulama Mxenge
Acting Executive Manager: Seda Technology Programme
Director Sector Development: Economic Development and Recreational Services, Nelson Mandela Bay Municipality
A significant highlight in the three-year strategy cycle is the 100% and 95% survival rate of SNII’s incubated enterprises, in the first and second year of operation respectively. Since the core of business incubation is to ensure the survival of start-ups and early stage enterprises, particularly during the first three years of operation, SNII’s performance in this regard shows that the incubator is adding significant value.
The SNII Master Class Programme which equips young adults with computer, life and workreadiness skills has been a notable highlight in the year under review. Not only does the programme generate skills and competencies of its participants, it also provides a pool of potential enterprises for SNII’s incubation programme. Importantly, the programme is a conduit to linking up with other municipal projects for growth and development of young professionals and youth-owned businesses.
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Prof Jean Greyling
Motse Mfuleni
Head of Department: Nelson Mandela Metropolitan University Computing Sciences
Chief Executive: Imbizo Events Boosting the capacity of the management team has been a significant milestone as this allows SNII to provide adequate support, coaching and mentorship to businesses in the incubation programme. Another notable highlight has been the assistance given to incubated enterprises in capacity building, in response to enterprise development programmes that provide partnership opportunities for small companies.
I have been tracing the progress of two of my students who started their own company and have been assisted by SNII over the past year in its incubation programme. I have been very impressed by the quality of service they have been receiving from SNII. I know this opens the door for many future student start-ups to be assisted.
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With the determined resolve that has come to characterise the organisation, these challenges were by no means insurmountable. I am delighted that the organisation has tackled these head-on and continued to declare a solid development dividend to the enterprises of the Nelson Mandela Bay region. Solid governance framework While the Board of Directors focused its energies on building a solid governance structure in the penultimate year of the cycle, the focus in this particular period under review has been the strengthening of the organisation’s governance structure in support of the continued development focus. The Board in this period reviewed all the Board Chatters, following an extensive review and registration of the Memorandum of Incorporation as required by the New Companies Act. This places the organisation on a firm footing to build and improve on governance matters, which are critical to the centre’s value proposition to stakeholders, in particular those that fund the entity. Review of strategy cycle The end of strategy cycle also provided a platform for a succinct and honest interrogation and appraisal of the performance of the organisation over the last three years. Taking into cognisance the substantial work that still
needs to be done in empowering ICT small businesses in the region, the Board is satisfied with the notable achievements of the incubator, despite a challenging operating environment characterised by fiscal constraints. In this regard, the Board extends its appreciation to SNII’s core funders, the Seda Technology Programme of the Department of Trade and Industry and Nelson Mandela Bay Municipality for their unwavering and ongoing support. Similarly, it is also a proud moment for the Board to share with its partners its achievements over the last three years. I am pleased to announce that the incubator has breathed life into 98 businesses in the last three years. These businesses have collectively created a total of 85 direct and 251 indirect jobs. In the same period, these businesses generated a turnover of R19.8 million in relation to total grant funding of R10.6 million over the same period. Perhaps even more exciting for the Board is that 100% of the incubated enterprises survived their first year in business and 95% survived their second year. Nine enterprises also graduated from the incubation programme over the same period. This is an exciting feat by any account considering that statistics reveal that about 80% of small
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businesses fail in their first year and 60% of those who survive do not make it past their second year. SNII’s performance over this period is a reliable barometer to measure its outputs against its stated mandate. Central to the organisation’s operations, is building a strong entrepreneurial culture that cultivates quality and viable enterprises which are capable of withstanding scrutiny in a globalised and fiercely competitive business environment. Empowered core business As such, the Board instructed management to begin a process of reconfiguring and assembling an organisational structure which should empower its core business. This process led to an organisational development exercise which ensured that the business had the requisite human capital to discharge its demanding mandate. Furthermore, the Board continued to advocate for the sustenance of high-value partnerships which aid its core business particularly those that provide expertise and growth opportunities for its incubated enterprises. In this regard, the organisation has strengthened its focus on research and development and forged strong partnerships with institutions of higher learning such as the Nelson Mandela Metropolitan University. SNII partnerships extend to global alliances which include collaboration with the University of Oldenburg among others. These partnerships should mould an organisation at the forefront of innovation and a well of intellectual property. As such, the Board will ensure that the incubator continues to leverage the expertise of its partners in its search for innovative and improved means to discharge of its duties and to build a capable organisation. Operational excellence These interventions have led to encouraging organisational performance which exceeded much of its expectations in the review period. For example, the organisation has supported 35 enterprises in the period under review whilst simultaneously establishing 12 new ones. The resultant effect was the creation of 105 direct and indirect jobs. Their combined turnover grew by R2.2 million from the previous year to R7.5 million in the review period. The organisation is deeply indebted to its funders who have injected R3.5 million into the incubator which has allowed it to continue to discharge its empowering mandate.
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Advocacy role The Board of Directors has pronounced that in the next three years it will focus on consolidating the gains achieved thus far and will strengthen the operating environment by focusing on capacity constraints, in particular funding and the sustainability of the centre. To this end, the Board will play an advocacy role in consolidating current and new partnerships; widening SNII’s stakeholder participation base beyond those that have played a critical championship role, and ensuring that all successful graduates remain a part of the programme and help grow new businesses. Appreciation It is perhaps pertinent to elevate and thank the Seda Technology Programme of the Department of Trade and Industry, Nelson Mandela Bay Municipality, Nelson Mandela Metropolitan University, East London Industrial Development Zone, and Nelson Mandel Bay Chamber of Business for providing both funding and leadership support to the centre to build it to what it represents today, as attested to by its track record, particularly the number of graduates that stand at nine enterprises over the past three years.The Board of Directors convey particular gratitude to the organisational head, Sipelo Lupondwana, for his solid leadership and to SNII staff for their selfless dedication and commitment to success and urge that this continues to rub off on their incubated enterprises in turn.
Thando Gwintsa Chairperson of the Board of Directors
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The year under review was characterised by profound reflection and accelerated action as THE ORGANISATION reached the pinnacle of its three-year strategy cycle. The cycle which began in 2010/11, was built on reconfiguring and strengthening the incubation programme and supporting infrastructure for improved operational efficiencies as well as effective resource allocation and utilisation. Solid socio-economic DIVIDEND Therefore, the end of the cycle not only provides an opportune moment for strategic reflection, but an opportunity to celebrate SNII’s achievements over the last three years as it moves closer towards realising its intended objectives. Over the last three years, SNII has supported 98 businesses which have created a total of 85 direct and 251 indirect jobs. The turnover generated by the businesses in the same period amounted to R19.8 million in relation to total grant funding of R10.6 million over the same period. The organisation also graduated nine businesses during this period. SNII is particularly pleased that throughout this period, 100% of the businesses in the incubation programme survived their first year with survival rates above 95% in their second year. This is particularly exciting for the organisation considering that five out of seven new businesses in South Africa do not make it through their first two years. This highlights the benefits small businesses can accrue from incubation programmes such as SNII which are designed for maximum impact. Organisational development As such, the Board, under the proficient leadership of Chairperson, Thando Gwintsa, impressed upon management to ensure that the resultant organisational structural changes should have the intended effect of improving the value proposition of the organisation. Subsequently, SNII undertook an organisational development exercise which has placed the organisation on a sustainable growth trajectory. This conviction is borne out of the fact that the organisation knows which levers it needs to pull in order to bring to life its stated vision of being a world class ICT incubator for growth and prosperity. The organisational development exercise has resulted in a centre structure which comprises two business units in the form of enterprise development and corporate services. It is intended that the new organisational structure should capacitate the core business of incubation and channel financial and other resources for enterprise development. The new structure also lays down the preparatory work for areas that have been identified as the strategic objectives for the next three years.
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While incubation and sustainability lies at the epicentre of the organisation’s core offering, the positioning of SNII as an ICT solutions and market intelligence repository will increasingly become a rallying point for the organisation. As a result, the enterprise development unit has been capacitated with key experts in areas ranging from technical, research, business and strategy development and implementation as well as quality management. Operational excellence I am equally pleased to announce that SNII has met and exceeded many of the objectives it set out to achieve during 2012/13. The organisation has achieved more than 90% of its targets in the year under review. The organisation established 12 enterprises in the review period measured against a target of 10. It also met its target of supporting 35 businesses. A total of 35 direct and 70 indirect jobs were created exceeding expectations. The combined turnover of the businesses grew from R5.3 million in 2011/12 to R7.5 million in 2012/13. SNII also received grant funding of R3.5 million during the review period from its funders, Nelson Mandela Bay Municipality and the Seda Technology Programme. About 68% of the funding went to enterprise development, 7% to the capital budget and the rest was allocated to the support function. Of the 35 businesses supported 11 were part of the virtual incubation programme, nine under full incubation, eight in pre-incubation or ideas phase which includes prototyping and feasibility. A total of four were at launchpad phase which means they are ready to take their products to the market. Three of the businesses are women-owned while a further three hold more than 25% but less than 51% ownership. More than 70% of the businesses are owned by youth. The organisation is also delighted that it graduated three enterprises in 2012/13. Before businesses graduate, they must demonstrate a solid understanding of the business, and have a growth plan which includes a good pipeline of business. They must also show a stable turnover and create jobs. The three graduating business will also go through the six-month SNII post-incubation programme which focuses on strategy, quality and financial management. Strategic and productive engagements Furthermore, SNII has engaged in strategic local and international partnerships which should have the effect of elevating the organisation among industry stakeholders. For example, in October 2012, SNII began a three-year partnership with the University of Oldenburg’s International Centre for Social Entrepreneurship and Technology (ICET). SNII hosted a delegation from the university and ICET in a kick-off workshop where entrepreneurship and the incubation models of the two partners were shared. During the review period, SNII hosted three postgraduate students from Oldenburg. This programme gives SNII exposure to global perspectives. In addition, SNII is a participating partner of the DASIK project (Developing and Strengthening Industry-driven Knowledge-transfer between developing Countries). The project was founded by the German Academic Service and the Federal Ministry for Economic Corporation and Development. The main objective of the DASIK project is to develop and conduct intensive training courses in current ICT-related research fields, in order to generate a transfer of knowledge between the members of the participating partner institutions such as the Nelson Mandela Metropolitan University, Oldenburg University and the University of Dar es Salaam.
SEDA NMB ICT ICUBATOR ANNUAL REPORT 2012/13
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SNII also signed an enterprise development partnership for six of its enterprises with Algoa FM. Entrepreneurs from SNII were sponsored advertising and promotion on the radio station’s website valued at R540,000. outlook The organisation is thus confident that it is on a sustainable path of growth and development. SNII continues to vigorously pursue the growth of new ICT businesses as an enabler for other sectors of the economy. The organisation is stable and it is at an ideal position to branch out and diversify its value proposition. Moving forward, SNII does not only want to be just an ICT solutions repository, but bring the market to its clients. This means SNII has to be at the centre of social entrepreneurship where the product and service offering of its businesses respond to the most pressing of the city’s, provincial and national challenges. The organisation’s conviction is rooted in producing entrepreneurs who are socially astute and relevant. Importantly, SNII intends to further strengthen international relationships and networks and ensure that its current and past graduates open up opportunities to go into the rest of the continent and beyond. Appreciation I would like to extend my heartfelt gratitude to the Board of SNII for its continued unwavering support, guidance and incisive leadership. I wish to further extend my appreciation to the organisation’s core funders, Nelson Mandela Bay Municipality and the Seda Technology Programme for their continued financial support. I would also like to thank our strategic partners who have assisted the organisation to come closer to realising its stated vision. Finally, I would like to thank the SNII team and the enterprises to whom we owe our existence for their determination and the concomitant dedication to the programme.
Sipelo Lupondwana Centre Manager
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SEDA NMB ICT ICUBATOR ANNUAL REPORT 2012/13
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Return on investment
This process resulted in an organisational development exercise which was established, and by the end of the cycle cemented SNII’s competitive advantages as well as its service offering. The exercise sought to strengthen and channel adequate resources to the core business of incubation as well as establishing a solid, efficient and reliable corporate support infrastructure. As such, an enterprise development division as well as a corporate services unit were established. The organisation is confident that these structural changes have delivered solid returns as demonstrated in its performance over the past three financial years. During the three-year period, SNII supported a total of 98 businesses with a combined turnover of R19.8 million compared to grant funding allocations of R10.6 million over the same period. In this regard, SNII extends its gratitude to the Nelson Mandela Bay Municipality and the Seda Technology Programme for their continued and steadfast support. The funding continues to ensure that SNII delivers on its mandate of grooming socially-relevant and astute entrepreneurs in an increasingly competitive global economic environment.
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TURNOVER SURPASSES FINANCIAL INJECTION Turnover Funding
R35,000,000 R30,000,000 R25,000,000 R20,000,000 R15,000,000 R10,000,000 R5,000,000 R0
2010/11
2011/12
2012/13
Sustainable enterprises
Taken within a national context, while the performance of the past three years is no grounds for complacency nor is it a panacea for the challenges small businesses face, it nonetheless demonstrates an organisation poised for maximum impact. SNII’s performance is encouraging if you consider that small businesses are the largest contributors of employment in any economy. In South Africa, they employ about 60% of the labour force and they are the largest contributor to GDP. Banking giant Absa’s 2012 SME Index indicates that 80% of small businesses failed in their first year. Of this number, a further 60% failed in their second year. Absa identifies access to markets, funding and training assistance as three key issues that hamper SMEs staying afloat. As such, SNII is delighted that it is playing its part in reversing this challenge. For example, SNII businesses created a total of 85 direct and 251 indirect jobs in the last three years. DIRECT AND INDIRECT JOBS 160
Indirect jobs
140
Direct jobs
120 100 80 60 40 20 0
2010/11
SEDA NMB ICT ICUBATOR ANNUAL REPORT 2012/13
2011/12
2012/13
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In addition to this, nine businesses have graduated from the programme during this period. Graduating from the programme means these businesses demonstrated a solid understanding of business, have a growth plan as well as a solid pipeline of business. They have demonstrated a stable turnover and they are creating jobs.
3
2010/11
3
2011/12
3
2012/13
SNII is also particularly pleased that 100% of businesses survived their first year in each of the three years and about 95% survived their second year in business. SNII is delighted that its incubation programme cushions entrepreneurs from the challenges faced by most small businesses in their first three years. SNII is also proud that it increased in the number of enterprises it supported in this period.
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SEDA NMB ICT ICUBATOR ANNUAL REPORT 2012/13
YEAR-ON-YEAR INCREASE IN NEW incubated enterprises New enterprises Existing enterprises
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
2010/11
2011/12
2012/13
Market access In his address at the SME Africa 2012 Conference in Sandton, Absa’s head of enterprise development Sisa Ntshona told entrepreneurs to “find your market and the money will find you.” SNII intends to do exactly this at the beginning of the next threeyear cycle. While SNII seeks to become a repository of ICT solutions, one of the organisation’s key tasks will be to bring the market to its clients.
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With extensive experience in enterprise resource planning, systems support and outsourcing, software development and systems integration as well as in plant automation solutions, Bransystems adheres to time and cost-effective project management as well as professional execution. “The review period was exciting, resulting in the company breaking new ground, securing new clients such as the Nelson Mandela Bay Metropolitan University (NMMU) to provide software and hardware services. Bransystems also completed a number of projects and renegotiated some annual contracts. This resulted in growth of about 25% in revenue. This resulted in the recruitment of three permanent staff members. “The company boasts a one-year systems support contract with auto giant, Volkswagen South Africa (VWSA), for their call centre applications as well as a two-year contract for a number of their production systems,” Jacob says. Jacob, who holds a Masters degree in Business Leadership (MBL) as well as an electronics and telecoms degree with distinction, explains that Bransystems “is built on a core team with an excellent track-record that uses its unique knowledge and technical expertise to offer cost-effective and dedicated client-orientated services.” “During the review period, the company benefitted from an enterprise resource planning and systems processes programme at NMMU. Furthermore, the company also attended a workshop for application development hosted by Microsoft and Nokia in East London. These SNII interventions have helped us sharpen our skills, keep abreast with industry trends and ultimately impacting on our bottom-line,” adds Jacob.
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The young and dynamic team pulls together fresh, inspired and innovative ideas to provide compelling visual solutions to a demanding client base. They have done this successfully since 2005 in areas such as production, coordination, video, training and development as well as in graphic design which was recently added to the service offering in 2011. They have run and coordinated large productions with budgets in the region of R15 million each. “Some of our highlights during 2012/13 include participation in Amazing Race Ukraine 2012, eTV documentary “My ma se kind” 2012 as well as the Eastern Cape Premier’s Speech 2012 on DSTV Parliament. In addition, Shoot97 was involved in corporate video production for the Splash Festival 2012. “The company is growing and we are grateful that we can count on a support structure and partner such as SNII which continues to provide mentoring and coaching, networking opportunities and facilitating skills development. These interventions have helped us grow our business, gain access to markets, increase revenues and ultimately they aid in the creation of jobs,” says managing member Clayton Thom. Clayton explains that Shoot97’s repute for high quality production outputs over the last eight years has been hard earned by building, growing and tapping into a network of resources to take on any project. “The secret to our growth lies in our commitment and hard work as well as those close relationships we forge with our clients and service providers,” adds Clayton.
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Although starting a business was not their initial plan after completing their studies, Akhona explains that the idea of owning a business was introduced to them at a small business workshop hosted by the Eastcape Training Centre in March 2012. The workshop was focused on enterprise support and financial resources available to small businesses and featured various institutions including SNII. “It was only upon seeing the support structures in place for small businesses that we were motivated to establish our own business. The synergy between SNII’s focus on ICT small businesses and our academic background and business interests was opportune. This meant we could join the incubator and benefit from their expertise and networks, ” says Akhona. Their business idea finally matured into a viable business case a year later. Launched in February 2013, A & A IT Solutions provides web programme development and computer repair services, as well as computer training targeted at schools in Nelson Mandela Bay. Abongile says their biggest expectation from SNII is to get help on acquiring more knowledge on business development, growing both the service offering and attracting clients. “With assistance from SNII, we are already planning towards developing a web-based application that can be used by the restaurant trade for virtual orders,” says Akhona.
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A year later, what began as an eCommerce company has evolved and diversified into tablet PCs, accessories as well as web hosting. “We started off selling affordable women’s clothing. Our business quickly got nominated for a South African eCommerce Award and generated a lot of publicity all over the continent. However, with all the traffic we generated, we noticed that our conversion rates were less than satisfactory. “Upon further investigation we found that our prospective clients were less likely to purchase a tactile product on a mobile phone, regardless of its design and user interface accolades. In every problem is an opportunity and we have been extremely fortunate to identify and make full use of it,” says chief executive Sabelo. This finding led Millbug to design its own solar powered tablet PC with early price estimates of their innovation pitched at R1,900 a unit. “All this would certainly not be possible without help from SNII. We have gained access to markets, world class training and access to finance. Not enough can be said of how instrumental the incubator has been to our successes thus far,” Sabelo explains. In order to ensure that its product is truly innovative, Millbug has decided to provide various services around the tablet such as an Android app, web hosting, web development as well as cloud storage and backup services. Millbug has applied to launch its product at Demo Africa in October 2013.
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BLACK
OUT
advertising & graphics | innovativity innovated
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Managing member Luvuyo Booi explains that the calibre of these new clients and the size of the contracts position the business for large-scale projects throughout South Africa. Through NLSA, Blackout Advertising was commissioned with the layout of several books by various South African authors. UFH on the other hand contracted the company for the design and layout of the institution’s Science and Mathematics Dictionary. “Securing these contracts gave us hope and opened up new business avenues,” says Luvuyo. “We are now starting to see a substantial growth in revenue generated compared to the previous four years since our establishment in 2008. Looking to the new year, “we have some exciting projects lined-up which include an invitation by NLSA to present to authors at the National Arts Festival in Grahamstown. The presentation is aimed at preparing authors for commercial publishing. “A move towards digital publishing is another exciting area where our groundwork will see fruition in 2013/14,” he says. The 100% black-owned and operated design studio seeks to bring about a unique identity to African designs without being exclusive of other graphic design cultures.
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A 42% response rate was received from the targeted 26 enterprises at different stages of the incubation programme. Eleven respondents have been part of the centre for 18 to 24 months, and an equal split of two responses from enterprises in the programme for less than six months, between six and 12 months, and one year to 18 months respectively.
Convenience
A five-point scale to assess the convenience of the centre to its clients shows that almost three quarters of the respondents rated the convenience of the centre as being above average. This comprises 54% who viewed the incubator as being very convenient and 18% who stated it was extremely convenient. Another 18% rated the convenience as moderate and 9% said it was slightly convenient.
Services
Similarly, a five-point scale was used to evaluate the quality of services offered by the centre in relation to its clients’ expectations. More than a quarter of the respondents said services were much better (27%), while almost half of the respondents (46%) said services were about the same as previous years. Eighteen percent stated services were somewhat better and 9% expressed that services were somewhat worse.
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Value of the incubator
A 55% average was scored across the range of indicators measured. Strongly agree
Strongly disagree
Somewhat disagree
Neither agree nor disagree
Somewhat agree
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Incubation is worth the contribution price
Incubation does what it claims
Incubation meets my company needs
Incubation services are easily accessible
Training
The 8-month business management training offered to clients received favourable ratings. More than half commended the training, with 9% stating it addressed their respective business needs extremely well, and 46% said it addressed their needs very well. Eighteen percent was scored for both moderately and slightly addressing clients’ needs. Nine percent did not attend the training so did not respond to this question and a further 9% stated it did not address needs at all.
Interaction with staff
Almost two thirds of the respondents are satisfied with services provided by the incubator staff. No respondent was dissatisfied.
Other notable findings
While all the respondents stated that they heard about the incubator via word of mouth, this presents an opportunity to robustly market the incubator through strategic networks and media. Lastly, all respondents stated they are likely to recommend the incubator to other entrepreneurs.
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Directors’ Responsibilities and Approval The directors are required by the Companies Act of South Africa, to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements and related financial information included in this report. It is their responsibility to ensure that the annual financial statements fairly present the state of affairs of the company 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 the International Financial Reporting Standard for Small and Medium-sized Entities. The external auditors are engaged to express an independent opinion on the annual financial statements. The annual financial statements are prepared in accordance with the International Financial Reporting Standard for Small and Medium-sized Entities and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgments and estimates. The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the company and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board sets standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the company and all employees are required to maintain the highest ethical standards in ensuring the company’s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the company is on identifying, assessing, managing and monitoring all known forms of risk across the company. While operating risk cannot be fully eliminated, the company endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.
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The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the annual financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss. The directors have reviewed the company’s cash flow forecast for the year to 31 March 2014 and, in the light of this review and the current financial position, they are satisfied that the company has or has access to adequate resources to continue in operational existence for the foreseeable future. The external auditors are responsible for independently reviewing and reporting on the company’s annual financial statements. The annual financial statements have been examined by the company’s external auditors and their report is presented on pages 49 to 50. The annual financial statements set out on pages 51 to 64, which have been prepared on the going concern basis, were approved by the board on 10 May 2013 and were signed on its behalf by:
Thando Gwintsa Chairperson of the Board of Directors
Lulama Mxenge Director
Port Elizabeth 10 May 2013
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Independent Auditors’ Report To the members of SEDA Nelson Mandela Bay ICT Incubator NPC We have audited the annual financial statements of SEDA Nelson Mandela Bay ICT Incubator NPC set out on pages 51 to 62 for the year ended 31 March 2013. These annual financial statements are the responsibility of the company’s directors. Our responsibility is to express an opinion on these annual financial statements based on our audit. Directors’ responsibility for the annual financial statements The company’s directors are responsible for the preparation and fair presentation of these annual financial statements in accordance with the International Financial Reporting Standards for Small and Medium-sized Entities, and requirements of the Companies Act of South Africa as amended, and for such internal control as the directors determine is necessary to enable the preparation of annual financial statements that are free from material misstatements, whether due to fraud or error. Auditors’ responsibility Our responsibility is to express an opinion on these annual financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the annual financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the annual 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 annual 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 annual financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
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Opinion In our opinion, the annual financial statements present fairly, in all material respects, the financial position of the company at 31 March 2013 and the results of its operations and cash flows for the year then ended in accordance with the International Financial Reporting Standard for Small and Medium-sized Entities, and in the manner required by the Companies Act of South Africa. Emphasis of matter Without qualifying our opinion, we draw your attention to the fact that the company has not completed the process of appying for exemption in terms of Section 10(1) of the Income Tax Act, from the payment of income tax. Other matter Without qualifying our opinion, we draw your attention to the fact that the supplementary information set out on pages 63 to 64 does not form part of the annual financial statements and is presented as additional information. We have not audited this information and accordingly do not express an opinion thereon.
Grant Thornton Cape Incorporated Chartered Accountants (S.A.) Registered Auditors Per: Rudi Scholtz Chartered Accountant (S.A.) Registered Auditor 10 May 2013 125 Cape Road Port Elizabeth 6001
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Directors’ Report The directors submit their report for the year ended 31 March 2013. 1. Review of activities Main business and operations The company is engaged in incubation of small businesses in the information technology field and operates principally in South Africa. The operating results and state of affairs of the company are fully set out in the attached annual financial statements and do not in our opinion require any further comment. Net loss of the company was R778,234 (2012: profit R85,313), after taxation of R - (2012: R -). 2. Going concern The annual financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. 3. Events after the reporting period The directors are not aware of any matter or circumstance arising since the end of the financial year. 4. Directors The directors of the company during the year and to the date of this report are as follows: Name T. Gwintsa (Chairperson) L . Mxenge S. Soga M. Mfuleni J. Greyling
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5. Secretary The secretary of the company is The Corporate Administrative Trust Company (Pty) Ltd of: Business address 147a Cape Road Mill Park Port Elizabeth 6001 Postal address P. O. Box 32298 Summerstrand Port Elizabeth 6019 6. Auditors Grant Thornton Cape Incorporated will continue in office in accordance with section 90 of the Companies Act of South Africa.
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Statement of Financial Position Figures in Rand
Notes
2013
2012
2
411,145
503,762
Trade and other receivables
3
921,097
1,627,645
Cash and cash equivalents
4
1,304,552
1,175,830
2,225,649
2,803,475
2,636,794
3,307,237
2,382,958
3,161,192
253,836
146,045
2,636,794
3,307,237
Assets Non-Current Assets Property, plant and equipment
Current Assets
Total Assets
Equity and Liabilities Equity Retained income
Liabilities Current Liabilities Trade and other payables
5
Total Equity and Liabilities
53
Statement of Comprehensive Income Figures in Rand
Notes
2013
2012
Revenue
6
116,969
134,066
Other income
3,530,727
3,522,426
Operating expenses
(4,480,666)
(3,606,352)
Operating (loss) profit
6
(832,970)
50,140
Investment revenue
8
54,736
35,173
(Loss) profit for the year
(778,234)
85,313
Other comprehensive income
-
-
Total comprehensive (loss) income for the year
(778,234)
85,313
54
Statement of Changes in Equity Figures in Rand
Retained income
Total equity
Balance at 01 April 2011
3,075,879
3,075,879
Total comprehensive income for the year
85,313
85,313
Total changes
85,313
85,313
Balance at 01 April 2012
3,161,192
3,161,192
Total comprehensive loss for the year
(778,234)
(778,234)
Total changes
(778,234)
(778,234)
Balance at 31 March 2013
2,382,958
2,382,958
Changes in equity
Changes in equity
55
Statement Of Cash Flows Figures in Rand
Notes
Retained income
Total equity
10
217,710
(1,010,555)
Interest income
54,736
35,173
Net cash from operating activities
272,446
(975,382)
(143,724)
(399,293)
Total cash movement for the year
128,722
(1,374,675)
Cash at the beginning of the year
1,175,830
2,550,505
1,304,552
1,175,830
Cash flows from operating activities Cash generated from (used in) operations
Cash flows from investing activities Purchase of property, plant and equipment
Total cash at end of the year
2
4
56
Accounting Policies 1. Presentation of Annual Financial Statements The annual financial statements have been prepared in accordance with the International Financial Reporting Standard for Small and Medium-sized Entities, and the Companies Act of South Africa. The annual financial statements have been prepared on the historical cost basis, and incorporate the principal accounting policies set out below. They are presented in South African Rands. These accounting policies are consistent with the previous period. 1.1 Property, plant and equipment Property, plant and equipment are tangible items that: • are held for use in the production or supply of goods or services, for rental to others or for administrative purposes; and • are expected to be used during more than one period. 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. Depreciation is provided using the straight-line method to write down the cost, less estimated residual value over the useful life of the property, plant and equipment, which is as follows: Item Leasehold property Furniture and fixtures Office equipment IT equipment
Average useful life Period of lease 10% 10% 50%
The residual value, depreciation method and the useful life of each asset are reviewed at each annual reporting period if there are indicators present that there is a change from the previous estimate. 1.2 Financial instruments Financial instruments at amortised cost Financial instruments may be designated to be measured at amortised cost less any impairment using the effective interest method. These include trade and other receivables, loans and trade and other
57
payables. At the end of each reporting period date, the carrying amounts of assets held in this category are reviewed to determine whether there is any objective evidence of impairment. If so, an impairment loss is recognised. 1.3 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. Operating leases – lessee Operating lease payments are charged to the income statement when they are paid, as annual rental escalations are in line with expected inflation over the term of the relevant leases. 1.4 Government grants Government grants are recognised when there is reasonable assurance that: • the company 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. 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. Grants related to income are presented as a credit in the Statement of Comprehensive Income (separately). 1.5 Revenue Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and services provided in the normal course of business, net of trade discounts and volume rebates, and value added tax. Interest is recognised, in profit or loss, using the effective interest rate method.
58
Notes to the Annual Financial Statements Figures in Rand
2013
2012
2. Property, plant and equipment 2013 Cost / Valuation
2012
Accumulated depreciation
Carrying value
Cost / Valuation
Accumulated depreciation
Carrying value
Furniture and fixtures
202,936
(50,129)
152,807
146,322
(30,482)
115,840
IT equipment
238,171
(182,167)
56,004
180,680
(140,707)
39,973
Leasehold property
441,833
(293,578)
148,255
441,833
(135,908)
305,925
Office equipment
103,553
(49,474)
54,079
73,933
(31,909)
42,024
Total
986,493
(575,348)
411,145
842,768
(339,006)
503,762
Opening balance
Additions
Depreciation
Total
Furniture and fixtures
115,840
56,613
(19,646)
152,807
IT equipment
39,973
57,491
(41,460)
56,004
Leasehold property
305,925
-
(157,670)
148,255
Office equipment
42,024
29,620
(17,565)
54,079
503,762
143,724
(236,341)
411,145
Opening balance
Additions
Disposals
Depreciation
Total
Furniture and fixtures
69,799
55,626
-
(9,585)
115,840
IT equipment
11,039
59,416
(5,509)
(24,973)
39,973
Leasehold property
158,237
261,597
-
(113,909)
305,925
Office equipment
38,479
22,654
(5,894)
(13,215)
42,024
277,554
399,293
(11,403)
(161,682)
503,762
Reconciliation of property, plant and equipment - 2013
Reconciliation of property, plant and equipment - 2012
59
Figures in Rand
2013
2012
47,027
47,027
3. Trade and other receivables Deposits Prepayments
105,685
41,924
Trade receivables
762,127
1,521,751
VAT
6,258
16,943
921,097
1,627,645
Bank balances
1,303,819
1,175,618
Cash on hand
733
212
1,304,552
1,175,830
Trade payables
37,541
84,083
Bonus and leave provision
216,295
61,962
253,836
146,045
116,969
134,066
Fair value of trade and other receivables The carrying amount of trade and other receivables approximates its fair value.
4. Cash and cash equivalents Cash and cash equivalents consist of:
5. Trade and other payables
Fair value of trade and other payables The carrying amount of trade and other payables approximates its fair value.
6. Revenue Rental Income
7. Operating (loss) profit Operating (loss) profit for the year is stated after accounting for the following:
60
Figures in Rand
2013
2012
459,855
360,781
Operating lease charges Lease rentals • Contractual amounts
Loss on sale of property, plant and equipment
-
(11,403)
Depreciation on property, plant and equipment
236,341
161,682
Employee costs
1,747,188
1,186,332
54,736
35,173
Fees
36,000
35,000
Accounting and taxation services
10,000
9,653
46,000
44,653
(778,234)
85,313
Depreciation and amortisation
236,341
161,682
Loss on sale of assets
-
11,403
Interest received
(54,736)
(35,173)
Changes in working capital:
706,548
(1,283,899)
Trade and other receivables
107,791
50,119
Trade and other payables
217,710
(1,010,555)
8. Investment revenue Interest revenue Bank
9. Auditors’ remuneration
10. Cash generated from (used in) operations (Loss) profit before taxation Adjustments for:
61
Figures in Rand
2013
2012
11. Commitments Operating leases – as lessee (expense)
Minimum lease payments due - within one year
327,431
213,300
- in second to fifth year inclusive
289,000
616,430
616,431
829,730
Operating lease payments represent rentals payable by the company for leasing of its office buildings and office equipment. Leases are negotiated for an average term of three years and rentals are fixed and increased by 8% annually (except office equipment rentals’ term is five years and monthly payments are fixed with no escalation). No contingent rent is payable.
62
Detailed Statement of Comprehensive Income Figures in Rand
Notes
2013
2012
116,969
134,066
Insurance refund
20,988
-
Recoveries
9,739
22,426
54,736
35,173
3,500,000
3,500,000
3,585,463
3,557,599
Expenses (Refer to page 17)
(4,480,666)
(3,606,352)
(Loss) profit for the year
(778,234)
85,313
Revenue Rental Income
Other income
Interest received
8
Government grants
63
Figures in Rand
Notes
2013
2012
Accounting fees
-
(6,500)
Advertising and promotions
(88,184)
(30,434)
Assets under R7000
-
(29,023)
Auditors’ remuneration
(46,000)
(44,653)
Bad debts
(44,322)
(86,394)
Bank charges
(8,986)
(9,166)
Board members expense
(69,412)
(133,329)
Cleaning
(1,605)
(1,807)
Computer expenses
(117,165)
(104,591)
Consulting fees
(110,664)
(13,473)
Consumables
(68,626)
(42,206)
Depreciation, amortisation and impairments
(236,341)
(161,682)
Employee costs
(1,747,188)
(1,186,332)
Entertainment
(35,939)
(30,529)
Fines and penalties
(2,500)
-
Insurance
(24,062)
(24,130)
Lease rentals on operating lease
(459,855)
(360,781)
Legal expenses
-
(9,089)
Loss on disposal of assets
-
(11,403)
Mentoring and business development
(411,466)
(506,614)
Postage
(34,192)
(36,634)
Printing and stationery
(107,538)
(48,842)
Repairs and maintenance
(11,796)
(950)
Security
(7,147)
(11,721)
Special projects and contracted running costs
(27,504)
-
Storage
-
(875)
Subscriptions
(11,425)
(1,228)
Telephone and fax
(171,498)
(282,634)
Training
(61,426)
(13,683)
Travel - local
(288,012)
(206,938)
Travel - overseas
(207,503)
(132,127)
Utilities
(80,310)
(78,584)
(4,480,666)
(3,606,352)
Operating expenses
64
65
66
SEDA NMB ICT ICUBATOR ANNUAL REPORT 2012/13
67