AsgiSA_Annual Report_Sep 11 by Get News

ANNUAL REP ORT 2010 /1 1

Honourable Mrs Zoleka Capa MEC for Rural Development and Agrarian Reform I have the honour of submitting the Annual Report of AsgiSA Eastern Cape for the period 1 April 2010 to 31 March 2011.

Simpiwe Somdyala Chief executive officer ASGISA EASTERN CAPE

Mthatha: ECDC House, 7 Sissons St, Fort Gale, Mthatha 5100 t 047 501 5100 | f 047 501 5110 East London: Arundel Park, Unit 2 & 3A, 12 & 14 Old Transkei Rd, Stirling, East London 5247, t 043 735 1673 | f 043 735 2679 Postnet Suite 385, Private Bag X 9063, East London 5200

www.asgisa-ec.co.za

ISBN 978-0-620-51251-0

Mandate, vision & MISSION 01 Chairman’s foreword 03 Board of directorS 08 Chief Executive Officer’s foreword 19 senior management teaM 24 HUMAN RESOURCES MANAGEMENT 33 Staff complement, employment equity, staff turnover, appointments 35, training 36, leave, other key issues 37 STRATEGIC MANAGEMENT 45 high impact priority programmes 53 AGRICULTURE & AGRO-PROCESSING 54, FORESTRY DEVELOPMENT 59, TOURISM DEVELOPMENT 62, HUMAN SETTLEMENT AND PLANNING 63, WATER RESOURCE DEVELOPMENT 64, ALTERNATIVE RENEWABLE ENERGY 65 stakeholder management 71 governance 79 finance and administration 89 financial statements 99

Ngumhlaba wam loo. This is my land. LITHEMBA LAM ELI. This is my hope. IZOLO LIDLULE Yesterday is behind. INGOMSO LETHU LIQHAKRAZILE Our future is getting brighter. SISONKE SINGENZA UMAHLUKO.

mandate: Facilitate, coordinate and implement high impact priority programmes, aligned with the Provincial Growth and Development Plan, focusing initially on the Mzimvubu Economic Development Zone. role: Through partnerships, high level and focused integration and coordination, AsgiSA Eastern Cape will play a direct and catalytic role in building a sustainable and modern, rural-based economy, primarily through agrarian reform.

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vision: A vibrant and sustainable rural economy that improves livelihoods and unlocks the dormant potential of the land and the people of the Eastern Cape.

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& MISSION

MANDATE , VI S ION

Ubuhle bendoda ziinkomo zayo. This age-old African proverb aptly reflects the deep-centred pride of Elliot’s livestock farmers as they reflect on the growth of their livestock units and their farms being “bigger and greener than ever before”. These farmers, together with some 5,000 people who also benefit, are part of the new legacy which AsgiSA EC is helping to create for the people of the former Transkei. The rural development agency is helping to bring to fulfilment a promise that the land has for centuries delivered and will continue to deliver in years to come.

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FOREWORD

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CHAIRMAN ’ S

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Let me be frank from the outset. AsgiSA EC has not done this on its own. Partnerships have played an important role in these successes. The partnerships have come from the public and private sector and include organisations such as SAPPI, Hans Merensky, PG Bison, Farmsecure, Unilever, BKB, commercial banks such as Standard Bank and First National Bank, the Development Bank of South Africa, National Youth Development Agency, various district and local municipalities and national departments.

These partnerships have provided a range of critical project elements such as facilitation, finance, funding and to a great measure, encouragement to the AsgiSA EC team who face mammoth challenges daily. The other important element of the partnership equation is the communities in which we operate and who have had to take a leap of faith to partner with us when before similar promises have gone unmet. The year of 2010 has flown past with little grace and the pending merger with the Eastern Cape Rural Finance Corporation and Eastern Cape Appropriate Technology Unit has provided a further dynamic to what is already a challenging environment. Yet despite this distraction for the team, AsgiSA EC has maintained the 9,674 hectares (ha) under production involving communities such as Mhlontlo, Butterworth and Matatiele. This is a major milestone considering that the programme experienced floods which resulted in many of our areas not reaching optimal yields. In some areas, the consequences of the natural disaster were little or no planting. However, our spirits remain buoyed by the successes achieved by the agriculture and agro-processing high impact priority programme (HIPP).

AsgiSA EC has maintained the

9,674 ha UNDER PRODUCTION

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The livestock project is a source of growing pride. Livestock herds are increasing, improving farmers’ incomes and balance sheets. This has also led to improved collection of loans which has led to the agency recouping R802,000 of its original investment. This is 100% up on last year’s amount repaid by farmers.

R9 million

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INVESTMENT IN LIVESTOCK DEVELOPMENT

fruit

production

F E A S I B I L I T Y STUDIES COMPLETED

17.000 ha SCOPED & IDENTIFIED

Our small irrigation schemes and fruit production are progressing well with business plans now completed for Mount Frere and Mount Fletcher, Cala and Cofimvaba. We are also investigating vegetable clusters with farmers who would enter into off-take agreements with large retail chains as a key ingredient in a successful model. It’s a long road and vigilance is required in the execution of this programme if we are to be successful. Currently, we have only achieved 10% of our goal which is less than 1% of our country’s total maize production. We need to replicate this effort 10 times if we are to achieve our goal of 100,000 ha and harvest 100 million tons per year. The second high impact priority programme is forestry. Visible progress has been made despite challenges relating to new licences. In the year under review, the team has identified and scoped 17,000 hectares. Three Land Redistribution for Agricultural Development communities in Mbizana, Lusikisiki and Ingquza areas are now growing and planting trees with the involvement of the private sector. Once again, these successes should be seen in the light of the goal of 100,000 ha. This could not have been achieved without government’s commitment and the launch of the second industrial action plan. The second Industrial Policy Action Plan has created the impetus for the refinement of AsgiSA EC’s mandate which focuses on rural communities, agricultural industrialisation and beneficiation in primary production. This bodes well for the work being done in the renewable energy HIPP where the by-products of agricultural production will provide feedstock for biomass and biofuel initiatives. Again, infrastructure is required to stimulate local processing of energy. Funding continues to be a challenge. The agency had to prioritise programmes that could become operational within its R100 million budget. We have taken cognisance of government’s funding constraints and aim to position AsgiSA EC as government’s implementing agent in rural agro-industrialisation efforts. This positioning will help consolidate current projects and ensure implementation of government programmes.

In support of government’s land restitution goal, AsgiSA EC has worked closely with the provincial and national departments to provide support for farmers who have acquired land through the land restitution programme.

This legislation also led us to further distillation of AsgiSA EC’s role, namely that of a successful implementing agent. Over the past two years, we have made headway in commercialising agriculture and forestry on a scale not seen in this area before. The AsgiSA EC team, led by CEO Simpiwe Somdyala, has shown great commitment and resilience, despite the uncertainties of merger. I applaud their tenacity to keep moving and keep making the difference. Lastly, my thanks go to our private and public sector partners who have been key to the sustainability of AsgiSA EC projects, my fellow board members, the Premier’s team and the provincial Department of Rural Development and Agrarian Reform who have been supportive of the agency during the past year.

Pepi Silinga Chairman

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I am happy that the board has played its role in bringing about changes to proposed legislation that will make a difference in the lives of our rural communities and demonstrates the province’s commitment to rural development.

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We look forward to the resolution of the institutional arrangements for the merger which remain unclear. In order to pursue the tasks of agro-industralisation, the agency requires certainty on the merger as a matter of urgency.

Skills development remains a key driver of successful farming and a number of farmers are participating in a master farmer programme. Small business development agency, SEDA, has helped attract funding for the programme which has helped build farmers’ confidence around issues such as their land ownership obligations and responsibilities.

B OARD OF D I R E C T O R S

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Pepi Silinga CHAIRMAN Pepi is the chief executive of Coega Development Corporation. He is a member of various industry bodies such as the South African and United Kingdom Institute of Directors, the South African Institute of Civil Engineers, the Project Management Institute, as well as being a fellow of the South African Academy of Engineers. He also serves in the capacity of non-executive chairperson of Agreement South Africa and is the council chairperson of the University of Fort Hare.

Gloria Serobe DEPUTY CHAIRPERSON Gloria is the AsgiSA EC project finance and investment committee deputy chairperson. She is a founding member and executive director of Women Investment Portfolio Holdings (Wiphold) and chief executive officer of Wipcapital. She serves on several boards including Old Mutual, Nedbank, Mutual & Federal, Johannesburg Stock Exchange, the Financial Sector Charter Council as well as the Independent Ports Regulator where she is chairperson. Her leadership role as a trustee of the Wiphold Share Trust, the Wiphold Investment Trust as well as being chairperson of the Presidential Working Group for Women has earned her numerous awards. She is also a member of the Presidential Economic Advisory Committee and an honorary member of the Actuarial Society of South Africa.

Dr Archie Nkonyeni PROJECT FINANCE AND INVESTMENT COMMITTEE CHAIRPERSON Archie has extensive expertise in business and is the founding member of the Mthatha Chamber of Business. He has also served the National African Federated Chamber of Commerce (NAFCOC) as a councillor, president of the Mthatha branch and was elected national president between 1992 and 1994. He has over 30 years experience as a non-executive director in 36 private and government-funded institutions.

Zodwa Manase AUDIT COMMITTEE CHAIRPERSON Zodwa is the CEO of Manase and Associates. She has extensive expertise and experience from contributing to various well-represented Boards.

Nico Ferreira

Nico has been involved in worldwide programmes of nation and community building in Europe, the Americas, West and East Africa, and southern Africa. Through his work with diverse people and countries, he has developed a conviction that ordinary people can play a part in shaping events around them. He worked as a consultant with the National Development and Management Foundation, was vice-president of the National African Farmers’ Union, and board member of the National Industrial Chamber. He served Stutterheim, an Eastern Cape town in the Amahlathi Local Municipality for more than 10 years as mayor and deputy mayor. In addition, he was the executive director of the Stutterheim Development Foundation. He is also the co-author of “Making a Difference – the Stutterheim Story”, a book he co-wrote with Barbara Nussbaum on the town’s process of change and development.

Prof Nompumelelo Jafta

Nompumelelo is an honoured Xhosa linguistics and literature scholar. She has lectured and published numerous books in Xhosa. She is also a member of professional bodies including the Xhosa National Language Body, the Distribution Agency for Arts Culture Heritage and the Xhosa National Lexicographical Unit. She is also a former member of the Eastern Cape Geographical Names Committee and the recipient of a doctorate from the Walter Sisulu University in recognition of her academic excellence. The boards on which she has served include the South African Broadcasting Corporation (SABC) and the Transkei Development Corporation.

Tetinene has served the Eastern Cape Provincial Government’s legislature as a chairman of various committees over the past decade. He is a former board member of the Eastern Cape Development Corporation and the Eastern Cape Parks and Tourism Board. The former blood technican holds agricultural and management certificates, completed through South African institutions.

Thandeka Mbassa Thandeka is the deputy director-general of the Department of Water and Environmental Affairs (DWEA). She has served DWEA (and the former Department of Water Affairs and Forestry) for more than ten years in previous roles such as director of planning and development and chief director for the Gauteng, Northern Cape, Free State and North West provinces.

Vuyelwa Matsiliza Vuyelwa is the divisional executive for community development facilitation of the development fund at the Development Bank of Southern Africa. She is currently leading the piloting of rural and urban alternative integrative development solutions.

Zoleka Capa Born in Flagstaff, Zoleka trained as a nurse and later obtained masters degrees in primary health care and midwifery in Australia. She has worked and tutored at Holy Cross Hospital, and was promoted as a regional deputy director at Department of Health. Later she was elected as a member of parliament, and executive mayor for the OR Tambo District Municipality. She also served on the board of the Eastern Cape SocioEconomic Consultative Council as well as with the national and Eastern Cape branches of the South African Local Government Association. Zoleka was also elected as a member of the association’s national executive committee.

Mpumelelo Saziwa Mpumelelo has a formidable pedigree in education transformation. He has been involved in the development of key elements of new teacher systems at national and provincial levels. Furthermore, he has held various positions in the trade union movement. Currently, he is the Eastern Cape deputy chairperson of the Congress of South African Trade Union as well as the chairperson of the national education development committee.

Chieftainess Nomandla Mhlauli Nomandla, an executive member of the National House of Traditional Leaders and deputy chairperson of the Rharhabe King Council, has wide-ranging experience in community health and farming. She is also the chieftainess of the Amahlubi Traditional Council in the Peddie area.

Xola Pakati Xola is a member of the provincial legislature and the former secretary of Cosatu Eastern Cape. He is the current chairman of the legislature’s economic development and environmental tourism standing committee.

Andile is resident executive chairman of Itsuseng Investment. His experience includes being the chief director responsible for public enterprises as well as being a business strategy executive director at JCI Limited. His background also includes roles within property and wine estates, mining and exploration, equity markets and listing as well as forestry.

K EEPI NG TH E D R EA M A L IV E

Tetinene Jordan

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Andile Nkuhlu

Itâ&#x20AC;&#x2122;s hard to believe that it has only been 365 days since the last report. This year, however, has been different for a multitude of reasons. Importantly, operations have been flavoured by the impending merger whose conclusion remains unclear. Thankfully, we have continued to deliver on our mandate. The levels of commitment from the team are admirable, despite their morale waning from time to time as is to be expected, due to the merger uncertainties.

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FORE WORD

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CHIEF EXECUTIVE OFFICERâ&#x20AC;&#x2122;S

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A second variable which has impacted operations has been funding. The funding received from our chief principal, the Eastern Cape government, was lowered by 33% to R100 million during this financial year. The impact of this reduction has been evident in the number of projects supported and the lack of investment for the much-needed infrastructure.

The situation could have been worse if it were not for the support received from two key national government departments, namely Rural Development and Land Reform (DRDLR) and Agriculture, Forestry and Fisheries (DAFF). During the period under review, DRDLR appointed the organisation to support in the management of R51 million as part of the land restitution process. The efficiency demonstrated in performing this task has positioned the organisation in fund management on behalf of government departments. In another case, finance from DAFF has resulted in more hectares being planted. An amount of R30 million has been agreed to with DAFF and project implementation is likely to commence during the 2011/12 financial year. On crop production, the agency has recouped R14 million for reinvestment. This is 180% up from the previous year. In particular, the reinvestment activity is laudable considering the challenges farmers continue to experience. Because of their size, maize and livestock farmers have little negotiating muscle with suppliers. Poor or absent infrastructure hamper their access to markets and this is worsened by high production costs and poor logistics. The lack of silos means that the farmers have to sell when there is oversupply. Tough market conditions for maize have forced diversification into crops such as soya and dry beans. Lands have lain fallow for many years and costs are high in order to improve the quality of the soils. Informed by these experiences, AsgiSA EC, together with various partners, is developing strategies including the development of trading posts to improve intra-village trade and plug economic leakages.

ON CROP PRODUCTION:

R14 million

RECOUPED FOR REINVESTMENT

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community

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FEEDBACK & INTERACTION REMAIN A HIGH PRIORITY

The repayment of R765,535 by the 43 livestock emerging black farmers at Sakhisizwe, whose total loans amount to R9 million, is encouraging despite the low calving rate. Evidence points to calving more than doubling to 65% from 32% in the coming financial year as a result of improved farmer management and involvement. An important milestone in the implementation of the Sakhisizwe Livestock programme has been the establishment of a secondary co-operative, ably led by the veteran businessman and farmer Mr Mnukwana. Through a partnership involving the National Development Agency (NDA), the secondary cooperative, Ikhephu Secondary Co-operative, is beginning to take ownership in the management and marketing of the programme. To this end and informed by lessons learnt during the previous year of implementation, a new business plan to the value of R92 million has been developed. A Livestock Reinvestment Development Fund concept, whose objective is to expand the livestock commercial development initiative to the rest of the rural Eastern Cape, is under development. Our experiences have also affirmed the long-time discourse that farming is like any other industry. There are those that are capable and less capable. Furthermore, committed farmers who do it for a living are more successful. Absentee farmers who have no management presence are less so. Too many farmers sharing the spoils with different levels of commitment and investment also provide challenges. Other projects within the agriculture and agro-processing high impact priority programme (HIPP) are showing great potential. The Highbury Small Scale Irrigation Scheme, located close to the Mthatha Dam, is an indicator of the potential that exists if communities partner with emerging farmers. The project is currently operating on 60 ha under irrigation with the potential for an additional 53 ha. The Keiskammahoek small scale irrigation paprika project, done in partnership with the Development Bank of Southern Africa (DBSA), currently operates on 30 ha and has the potential to more than double its operating size. Progress on the stone fruit initiative, targeting areas such as Cofimvaba, Cala and Mt Fletcher, is reaching finalisation. The project is likely to create more than 256 direct jobs at full production at an investment of R188 million. This project, together with the paprika initiative, was initiated as part of the Unilever and DBSA partnership. These projects also entail value adding which entails drying and packaging. I am grateful to DBSA for their partnership which has proved incredibly fruitful. We have learnt much and expect to continue to grow from this partnership particularly in the area of project management which is critical to our intended role as implementing agent.

We look forward to the speedy resolution of the merger so that we can focus more clearly on the job at hand. We cannot afford to relax until we establish the Eastern Cape as a new national agro-industrialisation hub and diversify the province’s economy. Nature has richly endowed us with the right soil, climate and communities. Our responsibility is to make good on these gifts and lead the province towards being the bread basket of South Africa.

In other initiatives, AsgiSA EC has played a significant role in addressing forestry licensing issues, engagement with the private sector on approaches suited to Eastern Cape’s unique land tenure characteristics and supporting national and local government on forestry technical and strategic matters. Both programmes are now aligned with government’s latest policy shifts which focus on rural communities, agricultural industrialisation and the beneficiation in primary production. The Industrial Policy Action Plan 2 (IPAP2) alignment bodes well for AsgiSA EC’s renewable energy HIPP, where the by-products of agricultural production will provide feedstock for biomass and biofuel initiatives. In this regard three main projects were initiated including the King Sabata Dalindyebo biogas plant, co-funding for household bio-digesters and a bio-diesel and oil extraction plant in partnership with ChemCity. Community feedback and interaction remain a high priority. Cluster workshops provide valuable quarterly feedback through involved and responsible chairmen who closely monitor activity at grassroots level. During the year, 46 project management teams have been established, 29 social charters signed and 47 co-operatives registered. Social facilitation and community coherence is a long-term process requiring collaboration beyond agrarian related activities. Further partnerships will remain a priority during the coming years. Skills development remains a key driver of successful farming and a number of farmers have participated in a master farmer programme. Our partner SEDA has helped attract funding for the programme which is building farmers’ confidence in terms of their obligations and responsibility. Over three hundred and fourty people went through different training programmes during the year as part of an effort to improve local capacity. Developing the capacity of farmers is also critical as most of the cropping projects will celebrate four years of operation during the 2011/12 season. This is the critical time as they will start breaking even and begin to generate profits as AsgiSA EC reduces its involvement and focuses on new initiatives.

On reflection, it has been a year where projects have come of age and where the nurturing ties have been loosened. This has involved heart-wrenching challenges, really tough decisionmaking and a reassuring crystallisation of the agency’s role. Our lessons are well-learnt. I would like to borrow from the words of Honora Mirabeau who says: “Nothing is impossible to the man who can, who will, and then does. This is the only law of success”. I am thankful beyond measure to my board which also faced the uncertainty of the pending merger yet remained steadfast in their support of my team and I. In countless ways, it is a “dream board” that is concerted in effort and acts on issues with a singular commitment in a decisive manner. I am also indebted to the management team and staff who, despite many challenges, continued to make a difference. Your efforts remind me of former President Mandela’s reflections when he said: “A new world will be won not by those who stand at a distance with their arms folded, but by those who are in the arena, whose garments are torn by storm and whose bodies are maimed in the course of contest”. These words are also true to the communities with whom we have worked and whose leaders continuously explain and convince the rest of the community that changing lives for the better will not be an instant victory but a journey requiring sacrifice. To our other supporters, funders and stakeholders, I am equally thankful for your encouragement during the year under review. No team is an island and your support has been invaluable.

Simpiwe Somdyala Chief executive officer

In these projects, trees are being planted using harvesting revenues and DRDLR land claims settlement grants. AsgiSA EC assisted with initial planning, project scoping, securing of funding and entering into partnerships with private sector companies.

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In the coming year, I see further consolidation around our role as an implementing partner since we have the necessary skills and knowledge base to facilitate projects and create value for our funding partners. The DBSA is assisting AsgiSA EC in building strong project management capability that enables the agency to project manage dynamic and diverse agricultural and rural development programmes.

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We have made measurable advances in the forestry high impact priority programme where we have identified and scoped nine projects covering a combined area of 17,000 hectares. AsgiSA EC is providing support to two community-owned projects in Mbizana and Ingquza which have begun to rehabilitate existing plantations as a first step to establishing commercial forestry projects after successful land claims.

S ENIOR MANAGEMENT T E A M

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Simpiwe Somdyala CHIEF EXECUTIVE OFFICER A Masters of Business Administration graduate, Simpiwe brings a wealth of experience earned from his 17 years in various economic development, business support, development finance, project management and project facilitation roles.

Thukela Mashologu PROJECT MANAGER: AGRICULTURE & AGRO-PROCESSING Thukela is a Bachelor of Science graduate who majored in agricultural economics. He has extensive experience in the agriculture and economic development arena.

Stephen Keet SPECIALIST: FORESTRY Stephen is a Bachelor of Science (Forestry) graduate with wide-ranging experience in the forestry sector in the Eastern Cape. His passion and active involvement in the province’s forestry sector for the past 25 years has been the bedrock of his life’s work.

Luvuyo Thomas MANAGER: LEGAL SERVICES AND COMPANY SECRETARIAT A Bachelor of Social Sciences and LLB graduate, Luvuyo has extensive legal background as a former practising attorney and advocate. Armed with the double major of industrial psychology and legal studies market research, his past roles have involved industrial relations, bargaining, market research, training and development.

Hazel Nombembe

MANAGER: HUMAN RESOURCES Hazel holds a Master of Science in human resource development. She has 16 years’ experience in recruitment and selection, career counselling, organisational development, training and development, communication and employee relations.

Janine Baxter

CHIEF FINANCIAL OFFICER A charted accountant by profession, Janine was part of the Auditor-General’s management team before she joined AsgiSA EC. While in the employ of the Auditor-General, she managed and executed audits for provincial and national government departments, district and local municipalities, and parastatals.

Chuma Sangqu EXECUTIVE MANAGER: INVESTMENT PROMOTION & STAKEHOLDER MANAGEMENT Chuma completed his Bachelor of Arts honours degree and has since built a reputable skills base, which includes community mediation, conflict management, transformation and change management.

Gcobani Ntshanga STRATEGIC PROGRAMME MANAGER With an honours degree in agricultural economics, Gcobani brings eight years’ experience in local economic development and strategic planning to this role within the office of the chief executive officer.

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A healthy organisational psyche is the sum of how a business nurtures its employees. Enthusiastic and focused, employees should be constantly stimulated by their role in delivery and help deliver the brand of the organisation. Human resources management is essential in order ensure the right result with the right employees.

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MANAGEMENT

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HUMAN RESOURCES

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Human resource management is a strategic and comprehensive approach to managing people and the workplace culture and environment. Effective HRM enables employees to contribute effectively and productively to the overall company direction and the accomplishment of the organisation’s goals and objectives.

Key successes for the year • Staff support on training including academic learning programmes was an intensive and rewarding focus area. • No critical resignations.

Main challenges for the year • • •

Uncertainty regarding the proposed merger of AsgiSA EC, Eastern Cape Appropriate Technology Unit (ECATU) and Eastern Cape Rural Finance Corporation (ECRFC) has affected staff morale. Project planning, resourcing and projecting for the future have been negatively affected by the proposed merger of the three entities (AsgiSA EC, ECATU and ECRFC). Internship programme was hampered by limited office space and the merger process. Although AsgiSA EC targeted engaging 10 interns in various disciplines, only three interns were secured.

42 staff compliment 24 FEMALE • 18 MALE 37 AFRICAN • 1 INDIAN • 4 WHITE

Staff complement

TOTAL FEMALE

MALE

Management

Skilled agricultural workers

Other skilled workers

Unskilled personnel

No promotions were made during the period under review.

TOTAL FEMALE

MALE

African

Indian

White

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Coloured

No disabled persons are employed by AsgiSA EC.

Staff turnover

RESIGNED

DEATH

DISMISSED

Management

Skilled agricultural

Other skilled workers

Unskilled personnel

Total

Appointments

EMPLOYED

MALE FEMALE

BLACK

COLOURED

INDIAN

WHITE

Management

Skilled agricultural workers

Other skilled workers

Unskilled personnel

A moratorium on appointments was placed by drdar (merger office) during the latter part of the 2010/2011 year.

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Employment equity

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Training LEVEL

TRAINING ATTENDED

OSW

Accounting Assistant Skills

OSW

ArchiCAD

SAW

Assessors RPL Workshop

SAW

AVCASA training

OSW

Balance Scorecard Bootcamp

Management

Broad Based Balck Economic Empowerment

OSW

Broad Based Black Economic Empowerment

OSW

Budgeting & Forecasting Masterclass

Management

Business Process Management

OSW

CIMA

SAW

Citrus Production Course

Management

Company Secretary Skills

OSW

Compliance Management

OSW

Contract Administration, Procurement & SCM Masterclass

OSW

Contract Administration Quality Control

Management

Corporate Fraud Conference

OSW

First Aid & Safety Training

OSW

Forecasting & Acquisition Management

OSW

General Conditions of contracts for construction works

OSW

GIS Workshop

OSW

GPS Training

OSW

HR - Managing Turnaround & Corporate Renewal

OSW

Mastering Minutes & Meeting Protocol

Management

Masters in Land Development

Management

National Credit Act Seminar

SAW

No Till conference

OSW

Occupational Health & Safety Course

OSW

Office Admin, Exec Secretaries & PAâ&#x20AC;&#x2122;s conference

OSW

Pastel Training

OSW

Personal Information - Rights and Obligations

OSW

Project Admin for Administrators

OSW

Records Management

Management

New Companies Act

OSW

Skills Development Facilitation

Management

Strategic Leadership

OSW

Other Skilled Workers

SAW

Skilled Agricultural Workers

NUMBER OF ATTENDEES

Leave SICK LEAVE

ANNUAL LEAVE

SICK LEAVE

ANNUAL LEAVE

Management

168

158

284

Skilled Agricultural Workers

169

Other Skilled Workers

736

444

554

Unskilled

Key issues Promotions for the period under review by occupational band, race & gender No promotions took place during the year under review. Terminations for the period under review by occupational band, race & gender One resignation, temporary black female, during the year. The resignation did not relate to a critical position. Disciplinary actions for the period under review by race & gender No disciplinary action was taken during the period. Skills development for the period under review by occupational categories, race & gender See training report table on page 36. Expenditure • Salaries and allowances of senior management - note 29 in the annual financial statements. • No material overtime payments were made during the year. • Senior management remuneration - R4,361,679 (2009/10: R3,764,982) • Remuneration at other levels - R16,141,081 (2009/10: R7,867,213) EMPLOYMENT AND VACANCIES • Moratorium on new appointments was placed by DRDAR during the latter part of the year. The organogram evolved up to the placement of the moratorium.

Job evaluation • The process of job grading took place in 2010/11 and were approved by the board of directors. The job grading did not result in any remuneration adjustments. The remuneration levels of employees did not exceed the benchmarked expectation per grade level. Employment changes • See the staff turnover table on page 35 for further details. • Staff are leaving due to uncertainties regarding the merger. PERFORMANCE REWARDS • This is noted in the annual financial statements. Foreign workers • No foreign workers were appointed during the period under review. Leave utilisation • No material leave payouts took place. • No capped leave in place. • No disability leave was taken. • Refer to table reflecting leave balances and leave taken. HIV/AIDS & Health Promotion Programmes • No programmes were conducted during the period under review. Labour relations • No issues were noted during the period under review. Injury on duty • No issues were noted during the period under review.

LEAVE TAKEN DURING THE YEAR

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LEAVE BALANCES (DAYS)

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BAND

OBJECTIVES

PERFORMANCE INDICATORS

ANNUAL TARGET

DETAILED ANNUAL PERFORMANCE Actual achieved

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Variance

Strategic goal 1: Establishing a competent and effective organisation Organisational Development (OD) plan reviewed and implemented

An approved, reviewed OD plan and implementation programme

OD plan developed but not approved

Approval and implementation of the plan

An OD plan was developed. The board approval and implementation was suspended due to the merger processes. The ECRDA was expected to be operational by 1 April 2011, negating the need for an AsgiSA EC OD plan.

Number of staff trained

35 staff members trained by March 2011

38 staff members attended AsgiSA EC specific training

Target was exceeded

n/a

Implementation of the internship programme

10 interns engaged and mentored

Three interns appointed and mentored

SEVEN interns not appointed

The Merger Oversight Council placed a moratorium on all new appointments during the latter part of the 2010/11 year; hence no further appointments of interns took place.

Training and development plan

A reviewed and approved training plan

Training plan was reviewed but not approved

Approval of the training plan

Training interventions in 2010/11 were based on the personal development plans of individual staff members. A training plan was developed but not submitted for board approval as new training initiatives were to be aligned to the OD plan.

A SGI SA EC ANNUAL REPORT 2 0 1 1

K EEPI NG TH E D R EA M A L IV E

Human resources development

DETAILED ANNUAL PERFORMANCE Actual achieved

Variance

Partially achieved

Balanced Scorecard is being phased in

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Performance Management System (PMS) reviewed and implemented

An approved PMS

HR movement and provisioning

100% population of organogram

Vacancies remaining at year end: Audit and compliance manager, research and development specialist, financial controller â&#x20AC;&#x201C; Pacodi

Three vacancies as per the approved organogram

The Merger Oversight Council placed a moratorium on all new appointments during the latter part of the 2010/11 year, hence no further appointments took place.

Regular management and monitoring of leave

100% reconciliation of leave by March 2011

Achieved

NO VARIANCE

No deviation.

Rollout of organisational goals and objectives to management level completed

The board approved the performance management policy in 2008 which requires the PMS to be based on organisational objectives. As such, the Balanced Scorecard is in use by AsgiSA EC. The Balanced Scorecard was rolled down to unit managers during 2010/11. Senior management has received training on the BSC principles as the objective was to roll out the PMS to all levels. This objective has been overtaken by the merger process.

The policy review and development process was aligned to the merger process. Current policies are still adequate for the needs of AsgiSA EC until the merger is effective (Effective date was communicated as 1 April 2011). All current AsgiSA EC policies were reviewed in preparation for the merger. A gap analysis between the policies of the merging entities was performed under the auspices of the Merger Office.

ANNUAL TARGET

K EEPI NG TH E D R EA M A L IV E

PERFORMANCE INDICATORS

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OBJECTIVES

PERFORMANCE INDICATORS

ANNUAL TARGET

DETAILED ANNUAL PERFORMANCE Actual achieved

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K EEPI NG TH E D R EA M A L IV E

Ensure that all key relevant (non-financial) policies are reviewed and approved by 31 March 2010

Reviewed key (non-financial) policies are approved and implemented

10 key HR and non-financial policies reviewed and implemented

Policies reviewed in 2009/10 implemented in 2010/11 No policies reviewed in 2010/11 resulted in approved changes

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Variance NO POLICIES reviewed

The policy review and development process was aligned to the merger process. Current policies are still adequate for the needs of AsgiSA EC until the merger is effective (Effective date was communicated as 1 April 2011). All current AsgiSA EC policies were reviewed as part of preparation for the merger. A gap analysis between the policies of the merging entities was performed under the auspices of the Merger Office.

The strategic management unit is housed within the office of the chief executive officer (CEO) and provides strategic support to the CEOâ&#x20AC;&#x2122;s office. Its main responsibilities include but are not limited to ensuring there is coordinated compliance by the organisation in its overall organisational strategic management and performance monitoring.

45 K EEPI NG TH E D R EA M A L IV E

MANAGEMENT

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S TRATEGIC

Ordinarily, the unit is designed to perform the following functions:

A SGI SA EC ANNUAL REPORT 2 0 1 1

K EEPI NG TH E D R EA M A L IV E

1. Strategic management 2. Monitoring and evaluation 3. Planning and research

AsgiSA EC has built a reputation on meeting its statutory requirements and obligations in respect of: • The development and continuous review of its organisational strategy • The compilation of the annual performance plan and its submission to the relevant authorities • The compilation and submission of quarterly performance reports aligned to the annual performance plan. Significantly, an audit of performance information has been carried out without any material findings. Within the context of meeting its compliance requirements, AsgiSA EC has developed a Performance Information Policy Framework and Procedure Manual, which seeks to guide performance information management within the organisation. The performance information policy is aligned to the Treasury Guidelines. To strengthen the performance of the unit going forward, it is paramount that the vacant positions are filled. These include strengthening the capacity of the unit in research and planning, and building capacity with a dedicated focus on onthe-job training relating to strategic management, performance monitoring and evaluation. AsgiSA EC has strong relationships with the relevant sectors in this area. These include good working relations with AuditorGeneral, Provincial Treasury and other key strategic partners. These relations need to be enhanced and cemented as these create a recipe for sound performance monitoring and evaluation.

Key successes for the year

• • • • •

Compiled and submitted the final annual report for year 2009/10 by 31 August 2010 to the Auditor-General. Compiled and submitted the quarterly performance reports to ECRFC and the Department of Rural Development and Agrarian Reform (DRDAR). Developed the draft strategy for proposed ECRDA. Successfully mapped and measured all project areas (sites) by the agency’s Geographic Information Systems (GIS) services. Completed two feasibility studies: - Small scale irrigation scheme development. - Citrus fruit.

Main challenges for the year

• Proposed merger between AsgiSA EC, ECRFC and ECATU has hampered internal strategic planning processes. • Delays in completing some studies: - Stone fruit feasibility study project was delayed due to service provider’s limited capacity. - Tourism development feasibility study, due to a dispute with service provider. - Business plan development for existing irrigation schemes were not completed as the project commenced late in the financial year.

OBJECTIVES

PERFORMANCE INDICATORS

ANNUAL TARGET

DETAILED ANNUAL PERFORMANCE Actual achieved

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Variance

Strategic goal 1: Establishing a competent and effective organisation Strategy review for ECRDA and for AsgiSA EC

AsgiSA EC specific strategy not approved

Due to the merger process, the strategy review for AsgiSA EC was abandoned. The focus shifted to the establishment of the new rural development agency, and providing the draft strategy of the ECRDA. Current operations take place in terms of the existing five-year strategy (ending 2014).

Planning, research and resource mapping

Annual performance plan developed annually

An approved annual performance plan

Approved

No variance

No deviation

Quarterly performance reports

Four reports

Achieved

No variance

No deviation

Development of an annual report

An annual report approved by the board

Achieved

No variance

No deviation

Feasibility studies and business plan development

Three feasibility studies / business plans developed for new projects

Feasibility studies developed: • Stone and citrus fruit feasibility study • Silo establishment feasibility study • Grain milling feasibility study

No variance

No deviation

One relevant research study conducted by March 2011

Research study titled: “Approaches, models, and experiences of agrarian transformation in the Eastern Cape”

No variance

No deviation

An approved, reviewed strategy

K EEPI NG TH E D R EA M A L IV E

Five-year strategy reviewed annually

A SGI SA EC ANNUAL REPORT 2 0 1 1

Integrated planning, monitoring and evaluation G-1.5

AsgiSA EC assists the provincial government in accelerating growth and development in the eastern part of the Eastern Cape, also known as the former Transkei. It achieves this through six high impact priority programmes (HIPPs), focusing largely on communities within the Mzimvubu River catchment area. It forms part of the Provincial Growth and Development Plan (PGDP) which aims to halve poverty and unemployment by 2014.

53 K EEPI NG TH E D R EA M A L IV E

PROGRAMMES

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HIGH IMPACT PRIORITY

AGRICULTURE & AGRO-PROCESSING

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K EEPI NG TH E D R EA M A L IV E

Key successes for the year • The total planted land area is 9,674 ha: - Maize 7,090 ha - Soya beans 906 ha - Dry beans 1,678 ha • Progress made on the Department of Forestry and Fisheries’ (DAFF) projects includes 548 ha of dry beans. • The area earmarked for winter wheat is 619 ha. Two mechanisation operations, ripping and discing, have been completed. • The inventory stock has been moved from all projects to the Thanda Milling Store in Butterworth. The stock count has been completed. • The updating of the livestock records have also been completed.

Main challenges for the year • • • • •

Heavy rains and slow delivery of inputs are the main challenges that have affected the completion time of maize and soya planting. Weed control is another major challenge for some projects which is a result of heavy rains which washed out applied chemicals. Very low or high plant densities have resulted, due to planters not being properly calibrated. Since absentee farmers are not looking after their livestock, there is mortality from red water disease. The livestock farmers depend on government, AsgiSA EC or national Department of Agriculture to supply remedies.

Integrated cropping There has been improvement in the implementation of the integrated cropping programme this year with ±9,674ha planted with maize, soya beans and dry beans. This was achieved because of partnerships formed with Department of Agriculture

±9,674ha p l anted

maize, DRY BEANS, SOYA BEANS

Livestock production The past year has seen an improvement in the mortality of the livestock as only 81 cows, 30 calves and 11 bulls died. This translates to an average of 6.7% across all categories, down from last year’s 11%. This low mortality is a result of the cattle adapting to the Sakhisizwe conditions. The calving percentage for the beef has dropped significantly to 32.7%. Last year the cows were very thin during the mating season. AsgiSA EC intervened with licks and this improved the condition of the stock. The delivery of bulls in November and December 2010 has increased the number of farmers assisted by the programme to 137. There are currently 1,376 cows and heifers, 118 bulls and 319 calves that have been added to Sakhisizwe as a result of the programme. This excludes the 337 bull calves sold in June 2010. The monetary value of livestock added to the farms at Sakhisizwe is R12,1 million, excluding

Institutional arrangements The Ikhepu Secondary Co-operative, formed by five primary coopreatives namely Ithemba, Tsomo Valley, Cicira Ntungele, Mthombo and Beestekraal, is starting to take control and have appointed an administrator for the day-to-day running of the office. It is also in the process of appointing a project manager with technical expertise to assist them with farmer support, supplementing the Department of Agriculture’s intervention. Consequently the condition of the stock on farms this year has improved and only a few farmers (less than 4%) have poor stock.

Irrigation schemes Highbury Irrigation Scheme (mtHatHa Dam) The Highbury project is a multi-phased project which has been evolving over the last two years. Mr Vikilahle in Mthatha has leased approximately 20 hectares of land to members of the Highbury Community.

This year remained challenging as there were heavy rains and hail storms that resulted in flooding in most of the areas especially in Matatiele where there are flat grounds. Other challenges included: • The crop was submerged in water for about five days and 300 ha of crops were lost due to floods. • Wet conditions prevented the contractor from spraying resulting in difficulty in some areas to top dress and apply second spraying. • Weeds competed with plants for nutrients, water and sun resulting in low yields in some areas.

Farmers repaid a total of R765,835 on 2010 loans and R36,480 on 2011 loans. Sixteen cows from Ullapool farm had to be culled owing to contagious abortion (CA) detected on the farm. This is because the agents employed by AsgiSA EC to purchase the cattle deliberately bought cattle in an area that was quarantined due to the CA problem.

K EEPI NG TH E D R EA M A L IV E

There has also been a remarkable improvement in the performance of the mechanisation contractors, thanks to monitoring and enforcement of good workmanship.

R781,604 for the bull calves sold in June 2010. The total investment of introducing cattle at Sakhisizwe is R11,4 million.

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Forestry and Fisheries and Farmsecure. Mechanisation commenced in the third week of October 2010 and planting started in the first week of November 2010.

During the 2009/10 financial year, as phase one, AsgiSA EC committed capital and operational funding to Mr Vikilahle to farm 20 hectares. The equipment purchased during phase one will transferred to the community trust after the repayment of the phase two loan.

A SGI SA EC ANNUAL REPORT 2 0 1 1

K EEPI NG TH E D R EA M A L IV E

Since then Mr Vikilahle has since entered into a 10-year lease agreement with members of the Highbury Community to access a further 115 hectares of land, additional capital and operational funding. Development The total projected costs for the development of phase two, which includes capital expenditure and working capital, will amount to over R3,78m. The amount is likely to be advanced by AsgiSA EC through a combination of grant and loan funding. Institutional Arrangements The new company, Highbury Irrigation (Pty) Ltd has now been duly registered with the Companies and Intellectual Property Commission (CIPC) formerly known as CIPRO. The community trust, which will represent the land owners/ community in Highburry Irrigation, has been registered and a lease agreement between the Trust and Highbury Irrigation has been signed. AsgiSA EC has signed an agreement with Highbury Irrigation to specify the roles and responsibilities of all parties. This project will continue with the new Eastern Cape Rural Development Agency after 1 April 2011. Technical Report • 40ha of irrigation installed (but installation delayed because of heavy rains) • Soil preparation done in the new block • Additional equipment bought in the form of tractors and implements to beef up mechanisation capacity in the project. • Production plans developed and budget developed for implementation of phase two.

R3.78 million PROJECTED COSTS TO COMPLETE T HE IR R IGA T ION PR OJ ECT

OBJECTIVES

PERFORMANCE INDICATORS

ANNUAL TARGET

DETAILED ANNUAL PERFORMANCE Actual achieved

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Variance

Strategic goal 2: Effective co-ordination and implementation of high impact priority programmes (HIPPs) Not achieved

370 ha not limed

Inadequate funding delayed implementation. A business plan for land capability improvement, valued at R92 million was developed and submitted to the departments of Rural Development and Agrarian Reform, and Agriculture, Forestry and Fisheries, and the Agricultural Research Council for funding and possible collaboration. No progress has been made in either funding or implementation.

Integrated cropping â&#x20AC;&#x201C; Dry land

20,000 ha

9,674 ha planted

10,326 ha not planted

Funding is the main constraint that resulted in targets not being met. A strategy to source funding outside the provincial government was used, resulting in collaboration with DAFF and Farmsecure.

Establishment of 3,000 ha of small irrigation schemes

70 hectares of small irrigation schemes by March 2011

60 ha of irrigation infrastructure has been developed

10 ha under the target due to technical reasons

10 ha was excluded due to the unsuitability of soil.

Revitalisation of existing irrigation schemes

910 hectares of irrigation land to be put back to production by March 2011 (300 ha Ncora dairy, 410 ha -Zanyokwe, 200 ha Qamata and Bilatye)

Not achieved

910 ha

No business plans were in place as is required. Four draft business plans developed for four irrigation schemes. As a result 9,126 ha was funded by AsgiSA EC and 548 ha was implemented through DAFF.

370 hectares

K EEPI NG TH E D R EA M A L IV E

Land capability improvement (liming)

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Agriculture and agroprocessing

OBJECTIVES

Fruit production

PERFORMANCE INDICATORS

Establishment of commercial fruit production projects (100 ha)

ANNUAL TARGET

Packaging and implementation of 20 ha commercial fruit project by March 2011

DETAILED ANNUAL PERFORMANCE Actual achieved

Variance

4 ha at Hota Mbeula

16 ha

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Further implementation and expansion at Hota Mbeula put on hold due to lack of water.

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K EEPI NG TH E D R EA M A L IV E

Feasibility studies were developed for new fruit production sites.

Livestock development programme G-2.4

Number of livestock units (LSUs) managed and developed

Manage 5,000 LSUs

Achieved

3,214 lsus

After a year of implementation, a review of the programme was undertaken. A new business plan, which is to form the basis for ongoing support, was developed.

Agroprocessing

Development of regional food processing industries

Food processing: Three maize milling plants by March 2011

Not achieved

Processing plant not yet in place

Adequate funding is required to implement the programme with success.

One processing meat unit and two feedlots established by March 2011

Not achieved

No processing unit or feedlot

The development of the maize meat hub business plan has not been finalised.

30,000 tons of storage silo capacity developed by March 2011

Not achieved

30,000 ton grain silos not established

There is inadequate funding to implement as the initial cost estimate stands at R19m.

Number of grain silos established

The pre-feasibility study on silo establishment was abandoned because the cost estimate was higher than the available budget. The following activities have been done: â&#x20AC;˘ A business plan has been developed for the renovation for a silo with 10,000 ton capacity in Butterworth. â&#x20AC;˘ Refurbishment of storage facilities: - Resuscitate power (electricity) - Water provision - Renovations in storage shed - Facilitation process for regional silos for Matatiele and Tsolo. Facilitation done with both municipalities.

One of the key opportunities being pursued is for government to allow communities to reestablish their rights to land under state-owned plantations, and then for AsgiSA EC and Department of Agriculture, Forestry and Fisheries (DAFF) to support the establishment of meaningful integrated forestry and agriculture projects which are adequately funded, partnered and market-oriented.

Key successes for the year • The plan was to identify 10,000 ha of potential area that could be targeted as forestry projects: - AsgiSA EC forestry projects include 10,100 ha of new afforestation areas. - Sappi’s commitment to increase impetus on new forestry development is based on a target of 30,000 ha. - Merensky has been behind licence applications of over 25,000 ha, although there may be a reduction in the actual projects. - PG Bison’s target is more limited but phase one includes nearly 2,500 ha. - More than 10,000 ha have been identified for possible projects. • The plan was to have 5,000 ha with operational and business plans, funding for start-ups, third party agreements and have environmental impact assessments (EIA) done. - Site, soil and stock surveys were completed for 4,580ha.

533 ha P

410 ha by Sappi at Matatiele 100 ha by Mkambathi community 24 ha by Sinawo community

K EEPI NG TH E D R EA M A L IV E

While assisting to address the many challenges to expand the forestry plantations by the targeted 100 000ha, AsgiSA EC is pleased to be associated with Sappi’s new afforestation of more than 400ha during the year, and the replanting of 125 ha at Sinawo and Mkambathi.

- Strategic partners are in place for 17,380 ha but not yet formalised. A second draft partnership agreement is under consideration for Sappi’s involvement in 8,460 ha of new projects. In addition, Sappi has agreed in principle to consider re-contracting with growers in Matatiele (1,600 ha) to move towards a more empowering model. - Startup funding has been secured for Mkambathi (R2,6m) and Sinawo (R600,000), with DRAD having committed to providing further startup funding for Lambasi, Sinawo and Izinini (8,640 ha) areas. - Funding proposal has been submitted to Sappi and IDC for the required long-term funding for Mkambathi. - Drafting of operational and business plans have been initiated for Lambasi, Ntywenka, Mkambathi, Izinini and Gqukunka (5,980 ha) - Startup operational plans and budgets have been formulated and submitted for Mkambathi, Izinini, Sinawo and Lambasi forest projects. - Despite efforts by AsgiSA EC, DAFF decided to project manage the licensing of EIAs but three attempts failed to secure service providers. • The target was to plant 1,000ha of forestry plantations: - 533ha were planted at Matatiele (410 ha by Sappi), Mkambathi (100 ha by community) and Sinawo (24 ha by community). - Other initiatives were delayed by funding, community mind changes, DAFF policy issues and the willingness of labour.

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After many years of mulling, planning and consulting, the implementation of community owned and operated commercial forestry projects is underway. Greatest progress is where community land claims have included run-down forestry plantations with potential for rehabilitation and expansion. AsgiSA EC’s role has been to support these communities to understand forestry as a land-use, secure start-up funding, establish equitable technical support partnerships with private sector companies and start work.

FORE S TRY D E V E L O P M E N T

OBJECTIVES

PERFORMANCE INDICATORS

ANNUAL TARGET

DETAILED ANNUAL PERFORMANCE Actual achieved

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Variance

Strategic goal 2: Effective co-ordination and implementation of high impact priority programmes (HIPPs) Number of ha of forestry area planted

1,000 ha of plantations established by March 2011 (planted)

534 ha planted

466 ha

A 100 ha was not planted at Izinini as a result of delays caused by CPA issues and DRDLR not been able to secure funding. A 100ha was not planted at Lambasi due to DAFFâ&#x20AC;&#x2122;s indecision regarding veracity of the Ntsubane land claim. DRDLR had committed funding.

Forestry development

K EEPI NG TH E D R EA M A L IV E

A 100ha was not planted at Ntywneka due to DAFFâ&#x20AC;&#x2122;s indecision about the Forest Use Licence for the Ntywenka communities.

A SGI SA EC ANNUAL REPORT 2 0 1 1

Twenty four hectares of the 100 ha target planted at Sinawo did not go ahead due to project startup delays and the dry season in February and March. A 100ha of planting was targeted at Etwa/Sulenkama or Flagstaff as the consultation/resourcing progressed. However, there was insufficient progress for planting to take place. Number of ha of forestry area planned, resourced and partnered

5,000 ha with operational and business plans

16,000 ha

11,000 ha over target

The target was exceeded as a result of a comprehensive template which was formulated and sound planning from technical assessments and consultation.

Funding for startup of projects with total areas of 5,000 ha

4,600 ha

400 ha under target

Despite firm commitments from DRDLR to fund startups at Izinini (860 ha) and Lambasi (3,000 ha), these were not finalised by the end of the financial year.

Third party agreements for projects with total of 5,000 ha

8,460 ha

3,460 ha over target

An AsgiSA EC/Sappi strategic concept is in place for a target of 30,000 ha including Lambasi, Mkambathi, Sinawo and Mkambathi (8,460 ha).

DETAILED ANNUAL PERFORMANCE

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Actual achieved

Variance

Hydrological calculations reflect sufficient catchment capacity for projects totalling 10,000 ha

17,380 ha

7,380 ha above target

Projects were reviewed against the hydrological reserve determination calculations and shown to have sufficient water.

Environmental impact assessments (EIAs) done for projects covering 10,000 ha

0 ha

10,000 ha under target

AsgiSA EC undertook to initiate EIAs, and DAFF decided to take the lead. Unfortunately, after three attempts to appoint PSPs to do the work, no appointments were made.

Private sector involvement in projects totalling 10,000 ha

17,380 ha

7,380 ha over target

Private sector partners were identified, consulted and committed to provide support to specific projects.

DAFF integration issues resolved for projects with a total area of 10,000 ha

0 ha

10,000 ha under project

Despite policy statements that state plantations would be transferred to communities, and integrated into projects, DAFF have yet to put procedures in place for implemetation

Additional forestry area key obstacles addressed

ANNUAL TARGET

K EEPI NG TH E D R EA M A L IV E

PERFORMANCE INDICATORS

A SGI SA EC ANNUAL REPORT 2 0 1 1

OBJECTIVES

WATER RESOURCE DEVELOPMENT

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K EEPI NG TH E D R EA M A L IV E

On the basis of an AsgiSA EC economic study which indicated the possible economic justification of a dam in the Mzimvubu Catchment, the Department of Water Affairs has undertaken to carry out a more detailed feasibility study. The economic study was based on desktop information. The feasibility study will be done at an operational scale to ensure costs and benefits can be accurately weighed before an investment decision is made.

OBJECTIVES

PERFORMANCE INDICATORS

ANNUAL TARGET

DETAILED ANNUAL PERFORMANCE Actual achieved

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Variance

Strategic goal 2: Effective co-ordination and implementation of high impact priority programmes (HIPPs) Water resource development

Carry out feasibilities and related investigations in water sector

One comprehensive business plan for multi-purpose dam by March 2011 (Mzimvubu Dam water study)

Not achieved

Business plan (BP) not in place

Funding required of about R15m to complete BP exceeded the amount available. The available budget was to be used to leverage funding for the business plan development after completion of the business case during the 2010/11 financial year. DEDEA has since taken lead of the project.

TOURI S M D E V E L O P M E N T

AsgiSA EC commissioned a study focusing on development of a precinct in King Sabata Dalindyebo Municipality. The Nelson Mandela cultural precinct aims to unleash development and economic growth potential in Mthatha area. The heart of the precinct seeks: • Preserve the legacy of the political icons who originate from the area OBJECTIVES

PERFORMANCE INDICATORS

ANNUAL TARGET

Preserve the heritage of Mthatha in the pre-colonial, colonial and post colonial eras Function as a key point of attraction and spearhead economic regeneration of the area and the surroundings.

Feasibility study report has: • Identified key areas of interest such Nkulekweni, Owen Street side of Nelson Mandela Museum, Old Prison, Town Hall, Jubilee Hall and St Johns College. • Drawn up the conceptual plan for the proposed routes. • Completed the site assessment and evaluation. The challenge remains the ability to complete the study and move towards implementation with all key stakeholders in agreement.

DETAILED ANNUAL PERFORMANCE Actual achieved

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Variance

Strategic goal 2: Effective co-ordination and implementation of high impact priority programmes (HIPPs) Tourism development

Implementation of tourism development initiatives

One tourism development project/ initiative implemented

Not achieved

No Implementation

Implementation not taken place because feasibility study has not been completed, due to a dispute between the service provider and project steering committee, which disputes the completeness of the feasibility study. The dispute is under arbitration which the legal unit is managing.

The following milestones have been reached:

K EEPI NG TH E D R EA M A L IV E

Successful implementation of tourism rests on a strong partnership with the Department of Tourism which has the sector as a core competency, working with agencies such as Eastern Cape Parks and Tourism and other roleplayers such as the Department of Local Government and Traditional Affairs (district and local municipalities).

• •

A SGI SA EC ANNUAL REPORT 2 0 1 1

Tourism development is one of six key priority areas in the province’s Provincial Growth and Development Plan. Its implementation is to be facilitated by AsgiSA EC.

SUSTAINABLE HUMAN SETTLEMENT & PLANNING

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K EEPI NG TH E D R EA M A L IV E

Human settlement and planning focuses on planning support as stated by the various stakeholders. This HIPP seeks to strengthen the Integrated Development Planning (IDP) processes of local and district municipalities by identifying, in particular, the potential constraints in developing an area. AsgiSA EC, therefore, facilitates the planning process in support of local and district municipalities. The area covers a range of activities which include, but are not limited to the spatial planning, environmental management planning as well as land use plans. It also focuses on improving the planning capacity by assisting in the forward planning in the project implementation that benefits local communities. To date, AsgiSA EC has facilitated the development and completion of a spatial development framework project for the OR Tambo District Municipality, which covers seven local municipalities (Ingquza, Mbizana, Ntabankulu, Port St Johns, King Sabata Dalindyebo, Mhlontlo and Nyandeni local municipalities). In support of the Elundini and Mhlontlo local municipalities, AsgiSA EC has facilitated the development of a comprehensive land use plan and environmental management in the Tsitsa River basin. The land use plan has revealed areas of high potential for agriculture and forestry development, whilst environmentally sensitive areas have been identified through the environmental management plan.

spatial

development plan for OR Tambo District Municipality

C O M P L E T E D

land use plan & environmental management

in the Tsitsa River basin D E V E L O P E D

ALTERNATIVE E N E R G Y

Endowed with natural resources which could be used for eco-friendly renewable energy generation, opportunities available include generating energy through small hydro schemes and solar. Currently, the Eastern Cape is preparing to host of number of wind turbine manufacturers, which could lead to the province entrenching its position as a leader in South Africa in this area. Current estimates put the province as generating 5,000MW, Opportunities also exist for hybrid versions of wind and solar. Other areas of opportunity include biofuel solutions from algae bioreactors, bamboo, oil seeds and crops as well as gasifiers from forestry and timber waste. Biodigesters, using municipal and animal waste, is also being investigated.

OBJECTIVES

PERFORMANCE ANNUAL INDICATORS TARGET

AsgiSA EC has formed several partnerships with investors in the wind energy sector, and more are to follow.

• • • •

Successful partnerships on two large projects - one in wind energy which should generate at least 160MW once in operation. Partnership with the KSD Municipality for a greening project is at the stage of the feasibility study funding. Implementation of three biodigesters – two in Fort Cox and another in Melani Village in Alice - has taken place. These pilots have been funded by the South African National Energy Research Institute. Partnership with a large international renewable energy company Mainstream (SA) for 160MW.

Highlights on main challenges for the year Limited funding results in constrained ability to pilot and mainstream identified renewable energy initiatives such as the solar project for a secondary school and bio-digesters.

DETAILED ANNUAL PERFORMANCE Actual achieved

REASON FOR DEVIATION AND REMEDIAL ACTIONS Variance

Strategic goal 2: Effective co-ordination and implementation of high impact priority programmes (HIPPs) Hydropower and alternative energy

New projects initiated in alternative energy

Three new alternative energy projects initiated

Three projects initiated: • Co-funding of KSD biogas plant • Co-funding of household bio-digesters • Bio-diesel and oil extraction plant in Butterworth

No variance

No deviation

Key successes for the year K EEPI NG TH E D R EA M A L IV E

The programme, which is based on the Provincial Growth Development Programme, is to be implemented through willing partnerships.

Current AsgiSA EC projects

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As part of AsgiSA EC’s five year high impact priority programmes, the agency is mandated to grow the renewable energy capacity of the province by 1,500MW.

The success of the AsgiSA EC high impact priority programmes is wholly dependent on the support, cooperation and efforts of the community in which it works.

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MANAGEMENT

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S TAKEHOLDER

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K EEPI NG TH E D R EA M A L IV E

The agency has striven to ensure that the programme is uniquely tailored to suit the various communities who ultimately own the project. The area is complex and unpredictable. Management requires unprecedented knowledge, maturity and tenacity in order to win the hearts and minds of communities.

Key successes for the year • • • • • •

A total of 30 project beneficiaries have undergone the bean inoculation course. 10 new projects were established with funding from DAFF and the Joe Gqabi District Municipality. 17 co-operatives have been established and registered. 10 new village-based management teams established. 10 new community contracts signed. Improved relations with SEDA to support the capacity building initiative of cooperatives.

10 new projects E S T A B L I S H E D

17 co-operatives R

Main challenges for the year • •

Slow pace of co-operative registration due to Companies and Intellectual Property Commission delays. An inadequate budget limited achievement of some of the planned targets.

10 community contracts

S I G N E D

OBJECTIVES

PERFORMANCE INDICATORS

ANNUAL TARGET

DETAILED ANNUAL PERFORMANCE Actual achieved

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Variance

One communication and consultation strategy reviewed and implemented

Communication and consultation strategy not reviewed

Communication strategy not reviewed

An integrated communication and marketing strategy in support of the ECRDA was created. However an AsgiSA EC specific communication strategy was not reviewed.

No variance

As a result of the merger process, no new branding strategy was developed for AsgiSA EC. Support on branding was provided as part of the merger process.

Implementation of the communication strategy informed by the existing one One branding strategy by March 2011

No branding strategy developed for AsgiSA EC AsgiSA EC visibility at provincial, national and local projects level maintained Updating of all HIPP brochures Development of co-operative information booklets Information on billboards on most project sites in place

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Reviewed and implemented communication and marketing strategy

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Review the communication and marketing strategy by 31 March 2011

Strategic goal 3: Building the image and reputation of the organisation

OBJECTIVES

PERFORMANCE INDICATORS

ANNUAL TARGET

DETAILED ANNUAL PERFORMANCE Actual achieved

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Variance

Strategic goal 4: Strengthening of institutions at local entity level No variance

Identify capacity and institutional gaps among participating stakeholders

Gap analysis: Capacity and institutional gaps for Master Farmer Development

Gap analysis report produced

Develop targeted capacity training plan for communities

Approved and implemented targeted capacity and institutional development strategies and plans (training analysis plan)

200 project beneficiaries trained

200 beneficiaries trained

ACHIEVED

No deviation

Establish co-operatives where projects are implemented

Co-operative structure established and functional

60 co-operatives structures by March 2011

47 co-operatives registered to date

13 cooperatives could not be established

AsgiSA EC withdrew from nine villages.

Achieved

A skills analysis was conducted on AsgiSA EC projects and completed within the third quarter. A final report was produced to that effect.

74 K EEPI NG TH E D R EA M A L IV E A SGI SA EC ANNUAL REPORT 2 0 1 1

Gap analysis conducted and report produced.

Inadequate budget resulted in the annual target not being met.

OBJECTIVES

PERFORMANCE INDICATORS

ANNUAL TARGET

DETAILED ANNUAL PERFORMANCE Actual achieved

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Variance

46 achieved

14 TEAMS NOT ESTABLISHED

AsgiSA EC withdrew from some communities due to funding constraints.

30 social charters signed

29 social charters signed

One social charter not signed

The community charter which is in draft form, was not signed due to consensus not being reached with community structures. It is to be signed in the coming financial year.

15 MOUs signed by March 2011

17 signed

TWO FURTHER MOUs SIGNED

Functional community structure project-based management teams established with departments, municipalities and relevant communities

Number of project based management teams

60 project management teams/ active local structures by March 2011

Social compacts and charters signed and implemented with communities

Number of implemented social compacts and charters with communities where projects are implemented

Attract new partners and stakeholders to the organisation and communities

Number of contracts/ memoranda of understanding (MOU) signed

One stakeholder matrix

Stakeholder map and matrix produced Stakeholder platform available on AsgiSA EC website

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No deviation or remedial action documented as the target was achieved in the third quarter.

Stakeholder mapping

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No variance

Map stakeholders involved in the rural development programmes and projects

Strategic goal 5: Establishing a recognised stakeholder platform for rural economic development

AsgiSA EC is a special purpose vehicle, created by the Eastern Cape provincial government in terms of the Companies Act to facilitate the implementation of high impact priority programmes. In terms of corporate governance, at a technical and operative level, company law and related corporate law provide the necessary framework for running its affairs.

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GOVERNANCE

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However, given the nature of its establishment, AsgiSA EC has sought to comply with the relevant provisions of the Public Finance Management Act No. 1 of 1999 (PFMA). Since starting its operations in 2008, the organisation is gradually shaping its governance systems and protocols within the realm of the Kings III Report on Corporate Governance.

Shareholding Shareholding has now changed from the Premierâ&#x20AC;&#x2122;s Office to the provincial Department of Rural Development and Agrarian Reform which is the new sole shareholder.

Legislative framework and listing Since 1 April 2010, AsgiSA EC is a subsidiary of Eastern Cape Rural Finance Corporation. The latter is listed as a schedule 3C entity in the Public Finance Management Act (PFMA) which means AsgiSA EC, by virtue of being a subsidiary, also subscribes to the relevant provisions of the PFMA. AsgiSA EC is committed to upholding the sound governance principles which are incorporated in the protocols of governance as set out in the King report. The following governance structures are in place:

Board of directors AsgiSA EC is controlled by a board of directors which is comprised of 14 directors, including the chairperson and the chief executive officer (CEO). The CEO acts in an ex-officio

role. Directors, acting in the best interest of the company form the focal point of corporate governance with responsibilities extending to shareholders and stakeholders. All the directors of the board are appointed by the stakeholder department and serve as non-executive directors. Executive responsibility lies with the CEO, the member of the executive council for the provincial department and the member of the executive council from the provincial department of Economic Development, Environment and Affairs who serve as ex-officio members.

Board meetings The board meets quarterly and is responsible for giving strategic direction to the company. It also participates positively in board discussions and corporate events. It does so by reviewing operational and management performance, risk management and oversight on effective internal controls, for example. The attendance record of individual members is disclosed in the diagrams on pages 79 and 80 and is in accordance with the recommendations as prescribed in the King report.

Board meeting (including the agm) attendance BOARD MEETING

BOARD MEETING

AGM

SPECIAL BOARD

05 MAR 2010

09 JUNE 2010

03 SEP 2010

12 NOV 2010

03 DEC 2010

12 JAN 2011

P P P P

K EEPI NG TH E D R EA M A L IV E

Pepi Silinga Gloria Serobe Tetinene Jordaan Mpumelelo Saziwa Dr Archie Nkonyeni Zodwa Manase Nomandla Mhlauli Thandeka Mbassa Xola Pakathi Nico Ferreira Vuyelwa Matsiliza Andile Nkuhlu Prof Nompumelelo Jafta

BOARD MEETING

P P

Audit committee DIRECTOR

Tetinene Jordan Mpumelelo Saziwa Dr Archie Nkonyeni Zodwa Manase Nomandla Mhlauli Thandeka Mbassa Vuyelwa Matsiliza Mr Schulze

24 Feb 2010

29 May 2010

13 Aug 2010

26 Oct 2010 P

P P

P P P

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DIRECTOR

BOARD MEETING

Human resource committee meeting attendance DIRECTOR

21 May 2010

10 Aug 2010

P P

22 Oct 2010

08 Feb 2011

P P

P P P

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Pepi Silinga Tetinene Jordan Mpumelelo Saziwa Nomandla Mhlauli Xola Pakathi Prof Nompumelelo Jafta

04 Feb 2010

Project, finance & investment committee (PFI) DIRECTOR

Gloria Serobe Tetinene Jordan Mpumelelo Saziwa Dr Archie Nkonyeni Nomandla Mhlauli Thandeka Mbassa Xola Pakathi Nico Ferreira Vuyelwa Matsiliza Andile Nkuhlu

042 Feb 2010

18 May 2010

18 Oct 2010

09 Feb 2011 P

05 Aug 2010

P P

OBJECTIVES

PERFORMANCE INDICATORS

ANNUAL TARGET

DETAILED ANNUAL PERFORMANCE Actual achieved

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Variance

A signed shareholder’s compact

Not achieved

Shareholder’s compact developed but not signed by the board

The inability of the shareholder to meet the inherent obligations contained in the shareholder’s compact was the main reason for the board’s hesitancy to sign.

Develop and implement risk management and fraud prevention plan

Approved risk management and fraud prevention plans

Approved policy

Risk management and fraud prevention plan approved in prior period (2009/10) still implemented in 2010/11

No new policy/ approval oN reviewed policies

The current risk management and fraud prevention plan is still adequate for the needs of AsgiSA EC until the merger is effective (Effective date communicated as 1 April 2011).

No reviews in 2010/11 resulted in approved changes

All current AsgiSA EC policies reviewed as part preparation for the merger. A gap analysis between the policies of the merging entities was performed under the auspices of the Merger Office.

Review existing delegation of authority approved by board by 31 March 2011

Reviewed delegation of authority

Reviewed and approved delegations of authority

No reviews in 2010/11 resulted in approved changes, thus partially achieved

No new policy/ approval oN reviewed policies

The delegation of authority is still adequate for the needs of AsgiSA EC until the merger is effective (Effective date communicated as 1 April 2011).

Internal audit and risk management reviews G-1.1

Six major cycles reviewed

Internal audit and risk management review

Four internal audit reviews namely asset management, performance management, human resources, and legal and compliance took place, but not concluded during 2010/11

Four internal audit reviews concluded after year end Two internal audit reviews rescheduled for 2011/12

The four internal audit reviews prioritised on risk levels assigned to these areas. The reviews were finalised during May 2011. The remaining two reviews relating to knowledge management/ICT and transaction testing scheduled for 2011/12 after conclusion of the external audit and harvesting period.

Partially achieved

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Signed shareholder compact

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AsgiSA EC incorporated as a subsidiary of the ECRFC by March 2011

Strategic goal 1: Establishing a competent and effective organisation

Whilst the 2010/11 financial year was filled with new strategic partners, opportunities and the ability to mould operations in order to address the lessons learnt in the past, it has undoubtedly also been the most trying year in the existence of AsgiSA EC.

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FINANCE AND ADMINISTRATION

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The agency proudly cemented its reputation of being one of the very few entities in the Eastern Cape which prides itself on its governance and processes. The proud tradition of obtaining clean audit reports from the Auditor-General continued and the finance unit, in particular, continued its annual introspection in order to increase efficiency and compliance. The approach led to further development of the AsgiSA EC owned financial project management software (PACODI) which is now also used by the parent company, the ECRFC under a licensing agreement.

past history. The crop estimate of R10,5m (2009/10: R21,6m) is reasonable given the areas planted and the negative impact of the rains during December on the prospective yield.

Another ongoing significant partnership is with the national Department of Rural Development and Land Reform on whose behalf AsgiSA EC administered the payment of 1,500 beneficiaries over a four-month period.

The annual financial statements for 2010/11 are based on the going concern basis as the entity is able to meet its due obligations for the next twelve months. Currently, no definite clarity on the establishment date of the Eastern Cape Rural Development Agency (ECRDA) exists, the envisaged process (if applicable) that will be followed or the funding of AsgiSA EC in the absence of an operational ECRDA by 1 April 2012.

Various funders and project partners included the DBSA, Joe Gqabi District Municipality, Nyandeni Municipality, ECRFC and Farmsecure. The most severe impact on income generation and operations of AsgiSA EC during the financial year under review was the 33% reduction in government funding from R150m to R100m which was compounded by the late receipt of tranches and uncertainty as to future funding. The final tranche of R25m from the Department of Rural Development and Land Reform was only received on 29 April 2011 after intervention by Provincial Treasury. Income generated internally increased by 89% year-on-year from R12,01 million to R22,74 million which reflects the conscious effort to create other revenue streams. Municipal commitments towards AsgiSA EC increased significantly, but unfortunately, not all commitments were honoured. The fair value of the crop assets as at 31 March each year is estimated based on judgement and influenced by a number of factors, for example, yield potential, market prices and

The funding and institutional uncertainty facing AsgiSA EC necessitated the suspension of commitments and planned activities towards the latter part of 2010. This enabled the organisation to fund its overheads for the 2011/12 financial year from reserves. In terms of the current organogram, the â&#x20AC;&#x153;financeâ&#x20AC;? unit is responsible for financial accounting and reporting, management accounting, project accounting, budget vs actual analyis per unit, asset management, fleet management, ICT, supply chain, buildings/facilities, audit liaison and response co-ordination, filing room/archives and general reporting. Assets at AgiSA EC are monitored against the asset module on the accounting system on a monthly basis. As such, the monthly physical asset verification process and the computerised asset register provide sufficient control over the assets in use by AsgiSA EC.

The major risks are that the period of uncertainty may result in loss of credibility amongst beneficiaries and funders as well as negative morale and loss of key staff members. The trade-off between implementing activities and discharging fiduciary duties resulted in the ability of AsgiSA EC, based on its reserves, to sustain its overheads but not project related expenditure for the 2011/12 financial year. It is truly a distressing situation which resulted negatively on all spheres of the entity. Yet, all is not lost, as the spirit and resilience which enabled AsgiSA EC to set up originally, is still largely intact. It is, thus, with bated breath that we look forward to the future and continued resurrection of the mandate and projects we devoted ourselves to over the last few years.

irregular expenditure • No irregular expenditure as defined occurred during the year under review. • Budget utilisation which includes the use of roll over funds are included in the budget analysis included in the AFS (note 36) in the format required by GRAP 1. asset holdings • Asset scrapped during the year due to either the physical condition of the assets and/or theft had book values of R118k and R10k respectively. • Management reviewed the underlying reasons before authorising scrapping and/or writeoffs.

budget ADDITIONS or shifts in budget • Budget deviations are contained in note 36 to the annual financial statement (AFS). • No budget shifts that meet the disclosure criteria ito AsgiSA EC’s materiality and significance frameworks took place. • Reasons for curtailing expenditure are included in the finance overview.

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• The process of establishing an ECRDA impacted severely on strategic planning, development and implementing of programmes, budgeting and placed immense pressure and strain on the existing resources. Furthermore, potential funders and donors are extremely hesitant to embark on joint initiatives when the existence of AsgiSA EC or ECRDA cannot be confirmed. • Continuing vacancies, primarily resulting from the inability to attract desired skills due to the unknown nature of AsgiSA EC in 2009, (it was newly established) and the uncertainty regarding the future of employees in 2010, when the upcoming merger was announced. This was followed by a moratorium placed on all appointments by the Merger Office in 2010 and the inability to enter into long term employment contracts when neither the budget of the proposed ECRDA nor AsgiSA EC is available. The perceived employment risk necessitated the secondment of employees and professional service providers. • The finance unit, in particular, has been subject to critical vacancies throughout the year. At one stage, the vacancy rate exceeded the staff in employment.

Key issues

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Other critical challenges experienced during the year included:

OBJECTIVES

PERFORMANCE INDICATORS

ANNUAL TARGET

DETAILED ANNUAL PERFORMANCE Actual achieved

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Variance

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Strategic goal 1: Establishing a competent and effective organisation Develop and implement appropriate ICT infrastructure plan with an ISO quality management system by June 2011

ICT strategy and systems in place

One approved ICT strategy document and functionality of systems

Achieved

No variance

No deviation

Develop and implement a funding strategy/ plan (funding models) beyond fiscal flow

Approved funding strategy beyond fiscal flow

A sustainable, approved funding model and investment policy

Not achieved

INVESTMENT POLICY AND FUNDING MODEL WAS DEVELOPED BUT NOT APPROVED

The funding model for AsgiSA EC is currently in the approved five-year approved strategy. No new model was developed because of the merger process.

DETAILED ANNUAL PERFORMANCE Actual achieved

Ensure key financial (priority) policies are reviewed and approved by 31 March 2011

Reviewed policies are approved and implemented

10 key policies reviewed and implemented (operational level)

Policies reviewed in 2009/10 were implemented in 2010/11

REASON FOR DEVIATION AND REMEDIAL ACTIONS

Variance

No policies REVIEWED IN 2010/11

The current financial policies are still adequate for the needs of AsgiSA EC until the merger is effective (Effective date was communicated as 1 April 2011). All current AsgiSA EC policies were reviewed as part of preparations for the merger. A gap analysis between the policies of the merging entities was performed under the auspices of the Merger Office. The review of financial policies resulted in updated procedures, but no changes to the policies themselves. Changes to the Supply Chain Management policy were considered, but not submitted to the board for approval due to the merger. Updated procedures for assets, inventory, supply chain management, cash management, debtors and receivables, creditors and payables, revenue, cash and cash equivalents, land claims, budgeting, leases.

ANNUAL TARGET

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PERFORMANCE INDICATORS

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OBJECTIVES

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STATEMENTS K EEPI NG TH E D R EA M A L IV E

ANNUAL FINANCIAL 99

REPORT OF THE AUDIT COMMITTEE for the year ended 31 March 2011

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100

We are pleased to present our report for the financial year ended 31 March 2011. Audit Committee Members and Attendance The audit committee consists of the members listed hereunder and meets at least five (5) times per annum as per its approved terms of reference. During the year under review, five (5) meetings were held. Audit Committee Responsibility The Audit Committee reports that it has complied with its responsibilities arising from the Treasury Regulations 27(1) (10) (b) and (c) to the Public Finance Management Act of 1999 (as amended). The Audit Committee also reports that it has adopted appropriate formal terms of reference as its Audit Committee Charter, has regulated its affairs in compliance with this charter and has discharged its responsibilities as contained therein. The effectiveness of internal control The system of controls is designed to provide assurance that assets are safeguarded and that liabilities and working capital are efficiently managed. In line with the PFMA and the King III Report on Corporate Governance requirements, internal audit provides the Audit Committee and management with assurance that the internal controls are appropriate and effective. This is achieved by means of the risk management process, as well as the identification of corrective actions and suggested enhancements to the controls and processes. From the various reports of the internal auditors, the Audit Report on the Annual Financial Statements, the matters of emphasis and management letter of the Auditor-General, it was noted that no significant or material non compliance with prescribed policies and procedures have been reported. Accordingly, we can report that the system of internal control for the period under review was effective and efficient.

Evaluation of Financial Statements The Audit Committee has reviewed and discussed the audited annual financial statements to be included in the annual report with the Auditor-General and the Accounting Officer; this review included: • The Auditor-General’s management report and management’s response thereto; • Significant adjustments resulting from the audit; and • The appropriateness of the going concern assumptions and disclosure. The Audit Committee concurs and accepts the Auditor-General’s conclusions on the annual financial statements and is of the opinion that the audited annual financial statements be accepted and read together with the report of the Auditor-General. On behalf of the audit committee

Zodwa Manase Audit committee chairperson 28 July 2011

REPORT OF THE AUDITOR GENERAL

Auditor-General’s responsibility 3. As required by section 188 of the Constitution of the Republic of South Africa, 1996 (Act No, 108 of 1996), section 4 of the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), my responsibility is to express an opinion on these financial statements based on my audit.

6. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion 7. In my opinion, the financial statements present fairly, in all material respects, the financial position of the Accelerated Shared Growth Initiative South Africa EC as at 31 March 2011 and its financial performance and cash flows for the year then ended in accordance with the Standards of GRAP and the requirements of the PFMA and the Companies Act. Emphasis of matters 8. I draw attention to the matters below. My opinion is not modified in respect of these matters:

4. I conducted my audit in accordance with International Standards on Auditing and General Notice 1111 of 2010 issued in Government Gazette 33872 of 15 December 2010. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance that the financial statements are free from material misstatement.

Material losses / impairments 9. As disclosed in note 3 to the financial statements, significant crop impairment losses to the amount of R10 471 452 that were incurred on agricultural produce due to the inherent risk of accessibility to markets, recent economic turmoil and the fact that AsgiSA EC is a price taker also impacted on income generated from cropping projects.

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

Funding of operations 10. As disclosed in note 33 to the financial statements, the

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Accounting authority’s responsibility for the financial statements 2. The accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with the South African Standards of Generally Recognised Accounting Practice (SA Standards of GRAP), the requirements of the Public Finance Management Act of South Africa, 1999 (Act No.1 of 1999) (PFMA) and the Companies Act of South Africa, 1973 (Act No. 61 of 1973 as amended) (Companies Act), and for such internal control as management determines necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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Introduction 1. I have audited the accompanying financial statements of the Accelerated Shared Growth Initiative South Africa Eastern Cape (AsgiSA EC), which comprise the statement of financial position as at 31 March 2011, the statement of financial performance, statement of changes in net assets and statement of cash flows for the year then ended, a summary of significant accounting policies and other explanatory information, as set out on pages 105 to 136.

101

for the year ended 31 March 2011

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102

financial statements have been prepared on the basis of accounting policies applicable to a going concern which presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. The ability of the entity to continue as a going concern is dependent on a number of factors. These factors are mainly the ability to obtain funding for the ongoing operations of the entity as well as political uncertainty. The Eastern Cape Provincial Government has indicated its intention to amalgamate the Eastern Cape Rural Finance Corporation, Eastern Cape Appropriate Technology Unit and AsgiSA EC. Unaudited supplementary schedules 11. The â&#x20AC;&#x153;detailed statement of financial performance for the year ended 31 March 2011â&#x20AC;? set out on pages 137 and 138, does not form part of the financial statements and are presented as additional information. I have not audited this statement and, accordingly, I do not express an opinion thereon. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS 12. In accordance with the Public Audit Act (PAA) and in terms of General notice 1111 of 2010, issued in Government Gazette 33872 of 15 December 2010, I include below my findings on the annual performance report as set out on pages 33 to 93 and material non-compliance with laws and regulations applicable to the public entity. Predetermined objectives 13. There were no material findings on the annual performance report concerning the presentation, usefulness and reliability of the information. Compliance with laws and regulations 14. There were no findings concerning material non-compliance with applicable laws and regulations regarding financial matters, financial management and other related matters. INTERNAL CONTROL 15. In accordance with the PM and in terms of General notice 1111 of 2010, issued in Government Gazette 33872 of

15 December 2010, I considered internal control relevant to my audit, but not for the purpose of expressing an opinion on the effectiveness of internal control. There are no significant deficiencies in internal control that resulted in a qualification of the auditorâ&#x20AC;&#x2122;s opinion on the financial statements and/or findings on predetermined objectives and/or material non-compliance with laws and regulations.

East London 29 July 2011

Auditing to build public confidence

ACCOUNTING OFFICERâ&#x20AC;&#x2122;S REPORT for the year ended 31 March 2011

However, the ECRDA did not open its doors on 1 April 2011 and the future of AsgiSA EC amidst these uncertainties had to be evaluated in order to decide whether the financial statements should be prepared on a going concern basis or a liquidation/closing down basis. Currently, no definite clarity of the establishment date of the ECRDA exists, nor the envisaged process (if applicable) that will be followed or the funding of AsgiSA EC in the absence of an operational ECRDA by 1 April 2012. The financial statements for 2010/11 is thus on the going concern basis as the AsgiSA EC is able to meet its obligations as it becomes due for the next twelve months. It is important to note that the forward looking approach is limited to twelve months only and that the going concern financial statements do not imply that AsgiSA EC will continue to operate beyond the twelve month period. As the future of the organisation is not within ultimate control of the Board of Directors or management, the possibility does exist that AsgiSA EC may bid a premature farewell. The process of establishing an ECRDA impacted severely on strategic planning, development and implementing of programmes, budgeting and placed immense pressure on existing, strained resources. Furthermore, potential funders and

Income generated internally increased by 89% year on year which reflects the conscious effort to create other revenue streams. Municipal commitments towards AsgiSA EC increased significantly, but unfortunately, not all commitments were honoured. The fair value of the crop assets as at 31 March each year is estimated based on judgement and influenced by a number of factors, for example, yield potential, market prices and past history. The crop estimate of R10,6m (2009/10: R21,6m) is reasonable given the smaller areas planted, and the negative impact of the rains during December on the prospective yield. The cyclical nature of the expenditure patterns relating to crop production results in a disjunction between the financial year and the crop season. The revenue generated from agricultural projects and crop production expenditure spans over different financial years. The accumulated surplus from 2009/10 is utilised to defray some of the crop production expenditure relating to the 2009/10 crop season which was incurred in the 2010/11 financial year. The manner of crop valuation and other inventories held be AsgiSA EC are contained in notes 3 and 8 to the financial statements. The funding and institutional uncertainty facing AsgiSA EC necessitated the suspension of commitments and planned activities towards the latter part of 2010. This enables the organisation to fund its overheads for the 2011/12 financial year from reserves.

103

The most severe impact on income generation and operations of AsgiSA EC during the financial year under review was the 33% reduction in government funding from R150m to R100m which was compounded by the late receipt of tranches and uncertainty as to future funding. The final tranche of R25m from the Department of Land Reform, Agriculture and Rural Development (DLRARD) was only received on 29 April 2011, after intervention by Provincial Treasury.

K EEPI NG TH E D R EA M A L IV E

As indicated in note 33 to the financial statements, the Eastern Cape Government indicated its intention to amalgamate three entities, namely AsgiSA EC, its parent entity, the Eastern Cape Rural Finance Corporation (ECRFC) and the Eastern Cape Appropriate Technologies Unit (ECATU) on 1 April 2011 into a new rural development agency, provisionally named the Eastern Cape Rural Development Agency (ECRDA).

donors are extremely hesitant to embark on joint initiatives when the existence of AsgiSA EC or ECRDA cannot be confirmed.

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General review of the state of affairs Whilst the 2010/11 financial year was filled with new strategic partners, opportunities and the ability to mould operations in order to address the lessons learnt in the past, it has undoubtedly also been the most trying year in the existence of AsgiSA EC. AsgiSA EC fulfilled its mandate although it was plagued by immense uncertainty regarding the future role, if any, that that the Accounting Authority envisages AsgiSA EC to fulfil within the agrarian transformation and rural development sphere.

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K EEPI NG TH E D R EA M A L IV E

104

Services Rendered by AsgiSA EC AsgiSA EC proudly delivered on its mandate and demonstrated a tangible impact on the lives of the communities where its programmes were based. The development initiatives and business plans, beneficial partnerships and contribution towards agrarian transformation and food security are further highlighted in the CEOâ&#x20AC;&#x2122;s overview as well as the annual performance report.

Capacity constraints Continuing vacancies primarily resulting from the inability to attract desired skills due to the unknown nature of AsgiSA EC in 2009 (it was newly established) and the uncertainty regarding the future of employees in 2010, when the upcoming merger was announced. This was followed by a moratorium placed on all appointments by the merger office in 2010 and the inability to enter into long term employment contracts when neither the budget of the proposed ECRDA nor AsgiSA EC are available. The perceived employment risk necessitated the secondment of employees and professional service providers.

Utilisation of donor funds and Public Private Partnerships (PPPs) AsgiSA EC did not receive any donor funds and did not enter into any PPPs during the 2010/11 financial year. The formation of significant partnerships with joint funding of programmes and initiatives was the focus of AsgiSA EC. Various funding partners included the DBSA, Joe Gqabi District Municipality, Nyandeni Municipality, ECRFC and Farmsecure. Corporate governance arrangements AsgiSA EC cemented its reputation of being one of the very few entities in the Eastern Cape who prides itself on its governance and processes. The proud tradition of obtaining clean audit reports from the Auditor-General continued and AsgiSA EC will continue its inward looking approach in order to increase efficiency and compliance. This introspection includes the annual review of the risk profile of the organisation. This forms the platform and foundation of the risk management processes within the organisation. The risk management processes include an effective audit committee, supported by the internal audit function which

operated since 2008. The Risk Management and Fraud Prevention plan, in addition to the Code of Ethics, forms the backbone of risk management within AsgiSA EC. Based on its history of compliance and clean administration, SCOPA did not call the organisation to any hearings and as such, there are no SCOPA resolutions to report on. We are fortunate that the importance of effective corporate governance and risk management has become the creed of every level within the organisation.

Discontinued Operations, New Activities Planned and Events After Balance Sheet Date The uncertainties and impact thereof on the organisation as well as its current and planned activities have been lamented on earlier in this report. The major risks are that the period of uncertainty may result in loss of credibility amongst beneficiaries and funders as well as negative morale and loss of key staff members. The trade-off between implementing activities and discharging fiduciary duties resulted in the ability of AsgiSA EC, based on its reserves, to sustain its overheads, but not project related expenditure for the 2011/12 financial year. It is truly a distressing situation which resulted negatively on spheres of the organisation. Yet, all is not lost, as the spirit and resilience which enabled AsgiSA EC to set up originally is still largely intact. It is thus with bated breath that we look forward to the future and continued resurrection of the mandate and projects we devoted ourselves to over the last few years.

Pepi Silinga CHAIRMAN

STATEMENT OF FINANCIAL POSITION for the year ended 31 March 2011

Notes

2011

2010

5,793,143 633,388 3,903,416 10,329,947

4,700,940 9,136,746 25,343,383 10,590,000 3,319,680 68,775,930 6,500,000 128,366,679 141,387,688

11,763,511 1,787,993 82,444 21,061,452 1,318,155 66,827,902 102,841,457 113,171,404

NET Asset AND LIABILITIEs Net Assets Share capital 12 100 Accumulated surplus 93,694,827 93,694,927 Liabilities Non-Current Liabilities Finance lease obligation 13 -

100 95,940,868 95,940,968 82,586

Current Liabilities Finance lease obligation 13 Trade and other payables 14 Trade and other payables - Non-exchange transactions 14 Payable to SARS 25 Operating lease liability 26 Land claims liability 9 Total Liabilities

82,586 10,201,383 5,174,513 - 266,960 31,967,319 47,692,761 47,692,761

72,821 13,818,677 2,962,782 116,426 177,144 17,147,850 17,230,436

Total Net Assets and Liabilities

141,387,688

113,171,404

K EEPI NG TH E D R EA M A L IV E

6,910,635 418,054 5,692,320 13,021,009

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Non-Current Assets Property, plant and equipment 4 Intangible assets 5 Livestock loans receivable 7 Current Assets Inventories 8 Trade and other receivables - Exchange transactions 10 Trade and other receivables - Non-exchange transactions 10 Biological assets and agricultural produce 3 Livestock loans receivable 7 Cash and cash equivalents 11 Investments 11 Total Assets

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Assets

STATEMENT OF FINANCIAL PERFORMANCE for the year ended 31 March 2011

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Notes

Revenue from exchange transactions 16 Cost of sales 17 Gross surplus Other income Operating expenses * Remaining funds 18 Interest received 19 Valuation adjustment on biological assets and agricultural produce 20 Finance costs 21 Surplus/(deficit) before taxation ** Taxation 22 Surplus/(deficit) for the period

2011

14,945,456 (15,151,206) (205,750) 118,890,033 (126,613,921) (7,929,638) 1,781,806 4,202,466 (300,675) (2,246,041) - (2,246,041)

2010

5,004,333 (5,024,298) (19,965) 156,010,878 (134,397,305) 21,593,608 1,874,059 13,792,195 (1,912,763) 35,347,099 (593,840) 34,753,259

** The 2010/11 deficit results from the 2009/10 crop production cycle which spans over more than one financial year Deficit is funded from the accumulated surplus

(2,246,041)

STATEMENT OF CHANGES IN NET ASSETS for the year ended 31 March 2011

Share capital

Accumulated surplus

Total net assets

Opening balance as previously reported Adjustments Prior period adjustments Balance at 01 April 2009 as restated Changes in net assets Surplus for the period Total changes

100

61,282,486

61,282,586

- 100

(94,877) 61,187,609

(94,877) 61,187,709

- -

34,753,259 34,753,259

Opening balance as previously reported Adjustments Prior period adjustments Balance at April 01, 2010 as restated Changes in net assets Surplus for the period Total changes

100

96,841,226

96,841,326

- 100

(900,358) 95,940,868

(900,358) 95,940,968

- -

(2,246,041) (2,246,041)

100

93,694,827

93,694,927

Balance at March 31, 2011

S TATEMENT OF C A S H F L O W S for the year ended 31 March 2011

Notes

2011

2010

159,896,708 (141,358,019) 18,538,689 1,874,059 (1,888,180) (1,004,395) 17,520,173

(3,112,501) 118,032 (78,260) 25,737 (3,790,429) (6,837,421)

(5,359,928) 9,969 (698,513) (5,221,571) (11,270,043)

Finance lease payments Increase in investments Net cash from financing activities

(72,821) (6,500,000) (6,572,821)

(88,800) (88,800)

Total cash movement for the period Cash at the beginning of the period

1,948,028 66,827,902

6,161,330 60,666,572

Total cash at end of the period

68,775,930

66,827,902

CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment 4 Disposal of property, plant and equipment 4 Purchase of other intangible assets 5 Sale of other intangible assets 5 Purchase of livestock loans receivable Net cash from investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

K EEPI NG TH E D R EA M A L IV E

147,428,260 (133,434,695) 13,993,565 1,781,806 (300,675) (116,426) 15,358,270

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Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations 24 Interest income Finance costs Tax paid 25 Net cash from operating activities

107

CASH FLOWS FROM OPERATING ACTIVITIES

ACCOUNTING

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1. Presentation of Annual Financial Statements The Annual Financial Statements have been prepared in accordance with Statements of Generally Recognised Accounting Practice (GRAP) issued by the Accounting Standards Board in accordance with Section 55 of the Public Finance Management Act (Act no. 29 of 1999). The Annual Financial Statements have been prepared on the historical cost basis, and incorporate the principal accounting policies set out below. Accounting policies for material transactions, events or conditions not covered by the GRAP reporting framework, have been developed in accordance with paragraphs 7, 11 and 12 of GRAP 3 and the hierarchy approved in Directive 5 issued by the Accounting Standards Board. Assets, liabilities, revenues and expenses have not been offset except where offsetting is required or permitted by a Standard of GRAP. These accounting policies are consistent with the previous period, unless explicitly stated. The details of any changes in accounting policies are explained in the relevant policy.

Presentation currency The financial statements are presented in South African Rand, which is the functional currency of the entity. Unless stated otherwise, all figures have been rounded off to the nearest Rand. Going concern assumption These Annual Financial Statements have been prepared on the assumption that the entity will continue to operate as a going concern for at least the next 12 months. Comparative information When the presentation or classification of items in the Annual Financial Statements is amended, prior period comparative amounts are restated. The nature and reason for the

POLICIES reclassification is disclosed. Where accounting errors have been identified in the current year, the correction is made retrospectively as far as is practicable, and the prior year comparatives are restated accordingly. Where there has been a change in accounting policy in the current year, the adjustment is made retrospectively as far as is practicable, and the prior year comparatives are restated accordingly.

1.1 Significant judgements In preparing the Annual Financial Statements, management is required to make estimates and assumptions that affect the amounts represented in the Annual Financial Statements and related disclosures. Use of available information and the application of judgement is inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the Annual Financial Statements. Significant judgements include: Loans and Receivables The entity assesses its loans and receivables for impairment at each reporting date. In determining whether an impairment loss should be recorded in the Statement of Financial Performance, the entity makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from a financial asset. The impairment for loans and receivables is calculated on a portfolio basis, based on historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence period. Fair value estimation The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the entity for similar financial instruments.

Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the reporting date, and are discounted to present value where the effect is material. Useful lives and residual values The entity re-assess the useful lives and residual values of property, plant and equipment on an annual basis. In reassessing the useful lives and residual values of property, plant and equipment management considers the condition and use of the individual assets, to determine the remaining period over which the asset can and will be used.

1.2 Biological assets and agricultural produce Biological assets and agricultural produce at the point of harvest are recognised and measured in accordance with the relevant standard of GRAP on Agriculture. Agricultural produce after being harvested is recognised and measured in accordance with other relevant standards of GRAP. An entity shall recognise a biological asset or agricultural produce when, and only when: • the entity controls the asset as a result of past events; • it is probable that future economic benefits or service potential associated with the asset will flow to the entity; and • the fair value or cost of the asset can be measured reliably. Biological assets and agricultural produce are measured at their fair value less estimated point-of-sale costs. Agriculture produce harvested from the entity’s biological assets

Where biological assets and agricultural produce is acquired by the entity for no or nominal consideration, that is, a nonexchange transaction, the cost is deemed to be equal to the fair value of the item on the date acquired. The fair value of livestock is determined based on market prices of livestock of similar age, breed, and genetic merit. A gain or loss arising on initial recognition of biological assets at fair value less estimated point-of-sale costs and from a change in the fair value less estimated point-of-sale costs is included in surplus or deficit for the period in which it arises. Where market determined prices or values are not available, the present value of the expected net cash inflows from the asset, discounted at a current market-determined pre-tax rate is used to determine fair value. Where fair value cannot be measured reliably, biological assets and agricultural produce are measured at cost less any accumulated depreciation and any accumulated impairment losses. The entity tests for impairment where there is an indication that an asset may be impaired. An assessment of whether there is an indication of possible impairment is done at each reporting date. Where the carrying amount of a biological asset or agriculture produce is greater than the estimated recoverable amount (or recoverable service amount), it is written down immediately to its recoverable amount (or recoverable service amount) and an impairment loss is charged to the Statement of Financial Performance. A previously recognised impairment loss is reversed when there is an indication that it may no longer exist or may have decreased, however not to an amount higher than the carrying amount that would have been determined (net of depreciation, if applicable) had no impairment been recognised in prior years. A biological asset or agriculture produce is derecognised when the asset is disposed of or when there are no further economic

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Provisions Provisions were raised and management determined an estimate based on the information available. Additional disclosure of these estimates of provisions are included in the notes.

Point-of-sale costs include commissions to brokers and dealers, levies by regulatory agencies and commodity exchanges, transfer taxes and duties but excludes transport and other costs necessary to get the assets to a market.

K EEPI NG TH E D R EA M A L IV E

The entity reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of assets.

are measured at their fair value less estimated point-of-sale costs at the point of harvest.

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Impairment testing The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value-inuse calculations and fair values. These calculations require the use of estimates and assumptions.

benefits or service potential expected from the use of the asset. The gain or loss arising on the disposal or retirement of the biological asset or agriculture produce is determined as the difference between the sales proceeds and the carrying value and is included in surplus or deficit when the item is derecognised.

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1.3 Property, plant and equipment Property, plant and equipment are tangible non-current assets (including infrastructure assets) that are held for use in the production or supply of goods or services, rental to others, or for administrative purposes, and are expected to be used during more than one year. Items of property, plant and equipment are initially recognised as assets on acquisition date and are initially recorded at cost. The cost of an item of property, plant and equipment is the purchase price and other costs attributable to bring the asset to the location and condition necessary for it to be capable of operating in the manner intended by the entity. Trade discounts and rebates are deducted in arriving at the cost. The cost, if any, also includes the necessary costs of dismantling and removing the asset and restoring the site on which it is located. 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 or service potential associated with the item will flow to the entity; and â&#x20AC;˘ the cost of the item can be measured reliably. Where an asset is acquired by the entity for no or nominal consideration (i.e. a non-exchange transaction), the cost is deemed to be equal to the fair value of that asset on the date acquired. Major spare parts and servicing equipment qualify as property, plant and equipment when the entity expects to use them during more than one period. Similarly, if the major spare parts and servicing equipment can be used only in connection with an item of property, plant and equipment, they are accounted for as property, plant and equipment. Property, plant and equipment are carried at cost less accumulated depreciation and any impairment losses. Where the entity replaces parts of an asset, it derecognises the part of the asset being replaced and capitalises the new component. Subsequent expenditure incurred on an asset is capitalised when it increases the capacity or future economic benefits associated with the asset.

Depreciation is calculated on the depreciable amount, using the straight-line method over the estimated useful lives of the assets. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. Components of assets that are significant in relation to the whole asset and that have different useful lives are depreciated separately. Depreciation commences when the asset is ready for its intended use. The annual depreciation rates are based on the following estimated average asset lives: Item

Average useful life

Plant and machinery Furniture and fixtures Motor vehicles Office equipment Computer equipment Minor Equipment Leasehold improvements

5 years 7 years 5 years 5 years 3 years 3 years 5 years

The residual value, useful life and the depreciation method of each asset are reviewed at each financial period-end and any changes are recognised as a change in accounting estimate in the Statement of Financial Performance. The entity tests for impairment where there is an indication that an asset may be impaired. An assessment of whether there is an indication of possible impairment is done at each reporting date. Where the carrying amount of an item of property, plant and equipment is greater than the estimated recoverable amount (or recoverable service amount), it is written down immediately to its recoverable amount (or recoverable service amount) and an impairment loss is charged to the Statement of Financial Performance. A previously recognised impairment loss is reversed when there is an indication that it may no longer exist or may have decreased, however not to an amount higher than the carrying amount that would have been determined (net of depreciation) had no impairment been recognised in prior years. An item of property, plant and equipment is derecognised when the asset is disposed of or when there are no further economic benefits or service potential expected from the use of the asset. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying value and is included in surplus or deficit when the item is derecognised.

Intangible assets are initially recognised at cost on the date of acquisition. Where an intangible asset is acquired by the entity for no or nominal consideration (i.e. a non-exchange transaction), the cost is deemed to be equal to the fair value of that asset on the date acquired. Expenditure on research (or on the research phase of an internal project) is recognised as an expense when it is incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised when: • it is technically feasible to complete the asset so that it will be available for use or sale. • there is an intention to complete and use or sell it. • there is an ability to use or sell it. • it will generate probable future economic benefits. • there are available technical, financial and other resources to complete the development and to use or sell the asset. • the expenditure attributable to the asset during its development can be measured reliably. Intangible assets are carried at cost less any accumulated amortisation and any impairment losses. An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. Amortisation is not provided for these intangible assets. For all other intangible assets amortisation is provided on a straight line basis over their useful life. Reassessing the useful life of an intangible asset with a definite useful life after it was classified as indefinite is an indicator that the asset may be impaired. As a result the asset is tested for impairment and the remaining carrying amount is amortised over its useful life.

Item

Useful life

Computer software

3 years

The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at each reporting date and any changes are recognised as a change in accounting estimate in the Statement of Financial Performance. The entity tests intangible assets with finite useful lives for impairment where there is an indication that an asset may be impaired. An assessment of whether there is an indication of possible impairment is done at each reporting date. Where the carrying amount of an item of an intangible asset is greater than the estimated recoverable amount (or recoverable service amount), it is written down immediately to its recoverable amount (or recoverable service amount) and an impairment loss is charged to the Statement of Financial Performance. A previously recognised impairment loss is reversed when there is an indication that it may no longer exist or may have decreased, however not to an amount higher than the carrying amount that would have been determined (net of amortisation) had no impairment been recognised in prior years. An intangible asset is derecognised when the asset is disposed of or when there are no further economic benefits or service potential expected from the use of the asset. The gain or loss arising on the disposal or retirement of an intangible asset is determined as the difference between the sales proceeds and the carrying value and is included in surplus or deficit when the item is derecognised.

1.5 Financial instruments Initial recognition The entity classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an residual interest instrument in accordance with the substance of the contractual arrangement.

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An intangible asset is recognised when: • it is probable that the expected future economic benefits or service potential that are attributable to the asset will flow to the entity; and • the cost of the asset can be measured reliably.

Amortisation is provided to write down the intangible assets, on a straight line basis, to their residual values. Amortisation commences when the asset is ready for its intended use. The annual amortisation rates are based on the following estimated average asset lives:

K EEPI NG TH E D R EA M A L IV E

An intangible asset is an identifiable non-monetary asset without physical substance. Examples include computer software, licences, and development costs.

Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance are not recognised as intangible assets.

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1.4 Intangible assets

Financial assets and financial liabilities are recognised on the entity’s Statement of Financial Position when the entity becomes party to the contractual provisions of the instrument.

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Subsequent measurement Financial assets are categorised according to their nature as either financial assets at fair value through surplus or deficit, held-to-maturity, loans and receivables, or available-for-sale. Financial liabilities are categorised as either at fair value through surplus or deficit or financial liabilities carried at amortised cost (“other”). Trade and other receivables Trade and other receivables are categorised as loans and receivables and are initially recognised at fair value plus direct transaction costs and subsequently carried at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts. Amortised cost refers to the initial carrying amount, plus interest, less repayments and impairments. Appropriate allowances for estimated irrecoverable amounts are recognised in surplus or deficit 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 asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. An impairment of trade receivables is accounted for by reducing the carrying amount of trade receivables through the use of an allowance account, and the amount of the loss is recognised in the statement of financial performance 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 Statement of Financial Performance.

term highly liquid investments, readily convertible into known amounts of cash, that are held with registered banking institutions with maturities of three months or less and are subject to an insignificant risk of change in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents comprise cash on hand, deposits held on call with banks, net of bank overdrafts. The entity categorises cash and cash equivalents as loans and receivables.

1.6 Tax Current tax assets and liabilities Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset. Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction, affects neither accounting surplus nor taxable surplus (tax deficit). A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable surplus will be available against which the deductible temporary difference can be utilised. A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction at the time of the transaction, affects neither accounting surplus nor taxable surplus (tax deficit). Tax expenses

Trade and other payables and borrowings Financial liabilities consist of trade payables and borrowings. They are categorised as financial liabilities at amortised cost and are initially recognised at fair value and subsequently measured at amortised cost which is the initial carrying amount, less repayments, plus interest.

Current and deferred taxes are recognised as income or an expense and included in surplus or deficit for the period, except to the extent that the tax arises from: • a transaction or event which is recognised, in the same or a different period, directly in net assets, or • a business combination.

Cash and cash equivalents Cash includes cash on hand (including petty cash) and cash with banks (including call deposits). Cash equivalents are short-

Current tax and deferred taxes are charged or credited directly to net assets if the tax relates to items that are credited or charged, in the same or a different period, directly to net assets.

1.7 Leases

where shorter, the term of the relevant lease.

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.

Contingent rentals are recognised as expenses in the period in which they are incurred and are not included in the straight- line lease expense.

Finance leases are recognised as assets and liabilities in the Statement of Financial Position at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the Statement of Financial Position as a finance lease obligation. The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease. The lease payments are apportioned between the finance charge and reduction of the outstanding liability.The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of on the remaining balance of the liability. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets, or

Contingent rentals are recognised as expenses in the period in which they are incurred and are not included in the straight- line lease expense.

1.8 Inventories Inventories comprise current assets held for sale, consumption or distribution during the ordinary course of business. Inventories are initially recognised at cost. Cost generally refers to the purchase price, plus taxes, transport costs and any other costs in bringing the inventories to their current location and condition. Where inventory is manufactured, constructed or produced, the cost includes the cost of labour, materials and overheads used during the manufacturing process. Where inventory is acquired by the entity for no or nominal consideration (i.e. a non-exchange transaction), the cost is deemed to be equal to the fair value of the item on the date acquired. Inventories, consisting of consumable stores, raw materials, work-in-progress and finished goods, are valued at the lower of cost and net realisable value unless they are to be distributed at no or nominal charge, in which case they are measured at the lower of cost and current replacement cost. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

K EEPI NG TH E D R EA M A L IV E

Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease asset / liability. This asset / liability is not discounted.

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Operating leases – lessee

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Finance leases – lessee The following situations would normally individually or in combination lead to a lease being classified as a finance lease and have been considered by the entity: • lease transfers ownership of the asset to the lessee by the end to the lease term; • the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised; • the lease term is for the major part of the economic life of the asset even if title is not transferred; • at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the asset; • the leased asset is of such a specialised nature that only the lessee can use them without major modifications; • if the lessee can cancel the lease, the lessor’s deficits associated with the cancellation are born by the lessee; • gains or deficits from the fluctuation in the fair value of the residual accrue to the lessee; and • the lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent.

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. The classification of the lease is determined using GRAP 13 Leases.

The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects is assigned using specific identification of the individual costs.

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The cost of inventories is assigned using the first-in, first-out (FIFO) formula. The same cost formula is used for all inventories having a similar nature and use to the entity. When inventories are sold, the carrying amount of those inventories are recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, are recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

1.9 Impairment of assets The entity assesses at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the entity estimates the recoverable service amount of the asset. Irrespective of whether there is any indication of impairment, the entity also: • tests intangible assets with an indefinite useful life or intangible assets not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test is performed during the annual period and at the same time every period. • tests goodwill acquired in a business combination for impairment annually. If there is any indication that an asset may be impaired, the recoverable amount (or recoverable service amount) is estimated for the individual asset. If it is not possible to estimate the recoverable amount (or recoverable service amount) of the individual asset, the recoverable amount (or recoverable service amount) of the cash-generating unit to which the asset belongs is determined. The recoverable amount (or recoverable service amount) of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. If the recoverable amount (or recoverable service amount) of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount (or recoverable

service amount). That reduction is an impairment loss. An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in surplus or deficit. Any impairment loss of a revalued asset is treated as a revaluation decrease. An impairment loss is recognised for cash-generating units if the recoverable amount (or recoverable service amount) of the unit is less than the carrying amount of the units. The impairment loss is allocated to reduce the carrying amount of the assets of the unit in the following order: • first, to reduce the carrying amount of any goodwill allocated to the cash-generating unit and • then, to the other assets of the unit, pro rata on the basis of the carrying amount of each asset in the unit. An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts (or recoverable service amounts) of those assets are estimated. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in surplus or deficit. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase.

1.10 Employee benefits Short-term employee benefits The cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the service is rendered and are not discounted. The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, in the case of non-accumulating absences, when the absence occurs. The expected cost of incentives and 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.

Provisions are reviewed at reporting date and adjusted to reflect the current best estimate. Where the effect of time value of money is material, the amount of a provision shall be the present value of the future cash flows or expenditures expected to be required to settle the obligation. The entity uses a pre-tax rate that reflects current market assessments of the time value of money and the risks for which future cash flow estimates have been adjusted. 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. If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision. A constructive obligation to restructure arises only when an entity: • has a detailed formal plan for the restructuring, identifying at least: - the business or part of a business concerned; - the principal locations affected; - the location, function, and approximate number of employees who will be compensated for terminating their services; - the expenditures that will be undertaken; and - when the plan will be implemented; and • has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.

1.12 Transfers and subsidies/government grants An inflow of resources from a non-exchange transaction, e.g. grant, other than services in-kind, that meets the definition of an asset shall be recognised as an asset when, and only when: • it is probable that the future economic benefits or service potential associated with the asset will flow to the entity; and • the fair value of the asset can be measured reliably. The entity only recognise an asset arising from a non-exchange transaction when it gains control of resources that meet the definition of an asset and satisfy the recognition criteria. Grants received without any conditions attached are recognised as revenue when the asset is recognised. If the entity has satisfied all of the present obligations related to the inflow, it recognises an asset in the Statement of Financial Position and corresponding revenue in the Statement of Financial Performance. If the entity has partially satisfied the present obligations related to the inflow, it recognises an asset and revenue to the extent that a liability is not also recognised and a liability in the Statement of Financial Position to the extent that the present obligations have not been satisfied. An asset, e.g. property, plant and equipment, investment property and inventory acquired through a grant is initially measured at its fair value as at the date of acquisition. Monetary assets that would otherwise meet the definition of a financial instrument, e.g. cash and transfers receivable, will also be measured at fair value as at the date of acquisition. These assets are subsequently measured, derecognised and disclosed in accordance with the standards on financial instruments. Revenue from a grant is measured at the amount of the increase in net assets recognised by the entity.

115

The amount of a provision is the present value of the expenditure expected to be required to settle the obligation.

Contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in note 27 unless the possibility of an inflow/outflow of resources embodying economic benefits is remote.

K EEPI NG TH E D R EA M A L IV E

Provisions are recognised when: • the entity has a present obligation as a result of a past event; • it is probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation; and • a reliable estimate can be made of the obligation.

After their initial recognition contingent liabilities recognised in business combinations that are recognised separately are subsequently measured at the higher of: • the amount that would be recognised as a provision; and • the amount initially recognised less cumulative amortisation.

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1.11 Provisions and contingencies

1.13 Revenue

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116

Revenue from exchange transactions Revenue from the sale of goods is recognised when all the following conditions have been satisfied: • the entity has transferred to the buyer the significant risks and rewards of ownership of the goods; • the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; • the amount of revenue can be measured reliably; • it is probable that the economic benefits or service potential associated with the transaction will flow to the entity; and • the costs incurred or to be incurred in respect of the transaction can be measured reliably.

directly giving approximately equal value in exchange. Revenue from non-exchange transactions is generally recognised to the extent that the related receipt or receivable qualifies for recognition as an asset and there is no liability to repay the amount. Revenue from non-exchange transactions, as far as it relates to conditional grants, is recognized as revenue in the Statement of Financial Performance to the extent that the entity has satisfied its performance obligation in relation to the grant. A liability for conditional grants is therefore only recognized to the extent that the entity has not satisfied all the conditions attached to the grants. As such, the liability for the conditional grant will be equal and representative of the conditions (performance obligations) that the entity should still fulfill for it to become unconditionally entitled to the funds included in the grant.

When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the stage of completion of the transaction at the reporting date. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the entity; • the stage of completion of the transaction at the reporting date can be measured reliably; and • the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

Revenue from the recovery of unauthorised, irregular, fruitless and wasteful expenditure is based on legislated procedures, including those set out in the Public Finance Management Act (Act No. 1 of 1999) and is recognised when the recovery thereof from the responsible board members or officials is virtually certain.

When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognised only to the extent of the expenses recognised that are recoverable.

Differences (variances) between the actual amounts and budget amounts are also presented.

Revenue from exchange transactions refers to revenue that accrued to the entity directly in return for services rendered / goods sold, the value of which approximates the consideration received or receivable. 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 surplus or deficit, using the effective interest rate method. Revenue from non-exchange transactions Revenue from non-exchange transactions refers to transactions where the entity received revenue from another entity without

1.14 Budget information Comparision of budget and actual amounts are presented in a separate additional financial statement: Statement of Comparison of Budget and Actual Amounts. The entity only presents the final budget amounts.

The financial statements and budget are not presented on the same basis as the financial statements are prepared on the accrual basis and the budget on the modified accrual basis of accounting. A reconciliation between the surplus/(deficit) for the period as per the Statement of Financial Performance and budgeted surplus/(deficit) is included in the Statement of Comparison of Budget and Actual Amounts.

1.15 Cost of sales When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

1.16 Borrowing costs Borrowing costs are recognised as an expense in the period in which they are incurred.

1.17 Fruitless and wasteful and irregular expenditure

The entity operates in an economic sector currently dominated by entities directly or indirectly owned by the South African Government. As a consequence of the constitutional independence of the three spheres of government in South Africa, only entities within the national/provincial/local sphere of government are considered to be related parties. Key management is defined as being individuals with the authority and responsibility for planning, directing and controlling the activities of the entity. We regard all individuals from the level of Executive Management as well as Board and Committee members as key management per the definition of the financial reporting standard. Close family members of key management personnel are considered to be those family members who may be expected to influence, or to be influenced by key management individuals, in their dealings with the entity.

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1.18 Related parties

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Irregular expenditure is expenditure that is contrary to the Public Finance Management Act (Act No. 1 of 1999), the State Tender Board Act (Act No. 86 of 1968) or is in contravention of the entityâ&#x20AC;&#x2122;s supply chain management policy and not yet condoned or regularised by management. Irregular expenditure is accounted for as expenditure in the Statement of Financial Performance and where recovered, it is subsequently accounted for as revenue in the Statement of Financial Performance.

117

Fruitless and wasteful expenditure is expenditure that was made in vain and would have been avoided had reasonable care been exercised. Fruitless and wasteful expenditure is accounted for as expenditure in the Statement of Financial Performance and where recovered, it is subsequently accounted for as revenue in the Statement of Financial Performance.

NOTES TO THE ANNUAL FINANCIAL STATEMENTS

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118

2. STATEMENTS AND INTERPRETATIONS NOT YET EFFECTIVE The following standards, amendments to standards and interpretations, with their estimated effect on the Financial Statements, have been issued but are not yet effective as at 31 March 2011: GRAP 18 - Segment Reporting ASB Issue date: March 2005 Effective date: To be determined by the Minister New standard of GRAP: Establishes principles for reporting financial information by segments. The impact of implementing this standard is expected to be immaterial in the context of this entityâ&#x20AC;&#x2122;s operations GRAP 25 - Employee Benefits ASB Issue date: November 2009 Effective date: To be determined by the Minister New standard of GRAP dealing with the requirements around accounting and disclosure of employee benefits including short term, long term and post retirement employee benefits. The impact of implementing this standard is expected to be immaterial in the context of this entityâ&#x20AC;&#x2122;s operations GRAP 104 - Financial Instruments ASB Issue date: October 2009 Effective date: To be determined by the Minister New standard of GRAP dealing with the recognition, measurement, presentation and disclosure of financial instruments. GRAP 105 - Transfer of Functions Between Entities Under Common Control ASB Issue date: November 2010 Effective date: To be determined by the Minister New standard of GRAP that will replace IFRS 3 and that deals specifically with the transfer of functions between entities under common control (i.e. related entities). The standard will prescribe the standard practices to be followed where one entity

receives the function(s) and related assets and liabilities of another entity. The standard takes cognizance that the transfer of functions often occur without any consideration for the assets and liabilities and prescribes the recognition and measurement thereof. GRAP 106 - Transfer of Functions Between Entities Not Under Common Control ASB Issue date: November 2010 Effective date: To be determined by the Minister New standard of GRAP that will replace IFRS 3 and that deals specifically with the transfer of functions between entities that are not under common control (i.e. unrelated entities). The standard will prescribe the standard practices to be followed where one entity receives the function(s) and related assets and liabilities of another entity. The standard takes cognizance that the transfer of functions often occur without any consideration for the assets and liabilities and prescribes the recognition and measurement thereof. GRAP 107 - Mergers ASB Issue date: November 2010 Effective date: To be determined by the Minister New standard of GRAP that will replace IFRS 3 and that deals specifically with the combination of entities within the public sector. The standard will prescribe the standard practices to be followed where entities combine through acquisition of one entity by another.

3. BIOLOGICAL ASSETS AND AGRICULTURAL PRODUCE

2011

2010

Cost/ Valuation

Accumulated depreciation

Agricultural produce 10,590,000

Carrying value

Cost/ Valuation

10,590,000

21,061,452

Accumulated depreciation

Carrying value

21,061,452

Reconciliation of biological assets and agricultural produce - 2011

(10,471,452)

10,590,000

119

21,061,452

Total

Reconciliation of biological assets and agricultural produce - 2010 Opening Transfers Balance

Agricultural produce

11,578,108

Material losses The losses as per the accounting standards should be considered in context with AsgiSA EC’s mandate, schedule 3C listing status (thus implying a non-profit orientated focus) and the underlying intentions of the entity’s adopted reinvestment model. AsgiSA EC focuses on rural development and community participation thus entrenching cooperative, sustainable and forward-looking attitudes towards agriculture, not the profitability of AsgiSA EC, or its projects per se. The accessibility to markets, recent economic turmoil and the fact that AsgiSA EC is a price taker also impacted on income generated from cropping projects. Initiatives to address these areas during the forthcoming seasons include the refurbishment of silos and development of storage facilities. Temporary storage facilities, by means of containers used for input supplies were purchased during the year and placed at various projects. Methods and assumptions used in determining fair value The accounting policy of AsgiSA EC requires biological assets to be carried at fair value at financial year-end and to be disclosed as such on the financial statements. The net realisable income, based on the yield estimate method,

(5,004,333)

Gains or losses Impairment arising from loss changes in fair value

21,661,164

(7,173,487)

Total

21,061,452

was used to determine the value of the agricultural produce as it is considered more representative of the “fair value”, especially due to the costs incurred exceeding the estimated realizable income. To appraise the growing crop value the projects and farms were visited to get an overview of what was planted and the general conditions of the crops. A yield estimate was made based on the planting date, cultivars, plant population per hectare, visible nutrient status, weed control, pest control, cob numbers per hectare, cob size, soil moisture situation and general condition of plants at that stage. The estimated value arrived at (based on the potential yield) was further adjusted for the maturity percentage of the crops at 31 March 2011 and for the time value of money. Production capital is normally acquired at the prime lending rate plus a risk factor therefore the commercial bank’s prime rate was used as a basis to determine the discount rate used. Cognisance was taken of the inherent risks relating to development intatives within a rural context when determining the discount rate. The biological asset valuation was based on the market price. Due to the recent fluctation and market volatility the market prices for these commodities may differ from the original valuation.

K EEPI NG TH E D R EA M A L IV E

Agricultural produce

Gains or losses arising from changes in fair value

A SGI SA EC ANNUAL REPORT 2 0 1 1

Opening Balance

4. PROPERTY, PLANT AND EQUIPMENT

2011

Cost

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120

Minor equipment Plant and machinery Furniture and fixtures Motor vehicles Office equipment Computer equipment Leasehold improvements Total

75,962 2,820,071 1,101,151 2,047,799 959,180 2,712,584 340,172 10,056,919

Accumulated depreciation

(27,186) (673,059) (304,518) (297,830) (411,891) (1,333,557) (98,243) (3,146,284)

2010 Carrying Cost value

48,776 2,147,012 796,633 1,749,969 547,289 1,379,027 241,929 6,910,635

Accumulated depreciation

Carrying value

63,226 2,030,036 982,436 1,030,582 958,946 1,774,084 253,263 7,092,573

(12,841) (192,007) (150,328) (103,056) (192,007) (610,011) (39,180) (1,299,430)

50,385 1,838,029 832,108 927,526 766,939 1,164,073 214,083 5,793,143

Disposals

Depreciation

Total

(14,345) (492,996) (156,104) (194,774) (221,753) (737,942) (59,063) (1,876,977)

48,776 2,147,012 796,633 1,749,969 547,289 1,379,027 241,929 6,910,635

Depreciation

Total

(10,711) (172,534) (118,255) (103,056) (177,808) (527,105) (39,180) (1,148,649)

50,385 1,838,029 832,108 927,526 766,939 1,164,073 214,083 5,793,143

Reconciliation of PROPERTY, PLANT AND EQUIPMENT - 2011

Minor equipment Plant and machinery Furniture and fixtures Motor vehicles Office equipment Computer equipment Leasehold improvements

Opening Balance

50,385 1,838,029 832,108 927,526 766,939 1,164,073 214,083 5,793,143

Additions

12,736 878,894 135,289 1,017,217 7,196 974,260 86,909 3,112,501

- (76,915) (14,660) - (5,093) (21,364) - (118,032)

Reconciliation of PROPERTY, PLANT AND EQUIPMENT - 2010

Minor equipment Plant and machinery Furniture and fixtures Motor vehicles Office equipment Computer equipment Leasehold improvements

Opening Balance

25,423 445,336 484,277 - 158,681 478,116 - 1,591,833

Additions

35,673 1,565,227 466,086 1,030,582 786,066 1,223,031 253,263 5,359,928

Disposals

- - - - - (9,969) - (9,969)

PLEDGED AS SECURITY No assets are pledged as security. Assets subject to finance lease (Net carrying amount)

2011

Office equipment Leasehold improvements

73,209 241,929 315,138

2010

146,416 214,083 360,499

5. Intangible assets

2011

Cost

Computer software, other

757,696

2010

Accumulated amortisation

Carrying Cost value

(339,642)

Accumulated amortisation

Carrying value

418,054

769,351

(135,963)

633,388

Opening Balance

Additions

Disposals

Depreciation

633,388

78,260

(25,737)

(267,857)

Opening Balance

Additions

Depreciation

64,533

698,513

(129,658)

633,388

Available for sale

Total

Reconciliation of INTANGIBLE ASSETS - 2011

Computer software, other

Total

418,054

PLEDGED AS SECURITY None of the intangible assets are pledged as security.

6. fINANCIAL ASSETS BY CATEGORY The accounting policies for financial instruments have been applied to the line items below: 2011 Loans & receivables

Trade and Other Receivables 43,492,129 Cash and cash equivalents - 43,492,129

2010 Loans & receivables

Trade and Other Receivables 7,092,008 Cash and cash equivalents - 7,092,008

Fair value Fair value through surplus through surplus or deficit - held or deficit for trading designated

- - -

Fair value Fair value through surplus through surplus or deficit - held or deficit for trading designated

- - -

Held to maturity

- - -

Held to maturity

- - -

- 68,775,930 68,775,930

43,492,129 68,775,930 112,268,059

Available for sale

Total

- 66,827,400 66,827,400

7,092,008 66,827,400 73,919,408

K EEPI NG TH E D R EA M A L IV E

Computer software, other

Total

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121

Reconciliation of INTANGIBLE ASSETS - 2011

7. LIVESTOCK LOANS RECEIVABLE The entity holds the cattle sold to community farmers, in terms of interest free loans, as collateral. Farmers are required to maintain herds of 30 heifers and 1 bull. If the amount of cattle is not maintained, then any subsequent offspring may not be sold until such time as the herd is at the required level.

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122

2011

2010

Sale of Livestock in 2010 Repayments received in 2010 Closing balance at 31 March 2010 New loans in 2011 Down-payments on 2010 loans Down-payments on 2011 loans Impairment loss Closing balance at 31 March 2011

8,208,000 - 8,208,000 1,751,040 (765,535 ) (36,480) (145,025) 9,012,000

8,208,000 8,208,000 (2,986,429) 5,221,571

Payable within 12 months Payable after 12 months The loans as at 31 March 2011 is secured by a total of 1376 Cows, 118 Bulls and 319 Calves.

3,319,680 5,692,320 9,012,000

1,318,155 3,903,416 5,221,571

Livestock loans pledged as security Not any of the terms and or conditions attached to the financial assets were re-negotiated during the period under review. Credit quality of livestock loans The entityâ&#x20AC;&#x2122;s management considers that all the above livestck loans, that are not past due or impaired for each of the reporting dates under review, to be of a good credit quality.

8. INVENTORIES Consumables Production supplies

35,580 4,665,360 4,700,940

77,810 11,685,701 11,763,511

Inventory consist of production supplies and consumables which will be utilised by the company in its daily business operations.

9. ADMINISTRATIVE FUNDS Land claims FNB call account DAFF FNB bank account

31,976,381 79,001 32,055,382

Joe Gqabi DM Conditional Funding AsgiSA EC and the Joe Gqabi District Municipality (DM) entered into a contractual agreement during October 2010 whereby Joe Gqabi DM appointed AsgiSA EC as an implementing agent for specific programmes in the Elundini Municipality. Joe Gqabi DM remains the project manager, responsible for funding, oversight and ultimate decision-making in terms of the programmes. In terms of the agreement and its subsequent addendum which increased the scope, funding from Joe Gqabi DM, for use on the specified programmes, amounted to R2 092 616, whilst AsgiSA EC was entitled to a further R90 000 as an agency fee.

2,092,616 (1,694,023) 398,593 90,000

DAFF Funding The Department of Agriculture, Fisheries and Forestry (DAFF) appointed AsgiSA EC as an implementing agent for specified community projects in the Eastern Cape. These projects are funded by DAFF (via reimbursement) and community contributions ringfenced in a seperate account. Project expenditure incurred and claimed from DAFF Community contributions received Interest received on ring fenced account Ring-fenced Community Funds at 31 March 2011

3,607,728 78,700 301 79,001

Land Claims The Department of Land Affairs (DLA) appointed AsgiSA EC as an implementing agent for the payment of land claims to specified communities/beneficiaries in the Easterrn Cape. The DLA remains responsible for identification and verification of the benficiaries as well as the awarded amounts. The DLA requires that the funds are in a ringfenced account. AsgiSA EC has no rights to the funds, except for the agency fee claimed. Opening balance Interest received Bank charges Reconciled bank balance Payments made Commission due to AsgiSA EC Payments made returned Closing balance

48,648,796 317,320 (51) 48,966,065 (16,975,997) 1,200 (14,887) 31,976,381

123

Agency fees earned by AsgiSA EC

2010

K EEPI NG TH E D R EA M A L IV E

Joe Gqabi DM Conditional Funding (Ringfenced) Received Expenditure Incurred relating to Joe Gqabi DM Ringfenced Funds Joe Gqabi DM Conditional Funding as at 31 March 2011

2011

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10. TRADE AND OTHER RECEIVABLES The entity holds the cattle sold to community farmers, in terms of interest free loans, as collateral. Farmers are required to maintain herds of 30 heifers and one bull. If the amount of cattle is not maintained, then any subsequent offspring may not be sold until such time as the herd is at the required level.

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124

Trade receivables - Exchange transactions Prepayments - Exchange transactions Staff loans - Exchange transactions Grant debtor - Non - exchange transactions Deposits - Non - exchange transactions

2011

2010

7,619,185 1,515,276 2,285 25,000,000 343,383 34,480,129

508,850 1,279,144 82,946 1,870,940

Trade and other receivables pledged as securitY Not any of the terms and or conditions attached to the financial assets were re-negotiated during the period under review. Credit quality of trade and other receivables The entityâ&#x20AC;&#x2122;s management considers that all the above trade and other receivables, that are not past due or impaired for each of the reporting dates under review, to be of a good credit quality. Trade and other receivables past due but not impaired The ageing of amounts are as follows: 1 month past due 3 months or more past due

4,484,798 3,167,805

73,170 334,411

Trade and other receivables impaired As of March 31, 2011, trade and other receivables of R269,735 were impaired and provided for. The amount of the provision was R 269,735 as of March 31, 2011. Reconciliation of provision for impairment of trade and other receivables Opening balance Provision for impairment Unused amounts reversed

(414,759) (269,745) 414,759 (269,745)

(414,759) (414,759)

Cash and cash equivalents consist of: Cash on hand 2,712 Bank balances 36,717,836 FNB Land Claims Call Account 31,976,381 FNB DAFF Account 79,001 68,775,930

3,795 66,824,107 66,827,902

11. cASH AND CASH EQUIVALENTS

FNB Investment

6,500,000

An investment of R6,500,000 was made during the year in an FNB notice account for a period of 60 months at 5.5% interest per annum. The use of cash and cash equivalents are limited to the mandate of AsgiSA EC as defined in the five-year strategic plan ending 2014. No cash and cash equivalents (or portions thereof) was pledged as security for any financial liability. Credit quality of cash at bank and short term deposits, excluding cash on hand Management considers that all the above cash and cash equivalent categories are of good quality. The maximum exposure to credit risk at the reporting date is the fair value of each class of cash and cash equivalent mentioned above. The cash and cash equivalents were not pledged as security for any financial liabilities.

2010

Authorised 100 Ordinary shares of R1 each

100

Reconciliation of number of shares issued: Reported as at April 01, 2010

100

Issued 100 ordinary shares of R1 each

100

On 1 April 2010, 100% shares were transferred from the Office of the Premier to the Eastern Cape Rural Finance Corporation.

13. FINANCE LEASE OBLIGATION Minimum lease payments due - within one year - in second to fifth year inclusive less: future finance charges Present value of minimum lease payments

88,800 - 88,800 (6,214) 82,586

88,800 88,800 177,600 (22,193) 155,407

Present value of minimum lease payments due - within one year - in second to fifth year inclusive

82,586 - 82,586

72,821 82,586 155,407

Non-current liabilities Current liabilities

- 82,586 82,586

82,586 72,821 155,407

The average lease term was 3 years and the average effective borrowing rate was 13%. Interest rates are fixed at the contract date. All leases have fixed repayments and no arrangements have been entered into for contingent rent. The entityâ&#x20AC;&#x2122;s obligations under finance leases are secured by the lessorâ&#x20AC;&#x2122;s charge over the leased assets. Refer note 4.

K EEPI NG TH E D R EA M A L IV E

2011

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125

12. SHARE CAPITAL

14. TRADE AND OTHER PAYABLES

2011

Trade payables - Exchange transactions Accruals - Exchange transactions Accrued third party payments - Non - exchange transactions Accrued leave pay - Non - exchange transactions Accrued incentives - Non - exchange transactions

2010

10,117,483 83,900 63,282 1,211,231 3,900,000 15,375,896

13,804,684 14,003 16,364 851,856 2,094,562 16,781,469

A SGI SA EC ANNUAL REPORT 2 0 1 1

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126

None of the repayment terms attached to contracts have been renegotiated in the last year. The company did not default on any of the accounts payable.

15. FINANCIAL LIABILITIES BY CATEGORY The accounting policies for financial instruments have been applied to the line items below: 2011

Financial liabilities at amortised cost

Finance lease obligation Trade and other payables

82,586 15,375,896 15,458,482

2010

Financial liabilities at amortised cost

Finance lease obligation Trade and other payables

155,407 16,781,469 16,936,876

Fair value Fair value through surplus through surplus or deficit - held or deficit for trading designated

- - -

Fair value Fair value through surplus through surplus or deficit - held or deficit for trading designated

Total

82,586 15,375,896 15,458,482

Total

- - -

155,407 16,781,469 16,936,876

Sale of goods

14,945,456

5,004,333

15,151,206

5,024,298

16. revenue from exchange transactions

17. cost of sales Cost of goods sold

18. remaining funds Operating surplus for the period is stated after accounting for the following:

1,106,069

1,080,213

32,110 1,138,179

36,221 1,116,434

(130,782) 2,144,834 20,502,760

(1,449,618) 1,280,180 11,632,195

1,768,858 12,647 1,781,505

1,818,078 55,981 1,874,059

301 317,621 2,099,126

1,874,059

3,850,173 352,293 4,202,466

14,144,488 (352,293) 13,792,195

19. interest received Interest revenue Other Bank Interest charged on trade and other receivables Administrative funds DAFF

20. fair value adjustments Biological assets (Fair value model) Other financial liabilities - Initial recognition of financial instruments held at amortised cost

The fair value adjustments reflected are the result of the subsequent measurement requirements of the standards in terms of which the balances are measured.

21. finance costs Trade and other payables Finance leases Interest on fair value adjustment of expenditure

192,536 15,979 92,160 300,675

4,528 24,583 1,883,652 1,912,763

127

Property, plant and equipment impaired Depreciation on property, plant and equipment Employee costs

2010

K EEPI NG TH E D R EA M A L IV E

Operating lease charges Premises - Contractual amounts Lease rentals on operating lease - Contractual amounts

2011

A SGI SA EC ANNUAL REPORT 2 0 1 1

22. Taxation

A SGI SA EC ANNUAL REPORT 2 0 1 1

K EEPI NG TH E D R EA M A L IV E

128

2011

2010

Major components of the tax expense Current Local income tax - current period -

593,840

Reconciliation of the tax expense Reconciliation between accounting surplus and tax expense. Accounting surplus -

35,347,099

Tax at the applicable tax rate of 28% (2010: 28%)

10,122,722

Tax effect of adjustments on taxable income Grants received Other income Add: Tax on expenses incurred with grant received from ECDC Less: Tax on valuation adjustment on biological assets & agriculture produce

- - - - -

(43,400,000) (208,352) 38,109,204 (4,029,734) 593,840

No provision has been made for 2011 tax as the entity is exempted from income tax by virtue of 100% of the shares are held by Government. Government is exempt from income tax in terms of section 10(1)(a) of the Income Tax Act.

23. Auditorsâ&#x20AC;&#x2122; remuneration Expenses

2,616,943

1,056,276

(2,246,041)

35,347,099

2,144,834 130,782 (1,781,806) 300,675 (4,202,466) 89,816 10,471,452 4,071,686

1,280,180 1,449,618 (1,874,059) 1,912,763 (13,792,195) 138,403 3,895,190 (818,205)

7,062,571 (32,348,754) (260,930) (1,405,573) 31,967,319 13,993,565

(6,055,181) (812,780) 25,526 (2,157,670) 18,538,689

24. cash generated from operations Surplus/(deficit) before taxation Adjustments for: Depreciation and amortisation Loss on sale of assets Interest received Finance costs Fair value adjustments Movements in operating lease assets and accruals Movements in valuation of biological assets Other non-cash items Changes in working capital: Inventories Trade and other receivables - Exchange transactions Trade and other receivables - Non-exchange transactions Trade and other payables Deferred income

25. tax paid

2011

2010

Balance at beginning of the year Current tax for the year recognised in income statement Balance at end of the year

(116,426) - - (116,426)

(526,981) (593,840) 116,426 (1,004,395)

Operating leases â&#x20AC;&#x201C; as lessee (expense) Actual lease payments made (2,039,255) Average lease payments 2,306,215 Operating lease liabilty 266,960

(1,023,003) 1,200,147 177,144

A contingent liability to the amount of R 6,500,000 existed at year end which relates to an agreement with Farmsecure to sell the harvest on behalf of AsgiSA EC. A contingent assets, to the amount of R123,479 , existed at year end which relates to an insurance claims on crops that was damaged during the period under review and assessed by the insurer (Santam). A contingent asset existed at year end subject to the ongoing disciplinary action taken against an employee for failing to attend training courses, to the amount of R47,822.

K EEPI NG TH E D R EA M A L IV E

27. contingencies

A SGI SA EC ANNUAL REPORT 2 0 1 1

Operating lease payments represent rentals payable by the entity for certain of its office properties. Leases are negotiated for an average term of five years. No contingent rent is payable.

129

26. operating lease liability

28. related parties

Relationships Holding Company Other

2011

Eastern Cape Rural Finance Corporation (ECRFC) Eastern Cape Development Corporation (ECDC)

K EEPI NG TH E D R EA M A L IV E

130

Related party transactions Funds contributed for expenses incurred by related parties Eastern Cape Rural Finance Corporation

A SGI SA EC ANNUAL REPORT 2 0 1 1

2010

39,900

Funds received for services from related parties Eastern Cape Rural Finance Corporation

(90,000)

Funded projects transferred from related parties Eastern Cape Rural Finance Corporation

(3,500,000)

Eastern Cape Provincial Government Grant Eastern Cape Development Corporation (ECDC) Eastern Cape Rural Finance Corporation (ECRFC)

- 100,000,000

150,000,000 -

589,192

5,074,476

4,241,083

Donations Office Of The Premier Directorâ&#x20AC;&#x2122;s remuneration - Refer to Note 29 for detail

AsgiSA EC entered into a lease agreement with ECDC in respect of the Mthatha office. The monthly rental paid in respect of this agreement amounts to R18,172 (2010: R17,144). At reporting date the last tranch of R25,000,000 relating to the 2010/2011 grant has not yet been received.

29. directorsâ&#x20AC;&#x2122; emoluments EXECUTIVE 2011

Mr. S Somdyala Mrs. J Baxter Mr. C Sangqu 2010

Mr. S Somdyala Mrs. J Baxter Mr. C Sangqu

Gross emoluments

1,620,381 1,288,351 962,925 3,871,657 Gross emoluments

1,574,250 991,999 750,393 3,316,642

Other benefits

21,803 6,161 3,658 31,622 Other benefits

6,617 5,524 5,999 18,140

Allowances

300,000 60,000 98,400 458,400 Allowances

275,000 65,000 90,200 430,200

Total

1,942,184 1,354,512 1,064,983 4,361,679 Total

1,855,867 1,062,523 846,592 3,764,982

NON-EXECUTIVE 2011

115,487 54,650 43,139 83,859 147,453 16,320 84,126 245,800 165,692 291,846 91,842 53,605 1,393,819

Total

115,487 54,650 43,139 83,859 147,453 16,320 84,126 245,800 165,692 291,846 91,842 53,605 1,393,819

131

A Nkonyeni A Nkuhlu G Serobe N Ferreira M Saziwa MJ Schulze (Audit committee member) N Jafta N Mhlauli P Silinga (Chairman) T Jordan X Pakati Z Manase

For services as directors

69,027 49,690 27,534 5,440 43,810 44,467 75,200 65,828 13,156 31,008 50,941 476,101

Total

69,027 49,690 27,534 5,440 43,810 44,467 75,200 65,828 13,156 31,008 50,941 476,101

30. prior period errors Invoices issued by suppliers relating to previous financial year were only received after year end. Fuel charges were recovered from employees during April 2010 for expenses relating to March 2010. Depreciation variances were corrected against property, plant and equipment. The prices used to calculate the prior year crop valuations were updated by using the present value of the selling price as at 31 March 2010. The adjustments were as follows: Statement of Financial Position Employee loans Biological assets Retained income Property, plan and equipment Trade payables Retained income Statement of Financial Performance Valuation on biological assets Depreciation Operating expenses Fuel expense

3,515 (599,712) (208,955) (319) (94,887) 94,887 599,712 319 208,955 (3,515)

K EEPI NG TH E D R EA M A L IV E

A Nkonyeni A Nkuhlu G Serobe MJ Schulze (Audit committee member) N Ferreira N Jafta N Mhlauli P Silinga (Chairman) T Jordan X Pakati Z Manase

For services as directors

A SGI SA EC ANNUAL REPORT 2 0 1 1

2010

31. comparative figures The reclassification of the comparatives follows from the fair value measurement, at initial recognition, of expenses (in accordance with GRAP 9) and consumable inventory (in accordance with GRAP 12). This reclassification effects the fair value measurement by removing the imputed interest component from the expense line items and classifying it as finance cost, in accordance with the nature thereof. The effects of the reclassification are as follows:

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132

Statement of financial performance Consumables General expenses Integrated cropping

2011

2010

8,026 (1,975,810) 1,770,763 (197,021)

32. risk management The entity’s activities expose it to a variety of financial risks: Market risk (including fair value interest rate risk and price risk), credit risk and liquidity risk. The entity’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the entity’s financial performance. The entity’s overall risk management process focus on the unpredicatibility of financial markets, as well as inherent and business risks.The risk management process seeks to minimise potential adverse effects on the entitiy’s financial performance. Risk management is carried out by the Office of the Chief Executive Officer under the policies approved by the board of directors. The Company Secretariat identifies, evaluates and hedges financial and non-financial risks in co-operation with other units, whilst oversight remains with the Chief Executive Officer. The board of directors provides written principles for overall risk management, as well as written policies covering specific areas, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments; and investment of excess liquidity. Non-financial risks inherent to the nature of operations and development mandate of the entity relate to the completeness of income from agricultural activities, crop losses due to non-controllable activities and deviations from costed production plans due to the nature of the terrains, community factors and non-ability of emerging suppliers to perform, resulting in deviations from supply chain management processes as per the norm. Management addresses the risks by identification and evaluation of risks and realigning processes accordingly. Extensive social faciltation in addition to stakeholder initatives are in place and regular reviews of operations to ensure regularisation and optimisation of activites in order to achieve the objectives of AsgiSA EC. liquidity risk The entity’s risk to liquidity is a result of the funds available to cover future commitments. The entity manages liquidity risk through an ongoing review of future commitments and credit facilities. The table below analyses the entity’s financial liabilities relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

15,375,896 82,586 266,960

At March 31, 2010

Less than 1 year

Trade and other payables Finance lease obligation Operating lease liability

16,781,469 72,821 177,144

Between 1 and 2 years

Between 2 and 5 years

- - -

Between 1 and 2 years

Between 2 and 5 years

- 82,586 -

INTEREST RATE RISK As the company has no significant interest bearing assets, the companyâ&#x20AC;&#x2122;s income and operating cash flows are substantially independent of changes in market interest rates. The company had no interest-bearing borrowings for the period therefore no interest rate risk arises. The company had, however, entered into a finance lease obligation for office equipment. No cash flow interest rate risk arise, as the contract stipulate fixed payments. However the company is exposed to fair value interest rate risk. At year end, financial instruments exposed to interest rate risk were as follows: 2011

Floating rate financial assets Cash and cash equivalents Floating rate financial liabilities Finance leases 2011

Floating rate financial assets Cash and cash equivalents Floating rate financial liabilities Finance leases

Movement in Effect on surplus basis points for the period

+ 50 - 75

R 8,844 (R 13,266)

+ 50 - 75

(R 80) R 120

Movement in Effect on surplus basis points for the period

+ 50 - 75

R 9,090 (R 13,636)

+ 50 - 75

(R 123) R184

The interest rate sensitivity analysis represents the entityâ&#x20AC;&#x2122;s exposure to interest rate risk. This sensitivity analysis quantifies the impact that a change in floating interest rates would have on the financial performance of the entity. From the sensitivity analysis presented above it is apparent that the entityâ&#x20AC;&#x2122;s exposure to interest rate risk is, in fact, minimal. As such, a change in floating interest rates would not have a significant impact on the financial performance of the entity.

K EEPI NG TH E D R EA M A L IV E

Trade and other payables Finance lease obligation Operating lease liability

Less than 1 year

A SGI SA EC ANNUAL REPORT 2 0 1 1

At March 31, 2011

133

The reclassification of the comparatives follows from the fair value measurement, at initial recognition, of expenses (in accordance with GRAP 9) and consumable inventory (in accordance with GRAP 12). This reclassification effects the fair value measurement by removing the imputed interest component from the expense line items and classifying it as finance cost, in accordance with the nature thereof.

Fair value interest rate risk Credit risk Credit risk consists mainly of cash deposits, cash equivalents and trade debtors. The entity only deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party.

Financial instrument First National Bank

2011

36,743,348

2010

66,824,107

These balances represent the maximum exposure to credit risk.

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K EEPI NG TH E D R EA M A L IV E

134

33. going concern and post reporting date events 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. The ability of the entity to continue as a going concern is dependent on a number of factors. These factors are mainly the ability to obtain funding for the ongoing operations of the entity as well as political uncertainty. The Eastern Cape Provincial Government has indicated its intention to amalgamate the Eastern Cape Rural Finance Corporation, Eastern Cape Appropriate Technology Unit and AsgiSA EC. Further disclosure in this regard is contained in the directorâ&#x20AC;&#x2122;s report.

34. financial instruments gains and losses 2011

Interest income

Interest expense

Impairment losses

Financial assets Livestock loans (145 025) Trade and other receivables 12 647 (269 735) Cash and cash equivalents, administrative fund and investments 1 768 858 Financial liabilities Finance lease obligation (15 979) Trade and other payables (192 536) Total 1 781 505 (208 515) (414 760) 2010

Interest income

Interest expense

Impairment losses

Financial assets Livestock loans (2 916 571) Trade and other receivables 55 981 (414 759) Cash and cash equivalents, administrative fund and investments 1 818 078 Financial liabilities Finance lease obligation (24 583) Trade and other payables (4 528) Total 1 874 059 (29 111) (3 331 330)

Total

(145 025) (257 088) 1 768 858 (15 979) (192 536) 1 158 230 Total

(2 916 571) (358 778) 1 818 078 (24 583) (4 528) (1 486 382)

The interest income reflected for trade receivables along with the interest expense on trade and other payables is imputed interest. As such, this does not represent actual interest charged but rather the unwinding of the fair value adjustment, to reflect the time value of money impact, to trade payables and trade receivables at initial recognition. As such, this represents unrealised interest income and interest expense. The impairment loss reflected is the provision for doubtful debts raised on trade and other receivables and livestock loans. As such, this does not represent actual cash losses in the current financial year. As such, this represents unrealised losses. Other movements reflected in the table above relate to actual cash movements during the year and therefore represents realised interest income and interest expense.

35. fruitless and wasteful expenditure

52,138 (8,294) 43,844 3,572 48,566 (8,294) 43,844 803

Fruitless expenditure was incurred by AsgiSA EC during the financial period ended 31 March 2011 in respect of cancellation fees amounting to R1,367 incurred on accommodation bookings cancelled on short notice. Delayed payments were incurred that resulted in interest charged of R969.

135

2,336 - 2,336 969 1,367 - 2,336 -

2010

K EEPI NG TH E D R EA M A L IV E

Reconciliation of fruitless and wasteful expenditure Fruitless & wasteful Recovered from salary Interest charged Cancellation fees Recovered from salary Condoned by Board Recovered in 2011 from employees - traffic fines

2011

A SGI SA EC ANNUAL REPORT 2 0 1 1

36. budget on modified accrual basis

A SGI SA EC ANNUAL REPORT 2 0 1 1

K EEPI NG TH E D R EA M A L IV E

136

Difference: Final budget and actual

Net surplus per Statement of Financial Performane (2,246,041) Fair value adjustments (2,677,258) Grant debtor (25,000,000) Depreciation and amortisation 2,144,834 Valuation adjustment on biological assets and agricultural produce (4,202,466) Interest paid 300,675 Interest received (2,099,126) Revenue from projects Goal 1.1: Back Office, Assets & Administration 6,786,215 Goal 1.2 Human Resources & Development 790,493 Goal 1.3: Legal Services & Board Related Costs 372,998 Goal 1.4 Salaries, Wages & Incentives 4,943,498 Goal 1.5 Organisational Development 780,201 Goal 2.1 Dry Cropping (849,780) Goal 2.2 Other/Irrigated Cropping 2,266,442 Goal 2.3 Fruit Production 358,938 Goal 2.4 Livestock 3,853,279 Goal 2.5 Infrastructure (Silos & Storage) 7,846,657 Goal 2.6: Planning, Resource Mapping and Research 3,235,041 Goal 2.7: Project Due Diligences & Risk Mitigation 231,600 Goal 2.8: Business Plans & Studies 4,653,321 Goal 2.9: Forestry 2,306,544 Goal 2.10 Hydro & Alternative Energy 1,050,000 Goal 2.11 Water Resource Development 1,000,000 Goal 2.12 Tourism Development 710,136 Goal 2.13 Inventory Management 74,905 Goal 2.14 Land Reform 133,482 Goal 2.15 Resource Planning and GIS Mapping 158,024 Goal 3: Building the Image and Reputation of the Organisation 94,428 Goal 4: Strengthening of Institutions at Local Entity Level 809,986 Goal 5: Establishing a recognised stakeholder platform for rural development 3,627,635 Net surplus/(deficit) per revised budget (excluding capital expenditure) before commitments 11,454,661 Goal 1.1 Back Office, Assets & Administration (3,858,063) Goal 1.2 Human Resources & Development (286,117) Goal 1.3 Legal Services & Board Related Costs (426,890) Goal 1.4 Salaries, Wages and Incentives (8,212,554) Goal 2.1 Dry Cropping (13,987,050) Goal 2.2 Other/Irrigated Cropping (309,461) Goal 2.5 Infrastructure (814,800) Goal 2.9 Forestry (1,002,018) Goal 2.13 Inventory Management (24,124) Goal 3: Building the Image and Reputation of the Organisation (87,671) Goal 4: Strengthening of Institutions at Local Entity Level (126,886) Goal 5: Establishing a recognised stakeholder platform for rural development (1,533,446) Net surplus/(deficit) per revised budget (excluding capital expenditure) after commitments (19,214,419) Note disclosures (entity presents its Annual Financial Statements on the accrual basis and the approved budget on a modified accrual basis). The budget is approved on a modified accrual basis by nature classification. The approved budget covers the fiscal period from 1 April 2010 to 31 March 2011. The amounts in the financial statements were recast from the accrual basis to the modified accrual basis to be on the same basis as the final approved budget. A reconciliation between the actual amounts on a comparable basis as presented in the Statement of Comparison of Budget and Actual Amounts and the actual amounts in the Statement of Financial Performance for the year ended 31 March 2011 is presented above. The Financial Statements and budget documents are prepared for the same period.

DETAILED STATEMENT OF

FINANCIAL PERFORMANCE for the year ended 31 March 2011

Notes

2011

2010

5,004,333

COST OF SALES Opening stock (11,685,701) Purchases 7,020,341 Closing stock 4,665,360 Cost of sales for agricultural activities (15,151,206) 17 (15,151,206) Gross surplus (205,750)

(5,702,939) (5,982,762) 11,685,701 (5,024,298) (5,024,298) (19,965)

OTHER INCOME Fair value adjustments 2,677,258 Funding - DAFF (Ring-fenced) 3,686,428 Funding - Joe Gqabi District Municipality (Ring-fenced) 2,182,616 Other income 2,154,567 Funding - Land claims (Ring-fenced) 2,559,264 Funding - Municipal projects (Ring-fenced) 5,629,900 Interest received 19 1,781,806 Government grants 100,000,000 Valuation adjustment on biological assets and agricultural produce 20 4,202,466 124,874,305

421,686 589,192 1,874,059 155,000,000 14,144,488 172,029,425

EXPENSES (Refer to page 36) Operating surplus 18 Finance costs 21 Fair value adjustments 20 Surplus before taxation Taxation 22 Surplus for the period

(126,613,921) (1,945,366) (300,675) - (300,675) (2,246,041) - (2,246,041)

(134,397,305) 37,612,155 (1,912,763) (352,293) (2,265,056) 35,347,099 593,840 34,753,259

K EEPI NG TH E D R EA M A L IV E

14,945,456

A SGI SA EC ANNUAL REPORT 2 0 1 1

Sale of goods

137

REVENUE

DETAILED STATEMENT OF FINANCIAL PERFORMANCE for the year ended 31 March 2011...continuted

A SGI SA EC ANNUAL REPORT 2 0 1 1

K EEPI NG TH E D R EA M A L IV E

138

operating expenses

Notes

Advertising Auditors remuneration 23 Bad debts Service fees and bank charges Bank charges - Land claims Community capacity development Computer expenses Professional fees Consumables Depreciation, amortisation and impairments Employee costs Entertainment Allowance for impairment of trade and other receivables Joe Gqabi District Municipality project expenditure Fruit Production General expenses Insurance Integrated cropping and irrigation Lease rentals on operating lease Levies Livestock value chain development Loss on disposal of assets Magazines, books and periodicals Motor vehicle expenses New forestry DAFF Project expenses Taxation expense condoned in 2009/2010 Placement fees Postage Printing and stationery Repairs and maintenance Secretarial and board costs Security Staff welfare Subscriptions Telephone and fax Tourism development projects Training Transport and freight Travel - local Utilities

2011

7,901,529 2,616,943 - 53,068 51 2,552,327 88,463 9,743,560 63,378 2,144,834 20,502,760 87,616 - 1,694,023 500,774 2,218,707 194,581 59,124,889 1,138,179 6,916 1,610,598 130,782 - 290,823 1,163,179 3,775,971 36,228 109,226 6,276 295,793 28,104 2,578,341 68,399 42,568 63,643 898,890 620,823 1,512,739 500 2,653,483 94,957 126,613,921

2010

8,082,640 1,056,276 18,204 47,203 2,433,441 201,947 13,275,968 40,584 1,280,180 11,632,195 95,364 2,997,665 1,112,354 1,035,950 53,089 77,225,071 1,116,434 152,698 1,860,516 1,449,618 13,269 93,458 3,240,590 333,220 49,442 390,148 86,757 925,850 8,130 21,657 35,236 710,622 499,835 763,472 12,204 2,009,845 36,173 134,397,305

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K EEPI NG TH E D R EA M A L IV E

139

A SGI SA EC ANNUAL REPORT 2 0 1 1

K EEPI NG TH E D R EA M A L IV E

140

ABBREVIATIONS AC

Accounting Standard

APB

Accounting Principles Board

AsgiSA

Accelerated and Shared Growth Initiative of South Africa

CEO

Chief Executive Officer

CIPC

Companies and Intellectual Property Commission (formerly, CIPRO)

COSATU

Congress of South African Teachers Union

DAFF

Department of Agriculture, Forestry and Fisheries

DARD

Department of Agriculture and Rural Development

DBSA

Development Bank of Southern Africa

District Municipality

DRDLR

Department of Rural Development and Land Reform

DWA

Department of Water Affairs

DWEA

Department of Water and Environmental Affairs

Eastern Cape

ECATU

Eastern Cape Appropriate Technology Unit

ECRFC

Eastern Cape Rural Finance Corporation

ECRDA

Eastern Cape Rural Development Agency

Exposure Draft

EIA

Environmental Impact Assessments

GDP

Gross Domestic Product

GIS

Geographic Information System

GRAP

Generally recognised accounting practice

Hectares

High Impact Priority Programmes

IAS

International Accounting Standard

IDPs

Integrated Development Programmes

IFRIC

International Financial Reporting Interpretations Committee

IFRS

International Financial Reporting Standards

IPAP

Industrial Policy Action Plan

Local Municipality

LRAD

Land Redistribution for Agricultural Development

MEC

Member of Executive Council

NAFCOC

National African Federated Chamber of Commerce

NDA

National Development Agency

PAA

Public Audit Act

PAYE

Pay As You Earn

PGDP

Provincial Growth and Development Programme

PFMA

Public Finance Management Act

SABC

South African Broadcasting Corporation

SARS

South African Revenue Services

SEDA

Small Enterprise Development Agency

SDL

Skills Development Levy

UIF Unemployment Insurance Fund OSW Other Skilled Workers SAW

Skilled Agricultural Workers

141

HIPPs

K EEPI NG TH E D R EA M A L IV E

Human Resourses

A SGI SA EC ANNUAL REPORT 2 0 1 1

SMGAFRICA_6358

Mthatha: ECDC House, 7 Sissons St, Fort Gale, Mthatha 5100, t 047 501 5100 | f 047 501 5110 East London: Arundel Park, Unit 2 & 3A, 12 & 14 Old Transkei Rd, Stirling, East London 5247, t 043 735 1673 | f 043 735 2679 Postnet Suite 385, Private Bag X 9063, East London 5200 | www.asgisa-ec.co.za