annual report 2014 - sefa - home - sefa.org.zasefa.org.za/content/docs/sefa annual report...

Annual Report 2014

Annual Report 2014

Name and Registration Number:Small Enterprise Finance Agency (SOC) Limited with registrationNumber 1995/01/1258/06

Holding Company:Industrial Development Corporation of South Africa Limited (IDC)

Country of Incorporation and Domicile:South Africa

Physical Business Address:EcoFusion 5Block D Cnr 1004 Teak Close & Witch-Hazel AvenueEco Park Centurion

Postal Address:P.O. Box 11011Zwartkop0051

Contact:Telephone: +27 12 748 9600Call Centre: +27 86 000 7332Fax: +27 12 748 9691Email: [email protected] Website: www.sefa.org.za

External Auditors: KPMG IncBankers: Standard Bank of South Africa LimitedCompany Board Secretary: Ms Nthabiseng Mongali

Reporting Period:The Annual Report of The Small Enterprise Finance Agency (sefa) is presentedFor the period 1 April 2013 to 31 March 2014.

Scope and boundaryThis scope covers the operating environment, the organisationalachievements and results for the declared period.

The report is prepared for sefa’s shareholder, the Industrial Development Corporation (IDC),The Economic Development Department (EDD) and the broader SMME stakeholder community.

Annual Report 2014

Table of contents

1. sefa Company Profile 2 1.1. Introduction 2 1.2. sefa Mandate, Mission and Values 2 1.3. sefa Strategic Objectives 3 1.4. sefa Target Market 4 1.5. sefa Loan Criteria 4 1.6. sefa Products and Service Distribution Model 5 1.7. sefa Footprint 6 1.8. sefa Group Structure 7 1.9. sefa Governing Structure 8 1.10. sefa Organisational Framework 9

2. Board of Directors 103. Chairperson's Statement 144. Chief Executive Officer’s Statement 165. Executive Management 18 6. Corporate Performance Overview 20

6.1. Financial Performance Overview 20 6.2. Risk and Compliance Management Performance Overview 23 6.3. Direct Lending Performance Overview 29 6.4. Wholesale Lending Performance Overview 34 6.5. Human Capital Management Performance Overview 43

7. Performance Against Predetermined Objectives 468. Corporate Governance Statement 489. Group and Company Annual Financial Statements 52

1

COMPANY PROFILE

1.1 Introduction

Following a Cabinet decision and the State of the Nation address of 2011, the Small Enterprise Finance Agency (SOC) Limited (sefa), was established on 1 April 2012 in terms of section 3 (d) of the Industrial Development Corporation Act, No. 22 of 1940 (IDC Act). sefa is a wholly owned subsidiary of the Industrial Development Corporation (IDC) and brings together the activities of the three previous structures (Khula, samaf and the IDC small business activities). sefa operates as a Development Finance Institution (DFI) to foster the establishment, development and growth of Small, Micro and Medium Enterprises (SMMEs) and contributes towards poverty alleviation, job creation and economic growth.

sefa provides products and services to qualifying SMMEs as defined in the National Small Business Act of 1996, as amended in 2004, through a hybrid of wholesale and direct lending channels.

1.2 sefa Mandate, Mission and Values

Annual Report 2014

Man

date

• To be the leading catalyst for the development of sustainable SMMEs through the provision of finance.

Mis

sio

n

Our mission is to provide simple access to finance in an efficient and sustainable manner to SMMEs throughout South Africa by:

• delivering Wholesale and Direct Lending credit facilities or products;• providing credit guarantees to SMMEs;• supporting the institutional strengthening of Financial Intermediaries so that they can effectively assist SMMEs;• creating strategic partnerships with a range of institutions for sustainable SMME development and support; • monitoring the effectiveness and impact of our financing, credit guarantee and capacity development activities; and • developing (through partnerships) innovative finance products, tools and channels to speed up increased market participation in the provision

of affordable finance.

Val

ues

sefa’s values and guiding principles to deepen institutional culture and organisational cohesion are:

• kuyasheshwa! We act with speed and urgency;• passion for development: Solution-driven attitude, commitment to serve;• integrity: Dealing with clients and stakeholders in an honest and ethical manner;• transparency: Ensuring compliance with best practice on the dissemination and sharing of information with all stakeholders and• innovation: Continuously looking for new and better ways to serve our customers.

2

1

1.3 sefa Strategic Objectives

Annual Report 2014

3

Strategic Objective 1 Increase access and provision of finance to SMME’s thereby contribute towards job creation

• Implement a robust sefa delivery network through branches and Financial Intermediaries.

Strategic Objective 4 Build a learning organisation

• Expand direct lending through partnerships in all provinces;

• Expand partnerships with microfinance institutions;

• Establish stronger partnerships with Retail Finance Intermediaries (RFIs) in SME wholesale finance;

• Increase the utilisation of Credit Guarantee Indemnity Scheme by commercial banks.

Strategic Objective 2 Develop and implement a national footprint for effective product and service delivery

Strategic Objective 3 Build an effective and efficient sefa that is a sustainable performance driven organisation

• Create, develop and retain a dynamic human capital with values and culture aligned to sefa’s mandate;

• Build an effective sefa with robust and efficient business processes, systems and infrastructure;

• Build a financially sustainable and viable sefa.

• Develop and implement a dynamic research and development capacity;

• Develop effective sefa monitoring and evaluation, and knowledge management systems and practices.

Strategic Objective 5 Build a sefa that meets all legislative, regulatory and good governance requirements

• Ensure an effectively governed and compliant organisation.

Strategic Objective 6 Build a strong and effective sefa brand emphasizing accessibility to SMMEs Strategic Objective 6 Build a strong and effective sefa brand emphasizing accessibility to SMMEs

• Develop and implement an effective marketing and promotion programme to communicate sefa’s product offering to SMMEs.

Annual Report 2014

4

1.4 sefa Target Market

sefa funds qualifying business ventures within the following SMME sectors:

• services (including retailing, wholesaling and tourism);• manufacturing (including agro-processing);• agriculture (specifically land reform beneficiaries and micro-farming activities);• construction (small construction contractors);• mining (specifically small miners); and• green industries (renewable energy, waste and recycling management).

1.5 sefa Loan Criteria

In granting loan financing to qualifying businesses, the applicant must:

• be a South African citizen or a permanent resident;• be registered entity including, sole traders with a fixed physical address;• be within the required contractual capacity;• be registered within South Africa;• be compliant with generally accepted corporate governance practices appropriate to the client’s legal status;• have a written proposal or business plan that meets the requirements of sefa’s loan application criteria;• demonstrate the character and ability to repay the loan;• have provided personal and/or credit references (if available);• be the majority shareholder and the owner manager of the business;• where available, provide relevant securities/collateral; and• have a valid Tax Clearance Certificate.

1.6 sefa Products and Service Distribution Model

Annual Report 2014

5

sefa Funding Model

sefa Wholesale

Lendingsefa Direct

Lending

Credit Guarantee

Scheme

sefa Regional Offices and seda

co-locations

Formal Registered Financial Institutions

FINANCE INTERMEDIARIES:

(Co-operative Financial Institutions, Micro Finance Institutions, Joint Ventures

& Funds, Retail Finance Intermediaries)

R500 to R5m R50k to R5m Up to R5m

SMMEs can access sefa funding solutions through any of the above channels

Annual Report 2014

6

1.7 sefa Footprint

9 sefa Regional Offices 2 sefa Branch Offices 10 Co-operative Financial Institutions 16 Micro-Finance Intermediaries 6 Retail Finance Intermediaries 25 seda Co-location Referral Offices 8 Specialised Funds*

Limpopo

Mpumalanga

North West

Free State KwaZulu-Natal

Eastern Cape

Western Cape

Northern Cape

Gauteng

******

*

Annual Report 2014

7

1.8 sefa Group Structure

Wholly owned subsidiaries not consolidated:

• Khula Land Reform and Empowerment Facility NPC• Khula Institutional Support Services NPC

Dormant Subsidiaries:

• Khula Business Premises (Pty) Ltd• New Cape Equity Fund (Pty) Ltd• MKN Equity Fund (Pty) Ltd

ConsolidatedEntities

ConsolidatedInvestmentSubsidiaries

Associates Joint Ventures

sefa

Khula CreditGuarantee

New BusinessFinance

100%

100%

Khula EmergingContractors Fund

Khula Akwandze Fund

Identity Development

Fund

75%

Small BusinessGrowth Trust

Fund

82%

100%

100%

Business Partners

Utho CapitalSME Fund

49%

21%

Anglo American Khula Mining Fund

sefa Awethu Youth Fund

Enablis Khula Loan Fund

50%

Izibulo

65%

50%

40%

Khula - EnablisSME Acceleration

Fund

75%

Annual Report 2014

8

1.9 sefa Governing Structure

Board

Company Secretariat Internal AuditCEO

Chief Financial Officer

Executive Manager:

Wholesale Lending

ExecutiveManager:

Direct Lending

Chief Risk Officer

ExecutiveManager: Human Capital

Management

Board

Enterprise RiskCommittee

AuditCommittee

Human Capital &Remuneration

Committee

Wholesale Investment Committee

Direct LendingCommittee

Annual Report 2014

9

1.10 sefa Organisational FrameworkC

OR

PO

RA

TE

GO

VE

RN

AN

CE

Bo

ard

of D

irec

tors

, sef

a M

anag

emen

t, R

isk

& C

om

plia

nce,

Int

erna

l Co

ntro

ls,

Aud

it &

Fra

ud P

reve

ntio

n an

d L

egal

EN

AB

LIN

G/ S

UP

PO

RT

Hum

an C

apit

al M

anag

emen

t, I

T S

yste

ms,

Sta

keho

lder

Rel

atio

ns &

C

om

mun

icat

ions

, F

inan

ce a

nd P

rocu

rem

ent

Clients

Distribution Channels

SMMEs and Co-operatives

sefa’s Regional Offices, RFIs, MFIs, Co-operatives Financial Institutions, Commercial Banks, Specialised Funds, Provincial Development Corporations (PDCs)

R500 R5 million

Product Portfolio Direct Lending Wholesale Financing

Capacity Building

• Working Capital Loan;

• Asset Finance;• Term Loans;• Revolving Loan;• Bridging Loan;• Short-term

Trade Finance.

• Business Loans – (RFIs/MFIs/ Co-operatives/FIs);

• Joint Ventures –Specialised Funds;

• Credit Guarantee Scheme;

• Land Reform Empowerment Fund.

• Pre and Post Loan Mentoring

Institutional Strengthening

• Board Representation;

• Management and Technical Support.

BOARD OF DIRECTORS

Dr Sizeka Magwentshu-RensburgChairperson of the Board

Mr Thakhani MakhuvhaChief Executive Officer

Ms Hlonela LupuwanaMember: Human Capital

& Remuneration Committee

2

Qualifications:

• DPhil (Business Management) (University of Johannesburg)

• MBA (Webster University)• BA (Management in Accounting

and Business Administration (Webster University)

• Advanced Certificate in Purchasing Management (University of South Africa)

Age: 54

Other Directorships:

• Director: Findevco (Pty) Ltd • Director: IDC• Director: Girl Guides South

Africa• Member: merSETA Finance and

Grants Committee

Current Employment:

• Independent Consultant

Qualifications:

• MCom Financial Management (University of Johannesburg)

• BCompt (Hons) (University of South Africa)

• BCom Accounting (University of Venda)

• Leadership Development Programme (Gordon Institute of Business Studies)

Age: 45


• Director: seda

Current Employment:

• CEO: sefa

Qualifications:

• MBA (University of Pretoria)• BSc (Social Sciences) (University

of Cape Town)• Associate in Management (AIM)

(University of Cape Town)

Age: 45


• Director: Anglo American Zimele• Member: International Women’s

Forum South Africa

Current Employment

• MD: Anglo American Zimele• Former CEO: seda

10

BOARD OF DIRECTORS

Mr Ismail TayobChairman: Audit Committee,

Member: Enterprise Risk Committee, Member: Human Capital & Remuneration Committee

Ms Katinka SchumannMember: Wholesale Investment Committee

Member: Direct Lending Committee

Mr Lawrence MavundlaChairman: Direct Lending Committee

Member: Wholesale Investment Committee

Qualifications:

• CA (SA)• BCom (Accounting)(University of

Durban Westville)• Post Graduate Diploma in

Accounting (University of Durban Westville)

Age: 49


• None

Current Employment:

• Executive Director: CH Chartered Accountants (Pty) Ltd

Qualifications:

• MBA (University of Stellenbosch)• B Home Economics (University of

Stellenbosch) • Advanced Management Programme,

(INSEAD, France)

Age: 45

Other Directorships: • Director: African Continental

Resources Ventures (Pty) Ltd• Director: Tourism Enterprise

Partnership• Director: Palabora Copper (Pty) Ltd• Trustee: Women Private Equity Fund

Current Employment:

• Divisional Executive: IDC

Qualifications:

• Business Management, (Cranefield College, UK)

• Chamber Management (CIPE, USA)

• Business Management and Development (Swedish Chamber)

Age: 49

Other Directorships: • President: NAFCOC• Chairman: Adiflash Investments• Chairman: Silver Vanity

Investments• Chairman: Medi Card (Pty) Ltd• Vice President: The Black Business

Council

Current Employment:

• Businessman

11

BOARD OF DIRECTORS

Mr Richard MutshekwaneChairman: Human Capital & Remuneration

Committee Member: Enterprise Risk Committee Member: Audit Committee

Ms Barbara CalvinMember: Wholesale Investment Committee


Mr Gert GouwsChairman: Enterprise Risk Committee

Member: Audit Committee

Qualifications:

• BCom (Hons) (Queen’s University, Canada)

Age: 54

Other Directorships: • None

Current Employment:

• Director: Vulindlela Development Finance Consultants (Pty) Ltd

Qualifications:

• Advanced Executive Programme (UNISA Graduate School of Business Leadership)

• Credit Diploma (Institute of Bankers of South Africa)

• Certificate in Banking (Institute of Bankers of South Africa)

Age: 64


• Vice Chairman: Midrand Child Welfare

Current Employment:

• Shareholder and Director: Pennine Energy Innovation

Qualifications:

• CA (SA)• BCom (Law) (University of

Johannesburg)• BCom (Hons) (University of

Johannesburg)• FCMA, CGMA• Advanced Management

Programme (INSEAD, France)

Age: 55


• Director: Kumba Iron Ore Ltd, • Chairman: Herdmans SA (Pty) Ltd• Chairman: Pebble Bed Modular

Reactor SOC Ltd• Director: Findevco (Pty) Ltd

Current Employment:

• CFO: IDC

12

BOARD OF DIRECTORS

Mr Setlakalane MolepoMember: Wholesale Investment

Committee Member: Human Capital & Remuneration Committee

Mr Marius FerreiraChairman: Wholesale Investment Committee


Qualifications:

• MBL (UNISA, SBL)• Certificate in Financial Management

(Rand Afrikaans University) • BSc Engineering (Civil) University

of Witwatersrand; • National Diploma in Civil

Engineering Northern Transvaal Technikon

Age: 52


• BusaMed Holdings (Pty) Ltd• South Africa Metals Equity

(Pty) Ltd• Zastrovect Investments (Pty) Ltd

Current Employment:

• Divisional Executive: SME & Rural Development and National Empowerment Fund (NEF)

Qualifications:

• BCom (Hons) (Rand Afrikaans University)

Age: 59


• None

Current Employment:

• Director: Imalivest (Pty) Ltd• CFO: Imalivest Mineral Resources

(Pty) Ltd

13

Annual Report 2014

CHAIRPERSON'S STATEMENT 3

14

…facilitating increased access to finance for South Africa’s small business sector…

The focus for 2013/14 financial year was consolidation, following the merger, and reaching significantly higher numbers of SMMEs. I am happy to report that both these have been achieved.sefa experienced enormous growth in the direct lending loan programme with the loan book doubling from last financial year.

We have expanded our footprint ensuring that more SMMEs can access our products and services with ease. We have also enhanced our capacity to better serve the SMMEs with innovative products and services.

Through our strategic partnerships with financial intermediaries, sefa was enabled to extend sector focused loan financing products and services to sectors such as mining, agriculture, transport, automotive and microfinance. We recognise that by combining the industry-specific expertise of the intermediaries with the financial support expertise of sefa, we can increase the chances of survival and growth of SMMEs, thus contributing to job creation and economic growth of South Africa.

Following the merger process, the integration of human resources, administrative and management systems have been finalised and improvements effected where necessary. A few challenges with regard to human resources still remain but these are being resolved.

Developing and growing the SMME sector takes collective effort and as sefa we placed emphasis on building partnership with other SMME support institutions, the government and the private sector. To this extent we developed strategic partnerships with the National Empowerment Fund (NEF), the Small Enterprise Development Agency (seda), the South African Institute of Chartered Accountants (SAICA), National Youth Development Agency (NYDA) and National and Regional Chambers of Commerce and Industries. These partnerships contributed to greater awareness of our organisation’s products and services, outreach to SMMEs, increase in our loan book and effective post investment support to funded enterprises.

We have also identified some challenges that we have prioritised for the next financial year and these are:

• Impairments have increased and one of the main reason being non-payment of SMMEs by their clients and therefore being unable to service their loans with sefa;

• Some of our intermediary partners charge SMMEs very high interest rates.

In addition to these, we will focus on the following for the next financial year :

• reaching more SMMEs, especially those located in rural communities, through continued expansion of our footprint and growing the loan book through innovative products and services;

• streamlining business processes to increase turn-around times on loan applications;• use of information and communication technology to significantly improve efficiencies, thus reducing the cost of finance to SMMEs;• increase collaboration with institutions that provide business support to SMMEs to reduce the default rates;• enhance collaboration with commercial banks so that together we can reach more SMMEs with loan products;• explore and build partnerships with Co-operative Financial Institutions (CFIs) to increase access to funding for small and micro enterprises and develop a

strong financial co-operative sector; and• developing targeted enterprise loan programmes for youth, women, people living with disabilities and rural communities.

Annual Report 2014

As the Board of Directors and management of sefa, we would like to express our gratitude to the Honourable Minister of Economic Development Department, Minister Ebrahim Patel, for his guidance and continued support to sefa and the promotion of small business development in South Africa.

I would also like to acknowledge the contribution made by our shareholder, the IDC in sefa’s success. They have been exceptionally supportive in augmenting sefa’s capacity during a very challenging period. I also thank the NEF for their assistance which directly contributed to enhanced loan processes and therefore the growth of our loan book.

I also wish to thank my fellow board members for their commitment to the SMME sector and to making sefa a strong financier of SMMEs in South Africa. I also commend the CEO, executive management and staff of sefa for their dedication during the reporting period.

Entrepreneurs are our pathfinders to growth and societal wellbeing, it is our collective responsibility to nurture and support them.

Dr Sizeka Magwentshu-RensburgChairperson of the Board

15

Annual Report 2014

…increasing access to finance to create jobs…

There is growing recognition of the important role that small businesses play as an efficient and prolific job creators, being seeds of big businesses and the fuel of economic engines. Small enterprises are sources of dynamism, innovation, competition, growth and job creation.

Our role as sefa is to champion the development of small businesses in South Africa by creating enabling platforms and programmes for small businesses to access finance at the right cost.

Dynamic Growth in Loan Book

In the fiscal year 2013/14, we continued to position ourselves as a leading catalyst for the development of small businesses and have approved R1.1 billion in loan facilities for small business development through our various loan programmes. This represents a 142% increase on the 2012/3 financial year approvals.

CHIEF EXECUTIVE OFFICER’S STATEMENT4

Likewise, we were able to increase our disbursements by a 176%, to the value of R549 million to SMMEs and financial intermediaries. The growth in our loan book represents an encouraging developmental trajectory given the development phase of the organisation and the challenges linked to the merger.

Development Impact

For the financial year under review, sefa’s financial support resulted in 46, 407 entrepreneurs benefiting from our different loan products and services to thevalue of R822 million. Of the 46,407 entrepreneurs supported:

• 10, 291 were youth owned enterprises with loan funding support to the value of R157 million;• 44, 302 were women owned businesses with funding support to the value of R362 million;• 36, 729 were rural-based enterprises with a total funding of R429 million; and• 43, 643 were black owned enterprises funded to the value of R599 million.

Financial Performance

We closed the fiscal year with total assets amounting to R2,2 billion. Our revenue stream prior to considering fair value adjustments to investment properties and grants recognised in income has increased by 17.5% to R141.5 million. This is largely attributable to the increase in interest and fees from lending activities. An allocation was received from government which is channelled through the IDC as a shareholder’s loan, this amounted to R231 million.

Risk Management

Impairments and bad debt movements relate to legacy credit facilities granted prior to the merger and the growing loan book, especially our Direct Lending book.

sefa operates as a lender of last resort to entrepreneurs. Most of the enterprises we fund, are those that commercial lenders do not have appetite for, hence our high operating risk.

We subsequently strengthened our risk and governance institutional framework to embed and enhance risk culture and management across sefa. We also adopted a credit policy and framework; capacitated our credit evaluation business unit, and strengthened our credit management committees and overall compliance and fraud prevention strategies.

The inability to service debts by our clients remains an area of concern. As a result, sefa has entered into an agreement with the South African Institute of Chartered Accountants (SAICA) to support loan beneficiaries/ clients with book keeping and financial skills. The partnership is growing and is yielding results to both sefa and our clients.

16

Annual Report 2014

17

Human Capital Management

Our staff are our greatest asset. We therefore strive to create a working environment that is conducive for both their personal wellbeing and work life. sefa has therefore collaborated with the Institute for Counselling and Advisory Services (ICAS) for their Employee Assistance Programme (EAP) to provide psychological care and support to enable employees to optimise their competencies in the workplace.

Learning and development is key to increasing our capacity and building a knowledge organisation, as our business is principally based on the management of information and money. Thirty-five percent of our staff is supported by the sefa bursary programme. To enhance ongoing skills development various short-term interventions were implemented. Expenditure on training and development represented 2% of payroll.

Partnership Development

We have built synergies and partnerships with a number of organisations and institutions that share our developmental agenda. These collaborations have enabled sefa to increase its funding to small businesses on a national scale. sefa has entered into targeted collaborative initiatives with other national development finance institutions such as the IDC, the NEF, seda and the NYDA.

Partnering with the IDC has enabled us to leverage off the development finance expertise of the Corporation which was built over many decades. The collaboration with the NEF gave us the much needed scale following increased demand of financing requirements by our clients, whilst seda has helped us to extend our footprint as we have co-located into 25 of seda’s offices nationally thereby bringing sefa much closer to our clients, simplifying the access route to funding. In addition we were able to build a strategic partnership with the NYDA in tackling economic and unemployment challenges amongst the youth.

Just as no journey to success is without hills and valleys, sefa’s establishment in 2012/13, and its growth in 2013/14, was not without difficulties. We continued to embed sefa’s values, with the aim to improve our value proposition and offerings to our clientele. Some areas of enhancement identified include the need to improve our turnaround times; and we are inculcating an entrepreneurial performance culture that is linked to a passion for development across all functional areas of our business in order to fulfil our national mandate.

To speed up our responses to stakeholders, we have implemented an online application facility on the sefa website for potential clients to apply online. Systems and processes were also enhanced to improve the workflow and turnaround times. The sefa Loan Administration System (sefaLAS) has also been enhanced to ensure that all core products are being managed from one integrated platform.

The past fiscal year has indeed marked a period of increasing access to finance and job creation. I am particularly humbled with a deep sense of appreciation and privileged to have been given the opportunity to lead this young organisation which has enormous potential to contribute positively to the lives and aspirations of our people. We are driven by the passion for development and prospects of promoting sustainable entrepreneurship that can address the triple challenges of unemployment (especially among the youth), alleviation of poverty and inequality.

We are in a unique position to precipitate and facilitate the development of SMMEs and to create a vibrant job market.

I thank my management team and staff for working tirelessly and giving their best to produce the results that epitomise our intended development objectives under trying circumstances.

I also wish to express my sincere gratitude to our Chairperson, Dr Sizeka Magwentshu-Rensburg, and my fellow colleagues on the Board of Directors, for their sterling leadership and guidance during another challenging year. We thank our shareholder, the IDC, the Honourable Minister Ebrahim Patel and the team at the Economic Development Department (EDD) for their unwavering support and holding us accountable.

We remain steadfast and committed to the course of increasing access to finance for SMMEs and thereby contribute to building inclusive economic growth.



Ms Lesego MashishiExecutive Manager: Human Capital Management

Mr Piet SwanepoelExecutive Manager: Direct Lending

EXECUTIVE MANAGEMENT5

18

Ms Vuyelwa MatsilizaExecutive Manager: Wholesale Lending

Ms Leonie van LelyveldChief Risk Officer & Acting

Chief Financial Officer from December 2013

EXECUTIVE MANAGEMENT

19

Annual Report 2014

20

…enabling increased access to finance …

The Finance Division has played a vital role in supporting various business processes. During 2013/14, the division managed to achieve the following:

• adequately maintaining and improving systems that were implemented in the previous financial year ;

• identifying fruitless, wasteful, irregular, and unauthorised expenditure on a continuous basis and implementing processes to minimise such expenditure;

• cost centres within the organisation were clearly defined and aligned with the organisational structure to enhance reporting;

• further systems migration were done to ensure effective processing and reporting.

The Finance Division has various projects planned to enhance the effectiveness and efficiency of supporting business processes. These projects include:

• cost saving initiatives which are expected to have a direct impact on the cost to income ratio;• assisting in the creation of a financial model for sefa, which will address sefa’s sustainability and assist in defining, measuring and reporting on the key

measures for the entity;• automation of various manual processes that are currently in use;• developing and implementing an integrated reporting tool to provide timeous information of high quality to support management’s decision;• as business activity is increasing, internal policies and controls are to be enhanced to cope with the increased workload.

CORPORATE PERFORMANCE OVERVIEW6

6.1 Financial Performance Overview

Annual Report 2014

21

Due to various cost saving initiatives as well as an increase in interest from loans and advances, a cost to income ratio of 97% was achieved, which is well below the target of 129%.

The institution’s growth is evident in loans and advances and investments which represented 57% of the total group assets, compared to the 44% of the previous year. The interest from loans and advances increased by 37% from the previous year.

2014 2013

Dividends

Interest: Cash

Other Income

Properties Income

Indemnity Premiums

Interest: Loans & Advances

Fee Income

Grant Income

Dividends

Interest: Cash

Other Income

Properties Income

Indemnity Premiums

Interest: Loans & Advances

Fee Income

Grant Income

24%

9%

5%28%

27%6%

1%

0% 1%

29%

21%

4%

18%

24%

1%

2%

Composition of Group Income

Annual Report 2014

22

The increase in loans and advances caused a decrease in cash balances from 42% to 32% of total assets, ultimately coinciding with the objective to increase access to finance from SMMEs in South Africa.

Composition of Group Assets

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

Other Assets Investments

0%

2%

36%

22%

8%

32%

5%

31%

14%

8%

42%

Loans & Advances Investment Properties Cash & Cash Equivalents

2014 2013

Annual Report 2014

23

Boardof Directors

Board CommitteesERC / AC / WIC / HCRC / DLC

Risk Governance• Setting risk strategy• Set risk appetite and approve risk

policies• Manage risk exposures

Risk Guidance, Monitoring & Reporting

• Development of risk guidance policies, procedures, systems and tools

• Monitoring and reporting on consolidated risk exposures

Risk Division Internal Audit External Audit Risk Assurance

Risk Taking & Management

• Identification, assessment and management of day to day risks

• Bear the consequences of loss arising from risks materialising

Risk Facilitator(Champions Specialists)

Business Divisions

Risk Culture

Overview

Taking risk to exploit business opportunities is inherent in any business. In sefa’s development finance sphere, rewards are sought that transcend financial returns to include a range of socio-economic development impact indicators. Risks taken by sefa are typically higher compared to those taken by commercial entities. As a result, it is imperative for sefa to implement an effective risk management system to determine the appropriate level of risk that ensures the desired organisational balance of development impact and financial return.

During the reporting period, sefa made significant strides in managing its risk in a robust and holistic manner. Amidst a challenging development finance landscape, the Risk Division has enhanced and embedded the culture of risk management into the business to drive value creation for the organisation. This requires effective strategic planning, performance management and effective risk management, which are embedded in the daily operations of the organisation. Adopting the three- lines-of-defence model as the base for building an effective risk management system within sefa, the integrated model for the risk management functions and responsibilities have been applied, as indicated below.

An Integrated Enterprise Risk Management Model for sefa

6.2 Risk and Compliance Management Performance Overview

Annual Report 2014

24

Risk Appetite

sefa’s risk appetite statement has been reviewed and approved by the Board to link business strategies with risk-taking capacities and optimise risk-return trade-offs.

Risk Management Maturity

One of the aims of the risk management strategy is to achieve an optimal risk maturity level proportionate to the resources and risk to which sefa is exposed. The risk maturity level defines the degree of sophistication of its risk management activities. Hence, the greater the level of sophistication, the greater the benefits of enterprise risk management. sefa benchmarks its risk management maturity against the following risk maturity matrix:

Based on our pro-active risk management implementation, we rate ourselves as level 3 on the above risk maturity matrix.

Risk Maturity Key Characteristics

Level 1 Risk Naive • There is no formal approach developed for risk management

Level 2 Risk Aware • scattered silo-based and fragmented approach to risk management; • risk is defined differently at different levels and parts of the company;• risk management is reactive;• limited alignment of risk management to strategy; uncoordinated monitoring and reporting of risk.

Level 4 Risk Managed • enterprise wide approach to risk management developed and communicated;• risk management activities coordinated across business areas;• enterprise risk monitoring, measuring and reporting is established; opportunity risks identified and exploited.

Level 5 Risk Enabled • risk management and internal control fully embedded into the decisions and operations of the company;• on-going risk assessment processes;• risk discussion embedded in strategic planning, capital allocation, product development, etc.; risk management is

linked to performance measurement and incentives system.

Level 3 Risk Defined • risk strategy and policies are in place and communicated; risk appetite defined; common risk assessment process/responses adopted; company-wide risk assessment performed; identified risk universe; risk mitigation action plans implemented in response to high priority key risks; communication of key risks to the Executive Committee and the Board.

Annual Report 2014

Credit Risk

Credit risk is defined as the financial loss arising from the failure of a counter party to fulfil its contractual obligations to sefa. The credit risk that sefa faces arises mainly from providing finance to survivalist, micro, small and medium businesses throughout South Africa. The granting of credit is therefore sefa’s major source of income and as such the most significant risk. sefa therefore dedicates considerable resources to its control.

Credit Risk Management Framework

Credit risk management encompasses the process of identification, measurement, monitoring and controlling of all credit decisions and exposures. Credit risk management is an integral part of sefa’s core business and its management is ingrained into all of the institution’s operations. The primary objective of credit risk management is therefore to ensure that sefa’s risk is in line with the institution’s risk appetite and threshold, and that all risk issues inherent in sefa’s lending decisions are mitigated and managed.

sefa’s credit risk framework acknowledges that in the fulfilment of sefa’s mandate, it is highly exposed to various levels of credit risk that are material and require comprehensive controls and ongoing oversight.

The credit risk unit was formed in June 2013 as a dedicated resource within the Risk Division. Its role is to assist the Chief Risk Officer in setting and maintaining best practice credit risk management by providing analytical and advisory services in respect of risk taking, control, measuring and reporting credit risk exposures, trends and quality of assets at portfolio level.

Credit decision-making is made at committee level. sefa has three Credit Committees, namely:

• Executive Credit Committee• Management Credit Committee• Small Enterprise Credit Committee

These Credit Committees have clearly defined mandates, delegated authority and membership.

Credit Risk Management Enhancement

The credit risk unit has since its inception embarked on a number of improvements to review existing policies to avoid undue credit risk and potential loss without compromising sustainability and development impact. The changes focused on building stronger interdepartmental relations at various levels with the business units as they are primarily responsible to manage risks. This approach balances strong independent oversight at corporate level. These changes also encompass the adoption of credit risk-assessment models.

sefa’s credit policies, which have been approved by the Board and implemented, will ensure the following:

• independence and integrity of decision making and risk reviews;• sound and consistent credit granting standards;• effective credit risk management;• proactive identification of potential defaults;• robust credit granting processes and procedures.

sefa has also introduced new credit risk methodologies and models to measure and monitor credit risk. These models are aimed at assisting the institution in frontline credit decision making on new transactions and in the management of the existing portfolio. These models ensure that sefa has a credit score for each client.

25

Annual Report 2014

26

Credit Rating

As part of the credit process, sefa classifies clients according to their respective risk profiles. The main objectives of risk classification are to rank sefa’s client base according to risk and to estimate the probability of default for each client. The risk classification process also ensures that there is a shared understanding across the institution of the credit risk that clients pose.

However, in view of sefa’s mandate, the institution has devised a discounted credit risk charge for all its clients. sefa therefore does not charge a risk premium that is in line with the probability of default of its clients. sefa has developed an internal 10-grade scale, which reflects the discounted risk margin associated with a particular grade.

Reporting

In order to achieve its mandate, the financial sustainability of sefa is critical. sefa therefore dedicates resources to gaining a clear and accurate understanding of credit risk across its portfolios in order to ensure that its balance sheet accurately reflects the value of the assets in accordance with applicable accounting principles. This process can be summarized in the following broad stages:

• measuring and quantification of exposures;• monitoring adverse trends and weakness within the portfolios;• identifying potential problem loans;• raising provisions for impaired loans;• writing off assets when the whole or part of a debt is considered irrecoverable.

Credit Risk Mitigation

Although sefa does not offer funds based on collateral, collateral serves as an instrument to enhance the quality of credit and mitigate credit risk inherent in sefa’s lending transactions. This is done by increasing the ratio of recoverable debt in the event of default and by implication reducing the loss given default (LGD) of credit exposures. In some instances, the element of ensuring personal commitment is also locked in through the taking of collateral.

The security coverage required is determined by the risk profile, materiality of the loan, and sustainability of the funds application. Financial covenants are also an important tool for credit mitigation within sefa.

Collections

The sefa mandate of creating developmental impact does not end with the extension of finance to SMMEs. sefa also extends assistance to these enterprises to establish sustainable, commercially viable businesses.

Inherent to the sustained commercial viability of any business is the ability to service its debt timeously. sefa management has created a dedicated collections function to expand the assistance to businesses to service debt.

The aim of this collections function is twofold. Firstly, the timeous collection of amounts owing to sefa and secondly, the rendering of assistance to clients that are unable to service their debts.

The inability to service debts is often because of inappropriate business practice or structures resulting from a lack of commercial skill. The sefa Workout & Restructure function employs experienced and skilled business persons to engage with and assist these clients. The Workout and Restructure team has an agreement with the South African Institute of Chartered Accountants whereby sefa can draw on skills from SAICA when the need arises.

The creation of the Collections function, of which Workout and Restructure forms a large part, has created renewed focus on this area of the business with the aim to expand on its early successes during the next financial year.

Annual Report 2014

27

Compliance Management

The compliance management function is currently incorporated within the Risk Division of sefa. The overarching objective of the compliance function is to guide sefa through regulatory requirements and/or changes with the intent of preventing the severe non-compliance implications (including but not limited to financial and reputational consequences). Compliance management within sefa must meet the regulators’ expectations and emerging statutory requirements.

The compliance function facilitates the relevant legislative and regulatory requirements to assist management with compliance, which includes the compliance universe and compliance monitoring plans.

Highlights

For 2013/14, the Risk Division can report the following highlights:

• growing of risk and governance initiatives to embed and enhance risk culture and management across sefa in support of our strategic objectives;• implementing credit policy and credit risk framework;• improving risk reporting to management, Audit and Risk Committees and the Board;• improving decision-making governance and turnaround time for credit decisions;• enhancing and streamlining enterprise-wide risk reporting for effective risk oversight and consistent practices across sefa;• updating strategic and divisional risk registers;• initiating and implementing a credit risk pricing model, automated risk database and various reporting mechanisms to ensure robust risk capabilities through

technology;• establishing the collections function.

The Risk Division has intimate knowledge of the high-risk environment that sefa works in, but also the passion to balance the risks with the urgency to increase access to funding and create jobs. Careful balancing of institutional goals and economic demands will remain our focus.

Direct Lending

… increasing access to direct-lending finance …

sefa’s Direct Lending is geared towards supporting aspiring entrepreneurs who want to start, expand, or acquire businesses. sefa provides access to financing directly to Small, Micro, and Medium Enterprises (SMMEs) and to co-operative enterprises operating in all sectors of the economy. The loans, which range from a minimum of R50, 000 to a maximum of R5 million, have gradually increased access to finance in the SMME lending space during 2013/14.

The approval and disbursement levels show a marked improvement compared to the previous financial year. Approvals reflect a 151% increase, while disbursements recorded a 537% increase. The increases are derived from a relatively low base and are the result of the development of a solid lending platform and a proactive drive towards increased approvals and disbursements.

Annual Report 2014

Direct Lending Approvals and Disbursements

400

350

300

250

200

150

100

50

Rm2012/13

29

The above graph reflects a funding total of R366 million for 2013/14. During this period, 295 businesses were funded creating 7, 620 jobs. These enterprises contributed towards rural economic development and supported youth, women and black owned businesses.

6.3 Direct Lending Performance Overview

0Rm

2013/14

146

41

366

261

Approvals Disbursements

Annual Report 2014

The sustainability of our portfolio as well as our investee companies is important to us, hence our increased attention to post investment support to manage the rate of impairments. A post investment unit is now pro-actively providing business support and tailored mentorship services to SMME clients. Partnerships with private sector service providers have been established to provide tailored and industry-specific business support and mentorship programmes, aided by effective workout and restructuring interventions.

Public sector partnerships with the Small Enterprise Development Agency (seda) and other Provincial Development Corporations (PDCs) have contributed to minimise duplications and overlaps and ensured that the services provided by government agencies are now streamlined and complementary to sefa’s focus.

During the year we have improved our credit risk assessment and approval processes to rigorously evaluate the risk associated with every application. The system is developed to allow for adequate flexibility in order for each application to be assessed on its own merit. In cases where applications are rejected, adequate feedback is provided on the reasons for the rejection.

In up-skilling internal staff (particularly those manning the branch offices) during 2013/14, a tailored credit-assessment course was developed and presented in partnership with First National Bank’s (FNB) Training Academy.

The sectorial allocation of our direct lending activities for the year is depicted in the table below:

The investment activities are still skewed towards services and trade as well as the construction and engineering sectors. The challenge is to increase our portfolio towards the manufacturing/ productive sector in the next financial year.

Planning for next year includes the following:

• strengthening and building investment officer skills and capacities;• increasing process efficiencies to reduce turnaround times on applications;• building post-investment skills and capabilities to pro-actively manage potential defaults and impairments• expanding Direct Lending’s footprint through further strategic partnerships and alliances with organisations such as co-operative associations and franchise

organisations.

The growth in the Direct Lending loan book over the period under review, demonstrates the crucial enabling role that the division plays in increasing direct finance access to its SMME clients.

30

Number of Approvals

Value of Approvals R'000

Manufacturing 31 50, 256

Construction and Engineering 87 142, 379

Services and Trade 158 145, 314

Other 13 13, 817

Total 294 366, 529

Agriculture and Agro-processing 5 14, 763

Sector

Annual Report 2014

31

Development Impact: Direct Lending Loan Programmes

Number of SMMEs Funded

Rand ValueR'000

Support to youth-owned enterprises 65 41, 639

Support to enterprises in priority rural provinces 79 101, 542

Support to women-enterprises 64 68, 779

Support to black-owned enterprises 194 196, 420

Support to entrepreneurs or enterprises with loans less or equal to R250K 75 9, 895

Support to SMMEs 209 225,481

Annual Report 2014

32

Resotec Africa Import Export CC: 100% pure water out of air (Resotec Africa)

Thandie Selele, the 100% owner of Resotec Africa was awarded the contract for the supply and full installation of Atmospheric Water Generators to provide the community of Dingamazi Village, Giyani in Limpopo Province, with pure drinking water out of the atmosphere. However, the company did not have money to execute a project of this magnitude and desperately knocked on all kinds of doors for funding. The prolonged complicated processes and lack of understanding of the technology that the company is using by commercial banks and other institutions only complicated matters. sefa understood their unique challenges and technology, and extended a loan of R3, 5 million to Resotec Africa.

The Atmospheric Water Generating project is the first of its kind in the country. Resotec has successfully managed to install two fully functional Atmospheric Water Generators, which are producing and supplying 100% pure clean drinking water to the community of Dingamazi Village.

Work was provided to about twenty community members during the construction of the foundations and laying of the slabs at Dingamazi village, while two permanent employment opportunities were created.

Zik Zik Creations

Becoming her own boss is the drive that has seen Nontuthuzelo Nxele being celebrated as one of the most inspiring success stories in the Eastern Cape. She was a teacher by profession and started her own business in 2003.

She was awarded a contract to supply patient linen to the Grey Hospital in Free State. Battling with capacity as she had three tenders to deliver on, she decided to approach sefa for a business loan that would allow her to build capacity and to maintain jobs that she had already created in her previous contracts.

sefa funded her with an amount of R156, 740 to supply patients clothing to the hospital. The drive for business is skin deep for her as she recalled. “The passion for business came from my mother who was entrepreneurial and very brave. After spending some time as a teacher I dedided to venture into business. Starting a business was always going to be challenging”, says Nontuthuzelo.

The assistance from sefa gave her a much needed cash-flow and material. Already she has delivered on her contracts and forever grateful to sefa for giving her a head start and her business is now doing exceptionally well.

The company manufactures and distributes linen and uniforms for the Eastern Cape Hospitals and Clinics and employs twelve people.

Amava Chrome

Amava Chrome, a chrome manufacturing company approached sefa for funding in order to convert from Diesel Generator power to Eskom to reduce cost and upgrade the capacity by installing additional spirals to bring down the cost per ton of chrome ore feed processed. The company was funded R4,47 million by sefa.

Pillai Brapaharan acknowledges that the funding assisted his company to bring down costs, and helped the company to increase its profitability. "The funding came at a right time for our company and capacitated us. From where I stand I believe that as a company we are doing extremely well since then”, says Pillai.

A GLANCE AT OUR DIRECT LENDING FUNDED SMMEs

Wholesale Lending

Annual Report 2014

34

Product enhancements

Business Loans (to RFIs and MFIs), the LREF and the Khula Credit Guarantee Scheme were enhanced to provide more customised services to intermediaries and to reduce finance costs to sefa’s target market; the SMMEs that require funding between R500 and R5 million. The co-operative sector products and services were also reviewed to align sefa with the Co-operatives Amendment Act No 6 of 2013.

BUSINESS LOANS

A revolving business loan facility was introduced to curb the decapitalisation of intermediaries and the subsequent reduction of financial support to SMMEs. This product is offered to intermediaries which possess specialised skills, infrastructure and local market intelligence required to service niche SMME market segments. They complement our Direct Lending loan programme and also manage risks through close monitoring of SMMEs.

When funded through a revolving facility, the intermediary is able to draw down, repay and re-draw loans advanced to it. This flexibility of repayment and re-borrowing within the approved facility allows the intermediary the capacity to further on-lend to the end beneficiaries, without the risk of decapitalisation. The revolving loan facility agreement clearly states the conditions that the intermediary must meet before it can re-draw money from the approved facility. These conditions ordinarily include meeting periodic targets, reporting on development statistics and submitting cash flow projections covering the contract period. This product will also be extended to the rest of the MFIs as well as RFIs that enable achievement of sefa’s development targets, that is, funding of black, women and youth owned SMMEs at reasonable cost as well as those that increase sefa’s reach to South Africa’s priority provinces.

LAND REFORM EMPOWERMENT FACILITY

A new agreement with the Department of Rural Development and Land Reform (DRDLR), the sole funder of the Land Reform Empowerment Facility, was negotiated and signed off in November 2013 to include production loans, mechanisation finance, equity warehousing, and wholesale loan facilities to emerging farmers.

During the year under review, sefa’s Wholesale Lending division focused on developing innovative products. This entails entering into agreements with technical partners and financial intermediaries who provide customised funding and development solutions that translate into simple access to finance SMMEs. Co-operative Financial Institutions are included in the SMME products and services offered. The division channels SMME development and funding support through:

• Micro-finance Intermediaries (MFIs) for survivalists and micro enterprises;• Retail Financial Intermediaries (RFIs) for small and medium businesses;• Banking and Financial Institutions (BFIs) for delivery of the Land Reform Empowerment

Facility (LREF) products and the Khula Credit Guarantee Scheme to SMMEs;• Specialised Funds and Joint Ventures for SMMEs in targeted markets and/or sectors; and

Co-operative Financial Institutions.

6.4 Wholesale Lending Performance Overview

Annual Report 2014

35

KHULA CREDIT GUARANTEE SCHEME

sefa is revamping the Khula Credit Guarantee Scheme (the Scheme) which was created to assist SMMEs that need financing from commercial banks/financial institutions for establishing, expanding or acquiring new or existing viable businesses but do not have adequate and unencumbered collateral. Currently, the Scheme works through mutually exclusive partnership arrangements with the four major banking institutions in the form of ABSA, First National Bank, Nedbank and Standard Bank. The partnerships are regulated in terms of agreements concluded in 2007, which superseded the original agreements signed in 1997. As a result of the ongoing renegotiations of the existing agreements, a new R100 million portfolio guarantee for First National Bank was approved within the year under review and plans to extend the Scheme to more financial institutions that support SMMEs are underway.

CO-OPERATIVES SUPPORT

The Board approved the “sefa Integrated Strategy on CFIs”, which was aligned to the Co-operatives Amendment Act No 6 of 2013. The strategy serves as a guiding document for sefa to provide financial support to the co-operative sector.

sefa will co-ordinate efforts on co-operative enterprises funding with other government agencies and seeks to complement seda, the Co-operative Banks Development Agency (CBDA) and the Co-operatives Development Agency products and services. sefa has signed a Memorandum of Understanding with seda and CBDA that outlines areas of mutual programme co-operation.

New Wholesale Business Models & Products

sefa identified opportunities to pilot the hybrid model and venture into private-public partnerships. This is in line with the government’s view that development finance institutions should work with public and private sector players to multiply the impact of their limited financial contribution to small business development. Transactions concluded during this financial year under the new hybrid model and the private-public partnership for enterprise supplier development are tabled below.

HYBRID MODEL

During 2013/14, a new hybrid model of sector focus loan financing was introduced. This model comprises elements of both the Direct and Wholesale Lending loan programmes. The model utilises the technical expertise of an external technical partner who conducts technical due diligence on potential clients and provides business support required, whilst sefa provides credit assessment and financial support.

Two hybrid transactions were concluded in the transport and toursim sectors. The transport transaction faciltated the financing of taxi opeators whilst the tourism transaction involves support to small toursim operators.. These partnerships extend a holistic funding support that encompasses both the pre and post loan support to the SMMEs.

sefa will continue to leverage existing public and private sector technical expertise and resources by entering into agreements with partners who do not wish to create SMME lending capacity but are willing to co-ordinate mutually beneficial SMME support programmes.

ENTERPRISE SUPPLIER DEVELOPMENT SUPPORT

To facilitate supply chain financing, sefa concluded the Godisa Supplier Development Fund (Godisa). Godisa is a strategic partnership between sefa, Transnet and Anglo-American Zimele that facilitates SMME entry into the Transnet supply chain.

Annual Report 2014

36

Specialised Funds & Joint Ventures

Specialised funds and joint ventures are used as vehicles to address specific SMME market segments. sefa leverages the existing technical capacity and resources to provide a comprehensive package of development and financial support to SMMEs.

sefa AWETHU YOUTH FUND

To encourage youth entrepreneurship and employment generation, sefa established a R64 million youth fund in collaboration with Awethu Youth Enterprise Incubator (Awethu). Awethu utilises a unique Incubation model that supports young entrepreneurs through business idea generation, business planning, financing, marketing and post loan support. The programme targets entrepreneurs between the ages of 18-35 years.

TONGAAT HULETT FACILITY

In partnership with Tongaat Hulett Sugar (THS), sefa established the emerging sugar cane farmers loan programme. The loan programme provides production input finance for fertilizer, cane seed, insecticides, agro-chemicals, agricultural equipment and machinery to small scale emerging sugarcane growers who have signed cane supply off-take agreements with THS. The participating farmers visited by sefa highly appreciated the comprehensive technical and financial support.

The Wholesale Lending division’s performance figures are below:

Approvals

Disbursements

Actual Achieved2013/14

R’m

TargetR’m % Achieved

659 430 153%

288 362 80%

Annual Report 2014

37

In 2013/14, the Wholesale Lending Division achieved 80% of its R362 million disbursement target which equates to R288 million. There is a time lag between approvals and disbursements as sefa disburses conditionally and on a drawdown basis. The graph above shows that the credit guarantee scheme uptake by the major commercial banks has been low. sefa is currently revamping the scheme and the uptake is expected to improve in the next financial year.

The targeted post-investment support to SMMEs by intermediaries has contributed to the improvement and long term qualitative prospects of the loan book. sefa will continue to review and enhance its product offerings to SMMEs to strengthen their long term growth.

Wholesale Lending Approvals and Disbursements2013/14

R 150

R 100

R -SME Credit Guarantee MFIs

Milli

ons

R 50

R 250

R200

R 450

R350

R 500

R 400

R 300

R 440

R 209

R108

R 14

R 111

R 65

Approvals Disbursements

The total Wholesale Lending approval target of R430 million was outperformed by 53% in 2013/14, attributed to increasing financial and non-financial commitment by public and private sectors for promotion of SMME development.

Annual Report 2014

38

Development Impact: Wholesale Lending Loan Programmes


Rand ValueR'000

Support to youth-owned enterprises

Support to enterprises in priority rural provinces 95 96,193




Support to SMMEs 272 253, 249

Business Loans

60 52, 005


Rand ValueR'000







Joint Ventures & Specialised Funds

18 9, 707

The tables below depicts the development impact under the Wholesale Lending loan programmes.

Annual Report 2014

39


Rand ValueR'000





Support to entrepreneurs or enterprises with loans less or equal to R250K 6 759


Khula Credit Indemnities

9 6, 297


Rand ValueR'000


Support to enterprises in priority rural provinces 36, 146 139, 123

Support to women-enterprises 43, 330 189, 492

Support to black-owned enterprises 41, 991 186, 998

Support to entrepreneurs or enterprises with loans less or equal to R250K 44, 141 199, 434

Support to SMMEs 44, 151 199, 996

Microfinance

9, 807 40, 514

Annual Report 2014

40


Rand ValueR'000


Support to enterprises in priority rural provinces 103 756


Support to black-owned enterprises 1, 059 20, 711

Support to entrepreneurs or enterprises with loans less or equal to R250K 1, 439 28, 820

Support to SMMEs 1, 439 28, 820

Co-operative Financial Institutions

332 7, 223

Total number of SMMEs financed within the wholesale division are 46, 198 and the amount disbursed to SMMEs is R596 million.

Annual Report 2014

Khula Akwandze Fund in Mpumalanga Province

Khula Akwandze Fund (the Fund) is a specialised fund established by sefa and Tsb Sugar SA’ (Tsb) black economic empowerment vehicle which is known as Akwandze Agricultural Finance (Pty) Ltd (Akwandze). The fund was established to finance black small scale sugar cane growers and mechanisation contractors who have signed a cane delivery agreement with Tsb Sugar SA.

Ligugulethu Co-operative with a membership base of 744 and Tsb are equal shareholders in Akwandze Agricultural Finance. Members of the co-operative enterprises receive preferential interest rates from the Fund.

The Fund approved 2, 711 loans to the value of R131million at an average loan size of R48, 000. The Fund strategically targets those niche markets for which commercial banks have no appetite to service. Fifty-eight percent of the Fund’s investments are invested in businesses owned by the members of the co-operative enterprises.

Anglo American sefa Mining Fund - Manngwe Mining (Pty) Ltd

Anglo American sefa Mining Fund invested R10 million in Manngwe Mining in December 2013 for a 20% stake in the company. Manngwe Mining was a 100% BEE company before equity investment was made. The company is developing the Assen Iron Ore project in Thabazimbi. The Department of Minerals and Resources issued a Bulk Sampling permit to the company to extract 300 000 tonnes of iron ore. The funding provided assisted the company to pay for its rehabilitation guarantee and enable it to start extracting iron ore from the mine.

The mining activities have created permanent and casual work opportunities. As at 31 March 2014, Manngwe had created 5 permanent positions. There were also a number of casual labourers from the surrounding areas that were used as security guards and for construction of the fence together with initial clearing of the mining area. The numbers exclude the employees from the mining contractor on site who are performing the actual mining. The project will continue to create more job opportunities as delivery of the tonnages to Sishen Iron Ore Company commences.

Manngwe will use the revenues from the project to fund the project to the next stage of Mining Right application and Bankable Feasibility study.

Mettle Administrative Services (Pty) Ltd - Alfa Bodyworks CC

The business was started in 1997, in a garage by the two brothers owning 50% each. It is a 100% BEE owned Close Corporation panel-beating service based in Western Cape. It started with two employees and the staff complement has increased to 52. It has an administration and finance unit, supported by two staff members. The rest of the staff work on the panelbeating side.

The business is accredited by major insurance companies. They work closely with various dealerships and have factory approvals from all major manufacturers such as Toyota, Honda, Nissan, KIA, OPEL, Ford, Cadillac, etc.

Alfa Bodyworks is a member of the RMI and SAMBRA. Panelbeating is labour intensive and requires skilled labour. Invoice discounting assisted them in maintaining existing jobs by having cash immediately to pay employees, as they are paid every Friday. With Mettle, they do invoice discounting to the amount of R1,7 million per month. They initially rented premises and are now owning their own building due to improved cash flows. The business has a 10 year relationship with Mettle. In 2013, it received an award for an AA quality assured Autobody repairer.

41

A GLANCE AT OUR WHOLESALE LENDING FUNDED SMMEs

Annual Report 2014

Talent Victoria Hlongwa

Kwa-Zulu Natal Financial Services Co-operative, known as K-Ladies received a loan amounting to R1, 198,050 from sefa for on-lending to its members. Theco-operative enterprise affords its members the benefits of savings and loan services .

Talent joined the Financial co-operative enterprise in 2012 as one of the enterprising members. She owns a construction company, Buhlebakhe Trading Enterprise CC which employs seven people. She has received a loan of R60, 000 from K-Ladies for her business which she used for working capital and to pay salaries and wages for her employees. Her company specialises in building construction work, minor repairs and renovations delivering of goods and services.

According to her, the loan from K-Ladies has assisted her to grow her business which has brought about changes in her family. In her own words this what she said: “The business has done lot of changes in my family, because I have seven children, six of them are my brother’s children and now I’m able to give them support, by putting food on the table and giving them a future by taking them to school and paying for their school fees. “

42

Annual Report 2014

43

sefa operates in a competitive market where all players have access to the same technology, systems, people and customers. As a result, there is a growing understanding that our people are what will distinguish us in the marketplace. Our Human Capital Management strategy serves as the foundation to transform our employees into a truly diverse and competitive workforce geared to execute sefa strategy. We have two strategy focus areas:

• Talent: ensuring that we have capable human capital to execute current and future business strategies. • Culture: establishing a shared value-based organisational culture which is driven through effective leadership and reflected in the behaviour/performance of all employees.

Human Capital Management’s focus for the year under review was to keep our people safe and healthy at work, develop talent to take sefa into the future, provide fair and competitive remuneration, enhance systems and procedures, and improve employment relations climate.

6.5 Human Capital Management Performance Overview

Headcount

Our permanent staff complement as at 31 March 2014 was 194. This headcount was categorised as follows:

• Executive level accounted for 3%• Management level accounted for 25%• Professional level accounted for 46%• Administration level accounted for 19%, and • Support level accounted for 7%

A C I WColouredAfrican WhiteIndian

Total A C I W A C I WMale Female

Executive 5 1 0 0 1 2 0 0 1

Manager 49 21 2 0 1 20 1 1 3

Professional 90 24 3 1 6 46 5 1 4

Administrative 37 5 0 0 0 26 4 1 1

Support 13 5 1 0 3 4 0 0 0

Totals 194 56 6 1 11 98 10 3 9

Level

Annual Report 2014

EE Targets vs. Actuals

44

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

78% 78%

10% 8%

4% 3%

8% 11%

African Coloured Indian White

EE Target EE Actual

Performance Management

During 2013/14, a principle that rewards performance and value creation underpinned our performance management system. All employees were motivated to perform through participative target setting, and undertook regular performance assessments, which is a process that involves regular feedback/review sessions and development plans. A performance management workshop was conducted to ensure understanding of sefa’s existing practices and consistent application.

The process of agreeing on targets between employees and their managers and then assessing performance against these objectives has become firmly entrenched in sefa’s culture of delivery of corporate targets.

Employee Engagement

In addition to this, sefa took steps during the year to measure employee engagement through an employee engagement survey. The survey gave employees an opportunity to share their views on a number of specified employee engagement dimensions within the company, such as leadership, job satisfaction, communication, collaboration, prospects for growth, reward, and recognition.

The following areas of strength were identified by employees:

• clear understanding of the purpose of the organisation;• understanding of their role and contribution to the organisation;• commitment of sefa employees to the success of the organisation;• pride in working for sefa;• Employee satisfaction/engagement remains a key pillar of the Human Capital Management strategy. sefa will continue to invest in employee engagement initiatives to enhance an entrepreneurial workforce that is responsive to the SMME sector.

Occupational Health and Safety

Ensuring the post-merger health and wellness of sefa employees, was an absolute priority during 2013/14. In response to the stress that affects employees at a personal and work-related level, sefa collaborated with the Institute for Counselling and Advisory Services (ICAS) for their Employee Assistance Programme (EAP) to provide psychological care and support to enable employees to optimise their competencies in the workplace. Employees and their families have access to a 24-hour, confidential and professional support service at ICAS to assist them in the management of daily personal and work-related difficulties. Over the course of the year under review, 37% of sefa employees, cutting across gender, language and occupational positions utilised this service.

Annual Report 2014

Learning and Development

Our learning and development programmes for 2013/14 aimed at building organisational capacity in the skills level required to deliver on organisational strategy, and to develop succession depth for senior roles. We also offered graduate training programmes to improve our resource pipeline for talent and supplemented it with in-house and external development programmes. Our annual training budget, which constitutes 2% of payroll for learning and development was utilised for these employee development interventions. Further initiatives included learning forums, and study loans with special focus on skills gaps identified.

Categories of skills enhancements:

• micro-finance• financial analysis• credit assessment• due diligence• financial modelling• management and leadership• customer interface• interpersonal skills

Employee Relations

During 2013/14, post-merger employee relations issues continued to be addressed. In ensuring that due labour relations processes are followed and implemented, we had regular engagements with organised labour at various levels, established different engagement fora and signed a Recognition Agreement. The purpose of these structures was to provide and disseminate information to all employees and resolve issues quickly.

Human Capital Management will continue to inculcate a culture of organisational high performance, passion for development, integrity, and honesty so that employees are motivated to ensure access to funding for all of sefa’s clients.

45

Annual Report 2014

PERFORMANCE AGAINST PREDETERMINED OBJECTIVES7

Performance Indicator2013/14 Target

Actual Achieved for 2013/14

Reason for Variance

CUSTOMER PERSPECTIVE 45%

Access to Finance by SMMEs and Development Impact

Approvals R 815 million R 1,065 billion Due to the growth in the loan books, strengthening of internal capacity and targetted marketing efforts

Disbursements R 737 million R 549 million The Wholesale transactions are approved over a multi-year cycle and the draw downs are scheduled according to the approval cycle.

Number of SMMEs financed 15,129 46,407 Overachievement is due to growth in the Micro-finance and Direct Lending loan books.Number of jobs created 18,311 46,402

Facilities disbursed must be youth-owned - 18-35 years old

30% 21% Limited viable business propositions and entrepreneurship amongst the youth.

Facilities disbursed must be in priority rural provinces

45% 58%

Overachievement is linked to the growth of the loan book compared to the previous financial year.

Facilities disbursed must be women-owned businesses

40% 49%

Facilities disbursed must be black-

owned businesses 70% 81%

Facilities less than R250K disbursed to end-users

40% 34%

FINANCIAL PERSPECTIVE 25%

Ensuring sefa’s Sustainability and Strengthening Risk Management & Compliance

Net operating income as a % of average assets at cost

0.8% -5% Target not achieved due to lower interest income.

Cost to income ratio (excluding Impairments & finance charges)

129% 97% Overachievement is linked to the growth in the loan book, an increase in interest income and implementation costs containment strategy.

Bad debt ratio (Wholesale & Direct lending loans issued by sefa) - (Impairments as a % of portfolio at cost)

31% 25% Target was achievement due to better post investment monitoring and the write-off legacy transactions (ex Khula and ex samaf).

Portfolio at risk of active clients less than or equal to:

5% 22% Impairment provision linked to the growth in the Direct Lending loan book.

Ratio of claims provisions vs amount indemnified of:

20% 16% Tightening of claims management an strengthening of the overall claims business process related to the credit guarantee programme.

Reduce clients handed over to loss control from 5 to 2 in 2014

2% 0% Target no acheived due to increase impairments especially in the Direct Lending loan book.

46

Underachievement is due to lack of targeted marketing and outreach initiatives.

Annual Report 2014

Performance Indicator2013/14 Target

Actual Achieved for 2013/14

Reasons for Variance

INTERNAL BUSINESS

PROCESSES 15%

Improved Internal Business Processes & Systems

Development of at least ten key policies; processes; systems; and procedures

10% 16% Target exceeded due to consolidation of the organisation post the merger and strengthening of the governance environment.

Enhancement of Business Application Processes - (Combine all loan administration systems)

100% 100% All legacy systems have been transferred to the the sefa loan management system.

Uptime/availability of critical systems 99.90% 100% Achievement is linked to the robustness of the IT infrastructure and effective network monitoring and management.

PEOPLE LEARNING AND GROWTH 15%

Alignment, Development and Motivation of Human Capital

Labour Turn Over Rate (LTO) 7% 6% Stabilisation of the human resources environment post the merger

Staff have Individual Development Plans (IDPs) received and implemented

80% 81% Achievement in the human resource indicators is linked to strengthening of the Human Capital Management capability.

Performance management assessments conducted by Managers for the year ending 31 March 2014.

100% 58% New performance policy was only implemented in September 2013 and under achievement is linked to the associated change management process.

Establish Employee Engagement Index (EEI) baseline score

5% 5% Employee Engagement Survey completed using the Investors in People standard.

47

Annual Report 2014

48

Governance

The organisation applies the governance principles contained in the King Report on Governance for South Africa (King III) and continues to improve and strengthen recommended practices in its governance structures, systems, processes, and procedures.

Key Developments

The Board approved, inter alia, the following strategies and policies:

• sefa Integrated strategy on co‐operatives• Performance management and development policy• Remuneration policy• IT Information security policy• Anti‐fraud and corruption policy• Operational risk management framework and policy• Enterprise risk management framework

sefa Board and Committees

sefa has a unitary Board structure comprising one executive director and ten non‐executive directors, majority of whom are independent. The Board functions in accordance with King III and within the context of the Public Finance Management Act of 1999 and the Companies Act 71 of 2008 (the Companies Act). The Board composition reflects a wide range of skills and knowledge, necessary to meet sefa’s strategic objectives.

The Memorandum of Incorporation (MOI) prescribes the size of the sefa Board; it permits a minimum of five and a maximum of fifteen Directors. Directors’ term of office is governed by the Company’s MOI and is subject to periodic re‐election by the Shareholder.

The Chairperson of the Board of sefa is a Non‐Executive Director. No individual has unfettered powers; the roles of Chairperson and Chief Executive Officer are separate to ensure a clear separation of duties. The Non‐Executive Directors are not involved in the day‐to‐day running of the business of sefa and do not draw any remuneration from the company, other than the fees paid for meeting attendance and other ad hoc duties assigned to them by the Chairperson.

The Board’s role is to exercise leadership and sound judgement in directing sefa, to achieve its mandate and growth, in the best interest of all its stakeholders.

Conflicts of Interest

The Board recognises the importance of acting in the best interest of the company. The Board applies the provisions of the Companies Act by disclosing and avoiding conflicts of interest. Directors are required to declare their general interests annually and at each meeting in accordance with the Companies Act.

CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 20148

Annual Report 2014

49

Board and Committee Meetings Attendance

Chairmanship

Dr S Magwentshu‐Rensburg Chairperson of the BoardMr VG Mutshekwane Chairman of the Human Capital and Remuneration CommitteeMr IAS Tayob Chairman of the Audit CommitteeMr LB Mavundla Chairman of the Direct Lending CommitteeMr GS Gouws Chairman of the Enterprise Risk CommitteeMr M Ferreira Chairman of the Wholesale Investment Committee

Remuneration

sefa Non‐Executive Directors are remunerated for the meetings attended at a rate which has been approved by the shareholder. No performance‐based remuneration or retainer fees are paid to Directors.

sefa Directors’ remuneration is represented in note 27 in the Annual Financial Statements.

Board Performance Assessment

The Board performance assessments were conducted during December 2013. Areas needing improvement have been identified and processes to address these are underway.

Board

Number of meetings held during the year (incl. special meetings)

Board AuditCommittee

EnterpriseRisk

Committee

Human Capital &Remuneration

Committee

WholesaleInvestmentCommittee

Direct LendingCommittee

13 6 4 8 8 4

Dr S Magwentshu‐Rensburg 11 n / a n / a n / a n / a n / a

Mr VG Mutshekwane 13 6 4 8 n / a n / a

Mr IAS Tayob 9 6 4 7 n / a n / a

Mr SA Molepo 10 n / a n / a 8 6 n / a

Mr LB Mavundla 10 n / a n / a n / a 8 4

Mr GS Gouws 11 6 4 n / a n / a n / a

Mr M Ferreira 13 n / a n / a n / a 8 4

Ms BP Calvin 6 n / a n / a n / a 7 3

Ms H Lupuwana 8 n / a n / a 5 n / a n / a

Ms K Schumann 11 n / a n / a n / a 4 1

Mr T Makhuvha* 13 6 4 6 8 4

* Chief Executive Officer

Annual Report 2014

50

Director Development

sefa encourages ongoing director development to enhance governance practices within the Board and in the best interest of the Company. A formal director development workshop was conducted for the Board and senior management by the Institute of Directors in Southern Africa, during the year under review.

Delegation of Authority

While the Board delegates its authority to management, it retains the responsibility concerning the exercise of the delegated authority. In terms of Section 56 of the Public Finance Management Act, 1 of 1999 (PFMA), the Board may confirm, vary or revoke any decision taken by an official as a result of a delegation of powers by the Board.

Board Committees

The Board has established five standing committees, namely: Audit Committee, Enterprise Risk Committee, Wholesale Investment Committee, Human Capital and Remuneration Committee and Direct Lending Committee. These committees play an important role in enhancing good corporate governance. Each committee acts in accordance with a written charter, setting out its mandate, membership, duties and reporting requirements.

In terms of the Companies Act, sefa is required to establish a Social and Ethics Committee (SEC). The Companies Act further provides that exemption may be granted by the Companies and Intellectual Property Commission (CIPC), provided that the functions that would have otherwise been performed by the SEC are performed by other structures within the company. Certain functions of the SEC are performed by other sefa Board Committees. The process of ensuring that the remaining functions are fulfilled somewhere in the organisational structures is underway.

Audit Committee (AC)

The AC monitors the adequacy of financial controls and reporting, reviews audit plans and adherence to these by external and internal auditors; ascertains the reliability of the audit reports; ensures that financial reporting complies with IFRS, the Companies Act and the Public Finance Management Act; ensures that there are effective measures in place on information technology risks as they relate to financial reporting; reviews and makes recommendations on all financial matters; and recommends the appointment and removal of auditors to the Board.

Enterprise Risk Committee (ERC)

The primary duty of the ERC is the governance of risk. It assists the Board with the responsible stewardship of sustainability, including stakeholder impact, management of material risks, sustainability, governance, and reporting. The ERC reviews procedures for the identification of risks, manages the impact of such risks on the company, and recommends the approval of risk policies to the Board.

Wholesale Investment Committee (WIC)

The purpose of the WIC is to act on behalf of the Board by considering transactions mandated to it by the Board. The WIC considers transactions relating to the wholesale products where sefa exposure is less than R50 million. The WIC also considers transactions relating to the indemnity scheme where the transaction exposure is above R5 million and up to R50 million.

Human Capital and Remuneration Committee (HCRC)

The main objective of the HCRC is to assist the Board in the development of compensation and human resources policies, plans and performance goals, as well as specific compensation levels for sefa. The HCRC assists the Board in fulfilling its oversight responsibilities as well as overall compensation and human capital matters.

Direct Lending Committee (DLC)

The DLC acts on behalf of the Board by considering transactions mandated to it by the Board and within its delegated authority. The committee plays an oversight role with regards to the performance of the Direct Lending loan programme and assessment of the performance of the loan portfolio.

Annual Report 2014

51

Shareholder Engagement

The shareholder meets with the Board on a regular basis. The relationship between sefa and the shareholder is governed by the MOI and the Shareholder Compact. sefa reports to the shareholder on a quarterly basis as required by the PFMA and Companies Act.

Ethical Leadership

sefa remains committed to ethical and responsible leadership. The Board provides effective leadership based on a foundation of principles and the Company subscribes to high ethical standards. sefa is also committed to good governance practices characterised by responsibility, fairness, accountability, and transparency.

Company Secretary

The Company secretary is responsible to the Board for, amongst others, ensuring compliance with Board procedures and applicable statutes and regulations. To enable the Board to function effectively, all directors have full and unrestricted access to the Company Secretary. Directors regularly receive information relevant for the proper discharge of their duties through the Company Secretary.

Internal Audit

Internal Audit is an independent appraisal function, which provides the Board with assurance on the adequacy and effectiveness of the Company’s systems of internal control. Internal audit follow a risk‐based approach and reports to the Audit Committee and administratively to the Chief Executive Officer.

Enterprise Risk Management

Effective risk management is integral to sefa’s objective of consistently adding value to the business. Management continuously develops and enhances its risk and control procedures to improve mechanisms for identifying, monitoring and mitigating risks. The Audit and Enterprise Risk Committees as well as the Board of Directors monitor areas of significant business risk on an ongoing basis. The Board is ultimately responsible for the management of risk, and to ensure that management takes such action as required to mitigate and minimise all identified risks.

Internal Control

The Board has the overall responsibility of establishing and maintaining the company’s internal controls and for reviewing effectiveness thereof. The Directors, through its relevant committees have reviewed the effectiveness of the internal controls in sefa operations throughout the year. The role of management is to implement approved policies on risk and internal control. sefa management implemented ongoing risk management processes for identifying, evaluating and managing significant risks faced by the Company. This process is reviewed annually by the Board.

sefa and its subsidiaries maintain financial and operational systems of internal controls in order to fulfil its responsibility in providing reliable financial information. These controls are designed to provide reasonable assurance that transactions are concluded in accordance with management’s authority, that assets are adequately protected against material loss or unauthorised acquisition, use, or disposal, and that transactions are properly authorised and recorded.

This system includes a documented organisational structure and division of responsibility, established policies and procedures, including a Code of Ethics to foster a strong ethical climate, which are communicated throughout the Company.

The internal auditors assist the Board in monitoring the operation of the internal control system and report their findings and recommendations to management and the Audit Committee. Corrective actions and any other measures are taken to address identified control deficiencies and to improve controls. The Board, through its Audit Committee, provides supervision of the financial reporting process and internal control system.

There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Therefore, effective internal control systems only provide reasonable assurance regarding the financial statements’ preparation and safeguarding of assets. No significant breakdown or circumvention of controls has occurred to date.

Management Structure

The Board has the overall responsibility for the company and there is a formal schedule of matters specifically reserved for the Board. The Chief Executive Officer, as the executive director of the company, together with senior management constitute the Executive Committee, which meets regularly, to discuss the day-to-day operational matters. The Chief Executive Officer also meets regularly with divisional heads and other members of the management team.

The Board has unrestricted access to the executive management in an effort to enhance communication and achievement of the vision of the Company. Further communication with sefa employees is done through Board feedback sessions convened by the CEO.

Statement of Responsibility by the Board of Directors 53Report of the Audit Committee 54Directors’ Report 56Declaration by the Group Company Secretary 60Independent Auditor’s Report 61Statements of Financial Position 64Statements of Profit or Loss and Other Comprehensive Income 65Statements of Changes in Equity 66Statements of Cash Flows 67Notes to the Financial Statements 68

The financial statements have been prepared under the supervision of the Group’s Chief Executive Officer, Mr T Makhuvha.

The financial statements have been audited in compliance with section 30 of the Companies Act, No 71 of 2008.

GROUP AND COMPANY ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014REGISTRATION NUMBER: 1995/011258/06

9

52

Annual Report 2014

53

The Public Finance Management Act, 1 of 1999 (PFMA) requires the directors to ensure that sefa and its subsidiaries keep full and proper records of financial affairs. The directors are responsible for the preparation and integrity of the Group and company annual financial statements and related financial information to ensure that these fairly present the state of affairs of the Company, its financial results, its performance against pre‐determined objectives and its financial position at the end of any given financial year.

The Group and company annual financial statements, set out in this Annual Report from pages (64‐129), comprised of the statements of financial position at 31 March 2014, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows, and the notes to the financial statements which includes a summary of significant accounting policies and other explanatory notes, have been prepared in accordance with the International Financial Reporting Standards (IFRS) and in the manner required by the Companies Act 71 of 2008 (Companies Act) and the PFMA. In addition, the Directors are responsible for preparing the Directors’ report.

The Directors acknowledge that they are ultimately responsible for the process of risk management and the system of internal controls. Management assists the Directors to meet these responsibilities. Standards and systems of internal control are designed and implemented by management to provide reasonable assurance as to the integrity and reliability of the annual financial statements in accordance with IFRS and to safeguard, verify and maintain accountability for assets. Accounting policies supported by judgements, estimates and assumptions which comply with IFRS, are applied on a consistent and going concern basis. Systems of internal controls include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties.

Based on the information and explanations given by management, the internal audit function and discussions held with the external auditor, on the results of their audits, the Directors are of the opinion that the internal financial controls are adequate to ensure that the financial records are relied upon for preparing the financial statements, and accountability for assets and liabilities is maintained.

Nothing has come to the attention of the Directors to indicate that any material breakdown has occurred in the functioning of these internal controls, procedures and systems during the year under review. The Directors have a reasonable expectation that the Company and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt a going concern approach in preparation of the financial statements.

The Group and company annual financial statements have been audited by the Company’s independent external auditor, KPMG Inc., who has been given unrestricted access to all financial records and related information, including minutes of shareholder; Board and Board Committee meetings. KPMG Inc.’s unmodified audit report is contained in this annual report on page 61.

The Directors are of the opinion, based on the information available to date, that the Group and company annual financial statements fairly present the financial position of sefa and the group at 31 March 2014 and the results of its operations and cash flow for the year then ended.

The Group and company Annual Financial Statements, which were prepared in accordance with IFRS, the Companies Act and the PFMA, appear on pages 64 to 129, and were approved by the Board of Directors on 13 August 2014 and are signed on its behalf by:

Dr Sizeka Magwentshu‐Rensburg Mr Thakhani MakhuvhaChairperson of the Board of Directors Chief Executive Officer13 August 2014 13 August 2014

STATEMENT OF RESPONSIBILITY BY THE BOARD OF DIRECTORS FOR THE YEAR ENDED 31 MARCH 2014

Annual Report 2014

54

REPORT OF THE AUDIT COMMITTEE FOR THE YEAR ENDED 31 MARCH 2014

The Audit Committee (the Committee) has pleasure in submitting this report to the shareholder as required by the Companies Act of South Africa 71 of 2008 (the Companies Act), and as recommended by King Report on Corporate Governance for South Africa (King III).

Committee Membership

The Committee, which had been appointed by the shareholder for the financial year ended 31 March 2014, consisted of Mr IAS Tayob (Chairman), Mr VG Mutshekwane and Mr GS Gouws.

Committee Responsibilities and Charter

The Committee reports that it has complied with its responsibilities as contained in section 38 (1)(a) of the Public Finance Management Act (PFMA), Treasury Regulation 3.1., and the Companies Act. The Committee also confirms that it has adopted an appropriate formal Audit Committee Charter ; has regulated its affairs in compliance with this charter and has discharged all its responsibilities as stipulated therein.

The role of the Audit Committee

The Committee is satisfied that, during the year under review, it has performed the functions required by law. Among others those functions included the requirements as set out in section 94 (7) of the Companies Act, Treasury Regulations 27.1.8 – 10, the PFMA and King III. In this regard, the Committee has, inter alia:

• ensured that the respective roles and functions of external audit and internal audit are sufficiently clarified and coordinated and that the combined assurance received was appropriate to address all significant risks;

• reviewed the effectiveness of the company’s policies, systems and procedures for detecting and preventing fraud;• reviewed and monitored the effectiveness and performance of the internal audit function, its standing, staffing plans, audit plans to provide adequate support

to enable the committee to meet its objectives;• reviewed and approved the annual internal audit plan and the internal audit charter ;• ensured that the scope of the internal audit function had no limitations imposed by management and that there was no impairment on its independence;• reviewed the results of the work performed by the internal audit function in relation to financial reporting, corporate governance, risk, internal controls and

any significant investigation and management responses;• assisted the Board in carrying out its risk management responsibilities;• evaluated the independence, effectiveness and performance of the external auditor, and obtained assurance from the auditors that adequate accounting

records were being maintained and appropriate accounting principles were in place and had been consistently applied;• evaluated the appointment of the external auditor on an annual basis;• approved the audit fee and fees in respect of any non‐audit services;• reviewed and approved the external audit plan;• ensured that the scope of the external audit had no limitations imposed by management and that there was no impairment on its independence;• reviewed the external auditor’s findings and reports submitted to management and the independence and objectivity of the external auditor ;• reviewed the effectiveness of the company’s systems of internal controls, including internal financial control and risk management and ensured that effective

internal control systems were maintained;• reviewed and addressed matters referred to it by the Board;• reviewed the annual report, as well as annual financial statements to ensure that they present a balanced, true position and performance of the Company;• reviewed interim reports, preliminary reports or/and other financial information prior to submission to and approval by the Board;• provided as part of the Annual Report, a report of the Audit Committee.

Annual Report 2014

55

The Effectiveness of Internal Controls

The Company’s system of internal controls is designed to provide reasonable assurance, such that assets are safeguarded and the liabilities and working capital are effectively managed.

Based on the assessment of the system of internal financial controls conducted by sefa’s internal audit, as well as information and explanations given by manage-ment and discussions held with the external auditor on the results of their audit, the Committee is of the opinion that sefa’s system of internal financial controls is effective and forms a basis for the preparation of reliable financial statements in respect of the year under review.

Risk Management

Whilst the Board is ultimately responsible for the maintenance of an effective risk management process, the Committee, together with the Enterprise Risk Committee, assisted the Board in assessing the adequacy of the risk management process. The Chairman of the Committee is also a member of the Enterprise Risk Committee; this ensures that all relevant information is regularly shared. The Committee fulfils an oversight role regarding financial reporting risks, internal financial controls, fraud and information technology risks as they relate to financial reporting.

External Auditor

The Committee gave due consideration to the independence of the external auditor and is satisfied that KPMG Inc. is independent of the Company and management and therefore able to express an independent opinion on the Group’s annual financial statements.

KPMG Inc. is afforded unrestricted access to the Group’s records and management and presents any significant issues arising from the annual audit to the Committee.

Financial Management

The Committee reviewed the annual financial statements of the Company and the Group and related information and is satisfied that they comply with International Financial Reporting Standards. In addition, the Committee has reviewed management’s assessment of going concern and recommended to the Board that the going concern concept be adopted by sefa.

Approval

The committee recommended the approval of the annual financial statements to the Board of Directors.

On behalf of the Audit Committee:

Mr IAS TayobChairman of the Audit Committee13 August 2014

Annual Report 2014

56

Introduction

sefa is registered as a State Owned Company (SOC) in terms of the Companies Act 71 of 2008 (Companies Act) and is a Schedule 2 listed entity in terms of the Public Finance Management Act (PFMA) and Treasury Regulations.

Nature of Business

sefa is a development finance institution, which provides finance to Small, Micro and Medium Enterprises (SMMEs) directly through its branch network and indirectly through Financial Intermediaries (FIs) and other suitable financial institutions. Finance is provided in the form of loans, equity capital and indemnities. The Group also owns a portfolio of business premises that are leased to commercial undertakings.

Funding

sefa’s funding requirements are sourced from a transfer payment via the Economic Development Department's budget vote, retained reserves and the R921 million IDC shareholder loan committed.

A grant of R231 million (2013: R170 million) was received from government to support sefa’s activities. The grant was paid to the IDC, which is conducting the required oversight over sefa’s operations, and was made available to sefa for operational purposes through a loan.

Public Finance Management Act

sefa’s Board is responsible for the development of the company’s strategic direction. The company’s strategy and business plan are captured in the Shareholder’s Compact and approved by the Board. After approval, this is agreed with the shareholder and thereafter they form the basis for the company’s detailed action plans and on‐going performance evaluation.

The responsibility for the day‐to‐day management of the company vests in line management through a clearly defined organisational structure and through formal delegated authorities.

sefa has a comprehensive system of internal controls, which are designed to ensure that the company’s objectives are met, including the requirements of the Companies Act and the recommendations of the King report on Corporate Governance for South Africa (King III.) These systems and controls meet the requirements of the PFMA. There are processes in place to ensure that where these controls fail, such failure is detected and corrected.

DIRECTORS’ REPORT FOR THE YEAR ENDED 31 MARCH 2014

Annual Report 2014

57

Short Term Insurance Act

The indemnity product of sefa's wholly owned subsidiary, Khula Credit Guarantee, is registered as an insurance product with the Financial Services Board (FSB) and is regulated by the Short Term Insurance Act, 53 of 1998 (STIA). Quarterly and annual returns must be submitted to the FSB. The company is required at all times to maintain a statutory surplus asset ratio as defined by the STIA. The 2013 annual return submitted to the FSB showed a deficit regarding the minimum capital requirements throughout the year as the counter-party diversification did not meet the minimum requirements. Despite sefa having adequate assets in both years to meet liabilities, these assets were not adequately diversified as per the regulations issued by the FSB. This has been partially addressed in the current year by further diversification to the investment portfolio. Adequate diversification was obtained shortly after the financial year end.

The indemnity product issued under Khula Credit Guarantee has traditionally been managed by the holding company as part of its management and governance processes. The resulting institutional arrangements do not comply fully with the requirements of the FSB in a manner that gives effect with the provisions of the STIA. During the financial year, the company commenced a process to ensure appropriate measures are put in place to comply fully with all of the requirements of the STIA.

Significant Matters

On 20 November 2013, the Board of Directors approved the sale of certain properties in the property portfolio.

Subsidiaries, Joint Ventures and Associates

Details of each trading subsidiary, joint venture and associate are set out in the notes to the financial statements.

Dividends

No dividends have been declared during the year and none are recommended (2013: Rnil).

Share Capital

The authorised and issued share capital remained unchanged during the year (2013: unchanged).

Materiality and Significance

MATERIALITY LEVELS FOR REPORTING IN TERMS OF SECTION 55(2)(B)(I) OF THE PFMA

Section 55(2)(b)(i) of the PFMA states that the annual report and financial statements should include particulars of any material losses through criminal conduct and irregular expenditure, fruitless and wasteful expenditure that occurred during the financial year. Materiality was set at R879,000 for the year under review.

SIGNIFICANCE LEVELS RELATED TO SECTIONS 51(1)(G) AND 54(2) OF THE PFMA

Sections 51(1)(g) and 54(2) of the PFMA read in conjunction with the related practice note, requires the use of a significance framework.

Based on the guidelines in the practice note and after evaluating the total assets, total revenue and profit after tax for the sefa Group, a significance level of R15.6 million had been adopted.

Unauthorised, Fruitless and Wasteful and Irregular Expenditure

UNAUTHORISED EXPENDITURE

No expenditure was classified as unauthorised during the financial year under review.

FRUITLESS AND WASTEFUL EXPENDITURE

The PFMA defines fruitless and wasteful expenditure as expenditure incurred in vain and would have been avoided had reasonable care been exercised.

Annual Report 2014

58

Fruitless and wasteful expenditure amounted to R333, 000 (2013: R785, 000).

Corrective action is being taken regarding the fruitless and wasteful expenditure incurred during the year under review.

IRREGULAR EXPENDITURE

Irregular expenditure signifies expenditure incurred without adhering to established rules, regulations, procedural guidelines, policies, principles or practices that have been implemented to ensure compliance with the PFMA, relevant tender regulations as well as any other relevant procurement regulations.

Opening balance

Irregular expenditure current year

Items reclassified as not irregular after investigation performed

Condoned or written off by accounting authority

2014R’000

2013R’000

3,068 5,922

(14) -

(3,547) (5,429)

493 -

Irregular expenditure awaiting condonement - 493¹

¹ The balance was condoned during the current financial year.

Mr IAS Tayob

Mr VG Mutshekwane

Mr GS Gouws

10/06 23/08 19/09Name of Director 29/10 17/02 24/03

AUDIT COMMITTEE INFORMATION

Audit Committee members have attended the following Audit Committee meetings during the reporting period:

‐ Present

Annual Report 2014

59

Directors

The Directors in office during the financial year and up to the date of the approval of the Annual Financial Statements were:

Executive: AppointedMr T Makhuvha* 1 November 2012

Non - Executive:Dr S Magwentshu‐Rensburg (Chairperson) 7 April 2010Mr IAS Tayob 7 April 2003Mr M Ferreira 7 April 2010Ms H Lupuwana 1 April 2012Mr SA Molepo 1 April 2012Ms K Schumann 1 April 2012Mr L Mavundla 1 April 2012Mr VG Mutshekwane 1 April 2012Mr GS Gouws 1 April 2012Ms B Calvin 1 April 2012

*Chief Executive Officer

There were no resignations during the year under review.

Post reporting date events

The Directors are not aware of any other matter or circumstance arising since the end of the financial year and 13 August 2014, not otherwise dealt with in the report that would affect the operations of the company or the Group significantly.

Annual Report 2014

60

I hereby certify that, to the best of my knowledge and belief, the Company has lodged with the Companies and Intellectual Property Commission, all such returns required in terms of the Companies Act 71 of 2008, in respect of the financial year ended 31 March 2014 and all such returns are true, correct and up to date.

Ms NB MongaliCompany Secretary13 August 2014

DECLARATION BY THE GROUP COMPANY SECRETARY

Annual Report 2014

61

Report on the Financial Statements

We have audited the group financial statements and financial statements of the Small Enterprise Finance Agency SOC Limited as set out on pages 64-129, which comprise the statements of financial position as at 31 March 2014, the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes, which include a summary of significant accounting policies and other explanatory information to the financial statements.

THE DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The Board of Directors, which constitutes the accounting authority, is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the requirements of the Public Finance Management Act of South Africa and the Companies Act of South Africa, and for such internal control as the accounting authority determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Public Audit Act of South Africa, the General Notice issued in terms thereof and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

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

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial position of the Small Enterprise Finance Agency SOC Limited as at 31 March 2014, and its consolidated and separate financial performance and the consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Public Finance Management Act of South Africa and the Companies Act of South Africa.

OTHER REPORTS REQUIRED BY THE COMPANIES ACT

As part of our audit of the financial statements for the year ended 31 March 2014, we have read, the Statement of Responsibility by the Board of Directors’, the Report of the Audit Committee, the Directors’ Report and the Declaration by the Group Company Secretary for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between these reports and the audited financial statements. However, we have not audited these reports and accordingly do not express an opinion on these reports.

INDEPENDENT AUDITORS REPORT TO PARLIAMENT ON SMALL ENTERPRISE FINANCE AGENCY SOC LIMITED

Annual Report 2014

62

Report on Other Legal and Regulatory Requirements

Public Audit Act Requirements

In accordance with the Public Audit Act of South Africa (PAA), and the General Notice issued in terms thereof, we report the following findings relevant to the reported performance against predetermined objectives, compliance with laws and regulations as well as internal control. We performed tests to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, we do not express an opinion or conclusion on these matters.

Predetermined Objectives

We performed procedures to obtain evidence about the usefulness and reliability of the information in the Performance Information Report as set out on pages 46 to 47 of the annual report, and reported thereon to the Accounting authority. The procedures performed were limited to the following selected objectives:

• Access to finance by SMEs and Development Impact;• Ensuring sefa’s sustainability and strengthening Risk Management and Compliance.

The reported performance against predetermined objectives was evaluated against the overall criteria of usefulness and reliability.

The usefulness of information in the reported performance against predetermined objectives relates to whether it is presented in accordance with the National Treasury’s annual reporting principles and whether the reported performance is consistent with the planned objectives. The usefulness of information further relates to whether indicators and targets are well defined, verifiable, specific, measurable, time bound and relevant as required by the National Treasury Framework for managing programme performance information.

The reliability of the information in the reported performance against predetermined objectives is assessed to determine whether it is valid, accurate and com-plete.

We report that there were no material findings on the Performance Information Report concerning the usefulness and reliability of the information.

ADDITIONAL MATTER

Although no material findings concerning the usefulness and reliability of the reported performance against predetermined objectives were identified, we drew attention to the following matter in our report to the Accounting Authority.

MATERIAL ADJUSTMENTS TO THE PERFORMANCE AGAINST PREDETERMINED OBJECTIVES SECTION

Material audit adjustments in the Performance Information Report were identified during the audit and all adjustments were corrected by management.

Annual Report 2014

63

Compliance with Laws and Regulations

We performed procedures to obtain evidence that the entity has complied with applicable laws and regulations regarding financial matters, financial management and other related matters. We did not identify any instances of material non-compliance with specific matters in key applicable laws and regulations, as set out in the General Notice issued in terms of the PAA.

Internal Control

We considered internal control relevant to our audit of the financial statements, Performance Information Report and compliance with laws and regulations, but not for the purpose of expressing an opinion on the effectiveness of internal control. We did not identify any deficiencies in internal control that we considered sufficiently significant for inclusion in this report.

KPMG Inc.

Per WGE PretoriusChartered Accountant (SA)Registered AuditorDirector

13 August 2014

KPMG Crescent85 Empire RoadParktownJohannesburgGauteng2193

Annual Report 2014

64

STATEMENTS OF FINANCIAL POSITION AS AT 31 MARCH 2014

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

715,208 909,998 589,392 808,767

30,902 21,303 26,361 22,695

- 60 - -

479,363 303,060 387,412 211,576

18,189 26,409 18,189 26,409

- - 170,652 141,604

641,261 604,914 114,344 108,982

133,530 53,037 89,208 7,047

11,782 75,193 12,581 113,338

159,146 171,435 159,146 171,435

25,567 - 25,567 -

11,635 12,401 11,549 12,280

611 1,874 611 1,699

2,227,194 2,179,684 1,605,012 1,625,832

Assets

Cash and cash equivalents 4

Trade and other receivables 5

Tax receivable 30

Loans and advances 6

Investments 7

Investments in subsidiaries 8

Investments in associates 9

Investments in joint ventures 10

Deferred tax asset 11

Investment properties 12

Investment properties held-for-sale 13

Equipment, furniture and other tangible assets 14

Intangible assets 15

Total Assets

Equity and Liabilities

308,300 308,300 308,300 308,300

585,018 756,901 7,714 254,725

893,318 1,065,201 316,014 563,025

2 - - -

893,320 1,065,201 316,014 563,025

135,092 136,784 100,480 101,911

163 - - -

1,175,521 944,542 1,175,521 944,542

6,282 11,073 - -

11,541 15,628 12,581 16,354

4, 859 6, 456 - -

416 - 416 -

1, 333, 874 1, 114, 483 1, 288, 998 1, 062, 807

2, 227,194 2, 179, 684 1, 605, 012 1, 625, 832

Share Capital 16

Reserves Equity attributable to owners of the parent

Non-controlling interest

Total Equity

Liabilities

Trade and other payables 18

Tax payable 30

Shareholder loan 17

Outstanding claims provision 19

Deferred tax liability 11

Unearned risk provision 19

Post-retirement liability 20

Total LiabilitiesTotal Equity and Liabilities

NOTE

Annual Report 2014

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 MARCH 2014

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

135,420 116,759 122,175 101,693

6,087 3,663 6,035 1,774

8,983 48,870 8,983 48,870

15,677 (21,929) 13,278 (21,929)

166,167 147,363 150,471 130,408

(98,363) (85,157) (98,363) (85,157)

(42,944) (33,193) (42,944) (33,193)

(89,926) (79,018) (92,789) (71,187)

(79,991) (76,194) (66,046) (70,099)

(145,057) (126,199) (149,671) (129,228)

33,368 28,979 - -

(111,689) (97,220) (149,671) (129,228)

(59,996) 32,806 (97,339) 36,110

(171,685) (64,414) (247,010) (93,118)

- - - -

(171,685) (64,414) (247,010) (93,118)

Revenue 21

NOTE

Income

Other income 22

Grant income 23

Net fair value gain/(loss) on financial and other assets 24

Personnel expenses

Investment property expenses

Movement on impairments and bad debt provisions 25

Other operating expenses

Operating loss 25

Profit from equity accounted investments, net of tax

Loss before tax

Income tax (expense)/credit 26

Net loss for the year

Other comprehensive income for the year, net of tax

Loss and total comprehensive loss for the year

Expenses

(171,687) (64,410)

2 (4)

(171,685) (64,414)

Loss and total comprehensive loss attributable to:

Owners of the parent

Non-controlling interest

Loss and total comprehensive loss for the year

65

Annual Report 2014

66

GroupShare capital

Danida re-serve*

Retained earn-ings

Non-control interest

Total

R'000 R'000 R'000 R'000 R'000

Balance as at 31 March 2012 308,300 10,155 608,725 4 927,184

Gain on the transfer of samaf assets and liabilities - - 202, 431 - 202, 431

Total comprehensive loss for the year - - (64, 410) (4) (64, 414)

Balance as at 31 March 2013 308,300 10,155 746,746 - 1 065,201

Transfer to retained earnings - (10,155) 10,155 - -

Distribution - - (196) - (196)

Total comprehensive loss for the year - - (171,687) 2 (171,685)

Balance as at 31 March 2014 308,300 - 585,018 2 893,320

Company

Balance as at 31 March 2012 308,300 - 145,412 - 453,712

Gain on the transfer of samaf assets and liabilities - - 202,431 - 202,431

Total comprehensive loss for the year - - (93,118) - (93,118)


Total comprehensive loss for the year - - (247,010) - (247,010)


STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2014

* This reserve arose from expired credit indemnities funded by the government of Denmark out of which Khula Credit Guarantee Limited may issue its own further credit terms of the indemnities. In accordance with the funding agreement, all the funds remaining after a relevant loan has been discharged accrues to Khula Credit Guarantee Limited, provided that such funds should be used solely for the purpose of any guarantee scheme conducted by Khula Credit Guarantee Limited in support of the South African small business sector. These funds have accrued to Khula Credit Guarantee Limited and, as such have been transferred to retained earnings.

Annual Report 2014

67

STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2014

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

Cash flows from operating activities

Cash utilised by operations 29 (134,573) (194,982) (123,343) (113,018)

Increase in loans and advances (265,573) (50,896) (259,153) (31,392)

Grant income received 8,983 48,870 8,983 48,870

Interest and dividends received 46,444 51,151 42,963 45,150

Tax paid 30 (450) (5,945) (355) (5,157)

Net cash utilised by operating activities (345,169) (151,802) (330,905) (55,547)

Cash flows from investing activities

Purchase of equipment, furniture and other tangible assets

(2,563) (12,282) (2,555) (12,273)

Purchase of intangible assets - (571) - (572)

Repayments from En-Commandite partnership 10,878 13,904 10,878 13,904

Investments in associates (5,893) (9,808) (5,893) (9,808)

Advances to joint ventures (82,832) 638 (82,832) 638

Repayments from subsidiaries - - (39,053) (9,057)

Acquisition of subsidiary (net of cash acquired) 35 - 191,709 - 191,709

Proceeds from sale of equipment, furniture and other tangible assets

6 107 6 111

Proceeds from sale of investment properties - 1, 900 - 1, 900

Net cash (utilised)/generated by investing activities (80,404) 185,597 (119,449) 176,552

Cash flows from financing activities

Dividends payable (196) - - -

Capital funding received from shareholder 230,979 150,411 230,979 170,080

Net cash generated from financing activities 230,783 150,411 230,979 170,080

Net (decrease)/increase in cash and cash equivalents (194,790) 184,206 (219,375) 291,085

Cash and cash equivalents at beginning of year 909,998 725,792 808,767 517,682

Cash and cash equivalents at end of year 715,208 909,998 589,392 808,767

NOTE

Annual Report 2014

1. ACCOUNTING POLICIES

1.1 Reporting Entity

The Small Enterprise Finance Agency SOC Limited is domiciled in the Republic of South Africa. The company's registered office is Eco Fusion 5, Building D, 1004 Teak Close, Witch Hazel avenue, Highveld Centurion, 0157. The consolidated financial statements as at and for the year ended 31 March 2014 comprise sefa, its subsidiaries and the Group’s interest in associates and joint ventures (referred to as the Group). Where reference is made to the Group in the financial statements, it applies to the company also, unless otherwise noted.

The Group is primarily involved in providing access to finance to SMMEs directly through its branch network and indirectly through Financial Intermediaries (FIs) and other suitable financial institutions. Finance is provided in the form of loans, equity capital and indemnities. The Group also owns a portfolio of business prem-ises that are leased to commercial undertakings.

The financial statements were authorised for issue by the Directors on 13 August 2014.

1.2 Statement of Compliance

The separate and consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as well as the requirements of the Public Finance Management Act (Act No. 1 of 1999), (PFMA), as amended.

1.3 Basis of Preparation

The separate and consolidated financial statements are presented in South African Rand, which is the Company’s functional currency, rounded to the nearest thousand. These separate and consolidated financial statements are prepared on the historical cost basis, except for the following:

• investment properties are measured at fair value;• investment properties held‐for‐sale are measured at fair value.

International Financial Reporting Standards, amendments and interpretations effective for the first time in the current year:

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 April 2013.

a) Disclosures – offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) b) IFRS 10 Consolidated Financial Statements c) IFRS 11 Joint Arrangements d) IFRS 12 Disclosure of Interests in Other Entities e) IFRS 13 Fair Value Measurement f) Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) g) IAS 19 Employee benefits h) IAS 27 Separate Financial Statements i) IAS 28 Investments in Associates and Joint ventures

68

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014

Annual Report 2014

69

The nature and effects of the changes are explained below.

a) The amendment of IAS 32 Financial Instruments: Presentation of Financial Assets and Financial Liabilities clarifies certain aspects in view of diversity in the application of the requirements on offsetting and focuses on four main areas:

The amendment of IFRS 7 requires disclosure of amounts set off in the financial statement and requires disclosure of information about recognised financial instruments, subject to enforceable master netting arrangements and similar agreements even if they are not set off under IAS 32. The revised standard (IAS 32) is effective for the Group for the financial year commencing 1 April 2014, with certain additional disclosures (IFRS 7) being required from 1 April 2013.

b) IFRS 10: Consolidated Financial Statements. As a result of IFRS 10 (2011), the Group has changed its accounting policy for determining whether it has control over and consequently whether it consolidates its investees. The standard introduces a new control model that focuses on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns.

In accordance with the transitional provisions of IFRS 10 (2011), the Group reassessed the control conclusion for its investees as at 1 April 2013. There were no changes in the accounting treatment of any of its investments previously disclosed as subsidiaries.

c) IFRS 11: Joint Arrangements (Effective 1 January 2013) ‐ IFRS 11 replaces IAS 31 Interests in Joint Ventures. The Group has classified its interests in joint arrangements as either joint operations (if the Group has rights to the assets, and obligations for the liabilities, relating to an arrangement) or joint ventures (if the Group has rights only to the net assets of an arrangement). When making the assessment, the Group considered the structure of the arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances. Previously the structure of the arrangement was the sole focus of classification.

The Group has re‐evaluated its involvement in all its joint arrangements and has classified all of these arrangements as joint ventures. Notwithstanding the classification, the investments continue to be recognised by applying the equity method and there has been no impact on the recognised assets, liabilities and comprehensive income of the Group.

d) IFRS 12: Disclosure of Interests in Other Entities (Effective 1 January 2013) ‐ This standard requires extended disclosure of information that will enable users of financial statements to evaluate the nature of, and risks associated with, interests in other entities and the effects of those interests on an entity’s financial position, financial performance and cash flows. The Group has expanded its disclosures about its interests in subsidiaries and equity‐accounted investees.

e) IFRS 13: Fair‐value Measurement (Effective 1 January 2013) ‐ This standard replaces the guidance on fair value measurement in the various existing IFRS accounting conceptual framework, standards and interpretations with a single standard. IFRS 13 defines fair value, provides guidance on how to determine fair value and the required disclosures of fair value measurements. However, IFRS 13 does not change the requirements regarding which assets and liabilities should be measured or disclosed at fair value. IFRS 13 applies when another standard or interpretation requires or permits fair‐value measurements or disclosures of fair value measurements. With certain exceptions, the standard requires entities to classify these measurements into a ‘fair‐value hierarchy’ based on the nature of the inputs. In accordance with the transitional provisions of IFRS 13, the Group has applied the new fair value measurement guidance prospectively and has not provided anycomparative information for new disclosures. Notwithstanding the above, the change had no significant impact on the measurements of the Groups assets and liabilities.

f) Amendment to IAS 1: Presentation of Financial Statements (Effective 1 January 2013). As a result of the amendments to IAS 1, the Group has modified the presentation of items of OCI in its statement of profit or loss and OCI, to present separately items that would be reclassified to profit or loss from those that would never be.

• The meaning of "currently has a legally enforceable right of set off"• The application of simultaneous realisation and settlement• The offsetting of collateral amounts• The unit of account for applying the offsetting requirements

Annual Report 2014

70

g) Amendments to IAS 19: IAS 19 (2011) change the definition of short‐term and long‐term employee benefits to clarify the distinction between the two. Items previously classified as short‐term employee benefits may need to be reclassified as long‐term employee benefits as a result of the change. The rest of the amendments are not expected to have an impact on the Group.

h) Amendments to IAS 27: Separate financial statements. The amended standard now only deals with the requirements for separate financial statements, which have been carried over largely unchanged from IAS 27 Consolidated and Separate Financial Statements. Requirements for consolidated financial statements are now contained in IFRS 10 Consolidated Financial Statements. The standard requires that when an entity prepares separate financial statements, investments in subsidiaries, associates and jointly controlled entities are accounted for either at cost, or in accordance with IAS 39 Financial Instruments: Recognition and Measurement. The standard also deals with the recognition of dividends and certain group reorganisations, and includes related disclosure requirements. The amendment to this standard is required to be adopted in conjunction with the consolidation suite of standards.

i) Amendments to IAS 28: Investments in Associates and Joint Ventures. This standard supersedes IAS 28 Investments in Associates, and prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. The standard defines “significant influence” and provides guidance on how the equity method of accounting is to be applied (incl. exemptions from applying the equity method in some cases). It also prescribes how investments in associates and joint ventures should be tested for impairment.

j) IASB annual improvement project: The annual improvement project aims to clarify and improve the current accounting standards. The improvements include items involving terminology or editorial changes, with minimal effect on recognition and measurement.

Standards, amendments and interpretations to existing standards not yet effective and also not early adopted

• Amendments to IFRS 10: Investment Entities (Effective 1 January 2014). The statement has been amended to provide investment entities (as defined) anexemption from the consolidation of particular subsidiaries and instead require that an investment entity measure the investment in each eligible subsidiary at fair value through profit or loss in accordance with IAS 39 Financial instruments: Recognition and Measurement. This amendment is not expected to have any effect on the Group or the Company’s financial statements.

• Amendments to IAS 36: Recoverable amounts disclosure for Non‐Financial Assets (Effective 1 January 2014). The amendment is to reduce the circumstances in which the recoverable amount of assets and cash‐generating units is required to be disclosed, clarify the disclosures required, and to

introduce an explicit requirement to disclose the discount rate used in determining impairment (or reversals) where recoverable amount (based on fair value less costs of disposal) is determined using a present value technique. This amendment is not expected to have an impact on either the Group or the Company.

• Amendments to IAS 39: Financial Instruments: Recognition and Measurement (Effective 1 January 2014). The amendment is specifically in regard of hedge accounting. The amendment makes it clear that there is no need to discontinue hedge accounting if a hedging derivative is novated, provided certain criteria are met. This amendment is not expected to have an impact on the Group or Company’s assets or liabilities..

• Amendments to IAS 19: Defined benefit plans: Employee contributions (Effective 1 July 2014). The amendment provides clarification on the require ments that relate to how contributions from employees or third parties, which are linked to service, should be attributable to periods of service. In addition, it permits a practical expedient if the amount of the contributions is independent of the number of years of the service, in that contributions can, but are not required, to be recognised as a reduction in the service cost in the period in which the related service is rendered. This may have an effect on the recognition of contributions from employees.

• IFRIC 21 Levies:This interpretation provides guidance on when to recognise a liability for a levy imposed by the government, both for levies that are accounted for in accordance with IAS 37 Provisions, Contingent Liabilities and Assets and those where the timing and the amount of the levies are uncertain.

Annual Report 2014

71

• IFRS 9: IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2010) introduces additions relating to financial liabilities. The IASB currently has an active project to make limited amendments to the classification and measurement requirements of IFRS 9 and add new requirements to address the impairment of financial assets and hedge accounting. IFRS 9 (2010 and 2009) currently does not have an effective date. The adoption of IFRS 9 (2010) is expected to have an impact on the Group and Company’s financial assets, but not any impact on the Group and Company’s financial liabilities.

1.4 Investments in Subsidiaries

Subsidiaries are entities controlled by sefa. Control exists when sefa is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The acquisition method of accounting is used to account for the acquisition of subsidiaries by sefa. The consideration transferred in the acquisition is measured as the fair value of assets given, equity instruments issued and liabilities incurred or assumed at the date of acquisition. The assets, liabilities and contingent liabilities (a contingent liability acquired in a business combination is recognised in the acquisition accounting if it is a present obligation and its fair value can be measured reliably) acquired are assessed and included in the statement of financial position at their estimated fair value to the Group. If the cost of acquisition is higher than the net assets acquired, any difference between the net asset value and the cost of acquisition of a subsidiary is treated in accordance with the Group’s accounting policy for goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in profit or loss.

Inter‐company transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Non‐controlling interests (NCI) are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date. Changes in the sefa’s interest in a subsidiary that do not result in loss of control are accounted for as equity transactions. When the group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. Investments in subsidiaries in the Company’s separate financial statements are carried at cost less impairment.

1.5 Structured Entities

The Group has established or participated in a number of structured entities (SEs) for trading and investment purposes. SEs are entities that are created to accomplish narrow and well‐defined objectives. Investments in SEs in the Company’s separate financial statements are carried at cost less impairment.

1.6 Business Combinations Under Common Control

CONSOLIDATED FINANCIAL STATEMENTS

RECOGNITION

The receiving entity recognises the assets and liabilities acquired through a transfer of businesses on the effective date of the transfer. All income and expenses that relate to the businesses transferred are also recognised from the effective date of the transfer.

MEASUREMENT

Assets and liabilities acquired by the receiving entity, through a business combination under common control are measured at initial recognition at the same carrying value that they were held by the transferring entity immediately prior to the transfer. The difference between the carrying value of the assets and liabilities transferred and any consideration paid for the assets and liabilities transferred is recognised in retained earnings/accumulated loss. The carrying value at which the assets and liabilities are initially recognised is therefore the book value. Therefore, for the subsequent measurement of these assets and liabilities the accounting policies relevant to those assets and liabilities are followed.

Annual Report 2014

72

DERECOGNITION

The transferring entity derecognises the assets and liabilities on the effective date of the transfer of businesses. These transferred assets and liabilities are measured at their carrying values upon derecognition. The resulting difference between the carrying value of the assets and liabilities transferred and any consideration received for the assets and liabilities transferred is recognised in retained earnings/accumulated loss.

SEPARATE FINANCIAL STATEMENTS

A common control transaction is effected through the acquisition of assets and liabilities constituting a business rather than by acquiring shares in that business. The investment in a subsidiary acquired in a common control transaction is accounted for at the book value of the investment recognised by the transferring entity. The difference between the book value of the investment recognised and the amount paid for the investment, if any, is included in equity as it is in substance a transaction with the shareholder.

1.7 Interest in Equity‐accounted Investees

The Group’s interests in equity‐accounted investees comprise interests in associates and joint ventures.

Associates are all entities over which the Group has significant influence but not control or joint control, over the financial and operating policies. Joint ventures are those entities over whose activities the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Investments in associates and joint ventures are accounted for using the equity method of accounting and are initially recognised at cost, which includes transaction costs. Subsequent to the initial recognition, the consolidated financial statements include the Group’s share of the profit or loss and OCI of equity‐accounted investees, until the date on which significant influence or joint control ceases.

The Group’s investment in equity‐accounted investees includes goodwill identified on acquisition. The cumulative post‐acquisition movements are adjusted for against the carrying amount of the investment. Distributions received from associates reduce the carrying amount of the investment. When the Group’s share of losses in an equity-accounted investee equals or exceeds its interest in the equity‐accounted investee, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the equity‐accounted investee.

Unrealised gains and losses arising from transactions with equity‐accounted investments are eliminated against the investment to the extent of the Group’s interest in the investment. Unrealised losses are eliminated only to the extent that there is no evidence of impairment.

Investments in incorporated associates and joint ventures in the Company’s separate financial statements are carried at cost less impairment.

1.8 Financial Instruments

1.8.1 Financial Assets

The Group classifies its financial assets into the category of loans and receivables.

Management determines the classification of its financial assets at initial recognition.

LOANS AND RECEIVABLES

Loans and receivables are non‐derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those that the Group intends to sell in the near future. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable.

RECOGNITION AND MEASUREMENT

Loans and receivables are carried at amortised cost using the effective interest method less impairment loss.

Annual Report 2014

73

Financial assets (or, where applicable, a part of a financial asset or part of a group of similar financial assets) are derecognised when the contractual rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all the risks and rewards of ownership, without retaining control. Any interest in the transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

The fair values of quoted investments in active markets are based on current bid prices.

If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. Any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is stated at its cost, including transaction costs, less impairment.

1.8.2 Financial Liabilities

Financial liabilities are recognised initially at fair value, generally being their issue proceeds net of transaction costs incurred. Financial liabilities, other than those at fair value through profit or loss, are subsequently stated at amortised cost and interest is recognised over the period of the borrowing using the effective interest method.

Where the Group classifies certain liabilities at fair value through profit or loss, changes in fair value are recognised in profit or loss. This designation by the Group takes place when either :

• The liabilities are managed, evaluated and reported internally on a fair value basis, or

• The designation eliminates or significantly reduces an accounting mismatch which would otherwise arise, and

• The liability contains an embedded derivative that significantly modifies the cash flows that would otherwise be required under the contract

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

INDEMNITY CONTRACTS – CLASSIFICATION

Contracts under which the Group accepts significant indemnity risk from another party (the indemnity holder) by agreeing to compensate the indemnity holder or other beneficiary if a specified uncertain future event (the indemnified event) adversely effects the indemnity holder, are classified as indemnity contracts. Indemnity risk is a risk other than financial risk. Indemnity contracts may also transfer some financial risk.

UNEARNED RISK PROVISION

Unearned risk provision consists of:

• Provision for unearned premiums

Unearned fees, which represent the proportion of fees written in the current year, which relate to risks that have not expired by the end of the financial year, are calculated on the 365th basis.

• Provision for unexpired risk

Provision is made for unexpired risks where the expected value of claims and expenses attributable to the unexpired periods of policies in force at the reporting date exceeds the unearned premium provision in relation to such policies. The provision for unexpired risks is calculated separately by reference to class of busi-ness that are managed together, after taking into account the relevant investment returns.

Annual Report 2014

74

OUTSTANDING CLAIMS PROVISION

Provision is made for the estimated final cost of all claims that had not been settled on the reporting date, less amounts already paid based on calculations performed by independent actuaries. Claims and loss adjustment expenses are charged to profit or loss as incurred based on the estimated liability for compensation owed to indemnity holders. The Group’s own assessors individually assess claims.

The claims reserve includes an estimated portion of the direct expenses of processing the claims. Provision is also made for claims arising from indemnified events that occurred before the close of the accounting period, but which had not been reported to the Group by that date, also referred to as incurred but not reported (IBNR) provisions. Whilst the directors consider that the gross reserve is fairly stated on the basis of the information currently available to them, the ultimate liability may vary as a result of subsequent information and events and may result in significant adjustments to the amounts provided. The methods used to calculate the reserve, and the estimates made, are reviewed regularly.

Claims incurred consist of claims and claims handling expenses paid during the financial year. The movement in the provision for outstanding claims is disclosed separately in the notes to the financial statements.

RECEIVABLES AND PAYABLES RELATED TO INDEMNITY CONTRACTS

Receivables and payables are recognised when due. These include amounts due to and from indemnity contract holders and are included under receivables and payables. If there is objective evidence that the indemnity receivable is impaired, the Group reduces the carrying amount of the premium receivable accordingly and recognises the impairment loss in profit or loss. The Group gathers the objective evidence that an indemnity receivable is impaired using the same process adopted for loans and receivables. The impairment loss is calculated under the same method used for loans and receivables.

SALVAGE REIMBURSEMENT

The indemnity contracts require the indemnified party to make all reasonable efforts to recover as much of the loss as possible and to refund the Group its proportionate share of the claim recovered. Estimates of these salvage recoveries are included as an allowance in the measurement of the indemnity liability for claims. The allowance is the assessment of the Group’s share of the amount that can be recovered from the action against the liable third party.

LIABILITY ADEQUACY TEST

At each reporting date, liability adequacy tests are performed to ensure the adequacy of the contract liabilities. In performing these tests, current best estimates of future contractual cash flows and claims handling and administration expenses are used. Any deficiency is immediately charged to profit or loss by establishing a provision for losses arising from liability adequacy tests (the unexpired risk provision).

THE ULTIMATE LIABILITY ARISING FROM CLAIMS MADE UNDER INDEMNITY CONTRACTS

The estimation of the ultimate liability arising from claims made under indemnity contracts is one of the Group’s most critical accounting estimates. Several sources of uncertainty have to be considered in estimating the liability that the Group will ultimately be exposed to for such claims. The risk environment can change quickly and unexpectedly owing to a wide range of events or influences. The Group is constantly refining the tools with which it monitors and manages risk to place the Group in a position to assess risk situations appropriately, despite the greatly increased pace of change. The growing complexity and dynamism of the environment in which it operates means that there are natural limits, however. There cannot and never will be absolute security when it comes to identifying risks at an early stage, measuring them sufficiently, or correctly estimating their real hazard potential.

1.8.3 Offsetting of Financial Instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a Company of similar transactions such as in the Company’s trading activity.

1.8.4 Share Capital

Share capital consists of ordinary shares and is classified as equity. Issued share capital is measured at the fair value of the proceeds received less any directly attributable issue costs. An amount equal to the par value of the shares issued is presented as share capital.

Annual Report 2014

75

1.9 Impairment of Assets

IMPAIRMENT OF FINANCIAL ASSETS CARRIED AT AMORTISED COST

The Group assesses whether there is objective evidence that a financial asset or group of financial assets not carried at fair value is impaired at each reporting date. A financial asset or group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Impairment losses are recognised in profit or loss and reflected in an allowance account against loans and advances.

Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Group about the following loss events:

• Significant financial difficulty of the issuer or obligor ;

• A breach of contract, such as default or delinquency in interest or principal payments;

• The Group granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty, a concession that the lender would not otherwise consider ;

• It becoming probable that the borrower will enter bankruptcy or other financial re‐organisation;

• The disappearance of an active market for that financial asset resulting in financial difficulties;

• Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the Group.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, referred to as specific impairments, and individually or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group (portfolio) of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

The amount of specific impairments raised is the amount needed to reduce the carrying value of the asset to the present value of the expected ultimate cash flows, taking into consideration the financial status of the underlying client and any security in place for the recoverability of the financial asset.

The recoverable amount of the asset is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition of the asset).

Any increase in the fair value after an impairment loss has been recognised is treated as a revaluation and is recognised directly in other comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified as available‐for‐sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss.

IMPAIRMENT OF NON‐FINANCIAL ASSETS

The carrying amounts for the Group’s non‐financial assets, other than deferred tax assets and investment properties, are reviewed at each reporting date to determine whether there is any indication of impairment. If such indication exists, the asset’s recoverable amount is estimated.

The recoverable amount of non‐financial assets is the greater of fair value less cost of disposal and its value in use. Fair value less cost of disposal is the amount obtainable from the sale of an asset or cash‐generating unit in an orderly transaction between market participants at the measurement date, less the costs of disposal. In assessing value in use, the expected future cash flows from the asset are discounted to their present value using a pre‐tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash‐generating unit to which the asset belongs.

Annual Report 2014

76

An impairment loss is recognised whenever the carrying amount of an asset or its cash‐generating unit exceeds its recoverable amount. An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in profit or loss. The recoverable amount for intangible assets that have an indefinite useful life or intangible assets that are not yet available‐for‐use is estimated at each reporting date.

Impairment losses recognised in the prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists.

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount and only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

1.10 Intangible Assets

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amor-tisation is recognised on a straight‐line basis over their estimated useful lives.

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.

AMORTISATION

Amortisation is recognised in profit or loss on a straight‐line basis, based on the estimated useful lives of the underlying assets. Amortisation is calculated on the cost less any impairment and expected residual value. The estimated useful lives for the current and comparative periods are as follows:

• computer software: 3 ‐ 4 years• intellectual property: 3 years

The residual values, useful lives and amortisation methods are re‐assessed at each financial year‐end and adjusted if appropriate, with the effect of any changes in estimate being accounted for on a prospective basis.

1.11 Goodwill

All business combinations are accounted for by applying the acquisition method. Goodwill acquired in a business combination is initially measured at cost, being thedifference between the fair values of the consideration of the business combination over the interest of sefa in the fair value of the net identifiable assets acquired.

The recoverable amount for goodwill is estimated at each reporting date. Impairment losses are recognised in profit or loss. Impairment losses relating to goodwill are not reversed.

Gain on bargain purchase arising on acquisition is recognised directly in profit or loss. Goodwill is subsequently stated at cost less any accumulated impairment losses. Goodwill that is allocated to cash‐generating units is tested annually for impairment or more frequently if events or changes in circumstances indicate that it might be impaired.

Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

1.12 Investment Property

Investment property is property held to earn rental income or for capital appreciation or for both.

Annual Report 2014

77

MEASUREMENT

Investment property is measured initially at cost, including transaction costs and directly attributable expenditure in preparing the asset for its intended use. Subsequently, all investment properties are measured at fair value.

Valuation takes place annually, based on the aggregate of the net annual rental receivable from the properties, considering and analysing rentals received in similarproperties in the neighbourhood, less associated costs (insurance, maintenance, repairs, and management fees). A capitalisation rate that reflects the specific risks inherent in the net cash flows is applied to the net annual rentals to arrive at the property valuations.

The fair value of undeveloped land held as investment property is based on comparative market prices after intensive market surveys.

Gains or losses arising from a change in fair value are recognised in profit or loss.

External, independent valuators having appropriate, recognised professional qualifications and recent experience in the location and category of the property being valued, perform valuations on the portfolio every three years.

Gain or loss on the disposal of investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit and loss.

1.13 Non‐current Assets Held for Sale

Non‐current assets, or disposal groups comprising assets and liabilities, are classified as held‐for‐sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.

MEASUREMENT

Immediately before classification as held‐for‐sale, the measurement of the assets (and all assets and liabilities in a disposal group) is brought up‐to‐date in accordance with the applicable IFRS. Then, on initial classification as held‐for‐sale, the non‐current assets and disposal groups are recognised at the lower of carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is first allocated to goodwill and then to remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets and investment property, which continue to be measured in accordance with the Group’s accounting policies.

Impairment losses on initial classification as held‐for‐sale or held‐for‐distribution and subsequent gains and losses on re‐measurement are recognised in profit or loss.

Once classified as held‐for‐sale, intangible assets and property, plant and equipment are no longer amortised or depreciated, and any equity‐accounted investee is no longer equity accounted.

RECLASSIFICATION

The non‐current asset held‐for‐sale will be reclassified immediately when there is a change in intention to sell. At that date, it will be measured at the lower of: its carrying amount before the asset was classified as held‐for‐sale, adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset not been classified as held‐for‐sale; and its recoverable amount at the date of the subsequent decision not to sell.

1.14 Equipment, Furniture and other Intangible Assets

MEASUREMENT

All items of equipment, furniture and other intangible assets recognised as assets are initially measured at cost. Cost includes expenditures that are directly attributable to the acquisition of the asset. All items of equipment, furniture and other intangible assets are subsequently measured at cost less accumulated depreciation and any accumulated impairment losses.

Where parts of an item of equipment, furniture and other intangible assets have significantly different useful lives, they are accounted for as separate items of equipment, furniture and other intangible assets. Although individual components are accounted for separately, the financial statements continue to disclose a single asset.

Annual Report 2014

78

Gains and losses on disposal of an asset are determined by comparing the proceeds from disposal with the carrying amount of the asset and are recognised in profit or loss within “other income.”

SUBSEQUENT COSTS

The Group recognises the cost of replacing part of such an item of equipment, furniture and other intangible assets in the carrying amount of the item when that cost is incurred and if it is probable that future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the part that is replaced is derecognised. All other costs are recognised in profit or loss as an expense as they are incurred.

DEPRECIATION

Depreciation is recognised in profit or loss on a straight‐line basis, based on the estimated useful lives of the underlying assets. Depreciation is calculated on the cost less any impairment and expected residual value. The estimated useful lives for the current and comparative periods are as follows:

• Computer equipment 3 ‐ 4 years• Office equipment: 4 ‐ 6 years• Furniture and fittings: 5 ‐ 6 years• Motor vehicles: 5 years• Leasehold improvements: 7 years

The residual values, useful lives and depreciation method are re‐assessed at each financial year‐end and adjusted if appropriate.

Derecognition

The carrying amount of items of equipment, furniture and other intangible assets are derecognised on disposal, or when no future economic benefits are expected from their use or disposal.

Gains or losses arising from derecognition are determined as the difference between the net disposal proceeds and the carrying amount of the item of equipment, furniture and other intangible assets and included in profit or loss when the items are derecognised.

1.15 Leases

Operating leases

Leases of assets under which the lessor effectively retains substantially all the risks and benefits of ownership are classified as operating leases.

Operating leases – Group as lessee

Lease payments arising from operating leases are recognised in profit or loss on a straight‐line basis over the lease term.Lease incentives received are recognised in profit or loss as an integral part of the total lease expense.

Operating leases – Group as lessor

Receipts in respect of operating leases are accounted for as income on the straight‐line basis over the period of the lease.The assets subject to operating leases are presented in the statement of financial position according to the nature of the assets.

Determining whether an arrangement contains a lease

At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Group the right to control the use of the underlying asset.

Annual Report 2014

79

At inception or upon re‐assessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Group’s incremental borrowing rate.

1.16 Cash and Cash Equivalents

For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held on call with banks, and investments in money market instruments and bank overdrafts, all of which are available for use by the Group unless otherwise stated. Cash and cash equivalents are available within three months.

Cash and cash equivalents are carried at amortised cost in the statement of financial position.

1.17 Provisions

Provisions are recognised when:

• The Group has a present obligation as a result of a past event;• It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation;• A reliable estimate can be made of the obligation;

The amount of a provision is the present value of the expenditure expected to be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre‐tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

Where some or all of the expenditure that is 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.

A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for.

After their initial recognition, contingent liabilities identified in business combinations that are separate are subsequently measured at the higher of:

• The amount that would be recognised as a provision;• The amount initially recognised less cumulative amortisation.

1.18 Contingent Liabilities and Commitments

CONTINGENT LIABILITIES

A contingent liability is a possible obligation that arises from past events, and whose existence will be confirmed only by the occurrence, or non‐occurrence of one or more uncertain future events not wholly within the control of the Group.

Contingent liabilities are not recognised in the statement of financial position of the Group but disclosed in the notes.

COMMITMENTS

Items are classified as commitments where the Group has committed itself to future transactions.

Annual Report 2014

80

1.19 Taxation

INCOME TAX

Income tax expenses comprise current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in other comprehensive income or equity.

DEFERRED TAX

Deferred tax is recognised in respect of all temporary differences arising between the carrying amount of assets and liabilities in the financial statements and thecorresponding tax bases used in the computation of taxable income.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which unused tax deductions can be utilised.Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax will be realised.Deferred tax is not recognised if the temporary differences arise from:

• The initial recognition of goodwill;• The initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither taxable income nor accounting

profit or loss.

Temporary differences relating to investments in associates, subsidiaries and joint ventures that differ to the extent that it is probable that they will not reverse in the near future, and when the timing of the reversal of the temporary difference is controlled.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax is charged or credited in profit or loss, except when it relates to items credited or charged to other comprehensive income or directly to equity, in which case the deferred tax is also recognised in other comprehensive income or equity.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. For this purpose, the carrying amount of investment property measured at fair value is presumed to be recovered through sale, and the Group has not rebutted this presumption.

CURRENT TAX

Current tax is the expected tax payable or receivable on the taxable income or loss for the year. It is measured using tax rates enacted or substantively enacted at the reporting date. Current taxes are recognised as income or an expense and included in profit or loss 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, in other comprehensive income or in equity.

Current tax also includes any adjustment to tax payable in respect of previous years when necessary.

1.20 Revenue

Revenue comprises net invoiced indemnity premiums, dividends, interest, rental income and management fee income, but excludes value‐added‐tax, and is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates.

Annual Report 2014

81

INDEMNITY PREMIUMS

Indemnity premiums earned is included in revenue and comprise the premiums on contracts entered into during the year, irrespective of whether they relate in whole or in part to a later accounting period. Indemnity premiums earned include adjustments to premiums written in prior accounting periods and estimates for ‘pipeline premiums’ (premiums written relating to the current accounting period but not reported by the reporting date). Premiums are earned from the date the risk attaches, over the indemnity period, based on the pattern of the risk underwritten.

DIVIDENDS

Dividend income is recognised in the statement of comprehensive income on the date the Group’s right to receive payment is determined. Capitalisation shares received are not recognised as income.

INTEREST

Interest income is recognised in the statement of comprehensive income using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset (or, where appropriate, a shorter period) to the carrying amount of the financial asset. The effective interest rate is established on initial recognition of the financial asset and is not revised subsequently.

FEES

• Income earned on the execution of a significant act is recognised when the significant act has been performed.• Income earned from the provision of services is recognised as the service is rendered by reference to the stage of completion of the service.

Income that forms an integral part of the effective interest rate of a financial instrument is recognised as an adjustment to the effective interest rate and recorded in interest income.

GRANTS RECEIVED FROM DONORS

Donor funding is recognised at its fair value where there is reasonable assurance that the funding will be received and the Group will comply with all attached conditions.

Funding relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs for which they are intended to compensate and is included in trade and other payables.

GOVERNMENT GRANTS

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Government grants whose primary condition is that the Group should purchase, otherwise acquire non‐current assets are recognised as deferred revenue in the statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable.

RENTAL

See policy on leases.

Annual Report 2014

82

1.21 Borrowing Costs

Borrowing costs are expensed in the period in which they are incurred, except to the extent that they are capitalised when directly attributable to the acquisition.

1.22 Employee Benefits

SHORT TERM EMPLOYEE BENEFITS

Short‐term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short‐term cash bonus or profit‐sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

DEFINED CONTRIBUTION PLAN

The Group has a provident fund scheme, which is a defined contribution plan. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further amounts. Contributions to defined contribution plans are recognised as an employee benefit expense in profit or loss in the year to which they relate.

DEFINED BENEFIT PLANS

The Group has a post‐retirement medical obligation, which is classified as a defined benefit plan. A defined benefit plan is post‐employment benefit plans other than defined contribution plans.

The Group’s net obligation in respect of the defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.

The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in the future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.

Re‐measurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income (OCI). The Group determines the net interest expense (or income) on the net defined benefit liability (or asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then‐net defined benefit liability (or asset), taking into account any changes in the net defined benefit liability (or asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.

1.23 Determination of Fair Values

A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non‐financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

Annual Report 2014

83

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived

from prices)• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

If the inputs used to measure the fair value of an asset or liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

INVESTMENT PROPERTY AND INVESTMENT PROPERTY HELD‐FOR‐SALE

Valuation methods and assumptions used in determining the fair value of investment property and investment property held‐for‐sale:

CAPITALISATION METHOD

The sefa property portfolio is mostly made up of Income producing properties, with the result that the Income Capitalisation method has been adopted for thedetermination of value. The value of the property reflects the present value of the sum of the future benefits which an owner may expect to derive from the property. These benefits are expressed in monetary terms and are based upon the estimated rentals such a property would fetch, i.e. the market‐related rental between a willing landlord and tenant. The usual property outgoings are deducted to achieve a net rental, which is then capitalised at a rate an investor, would require receiving the income.

COMPARATIVE METHOD

Of the entire portfolio, two properties are Sectional Title in nature and one comprises of vacant land. These properties have been valued on the Direct Comparison Basis, as this is how they trade in the open market. The method involves the identification of comparable properties sold in the area or in a comparable location within a reasonable time. The selected comparable properties are analysed and compared with the subject property.

Adjustments are then made to their values to reflect any differences that may exist. This method is based on the assumption that a purchaser will pay an amount equal to what others have paid or are willing to pay.

1.24 Critical Accounting Policies and Judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition rarely equal the related actual results. Theestimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below:

INCOME TAXES

Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Annual Report 2014

84

DEFERRED TAX ASSET

Deferred tax assets are recognised to the extent that it is probable that taxable income will be available in the future against which it can be utilised.

FAIR VALUE OF FINANCIAL ASSETS

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses its judgement to makeassumptions that are mainly based on market conditions existing at each reporting date.

Unlisted equities are valued based on various valuation methods, including free cash flow, price earnings (PE) and net asset value (NAV) bases. Judgement and assumptions in the valuations and impairments include:

• Free cash flows of investees• Replacement values• Determining the discount or premium applied to sefa’s stake in investees• Sector/sub‐sector betas• Debt weighting – this is the target interest‐bearing debt level• Determining the realisable value of assets• Probabilities of failure in using the NAV model

IMPAIRMENT OF NON‐FINANCIAL ASSETS

The Group follows the guidance of IAS 36: Impairment of Assets, to determine when an asset is impaired. This determination requires significant judgement. In making this judgement, the Group evaluates the impairment indicators that could exist at year‐end.

IMPAIRMENT OF FINANCIAL ASSETS

The Group follows the guidance of IAS 39: Financial Instruments: Recognition and Measurement in assessing specific and collective impairment. The Group assess available information for indications of impairment. Management’s judgement is required to establish whether current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by impairment indications identified.

CLASSIFICATION OF JOINT ARRANGEMENTS

The Group follows the guidance of IFRS 11: Joint Arrangements in assessing the classification of the arrangement or partnership. In making this judgement, the Group evaluates the agreement as it is at year‐end.

POST‐RETIREMENT MEDICAL LIABILITY

The actuarial method used to value the post‐retirement liability is the Projected Unit Credit Method prescribed by IAS 19. Future benefits valued are projected using specific actuarial assumptions and the liability for in‐service members is accrued over expected working lifetime.

Annual Report 2014

85

Group - 2014

Loans and receivables

Cost less impairment*

Other amortised cost

Total

R'000 R'000 R'000 R'000

Assets

Loans and advances 479,363 - - 479,363

Investments - 18,189 - 18,189 Trade and other receivables 29,370 - - 29,370

Cash and cash equivalents 715,208 - - 715,208 1,223,941 18,189 - 1,242,130

Liabilities

Trade and other payables - - 135,092 135,092

Total Financial Assets and Liabilities 1,223,941 18,189 135,092 1,377,222

2. Financial Assets and Liabilities

The table below sets out the Group and the Company's classification of each class of financial assets and liabilities, and their fair values:

Group - 2013




Total

R'000 R'000 R'000 R'000

Assets


Investments - 26,409 - 26,409

Trade and other receivables 20,579 - - 20,579

Cash and cash equivalents 909,998 - - 909,998

1,233,637 26,409 - 1,260,046

Liabilities


Total Financial Assets and Liabilities 1,233,637 26,409 136,784 1,396,830

* Any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is stated at its cost, including transaction costs, less impairment.

The carrying values of financial assets and liabilities approximate the fair values shown in the statement of financial position, for more detail refer to note 3.

Annual Report 2014

Company - 2014




Total

R'000 R'000 R'000 R'000

Assets


Investments - 18,189 - 18,189



1,002,132 18,189 - 1,020,321

Liabilities


Total financial assets and liabilities 1,002,132 18,189 100,480 1,120,801

86

Company - 2013



Other amortisedcost

Total

R'000 R'000 R'000 R'000

Assets


Investments - - - -



1,042,314 - - 1,042,314

Liabilities


Total financial assets and liabilities 1,042,314 - 101,911 1,144,225

* Any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is stated at its cost, including transaction costs, less impairment.

Annual Report 2014

87

3. Financial Risk Management

The Group has exposure to the following risks from its use of financial instruments:

• Operational risk• Credit risk• Liquidity risk• Market risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these financial statements.

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established the Audit & Enterprise Risk Committees, which are responsible for developing and monitoring the Group’s risk management policies. The committees report regularly to the Board of Directors on their activities.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Enterprise Risk Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and review the adequacy of the risk management framework in relation to the risks faced by the Group. The Enterprise Risk Committee is assisted by Internal Audit function which undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit & Enterprise Risk Committees.

Operational Risk

Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. It is associated with human error, system failures and inadequate procedures and controls. Operational risk also includes legal risk, which arises when a transaction proves unenforceable in law, but excludes strategic and reputation risk.

Management has identified the following risks as sefa’s operational risks:

• Clients, products and business practices• Execution, delivery and process management• Employment practice & workplace safety• External and internal fraud and theft• Damage to physical assets• Business disruption and systems failure

Credit Risk

Credit risk is the risk of financial loss to the Group if a customer or counter‐party to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and investment securities.

LOANS AND ADVANCES AND TRADE AND OTHER RECEIVABLES

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry and the country, in which customers operate, is also taken into account. No significant percentage of the Group’s revenue can be contributed to transactions with one customer and there is no geographical concentration of credit risk.

Annual Report 2014

88

Risk Management has established a credit policy under which each new customer is analysed individually for creditworthiness before the Group will transact with the customer. The Group’s review includes external ratings, when available, due diligence exercises and in some cases, bank references.

Loans and advances are subject to comprehensive and substantial security clauses to protect the Group in the event of non‐payment.

All credit risk arises from normal operations of the Group, with the major credit risk arising from the Group’s receivables and loans and advances. The Investment Committee, established by the Board of Directors, reviews the Group’s loan book on an on‐going basis. All applications for credit are thoroughly scrutinised covering financial, technical and market risks. sefa, being a development finance institution, has a different risk profile compared to traditional commercial banks.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of receivables, loans and advances and investments. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment for similar assets.

INVESTMENTS

The Group limits its exposure to credit risk in respect of its money market transactions by only investing in funds that have approved high credit quality financial ratings and public sector institutions in accordance with predetermined limits approved by Executive Management and the Board. Money market investments are reflected as cash and cash equivalents.

Liquidity Risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk damage to the Group’s reputation.

Due to the nature of the business, the Group’s cash management process aims to maintain flexibility in funding by keeping committed credit lines available. Cash requirements and inflows are monitored by management to ensure that sufficient cash is available to meet all financial commitments including operational expenditure. Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot be reasonably predicted; such as natural disasters.

Market Risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The Group does not deal in derivatives.

Interest Rate Risk

Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates.

The Group’s income and operating cash flows are substantially dependent on changes in market interest rates and the Group has significant interest‐bearing assets. The Group’s policy is to maintain most of its investments in the form of money market instruments. Interest rate risk is limited to the Group’s investment in floating‐rate instruments such as deposits, negotiable certificates of deposits and banker’s acceptances as well as loans which are normally issued at rates linked to the prime interest rate. The investment management function has been outsourced to Andisa Capital Proprietary Limited and the Industrial Development Corporation. Regular management and Board sub‐committee meetings are held in order to review sefa’s interest rate view, which would affect the level of interest rate risk taken in respect of surplus funds.

Money market investments are reflected as cash and cash equivalents.

Annual Report 2014

89

Capital Management

The Board’s policy is to achieve a capital base that will ensure the long term sustainability of sefa and monitors progress towards this goal so as to maintain shareholder, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors return on capital, which the Group defines as net operating income divided by total shareholders’ equity.

The Board seeks to maintain a balance between sustainable returns and its developmental mandate. There were no changes in the Group’s approach to capital management during the year. A subsidiary, Khula Credit Guarantee Limited is subject to capital requirements imposed on it by the Financial Services Board in terms of the Short‐term Insurance Act 53 of 1998. Neither the company nor any of its other subsidiaries are subject to externally imposed capital requirements.

The Group recognises equity and reserves as capital. For statutory purposes share capital consists of ordinary shares. Ordinary shares are reflected as equity under share capital. The Group’s objectives when managing capital are:

• To comply with capital requirements required for insurers as determined by the Short‐term Insurance Act, 53 of 1998; and• To safeguard the Group’s ability to continue as a going concern so that it can provide returns for the shareholder and benefits for other stakeholders.

Khula Credit Guarantee Limited submits quarterly and annual returns to the Financial Services Board in terms of the Short‐term Insurance Act, 53 of 1998. The Company is required at all times to maintain a statutory surplus asset ratio as defined in the Short‐term Insurance Act, 53 of 1998. The returns submitted to the regulator showed that the Company had a deficit regarding the minimum capital requirements throughout the year as the asset spreading did not meet the minimum requirements. This has been partly addressed in the current year by opening additional bank accounts and will be fully addressed in the new year.

Indemnity Risk

The Group issues indemnity contracts that transfer insurance risk. The Board and executive committee manage the indemnity risk according to the Group’s risk appetite.

The risk under any one indemnity contract is the likelihood that the indemnified event will occur, and the uncertainty of the amount of the resulting claims. For a portfolio of indemnity contracts where the theory of probability is applied to provisioning, the principle risk that the Group faces is that the actual claims and benefit payments will exceed the carrying amount of the indemnity liabilities. By the very nature of an indemnity contract, the risk is random and therefore unpredictable. Changing risk parameters and unforeseen factors, such as economical and geographical circumstances, may result in unexpectedly large claims. Indemnified events are random and from one year to the next and the actual number of claims will vary from the estimate established by means of statistical techniques.

The net claims ratio for the company, which is important in monitoring indemnity risk, has developed as follows over the past 5 years:

Factors that aggravate indemnity risk include lack of risk diversification in terms of type and amount of risk and geographical location covered. Experience shows that the larger the portfolio of similar indemnity contracts, the smaller the relative variability about the expected outcome will be, therefore a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Group only underwrites indemnity contracts in South Africa.

The Group does not have the right to re‐price and change the conditional risks on renewal of individual indemnities.

The Group establishes a provision for claims using independent actuarial methods.

2014 R'000

2013 R'000

2012 R'000

2011 R'000

2010 R'000

Loss historyClaims paid and provided % 140% 19% 34% 389% 248%

* Expressed as a percentage of gross indemnity fees written

Annual Report 2014

90

Limiting Exposure to Indemnity Risk

The Group limits its exposure to indemnity risk through setting a clearly defined underwriting strategy and limits and adopting appropriate risk assessment techniques. Each of these risk management aspects is dealt with below in more detail.

(i) Underwriting Strategy and Limits and Policies for Mitigating Indemnity RiskThe Group’s underwriting strategy seeks diversity to ensure a balanced portfolio of indemnity risks. To this end the Group underwrites a wide varie-ty of risks spread across financial and commercial indemnity holders, which includes the underwriting of risks in niche markets with favourable claims expectations.

On an annual basis the Group prepares an underwriting budget that is based on the underwriting strategy to be followed in the next 3 years. The underwriting strategy is updated for changes in the underwriting results of the Group and the industry, the Group’s available risk capital, its developmental mandate as well as existing concentrations of indemnity risk.

(ii) Risk AssessmentThe Group relies on a rigorous process followed by the indemnified parties before they propose and accept a specific indemnity risk. Some of the factors con-sidered during the underwriting stage include:

• past loss experience associated with the proposed risk;• indemnifiable interest;• probability of success;• level of mitigation procedures adopted by the proposed indemnified;• location of the proposed risk;• past and proposed rating terms of the risk;• scope and terms of cover considered;• results of surveys completed, where applicable; and• possible variations that may be applied to the risks indemnified.

Concentration of Indemnity Risks

The Group’s insurance portfolio consists of indemnity risks. The concentration of indemnity risks is managed by different levels of diversification mainly through the financial institutions that are underwritten and the geographical areas in which the risks are situated, with single risks spread across all areas of the country.

Annual Report 2014

Group

2014 2013

R'000 Loans and advances

R'000 Investments


R'000 Investments

Agriculture, forestry and fishing 47,774 - 54,942 -

Basic chemicals 207 - 227 -

Beverages 4,801 - 216 -

Building construction 61,225 - 12,274 -

Business services 1,180 - 4,704 -

Catering and accommodation services 5,850 - 3,482 -

Communication 1,429 - 724 -

Electricity, gas and steam 2,491 - 3,626 -

Finance and insurance 1,426 18,189 188,268 26,409

Food 4,975 - 2,344 -

Machinery and equipment 1,789 - 199 -

Medical, dental and other health and veterinary services 3,350 - 4,591 -

Motor vehicles, parts and accessories 2,600 - 507 -

Non-metallic minerals 2,403 - 2,243 -

Other community, social and personal services 1,669 - 220 -

Other chemicals and man-made fibres 131 - 129 -

Other services 72,233 - 5,098 -

Other industries 15,502 - - -

Other mining 183 - - -

Paper and paper products 115 - 138 -

Plastic products 443 - 694 -

Printing, publishing and recorded media 1,790 - 3,087 -

Professional and scientific equipment - - 321 - Television, radio and communication equipment 582 - 747 -

Textiles 1,139 - 48 -

Transport and storage 11,754 - 2,623 - Wearing apparel 2,085 - 2,066 -

Wholesale and retail trade 229,663 - 8,550 -

Wood and wooden products 574 - 992 -

479,363 18,189 303,060 26,409

91

Sector analysis at carrying value: Loans and advances and investments

Annual Report 2014

92

Company

2014 2013


R'000 Investments


R'000 Investments

Agriculture, forestry and fishing 242 - - -

Beverages 4,566 - - -

Building construction 61,446 - 10,701 - Business services - - 3,688 - Catering and accommodation services 5,271 - 205 - Electricity, gas and steam 898 - 711 - Finance and insurance 1,426 18,189 188,268 26,409 Food 3,211 - - -

Machinery and equipment 1,789 - - -

Medical, dental and other health and veterinary services 3,239 - 3,745 - Motor vehicles, parts and accessories 2,403 - 63 - Non-metallic minerals - - 1 - Other community, social and personal services 391 - 1 - Other chemicals and man-made fibres - - 1 - Other services 72,179 - 1,118 - Other industries 12,566 - - - Other mining 183 - - - Printing, publishing and recorded media - - 886 - Professional and scientific equipment - - 241 - Textiles 1,139 - - - Transport and storage 4,817 - - - Wholesale and retail trade 211,410 - 1,947 - Wood and wooden products 236 - - -

387,412 18,189 211,576 26,409

Annual Report 2014

93

Group

2014 2014

R'000 R'000 R'000 R'000

Loans and advances

Investments Loans and advances

Investments

Credit risk exposure Company

Individually impaired 210,014 18,189 183,209 18,189 Past due but not impaired 211,329 - 202,541 - Neither past due nor impaired 58,020 - 1,662 - Total carrying value 479,363 18,189 387,412 18,189

Individually impaired

Low risk client 218,903 - 211,945 - Medium risk client 28,038 57,002 3,462 57,002 High risk client 113,732 5,000 73,980 5,000

Gross amount 360,673 62,002 289,387 62,002 Allowance for impairment (150,659) (43,813) (106,178) (43,813)

Carrying amount 210,014 18,189 183,209 18,189

Past due but not impaired

Low risk client 203,072 - 197,771 - Medium risk client 6,776 - 4,770 - High risk client 1,481 - - - Carrying amount 211,329 - 202,541 - Past due but not impaired comprises:

0 - 30 days 190,158 - 189,316 - 31 - 60 days 401 - - - 61 - 90 days 850 - - - 91 - 120 days 591 - - - 120 days + 19,329 - 13,225 - Carrying amount 211,329 - 202,541 -

Neither past due nor impaired

Low risk client 63,736 - 11,939 -

Medium risk client 4,012 - - -

High risk client 567 - 18 -

Carrying amount 68,315 - 11,957 -

Portfolio impairment (10,295) - (10,295) -

Total carrying amount 58,020 - 1,662 -

Annual Report 2014

94

Group

2013 2013

R'000 R'000 R'000 R'000

Loans and advances

Investments Loans and advances

Investments

Credit risk exposure Company

Individually impaired 65,369 26,409 43,277 26,409

Past due but not impaired 15,724 - 5,315 - Neither past due nor impaired 221,967 - 162,984 - Total carrying value 303,060 26,409 211,576 26,409

Individually impaired

Low risk client 4,781 - - - Medium risk client 70,578 67,880 51,252 67,880

High risk client 223,057 5,000 189,013 5,000

Gross amount 298,416 72,880 240,265 72,880

Allowance for impairment (233,047) (46,471) (196,988) (46,471)

Carrying amount 65,369 26,409 43,277 26,409

Past due but not impaired

Low risk client 10,410 - 4,704 - Medium risk client 5,303 - 611 - High risk client 11 - - - Carrying amount 15,724 - 5,315 - Past due but not impaired comprises:

0 - 30 days 6,283 - 4,439 - 31 - 60 days 704 - 90 - 61 - 90 days 1,697 - 13 - 91 - 120 days 847 - 10 - 120 days + 6,193 - 763 -

Carrying amount 15,724 - 5,315 - Neither past due nor impaired

Low risk client 211,795 - 160,224 - Medium risk client 9,771 - 2,760 - High risk client 401 - - - Carrying amount 221,967 - 162,984 - Portfolio impairment - - - - Total carrying amount 221,967 - 162,984 -

Low risk - no impairment triggers exist Medium risk - impairment triggers exist, debtor responding to legal action - recovery likely High risk - impairment triggers exist, debtor not responding to legal action - recovery not likely

Annual Report 2014

95

Credit Quality of Loans Neither Past due nor Impaired

The Group has every reason to believe that the underlying debtors have the ability and intention to repay these loans and that the likelihood of default is low..

Collateral Held

Collateral is normally taken on all loans and ranges from cessions over moveable and immoveable assets to personal surety.Due to the nature of the business of sefa, the value of collateral held is low compared to the carrying value of the related loans.

Liquidity Risk Exposure

The following are the remaining contractual maturities at the end of the reporting period of recognised and unrecognised financial liabilities, including estimated interest payments and excluding the impact of netting agreements:

Group

Carrying valueR'000

TotalR'000

Within 1 yearR'000

2 - 5 yearsR'000

More than 5yearsR'000

31 March 2014

Trade and other payables 53,929 53,929 53,929 - - Operating lease commitments - 37,721 7,822 29,148 751 Undrawn financing facilities approved - 104,522 104,522 - - Guarantees/indemnities issued to financial institutions ¹

11,141 11,141 11,141 - -

Off-balance sheet items

Undrawn guarantees/indemnities approved ²

- 66 66 - -

65,070 207,379 177,480 29,148 751

¹ Total guarantees/indemnities issued to financial institutions amount to R 69,295 million. However, it is not considered likely that the full balance indemnified will result in future outflows of cash. The calculations by external actuaries were used to calculate the liability recognised at year end and represents an estimate of possible future cash outflows within 1 year. It amounts to 16% required reserves of the total portfolio indemnified.

² Undrawn guarantees/indemnities approved amounts to R410 thousand. It is estimated that 16% of undrawn facilities may result in future claims. Due to the timing of these claims being uncertain, the full balance is allocated to the 1 year period.

Annual Report 2014

96

Group

Carrying valueR'000

TotalR'000

Within 1 yearR'000

2 - 5 yearsR'000

More than 5 yearsR'000 31 March 2013

Trade and other payables 53,281 53,281 53,281 - - Operating lease commitments - 37,285 5,395 13,786 18,104

Undrawn financing facilities approved - 275,916 275,916 - - Guarantees/indemnities issued to financial institutions ¹

17,529 17,529 17,529 - -

Off-balance sheet items

Undrawn guarantees/indemnities approved ²

- 1,242 1,242 - -

70,810 385,253 353,363 13,786 18,104 ¹ Total guarantees/indemnities issued to financial institutions amount to R 96,39 million. However, it is not considered likely that the full balance indemnified will result in future outflows of cash. The calculations by external actuaries were used to calculate the liability recognised at year end and represents an estimate of possible future cash outflows within 1 year. It amounts to 18% required reserves of the total portfolio indemnified.

² Undrawn guarantees/indemnities approved amounts to R 6,802 million It is estimated that 18% of undrawn facilities may result in future claims. Due to the timing of these claims being uncertain, the full balance is allocated to the 1 year period.

31 March 2014 Company

Operating lease commitments - 37,721 7,822 29,148 751 Trade and other payables 19,313 19,313 19,313 - -

Undrawn financing facilities approved - 87,766 87,766 - - 19,313 144,800 114,901 29,148 751

31 March 2013 Company

Operating lease commitments - 37,285 5,395 13,786 18,104

Trade and other payables 18,409 18,409 18,409 - -

Undrawn financing facilities approved - 255,065 255,065 - - 18,409 310,759 278,869 13,786 18,104

Annual Report 2014

97

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

Interest Rate Risk

1,083,588 1,198,876 901,892 1,050,972

(163) - - -

1,083,425 1,198,876 901,892 1,050,972

At the reporting date the interest rate profile of the Group's interest-bearing financial instruments was:

Cash flow sensitivity analysis for variable rate instruments

A change in 100 basis points in the interest rates at the reporting date would have increased/(decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 2013.

10,834 11,989 9,019 10,510

(10,834) (11,989) (9,019) (10,510)

100 basis points increase

100 basis points decrease

Fair valuesFair values versus carrying amounts The fair value of financial assets approximate the carrying amounts shown in the statement of financial position due to the following reasons:

• The short‐term nature of many financial assets• Decreases in credit risk ratings result in impairments of loans• Loans are issued at rates linked to the prime interest rate

4. Cash and Cash Equivalents

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

194,382 110,814 115,452 82,302

520,826 799,184 473,940 726,465

715,208 909,998 589,392 808,767

Cash in bank and in hand

Cash managed by shareholder

Cash and cash equivalents are all current assets. Cash managed by the Industrial Development Corporation are immediately available as and when requested.

Variable rate instruments Financial assetsFinancial liabilities

Balance at the end of the year

Annual Report 2014

98

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

9,767 8,786 6,002 9,264

46,476 43,931 46,476 43,931

1,532 724 1,033 724

6,498 1,145 6,676 2,461

1,667 1,033 1,212 631

65,940 55,619 61,399 57,011

(35,038) (34,316) (35,038) (34,316)

30,902 21,303 26,361 22,695

5. Trade and Other Receivables

Trade receivables

Rental debtors

Pre‐payments

Related party loans (refer to note 32)

Staff loans

Trade and other receivables before bad debt provision

Bad debt provision on rental debtors

No trade and other receivables are pledged as security, and are all current assets.

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

640,316 536,211 503,885 408,564

(160,953) (233,151) (116,473) (196,988)

479,363 303,060 387,412 211,576

6. Loans and Advances

Loans and advances to clients

Impairments of loans and advances

Reconciliation of impairment of loans and advances

233,151 169,268 196,988 137,903

92,593 71,461 84,240 56,186

(164,791) (10,476) (164,755) -

- 2,898 - 2,899

160,953 233,151 116,473 196,988

Balance as at 1 April

Impairment charged for the year

Write offs

Acquisition of subsidiaries

Balance as at 31 March

Allowances for impairment

Annual Report 2014

99

Maturity of loans and advancesGroup Company

2014R'000

2013R'000

2014R'000

2013R'000

311,183 281,918 252,711 223,048

119,176 89,978 86,812 68,534

91,239 75,233 72,527 54,620

60,314 37,529 44,833 25,092

54,867 41,607 44,194 37,270

3,538 9,947 2,808 -

(160,954) (233,152) (116,473) (196,988)

479,363 303,060 387,412 211,576

• Due within 1 year

• Due after one year but within 2 years

• Due after two years but within 3 years

• Due after three years but within 4 years

• Due after four years but within 5 years

• Due after 5+ years

• Impairment of loans and advances

Loans and advances are both current and non‐current assets, balances recoverable within 12 months are current.

7. Investments Group Company

2014R'000

2013R'000

2014R'000

2013R'000

5,000 5,000 5,000 5,000

57,002 67,880 57,002 67,880

62,002 72,880 62,002 72,880

(5,000) (5,000) (5,000) (5,000)

(38,813) (41,471) (38,813) (41,471)

18,189 26,409 18,189 26,409

5,000 5,000 5,000 5,000

- - - -

5,000 5,000 5,000 5,000

41,471 33,913 41,471 33,913

(2,658) 7,558 (2,658) 7,558

38,813 41,471 38,813 41,471

Unlisted equities

Investment in En-Commandite partnership

Impairment of unlisted equities

Impairment of investment in En-Commandite partnership

Specific allowances for impairment - Unlisted equities


Write offs



Impairment loss for the year

- (Release)/charge for the year


Specific allowances for impairment - En-Commandite partnership

These investments do not have a quoted market price in an active market and their fair value cannot be reliably measured. They are therefore stated at cost, including transaction costs, less impairment. All investments are non‐current assets.

Annual Report 2014

100

8. Investments in Subsidiaries

Company

2014R'000

2013R'000

55,002 55,002

243,624 204,572

(127,974) (117,970)

170,652 141,604

Loans receivable

Impairment of loans

Unlisted shares in subsidiaries

Companies 2014

% interest 2013

% interestNature of activities

2014 Total company exposure before

impairmentsR'000


impairmentsR'000

Khula Credit Guarantee

Ltd 100% 100% Short term indemnities 55,002 55,185

New Cape Equity Fund

(Pty) Ltd 100% 100% Private equity funding 13,955 13,955

MKN Equity Fund (Pty)

Ltd 100% 100% Private equity funding 4,850 4,850

New Business Finance

(Pty) Ltd 100% 100% SME Financing 51,296 51,298

Khula Business Premises (Pty) Ltd

100% 100% Property rental - -

Khula Emerging

Contractors Fund 100% 100% SME Financing 20,394 20,394

Khula Akwandze Fund

(Pty) Ltd 75% 75% SME Financing 56,413 36,994

Identity Development

Fund Partnership 100% 100% SME Financing 48,753 29,532

Small Business Growth

Trust Fund 82% 81% SME Financing 22,963 22,366

The Khula-Enablis SME

Acceleration Fund 80% 80% SME Financing 25,000 25,000

298,626 259,574

All subsidiaries are incorporated in the Republic of South Africa and have the same reporting date as the holding company.

The companies classified as subsidiaries are all under the control of sefa, which has rights to the variable returns and has the ability to use its control to affect the amount of returns. The investments in subsidiaries are all non‐current assets.

Annual Report 2014

101

Group

2014R'000

2013R'000

4,435 10,110

(1,700) (5,848)

2,735 4,262

Losses

Profits

9. Investments in Associates

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

98,622 98,622 98,622 98,622

524,702 494,249 - -

17,937 12,043 17,937 12,043

- - (2,215) (1,683)

641,261 604,914 114,344 108,982

Unlisted shares in associates

Accumulated equity-accounted income, losses and impairments

Loans receivable

Impairment of loans

Company

Companies 2014

% interest 2013



impairmentsR'000


impairments R'000

Business Partners

Limited 21% 21% SME Financing 98, 622 98, 622

The Utho SME Infrastructure Fund ¹

49% 51% SME Financing 17, 937 12, 043

116, 559 110, 665

¹ Although the ownership interest in The Utho SME Infrastructure Fund is 49%, the voting interest is only 40%.

Annual Report 2014

102

Group

2014R'000

2013R'000

679,195 591,568

105,110 98,368

784,305 689,936

579,094 543,162

172,836 120,997

32,375 25,777

784,305 689,936

100,357 90,315

(66,980) (62,075)

33,377 28,240

The aggregate amounts attributable to sefa were as follows:

Statement of financial position

Non‐current assets

Current assets

Equity

Non‐current liabilities

Current liabilities

Statement of profit or loss and other comprehensive incomeRevenue

Expenses

There are no significant restrictions on the ability of the associates to transfer funds to sefa in the form of cash dividends or to repay loans advanced. There are no additional risks associated with sefa's investments other than impairment recognised and the risks identified in the financial risk management note. All investments in associates are non‐current assets.

10. Investments in Joint Ventures

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

21,662 24,000 - -

111,868 29,037 111,868 29,037

- - (22,660) (21,990)

133,530 53,037 89,208 7,047

Accumulated equity‐accounted income, losses and impairments

Loans receivable

Impairment of loans

Investments in joint arrangements were assessed and it was concluded that these agreements should be classified as joint ventures. In performing the assessment, the group considered the structure of the arrangements, the legal form of any separate vehicle, the contractual terms of the arrangements and other facts and circumstances.

Annual Report 2014

103

Companies 2014

% interest 2013



impairmentsR'000


impairments R'000

Anglo Khula Mining Fund (Pty) Ltd 50% 50%

Financing mining

activities 38,442 -

Izibulo SME Trust Fund 65% 65% SME Financing 21,728 21,728

sefa Awethu Youth Fund (Pty) Ltd

50% N/A SME Financing 45,046 -

Enablis Khula Loan Fund 40% 40% SME Financing 6,652 7,309

111,868 29,037

2014R'000

2013R'000

35,456 24,016

100,614 31,922

136,070 55,938

133,530 53,037

- 1,345

2,540 1,556

136,070 55,938

5,149 8,455

(6,333) (3,001)

(1,184) 5,454

The aggregate amounts attributable to sefa were as follows:

Statement of financial position

Non‐current assets

Current assets

Equity

Non‐current liabilities

Current liabilities

Statement of profit or loss and other comprehensive income

Revenue

Expenses

There are no significant restrictions on the ability of the joint ventures to transfer funds to sefa in the form of cash dividends or to repay loans advanced. There are no additional risks associated with sefa's investments other than impairment recognised and the risks identified in the financial risk management note. All investments in joint ventures are non‐current assets.

Annual Report 2014

104

11. Deferred Tax Assets and Liabilities

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

63 - 52 -

51 - 51 -

- 19,314 - 19,314

7,945 31,517 8,755 69,664

3,723 24,362 3,723 24,360

11,782 75,193 12,581 113,338

75,193 39,617 113,338 74,453

(63,411) 35,576 (100,757) 38,885

(65,874) 36,007 (103,220) 39,316

2,463 (431) 2,463 (431)

11,782 75,193 12,581 113,338

Composition of deferred taxation asset is as follows:

Equipment, furniture and other tangible assets

Other provisions

Tax loss

Fair value adjustments on investment property

Temporary differences recognised in profit and loss

• Current year

• Previous year

At end of the year

Income received in advance

Movement on the deferred taxation asset is as follows:

At beginning of the year

Unrecognised Deductible Temporary Differences, Unused Tax Losses and Unused Tax Credits

Deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax assets have been recognised are attributable to the following:

158, 205 16, 751 142, 939 - Tax losses (Revenue in nature)

Annual Report 2014

105

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

(136) (163) (136) (163)

(11,405) (15,465) (12,445) (16,191)

(11,541) (15,628) (12,581) (16,354)

(15,628) (13,225) (16,354) (13,580)

4,087 (2,403) 3,773 (2,774)

4,087 (2,403) 3,773 (2,774)

- - - -

(11,541) (15,628) (12,581) (16,354)

Composition of deferred taxation liability is as follows:

Debtor allowances

Prepaid expenses

Movement on the deferred taxation liability is as follows:

• Current year

Temporary differences recognised in profit and loss

• Previous year

At end of the year

At beginning of the year

12. Investment Properties

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

171,435 195,264 171,435 195,264

- (1,900) - (1,900)

(25,232) - (25,232) -

12,943 (21,929) 12,943 (21,929)

159,146 171,435 159,146 171,435

Opening carrying amount as at 1 April

Disposals

Reclassification to investment properties held‐for‐sale

Fair value adjustments

Closing balance as at 31 March

Investment properties are valued externally by independent valuators every three years. All investment properties were valued on 15 March 2014, bySpectrum Valuators (Proprietary) Limited. Investment properties are non‐current assets.

The fair value measurement for investment property of R12.9 million has been categorised as a Level 3 fair value based on the inputs to thevaluation technique used (refer to the accounting policy: Determination of fair values).

The following summarises the valuation technique used in measuring the fair value of investment properties, as well as the significant unobservable inputsused:

Annual Report 2014

106

Valuation Technique

Income capitalisation method and direct comparison basis: sefa's property portfolio consists mainly of income producing properties. This is the fundamental basis on which the valuation of investment properties is determined. Investment properties produce a perpetual income stream and the capitalisation of such net revenue flow is an accurate means of determining the value. Included in the portfolio, are two properties which are sectional title in nature and one comprises of vacant land. These properties have been valued on the direct comparison basis.

Highest Lowest Average

33% 2% 11%

17% 10% 13%

Significant unobservable inputs

• Budgeted capital expenditure growth rate

• Capitalisation percentage

Inter‐relationship between key unobservable inputs and fair value measurement:

The estimated fair value would increase /(decrease) if:

• Budgeted capital expenditure growth were higher/(lower)• Capitalisation percentage were increased/(decreased)

13. Investment Properties Held-for-Sale

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

- - - -

25,232 - 25,232 -

335 - 335 -

25,567 - 25,567 -

Opening carrying amount as at 1 April

Reclassification to investment properties held‐for‐sale

Fair value adjustment


On 20 November 2013, the Board of Directors approved the sale of certain properties in the property portfolio. Investment properties held‐for‐sale are current assets.

Purchase offers for fourteen of the sixteen properties reclassified for sale has been concluded and are awaiting registration at the Deeds Office. The remaining two properties are in the process of sales negotiations.

Annual Report 2014

107

14. Equipment, Furniture and Other Tangible Assets

All equipment, furniture and other tangible assets are non‐current assets.

Group Company

Cost R'000

Accumulated depreciation

and impairment

R'000

Carrying value R'000

Cost R'000


and impairment

R'000


2014

Motor vehicle 354 336 18 309 309 -

Computer equipment 9,202 7,321 1,881 9,051 7,203 1,848

Office equipment 3,392 2,347 1,045 3,377 2,332 1,045

Furniture and fittings 5,642 2,516 3,126 5,504 2,414 3,090

Lease improvements 7,104 1,539 5,565 7,105 1,539 5,566

25,694 14,059 11,635 25,346 13,797 11,549

2013

Motor vehicle 518 411 107 472 384 88

Computer equipment 8,819 6,689 2,130 8,669 6,594 2,075

Office equipment 3,289 1,979 1,310 3,274 1,963 1,311

Furniture and fittings 6,077 2,349 3,728 5,938 2,259 3,679

Lease improvements 5,715 589 5,126 5,716 589 5,127

24,418 12,017 12,401 24,069 11,789 12,280

Annual Report 2014

108

Group

Motor vehicles R'000

Computer equipment

R'000

Office equipment

R'000

Furniture and fittings R'000

Lease improvements

R'000Total R'000

2014

Carrying value as at 1 April 2013 107 2,130 1,310 3,728 5,126 12,401

Additions - 826 104 236 1,389 2,555

Disposals (77) (13) - (1) - (91)

Depreciation charges (12) (1,062) (369) (837) (950) (3,230)

Carrying value as at 31 March 2014 18 1,881 1,045 3,126 5,565 11,635

2013 Carrying value as at 1 April 2012 20 1,254 122 139 - 1,535

Additions - 1,816 806 3,935 5,715 12,272

Assets acquired through a business combination

120 548 705 148 - 1,521

Disposals - (5) - - - (5)

Transfers 1 (639) 71 (42) - (609)

Depreciation charges (34) (844) (394) (452) (589) (2,313)


The movement in the carrying value of office equipment, furniture and other tangible assets is as follows:

2014

Annual Report 2014

109

Company

Motor vehicles R'000

Computer equipment

R'000

Office equipment

R'000

Furniture and fittings R'000

Lease improvements

R'000Total R'000

Carrying value as at 1 April 2013 88 2,075 1,311 3,679 5,127 12,280 Additions - 827 103 236 1,389 2,555

Disposals (76) (14) - (1) - (91)

Depreciation charges (12) (1,040) (369) (824) (950) (3,195)

Carrying value as at 31 March 2014 - 1,848 1,045 3,090 5,566 11,549

2013

Carrying value as at 1 April 2012 3 1,183 121 78 - 1,385

Additions - 1,816 806 3,935 5,716 12,273


119 547 707 147 - 1,520

Disposals - (5) - - - (5)

Transfers - (639) 71 (42) - (610)

Depreciation charges (34) (827) (394) (439) (589) (2,283)


No equipment, furniture or other tangible assets are pledged as security for liabilities (2013: Rnil).

Annual Report 2014

110

15. Intangible Assets

All intangible assets are non‐current assets.

Group Company

Cost R'000


and impairment

R'000


Cost R'000


and impairment

R'000


Software 3,965 3,893 72 3,468 3,395 73

Intellectual property 2,200 1,661 539 2,200 1,662 538

Goodwill 31,899 31,899 - - - -

38,064 37,453 611 5,668 5,057 611

2013

Software 3,965 3,362 603 3,468 3,040 428

Intellectual property 2,200 929 1,271 2,200 929 1,271

Goodwill 31,899 31,899 - - - - 38,064 36,190 1,874 5,668 3,969 1,699

The movement in the carrying value of office equipment, furniture and other tangible assets is as follows: .

2014

Group

Software R'000

Intellectual Property

R'000Goodwill

R'000 Total R'000

Carrying value as at 1 April 2013 603 1,271 - 1,874

Amortisation (531) (732) - (1,263)

Carrying value as at 31 March 2014 72 539 - 611

2013


Additions 141 430 - 571


609 - - 609

Transfer 610 - - 610

Amortisation (1,024) (709) - (1,733)

Carrying value as at 31 March 2013 603 1,271 - 1,874

2014

Annual Report 2014

111

Company

Software R'000

Intellectual Property

R'000Goodwill

R'000 Total R'000


Amortisation (355) (733) - (1,088)

Carrying value as at 31 March 2014 73 538 - 611

2013

Carrying value as at 1 April 2012 - 1,550 - 1,550

Additions 141 430 - 571


609 - - 609

Transfers 610 - - 610

Amortisation (932) (709) - (1,641)

Carrying value as at 31 March 2013 428 1,271 - 1,699

2014

16. Share Capital

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

500,000 500,000 500,000 500,000

308,300 308,300 308,300 308,300

Authorised

500,000,000 ordinary shares at R1 each

Issued

308,300,000 ordinary shares at R1 each

Annual Report 2014

112

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

- 944,542 - 944, 542

1, 175, 521 - 1, 175, 521 -

At 31 March 2013, the loan was unsecured, bore no interest and had no specific repayment terms. Accordingly it was classified as a current liability.

During the financial year under review the terms and conditions of the loan was amended as follows:

• The loan bears no interest• The loan is unsecured• The shareholder has subordinated its demand on repayment of the loan until 31 March 2023.

A grant of R 231 million (2013: R 170 million) was received from government to support sefa's activities. The grant was paid to the IDC, who are conducting the required oversight over sefa's operations, and was made available to sefa for operational purposes through a loan.

17. Shareholder loan

Current liability

Non‐current liability

Annual Report 2014

113

18. Trade and Other Payables

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

Trade payables 53,929 53,281 19,313 18,409

Deferred grant 819 11,588 819 11,588 Accrued bonus ¹ 16,842 10,989 16,842 10,988

Accrued leave pay ² 3,564 3,727 3,564 3,727

Managed funds ³ 59,938 57,199 59,942 57,199

135,092 136,784 100,480 101,911

Trade and other payables are current

liabilities.

1) Accrued bonuses

Balances at the beginning of the year 10,989 4,884 10,989 4,884 Additional accruals raised during the year 16,842 6,105 16,842 6,104

Reversed during the year (10,989) - (10,989) - Balance at the end of the year 16,842 10,989 16,842 10,988

2) Accrued leave pay

Balances at the beginning of the year 3,727 906 3,727 907

Additional accruals raised during the year 1,251 3,559 1,251 3,558

Utilised during the year (1,414) (738) (1,414) (738)

Balance at the end of the year 3,564 3,727 3,564 3,727

3) Managed funds

The group is managing funds and holding cash balances on behalf of the following parties:

Unops 42,267 40,129 42,271 40,129

Norad 7,160 6,925 7,160 6,925 European Union 10,511 10,145 10,511 10,145

59,938 57,199 59,942 57,199

Annual Report 2014

114

19. Unearned Risk Provision and Outstanding Claims Provision

Group Company

2014

R'000 2013

R'000 2014

R'000 2013

R'000

Unearned risk provision

• At the beginning of the year 6,456 10,535 - - • Movement recorded in profit or loss (1,597) (4,079) - - At the end of the year 4,859 6,456 - -

Outstanding claims provision • At the beginning of the year 11,073 27,043 - - • Movement recorded in profit or loss (4,791) (15,970) - - At the end of the year 6,282 11,073 - -

Unearned risk provision

• Unearned Premium Provision 464 813 - - • Additional Unexpired Risk Provision 4,395 5,643 - - At the end of the year 4,859 6,456 - -

Movement recorded in profit or loss (1,597) (4,079)

Outstanding claims provision

• Notified Outstanding Claims Provision 504 3,563 - - • Incurred but not Reported Provision 5,778 7,510 - -

6,282 11,073 - -

Movement recorded in profit or loss (4,791) (15,970)

Total exposure

Indemnities issued to financial institutions 69,295 96,390 - - Less technical reserves already provided (11,141) (17,529) - -

58,154 78,861 - -

The calculation of the provisions was performed by an independent actuarial consulting firm, Matlotlo Group Proprietary Limited.

The provisions recognised in the statements of financial position are non-current liabilities. They are detailed below and are determined as described in the following paragraph:

Annual Report 2014

115

The summary of the valuation method is as follows:

The Unearned Premium Provision is calculated on a straight line basis, assuming indemnity premiums received are earned uniformly over the 12 months for which they have been paid for. The Additional Unexpired Risk Provision (AURR) is the additional reserve required should the net discounted value of the expected claims from active policies not be covered by the Unearned Premium Provision and the net present value of expected future indemnity fees. The AURR is held at a 75% sufficiency level as a result of simulating claims severity and frequency.

The Outstanding Claims Reserve (OCR) is in respect of those policies of Khula Credit Guarantee that may result in claims due to a claim event that has happened prior to the financial year end. For each policy, the OCR is determined as (probability of claiming) x (current indemnity) x (claim severity). The total OCR is raised at a 75% sufficiency level by simulating the claim severity.

All provisions have been calculated on a run‐off basis (i.e. assuming Khula Credit Guarantee Ltd does not write new business) and allowance for claim handling expenses has been made.

The principal valuation assumptions are as follows:

2014 2013 2014 2013

R R % % Probability of claim (+10%) 483,747 978,579 4.43 5.83

Claim severity (+10%) 1,569,898 2,750,568 14.37 16.40

Claim expense rate (+1%) 122,057 211,019 1.12 1.26

Discount rates (+1%) (28,992) (65,188) (0.27) (0.39)

2014 2013

26% 21%

81% 80%

4.56% 4.7%

5.68% - 8.8% 5.09% - 7.8%

Ultimate probability of claim

Claim severity

Claim expense rate

Discount rates (per government bond yield curve)

The sensitivity of the total provisions to the key assumptions is as follows:

2014 2013

4232% 2241%

Solvency margin:

The solvency margin is calculated by expressing the capital and provisions as a percentage of net written indemnity premiums.

Solvency margin:

Annual Report 2014

116

20. Post-Retirement Liability

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

416 - 416 -

The post-retirement medical liability is unfunded and has no plan assets, is attributable to employees, who were prior to the merger, employees of South African Micro Finance Apex Fund and who qualifies for the benefit. This is the first year the liability is raised, and the liability value is equal to the movement in profit and loss. No additional amounts were recognised in other comprehensive income.

The liability is a non‐current liability and the calculation was performed by an independent actuarial consulting firm, Alexander Forbes Health Proprietary Limited.

416 - 416 -

416 - 416 -Present value of unfunded obligations

Present value of obligations in excess of plan assets

The following table shows a reconciliation of the net liability recognised in the statement of financial position:

- - - -

416 416

416 - 416 - Liability raised


Components of the defined benefit cost:

416 - 416 -

416 - 416 - Liability raised

Expense

Components of profit and loss:

Post-retirement liability

Opening balance as at 1 April

Annual Report 2014

117

The sensitivity of the post‐retirement liability to the healthcare cost inflation rate is as follows:

The actuarial valuation assumptions are as follows:

2014 2013

9.7% N/A

9.0% N/A

8.4% N/A

60 years N/A

Discount rates

Healthcare cost inflation

Expected increase in salaries

Expected retirement age

Assumptions regarding mortality have been based on published statistics and mortality tables.

Pre‐retirement mortality assumption SA85‐90 (lite) N/APost‐retirement mortality assumption PA (90) N/A

The duration of the liability was 20.5 years, this is based on the duration of the liability as at 31 March 2014.

Central assumption

‐1% +1%

R'000 % %

- - -

- - -

Accrued liability

Current service cost and interest cost

Annual Report 2014

118

21. Revenue

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

Dividends received - 1,766 4,046 6,282

Indemnity premiums earned 1,504 2,646 - - Interest received on cash and cash equivalents 40,808 41,306 36,627 36,339

Interest received on loans and advances to clients 41,514 30,207 30,055 18,909

Other interest earned 1,949 3,174 1,891 2,528

Fee income 13,474 2,768 13,385 2,743

Investment property rental income 36,171 34,892 36,171 34,892 135,420 116,759 122,175 101,693

22. Other Income

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

Bad debts recovered 305 343 253 129

Management fee - Related parties 648 620 648 620

Management fee - Other - 790 - 790

Other sundry income 5,134 1,910 5,134 235

6,087 3,663 6,035 1,774

23. Grant Income

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

Balance as at 1 April 11,588 5,059 11,588 5,059

Grants received during the year - 1,250 - 1,250

Deferred grants acquired through a business combination

- 57,853 - 57,853

Grants recognised as income during the year (8,983) (48,870) (8,983) (48,870)

Grants utilised to reduce expenses during the year (1,786) (3,704) (1,786) (3,704)

Balance as at 31 March 819 11,588 819 11,588

Annual Report 2014

119

24. Net Fair Value Gain/(Loss) on Financial and Other Assets

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

Investments 2,399 - - -

Investment properties 13,278 (21,929) 13,278 (21,929)

15,677 (21,929) 13,278 (21,929)

25. Operating Loss

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

Operating loss is arrived at after taking into account the following:

Specific items:

Depreciation 3,230 2,313 3,195 2,283

Amortisation 1,263 1,733 1,088 1,641

Penalties and interest - South African RevenueServices

50 233 50 39

Operating lease charges - Equipment 911 867 911 867

Operating lease charges - Property 14,587 11,896 14,587 11,896

20,041 17,042 19,831 16,726

The following impairments were recognised:

Impairment of investments in associates - - 532 735

Impairment/(impairment reversal) of joint ventures 671 (420) 671 (420)

Impairment of Investment in En-Commandite partnership

(2,658) 7,558 (2,658) 7,558

Impairment of subsidiaries (671) 420 10,004 7,128

(Decrease)/increase in bad debt provision - Loans and advances

(72,207) 60,985 (80,515) 56,186

Irrecoverable debt written off - Loans and advances 164,791 10,476 164,755 -

Increase/(decrease) in bad debt provision - Rental debtors

722 (20,226) 722 (20,226)

Irrecoverable debt written off - Rental debtors 4 19,546 4 19,546

Total net impairments 90,652 78,339 93,515 70,507

Annual Report 2014

120

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

The following items relating to the indemnity product were recognised:Indemnity claims incurred 6,891 16,463 - -

Decrease in claims provision (4,791) (15,970) - -

Decrease in indemnity reserves (1,597) (4,079) - -

503 (3,586) - -

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

Agriculture, forestry and fishing 2,942 1,189 2,030 - Basic chemicals 763 - 763 -

Beverages 634 - 344 -

Building construction 13,675 2,913 16,387 2,476

Business services (1,122) 3,431 1,794 3,509

Catering and accommodation services 1,378 103 756 - Communication (533) (1,500) - - Electricity, gas and steam 2,316 1,433 2,819 7

Finance and insurance (2,228) 58,000 9,464 64,754

Food 8,121 330 5,676 - Glass and glass products 27 - - - Machinery and equipment 135 - 135 - Medical, dental and other health and veterinary services

700 93 1,202 17

Motor vehicles, parts and accessories 831 (1,962) 877 64

Other community, social and personal services 17,623 - 92 - Other chemicals and man-made fibres 31 128 - - Other industries 4,933 594 4,294 - Other mining 14 - 14 - Other services 4,339 2,109 13,738 161

Paper and paper products 36 138 - - Plastic products 212 - - - Printing, publishing and recorded media 501 (4) 178 -Professional and scientific equipment (15) (194) - -

Net increase/(decrease) in impairments:

Annual Report 2014

121

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

Television, radio and communication equipment 3 6 - -Textiles 1,005 42 1,694 -

Transport and storage 9,479 - 8,576 -

Water supply 1,615 - 1,615 -

Wearing apparel 31 1,040 - -

Wholesale and retail trade (148,733) 653 (150,035) 199

Wood and wooden products 6,422 - 5,621 - (74,865) 68,542 (71,966) 71,187

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

Bad debts written off/(recovered) - Loans and advancesAgriculture, forestry and fishing 92 642 90 -

Building construction 10 - 10 -

Business services - 88 - -

Catering and accommodation services 5 - 5 -

Communication - 1,950 - -

Finance and insurance - (129) - (129)

Food 21 289 - -

Motor vehicles, parts and accessories - 2,204 - -

Other services (71) 2,229 (43) -

Printing, publishing and recorded media - 84 - -

Wearing apparel - 337 - -

Wholesale and retail trade 164,429 2,439 164,440 -

164,486 10,133 164,502 (129)

Annual Report 2014

122

26. Income Tax Expense/(Credit)

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

Current tax expense 672 366 355 - Current year 317 375 - -

Prior year under/(over) provision 355 (9) 355 -

Deferred taxation 59,324 (33,172) 96,984 (36,110)

Current year 61,787 (33,604) 99,447 (36,542)

Prior year under/(over) provision (2,463) 432 (2,463) 432

59,996 (32,806) 97,339 (36,110)

Reconciliation of taxation amount

Loss before taxation (111,689) (97,220) (149,671) (129,228)

Taxation at standard rate of 28% (2013: 28%) (31,273) (27,222) (41,908) (36,184)

Tax effect of permanent differences (7,772) (4,446) (1,584) (357)

Tax effect of deferred tax asset not recognised 102,182 379 142,939 -

Tax loss recognised (967) (1,948) - -

Taxation - Relating to prior year (2,174) 431 (2,108) 431

Taxation charged to statement of profit or loss and comprehensive income

59,996 (32,806) 97,339 (36,110)

Taxation expense relating to current year 62,170 (33,237) 99,447 (36,541)

Effective tax rate - Based on current year taxation expense

(56%) 34% (66%) 28%

27. Directors' and Prescribed Officers' Remuneration

Prescribed officers as prescribed by the Companies Act 71 of 2008 (Companies Act), are individuals who, despite not being a director of the Company:

• exercises general executive control over and management of the whole, or a significant portion, of the business and activities of the company; or• regularly participates to a material degree in the exercise of general executive control over and management of the whole, or a significant portion, of the

business and activities of the Company.

Income tax expense/(credit)

Annual Report 2014

123

Board of Directors:

The Non‐Executive Directors are not involved in day‐to‐day operations of the business and do not draw any remuneration from sefa other than for Board Fees.

2014R'000

2013R'000Appointment term

S Magwentshu-Rensburg (Chairperson) 7 April 2010 to date 206 218

IAS Tayob 7 April 2003 to date 165 215

M Ferreira 7 April 2010 to date 241 246

VG Mutshekwane 1 April 2012 to date 257 275

BP Calvin 1 April 2012 to date 151 214

HN Lupuwana 1 April 2012 to date 127 102

SA Molepo 1 April 2012 to date 219 155

LB Mavundla 1 April 2012 to date 174 210

GS Gouws (1) 1 April 2012 to date - -

K Schumann (1) 1 April 2012 to date - -

1,540 1,635

¹ Mr Gouws and Ms Schumann are employed by the IDC and do not earn Director’s fees for services rendered to sefa. Executive Management:

2014 PeriodBasic salary

R'000

Incentive bonusR'000

Retirement, medical and

other benefitsR'000

TotalR'000

Mr T Makhuvha ¹ 1 April 2013 - 31 March 2014 1,527 752 340 2,619 Mr AMA Ramavhunga 1 April 2013 - 30 November 2013 843 - 65 908

Ms LG Mashishi 1 April 2013 - 31 March 2014 1,011 - 217 1,228

Mr D Jackson 1 April 2013 - 31 October 2013 868 - - 868

Mr D Mashele ² 1 April 2013 - 30 June 2013 248 89 48 385

Ms L van Lelyveld 15 April 2013 - 31 March 2014 1,417 - - 1,417

Mr P Swanepoel 1 July 2013 - 31 March 2014 1,168 - 163 1,331

Ms V Matsiliza 1 November 2013 - 31 March 2014 553 97 91 741

Mr A Dirks 1 July 2013 - 31 March 2014 774 131 108 1,013

8,409 1,069 1,032 10,510

The company considers all individuals at the level of executive management as the prescribed officers. Key management, as defined in IAS 24 Related Party Disclosure, are individuals with the authority and responsibility for planning, directing and controlling the activities of the entity. All individuals from the level of executive management up to the Board of Directors are regarded as key management. The remuneration of the Directors and prescribed officers is disclosed below as per the Companies Act requirements.

Annual Report 2014

124

2013 PeriodBasic salary

R'000Incentive bonus

R'000

Retirement, med-ical and other

benefitsR'000

TotalR'000

Mr T Makhuvha ¹ 1 November 2012 - 31 March 2013 607 - 207 814

Mr AMA Ramavhunga 1 April 2012 - 31 March 2013 1,180 - 304 1,484

Mr MI Mazibuko 1 April 2012 - 28 September 2012 819 - 136 955

Mr CH Maseko 1 April 2012 - 31 March 2013 1,465 - 395 1,860

Ms LG Mashishi 18 June 2012 - 31 March 2013 798 - 202 1,000

Ms V Malale ³ 1 April 2012 - 30 June 2012 204 - 91 295

Mr D Jackson 9 October 2012 - 31 March 2013 749 - - 749

Mr D Mashele ² 1 November 2012 - 31 March 2013 336 - 121 457

6,158 - 1,456 7,614

¹ Mr T Makhuvha has been seconded to the company by the (IDC) and no remuneration has been paid to him by sefa.² Mr D Mashele acted in an executive position during the current and prior financial year.³ Ms V Malale acted in an executive position during the prior financial year. No member of executive management earned any income from any other company within the Group.

28. Operating Leases

Operating lease commitmentsThe future minimum lease payments under non‐cancellable operating leases are as follows:

Lease agreements range from two to nine years, the last one ending 31 December 2020. There are lease agreements for each branch as well as for head office. The annual escalations range between 8% and 15% per annum.

Group Company

2014R'000

2013R'000

2014R'000

2013R'000

7,822 5,395 7,572 5,395

29,148 13,786 29,148 13,786

751 18,104 751 18,104

37,721 37,285 37,471 37,285

Land and buildings

Within 1 year

From 2 to 5 years

More than 5 years

Annual Report 2014

125

29. Reconciliation of the Net Loss Before Tax for the Year to Cash Utilised by Operations

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

Loss before tax (111,689) (97,220) (149,671) (129,228)

Adjustments for:

Depreciation 3,230 2,313 3,195 2,283

Amortisation 1,263 1,733 1,088 1,642

Fair value adjustment (15,677) 21,929 (13,278) 21,929

Impairment provision - Investments (2,658) 7,558 (2,658) 7,558

Impairment provision - Subsidiaries and joint ventures

- - 10,675 6,707

Impairment provision - Equity accounted investments (Associates)

- - 532 735

Income from associate (31,988) (27,599) - -

Dividends received from associate (1,380) (1,380) (5,252) (4,905)

Decrease in indemnity reserves (1,597) (4,079) - - Investment income (41,192) (46,247) (37,710) (40,245)

Grant income (8,983) (48,870) (8,983) (48,870)

Profit/(loss) on sale of equipment 86 (103) 86 (103)

Provision for bad debts (70,541) 39,747 (78,858) 34,948

Bad debts written off 164,795 30,032 164,759 19,546

Realisation of day-one-loss (1,858) - (1,858) - Post-retirement liability 416 - 416 -

Provision for claims (4,791) (15,970) - - Operating loss before changes in working capital (122,564) (138,156) (117,517) (128,003)

Changes in working capital (12,009) (56,826) (5,826) 14,985

Increase in trade and other receivables (4,973) (1,861) (177) (5,376)

Loans (made to)/received from related parties (9,716) 10,256 (8,579) 9,729

Increase/(decrease) in trade, - other payables and

provisions 2,680 (65,221) 2,930 10,632

Cash utilised by operations (134,573) (194,982) (123,343) (113,018)

Annual Report 2014

126

30. Tax (Payable)/Receivable

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

Tax receivable/(payable) at the beginning of the year 60 (5,518) - (5,157)

Tax as per statement of profit or loss and other comprehensive income (net of deferred tax)

(673) (367) (355) -

Tax paid 450 5,945 355 5,157

Tax (payable)/receivable at the end of the year (163) 60 - -

31. Commitments

Group Company

Off-balance sheet items 2014

R'000 2013

R'000 2014

R'000 2013

R'000

Undrawn financing facilities approved 104,522 275,916 87,766 255,065

Undrawn guarantee facilities approved 410 6,802 - - 104,932 282,718 87,766 255,065

32. Related Party Transactions

Parent and ultimate controlling party

sefa is a wholly owned subsidiary of the IDC.

Other related parties

Description RelationshipKhula Land Reform Empowerment Facility Wholly owned subsidiary of sefa ¹Khula Institutional Support Services Limited Wholly owned subsidiary of sefa ¹Khula Credit Guarantee Limited Wholly owned subsidiary of sefaNew Business Finance (Pty) Ltd Wholly owned subsidiary of sefaGJE Watson Previous shareholder of New Business Finance (Pty) Ltd and current employee of sefaThetha Import and Export CC GJE Watson is a member of Thetha Import and Export CC and signed personal surety for a loan repayable to New Business Finance (Pty) Ltd.Gain Props 1017 CC Close corporation owned by GJE WatsonEconomical Development Department Shareholder of the IDC

Transactions between the company and its subsidiaries, which are related parties, have been eliminated in the Group financial statements, however these are not eliminated in the individual Company financial statements.

Annual Report 2014

127

The following transactions were entered into with related parties:

Group Company

2014 R'000

2013 R'000

2014 R'000

2013 R'000

Rental income received from related parties

Economical Development Department 4,654 - 4,654 - Investment income received from related parties

Industrial Development Corporation 40,067 20,021 36,290 18,241

Management fees charged to related parties

Khula Land Reform Empowerment Facility 648 620 648 620

Related party balances receivable/(payable)

Khula Institutional Support Services ¹ 5,667 (4,364) 5,667 (4,364)

Khula Land Reform Empowerment Facility ¹ 831 1,145 831 1,146 New Business Finance (Pty) Ltd - - 178 1,315

GJE Watson 400 400 - - Thetha Import and Export CC 514 694 - -

Industrial Development Corporation - Cash managed

520,826 799,184 473,940 726,465

Industrial Development Corporation - Shareholder loan

1,175,521 944,542 1,175,521 944,542

1,703,759 1,741,601 1,656,137 1,669,104

¹ Registered as a Non‐Profit Company. This company is not consolidated as a subsidiary due to sefa not being able to benefit from the company.

Any outstanding amounts are unsecured and will be settled in cash. No guarantees have been given or received. No expenses have been recognised in the period for bad or doubtful debts in respect of the amounts owed by related parties.

Transactions with key management personnel No material contracts were entered into involving the interest of any director or executive management member. All compensation paid to key management personnel is short‐term in nature and is disclosed in note 27.

Annual Report 2014

128

33. Transfer of the Assets and Liabilities of samaf samaf’s business, with all its assets and liabilities, was transferred to sefa as a going concern at no cost in the prior financial year.

The “merger” was accounted for as a “common control” transaction. A common control transaction is a business combination where the combining entities or businesses are ultimately controlled by the same party or parties both before and after the combination. In this case, Khula (now sefa) and the business of samaf were ultimately controlled by the South African government both before and after the combination.

sefa recognised the assets and liabilities acquired through the transfer of samaf on 1 April 2012 (effective date of the transfer) at the values which the assets and liabilities were disclosed in the annual report of samaf on 31 March 2012. The carrying value of the net assets and liabilities of samaf amounted to R202.4 million on 31 March 2012 and was accounted for directly in equity and is reflected in the statements of changes in equity.

This transaction had the same impact on both the Group and Company as the assets and liabilities were transferred directly to the Company.

Please refer to accounting policy 1.6 for more information on how common control transactions are accounted for.

The following assets and liabilities were transferred from samaf to sefa on 1 April 2012:

R'000

1,520

609

73,113

241

191,709

(64,762)

202,430

-

202,430

Office equipment, furniture and other tangibles

Intangible assets

Loans and advances

Trade and other receivables

Cash and cash equivalents

Trade and other payables

Net asset carrying value

Consideration paid

Gain on the transfer of samaf assets and liabilities

Annual Report 2014

129

34. Unauthorised, Fruitless and Wasteful and Irregular Expenditure

Unauthorised expenditure

No expenditure was classified as unauthorised during the financial year under review .

Fruitless and wasteful expenditure

The PFMA defines fruitless and wasteful expenditure as expenditure which was incurred and would have been avoided had reasonable care been exercised.

Fruitless and wasteful expenditure for the year amounted to R333, 000 (2013: R785, 000).

Irregular expenditure

Irregular expenditure signifies expenditure incurred without adhering to established rules, regulations, procedural guidelines, policies, principles or practices that have been implemented to ensure compliance with the PFMA, relevant tender regulations as well as any other relevant procurement regulations.

Opening balance

Irregular expenditure current year

Items reclassified as not irregular after investigation performed

Condoned or written off by accounting authority

2014R’000

2013R’000

3,068 5,922

(14) -

(3,547) (5,429)

493 -

Irregular expenditure awaiting condonement - 493¹

¹ The balance was condoned during the current financial year.

Annual Report 2014

Notes

Annual Report 2014

GLOSSARY OF TERMS

CEO Chief Executive OfficerCFO Chief Financial OfficerCIS Credit Indemnity SchemeCRO Chief Risk OfficerDBSA Development Bank of Southern AfricaDFIs Development Finance InstitutionsDti Department of Trade and IndustryEDD Economic Development DepartmentESI Employee Engagement ScoreFI Financial IntermediariesGDP Gross Domestic ProductGEM Global Entrepreneurship MonitorHR Human ResourcesIDC Industrial Development CorporationIPAP Industrial Policy Action PlanIT Information TechnologyKD Khula DirectKPIs Key Performance IndicatorsLREF Land Reform Empowerment FundMFIs Micro Finance IntermediariesMOU Memorandum of UnderstandingMSEs Micro and Small EnterprisesMTSF Medium Term Strategic FrameworkNBF New Business FinanceNEF National Empowerment FundNGOs Non-Governmental OrganisationsNGP New Growth PathPDPs Personal Development PlansPFMA Public Finance Management ActRFIs Retail Finance IntermediariesRSA Republic of South AfricaSA South Africasamaf South African Micro Finance Apex Fundseda Small Enterprise Development Agencysefa Small Enterprise Finance AgencySMMEs Small Micro and Medium Enterprises (including survivalists)SMEs Small and Medium EnterprisesTEA Total Early Stage entrepreneurship Activity Index

EcoFusion 5Block D

Cnr 1004 Teak Close & Witch-Hazel AvenueEco Park Centurion

P.O. Box 11011Zwartkop 0051

Call Centre: +27 86 000 7332 (sefa)

www.sefa.org.za

RP166/2014 ISBN: 978-0-621-42818-6

Fraud Hotline Number

Tip-off Anonymous

0800 30 33 36

24 hours every day administered by Deloitte and Touche

annual report 2014 - sefa - home - sefa.org.zasefa.org.za/content/docs/sefa annual report...

Documents