Sustaining development in extraordinary times
Annual Report 2009
Sustaining development in extraordinary times
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Industrial Development Corporation of South Africa Annual Report 2009 | 1
Corporate Profile 2
– Vision 2
– Mission 2
– Objectives 3
– Outcomes 3
– Values 3
Highlights for the Year 4
Five-year Statistical Review 6
The Board of Directors 8
Chairman’s Statement 12
Executive Management 20
IDC at a Glance 22
Chief Executive’s Report 24
Operational Review 30
– New Business 30
– Division: Industrial Sectors 33
– Division: Resources Sectors 47
– Division: Services Sectors 59
Significant Investments 72
Operations support and sustainability departments 76
Group Annual Financial Statements 87
Abbreviations 174
Administration 176
Contents
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Corporate Profile
2 | Industrial Development Corporation of South Africa Annual Report 2009
VisionTo be the primary driving force of commercially sustainable industrial
development and innovation to the benefit of South Africa and the rest of the
African continent.
MissionThe Industrial Development Corporation is a self-financing national development
finance institution whose primary objectives are to contribute to the generation
of balanced, sustainable economic growth in Africa and to the economic
empowerment of the South African population, thereby promoting the
economic prosperity of all citizens. The IDC achieves this by promoting
entrepreneurship through the building of competitive industries and enterprises
based on sound business principles.
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Industrial Development Corporation of South Africa Annual Report 2009 | 3
Objectives• Supporting industrial capacity development
• Promoting entrepreneurship
Outcomes• Sustainable employment
• Growing sectoral diversity
• Regional equity
• Growing small and medium enterprise (SME) sector
• Industrialisation in the rest of Africa
• Broad-based Black Economic Empowerment (B-BBEE)
• Environmentally sustainable growth
• New entrepreneurs
Values• Professionalism
• Partnership
• Passion
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Highlights for the Year
4 | Industrial Development Corporation of South Africa Annual Report 2009
• Increasing demand for IDC funding:
– 27% increase in value of funding approvals to
R10,8 billion.
– 39% increase in the number of funding approvals to 231.
– 38% increase in funding approvals of investment in the rest
of Africa to R2,9 billion.
– 69% increase in number of approvals to SMEs.
• Integrated approach to assist companies to withstand the
impact of the economic crisis:
– Funding of R500 million approved to assist distressed
companies.
– 2 500 jobs expected to be saved by the assistance to
distressed companies.
– R6,1 billion set aside to assist distressed businesses over the
next two years.
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Industrial Development Corporation of South Africa Annual Report 2009 | 5
• Funding will facilitate creation of 24 200 new direct jobs in
South Africa and 5 000 in the rest of Africa.
• Largest portion (52%) of funding approvals for start-ups and
expansions in South Africa.
• Launch and extension of several schemes to support industrial
and entrepreneurial development:
– Transformation and Entrepreneurial Scheme (R1 billion).
– Textiles, Clothing, Leather and Footwear Competitiveness
Scheme (R250 million).
– Pro-Forestry Scheme (R100 million).
– Pro-Orchard II Scheme (R200 million).
• Value of business support grants approved increased by
270% to R8,9 million.
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Five-year Statistical Review
6 | Industrial Development Corporation of South Africa Annual Report 2009
(R’m) 2009 2008 2007 2006 2005*
Balance sheet
Cash and cash equivalents 5 607 5 370 4 466 3 558 2 081
Loans, advances and investments 61 879 78 931 54 951 40 613 30 549
Property, plant and equipment 3 038 3 002 2 383 2 414 2 491
Other assets 2 853 3 130 1 815 1 570 1 829
Total assets 73 377 90 433 63 615 48 155 36 950
Capital and reserves 64 687 75 803 52 536 38 959 30 089
Outside shareholders’ interest 358 45 38 25 2
Loans 5 165 5 825 5 716 5 525 4 840
Other liabilities 3 167 8 760 5 325 3 646 2 019
Total equity and liabilities 73 377 90 433 63 615 48 155 36 950
Income statement
Net operating income/(loss) 5 314 2 155 2 645 378 1 037
Share of equity-accounted investments
Profits from ordinary operations 1 132 1 950 1 673 417 266
Profit before tax 6 446 4 105 4 318 795 1 303
Taxation 825 154 (27) 42 117
Profit for the year 5 621 3 951 4 345 753 1 186
* The amounts for 2005 are in respect of the 9 months ended 31 March 2005.
Composition of revenue:2005 – 2009
Sales revenue
Dividends
Interest, rentals and other
20,8%
61,5%
17,7%
Regional distribution of IDCapprovals, by Rand value:
2005 – 2009
South Africa
Rest of Africa
19,3%
80,7%
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Cumulative value offinancing approvals
R b
illio
n
’05 ’06 ’07 ’08 ’090
5
10
15
20
25
30
35
Approvals to SMEs (value)
0
5
10
15
20
25
30
Value of approvals
Share in value
R m
illio
n
Perc
enta
ge
’05 ’06 ’07 ’08 ’090
500
1 000
1 500
2 000
2 500
3 000
Approvals to SMEs (number)
0102030405060708090100
Number of approvals
Share in number
Nu
mb
er
Perc
enta
ge
’05 ’06 ’07 ’08 ’090
20406080
100120140160180200
Cumulative number ofjobs created/saved*
Nu
mb
er
’05 ’06 ’07 ’08 ’090
20 000
40 000
60 000
80 000
100 000
120 000
140 000
160 000
* Includes rest of Africa.
Approvals to black-empoweredcompanies (value)
R m
illio
n
Perc
enta
ge
0
15
30
45
60
75
90
’05 ’06 ’07 ’08 ’090
1 000
2 000
3 000
4 000
5 000
6 000
Value of approvals
Share in value
0
10
20
30
40
50
60
70
80
90
Number of approvals
Share in number
Nu
mb
er
Perc
enta
ge
’05 ’06 ’07 ’08 ’090
20
40
60
80
100
120
140
160
180
Approvals to black-empoweredcompanies (number)
’05 ’06 ’07 ’08 ’090
1 000
2 000
3 000
4 000
5 000
6 000
7 000
Profit before taxfor the year
R b
illio
n
Capital and reserves
R b
illio
n
’05 ’06 ’07 ’08 ’090
10
20
30
40
50
60
70
80
Debt/Equity ratio
Perc
enta
ge
’05 ’06 ’07 ’08 ’090
2
4
6
8
10
12
14
16
18
Industrial Development Corporation of South Africa Annual Report 2009 | 7
The Board of Directors
MC NKUHLU (5, 6, 9)
Deputy Chairman(Non-Executive)BA (Hons) (Western Cape);
Strategic Management in Banking (Insead);
AMP (Harvard)
Managing Director:
Nedbank Corporate Banking
Directorship:
– Findevco (Pty) Limited
MG QHENA (6, 7, 10)
Chief Executive Officer(Executive)BCompt (Hons) (Unisa); CA(SA);
SEP (Wits and Harvard);
Advanced Tax Certificate (Unisa)
Chairman of:
– Foskor (Pty) Limited
Directorships:
– Findevco (Pty) Limited
– Acerinox SA
GS GOUWS**Chief Financial Officer(Executive) BCom (Law); BCom (Hons) (UJ); CA(SA);
FCMA; Advanced Management
Programme (Insead)
Directorships:
– Hernic Ferrochrome (Pty)
Limited
– Kumba Iron Ore Limited
– Pebble Bed Modular
Reactor (PBMR)
– Atlantis Business Park (Pty)
Limited
– The Export-Import Finance
Corporation of South
Africa (Pty) Limited
– Impofin (Pty) Limited
– Konbel (Pty) Limited
– Konoil (Pty) Limited
– Kindoc Nominees (Pty)
Limited
– Findevco (Pty) Limited
WYN LUHABE (6)
Chairman (Non-Executive)BCom (University of Lesotho);
Management Advancement Programme
(MAP) VI (Wits Business School)
Chairman of:
– International Marketing
Council of South Africa
– Vendome SA (Pty) Limited
– Women Private Equity
Fund Trust
Directorships:
– Findevco (Pty) Limited
– JSE Limited
– Glenhove Fund Managers
– BMW (South Africa) (Pty)
Limited
– International Institute of
Management
Development (IMD)
Trustee of:
– The Duke of Edinburgh’s
Award International
Foundation
8 | Industrial Development Corporation of South Africa Annual Report 2009
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LR PITOT (7, 9)
(Non-Executive)CA(SA)
Executive Director of:
The National Association of
Automotive Component
Manufacturers.
Directorships:
– Findevco (Pty) Limited
– SABS Commercial (Pty)
Limited
LI BETHLEHEM (8, 9)
(Non-Executive)BA (Hons); Industrial Sociology; Master of
Arts; Certificate in Economics and Public
Finance (Unisa); Short course in economic
policy; Current Issues In Economic Policy
(Economic Policy Institute, New York)
Managing Director:
Johannesburg Development
Agency
Directorships:
– Findevco (Pty) Limited
– Hans Merensky
Foundation
– Wits Enterprise
– Johannesburg
Development Agency
MW HLAHLA (7)
(Non-Executive)BA (Hons) (Economics) (Pomona College –
California); Masters in Urban and Regional
Planning (University of California,
Los Angeles)
Managing Director:
Airports Company South
Africa (Pty) Limited
Directorships:
– Findevco (Pty) Limited
– ABSA Bank Limited
– ABSA Group Limited
– Airports Company South
Africa (Pty) Limited
– Air Traffic & Navigation
Services Company
Trustee of:
– Hlahla Family Trust
LL DHLAMINI (7)
(Non-Executive)BSc (Computer Science) (UCT); CA(SA);
BCom (Conversion) (UCT); Postgraduate
Diploma in Accounting (UCT)
Directorships:
– Findevco (Pty) Limited
– Xabiso Consulting
– Saccawu Provident Fund
– SA Quantum
– Nkwenkwezi Investment
– Xabiso CA Inc
Industrial Development Corporation of South Africa Annual Report 2009 | 9
See legend on page 11
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10 | Industrial Development Corporation of South Africa Annual Report 2009
The Board of Directors_continued
MS MOLOKO (10)
(Non-Executive)BSc (Hons) (Mathematics) (University of
Leicester); Postgraduate Certificate in
Education (University of Leicester);
Advanced Management Programme
(Wharton Business School)
Executive Chairman:
Thesele Group (Pty) Limited
Non-Executive Chairman of
Alexander Forbes Group
Directorships:
– Findevco (Pty) Limited
– Acucap Properties Limited
– Gen Re (South Africa)
– Thesele Properties (Pty)
Limited
– Thesele Asset Managers
– Business Venture
Investments No 991
(dormant special-purpose
vehicle)
BN NJOBE (1, 8)
(Non-Executive)MSc (Agric) (Bulgaria)
Executive Director:
Tiger Brands Limited
Directorships:
– Findevco (Pty) Limited
– Bigen Africa Group
Holdings (Pty) Limited
– Pan-African Capital
Holdings (Pty) Limited
– Pan-African Investment
and Research Services
(Pty) Limited
– Kagiso Trust Investment
(Pty) Limited
SK MAPETLA (6, 8)
(Non-Executive)BSc Chemisrtry (Lesotho); BSc Chemical
Engineering – Exemption (USA); MSc
Analytical Chemistry (USA); Business
Management Diploma (Irish Management
Institute, Dublin); Executive Development
Programme (Wits); Certificate Programme
in Financial Analysis (Wits)
Chief Executive Officer:Biotech PharmaceuticalsDirectorships:– Findevco (Pty) Limited– Africa Board Member,
Aspen Pharma Holdings– Chairman, South African
Pharmaceutical ExportCouncil
– Head of Strategy, NationalAssociation ofPharmaceuticalManufacturers (NAPM)
– Trustee, Manto-TshabalalaMsimang HealthProfessionals Trust
– Chair, Afrika BiopharmaInvestment (Pty) Limited
– President, BlackPharmaceutical Forum
– Jabula Portfolio InvestmentHoldings (Pty) Limited
– Umlamli Pharmacies (Pty)
Limited
NN NOKWE (3, 10)
(Non-Executive)MSc (Chemical Engineering) (Moscow
Institute of Oil and Gas);
International Management
Certificate (Insead); Certificate in Finance
and Accounting (Wits); Global Executive
Development Programme (GIBS)
Chief Executive Officer:
Mpumalanga Economic
Growth Agency
Directorships:
– Findevco (Pty) Limited
– Manyano Investments
(Pty) Limited
– Prospect SA Investments
50 (Pty) Limited
– Maredi Telecom &
Broadcasting (Pty) Limited
– EDI Technologies (Pty)
Limited
– Vuya Investments (Pty)
Limited
– JM Energy Solutions
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JR BARTON (8, 10)
(Non-Executive)Chartered Management Accountant
(FCMA); Advanced Management
Programme (AMP) (Harvard
University)
Directorships:
– Findevco (Pty) Limited
– Redis Construction
Afrika (Pty) Limited
– Mystic Blue Trading 437
t/a Direct Paper
Trustee of:
– Greater Durban
Community
Foundation
Legend:(1) Chairman of Board Human
Resources and Remuneration
Committee
(2) Chairman of Board Audit
Committee
(3) Chairman of Board Technical
Committee
(4) Chairman of Directors’ Interest
Committee
(5) Chairman of Board Risk
(6) Member of Board Human
Resources and Remuneration
Committee
(7) Member of Board Audit
(8) Member of Board Technical
Committee
(9) Member of Directors’ Interest
Committee
(10) Member of Board Risk
Management Committee
** Alternate
JC MTSHALI (6, 8)
(Non-Executive)BSocSci (UCT); BCom; LLB (UCT)
Practising Attorney
Directorships:
– Bowman Gilfillan Inc
– Findevco (Pty) Limited
– Bonjava Resources (Pty)
Limited
– Univani Investments (Pty)
Limited
– Aine Properties (Pty)
Limited
Member of:
– Mandilor Properties CC
NG NIKA (2, 4, 10)
(Non-Executive)CA(SA)
Chief Financial Officer:
PetroSA
Directorships:
– Findevco (Pty) Limited
– The Petroleum Oil and Gas
Corporation of South
Africa (Pty) Limited
– Brass Exploration
Unlimited
Industrial Development Corporation of South Africa Annual Report 2009 | 11
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Chairman’s Statement
The global economic and financial crisis
is providing the development finance
community, including multilateral,
regional and national institutions such
as the IDC, with an unprecedented
opportunity to showcase their
relevance, importance and
effectiveness in contributing to the
recovery of financial systems, in
curtailing to a significant degree the
credit paralysis, ensuring the survival
and sustainability of key sectors of
economic activity and in alleviating the
adverse impact on society at large.
Introduction
The world’s economies will recover from the current crisis,
just as they did from the numerous others that preceded it.
The pendulum will inevitably swing the other way, but
concerns abound over the pace and shape of such a
recovery, the eventual state of a haemorrhaging global
financial system, the remaining fiscal appetite for public
sector intervention, the relative standing of the industrial
bases that do survive the ongoing upheaval, and the
vulnerability of societies at large.
The global crisis has unfolded so rapidly and severely that
governments, institutions, businesses and individuals
throughout the world have been struggling to grapple
with its harsh ramifications and to grasp the uncertainties
ahead. Although crises are a relatively common occurrence
in economic history, we are facing the worst downturn
since the Great Depression, with the fall in global trade and
industrial production having been of a similar scale.
Most of the advanced economies have been experiencing
deep recessions and the resurgence of protectionism as a
result of dramatic increases in unemployment levels,
whereas several emerging and/or developing economies
have seen their economic growth sharply curtailed. This
adversity occurs as millions of young people worldwide
enter the labour market. A recent analysis undertaken by
representatives of the Council of Economic Advisers and
the Office of the Vice President of the United States of
America (USA) highlighted that, as a rule of thumb, a 1%
decline in gross domestic product leads to a loss of one
million jobs in the USA.
12 | Industrial Development Corporation of South Africa Annual Report 2009
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The South African economy officially entered a recession in
the second half of the period under review. Our mining and
manufacturing sectors have been the hardest hit as global
and domestic demand for their output subsided. This marks
the first recession experienced by the South African
economy in 17 years and has put an abrupt end to its
longest upswing on record. An expansionary policy stance
is being carried through by both the monetary and fiscal
authorities. Our country’s substantially healthier fiscal
position has enabled a strongly counter-cyclical budget,
carrying a pragmatic theme that balances stimulus
requirements with fiscal limitations. A massive R787 billion
public sector capital expenditure programme is under way
and South Africa will experience substantial benefits from
major sporting events such as the FIFA World Cup in 2010,
which will be hosted in an African country for the first time
in the association’s history.
The well-regulated and relatively robust South African
financial sector largely escaped the mayhem faced by its
counterparts in advanced economies, but the worldwide
deleveraging process, the liquidity freeze and the retreat in
investment flows have taken their toll domestically and
elsewhere on the African continent. Consequently, a
successful development finance institution (DFI) such as
the IDC is being called upon to play a strongly counter-
cyclical role, to alleviate the credit paralysis, assist in
ensuring the survival and sustainability of key economic
agents and industries, and minimise the adverse impact on
African society at large.
“The Industrial Development Corporation has developed a
programme to fund companies in distress.” President Jacob
Zuma, Republic of South Africa, in the State of the
Nation Address.
Development finance as a counter-cyclical instrument
Developing countries are being hit hard by the global
economic meltdown as most sources of income have
either shrunk or dried up. These include export proceeds,
tourism earnings, migrant worker remittances, official
development assistance, financial sector credit, foreign
direct investment and portfolio inflows. These adverse
developments are leaving economic agents crippled,
resulting in employment losses and further impoverishing
the poor.
The unfolding crisis has highlighted important lessons for
the developing world. A key message is that policy reforms
and sound macro-economic management, although
critical, do not guarantee the sustainability of capital
inflows. Domestic financial systems thus need to be
strengthened in order to reduce their dependency on
volatile foreign capital. Furthermore, export markets need to
be diversified away from traditional segments, with South-
Industrial Development Corporation of South Africa Annual Report 2009 | 13
The establishment of IDC offices in all of South Africa’s
nine provinces is providing a strong impetus to our
regional penetration and developmental efforts. Good
progress has been made in enhancing stakeholder
relations within the provinces and regional
development strategies were finalised during the year.
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Chairman’s Statement_continued
South and regional trade providing vital avenues, and the
composition of national export baskets needs to be
broadened to reduce their vulnerability to market collapse.
Due to their weak savings capacity and propensity, most
African economies have traditionally relied on international
capital for investment financing, which is increasingly
difficult to access due to the credit crunch. African
commercial banks are, therefore, feeling the freeze in
interbank lending worldwide and the deleveraging process
has not yet run its full course.
The development finance system, whose relevance has
often been downplayed by private financiers, multilateral
institutions as well as policy-makers, should by definition
play a critical role in facilitating access to credit during crisis
periods. Successful DFIs are generally prepared to take on
and manage a higher risk profile, often play a catalytic role
in industrial development and overall investment activity,
and provide financing when markets are tight. However, the
very limited financing capacity of most African DFIs at this
crucial point in our continent’s economic history provides a
further extremely important lesson for the future.
“The economic difficulties of today … do demand an open-
minded understanding of older ideas about the reach and
limits of the market economy. What is needed above all is a
clear-headed appreciation of how different institutions work,
along with an understanding of how a variety of organisations
– from the market to the institutions of state – can together
contribute to producing a more decent economic world.“
Nobel Economics Laureate Amartya Sen.
The IDC’s response to the unfolding crisis
The IDC is one of the few African development finance
institutions capable of coming to the fore in a very
meaningful manner. Considering the mushrooming market
failure in the private financial sector at large, enormous
demands are being placed on the Corporation to fill the
void. The IDC is being called upon to play an increasing role
in sustaining investment activity in South Africa and
elsewhere on the continent, thereby helping to fill the
significant gap left unserviced by the private financial
sector, and to assist enterprises in distress. However, despite
its relative balance sheet strength and human resource
capabilities, pragmatism must prevail.
Conscious of the potential enormity of the challenges
ahead and the serious financial risks involved, the IDC has
been under no illusion that the acceptable intervention
parameters had to be determined upfront, with the same
applying to the necessary mitigating mechanisms and the
capital allocation thresholds beyond which the
Corporation’s financial sustainability would be
compromised.
As the financial year progressed and the global economic
crisis unfolded, the IDC experienced intensifying pressures
on almost all fronts. On the demand-side, such pressures
included: the need to assist existing clients in order to
prevent their demise; requests for funding assistance from
new applicants experiencing financial difficulties, including
businesses previously serviced by commercial banks; and
an overall escalation in stakeholder expectations, including
all spheres of government.
Concurrently, a number of constraints either emerged or
were magnified. These included the reduced availability of
credit facilities from traditional sources due to the global
credit crunch, and a higher cost of funding across the
board; lower equity valuations due to poor market
conditions and negative investor sentiment; diminished
income from loan repayments and dividend receipts; and,
among others, a higher level of impairments and write-offs
associated with the existing portfolio.
A “business as usual”approach would have been highly
inappropriate under such extraordinary circumstances.The
IDC embraced the challenges wholeheartedly.We swiftly
refocused, restrategised and rolled out initiatives that have
been assisting in countering the adverse effects of the
economic crisis on South Africa’s economic base and, where
possible, extending such support beyond our borders.
“As the ‘special-purpose vehicle’ for industrial development, it is
imperative that the IDC continues to re-orientate its activities
towards a more developmental approach to investments in
strategic sectors through the provision of finance at attractive
rates accompanied by appropriate conditionalities for
recipients of such financing.” Minister of Trade and Industry
Dr Rob Davies, Republic of South Africa.
Sustaining investment activity, promoting equitable
development, creating jobs
Weak global demand has affected most export-oriented
South African businesses, while many domestic producers
have had to compete fiercely against foreign suppliers
targeting our home front as the scramble for shrinking
markets intensified. Domestic spending, in turn, became
increasingly subdued and eventually contracted, as
households and businesses struggled to weather the
economic storm. Private consumption expenditure
contracted quite sharply towards the latter part of the
review period, while the quarterly average growth in private
14 | Industrial Development Corporation of South Africa Annual Report 2009
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sector fixed investment decelerated to 2,9%, or less than
one-third of the pace recorded in the preceding year.
Many investment plans were either postponed or
cancelled outright.
Despite the gradual slowdown and eventual contraction in
economic activity during the period under review, the IDC
responded in a strongly counter-cyclical manner.
Our operational units dedicated substantial effort to
support greenfield developments, introduce new
technologies, propel competitiveness improvements,
promote the expansion of productive capacity and
implement national industrial policy in general. Green,
innovative technologies and alternative energy sources
deserved special focus, especially at a time when South
Africa’s electricity infrastructure faces excessive pressure.
Cognisant of the importance of investment activity and job
creation in an economic recovery, our efforts paid off – the
value of IDC funding approvals increased by 27% relative to
the preceding year, totalling R10,8 billion in 231
transactions. Start-ups and expansions represented 36%
and 17% of funding approvals respectively, thus
highlighting the success of our drive to promote the
expansion of Africa’s economic base, particularly that of
South Africa. However, the sharp increase in demand for
IDC financing was also a sign of the adverse conditions in
credit markets.
Fast deteriorating global and local economic conditions
eventually led to 208 000 jobs being shed in the South
African economy over the first three months of 2009.
Countering this trend, the record level of IDC funding
activity during the year under review is expected to create
approximately 24 200 new direct employment
opportunities in South Africa alone. This reflects the
absolute emphasis of the IDC’s Leadership in Development
strategy on sustainable employment creation and job
retention. The development of small and medium
enterprises (SMEs) is a most important means to this end, as
illustrated by the fact that SMEs represented 68% of the
overall number of businesses funded by the IDC over the
course of the financial year. As part of our business support
strategy, almost R9 million was also provided in the form of
grants for the purposes of developing the business skills of
our client base.
The establishment of IDC offices in all of South Africa’s nine
provinces is providing a strong impetus to our regional
penetration and developmental efforts. Good progress has
been made in enhancing stakeholder relations within the
provinces and regional development strategies were
finalised during the year. The IDC’s image and product offer
have been vigorously promoted, thus resulting in a higher
number of applications for financing. As an integral part of
our regional strategic approach, particularly targeting the
lesser developed areas of South Africa, six new
Industrial Development Corporation of South Africa Annual Report 2009 | 15
IDC Chairman Wendy Luhabe and CEO Geoffrey Qhena at the IDC Women’s Day celebrations in August 2008
The IDC is being calledupon to play an increasing role in sustaininginvestmentactivity in South Africa and elsewhere on the continent
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16 | Industrial Development Corporation of South Africa Annual Report 2009
Chairman’s Statement_continued
development agencies were established throughout the
country during the past financial year.
Our funding benefited projects ranging from the first
bio-ethanol operation in Cradock, which will contribute to
the development of a responsible biofuel industry in South
Africa, to an indigenous marine finfish culture project in the
East London Industrial Development Zone; from
manganese ore mining and processing, to an investment in
a satellite project that will improve the quality of
telecommunication services on the continent. As part of
our Broad-based Black Economic Empowerment drive, we
funded numerous operations that will gradually assist in
effectively transforming our country’s economic base.
These ranged from a wholly black-owned diamond cutting,
polishing and jewellery manufacturing operation, to a very
large independent power-producing project that will
benefit farming co-operatives and poor rural communities;
as well as further support to a wholly black female-owned
company specialising in the refurbishment of Metrorail
commuter coaches. We also enhanced entrepreneurial
support, particularly to entrepreneurs who are active in
rural areas and previously disadvantaged, such as emerging
farmers involved in citrus farming, and SMEs engaged
in food-processing activities across most of South
Africa’s provinces.
Crisis periods also provide a window of opportunity for
more cost-effective project preparation (specifically pre-
feasibility, feasibility and environmental impact studies) that
could lead to project commissioning early in a subsequent
recovery. The IDC is thus focusing on conceptualising,
developing and sponsoring projects that could benefit
from timeous commissioning as economic conditions
improve. Examples include a start-up investment that will
lead to the establishment of a new, battery-electric vehicles
industry in South Africa; the development of novel
technology to produce titanium powder and, among
others, a sisal industry development initiative that will also
entail beneficiation into woven and composite products.
Assistance to firms in distress, retaining employment
As the impact of the global economic crisis on the South
African economy became increasingly discernible, the IDC
anticipated that the shareholder – the South African
government – as well as other stakeholders, would expect
no less than a leading role from our Corporation in assisting
industries and firms under serious duress. Basically all
sectors of economic activity were expected to come under
strain to varying degrees. Considering our resource
limitations, whether financial or operational, we proceeded
to identify the sectors where our assistance was likely to be
most critical and where our interventions would potentially
have the largest impact.
The IDC’s comprehensive response was duly
communicated to the Shareholder, through the higher
echelons of the Department of Trade and Industry and
the Presidential task teams focusing on South Africa’s
response to the economic crisis, in the last quarter of the
financial year. The IDC’s business units responsible for
financing activities in the most affected economic sectors
were requested to formulate sector-specific approaches
and were instructed to proceed without delay in
assessing applications for financial assistance from firms
under distress.
Funding of R500 million was approved, particularly towards
the latter portion of the financial year, for firms experiencing
distressed conditions as a result of the sharp economic
downturn. By doing so, approximately 2 500 jobs are likely
to have been saved across a range of economic sectors,
including mining, metals, transportation equipment, textiles,
chemicals and tourism. Furthermore, the restructuring of
76 existing clients was realised through various means in
order to alleviate their cash flow constraints during these
turbulent times. Distress funding, due to its peculiar
characteristics, also has its own requirements in terms of
monitoring regularity and intensity. Accordingly, the IDC
strengthened its post-investment monitoring capabilities.
“The reality of job losses has led to the crisis response.The first
consideration is to preserve jobs and then to preserve strategic
industrial capacity”. Minister of Trade and Industry Dr Rob
Davies, Republic of South Africa.
While focusing on enterprises experiencing difficulties as a
result of the cyclical downturn, due cognisance has been
taken of the need for structural interventions at industry
level, including consolidation, restructuring and
productivity enhancements. The aim is to ensure that
industries emerge from the crisis on a more competitive
footing and thus in a better position to reap the benefits of
an eventual recovery. Accordingly, the IDC has been an
effective participant in Presidential task teams focusing on
“Financing and Investment” and “Distressed Sectors”, as well
as in sector-specific Nedlac teams that are formulating
individual industrial support and revitalisation strategies.
The build-up of liquidity buffers and deliberate changes in
risk thresholds are clearly preventing commercial banks
from fully recognising the medium- to long-term viability of
many business enterprises. The IDC is determined to
IDC front Final.qxd 8/18/09 12:20 PM Page 16
counter and reverse this economically damaging market
failure. A collaborative funding approach is thus being
pursued with other financiers, encouraging risk sharing and
stimulating the flow of credit in the economy, so as to
contribute to an alleviation of the currently tight credit
conditions. In doing so, we are leveraging our balance sheet
even further.
Committed to realising Africa’s potential
As the shockwaves of the global economic crisis continue
hitting Africa’s shores, the extent and depth of the damage
across our continent is becoming increasingly detectable.
It is also clear that the patterns of financial flows associated
with investment, lending and trading activity have been
dramatically altered, with detrimental economic and social
implications for Africa in its entirety. The adverse impact has
been gradually spreading from a regional perspective – a
serious setback to Africa’s recent economic growth
performance, which had averaged 6% pa over the period
2003 to 2008.
“…this crisis has come when African governments have taken
broad-based measures to reform their economies, followed by
significant achievements … it is now threatening to wipe out
our gains of the past ten years and disrupt all our plans for
further progress.” Minister for Finance and Economic Affairs
Mustafa Mkulo, United Republic of Tanzania.
Access to trade credit lines used to finance imports and
investments is under threat due to the global credit crunch,
while portfolio flows have been reversed and remain weak
due to institutional deleveraging, pessimistic investor
sentiment or extreme risk aversion. Foreign direct
investment is estimated to have contracted, although the
rather long lead time of typical projects could imply that
some of the capital may have already been committed.
The African banking sector is feeling the freeze in interbank
lending worldwide from a funding standpoint, and may
come under substantial pressure through its customer
base should the economic slowdown intensify on the
home front.
The IDC, which has a continent-wide mandate, was able to
come to the fore in a meaningful manner. The Corporation
approved R2,9 billion in funding for investment projects in
the rest of Africa (ie excluding South Africa) during the
review period. This represented a 38% increase on the
preceding year’s figure and illustrates the IDC’s efforts to
alleviate the credit scarcity and stimulate investment
activity on the African continent. Most importantly, our
funding activity in financial year 2008/09 is expected to
result in the creation of 5 000 new direct job opportunities
in the rest of the continent (ie outside South Africa).
Industrial Development Corporation of South Africa Annual Report 2009 | 17
The exemplary standing of the IDC as a financial
institution bears testimony to the relentless
implementation of international best practice in
corporate governance, particularly sound risk
management. The IDC is thus in a position to play a
very critical role at such an important juncture in our
country’s socio-economic development.
IDC front Final.qxd 8/18/09 12:20 PM Page 17
Chairman’s Statement_continued
18 | Industrial Development Corporation of South Africa Annual Report 2009
Examples of projects for which funding was approved
include the IDC’s first mining investment in Eritrea
(ie a multi-commodity project that will produce gold,
silver, copper and zinc), a cassava cultivation and starch-
processing project in Swaziland, a pipe-manufacturing
plant in Botswana and a multi-faceted infrastructure
project in Uganda.
The African continent is richly endowed with commodities
and other resources, including an enormous, yet largely
unexploited agricultural potential. Forecasts for most
commodity prices point, at best, towards a very modest
recovery in 2009. However, considering the demand and
supply forces at play in the medium to long term,
commodity prices should resume an upward trend. In the
nearer term, this will be underpinned by the rollout of
massive stimulus packages focusing on infrastructure
investment throughout the globe. Over the medium term,
the eventual recovery of the world’s economies should
augment commodities demand, while income growth in the
densely populated and fast-growing emerging economies
such as China and India will almost certainly sustain the
momentum over the longer term.
The challenge remains for African countries to make the
most of a future recovery, tirelessly encouraging the
beneficiation of their resources instead of continuing to
export value-adding opportunities, missing out on the
massive export earnings potential and in fact creating,
elsewhere in the world, the employment opportunities that
are so desperately needed locally.
Human resource development
For the moment, the struggle for survival by companies
across the globe has overshadowed the war for talent.
However, as economies recover, companies will rapidly
resume the recruitment of top performers and put in place
measures to ensure their retention. This is key even in
difficult times, and particularly in light of the skills
constraints still facing numerous South African firms across
various professional fields. The IDC recognises the strategic
imperative to provide a holistic framework for the
development and growth of its employees, and even more
so in the currently adverse economic environment, when
extraordinary demands are being placed on our human
resource base.
During the past financial year the Women’s Development
Strategy was added to the comprehensive array of personal
development programmes offered to IDC staff. This strategy
has entailed a number of initiatives aimed at developing
women at all levels in the Corporation, including the
provision of opportunities for women to progress in the
organisation; focused development to attract and retain
professional women; and providing the required tools for
women to operate professionally and confidently in an
ever-changing business environment. Altogether seventy-
five women benefited from these initiatives during the
course of the year, with the initiatives providing an
experimental approach to understand the business
challenges facing the IDC and how we can learn from
other organisations.
Financial performance
To succeed in accelerating and sustaining the development
process, often by playing a catalytic role in greenfield
investments and, at the present time, by also providing
finance to distressed firms in light of the tight credit
markets, generally involves taking on and managing a
higher risk profile. Accordingly, a DFI like the IDC needs to
safeguard its own sustainability through extremely sound
financial and risk management processes.
The balance sheet of the IDC Group was not spared the
blows from the sell-off in global equity markets. Its total
asset value fell by 19%, from R90,4 billion to R73,4 billion, as
both listed and unlisted equities tumbled during the year.
However, this was countered to some extent by a 35% rise
in loans and advances, from R7,9 billion to R10,6 billion, as
the Corporation responded to an ever-rising demand for its
funding. The significant decline in investments
notwithstanding, the IDC’s capital and reserves remained
very strong at R65 billion, albeit lower than the R76 billion
recorded in the previous year.
Group profits for the year reached an all-time record value
of R5,6 billion, an increase of R1,7 billion over the previous
year. The R1,9 billion profit generated by the IDC’s operating
subsidiary, Foskor, contributed significantly to the Group’s
overall performance. However, the higher profits derived
from the IDC’s core financing activities also supported this
record profitability. As the ramifications of the global
economic crisis took their toll on many companies in our
portfolio, impairments rose by 183% to R1,2 billion
(2008: R420 million).
Conscious of the difficult environment ahead and of the
extraordinary demand for financial assistance, the IDC is
planning to gear its balance sheet to a much greater
extent over the next few years. Financial sustainability
will, nevertheless, remain imperative during these
challenging times.
IDC front Final.qxd 8/18/09 12:20 PM Page 18
Tribute
The global crisis has ruthlessly revealed the blatant failure
of corporate governance in many of the world’s most
powerful financial institutions – hence the irresponsible risk
taking and lax oversight that led to their eventual demise
or to the ongoing turmoil of surviving ones.
The exemplary standing of the IDC as a financial institution
bears testimony to the relentless implementation of
international best practice in corporate governance,
particularly sound risk management. The IDC is thus in a
position to play a very critical role at such an important
juncture in our country’s socio-economic development.
We are ready to sift through the uncertainties, to consider
alternative scenarios and their implications for our country
and institution, to think expansively about the
opportunities that lie ahead, and to prepare accordingly.
For this, and on behalf of the Board of Directors, we
congratulate Mr Geoffrey Qhena and his executive team,
as well as the management and staff of the Corporation,
for their tireless dedication, enthusiasm and intensified
efforts during these demanding times.
My eighth and final year as Chairman of the Board has
probably been the most challenging.Yet, it is extremely
heartening that, at a time when many of the world’s
financial institutions find themselves unnervingly
vulnerable, we as a Board can provide the assurance that
the IDC can and will continue to execute its role as a
development financier, meaningfully filling some of the
void left unaddressed by the commercial banking sector
and assisting in building an effective developmental state.
As this incredible personal journey comes to a close, I
express my profound gratitude to all Board members for
their invaluable contributions, business acumen, guidance
and commitment. My utmost appreciation is extended to
our fellow directors whose term ended on 30 September
2008, namely Messrs Fran du Plessis, Patty Graham, Thembi
Kunene and Dave Lewis, who served most diligently as
Deputy Chairman of the IDC Board since 2001. During the
course of the past financial year the Board has also had the
privilege of welcoming Messrs Lael Bethlehem, Lindani
Dhlamini, Shadrack Mapetla and Roger Pitot as directors,
whose contributions have already been invaluable.
The pace of economic deterioration appears to be
subsiding in many parts of the globe, with a few indications
of growth resuming in certain regions. However, it would be
premature to predict an end to the economic mayhem.
The impact of ongoing international efforts to thaw global
credit markets and stimulate economic activity worldwide
will take time to bear results. Confidence in and within the
world’s financial system must firstly be restored. Even then,
the system will have considerably less financial leverage
and will be significantly leaner. We expect that the
singular lesson for us all is that the world needs a new
moral compass.
As an enviable member of the global development
finance community, the IDC will undoubtedly rise to the
challenge, effectively playing a stimulatory role during
these trying times and continuing to make significant
contributions to the industrial development and economic
transformation of South Africa and the rest of the
African continent.
WYN LuhabeChairman
Industrial Development Corporation of South Africa Annual Report 2009 | 19
IDC front Final.qxd 8/18/09 12:20 PM Page 19
Executive Management
20 | Industrial Development Corporation of South Africa Annual Report 2009
MG QHENAChief Executive Officer
K SCHUMANNDivisional Executive: Services Sectors
LWJ MATLHAPEDivisional Executive: Human Resources andSupport Services
GS GOUWSChief Financial Officer
IDC front Final.qxd 8/18/09 12:20 PM Page 20
Industrial Development Corporation of South Africa Annual Report 2009 | 21
G VAN WYKChief Risk Officer
LP MONDIChief Economist and Divisional Executive:Professional Services
U KHUMALODivisional Executive: Resources Sectors
NV SOWAZIDivisional Executive: Marketing and Corporate Affairs
PB MAKWANEGeneral Counsel and Divisional Executive: Legal Services
S MEERDivisional Executive: Industrial Sectors
IDC front Final.qxd 8/18/09 12:20 PM Page 21
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22 | Industrial Development Corporation of South Africa Annual Report 2009
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Industrial Development Corporation of South Africa Annual Report 2009 | 23
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IDC front Final.qxd 8/18/09 12:21 PM Page 23
24 | Industrial Development Corporation of South Africa Annual Report 2009
Chief Executive’s Report
2009 has been a significant year for the
IDC as indeed was 2008.Yet the
significance of this year stems from the
manner in which the whole world has
experienced a reversal of economic
fortunes believed to be much worse
than even the Great Depression of the
1930s. Fortunately, the experience of
the 1930s and recessions thereafter
have been harnessed to forge a
quicker turnaround.
After more than 17 years of sustained growth the South
African economy has slipped into a recession. This is the
fastest slide into a contraction in 25 years. The statistics for
GDP growth for the first quarter of this year from Statistics
South Africa have confirmed that the 6,4% downward trend
confirm that the economy is in recession. The words of the
former Minister of Finance, Trevor Manuel, in his last budget
speech that dark clouds were gathering have been
confirmed. The technical recession proves that there are
times that require state intervention in the macro-political
economic system and that South Africa is neither an island
unto itself nor can it insulate itself from the macro-economic
imbalances that have struck the global economy on an
unprecedented scale. Universally, economies are inextricably
linked and no accounting principles and standards nor
regulation, or the lack thereof, could counteract the effects of
neo-liberalism and the undisciplined activities of financial
institutions driven by their lust after profits and avarice.The
consequences of the subprime crisis have been felt in both
the developed economies of the G8 countries as well as, if
not more so, in the emerging market economies.The South
African economy has been hit, albeit not as dramatically as
elsewhere, and the Industrial Development Corporation (IDC)
has taken heed of the fact that its operating environment
has undergone significant changes over the past 12 months.
This calls for more dedication and renewed commitment to
support government policy in stimulating the economy.
Industry development
The Minister of Finance in the 2009 budget speech
identified the IDC as the conduit through which new
business as well as companies in distress should be
assisted. Indeed, market failure is best addressed by
financing sustainable businesses in addition to companies
already in distress. Accordingly the IDC has not stopped at
new ventures but is attending to struggling businesses too.
In fact, the IDC has expanded the spectrum across which
IDC front Final.qxd 8/18/09 12:21 PM Page 24
Industrial Development Corporation of South Africa Annual Report 2009 | 25
assistance has been rendered. The expectation is that there
will be a greater need for businesses to be rescued.
Accordingly, the IDC has allocated funds to the value of
R6,1 billion to be spread over two years to assist businesses
in distress. This programme of funding will be administered
such that it will not be a blanket bailouts at a broad
industry level interventions but will be on a firm-by-firm
basis using long-term sustainability of enterprises as the
foundation for assistance, whilst helping sustain strategic
capacity and skills and also preserving jobs.
Given the current economic milieu the IDC cannot but
increase and expand its developmental and restructuring
assistance within deserving companies. The IDC must
continue with its normal role as a developmental agency
and not lose its focus that is the nucleus and core of its
business. It is anticipated in the year ahead the IDC will
approve more than R11,4 billion to help different sectors
grow, inclusive of R2,9 billion allocated for companies
in distress.
Entrepreneurial support
The primary financing activities of the IDC showed a
marked increase in the period under review. As the
economy of South Africa declined, the demand for IDC
funding to entrepreneurs increased. As a result the number
of investment approvals increased from R8,5 billion in 2008
to R10,8 billion in 2009.
The IDC provides support on three levels: provision of
funding for small, medium and large enterprises, business
skills development to potential entrepreneurs through
IDC-sponsored training and support for clients who are
facing the current difficulties that necessitate restructuring.
Although access to finance is one of the challenges faced
by SMEs, business skills remain a problem. To address this,
IDC is also providing training and business support to
clients. The expectation is that more SMEs will require our
support in the year ahead. Underpinning this is the IDC
commitment to the financing of SMEs that are critical
drivers of sustainable economic growth and job creation.
A major effort has been made to address skills deficiencies
both pre- and post-investment. Training has especially been
aimed at teaching potential entrepreneurs key skills that
entrepreneurship demands. As part of its multi-faceted
approach to developing entrepreneurs, the IDC approved
business support grants to the value of R8,9 million during
the year under review. These grants, coupled with
entrepreneurs’ own contributions, are aimed at strengthening
businesses by providing targeted business support where
entrepreneurs require training in specific areas.
At the end of the last financial period the IDC undertook to
extend its reach and presence to all provinces of South
Africa to ensure that as an institution we are more
accessible to entrepreneurs. We are pleased to report that
A major effort has been made to address skills
deficiencies both pre- and post-investment. Training
has especially been aimed at teaching potential
entrepreneurs key skills that entrepreneurship demands.
IDC front Final.qxd 8/18/09 12:21 PM Page 25
Chief Executive’s Report_continued
during the period under review the regional offices of the
IDC have all been in operation and to date these offices
have seen 26% of business plans that are submitted to the
IDC. The regional managers have decreased the
turnaround time on responses to clients after an initial
assessment of these business plans through their location
in the regional offices. To build and extend partnerships in
regions to entrepreneurs, the IDC will work in close
cooperation with Khula Enterprises in the year ahead to
reach micro-enterprises specifically.
Developmental performance
The IDC’s Leadership in Development strategy underpins the
creation of sustainable employment. To achieve its
objective, IDC job targets were doubled from 2007 onward
and in light of the current economic crisis, substantial job
initiatives and job creation programmes have been put in
place. At a time when economic conditions have
deteriorated both globally and within the South African
economy and when 208 000 people lost their jobs in the
first quarter of 2009, the IDC has and will continue to serve
the economy in the process of increasing the industrial
capacity of South Africa to promote job creation through
entrepreneurship. With the unemployment rate at 23,5% in
the first quarter of 2009 signalling a total of 4,2 million
unemployed people by the end of March 2009, the key
sectors that have been most affected by the rising job
losses are the trade sector, manufacturing, mining and
construction. The IDC has endeavoured to not only save
jobs but also to create new jobs. During the year under
review the IDC approvals will create 24 200 jobs and save
2 500 jobs of which 75% will be in the clothing and
textiles sector.
We aim to contribute to 9% of the country’s job creation
needs by 2011 and save jobs most specifically at this time
through special funding for businesses in distress, with the
majority of the jobs saved to be in clothing, textiles, and
leather and footwear industries as well as in gold jewellery
manufacture, forestry and orchards.
In order to ensure that our developments are indeed
sustainable, the IDC continues to assess the long-term
sustainability of its investments both with respect to job
creation and financial performance of clients. This year was
no different. A random sample of IDC clients was selected
to assess if the expected jobs created were indeed created
to ensure our success is meaningful. The newly staffed Post-
investment Monitoring Department will be critical in
ensuring the effective monitoring of IDC clients in this
regard, with a view that should clients require additional
assistance meeting their entrepreneurial needs, the IDC will
assist them wherever possible.
Black economic empowerment
Black Economic Empowerment (BEE) remains a priority at the
IDC.We remain committed to the implementation of broad-
based BEE as defined in the Codes of Good Practice.
Altogether 57% of the total value and 60% of the total
number of approvals benefited black-empowered companies.
The value of approvals to empowered companies increased
from R5,4 billion in 2008 to R5,9 billion. Of this, R1,8 billion was
for acquisitive BEE transactions.
In addition to our traditional financing activities around BEE,
the IDC continues to look at and improve on expansionary
BEE and support to black designated groups. We achieve
this through, amongst other things, the approval of our
Transformation and Entrepreneurial Scheme. This fund is
aimed specifically at entrepreneurs from the most
disadvantaged groups in South Africa. There are five funds
incorporated under this scheme: Women Entrepreneurial
Fund of R400 million, Disabled Persons Fund R50 million,
Community Fund R150 million, Development Fund
R250 million and Equity Contribution Fund R150 million.
Internally we have improved our processes such that we
have self-rated the IDC as a level two contributor against
the adjusted generic scorecard for public entities.
This represents an improvement from our previous year
during which we were self-rated as a level four contributor.
Regional development
Rural developmentThe increased client interaction in the regions as a result of
the opening of the regional offices, the IDC accepted
580 business plans from entrepreneurs based in the various
provinces of South Africa. The role of the regional offices,
however, is not limited to financial assessments. During the
year the respective regional managers were involved in a
number of activities in partnership with various other
regional role players. These included but were not limited
to provincial and local government, business chambers and
other DFIs.
IDC-funded development agencies have had another
successful year of unlocking regional investment potential.
During the year an additional seven agencies were approved,
making it a total of 30.This is in addition to the 23 existing
agencies.These agencies have continued to have successful
interventions in local economic comparative advantages as
well as tapping into the economic potential of townships
and rural areas to create social equity.
26 | Industrial Development Corporation of South Africa Annual Report 2009
IDC front Final.qxd 8/18/09 12:21 PM Page 26
Rest of Africa
As with previous years the IDC has had a successful year on
the African continent. The strategy and prioritisation of
sectors and areas of the continent served our objective of
contributing to industrialisation and achieving the highest
possible development impact on the continent well. This is
evidenced through the value of investment approvals on
the continent (excluding activity in South Africa) which
increased from R2,1 billion in 2008 to R2,4 billion in 2009.
The largest of these investments relate to mining and
telecommunications infrastructure. A number of strategic
investments were also made in the construction, healthcare
and transportation sectors.
The IDC actively engaged various development finance
institutions (DFIs) in the economic regions of the continent
to partner, where possible, with the IDC in financing
strategic projects on the continent. To this end the IDC has
provided lines of credit to two institutions around the
continent with the view to further out development impact
in Africa.
The IDC remains actively involved in the Africa DFI forum.
During the year we actively participated in the forum
events that took place in South Africa. We remain
committed to strengthening relationships across Africa
and indeed working together with our partners on the
African continent.
Sustainability
The IDC has again shown that it is a key agency in the
provision of development finance. To support sustainable
development, the Corporation has funded business in
keeping with the IDC Act. The IDC has not escaped the
ripple effect of the financial crisis and as a result its capital
base has declined. This was due to the decline in both listed
and unlisted equities during the year. This has resulted in a
downward fair value adjustment of approximately
R26 billion. Despite this decline the Corporation remains
financially viable and in a sustainable position, with reserves
of R65 billion from R76 billion last year.
Loans and advances have, however, increased by 35% from
R7,9 billion to R10,6 billion. This is an indication that the
Corporation has not tightened its lending criteria and there
is an increased demand for funding to be provided by the
Corporation. In light of this, the Corporation is looking to
gear the balance sheet much more in the next few years to
meet this increased demand for funding. Borrowing is
expected to increase from R5,9 billion to R24,9 billion in the
ensuing period.
The IDC Group made a record profit of R5,6 billion, an
increase of R1,7 billion over the previous year. The
profitability of the operating subsidiary, Foskor, increased
from R0,8 billion in the previous year to R1,9 billion in the
current year. The profits from the core financing activities of
Industrial Development Corporation of South Africa Annual Report 2009 | 27
The CEO cutting a ribbon to officially open
the Limpopo Regional Office
The IT department posing after winning an award as the Best Support Unit for 2008
IDC front Final.qxd 8/18/09 12:21 PM Page 27
Chief Executive’s Report_continued
the Corporation also increased significantly during the year
under review. The share of profits from equity-accounted
investments declined from R1,9 billion in the 2008 financial
year to R1,1 billion in the 2009 financial year due mainly to
the effects of the global financial crisis. Many companies
have been affected by this crisis and, as a result,
impairments have increased by 183% from R420 million in
the previous year to R1,2 billion in the current year. This
high level of impairments is also a signal that we invest in
higher risk companies who will feel the impact quicker.
Strategic initiatives
Funding initiativesA number of large projects that have strategic impact and
are in keeping with national and provincial strategies
include, amongst others, beneficiation, expansion of the
local aerospace industry, and financing of hospitals through
the hospital and transformation scheme.
During the period under review the IDC has approved
special schemes for the clothing, textile, leather and footwear,
and gold jewellery and forestry industries. Most specifically,
through its strategic partnership with the dti, the IDC will
administer the clothing and textile competitiveness
improvement programme which has been designed to
stimulate the competitiveness of the South African clothing
and textile manufacturing sector.This five-year programme
will be administered by the IDC and is valued at R250 million.
The IDC has over the years identified specific funding
schemes in strategic sectors. This funding has been used to
increase competitiveness, transform the sector and provide
competitive financing to those who require it. These
schemes attempt to acknowledge the areas of market
failure in funding to specific sectors through the
acknowledgement of the long periods before cash
generation make the sector more attractive to potential
investors and incentivise for high development impact.
This has led to the extension of the pro forestry and pro
orchards funding schemes for two years.
Other strategic projects include those that are addressing
aspects of electricity generation through our focus on
cleaner technologies. Electricity generation through
independent power providers through the use of public-
private partnerships and a number of cleaner energy
alternatives such as solar power generation. This has
included support to companies utilising selling of carbon
credits as an income stream and support to the energy
enterprise efficiency programme for South Africa.
Shareholder activism Shareholder activism has always been something that the
IDC has understood to be a strategic intervention that we
are in the privileged position to exercise due to the nature
of our shareholding in companies. On maturity of a
strategic investment the IDC will divest. Foskor, while a
subsidiary of the IDC, is no exception. A decision was taken
by the Board to divest from Foskor and give shareholding
back to the market. The strategic nature of the decision was
to introduce BEE shareholding into Foskor through the sale
of IDC’s 26% shareholding. Further to this is the
introduction of broad-based groupings into the BEE
grouping, empowerment of the surrounding communities
to Foskor operations and the inclusion of IDC-funded
vendor financing that has made this a truly unique broad-
based BEE transaction.
Internal processesDuring 2008 the IDC undertook a values campaign during
which the behaviour and values of IDC employees were
identified. The values tag line of I Make it Happen is central
to the new IDC values. This is seen as not just a tag line but
a way of being for IDC staff. The three core values of
“professional, partner, passion” talk to the IDC way of doing
business, which should create a mark of excellence to
whoever IDC employees interact with such that the IDC
mandate will be entrenched beyond financing.
With the increase in staff, there have been space constraints
in the existing infrastructure of the IDC. As a result we have
used this as an opportunity to upgrade the existing
infrastructure and change the IDC head office in Sandton to
an open-plan environment. This has been an ongoing
project which will be completed during 2010. The Open
Plan Open Mind campaign has been successful in ensuring
readiness on the part of all staff for the new office
configuration. This new open-plan office is anticipated to
change the way the IDC does business and moves us closer
to a paperless environment.
The IDC has long recognised that the ability to innovate will
ensure success and longevity. The Innovation initiative at
the IDC was undertaken during the period under review as
a way to formalise the processes that encourage staff to
innovate around both internal and external processes. This
acknowledges that there may be new ways to achieve our
objectives and to operate even more successfully. This will
also assist the IDC to improve in every facet of our business.
Our innovation drive is bringing all of this together.
Stakeholder engagementIn line with our values, the IDC launched new customer-
centric deliverables per department and unit within the
Corporation. These talk to the new values but also to the
engagement with all stakeholders that indeed both
operational and support staff at the IDC interact with.
28 | Industrial Development Corporation of South Africa Annual Report 2009
IDC front Final.qxd 8/18/09 12:21 PM Page 28
Since 2006 there has been an increasing trend in customer
satisfaction with the IDC’s service. It is hoped that with
these new customer-centric deliverables combined with
the increased reach and presence of the IDC, and improved
lines of communication through our new website and
electronic communications that our clients will have a
pleasant experience with IDC staff.
Corporate Social Investment
This has been a busy period for CSI at the IDC. As with
previous years the IDC has maintained its ongoing CSI
activity through staff payroll activities through the I Do Care
and Nguni Cattle programmes. Added to these initiatives
are the volunteering programme that had its second
successful year through the Habitat for Humanity
programme which saw IDC employees build five houses in
Orange Farm.
During the year the IDC contributed R10 million to a fund to
counteract the effects of the violence against foreign nationals
through the xenophobia attacks in residential areas around
South Africa.This was complemented with a collection of
food and clothing items by staff, which was presented to
various charity organisations around Johannesburg for
distribution to those with the greatest need.
The women at the IDC have once again contributed
meaningfully to the CSI programmes. This year every
woman staff member was presented with an opportunity
to adopt a grade 11 scholar who will be mentored by that
staff member until the completion of their secondary
schooling, with the top 10 scholars being afforded the
opportunity to qualify for an IDC bursary. These 210
scholars’ fees, uniforms, extra mathematics, science and
accounting programmes and stationery costs are being
covered by the IDC at an estimated cost of R3 million.
In addition to this, the IDC bursary scheme this year
sponsored 168 students – 90 females and 78 males.
Mindful of all of this, it is our hope that we are contributing
positively to the growth and development of South
Africa’s youth.
Prospects
We are anticipating that this will be a busy year at the IDC.
Not only will we be increasing our regular funding activities
but we are anticipating that given the current economic
preconditions there will continue to be an increased
demand for IDC financing. We are ready for the challenges
that lie ahead. We have readied the Corporation through
our available finance, competent staff, excellence in our
internal processes and systems.
The role of the IDC with regard to inputs to the national
development agenda will also be ramped up. We are
anticipating that our inputs to the various partners that we
have at the various spheres of government will continue
and indeed be increased. It is apparent from the number
and range of projects and initiatives that the IDC is
undertaking that having the right staff complement is a
very necessary component of success of the IDC. With that
in mind, we have identified the human capital capacity
constraints that have existed and identified a plan that we
are implementing to ensure that we grow the existing
human capital capacity to fulfil the mandate given the
increased demand for IDC funding at this time.
We are expecting that the level of impairments will increase
in the year ahead due to the operating environment and
the increased level of risk that the IDC will be taking to
address our core role of being a counter-cyclical institution.
Acknowledgements
An organisation is only as successful as its staff and once
again the successes of the IDC could not have been
possible without a dedicated staff complement and
executive management team. It takes a dedicated group of
individuals with a passion for development to tackle the
challenges that the IDC faces when we undertake our
investments. I believe that we have this team at the IDC.
With this in mind I wish to express my gratitude to the
dedication of the executive management team who with
me guide the staff at the IDC.
Thanks to the Board of Directors who continue to provide
strategic guidance and challenging debates that help us to
create an enabling environment for the staff. A special
tribute to the Chairman of the Board for having dedicated
10 years to this Corporation, your guidance and inspiration
will forever be appreciated.
My profound appreciation to the Minister of Trade and
Industry and his team for their invaluable and continued
support during the year, and the Portfolio Committee of
Trade and Industry whose interaction is always welcomed
and inspiring.
MG QhenaChief Executive
Industrial Development Corporation of South Africa Annual Report 2009 | 29
IDC front Final.qxd 8/18/09 12:21 PM Page 29
Details of financing per Strategic Business Unit (SBU):
(R’m) 2009 2008
Resources sectors SBUs 7 139 5 010
Food, Beverages and Agro-industries 594 739
Mining and Beneficiation 3 078 2 813
Public and Private Partnerships 3 340 1 397
Venture Capital 127 61
Industrial sectors SBUs 2 598 1 729
Chemicals and Allied Industries 442 233
Textiles and Clothing 402 400
Metals, Transport and Machinery Products 574 839
Wood, Paper and Other 385 197
2010! and Construction 795 60
Services sectors SBUs 3 937 3 795
Franchising 232 399
Healthcare and Education 650 411
Media and Motion Pictures 477 363
Techno-industries 848 523
Tourism 756 1 141
Transportation, Financial Services and Other 974 958
Total approvals 13 674 10 534
Cancellations of prior years’ undrawn commitments 2 912 2 077
Net approvals 10 762 8 457
Number of enterprises financed before cancellations of prior years’undrawn commitments 262 218
Number of enterprises financed net after cancellations 231 167
Operational Review – NEW BUSINESS
30 | Industrial Development Corporation of South Africa Annual Report 2009
The net financing approvals during the five-year period
2005 to 2009 totalled R33 billion.
The number of approvals reflects an increasing trend
over the past five years in line with the increase in the
value of approvals.
Value of financing approvals pastfive years (net after cancellations)
0
2
4
6
8
10
12
2005 2006 2007 2008 2009
Financial year
R b
illio
n
Number of financing approvals(net after cancellations)
0
100
200
300
2005 2006 2007 2008 2009
Financial year
Nu
mb
er
IDC front Final.qxd 8/18/09 12:21 PM Page 30
Industrial Development Corporation of South Africa Annual Report 2009 | 31
Nearly 80% of the funding approved will be utilised for new
or additional capacity.This is in line with the IDC’s objective
regarding the creation of additional capacity. Altogether
36% of the financing will be utilised for new start-ups,
which is in line with the IDC’s objective of assisting the
entry of new entrepreneurs in the economy. Nearly 5% of
the approved financing (R500 million) was for distressed
companies.
A total of R1 489 million (14% of the approved financing)
will be utilised in South African rural areas and
townships. Investments in new or additional capacity in
the rest of Africa will utilise 27% of the approved
financing.
Altogether 159 of the approvals during 2009 (69% of the
total number of approvals) were for SMEs. A total of
R2 126 million (nearly 20% of the total value of
approvals) were for these SMEs (companies with less
than 200 employees, with a turnover less than
R51 million and/or less than R55 million total assets).
The R10,8 billion approved during the past financial yearwill assist in the creation or saving of 31 700 new directjob opportunities. Altogether 26 761 of these jobs will becreated/saved in South Africa and nearly 5 000 in therest of Africa. The IDC’s financing activities during thepast five years will assist in the creation of more than 147 000 job opportunities.
Altogether 34% of the jobs will be created in the South
African rural areas and townships, and 50% will be
created (or saved) in the rest of South Africa and 16% in
the rest of Africa.
Geographic utilisation of financing
27%
10%
South African townships (4%)
Rest of South Africa (59%)
Rest of Africa (27%)
South African rural areas (10%)
4%
59%
Number of approvals according to size of businesses
69%SMEs (69%)
Large enterprises (31%)
31%
Number of approvals according to size of businesses
69%SMEs (69%)
Large enterprises (31%)
31%
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
Number of jobs created(including rest of Africa)
South Africa
Rest of Africa
Nu
mb
er o
f SA
job
s
’05 ’06 ’07 ’08 ’090
10 000
20 000
30 000
40 000
Nu
mb
er o
f R
est
of
Afr
ica
job
s
Utilisation of financing
Distressed companies (5%)
South African start-ups (36%)
South African expansions (17%)
Investments in the rest of Africa (27%)
Ownership changes (15%)
27%15%
17%
5%
36%
IDC front Final.qxd 8/18/09 12:21 PM Page 31
IDC front Final.qxd 8/18/09 12:21 PM Page 32
Industrial Development Corporation of South Africa Annual Report 2009 | 33
DIVISION: INDUSTRIAL SECTORS
Operational Review
Case study: Supporting entrepreneurs inthe chemicals industryProject
The Chemicals and Allied Industries SBU has committed funding of R11 million to
Nkonzwentle, a small-scale manufacturing company operating in KaBokweni, outside
Nelspruit. Established in 2004, the company produces polypropylene bags for the
agricultural sector in the Lowveld region.
Creating jobs
Nkonzwentle is majority women-owned and the investment will create 140 jobs in a
rural area.
Building beneficiation capacity in the chemicals sector
South Africa produces an abundance of polypropylene, yet has limited capacity for
beneficiation. Partly utilising the Transformation and Entrepreneurship Scheme (TES),
the IDC will assist Nkonzwentle to backward integrate and scale up its operations, and
manufacture more efficiently. The IDC’s funding will also be used to buy plant and
equipment. The investment is aligned with the dti’s Industrial Policy Action Plan’s (IPAP)
initiative to improve beneficiation capacity in the polypropylene sector.
IDC front Final.qxd 8/18/09 12:22 PM Page 33
34 | Industrial Development Corporation of South Africa Annual Report 2009
Operational Review – INDUSTRIAL SECTORS
Chemicals and AlliedIndustries
The Chemicals and Allied Industries SBU
offers finance to companies operating in
the chemicals and allied industries
sector, one of the largest manufacturing
sectors in the South African economy.
The unit aims to be a development
leader in creating sustainable industrial
growth in South Africa and the rest
of Africa.
Development impact
• During the past financial year the SBU approved
investments totalling R355 million which are expected to
create 331 job opportunities in South Africa and the rest
of the continent.
• The unit also provided a working capital facility of
R15 million to one of the IDC’s business partners, saving
approximately 474 jobs.
Highlights of the year under review
• There was a significant decrease in the unit’s
outstanding capital from approximately R1,8 billion
at the end of March 2008 to approximately
R500 million at the end of March 2009. This was
mainly as a result of the good performance of Foskor,
which repaid all of its shareholders’ loans amounting
to R1,44 billion. Foskor also paid a dividend to the
IDC of R1,1 billion. The impairments of the SBU
however almost increased sevenfold as a result of
companies experiencing severe cash flow problems
because of the economic crisis.
• A substantial investment was earmarked for the
expansion of Bliss Chemicals, an existing IDC interest
that manufactures MAQ washing powder.
• Approval was obtained to invest in the establishment of
a large pipe manufacturing plant in Botswana using
Austrian technology.The investment comprises an equity
stake of 31% with the balance being debt funding.The
investment will be co-funded by DBSA and the unit sees
this as the start of other co-funding opportunities with
other development finance institutions.
• An amount of R15,2 million was earmarked for
enterprises that provide products such as bricks and
paving, especially for local government infrastructure
programmes in Gauteng, Mpumalanga and the
Eastern Cape.
Industrial Development Corporation of South Africa Annual Report 2009 | 35
Opportunities remain for downstream beneficiation in
the chemicals sector. In particular the unit will look to
develop projects linked to the beneficiation of
zirconium and titanium dioxide.
• The unit made an investment of R40 million in an
enterprise that produces zircon sand and beneficiates
it into speciality chemicals with applications in high-
value-added products. South Africa produces 45%
of the world’s zircon sand, which is then exported
for further beneficiation. This project forms part of
the dti’s Industrial Policy Action Plan (IPAP) as a
strategic initiative.
Sector trends
• Most IDC business partners in the plastic sector
experienced margin squeeze in the first half of the
financial year due to high oil prices and therefore
experienced cash flow difficulties. Fortunately, most were
able to trade themselves out of difficulty when fuel prices
softened during the latter part of 2008. This resulted in
fewer impairments than initially expected.
• Declining consumer spending, especially in the
residential housing market, affected many brick
manufacturers. This was cushioned to some extent by
government infrastructure spend.
Outlook and key initiatives
• The chemicals sector has been identified as a strategic
sector under the dti’s National Industrial Policy Framework.
Although the unit made strides in starting to implement
Industrial Policy Action Plans (IPAP), progress has been
slower than anticipated because of the current global
economic conditions.
• Opportunities remain for downstream beneficiation in the
chemicals sector. In particular the unit will look to develop
projects linked to the beneficiation of zirconium and
titanium dioxide.
During the past
financial year the
SBU approved new
investments totalling
R355 million, which
are expected to
create 331 job
opportunities.
IDC front Final.qxd 8/18/09 12:22 PM Page 35
Operational Review – INDUSTRIAL SECTORS_continued
2010! and Construction
The 2010! and Construction SBU
finances economically viable
businesses within the construction
industry and also facilitates the
financial support of viable businesses
directly related to the 2010 FIFA
World Cup®.
Development impact
During the past year the unit has funded a number of
infrastructure projects across the continent, helping to boost
social and economic development. Support for businesses
related to the 2010 FIFA World Cup® has also risen steadily.
In addition, the unit has provided funding for BEE
acquisitions of medium to large construction companies to
help transform the industry in line with the Construction
Industry Charter.
Highlights of the year under review
During the past financial year the unit:
• approved commitments of approximately R582 million
to small, medium and large businesses in the
construction industry; and
• funded the expansion and acquisition of a 10,5% stake
in listed construction firm Basil Read.
2010!The unit funded Homeless Construction, one of the few
black-owned construction companies awarded a slice of
the contract to build and upgrade stadiums for the 2010
FIFA World Cup®.
Construction
• In order to diversify the IDC’s book and utilise the
immediate financial benefits of a strong JSE-listed
company to help develop smaller enterprises, the unit
funded the acquisition of a 10,5% stake in Basil Read.
• Commitments to businesses across Africa grew to
approximately R1 billion across a diversified portfolio
of loan and equity investments.
• Skills training workshops were funded by the unit in
conjunction with the Construction Industry
Development Board (CIDB) to boost skills, particularly
financial expertise, within the construction industry.
36 | Industrial Development Corporation of South Africa Annual Report 2009
IDC front Final.qxd 8/18/09 12:22 PM Page 36
Sector trends
Rising interest rates and the global economic downturn has
adversely affected some players in the construction
industry during the past year, particularly in the residential
building market. However, the construction of public
infrastructure, such as airports, roads, schools, power
stations and sport stadiums, has continued to grow. This
made the construction sector the fastest-growing sector in
South Africa. This trend is expected to continue in the
medium term, largely driven by government and parastatal
budgeted expenditure.
Outlook and key initiatives
During the next financial year the SBU will focus on:
• providing rapid financing and performance guarantees to
qualifying enterprises;
• spreading the provision of construction finance to more
provinces; and
• financing women in construction in order to contribute
to the success of the Construction Industry Charter and
gender equality in general.
Industrial Development Corporation of South Africa Annual Report 2009 | 37
The unit has
provided
funding for BEE
acquisitions to
help transform the
construction industry.
IDC front Final.qxd 8/18/09 12:23 PM Page 37
38 | Industrial Development Corporation of South Africa Annual Report 2009
Operational Review – INDUSTRIAL SECTORS_continued
The IDC remains committed
to developing the country’s
aeronautical manufacturing
capabilities through the Aero-
Mechanical Manufacturing Cluster.
Metals
The Metals SBU aims to develop and
support viable downstream producers
of value-added ferrous and non-ferrous
metal products and establish a
complete value chain in the transport
equipment and fabricated metals
sectors. This includes the manufacture
of products for the renewable energy,
automotive and transport sectors.
Development impact
• The unit approved 27 transactions to a value of
approximately R574 million, which are expected to create
1 203 new job opportunities as well as save an additional
157 jobs.
• Of the total amount invested, approximately R138 million
was towards funding expansionary BEE activities,
acquisitions or changes of ownership.
• The investments were mainly for start-up and
expansionary projects, particularly in the SME sector, but
in view of the current global economic meltdown,
investments were also made in the distressed sectors of
automotive and capital goods.
Highlights of the year under review
The unit approved financial assistance to establish a
photovoltaic polysilicon module assembly plant in Cape
Town. The project will create 106 direct and 30 indirect
jobs in a photovoltaic downstream operation, the third
of its kind in South Africa. The company is wholly owned
by a French-registered company which develops, instals,
finances and operates photovoltaic installations of all
sizes, from residential-use panels to solar parks, and
which decided to secure its supply of solar panels from
South Africa.
Further investment and support was granted to a 100%
black female-owned company which specialises in the
refurbishment of Metrorail commuter coaches. In
support of government’s accelerated rolling stock
programme aimed at developing a reliable and efficient
passenger rail system for the FIFA 2010 World Cup®.
The company has created 204 permanent jobs in the
semi-rural Karoo town of Touws River.
IDC front Final.qxd 8/18/09 12:23 PM Page 38
Industrial Development Corporation of South Africa Annual Report 2009 | 39
The SBU approved approximately R220 million for auto-
component suppliers, comprising mostly SMEs. It also
approved R70 million for the automotive sector and
R150 million for the capital goods industry. Of this total
amount, R9 million was approved for a distressed
company involved in high-pressure and gravity die-
casting of zinc and aluminium auto components for the
local and export market. With the IDC’s assistance, the
company was able to negotiate and restructure its
existing facilities with other funders. In addition, the IDC
facility has enabled the transformation of the company
through the acquisition of 26% shareholding by a Broad-
based Black Economic Empowerment group. It is
envisaged that the IDC’s investment will result in the
preservation of 157 jobs.
The unit continued to make progress in supporting
entrepreneurs in the transport equipment
manufacturing sector, specifically those operating in the
boat- and yacht-building industry. South Africa is now
the second largest manufacturer of catamarans after
France, and the increased demand for South African-built
boats has seen the sector exporting 85% of its products.
The industry has the potential to create employment
opportunities for workers both in the Western Cape and
KwaZulu-Natal.
Sector trends
The sectors serviced by the unit have been adversely
impacted by the global economic slowdown, with the
automotive and capital goods sector being the hardest hit.
The global and local automotive industry experienced a
decline in the sale of new vehicles, a process of
rationalisation, the closing of plants and dealerships, as
well as large-scale retrenchments.
Notwithstanding the current macroeconomic challenges
worldwide, the unit continued to benefit from the
Industrial Policy Action Plan’s (IPAP) focus on the
beneficiation of basic metals, as well as the manufacture
of fabricated metals products primarily to support the
public sector capital expenditure programme through
state-owned enterprises such as Eskom, Transnet, the
Pebble Bed Modular Reactor Company, and Public Rail
Services Agency.
With the imminent lifting of the export restrictions
legislation by the dti on scrap metal, the unit expects to
see both local and international players setting up scrap
metal beneficiation and downstream processing plants in
South Africa.
Outlook and key initiatives
Renewable energy will continue to be a key focus area for
the unit. It will play a role in establishing new industries,
expansionary projects and facilitating BEE in the
manufacturing of solar water heating systems, photovoltaic
solar systems, wind-generated electricity plant components,
hybrid vehicles and other types of vehicles using
environmentally friendly energies.
The IDC remains committed to developing the country’s
aeronautical manufacturing capabilities through the Aero-
Mechanical Manufacturing Cluster. With the establishment
of the Centurion Aerospace Village (CAV), the global
integration of subtier suppliers will be undertaken with two
lead industry partners, namely Aerosud and Denel. This will
ensure that SMEs and BEE players can pursue opportunities
up the supply chain.
The SBU remains committed to developing the automotive
sector in South Africa. The release of the detailed elements
of the Automotive Production and Development
Programme (APDP) from 2013 to 2020 will enable vehicle
manufacturers and their suppliers to plan strategically for
the future and to finalise investment decisions with
confidence and certainty. In addition, government will
develop the automotive sector as one of four lead sectors
prioritised for fast-tracking based on its potential to
contribute to economic growth, employment and equity
under the National Industrial Policy Framework (NIPF) and
Industrial Policy Action Plan (IPAP).
Further investment
support was
granted to a 100%
black female-
owned company.
IDC front Final.qxd 8/18/09 12:23 PM Page 39
Risk Capital Facility (“RCF”)
The Risk Capital Facility SBU was
established in 2001 to manage third-
party funds and IDC ring-fenced funds.
It channels these funds into high
development impact and economically
viable projects whose needs are not
totally addressed by IDC’s normal
funding products and those offered by
third-party financiers.
Development impact
The funds managed by the unit focus on developmental
areas including: technological innovation; SME
development; job creation; Broad-based BEE; and
empowerment of other previously marginalised groupings
such as women and people with disabilities. The majority
of these funds are channelled into projects through a
co-financing basis with IDC Investments.
The role of the unit is to support these high developmental
projects that would otherwise not happen without
concessionary funding support due to their higher risk
profile. In order to support these projects, the IDC allocates
and ring-fences portions of its capital to targeted groups. In
addition, the IDC, through managing third-party funds,
broadens its impact by leveraging these funds.
The funds currently managed by the unit include:
• The Transformation and Entrepreneurial Scheme (TES),
a R1 billion IDC ring-fenced fund established in February
2008 for the empowerment of entrepreneurs from
various marginalised groups. This scheme consists of the
following five funds:
– The Women Entrepreneurial Fund, offering funding
to women entrepreneurs and women-owned
businesses. The fund has an investment value of
R400 million, of which R40 million is for business
support.
– The People with Disabilities Fund, with an investment
value of R50 million, of which R5 million is for
business support aimed at developing disabled
entrepreneurs.
– The Development Fund, focusing on the
empowerment of blue-collar workers by assisting
them to obtain shareholding in various projects and
40 | Industrial Development Corporation of South Africa Annual Report 2009
Operational Review – INDUSTRIAL SECTORS_continued
The TES scheme facilitated
32 approvals amounting to
R121,7 million. The approved
projects are expected to create
1 892 jobs throughout the country
in a variety of sectors.
IDC front Final.qxd 8/18/09 12:23 PM Page 40
Industrial Development Corporation of South Africa Annual Report 2009 | 41
business. The fund has an investment value of
R250 million, of which R7,5 million is for
Business Support.
– The Community Fund, focusing on empowering
black communities to obtain shareholding in IDC-
funded projects. The fund has an investment value
of R150 million, of which R5 million is for
Business Support.
– The Equity Contribution Fund, supporting black
entrepreneurs and BEE companies with financial
contribution requirements. The fund has an
investment value of R150 million, of which
R15 million is for Business Support.
• Risk Capital Facility 1 and 2 Funds (RCF1 and RCF2):European Union-funded facilities capitalised at
approximately €47 million each, managed on behalf of
the dti.
• The Support Programme for Industrial Innovation(SPII): A fund managed on behalf of the dti. It is aimed
at promoting technology development in industries
within South Africa through the provision of financial
assistance for innovation of competitive products and/or
processes. SPII consists of three schemes, namely Product
Process Development (PPD), and Matching and
Partnership schemes.
• The Product Process Development (PPD) Schemeprovides financial assistance in the form of a taxable, non-
repayable grant of between 50% and 85% of the total
qualifying costs incurred in pre-competitive development
activity associated with a specific development project
up to a maximum of R500 000.
• The Matching Scheme: A taxable, non-repayable grant of
50% and 75% of the qualifying costs incurred in the
development activity up to a maximum grant of
R1,5 million.
• The Partnership Scheme is in the form of a conditionally
repayable grant, of up to 50% of the qualifying costs
incurred in the development activity, with a minimum
conditional grant amount of R1,5 million repayable on
the successful implementation of the project.
Highlights of the year under review
• During the past financial year the unit successfully
launched and implemented the TES scheme.
• The TES scheme facilitated 32 approvals amounting to
R121,7 million. The approved projects are expected to
create 1 892 jobs throughout the country in a variety
of sectors including mining, tourism, food and agro
processing, wood, metals, health, transport and
chemicals. One of the projects financed through TES is
Auspex, a hotel initiative in the Eastern Cape, one of the
poor provinces in South Africa, which will create
347 jobs.The project will result in broad-based black
empowerment through the acquisition of 20%
ownership in the business by blue-collar workers.
• The RCF2 fund resulted in 11 approvals totalling
R109,7 million with at least 922 jobs expected to be
created. One of the major projects is the Phoenix
Recovery Fund, a R45 million niche fund financed to
the tune of R20 million by the RCF unit. The fund
focuses on the turnaround of distressed companies.
Phoenix will finance distressed companies in all
sectors of the economy, a critical undertaking in the
current economic climate.
• The IDC Board approved the management of the
Clothing and Textiles Competitiveness Programme
(CTCP), a five-year dti grant-funding initiative designed
to stimulate competitiveness of the South African
clothing and textile manufacturing sector through
people, processes and product upgrading within the
companies involved.
• Funding for 72 innovation projects with a total value of
over R57 million through the SPII programme was
approved, of which 37 projects to the value of
R14,5 million were committed to SME and BEE
companies under the PPD Scheme.TMI Consultancy,
which successfully developed and commercialised a
generic simulator platform using the latest controller
technologies, was ranked to be the winner, at the dti2008 Technology Awards, under the small companies
category.The generic approach to the design reduces
cost of simulators in different environments.
Outlook and key initiatives
The unit’s focus for the next financial year will be to:
• ensure successful implementation of the CTCP desk;
• ensure continued facilitation of investments under TES
and RCF2 Fund in order to ensure outreach in all
provinces in South Africa and in the rest of Africa; and
• develop a blueprint for the refocusing of the SPII Scheme
programme in order to increase participation and
development impact.
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42 | Industrial Development Corporation of South Africa Annual Report 2009
Operational Review – INDUSTRIAL SECTORS_continued
Textiles and Clothing
The Textile and Clothing SBU aims to
be the primary source of development
finance for the textiles, clothing, leather
and footwear industries in South and
southern Africa.
The unit provides loan and/or equity finance to projects
and businesses that exhibit economic merit and assists in
the turnaround of troubled businesses with clear recovery
potential. It also works with government to help create an
environment conducive to investment in these sectors and
with the industry to identify, develop and grow viable
business opportunities.
The unit covers the following subsectors:
• the production of synthetic fibres used in textile
production (the production of natural fibres is the
domain of the Food, Beverages and Agro-industries SBU);
• the spinning of fibres into yarn;
• the processing of fibres into non-woven textiles;
• the weaving of yarn into fabric;
• the production of apparel, household textiles and other
textile goods;
• the printing, dyeing and other finishing processes
associated with the above;
• the production of leather goods; and
• the production of footwear.
Development impact
The SBU approved 18 transactions with a total value of
more than R400 million. These transactions are expected to
result in 635 new job opportunities as well as save more
than 2 400 jobs.
Highlights of the year under review
• The past financial year was the first full year for the
unit since the former Chemical, Textiles and Allied
Industries SBU was split into two different divisions
on 1 October 2007.
• The IDC Board approved the Textiles, Clothing, Leather
and Footwear Competitiveness Scheme. The scheme
aims to encourage the upgrading and modernisation
of plant and equipment in these sectors, since ageing
plant and equipment has been identified as one of the
main reasons behind South Africa’s limited
competitiveness in this area. In terms of the scheme,
funding for such plant and equipment can be made
available at prime less 5%.
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Industrial Development Corporation of South Africa Annual Report 2009 | 43
Four transactions, with a total value of approximately
R70 million, were approved under this scheme during
the year under review.
• The unit approved funding to WM Eachus and
Company (Pty) Limited, the holding company of the
Sheraton Textiles business. This business, employing
more than 500 people, has been operating in the
household textiles industry since 1922. The group
manufactures a range of home textiles including
sheets, pillows, duvets and comforters. The business
was faced with certain closure due to its high levels of
debt, yet it remained operationally sound, with good
prospects. By recapitalising the business, the IDC did
not only save the 500 jobs but also ensured the
continuation of a long-standing, basically sound, South
African textile business.
Sector trends
The textiles sector remained under pressure, mainly due to
the availability of cheap imports from the East. However,
the dti made good progress during the year with the
development and implementation of action plans to assist
the sector, based on the previously approved customised
sector programme. The credit crunch has had a marked
effect on the sector as banks became more stringent in
their criteria for granting credit. However, companies in this
sector that have the ability to be flexible and responsive to
their customers’ needs are likely to survive and prosper,
despite the threats faced by the sector in general.
Outlook and key initiatives
During the upcoming year, the unit will focus on:
• identifying and exploring sustainable elements in the
clothing and textiles, as well as the leather and footwear
value chains. It will also proactively develop projects in
these areas. This will be done not only in South Africa, but
on a regional basis;
• actively managing the IDC’s existing investments in this
sector, to provide further financial support where justified
and to identify growth and new project opportunities for
them. The main objective would be to manage our
equity investments to the point of where the IDC can exit
the investment;
• providing input and assistance to the dti for the
implementation of action plans to support the industry;
• creating a conducive environment for new investment
and growth of the industry focused on the areas where
South Africa can compete successfully; and
• assisting competitiveness and modernisation by reducing
the cost of funding through the Textiles, Clothing, Leather
and Footwear Competitiveness Scheme.
The IDC Board approved the
Textiles, Clothing, Leather and
Footwear Competitiveness
Scheme. The scheme aims to
encourage the upgrading and
modernisation of plant and
equipment in these sectors.
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Operational Review – INDUSTRIAL SECTORS_continued
44 | Industrial Development Corporation of South Africa Annual Report 2009
Wood, Paper and Other
The Wood, Paper and Other SBU
finances projects and investments in
the forestry, pulp, paper, furniture, wood,
biomass and other manufacturing
industries.
The unit aims to:
• address the current and anticipated shortage of timber in
South Africa, support transformation in the forestry value
chain and develop SMEs;
• support the development of downstream beneficiation/
value-added industries in the forestry value chain; and
• support the development of the renewable energy
sector by funding projects that meet the criteria to earn
carbon credits through the Clean Development
Mechanism framework.
Development impact
During the past financial year the unit approved funding of
R383 million. These 20 investments will facilitate the
creation and retention of 559 jobs in South Africa, mainly in
rural areas.
Highlights of the year under review
In the year under review the unit:
• approved the first wood biomass-to-energy project in
George. The project will generate 24 MW of electricity
and earn carbon credits;
• approved and implemented various rural community
transactions in the forestry sector;
• extended the Pro-Forestry scheme to support the
development of new forestation projects as well as the
transformation of the industry in line with the Forest
Sector Transformation Charter;
• approved a project in Mali which will manufacture
chipboard from rice straw; and
• made significant progress in establishing and
developing expertise in carbon finance and
renewable energy.
Sector trends
During the reporting period some structural changes were
evident in the forestry sector, with a significant drop in
demand for structural timber and consequently high stock
levels. Increased focus on clean development mechanisms
and the application thereof in the development of
environmentally friendly projects has also taken off.
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Industrial Development Corporation of South Africa Annual Report 2009 | 45
Outlook and key initiatives
Over the coming year the unit will look to:
• support the growth of green industries by funding
projects involved in emission reductions, clean
development technologies, waste management
and recycling;
• focus on the development of renewable energy projects;
• develop and implement partnerships with the
Department of Agriculture, Forestry and Fisheries, the
Council for Scientific and Industrial Research, South
African Forestry Company Limited and Mondi Zimele in
specific subsectors in the value chain;
• cooperate closely with the dti to support the
development of the local furniture sector; and
• participate in the Forestry Charter Council and support
the implementation of the Forest Sector Transformation
Charter through IDC investments.
During the past financial year
the unit approved funding of
R383 million. These 20 investments
will facilitate the creation and
retention of 559 jobs in South
Africa, mainly in rural areas.
The unit has made
significant progress in
establishing and
developing expertise
in carbon finance and
renewable energy.
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Operational Review
Industrial Development Corporation of South Africa Annual Report 2009 | 47
Case study: Environmentally friendlytravelProject
The Venture Capital SBU provided an initial investment of R30 million for a 10%
shareholding in Optimal Energy (Pty) Limited, a South African start-up company that is
in the process of developing a battery electric vehicle called Joule. The unit facilitated
a further investment of R50 million through the Metals SBU in March 2009, increasing
the IDC’s shareholding in Optimal Energy to 22%.
Establishing a new industry
The support of the IDC and Innovation Fund will help facilitate the establishment of a
new industry in South Africa. The design, development and manufacturing of battery
electric vehicles will diversify the country’s current role as vehicle assembler. When fully
commercialised, the company is expected to create approximately 1 500 jobs. The IDC
will be closely involved and assist Optimal Energy to raise the remaining funding
requirement to set up a production facility with a capacity of 50 000 units per annum.
The IDC is also exploring opportunities to set up a lithium-iron battery manufacturing
plant in South Africa to support electric vehicles for export.
Environmentally friendly travel
The battery electric vehicle will have no harmful emissions and is expected to appeal
to environmentally conscious customers, including the state and state-owned
enterprises, as well as customers who are sensitive to the ever-escalating running costs
of internal combustion engine vehicles.
DIVISION: RESOURCES SECTORS
The battery electric vehicle
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Operational Review – RESOURCES SECTORS_continued
48 | Industrial Development Corporation of South Africa Annual Report 2009
The unit had a phenomenal year
from an investment approval
perspective, approving 11 new
and two follow-on investments in
the seed/start-up stage to a total
value of R127,2 million.
Venture Capital
The Venture Capital Strategic SBU acts
as a catalyst in developing new or
unique South African technologies by
providing early stage finance to
entrepreneurs. The unit helps to
stimulate technology companies to
commercialise their research and
development, while facilitating the
development of a self-sustaining, early
stage, technology-focused venture
capital industry in South Africa.
Development impact
Through its funding, the Venture Capital SBU provides much-
needed access to finance for entrepreneurs and SMEs in the
seed or start-up phase of development of unique,
commercially viable South African technologies.
The unit’s investment mandate allows investment into any
technology-focused industry.The SBU has identified a number
of industries, such as biotechnology, nanotechnology and
clean technology, which are regarded as having a potentially
strong competitive advantage from a South African
perspective. It helps to stimulate the development and
growth of these potentially lucrative industries by proactively
sourcing deals through networking and by fostering relations
with relevant industry stakeholders.
Finance is provided on a full risk-sharing basis, with the IDCacquiring a significant minority shareholding in thebusinesses in line with the risk assumed by the IDC. Inaddition to the IDC’s participation on the boards ofdirectors of these investee companies, the Venture CapitalSBU also plays an active role at the executive managementlevel of these companies by providing strategic support,advice and guidance where required.
Highlights of the year under review
Direct investmentsThe unit had a phenomenal year from an investmentapproval perspective, approving 11 new and two follow-on investments in the seed/start-up stage to a total valueof R127,2 million.The 13 approvals compare favourablywith the five investments approved in the previous yearand a target of 12 for the year under review. Of the 13investments four are in the SBU’s targeted industries, iebiotech (including medical devices) and cleantechnologies.The SBU’s cumulative approvals since start-up on 1 April 2007 up to 31 March 2009, amount to
An employee of African Everose showing fresh-cut roses
that have a vase life of up to 6 months
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Industrial Development Corporation of South Africa Annual Report 2009 | 49
R158,8 million, leaving R91,2 million of the originallyapproved R250 million still available for investment. It isclear that an additional capital allocation will need to berequested as the R250 million will be fully invested inapproximately three years as opposed to the originallyanticipated five years.
Some of the new technologies to be developed andcommercialised with the equity funding approved by theSBU during the year under review include:
• a plug-in battery electric vehicle;
• composite industrial fans that are differentiated by theiraerodynamic efficiency, improved wear characteristicsand power efficiency as well as their reduced weight,maintenance and noise pollution;
• a comprehensive, portable wound management systemused for removing dressings, cutting away dead tissue,cleaning of wounds with either saline or ozonated waterand the subsequent drying of wounds with warm air andthe application of creams or liquids as prescribed by adoctor.The system also has a massage facility;
• a remote surveillance system that allows the home orbusiness owner to observe, via cell phone, any area of thehome or business at any time.The system has thefunctionality to detect motion and to alert the owner viaSMS, who then has the option to watch a live videobroadcast on a cell phone from any camera connectedto the system;
• an inexpensive disposable (single-use) nerve stimulatorused in regional anaesthesia;
• a technology that preserves fresh-cut roses and extendstheir vase life for up to 6 months.The preserved roseslook exactly like fresh roses and do not require water;
• a robotic gaming platform in the form of a highly agiletwo-wheeled robot that adds substantial value to thedriving-around play-pattern of conventional radio-controlled toys through its autonomous behaviour,personality, programmability and challenging gameplaycapabilities; and
• a bus management system suitable for the South Africantransport environment that offers value through betterinformation relating to driver management (eg trackingspeeding, travel times, route adherence), vehiclemanagement (eg reporting over-revving, service triggers,vehicle tracking) and people management (eg trackingticket sales, unaccounted for passengers, overloading,crime monitoring).The system will be compliant withEuropay, Mastercard and Visa.
Wholesale investmentsSince 2001, in its previous guise as the WholesaleVenture Capital Department, the unit has providedfunding to a number of venture capital and privateequity funds for investment by these funds. These funds
include: three technology venture capital funds; abiotechnology-focused venture capital fund; the NewAfrica Mining Fund focused on early stage explorationand mining projects; and the Women Private Equity Fundwhich invests in women-focused businesses. All thefunds have now completed their investment periodsand are currently focused on value addition anddivestment from their investment portfolio companies.
During the year under review these funds collectivelyexited from three underlying investments, returningclose on R47,3 million to the IDC, which translated intoan average annual return of 64% on capital invested.
One of the technology venture capital funds wasseverely impacted by the unexpected liquidation of oneof its portfolio companies, which constituted the majorportion of the fund’s investment portfolio from a valuepoint of view. The impact of the global economicdownturn on the local equity markets further caused thevalues of underlying investments in the various funds toreduce significantly, most notably those investments inJSE-listed companies. The resultant net decrease in thefair value of the IDC’s investments in the six third-partymanaged funds amounted to R114,3 million.
Sector trends
The current economic environment is not expected to have
an adverse effect on the SBU’s investment activities, mainly
as a result of the fact that the SBU provides funding in the
form of pure equity and consequently there is no onerous
debt service obligations placed on the investee companies.
To the extent that investee companies rely on earning
revenue from consumers, it is expected that the viability of
such companies may be negatively affected over the short
term. However, since the unit’s investments are of a longer-
term nature, the cyclical nature of the economy is of less
concern and is therefore not expected to have a major
impact on the value of the unit’s investments.
Outlook and key initiatives
The SBU’s focus for the upcoming year will be on:
• building and maintaining a healthy pipeline of deals that
fit the unit’s investment mandate;
• providing strategic support and ongoing guidance to
investee companies. With its growing investment
portfolio, much of the unit’s resources will be consumed
by these post-investment management activities; and
• identifying the need for, and facilitating the provision of,
business support in respect of business plan
development as well as the development of
entrepreneurial skills to applicants that potentially fit the
unit’s investment mandate and criteria.
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Operational Review – RESOURCES SECTORS
50 | Industrial Development Corporation of South Africa Annual Report 2009
Food, Beverage and Agro-industries
The Food, Beverage and Agro-industries
SBU plays a leading role in the
development of the agricultural value
chain of South Africa and the rest
of Africa.
Development impact
• During the past financial year the unit approved funding
of R390 million. These 31 investments will facilitate the
creation of 2 334 jobs in the South African economy,
mainly in rural areas.
• Despite the global economic downturn, the unit
responded countercyclically and significantly increased
its impact in terms of entrepreneurial support. Its funding
assisted almost 200 entrepreneurs directly. Most of these
entrepreneurs are active in rural areas and are previously
disadvantaged. This is the highest impact achieved in a
one-year period, since the establishment of the unit.
• During the reporting period the IDC Board approved a
scheme specifically earmarked to develop the
horticultural value chain. The Pro-Orchard II was approved
for an amount of R200 million over the next two years.
This follows the success of Pro-Orchard I, which assisted
26 companies with a total amount of around
R150 million (75% fund utilisation). Altogether 81% of
the companies were BEE companies and the investments
will facilitate the creation of 2 024 jobs.
• The first bio-ethanol plant in Cradock, Eastern Cape, a
project which was approved in the previous financial
year, is currently in the pre-implementation phase. This
project will play a significant role in the development of
a responsible biofuel industry in South Africa.
• The unit’s highly labour-intensive berry projects are on
track and are likely to have significant development
benefits to local economic development of Stutterheim,
Charlestown (Amajuba) and George.
Highlights of the year under review
During the year under review the unit:
• approved wholesale finance facilities to agri-businesses
which provide financial and technical support to
emerging farmers. More than 150 emerging farmers,
including female farmers and co-operatives, benefited
from the unit’s funding. Investments focused on the
rural areas of the North West and Free State provinces;
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Industrial Development Corporation of South Africa Annual Report 2009 | 51
Investments will
facilitate the
creation of 2 334
jobs in the South
African economy,
mainly in rural
areas.
• supported an additional eight emerging citrus farmers
as part of an initiative to revitalise the development of
the Kat River Valley in rural Eastern Cape. This brings
the total number of farmers assisted to 17;
• took the lead in supporting the first kob (Argyrosomus
japonicus), also known as kabeljou, marineculture
project in the East London Industrial Development
Zone (IDZ). The project pioneered the development of
hatchery/spawning technology and land-based
recirculation systems for the sustainable production of
indigenous marine finfish;
• continued its financial support of its innovative joint
venture with the CSIR in the development and
commercialisation of specialised controlled-release
technology that can be used in the pharmaceutical,
sport nutrition, animal feed and food industries;
• provided support to a number of SMEs including
enterprises involved in: date juice production
(KwaZulu-Natal); confectionery products and other
food products (Gauteng); ground nut processing
(North West); soya oil milling (Mpumalanga); juice
manufacturing (KwaZulu-Natal); pet food production
(Eastern Cape); macadamia production (Limpopo); as
well as ostrich meat processing (Western Cape);
• contributed significantly to a cassava cultivation and
starch-processing project in Swaziland.
This will replace imports from the Far East and play a
significant role in the downstream usage of this
product in the paper and food industries of South
Africa. This project has contributed significantly to
foreign direct investment in Swaziland. The IDC’s
partnership as co-investors in this project with
Norfund, the Norwegian-based development finance
institution, has also been strengthened;
• completed due diligences on sizeable projects in
Ethiopia and Tanzania;
• continued to support nuts projects in Limpopo, Free
State and Northern Cape; and
• made a donation, together with the IDC’s External
Training Department, of R175 000 to the Citrus
Academy. The donation will enable previously
disadvantaged students that benefit from the Citrus
Academy Bursary Fund, to gain exposure to the
industry through the attendance of technical
conferences and symposia related to the agricultural
sector. The donation is to help address the challenge
of finding and retaining suitably qualified previously
disadvantaged managers, one of the main obstacles
to transformation of the agricultural sector.
Sector trends
During the past year significant structural changes occurred
in the food, beverages and agro-industries value chain at a
global as well as local level. Global food prices increased
dramatically, emphasising the need for increased food
production.The crisis highlighted Africa’s underutilised
agricultural resources as an important component in
addressing the problem.With relatively strong food
commodity prices, returns on agricultural investments are
improving and again beginning to attract investors.
However, the global liquidity crisis has to some extent
curbed this trend.
Outlook and key initiatives
The IDC has developed a strategy to respond to the global
food crisis.This includes supporting increased food
production through assisting emerging farmers; creating
increased competition in food processing by supporting
SME grain and oil seed milling capabilities; ensuring food
security through a coordinated SADC approach to food
production; and focusing on supporting food-sensitive
biofuels projects.
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52 | Industrial Development Corporation of South Africa Annual Report 2009
Operational Review – RESOURCES SECTORS_continued
Mining and Beneficiation
The Mining and Beneficiation SBU plays
a leading role in the development of
commercially sustainable mining and
beneficiation projects in South Africa
and the rest of Africa. The unit actively
seeks partnerships with resources
companies involved in projects in
these regions and attracts local and
global partners.
Development impact
• During the past financial year the unit undertook its first
mining investment in Eritrea. The multi-commodity Bisha
Project will produce gold, silver, copper and zinc over its
expected lifespan. It is estimated that the project will
create 400 direct job opportunities and increase
government revenues. The project is expected to serve as
a catalyst for the further development of a mining
industry in that country.
• The IDC provided a revolving credit facility to WakeGem
(Pty) Limited, trading as African Romance (AFRO), a 100%
black-owned and operated diamond manufacturing and
jewellery design company. AFRO is located in a state-of-
the-art facility in Sandton and has 64 employees. This is
part of the unit’s efforts to grow and advance the
country’s diamond cutting and polishing industry.
Highlights of the year under review
• The unit was mandated as a lead arranger of the
US$90 million Bisha Project in Eritrea.
• The unit funded two BEE parties, Sedibeng Iron Ore
and Coza Mining in the Northern Cape. Both were
successful in obtaining exploration licences over
several farms for iron ore.
• The IDC supported a BEE transaction at Blue Ridge
Platinum Mine, a 50/50 joint venture between Ridge
Mining Plc. and Imbani Platinum (SPV) (Pty) Limited.
Construction of the mine and associated surface
infrastructure commenced in 2007. Construction is
complete and the concentrator plant was
commissioned in March 2009.
• The unit approved a R260 million funding facility to
Majestic Silver Trading, a Broad-based BEE company, to
develop a manganese mine in the Northern Cape.
The capacity of the mine and processing plant will be
2,0 million tons per year.
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With long lead times to
development, the unit intends
to fund new mining investments
in anticipation of an economic
upturn.
Industrial Development Corporation of South Africa Annual Report 2009 | 53
Sector trends
The global financial crisis led to a collapse in equity markets
and the mining industry did not escape unscathed. As a
result, mining companies began cutting back on capital
expenditure for projects and expansions. With commodity
prices falling dramatically, the ferrochrome, platinum and
diamond markets were severely hit in South Africa – these
are amongst the country’s biggest exports. Coal and gold
managed to buck the trend to some degree, with demand
being driven by energy requirements and the need for safe
investment havens respectively.
However, it appears that the worst of the impacts of the
financial crisis have been absorbed. Stimulus packages in the
US, China and UK are expected to stimulate demand,
especially for non-ferrous metals. Commodity prices are likely
to begin increasing towards the end of the year, driven by
the base metals copper, zinc and lead on the back of an
expected economic recovery in China. Aluminium and nickel
are likely to lag as they are associated with a recovery in the
automotive sector.
Outlook and key initiatives
• With long lead times to development, the unit intends to
fund new mining investments in anticipation of an
economic upturn. The unit can play an important role in
providing project finance, as this is an area where
traditional funding from institutions has dried up. This will
position companies to take advantage of the longer-term
supply-side constraints that are likely to emerge as a result
of current project delays and cancellation of expansions.
• The unit will also focus on supporting existing clients,
particularly newly established businesses, that will be
particularly vulnerable in the current downturn.
• Africa and southern Africa in particular present good long-
term opportunities for setting up a steel project in view of
the growth potential in the market. Growth in world
demand for steel is expected to average 6% to 7% per
annum and the outlook for the South African steel market
is expected to be between 6% to 8%. Demand in Africa
will be driven by continuing infrastructure and
construction spend. There is currently a shortfall of
approximately 12 million tons of steel annually.
Demand in Africa will
be driven by continuing
infrastructure and
construction spend.
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Operational Review – RESOURCES SECTORS_continued
54 | Industrial Development Corporation of South Africa Annual Report 2009
Public Private Partnerships
The Public Private Partnerships (PPP) SBU
aims to partner project developers and
financiers in delivering commercially
viable PPPs and infrastructure-related
projects that have high developmental
and job-creation impact potential
within South Africa and the rest of the
African continent.
Development impact
The unit approved a total of six projects that are expected to
generate over 2 200 jobs.
Highlights of the year under review
• The unit views the telecommunications sector as an
important driver of economic growth and is therefore
focused on funding projects that make
telecommunications more affordable and accessible
across the continent. The following are three main
projects that will improve communication capacity and
foster competition in the sector:
– NeotelThe first full-scale national infrastructure-basedcompetitor to Telkom, Neotel has communityservice obligations aimed at improving telecomaccess to rural communities. The unit approved aportion of the long-term funding required by thecompany. Neotel’s fibre-optic cable project hascreated a significant number of jobs anddownstream opportunities.
– The New Dawn satellite projectFunding was approved for investment in the NewDawn satellite project positioning a satellite directlyabove southern Africa at the 330 E orbital slot.The satellite will improve the quality of tele-communication services on the continent bysupplementing existing and planned tele-communication and submarine cable capacity.Project shareholders include a local BEE informationand communication technology company,Convergence Partners, as well as Altirah Capital, alocally based investment entity. A number of Broad-based BEE entities are also shareholders in this project.
– Broadband Infraco The IDC holds a 26% shareholding in BroadbandInfraco. Approved at a time when the BroadbandInfraco Bill was under deliberation by the relevantparliamentary committees, this investment is
IDC front Final.qxd 8/18/09 12:29 PM Page 54
The unit views the telecommunications sector as
an important driver of economic growth and is
therefore focused on funding projects that make
telecommunications more affordable and accessible
across the continent.
Industrial Development Corporation of South Africa Annual Report 2009 | 55
starting to bear fruit with Tier 1 and Tier 3
telecommunications infrastructure being delivered.
In addition, the unit:
• approved a total of R18 million for the implementationphase of an electricity-generation project based on thecirculating fluidised bed technology. The unit currentlyhas a shareholding of approximately 23% in the project;
• approved a total of approximately R1,4 billion for a localindependent power-producing project. Theintroduction of a BEE partner in this project with jobcreation and procurement opportunities for localcommunities around the project site are the keydevelopmental impacts of the project. The inclusion offarming cooperatives and poverty-stricken ruralcommunities as beneficiaries in the Broad-based BEEentity will further enhance the empowerment status ofthe project; and
• approved approximately R75 million for the Kalangalainfrastructure project in Uganda. The projectencompasses the development of a ferry, as well as theupgrade of roads, and water and power supplies. Theproject will result in a number of improvements for thecommunity including access to electricity throughoutthe day, reliable transport and clean water.
Sector trends
The global financial crisis continued to restrict much needed
capital for infrastructure investment. However, in an attempt
to minimise job losses and position their economies to take
advantage of any economic recovery, governments
worldwide began focusing on infrastructure rollout.
Opportunities therefore exist for the unit to partner with
other industry players in rolling out infrastructure projects.
Outlook and key initiatives
• Key initiatives being pursued by the unit are aimed at
addressing the transport infrastructure backlog and
electricity supply constraints, with working groups having
been formed to drive progress in these two areas.
• The introduction of independent power producers and
the diversification of the energy mix towards more
environmentally friendly sources will underpin demand for
IDC funding in the electricity-generation sector. The unit is
also focused on the funding of independent power
producers in a bid to address the electricity shortage
across Africa.
• The unit continues to look for projects that result in
improved access to clean water for poor communities,
whilst fulfilling the needs for industry development.
• Transport infrastructure backlogs, including rail and road
to port infrastructure, pose significant opportunities for
private sector participation, underpinned by a well-
developed PPP framework.
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56 | Industrial Development Corporation of South Africa Annual Report 2009
Operational Review – RESOURCES SECTORS_continued
During the upcoming financial year the unit will
continue to proactively identify and develop new
project ideas for rural development and poverty
alleviation.
Strategic High-impactProjects
The Strategic High-impact Projects SBU
aims to build a pipeline of medium-
and long-term innovative, strategic
high-impact projects in which the IDC
can invest. The unit identifies potential
projects and develops them to
bankability stage so that the IDC’s other
SBUs can fund them.
Development impact
During the past year the unit:
• initiated the drive for the establishment of a system of
innovation in the IDC;
• worked with the Department of Trade and Industry
(the dti) and the China Africa Development Fund (CADF)
and assisted in a memorandum of understanding (MoU)
between the two parties.The IDC and the dti are now in a
position to develop projects that would get access to
CADF’s R5 billion fund; and
• initiated a relationship with the Industry TechnologyResearch Institute of Taiwan (ITRI). An MoU will be signedto encourage and promote cooperation in accessingtargeted technologies and resources, technology transferand development to South Africa and the rest of theAfrican continent.
Highlights of the year under reviewDuring the past year the unit:
• worked together with IDC subsidiary Foskor (Pty)Limited to find viable alternatives for the use of Foskor’sgypsum waste material.The unit has been investigatingnew technology that uses gypsum to produce buildingpanels that could be used in the building of schools,clinics and houses.The unit is collaborating with thetechnology provider to obtain the necessary regulatoryapproval for the alternative building material in SouthAfrica. A marketing survey was also initiated to gaugemarket perception of the product;
• investigated the viability of manufacturing advancedbatteries (batteries for electric vehicles and hybridelectric vehicles) in South Africa for transportation.Theunit also began the process of identifying potentialinternational technical partners, as the country does notcurrently have the capability to design and manufactureadvanced batteries for transportation.The unit iscurrently in the process of identifying and negotiatingpotential partnerships with international batterymanufacturers, as well as participating in a drive toresuscitate advanced battery research and development
IDC front Final.qxd 8/18/09 12:29 PM Page 56
Industrial Development Corporation of South Africa Annual Report 2009 | 57
with the view to creating a national technology roadmapand the required support mechanisms;
• investigated a sisal industry development initiativethat seeks to grow at least 50 000 ha of sisalplantations, initially in Limpopo. Most of the fibreproduced will be beneficiated into woven (spinningand weaving) and non-woven (composites) products.The industry will also produce about 2,5 tons ofmucilage, which will be used to produce biogas andethanol as well as organic fertilisers;
• entered into an MoU with Trade and InvestmentKwaZulu-Natal, Tourism KwaZulu-Natal and InqabaTrust, representing the community, on a beach tourismproject on the KwaZulu-Natal North Coast. The projectis at a prefeasibility stage to ascertain viability andsustainability; and
• embarked on an initiative to identify and developmore projects that will develop rural areas and combatpoverty in the country. To date, eight projects in sevenrural areas have been visited and evaluated. Two ofthese eight projects are being considered for furtherdevelopment and possible funding.
Other projects under development include:
• the Makhathini Biofuels Project to enable theestablishment of a sugarcane-to-fuel ethanol plant;
• the development of novel South African technology toproduce titanium powder and the establishment of therequired infrastructure to produce the material; and
• the establishment of a facility that will enable a nationalpreclinical drug development platform to carry outpreclinical trials for the development of drugs.
Sector trends
The current financial crisis has negatively impacted theprojects pipeline of the unit. A number of projects, especiallythose with corporate co-investors, have been put on hold dueto the current economic circumstances.The IDC, however,takes a long-term perspective and, as far as possible, iscontinuing with the development of these projects.
Outlook and key initiatives
During the upcoming financial year the unit will:
• continue to proactively identify and develop new projectideas in rural areas;
• proactively analyse opportunities in the renewable energy sector;
• investigate opportunities in the water treatment industry inline with the Department of Water Affairs and Forestry’sWater for Growth and Development Framework;
• investigate potential project opportunities in the area ofnanotechnology;
• investigate the application of appropriate biotechnology infood processing, especially in poor rural households;
• collaborate with various municipalities to find opportunitiesfor waste usage, such as landfill gasification to produceelectricity and other products; and
• investigate potential project opportunities in electronic-waste.
IDC front Final.qxd 8/18/09 12:29 PM Page 57
The newly-opened
Ethekwini Hospital and
Heart Centre that was
funded by IDC
IDC front Final.qxd 8/18/09 12:29 PM Page 58
Industrial Development Corporation of South Africa Annual Report 2009 | 59
Case study: Supporting advancedtechnology manufacturing
Project
The Techno-industries SBU provided expansionary funding of approximately
R64 million to an East London-based SME television manufacturer, Vektronix. The
company will manufacture a range of Samsung plasma television sets.
Building new capacity
This investment is in line with the National Industrial Policy Framework’s (NIPF)
objective of developing South Africa’s capabilities as a manufacturer, rather than an
importer of advanced technologies.
Future growth
Vektronix will be placed in a favourable position to qualify for the manufacture of set-
top boxes, which will allow analogue televisions to receive a digital signal once the
Broadcasting Digital Migration (BDM) project has been implemented.
DIVISION: SERVICES SECTORS
Operational Review
Workers at Vektronix; the company will soon manufacture a range of Samsung Plasma television sets
IDC front Final.qxd 8/18/09 12:29 PM Page 59
60 | Industrial Development Corporation of South Africa Annual Report 2009
Operational Review – SERVICES SECTORS_continued
Techno-industries
The Techno-industries SBU finances
projects and investments in the
Information, Communication
Technology and Electronics (ICTE)
industries in Africa.
Development impact
• Through the approval of 13 transactions involving
financing to a total value of approximately R634 million,
the unit helped to facilitate the creation of nearly 3 000
job opportunities in the year under review.
• Projects selected aim to create, expand and/or transform
the ICTE sectors to enable a competitive environment.
Highlights of the year under review
• In line with its objective of growing sectoral diversity,
the unit approved finance amounting to R76,9 million
for three businesses in various sub-sectors of the
electronics industry. This takes the unit’s total exposure
to the electronics sector to R129 million.
• Since most of the ICTE businesses in South Africa are
situated in Gauteng, the unit promoted regional equity
through facilitating two investments outside the
province, including one in the rural areas of KwaZulu-
Natal (Ixopo) and one in the Eastern Cape (East London).
• The unit continued to facilitate transformation in the
ICTE sector by providing finance to Broad-based BEE
parties for expansionary purposes.
• The unit provided a restructuring solution to Bihati
Solutions, a niche market player in the installation of
telecommunications infrastructure both domestically
and in the rest of the African continent, particularly the
DRC. The company faced operational as well as
shareholder challenges, but together with the workout
and restructuring team, the unit was able to convert
existing debt into long-term equity, recapitalise the
company, contain costs and increase the BEE
shareholding in the company. The solution was at the
back of solid market growth, ensuring that Bihati
Solutions remains sustainable into the future.
IDC front Final.qxd 8/18/09 12:29 PM Page 60
Sector trendsTelecommunications growth continues into the rest of
Africa, especially in the area of mobile telephony. Locally
there is an increased focus on broadband infrastructure. The
conversion of value-added network operator licences will
provide increased competition in the local market.
Government is still a major contributor to the growth of the
local IT sector, although there is limited SME participation in
the sector.
The local outbound-focused Business Process Outsourcing
(BPO) sector has continued to contract, mainly due to the
National Credit Act and the sector’s inability to attract non-
risk-based contracts. In order to be sustainable, the sector
needs to diversify into inbound services. Other challenges
facing the unit include stabilising its BEE portfolio, which, as
a result of volatility on the JSE Limited, was compromised.
The unit is confident that the investments will recover in
the near future, as the underlying investments remain solid.
Outlook and key initiativesDuring the upcoming year the unit will focus on:
• diversifying its portfolio towards new and developing
sectors such as electronic waste and electronics;
• stabilising the BEE portfolio;
• facilitating the increase of investment in SMEs operating
in the IT sector, especially those with government
tenders; and
• participating in the development of the Business Process
Outsourcing and Off-shoring (BPO&O) sector, particularly
to promote the sustainability of SME participation in
the sector.
Industrial Development Corporation of South Africa Annual Report 2009 | 61
Projects selected aim to create, expand and/or
transform the ICTE sectors to enable a competitive
environment.
Telecommunications
growth continues
into the rest of
Africa, especially
in the area of
mobile telephony.
62 | Industrial Development Corporation of South Africa Annual Report 2009
Operational Review – SERVICES SECTORS
Franchising
The Franchising SBU supports
emerging entrepreneurs with limited
access to capital, to acquire and
manage a sustainable franchised
business in South Africa and the rest of
Africa. The unit also provides support
and assistance to owners of new
franchise concepts in order to enable
them to expand and develop into
sustainable franchises that can in turn
support other emerging entrepreneurs.
Development impact
During the year under review the unit:
• restructured the facilities of 14 clients in distress to assist
them to survive the economic downturn;
• assisted a further 19 businesses in distress by facilitating
the sale of assets to new owners; and
• approved funding of R212,6 million to support 80 new
entrepreneurs to start up new franchises. These facilities
are expected to create 2 459 jobs once the businesses
have been established.
Highlights of the year under review
During the year under review the unit approved:
• a facility to assist the master franchise holder to set up
the Nando’s franchise in DRC;
• funding for the set-up of 10 KFC outlets mainly in rural
and township areas; and
• a facility for Spar to roll out six Super Spar and eight
Spar outlets in rural and township areas in the
Western Cape.
In an attempt to diversify the portfolio away from the
food and restaurant sector, which has been affected by
the economic downturn, 70% of new funding approved
this year was to non-food franchises, including Planet
Fitness KZN, Placecol Beauty Centres, Dream Nails &
Beauty as well as National VOIP Switching Centre (a call
centre business).
Sector trends
As a result of the economic downturn, the franchising
industry experienced pressure on turnover and margins as
consumers curtailed expenditure. At the higher end of the
IDC front Final.qxd 8/18/09 12:29 PM Page 62
market, businesses such as restaurants and suppliers of
luxury items were most affected. However, fast-food outlets
showed steady growth as they benefited from consumers
buying down. Non-food franchises were less affected by
the recession.
Outlook and key initiatives
In view of the global economic crisis, the year ahead is
expected to be difficult and franchises will have to ensure
that they manage their margins tightly.
In this year the Franchising SBU will focus on:
• further diversifying its portfolio into non-food franchises;
and
• assisting new franchise concepts to be established and
to expand.
Industrial Development Corporation of South Africa Annual Report 2009 | 63
In an attempt to
diversify the portfolio
away from the food
and restaurant sector,
which has been affected
by the economic
downturn, 70% of
new funding approved
this year was to
non-food franchises.
IDC front Final.qxd 8/18/09 12:29 PM Page 63
64 | Industrial Development Corporation of South Africa Annual Report 2009
Operational Review – SERVICES SECTORS_continued
A large
number of
investments
focused on
hospitals and
clinics in
township and
rural areas.
Healthcare and Education
The Healthcare and Education SBU
aims to be the preferred development
funding partner for innovative
enterprises in the healthcare and
education sectors.
Development impactThe SBU concluded 11 transactions in the period under review,
creating 1 482 job opportunities in the healthcare and
education sectors.The value of the transactions amounted to
R626 million. A large number of investments focused on
hospitals and clinics in township and rural areas under the
Township and Rural Hospital Scheme.
Highlights of the year under review During the last year the unit:
• continued to approve funding under the Township and
Rural Hospital Scheme.To date R208,7 million of the
R500 million scheme has been approved since the
inception of the scheme in March 2008. Four approvals
have been made including to:
– Medleb Hospital of Lebowakgomo (Pty) Limited
(Medleb), a 51% black-owned company which was
granted a licence by the Limpopo Department of
Health and Welfare to establish a 20-bed private hospital
in Lebowakgomo, Limpopo.The hospital will be at the
lower end of the private healthcare market serving
historically underserviced areas.The hospital is set to be
completed in December 2009; and
– Cosmo City Clinic (Pty) Limited (CCC), a 51% black-
owned day clinic operating from a temporary
structure in Cosmo City since July 2006.The IDC
approved R8,2 million of funding to assist CCC to
construct and equip a new facility.Three additional
full-time medical practitioners will join CCC, supported
by visiting specialists. A dentist, optician and an in-
house pharmacy will augment these services;
• made a second hospital approval for Capensis, in line
with the development of the independent hospital
sector. The IDC provided funding for the construction of
the new, high-technology, 200-bed hospital, Kassier
Road Hospital, with an orthopaedic and neurosurgery
focus in Hillcrest, KwaZulu-Natal;
• approved funding for the establishment of a 135-bed
private hospital in Lusaka, Zambia. Healthshare Health
Solutions (Pty) Limited (Healthshare), an experienced
IDC KZN regional manager Pat Moodley at the Ethekwini Hospital and Heart Centre
Industrial Development Corporation of South Africa Annual Report 2009 | 65
South African hospital operator, will assist in the planning
and development of the hospital;
• approved a building loan facility to Melovest Investment
Holdings (Pty) Limited; and
• approved funding under the Township and Rural Hospital
Scheme to expand the existing Bellville hospital from 79
beds to its full 123-bed capacity, and to expand the
Gatesville hospital by a further 40 beds.
The application is aligned with the Healthcare and Education
SBU’s strategy to develop independent black-owned
hospitals, specifically at the lower end of the private
healthcare market serving historically disadvantaged under-
serviced areas.
• The SBU took part in a consultative forum to determine
key policies and interventions needed to revitalise the
education sector.
Sector trends
HealthcareHigh levels of poverty and unemployment continue to make it
difficult for most people to pay for health services, placing an
immense strain on the public sector.The burden of disease
continues to increase in the country mainly due to HIV and
Aids. Accordingly, the debate around the National Health
Insurance (NHI) is central to resolving the issues around
equitable access to healthcare services in both the public and
private healthcare sectors.The Department of Health continues
to engage the private sector so as to ensure that an appropriate
funding model is developed for South Africa.
The use of generic medicines continues to grow in South Africa,
however, with a market share of approximately 57%, the share
of generics of the South African market is still lower than in
other developed markets. Regulatory shifts have increased the
use of generics under the National Drug Policy which makes
generic substitution mandatory.
The weakening of the Rand against major currencies was a
major concern for most manufacturers in the healthcare sector,
as most manufacturers import their raw materials.With prices of
raw materials increasing by up to 50% and the prices of
pharmaceutical products regulated, margins were squeezed.
The hospital sector was also affected as a large percentage of
equipment is imported.
A significant deterioration in global and economic conditions
negatively impacted the SBU’s business, with an increase in
impairments. However, large listed companies in the
pharmaceutical sector, such as Aspen, which focus on exports,
benefited from the weaker currency.
EducationHuge disparities continue to exist in the South African public
and private education sectors. Early childhood education has
been identified as a priority area for government and research
has shown that one good pre-school year makes a big
difference in primary schooling.
The South African economy continues to be skills-constrained.
The demand for unskilled labour as a percentage of
employment has declined steadily since 1970 (from
approximately 70% to 40%), while that of skilled and highly
skilled labour has been consistently on the rise. In the period
2001 to 2006, South Africa was on average producing 5 600
artisans per year, compared with the need for 12 500.
The formation of FET colleges was to address the development
of vocational skills with the technical colleges working in
tandem with employers.The link between the employers and
colleges has, however, declined since the 1990s, resulting in
poorly trained graduates from the colleges.
Outlook and key initiatives
• The priority for the SBU in the coming year will be the
identification of active pharmaceutical ingredients that can
be manufactured locally in line with the NIPF. The unit has
completed a scoping report for the manufacture of codeine
and will be developing the project further in the next
financial year.
• The SBU will be developing viable PPPs in the healthcare
sector in line with government’s stated objective of
improving the delivery of health services to the South
African population.
• The unit has identified telemedicine as a strategic priority in
line with the Department of Health’s plan to address the
inequalities in the South African healthcare system.
• Affordable private education is still a focus for the SBU and
bankable opportunities will continue to be developed.
• The SBU will be focusing on the development of technical
skills, especially in sectors where there are shortages.
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Operational Review – SERVICES SECTORS_continued
66 | Industrial Development Corporation of South Africa Annual Report 2009
Media and Motion Pictures
The Media and Motion Pictures SBU
promotes entrepreneurial and sectoral
development within the entire media
value chain.
The SBU continues to play a leading role in the
development of the South African motion picture
subsector through strategic partnerships with key industry
role players, including the National Film and Video
Foundation, the dti and local producers, by funding locally
developed film projects. The SBU has also played a leading
role in the development of the downstream portion of the
media value chain through its continued support of the
introduction of new entrants to television broadcasting.
Development impact
• The SBU had a successful year, recording its highest ever
approved funding amount of R281,5 million, in 11 new
approvals, including additional funding for two
previously approved investments.
• The SBU funded two projects in the animation
subsector, which has traditionally had difficulty in
attracting funding from commercial entities.
• In the motion picture sector, the SBU encouraged
partnerships with the private sector to co-fund the
production of locally-developed and produced films.
• The SBU provided funding for two companies, which
produce advertising and media targeting taxi
commuters. This helped to uplift the taxi industry by
creating new revenue streams for taxi owners. One of
these companies will use IDC funding to extend media
platforms to taverns and car washes, creating small
businesses in underdeveloped areas.
Highlights of the year under reviewDuring the past financial year the unit:
• obtained approval to fund Speedy Productions (Pty)
Limited for the establishment of a new animation
studio in Pretoria. The IDC funding is earmarked for
capital expenditure on animation software, hardware,
furniture and fittings, and the fitting and equipping
of a sound studio within the animation studio;
• funded a portion of a feature length animation film,
entitled Zambezia, to be produced by a local company,
Triggerfish.This project is of great importance to the
animation subsector, as it is only the second official
Industrial Development Corporation of South Africa Annual Report 2009 | 67
There are also many
opportunities to
develop unique
content for media
platforms that
have positive
developmental
spin-offs for small
businesses. These
projects resonate
with government
programmes to
create jobs.
animation feature film to be produced in South Africa.
Zambezia will create a platform and structure through
which other animation productions can be created,
developed, funded and produced.The IDC will play a
crucial role in spearheading the creation of this industry
in the country;
• funded two locally-developed, locally-based stories,
Million Colours and Winnie, which is based on the
intimate and in-depth biography: Winnie Mandela:
A life by Anne Marie du Preez Bezdrop. The IDC co-
funded the production of the film with Absa Bank.
The film’s anticipated international audience will
also profile the local film industry;
• funded the participation of Kopano Ke Matla into On
Digital Media (ODM), SA’s second pay-TV operator.
ODM intends starting broadcasting within the next
12 months;
• extended a facility to Provantage (Pty) Limited, a
company specialising in out-of-home media
solutions targeted at consumers in transit. The IDC’s
facility will be used by the company to expand its
media solutions to other advertising platforms such
as taverns, car washes and taxi rank television
networks. The proposed expansion will result in the
creation of jobs directly in the townships; and
• funded Massiv TV, which has developed state-of-the-
art technology to provide stimulating television
content to minibus taxi commuters in transit. The
project is expected to improve the livelihood of
hundreds of taxi owners by providing them with an
additional income stream generated from advertising
income. The IDC acquired 24% of Massiv TV, with a
further 26% interest banked for an empowerment
suitor. The capital injection will be channelled to fund
further growth in the business.
Sector trendsThe success of animated films such as The Lion King and
Madagascar suggests that films with African themes have
significant potential attraction with global audiences. To
date, such films have come out of Hollywood rather than
Africa, but there are signs that animators on the continent
may be poised to make an impact on the world market.
The South African animation industry is still in its infancy
when it comes to the long format or feature film
production and there remain opportunities to fund the
production of locally produced and developed animation
films.
There are also many opportunities to develop unique
content for media platforms that have positive
developmental spin-offs for small businesses. These
projects resonate with government programmes to
create jobs.
Outlook and key initiativesDuring the year ahead the unit will focus on:
• growing the production of low-budget local films to
meet the demand expected from new pay-TV channels;
• identifying opportunities to assist local media companies
to expand into Africa; and
• continuing to look at developing the local broadcasting
subsectors, particularly in rural areas.
68 | Industrial Development Corporation of South Africa Annual Report 2009
Operational Review – SERVICES SECTORS_continued
Tourism
The Tourism SBU focuses on asset-
based finance with the bulk of its
portfolio invested in the
accommodation sector.
Development impact
The unit approved finance of R710 million to 25 businesses
mostly in the SME sector, creating 1 700 jobs.
Highlights of the year under review
During the year under review the unit:
• concluded and completed a full drawdown on the
Tourvest transaction;
• approved a R160 million facility to Auspex Properties
for the construction of a fully black-owned five-star
170-room Radisson-operated hotel in Port Elizabeth;
• funded R133 million for the construction of a four-star,
240-room hotel with conference facilities next to
O.R. Tambo International Airport to be managed by
Premier Hotels;
• assisted the Arts and Crafts desk at the dti and the
Cape Craft and Design Institute in administering funds
earmarked for the Arts and Crafts sector in the
Western Cape. In 2008, 114 enterprises were assisted
with local market access, 60 crafters were assisted with
export opportunities and a number trained during the
2008 Winter School;
• approved US$3,5 million for the refurbishment of a
hotel in Doula, Cameroon; and
• provided financial assistance to support the
development of subsectors such as arts and crafts,
sports tourism, and business tourism across Africa.
Sector trends
The tourism industry showed some growth in the past year,
despite the global downturn. Growth in visitor numbers
was driven by increased regional travel. Overseas visitor
numbers slowed as international travel slumped globally.
A number of high-profile sporting events, including the
Confederations Cup, Indian Premier League and the Lion’s
tour of South Africa in 2009 should cushion the impact of
depressed economic activity, particularly as these are taking
place during low season. During the upcoming year the
2010 FIFA World Cup® should give a much-needed boost to
the tourism industry.
The Radisson-operated hotel in Port Elizabeth
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Outlook and key initiatives
As a result of tighter capital markets, investment activity in
the tourism sector during the coming year is likely to be
subdued. Although investment has been driven by the
2010 FIFA World Cup®, there is likely to be a slowdown in
activity after the event. The long-term outlook for the
industry, however, remains positive as a result of anticipated
growth in tourism post-2010. Most of the new
development is based on a long-term view of the sector.
During the upcoming year the unit will focus on:
• the development of subsectors such as arts and crafts,
event management, business tourism as well as the
accommodation sector;
• participation in the establishment of good-quality
hotels on the African continent, mostly through the
provision of export credit facilities;
• support of Broad-based BEE projects and investments
with significant development impact, particularly in
priority provinces and rural areas;
• provision of support to businesses targeting the 2010
FIFA World Cup®, such as travel services, venue hire and
event management; and
• improvement of internal processes to improve
customer service.
Industrial Development Corporation of South Africa Annual Report 2009 | 69
The unit approved
finance of
R710 million to
25 businesses
mostly in the SME
sector, creating
1 700 jobs.
During the upcoming year the 2010 FIFA World Cup®
should give a much needed boost to the tourism
industry.
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Operational Review – SERVICES SECTORS_continued
70 | Industrial Development Corporation of South Africa Annual Report 2009
Transportation, FinancialServices and Other
The Transportation, Financial Services
and Other SBU positions itself within
the South African and greater African
economy as a financial partner for
economic growth and development.
The SBU seeks to promote BEE participation, increase
capacity building and lead sector growth and development
on a sustainable and viable basis.
Development impact
In the year under review the SBU:
• obtained approval for 13 transactions to the value of
R748 million. Of this amount R331 million was approved to
support SMEs and intermediaries that would service SMEs
and R156 million was for development in the rest of Africa;
• reached out through intermediaries to rural-based
enterprises and micro-enterprises. This is part of the SBU’s
strategy to ensure further access by micro- and small
businesses to IDC funding; and
• continued to provide financial support to the transport
sector by working further with existing financial providers
in the sector and developing joint-venture products
through a risk-sharing model while addressing market
gaps. These joint ventures ensure IDC has a greater reach
in the economy.
Highlights of the year under review
In the year under review the SBU:
• entered into a joint-venture arrangement with ABSA
to provide additional capital to the taxi sector. This will
increase access to finance for taxi operators to assist in
the acceleration of the recapitalisation process;
• funded three black financial services intermediary
companies which focus on providing funding to
micro- to small enterprises in rural and urban areas.
This promotes the development of black financial
services companies and addresses access to finance
for rural micro-enterprises;
• provided a line of credit of US$5 million to the
Development Bank of Zambia for on-lending to SMEs
in line with the strategy to assist other African
Development Finance Institutions;
• extended a further R100 million to Mercedes-Benz
Financial Services to ensure that further access to
finance for black SME transporters is provided in light of
the tightening of credit by existing financial institutions;
IDC CEO Geoffrey Qhena (R) and SwaziBank MD Stanley Matsebula signing a loan agreement.The unit has supported financial institutions in the rest of Africa to
fulfil their developmental mandate
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Industrial Development Corporation of South Africa Annual Report 2009 | 71
• entered into a joint venture with Scania Financial
Services to provide funding to bus operators in South
Africa and the rest of Africa, in support of the bus
sector and 2010; and
• provided funding for two BEE acquisition transactions,
one of which was expansionary in nature.
Sector trends
The launch of the Transport Charter in October 2008 placed
transformation at the centre of the sector. The Charter has
seven subsector charters including: road; rail; taxi; bus;
aviation; maritime; and forwarding and clearing. The SBU
will continue to support the charter through its sector
strategies and financing activities by engaging with
all stakeholders.
The transport sector has experienced difficulties due to the
drop in demand for commodities and exports. This has
resulted in many companies reducing their transport
requirements and subsequently SME companies have been
affected as many do not have a diversified client base.
The SBU has engaged its joint-venture partners to find ways
to assist clients in surviving this difficult period. Measures
taken include engaging with the contract providers,
extending deferments and assisting with resale of
the assets.
As the transport sector is well serviced by the existing
financial institutions in terms of the provision of finance, we
still position the SBU as a partner to these institutions to
ensure finance is extended to more SMEs and to address
market gaps. The SBU has thus extended the joint-venture
model to the taxi and bus sector. Access to finance for
operators is becoming increasingly important to ensure
recapitalisation for 2010 and provision of rural transport.
The logistics sector is still a key challenge with many of the
logistics parks not developing in the manner envisaged.
The contraction of the transport sector has not abated in
the rest of Africa as it has in developed countries. The SBU’s
strategy in the aviation and maritime sector is slowly
bearing fruit with the first approved aviation transaction.
Focus will be on assisting African airlines recapitalise their
fleets and develop new routes. The IDC’s limited and
cautious involvement in this sector is viewed from the
perspective of improving transport links in order to
improve economic links.
With South Africa’s limited commercial maritime capacity,
this sector is seen as a growth area from a jobs and skills
development perspective, and there is an increased focus
to develop the sector.
The financial services sector still finds the provision of
access to finance for micro- and small enterprises a
challenge. We find financial institutions are exploring and
developing models to provide funding to these enterprises
with many establishing micro-enterprise divisions. We view
this as a positive sign that the private sector is finally
viewing this subsector as growth areas of business.
Outlook and key initiatives
• The SBU will continue its support of the joint ventures
which enable the IDC to reach a broader target market
and share financial risk. This strategy will be undertaken
on a subsector basis and entered into where we find a
market gap exists and the IDC can assist in sharing the
risk for the private sector to enter. This is in line with
promoting access to finance for those entities that do not
meet normal banking criteria and are financially
excluded. The feasibility study into the provision of
commercial microfinance is complete and the SBU is to
engage new partners and work with Khula Enterprises.
The economic crisis has seen several partners withdraw
from the project. However, the final results are positive
and we will move into the implementation stage in the
new financial year. As a result of the SBU’s initiatives in
this area, we have seen a number of private institutions
that are willing to enter this sector and have approached
the IDC for funding.
• The unit will continue to participate in the aviation and
maritime sectors by providing not only financial support
but also lead sector development. The SBU hosted a
Maritime seminar at the IDC in October 2008, which
raised various challenges to sector growth. We believe,
however, that the strategy to develop and grow a
sustainable maritime sector is achievable if the
momentum to develop the sector is maintained by
government and the private sector. The SBU will liaise
with stakeholders in the logistics sector to determine a
way forward to assist in the development of the sector as
a whole.
• The SBU will continue to play a sector support and
facilitation role due to the well-established financial
institutions in South Africa that cater for the transport
and financial services sector. We will also further support
financial institutions in the rest of Africa to fulfil their
development mandate.
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Significant Investments
Hernic Ferrochrome (Pty)Limited
Hernic is the world’s fourth largest
producer of ferrochrome, a key input in
stainless steel production. IDC acquired
an equity interest in Hernic in 1995
and has actively supported its growth
since then.
IDC holds a 21,25% equity interest in Hernic.
Hernic’s profitability improved by 30% during the year under
review.The improvement in profitability is attributable to
record ferrochrome prices as a result of strong market
demand during the first half of the year. Ferrochrome
demand weakened during the second half of the year, largely
due to excessive overstocking by stainless steel
manufacturers. Ferrochrome prices fell from around US$2,00
per pound in August 2008 to less that US$0,70 per pound in
February 2009. South African ferrochrome producers,
including Hernic, responded to the weakened demand by
closing 70% of the country’s production capacity.
Ferrochrome markets are expected to remain under pressure
during the first half of 2009, and improve thereafter.
Karsten Group Holdings(Pty) Limited
Karsten Group Holdings (Pty) Limited,
previously known as Karsten Boerdery
(Pty) Limited (Karsten), is a diversified
agricultural and exporting company
with its main operations in the
Northern Cape. It produces table
grapes and dates. The IDC has a 36,55%
shareholding in the company.
Karsten is export-focused and achieved record sales
volumes of 3 million cartons. High prices and the
weakening exchange rate further benefited the company.
It has an established marketing company in the UK through
which most of its exports are channelled. The company
showed consistent growth over the past five years and,
during the year under review, the company recorded its
highest profit ever.
The company is further gearing itself to mitigate its
exposure to agricultural risks through geographic and
product diversification. Local production, for example, is
spread over a 300km strip down the Orange River and,
through an IDC loan, the company has expanded to Ceres
in the Western Cape, where the company grows apples,
pears, cherries and blueberries. A Broad-based BEE citrus
expansion of 350ha at Kakamas co-financed by IDC is also
in progress. The company is a huge job creator and
currently employs 4 150 seasonal workers.
Eastern Produce Malawi(Pty) Limited
In 2001 the IDC entered into a share
swap agreement with Linton Park Plc
(LPP), a company incorporated in the
UK, whereby LPP’s UK-registered
subsidiary, John Ingham & Sons Limited
(JIS), acquired a 73,2% shareholding in
Sapekoe (Pty) Limited in exchange for a
26,8% shareholding in Eastern Produce
Malawi Limited (EPM). EPM produces
and processes tea and macadamia nuts
in Malawi.
While EPM is a profitable and mature entity, its macadamia
nut plantations have yet to achieve full production.
A vertically integrated operation, EPM boasts 10 tea-
processing factories, one tea-blending plant and a state-of-
the-art macadamia nut-processing factory, the latter
comprising dehusking, drying, cracking, sorting and
packaging operations.
During the year under review EPM produced approximately
15 400 tons of made tea, of which approximately 91% was
supplied by EPM’s own tea estates and about 9% by small
outgrower plantations. The tea is sold primarily to Europe
by JIS’s in-house marketing infrastructure. Profits from tea
operations amounted to approximately 450 million
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Industrial Development Corporation of South Africa Annual Report 2009 | 73
Malawian Kwacha (MK) during the financial year. Tea prices
have risen over the year and seem to be holding out at
these levels.
By comparison, EPM’s macadamia nut production of
approximately 540 tons of saleable kernel yielded a profit of
MK216 million in 2008.
Prilla 2000 (Pty) Limited
Prilla 2000 (Pty) Limited (Prilla) is a
wholly owned subsidiary of the IDC
that produces 100% cotton yarn. The
company currently has approximately
300 employees and has spinning mills
in Pietermaritzburg and in Atlantis,
Cape Town.
The company reported a loss of R66 million for the period
ending 31 March 2009, which stands in stark contrast to the
profit of R4,6 million for the previous year. This is mainly
attributable to international economic conditions that
began to negatively impact demand towards the end of
the 2008 financial year. Although local demand was not
as badly impacted as some offshore markets, a price
imbalance resulted from substantial increases in the
international price of cotton lint that could not be
passed on to downstream customers competing
against cheap imports.
In addition to the poor trading conditions, quality problems
related to the supply of inferior raw material further
exacerbated pressure on demand and price. In October
2008 a fire in the Atlantis plant brought production to a
standstill. With a correction in the price imbalance still
illusive and the higher logistical costs of production in
Atlantis, a decision was made to mothball the plant until
market conditions justify the reopening or relocation of
the plant.
Over the first few months of the 2009 financial year the
combination of a decrease in international cotton lint
prices and an increase in the selling price of yarn again
resulted in improved trading conditions to near acceptable
levels. The management team has been strengthened with
the appointment of several key members to the team, and
the quality problems seem to have been overcome. With
much of the international economic turmoil still looming, it
is not expected that the company will perform better than
breakeven for the 2010 financial year. However, a number of
fundamental changes in the local market emerged
subsequent to year-end, offering opportunities to
reposition the company strategically to both increase
demand and decrease exposure to fluctuating market
conditions. Any positive results in this regard, however,
should only be expected to benefit the company in the
2011 financial year.
Foskor (Pty) Limited
Foskor Limited (Foskor) is an 85%
subsidiary of the IDC, with two
divisions.
The two divisions comprise:
• a phosphate rock and copper mining division with
production facilities in Phalaborwa; and
• a phosphoric acid and fertiliser division situated at
Richards Bay.
During the year under review Foskor generated record
profits and paid substantial dividends. The company’s
export orientation improved as a result of the Rand trading
in a favourable range, successful hedging strategies and
substantial strengthening of international selling prices.
Trading conditions in the fertiliser industry, specifically in
the phosphoric acid industry, continued to show
improvement. These factors had a positive effect on the
financial performance of Foskor, with a resultant record
profit being realised. Revenue increased by approximately
226% to R10,159 million. Profits increased 196% to
R1,919 million.
The year was also characterised by much corporate activity,
including:
• Coromandel Fertilisers Limited (CFL) and its distribution
partner Sun International taking their shareholding up to
15% in April 2008, after the successful conclusion of the
three-year Business Assistance Agreement (BAA);
• the successful divestment of the Zirconia operation to
Carborundum Universal Limited;
• the conclusion of advanced preparations for the potential
listing of Foskor;
• the conclusion of a Broad-based BEE partner selection
process for Foskor; and
• the establishment of management and employee share
option schemes for Foskor employees.
The Phalaborwa phosphate division produced
approximately 2,4 million tons of final phosphate rock,
which was lower than the previous year’s production.
This was due to lower feed grades and diminishing above-
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74 | Industrial Development Corporation of South Africa Annual Report 2009
ground reserves and downtime due to mill breakdown and
shutdown to convert plant to handle feed from the new
pyroxinite pit. Foskor is compliant with the Department of
Minerals and Energy agreement on the mine closure
requirements under the new legislation. Conversion of “old-
order” mining rights to “new-order” rights is still ongoing
and in hand.
The performance of the Phosphoric Acid Plant in Richards
Bay achieved a production of approximately 659 thousand
tons below last year’s record production. Granular fertiliser
has also performed below budget. Foskor’s safety record
was above 99%. Air emission compliance for all plants was
above 98% – well above the statutory requirements of 96%.
Safety and environmental compliance remains a key focus
area at all operations.
Foskor continues to be faced with challenges in the market
and operations. The outlook for realisable prices has
deteriorated as the commodity boom has tapered off.
Foskor also continues to make inroads in reducing its
breakeven exchange rate through efficiency improvements,
the continued benefits with CFL technical agreement, and
improved efficiencies and cost containment that will help
to manage some of these challenges. Foskor is budgeted to
remain profitable in the 2009/10 financial year under the
current conditions.
Umicore Autocat SouthAfrica (Pty) Limited
Umicore Autocat South Africa (Pty)
Limited (Umicore) produces
automotive emission control catalysts
(“autocats”) at a production plant in
Port Elizabeth, predominantly for export
into the European and American
automotives industry. An autocatalytic
converter is a device which is fitted to
the exhaust system of diesel and
petrol-powered vehicles to reduce the
toxicity of emissions from the internal
combustion engine.
The current global recession has had a negative impact on
the performance of the automotives industry worldwide.
Umicore, like other local automotive components
manufacturers and exporters, has been negatively affected.
Various measures are being implemented at the company
to reduce the negative consequence of the declining
market demand. Although it is difficult to predict recovery
in the market, Umicore is taking all the necessary steps to
ensure that it is well placed to benefit from the market
uplift when it happens.
During the year under review the much-awaited Automotive
Production and Development Programme (APDP), which is
set to replace the Motor Industry Development Programme
(MIDP) from 2013 until 2020, was finalised and announced.
Although the specific incentives relevant to the autocatalytic
converter industry are still outstanding, discussions are on
going between government and industry to finalise relevant
levels of incentives.
Umicore Group, which owns 55% of Umicore to the IDC’s
45%, recently acquired the Port Elizabeth-based
automotive catalyst operations of a competitor, Delphi.
IDC subsequently approved Umicore Group’s proposal for
the two Port Elizabeth operations to merge. The merger will
result in IDC owning 35% of the merged entity, to Umicore
Group’s 65%.
Hans Merensky (Pty) Limited
The IDC is a 42,6% shareholder in HansMerensky Holdings (Pty) Limited (HMH).HMH’s operations comprise a timberbusiness managed under a brandknown as Merensky, which consists ofsoftwood and hardwood plantations,sawmills and panel production facilitiesin the Eastern Cape, KwaZulu-Natal andLimpopo. The fruit business underHMH’s control trades as Westfalia andincludes operations that consist of thegrowing, processing and marketing ofsubtropical fresh and processed fruitproducts. In EU countries, Westfaliaprovides a category service to majorretailers and procures products from
Significant Investments_continued
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Industrial Development Corporation of South Africa Annual Report 2009 | 75
several countries of which the SouthAfrican production base represents oneof the sources of product.
The year under review was marked by the onset of theglobal economic slowdown. Notwithstanding the liquiditycrunch, market demand for subtropical fruit grew by 5% inEU markets. Westfalia acquired Greencell Limited, asubtropical fruit prepacker and distributer in the UK, inorder to increase market share and extend its categoryservice offering to its customers in the United Kingdom.
Operational results from Merensky were negativelyimpacted by the combined effects of electricity loadshedding, weakened demand for softwood structuraltimber and the slower-than-expected learning curve inbringing new plywood business to full realisation. Positiveresults were achieved from hardwood lumber products andall forestry operations. Good progress was made in theregeneration of long rotation plantations in the EasternCape and KwaZulu-Natal, which were damaged in the prioryear’s devastating fires.
The global economic climate necessitated thepostponement of equity raising for the purposes ofexpansion projects and for the rationalisation of minorityinterests in operating companies. However, additionalequity will be needed when the company returns to itsintended growth plans.
The continued contraction of the residential buildingmarket is likely to negatively impact lumber prices andmarkets. The postponement of the Kokstad sawmill will addto the management challenge of keeping old sawmillsavailable, while meeting more complex market variables.A weakening Rand bodes well for fruit exports from SouthAfrica and revenue streams generated in countries withstronger revenues. The company will focus on increasingthe supply of ready-to-eat fruit during all the months of theyear, as well as adding citrus products to the sales mix.
The IDC is confident that Hans Merensky will remain apreferred lumber products manufacturer and subtropicalfruit grower in South Africa, and remains committed to thegrowth and expansion plans of the company.
York Timber HoldingsLimited
Formerly known as the York TimberOrganisation, York Timbers HoldingsLimited (York Timbers) acquired control
of Global Forest Products (Pty) Limitedand South African Plywood (Pty)Limited (collectively known as the GFPGroup) from the Global EnvironmentalFunds on 12 July 2007.
The IDC elected to waive its pre-emptive and tag-along
rights and exchange its 30% shareholding in the GFP Group
for a 29,8% interest in the shareholding of the listed entity
York Timbers. This reinvestment was partly utilised to fund a
community and staff trust through special-purpose
vehicles, which in total obtained 12,8% of the ordinary
listed shares in York Timbers.
York Timbers is now a fully integrated forest products
company that owns 61 000 ha of plantations, seven
sawmills, a plywood mill and a national warehousing
network. In 2008 York Timbers decided to close the York
Lumber sawmill due to the unavailability of saw logs in
close proximity to this mill.
York Timbers’ interim financial results for the six months
ended 31 December 2008 were impacted by weaker market
conditions related to the current global economic crisis.
This resulted in a decrease in the demand for sawn timber
during the latter half of 2008, coupled with margin pressure
caused by rising input and raw material costs that could
not be passed on to York Timbers’ customers.
Management implemented a stringent cost control
programme, and sought to improve internal efficiencies,
increase sales volumes and carefully monitor debtors.
All capex projects have been postponed. In order to reduce
sawn timber output to 80% of capacity as a result of reduced
market demand for timber products, the rationalisation of
marginal sawmills is under consideration.The decrease in
sawmilling volumes will result in an improved ratio between
own logs used to expensive third-party supplied logs,
positively impacting margins and cash flows.
In addition, a new CEO and CFO were appointed to steer
York Timbers through the changing economic
environment.
York Timbers’ performance for its financial year ending
30 June 2009 is expected to be lower than budgeted as
adverse trading conditions continue through 2009. The
underlying asset base of York Timbers, however, remains
solid due to the value and quality of its plantation assets.
In addition, once the surplus of logs arising from the
accelerated harvesting and salvage operations, which were
undertaken after the fires of 2007 and 2008, is depleted, it is
forecast that there will be a log shortage for at least the
next 18 years.
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Operations support and sustainability departments
The Post-investmentMonitoring Department
In July 2008 the IDC established the
Post-investment Monitoring
Department (PIMD). The department
aims to ensure the efficient, correct
and timeous implementation of
approved transactions, monitoring
of business partners (BPs) and
protection of the IDC’s interest
until such time as the relationship
between IDC and the relevant
business partners terminates.minates.
Previously, account managers in individual Strategic
Business Units (SBUs) would be responsible for dealmaking,
the disbursement of approved facilities, relationship
management and monitoring of existing accounts from
“cradle to grave”. However, in view of its continued growth
as well as an ever-evolving business environment, there
was a need to create PIMD as a separate unit from the SBUs
to focus on post-investment management.
Appropriate post-investment administration, adequate
controls and monitoring processes are critical for the
management of IDC investments.
The post-investment monitoring process commences
immediately after the approval of the application for
finance and following the finalisation of the contractual
agreements between the IDC and its business partners. This
ranges from the facilitation of fund drawdowns;
amendments during the lifespan of the business partners;
the monitoring of existing interests including regular
reviews and client visits; and the regular analysis of financial
information in order to proactively identify clients that have
financial difficulties.
Key highlights to date include intensified and formalised
engagement with the IDC’s business partners on an
ongoing basis. The aim is to proactively identify early
warning signals, and initiate and apply appropriate
intervention(s).
Regional Activities
IDC regional offices aim to extend the
reach of the IDC to all areas of the
country by developing and
coordinating the implementation of
regional strategies, proactively driving
new business development, providing
account manager support and assisting
clients through the provision of
business support.
Development impact
• During the past financial year the demand for financing
from the IDC increased substantially and the number of
financing applications received during this period was
nearly 50% higher than the number of applications
received during the previous year.
• Substantial progress was made with strengthening the
IDC’s regional presence. Regional offices have now been
opened in all nine provinces. Regional offices are better
placed to meet the unique developmental needs,
challenges and opportunities in each province.
• The number of applications received by the regional
offices increased from an insignificant number at the
beginning of the financial year to 25% of the total
number of applications received during March 2009, the
last month of the financial year.
Highlights of the year under review
• The IDC’s regional strategies were finalised and approved.
Extensive research was undertaken and the SBUs’ sectoral
strategies and broad consultations were considered
before the strategies were approved.
• The regional offices also started to provide business
support including assisting new entrepreneurs with the
development of bankable business plans, and providing
assistance to IDC clients in identifying and addressing
operational, strategic and financial management gaps for
sustainability. This was especially important under the
current economic conditions.
• Good progress was made with the development of
stakeholder relations within the provinces. The IDC’s
presence and image was actively promoted, including
the initiation and driving of regional marketing
76 | Industrial Development Corporation of South Africa Annual Report 2009
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Industrial Development Corporation of South Africa Annual Report 2009 | 77
interventions aimed at attracting regional/local
stakeholders to further grow business opportunities and
enhance the regional development impact of the
organisation.
• An analysis of the location for regional offices, took into
account the following: provincial growth and
development strategy; the nature of the economic
activities in the province; the availability of road, air and
other transport infrastructure; the location of stakeholders
such as other DFIs, business organisations, government
departments and agencies; the dti; SME support
organisations; proximity to the IDC’s target markets; and
population numbers as well as levels of industrialisation.
• All the regional offices are now fully operational and
equipped with the necessary office and
telecommunications infrastructure. The IT systems are
fully integrated with those of the head office.
Outlook and key initiatives
During the upcoming year the IDC’s regional strategies will
be refined and action plans implemented. One of these
action plans will provide for the expansion of the IDC’s
presence in the provinces. This aims to ensure that the IDC
has representation in the main centres of the provinces to
ensure the provision of quality service throughout the
province and to extend the IDC’s reach.
The strategy involves each regional office establishing
“satellite offices” in the main town/city of every district. By
leveraging off sister organisations’ infrastructure, such as
office or desk space, regional office staff will then visit each
of these satellite offices on a regular basis.
The IDC will also focus on overcoming the operational
challenge of networking widely but effectively by
collaborating with other institutions, sister organisations
and stakeholders.
The unit will increase awareness of the IDC’s requirements
and criteria to improve the success rate of financing
applications so that a larger percentage of applications
progress to the approval of the financing stage.
One of the key strategies of the regional offices is to
proactively identify and drive new business development
throughout each region, especially in rural areas.
This will include the involvement of communities
through cooperatives and community trusts in the
development of projects.
Operations Head Office
Operations Head Office provides
business support services to
prospective and existing IDC clients
through the Business Support
Programme (BSP). The BSP focuses on
SMEs and aims to promote the long-
term viability and sustainability of IDC-
funded businesses and the promotion
of entrepreneurship through training
and consultancy services to
entrepreneurs.
Existing IDC clients that are deemed to be in distress or face
growth challenges are referred to the BSP to receive
business support. The BSP engages management
consultants and industry experts to provide professional
services, advice, guidance and mentoring to the clients at
their business premises. The objective is to assist clients to
improve the management of their businesses. The BSP
provides ongoing monitoring to ensure satisfactory
performance by consultants.
The business plan preparation support services assist
prospective clients who apply to the IDC for finance and
who require assistance to improve their business plans in
order to meet the financing criteria. This is provided via
established consultancy services.
The IDC provides grant funding to clients and therefore shares
in the cost of engaging consultants.The IDC under its various
targeted funds, such as the Risk Capital Facility and the
Transformation and Entrepreneurial Scheme, approves the
provision of business support grants to clients.
During the reporting period the BSP was expanded to
include Socio-Economic Development (SED) services for
assistance to targeted beneficiaries, specifically workers,
communities and cooperatives to realise imperative Broad-
based BEE objectives. The main objective of the SED
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Operations support and sustainability departments_continued
78 | Industrial Development Corporation of South Africa Annual Report 2009
function is to promote ownership of equity by workers’
trusts in companies in which blue-collar workers are
employed. In a similar way, community trusts will own
equity in companies that use the land that belongs to the
targeted communities. To date, 35 workers’ trusts and seven
community trusts now own meaningful equity in IDC-
funded companies throughout the country.
The SED function engages consultants with legal expertise
to assist targeted beneficiaries to form trusts and
cooperatives, as legal vehicles, to take ownership of
shareholding whenever possible in IDC-funded
transactions. Workers and community trusts and
cooperatives also receive IDC grant funds to engage
consultants and train trustees and members to improve the
management of their legal entities.
The IDC’s decision to regionalise its operations in all the
nine provinces has helped to extend the outreach of
business support, especially to historically disadvantaged
entrepreneurs in rural areas. It has also helped to decrease
consulting costs associated with travel and
accommodation of consultants. The SED function remains
located at the IDC’s head office, but its services are provided
throughout all provinces.
Whenever training needs are identified among business
support clients, BSP invites IDC’s Learning and Development
(External) Department to intervene.The department
organises appropriate training for IDC clients, such as groups
of entrepreneurs, managers, staff, workers, and community
trusts and cooperatives.
Highlights of the year under review
During the year under review the unit:
• approved improved business support internal control
systems and procedures;
• rolled out business support to regional offices and
trained regional managers to deliver business support
services in their respective provinces;
• approved R8,9 million of business support grants to
provide assistance to IDC clients. An additional
R8,8 million of business support funds was leveraged
from clients’ own contributions as commitment to
business support services;
• received a substantial increase in the number of business
support requests, especially for assistance to clients to
prepare business plans for submission to the IDC to
access finance, predominantly for business start-ups;
• engaged a highly experienced international senior expert
from PUM, a Dutch organisation. The consultant provided
business support to an IDC client as the consulting skill
could not be found locally or on the IDC panel
of consultants;
• expanded the Business Support Programme to include
socio-economic development services to workers and
community trusts and cooperatives; and
• appointed three socio-economic development specialists
in the Operations Head Office to facilitate B-BBEE through
trusts and cooperatives.
Outlook and key initiatives
Over the upcoming year, the unit aims to:
• develop business support as an expert function within
IDC and introduce business support proactively at the
due diligence/investigation stage;
• expand the number of consultants through the
introduction of sector-specific expert consultants to
respond to sector-specific business support requests and
regionalise consultants;
• intensify and leverage resources from other business and
technical support service providers, such as Small
Enterprise Development Agency, Productivity SA, PUM, etc;
• employ business support skills training of regional
officers that would be employed to augment the
resources of regional offices to increase the rollout of the
business support functionality in provinces;
• develop and introduce new business support products;
• explore ways to accelerate the receipt of benefits by the
workers and community trusts from the companies in
which the trusts own equity;
• develop and introduce implementation guidelines to
support workers’ and community trusts and cooperative
policies;
• develop a proactive implementation strategy for
community foundations within IDC; and
• assist with the beneficiation of Nguni cattle skin so as to
produce value-added products.
The IDC’s decision to
regionalise its operations
in all the nine provinces
has helped to extend the
outreach of business
support.
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Industrial Development Corporation of South Africa Annual Report 2009 | 79
The Africa Unit
The Africa Unit provides business
development services and promotes
the IDC in the rest of Africa.
Development impact
• The unit’s commitment in terms of approved projects
stands at 48 projects in 17 countries across Africa.
• The largest portion by value of approved projects is in the
Democratic Republic of Congo, followed by Mozambique
and Nigeria.
• On a sectoral basis the rest of Africa portfolio of approved
projects is concentrated in mining, transport, storage and
communications, electricity, gas and water supply, and
wholesale and retail trade.
Highlights of the year under review
• The IDC made inroads in providing technical assistance
and lines of credit to sister development finance
institutions on the rest of the continent. These are
provided to impact indirectly the establishment and
maintenance of SMEs on the continent.
• The IDC provides capacity-building and training services
to sister institutions in the SADC, particularly SACU. This
is done directly through:
– IDC staff as presenters and facilitators at appropriate
forums;
– exchange programmes (secondments) with sister
DFIs; and
– by making facilities available through the IDC
Academy.
• The unit continued to play an important role in
facilitating the strengthening of institutions that are
considered essential to the development of DFI capacity
on the continent, including the SADC DFI Network;
the SADC Development Finance Resource Centre; and
the Association of African Development Finance
Institutions (AADFI).
Outlook and key initiatives
The IDC approved and is considering lines of credit for
DFIs in:
• West Africa (primarily via regional institutions);
• East Africa (via regional institutions); and
• SADC (on a country-by-country basis).
Agency Development andSupport
The Agency Development and Support
(ADS) department has been tasked
with the responsibility of advancing
and leveraging development and
job-creation opportunities in
marginalised areas.
It seeks to be a catalyst for sustainable local economic
development and innovation, and to address market
failures for the benefit of communities in poor provinces,
rural areas and townships. It achieves this through the
establishment and support of development agencies
within municipalities.
Highlights of the year under review
During the past financial year six new agencies were
established throughout the country. These agencies
include: Umjindi (Mpumalanga); Moretele (North West);
Okhahlamba (KZN); Waterberg (Limpopo); Ukhahlamba
(Eastern Cape); and Taung (Northern Cape).
Despite the current environmental difficulties experienced
at local government level, a number of agencies have
progressed to the next phase including: Blue Crane
(Operational 3); Umhlosinga (Operational 1); Moses Kotane
(Establishment); Kouga (Operational 2); West Rand
(Establishment); and Overstrand (Operational 1).
In addition, over the past year, the department:
• co-hosted (with the LED Network) a national conference
on “Cooperating to Compete”;
• implemented Local Economic Development (LED) cadet
training as part of the dti’s Khulis’umnotho programme
aimed at strengthening local government capacity;
• helped development agencies leverage IDC funds, with
indications that for every R1 provided by the IDC,
agencies have leveraged a further R8;
• piloted the Small Town Revitalisation strategy in
Okhahlamba (Winterton and Bergville) in KwaZulu-Natal;
• approved a new “project-based” initiative by Exco for
piloting in two municipalities;
• launched a strategic intervention into communities
negatively impacted by mining, and the decline of
this sector;
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80 | Industrial Development Corporation of South Africa Annual Report 2009
• approved an integrated strategy leveraging transport for
the facilitation of economic and social benefit which is
due to be piloted;
• developed a holistic strategy for addressing social
exclusion and the building of social capital which will be
rolled out into agencies; and
• cooperated on a number of other initiatives with a variety
of stakeholders in the LED sphere, including on the
drafting of national agency establishment guidelines,
municipal Public Private Partnership guidelines, the
facilitation of e-commerce and e-learning initiatives for
marginalised communities, as well as various training and
capacity-building initiatives.
Outlook and key initiatives
In the year ahead the department will focus on the
implementation of the various strategies developed. Key
amongst these will be cooperating with mining houses and
affected communities to limit the negative impact mining
operations and their closeness might have on those
communities.
The department will continue to ensure it has equitable
geographic spread of agencies, including in the Free State.
Environment, Health andSafety
The Environment, Health and Safety
(EHS) department was established to
ensure that the IDC and its clients
comply with environmental, health and
safety legislation. All funding applicants
are categorised according to their
industry’s environmental, health and
safety risk profile, and the IDC analyses
the potential risks that each of them
pose, identifying areas of non-
compliance and working together with
funding beneficiaries to bring them up
to the required level. It also oversees
environmental impact assessments
where these are called for and provides
assistance and advice.
Highlights of the year under review
• The department conducted a total of 39 assessments on
existing investments as part of the ongoing
environmental monitoring process, compared to 28 in
the previous financial year.
• The IDC executive committee approved the Energy
Efficiency of the IDC Report. The aim of the report was to
identify initiatives to be implemented at head office to
reduce energy and resource consumption of the
organisation.
• The IDC became a signatory to the United Nations
Environmental Programme Financial Initiative (UNEP_FI),
strengthening its commitment to responsible lending.
Operations support and sustainability departments_continued
The department helped
development agencies
leverage IDC funds, with
indications that for every
R1 provided by the IDC,
agencies have leveraged a
further R8.
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Industrial Development Corporation of South Africa Annual Report 2009 | 81
• Made significant progress on greening the IDC head
office, including discontinuing bottled water at IDC
meetings and functions, recycling cooking oil from the
canteen, replacing all polystyrene cups and plates with
reusable crockery.
Outlook and key initiatives
During the year ahead the department will focus on:
• ensuring that clients continue to adhere to relevant
legislation and as far as possible follow best practice;
• increasing awareness and acting upon EHS issues on the
IDC’s business partners;
• reducing electricity consumption. As part of the open-
plan office project, energy-efficient lighting and
temperature control systems will be implemented which
are likely to contribute to significant energy savings. The
target is expected to be met during the upcoming
financial year.
External Learning andDevelopmentHighlights of the year under review
During the past financial year the unit:
• organised a Supply Chain Management course in
conjunction with the United Nations-International Trade
Centre (UN-ITC). The course was attended by the IDC
Procurement Manager, as well as practitioners from state-
owned enterprises and development finance institutions
in the SADC;
• ran a Basic Business Principles course for the IDC-
supported Kouga Development Agency;
• ran a Basic Business Principles course for women of the
Maphumulo Project in Maphumulo;
• ran Basic Business Principles and Financial Management
courses for Construction Industry Development Board
contractors;
• supported the Citrus Academy skills development
initiative with a R175 000 external training grant;
• ran a mentoring and coaching course for members of the
Charlestown Community Trust;
• deployed IDC staff to present at regional courses and
conferences in the fields of public-private partnerships,
corporate finance and human resources;
• ran a Basic Business Principles course for the Small
Enterprise Development Agency and SMEs in the
Northern Cape; and
• partnered with the Lesotho National Development
Corporation to provide training to the Lesotho SMME
Network and BaSotho Entrepreneurial Development
Corporation. This enabled trainers to acquire facilitation
skills and to deliver small business management training.
Three courses were held and 136 SMME entrepreneurs
were trained.
The department supported
the Citrus Academy skills
development initiative
with a R175 000 external
training grant.
The department made
significant progress on
greening the IDC head
office, including
discontinuing bottled
water at IDC meetings
and functions, recycling
cooking oil from the
canteen, replacing all
polystyrene cups and
plates with reusable
crockery.
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Operations support and sustainability departments_continued
82 | Industrial Development Corporation of South Africa Annual Report 2009
Workout and Restructuring
In line with the IDC’s developmental
objectives, the department’s mission is
to contribute to the development of
sustainable businesses by adopting a
pragmatic approach to existing IDC
Business Partners in financial distress
and providing optimal solutions which
will result in the turnaround of these
businesses. In cases where liquidation is
inevitable or where the business has
ceased operations, the department
monitors the liquidation and closure
process to optimise the IDC’s recovery.
The current global economic crisis has had a severe impact
on IDC-funded companies. The credit crunch has also
limited the availability and granting of credit. This has
resulted in serious cash flow constraints for many clients.
During the 2008/09 financial year the unit saw an increase
in the number of clients transferred from SBUs to the unit,
mostly from the Franchising, Chemicals, Mining and Metals
SBUs.
Depending on the nature and extent of the problem and the
best appropriate solution, the IDC’s interventions may include
the following:
• conversion of existing debt finance into equity or
mezzanine finance;
• deferment of capital and/or interest repayments;
• provision of additional funding for working capital
requirements; and
• proposing a turnaround solution which may include
finding new investors or buyers, bringing in strategic
operating partners, appointing consultants and providing
business support through our Business Support
Programme.
Highlights of the year under review
One of the unit’s initiatives for the 2008/09 financial year
was to assist IDC clients to minimise the risk of business
closure by sharing tools, such as cash flow management, or
restructuring information required to be considered for
assistance. These were provided through the IDC’s online
Access stakeholder newsletter and regional awareness
campaigns. In addition, management courses were
provided by the External Learning and Development
Department. The unit will continue with the awareness
campaigns during 2009/10, especially to areas not covered
during the year under review.
Outlook and key initiatives
During the year ahead the unit expects more clients to
come under financial pressure as demand continues to
slow and cash flows become severely constrained. The unit
intends to intensify interactions with IDC clients to ensure it
is able to intervene as early as possible to help clients
restructure and remain sustainable businesses into the
future.
The unit assists IDC clients
to minimise the risk of
business closure by
sharing tools, such as cash
flow management, or
restructuring information
required to be considered
for assistance.
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Industrial Development Corporation of South Africa Annual Report 2009 | 83
Marketing
The department provides marketing
and promotion services to the IDC in
respect of the mandate, brand,
products and services – across the
continent as well as internationally.
Highlights of the year under review
• The department launched an advertising campaign that
received accolades from the advertising industry media
with a Saturday Star columnist praising the campaign.
• The campaign saw the IDC role in industrial and
entrepreneurial development being communicated
broadly through television and radio.
• The catalytic role that the IDC plays in ensuring that the
vision of entrepreneurs is realised through providing
funding solutions, was emphasised in the campaign.
• The campaign achieved the following:
– emphasis on the IDC development mandate and its
objectives;
– increasing awareness of the IDC in the markets in
which it operates and beyond;
– informing target audiences of what the IDC stands for
and its role in developing South Africa and the rest of
the continent;
– differentiating the IDC – “provider of development
finance for industrial and entrepreneurial
development”;
– strengthening the relaunched IDC brand and increased
recognition for the pay-off line Your Partner in
Development Finance.
• An internal Values Project was launched to encourage
staff to take a customer-centric approach to doing
business. The values identified were “Professionalism,Partnership, Passion” and aim to encourage staff to put
the customer at the core of everything the IDC does. The
Values Project is built around the top five customer-
centric deliverables per unit or department, based on
clients’ most common service needs. These will be
tracked and monitored monthly. A reward and
recognition system will help identify the stars within the
IDC who Make It Happen.
• As part of the Values Project, the department developed
a corporate “mantra” that encapsulates the IDC’s main
values. The I Make It Happen campaign aims to
encourage staff to take responsibility for their
performance and help others in the organisation to
deliver an optimum service to our customers.
Outlook and key initiatives
During the year ahead the department will: conduct
research to determine the impact of the advertising
campaign and test whether our target audiences
understand the role and mandate of the IDC:
• evaluate and measure the effectiveness of external and
internal marketing communication campaigns and
mediums;
• focus on ensuring wider visibility for the IDC across
various regions through a focus on regional advertising
campaigns across various mediums; and
• energise staff towards Superior Customer Service by
rolling out the Values Project.
An internal Values Project
was launched to
encourage staff to take
a customer-centric
approach to doing
business.
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84 | Industrial Development Corporation of South Africa Annual Report 2009
Corporate Social Investment
The IDC Corporate Social Investment
(CSI) programme is aligned to the
Corporation’s core objectives and
government’s development
imperatives of job creation and poverty
alleviation. The focus of the programme
is primarily on rural areas and is biased
towards women, youth and people
with disabilities.
The programme consists of the following aspects:
• The Nguni Cattle Project
• The CEO’s Fund Dinaledi Schools Project
• The Social Investment Fund
• I Do Care Fund
The Nguni Cattle Project
The Nguni Cattle Project was established in 2002 and is
now operational in five provinces (Eastern Cape, North
West, Northern Cape, Limpopo and Free State) and is
expected to be launched in Mpumalanga during 2009. The
project is implemented in partnership with the provincial
departments of agriculture as well as universities. The aim
of the project is to contribute towards poverty alleviation
and job creation through the establishment of Nguni cattle
breeders and commercial farmers in rural communities. To
date, 96 farmers have been established in rural
communities across the country, with five now fully
registered with the Nguni Cattle Breeders Society of South
Africa as Nguni stud breeders.
The CEO’s Fund: Dinaledi Schools Project
The Dinaledi Schools is a project of the Department of
Education (DoE) seeking to enhance the teaching and
learning of maths and science in public schools. Over 500
schools have been selected by the DoE nationally to be
part of the project.
In 2007 the IDC adopted 15 of these schools for support
and in 2008 a commitment was made to increase the
number of schools to 30. The IDC provides learning support
materials to the schools to enhance the schools’
performance in maths and science. The schools are located
in all nine provinces: 20 in rural areas and 10 in townships.
All the schools service learners from disadvantaged
backgrounds.
The Social Investment Fund
The Social Investment Fund provides grant funding to not-
for-profit organisations and public entities involved in
enterprise development, education (maths, science and
technology), health and arts. A total of 20 projects were
funded during the reporting period as follows:
Number of Development sector projects
Income-generation projects 6
Education 6
Health 5
Arts, culture and other 3
Total 20
Employee volunteerism
Employees are encouraged to volunteer their time by
participating in community development work and
contributing towards the work of different charities. This is
done through two initiatives that take place annually: the
I Do Care Fund and Habitat for Humanity.
The I Do Care FundThe I Do Care Fund is an employee volunteer programme in
which employees contribute part of their monthly salary for
the benefit of welfare organisations. Employees are given
an opportunity to nominate charity organisations of their
choice based on preapproved criteria. The focus for 2008
was on organisations dealing with people with disabilities,
and a total of 14 organisations were selected as deserving
beneficiaries.
Habitat for HumanityIn August 2008, 300 employees took part in the building of
five houses for homes of orphaned and vulnerable children
in Orange Farm, south of Johannesburg. The building was
done in collaboration with Habitat for Humanity South
Africa, a non-profit organisation that addresses the severe
housing need in the country by providing decent,
affordable houses for the poor.
Support for victims of xenophobic attacks
In the wake of the xenophobic attacks that occurred in May
2008 around the country, the IDC established a
R10 million fund to support humanitarian relief efforts
Operations support and sustainability departments_continued
Industrial Development Corporation of South Africa Annual Report 2009 | 85
(such as food, clothing, tents and medicines), with some
funding committed to the Red Cross.
The most affected provinces were the Western Cape,
Gauteng, KwaZulu-Natal, Mpumalanga and, to some extent,
the Eastern Cape and Limpopo.
The IDC worked with the various provincial governments as
well as provincial disaster management centres to disburse
the funds.
The monies were used towards the setting up of new
shelters such as start-up costs (fences, security, logistics,
sanitation and related essential items) for relief shelters
which had been put up in the various provinces.
IDC staff members also contributed to alleviate the
sufferring and donated food and clothing items, which
were handed to the Gift of the Givers Foundation
Procurement
The Procurement department is
charged with the sole responsibility of
sourcing goods and services required
for the functioning of the IDC while
conforming to the IDC Act and all
relevant legislation, as required by the
government of South Africa, including
the Public Finance Management Act
(PFMA) and the Preferential
Procurement Act.
Highlights of the year under review
During the past year the IDC:
• advertised 22 tenders to the public;
• achieved spending of 60% on companies with more than
50,1% black ownership, a 3% increase on the last financial
year; and
• achieved spending of 22% on black and/or women-
owned and managed companies, a 2% increase on the
year before.
The section is updating its systems and procedures to
comply with the dti’s Codes of Good Practice.
Information Technology
Highlights of the year under review
During the year under review the IT department continued
to roll out technological initiatives that enhanced and
enabled IDC business processes. A customer-centric
approach was also successfully adopted to improve the IT
service experience.
During the past year, the department completed the:
• internal development, implementation and rollout of a
new SAP pipeline management system. The system is
more user-friendly and has better processing
functionality than its predecessor;
• implementation of a new backup system (HP Data
protector) to improve disaster recovery planning;
• virtualisation of the server environment to improve server
consolidation and high availability of services;
• development and rollout of an application tracking
system that allows SBUs and departments to be able to
track the status of funding applications made by IDC
customers during the loans origination phase; and
• development and rollout of the SWIFT system, an internal
service request system. The SWIFT system was developed
and customised to process service requests made within
support departments and SBUs. SWIFT has real-time
performance management capability.
In addition, the unit:
• donated 17 computers to a high school as part of the
IDC’s Corporate Social Investment initiative;
• established SAP ABAP programming internship to skill
and uplift previously disadvantaged graduates entering
the job market. The internship is funded by the IDC and
is run by IZAZI, a systems support partner; and
• conducted an IT risk management assessment to identify
and address threats.
Outlook and key initiatives
The IT department has planned a number of key initiatives
for the year ahead in support of the IDC’s business strategy
including:
• the implementation and rollout of a Management
Information System (MIS) platform as a way of making
critical business information available to relevant
employees to make appropriate decisions;
• the implementation of user-focused, value-add projects
to enhance productivity and enable business processes;
• the implementation and rollout of Voice-over-IP
telephony to improve telephonic functionality and
communication; and
• enhancing disaster recovery plan infrastructure to
improve the recovery of information.
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Human Capital
The goal of the IDC remains to be an
employer of choice, who is committed
towards providing an environment
which nurtures the potential of its
people. The organisation’s talent
management strategy has evolved to
meet the many challenges it faces.
The current economic downturn has
highlighted the need for competent,
committed staff who can respond to
challenging conditions by being
innovative and resourceful.
A number of strategies have been implemented during the
year under review to enhance the IDC’s work environment.
These include the renewed effort to grow the organisation’s
reputation and to focus on customers through a new value
system. The succession planning and development
programme was also reviewed to increase the talent pool.
The Dual Career Management policy, which allows
specialists to grow and progress through the organisation,
as well as a performance management system ensures that
the IDC not only recognises the excellent contribution of its
people, but that it also provides interventions to improve
on performance.
The IDC remains committed to creating an environment
which promotes equity and diversity in the workplace.
Human capital interventions are implemented on merit
across the organisation. The IDC’s staff composition attests
to our commitment towards employment equity and
diversity as seen by the table below:
% designated group2009 2008 2007
Executive management 80% 80% 78%
Middle management 72% 63% 63%
Professional staff 89% 86% 85%
The IDC is also committed to nurturing the diversity of its
people through programmes which encourage them to
celebrate their differences in a positive manner. One such
example is the Diversity Awareness event hosted by the
Employment Equity Forum. The focus of the event was to
showcase the cultures, values, beliefs and traditional attires
of different cultural groups. IDC staff found this insightful
and helpful in assisting them to understand the
backgrounds of their colleagues.
The IDC invests heavily in the development and retention
of staff as well as in the improvement of general employee
interaction. A number of staff surveys were undertaken to
gauge and measure employee satisfaction. According to
the Deloitte Annual “Best Company To Work For Survey”,
86% of IDC employees who participated believe that the
organisation was an employer of choice. Other initiatives
implemented recognising staff include the prestigious IDC
Star Awards which are held annually to recognise and
celebrate excellent performance.
The IDC’s Employee Assistance Programme is designed to
provide staff with an opportunity to obtain professional
help in an atmosphere of privacy and confidentiality. The
programme has been instrumental in supporting staff
during the recent financial turmoil.
To ensure that the IDC has the necessary skills and talent
for the coming years, management continues to implement
progressive Human Capital policies such as a total
remuneration strategy, succession planning and
development as well as a dual career management
programme.
86 | Industrial Development Corporation of South Africa Annual Report 2009
Operations support and sustainability departments_continued
The IDC is committed to
nurturing the diversity of
its people through
programmes which
encourage them to
celebrate their differences
in a positive manner.
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Industrial Development Corporation of South Africa Annual Report 2009 | 87
Group Annual Financial Statements
ContentsCorporate Governance 88
Report of the Board Audit Committee 94
Report of the Independent Auditors 95
Directors’ Report 97
Summary of the Group’s Significant Accounting Policies 106
Balance Sheets 118
Income Statements 119
Statements of Changes in Equity 120
Cash Flow Statements 122
Segmental Report – Primary Segments 123
Segmental Report – Geographical Segments 124
Notes to the Financial Statements 125
Annexures 156
Abbreviations 174
Administration 176
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88 | Industrial Development Corporation of South Africa Annual Report 2009
Corporate Governance
Introduction
The Industrial Development Corporation of South AfricaLimited (“the IDC”) is a development finance institutionestablished in terms of the Industrial DevelopmentCorporation Act (Act No 22 of 1940), as amended (the“IDC Act”).
The objectives and mandate of the IDC, its constitution, thepowers of its Board as well as the relationship between theIDC and its Shareholder are regulated by the IDC Act and itsRegulations. The IDC is also subject to the provisions of thePublic Finance Management Act (Act No 1 of 1999) (“thePFMA”), which deals with the best practice in financialmanagement focusing mainly on outputs andresponsibilities of State-Owned Entities (SOEs).
The South African government, through the Minister of Tradeand Industry, is the sole Shareholder of the IDC.
Approach to governance
The IDC Board of Directors subscribes to the need toconduct the IDC’s business with integrity and inaccordance with generally accepted corporate practices ascontained in the King II Report.
The directors also subscribe fully to the principles embodiedin appropriate international corporate governance codes andstrive to align the Corporation’s corporate governance withnational and international best practices.
The IDC is committed to the highest standards of integrityand ethical conduct and to open and transparentgovernance that gives its Shareholder and otherstakeholders the assurance that it is being managedethically in line with best practice, applicable legislation andpredetermined risk parameters.
The year under review
The key governance highlights of activities overseen by theBoard during the year under review were the following:
• During 2008 the Board meticulously reviewed the IDC’scorporate governance framework and the composition ofBoard committees. This was particularly aimed atexpanding the mandate of the Board committees, toenable the Board to be closer to the ethical environmentat the IDC and to take charge of corporate governancewithin the Corporation.
• The Board approved the appointment of externalmembers with vast experience and professionalism tostrengthen the special credit committee to enhanceindependence of the committee and to further improvethe integrity of decision-making processes.
• The Board approved the Shareholder Engagement andProxy Voting Guidelines for the introduction of a moreformalised and consistent approach to shareholderengagement between the IDC and its investeecompanies; this was aimed at outlining the IDC’s position
on various matters relating to corporate governance andits expectations from its investee companies as a goodcorporate citizen.
• An environment was created for SMEs, on the corporate
governance side, by adopting policies that would enable
the IDC to advise SMEs on corporate governance and
therefore enhance their sustainability. Internal processes
were reviewed, to ensure that its investment processes
look at corporate governance within SMEs.
• During the year an awareness compaign was conducted
to sensitise staff to the importance of complying with the
Code of Ethics. All employees and other stakeholders are
required to act in an ethical and professional manner,
thereby upholding the core values of integrity,
innovation, accountability and superior client service,
especially during the current challenging economic
environment.
• The Corporation embedded a Fraud Awareness Week,
aimed at educating and informing employees on how
fraud impacts their daily working environment, with
specific emphasis on the contraventions of the IDC Code
of Business Ethics.
Governance Structures withinthe IDCBoard of Directors
CompositionThe Corporation has a unitary Board of Directors, currently
consisting of one executive and 13 independent non-
executive directors, and thus obtains the desired level of
objectivity and independence in Board deliberations and
decision-making. The Board is assisted by Board
committees, duly formed according to the guidelines in the
King II Report on Corporate Governance (King II) and the
Public Finance Management Act.
The size of the Board is prescribed by section 6 (2) of the
IDC Act, which requires a minimum of five and a maximum
of 15 directors appointed by the Shareholder. In line with
the recommendations of King II, the position of Chairman
and Chief Executive Officer are separately held, with a clear
division of duties. As at 31 March 2009 there were fourteen
(14) directors of which thirteen (13) were non-executive.
The directors are individuals of a high calibre with diverse
backgrounds and expertise, facilitating independent
judgement and effective deliberations in the decision-
making process.
Induction and trainingOn appointment, new directors have the benefit of an
induction programme, aimed at deepening their
understanding of the Corporation and the business
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Industrial Development Corporation of South Africa Annual Report 2009 | 89
environment and markets in which the Corporation
operates. This includes background material, meetings with
senior management and visits to the Corporation’s facilities.
As part of the induction programme, newly appointed non-executive directors receive induction material whichcontains essential Board and Corporation information. Togain first-hand experience of the IDC’s operations, theBoard holds at least one meeting per year at the premisesof a client funded by the IDC. In the year under review theIDC Board held its off-site meeting at the Blue Craneagency in Somerset East.
Board Charter and responsibilities The purpose of the Board Charter is to regulate howbusiness is to be conducted by the Board in accordancewith the principles of good corporate governance. TheBoard Charter sets out specific responsibilities to be
discharged by the Board members collectively and theindividual roles expected from them.
Amongst others, the Board has the following roles andresponsibilities: to exercise leadership, integrity andjudgement, based on fairness, accountability andresponsibility; review and approve the financial objectives,plans and actions, including significant capital allocations andexpenditure; and identify key risk areas and key performanceindicators, which should be regularly monitored.
Board meetingsThe Board meets eight times per annum or ascircumstances necessitate. Once a year, the Board meets fora strategic breakaway to discuss strategic issues.
Meetings of the Board are scheduled annually in advance.The record of attendance of directors for the year underreview was as follows:
IDC Board attendance record (2008/9)
May June Aug Sept Oct Nov Jan Feb MarchDirector 2008 2008 2008 2008 2008 2008 2009 2009 2009
WYN Luhabe (Chairman) ✓ A ✓ ✓ A ✓ ✓ A ✓
Mr DH Lewis* ✓ ✓ ✓ ✓ – – – – –
Mr MG Qhena ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Adv FA du Plessis* ✓ T ✓ ✓ – – – – –
Ms P Graham* ✓ ✓ ✓ A – – – – –
Ms T Kunene* A ✓ ✓ ✓ – – – – –
Mr MC Nkuhlu A ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Ms MW Hlahla ✓ A ✓ A A A A A ✓
Mr MS Moloko A ✓ ✓ ✓ ✓ ✓ ✓ A ✓
Ms BN Njobe A ✓ A ✓ ✓ A ✓ ✓ ✓
Mr JC Mtshali ✓ ✓ ✓ ✓ ✓ A ✓ ✓ ✓
Ms NN Nokwe A A ✓ ✓ A ✓ ✓ A ✓
Mr NG Nika ✓ ✓ ✓ ✓ ✓ A A ✓ ✓
Mr JR Barton ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Ms LL Dhlamini** – – – – ✓ ✓ ✓ ✓ A
Mr SK Mapetla** – – – – ✓ ✓ A ✓ ✓
Ms LI Bethlehem** – – – – ✓ ✓ ✓ ✓ ✓
Mr LR Pitot** – – – – ✓ ✓ ✓ ✓ ✓
Mr GS Gouws (Alt) ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
✓ Present * Tenure ended 30 September 2008
T Via telephonic link ** Appointed 1 October 2008 as director
A Apologies
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90 | Industrial Development Corporation of South Africa Annual Report 2009
Corporate Governance_continued
Board committeesThe Board established five committees to assist it indischarging its responsibilities, namely the Board Audit,Board Risk Management, Board Human Resources andRemuneration, the Board Technical Committee and theDirectors’ Interest Committee, an ad hoc committee whosepurpose is to assist the Board in vetting related-partytransactions.
Delegating authority to Board committees or managementdoes not in any way release the Board of its duties andresponsibilities. There is always transparency and fulldisclosure from the Board committees to the Board.
Specific responsibilities have been delegated to thesecommittees, which operate under written Terms ofReference confirmed by the Board.
Board Audit CommitteeThe Committee comprises one executive director and fournon-executive directors as appointed by the Board. Themajority of members are financially literate. The Chairpersonof the Board Audit Committee may at his sole discretioninvite members of management to attend meetings of theBoard Audit Committee.
The overall objectives of the Board Audit Committee are toassist the Board in discharging its duties relating to thesafeguarding of assets, the operation of adequate systems,control procedures and ensuring accurate reporting,preparation of accurate financial statements and compliancewith all legal requirements and accounting standards.
The Committee has met three times in this financial year asset out below:
Board Audit Committee attendance record
23 June 11 Nov 30 March Member 2008 2008 2009
Mr NG Nika (Chairman)# ✓ ✓ ✓
Mr MG Qhena ✓ ✓ ✓
Ms MW Hlahla ✓ ✓ ✓
Mr LR Pitot** – – ✓
Ms LL Dhlamini** – – ✓
Adv FA du Plessis (Chairman)* T – –
Ms P Graham* ✓ – –
Ms G Serobe* ✓ ✓ –
Mr F Groepe* T – –
✓ Present
T Via telephonic link
A Apologies
* Tenure ended 1 October 2008
** Appointed 25 November 2008 as committee member
# Appointed as Chairperson 1 October 2008
Board Risk Management CommitteeThe Committee comprises six non-executive directors and
one external Committee member. The Chairman of the
Board, the Chief Executive Officer, the Chief Financial Officer
and the Chief Risk Officer are invited to attend all meetings
of this Committee.
The duties of this Committee include: setting out the
nature, role, responsibility and authority of the risk
management function within the IDC, outlining the scope
of risk management, reviewing and assessing the integrity
of the risk control systems, ensuring that risk policies and
strategies are effectively managed, providing independent
and objective oversight, reviewing the information
presented by management, and taking into account
reports by management and the Board Audit Committee to
the Board on financial, business and strategic risk issues. It
also assists the Board in determining the maximum
mandate levels for the various credit and Assets and
Liabilities Committee (ALCO) decisions.
The Committee has met four times in this financial year as
set out below:
Board Risk Management Committee attendance
record
12 May 11 Aug 10 Nov 23 Feb Member 2008 2008 2008 2009
Mr MC Nkuhlu (Chairman) A ✓ ✓ ✓
Adv FA du Plessis* ✓ A * *
Mr MG Qhena A ✓ ✓ ✓
Mr JR Barton ✓ ✓ ✓ ✓
Mr MS Moloko ✓ ✓ ✓ A
Ms NN Nokwe A ✓ A A
Mr T Chauke* A ✓ ✓ –
Mr NG Nika** – – ✓ ✓
✓ Present
T Via telephonic link
A Apologies
* Tenure ended 1 October 2008
** Appointed 25 November 2008 as committee member
Board Human Resources and Remuneration Committee The Committee comprises six non-executive directors as
appointed by the Board.The Chief Executive Officer and the
Divisional Executive for Human Resources attend as invitees
and recuse themselves when their remuneration and
performance are discussed.
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Industrial Development Corporation of South Africa Annual Report 2009 | 91
The main objective of this Committee is to assist the Board
in the development of compensation policies, plans and
performance goals, as well as specific compensation levels
for the IDC. The Committee annually manages the Board’s
evaluation of the performance of the Chief Executive
Officer and also assists the Board in fulfilling its oversight
responsibilities relating to succession planning as well as
overall compensation and human resource policies for all
IDC employees.
The Committee has met four times in this financial year as
set out below.
Board Human Resources and Remuneration
Committee attendance record
23 June 22 Sept 26 Jan 30 March Member 2008 2008 2009 2009
Mr DH Lewis (Chairman)* ✓ ✓ – –
Ms WYN Luhabe A ✓ ✓ ✓
Mr MG Qhena ✓ ✓ ✓ ✓
Ms T Kunene ✓ A – –
Ms BN Njobe (Chairman)# ✓ ✓ ✓ ✓
Mr JC Mtshali ✓ ✓ ✓ ✓
Mr MC Nkuhlu** – – ✓ ✓
Mr SK Mapetla** – – A ✓
Mr LWJ Matlhape ✓ ✓ ✓ ✓
✓ Present
T Via telephonic link
A Apologies
* Tenure ended 30 September 2008
** Appointed 1 October 2008 as director and 25 November 2008 as
committee member
# Appointed as chairperson 1 October 2008
Board Technical Committee The Committee comprises six non-executive directors.The
Chief Economist, the Operational Divisional Executives, and
the relevant strategic business units’ heads are invited to
attend all Committee meetings.
The purpose of the Board Technical Committee is to: assist
the Board of directors in considering sectoral research papers
and strategies and making recommendations at a high level;
and to assess project proposals and investment
opportunities of a technical nature in terms of pre-feasibility,
feasibility and implementation.
The Committee has met three times in this financial year as
set out below:
Board Technical Committee attendance record
23 June 24 Nov 30 MarchMembers 2008 2008 2009
Ms NN Nokwe (Chairman) ✓ ✓ ✓
Mr JR Barton ✓ ✓ ✓
Ms BN Njobe ✓ A ✓
Ms P Graham* ✓ – –
Mr JC Mtshali ✓ A ✓
Mr LP Mondi ✓ ✓ ✓
Ms LI Bethlehem** – ✓ ✓
Mr SK Mapetla** – ✓ ✓
✓ Present
T Via telephonic link
A Apologies
* Tenure ended 30 September 2008
** Appointed 1 October 2008 as director
Directors’ Interest Committee The Directors’ Interest Committee, an ad hoc committee
consisting of the following members:
• At least four (4) non-executive directors, including theChairperson of this Committee as appointed by the IDCBoard.
• The Chairperson may, at his or her discretion, inviteemployees to attend and to be heard at the meetings ofthe Committee.
The Committee has met four times in this financial year as
set out below:
Directors’ Interest Committee attendance record
20 June 18 July 15 Oct 20 FebMembers 2008 2008 2008 2009
Mr NG Nika (Chairman) T T T T
Mr DH Lewis* T T – –
Adv FA du Plessis* T T – –
Mr MC Nkuhlu A A T T
Ms LI Bethlehem** – – – T
Mr LR Pitot** – – – T
✓ Present
T Via telephonic link
A Apologies
* Tenure ended 30 September 2008
** Appointed 1 November 2008 as committee member
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92 | Industrial Development Corporation of South Africa Annual Report 2009
Corporate Governance_continued
Delegation of authorityThe Board delegates authority to management, however,
the Board and Executive Management retain the
responsibility concerning the exercise of delegated
authority. In terms of section 56 of the PFMA, the Board may
confirm, vary or revoke any decision taken by an official as a
result of a delegation by the Board.
In the interest of promoting efficiency and effective
management of programmes and best practice of financial
management, the IDC delegation matrix sets out the various
matters reserved for the Board as an accounting authority,
and sets out the powers that have been delegated to
committees and individuals within the Corporation as follows:
Credit Committee – the Committee’s membership consists
of the Chief Financial Officer, the Chief Economist, the Chief
Risk Officer, General Counsel, all the divisional executives and
any external committee members that Executive
Management may from time to time decide to appoint.
The Credit Committee is chaired, on a rotational basis by the
Chief Financial Officer, the Chief Economist and the Chief
Risk Officer.
The Credit Committee has authority to consider transactions
with a value below R25 million provided that such
transactions are in line with policies and limits. The
Committee can approve transactions with a counterparty
exposure limit of up to R250 million.
Special Credit Committee – the Committee’s membership
comprises members of Executive Management and is
chaired by the Chief Executive Officer. The Committee is
authorised to approve transactions where the transaction
value is more than R25 million and below R250 million
provided that such transactions are in line with policies and
limits. The Committee can approve transactions with a
counterparty exposure greater than R250 million but limited
to R1 billion.
Board – the Board has authority to approve finance
applications of more than R250 million and applications
where the counterparty exposure is greater than R1 billion,
those applications that fall outside approved limits and
policies, as well as those that have significant corporate
strategy implications.
Ethical conduct The Corporation’s Code of Ethics is in line with current ways
of doing business. The Code commits directors, Executive
Management, staff and service providers to high standards
of ethical conduct in their dealing with clients and all other
stakeholders.
During the year a training workshop was conducted to
sensitise staff to the importance of complying with the
Code of Ethics. All employees and other stakeholders are
required to act in an ethical and professional manner,
thereby upholding the core values of integrity, innovation,
accountability and superior client service.
Fraud prevention and whistle-blowingIDC employees are encouraged to report any suspected
fraudulent, unethical or corrupt practices to the Fraud Tip-
offs hotline, which is managed by an independent external
service provider. The source of information remains
anonymous. This complies with the requirements of the
Protected Disclosures Act, No 26 of 2000, by creating an
environment in which it is safe for employees to report
impropriety. A training workshop was conducted to educate
and inform employees how fraud would impact their daily
working environment.
Creating a pool of experienced company directors for thecountryThe IDC’s sustainability is critically dependent on the growth
in value and proper management of its investments. The IDC
plays a unique and important role in expanding the pool of
suitably qualified directors in South Africa by nominating
IDC employees and/or external persons for appointment to
the boards of its investee companies, where it has the right
to do so. Once appointed, these IDC-nominated directors
are required to attend directorship training courses. The IDC-
appointed directors gain a wealth of experience and by
serving on these boards are able to share knowledge and
skills with directors of any other boards they may join in
the future.
Relations with the Shareholder and communication withstakeholders The Board retains full and effective control over the
Corporation by: monitoring management in implementing
Board policies and strategies within the parameters of its
mandate from the Shareholder; setting targets; and by
measuring the Corporation’s performance on an annual
basis. Through the Shareholder’s Compact, as required by
the Public Finance Management Act, the Shareholder and
the IDC maintain contact with the former having approved
the strategic direction and focus of the IDC as set out for
each financial year. The annual report is submitted to
Parliament by the Minister of Trade and Industry and made
available to the public.
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Industrial Development Corporation of South Africa Annual Report 2009 | 93
Stakeholder communication
In line with the King II Report, the IDC has identified its
stakeholders and communicates with them as follows:
ShareholderIn line with the IDC Act, the IDC reports to its Shareholder
through the Annual Report. The Annual Report is distributed
to members of Parliament and is available on request to the
public.
As a further measure to encourage open communication
between the Shareholder and the Board, the latter holds
discussions with the Shareholder on matters of common
interest in order to align, as far as it is possible, its strategies
with those of the Shareholder.
Employees and managementThe Board has unrestricted access to senior management in
an effort to enhance communication and achievement of the
vision of the Corporation. Further communication with the
IDC employees is done through Board feedback sessions
convened by the CEO for IDC heads after each Board
meeting.The Board feedback sessions afford IDC heads an
opportunity to raise matters which require attention.
Public and business communityCommunication with the public is undertaken through the
the Corporate Marketing Department using a variety of
mediums including print, television, radio and internet.
The IDC’s Research and Information Department regularly
releases various publications aimed at keeping stakeholders
abreast of economic developments and promoting debate,
in line with the IDC’s developmental focus.
The IDC also hosts stakeholder engagements in all nine
provinces, which present an opportunity for the Corporation
to interact with business persons and their organisations
throughout the country.
The IDC is fully compliant with the Promotion of Access to
Information Act (Act No 2 of 2000) with its manual lodged
with the SA Human Rights Commission and made available
on its website for ease of access.
Group Company SecretaryAll directors have access to the advice and services of the
Group Company Secretary. In terms of the IDC Act, the
functions of the Group Company Secretary are in line with
the provisions of the Companies Act. The Group Company
Secretary is responsible for ensuring that the Board
procedures and applicable rules are fully observed and
comply with legislation and corporate governance tenets.
New directors are informed of their fiduciary duties during
the induction process organised by the Group Company
Secretary. Executive Management provides guidance on
matters of strategy and their respective functional
operational areas.
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94 | Industrial Development Corporation of South Africa Annual Report 2009
Report of the Board Audit Committee
Report of the Board Audit Committee in terms of
regulations 27(1)(10)(b) and (c) of the Public Finance
Management Act of 1999 (as amended).
In execution of its duties during the past financial year, the
Board Audit Committee has:
• reviewed the procedures for identifying business risks
and managing their impact on the Corporation, including
the risk management functions;
• reviewed the Corporation’s policies and procedures for
detecting and preventing fraud;
• reviewed the effectiveness of the Corporation’s policies,
systems and procedures;
• reviewed the effectiveness and adequacy of the Internal
Audit Department and adequacy of its annual work plan;
• considered whether the independence, objectives,
organisation, staffing plans, financial budgets, audit plans
and standing of the internal audit function provide
adequate support to enable the Committee to meet its
objectives;
• reviewed the results of the work performed by the
internal audit function in relation to financial reporting,
corporate governance, risk areas, internal control and any
significant investigation and management response;
• reviewed the coordination between the internal audit
function and the external auditors and dealt with any
issues of material or significant dispute or concern;
• reviewed the entity’s compliance with significant legal
and regulatory provisions;
• reviewed such significant transactions as the Committee
deemed appropriate;
• reviewed such significant reported cases of employee
conflicts of interest, misconduct or fraud, or any other
unethical activity by employees or the Corporation;
• reviewed the controls over significant financial and
operational risks;
• reviewed any other relevant matters referred to it by the
Board;
• reviewed the adequacy, reliability and accuracy of
financial information provided by management and
other users of such information;
• reviewed the accounting and auditing concerns
identified by internal and external auditors;
• reviewed the Annual Report and financial statements
taken as a whole to ensure they present a balanced and
understandable assessment of the position, performance
and prospects of the Corporation;
• reviewed the external auditors’ findings and reports
submitted to management; and
• reviewed the independence and objectivity of the
external auditors.
Where weaknesses were identified in internal controls,
corrective action was taken to eliminate or reduce the risks.
The Board Audit Committee is of the opinion, based on the
information and explanations given by management and
the Internal Audit Department and discussions with the
independent external auditors on the results of their audits,
that the internal controls of the Corporation have operated
effectively throughout the year under review and, where
internal controls did not operate effectively, that
compensating controls have ensured that the Corporation’s
assets have been safeguarded, proper accounting records
maintained and resources utilised efficiently.
Following our review of the financial statements for the
year ended 31 March 2009, we are of the opinion that they
comply with the relevant provisions of the Public Finance
Management Act 1999, as amended, and International
Financial Reporting Standards, and that they present fairly
the results of the operations, cash flow and financial
position of the Corporation. The Board Audit Committee
concurs that the adoption of the going-concern premise in
the preparation of the financial statements is appropriate.
We therefore recommend that the financial statements as
submitted be approved.
On behalf of the Board Audit Committee:
Mr NG Nika
Chairperson
29 June 2009
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Industrial Development Corporation of South Africa Annual Report 2009 | 95
Report of the Independent Auditors
To the member of the Industrial Development
Corporation of South Africa Limited
Report on the financial statements
We have audited the group annual financial statements
and the separate annual financial statements of the
Industrial Development Corporation of South Africa
Limited, which comprise the consolidated and separate
balance sheets at 31 March 2009, and the consolidated and
separate income statements, the consolidated and separate
statements of changes in equity and the consolidated and
separate cash flow statements for the year then ended, and
the notes to the financial statements, which include a
summary of significant accounting policies and other
explanatory notes and the directors’ report as set out on
pages 97 to 173.
Accounting authority’s responsibility for the financialstatements The accounting authority is responsible for the preparation
and fair presentation of these financial statements in
accordance with International Financial Reporting
Standards and in the manner required by the Public
Finance Management Act and the Companies Act of South
Africa. This responsibility includes: designing, implementing
and maintaining internal control relevant to the preparation
and fair presentation of financial statements that are free
from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and
making accounting estimates that are reasonable in the
circumstances.
Auditors’ responsibility Our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our
audit in accordance with International Standards on
Auditing. Those standards require that we comply with
ethical requirements and plan and perform the audit to
obtain reasonable assurance whether the financial
statements are free from material misstatement. The audit
was also planned an dperformed to obtain reasonable
assurance that our duties in terms of sections 27 and 28 of
the Public Audit Act 25 of 2004, have been compiled with.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on
the auditors’ 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 group annual financial statements and
annual financial statements present fairly, in all material
respects, the consolidated and separate financial position of
the Industrial Development Corporation of South Africa
Limited at 31 March 2009, and its consolidated and
separate financial performance and consolidated and
separate cash flows for the year then ended in accordance
with International Financial Reporting Standards and in the
manner required by the Public Finance Management Act
and the Companies Act of South Africa.
Report on other legal and regulatory requirements
Reporting on performance informationThe performance information set out on pages 97 to 101,
has been reviewed.
Responsibilities of the accounting authorityThe accounting authority has additional responsibilities as
required by section 55(2)(a) of the Public Finance
Management Act to ensure that the annual report and
audited financial statements fairly present the performance
against predetermined objectives of the public entity.
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96 | Industrial Development Corporation of South Africa Annual Report 2009
Report of the Independent Auditors_continued
Auditor’s responsibility The review engagement was conducted in accordance
with section 13 of the Public Audit Act, 2004, read with
General Notice 616 of 2008, issued in Government Gazette
No 31057 of 15 May 2008.
In terms of the foregoing, the engagement included
performing procedures to obtain sufficient appropriate
evidence about the performance information and related
systems, processes and procedures. The procedures
performed depend on the auditor’s judgement.
We believe that the evidence obtained is sufficient and
appropriate to provide a basis for the findings reported
below.
FindingsBased on the work performed no material shortcomings in
the processes, systems and procedures of the entity’s
reporting against predetermined performance objectives
have been identified.
KPMG Inc. SizweNtsaluba VSPRegistered Auditor Registered Auditor
Per LJ Wormald Per A Mthimunye
Chartered Accountant (SA) Chartered Accountant (SA)
Registered Auditor Registered Auditor
Director Partner
30 June 2009 30 June 2009
KPMG Crescent SizweNtsaluba Building
85 Empire Road 20 Morris Street East
Parktown Woodmead
Johannesburg, 2193 2191
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Industrial Development Corporation of South Africa Annual Report 2009 | 97
Directors’ Report
Introduction
The Industrial Development Corporation of South Africa
Limited (the IDC) was established in 1940 by an Act of
Parliament. It is a registered public corporation and a
schedule 2 listed entity in terms of the Public Finance
Management Act (PFMA) and the related Treasury
regulations. This report is presented in accordance with the
provisions of the prescribed legislation and addresses the
performance of the IDC as well as relevant statutory
information requirements. The Board of Directors is the
accounting authority as prescribed in the PFMA.
Nature of business
The IDC is a self-financing, state-owned, development
finance corporation, which provides financing to
entrepreneurs engaged in competitive industries, follows
normal company policies and procedures in its operations,
pays income tax at corporate rates and pays dividends to
its shareholder.
The IDC’s vision is to be “the primary driving force ofcommercially sustainable industrial development andinnovation to the benefit of South Africa and the rest ofthe African continent”. Its primary focus is on creating
balanced and sustainable economic growth in Africa and
promoting the economic prosperity of all South African
citizens.
Performance management
The IDC’s corporate performance indicators reflect the
Corporation’s strategic goals. These include the
maximisation of its development impact, especially job
creation, and ensuring its long-term financial sustainability.
In addition, the Corporation measures itself on a range of
other indicators, initiatives that will ensure the Corporation’s
long-term sustainability and expand its impact.
The IDC’s performance evaluation focuses primarily on the
financing activities undertaken by the IDC and its dedicated
wholly owned financing subsidiaries (Mini Group) –
Findevco (Pty) Limited, Impofin (Pty) Limited, Konoil (Pty)
Limited and The Export-Import Finance Corporation of SA
(Pty) Limited. The grouping of categories and the measures
against which performance is reported differ from those
reported in the CEO’s Review of Operations and are not
directly comparable.
IDC’s focus is determined by the South African
Government’s mandate to the Corporation, with the
orientation of the organisation being towards servicing the
needs of the public. In terms of the Leadership in
Development strategy, the Corporation’s objectives are to
support industrial capacity development and promote
entrepreneurship. By pursuing these objectives, the
Corporation aims to achieve the following outcomes:
• Create sustainable employment opportunities.
• Grow sectoral diversity.
• Support new entrepreneurs entering the economy.
• Support broad-based black economic empowerment.
• Support small and medium enterprises.
• Promote regional equity, including:
– Development of rural areas;
– Supporting development in poorer provinces; and
– Stimulating economic activity in previous townships.
• Support export-focused enterprises.
• Ensuring environmentally sustainable development.
Furthermore, the IDC acts in support of government’s
African strategies and therefore also has the following
objective to support industrial development in the rest
of Africa.
The IDC aims to achieve its objectives while ensuring its
long-term financial sustainability.
In order to fulfil its role as a catalyst, it is incumbent on the
IDC to lead by example, both in its internal and external
operations. Performance measures are integrated with other
objectives around customer perspectives, internal business
procedures and organisational growth, learning and
innovation. In order to ensure the IDC’s continued ability to
deliver on its objectives in the longer term, the performance
measures include indicators to ensure that the IDC maintains
its balance sheet integrity.
The performance measurement system ensures that the
IDC remains aligned with its mandated objectives.
Performance indicators are reviewed every year to account
for changes in the environment and ensure that long-term
objectives will be achieved.
Performance measurement process and guidelines
The guidelines applied for selecting parameters and
activities to be measured are that they should:
• contribute to the IDC’s objectives;
• be measurable; and
• be controllable.
Performance indicators are measured and reported to the
IDC’s Executive and Board on an annual basis. Regular
activity reports and management accounts ensure that
deviation from the target paths can be detected and
corrected if necessary.
The IDC’s performance management system rewards
employees who exceed targets. The achievement of the
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98 | Industrial Development Corporation of South Africa Annual Report 2009
Directors’ Report_continued
targets represents the expected level of performance.
Performance targets are set on the corporate, team and
individual levels and performance-linked remuneration is
based on the combination of the achievement of the three
levels of targets and only paid when overall targets are
exceeded.
The performance measurement is reviewed by an external
auditing firm to ensure that the targets are achieved
according to the original intentions and that the overall
performance is a fair reflection of the Corporation’s
activities during the period under review. Furthermore, the
targets set for each period are evaluated for compliance
with the IDC’s objectives, fairness and compliance with the
rules of the performance management system.
Performance indicators
The IDC has adopted a balanced scorecard approach to
structure its targets and measures aspects of shareholder’s
returns, internal processes, learning and growth, and
customer and community perspectives.
The IDC measures performance against both short-term
and long-term targets. Long-term targets include indicators
that are not suited to short-term measurement as their
outcomes cannot be effectively influenced or measured in
the short-term. Performance against these targets are
measured over a two-year period.
Shareholder’s returns
Development BEE Development of
score acquisitions the rest of Africa
35% 5% 10%
Customer and community
Customer satisfaction
10%
Internal processes
Operating Cost to Movement
profits income in portfolio
20% 10% 10%
Leadership in
development
Structure of short-term targets
Shareholder’s returns
Sustainability Strategic Growth in
of job creation interventions unlisted equity
22% 17% 28%
Internal processes
Quality of portfolio
11%
Learning and growth
Employee retention
11%
Customer and community
IDC B-BBEE rating
11%
Leadership in
development
Structure of long-term targets
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Industrial Development Corporation of South Africa Annual Report 2009 | 99
Targets in the “Shareholder’s returns” category measure the
IDC’s performance in terms of those aspects for which the
shareholder expects the Corporation to deliver, namely
development and long-term financial sustainability. Short-
term development indicators include measurement of the
development score, a target for the value of approvals for
black economic empowerment (BEE) acquisitions, and a
target for investment in the rest of Africa. The development
score is a composite indicator of development indicators
and incorporates measures for the Corporation’s outcomes
that it has to achieve as set out in its mandate. Each
transaction is scored according to its contribution to the
outcomes as set out above. Long-term indicators include
measurements for the implementation and sustainability
of job creation, strategic interventions by IDC as well as
growth in the value of the IDC’s unlisted portfolio.
“Internal processes” focuses on short-term indicators of
financial returns as well as movement in IDC’s portfolio
towards a balance that should ensure increased
development and financial returns. A measure for the value
of disbursements is also included. Long-term indicators in
this section consists of a measure for the quality of the
IDC’s portfolio.
The “Learning and growth” perspective has one indicator
measuring staff turnover in the IDC’s core operations.
In the short-term indicators, the “Customer and community”
perspective consists of a measure for customer satisfaction.
Long-term indicators include a measurement for the IDC’s
broad-based black economic empowerment (B-BBEE)
rating in terms of the Codes of Good Practice.
Reflection on current performance
The IDC measures its performance in a balanced manner,
and accounts for both positive and negative performance.
During the year under review the IDC exceeded its targets
on average for all categories in the short-term indicators.
A significant portion of the shareholder’s returns indicators
is made up of a indicators measuring the impact that the
IDC has on development. One of these indicators is the
development score which measures various aspects of the
outcomes listed above. The target for 2009 was to achieve a
development score of 45 814. The biggest portion of the
development score is based on a targets number of 29 228
jobs to be created and saved. Approvals during the year
were expected to create and save 26 700 jobs in South
Africa. This was slightly below the target, but a higher
number of funding approvals (231 in 2009 compared to
167 in 2008), 69% which assisted SMEs, resulted in a
development score of 51 717 being achieved.
The value of BEE acquisitions declined to R1,7 billion,
compared to R2,1 billion in the previous year. The IDC
exceeded its target for development of the rest of Africa,
with the net value of approvals benefiting the rest of the
continent amounting to R2,9 billion.
Cancellations of transactions previously approved and
larger numbers of clients experiencing financial difficulties
resulted in the IDC not being able to achieve its objectives
in the actual creation of jobs, with 76% of the targeted 80%
of jobs created.
The two-year period over which long-term targets were
measured saw the Corporation playing a larger role in
terms of strategic interventions. These interventions take
the form of investments that contribute to national or
provincial initiatives. Examples of these interventions
include support for the implementation of Industrial Policy
Actions Plans (IPAPs), support for projects in the renewable
energy sector, support for other dti initiatives, such as the
national clothing and textiles strategy and assisting with
the implementation of the dti film production rebates.
One of the most important measures for the IDC’s financial
sustainability is its ability to identify development
opportunities, invest in them and assist such companies to
grow over the long term. One indicator of the success of
this is the growth in the value of its unlisted investments.
Over the two years to March 2009, the value of the IDC’s
unlisted portfolio grew at 11,9% per annum, slightly
below the target of 12,2%. The turnaround of Foskor, IDC’s
largest unlisted investment, is still a major contributor to
this growth.
Higher than expected dividend income resulted in the IDC
exceeding expected profits despite higher levels of
impairments. The IDC also introduced a target for the value
of disbursements and achieved disbursements of
Corporate performance 2009
Short-term indicators
Long-term indicators
%
0
20
40
60
80
100
120
140
160
180
Shareholdersreturns
Internalprocesses
Learningand
Growth
Customerand
community
100 | Industrial Development Corporation of South Africa Annual Report 2009
Directors’ Report_continued
R7,7 billion against a budgeted R6,6 billion. Impairments
impacted the Corporation negatively in terms of long-term
indicators, with the level of impairments and write-offs as a
percentage of the average portfolio at cost increasing to
13,8% against a targeted 12,7%. A large portion of these
impairments resulted from the stock market performance
over the past financial year, where investments, particularly
related to acquisition finance, needing to be impaired as a
result of lower share prices.
Customer satisfaction improved, continuing the upward
trend experienced since 2005. The IDC also improved its
B-BBEE rating in terms of the Codes of Good Practice. The
IDC achieved a level 2 rating through a self-rating exercise,
largely as a result of an improvement in the score achieved
for preferential procurement.
A detailed analysis of the corporate performance is
provided in the table below.
Short term
Parameter (weight) Activity/Output target Performance
Development score, based on Achieve a development score of 45 814. Development score in excess of 51 717
number of jobs created and achieved. Although the number of jobs
regional, ownership, size and created and saved contributed to a significant
other attributes of enterprises portion of this, a higher number of
financed (25%). investment approvals and larger numbers of
SMEs funded was a large driver behind the
achievement of the target.
Value of approvals for BEE Approve BEE acquisitions to the value BEE acquisitions to the value of R1,7 billion
acquisitions (5%). of R1,4 billion. approved.
Value of approvals benefiting Approve R1,5 billion for the R2,9 billion approved for the development
the development of the rest development of the rest of Africa. of the rest of Africa.
of Africa (10%).
Disbursement of funds (10%). Disburse funding of R6,6 billion. Funding of R7,7 billion disbursed.
Achieve budgeted financial Net operating income before Achieved R4,0 billion.
returns for the IDC and its partnerships should be above
financing subsidiaries (20%). R1,7 billion (IDC and its financing
subsidiaries).
Achieved budgeted ratio of Achieve a ratio of 26%. Achieved a ratio of 16%.
operating expenses to net
interest, dividends and fees (10%).
Approve funding in line with Limited deviation. Most sectors exceeded the values allocated.
capital allocation (10%).
Improve customer satisfaction Improve customer satisfaction Continuous improvement in customer
(10%). rating. satisfaction rating.
Industrial Development Corporation of South Africa Annual Report 2009 | 101
Long term
Parameter (weight) Activity/Output target Performance
Actual job creation versus At least 80% of budgeted jobs should 76% of jobs created and sustained.
budgeted job creation (22%). be created.
Ensure that IDC plays a strategic IDC participation in national Several investments approved that are
role in furthering industry and provincial priority initiatives. linked to national and provincial initiatives.
development (17%).
Ensure IDC’s long-term financial Growth in fair value of unlisted Growth of 11,9% per annum recorded.
sustainability by ensuring that investments to exceed 12,2%
unlisted investment yield per annum.
sufficient returns (28%).
Manage the quality of IDC’s Impairments and write-offs as a Achieved a percentage of 13,8%.
portfolio of investments (11%). percentage of the average portfolio
valued atcost should be below 12,7%.
Reduce the staff turnover of core Reduce staff turnover to below 12,0%. Staff turnover reduced to 10,5%.
operational employees (11%).
Ensure that IDC implements Achieve a status of level 4 contributor. Good scores achieved for all
broad-based black economic aspects of B-BBEE scorecard.
empowerment as measured Overall status of level 2 achieved.
through the Codes of Good
Practice (11%).
Funding
The IDC’s loan funding requirements are sourced mainly
from international development agencies and from
commercial facilities raised through the IDC’s relationships
with commercial banks.
The IDC Mini Group’s general funding requirements for
2009 amounted to R11,7 billion (2008: R5,4 billion),
consisting of financing advances of R7,7 billion and
borrowing redemptions of R3,7 billion. These requirements
were partly met out of R8,8 billion of internally generated
funds, namely repayments received and profits. New
borrowings were limited to R3,7 billion for the year.
Corporate governance
The IDC’s directors endorse the King II Report on Corporate
Governance and, during the review period, have
endeavoured to adhere to the recommendations of the
report as much as possible. The IDC’s adherence to these
practices are outlined in the corporate governance section
of this annual report.
Public Finance Management Act
The IDC’s Board is responsible for the development of the
Corporation’s strategic direction. The Corporation’s strategy
and business plan are captured in the Shareholder’s
Compact and approved by the Board. After approval this is
agreed with the Department of Trade and Industry and
thereafter they form the basis for the Corporation’s detailed
action plans and ongoing performance evaluation.
Operating within the guidelines established in the
Shareholder’s Compact, the IDC’s various business units
prepare annual business plans, budgets and capital
programmes in order to meet their objectives as outlined
in their strategic plans.
The responsibility for the day-to-day management of the
Corporation vests in line management through a clearly
defined organisational structure and through formal
delegated authorities.
102 | Industrial Development Corporation of South Africa Annual Report 2009
Directors’ Report_continued
The IDC has a comprehensive system of internal controls,
which are designed to ensure that the Corporation’s
objectives are met, including the requirements of the
Companies Act and the recommendations of the King II
Report on Corporate Governance. These systems and
controls substantially meet the requirements of the Public
Finance Management Act. There are processes in place to
ensure that where these controls fail, failure is detected and
corrected.
Subsidiaries and joint ventures
Details of each trading subsidiary and joint venture are set
out in the annexures on pages 156 to 159.
Dividends
A dividend of R100 million was paid during the financial
year. On 30 June 2009 the directors declared a dividend of
R120 million.
Valuation of shares
The value of the Group’s investment in listed shares
decreased by R20,6 billion from R53,2 billion in the 2008
financial year to R32,5 billion at the end of the 2009
financial year, due to weak stock market performance,
brought about by the global financial crisis.
The value of unlisted investments held by the Group as
determined by the directors has decreased by R0,2 billion
to R2,6 billion, and the value of preference shares has
increased by R2,0 billion to R7,3 billion.
Post-balance sheet events review
The value of the Group’s listed shares has increased by
R1,6 billion up to the date of the approval of the financial
statements, as a result of the slight improvement in the
listed equities market.
Share capital
The authorised (R1,5 billion) and issued-share capital
(R1,4 billion) remained unchanged during the year.
Audit Committee information
The names of the Audit Committee members are reflected
on page 90. The meetings held and attendance record are
outlined in an earlier section of this annual report.
Directors and Secretary
The current directors of the IDC are reflected on pages
10 to 11, which also provides brief biographical details.
The name and registered office of the Secretary appear on
page 176.
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Industrial Development Corporation of South Africa Annual Report 2009 | 103
Board of Directors’ responsibility for the financial
statements for the year ended 31 March 2009
This report is presented in terms of Treasury Regulations
and the Public Finance Management Act, Act No 1 of 1999,
as amended, and is focused on the financial results and
financial position of the IDC. Information pertaining to the
IDC’s state of affairs, its business and performance against
predefined objectives are disclosed elsewhere in the annual
report. The prescribed disclosure of the emoluments in
terms of Treasury Regulation 28.1.1 is reflected in note 25 of
the financial statements.
The Board of Directors are responsible for the preparation
and fair presentation of the IDC group annual financial
statements and separate annual financial statements,
comprising the consolidated and separate balance sheets
at 31 March 2009, and the consolidated and separate
income statements, the consolidated and separate
statements of changes in equity and the consolidated and
separate cash flow statements for the year then ended, and
the notes to the financial statements, which include a
summary of significant accounting policies and other
explanatory notes and the directors’ report, in accordance
with International Financial Reporting Standards and in the
manner required by the Public Finance Management Act
and the Companies Act of South Africa.
The Board of Directors’ responsibility includes: designing,
implementing and maintaining internal control relevant to
the preparation and fair presentation of financial
statements that are free from material misstatement,
whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting
estimates that are reasonable in the circumstances.
The Board of Directors’ responsibility also includes
maintaining adequate accounting records and an effective
system of risk management.
The independent external auditors are responsible for
expressing an opinion on the group annual financial
statements and separate annual financial statements.
The IDC financial statements and group financial statements
set out on pages 104 to 173 have been prepared in
accordance with International Financial Reporting Standards,
the Companies Act of South Africa and the requirements of
the Public Finance Management Act, 1999, as amended.They
are based on appropriate accounting policies consistently
applied and supported by reasonable judgements and
estimates.
The board believes that the IDC will be a going concern in
the year ahead and has for this reason adopted the going-
concern basis in preparing the financial statements and
group financial statements.
The Board of Directors approved the group annual financial
statements and separate annual financial statements on
30 June 2009 and they are signed on its behalf by:
WYN LuhabeChairman
MG QhenaChief Executive Officer
Declaration by the Company Secretary
In terms of Section 268G(d) of the Companies Act of South
Africa, I certify that, to the best of my knowledge and belief,
the IDC has lodged with the Registrar of Companies for the
financial year ended 31 March 2009 all such returns as are
required in terms of the Companies Act, and that all such
returns are true, correct and up to date.
In terms of Section 19 of the IDC Act 22 of 1940, as amended,
I certify that for the financial year ended 31 March 2009,
the IDC has lodged with the Minister of Trade and Industry
the financial statements in respect of the preceeding
financial year.
E Moeti-MotlhammeGroup Company Secretary
30 June 2009
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104 | Industrial Development Corporation of South Africa Annual Report 2009
Summary of the Group’s Significant Accounting Policies
Impact of standards, interpretations and amendments that are not yet effective
The following new standards and interpretations are not yet effective for the current financial year. The Group will comply
with the new standards from the effective dates.
Standard/interpretation Effective date
IFRS 2 Share-based Payment amendment Annual periods beginning on or after 1 January 2009
IFRS 3 Business Combinations revised Annual periods beginning on or after 1 July 2009
IFRS 8 Operating Segments Annual periods beginning on or after 1 January 2009
IAS 1 Presentation of Financial Statements Annual periods beginning on or after 1 January 2009
revised
IAS 23 Amendment to Borrowing Costs Borrowing costs relating to qualifying assets for which the
commencement date for capitalisation is on or after 1 January
2009
IAS 27 Consolidated and Separate Financial Annual periods beginning on or after 1 January 2009
Statements revised
IAS 32 Financial Instruments: Preparation Annual periods beginning on or after 1 January 2009
and and IAS 1 Presentation of Financial
IAS 1 Statements – Puttable Financial
Instruments and Obligations Arising
on Liquidation
Reporting entity
The Industrial Development Corporation of South Africa
Limited (the IDC) is domiciled in South Africa. The
consolidated financial statements for the year ended
31 March 2009 comprise the IDC, its subsidiaries and the
Group’s interest in associates and jointly controlled entities
(referred to as the Group).
The financial statements were authorised for issue by the
directors on 30 June 2009.
Statement of compliance
The separate and consolidated financial statements have
been prepared in accordance and comply with
International Financial Reporting Standards (IFRS) and its
interpretations adopted by the International Accounting
Standards Board (IASB) as well as the requirements of the
Companies Act of South Africa and the requirements of the
Public Finance Management Act No 1 of 1999, as amended.
Basis of preparation
The separate and consolidated financial statements are
presented in South African Rand, which is the Group’s and the
IDC’s functional currency rounded to the nearest million.
These separate and consolidated financial statements are
prepared on the historical-cost basis except for the following:
• Derivative financial instruments are measured at fair
value.
• Financial instruments classified as held-for-trading are
measured at fair value.
• Financial instruments classified as available-for-sale are
measured at fair value.
• Biological assets are measured at fair value less point-of-
sale costs.
• Investment property is measured at fair value.
• Revalued items of property, plant and equipment.
• Financial assets and financial liabilities designated at fair
value through profit or loss.
In addition to the above, in the IDC’s separate financial
statements the exceptions to the historical-costs basis also
include investments in subsidiaries, associates or joint
ventures, which are classified as available-for-sale and
measured at fair value.
Non-current assets and disposal groups held-for-sale are
stated at the lower of carrying amount and fair value less
costs to sell.
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Industrial Development Corporation of South Africa Annual Report 2009 | 105
Standard/interpretation Effective date
IAS 39 Financial Instruments: Recognition and Annual periods commencing on or after 1 July 2009
Measurement – Amendments for
Eligible Hedged Items
IFRIC 13 Customer Loyalty Programmes Annual periods commencing on or after 1 July 2008
IFRIC 15 Agreements for the Construction Annual periods beginning on or after 1 January 2009
of Real Estate
IFRIC 16 Hedges of a Net Investment in a Annual periods commencing on or after 1 October 2008
Foreign Operation
IFRIC 17 Distributions of Non-cash Assets Annual periods commencing on or after 1 July 2009
to Owners
IFRIC 18 Transfers of Assets from Customers Transfers received on or after 1 July 2009
* All standards will be adopted at their effective date (except for the effect of those standards that are not applicable to the Group).
The directors are of the opinion that the impact of these
standards will be as follows:
• IFRS 2 amendment – Share-based Payment – Vesting
Conditions and Cancellations
The amendment to IFRS 2 clarifies that vesting conditions
are service conditions and performance conditions only.
Other features of a share-based payment agreement
should be treated as non-vesting conditions and should
be included in the grant date fair value of the share-
based payment. It also specifies that cancellations by
parties other than the entity should be accounted for in
the same way as cancellations by the entity. This
amendment is not expected to impact the Group’s result.
• IFRS 3 – Business Combinations
The principal amendments to IFRS 3 include:
– the requirement to expense all acquisition-related
costs;
– recognition of fair value gains and losses in the income
statement on interests in an acquiree at the time at
which control is lost;
– recognition of all increases and decreases in ownership
interests over an acquiree within equity whilst control
is held;
– the option to recognise any non-controlling interest in
the acquiree either at fair value or at the non-
controlling interest’s proportionate share of the net
identifiable assets of the entity acquired;
– restriction of adjustments to the initial measurement of
contingent considerations on a business combination,
with subsequent measurement of such items being
recognised in the income statement; and
– the requirement at acquisition to reclassify and
redesignate all contractual arrangements, excluding
leases and insurance contracts.
The amendments are expected to affect the Group’s
accounting for business combinations that arise after the
date on which the amendments are adopted. The effect
on the financial statements will be a function of the
number and value of any business combinations
transacted after the effective date.
• IFRS 8 – Operating Segments
This standard replaces the current IAS 14 – Segment
Reporting – and is effective for annual periods
commencing on or after 1 January 2009. The expected
impact is still being assessed in detail by management,
but it appears likely that the number of reportable
segments, as well as the manner in which the segments
are reported, will change in a manner that is consistent
with the internal reporting provided.
• IAS 1 – Presentation of Financial Statements
The revised IAS 1 supersedes the 2003 version of IAS 1.
The main change in the revised IAS 1 is the requirement
to present all non-owner changes in equity in either:
– a single statement of comprehensive income, which
includes income statement line items; or
– a statement of comprehensive income, which includes
only non-owner equity changes. In addition, an income
statement is also disclosed.
A statement of financial position, preferred term for
“balance sheet“, also has to be presented at the
beginning of the comparative period when the entity
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106 | Industrial Development Corporation of South Africa Annual Report 2009
Summary of the Group’s Significant AccountingPolicies_continued
restates the comparatives as a result of a change in
accounting policy, the correction of an error, or the
reclassification of items in the financial statements. The
revised IAS 1 will not impact the results of the Group but
will impact the format of the income statements and
statement of changes in equity.
• IAS 23 – Borrowing Costs
The revision of IAS 23 requires the capitalisation of
borrowing costs that relate to qualifying assets, ie assets
that necessarily take a substantial period of time to get
ready for their intended use or sale. It does not require
the capitalisation of borrowing costs relating to assets
measured at fair value, and inventories manufactured or
produced in large quantities on a repetitive basis. The
impact of this standard is not expected to be material,
but is dependent on the number and value of projects
undertaken after the effective date.
• IAS 27 – Consolidated and Separate Financial Statements
The amendments to IAS 27 require changes in a parent’s
ownership interest in a subsidiary that does not result in
a loss of control to be accounted for within equity as
transactions with owners in their capacity as owners. At
the time at which control is lost, a parent shall
derecognise all assets, liabilities and non-controlling
interest at their carrying amounts. Any retained interest in
the former subsidiary is recognised at its fair value at the
date control is lost. A gain or loss on the loss of control is
recognised in profit or loss. The revised standard also
requires an entity to attribute its share of total
comprehensive income to the non-controlling interest
even if this results in the non-controlling interest having a
deficit balance. The effect on the financial statements will
be a function of the number and value of transactions
that result in the loss of control over subsidiaries after the
implementation of the new standard.
• IAS 32 and IAS 1 amendments – Financial Instruments:
Presentation and IAS 1 Presentation of Financial Statements
– Puttable Financial Instruments and Obligations Arising on
Liquidation
The amendment to IAS 32 requires the classification of
certain puttable financial instruments and financial
instruments that impose on the issuer on obligation to
deliver a pro-rata share of the entity only on liquidation
as equity. The amendment sets out specific criteria that
are to be met to present the instruments as equity
together with related disclosure requirements. This
amendment is not expected to have a significant impact
on the Group’s results.
• IAS 39 Financial Instruments: Recognition and
Measurement – Amendments for Eligible Hedged Items
Inflation in a financial hedged itemInflation may only be hedged if changes in inflation are a
contractually specified portion of cash flows of a recognised
financial instrument.Therefore, where an entity acquires or
issues inflation-linked debt, it has a cash flow exposure to
changes in future inflation to which cash flow hedge
accounting may be applied. However, the amendment
clarifies that an entity may not designate an inflation
component of issued or acquired fixed-rate debt in a fair
value hedge because such a component is not separately
identifiable and reliably measurable.The amendments also
clarify that a risk-free or benchmark interest rate portion of
the fair value of a fixed-rate financial instrument will
normally be separately identifiable and reliably measurable
and, therefore, may be hedged.
A one-sided risk in a hedged itemIAS 39 permits an entity to designate purchased options as
a hedging instrument in a hedge of a financial or non-
financial item.The entity may designate an option as a
hedge of changes in the cash flows or fair value of a
hedged item above or below a specified price or other
variable (that is, a one-sided risk).The amendments make
clear that the intrinsic value, not the time value, of an option
reflects a one-sided risk and, therefore, an option designated
in its entirety cannot be perfectly effective.The time value of
a purchased option is not a component of the forecast
transaction that impacts profit or loss.Therefore, if an entity
designates an option in its entirety as a hedge of a one-
sided risk arising from a forecast transaction, hedge
ineffectiveness will arise. Alternatively, an entity may choose
to exclude time value as permitted by IAS 39 to improve
hedge effectiveness.
This amendment is not expected to have an impact on the
Group’s results.
• IFRIC 13 – Customer Loyalty Programmes
IFRIC 13 addresses accounting by entities that grant
loyalty award credits to customers who buy other goods
or services. Specifically, it explains how such entities
should account for their obligations to provide free or
discounted goods or services (‘awards’) to customers
who redeem award credits. The interpretation is not
applicable to the business of the Group.
• IFRIC 15 – Agreements for the Construction of Real Estate
The interpretation standardises accounting practice
across jurisdictions for the recognition of revenue by real
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Industrial Development Corporation of South Africa Annual Report 2009 | 107
estate developers for sales of units, such as apartments or
houses,“off plan” – that is, before construction is
complete. The interpretation is not applicable to the
business of the Group.
• IFRIC 16 – Hedges of a Net Investment in a Foreign
Operation
The interpretation clarifies three main issues:
1. Whether risk arises from (a) the foreign currency
exposure to the functional currencies of the foreign
operation and the parent entity, or from (b) the foreign
currency exposure to the functional currency of the
foreign operation and the presentation currency of the
parent entity’s consolidated financial statements.
IFRIC 16 concludes that the presentation currency
does not create an exposure to which an entity may
apply hedge accounting. Consequently, a parent entity
may designate as a hedged risk only the foreign
exchange differences arising from a difference
between its own functional currency and that of its
foreign operation.
2. Which entity within a group can hold a hedging
instrument in a hedge of a net investment in a foreign
operation and in particular whether the parent entity
holding the net investment in a foreign operation
must also hold the hedging instrument.
IFRIC 16 concludes that the hedging instrument(s)
may be held by any entity or entities within the group.
3. How an entity should determine the amounts to be
reclassified from equity to profit or loss for both the
hedging instrument and the hedged item when the
entity disposes of the investment.
IFRIC 16 concludes that while IAS 39 must be applied
to determine the amount that needs to be reclassified
to profit or loss from the foreign currency translation
reserve in respect of the hedging instrument, IAS 21
must be applied in respect of the hedged item.
This interpretation is not expected to have an impact
on the Group’s results.
• IFRIC 17 – Distributions of Non-cash Assets to Owners
IFRIC 17 applies to the entity making the distribution, not
to the recipient. It applies when non-cash assets are
distributed to owners or when the owner is given a
choice of taking cash in lieu of the non-cash assets. This
interpretation is not expected to have an impact on the
Group’s results.
• IFRIC 18 – Transfers of Assets from Customers
The interpretation clarifies the requirements of IFRS for
agreements in which an entity receives from a customer
an item of property, plant and equipment that the entity
must then use either to connect the customer to a
network or to provide the customer with ongoing access
to a supply of goods or services (such as a supply of
electricity, gas or water). The interpretation is not
applicable to the business of the Group.
Use of estimates and judgements
The preparation of financial statements to conform with
IFRS requires management to make judgements, estimates
and assumptions that affect the application of policies and
reported amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are
based on historical experience and various other factors
that are believed to be reasonable under the
circumstances. These estimates form the basis of
judgements pertaining to the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on
a continuous basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if
the revision affects only that period, or in the period of the
revision and future periods if the revision affects both
current and future periods.
In particular, information about significant areas of
estimation uncertainty and critical judgements in applying
accounting policies that have the most significant effect on
the amounts recognised in the financial statements are
described in note 38.
The accounting policies set out below have been applied
consistently to all periods presented in these consolidated
and separate financial statements.
The accounting policies have been applied consistently by
Group entities.
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108 | Industrial Development Corporation of South Africa Annual Report 2009
Significant Accounting Policies
Basis of consolidation
Subsidiaries Subsidiaries are entities controlled by the IDC. Control existswhen the IDC has the power, directly or indirectly, to governthe financial and operating policies of an entity so as toobtain benefits from its activities. In assessing control,potential voting rights that are presently exercisable orconvertible are taken into account. The financial statementsof subsidiaries are included in the consolidated financialstatements from the date that control commences until thedate that control ceases.
Intercompany transactions, balances and unrealised gainson transactions between Group companies are eliminatedon consolidation.
Unrealised losses are eliminated in the same way asunrealised gains, but only to the extent that there is noevidence of impairment.
Investments in subsidiaries in the Corporation’s separatefinancial statements, are carried at fair value as available-for-sale financial assets.
Special-purpose entitiesThe Group has established a number of Special-Purpose
Entities (SPEs) for trading and investment purposes. SPEs are
entities that are created to accomplish narrow and well-
defined objectives. An SPE is consolidated if, based on an
evaluation of the substance of the relationship with the
Group and the SPE’s risks and rewards, the Group concludes
that it controls the SPE. SPEs controlled by the Group are
generally those established under terms that impose strict
limitations on the decision-making powers of the SPE’s
management and that result in the Group receiving the
majority of the benefits related to the SPE’s operations and
net assets.
Investments in SPEs in the Corporation’s separate financial
statements are carried at fair value as available-for-sale
assets.
AssociatesAssociates are those entities in which the Group has
significant influence, but not control, over the financial and
operating policies. The consolidated financial statements
include the Group’s share of the total recognised gains and
losses of associates on an equity-accounted basis, after
adjustments to align accounting polices with those of the
Group, from the date that significant influence commences
until the date it ceases. When the Group’s share of losses
exceeds its interest in an associate (equity-accounted
investee), the Group’s carrying amount is reduced to nil and
recognition of further losses is discontinued except to the
extent that the Group has incurred legal or constructive
obligations or made payments on behalf of an associate.
Unrealised gains and losses arising from transactions withequity-accounted investments are eliminated against theinvestment to the extent of the Group’s interest in theinvestment. Unrealised losses are eliminated only to theextent that there is no evidence of impairment.
Investments in incorporated associates in the Corporation’sseparate financial statements are carried at fair value asavailable-for-sale assets.
Joint ventures and partnershipsJoint ventures and partnerships are those entities overwhose activities the Group has joint control, established bycontractual agreement and requiring unanimous consentfor strategic and operating decisions. The consolidatedfinancial statements include the Group’s share of the totalrecognised gains and losses of joint ventures on an equity-accounted basis, from the date that joint control isestablished by contractual agreement until the date that itceases. When the Group’s share of losses exceeds its interestin a joint venture, the Group’s carrying amount is reducedto nil and recognition of further losses is discontinuedexcept to the extent that the Group has incurred legal orconstructive obligations or made payments on behalf of ajoint venture.
Unrealised gains and losses arising from transactions withequity-accounted joint ventures and partnerships areeliminated against the investment to the extent of theGroup’s interest in the investment.
Investments in incorporated joint ventures in theCorporation’s separate financial statements are carried atfair value as available-for-sale assets.
Financial assetsThe Group classifies its financial assets into the followingcategories: financial assets at fair value through profit orloss; loans and receivables; held-to-maturity investments;and available-for-sale financial assets. Managementdetermines the classification of its financial assets at initialrecognition.
Financial assets at fair value through profit or loss This category has two subcategories: financial assets held-for-trading and those designated at fair value throughprofit or loss at inception.
A financial asset is classified as held-for-trading if acquiredprincipally for the purpose of selling in the short term or ifso designated by management. Derivatives are alsocategorised as held-for-trading unless they are designatedas hedging instruments.
The Group designates financial assets at fair value throughprofit or loss when:
• the assets are managed, evaluated and reportedinternally on a fair value basis;
• the designation eliminates or significantly reduces anaccounting mismatch, which would otherwise arise; or
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Industrial Development Corporation of South Africa Annual Report 2009 | 109
• the asset contains an embedded derivative that
significantly modifies the cash flows that would
otherwise be required under the contract.
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.
Held-to-maturity Held-to-maturity investments are non-derivative financial
assets with fixed or determinable payments and fixed maturity
that the Group has the positive intent and ability to hold to
maturity. If the Group were to sell other than an insignificant
amount of held-to-maturity assets, the entire category would
be tainted and reclassified as available-for-sale.
Available-for-sale Available-for-sale investments are non-derivative
investments that are not designated as another category of
financial assets.
Available-for-sale investments are those intended to be
held for an indefinite period of time, which may be sold in
response to needs for liquidity or changes in interest rates,
exchange rates or equity prices.
Recognition and measurementPurchases and sales of financial assets at fair value through
profit or loss, held-to-maturity and available-for-sale are
recognised on trade date – the date on which the Group
commits to purchase or sell the asset. Loans are recognised
when the cash is advanced to the borrowers. Financial
assets are initially recognised at fair value plus transaction
costs for all financial assets not carried at fair value through
profit or loss.
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.
Available-for-sale financial assets and financial assets at fair
value through profit or loss are subsequently carried at fair
value. Loans and receivables and held-to-maturity
investments are carried at amortised cost using the
effective interest method. Gains and losses arising from
changes in the fair value of the financial instruments
through profit or loss category are included in the income
statement in the period in which they arise. Gains and
losses arising from changes in the fair value of available-for-
sale financial assets are recognised directly in equity until
the financial asset is disposed of, derecognised or impaired,
at which time the cumulative gain or loss previously
recognised in equity should be recognised in profit or loss.
However, interest calculated using the effective interest rate
method is recognised in the income statement for
available-for-sale debt investments. Dividends on available-
for-sale equity instruments are recognised in the income
statement when the entity’s right to receive payment is
established.
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.
Financial liabilitiesFinancial 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 rate.
Where the Group classifies certain liabilities at fair value
through profit or loss, changes in fair value are recognised
in the income statement. 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; or
• 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.
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Significant Accounting Policies_continued
Financial guaranteesFinancial guarantees are contracts that require the Group tomake specified payments to reimburse the holder for a lossit incurs because a specified debtor fails to make paymentwhen due in accordance with the terms of a debtinstrument. Financial guarantee liabilities are initiallyrecognised at their fair value and the initial fair value isamortised over the life of the financial guarantee. Theguarantee liability is subsequently carried at the higher ofthis amortised amount and the present value of anyexpected payment (when payment under the guaranteehas become probable). Financial guarantees are includedwith other liabilities.
Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amountreported in the balance sheet when there is a legallyenforceable right to offset the recognised amounts andthere is an intention to settle on a net basis, or realise theasset and settle the liability simultaneously.
Income and expenses are presented on a net basis onlywhen permitted by the accounting standards, or for gainsand losses arising from a Group of similar transactions suchas in the Group’s trading activity.
Impairment of financial assets carried at amortised costThe Group assesses whether there is objective evidence that afinancial asset or Group of financial assets not carried at fairvalue through profit or loss are impaired at each balancesheet date. A financial asset or Group of financial assets isimpaired and impairment losses are incurred if, and only if,there is objective evidence of impairment as a result of one ormore events that have occurred after the initial recognition ofthe asset (a loss event) and that loss event (or events) has animpact on the estimated future cash flows of the financialasset or Group of financial assets that can be reliablyestimated. Impairment losses are recognised in the incomestatement and reflected in an allowance account againstloans and advances.
Objective evidence that a financial asset or a group ofassets is impaired includes observable data that comes tothe 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 ininterest or principal payments.
• the Group granting to the borrower, for economic orlegal reasons relating to the borrower’s financial difficulty,a concession that the lender would not otherwiseconsider.
• it becoming probable that the borrower will enterbankruptcy or other financial reorganisation.
• the disappearance of an active market for that financialasset resulting in financial difficulties.
• observable data indicating that there is a measurabledecrease in the estimated future cash flows from a groupof financial assets since the initial recognition of thoseassets, although the decreases cannot yet be identifiedwith the individual financial assets in the Group.
The Group first assesses whether objective evidence ofimpairment exists individually for financial assets that areindividually significant, referred to as specific impairments,and individually or collectively for financial assets that arenot individually significant. If the Group determines that noobjective evidence of impairment exists for an individuallyassessed financial asset, whether significant or not, itincludes the asset in a group (portfolio) of financial assetswith similar credit risk characteristics and collectivelyassesses them for impairment. Assets that are individuallyassessed for impairment and for which an impairment lossis, or continues to be, recognised are not included in acollective assessment of impairment.
The amount of specific impairments raised is the amountneeded to reduce the carrying value of the asset to thepresent value of the expected ultimate fair value less coststo sell, taking into consideration the financial status of theunderlying client and any security in place for therecoverability of the financial asset.
The recoverable amount of the assets is calculated as thepresent value of estimated future cash flows, discounted atthe original effective interest rate (ie the effective interestrate computed at initial recognition of the asset).
For the purpose of a collective evaluation of impairment,financial assets are grouped on the basis of similar credit riskcharacteristics (ie on the basis of the Group’s grading processthat considers asset type, industry, geographical location,collateral type, past-due status and other relevant factors).Those characteristics are relevant to the estimation of futurecash flows for groups of such assets by being indicative ofthe debtors’ ability to pay all amounts due according to thecontractual terms of the assets being evaluated.
Future cash flows in a group of financial assets that arecollectively evaluated for impairment are estimated on thebasis of the contractual cash flows of the assets as well ashistorical loss experience for assets with credit riskcharacteristics similar to those in the Group as well ashistorical loss experience is adjusted on the basis of currentobservable data to reflect the effects of current conditions,which did not affect the period on which the historical lossexperience is based.This also serves to remove the effects ofconditions in the historical period that do not exist currently.
Estimates of changes in future cash flows for groups ofassets should reflect and be directionally consistent withchanges in related observable data from period to period
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(for example, changes in interest rates, foreign currency
exchange rates, payment status, or other factors indicative
of changes in the probability of losses in the Group and
their magnitude). The methodology and assumptions used
for estimating future cash flows are reviewed regularly by
the Group to reduce any differences between loss
estimates and actual loss experience.
If an impairment loss decreases due to an event occurringsubsequently and the decrease can be related objectivelyto an event occurring after the impairment was recognised(such as an improvement in the debtor’s credit rating), thenthe previously recognised impairment loss is reversedthrough the income statement with a correspondingincrease in the carrying amount of the underlying asset.The reversal is limited to an amount that does not state theasset at more than what its amortised cost would havebeen in the absence of impairment.
Impairment of available-for-sale financial assetsThe Group assesses at each balance sheet date whetherthere is objective evidence that a financial asset or a Groupof financial assets is impaired. In the case of equityinvestments classified as available-for-sale, a significant orprolonged decline in the fair value of the security below itscost is considered in determining whether the assets areimpaired.
If any such evidence exists for available-for-sale financialassets, the cumulative loss – measured as the differencebetween the acquisition cost and the current fair value, lessany impairment loss on that financial asset previouslyrecognised in profit or loss – is removed from equity andrecognised in the income statement. Impairment lossesrecognised in the income statement on equity instrumentsare not reversed through the income statement. Anyincrease in the fair value after an impairment loss has beenrecognised is treated as a revaluation and is recogniseddirectly in equity.
If, in a subsequent period, the fair value of a debt instrumentclassified as available-for-sale increases and the increase canbe objectively related to an event occurring after theimpairment loss was recognised in profit or loss, theimpairment loss is reserved through the income statement.
Impairment of non-financial assetsThe carrying amounts of the Group’s non-financial assets,other than deferred tax assets and investment property, arereviewed at each balance sheet date to determine whetherthere is any indication of impairment. If such indicationexists, the assets’ recoverable amount is estimated.
An impairment loss is recognised whenever the carryingamount of an asset or its cash-generating unit exceeds itsrecoverable amount.
Cash-generating unitsA cash-generating unit is the smallest identifiable user
group that generates cash flows that are largely
independent from other assets and groups.
For an asset whose cash flows are largely dependent on
those of other assets, the recoverable amount is determined
for the cash-generating unit to which the asset belongs.The
recoverable amount of a cash-generating unit is the greater
of its value in use and its fair value less costs to sell.
Impairment losses recognised in respect of cash-generating
units are allocated first to reduce the net book value of any
goodwill allocated to cash-generating units or a group of
units and then to reduce the net book value of the other
assets in the unit of a group of units on a pro rata basis.
GoodwillThe recoverable amount for goodwill is estimated at each
balance sheet date. Impairment losses are recognised in the
income statement. Impairment losses relating to goodwill
are not reversed.
Other non-financial assetsThe recoverable amount of other non-financial assets is the
greater of fair value less cost to sell and its value in use. Fair
value less cost to sell is the amount obtainable from the
sale of an asset or a cash-generating unit in an arm’s length
transaction between knowledgeable, willing parties, 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.
Impairment losses are recognised in the income statement,
except to the extent that they reduce revaluations
recognised in equity.
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 balance sheet 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.
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Significant Accounting Policies_continued
Derivative financial instrumentsCertain Group companies use derivative financialinstruments to hedge their exposure to foreign exchangerate risks arising from operational, financing and investmentactivities.
The derivates that do not meet the requirements for hedgeaccounting are accounted for as trading instruments.
Hedge accountingThe following hedge relationships are applied:
Fair value hedge – a hedge of exposure to changes in fairvalue of a recognised asset or liability or an unrecognised
firm commitment, or an identified portion of such an asset,
liability or firm commitment, that is attributable to a
particular risk and could affect profit or loss.
Cash flow hedge – a hedge of the exposure to variability in
cash flows that is attributable to a particular risk associated
with a recognised asset or liability or a highly probable
forecast transaction and could affect profit or loss.
MeasurementIf the hedge meets the conditions to qualify for hedge
accounting during the period, it is subsequently accounted
for as follows:
Classification Hedging instrument Hedged item
Fair value hedge Fair value, with changes in fair value Fair value in respect of the hedged risk. Any
recognised in the income statement. adjustments to the carrying amount related to
the hedged risk are recognised in the income
statement.
Cash flow hedge Fair value, with the effective portion No adjustments are made to the carrying amount
of changes in its fair value recognised of the hedged item.
directly in a separate component of
equity through the statement of
changes in equity and the ineffective
portion of the gain or loss
recognised in the income statement.
The change in fair value recognised
directly in equity is transferred to the
income statement when the future
transaction affects profit or loss.
Discontinuation of hedge accountingThe Group discontinues hedge accounting prospectively if
any one of the following occurs:
• the hedging instrument expires or is sold, terminated or
exercised.
• the forecast transaction is no longer expected to occur
(in the case of a cash flow hedge, the cumulative
unrealised gain or loss recognised in equity is recognised
immediately in the income statement).
• the hedge no longer meets the conditions for hedge
accounting.
• the Group revokes the designation.
Intangible assetsGoodwillAll business combinations are accounted for by applying
the purchase method. Goodwill acquired in a business
combination is initially measured at cost, being the
difference between the cost of the business combination
over the interest of the IDC in the fair value of the net
identifiable assets acquired.
Negative goodwill arising on acquisition is recognised
directly in the income statement. Goodwill is subsequently
stated at cost less any accumulated impairment losses.
Goodwill is allocated to cash-generating units and 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.
Foreign currency translationFunctional and presentation currencyThe Group’s presentation currency is South African Rand.
The functional currency of each Group entity is the
currency of the primary economic environment where
each entity in the Group has their main activity. The
consolidated financial statements are presented in South
African Rand, which is IDC’s functional and presentation
currency.
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Transactions and balancesTransactions in foreign currencies are translated into SouthAfrican Rand at the foreign exchange rate prevailing at thedate of the transaction.
Monetary assets and liabilities denominated in foreigncurrencies at the balance sheet date have been translatedinto South African Rand at the rates ruling at that date.Non-monetary assets and liabilities that are measured interms of historical cost in a foreign currency are translatedusing the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreigncurrencies that are stated at fair value are translated toRands at foreign exchange rates ruling at the dates the fairvalue was determined.
Foreign exchange differences arising on translation arerecognised in the income statement.
Financial statements of foreign operationsAll foreign operations have been accounted for as foreignoperations. Assets and liabilities of foreign operations,including goodwill and fair value adjustments arising onconsolidation are translated into South African Rand atforeign exchange rates ruling at the balance sheet date.Income statement items are translated at the averageforeign exchange rates, provided these rates approximatethe actual rates, for the year. Exchange differences arisingfrom the translation of foreign operations are recogniseddirectly in the foreign currency translation reserve (aseparate component of equity). When a foreign operation isdisposed of, in part or in full, the relevant amount in theforeign currency translation reserve is transferred to profitor loss.
Investment propertyInvestment property is property held either to earn rentalincome or for capital appreciation, or both.
MeasurementInvestment property is measured initially at cost, includingtransaction costs and directly attributable expenditure inpreparing the asset for its intended use. Subsequently, allinvestment properties are stated at fair value.
Currently valuation takes place annually, based on theaggregate of the net annual rental receivable from theproperties, considering and analysing rentals received onsimilar properties in the neighbourhood, less associatedcosts (insurance, maintenance, repairs and managementfees). A capitalisation rate which reflects the specific risksinherent in the net cash flows is applied to the net annualrentals to arrive at the property valuations.
The fair value of undeveloped land held as investmentproperty is based on comparative market prices afterintensive market surveys.
Gains or losses arising from a change in fair value arerecognised in the income statement.
External, independent valuers having appropriate,recognised professional qualifications and recentexperience in the location and category of the propertybeing valued and value the portfolio every three years.
Property, plant and equipmentMeasurementAll items of property, plant and equipment recognised asassets are measured initially at cost. Cost includesexpenditures that are directly attributable to the acquisitionof the asset. The cost of self-constructed assets includes thecost of material and direct labour and any other costdirectly attributable to bringing the asset to a workingcondition for its intended use, and the cost of dismantlingand removing the items and restoring the site on whichthey are located.
Except for the item land and buildings, all other items ofproperty, plant and equipment are subsequently measuredat cost less accumulated depreciation and anyaccumulated impairment losses.
Land and buildings are revalued by external, independentvaluers having appropriate recognised professionalqualifications and recent experience in the location andcategory of the property being valued, and value theportfolio every three years.
Any surplus in excess of the net book value is transferred toa revaluation reserve net of deferred tax. Surpluses onrevaluation are recognised as income to the extent thatthey reverse revaluation decreases of the same assetsrecognised as expenses in the previous periods. Deficits onrevaluation are charged directly against the revaluationreserves only to the extent that the decrease does notexceed the amount held in the revaluation reserves inrespect of that same asset. Other deficits are recognised inthe income statement.
Where parts of an item of property, plant and equipmenthave significantly different useful lives, they are accountedfor as separate items of property, plant and equipment.Although individual components are accounted forseparately, the financial statements continue to disclose asingle asset.
Subsequent costThe Group recognises the cost of replacing part of such an
item of property, plant and equipment in net book value
when that cost is incurred if it is probable that the future
economic benefits embodied with the item will flow to the
Group and the cost of the item can be measured reliably.
All other costs are recognised in the income statement as
an expense as they are incurred.
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Significant Accounting Policies_continued
DepreciationDepreciation is recognised in the income statement 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:
Components Useful lives
Land and buildingsLand Indefinite
Building structure 50 years
Elevators 10 years
Air-conditioning systems 5 years
Plant and equipmentAircraft 5 years
Heavy plant and machinery 10 – 20 years
Equipment 8 – 10 years
Factory equipment 4 – 5 years
Capital insurance spares 10 – 16 years
Mining assetsMining footprint The mining footprint is depreciated over the estimated
remaining life of the mine, up to a maximum of 20 years.
OtherMotor vehicles 1 – 5 years
Office furniture and equipment 1 – 5 years
The residual values, useful lives and depreciation methodare reassessed at each financial year-end.
DerecognitionThe net book value of items of property, plant andequipment are derecognised on disposal or when no futureeconomic benefits are expected from their use or disposal.
Gains or losses arising from derecognition are determinedas the difference between the net disposal proceeds andthe net book value of the item of property, plant andequipment and included in the income statement whenthe items are derecognised.
Biological assetsA biological asset is a living animal or plant.
MeasurementA biological asset is measured initially and at balance sheetdate at its fair value less estimated point-of-sale costs. If thefair value of a biological asset cannot be determinedreliably at the date of initial recognition, it is stated at costless any accumulated deprecation and impairment losses.
Gains or losses arising on the initial recognition of abiological asset at fair value less estimated point-of-salecosts, and from a change in fair value less estimated point-of-sale costs of biological assets, are included in the incomestatement for the period in which they arise.
LeasesOperating leasesLeases of assets under which the lessor effectively retains all
the risks and benefits of ownership are classified as
operating leases.
Group as lessorReceipts 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
balance sheet according to the nature of the assets.
Group as lesseeLease payments arising from operating leases are
recognised in the income statement on a straight-line basis
over the lease term. Lease incentives received are
recognised in the income statement as an integral part of
the total lease expense.
Finance leasesLeases of assets under which the lessee assumes all the risks
and benefits of ownership are classified as finance leases.
Minimum lease payments made under finance leases are
apportioned between the finance expense and the
reduction of the outstanding liability. The finance expense
is allocated to each period during the lease term so as to
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produce a constant periodic rate of interest on theremaining balance of the liability.
InventoriesSpares and consumablesSpares and consumables are valued at the lower of cost
and net realisable value, on a weighted average method.
The cost of inventories comprises all costs of purchase,
conversion and other costs incurred in bringing the
inventories to the present location and condition.
Obsolete, redundant and slow-moving items of spares and
consumable stores are identified on a regular basis and
written down to their net realisable value.
Net realisable value is the estimated selling price in the
ordinary course of business, less the costs of completion
and selling expenses.
Raw materials and finished goodsRaw materials and finished goods consisting of phosphate
rock, phosphoric acid and other minerals, are valued at the
lower of either cost of production and net realisable value.
Cost of production is calculated on a standard cost basis,
which approximates the actual cost and includes the
production overheads. Production overheads are allocated
on the basis of normal capacity.
The valuation of inventory held by agents or in transit
includes forwarding costs, where applicable.
Cash and cash equivalentsFor 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 carried at amortised cost in
the balance sheet.
ProvisionsProvisions are recognised when the Group has a present
legal or constructive obligation as a result of a past event,
from which it is probable that an outflow of economic
benefits will be required to settle the obligation and the
obligation can be estimated reliably. If the effect is material,
provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where
appropriate, the risks specific to the liability.
Decommissioning provisionThe obligation to make good environmental or other
damage incurred in installing an asset is provided in full
immediately, as the damage arises from a past event.
If an obligation to restore the environment or dismantle anasset arises on the initial recognition of the asset, the cost iscapitalised to the asset and amortised over the useful life ofthe asset. The cost of an item of property, plant andequipment includes not only the ‘initial estimate’ of thecosts relating to dismantlement, removal or restoration ofproperty, plant and equipment at the time of installing theitem but also amounts recognised during the period of use,for purposes other than producing inventory.
If an obligation to restore the environment or dismantle anasset arises after the initial recognition of the asset, then aprovision is recognised at the time that the obligation arises.
Onerous contractsA provision for onerous contracts is recognised when theexpected benefits to be derived by the Group from acontract are lower than the unavoidable cost of meeting itsobligations under the contract. The provision is measuredat the present value of the lower of the expected cost ofterminating the contract and the expected net cost ofcontinuing with the contract.
Before a provision is established, the Group recognises anyimpairment loss on the assets associated with the contract.
Contingent liabilities and commitmentsContingent liabilitiesA contingent liability is a possible obligation that arisesfrom past events and whose existence will be confirmedonly by the occurrence or non-occurrence of one or moreuncertain future events not wholly within the control of theGroup.
Contingent liabilities are not recognised in the balancesheet of the Group but disclosed in note 35.
CommitmentsItems are classified as commitments where the Group hascommitted itself to future transactions.
Commitments are not recognised in the balance sheet ofthe Group, but disclosed in note 33.
TaxationIncome taxIncome tax on profit or loss for the year comprises currentand deferred tax. Income tax is recognised in the incomestatement except to the extent that it relates to itemsrecognised directly in equity, in which case it is recognisedin equity. Additional income tax that arises from thedistribution of dividends is recognised at the same time asthe liability to pay the related dividend.
The charge for current tax is based on the results for theperiod as adjusted for items which are not taxable ordisallowed. It is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date.
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Significant Accounting Policies_continued
Current tax also includes any adjustment to tax payable inrespect of previous years.
Deferred taxDeferred income tax and deferred capital gains tax areaccounted for on the comprehensive basis, using theliability method for all temporary differences arisingbetween the net book value of assets and liabilities in thefinancial statements and the corresponding tax bases usedin the computation of taxable income. In principle, deferredtax liabilities are recognised for all taxable temporarydifferences and deferred tax assets are recognised to theextent that it is probable that future taxable profit will beavailable against which unused tax deductions can beutilised. Deferred tax assets are reviewed at each reportingdate and are reduced to the extent that it is no longerprobable that the related tax will be realised.
Deferred tax is not recognised if the temporary differencesarise from goodwill or from the initial recognition (otherthan in a business combination) of other assets andliabilities in a transaction that affects neither taxableincome nor accounting income. Deferred tax is also notrecognised in respect of temporary differences relating toinvestments in associates, subsidiaries and joint ventures tothe extent that it is probable that they will not reverse inthe foreseeable future and the timing of the reversal of thetemporary difference is controlled.
Deferred tax is measured at the tax rates that are expectedto be applied to temporary differences when they reverse,based on the laws that have been enacted or substantivelyenacted by the reporting date.
Deferred tax is charged or credited in the incomestatement, except when it relates to items credited orcharged directly to equity, in which case the deferred tax isalso recognised in equity.
RevenueRevenue comprises net invoiced sales to customers,dividends, interest, rentals and fee income, but excludesvalue-added tax, and is measured at the fair value of theconsideration received or receivable, net of returns andallowances, trade discounts and volume rebates.
Sales to customersRevenue from sale of goods is recognised in the incomestatement when the significant risks and rewards ofownership have been transferred to the customer, recoveryof the consideration is probable, associated costs andpossible return of goods can be estimated reliably and thereis no continuing managerial involvement with the goods.
DividendsDividends receivable, declared but not received, areincluded in income on the basis of the last date of
registration. Capitalisation shares received are notrecognised as income.
InterestInterest income is recognised in the income statementusing the effective interest rate method. The effectiveinterest rate is the rate that exactly discounts the estimatedfuture cash payments and receipts through the expectedlife of the financial asset (or, where appropriate, a shorterperiod) to the carrying amount of the financial asset. Theeffective interest rate is established on initial recognition ofthe financial asset and is not revised subsequently.
RentalSee policy on leases.
Borrowing costsBorrowing costs are expensed in the period in which theyare incurred, except to the extent that they are capitalisedwhen directly attributable to the acquisition, constructionor production of a qualifying asset.
Employee benefitsDefined contribution plansThe majority of the Group’s employees are members ofdefined contribution plans, and contributions to theseplans are recognised in the income statement in the yearto which they relate.
Defined benefit planA Group company operates a defined benefit plan, theassets of which are held in a separate trustee-administeredfund. The scheme is generally funded through payments tothe trustee-administered fund as determined by theperiodic actuarial valuations. A defined benefit plan is apension plan that defines an amount of pension benefit tobe provided, usually as a function of one or more factorssuch as age, years of service or compensation.
Where the calculation in respect of the defined benefit planresults in a benefit to the Group, the recognised asset islimited to the net total of any unrecognised actuarial lossesand past-service costs and the present value of any futurerefunds from the plan or reductions in future contributionsto the plan.
The liability in respect of defined benefit pension plans isthe present value of the defined benefit obligation at thebalance sheet date minus the fair value of the plan assets,together with adjustments for actuarial gains/losses andpast-service costs. The defined benefit obligation iscalculated annually by the independent actuaries using theprojected unit credit method. The present value of thedefined benefit obligation is determined by the estimatedcash outflows, using interest rates of government securities,which have terms to maturity approximating the terms ofthe related liability.
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Actuarial gains and losses arising from experienceadjustments and the effects of changes in actuarialassumptions to the defined benefit plans are recognised inincome to the extent that cumulative unrecognisedactuarial gains and losses at the end of the previousreporting period exceed the greater of 10% of:
• the present value of gross defined benefit obligation atthat date; and
• the fair value of any plan assets at that date.
Actuarial gains and losses arising from experienceadjustments, changes in actuarial assumptions andamendments to pension plans are charged or credited toincome over the average remaining service life of therelated employees.
Post-retirement medical benefitsSome Group companies provide post-employmenthealthcare benefits to its retirees. The entitlement to post-employment healthcare benefits is based on the employeeremaining in service up to retirement age. The expectedcosts of these benefits are accrued over the period ofemployment, using the projected unit of credit method.Valuations of these obligations are carried out every thirdyear by independent qualified actuaries.
Segment reportingA segment is a distinguishable component of the Groupthat is engaged either in providing products or services(primary segment), or in providing products or serviceswithin a particular economic environment (geographicalsegment), which is subject to risks and rewards that aredifferent from those of other segments.
The Group’s segment report is presented in the form ofbusiness analysis (primary segment) and geographicallocation (geographical segment).
The business analysis is presented in terms of the Group’sprincipal business, services and other activities.
The geographical segmental analysis is based on thelocation of assets and the source of revenue.
Discontinued operations and non-current assets held-for-saleDiscontinued operationsA discontinued operation is a component of the Group’sbusiness that represents a separate major line of businessor geographical area of operations or is a subsidiaryacquired exclusively with a view to resale.
Classification as a discontinued operation occurs upondisposal or when the operation meets the criteria to beclassified as held-for-sale, if earlier. A disposal group that isto be abandoned may also qualify.
Non-current assets held-for-saleNon-current assets and disposal groups are classified asheld-for-sale if their carrying amount will be recovered
through a sale transaction rather than continuing use. Thisclassification is only met if the sale is highly probable andthe assets are available for immediate sale.
MeasurementImmediately before classification as held-for-sale, themeasurement of the assets (and all assets and liabilities in adisposal group) is brought up to date in accordance withthe applicable IFRS. Then, on initial classification as held-for-sale, the non-current assets and disposal groups arerecognised at the lower of carrying amount and fair valueless costs to sell. Any impairment loss on a disposal group isfirst allocated to goodwill and then to remaining assets andliabilities on a pro rata basis, except that no loss is allocatedto inventories, financial assets, deferred tax assets, employeebenefit assets, investment property and biological assets,which continue to be measured in accordance with theGroup’s accounting policies.
Impairment losses on initial classification as held-for-saleare included in profit and loss, even when there is arevaluation. The same applies to gains and losses onsubsequent measurement.
ReclassificationThe non-current asset held-for-sale will be reclassifiedimmediately when there is a change in intention to sell.At that date, it will be measured at the lower of:
• its net book value 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.
Related partiesThe IDC operates in an economic environment, togetherwith other entities directly or indirectly owned by theSouth African government. As a result of the constitutionalindependence of all three spheres of government in SouthAfrica, only parties within the national sphere ofgovernment will be considered to be related parties.
Key management is defined as individuals with theauthority and responsibility for planning, directing andcontrolling the activities of the entity. All individuals fromthe level of Executive Management up to the Board ofdirectors are regarded as key management per thedefinition of the standard.
Close family members of key management personnel areconsidered to be those family members who may beexpected to influence, or be influenced by, keymanagement individuals in their dealings with the entity.
Other related-party transactions are also disclosed in termsof the requirements of IAS 24.
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Balance Sheetsas at 31 March 2009
GROUP IDC(R’m) Notes 2009 2008 2009 2008
AssetsCash and cash equivalents 2 5 607 5 370 5 133 3 964
Derivative assets 16 42 448 27 373
Trade and other receivables 3 1 796 1 166 297 157
Income tax receivable 132 5 122 –
Loans and advances 4 8 820 6 133 7 011 4 773
Non-current assets held-for-sale 5 – 91 – –
Inventories 6 816 1 032 10 15
Investments 7 42 355 61 245 27 665 40 490
Investments in subsidiaries 8 29 816 31 897
Investments in associates, partnerships and joint ventures 9 10 704 11 553 9 275 15 510
Deferred taxation asset 10 14 335 – –
Investment property 11 45 44 9 9
Property, plant and equipment 12 3 038 3 002 181 87
Biological assets 13 6 8 2 4
Intangible assets 14 2 1 – –
Total assets 73 377 90 433 79 548 97 279
EquityShare capital 15 1 393 1 393 1 393 1 393
Reserves 63 294 74 410 63 105 75 734
Total equity attributable to the holders of the parent 64 687 75 803 64 498 77 127
Minority shareholders’ interests 358 45
Total equity 65 045 75 848 64 498 77 127
LiabilitiesBank overdrafts 14 14 – –
Derivative liabilities 16 101 63 68 –
Other liabilities 17 1 339 1 651 502 374
Income tax payable 108 17 – 7
Loans 18 5 165 5 825 11 234 11 145
Liabilities directly associated with non-current assets
held-for-sale 5 – 12 – –
Deferred taxation liability 10 1 171 6 609 3 048 8 434
Provisions 19 228 194 59 59
Employee benefit liability 36 206 200 139 133
Total liabilities 8 332 14 585 15 050 20 152
Total equity and liabilities 73 377 90 433 79 548 97 279
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Income Statementsfor the year ended 31 March 2009
GROUP IDC(R’m) Notes 2009 2008 2009 2008
Revenue 20 14 985 7 299 6 449 3 181
Cost of sales 5 162 2 773 4 –
Gross profit 9 823 4 526 6 445 3 181
Financing costs 21 570 499 571 505
Gross profit after financing costs 9 253 4 027 5 874 2 676
Net capital gains 23 128 488 325 492
Other income – 314 3 –
Operating expenses 4 067 2 674 2 636 1 422
Net operating income 24 5 314 2 155 3 566 1 746
Share of profit/(loss) of equity-accounted investments 1 132 1 950 – (13)
Profit before tax 6 446 4 105 3 566 1 733
Taxation 26 825 154 9 (143)
Profit for the year 5 621 3 951 3 557 1 876
Attributable to:
Equity holders of the parent 5 352 3 941 3 557 1 876
Minority interest 269 10
Profit for the year 5 621 3 951 3 557 1 876
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Statements of Changes in Equityfor the year ended 31 March 2009
Foreign MinorityRevalu- Associated currency share-
Share ation entities translation Retained holders’ Total (R’m) capital reserve* reserve reserve earnings interest equity
GROUPBalance at 1 April 2007 1 393 29 151 4 788 64 17 140 38 52 574Total income/(expenses) for the year 19 071 3 941 10 23 022
Profit for the year 3 941 10 3 951Total income/(expenses) recognised directly in equity 19 071 19 071
Revaluation of investments to fair value– Fair value adjustments 21 576 21 576Deferred taxation (2 552) (2 552)Revaluation of property,plant and equipment to fair value 28 28Revaluation of investment property to fair value (2) (2)Reversal of previous equity impairments 21 21
Minority interest on acquisition of subsidiaries (3) (3)Share of profits of equity-accounted investments accounted for directly in equity 152 178 330Dividends paid (75) (75)
Balance at 31 March 2008 1 393 48 222 4 940 242 21 006 45 75 848Total income/(expenses) for the year (15 114) 5 352 269 (9 493)
Profit for the year 5 352 269 5 621Total income/(expenses) recognised directly in equity (15 114) (15 114)
Revaluation of investments to fair value– Fair value adjustments (20 374) (20 374) – Impairment losses (200) (200)Revaluation of property,plant and equipment to fair value 221 221 Reversal of previous equity impairments 20 20 Deferred taxation 5 219 5 219
Minority interest on acquisition of subsidiaries 239 239Share of (losses)/profits of equity-accounted investments accounted for directly in equity (1 897) 643 (1 254)Dividends paid (100) (195) (295)
Balance at 31 March 2009 1 393 33 108 3 043 885 26 258 358 65 045
* The revaluation reserve comprises revaluations recognised in respect of land and buildings and available-for-sale investments.
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Revalu- AssociatedShare ation entities Retained Total
(R’m) capital reserve* reserve earnings equity
IDCBalance at 1 April 2007 1 393 36 041 204 9 560 47 198 Total income/(expenses) for the year 28 169 1 876 30 045
Profit for the year 1 876 1 876Total income/(expenses) recognised directly in equity 28 169 28 169
Revaluation of investments to fair value
– Fair value adjustments 32 368 32 368
Deferred taxation (4 117) (4 117)
Reversal of previous equity
impairments (82) (82)
Share of losses of equity-accounted investments accounted for directly in equity (41) (41)
Dividends paid (75) (75)
Balance at 31 March 2008 1 393 64 210 163 11 361 77 127 Total income/(expenses) for the year (16 033) 3 557 (12 476)
Profit for the year 3 557 3 557 Total income/(expenses) recognised directly in equity (16 033) (16 033)
Revaluation of investments to fair value
– Fair value adjustments (21 257) (21 257)– Impairment losses (200) (200)Revaluation of property,
plant and equipment to
fair value 26 26 Reversal of previous equity impairments 5 5Deferred taxation 5 393 5 393
Share of losses of equity-accounted
investments accounted for
directly in equity (53) (53) Dividends paid (100) (100)
Balance at 31 March 2009 1 393 48 177 110 14 818 64 498
* The revaluation reserve comprises revaluations recognised in respect of land and buildings and available-for-sale investments.
122 | Industrial Development Corporation of South Africa Annual Report 2009
Cash Flow Statementsfor the year ended 31 March 2009
GROUP IDC(R’m) Notes 2009 2008 2009 2008
Net cash inflows from operating activities 6 329 1 620 5 046 1 341
Cash generated by/(utilised by) operations 28 2 307 (99) (510) (899)
Dividends received 3 451 1 303 4 621 1 990
Interest received 1 877 1 140 1 637 987
Interest paid (570) (499) (571) (505)
Taxation paid 29 (736) (225) (131) (232)
Change in operating funds (3 380) (1 072) (2 161) (685)
Increase in operating assets (2 758) (1 095) (2 318) (1 157)
(Decrease)/increase in operating liabilities (622) 23 157 472
Cash generated by operating activities 2 949 548 2 885 656
Net cash (outflows)/inflows from investing activities (2 597) 422 (1 616) (217)
Additions to property, plant and equipment (709) (490) (149) (7)
Proceeds on the disposal of property, plant and equipment 88 35 67 –
Removal of biological assets 2 – 2 –
Additions to intangible assets (32) (6) – –
Acquisition of investments (2 126) 303 (1 334) (794)
Proceeds on realisation of investments 30 180 580 377 584
Net cash outflows from financing activitiesDividends paid (100) (75) (100) (75)
Net increase in cash and cash equivalents 252 895 1 169 364
Cash and cash equivalents at the beginning of the year 5 356 4 461 3 964 3 600
5 608 5 356 5 133 3 964
Relating to subsidiaries acquired and sold 31/32 (15) – – –
Cash and cash equivalents at the end of the year 5 593 5 356 5 133 3 964
Comprises:
Cash and cash equivalents 2 5 607 5 370 5 133 3 964
Bank overdrafts (14) (14) – –
5 593 5 356 5 133 3 964
Industrial Development Corporation of South Africa Annual Report 2009 | 123
Segmental Report – Primary Segmentsfor the year ended 31 March 2009
Financing Foskoractivities (Pty) Limited Other Total
(R’m) 2009 2008 2009 2008 2009 2008 2009 2008
IncomeInterest received 1 667 1 016 224 125 (14) (1) 1 877 1 140
Dividends received 5 313 2 305 – – (1 862) (1 002) 3 451 1 303
Fee income 175 201 – – 2 (2) 177 199
Farming, manufacturing and
mining income 15 6 9 267 4 488 198 163 9 480 4 657
Revenue 7 170 3 528 9 491 4 613 (1 676) (842) 14 985 7 299
Share of profits of equity-
accounted investments 15 26 4 – 1 828 2 208 1 847 2 234
Other income 3 1 – 295 (3) 18 – 314
Net capital gains 325 492 – – (197) (4) 128 488
ExpensesFinancing costs (538) (473) (25) (5) (7) (21) (570) (499)
Operating expenses (961) (763) (5 919) (3 744) (278) (227) (7 158) (4 734)
Share of losses of equity-
accounted investments (15) (38) – (2) (700) (244) (715) (284)
Taxation (27) 124 (768) (282) (30) 4 (825) (154)
Depreciation (16) (24) (163) (123) (19) (20) (198) (167)
Impairment of property, plant
and equipment and project
feasibility expenses (86) (155) (600) – 1 29 (685) (126)
Net movement in impairments (1 571) (485) – – 383 65 (1 188) (420)
Profit for the year 4 299 2 233 2 020 752 (698) 966 5 621 3 951
Total assets 100 155 97 362 4 601 5 912 (31 379) (12 841) 73 377 90 433
Interest in equity-accounted investments 9 275 15 510 30 – 1 399 (3 957) 10 704 11 553
Total liabilities 16 857 17 791 1 445 2 106 (9 970) (5 312) 8 332 14 585
Capital expenditure 149 7 485 360 29 45 663 412
Capital expenditure commitments – 115 2 067 273 310 117 2 377 505
Financing activities – includes the IDC, Findevco, Impofin, Konoil and the Export-Import Finance Corporation of SA.
Other – includes Dymson Nominee, Kindoc Investments, Kindoc Sandton Properties, Konbel, Prilla 2000, certain other
subsidiaries and consolidation adjustments.
All revenue is from external customers.
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Segmental Report – Geographical Segmentsfor the year ended 31 March 2009
South Africa Rest of Africa Other Total (R’m) 2009 2008 2009 2008 2009 2008 2009 2008
IncomeInterest received 1 647 1 065 227 73 3 2 1 877 1 140
Dividends received 3 374 1 277 43 – 34 26 3 451 1 303
Fee income 177 199 – – – – 177 199
Farming, manufacturing and
mining income 9 480 4 657 – – – – 9 480 4 657
Revenue 14 678 7 198 270 73 37 28 14 985 7 299
Share of profits of equity-
accounted investments 1 093 1 411 754 823 – – 1 847 2 234
Other income – 314 – – – – – 314
Net capital gains 128 488 – – – – 128 488
ExpensesFinancing expenses (570) (499) – – – – (570) (499)
Operating expenses (7 158) (4 734) – – – – (7 158) (4 734)
Share of losses of equity-
accounted investments (715) (284) – – – – (715) (284)
Taxation (825) (154) – – – – (825) (154)
Depreciation (198) (167) – – – – (198) (167)
Impairment of property, plant
and equipment and project
feasibility expenses (685) (126) – – – – (685) (126)
Net movement in impairments (1 188) (420) – – – – (1 188) (420)
Profit for the year 4 560 3 027 1 024 896 37 28 5 621 3 951
Total assets 66 360 85 858 6 149 3 748 868 827 73 377 90 433
Interest in equity-accounted investments 7 701 9 039 3 003 2 514 – – 10 704 11 553
Total liabilities 8 332 14 585 – – – – 8 332 14 585
Capital expenditure 663 412 – – – – 663 412
Capital expenditure commitments 2 377 505 – – – – 2 377 505
Other – includes all countries outside the African continent.
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1. FINANCIAL ASSETS AND LIABILITIESThe table below sets out the Group’s and Corporation’s classification of each class of financial assets and liabilities, and
their fair values.
Held- Loans Available- Other Non- Total for- and for- amortised financial carrying Fair
(R’m) Notes trading receivables sale cost items value value
GROUP31 March 2009Cash and cash equivalents 2 5 607 5 607 5 607Loans and advances to clients 4 8 820 8 820 8 820 Investments – listed equities 7 32 479 32 479 32 479 Investments – unlisted equities 7 2 621 2 621 2 621 Investments – preference shares 7 323 6 932 7 255 7 255Derivative assets 16 42 42 42 Trade and other receivables 3 1 155 641 1 796 1 796
865 15 582 42 032 641 58 620 58 620
Loans 18 5 165 5 165 5 165 Derivative liabilities 16 101 101 101 Bank overdrafts 14 14 14Accounts payable 17 968 968 968
101 6 147 6 248 6 248
31 March 2008Cash and cash equivalents 2 5 370 5 370 5 370
Loans and advances to clients 4 6 133 6 133 6 133
Investments – listed equities 7 53 203 53 203 53 203
Investments – unlisted equities 7 2 819 2 819 2 819
Investments – preference shares 7 192 5 031 5 223 5 223
Derivative assets 16 448 448 448
Trade and other receivables 3 1 008 158 1 166 1 166
640 12 511 61 053 158 74 362 74 362
Loans 18 5 825 5 825 5 825
Derivative liabilities 16 63 63 63
Bank overdrafts 14 14 14
Accounts payable 17 1 313 1 313 1 313
63 7 152 7 215 7 215
Notes to the Financial Statementsfor the year ended 31 March 2009
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126 | Industrial Development Corporation of South Africa Annual Report 2009
Notes to the Financial Statements_continuedfor the year ended 31 March 2009
Held- Loans Available- Other Non- Total for- and for- amortised financial carrying Fair
(R’m) Note trading receivables sale cost items value value
1. FINANCIAL ASSETS AND LIABILITIES (continued)IDC31 March 2009Cash and cash equivalents 2 5 133 5 133 5 133 Loans and advances to clients 4 7 011 7 011 7 011 Investments – listed equities 7 17 831 17 831 17 831 Investments – unlisted equities 7 2 579 2 579 2 579 Investments – preference shares 7 323 6 932 7 255 7 255Investment in subsidiaries 8 29 816 29 816 29 816Investments in associates,
partnerships and joint ventures 9 9 102 9 102 9 102 Derivative assets 16 27 27 27 Trade and other receivables 3 297 297 297
350 12 441 66 260 79 051 79 051
Loans 18 11 234 11 234 11 234 Derivative liabilities 16 68 68 68 Accounts payable 17 240 240 240
68 11 474 11 542 11 542
31 March 2008Cash and cash equivalents 2 3 964 3 964 3 964
Loans and advances to clients 4 4 773 4 773 4 773
Investments – listed equities 7 32 505 32 505 32 505
Investments – unlisted equities 7 2 762 2 762 2 762
Investments – preference shares 7 192 5 031 5 223 5 223
Investment in subsidiaries 8 31 897 31 897 31 897
Investments in associates,
partnerships and joint ventures 9 15 233 15 233 15 233
Derivative assets 16 373 373 373
Trade and other receivables 3 157 157 157
565 8 894 87 428 96 887 96 887
Loans 18 11 145 11 145 11 145
Accounts payable 17 128 128 128
11 273 11 273 11 273
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Industrial Development Corporation of South Africa Annual Report 2009 | 127
GROUP IDC(R’m) 2009 2008 2009 2008
2. Cash and cash equivalentsCash and balances with banks 972 1 372 498 83
Negotiable securities 4 635 3 998 4 635 3 881
5 607 5 370 5 133 3 964
Cash and negotiable securities earn interest at market-related rates.
Negotiable securities all mature within three months.
3. Trade and other receivablesTrade receivables 1 155 1 008 297 157
Prepayments 18 10 – –
Other receivables 623 148 – –
1 796 1 166 297 157
4. Loans and advancesLoans and advances to clients* 10 621 7 863 8 809 6 491
Specific impairment of loans and advances (1 637) (1 578) (1 637) (1 571)
Portfolio impairment of loans and advances (164) (152) (161) (147)
8 820 6 133 7 011 4 773
* Interest rates range between 5% and 20%.
Specific allowances for impairmentBalance at beginning of the year 1 578 1 475 1 571 1 445
Impairment loss for the year:
– Charge for the year 610 324 613 325
– Recoveries (16) (8) (16) (7)
– Effect of foreign currency movements – (1) – (1)
Write-offs (535) (212) (531) (191)
Balance at the end of the year 1 637 1 578 1 637 1 571
Portfolio allowance for impairmentBalance at beginning of the year 152 145 147 140
Impairment charge for the year 12 7 14 7
Balance at the end of the year 164 152 161 147
Total allowances for impairment 1 801 1 730 1 798 1 718
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128 | Industrial Development Corporation of South Africa Annual Report 2009
Notes to the Financial Statements_continuedfor the year ended 31 March 2009
GROUP IDC(R’m) 2009 2008 2009 2008
4. Loans and advances (continued)Maturity of loans and advances– due within three months 916 1 205 900 1 176
– due after three months but within one year 1 372 1 273 1 355 1 252
– due after one year but within two years 2 253 1 090 2 224 1 055
– due after two years but within three years 1 177 1 334 1 163 1 303
– due after three years but within four years 1 131 656 1 131 642
– due after four years but within five years 903 489 903 490
– due after five years 2 869 1 816 1 133 573
– impairment of loans and advances (1 801) (1 730) (1 798) (1 718)
8 820 6 133 7 011 4 773
5. Non-current assets held-for-saleAssets classified as held-for-sale
Property, plant and equipment – 28 – –
Inventory – 44 – –
Trade and other receivables – 19 – –
– 91 – –
Liabilities classified as held-for-sale
Provisions – 3 – –
Other liabilities – 9 – –
– 12 – –
Net non-current assets held-for-sale – 79 – –
The assets, liabilities and profit relating to the Zirconia Division of
Foskor (Pty) Limited (operations based in Phalaborwa – Limpopo province)
had been presented as held-for-sale following the final approval of
dilution, and revised shareholdings, by the Board of Directors on
6 May 2008. Altogether 51% of Foskor Zirconia (Pty) Limited was
subsequently sold on 1 August 2008 to Carborundum Universal Limited.
6. InventoriesConsumable stores 252 243 10 15
Raw materials 247 537 – –
Finished goods 202 191 – –
Minerals 91 15 – –
Work in progress 13 3 – –
Ore stock piling 11 43 – –
816 1 032 10 15
Group inventory to the value of R398,5 million was written down as a net realisable value adjustment at 31 March 2009
(2008: nil).
Inventory pledged as securityGeneral notorial bonds are registered over inventories to the value of R40 000 000 as at 31 March 2009 (2008: nil).
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Industrial Development Corporation of South Africa Annual Report 2009 | 129
GROUP IDC(R’m) 2009 2008 2009 2008
7. InvestmentsListed equities 32 661 53 234 18 013 32 536Impairment of listed equities (182) (31) (182) (31)Unlisted equities 2 708 2 916 2 666 2 859Impairment of unlisted equities (87) (97) (87) (97)Preference shares 7 566 5 195 7 566 5 195Preference shares – option value 323 192 323 192Impairment of preference shares (634) (164) (634) (164)
42 355 61 245 27 665 40 490
Specific allowance for impairment – listed equitiesBalance at beginning of the year 31 16 31 16 Impairment charge for the year 151 15 151 15
Balance at the end of the year 182 31 182 31
Specific allowance for impairment – unlisted equitiesBalance at beginning of the year 97 33 97 33 Impairment (reversals)/charge for the year (10) 64 (10) 64
Balance at the end of the year 87 97 87 97
Specific allowance for impairment – preference sharesBalance at beginning of the year 164 107 164 107 Impairment charge for the year 470 57 470 57
Balance at the end of the year 634 164 634 164
Comprises:Impairment of listed equities 182 31 182 31 Impairment of unlisted equities 87 97 87 97 Impairment of preference shares 634 164 634 164
903 292 903 292
8. Investment in subsidiariesFair value of investments 29 155 29 678 Impairment of shares (30) (14)Loans receivable 1 073 2 404 Impairment of loans receivable (382) (171)
Subsidiaries (refer to annexure A) 29 816 31 897
9. Investments in associates, partnerships and joint venturesAssociated companies (refer to annexure B) 10 531 11 276 9 102 15 233
Fair value of investments – listed shares in associates 1 156 3 857Fair value of investments – unlisted shares in associates 6 991 10 703Impairment of investments (516) (275)Net asset value at acquisition 214 1 221 Accumulated equity-accounted income 13 600 11 823 Accumulated equity-accounted losses and impairments (5 437) (3 537)Goodwill 643 1 224 Accumulated impaired goodwill and impairments (188) (688)Loans receivable 2 048 1 595 1 983 1 503Impairment of loans receivable (349) (362) (512) (555)
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Notes to the Financial Statements_continuedfor the year ended 31 March 2009
GROUP IDC(R’m) 2009 2008 2009 2008
9. Investments in associates, partnerships and joint ventures (continued)Partnerships and joint ventures (refer to annexure C) 173 277 173 277
Partners’ capital 220 227 220 227
Accumulated profits (30) 60 (30) 60
Impairment of partners’ capital (17) (10) (17) (10)
10 704 11 553 9 275 15 510
Included in financing are the following investments which have been
made in terms of section 3(a) of the Industrial Development Act with
the approval of the State President:
Foskor Limited – At cost – – 8 8
Sasol Limited – At cost 131 131 – –
A register of investments is available and is open for inspection at the
IDC’s registered office.
10. Deferred taxationComposition of deferred taxation asset is as follows:Capital and other allowances 12 257 – –
Calculated taxation losses 2 78 – –
14 335 – –
Balance at the beginning of the year 335 35 – –
Transfer from income statement:
Calculated taxation losses (76) 257 – –
Temporary differences (245) 43 – –
– Mining assets (32) 32 – –
– Forward exchange contracts (17) 17 – –
– Other (196) (6) – –
Balance at the end of the year 14 335 – –
Composition of deferred taxation liability is as follows:Capital and other allowances 94 389 (254) (260)
Capital gains and losses and fair value adjustments 1 097 6 242 3 303 8 697
1 191 6 631 3 049 8 437
Reduced by taxation on:
Unutilised capital expenditure – (3) – (3)
Calculated taxation losses (20) (19) (1) –
1 171 6 609 3 048 8 434
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Industrial Development Corporation of South Africa Annual Report 2009 | 131
GROUP IDC(R’m) 2009 2008 2009 2008
10. Deferred taxation (continued)Balance at the beginning of the year 6 609 3 640 8 434 4 483
Transfer from income statement/reserves:
Calculated taxation losses (1) 354 (1) –
Temporary differences (5 440) 2 591 (5 338) 3 927
– Fixed assets (152) 104 (15) 6
– Provisions (5) 38 (6) (23)
– Mining assets (45) 73 – –
– Impairments 26 (9) 26 (9)
– Capital gains and losses and fair value adjustments (5 145) 2 382 (5 393) 3 953
– Other (119) 3 – –
Unutilised capital expenditure 3 24 3 24
Balance at the end of the year 1 171 6 609 3 048 8 434
Unrecognised deferred tax assetsDeferred tax assets have not been recognised in respect of the following items:Deductible temporary differences 8 5 8 5
Deferred tax assets have not been recognised in respect of these
items because it is not probable that future taxable profit will be
available against which the Group can utilise the benefits therefrom.
Cost/valuation Fair value Cost/valuation (R’m) 31 March 2008 adjustments 31 March 2009
11. Investment propertyGROUPLand and buildings leased to industrialists 8 – 8Land held for development 20 – 20Farming land and buildings 16 1 17
44 1 45
IDCLand and buildings leased to industrialists 9 – 9
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Notes to the Financial Statements_continuedfor the year ended 31 March 2009
Cost/valuation Fair value Cost/valuation (R’m) 31 March 2008 adjustments 31 March 2009
11. Investment property (continued)GROUPLand and buildings leased to industrialists 8 – 8
Land held for development 20 – 20
Farming land and buildings 18 (2) 16
46 (2) 44
IDCLand and buildings leased to industrialists 9 – 9
GROUP IDC(R’m) 2009 2008 2009 2008
Rental income from investment property – 1 – –
Valuation methods and assumptions used in determining the fair value of investment propertyCapitalisation methodThe 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 on the estimated rentals such
a property would fetch, ie 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.
An initial yield rate required by investors of 13,5% was adopted.
Comparative methodThe 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.
A unit price between R3,00 and R100,00 per square metre has been used for the purpose of the valuations.
Residual land valuation methodThis method determines the residual value which is the result of the present value of expected inflows less all outflows
(including income tax) less the developer’s required profits. This is the maximum that the developer can afford to pay
for the real estate. This residual value is in theory also the market value of the land.
A unit price of R50,00 per square metre has been used for the purpose of these valuations.
Independent valuers were used to determine all the fair values of investment property. All valuers used have
appropriate qualifications, including diplomas in property valuation, diplomas in advanced property practice and
BSc Honours (land economy). Valuers used have between five and 30 years’ experience.
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Cost/ Cost/valuation Subsi- valuation
GROUP 31 March diaries Re- 31 March(R’m) 2008 acquired Additions Disposals valuation 2009
12. Property, plant and equipmentPlant and equipment 3 247 93 332 (20) – 3 652Land and buildings 1 169 24 46 (7) 195 1 427Capital work in progress 333 – 80 – – 413Aircraft 101 – 197 (101) 26 223Office furniture and equipment 31 8 7 (1) – 45Motor vehicles 8 1 1 – – 10
4 889 126 663 (129) 221 5 770
Accumu- Accumu-lated lated
depreciation depreciationand impair- Charged and impair-
ment Subsi- to ment31 March diaries income Impair- 31 March
2008 acquired statement Disposals ment 2009
Plant and equipment 1 556 71 158 (2) 606 2 389Land and buildings 260 7 28 (1) 294Aircraft 35 – 4 (36) – 3Office furniture and equipment 30 2 7 – – 39Motor vehicles 6 – 1 – – 7
1 887 80 198 (39) 606 2 732
Carrying value 3 002 3 038
Plant, equipment and vehicles include the following lease where a Group company is the lessee under a finance lease:
31 March 2009 31 March 2008
Cost-capitalised finance lease 42 42
Accumulated depreciation (10) (8)
Carrying value 32 34
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134 | Industrial Development Corporation of South Africa Annual Report 2009
Notes to the Financial Statements_continuedfor the year ended 31 March 2009
Cost/ Cost/valuation valuation
IDC 31 March Re- 31 March(R’m) 2008 Additions Disposals valuation 2009
12. Property, plant and equipment (continued)Land and buildings 7 – – – 7 Plant and equipment 134 8 – – 142Aircraft 101 132 (101) 26 158Office furniture and equipment 25 8 – – 33 Motor vehicles 4 1 – – 5
271 149 (101) 26 345
Accumu- Accumu-lated lated
depreciation depreciationand impair- Charged and impair-
ment to ment31 March income Re- 31 March
2008 statement Disposals valuation 2009
Land and buildings – – – – –Plant and equipment 120 6 – – 126Aircraft 35 2 (36) – 1Office furniture and equipment 25 7 – – 32Motor vehicles 4 1 – – 5
184 16 (36) – 164
Carrying value 87 181
Cost/ Cost/valuation Subsi- Impair- valuation
GROUP 31 March diaries ment Re- 31 March (R’m) 2007 acquired Additions Disposals reversal valuation 2008
Plant and equipment 3 170 27 203 (153) – – 3 247
Land and buildings 1 023 47 36 (8) – 71 1 169
Capital work in progress 164 – 169 – – – 333
Aircraft 101 – – – – – 101
Office furniture and equipment 27 1 3 – – – 31
Motor vehicles 4 3 1 – – – 8
4 489 78 412 (161) – 71 4 889
Industrial Development Corporation of South Africa Annual Report 2009 | 135
Accumu- Accumu-lated lated
depreciation- depreciationand impair- and impair-
ment Subsi- Charged to Impair- mentGROUP 31 March diaries income ment Re- 31 March(R’m) 2007 acquired statement Disposals reversal valuation 2008
12. Property, plant and equipment (continued)Plant and equipment 1 810 – 132 (131) (255) – 1 556
Land and buildings 236 – 24 – – – 260
Aircraft 30 – 5 – – – 35
Office furniture and equipment 26 – 4 – – – 30
Motor vehicles 4 – 2 – – – 6
2 106 – 167 (131) (255) – 1 887
Carrying value 2 383 3 002
IDC Cost/valuation Cost/valuation(R’m) 31 March 2007 Additions Disposals 31 March 2008
Land and buildings 7 – – 7
Plant and equipment 254 3 (123) 134
Aircraft 101 – – 101
Office furniture and equipment 22 3 – 25
Motor vehicles 3 1 – 4
387 7 (123) 271
Accumulated Accumulateddepreciation Charged to depreciation
and impairment income and impairment31 March 2007 statement Disposals 31 March 2008
Land and buildings – – – –
Plant and equipment 228 15 (123) 120
Aircraft 30 5 – 35
Office furniture and equipment 22 3 – 25
Motor vehicles 3 1 – 4
283 24 (123) 184
Carrying value 104 87
Registers containing details of land and buildings, including details of any revaluations and encumbrances, are kept at
the registered offices of the companies concerned.
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136 | Industrial Development Corporation of South Africa Annual Report 2009
Notes to the Financial Statements_continuedfor the year ended 31 March 2009
GROUP IDC(R’m) 2009 2008 2009 2008
13. Biological assetsPlanted pistachio trees*Carrying amount at the beginning of the year 4 3 4 3
Removal of trees (2) – (2) –
Carrying amount at the end of the year 2 3 2 3
Farming development cost – 1 – 1
Total carrying amount at the end of the year 2 4 2 4
Planted walnut trees**Carrying amount at the beginning of the year 4 4 – –
Total carrying amount at the end of the year 4 4 – –
Carrying value at the end of the year 6 8 2 4
* The fair value of the pistachio trees cannot be determined reliably at present, as this is
a new project with a lengthy period to maturity and all the trees have not yet matured .
The trees take eight years to start producing nuts. As a result the pistachio trees are
carried at cost less accumulated depreciation and impairment losses. Biological assets
are depreciated on a straight-line basis over 30 years.
** The fair value of the walnut trees cannot be determined reliably at present, as this is a
new project with a lengthy period to maturity. No depreciation has been expensed to
date as the planted walnut trees are not yet producing walnuts. As a result, the walnut
trees are carried as cost less accumulated depreciation and impairment losses.
14. Intangible assetsGoodwillCost 527 497 – –
Balance at the beginning of the year 497 492 – –
Arising on acquisition of subsidiaries 30 5 – –
Accumulated impairment of goodwill 527 497 – –
Balance at the beginning of the year 497 492 – –
Current year impairment of goodwill 30 5 – –
Carrying value at the end of the year – – – –
OtherCost 5 3 – –
Balance at the beginning of the year 3 2 – –
Additions 2 1 – –
Accumulated amortisation and impairment of other intangible assets 3 2 – –
Balance at the beginning of the year 2 2 – –
Current year impairment 1 – – –
Carrying value at the end of the year 2 1 – –
Carrying value of intangible assets 2 1 – –
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Industrial Development Corporation of South Africa Annual Report 2009 | 137
GROUP IDC(R’m) 2009 2008 2009 2008
15. Share capitalAuthorisedA shares of R1 each – 1 000 000 1 1 1 1
B shares of R1 each – 1 499 000 000 1 499 1 499 1 499 1 499
1 500 1 500 1 500 1 500
IssuedA shares – 1 000 000 (2008: 1 000 000) 1 1 1 1
B shares – 1 391 969 357 (2008: 1 391 969 357) 1 392 1 392 1 392 1 392
1 393 1 393 1 393 1 393
A shares are not transferable other than by an act of Parliament, however
the B shares may be sold with the authorisation of the President.
The A shares held by the State shall entitle it to a majority vote.
16. Derivative financial instrumentsDerivative assetsForeign exchange contract assets 42 435 27 373 Derivative option contracts – 13 – –
42 448 27 373
Derivative liabilitiesForeign exchange contract liability 75 63 68 –Derivative option contracts 26 – – –
101 63 68 –
17. Other liabilitiesAccounts payable 968 1 313 240 128Accruals
Bonuses 295 278 217 203Leave pay 76 60 45 43
1 339 1 651 502 374
Movement in accrualsBonusesBalance at the beginning of the year 278 180 203 127Additional accruals raised during the year 253 258 175 190Utilised during the year (236) (160) ( 161) ( 114)
Balance at the end of the year 295 278 217 203
Leave payBalance at the beginning of the year 60 58 43 37 Additional accruals raised during the year 40 20 16 17 Utilised during the year (24) (18) (14) (11)
Balance at the end of the year 76 60 45 43
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138 | Industrial Development Corporation of South Africa Annual Report 2009
Notes to the Financial Statements_continuedfor the year ended 31 March 2009
GROUP IDC(R’m) 2009 2008 2009 2008
18. LoansLong-term loansForeign loans 2 882 3 392 2 703 3 149 Domestic loans 60 75 5 651 5 283
2 942 3 467 8 354 8 432 Short-term loansForeign loans 1 096 1 193 1 023 1 012 Domestic loans 1 127 1 165 1 857 1 701
5 165 5 825 11 234 11 145
Foreign loans Interest rate– US Dollar 1,0 to 5,2% 2 173 2 832 1 994 2 630– Euro 0,75 to 6,18% 1 107 905 1 034 783– Japanese Yen 1,4 to 1,45% 135 153 135 153– SA Rand-denominated 9,82 to 13,55% 563 695 563 595
3 978 4 585 3 726 4 161
Maturity of foreign loans– due within one year 1 096 1 193 1 023 1 012– due after one year but within five years 2 010 2 778 1 834 2 548– due after five years 872 614 869 601
3 978 4 585 3 726 4 161
Long-term domestic loansSecured loans– WesBank Corporate Finance – Division
of FirstRand Bank Limited Prime less 2% 1 1 – –This represents loans taken to purchase
certain items of plant and equipment and
motor vehicles. This loan is repayable in monthly instalments of approximately R365 000.
– Mhlatuzi Water Board 14,4% 25 28 – –
This represents loans taken to purchase certain
items of plant and equipment. It is repayable in monthly instalments of approximately R736 000.
Unsecured loans– Loans from BHP Billiton Limited
No dates for repayment have been set Interest-free – 12 – –– Loan from Seardel Investment
Corporation Limited
No dates for repayment have been set Interest-free 34 34 – –
Unsecured loans from subsidiaries– Loans with no fixed terms of repayment Interest-free 5 328 4 637– Loans with no fixed terms of repayment 9,94% 323 646
60 75 5 651 5 283
Industrial Development Corporation of South Africa Annual Report 2009 | 139
GROUP IDC(R’m) 2009 2008 2009 2008
18. Loans (continued)Short-term domestic loans– Loans with no fixed terms of Money market-
repayment related 227 265 422 266
– Loans with no fixed terms of repayment Interest-free – – 535 535 – Loans with no fixed terms of repayment 10,071% 900 900 900 900
1 127 1 165 1 857 1 701
Interest and non-interest-bearing loans 5 131 5 779 5 371 5 973
– Long-term interest-bearing loans 2 908 3 421 3 026 3 795
– Short-term interest-bearing loans 2 223 2 358 2 345 2 178
34 46 5 863 5 172
– Long-term interest-free loans 34 46 5 328 4 637 – Short-term interest-free loans – – 535 535
5 165 5 825 11 234 11 145
19. ProvisionsEnvironmental rehabilitation liability
Liability and other closure costs 297 254 59 59
Balance at the beginning of the year 254 211 59 59
Additional provisions 45 51 2 8
Utilised during the year (2) (8) (2) (8)
Trust fund (69) (60) – –
Balance at the beginning of the year (60) (57) – –
Growth for the year (9) (3) – –
228 194 59 59
Environmental rehabilitation liabilityA group company continually contributes to the Environmental Rehabilitation Trust to ensure that adequate funds are
available to pay for mine closure and reclamation costs. The Trust is regarded as a special-purpose entity and is
consolidated as part the Group company. This note compares the net present value of the rehabilitation liability to the
assets held by the Trust.
The assets held by the Trust are intended to fund the environmental rehabilitation liability of the Group company and
are not available for general purposes of the Group.
The directors are aware of the estimated cost of rehabilitation and are satisfied that adequate provision is being made
to meet this obligation. A contingent liability has been disclosed for the issuing of guarantees to the Department of
Minerals and Energy (refer to note 35).
140 | Industrial Development Corporation of South Africa Annual Report 2009
Notes to the Financial Statements_continuedfor the year ended 31 March 2009
GROUP IDC(R’m) Notes 2009 2008 2009 2008
20. RevenueDividends received on available-for-sale financial assets 3 451 1 303 4 621 1 990
Listed 2 150 998 1 458 684
Unlisted 1 301 305 2 406 301
Associated companies – – 757 1 005
Interest income 21 1 877 1 140 1 637 987
Fee income 22 177 199 176 198
Farming, manufacturing and mining income 9 480 4 657 15 6
14 985 7 299 6 449 3 181
Dividends received from the investments made in terms
of section 3(a) of the Industrial Development Act.
Sasol Limited 692 314 – –
21. Net interest incomeInterest incomeCash and cash equivalents 633 512 438 394
Loans and advances to clients 1 223 622 1 199 590
Other 21 6 – 3
Total interest income 1 877 1 140 1 637 987
Financing costsLoans 367 404 421 448
Finance leases 5 5 – –
Net exchange losses 110 68 89 54
Other 88 22 61 3
Total financing costs 570 499 571 505
Net interest income 1 307 641 1 066 482
Interest income on impaired financial assets 176 178 174 174
22. Net fee incomeFee income
Margin earned 40 106 40 106
Guarantee fees 19 11 19 11
Other contract-related fees 101 65 101 65
Other fees 17 17 16 16
Total fee income 177 199 176 198
Net fee income 177 199 176 198
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GROUP IDC(R’m) 2009 2008 2009 2008
23. Net capital gainsCapital gains on disposal of available-for-sale investments 326 495 326 495
Capital losses on disposal of available-for-sale investments (198) (7) (1) (3)
Net capital gains 128 488 325 492
24. Net operating incomeIs arrived at after taking into account the following, amongst others:
Impairment of goodwill relating to subsidiaries 30 5
Amortisation of other intangible assets 1 – – –
Auditors’ remuneration – fees 12 9 7 5
(Deficit)/surplus on revaluation of investment property (1) 2 – –
Depreciation of property, plant and equipment 198 167 16 24
Directors’ emoluments (non-executive) – fees for services
as directors (refer to note 25) 2 2 2 2
Executive members’ remuneration (refer to note 25) 73 55 49 36
– Basic salary 24 23 13 13
– Payments for conversion to fixed-term contracts – 5 – 5
– Performance bonuses 41 21 29 15
– Termination benefits – 2 – –
– Contributions to medical aid, retirement benefits,
insurance and other benefits 8 4 7 3
Financing costs 570 499 571 505
Interest expense 460 431 482 451
Net exchange losses 110 68 89 54
Impairment of property, plant and equipment 606 – – –
Impairment reversal of property, plant and equipment – 255 – –
Project feasibility expenses (27) 126 (237) 161
Net (profit)/loss on the disposal of property, plant and equipment 2 (5) (2) –
Operating lease rentals 9 13 3 8
Net movement in impairments 1 188 420 1 600 486
– Net increase in impairments 606 191 1 022 278
– Bad debts written off 582 229 578 208
Rental income earned from investment property (1) (1) – –
Operating expenses incurred on investment property 16 19 1 1
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142 | Industrial Development Corporation of South Africa Annual Report 2009
Notes to the Financial Statements_continuedfor the year ended 31 March 2009
GROUP IDC(R’m) 2009 2008 2009 2008
24. Net operating income (continued)Net movement in impairmentsNet increase in impairments 606 191 1 022 278
Food, Beverage and Agro Industries 5 (50) 16 (61)
Public-private Partnerships (88) 2 (88) 2
Mining 299 30 316 89
Chemicals 47 (212) 49 (256)
Metals (4) (64) (8) (40)
Textiles and Clothing (35) 252 94 345
Wood, Paper and Other 107 (52) 338 (79)
Media and Motion Pictures (168) 81 (168) 80
Tourism 16 (30) 32 (31)
Healthcare and Education (87) (21) (89) (50)
Techno Industries 348 91 348 91
Franchising 14 55 14 55
Transportation, Financial Services and Other (19) 3 (19) 3
2010! and Construction 76 1 78 1
Venture Capital 27 45 40 79
Other 68 60 69 50
Bad debts written off 582 229 578 208
Food, Beverage and Agro Industries 3 44 3 43
Public-private Partnerships 108 3 108 3
Mining 31 38 31 38
Chemicals 24 25 24 23
Metals 5 3 4 3
Textiles and Clothing 5 2 2 2
Wood, Paper and Other 4 33 4 34
Media and Motion Pictures 183 22 183 22
Tourism 5 4 5 4
Healthcare and Education 82 7 82 7
Techno Industries 35 9 35 9
Franchising 67 13 67 13
Transportation, Financial Services and Other 24 26 24 7
2010! and Construction 5 – 5 –
Other 1 – 1 –
1 188 420 1 600 486
Industrial Development Corporation of South Africa Annual Report 2009 | 143
(R’000) 2009 2008
25. Non-executive directors’ remunerationFees for services as directors
WYN Luhabe Chairman 279 257
MC Nkuhlu Deputy Chairman** 273 150
JR Barton 176 129
NG Nika 167 129
BN Njobe 164 128
JC Mtshali 152 128
NN Nokwe 140 129
MS Moloko 120 128
DH Lewis Deputy Chairman** 102 203
Resigned on 30 September 2008
Adv FA du Plessis Resigned on 30 September 2008 91 182
LR Pitot Appointed on 1 October 2008 89 –
LI Bethlehem Appointed on 1 October 2008 87 –
SK Mapetla Appointed on 1 October 2008 80 –
LL Dhlamini Appointed on 1 October 2008 74 –
LT Kunene Resigned on 30 September 2008 64 128
P Graham Resigned on 30 September 2008 64 128
MW Hlahla* – –
2 122 1 819
* The director has waived her right to earn director’s fees.
** DH Lewis was Deputy Chairman until 30 September 2008 and MC Nkuhlu is Deputy Chairman from 1 October 2008.
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144 | Industrial Development Corporation of South Africa Annual Report 2009
Notes to the Financial Statements_continuedfor the year ended 31 March 2009
Contri-butions
to medicalaid, retire-
Payments for Long- ment bene-conversion to term Perfor- fits, insurance
Basic fixed-term incentive mance and other Total(R’000) salary contracts* bonus bonuses** benefits 2009
25. Executive members’ remuneration MG Qhena 2 673 – 2 544 4 392 688 10 297 GS Gouws 1 826 – 1 413 2 354 1 347 6 940 G van Wyk 1 230 – 1 054 1 748 848 4 880U Khumalo 1 210 – 1 018 1 705 579 4 512 SS Sibisi 1 088 – 759 1 371 1 153 4 371 LWJ Matlhape 1 161 – 874 1 573 496 4 104 K Schumann 1 052 – 809 1 442 456 3 759 LP Mondi 955 – 764 1 407 517 3 643 SAU Meer 1 210 – 634 1 412 260 3 516 NV Sowazi 935 – 688 1 254 437 3 314
IDC 13 340 – 10 557 18 658 6 781 49 336 FOSKOR 10 507 92 – 11 556 1 670 23 825
AM Pitse 2 146 – – 2 385 346 4 877JW Horn 1 519 – – 1 588 77 3 184 TJ Koekemoer 1 150 – – 1 223 239 2 612 G Skhosana 1 040 – – 1 222 243 2 505 K Cele 1 117 – – 1 110 180 2 407 JWT Potgieter 1 091 – – 987 256 2 334 J Vaidhiyanathan Retired 31 March 2009 990 52 – 988 117 2 147 XS Luthuli 960 – – 961 133 2 054 H Malhotra Resigned 6 July 2008 278 40 – 1 092 50 1 460 MP Mosweu Appointed 1 February 2009 216 – – – 29 245
GROUP 23 847 92 10 557 30 214 8 451 73 161
* Represents amounts paid to certain executive members for migrating from permanent employment contracts to fixed-term contracts.
** Represents amounts payable to executive members for achieving certain objectives that are aligned to the corporate objectives (targets).These objectives are approved by the Board at the
beginning of each period.The amount paid is based on the performance of the corporate, team and individuals.
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Industrial Development Corporation of South Africa Annual Report 2009 | 145
Contri-butions
to medicalaid, retire-
Payments for Long- ment bene-conversion to term Perfor- fits, insurance Termi-
Basic fixed-term incentive mance and other nation Total(R’000) salary contracts* bonus bonuses** benefits benefits 2008
25. Executive members’remuneration (continued)MG Qhena 2 448 685 360 3 294 472 – 7 259
GS Gouws 1 698 1 631 579 1 830 533 – 6 271
G van Wyk 1 315 649 311 1 364 416 – 4 055
LWJ Matlhape 1 240 943 396 1 131 265 – 3 975
NV Sowazi 928 608 277 890 266 – 2 969
U Khumalo 1 205 – – 1 319 387 – 2 911
K Schumann 1 010 – 109 1 047 348 – 2 514
LP Mondi 930 – – 989 315 – 2 234
SS Sibisi 1 077 – – 983 165 – 2 225
SAU Meer 1 105 – – 546 150 – 1 801
IDC 12 956 4 516 2 032 13 393 3 317 – 36 214
FOSKOR 9 600 – – 5 989 1 215 2 149 18 943
AM Pitse 1 782 – – 1 466 293 – 3 541
JW Horn 1 457 – – 954 19 – 2 430
ND Naidoo Resigned 31 April 2007 70 – – – 16 2 149 2 235
TJ Koekemoer 1 002 – – 771 174 – 1 947
G Skhosana 987 – – 715 127 – 1 829
K Cele 874 – – 591 108 – 1 573
J Vaidhiyanathan 837 – – 619 101 – 1 557
H Malhotra 841 – – 618 91 – 1 550
XS Luthuli 840 – – 255 101 – 1 196
JWT Potgieter 910 – – – 175 – 1 085
GROUP 22 556 4 516 2 032 19 382 4 522 2 149 55 157
* Resigned on 30 September 2008.
** Financing in the form of equity stakes, not loans.
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146 | Industrial Development Corporation of South Africa Annual Report 2009
Notes to the Financial Statements_continuedfor the year ended 31 March 2009
GROUP IDC(R’m) 2009 2008 2009 2008
26. TaxationSouth African normal taxation
Current – current year 679 21 – 1
Current – prior year 1 17 1 22
Current – STC 19 – – –
Deferred – current year 145 115 21 (166)
Deferred – prior year (20) – (14) –
Deferred – tax rate change – 1 – –
Foreign taxation 1 – 1 –
825 154 9 (143)
Tax rate reconciliation % % % %
South African normal tax rate 28 29 28 29
The normal rate of taxation for the year has been
adjusted as a consequence of:
– dividend income (9) (9) (33) (33)
– capital gains and losses (3) (4) (8) (8)
– provisions and impairments 3 4 8 7
– calculated taxation losses (2) (6) – –
– other permanent differences (4) (10) 5 (3)
Effective tax rate 13 4 – (8)
27. Financial and operating leasesFinance leases – Group as lesseeThe Group has leases classified as financial leases principally for
property. Future minimum lease payments payable under finance
leases, together with the present value of minimum lease
payments, are as follows:
Land and buildings:
– due within one year 7 8 – –
– due after one year but within five years 21 24 – –
– due after five years 28 32 – –
Total minimum lease payments 56 64 – –
Amount representing finance charges (28) (33) – –
Present value of minimum lease payments 28 31 – –
Current portion 3 3 – –
Long-term portion 25 28 – –
28 31 – –
The finance lease is between Foskor (Pty) Limited and Mhlathuze Water Board for an effluent pipeline. The lease liability
is effectively secured as the rights to the leased asset revert to the lessor in the event of default. The lease is over a
20-year period with 17 years remaining at 31 March 2009. Foskor has sole use of the effluent pipeline and pays for the
maintenance. The lease is at a fixed rate of 14,4% per annum.
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Industrial Development Corporation of South Africa Annual Report 2009 | 147
GROUP IDC(R’m) 2009 2008 2009 2008
27. Financial and operating leases (continued)Operating leases – Group as lesseeCertain items of computer and office equipment are
leased by the Group.
Commitments for future minimum rentals payable under
non-cancellable leases are as follows:
– due within one year 7 4 4 –
– due after one year but within five years 12 4 3 –
19 8 7 –
The company leases photocopiers and faxes under various
agreements, which terminate between 2008 and 2009.
28. Cash generated/(utilised) by operationsProfit before tax 6 446 4 105 3 566 1 733
Share of (profit)/loss of equity-accounted investments (1 132) (1 950) – 13
Net operating income 5 314 2 155 3 566 1 746
After providing for:
Impairment of goodwill relating to subsidiaries 30 5
Amortisation of other intangible assets 1 – – –
Impairment of goodwill relating to associated entities 83 25 – –
Depreciation of property, plant and equipment 198 167 16 24
Loss/(profit) on disposal of property, plant and equipment 2 (5) (2) –
Impairment of property, plant and equipment 606 (255) – –
(Deficit)/surplus on revaluation of investment property (1) 2 – –
Dividends received (3 451) (1 303) (4 621) (1 990)
Interest income (1 877) (1 140) (1 637) ( 987)
Interest expense 460 431 482 451
Non-cash portion of project feasibility expenses (27) 105 ( 23) 156
Net capital gains (128) (488) (325) (492)
Net exchange losses 110 68 89 54
Specific and portfolio impairments 1 188 420 1 600 486
2 508 187 (855) (552)
Changes in working capital:
(Increase)/decrease in other receivables (224) (606) 206 (442)
Decrease/(increase) in inventories 216 (332) 5 (9)
Decrease/(increase) in non-current assets held-for-sale 91 (91) – –
(Decrease)/increase in other payables (272) 731 134 104
(Decrease)/increase in liabilities directly associated with non-current
assets held-for-sale (12) 12 – –
2 307 (99) (510) (899)
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148 | Industrial Development Corporation of South Africa Annual Report 2009
Notes to the Financial Statements_continuedfor the year ended 31 March 2009
GROUP IDC(R’m) 2009 2008 2009 2008
29. Taxation paidNet owing at the beginning of the year (12) (199) (7) (216)
Normal tax provided in income statement (refer to note 26) (700) (38) (2) (23)
Net (receivable)/owing at the end of the year (24) 12 (122) 7
(736) (225) (131) (232)
30. Proceeds on realisation of investmentsOriginal cost 52 92 52 92
Net capital gain on disposal of investment 128 488 325 492
180 580 377 584
31. Acquisition of subsidiariesProperty, plant and equipment 45 78
Other receivables 24 5
Inventories 54 12
Other payables (41) (3)
Bank overdraft (15) –
Loans (67) (92)
Total purchase consideration – –
Less: cash and cash equivalents acquired (15) –
Cash outflow on acquisition of shares (15) –
32. Disposal of subsidiariesOther receivables – 4
Loss on disposal of investments – (4)
Selling price – –
Less: cash and cash equivalents disposed of – –
Net cash received – –
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GROUP IDC(R’m) 2009 2008 2009 2008
33. CommitmentsIn respect of
Undrawn financing facilities approved 22 103 15 982 22 103 15 982
Undrawn guarantee facilities approved 241 410 241 410
Capital expenditure approved – contracted – 115 – 115
Capital expenditure approved by subsidiaries 2 134 276
– Contracted 2 131 276
– Not contracted 3 –
Capital expenditure approved by equity-accounted
investments 243 114
– Contracted 146 78
– Not contracted 97 36
Total commitments 24 721 16 897 22 344 16 507
Less: counter-guarantees obtained from partners in respect of
financing and guarantees to be provided to major projects 121 104 121 104
Commitments net of counter-guarantees 24 600 16 793 22 223 16 403
Commitments will be financed by loans and internally generated funds.
GROUP IDC(R’m) 2009 2008 2009 2008
34. Guarantees and counter-guaranteesGuarantees in respect of foreign loans taken up by wholly owned
subsidiaries – – 236 392
Guarantees issued in favour of third parties in respect of finance
provided to industrialists 1 368 631 968 645
Total industrial financing guarantees 1 368 631 1 204 1 037
Less: counter-guarantees obtained from partners in respect of
financing and guarantees to be provided to major projects 65 94 65 94
1 303 537 1 139 943
Sundry guarantees issued by subsidiaries 242 140
Guarantees issued by equity-accounted investments 126 37
Guarantees net of counter-guarantees 1 671 714 1 139 943
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150 | Industrial Development Corporation of South Africa Annual Report 2009
Notes to the Financial Statements_continuedfor the year ended 31 March 2009
GROUP IDC(R’m) 2009 2008 2009 2008
35. Contingent liabilitiesWater clean-up and waste disposal* 24 15 24 15
Estimated costs to complete dismantling and
decontamination of plant 8 2 8 2
Estimated costs to treat Cr6 + liquors 5 1 5 1
Estimated cost of rehabilitation agreement 3 4 3 4
Annual cost of abstraction and disposing of groundwater
for approximately 14 years 8 8 8 8
Contingent liabilities of subsidiariesA subsidiary had mine rehabilitation guarantees amounting to
R200 million at year-end. In line with the requirements set out by the
Department of Minerals and Energy (“DME”), this amount needs to be
increased to R250 million by 31 July 2009. However, these guarantees
and the agreement reached with the DME were based on the
environmental rehabilitation and closure costs assessment that was
performed during the 2008 financial year.The guarantees will be increased
by R60 million before July 2010, and R40 million before July 2011 to equal
the R351 million net shortfall for the mine closure costs.
A subsidiary has appealed to the Income Tax Court for tax appeals for
resolution of the revised 1999 income tax assessment.The assessment
raised includes the F100 mining ore stockpiles as trading stock, and has
given rise to a potential additional tax charge of R60,6 million as well as
interest of R51,2 million. The hearing was held during the financial year
under review, and the presiding judge ruled in favour of the subsidiary.
The judgement was received in December 2008.The South African Revenue
Service has appealed the merits of the decision and the interest charge
is not expected to be challenged on appeal. It is likely that the matter will
be heard in the Appellate Division of the Supreme Court in the second half
of 2009.
Cotton contracts entered into with various cotton suppliers are
binding and could result in liabilities for a subsidiary if they are
cancelled or if they are not utilised for operational purposes but
instead realised for a price lower than their cost.
Contingent liabilities of joint ventures and partnerships 6 – 6 –
A fund’s investment committee has approved an investment
transaction to acquire a 35% shareholding in Mangwanani
Group (Pty) Limited, subject to fulfilment of certain conditions precedent.
These conditions precedent were not fulfilled before the year ended on
31 March 2009 and prior to the finalisation of the fund’s financial
statements at that date.
Contingent liabilities of equity-accounted investments 5 5
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Industrial Development Corporation of South Africa Annual Report 2009 | 151
35. Contingent liabilities (continued)An equity-accounted investment, had the following contingent liabilities at year-end:
Fire: Several claims from third parties were lodged against a group company in respect of damages allegedly caused by a
bush fire. A court case addressing these claims was scheduled for early 2009.The total value for these claims amounted to
R3,3 million at the balance sheet date. The group company is fully insured for third-party claims.
Suretyship: A group company participates in the pooled banking facilities granted by FirstRand Bank Limited. As such,
the Group has provided suretyship in favour of FirstRand Bank Limited in respect of its obligations to the bank.
Global Forest Products Provident Fund Guarantee: Some employees of the Group are members of the Global Forest
Products Provident Fund. The Mondi Provident Fund valuation report has disclosed that part of the contingency
reserves, after approval from the Financial Services Board, must be allocated to the employees who transferred from the
Mondi Provident Fund to the Global Forest Products Provident Fund. Management of the Group has decided to include
the value of the contingency reserves to be allocated to the employees who transferred from the Mondi Provident
Fund to the Global Forest Products Provident Fund in the benefit statements of the individual members and that the
companies York Timbers (Pty) Limited and South African Plywood (Pty) Limited, will stand good for these amounts.
* As a result of the process used in the manufacturing of chemical products produced by a subsidiary, the groundwater has become contaminated with a by-product,
Chrome 6. In terms of the minimum requirements of the Water Act, 37 of 1998, part 5, Section 20, and the Environment Conservation Act, 73 of 1989, part V,
subsection 21, the subsidiary is required to remove the contamination and dispose of the waste material.
36. Retirement benefit informationPension and provident schemesThe Group has pension and provident schemes covering substantially all employees. All eligible employees are
members of either defined contribution or defined benefit schemes. These schemes are governed by the Pension
Funds Act, 1956, as amended. The assets of the schemes under the control of trustees are held separately from those of
the Group.
The costs charged to the income statement represent contributions payable to the scheme by the Group at rates
specified in the rules of the scheme.
Defined contribution schemesEmployees and group companies contribute to the provident funds on a fixed-contribution basis. No actuarial valuation
of these funds is required. Contributions, including past-service costs, are charged to the income statement when
incurred.
Defined benefit schemeA group company and its employees contribute to a defined benefit pension fund. The pension fund is
final salary fully funded. The assets of the fund are held in an independent trustee-administered fund,
administered in terms of the Pension Funds Act, 1956, as amended.
The fund is valued every three years using the projected unit credit method. The actuarial valuation for purposes of
IAS 19 was performed on 31 December 2006.
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152 | Industrial Development Corporation of South Africa Annual Report 2009
Notes to the Financial Statements_continuedfor the year ended 31 March 2009
GROUP(R’m) 2009 2008
36. Retirement benefit information (continued)The amounts recognised in the balance sheet are as follows:
Present value of funded obligations 314 319
Fair value of plan assets (298) (324)
Present value of unfunded obligations 16 (5)
Unrecognised actuarial (losses)/gains (16) 5
Liability recognised – –
The movement in the defined benefit obligation:
Opening balance 319 278
Current-service cost 1 –
Interest cost 27 18
Actuarial (gains)/losses (7) 47
Benefits paid (26) (24)
Closing balance 314 319
Movement in plan asset:
Fair value of plan assets at the beginning of the year 324 314
Expected return on asset 30 23
Actuarial (loss)/gain recognised during the year (56) (17)
Contributions paid into plan – 4
Fair value of plan assets at the end of the year 298 324
The amounts recognised in the income statement are as follows:
Current-service cost 1 1
Interest cost 27 18
Expected return on assets (30) (23)
Net actuarial loss recognised during the year 23 38
Total included in operating expenses 21 34
The actual return on plan assets was:
Expected return on plan assets 29 602 22 745
Actuarial (losses)/gains on plan assets (30 012) 9 098
Actual return on plan assets (410) 31 843
Plan assets are comprised as follows:
Equity instruments 40% 54%
Cash 25% 37%
Debt instruments 17% 8%
Other 18% 1%
100% 100%
The principal actuarial assumptions for accounting purposes were:
Discount rate (%) 7,50 8,75
Expected return on plan assets (%) 8,00 9,50
Fund salary increases (%) 4,00 5,50
Future pension increases (%) 3,00 3,75
Normal retirement age 60 60
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36. Retirement benefit information (continued)
The sensitivity of the overall pension liability to changes in the weighted principal assumptions is:
IMPACT ON OVERALL LIABILITY 2009 2008
Inflation rate (increase of 1%) 8,86% increase 9,3% increase
Inflation rate (decrease of 1%) 9,28% decrease 7,7% decrease
The expected contributions to the post-employment pension scheme for the year ending 31 March 2010 are
R393 120.
GROUP IDC(R’m) 2009 2008 2009 2008
Post-retirement medical benefitsSome group companies have obligations to provide
post-retirement medical benefits to their pensioners.
The accumulated post-retirement medical aid obligation
and the annual cost of those benefits were determined
by independent actuaries. Any surplus or shortfall between
the actuarially determined liability and the aggregate
amounts provided is charged to the income statement.
The amounts recognised in the balance sheet are as follows:
Present value of unfunded obligation:
Discovery Health members 206 200 139 133
Present value of unfunded obligation 206 200 139 133
Movement in the liability recognised in the balance sheet:
At the beginning of the year 200 176 133 108
Contributions paid (12) (8) (6) (5)
Current-service costs 3 3 3 2
Interest cost 18 15 12 9
Non-current medical obligation classified as held-for-sale – (3) – –
(Surplus)/deficit (3) 17 (3) 19
Balance at the end of the year 206 200 139 133
The principal actuarial assumptions used for accounting
purposes were:
– Discount rate (%) 8,25 8,75 8,25 8,75
– General inflation rate (%) 4,50 6,00 4,50 6,00
– Medical inflation rate (%) 6,50 7,50 6,50 7,50
– Normal retirement age 58/60/65 58/60/65 58/60/65 58/60/65
The expected contributions to post-employment medical plans for the year ending 31 March 2010 are R13,13 million.
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154 | Industrial Development Corporation of South Africa Annual Report 2009
Notes to the Financial Statements_continuedfor the year ended 31 March 2009
37. Related-party transactions
Financing Type of balance Interest/ financing/
(R’m) Financing funding repayment Year ofDirector Company approved 2009 2008 rate terms Directors’ interest approval
WYN Women’s 50 35 34 Not Equity** Chairman of the fund. 2002Luhabe# Private applicable 33% shareholder in the
Equity Fund management company Trust of the fund.
LT Guma 537 537 – Variable rate Redeemable 50% holding in Ziyazi 2008Kunene* Tourism linked to preference Investment (Pty) Limited,
Holdings prime shares** which has a 5% stake in (Pty) Limited a consortium that holds
35% in Guma Tourism Holdings (Pty) Limited.
MW Praxley 14 14 14 RATIRR Redeemable 14% in Praxley Consortium 2007Hlahla Consortium of 8% preference Five (Pty) Limited.
Five shares**(Pty) Limited
On Digital 275 – – Not Equity** 6,66% holding in Lereko 2008Media (Pty) applicable Media (Pty) Limited, whichLimited has a 30% stake in On
Digital Media (Pty) Limited.
LI Hans 100 83 89 Not Equity** A trustee of the Hans 1999Bethlehem Merensky applicable Merensky Foundation, the
Holdings controlling body with a (Pty) 57,4% interest in HansLimited Merensky Holdings (Pty)
Limited.
NN Neotel (Pty) 600 – 600 Three- Redeemed Holds 0,333% of the 2006Nokwe Limited month March 2009 BEE consortium that
JIBAR holds 5% of Neotel rate (Pty) Limited.
+ 1,25%100 47 – Three- Repayable 2008
month after JuneJIBAR rate 2013
+ 4,75%800 376 – Three- Repayable 2008
month after JuneJIBAR rate 2013
+6%300 141 – Minimum Repayable 2008
of 8% of after JuneRATIRR + 2019
50%of increase
in market value
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Industrial Development Corporation of South Africa Annual Report 2009 | 155
37. Related-party transactions (continued)Related-party within the national sphere of government
Financing Type of balance Interest/ financing/
(R’m) Financing funding repayment Year ofCompany approved 2009 2008 rate terms approval
Landbank 25 5,4 10 7% Monthly repayments 2000of R416 665 on loan
* Resigned on 30 September 2008
** Financing in the form of equity stakes, or preference shares not loans
# The 5% holding in Women’s Investment Portfolio Holdings was disposed of.
Related party within the National Receiving of Purchase of OutstandingSphere of Government services goods balances
2009Eskom Limited – 427 –Transnet Limited 418 – –South African Airways (Pty) Limited 19 – –Telkom Limited 4 – –
441 427 –
2008Eskom Limited – 94 –Transnet Limited 424 – –South African Airways (Pty) Limited 13 – –Telkom Limited 6 – –
443 94 –
The remuneration information of key management personnel and directors is disclosed in note 25. All employees, includingkey management personnel, are precluded from conducting transactions with the Corporation in terms of the Corporation’sCode of Business Ethics.
38. Critical accounting estimates and assumptionsEstimates and judgements are continually evaluated and are based on historical experience and other factors, includingexpectations of future events that are believed to be reasonable under the circumstances.
The Corporation makes estimates and assumptions concerning the valuation and impairment of financial assets. Theresulting valuation estimates will, by definition, not be equal to the related actual value. The estimates and assumptionsthat have a significant risk of causing a material adjustment to the value of the financial assets are discussed below.
Valuation and impairment of financial assetsListed equities are valued based on their listed value (fair value) on 31 March 2009.
Unlisted equities are valued using various valuation methods, including the free cash flow, price earnings (PE) and netasset value (NAV) bases.
Judgements and assumptions in the valuations and impairments include:– free cash flow of investees– replacement values– determining the discount or premium applied to the IDC’s stake in investees– sector/subsector 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
39. Comparative figuresComparative figures have been reclassified in notes 7, 12 and 24 to the financial statements to achieve better presentation.
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IDC netIssued Percent- Shares at IDC net indebtedness
Share share age cost and indebtedness to by holdingclass capital interest fair value holding company company
(R’m) 2009 2008 2009 2008 2009 2008
IDC subsidiariesDymson Nominee
(Pty) Limited Ordinary – 100 2 2 17 16 – –
Findevco (Pty) Limited Ordinary – 100 – – – 223 (323) (646)
Foskor (Pty) Limited Ordinary 9 85 8 8 – 1 450 – –
Herdmans SA (Pty) Limited Ordinary – 100 – – 63 59 – –
Impofin (Pty) Limited Ordinary – 100 – – – – (87) (89)
Kindoc Investments Limited Ordinary – 100 – – 154 154 – –
Kindoc Sandton
Properties (Pty) Limited Ordinary – 100 – – 93 86 – –
Konbel (Pty) Limited Ordinary – 100 – – – – (10) (10)
Konoil (Pty) Limited Ordinary – 100 – – – – (5 215) (4 523)
Prilla 2000 (Pty) Limited Ordinary 4 100 14 14 174 122 – –
Sustainable Fibres Solutions
(Pty) Limited Ordinary – 67 – – 85 70 – –
South African Fibre Yarn Rugs
(Pty) Limited Ordinary 37 69,4 15 – 172 – – –
WM Eachus (Pty) Limited Ordinary – 80 – – – – – –
Other subsidiaries Ordinary – 100 1 1 315 224 (16) (15)
40 25 1 073 2 404 (5 651) (5 283)
Fair value adjustment 29 115 29 653
Impairment adjustment (30) (14) (382) (171)
Fair value 29 125 29 664 691 2 233 (5 651) (5 283)
Opening fair value 29 664 14 086
Movement in fair value during the year
Findevco (Pty) Limited 48 42
Foskor (Pty) Limited 98 7 720
Kindoc Sandton Properties (Pty) Limited 104 (2)
Konoil (Pty) Limited (835) 7 805
Other 46 13
Closing fair value 29 125 29 664
The aggregate net profits and losses after taxation
of subsidiaries attributable to the IDC were as follows:
Profits 2 957 1 116
Losses (110) (50)
2 847 1 066
All subsidiaries have the same reporting date as the holding company, except for Sustainable Fibre Solutions has a year end of June.
156 | Industrial Development Corporation of South Africa Annual Report 2009
Annexure A: Subsidiariesfor the year ended 31 March 2009
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Industrial Development Corporation of South Africa Annual Report 2009 | 157
Annexure B: Equity-accounted Associated Entitiesfor the year ended 31 March 2009
Total TotalGROUP Accounting Percentage exposure exposure(R’m) periods* interest 2009 2008
Companies
Broadband Infraco (Pty) Limited Provides telecommunication
infrasructure 01/03/08 – 28/02/09 26,0 337 –
Broodkraal Landgoed (Pty) Limited Farms table grapes 01/07/07 – 30/06/08 32,0 120 113
Capensis Management Operates a hospital 31,1 210 –
Chuma/Malibongwe/
Savannah Platinum SPV Mining and processing
(Pty) Limited of platinum metals 01/07/07 – 30/06/08 26,1 681 773
Duferco Steel Processing
(Pty) Limited Processes steel coil 01/10/07 – 30/09/08 50,0 152 224
Eastern Produce Farms tea, coffee
Malawi Limited and macadamia nuts 01/01/08 – 31/12/08 26,8 90 105
Hans Merensky Holdings Holds investments in timber
(Pty) Limited and agricultural industries 01/01/08 – 31/12/08 42,6 387 307
Hernic Ferrochrome Operates a ferrochrome
(Pty) Limited plant 21,3 567 438
Hulamin Limited Asset-leasing company 01/01/08 – 31/12/08 25,7 966 1 048
Incwala Resources (Pty) Limited Platinum mining 01/10/07 – 30/09/08 23,6 1 878 3 846
Karsten Boerdery (Pty) Limited Farms table grapes
and dates 01/06/07 – 31/05/08 36,6 152 109
Merafe Limited Operates chrome and
alloys plant 01/01/08 – 31/12/08 22,3 566 335
Micawber 325 (Pty) Limited Investment holding
and property rental company – 308
Mozal S.A.R.L. Produces primary
aluminium metal 01/07/07 – 30/06/08 24,0 2 913 2 450
Sheba’s Ridge Platinum Produces base metals
and platinum group metals 01/01/08 – 31/12/08 26,0 16 16
Umicore Autocat South Manufactures automotive
Africa (Pty) Limited catalysts 01/01/08 – 31/12/08 45,0 441 397
The York Timber Organisation
Limited Core business is sawmilling 01/07/07 – 30/06/08 29,8 470 387
Other associates various 585 420
10 531 11 276
* The accounting periods for which the financial statements of the associated entities have been prepared, where they are different from that of the investor, are
disclosed above.
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Annexure B: Equity-accounted Associated Entities_continuedfor the year ended 31 March 2009
Total Total IDC exposure exposure(R’m) 2009 2008
Opening fair value 14 285 11 368
Movement in fair value during the yearChuma/Malibongwe/Savannah Platinum SPV (Pty) Limited (916) (123)
Duferco Steel Processing (Pty) Limited – (142)
Eastern Produce Malawi (15) (22)
Hans Merensky Holdings (Pty) Limited (190) 72
Hernic Ferrochrome (Pty) Limited (111) 150
Hulamin Limited (903) 702
Incwala Resources (Pty) Limited (1 298) 221
Merafe Limited (1 351) 1 003
Micawber 325 (Pty) Limited (515) 54
Mozal S.A.R.L. (663) 217
Umicore SA (Pty) Limited (205) 359
York Timber Limited (448) 572
Other (39) (146)
Closing fair value 7 631 14 285
The aggregate amounts were as follows:
Balance sheetNon-current assets 41 608 43 442
Current assets 16 859 14 246
58 467 57 688
Equity 31 890 33 762
Non-current liabilities 15 668 14 460
Current liabilities 10 909 9 466
58 467 57 688
Income statementRevenue 33 541 22 011
Profits 4 203 3 093
Losses (578) (219)
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Annexure C: Partnerships and Joint Venturesfor the year ended 31 March 2009
Percentage Total exposure Total exposure(R’m) interest 2009 2008
Partnerships and joint ventures*Wholesale Venture Capital Funds various 173 277
173 277
The aggregate net profits and losses after taxation of
partnerships and joint ventures attributable to the
IDC were as follows:
Profits 15 26
Losses (15) (38)
– (12)
* Carrying value includes long-term interest-free partners’ loans.
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Annexure D: Financial Risk Management for the year ended 31 March 2009
Introduction and overview
A fundamental shift in the perception of risk management
has taken place globally over the past few years. It has
moved from a back office reporting/control/cost centre
into a strategic competitive weapon. Modern risk
management is now perceived as playing a key role in the
major strategic decisions of an organisation.
Risk management approach
Enterprise-wide risk managementIn line with sectoral best practice, the IDC has instituted a
robust Enterprise-Wide Risk Management (EWRM) process,
founded on a framework that is shareholder value-based,
organisationally embedded, supported and assured, and
reviewed on a continuous basis. EWRM is a process that
involves staff members at every level of the Corporation in
setting strategy and making operational decisions based on
an analysis of events that may impact the IDC. Accordingly,
risk management at the IDC is both decentralised and
centralised, with every member of staff of the Corporation
being responsible for risk management. EWRM is designed
to assist the IDC with the identification, quantification and
prioritisation of material risks that have the ability to impact
the business. The EWRM methodology implemented
encompasses the following components:
• shareholder-based risk identification and prioritisation;
• risk framework embedding;
• risk assurance; and
• board risk review.
The objective of EWRM is to ensure that these components
provide a continuous, reiterative process of risk
identification, validation, management and review. The
EWRM process focuses on the main strategic risks that the
IDC is exposed to.
A common “risk universe” comprising four major categories
– strategic, financial, compliance and operational risk
categories – has been identified and clearly communicated
to all stakeholders. Moreover, the full alignment of the
three-year audit plan of the Internal Audit Department to
the annual risk assessment findings further entrenches the
risk assurance process.
The IDC’s business model strives to maximise financial and
developmental returns while maintaining an acceptable
risk profile.
Risk appetiteOne of the key practices of risk management is the
determination/quantification of an organisation’s risk
appetite (also known as its risk tolerance) on an enterprise-
wide basis. Risk appetite is defined by the extent to which an
organisation tolerates risks as described by performance
indicators, operational parameters and process controls in
the pursuit of increased shareholder’s value.The
determination of the IDC’s risk appetite plays an important
role in the successful implementation of its EWRM
framework. It is also considered by the IDC to be a leading
best practice methodology to assist the Corporation to
achieve its strategic objectives while maintaining a sound
platform for future viability and continued growth.
Defining the IDC’s risk appetite assists it to:
• make more informed business decisions;
• focus on those risks that exceed the defined appetite for
risk;
• develop a business culture with a high awareness of risk;
and
• strike a balance between daring and prudence.
The IDC’s risk appetite is linked and aligned to its mandate
and business objectives and is an agreement between its
business goals and the related risks.
Risk Management Department
The Risk Management Department (RMD) of the IDC
proactively promotes risk awareness, while monitoring and
overseeing the management of key risks facing the
Corporation on the basis of the EWRM framework
mentioned above. RMD’s primary objectives are:
• to support the receipt of appropriate financial and
development returns while maintaining an acceptable
risk profile;
• to support the application of best practice principles in
order to analyse and manage risks so as to ensure the
strongest protection for the Corporation’s assets, its
financial results and, consequently, its capital;
• to promote a culture of increased risk awareness
throughout the Corporation utilising/applying EWRM
activities/techniques;
• to establish, review and implement various risk
management policies, systems and/or frameworks;
• to improve the operational effectiveness of the
department; and
• to attract, retain and develop RMD’s human capital
resources.
The key roles and responsibilities of the RMD include:
• playing a catalytic role in instituting and promoting a
sustainable and robust EWRM process;
• coordinating the risk management programme
throughout the Corporation, including the annual review
and assessment of the IDC’s risk profile;
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• inculcating a corporate-wide culture of risk awareness;
• developing corporate-wide monitoring, assurance and
reporting processes for risk management;
• regularly reporting to the Chief Risk Officer, Exco, the Board
Risk Management Committee and the IDC Board on
critical risk areas identified, on progress with regard to the
mitigation of these risks, and on any fundamental breaches
of approved risk management policy guidelines;
• assisting in refining the IDC’s risk appetite and aligning it
to the IDC’s mandate as well as corporate and
operational targets, whilst ensuring the translation of
such a risk appetite into appropriate systems of control;
• creating awareness of the long-term effects of
investment decisions and setting investment, exposure
and risk limits; and
• advising strategic business units and support
departments within the IDC on risk management
matters, including mitigating controls, processes and
procedures.
Major risk categories identified at IDC
The key risks facing the IDC have been classified according
to the following six broad risk categories:
• Strategic,
• Financial – Credit,
• Financial – Market,
• Liquidity,
• Operational,
• Capital management.
Strategic risk
This category refers to the risk of an organisation’s value
collapsing, stagnating or migrating as a result of a failure to
adapt to changing industry profit patterns. Key risks include
macroeconomic risk, which has recently increased
significantly due to, inter alia, power disruptions, oil price
volatility and surging inflation, changing customer priorities,
competitive threats, brand risk, changes in access to
financial capital, evolving distribution channels, legal and
regulatory changes, and geographical developments.
Other risks included in this category are reputational risk,
developmental risk and stakeholder management risk, ie
failing to meet the Corporation’s mandate.
The IDC Board and Executive Management have the
responsibility for defining the strategic direction of the IDC
and ensuring that it is managed in a manner consistent
with this strategy. The challenge is for the global strategic
and risk perspectives to be communicated and understood
by others at all levels of the Corporation such that
combined there is sufficient information to reflect the
overall attitude to risk and to determine whether or not
risks should be accepted, mitigated or avoided. This
challenge can be addressed through the definition and
measurement of the Corporation’s risk appetite mentioned
above.
Approach to managing strategic riskThe management of the Corporation’s strategic risks
include:
• ongoing review and analysis of the Corporation’s risk
appetite including determining whether or not risks
should be accepted, mitigated or avoided;
• undertaking and reviewing on an annual basis, the
annual EWRM assessment, which includes shareholder-
based risk identification and prioritisation; risk framework
embedding; risk assurance and risk review;
• evaluating the adequacy and efficiency of the risk
policies, procedures, practices and controls applied within
the Corporation in the day-to-day management of its
business;
• developing a risk mitigation strategy to ensure that the
Corporation manages the risks in an optimal manner;
• introducing measures that may serve to enhance the
adequacy and efficiency of the risk management policies,
procedures, practices and controls applied within the
Corporation; and
• determining and reviewing the maximum mandate levels
for the various credit and asset liability committees.
Financial risk
This risk category encompasses losses that may occur as a
result of the way the IDC is financed and its own financing
or investment activities. Financial risk includes market risk
related to volatility in interest rates, exchange rates,
commodity and equity prices, liquidity/funding risk related
to the cost of maintaining various financial positions and
financial compliance risk, as well as credit and settlement
risk related to the potential for counterparty default. Other
financial risks faced by the Corporation include investment
concentration risk in certain sectors, regions or
counterparties as well as the risk of overdependency on a
limited number and/or types of products and the risk of
margin erosion due to inappropriate pricing relative to the
cost of funding capital. The management of these risk areas
is therefore critical for the IDC.
Financial: Credit risk
This refers to the risk that a counterparty to a financial
transaction will fail to meet its obligations in accordance
with the agreed terms and conditions of the contract,
either because of bankruptcy or for any other reason,
thereby causing the asset holder to suffer a financial loss.
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Annexure D: Financial Risk Management_continuedfor the year ended 31 March 2009
Approach to managing credit riskThe IDC endeavours to maintain credit risk exposure within
acceptable parameters, managing the credit risk inherent in
the entire portfolio as well as the risk associated with
individual business partners or transactions. The effective
management of credit risk is a critical component of a
comprehensive approach to risk management and is
essential to the long-term success of the Corporation. This is
the dominant risk within the IDC as the provision of loans,
advances, quasi-equity, equity investments and guarantees
represent the Corporation’s core business.
The IDC may be exposed to various forms of credit risk
concentration which, if not properly managed, could cause
significant losses that could threaten its financial health.
Accordingly, the IDC considers the management (including
measurement and control) of its credit concentrations of vital
importance. IDC currently has various established
methodologies for the management of the credit
concentrations it is exposed to, including counterparty
(individual and group), sector and region/country.The IDC
has established risk concentration limits and policies on
individual and group counterparties, geographical locations
and sector exposures in accordance with its credit risk
strategy.The status of the IDC investment book is reported to
the IDC Executive Management, the Board Risk Management
Committee and the IDC Board on a regular basis.
Credit approval committeesCredit risk is managed by means of clearly defined
mandates and delegated authorities. The IDC Board’s
responsibilities include considering significant financial
applications and monitoring significant investment
decisions. In terms of the IDC delegation matrix, the IDC
Board has delegated credit-approving authority to two
committees, ie the Credit Committee and Special Credit
Committee, which each has its own mandate. All
transactions above R250 million, as well as exceptions to
policies and limits and issues with major strategic
implications, are considered by the IDC Board.
Due diligence and investment screeningThe IDC completes a thorough due diligence process, by a
multidisciplinary team, prior to approving a facility. This
covers financial, technical, legal, marketing, management
and, where appropriate, environmental risks, which are
reported on as part of the submission for approval to the
relevant decision-making structures. Financial viability of a
business’s and owners’ commitment are some of the key
factors when considering an application for finance. Prior to
a due diligence commencing, all applications for funding
are subject to a screening process to determine whether
they meet the basic criteria for IDC finance.
When feasibility studies are completed on larger projects,
risks taken into consideration include marketing,
technology, financial, environmental and manufacturing
risks. The robustness of the project is evaluated and
sensitivity analyses are performed on various aspects.
Financial viability of a project and a strong financial
structure are key factors for project approval. Once project
finance has been approved, the IDC appoints
representatives to the project steering and finance
committees during the construction period. IDC employees
subsequently closely monitor such investments.
Post-investment monitoringThe IDC’s loan and equity books are reviewed on a
continuous basis so as to proactively monitor and manage
the quality of the book and identify any developing
deterioration signals. A number of pre-emptive signals are
reviewed to ensure timeous action to prevent/limit
financial losses. This includes the receipt and analysis of
clients’ financial statements to compare against projections
and monitoring of adherence to predetermined covenants
and milestones.
Where considered necessary, the IDC may appoint directors
to the boards of directors of companies where the IDC has
an equity investment.
Clients with high-risk profiles are identified and given
special attention within the strategic business units, and
ailing companies are transferred to the Workout and
Restructuring Department to manage the IDC’s exposure
and minimise potential losses and maximise sustainable
development returns. This department also assists
companies in recovering from difficulties in order to limit
any job losses due to business closures. Two investment
monitoring committees (IMC), namely IMC Equity and IMC
Loans, meet regularly to monitor the performance of the
IDC’s equity and loan investments and decide on the
appropriate course of action to be taken with regard to
non-performing clients.
Other measures to ensure that credit risk is effectively
managed include:
• reviewing of the impairment policy and the adequacy of
impairments and related accounting policy in
consultation with the Board Audit Committee where
necessary;
• reviewing the status of the investment book in line with
the risk appetite of the Corporation;
• determining and reviewing of credit collections policies;
• recommending credit mandates to the Board; and
• ensuring that investment products are adequately priced
for risk incorporating development returns achieved.
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Sectoral analysis
GROUP IDCLoans and Investment Loans and Investment
advances to clients securities advances to clients securities
(R’m) 2009 2008 2009 2008 2009 2008 2009 2008
Carrying amount as per
notes 4 and 7* 8 820 6 133 42 355 61 245 7 011 4 773 27 665 40 490
Concentration by sector:Agriculture and food 728 556 102 215 589 539 102 215
Chemicals and petroleum 391 426 16 070 21 869 308 411 1 380 1 114
Finance and insurance 140 1 204 995 825 117 5 995 825
Metals and machinery 525 332 10 406 18 044 403 311 10 406 18 044
Mining 1 154 502 11 711 17 407 918 493 11 711 17 407
Other manufacturing 575 313 364 1 502 452 304 364 1 502
Other services 800 315 2 328 1 192 624 294 2 328 1 192
Trade, catering and accommodation 1 907 1 279 70 10 1 556 1 249 70 10
Transport, communication and utilities 2 600 1 206 309 181 2 044 1 167 309 181
8 820 6 133 42 355 61 245 7 011 4 773 27 665 40 490
* Carrying value of available-for-sale investments, excluding investments in subsidiaries, associates and joint ventures.
The above graph represents the IDC’s investment portfolio on an economic sector basis. The portfolio is reasonably well
spread with concentration in three main sectors: Mining, Metals and Machinery, and Finance and Insurance. The
concentration in the Metals sector comprise BHP Billiton, Mittal and Mozal; in the Mining sector Sishen Iron Ore (Kumba);
and in the Finance and Insurance sector, the IDC’s investment in Konoil.
The Corporation analyses its exposure to various business sectors and has predetermined boundaries for each sector.
IDC’s loans, advances and investmentexposure per economic sector
as at 31 March 2009Agriculture and food (2%)
Chemicals and petroleum (5%)
Finance and insurance (3%)
Metals and machinery (31%)
Mining (36%)
Other manufacturing (2%)
Other services (8%)
Trade, catering and accommodation (5%)
Transport, communication and utilities (7%)
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Annexure D: Financial Risk Management_continuedfor the year ended 31 March 2009
Geographical analysis
GROUP IDCLoans and Investment Loans and Investment
advances to clients securities advances to clients securities(R’m) 2009 2008 2009 2008 2009 2008 2009 2008
Carrying amount as per
notes 4 and 7* 8 820 6 133 42 355 61 245 7 011 4 773 27 665 40 490
Concentration by location:Outside Africa 254 246 854 1 755 211 242 854 1 755
SADC 2 524 564 511 392 2 082 553 511 392
South Africa 5 076 4 664 40 990 59 044 3 940 3 330 26 300 38 289
Sub-Saharan 966 659 – 54 778 648 – 54
8 820 6 133 42 355 61 245 7 011 4 773 27 665 40 490
* Carrying value of available-for-sale investments, excluding investments in subsidiaries, associates and joint ventures.
The above graph represents the IDC’s investment portfolio on a regional basis. When excluding the concentration resulting
from the exposure to Konoil (Mpumalanga) and Sishen Iron Ore (Gauteng), the portfolio is reasonably well balanced on a
regional basis.
Internal rating model and pricingThe IDC is progressing well in developing internal credit ratings and probability of default calculation methodologies. The
methodologies are principally based on Moody’s KMV products, including risk analyst, RiskCalc South Africa, together with
the internal rating templates (IRTs). To date IRTs have been developed and implemented for SME and middle-market
business partners. The probabilities of default produced by the models are one of the tools utilised in determining the
credit risk and appropriate pricing structure for facilities, including consideration for the investments or loans’ development
returns.
IDC’s loans, advances and investmentexposure on a regional basis
as at 31 March 2009KwaZulu-Natal (21%)
Northern Cape (1%)
Outside Africa (3%)
Rest of Africa (3%)
SADC (8%)
Eastern Cape (7%)
Western Cape (2%)
Gauteng (53%)
Mpumalanga (1%)
Limpopo (2%)
North West (1%)
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Credit risk exposure
GROUP IDCLoans and Investment Loans and Investment
advances to clients securities advances to clients securities(R’m) 2009 2008 2009 2008 2009 2008 2009 2008
Carrying amount as per
notes 4 and 7* 8 820 6 133 42 355 61 245 7 011 4 773 27 665 40 490
Individually impairedLow risk 959 788 1 690 902 959 788 1 690 902
Medium risk 560 329 537 38 560 319 537 38
High risk 385 759 14 67 385 755 14 67
Gross amount 1 904 1 876 2 241 1 007 1 904 1 862 2 241 1 007
Allowance for impairment (1 637) (1 578) (903) (292) (1 637) (1 571) (903) (292)
Carrying amount 267 298 1 338 715 267 291 1 338 715
Past due but not impairedLow risk 40 20 40 20
Medium risk 39 66 37 64
High risk 58 16 58 16
Carrying amount 137 102 135 100
Past due comprises:
0 – 30 days 36 12 36 12
31 – 60 days 27 15 25 14
61 – 90 days 3 2 3 2
91 – 120 days 3 32 3 32
120 days + 68 41 68 40
Carrying amount 137 102 135 100
Neither past due nor impairedLow risk 4 908 4 351 29 163 60 455 3 873 3 045 14 473 39 700
Medium risk 3 332 1 510 11 854 75 2 628 1 461 11 854 75
High risk 340 24 269 24
Carrying amount 8 580 5 885 41 017 60 530 6 770 4 530 26 327 39 775
Portfolio impairment (164) (152) (161) (148)
Total carrying amount 8 820 6 133 42 355 61 245 7 011 4 773 27 665 40 490
Carrying value of
renegotiated loans 928 684 864 640
* Carrying value of available-for-sale investments, excluding investments in subsidiaries, associates and joint ventures.
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Annexure D: Financial Risk Management_continuedfor the year ended 31 March 2009
Impaired loans and investmentsImpaired loans and investments are loans and investments
for which the Group determines that it is probable that it
will be unable to collect all principal and interest due
according to the contractual terms of the loan/investment
agreements.
Past due but not impaired loansLoans and securities where contractual interest or principal
payments are past due but the Group believes that
impairment is not appropriate on the basis of level of
security/collateral available and/or the stage of collection of
amounts owed to the Group.
Allowances for impairmentThe Group establishes an allowance for impairment losses
that represents its estimate of incurred losses in its loan
portfolio. The main components of this allowance are a
specific loss component that relates to individually
significant exposures, and a collective loan loss allowance
on the entire portfolio.
Renegotiated loansLoans with renegotiated terms are loans that have been
restructured due to deterioration in the borrower’s financial
position and where the Group has made concessions that it
would not otherwise consider. Once the loan is restructured
it remains in this category independent of satisfactory
performance after restructuring.
CollateralThe Group holds collateral against loans and advances to
clients in the form of mortgage bonds over property, other
registered securities over assets and guarantees. Estimates
of fair values are based on the value of collateral assessed at
the time of borrowing and are generally not updated
except when a loan is individually assessed as impaired.
An estimate of the fair value of collateral held against
financial assets is shown below:
Loans and advances to clientsIDC Mini Group (R’m) 2009 2008
Against impaired assetsGeneral notarial bond 95 238
Guarantees – 42
Mortgage bond 346 407
Pledged shares – 364
Special notarial bond 19 57
Other 25 103
485 1 211
Gross value of impaired loans as
at 31 March 1 904 1 876
Loans and advances to clients(R’m) 2009 2008
Against loans past due but not impairedGeneral notarial bond 32 –
Mortgage bond – –
Special notarial bond 31 –
Other – –
63 –
Gross value of loans in arrears not
impaired as at 31 March 137 102
Financial: Market riskThis is the risk that the market price of an asset or a liabilitymay change, resulting in a capital gain or loss upon thesubsequent realisation of the asset or liability. This mayresult from changes in economic factors (interest rates,share prices, exchange rates) or environmental factors(political, social, regulatory and speculative), ie a decline invalue due to factors other than default or delayed payment.
Approach to managing market riskThe objective is to derive, approve and monitor the mostappropriate strategy for the Corporation with reference tothe material market risks identified, being liquidity, currency,interest rate and equity price risks by means of:
• determining the strategy for the Corporation in terms ofthe mix of assets and liabilities;
• ensuring that the following are applied by the Asset andLiability Committee (ALCO):
• assessing the Corporation’s current and projected balancesheet and income statement positions with respect tocurrency, interest, liquidity and equity price risks;
• simulated scenario analysis;– assessing appropriate asset liability management
strategies, policies and limits, and monitoring actionsregularly to ensure adherence to strategies, policiesand limits agreed to;
– given environmental volatility, re-evaluation of currentstrategies, policies and limits on a regular basis todetermine their appropriateness; and
– the Research and Information Department preparinga monthly economic outlook analysis.
Money market transactionsThe IDC’s risk in this regard is perceived to be low due tothe following factors:
• The primary objectives of the money market is to investtemporary cash holdings, to limit any possible capitallosses and to ensure the timely availability of funds.
• Funds are only invested with approved financial andpublic sector institutions according to limits approved bythe IDC Board.
• Dealing in money market derivative instruments is notallowed unless prior approval is obtained from the IDCBoard.
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Foreign currency riskForeign currency risk is limited by means of the IDC Board’spolicy, which states that forward exchange cover is requiredfor all foreign currency exposures, unless a facility is madeavailable in foreign currency and matched to the lending ofthe foreign borrowings.
Liquidity riskThe IDC’s risk in this regard is perceived to be low due tothe following factors:
• The IDC gearing level is low, accordingly it has excellentcapacity to raise funding especially when combined withits credit rating.
• The IDC’s policy of holding sufficient liquid assets toenable the IDC to meet all probable cash flowrequirements for a rolling three-month horizon.
Interest rateInterest rate risk is monitored, reported and managed, as areall identified market risks, by a formalised asset and liabilitymanagement process. The IDC’s interest rate risk policy is tocontain the negative impact of adverse interest ratemovements on the Corporation’s net income to within anacceptable risk profile.
Price-equity riskThe IDC has a significant portfolio of listed and unlistedequity investments, which represent the majority, by value,of its asset portfolio. Price-equity risk is monitored andreported in the asset and liability management process. Tomanage price-equity risk, the IDC’s equity investments are
valued on a regular basis based on established policies andmethodologies, in addition hedging and diversificationpolicies are also revised on a regular basis.
Exposure to interest rate riskMarket risk exposure involves the management of thepotential adverse effect of interest rate movements on netinterest income. The interest rate risk is caused by thevarying repricing characteristics of the IDC’s assets andliabilities.
The principal analytical technique used to quantify theIDC’s interest rate risk is ”Gap Analysis”. The repricing gapsfor the IDC’s non-trading portfolio are shown below. Thisview is for the purpose of illustration only, as positions aremanaged by currency to take account of the fact thatinterest rates are unlikely to move together. All assets,liabilities and derivative instruments are categorised in gapintervals/time buckets based on their repricingcharacteristics. Assets and liabilities for which no specificcontractual repricing or maturity dates exist, are placed ingap maturity buckets based on management’s discretionand the most likely repricing behaviour.
Comparing the repricing gaps/interest rate mismatches asat March 2009 and March 2008 below, it is evident that theIDC is asset sensitive and although the asset sensitivity hasdecreased marginally in 2008, due in part to a greaterportion of foreign liabilities maturing within the mediumterm, the IDC is appropriately positioned for an increasinginterest rate environment.
Interest rate sensitivity mismatch – March 2009
Within After three After six GreaterIDC three months but months but than (R’m) months within six months within a year a year
2009Assets 5 618 460 874 5 501Liabilities 753 108 1 137 3 022
Interest rate sensitivity mismatch 4 865 352 (263) 2 479
Cumulative interest rate sensitivity mismatch 4 865 5 217 4 954 7 433
Cumulative interest rate sensitivity mismatch
as a percentage of total assets 6,1 6,5 6,2 9,3
2008Assets 4 445 366 871 3 674
Liabilities 1 199 504 430 3 822
Interest rate sensitivity mismatch 3 246 (138) 441 (148)
Cumulative interest rate sensitivity mismatch 3 246 3 108 3 549 3 401
Cumulative interest rate sensitivity mismatch
as a percentage of total assets 3,4 3,2 3,7 3,5
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Annexure D: Financial Risk Management_continuedfor the year ended 31 March 2009
The monitoring of interest rate risk is supplemented by monitoring the sensitivity of the IDC’s financial assets and liabilities
to various interest rate scenarios. An analysis of the IDC’s sensitivity to a 100 basis points increase/(decrease) in market
interest rates is as follows:
Effect of a 100 basis points increase/(decrease) in market ratesIDC Pound(R’m) Rand US Dollar Euro Sterling Yen Total
March 2009100 bps rate shock – assets 125,6 11,8 0,3 0,0 0,0 137,8100 bps rate shock – liabilities (50,9) (15,3) (9,6) 0,0 0,0 (75,9)
March 2009 Net – effect+ 100 bps rate shock 74,7 (3,5) (9,3) 0,0 0,0 61,9- 100 bps rate shock (74,7) 3,5 9,6 0,0 0,0 (61,6)
March 2008100 bps rate shock – assets 74,6 0,6 0,7 0,0 18,8 94,7
100 bps rate shock – liabilities (51,6) (3,5) (0,7) 0,0 (18,8) (74,6)
March 2008 Net – effect+ 100 bps rate shock 23,0 (2,9) 1,4 0,0 0,0 21,5
- 100 bps rate shock (23,0) 2,9 (1,4) 0,0 0,0 (21,5)
It is evident from the tables above that a parallel 100 basis points increase in all rates would increase the forecasted net
interest income of the IDC for the next financial year by R61,9 million (2008: R21,5 million), while parallel decreases in all
rates would decrease the forecast net interest income by R61,9 million (2008: R21,5 million).
Exposure to foreign currency riskForeign currency risk is limited by means of the IDC Board’s policy, which states that forward exchange cover is required for
all foreign currency exposure, unless a facility is made available in foreign currency and matched to foreign borrowings.
Currency risk arises from the volatility in exchange rate movements, which could have a negative impact on the economic
value of the IDC. The IDC’s foreign currency exposure is attributed to the corporate responsibility to implement the South
African government’s mandate in SADC and the rest of Africa where the aforesaid significant investments are denominated
in US Dollars (USD). Similarly the IDC offers ZAR and other foreign currency loans as part of its financing portfolio, whilst also
sourcing funds in USD, EUR, GBP, JPY as well as in ZAR.
Foreign currency risk is mitigated by means of the IDC policy which states that forward exchange cover is required for all
foreign currency exposure, unless a facility is made available in foreign currency and matched to foreign borrowings. In
practice the Corporate Treasury’s short-term hedging policy utilises six-month rolling forward exchange contracts (FECs)
and or natural hedges, such as back-to-back, and on lent foreign currency loans. For long-term hedging, Corporate Treasury
utilises CCIRS (cross-currency interest rate swaps) and/or back-to-back loans with the same maturity profiles, currency, basis
risks, etc. All currency risk management hedging strategies are approved by Exco, following a recommendation from the
subcommittees.
Comparing the currency risk mismatches for the following foreign currency exposures, namely US Dollar, Euro and Japanese
Yen as at year-end, demonstrates that the US Dollar and Euro exposures are hedged in the six-month area using rolling six-
month FECs, while the Japanese Yen exposure is hedged using CCIRS. All exposures are covered 100% in line with the
IDC’s policy.
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Within After three After six Greaterthree months but months but than
(R’m) months within six months within a year a year Total
Currency US Dollar mismatch – March2009Assets 7,2 9,1 21,6 208,2 246,2Liabilities (71,2) (9,5) (12,8) (135,1) 228,6
Currency mismatch before hedging (64) (0,4) 8,8 73,1 17,6Hedging – FECs 4,7 10,4 – – 15,2
Currency mismatch after hedging (68,8) (10,8) 8,8 73,1 2,4Cumulative currency mismatch (68,8) 79,6 70,8 2,4 0
2008Assets 6 8 13 128 155
Liabilities (153) (52) (13) (131) (349)
Currency mismatch before hedging (147) (44) – (3) (194)
Hedging – FECs 132 62 – – 194
Currency mismatch after hedging (15) 18 – (3) –
Cumulative currency mismatch (15) 3 3 – –
After three After six GreaterWithin months but months but than
(R’m) three months within six months within a year a year Total
Currency Euro mismatch – March2009Assets – – – – –Liabilities 8 1 7 69 84
Currency mismatch before hedging (8) (1) (7) (69) (84)Hedging – FECs 50 35 – – 85
Currency mismatch after hedging 42 34 (7) (69) 1Cumulative currency mismatch 42 76 69 – 1
2008Assets – – – – –
Liabilities 9 6 15 38 68
Currency mismatch before hedging (9) (6) (15) (38) (68)
Hedging – FECs 63 5 – – 68
Currency mismatch after hedging 54 (1) (15) (38) –
Cumulative currency mismatch 54 53 38 – –
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Annexure D: Financial Risk Management_continuedfor the year ended 31 March 2009
Within After three After six Greaterthree months but months but than
(R’m) months within six months within a year a year Total
Currency Japanese Yen mismatch – March2009Assets – – – – –Liabilities 237 – 237 930 1 403
Currency mismatch before hedging (237) – (237) (930) (1 403)Hedging – cross-currency swap 237 – 237 930 1 403
Currency mismatch after hedging – – – – –Cumulative currency mismatch – March – – – – –
2008Assets – – – – –
Liabilities 237 – 237 1 403 1 877
Currency mismatch before hedging (237) – (237) (1 403) (1 877)
Hedging – cross-currency swap 237 – 237 1 403 1 877
Currency mismatch after hedging – – – – –
Cumulative currency mismatch – – – – –
Equity sensitivity analysisSensitivity analyses were performed on the company’s equity portfolio, to indicate the possible effect on the fair value
should a range of variables change, eg cash flows, earnings, net asset values, etc. These assumptions were built into the
applicable valuation models.
In calculating the sensitivities for investments, the key input variables were changed in a range from -10% to +10%. The
effect of each change on the value of the investment was then recorded. The key variables that were changed for each
valuation technique were as follow:
• Discounted cash flow: Net income before interest and tax
• Price-earnings: Net income
• Listed companies: Share price
• Forced sale net asset value: Net asset value
From the table below it is evident that a 10% increase in the relevant variables will have a R6 792 billion increase in the
equity values as at 31 March 2009 (2008: R9 987 billion) and a 10% decrease will lead to a R9 866 billion decrease in the
equity values (2008: R2 925 million).
Period 10% increase 10% decrease
31 March 2009 R6 792 million (R2 925 million)31 March 2008 R9 987 million (R9 866 million)
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations from its financial liabilities.
Management of liquidity riskThe IDC’s liquidity requirements are governed by both the liquidity policy as well as the risk tolerance guidelines. The
Corporate Treasury unit is responsible for the daily activities of managing liquidity requirements of the IDC with ultimate
responsibility lying with the Chief Financial Officer of the Corporation.
If market conditions or any other event, or series of events, cause the IDC to experience cash flow problems, the short-term
liquidity buffer will be used to ensure that the IDC can meet its short-term cash flow commitments whilst the cash flow
crisis is addressed. The IDC’s operational outflows are primarily monthly items and therefore evenly spread.
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Industrial Development Corporation of South Africa Annual Report 2009 | 171
The short-term liquidity buffer is used as a source of liquidity to meet the aggregate net cash outflows for the IDC for the
next three months in the event of the IDC not being able to generate sufficient working capital surpluses or utilise available,
sufficient short-term banking facilities.
Repricing risk in this portfolio is kept to a minimum as it is designed to protect the cash values for the three-month period
in question.
The approved financial instruments used to provide short-term liquidity could include the following:
• Listed shares portfolio
• Unlisted shares portfolio
• Money market investments with approved counterparties
• Overdraft facilities
• Call loan facilities with approved counterparties
Exposure to liquidity risk
The IDC financing activitiesPeriod Liquidity cover required Performance
31 March 2009 R1 245,0 million 5,40 times31 March 2008 R1 471,0 million 3,79 times
Contractual maturities of financial liabilities31 March 2009GROUP EURO RAND FOREIGN RAND USD JAPANESE YEN
Principal 86 1 226 236 229 1 403Interest 10 284 91 15 35
96 1 510 327 244 1 438
Payable within one year 10 1 510 73 99 491Due after one year but within five years 49 – 208 118 947Due after five years 37 – 46 27 –
GROUP EURO RAND FOREIGN RAND USD JAPANESE YEN
31 March 2008Principal 68 1 226 369 348 1 877
Interest 10 302 106 28 68
78 1 528 475 376 1 945
Payable within one year 27 142 169 247 1 673
Due after one year but within five years 50 1 386 215 63 272
Due after five years 1 – 91 66 –
Foreign Rand – Rand facilities arranged with counterparties outside South Africa.
USD – Included in the USD principal amounts are short-term Dollar liabilities (USD67,919 million) arranged with local
counterparties with a maximum 180 days’ maturity period.
Interest rates EUR = EURIBOR SA Rand = JIBAR USD = 6M LIBOR JPY
Range 0,750% to 5,738% 9,225% to 13,558% 1,170% to 5,520% 1,400%
The previous table shows the undiscounted cash flows on the Group’s financial liabilities and unrecognised loan
commitments on the basis of their earliest possible contractual maturity, in the applicable foreign currency.
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Annexure D: Financial Risk Management_continuedfor the year ended 31 March 2009
Operational risk
The IDC has adopted the Basel II (2004) definition for
operational risk, which is defined as the risk of loss resulting
from inadequate or failed internal processes, people and
systems and from external events. This definition includes
legal risk but excludes systemic and reputational risk. This
risk category relates to the IDC’s reliance on systems,
processes and people.
The seven main operational risks identified are:
• internal theft and fraud;
• external theft and fraud;
• employment practices and workplace safety;
• clients, products and business practices;
• damage to physical assets;
• business disruption and system failures; and
• execution delivery and process management.
Approach to managing operational riskThe purpose of operational risk management in the IDC is
to reduce the likelihood and consequences of avoidable
operational risk events. An operational risk management
framework, which has been approved by the IDC Board, has
been developed to ensure that operational risks are
consistently and comprehensively identified, assessed,
mitigated, controlled, monitored and reported.
The IDC operational risk management framework
comprises:
• the operational risk strategy and policies;
• the risk governance process;
• risk identification and assessment;
• risk measurement;
• the operational risk capital charge;
• determining and monitoring key risk indicators;
• risk reporting; and
• risk mitigation/controls.
At the IDC, we safeguard ourselves against operational risks
through:
• a defined operational risk framework and operational risk
policy;
• regularly updating systems and procedures, which are
subject to approval by the Internal Audit Committee;
• regular internal and external audits;
• regular review of the comprehensive Business Continuity
Plan (BCP), which incorporates a Disaster Recovery Plan
(DRP) for information technology (IT) recovery and a
working Business Continuity Management Office that
meets regularly;
• recovery of IT is addressed in the Data Recovery Plan
(DRP) and other risks are addressed by:
– the IT security policy; and
– prudent and scrupulous recruitment policies;
• internal audit reviews of all information technology
aspects, eg strategy, systems development, change
management, hardware and software contracts and
security policy;
• insurance of fidelity guarantees, legal risks, public liability
and other identified insurable risks including those of
fixed assets, which coverage is reviewed annually; and
• the commitment of all employees to a code of conduct
that encourages honesty, integrity and effectiveness.
The Corporation accepts that technology has a
fundamental impact on the way in which business is
conducted and businesses are measured. Therefore the IDC
ensures that:
• risks associated with the IT environment and projects are
continuously evaluated and appropriate plans are in
place and implemented to mitigate these risks to an
acceptable level;
• IT expenditure is motivated by sound commercial
principles rather than strategic instinct only, ie that the
business strategies and IT strategies are aligned;
• a long-term IT plan is developed and the appropriateness
thereof reviewed to ensure that it supports and does not
inhibit the long-term strategy of the Corporation;
• developments in the IT industry are continuously
monitored and potential impact thereof on the
Corporation’s long-term strategy is evaluated; and
• the necessary skills are in place to ensure that the internal
control systems are adequately applied across the entire
IT environment.
The IDC has a Fraud Prevention Plan in place and the Fraud
and Corruption Prevention Committee comprising staff
from the Legal Services, Internal Audit, Financial
Management, Risk Management and Human Resources
departments meets regularly. The IDC’s Fraud Prevention
Plan forms part of its Corporate Crime Prevention and
Detection Plan.
Capital management
The IDC is accountable to its sole Shareholder, the
Department of Trade and Industry. The performance as well
as management of the IDC capital is supported by the
agreement between the Corporation and the Shareholder
in a form of the Shareholder’s Compact, which outlines the
agreements between the two parties.
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Regulatory capitalThe IDC is not required by law to keep any level of capital
but has to utilise its capital to achieve the shareholder’s
mandate. The IDC Act of 1956 dictates that the IDC can be
geared up to a 100% of its capital.
Risk appetiteThe Board-approved risk appetite limit serves as a
monitoring tool to ensure that the impact of investment
activities in the Corporation do not have a negative impact
on the Corporation’s financial position.
There were no changes to the Group’s approach to capital
management during the year.
Fair values
The determination of fair values of financial assets and
financial liabilities is based on quoted market prices for
financial instruments traded in active markets. For all other
financial instruments, fair value is determined by using
valuation techniques. Valuation techniques include the net
asset value method, the price-earnings method, the
discounted cash flow method and comparison to similar
instruments for which market observable prices exist. The
IDC uses widely recognised valuation models for
determining the fair value of unlisted equity instruments.
For these financial instruments, some, or all of the inputs
into these models, may not be market observable, and are
derived from market prices or rates or are estimated based
on assumptions.
When entering into a transaction, the financial instrument is
recognised initially at the transaction price, which is the
best indicator of fair value, although the value obtained
from the valuation model may differ from the transaction
price. This initial difference, usually an increase, in fair value
indicated by valuation techniques is recognised in income
depending upon the individual facts and circumstances of
each transaction and not later than when the market data
becomes observable.
The value produced by a model or other valuation
technique is adjusted to allow for a number of factors as
appropriate, because valuation techniques cannot
appropriately reflect all factors market participants take into
account when entering into a transaction. Management
believes that these valuation adjustments are necessary
and appropriate to fairly state financial instruments carried
at fair value on the balance sheet.
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174 | Industrial Development Corporation of South Africa Annual Report 2009
Abbreviations
AADFI Association of African Development Finance Institutions
ADS Agency Development and Support department
AFRO African Romance
APCA Automated Paediatric Cardiac Auscultation
APDP Automotive Production and Development Programme
Asgi-SA Accelerated and Shared Growth Initiative for South Africa
BAA Business Assistance Agreement
B-BBEE Broad-based Black Economic Empowerment
BDM Broadcasting Digital Migration
BEE Black Economic Empowerment
BPs Business Partners
BPO Business Process Outsourcing
BPO&O Business Process Outsourcing & Offshoring
BSP Business Support Programme
CA Chartered Accountant
CC Close Corporation
CCC Cosmo City Corporation (Pty) Limited
CDM Cleaner Development Mechanism
CEF Central Energy Fund
CFL Coromandel Fertilisers Limited
CIDB Construction Industry Development Board
COPES-SA Community Based Prevention and Empowerment Strategies-SA
CSI Corporate Social Investment
CSIR Council for Scientific and Industrial Research
CTCP Clothing and Textiles Competitive Programme
DBSA Development Bank of Southern Africa
DFIs Development Finance Institutions
DoE Department of Education
DRC Democratic Republic of Congo
dti Department of Trade and Industry (the dti)ECIC Export Credit Insurance Corporation
EGS Environmental, Goods and Services
EHS Environmental, Health and Safety
EIB European Investment Bank
EPM Eastern Produce Malawi Limited
EU European Union
GDP Gross Domestic Product
GEMS Government Employee Medical Scheme
HFHSA Habitat for Humanity South Africa
HMH Hans Merensky Holdings
ICASA Independent Communications Authority of South Africa
ICTE Information Communication Technology and Electronics
IDC Industrial Development Corporation
IDZ Industrial Development Zone
IDC-DF IDC Development Foundation
IPAP Industrial Policy Action Plan
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Industrial Development Corporation of South Africa Annual Report 2009 | 175
ISRDP Integrated Sustainable Rural Development Programme
ITRI Industry Technology Research Institute of Taiwan
JIPSA Joint Initiative on Priority Skills Acquisition
JIS John Ingham & Sons Limited
KKC Kalahari Kid Corporation
KkW Kilowatt(s)
LED Local Economic Development
LPP Linton Park Plc
MIDP Motor Industry Development Programme
MIS Management Information System
MK Malawian Kwacha
MoU Memorandum of Understanding
MW Megawatt(s)
NCPG Northern Cape Provincial Government
NEF National Empowerment Fund
NEPAD New Partnership for Africa's Development
NHI Natural Health Insurance
NIPF National Industrial Policy Framework
ODM On Digital Media
PBMR Pebble Bed Modular Reactor
PBO Public Benefit Organisation
PFMA Public Finance Management Act
PIMD Post-investment Monitoring Department
PPD Product Process Development
PPP Public-Private Partnership
PST Public Service Telephone
RCF Risk Capital Facility
SACU Southern African Customs Union
SADC Southern African Development Community
SBU Strategic Business Unit
SED Socio-Economic Development
SEDA Small Enterprise Development Agency
SHIP Strategic High Impact Projects
SME Small and Medium Enterprises
SMME Small, Medium and Microenterprise
SPII Support Programme for Industrial Innovation
TDM Tool, Die and Mould
TES Transformation and Entrepreneurial Scheme
the Codes B-BBEE Codes of Good Practice
TOPP Training Outside Public Practice
UNEP FI United Nations Environmental Programme Financial Initiative
UN-ITC United Nations-International Trade Centre
VC Venture Capital
WMS Warehouse Management System
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176 | Industrial Development Corporation of South Africa Annual Report 2009
Administration
Secretary and registered office
E Moeti-Motlhamme
19 Fredman Drive
Sandown
PO Box 784055
Sandton 2146
Telephone: +27 11 269 3000
Telefax: +27 11 269 3116
Telex: 4-27174SA
Email: [email protected]
Auditors
KPMG Inc.
SizweNtsaluba VSP
Registration number
1940/01201/06
Call centre
For all financing enquiries:
Telephone: 086 069 3888 (shared cost)
Email: [email protected]
Website address
http://www.idc.co.za
Regional offices
Bloemfontein
46, 1st Avenue, Westdene,
Bloemfontein
Private Bag X11, Suite 25, Brandhof, 9324
Tel: 051 411 1450
Fax: 051 447 4895
Polokwane
43 Biccard Street, Suite 6, Biccard Office Park
Postnet Suite 422, Private Bag X9307, Polokwane, 0699
Tel: 015 299 4080 – 4099
Fax: 015 295 4521
Rustenburg
1st Floor, Sunetco Building, 32B Heystek Street, Rustenburg
Postnet Suite 290, Private Bag X82245, Rustenburg, 0030
Tel: 014 591 9660/1
Fax: 014 592 4485
Kimberley
Block D, Sanlam Business Complex, 13 Bishops Avenue,
Kimberley, 8301
PO Box 808, Kimberley, 8300
Tel: 053 807 1050
Fax: 053 832 7395
Cape Town
2817, 28th Floor, ABSA Centre, 2 Riebeeck Street, Cape Town
PO Box 6905, Roggebaai, 8012
Tel: 021 421 4794
Fax: 021 419 3570
Durban
Suite 2305, 23rd Floor, The Embassy Building,
199 Anton Lembede Street, Durban
PO Box 2411, Durban, 4000
Tel: 031 337 4455
Fax: 031 337 4790
East London
1st Floor, Quarry Office Park, Hammer Mill House,
Lukin Rd, Berea, East London
PO Box 19048, Tecoma, 5214
Tel: 043 721 0733/4777
Fax: 043 721 0735
Mpumalanga
Upper level, Nelcity Building, cnr Samora Machel
and Paul Kruger Streets
PO Box 3740, Nelspruit, 1200
Tel: 013 752 7724
Fax: 013 752 8139
IDC 2 Fin final.qxd 8/18/09 12:36 PM Page 176
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IDC 2 Fin final.qxd 8/18/09 2:22 PM Page 177
Head Office
19 Fredman Drive, Sandton, 2196PO Box 784055, Sandton, 2146, South AfricaTelephone: +27 11 269 3000, Fax: +27 11 269 3116Call Centre: 0860 693 888Email: [email protected] Website: www.idc.co.za
Industrial Developm
ent Corporation of South AfricaAnnual Report 2009
Sustaining development in extraordinary tim
es