ecdc-2011_12-annual-report-web by Rocky Heath

“TOWARDS REAL PARTICIPATION IN THE FORMAL ECONOMY”

About ECDC

Chairman’s Foreword

CEO’s Foreword

Human Resource Management

Programme Performance

Performace of Subsidiaries

30 Property Management and Development 32 Development Finance 36 Investment and Trade Promotion 41 Development Projects 44 Enterprise Development Services 47 Credit Risk

52 Automotive Industry Development Centre 60 East London Industrial Development Zone

AuditorGeneral’s Report

Corporate Governance

Audit Committee Report

153

Directors’ Report

Financial Reports & Annual Financial Performance

List of Accronyms

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

The Hole-in-the-Wall image captured here by Jon Castello, forms part of the photographic aerial exhibition Eastern Cape from Above.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

1 ABOUT ECDC

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

ABOUT ECDC Introduction The Eastern Cape Development Corporation (ECDC) is a wholly-owned entity of the Eastern Cape provincial Department of Economic Development, Environmental Affairs and Tourism. It is the official economic development agency for the Eastern Cape province. The corporation operates from its head office located in Ocean Terrace Park, Moore Street, East London, and extends its operational activities through four regional offices in Port Elizabeth, Queenstown, Mthatha and East London (which includes King William’s Town). It also has three satellite offices in Butterworth, Mount Ayliff and Aliwal North.

Legislative mandate The ECDC draws its mandate directly from the Eastern Cape Development Corporation Act (Act 2 of 1997) and is led by the economic development priorities of the provincial government, as detailed in the Provincial Growth and Development Plan (PGDP), and the policy and budget of the Ministry of Economic Development, Environmental Affairs and Tourism.

The government of the Eastern Cape envisages: An Eastern Cape devoid of the inequalities of the past and unified through integrated and sustainable economic, social and cultural development, thus providing an acceptable quality of life for all its people in the context of a united, non-racial, non-sexist and democratic South Africa. ECDC is in the position of being a critical interface between the public and private sectors.

Purpose To be a development finance institution for the promotion of economic growth in the Eastern Cape.

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

Mission To promote sustainable economic development in the Eastern Cape through focused: • Provision of innovative development finance • Leveraging of resources, strategic alliances, investment and partnerships.

Values and beliefs Integrity, Professionalism, Accountability and Teamwork.

Strategic goals • • • • •

Stimulate economic activity through focused investment in vital sectors of the Eastern Cape economy. Invest in intellectual leadership. Optimise all resources so as to maximise investment returns and attain financial sustainability. Build a strong brand. Establish integrated partnerships with stakeholders to ensure maximum leverage of resources and development outcomes.

Services rendered by ECDC ECDC renders a variety of services related to the following operational areas: • Development Finance • Investment Promotion • Trade Promotion • Enterprise Development Services • Project Development, Development of New Markets and Risk Capital • Property Management and Development.

Customer value proposition ECDC contributes to economic development of the Eastern Cape by: • Providing business finance to emerging and existing enterprises • Providing relevant market information and finance to local and international investors • Acting as an agency for implementation of government special projects • Contributing to research and policy innovation.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

2 CHAIRMAN’S FOREWORD

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

CHAIRMANâ&#x20AC;&#x2122;S FOREWORD The Eastern Cape Development Corporation (ECDC) is mandated to stimulate economic activity in the Eastern Cape through focused investments in vital sectors, maximise returns resources from the markets through partnerships and investing in intellectual leadership. In 2010 the Board, together with the shareholder and the executive management of the corporation, were in agreement to craft a strategic thrust that would lead to impactful results in the functional areas of ECDC. It was apparent that an innovative funding and viability model was a necessity to realise the new focus. The major areas of organisational performance with regards to cost structure, loan impairments and collection of rentals had to be prioritised and a plan for corrective action is in place. Key pillars of the underpinned by the organisational development, policies and plan, cost reduction and revenue improvement measures, unbundling of non-core and non-performing assets, establishment of an investment

Of immediate concern is to position ECDC as a viable DFI, generate a quality funding book and fund viable sectors of the Eastern Cape economy. The organisation is being restructured in harmony with this strategic direction. Clear targets have been set in the area of property portfolio and loan impairments to reverse the perennial history of the corporationâ&#x20AC;&#x2122;s poor performance in these areas.

Prof Mkhalelwa Mazibuko Acting Chairman Eastern Cape Development Corporation

An investment pipeline in infrastructure development that seeks to respond to economic and social necessities of the province has been put together. A subsidiary to pursue such is being investigated at all relevant levels and its governance structures. In its function of affording incentives, support and oversight to the executive management, the Board shall continue to be seized with the indivisible vision of the province and mandate of ECDC to create a leading DFI, also to beef up untapped economic potential. The CEO and executive management is appreciated for their professional contribution to entrench ethics that will lead to

I extend our sincere acknowledgement of the leadership and guidance provided by the executive authority, Honourable MEC Mcebisi Jonas and his executive management led by Mr Bulumko Nelana. The Board wishes to extend its appreciation to the Provincial Portfolio Committee on Economic Developement and Environmental Affairs, chaired by Xola Pakati and Executive Council led by Premier Noxolo Kiewit for their support.

Prof Mkhalelwa Mazibuko Acting Chairman Eastern Cape Development Corporation

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Molteno-based Berry Nice aims to be a sustainable grower and processor of raspberries and other cold-weather berry varieties.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

This essential oils project was supported by ECDC, Aspire and the departments of Economic Development, Environmental Affairs and Tourism, Rural Development and Land Reform.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

3 CEO’S FOREWORD

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

CHIEF EXECUTIVE OFFICER’S FOREWORD It is an immense honour for me to present to the shareholder an analysis of the corporation’s report card during the review period. ECDC carries the mammoth yet surmountable responsibility of reshaping the socio-economic landscape of the Eastern Cape and positively impacting on the millions of people who call the province home. The ECDC Act enjoins the Development Finance Institution (DFI) to assume the posture of a trusted steward of economic growth and development. The review of the corporate strategy and reconfiguration of the mandate in the previous year has clarified the purpose of ECDC. This has brought certainty to the DFI while refining an otherwise bulky mandate. ECDC thus used the review period to actualise its aspiration of becoming an energised DFI that is able to compete favourably with its counterparts as laid out in the strategy. Consequently, ECDC has focused its energies on providing quality financial and non-financial support to small medium and micro enterprises (SMMEs) that have the potential for long-term growth to stimulate economic activity and to realise socio-economic development imperatives.

A BETTER LOAN BOOK This means that at the epicentre of ECDC’s approach is a robust effort to improve the quality of the loan book in order for the institution to be sustainable. A gradual shift from short-term to long-term loans was thus necessary to bring solvency to the balance sheet. Sitembele Mase Chief Executive Officer Eastern Cape Development Corporation

The DFI disbursed R83 million to 330 businesses during the period under review. While this is a decidedly lower disbursement compared with the previous year, ECDC measures the quality of the loans advanced rather than solely focus on disbursements. Historically, the loan book has been characterised by high disbursements with worryingly high impairment levels. More emphasis had been placed on short-term loans that do not generate high returns. This threatened the solvency of the ECDC. ECDC is a business enterprise Schedule 3D in terms of the Public Finance Management Act (PMFA). Its founding Act enjoins it to support and finance projects on the basis of “economic considerations” in order to be self-sufficient and later declare a dividend to the shareholder. It has a duty to reduce its exposure to delinquent and non-performing loans that erode its capital base over time. Long-term quality loans are more profitable and could improve the current low solvency ratio levels. These require stringent due diligence processes, collateral and a capital base.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Encouragingly, more than 65% of approved and disbursed loans during the review period went through adequate due diligence processes and are long-term quality loans.

EFFECTIVE CUSTODIAN OF PUBLIC FUNDS During the year under review, ECDC received an allocation of R144 million to meet its core mandate; R5.8 million of this was for SMME loans. In addition to this, ECDC received an additional R96 million to implement special projects on behalf of its shareholder, the Department of Economic Development, Environmental Affairs and Tourism (DEDEAT). It must be noted that ECDC is capitalised through the provincial revenue fund and is therefore obligated to disburse funds responsibly to businesses that have the ability and capacity to honour their credit agreements with the DFI. During the year under review the cash equivalent position of ECDC was R359 million. Of this amount, about R271 million is disclosed in trade and payables for special projects. This then leaves ECDC with a precarious cash reserves balance of R88 million with which to apply its broad developmental mandate. Further, ECDC is the first point of call for entrepreneurs looking to finance their businesses; and thus, it takes a higher risk in helping those entrepreneurs who would otherwise be turned away by commercial banks and private lenders. This gives ECDC a higher risk profile to its private counterparts. Its risk appetite is measured not only in terms of bottom line profits but includes socio-economic development and financial performance. This calls not only for responsible lending and tighter financial controls, but also for a lending criteria backed by a clear credit risk assessment and non-financial support to entrepreneurs, thus preparing them to receive funding. This may cause delays in the process. The higher repayments of R91 million during this financial year is a testament to the quality of the loans that are beginning to dominate the loan book. I am happy that this approach is paying off and that entrepreneurs have come to the party and are starting to pay their loans to enable ECDC to reinvest in the growth of other businesses, particularly those of youth and women. A total of 2,007 jobs have been created through ECDCâ&#x20AC;&#x2122;s funding support during the period under review. The continued existence of ECDC is not guaranteed unless its funding is properly managed, directed to its core mandate and adequately accounted for. Its revenue streams must continue to grow through tight rental and loan collections, costs should be tightly managed to reduce wasteful expenditure; and those who are lent money should repay their loans to ECDC. When all these mechanisms are in place, ECDC will have more money to invest in the growth of other businesses and economic sectors. During the period under review, ECDC embarked on a mission to thoroughly analyse the source and application of its funds. We have improved our financial reporting framework with the assistance of the Auditor General (AG). We have partnered with the Industrial Development Corporation (IDC) which has helped ECDC with training and skills transfer as well as exposure to industry best practice. This has the intended effect of improving the capacity of our account management

EASTERN CAPE DEVELOPMENT CORPORATION

and internal controls. This has contributed to the reduction of historically high impairment levels to 54% (R32 million) this year, compared to R52 million in 2011 (R63 million in 2010). The goal is to improve impairment further to 35% in the medium term and to 15% by 2015. The reduction in impairments is due to a combination of two factors. Firstly, these new quality loans are underpinned by improved due diligence process. The majority of impaired loans were short-term because they required no collateral. However, improved and closer monitoring resulted in the improvement of payments on short-term loans. Secondly, ECDC wrote-off R118 million of poor performing loans which were issued prior to 2008 to clean the balance sheet. It must be noted that ECDC has not writtenâ&#x20AC;&#x201C;off any delinquent bad loans since 2008 to date. This bad debt write-off does not exonerate bad paying clients. Instead, ECDC will exercise its right to recover such loans off the balance sheet. All collections will show in the income statement as bad debts recovered.

SMME FUNDING SPREAD In addition to the 2011/12 allocation of R5.8 million for SMME loans, ECDC, has used its accumulated reserves to finance small business entrepreneurs as described here. About 12% of the loans went to youth-owned businesses and 20% went to businesses owned by women. However, activity in this group is linked to trade finance or short-term loans. A total of 45% of loans went to the services sector, 24% to construction, 13% to agriculture, 9% to retail, 5% to manufacturing and 4% to tourism. About 51% of the loans were above R1 million, 42% below R500 000 and 6,6% were between R500 000 and R1 million. The majority of the loans went to Amathole (51,3%), and OR Tambo (28,5%) districts followed by Chris Hani (6,4%), Nelson Mandela (4,9%), Alfred Nzo (3,7%), Joe Gqabi (3,6%) and Cacadu District Municipality got the least at 1.6%. During the period under review, ECDC leveraged R79 million from third party funders for development projects. Another R7 million was spent on scoping new projects.

TOWARDS A NEW PROPERTY INVESTMENT VISION During the year under review ECDC focused on property management and administration: collecting rent and paying rates and services. In this regard, ECDC has collected R38 million in rent. Arrears stand at R11 million. We are currently assessing and considering market related offers from current tenants with good standing in line with the Asset Conversion Policy. The value of property sales at market prices increased to R11 million this year from R5,5 million in the previous year. The conversion of ECDC residential complexes into sectional title units is on-going. Previously, there were no sectional titles on ECDC residential properties hence the lower market value and the lack of sense of ownership. However, the opening

ANNUAL REPORT 2011 / 12

of sectional title registers and the issue of certificates for registered titles in the names of Bashee Court, Hollyburn and Kyalami Flats in Butterworth has been completed and approved by the Deeds Office in Mthatha. The sub-division and rezoning of Erf 1042, namely Mdumbi Place, Qolora and Ntlonyane, is in progress. The Mthatha Residential Complexes schemes have been submitted to the Surveyor-General’s office. ECDC is awaiting approval of the survey drawings. During October 2011, ECDC made a decision to give special focus to property investment rather than only on administration. This means that ECDC will partner with other private and public developers on its vacant land to develop and build retail parks, industrial parks, commercial property and warehouses. As a consequence of this decision, a residential property development has been initiated in Mthatha.

SPECIAL FUNDS PROJECTS In terms of the R80 million budget allocated to ECDC for the implementation of DEDEAT special projects, the corporation has been rolling out and managing the following projects: -

R 39.4 million Eastern Cape Jobs Stimulus Fund, R 4 million Buy Eastern Cape Campaign R 36.6 million Local and Regional Economic Development Fund. These projects have an effect of realising the policy objectives of the DEDEAT in line with the Provincial Growth Development Plan (PGDP).

In addition to this, an amount of R173 million to fund the Eastern Cape Agro-processing Industrial initiative was approved by the Development Bank of Southern Africa (DBSA).

INVESTMENT AND TRADE STRATEGY ECDC has continued to assume a strategic role in the facilitation of investment and trade in key sectors of the economy. This role is aligned to the PGDP as well as the Department of Trade and Industry’s macroeconomic strategy, to increase the developmental impact in the province. During the period under review, the corporation facilitated 20 investments with a combined value of R613 million despite a poor investment climate. The corporation also researched and packaged four catalytic projects valued at R125 million in accordance with its targets.. These investments created and saved 2,027 jobs. The work done in facilitating the access road to and from Ugie and Langeni has resulted in jobs being saved at the Langeni Sawmill. The value of exports facilitated through ECDC grew from R900 million in the previous year to R1.7 billion in the review period. The automotives sector continues to boost exports driven by the international contracts for the province’s Original Equipment Manufacturers.

FUTURE OUTLOOK ECDC is investigating the efficacy of moving non-core assets out of its balance sheet to capitalise its core mandate. However, ECDC’s commitments are to roll out this strategy in

EASTERN CAPE DEVELOPMENT CORPORATION

a fair, transparent and equitable manner. The roll-out should stimulate the local economy, fairly distribute ownership, and bring a sense of equity to the majority of the province’s citizens. ECDC will continuously review the process in this regard to ensure that it is compliant with legislation, while protecting ECDC’s reputation as a premier development agency. A transaction advisor was appointed to advise and benchmark this process with other similar development agencies. The process requires due diligence auditing, confirming the asset register and its valuation. During this process, ECDC will maintain tight management of its property portfolio while assessing market readiness. Any proceeds realised will be used to capitalise the balance sheet in order to further execute its core development mandate. Moving forward, ECDC will take the first step towards piloting and implementing its envisaged regionalisation strategy. This process should result in regions being empowered to make funding decisions. Currently, entrepreneurs have to travel to head office for funding decisions, thus incurring opportunity and transport costs. ECDC is also engaged in a process of establishing and consolidating a comprehensive Master Systems Plan and Information Technology Strategy, which should streamline its funding mechanisms across the regions. For the first time, the corporation has developed a viability and funding model to test and guide its business. ECDC seeks to ensure through this process that its core development mandate is adequately funded with clear governance protocol in terms of the Protocol on Governance of State Owned Entities and an effective implementation plan. The focus areas of the viability model include the disbursement of quality loans that are well-priced for the high risk that ECDC is taking and reducing high impairment levels to 15% by 2016. This also involves implementing cost reduction and austerity measures with consideration for re-capitalisation of the mandate to the tune of R1 billion. It must be noted that ECDC was inadequately capitalised at its formation and during amalgamation unlike other development finance institutions. ECDC’s funding model should assume a long-term approach, taking equity in viable high impact projects which will deliver higher returns. This may be achieved by investing in the growing sectors of the economy and championing the development of new infrastructure and office parks etc. The model seeks to move the corporation away from its heavy reliance on the Provincial Revenue Fund for funding. The ECDC Act allows the corporation to pursue a broad based funding strategy that seeks to raise funding outside of the fiscus. Investment in key strategic projects and new sectors should prove a vital ingredient in ECDC’s capitalisation efforts in the long term. The coming year will be extremely challenging, but holds much promise for ECDC to move closer towards taking advantage of its DFI position. To turn ECDC around, the focus is firmly on strengthening the balance sheet, improving the loan book, reducing costs, increasing revenues, recapitalisation, and improving operational efficiencies and performance. This also includes strengthening the competitiveness of small business

ANNUAL REPORT 2011 / 12

through robust non-financial support measures. Coupled with responsible lending and adherence to DFI best practice, this focus should veer ECDC towards a path of sustained recovery and growth. The removal of non-core assets from its balance sheet should ensure that the corporation is not saddled with other functions. It should focus on its mandate of stimulating growth, funding new business opportunities to create jobs and improve the quality of lives of the Eastern Cape citizens irrespective of class, background and social standing.

APPRECIATION Finally, I take this opportunity to extend my gratitude to the Board for its strategic guidance and oversight role. Most importantly, it is the disciplined and hardworking ECDC employees who have embraced the new vision and ECDCs corporate strategy and are moving the corporation closer towards achieving its vision of real economic sustainability, growth and development. They have achieved this on the backdrop of an unqualified audit outcome. For that I remain deeply grateful to all members of the ECDC family.

Sitembele Mase Chief Executive Officer Eastern Cape Development Corporation

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

ECDC facilitated Dynamic Commodities’ access to the Department of Trade and Industry’s export marketing and investment assistance scheme.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

4 HUMAN RESOURCE MANAGEMENT

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Human Resources Management 4.1.

AIM

To render human resources (HR) administration, human resources development, organisational development and labour relations services to the corporation.

4.2.

SERVICE DELIVERY

All departments and government institutions/entities are required to develop a service delivery improvement plan. The following tables reflect the components of the plan, as well as progress made in the implementation of the plans by the corporation.

4.2.1. Main services provided and standards Main services

Potential customers

Actual customers

Standards of service

Actual achievements against standards

Provision of HR services

All business units, management, board, staff and union

Job applicants

Providing the right person at the right time Recruitment of the right skills within acceptable turnaround times

More than 80% of complement achieved

Access to HR services

All business units, management, board, staff and union

Job applicants

Provision of professional advice and support

Professional advice and support rendered on a needs basis

4.2.2. Consultation arrangements with customers Type of arrangement

Actual customers

Potential customers

Actual achievements

Regular consultation

Management, board and staff

Regular engagement and participation in meetings Reports and submissions made as required

Ad hoc consultations

Organised labour

Consultation on matters of mutual interest undertaken

4.2.3. Service information tools Types of information tools

Actual achievements

HR Policies and Procedures Manual

The manual has been reviewed and will be submitted to the Board for approval.

Internet, intranet, email and information system policy document

Accessible to all customers and potential customers

4.2.4. Complaints mechanism Complaints mechanism

Actual achievements

Documented grievance procedure

Grievance procedure in place and utilised by staff

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

4.2.5. Expenditure Table 4.2.5.1 Personnel costs by salary bands, 1 April 2011 to 31 March 2012

Salary bands

Personnel expenditure

% of total personnel cost

Average personnel cost per employee

Unskilled(Grade 2-6)

604,340

100,723

Semi-skilled (Grade 7-11)

11,899,498

183,881

Skilled (Grade 12-16)

30,328,792

439,548

Senior management (Grade 17-23)

24,030,489

924,250

Total

66,863,119

100

Table 4.2.5.2 Salaries, overtime, home owners allowances and medical aid by salary bands, 1 April 2011 to 31 March 2012 Home-ownersâ&#x20AC;&#x2122; allowances

Salaries

Medical assistance

Amount

Salaries as a % of personnel cost

Unskilled (Grade 2-6)

534,814

106,963

73,789

Semi-skilled (Grade 7-11)

8,968,423

1, 031,086

1,286,063

Skilled (Grade 12-16)

18,396,235

142,580

2,086,662

Senior management (Grade 17-23)

13,955,789

898,664

Total

41,855,261

4,345,178

100

Programme

Amount

1,280,629

Allowance as a % of personnel cost

Amount

Medical assistance as a % of personnel cost

100

4.2.6. Employment and vacancies Table 4.2.6.1 Employment and vacancies by programme, 31 March 2012

Programme

Number of posts as at 31 March 2011

Restructuring obsolete posts

Number of posts as at 31 March 2012

Number of posts filled

Vacancy rate %

Number of employees additional to establishment

Investments

Property Management and Development

-2

Development Services Unit

Support Services

Total

186

190

164

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Table 4.2.6.2 Employment and vacancies by salary bands, 1 April 2011 to 31 March 2012

Salary band

Number of posts

Number of posts filled

Vacancy rate %

Number of employees additional to the establishment

Unskilled (Grade 2-6)

Semi-skilled (Grade 7-11)

Skilled supervision (Grade 12-16)

Senior management (Grade 17-25)

Total

190

164

4.2.7. Job evaluation Table 4.2.7.1 Job evaluations, 1 April 2011 to 31 March 2012

Number of posts

Number of jobs evaluated

% of posts evaluated by salary bands

Posts upgraded

Unskilled Grade 2-6)

Semi-skilled (Grade 7-11)

Skilled supervision (Grade 12-16)

Salary band

Posts downgraded

Number

% of posts evaluated

Number

% of posts evaluated

Top and senior management (Grade17-25)

Total

190

4.2.7.1.

Profile of employees whose salary positions were upgraded due to their posts being upgraded, 1 April 2011 to 31 March 2012. Three positions were upgraded during this financial year.

4.2.7.2.

Employees whose salary levels exceed the grade determined by job evaluation, 1 April 2011 to 31 March 2012 (in terms of PSR 1.V.C.3) No employeeâ&#x20AC;&#x2122;s salary level exceeded the grade.

4.2.7.3. Profile of employees whose salary level exceed the grade determined by job evaluation, 1 April 2011 to 31 March 2012 (in terms of PSR 1.V.C.3) No employeeâ&#x20AC;&#x2122;s salary exceeded the grade.

4.2.8. Employment changes Table 4.2.8.1 Annual turnover rates by salary band: 1 April 2011 to 31 March 2012

Salary band

Number of posts filled as at 31 March 2011

Terminations and transfers out of the corporation

Number of employees per band as at 31 March 2012

Turnover rate %

Unskilled (Grade 2-6)

Semi-skilled (Grade 7-11)

Skilled supervision (Grade 12-16)

Top and senior management (Grade17-25)

Total

164

Appointments and transfers into the corporation 0

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Table 4.2.8.2 Reasons why staff members are leaving the organisation Termination type

Number

% of total

Death

Resignation

Expiry of contract

Dismissal – operational changes

Dismissal – misconduct

Dismissal – inefficiency

Discharged due to ill-health

Retirement

Other (Transferred to another entity)

Total

100

Total number of employees who left as a % of the total employment (8%)

4.2.8.3

Promotions by critical occupation No employees were promoted.

4.2.8.4

Promotions by salary band No employees were promoted by salary band.

4.2.9. Employment equity Table 4. 2.9.1 Total number of employees (including employees with disabilities) in each occupational category as at 31 March 2012 Male

Occupational categories

African

Female Coloured

Indian

White

African

Total Coloured

Indian

White

Unskilled (Grade 2-6)

Semi-skilled (Grade 7-11)

Skilled supervision (12-16)

Senior management (Grade 17-25)

Total

164

Employees with disabilities

Grand total

164

Table 4.2.9.2 Recruitment for the period 1 April 2011 to 31 March 2012

Occupational bands

Male

Female

African

Coloured

Indian

White

African

Coloured

Indian

White

Total

Unskilled (Grade 2-6)

Semi-skilled (Grade 7-11)

Skilled supervision (Grade 12-16)

Senior management (Grade 17-25)

Total

Employees with disabilities

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Table 4.2.9.3 Promotions for the period 1 April 2011 to 31 March 2012 There were no promotions during the period under review. Table 4.2.9.4 Terminations for the period 1 April 2011 to 31 March 2012

Occupational bands

Male

Female

African

Coloured

Indian

White

African

Coloured

Indian

White

Total

Unskilled (Grade 2-6)

Semi-skilled (Grade 7-11)

Skilled supervision (Grade 12-16)

Senior management (Grade 17-25)

Total permanent

Non-permanent

Employees with disabilities

Grand total

Table 4.2.9.5 Disciplinary action for the period 1April 2011 to 31 March 2012 Male

Disciplinary action

Female

African

Coloured

Indian

White

African

Coloured

Indian

White

Total

Table 2.9.6 Skills development for the period 1 April 2010 to 31 March 2010 Refer to Tables 4.12.13.1 and 4.12.13.2

4.2.10. Foreign workers There were no foreign workers during the period under review.

4.2.11. Leave utilisation for the period 1 April 2011 to 31 March 2012 Table 4.2.11.1 Sick leave Salary Band

Total days

Number of days with medical certification

Number of employees using sick leave

% of total employees using sick leave

Average days per employee

Unskilled (Grade 2-6)

Semi-skilled (Grade 7-11)

217

Skilled (Grade 12-16)

280

Senior management (Grade 17-23)

174

Total

680

136

100

Table4. 2.11.2 Disability leave (temporary and permanent), 1 April 2011 to 31 March 2012 There was no disability grant during the period under review.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Table 4.2.11.3 Annual leave, 1 April 2010 to 31 March 2012 Salary bands

Total days taken

Average per employee

Unskilled (Grade2-6)

451

Semi-skilled Levels (Grade 7-11)

2,398

Skilled (Grade 12-16)

3,223

Senior management (Grade 17-23)

1,508

Total

7,580

Table 4.2.11.4 Capped leave, 1 April 2011 to 31 March 2012 Leave has been capped at 40 days per employee. Table 4.2.11.5 Leave payouts for the period 1 April 2011 to 31 March 2012 The following table summarises payments made to employees as a result of leave that was not taken.

Reason

Total amount

Number of employees

Average payment per employee (R’s)

Leave payout for 2008/09 due to non-utilisation of leave for the previous cycle

Capped leave payouts on termination of service for 2008/09

Current leave payout on termination of service for 2008/09

448,834

29,922

Total

448,834

29,922

Table 4.2.11.6 Details of health promotion and HIV/AIDS programmes Question

Yes

1. Has the corporation designated a member of the senior management service to implement the provisions contained in Part VI E of Chapter 1 of the Public Service Regulations, 2001? If so, provide her/his name and position.

Details, if yes

√

Mrs J Moshoeshoe Coordinator: Training and Development

2. Does the corporation have a dedicated unit or has it designated specific staff members to promote the health and well being of your employees? If so, indicate the number of employees who are involved in this task and the annual budget that is available for this purpose.

√

6 Employees

3. Has the corporation introduced an employee assistance or health promotion programme for your employees? If so, indicate the key elements/services of this programme.

√

Mrs June Moshoeshoe had been appointed for this responsibility. A new committee was nominated, to evolve into an Integrated Wellness Committee. Referral System to Discovery, World’s AIDS Day commemoration, Wellness Posters

4. Has the corporation established (a) committee(s) as contemplated in Part VI E.5 (e) of Chapter 1 of the Public Service Regulations, 2001? If so, please provide the names of the members of the committee and the stakeholder(s) that they represent.

√

• • • • •

5. Has the corporation reviewed its employment policies and practises to ensure that these do not unfairly discriminate against employees on the basis of their HIV status? If so, list the employment policies/practices so reviewed.

√

All HR policies were reviewed. The recruitment policy complies with legislation. Pre-employment testing prohibited. Benefits offered only in terms of conditions of employment which now includes a specific Discovery Wellness Benefit catering for HIV status as part of the overall Diseases Management/ Wellness plan.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Mr A Meiring Mrs T Mzayifani Mrs B van Wyk Mrs J Moshoeshoe Mrs L Sikonje

Question

Yes

Details, if yes

6. Has the corporation introduced measures to protect HIV-positive employees or those perceived to be HIV positive from discrimination? If so, list the key elements of these measures.

√

The policy on HIV was adopted. The policy prohibits any employment practices that discriminate against HIV positive employees.

7. Does the corporation encourage its employees to undergo voluntary counselling and testing (VCT) If so, list the results that you have you achieved?

√

Progress has not been measured in this regard as VCT is encouraged as a confidential exercise to avoid stigma and discrimination.

8. Has the corporation developed measures/indicators to monitor and evaluate the impact of its health promotion programme? If so, list these measures/ indicators.

Currently identifying social partners with the expertise to assist us in developing these indicators.

√

4.2.12. Labour relations Table 4.2.12.1 Collective agreements, 1 April 2011 to 31 March 2012 Total collective agreements

1 (SACCAWU) wage agreement

Table 4. 2.12.2 Misconduct and disciplinary hearings finalised, 1 April 2011 to 31 March 2012 Outcomes of disciplinary hearings

Number

% of total

Correctional counselling

Verbal warning

Written warning

Final written warning

Suspended without pay

Fine

Demotion

Dismissal

100

Not guilty

Case withdrawn

Total

100

Table 4.2.12.3 Types of misconduct addressed at disciplinary hearings Type of misconduct

Number

% of total

Poor work performance

Assault of colleague

Unacceptable behaviour (misconduct)

Misuse of vehicle

Theft

Bribery

Negligence

Misappropriation of funds

Fraud

Sexual harassment

Total

100

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Table 4.2.12.4 Grievances lodged for the period 1 April 2011 to 31 March 2012 Number

% of total

Number of grievances resolved

Number of grievances not resolved

100

Total number of grievances lodged

100

Table 4.2.12.5 Disputes lodged with Councils for the period 1 April 2011 to 31 March 2012 There were two disputes lodged within the period under review. Table 4.2.12.6 Strike actions for the period 1 April 2011 to 31 March 2012 None Table 4.2.12.7 Precautionary suspensions for the period 1 April 2011 to 31 March 2012 Number of people suspended

Number of people whose suspension exceeded 30 days

Average number of days suspended

Cost (Râ&#x20AC;&#x2122;s) of suspensions

4.2.13. Skills development Table 4.12.13.1 Training needs identified 1 April 2011 to 31 March 2012

Occupational categories

Gender

Number of employees identified as at 1 April 2011

Training needs identified at start of reporting period

Internships

Skills programmes, other short courses and ABET

Other forms of training, study loans

Total programmes, short courses and forms of training

Legislators, senior officials and managers

Female

Male

Professionals

Female

Male

Technicians and associate professionals

Female

Male

Clerks

Female

111

118

Male

Service and sales workers

Female

Male

Skilled agriculture and fishery workers

Female

Male

Craft and related trades workers

Female

Male

Plant and machine operators and assemblers

Female

Male

Elementary occupations

Female

Male

Female

117

213

Male

192

204

151

309

417

Sub total Total

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Table 4.12.13.2 Training provided 1 April 2011 to 31 March 2012

Occupational categories

Gender

Number of employees trained as at 31 March 2012

Training provided within the reporting period

Learnerships

Skills programmes, other short courses and ABET

Other forms of training, study loans

Total programmes, short courses and forms of training

Female

Male

Female

Male

Female

Male

Female

111

118

Male

Service and sales workers

Female

Male

Skilled agriculture and fishery workers

Female

Male

Craft and related trades workers

Female

Male

Female

Legislators, senior officials and managers Professionals Technicians and associate professionals Clerks

Plant and machine operators and assemblers

Male

Elementary occupations Sub total

Female

Male

Female

197

210

Male

192

202

151

131

389

412

Total

4.2.14. Injury on duty Table 4.2.13.1 Injury on duty, 1 April 2011 to 31 March 2012 Nature of injury on duty

Number

% of total

Required basic medical attention only

100%

Temporary total disablement

Permanent disablement

Fatal

Total

100%

4.2.15. Utilisation of consultants 4.2.15.1. Report on consultant appointments using appropriated funds No consultancy firm was appointed. 4.2.15.2. Analysis of consultant appointments using appropriated funds, in terms of historically disadvantaged individuals No consultants were appointed using appropriated funds.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

4.2.15.3. Report on consultant appointments using donor funds No consultant was appointed using donor funds. 4.2.15.4. Analysis of consultant appointments using donor funds, in terms of historically disadvantaged individuals No consultant was appointed using donor funds.

4.2.16. Severance packages R285,333.00 was paid as settlement to a senior manager who was discharged of his duties for poor performance.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

ECDC financed Mthatha-based pole manufacturer G-Works 14.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

5 PROGRAMME PERFORMANCE

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

PROGRAMME PERFORMANCE 5.1.

PROPERTY MANAGEMENT AND DEVELOPMENT

5.1.1.

Aim

The programme aims to anticipate and satisfy customer needs by ensuring availability of suitable industrial and commercial premises for investors throughout the Eastern Cape, and managing the transfer of residential units, in a manner that maximises returns for the corporation.

5.1.2.

Strategic objective

To realise maximum return on investment assets.

5.1.3.

Outputs and service delivery trends Planned performance (actual)

Actual performance (actual)

Deviation %

% reduction of operational costs

10%

Reduction of operational costs will be constantly monitored to maintain liquidity levels of the unit.

Amount spent on reactive maintenance

R2.4m

R5.3m

120

The anticipated disposal of half of the property portfolio did not take place. Therefore, reactive maintenance expenditure continued to be incurred.

Value of expenditure on project costs

R12.15m (R5m CIB)

R7.9m

-35

Butterworth office and redevelopment of Hillcoombe projects are complete. Refurbishment and renovations to the ECDC Queenstown office has gone out to tender and awaiting approvals from various committees.

Value of property investment opportunities identified

R30m

R0m

-100

Awaiting finalisation of the property review strategy in order to reinvest proceeds in new investment opportunities.

Amount of rentals collected

R34m

R38.3m

Continuously striving to increase rentals collected on the property portfolio.

Amount of arrear debt collected

R12m (base R1m per month)

R11.7m

-2,5

Improved debt collection methods required from regions.

Value of properties sold

R286m

R7.4m

-97

Awaiting finalisation of the property review strategy.

% of ECDC properties branded

30%

-100

Awaiting finalisation of the property review strategy.

Measurable objectives

Performance measure

Decrease losses on operations

Optimise and grow returns on investments and assets

Maximise cost efficiency

Increase ECDC provincial footprint

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Reason for deviation

Planned performance (actual)

Actual performance (actual)

Deviation %

Number of Investment opportunities

A new manufacturer has located at one of our large vacant factories in Fort Jackson to manufacture cleaning and paper products.

Number of signature events, such as activities/ engagements with relevant stakeholders (lettings/ developments/ marketing)

-25

Attended the 43rd SAPOA Convention and Conference, 12th International Housing and Home Warranty Conference and Networking session and a CIDB Procurement and Compliance workshop.

Build balanced product and market portfolio

% properties profiled in monthly publications and website

-100

Marketing placed on hold pending the finalisation of the strategy review on disposal of properties. However, properties investments were featured in the Khula Nathi publication.

Design and streamline innovation solutions

Customer satisfaction survey

Determine baseline

-100

Customer survey form to be finalised with marketing before implementation.

Develop customer management relationship processes

Number of forums/ meetings with customers to improve relationships

Develop and implement a customer relationship model for tenants

-100

Forums/meetings have taken place, however, they have not been coordinated or recorded for reporting purposes.

Measurable objectives

Performance measure

Establish strategic partnerships with stakeholders

5.1.4.

Reason for deviation

Trends in performance 2005/06 to 2011/12

The trends indicate the performance of the various key performance indicators tracked from 2005/6 to 2011/12. They are meant to provide comparative information reflected as compound annual growth in percentile format.

Measurable objective

Performance measure

2005/06 (actual)

2006/07 (actual)

2007/08 (actual)

2008/09 (actual)

2009/10 (actual)

2010/11 (actual)

2011/12 (actual)

Compound annual growth %

Maximise cost efficiency

Rental received R’ million

46.9

48,9

34.7

42.3

37,4

38,9

38,3

2.51

Arrears collected R’ million

Not Not measured measured

15.4

12.9

11.7

10,6

11,7

-6.6

Value of property sales R’ million

14.7

12.1

5,5

11,7

-1.7

Obtain good value 3.8 for property R’ million

5.8

5.9

14.2

4.5

4,6

7,4

11.7

1 Calculated from 2007/08 as 2005/06 and 2006/07 included arrears

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

5.1.5.

Challenges in 2011/2012

a. The decreased rental collections are due to market conditions, tenant affordability, and prevailing socio-economic conditions. b. There is still difficulty in recovering overdue rentals due to challenges in tracing some of the ex-tenants. The new write off policy will assist in dealing with cases that have been declared uncollectable. c. High costs related to rates and taxes, water and electricity emanating from properties that do not generate any income for ECDC, coupled with apathetic tenants, have resulted in weaker returns.

5.1.6.

Achievements for 2011/2012

a. Redevelopment of Hillcombe Residential Complex and construction of a new KFC Drive Thru in Mthatha. b. With respect to ECDC buildings, the following was achieved: - Internal alterations to ECDC Butterworth office is complete. This building is ready for occupation. This has enhanced the market value of the property while providing a conducive working environment for ECDC employees. - Refurbishment and renovations to ECDC Queenstown office has commenced. However, challenges are the age and historical status of the premises. c. Conversion of ECDC residential complexes to sectional title units continued: - The opening of sectional title registers and issuing of certificates for registered titles in the names of Bashee Court, Hollyburn and Kyalami Flats in Butterworth have been completed and approved by the Deeds Office in Mthatha. The subdivision and rezoning of Erf 1042, namely Mdumbi Place, Qolora and Ntlonyane, is in progress. - The Mthatha residential complexes schemes have been submitted to the Surveyor-General’s office and we await approval of the survey drawings.

5.2.

PROGRAMME PERFORMANCE: DEVELOPMENT FINANCE

5.2.1.

Aim

The Development Finance Unit’s strategy is underpinned by the: • Promotion of entrepreneurship across the Eastern Cape through funding of technically sound and financially sustainable businesses and projects • Targeting of businesses and projects in high-poverty nodes where multiple socio-economic objectives can be achieved • Provision of low-income individuals/communities with investment opportunities in private sector partnerships that address their needs, such as job creation, affordable housing and starting of responsible sustainable businesses.

5.2.2. • •

Strategic objectives

To achieve socio-economic development objectives, which include entrepreneurial development, empowerment of black people (individuals, companies and communities), poverty alleviation, skills development and transfer, and contributing to economic growth. To preserve invested capital and achieve a return on investments.

5.2.3.

Outputs and service delivery trends Budgeted disbursements R’ million

Actual disbursements R’ million

Deviation %

Reason for deviation

Sub-programme 1: Long-term loans and equity

130

20,3

-84

Effects of economic slowdown.

Sub-programme 2: Short-term loans

54,8

-22

Limited government spending affecting tender based loans & effects of economic slowdown.

Programme

Total disbursements

200

75,1

-62

Co-operative finance

New fund

5,1

This was a new fund created to assist co-operatives.

Grand total

200

80,2

-60

Limited government spending affecting tender-based loans and the effects of economic slowdown.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Performance measure

Planned performance (actual)

Actual performance (actual)

Deviation %

Reason for deviation

Decrease losses on operations

Value of collections per year

60%

56%

Delayed and direct payments from government regarding tender and the effects of economic slowdown.

Optimise and grow returns on investments and assets

Number of mega investment projects identified and secured

On target.

Build balanced product and market portfolio

New SMME/micro loans model

Pilot model

Dealt with as part of the Provincial SMME strategy

This project has been dealt with in the SMME strategy.

Revised Imvaba Fund

Develop and implement new guidelines

Done

On target.

Position the ECDC as the financier of choice

Number of adverts, information workshops done per month, etc (establish awareness of products and services offered)

-8

Communication was targeted in bulk efforts, such as the ECDC/ Daily Dispatch Khula Nathi publication, hence improving coverage.

Establish strategic partnerships with stakeholders

Number of surveys conducted

Develop survey, run and implement findings

Not done

-100

Operationally, focus was on internal processes and use of the existing baseline study conducted to improve customer satisfaction.

Number of memoranda of understanding and/or servicelevel agreements concluded per year with stakeholders or other DFIs in the Eastern Cape.

200

Exceeded due to extensive collaboration with other national development entities.

Design and streamline innovative solutions

Turnaround time for granting loans

Develop and implement standard

Done

Reports are generated every month for the turnaround times on products and are monitored. There is a built-in tracker from loan origination to disbursement.

Develop customer management relationship process

Number of complaints from customers and stakeholders

Develop and implement system

Done

Using the current web feedback system to track on the ECDC website to manage customer satisfaction.

Build development finance and economic intelligence

Number of products developed to assist pre and post financing

Develop two products (pre and post interventions) and pilot implementation

-50

Due diligence process in place to assist applicants with quality of the applications. As part of the new structure, additional functions have been added to assist SMMEs.

Measurable objectives

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

5.2.4.

Sub-programme 1: Trends in performance from 2005/06 to 2011/12

The trends indicate the performance of the various key performance indicators tracked from 2005/06 to 2011/12. They are meant to provide comparative information reflected as compound annual growth in percentile format.

Measurable objectives Optimise and grow returns on investments and assets

5.2.5.

2005/06 Actual approvals R’ million

2006/07 Actual approvals R’ million

2007/08 Actual disbursed R’ million

2008/09 Actual disbursed R’ million

2009/10 Actual disbursed R’ million2

2010/11 Actual disbursed R’ million

2011/12 Actual disbursed R’ million

Compound annual growth %

Value of Term Loans

30,0

20,3

-11.75

Value of Equity Investments

1,6

nil

Value of Trade Finance

Not measured

53,8

29,4

-26.15

Value of Contractor Finance

141

16,9

21,0

-15.8

Value of Micro Finance

Not measured

0,8

2,6

0,2

4.4

40.6

Performance measure

Debt collection performance from 2005/06 to 2011/12

Measurable objective

Performance indicator

Decrease losses on operations

Total cash collections Total loan portfolio

2006/7 R’ million Not measured

2007/8 R’ million

2008/09 R’ million

2009/10 R’ million3

2010/11 R’ million

2011/12 R’ million

Reason for deviation

Not measured

169

219.63

129.30

91.30

Resultant from lower disbursements the previous year and related impairments.

Not measured

312

232.50

112.67

83.53

Due to due diligences and drive towards building sustainable SMMEs.

Total disbursements Total loan disbursements

Not measured

2 2009/10 and 2010/11 reflect a change in composition of formula to calculate loans disbursed and excludes other financial transactions, such as refunds, fees and insurance 3 2009/10 and 2010/11 reflect a change in composition of formula to calculate loans disbursed and excludes other financial transactions, such as refunds, fees and insurance

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

5.2.6.

Jobs created

Measurable objectives Optimise and grow returns on investments and assets

5.2.7.

Planned performance

Actual performance

Deviation %

Reason for deviation

2,007

Correlates with lower disbursements.

Planned performance %

Actual performance %

% Deviation

Reason for deviation

50%

54%

Permanent/temporary jobs 3,000

Impairment provision 4

Measurable objectives Optimise and grow returns on investments and assets

5.2.8.

Performance measure

Performance measure Impairment provision as % of debtors

Part of the old debt has been written off. However, ECDC is still collecting off the balance sheet. Improvement of due diligence processes and building of a quality pipeline of investments.

Challenges in 2011/12

a. Job creation has been impacted by the state of negative growth in certain economic sectors. This has affected business viability, loan approvals and disbursements. b. Since government spending is the largest contributor to economic activity in the province, this has been slower than that usually affecting SMMEsâ&#x20AC;&#x2122; need for funding. c. The total loan portfolio impairment rate of 54% (R36 million) is attributable to long outstanding historical debt (loans) with arrears dating back to 2008 and prior, which have not been performing well, affecting the over performance of the loan portfolio.

5.2.9.

Achievements in 2011/12

a. Improvement in the quality of loans has been achieved due to training given to staff by the IDC, implementation of a due diligence panel for all loans, top 20 account monitoring and tracking, and tighter credit risk measures and screening of all loans. b. 45% of loans were disbursed in the service sector, 13% in the agriculture sector, 11% in construction, 8% in retail, and 5% in manufacturing. c. 54% of loans were granted in Amathole and 28% in the OR Tambo District. d. 70% of Nexus trade loans were disbursed to women. e. Imbewu and Nexus trade loans were the most accessed type of finance by the youth (20% and 70%, respectively).

4 Includes total provision for all transactions

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

5.3.

PROGRAMME PERFORMANCE: INVESTMENT AND TRADE PROMOTION

5.3.1.

Aim

The aim of the Investment and Trade Promotion Unit is to facilitate investment and trade in priority sectors in line with the Provincial Growth and Development Plan (PGDP) and the Department of Trade and Industry’s (DTI’s) macroeconomic strategy so as to increase developmental impact in the Eastern Cape. The programme is composed of the following sub-programmes: • •

Investment Promotion Trade Promotion.

5.3.2.

Investment Promotion

5.3.2.1.

Strategic objectives

•

Attract foreign and local direct investment into the Eastern Cape through improving value propositions and promoting incentives developed by the DTI, increased missions and marketing municipal incentives. Maintain and support existing investments. Cross leverage opportunities for ECDC loans and improve occupancy of ECDC properties.

• •

Based on the objectives of the PGDP, the unit focuses on the following sectors: • • • • • •

These are driven through the following approaches:

Manufacturing-based potential, which sub-divides into general manufacturing and automotive Agro-processing, medicinal and aromatic plant production and greenhouse horticulture Tourism infrastructure investment promotion/property development Business process outsourcing (BPO) with a focus on call centres and film Information and communication technology (ICT) Mariculture and aquaculture (fish and abalone)

5.3.2.2.

• • • • • • •

Image-building activities (proactive). Investment generation activities (proactive) Investor servicing activities, also referred to as aftercare (reactive). Policy advocacy Support and collaboration with the East London and Coega Industrial Development Zones Support function to municipalities (demand driven) Outward missions

Performance in 2011/12

Measurable objectives Optimise and grow returns on investments and assets

Establish strategic partnerships with stakeholders

Planned performance

Actual performance

Deviation %

Reason for deviation

Number of researched and packaged projects

On target.

Number of leads generated through investment promotion (IP) activities

150

112

-25

The mission to China with Buffalo City Municipality had to be postponed for April 2012 due to an unexpected inward mission to the metro. Other work in initiatives like the agroindustrialisation initiative also affected the planned missions.

Number and value of investments realiSed

15 (R750m)

20 (R613m)

-33 (18)

The poor investment climate continued to cause delay in investment decisions being finalised. More brownfield (expansions) investments are being realised, which are relatively small in size.

Number of jobs

1200

2027

The work done in facilitating the access road Ugie/Langeni, resulting in jobs saved at Langeni Sawmill, resulted in the target being exceeded.

Value of investments

R100m

-100

ECDC was undertaking the review of the Investment Promotion strategy, which meant that the agency agreements could not be concluded.

Set up forum Number of IP forum record of meetings

Set up forum Four meetings

-100

The forum has been established; however the planned quarterly meetings have not taken place.

Performance measure

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Measurable objectives

Performance measure

Planned performance

Actual performance

Deviation %

Reason for deviation

Develop customer management relationship processes

Number of reports from aftercare visits

This is a reflection of more emphasis being placed on servicing existing investors, which will bring about foreign direct investment (FDI) through expansions (“brown fields”).

Build development finance and economic intelligence

Data collection, research and publishing of annual provincial investment publication

100

Based on FDI markets database, the report planned for the year was produced. This report is entitled “FDI into the EC”. A second publication named “Eastern Cape Matters” was also produced.

Functional sector forums

Sector forums were exceeded due to increased activity in the auto, film and agro-processing sectors.

5.3.2.3.

Trends in performance 2005/06 to 2011/12

Measurable objectives

Performance measure

2005/06 (actual)

2006/07 (actual)

2007/08 (actual)

2008/09 (actual)

2009/10 (actual)

2010/11 (actual)

2011/12 (actual)

Compound annual growth %

Optimise and grow returns on investments and assets

Number of new prospects

New measure

101

115

146

112

4.24

Number of new investments

New measure

-3.58

Value of Investments facilitated R’ million

1,416

766

738,3

731,4

592

661,4

613

-13.03

Number of jobs created or saved

3,467

3,522

2,177

1,214

1613

732

2027

-8.56

5.3.2.4.

Challenges in Investment Promotion in 2011/12

a. Automotive and general manufacturing - The main challenge remains global cost competitiveness, which will be addressed by the newly established Eastern Cape Auto Cluster, focusing on logistics, skills development and supplier development. - Cheap imports pose a major threat to various manufacturers. - Auto components manufacturers are usually not inclined to diversify. - There is ageing infrastructure and vandalised factory buildings in some strategic industrial nodes. b. BPO - There is a lack of infrastructure in small towns in the Eastern Cape where job creation is much needed. - The service delivery mechanism at provincial and local level is fragmented. It would otherwise provide the necessary critical mass, improve efficiencies and result in huge costs savings. c. Film - A lack of funding for Eastern Cape Community Television (ECCTV) is delaying its roll out. d. Renewable energy - Land tenure issues in the former homelands restrict applications under the rigorous National Energy Regulator of South Africa (NERSA) process. e. Tourism - Investment in tourism infrastructure remains concentrated in the western part of the province. Developments in the former homelands continue to lag due to infrastructure backlogs and land tenure issues.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

f. Aquaculture and fisheries - The national biodiversity legislation remains a stumbling block to new developments in marine and freshwater aquaculture in spite of on-going lobbying by ECDC and the province. g. Agriculture and agro-processing - The adequate supply of good and uniform quality raw material to sustain the industrialization of the sector is necessary. - There are prolonged and protracted negotiations to secure land tenure with communities in the former homelands. h. Special projects - A more concerted effort is required to build a strong image and brand for the province. - Regarding PG Bison/Langeni Sawmill, the economy is still very sluggish and hence challenging for these companies. More infrastructure investment is required at Langeni to support expansions planned over the next few years, which will bring about better economies of scale for job creation and promote rural development. i. ICT - The Eastern Cape is among those provinces hard hit by lack of connectivity. This trend negatively impacts the cost of doing business and the work of academic institutions located in rural areas. - There is a lack of financial support and relevant infrastructure to promote the sector.

5.3.2.5.

Achievements in 2011/2012

a. Automotive and general manufacturing - There has been increased capital expenditure by original equipment manufacturers (OEMs) since the finalisation and announcement of the Automotive Production and Development Plan. b. BPO - The Discovery Health Call Centre based at Coega was approved for funding to the value of R2.55 million by the Job Stimulus Fund. This will create 255 jobs. c. Renewable energy - During December 2011, the Department of Energy announced the first successful preferred bidders for the Renewable Energy Independent Power Producer Programme. The Eastern Cape captured the majority of the successful wind farm applications under the first round of NERSA assessments. - Five wind farms totalling 469MW were approved for the Eastern Cape. These developers have until 19 June 2012 to take their projects to financial closure, and construction is expected to start in early 2013. ECDC has been instrumental in supporting these (and other renewable energy projects) since their initial investigations in the province. d. Film - The training of 21 aspiring filmmakers from various districts in post-production in partnership with National Electronic Media Institute of South Africa at R16,000 per student took place, with a total investment value that adds up to R336,000. - A further six young people were trained in partnership with Big Fish School of Digital Filmmaking over a period of a year. - An ECCTV feasibility study was completed, and all stakeholders across all districts support the community television station. e. Tourism - The Royalston estate in the Nelson Mandela Metropole continues to roll out with ECDC’s assistance. f. Aquaculture, fisheries and environmental management and mariculture - ECDC intervention at high levels in the national Department of Agriculture, Forestry and Fisheries (DAFF) resulted in the livelihoods of more than 2,000 seasonal fishers being safeguarded in 2012 after delays by DAFF at the beginning of the catching season for East Coast Rock Lobster. - The first marron (freshwater crayfish) from the province were sold locally, and ECDC is assisting the producer to break into the export market. - The Eastern Cape continues to lead production in marine fin-fish in South Africa with 100% of national production coming from the province. g. Agriculture and agro-processing - ECDC participated in the joint application with AsgiSA-EC to the DBSA Jobs Fund that resulted in conditional approval of R175 million for forestry and timber development, and R91 million for grain and horticulture development, all within the rural former Transkei areas. - Facilitated the development of a business case and model for the establishment of the Agro-processing Industrialization Initiative to be located within ECDC. - Facilitated the appointment of project managers who would ensure sustainable development of the dairy industry in the Libode/Port St John’s area.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

h. Special projects I. Eastern Cape From Above Exhibition showcased in United Kingdom This popular aerial photographic exhibition of the Eastern Cape, which depicts its scenic beauty and strategic investment infrastructure, was taken to the United Kingdom for the first time during the 2011/12 financial year, with the main aim of further increasing tourists and foreign direct investment (FDI) from this region into the province. This further cemented existing relations between Amathole District Municipality, Buffalo City Metropolitan Municipality and Glasgow in Scotland. Overall, the geographic footprint and duration covered in the UK was as follows: • Bristol’s central tourist area (two weeks) • Coin Street in London, a prime position on the Thames River (10 days) • Scottish Exhibition Centre and Conference Centre in Glasgow (six months). This centre has granted the exhibition an indefinite extension, free of charge, based on the quality of the exhibition and its popularity. All things considered, ECDC achieved more than 200 days of coverage for the exhibition and received an estimated viewership of 163,000 people. This coverage, achieved with half the budget, was far more than the expected 70 days. Awareness about the Eastern Cape province and what it can offer tourists and investors is growing rapidly. II. PG Bison/Langeni Sawmill The province’s investments in infrastructure to support the PG Bison Chip Board plant and in the Ugie/Langeni road, has saved the Langeni Sawmill operation due to large logs from PG Bison and chipping material from Langeni to Ugie. Without the new road, this would not have been possible. A long-term contract is now in place between PG Bison and Singisi Forest Products (Langeni Sawmill), which will make both businesses more profitable. This is a clear example of how infrastructure support allows business to thrive. ECDC also benefits directly by being a shareholder in Singisi Forest Products and by being the landlord at Langeni, receiving substantial rental income. III.Soya oil cake plant ECDC is facilitating financing of a manufacturer of soya oil cake for a Port Elizabeth-based company. IV.Investment and partnership facilitation in BRICS ECDC facilitated talks and a subsequent visit in January 2012 by an East London-based company to a manufacturer in Brazil to explore a partnership.

5.3.3.

Trade Promotion

5.3.3.1.

Strategic objectives

- - - - -

Increase the value of trade. Increase the number of exporters. Focus on and explore new markets. Maximise the opportunities offered by various trade policies. Broaden trade within Africa.

5.3.3.2.

Trade Promotion performance in 2011/12

Measurable objectives

Performance measure

Planned performance

Actual performance

Deviation %

Optimise and grow returns on investments and assets

Rand value of exports

R900m

R1.7 Billion

The automotive sector continues to boost exports driven by the international contracts for the OEMs, i.e., VWSA, GMSA, and Mercedes Benz.

Number/value of referrals to the Development Finance Unit

R2m

R52,2 mil

2510

Deviation is due to expansions and new applicants.

Increase ECDC provincial footprint

Number of new exporters

-27

Due to global recession and recovery, new exporters are cautious of venturing into new markets.

Establish strategic partnerships with stakeholders

Number of partnerships established

The partnerships have been exceeded as we felt it necessary to also partner with the national Department of Agriculture to support cultivation of tomatoes for the tomato paste plant in the Coega Industrial Development Zone (IDZ).

EASTERN CAPE DEVELOPMENT CORPORATION

Reason for deviation

ANNUAL REPORT 2011 / 12

Measurable objectives

Performance measure

Planned performance

Design and Number of streamline innovative provincial trade solutions statistic reports published

Actual performance

Deviation %

Reason for deviation

-25

The quarterly target was missed in Quarter 1 due to set up that involved Quantec Database Subscription. As from Quarter 2, we were able to meet the target.

Develop customer management relationship processes

Number of 18 aftercare reports and interventions to existing exporters

122

There has been heavy emphasis on aftercare support to existing and potential exporters to improve access to markets, through EMIA Scheme, United Nations procurement, etc

Build development finance and economic intelligence

At least two reports produced and made available to customers per annum

Target met.

5.3.3.3.

Trends in performance from 2005/06 to 2011/12

Measurable objectives

Performance measure

2005/06 (actual)

2006/07 (actual)

2007/08 (actual)

2008/09 (actual)

2009/10 2010/11 (actual) (actual)

2011/12 (actual)

Compound annual growth %

Optimise and grow returns on investments and assets

Value of exports generated R’ million

New measure

17,8

46,1

202,2

502

1,060

1,713

149

Increase ECDC provincial footprint

Generation of new exporters

New measure

12.9

Number of existing exporters assisted

New measure

13.75

Design and streamline innovative solutions

Number of businesses benefitting from DTI incentives

New measure

5.3.3.4. Challenges in 2011/12 a A challenge is getting market intelligence to SMMEs to support them in accessing both local and foreign markets by providing leads for them. b Another challenge is to get a wider range of SMMEs to develop their products and systems to levels of being export ready so that they can take advantage of the support from DTI to access foreign markets. 5.3.3.5.

Achievements in 2011/12

a ECDC initiated and facilitated the Bamboo Symposium, which was a “launch pad” for the bamboo project in the province. The symposium attracted both local and international delegates, and was addressed by international experts in the field, the South African Consul-General in Hong Kong, and the MEC of DEDEAT. This has culminated into a number of pilot sites facilitated by ECDC. b The unit led a joint exhibition at the South African International Trade Exhibition (SAITEX), where at least 10 SMMEs participated. The Eastern Cape provincial stand was also represented by ECDC, Buffalo City Metro, Nelson Mandela Metro, East London IDZ and Coega IDZ. A number of companies managed to expose their products and obtained orders and strong leads from the event. c ECDC participated in a joint mission to Germany led by the Premier, Noxolo Kiviet, accompanied by a high-profile delegation from the Eastern Cape, and MECs (Sport, Recreation, Arts and Culture; Safety, Security and Liaison; and DEDEAT). This delegation was accompanied by business chambers and private businesses from the Eastern Cape to the State of Lower Saxony. This further strengthened our participation in the annual Hannover Faire, where we took a large group of SMMEs to expose their products to this very large exhibition. d The Trade Promotion Unit has during the year produced trade statistics reports (exports and imports), which will assist SMMEs and local economic development (LED) offices within various municipality in developing strategies to access foreign markets. A quarterly Trade Bulletin is being published and distributed to SMMEs throughout the province.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

5.4.

PROGRAMME PERFORMANCE: DEVELOPMENT PROJECTS

5.4.1.

Aim

To increase investment (in partnership with third-party funders) in initiatives that unlock economic potential of low-income areas, thereby leading to the establishment of viable enterprises, expansion of existing enterprises, creating and saving of jobs, so creating sustainable economic growth in the province.

5.4.2. • • • •

Stimulate economic growth and development of low-income areas through strategic identification and support of projects with high employment and economic viability potential in line with the PGDP and ECDC’s development objectives. Promote broad-based black economic empowerment (BBBEE) in the low-income areas of the Eastern Cape through public-private partnerships. Influence municipal planning through supporting the development of credible Local Economic Development (LED) strategies. Support research and knowledge management through packaging of lessons learnt from best practice cases.

5.4.3. • • • • • •

Strategic objectives

These have been driven by the following approaches:

Identify potential economic projects and fund development of business plans, trials and pilot projects. Leverage funding from development partners (including limited funding from ECDC) for commercialization of economic projects. Assist enterprises in distress and resuscitation of declining sectors. Focus on high-value and/or high-impact projects with developmental focus. Assist municipalities in planning and implementing projects. Develop a project monitoring and evaluation tool.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

5.4.4.

Performance in 2011/12

Measurable objectives

Performance measure Number of projects identified for scoping

Rand value of DPP Funds spent in scoping

Optimise and grow returns on investments and assets

R7m

Rand value of funds spent supporting implementation of high impact projects

R4m

Rand value of the total project pipeline created

R1b total value of pipeline created

Number of jobs created/saved through investing in high impact priority projects or intervention in ailing industries Rand value of funds spent in supporting municipalities

Rand value of funds leveraged from 3rd party funders

Build development finance and economic intelligence

Planned performance

Number of research projects commissioned

700

R3m

R75m

EASTERN CAPE DEVELOPMENT CORPORATION

Actual performance 23

R7m

R2m

R3 billion

742

R393,000

R79m

Deviation %

Reason for deviation

228

Additional resources based in Mount Ayliff and the extensive publicity and marketing drive have increased clients requesting ECDC services.

Strengthened cooperation with third parties due to improved knowledge of ECDC systems. The total allocated budget for the year was R5.5m and the shortfall was taken from implementation and from DEDEAT funding (fibre hub).

-50

Conversion of projects into the ECDC balance sheet will be made a performance target to encourage more ECDC implementation funding in 2012/13.

200

The improved cooperation between ECDC and Emerging Property Developers allows for targeting the growing rural retail property market.

Local and Regional Economic Development (LRED) funding enabled ECDC to support five more job creating projects, and hence additional jobs created in the third and fourth quarters of 2011/12.

-87

The municipal support budget is allocated according to demand. Scoping, for instance, often requires facilitation support and therefore limited municipal support budget is required.

Due to commendable contributions by IDC, Land Bank, Department of Rural Development and Land Reform, DBG Winery and LRED funding to ECDC projects, such as Mooiplaas Bamboo, Camdeboo Aqua-culture and Essential Amathole.

The partnership between ECDC and DEDEATâ&#x20AC;&#x2122;s LRED division provided additional budget for ECDC to support more projects in the 2011/12 financial year.

ANNUAL REPORT 2011 / 12

5.4.5.

Trends in performance from 2005/06 to 2011/12

Measurable objectives

Performance measure Number of projects identified ECDC funding used for businessrelated studies, crop trials and implementation Râ&#x20AC;&#x2122; million

Optimise and grow returns on Third-party investments funding obtained and assets

5.4.6.

2005/06 (actual)

2006/07 (actual)

2007/08 (actual)

2008/09 (actual)

8.3

9.1

6.6

Approvals, including implementation

Disbursements + commitments

for businessrelated studies, crop trials and project implementation Râ&#x20AC;&#x2122; million

51,7

89,3

103,8

367,7

Number of actual jobs created/ saved

1,146

728

2,479

824

2009/10 (actual)

2010/11 (actual)

Compound 2011/12 annual (actual) growth %

-6.3

6,2

Disbursements + commitments

1.48

64,5

7.3

352

587

742

-6.98

Disbursements + commitments

Challenges in 2011/12

a. Few mega projects are being identified in the eastern part of the Eastern Cape province. b. Co-funding by third parties still leads to delays in commencements of projects, for example, nine months by the Department of Rural Department and Land Reform to disburse R8.7m approved for Essentials Amathole. c. Appetite is low for further or upcoming project-based risk capital investments by major third-party funders like the IDC and DBSA. d. The investment climate is unfavourable for international and local investors.

5.4.7. a. b. c. d. e. f.

Achievements in 2011/12

The Bamboo Industry Programme was successfully launched and a Bamboo Steering Committee established. Cassava trials were successfully carried out (business plan for second phase completed). The dietary fibre project was commercialised. The Bold Moves Granite Mining Trials were successfully executed. The Sithembene Enterprise Garment Making Factory in King Sabata Dalindyebo municipality was completed. The bamboo hand weaving project was established.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

5.5.

PROGRAMME PERFORMANCE: ENTERPRISE DEVELOPMENT SERVICES

5.5.1.

Aim

The Enterprise Development Services Unit aims to provide effective, efficient and integrated development and support services to priority SMME sectors.

5.5.2. • • •

Strategic goals:

To provide enterprise development services in targeted priority sectors To facilitate competitiveness of the SMME sector To promote the culture of entrepreneurship to increase economic growth and development.

5.5.3.

Performance in 2011/12

Measurable Objectives

Performance measure

a.Position the ECDC as the financier of choice

Number of entrepreneurs 90 Incubates participating in the 20 ICT, incubation programme 70 Creative 50% ownership by Industry women. 40% ownership by youth 2% ownership by people with disability

b. Increase the ECDC provincial footprint. c. Establish strategic partnerships with stakeholders

Planned performance

Actual performance

Deviation %

Reasons for deviation

88 Enterprises

-3%

Difficulty to attract qualifying enterprises within the ICT incubator. Most of the enterprises that applied for admission did not meet criteria.

Value of deals and orders generated from incubation

R1 million

R 8 516 658

750

Companies in the ICT incubation have grown phenomenally, resulting in a significant increase in turnover.

Number of jobs created

130

266

102%

Jobs created are linked to income generated, as explained. The higher the value of deals the more the number of people employed. More deals were generated during the year under review and, as such, more jobs were created because of the contracts.

Number of enterprises provided with pre and post finance support

200

205

Partnership with the Foundation for African Business and Consumer Services (FABCOS) and hosting of the Vuyani Fashion Awards and Tourism Enterprise Partnership has resulted in exceeding the target.

Number enterprises trained

750

1183

Partnerships with Tourism Enterprise Partnership, Eastern Cape Parks & Tourism Agency, Daimler Fleet Management, Walter Sisulu University and Eastern Cape Liquor Board have resulted in overachievement. This is an outcome of pooling resources.

Number co-operatives trained

150

155

Target exceeded.

Number of companies registered

6000

5541

-8

The change in the Companies Act in this financial year and the discontinuation of close corporation registrations has affected the continued registration of companies. This disruption, which led to the closure of CIPC offices to allow re-training of staff, resulted in non-achievement of the target.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Measurable Objectives

Design and streamline innovative solutions

Performance measure

Planned performance

Actual performance

Deviation %

Reasons for deviation

Number of co-operatives registered

300

917

224

Increased demand for co-operative registration resulting from government’s campaign to promote co-ops.

Number of Seminar held including SMME Summit

Target met.

Number of supplier development programmes

100

Partnership with the DTI has resulted in a supplier development workshop held, promoting the Black Supplier Development Programme, and assisting suppliers to comply with BBBEE code and the Preferential Procurement Policy Framework Act, which was introduced in December 2011.

Number of projects supported through partnership with organised business/ other entities

Five programmes have been implemented with different chambers. These included programmes with the National African Federated Chamber of Commerce and Industry (NAFCOC), that focuses on establishment of local business service centres throughout the province, Border Kei Chamber of Business that focused on hosting business to business expo, FABCOS that focused on support and mentorship of their members, and the Business Women’s Association that focused on hosting a seminar to build their membership’s selling skills.

150%

Three research reports were produced during the year under review. One focused on understand the profile and needs of ECDC. The second was the Provincial SMME Development Strategy. And the third was a guide for micro finance in the province. This over-achievement has been as a result of partnership with Walter Sisulu University and complementary funding support from Thina Sinako.

Target met.

Complete research report One complete research report

Build development Number of portals finance and created economic intelligence

Three portals

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

5.5.4.

Trends in performance from 2005/06 to 2011/12

Measurable objectives

Performance measure

2005/06 2006/07 (actual) (actual)

2007/08 (actual)

2008/09 (actual)

2009/10 (actual)

2010/11 (actual)

2011/12 (actual)

Compound annual growth %

Position ECDC as the financier of choice Increase ECDC provincial footprint. Establish strategic partnerships with stakeholders

Number of businesses supported in priority sectors (number of interventions)

119

169

279

392

266

288

293

16.2

Turnover creative industry and ICT

N/A

441,000

15,565

62,000

238,600

1,206,796

8,516,658

Integrate/partner with other development agencies with regard to SMME development (number of walkins and business referrals)

N/A

731

5,938

6,035

6,358

7,017

Business registrations (CC registrations only: CK1, CK2 and CK3)

N/A

1,907

5,546

5,769

5,865

5,541

130

1,183

158

SMME training and 4 capacity-building sessions

5.5.5.

Challenges in 2011/12

One of the challenges during the year under review has been in company registrations, caused by a change to the Companies Act. There have been delays and serious backlog in registration of companies since the abolishment of registering close corporations. There have been complaints from customers in the time it takes in registering companies. ECDC has an agreement with the Companies and Intellectual Property Commission (CIPC) to register companies in the Eastern Cape. The turnaround time for this service has not been satisfactory.

5.5.6.

Achievements in 2011/12

a. A partnership with the University of Fort Hare and Small Enterprise Development Agency (Seda) saw the successful hosting of the fifth annual SMME summit in November 2011. The summit attracted stakeholders and SMMEs from throughout the province. It had national and international speakers. b. Collaborating with Daimler Fleet Management on a provincial-wide business plan competition saw 90 entrepreneurs participating and being trained on business skills. c. The business incubation programme has seen more than 80 enterprises benefiting as incubates. This number includes 18 enterprises in the ICT sector; the rest are in the creative industry space. The companies that participated in the programme have collectively generated more than R8 million in revenue. This figure only includes ICT incubates and income generated by craft enterprises in the exhibition and expo. d. Sixteen co-operatives under Imvaba Funding received training at Fort Cox on various agricultural production lines, as well as farm business management and occupational health and safety. This is a result of the partnership between Fort Cox College of Agriculture and ECDC. e. During the year, ECDC partnered with chambers of business, such as NAFCOC and FABCOS, and this contributed to the overachievement of targets in such areas as business skills training and mentorship. The programme with NAFCOC mainly focused on establishment of local business service centres within its offices throughout the districts. Other partnerships with the Eastern Cape Liquor Board have seen enterprises within the liquor industry receiving training on various aspects of business management. f. Ikhwezi Empowerment, based in Mdantsane, was linked with the Atteridgeville Jewellery Project, and it became a member of African Jewellery Designers Association. Subsequently, it has been shortlisted as one of the top eight designers by the Edcon Group to design jewellery for its national chain stores.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

g. Laduma Ngxokolo of Shugaz Fashion & Textile Creatives, who specialises in Xhosa traditional-inspired knitwear, was supported by ECDC to participate in the Ubuntu International Fashion Show in London in September 2011. h. ECDC brought the 17th Vukani Fashion Awards to the Eastern Cape for the first time: 20 local designers showcased their products here. The winner was a Cala-born designer. The programme for the awards has seen about 17 young designers being mentored by one of South Africa’s experienced and renowned fashion designer and consultant. i. The partnership with Walter Sisulu University has resulted in training of entrepreneurs in accredited modules, such as Basics of Small Business Finance, Small Business Finance Measurement, Budgeting, and Planning and Controlling Small Business Finance. The partnership resulted in production of a publication on micro enterprises in the Eastern Cape. The publication guides entrepreneurs on how and where to access micro finance in the Eastern Cape.

5.6.

PROGRAMME PERFORMANCE: CREDIT RISK

5.6.1.

Aim

Credit Risk identifies, manages and mitigates credit risk inherent in all products and activities within ECDC. Credit risk is a dominant risk within ECDC as the provision of loans, equity capital and rental accommodation is the corporation’s core business.

5.6.2. • • •

Strategic objectives

Articulate broad principles that should be embedded in a credit risk management framework covering strategy, organisational structure and policy. Develop and implement the credit control process for origination, monitoring and administration of credit transactions and portfolios. Limit credit risk within ECDC’s current risk appetite in terms of expected and unexpected losses.

5.6.3.

Performance in 2011/12

Measurable objectives

Performance measure

Decrease losses on operations

•

Number of reports with respect to credit limits framework and new projects and new loans. Number of new policies and procedure manuals approved.

Planned performance • • • • • •

Optimise and grow returns on investments and assets

•

Number of impairment reports per annum Policy document and reporting system on internal risk rating system Number of reports on the exposures due to economic conditions

Develop credit limit framework. Develop a credit procedure manual. Develop three new policies. Develop concentrations loan portfolio. Credit risk reports for all loans and projects. Develop a pricing policy.

Actual performance • • • •

• Four impairment reports • New impairment policy • One report on economic conditions

EASTERN CAPE DEVELOPMENT CORPORATION

Develop credit limit framework Develop a credit procedure manual Develop concentrations loan portfolio Credit risk reports for all loans and projects

Done

Deviation % -33

Reasons for deviation Pricing and three policies were not done due to:

ANNUAL REPORT 2011 / 12

Reviewed current DIU & rental policy; considered adequate under the current constrains and conditions. Procedures (automated system incorporating all loan types) were completed; however, due to unreasonable escalations in costs, automated project had to be abandoned. Updated draft formats of DIU and pricing policies in process of being finalised. Finalisation is rather complex in nature as scientific methodologies are also incorporated; and are currently being tested against existing constraints and conditions for feasibility.

In total, 12 monthly impairment reports done. Prepared the four quarterly reports as required.

Measurable objectives Design and streamline innovative solutions

Performance measure • •

Number of training sessions with staff Number of work out loan papers submitted

Planned performance • • •

One quarterly One training sessions quarterly 10% of qualifying loans

Actual performance

Deviation %

Done

Not done

-100

Reasons for deviation Target met.

Design customer management relationship processes

Number of surveys conducted internally

Internal customers satisfied

Develop effective risk management processes

Number of reports highlighting compliance

One report

Done

Target met.

Number of risk reports to Board/ Audit Committee

Credit and risk strategy, amended policies and inherent risk reports

Done

Target met.

• Approved credit risk strategy and policies • Number of reports with respect to credit risks inherent in loan products

One overall product risk report per new product

Not applicable

Not applicable, no new products were developed. It is emphasised that the credit risk strategy and policies are continued in the overall Development Finance Unit and pricing policies, which is in draft format and in the process of being finalised.

Number of service standards signed with each unit

60% compliance

Done

Minuted arrangements and informal arrangements in existence.

Four reports

Done

Target met.

Four meetings and reports

Done

Target met.

Develop a culture of excellence and leadership Increase effective decision making based on accurate management information and knowledge Build development finance and economic intelligence

5.6.4.

Number of new system definitions implemented

• Constitution of committee drafted and approved • Number of meetings held

Minuted arrangements and informal arrangements in existence; to manage and adhere to reasonable work practises.

Challenges

a. Capacity constraints were alleviated in the later part of the financial year. b. There is a large number (volume) of high-risk clients, thus increasing the total loan portfolio risk in terms of but not limited to monitoring and subsequent work outs. c. There is a lack of suitable data management systems and reports for analytical review purposes and management performance, such as the business information system, and a dependence on reports kept by individuals.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

5.6.5.

Achievements

a. Aligned the credit risk function in terms of best practises for credit risk management as per the industry standard adopted for a DFI. The internal risk rating for ECDC is currently available. b. Further streamlined the credit process (the “credit value chain”). c. Independent credit risk reports were utilised as a tool for identification of undisclosed risks. d. Overall collateralisation of new loan deals was improved. e. Quicker credit decisions were made. f. There were fewer deferrals at approval forums, which is a direct correlation to the improvement in the quality of the loan papers, due diligences and/or credit risk reports utilised specifically for credit decision making. g. Overall, there was a reduction in exposure to very high-risk customers. h. Assisted in strengthening legal agreements to further mitigate risks associated with lending. i. Credit Risk stands in as a knowledge hub, and tries to assist the loan origination process to identify and structure acceptable deals in terms of ECDC’s risk appetite. j. There was proactive identification of weaknesses within the total ECDC loan portfolio. k. Quarterly reporting on (risk) was carried out to identify potential weaknesses in terms of any actions that are currently being implemented. l. There was implementation of action items that assist in improving ECDC’s performance. For example, the R20 million impairment on Nexus Loans (2011) was reduced to R3 million (2012) by the implementation of appropriate standard operating procedures with external stakeholders.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

The Coega interchange picture was captured by Mike Holmes for the ECDC-funded Eastern Cape from Above exhibition.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

6 PERFORMANCE OF SUBSIDIARIES

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

PERFORMANCE OF SUBSIDIARIES 6.1

AUTOMOTIVE INDUSTRY DEVELOPMENT CENTRE

Key performance targets for 2011/12

Actual for 2011/12

Reason for variance

Action plan

The Automotive Industry Development Centre (AIDC) Eastern Cape business and management model transformation actions is taken to a fully independent status

25%

50%

75%

100%

70%

While all procedures are in process for decoupling, there is lag due to procurement and budget restraints. Certain recommendations and options reviewed.

Fast track lagging processes.

Risk management is incorporated into the AIDC EC risk register

Maintain Risk Register and Incident Register, reviewed and actioned monthly

Submitted to the audit risk committee and AIDC Board of Directors on a quarterly basis.

Operational and strategic business plan

Approved

Approved January 2011

Done. New business plan draft to be submitted in January 2012.

Project management plans and process monitoring, involving all levels of planning, scheduling, implementing, managing, coordinating, reporting, closure;

Approved

Done monthly

Reported quarterly to the AIDC Board of Directors.

Communications, liaison and customer relationship management

On-going

Management and supervisors are formally assessed on their contributions to the development of their subordinates All staff have an individual development plan and performance contract by the end of April and are assessed in September and March

Review

IDP and contract

Review

Assessed

In process

Assessed

IDPs: 80% submitted Contracts: 80% submitted

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Performance contracts of two employees have not concluded for Q1,Q2,Q3 and Q4

Pending discussion with management supervisor as no targets set for Eastern Cape-based management team for past 12 months

Key performance targets for 2011/12

Actual for 2011/12

Financial management is done in accordance with the International Financial Reporting Standards, the General Accepted Accounting Standards and the Public Finance Management Act (PFMA). Management reports are approved monthly with quarterly submissions to the Board of Directors, and a cost savings of 5% is achieved

Monthly

Quarterly reports to the Board. A year end saving of 5% on operational expenditure.

Maintaining and Monthly monitoring the auto industry website

Monthly

On-going

Business plans and support to distressed companies

None

Supply chain development - Environment, safety and health emergency procedures/ practices implemented and monitored monthly

Monthly

Done

Supply chain development - Cost saving opportunities for the provinceâ&#x20AC;&#x2122;s automotive sector Product material innovation Low-cost country sourcing Computer modelling Reduction in overhead costs Supply chain management improvement.

10%

Unknown (no funding to support initiative)

Supply chain development - Supporting automotive suppliers to network, businessto-business linkages, and develop their businesses via a web database portal

Unknown (no funding to support initiative)

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Reason for variance

There has been no request for business plans from industry

Action plan

Provided on a needs basis.

Occupational Health and Safety 16.2 representative appointed. Training pending budgets 2012. Eastern Cape representative has been nominated. Pending document finalisation. Small Enterprise Development Agency (Seda) has decided to allow the cluster model to mature before it makes any further investments

Continuous issuing of email to remind cluster participants of the information requirements for year end target.

AIDC cannot risk capacity without receiving income

AIDC is a member of the Regional Innovation Forum and has lodged one project with the Nelson Mandela Metropolitan University (NMMU) to develop an alternative raw material for a client.

Key performance targets for 2011/12

Supply chain development - Has ensured it keeps abreast of the Nelson Mandela Bay Municipality’s (NMBM’S) socio-economic development plan and thus included “innovation” as a key intervention programme towards achieving the NMBM’s goals and objectives.

Supply chain development - SMME competitiveness cluster. This initiative has the support of institutions like SEDA and is targeted at 10 clients who could benefit from supply chain optimisation.

Supply chain development Supervisory training

20 learners

Actual for 2011/12

Reason for variance

Action plan

At least four innovations materials during the year

One project proposal has been forwarded to the (NMBM)

Awaiting feedback from NMBM regarding the investor portal

The product is ready; and the marketing effort is to be initiated to industry.

No progress

Seda is not funding this initiative

Awaiting next phase for funding cycle.

40 learners

60 learners

80 learners

SCD will have more than 70 learners on the programme – not all companies have the internal capacity to send learners on the programme

All necessary planning and schedules are in place.

Supply chain 1 development - Be the service provider of choice to financial institutions like the IDC, NEF Corp to support the industry in the form of writing Business Plans for Automotive clients looking for funding in their business.

Work in progress

Business plans are written on an ondemand basis only

Supply chain development - Regional participation – the AIDC participates on the Regional Innovation Forum (RIF) of the Eastern Cape, the Logistics Cluster, and the Transport task team

Monthly

Report on actual contributions during year

Work in progress

No variances

Monthly

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Meeting schedules are circulated regularly to promote participation.

Key performance targets for 2011/12

United Nations Industrial Development Organization (UNIDO) benchmarking and supplier exchange

Actual for 2011/12

Reason for variance

Action plan

Lack of interest from industry

Conduct intensive marketing effort to educate target group of benefits of participation. Include Western Cape and KwaZulu-Natal in addition to the Eastern Cape. KwaZulu-Natal represents an opportunity for National Association of Automotive Component and Allied Manufacturers (NAACAM) members.

Supplier development department will focus on assessment of manufacturing productivity and optimisation of resource inputs for SMMEs in the Eastern Cape, across all sectors overall equipment effectiveness and other productivity metrics are used to establish target versus actual performance

3% improvement in productivity associated with the UNIDO cluster companies

5% improvement in productivity associated with UNIDO cluster companies

8% improvement in productivity associated with the UNIDO cluster companies

10% improvement in productivity associated with the UNIDO cluster companies

10% No variance improvement in productivity associated with the UNIDO programme

Supplier development department Certification and support under the ISO 50001 standard is also to be explored as a service offering

Training costs for training of resources investigated to carry out ISO 50001

Potential funding and or alliances with training providers National Cleaner Production Centre (NCPC) researched and finalised

Finalisation of MOU/MOA with strategic partner and costing study completed

Roll out of at least one pilot programme through this planned MOU/MOA

Roll out at one supplier pilot programme delayed

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

None

NCPC approval None process occurs towards financial year end. Business plans for AIDC and the current MOA have been upgraded to ensure the content for the ISO 14000 and 50000 are included. The delay in MOA from NCPC has pushed the programme roll out of one supplier out to Q2 2012.

Key performance targets for 2011/12

Actual for 2011/12

Reason for variance

Action plan

Supplier development department - HIV & AIDS cluster programme

Contract at least one cluster with three companies and 1,000 employees reached

Implementation of workplace programme in cluster companies

Monitoring and evaluation implementation, wellness drive assessments

Sustainability strategies and reporting for cluster 2011, marketing for cluster 2012

Ford Cluster 2011: two of three complete

Ford Cluster 2011: challenges in company support for programme delivery within project period

None

GMSA Cluster 2011: on-going to end of 2012 Ford Cluster 2012: two companies contracted

Supplier development 4 department versus manufacturing programmes: - Recruit companies to the programme through UNIDO funding or on a full commercial basis (13 companies for 2011 period) - Implement the programme in line with company objectives Supplier development department - The UNIDO Programme Part 2 Phase 2 company recruitment Supplier development department - Hosts the Programme for Industrial Manufacturing Excellence (PRIME), which had formally been funded by the Advanced Manufacturing Technology Station (AMTS)

None

No variance, objective achieved and expectation exceeded

None

Six candidates recruited to meet target set in Q4

One additional intern recruited for additional companies signed on a full commercial basis

None

All five companies have completed the DTI funded SWEEP programme. Certifications are being pursued by all participants for completion in Q4

No variance posted

None

Seven students current on the programme

Additional 18 students required to participate in the programme

Five candidates recruited for new company sign on

EASTERN CAPE DEVELOPMENT CORPORATION

Ford Cluster 2012: only 500 employees reached as programme support to be extended to past cluster companies No variance

Supplier 5 development department The DTI Quality Management System SWEEEP will continue to focus implementation and support on ISO 9000 and TS 16949 for automotive SMMEs

GMSA Cluster 2011: programme onset was initiated late.

ANNUAL REPORT 2011 / 12

Key performance targets for 2011/12

Actual for 2011/12

Supplier development department Cleaner production processes implemented at companies

2% reduction in utilities bill (electricity/ water and other utilities)

4% reduction in utilities bill (electricity/ water and other utilities)

6% reduction in utilities bill (electricity/ water and other utilities)

10% reduction in utilities bill (electricity/ water and other utilities

No variance 10% reduction achieved. Seven Cleaner Production companies have signed up with excellent results being achieved. The approximation of rand value savings is directly related to the companiesâ&#x20AC;&#x2122; aggregated energy bill. To date, more than R7 million up to Q3 has been realised in savings across the seven companies

- Renewable energy platforms including solar technology

15 %

50%

75%

100 %

Solar sun tracker No variance unit designed, manufactured and commissioned. Solar concentrator and rock tank concept designs commenced. Anemometer installed to provide climatic data. Energy portal interfaced to hardware on roof of Siemans Lab. Parabolic trough collector design commenced. Eveready Chair in renewable energy has been approved. Website design and interface complete. Collaboration with German Academic Exchange Service (DAAD) Chair and VWSA established.

- Continue with social responsibility programmes with final-year students of NMMU

30%

50%

100%

The following partnerships have been established during the course of the 2010/11 financial year: - MOU with ISKHUS Power (Cleaner Production project) - MOU with NCPC Power (Cleaner Production project)

Reason for variance

Skills development department â&#x20AC;&#x201C; NMMU Tertiary Institution Programme: All TEI milestones may be pushed out due to contract renewal and budget

EASTERN CAPE DEVELOPMENT CORPORATION

Nine students recruited to the United Collaborative Learning programme. 80 learners were tutored in three subjects (Maths, Science and Accounting)

ANNUAL REPORT 2011 / 12

Action plan

None

Key performance targets for 2011/12

Formula student race car design and manufacture

70%

100%

100 %

Formula student No variance racing vehicle complete. Students commence with virtual design of 2nd prototype (electric vehicle). Current vehicle utilised as a research platform for Masters students.

0% Automation scarce skills Programmable Logic Controllers (PLC) Programming and Robotics training for previously disadvantaged individuals â&#x20AC;&#x201C; train minimum of 10 students

100%

25 students trained No variance on PLC and robotic course at NMMU

Baja Bug design and manufacture â&#x20AC;&#x201C; two vehicles. (For national Baja Bug competition)

40%

80%

100%

Project complete in Q3

No variance

Recycling project. Continuance of 2010/11 project. Engage five German students (exchange) and five NMMU students to dismantle VW Polo and gather all data on materials used and downstream economic viability of recyclable materials

50%

100%

100 %

Recycling seminar for industry to be held July 2012

No variance

EASTERN CAPE DEVELOPMENT CORPORATION

Actual for 2011/12

ANNUAL REPORT 2011 / 12

Reason for variance

Action plan

Key performance targets for 2011/12

Actual for 2011/12

Supplier development projects: Renewable energy projects for supplier development department identified companies Borbet and Halberg Guss

25%

75%

100%

Industrial No variance engineering students continued with identified projects at Borbet (installation of lids on furnaces, minimise heat loss on heat exchangers) and Hallburg Guss (peak power reduction through solar panels). The students have submitted detailed reports to the companies. Proposal on a design for a rock tank at Borbet will be submitted to Borbet once concept design complete. Project to roll over in 2012/13.

30%

Project only approved in January 2012. A need was identified for the technicians at MBSA to be able to conduct PLC programming on the W205 project. Technicians must have conducted advanced training in the Siemans Accredited Training Modules: Programming 1 & 2. Eight previously disadvantaged individuals at MBSA members have been identified to attend three courses in May 2012. This project will roll over into Q1 of 2012/13

Mercedes Benz South Africa (MBSA) training

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Reason for variance

Action plan

6.2.

EAST LONDON INDUSTRIAL DEVELOPMENT ZONE

Strategic objective

Output/deliverable

Secure four Investors secured strategic, targeted investments per annum

Signed lease and sale agreements

Size of land sold or leased to the investor

Identify and develop one key industry clusters per annum

Industrial cluster concept developed

ACTUAL PERFORMANCE AGAINST TARGET

Output performance measure/services delivery indicator

Target

Actual performance results

Variance (and reason for any variance)

(and reason for any variance)

Number of investors 4 (FDI and domestic) approved by the East London IDZ Board per annum

8 investors were approved by the East London IDZ Board

Target exceeded owing to the East London IDZâ&#x20AC;&#x2122;s very intense and effective investment promotion strategic approach.

Projected value of R300 million the investments approved by the East London IDZ board per annum

R577,5 million

Positive variance because of the previous explanation.

Value of Investment agreements signed per annum

R1.7 billion

R2. 255 billion worth of investment agreements signed

Positive variance because of the previous explanation.

Number of investment agreements signed (Foreign direct investment and domestic) per annum

2 agreements signed yet

No variance.

Projected annual land 14ha uptake of investors approved by the Board per annum

9.4ha

Target missed by 4.6 ha. The land required by the approved investors was less than anticipated, despite their projected increased total capital investment, which resulted into a better land/capital ratio. Therefore, the East London IDZ land investment productivity was high.

Annual land uptake 80ha of agreements signed per annum

353 ha

Positive variance due to the East London IDZâ&#x20AC;&#x2122;s effective investor targeting approach.

Number of new cluster concepts developed per annum

1(agroprocessing)

Agro-processing park concept has been developed

No variance.

Cumulative number of industry clusters active in the IDZ per annum

2 (aquaculture and automotive)

No variance.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Strategic objective Develop and package one sector-specific value offering per annum with packaged investment projects

Generate positive annual economic value and returns from the approved investments in the zone

ACTUAL PERFORMANCE AGAINST TARGET

Output/deliverable

Output performance measure/services delivery indicator

Sector specific value offerings

Number of packaged sector offerings

Agro-processing concept has been packaged as the East London IDZ agro-processing sectorspecific value offering, and pre-feasibility already done. Full feasibility study to start soon.

No variance.

Number of packaged investment projects

5 packaged projects: 1x Automotive 2 x Agroprocessing 1 x ICT 1 x Aquaculture

3 packaged projects: 1 x aquaculture and 2 x agro-processing

Two projects that would have made the total of five when added to the three were already packaged as at end of March but had to be refined and re-submitted after March.

Retained IDZ tenants annual turnover

1,882

R509,631,207.45

The turnover (T/O) reported is the annual T/O for only five (22%) tenants out of 23 and is 27% of the target. The other 18 (78%) tenants would not give out their T/O figures as they regard them as confidential. The 73% unaccounted T/O could easily have been generated by the 78% of those that refused to divulge theirs.

Economic value and returns derived from approved tenants

Actual performance results

Target

Variance (and reason for any variance)

(and reason for any variance)

No variance. Create employment opportunities yearly

Investment and construction-related job opportunities created

Periodic reported 1,421 actual IDZ enterprises employment levels per annum (for manufacturing enterprises)

790

Only 790 (56%) of the total target has been recorded and only from six (30%) out of 20 investors. The rest, 44%, is still being collated with the remaining 70% of the tenants. It is plausible to believe that the target of 1,421 has been achieved if one considers that 56% has been generated by only 30% of the investors.

Periodic reported 90 actual IDZ enterprises employment levels per annum (for service industry enterprises)

Two out of three companies could supply their employment stats of 63 jobs (70%) of the target. The other one is still to supply its. It is also very possible that the target of 90 jobs has been achieved if one considers that the two accounted for has generated 70% of the target.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Strategic objective

Output/deliverable

Actual performance results

Target

Variance (and reason for any variance)

(and reason for any variance)

Projected number of investment jobs created by approved investors per annum

480 jobs

885 jobs (385 new + 500 maintained)

Positive variance owing to the previous explanation.

Projected number of investment jobs created in signed agreement per annum

240 jobs

436 jobs

Positive variance, owing to the investor targeting approach of the East London IDZ that targets labour-intensive industries.

Annual construction- 1,100jobs related job opportunities created per annum

285 jobs

The bigger, more labourintensive infrastructure projects started late, during the fourth quarter of the year and therefore could not absorb a huge number of targeted labour. Those muchanticipated employment opportunities will be realised this year as these big projects are rolling out.

Annual construction- 6 per million related job Rand opportunities created per million Rand per annum

Seven per million Rand on completed projects (ie. Molan Pino expansion)

No significant variance.

Number of learners trained through East London IDZ construction learnership programme

No variance.

Competitive land pricing to increase the East London IDZ’s attractiveness to investors Build East London IDZ superstructure projects with infrastructure within annual allocated budget

ACTUAL PERFORMANCE AGAINST TARGET

Output performance measure/services delivery indicator

Min 50% of market value

No land was sold during this accounting period.

Two projects received completion certificate.

No variance

17,676 m²

Positive variance due to changes on investor business plans which required more operational physical space..

Completed planned infrastructure development projects

Number of superstructure projects built (as per works completion certificate)

Completed factory buildings

Number of square 16,323m² metres of superstructures built. (as per works completion certificate)

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Strategic objective

Output/deliverable

All planned capital budget expended or committed by financial year end

Generate positive IDZ property portfolio performance and yields per annum

Positive IDZ property portfolio performance and yields

Competitive land pricing to increase the East London IDZ attractiveness to investors

ACTUAL PERFORMANCE AGAINST TARGET

Output performance measure/services delivery indicator

Target

Actual performance results

Variance (and reason for any variance)

(and reason for any variance)

Percentage of capital 100% of budget committed by R185m financial year end

100% committed

No variance.

Percentage of capital budget expended by financial year end

80% of R185m Â

47% of R185m

Under performance in this key performance area is due to adverse and unseasonal weather conditions of high rainfall and heavy winds and the delays in decision making by the approved investors to set up operations at the East London IDZ. This adversely affected a smooth rollout of some of the planned infrastructure projects. This was further exacerbated by the delays by MBSA in awarding contracts to their suppliers for the W205 C-class Mercedes Benz. As most of the infrastructure budget was put aside for these possible MBSA suppliers, it meant that a delay in awarding them the contract would seriously undermine the East London IDZ spending ability.

Average % yield on transacted lease properties( as per Board approvals and signed agreements)

2.6%

Positive variance emanating from the effective negotiation efforts and good business acumen by the East London IDZ team.

Average % yield on transacted lease properties (land lease) ( as per Board approvals and signed agreements)

12.5%

25%

Positive variance as per previous explanation.

Average internal rate of return (IRR) on all property lease transactions (as per Board approvals & signed agreements)

34.4%

Positive variance due to the effective efforts of the East London IDZ sales team.

Average price rate Minimum No land was sold during per square meter (as 50% of this accounting period per Board approvals market value & signed agreements)

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

No land was sold during this accounting period.

Strategic objective

Output/deliverable

Output performance measure/services delivery indicator

ACTUAL PERFORMANCE AGAINST TARGET Target

Actual performance results

Variance (and reason for any variance)

(and reason for any variance)

Generate positive IDZ property portfolio performance and yields per annum

All transacted properties fully occupied

Average vacancy rate 12% on lettable property

1.83%

Positive variance was due to the attractiveness of infrastructure in the zone.

Annually build and sustain positive ratings by investors

Satisfied customers

Customer Satisfaction Index

Customer satisfaction survey not conducted.

Unable to measure as no customer survey was done during this accounting period.

EASTERN CAPE DEVELOPMENT CORPORATION

75%

ANNUAL REPORT 2011 / 12

Operating from an ECDC factory in Fort Jackson, Polyplast manufactures legs for beds and couches from polymer-industrial plastic.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Nonkqubela Weaving Primary Co-operative at Ilinge near Queenstown makes high quality hand woven laundry baskets and magazine racks using steel frames and sisan or bundle twine. Over the years, ECDC has assisted the group with loan financing

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

7 AUDITORGENERAL’S REPORT

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

REPORT OF THE AUDITOR-GENERAL TO EASTERN CAPE PROVINCIAL LEGISLATURE ON THE EASTERN CAPE DEVELOPMENT CORPORATION

REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS Introduction 1.

2. The board of directors, which constitutes the accounting authority, is responsible for the preparation and fair presentation of these Practice (SA Statements of GAAP) and the requirements of the Public Finance Management Act of South Africa, 1999 (Act No.1 of 1999) (PFMA), and for such internal control as the accounting authority determines is necessary to enable the preparation of consolidated

Auditor-General’s responsibility 3. my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2001) (PAA), the General Notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements and plan and perform misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and separate

the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated and separate 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

Opinion 6. the year then ended in accordance with SA Statements of GAAP and the requirements of the PFMA.

Emphasis of matter 7.

Material losses/lmpairments 8. R11,3 million related to receivables and R35,2 million related to loans advanced considered irrecoverable.

Investment property 9. are disclosed as being owned by government, tribal authorities and municipalities. Although the entity’s right to occupy these ownership. The valuation method used to value these properties assumes that the corporation has the right to occupy these properties

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Additional matter 10. I draw attention to the matter below. My opinion is not modified in respect of this matter:

Unaudited supplementary schedules 11. The supplementary information set out on pages 148 to 150 does not form part of the financial statements and is presented as additional information. I have not audited these annexures and, accordingly, I do not express an opinion thereon.

Report on other legal and regulatory requirements 12. In accordance with the PAA and the General Notice issued in terms thereof, I report the following findings relevant to performance against predetermined objectives, compliance with laws and regulations and internal control, but not for the purpose of expressing an opinion.

Predetermined objectives 13. I performed procedures to obtain evidence about the usefulness and reliability of the information in the Eastern Cape Development Corporation annual report as set out on pages 30 to 64 of the annual report. 14. The reported performance against predetermined objectives was evaluated against the overall criteria of usefulness and reliability. The usefulness of information in the annual performance report relates to whether it is presented in accordance with the National Treasuryâ&#x20AC;&#x2122;s annual reporting principles and whether the reported performance is consistent with the planned objectives. The usefulness of information further relates to whether indicators and targets are measurable (i.e. well defined, verifiable, specific, measurable and time bound) and relevant as required by the National Treasury Framework for managing programme performance information (FMPPI). The reliability of the information in respect of the selected programmes is assessed to determine whether it adequately reflects the facts (i.e. whether it is valid, accurate and complete). 15. The material finding is as follows:

Reasons for major variances not supported by sufficient appropriate evidence 16. The National Treasury Guide for the preparation of the annual report requires that explanations for major variances between the planned and reported (actual) targets should be provided in all instances and should also be supported by adequate and reliable corroborating evidence. Adequate and reliable corroborating evidence could not be provided for 44% of major variances as disclosed in the annual performance report. This was as a result of the current portfolio of evidence not including all variance reporting. The institutionâ&#x20AC;&#x2122;s records did not permit the application of alternative audit procedures.

Additional matter 17. I draw attention to the following matter below. This matter does not have an impact on the predetermined objectives audit findings reported above.

Achievement of planned targets 18. Only 65% of the planned targets were achieved during the year under review.

Compliance with laws and regulations 19. I performed procedures to obtain evidence that the entity has complied with applicable laws and regulations regarding financial matters, financial management and other related matters. My findings on material non-compliance with specific matters in key applicable laws and regulations as set out in the General Notice issued in terms of the PAA are as follows:

Annual financial statements 20. The accounting authority submitted financial statements for auditing that had not been prepared in all material aspects in accordance with generally accepted accounting practice, as required by section 55(1)(a) of the PFMA. The material misstatements identified by the AGSA with regard to post-balance sheet events and project funds were subsequently corrected.

Assets and liabilities 21. Proper control systems to safeguard and maintain assets and liabilities were not implemented, as required by sections 50(1)(a) and 51 (1)(c) of the PFMA.

Internal control 22. I considered internal control relevant to my audit of the financial statements, Eastern Cape Development Corporation Annual Report and compliance with laws and regulations. The matters reported below under the fundamentals of internal control are limited to the significant deficiencies that resulted in the basis for unqualified opinion, the findings on the annual performance report and the findings on compliance with laws and regulations included in this report.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Leadership 23. For performance reporting leadership were focused on collating evidence in support of the reliability of the actual reported performance. However, this focus did not extend to ensure there was evidence to corroborate the reasons for material variances in the performance report between planned and actual performance. 24. There is inadequate communication between the entity and the respective provincial departments to clarify and document the agreed nature and required processes for funding received related to ring fenced projects.

Financial and performance management 25. Internal controls and in year reporting over funding received for ring fenced projects was not adequate, which led to a lack of evidence for monitoring, evaluation and reporting to the respective transferring department for the year under review. As a result there was non compliance with the PFMA.

East London 31 July 2012

AU D I TO R - G E N E R A L SOUTH AFRICA

Auditing to build public confidence

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

8 CORPORATE GOVERNANCE

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

CORPORATE GOVERNANCE Introduction The Eastern Cape Development Corporation (the corporation) is a provincial government business enterprise established in terms of section 2 of the Eastern Cape Development Corporation Act, 1997 (Act No. 2 of 1997)(the ECDC Act). The corporation has the mandate of, among others, planning, financing, coordinating, marketing, promoting and implementing the development of the province and its people in the fields of industry, commerce, agriculture, transport and finance.

Corporate governance approach ECDC endorses the code of corporate practices and conduct as contained in the King Reports on Corporate Governance, and affirms its commitment to comply in all material respects with the principles incorporated in these reports. The corporation further subscribes to the corporate governance principles set out in the Public Finance Management Act, 1999 (Act No. 1 of 1999, as amended) (the PFMA). ECDC is committed to good corporate citizenship and organisational integrity in the running of its affairs. This commitment provides the shareholder(s), customers and stakeholders with the comfort that ECDC affairs are being managed in an ethical and disciplined manner. ECDC’s philosophy is founded on principles of service delivery, trust, integrity, transparency, accessibility, redress and ethics.

ECDC corporate governance structures Board of Directors The accounting authority of the corporation is the Board of Directors, the majority of whom are appointed by the Member of the Executive Council of the Eastern Cape responsible for Economic Development, Environmental Affairs and Tourism in the province. The Board is comprised mainly of independent non executive directors in line with the guidelines set out in the King Reports of Corporate Governance. The Board held nine (9) meetings during the period under review. During the year under review, the Board continued to render its corporate governance oversight and strategic direction role in the corporation and the following corporate governance systems are in place and implemented: a. Corporate Governance Framework The Board continued to implement the Corporate Governance Framework, which consolidates the corporate governance procedures, practices and rules applied by the corporation. These are in line with best practice guidelines as contained in the King Reports on Corporate Governance and other good governance prescripts and guidelines. b. Board Charter The Board Charter sets out the roles, powers and functions of the Board, individual directors and ECDC officials, as well as for the delegation of powers to the Board committees. The Board continues to implement its comprehensive delegations matrix aimed at clarifying the various roles and limits of authority within ECDC.

Board development The Board implemented the director development policy in terms of which ECDC directors are entitled to continued professional development at ECDC’s expense.

Board and committee evaluation On an annual basis the Board and its committees evaluate their performance with a view to identification of weaknesses and achievement of optimum performance levels by the Board and its committees. During the period under review, the Board conducted the self-evaluation including committee activities.

Shareholders compact A shareholder’s compact was concluded between ECDC and the Eastern Cape Provincial Government as a shareholder, represented by the Member of the Executive Council responsible for Economic Development, Environmental Affairs and Tourism. The shareholder’s compact serves as a framework to effectively govern the relationship between the corporation and the shareholder. The compact further secures transparency, accountability and sound management of the revenue, expenditure, assets and liabilities of the corporation.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Board committees The Board has the following committees in place: a. Audit Committee The Audit Committee, in accordance with good governance principles, is chaired by an independent chairperson. It provides oversight on governance, control and risk management processes. This committee also reviews internal and external audit feedback on the status of risk management, internal control and governance; and provides objective advice to the Board on the status thereof with suggested corrective actions relating to audit findings. The Audit Committee met four times during the year under review. b. Human Resource and Remunerations Committee The Human Resources and Remunerations Committee considers and makes recommendations on human resource policies and principles. It also evaluates the performance of Chief Executive Officer and executive management in the discharge of their duties. The committee met eight times during the financial year under review. c. Funding and Investment Committee The Board established the Funding and Investment Committee to deal with matters relating to the core business of the corporation as a developmental finance institution. Its role includes matters relating to the Eastern Cape Provincial Investment Fund until the fund is institutionalised and listed as a subsidiary in compliance with the Public Finance Management Act. The committee met once during the year under review. d. Eastern Cape Provincial Investment Fund Task Team The Eastern Cape Provincial Investment Fund Task Team was established to ensure institutionalisation and approval of the fund in accordance with section 51 (g) of the Public Finance Management Act No 1 of 1999. The task team met seven times during the year under review. The task team has since been consolidated within the Funding and Investment Committee that has oversight on the funding and investment matters of both the fund and the corporation. e. Property Task Team The Property Task Team was established to speed up the preparatory process for the disposal of ECDC non-core assets in particular properties. The task team met six times during the year under review. f. Funding and Viability Model Task Team The Funding and Viability Model Task Team was established to beef up the corporationâ&#x20AC;&#x2122;s funding and viability model submission to ensure amongst others viability and recapitalisation. The task team met twice during the year under review and has since been dissolved.

Internal controls The Board continued to discharge its duty of maintaining effective, efficient and transparent systems of financial and risk management and internal control. In this regard, the Board ensured that the internal audit function is under the control of an effective Audit Committee and has, among others, prepared a medium-term (three-year) strategic internal audit plan and an operational plan for the first year of the medium-term plan. In terms of the Risk Policy, the corporation conducted a risk assessment process whereby known and possible risks and opportunities to which the corporation may be exposed to were identified and evaluated. Significant risks are controlled and/or transferred. The corporation has achieved a measure of improvement in its efforts of integrating risk management into all management processes. There is however still room for improvement in this regard during the 2012/13 financial year. The Board has established structures and delegations for the day-to-day management and operations of the organisation including its risk management activities.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Directorate The Member of the Executive Council responsible for the Department of Economic Development, Environmental Affairs and Tourism, appoints the Board of Directors in terms of section 7(3) of the Eastern Cape Development Corporation Act, 1997 (Act No.2 of 1997). The shareholder appointed the directors reflected in Table 7.1. Dr Somadoda Fikeni retired as the Deputy Chairperson of the Board at the Annual General Meeting held on the 21st October 2011 and Professor Mkhalelwa Mazibuko was appointed into this position. Table 7.1 Director

Appointed

Retired

Fikeni, S

20/03/2009

21 October 2011

Buthelezi, S

20/03/2009

Mlonzi, N

20/03/2009

Silinga M*

20/03/2009

Sharpley, G

12/05/2009

19 October 2011

Cerff, J

18/06/2009

26 May 2011

Mteto,N

03/11/2009

Tyantsi,Y

03/11/2009

Nqadolo, B

03/11/2009

Mazibuko, M

03/11/2009

Mabandla, O

01/01/2010

Somyo, S

26/05/2011

Magwentshu, N

26/05/2011

Maliza, N

19/10/2011

Jiya, L

19/10/2011

Rayi, M

19/10/2011

Kondlo, S*

19/10/2011

19 October 2011

* Appointed ex-officio member of the Board

Executive management remuneration Executive

Basic salary

Allowances

Employer

Total

Mase, S

910

491

170

1 571

Daca, M - Resigned 31 December 2011

644

302

1 025

Dlulane, B

814

264

153

1 231

Lindi, M - Appointed 01 November 2011

233

140

439

Ncokazi, N

516

378

979

Tsipa, L

EASTERN CAPE DEVELOPMENT CORPORATION

534

336

111

981

3 651

1 911

664

6 226

ANNUAL REPORT 2011 / 12

Directorsâ&#x20AC;&#x2122; fees Fees were paid to directors for Board and committee attendance. In addition, fees were paid to directors for ad-hoc attendance on ECDC business matters. During the financial year, fees were as follows: Table 7.2 Director

Board meeting

Mabandla, O

Fikeni, S

Buthelezi, S

Mlonzi, N***

Mazibuko, M

Silinga, M*

Tyantsi,Y

Audit Committee

HR and Funding Remuneration and Committee investment committee

Eastern Cape Provincial Investment Fund Task Team

Property Task Team

7 7

Ad hoc

Fees

R215,000

R180,000

R92,500 R32,500

8 1**

Funding and Viability Model Task Team

R182,500

R122,500

R15,000

R125,000

R90, 000

R67,500

3 6

Sharpley, G*** Cerff, J***

Mteto, N

Nqadolo, B*

Somyo, S

Magwentshu, N

Maliza, N*

Jiya, L

Rayi, M

1 7

3 1

R52,500 R45,000

Kondlo, S* Other Njeke,J

Nicholls, R

TOTAL

5 R1,335,000

* This director is a government employee/ex-officio member/not allowed by employer to receive remuneration. ** This director was invited to attend the Audit Committee meeting *** This director retired from the board.

Company secretary The company secretaryâ&#x20AC;&#x2122;s details are as reflected herein below: Name:

Dalubuhle Mbelani

Address:

ECDC House Ocean Terrace Park Moore Street Quigney

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

BOARD OF DIRECTORS

1. Dr Somadoda Fikeni 2. Prof Sipho Buthelezi 3. Nothemba Mlonzi 4. Mninawe Pepi Silinga 5. Gaster Sharpley 6. John Cerff 7. Noxolo Mteto 8. Yolisa Tyantsi 9. Bulelwa Nqadolo 10. Prof Mkhalelwa Mazibuko (Acting Chairman of the Board of Directors) 11. Adv Oyama Mbandla 12. Sakhumzi Somyo 13. Nomfanelo Magwentshu 14. Nonkqubela Maliza 15. Loyiso Jiya 16. Mandla Rayi 17. Simphiwe Kondlo 18. Sitembele Mase - Chief Executive Officer (Ex-Officio)

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Backed by ECDC finance, Mandisa and Anele Siwahla, a mother and son team, opened hardware franchise Built-It.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Amalinda Fish Farm, with the assistance of ECDC, produces Koi for local and international wholesalers.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

9 AUDIT COMMITTEE REPORT

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Audit Committee Report Members of the Audit Committee The Audit Committee consists of the members listed hereunder. As per its terms of reference, the committee is required to meet at least four times a year. During the year under review, four meetings were held. Name of Member

Period of membership

Number of meetings attended

J Njeke (Chairperson) Prof S Buthelezi R Nicholls L Jiya* B Nqadolo N Maliza* N Mlonzi **

01 April 11 - 31 Mar 12 01 April 11 - 31 Mar 12 01 April 11 - 31 Mar 12 19 October 11 - 31 March 12 01 April 11 - 31 Mar 12 19 October 11-31 March 12 31 March 11-19 October 11

4 4 2 1 3 0 2

* member was appointed to the Audit Committee in October 2011. ** Member retired from the committee.

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

Effectiveness of internal control During the year various reports of the Internal Auditors as well as the Audit Report on the Annual Financial Statements and Management Letter of the Auditor-General indicated that there are significant deficiencies that resulted in the basis for an unqualified opinion, the findings on the annual performance report, and the findings on compliance with laws and regulations.. The Audit Committee has noted these and based on the outcome of such reviews and the information provided by management, the Audit Committee is of the opinion that the internal controls of the corporation operated effectively throughout the year under review.

Risk management and governance The risk management practices and mitigation are consistently being developed and improved upon within the corporation. A risk appetite and tolerance framework was recently developed and approved by the Board during 2011 and is being monitored on a quarterly basis. There are five risk areas namely financial, development, strategic, operational and compliance and information technology. Each area has a selection of key risk indicators with appetite, tolerance and avoidance levels. A process of enterprise-wide risk management was also implemented where risks were identified at operational levels and mitigation and management of these were reported. During the year the, corporation adopted and approved various policies and procedures to strengthen the control environment of which also was the implementation of the various credit risk policies and processes.

Monthly and quarterly performance information The Audit Committee is satisfied with the content and quality of monthly and quarterly reports prepared and issued by the corporation during the year under review.

Internal audit The Audit Committee reviewed the activities of the internal audit function and has concluded the following: â&#x20AC;˘ the function is effective and that there were no unjustified restrictions or limitations â&#x20AC;˘ the internal audit reports were reviewed at quarterly meetings, including its annual work programme, coordination with the external auditors, the reports of significant investigations and the responses of management to issues raised therein.

External auditors The Auditor-General acted as the external auditors throughout the year. The Audit Committee reviewed the external auditorsâ&#x20AC;&#x2122; scope and work plan to ensure that key risk areas of the business were being addressed during the audit process.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Audit Committee Report Consolidated annual financial statements The Audit Committee has: • reviewed and discussed with the Auditor-General and the Accounting Authority the audited annual financial statements to be included in the annual report; • reviewed the Auditor-General’s audit report, the management letter and management responses thereto; and • reviewed the significant adjustments resulting from the audit. The Audit Committee concurs and accepts the conclusions of the Auditor-General on the annual financial statements and is of the opinion that the audited financial statements be accepted and read together with the report of the Auditor-General and the Directors’ Report. The Audit Committee agrees that the adoption of the going concern premise is appropriate in preparing the consolidated annual financial statements.

J Njeke Chairman Audit Committee 31 July 2012

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Fly tiers from Centane and Willowvale in the former Transkei received financial assistance from ECDC.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

10 DIRECTORS’ REPORT

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Directors’ Report Introduction

The directors, as the accounting authority of the ECDC, are pleased in presenting their report and the audited consolidated annual financial statements for the year ended 31 March 2012. The corporation is established by the Eastern Cape Development Corporation Act, 1997 (Act No. 2 of 1997) (ECDC Act). It is listed in Schedule 3 D of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (the PFMA) as a Provincial Government Business Enterprise.

Nature of business The corporation has the mandate of, among others, planning, financing, coordinating, marketing, promoting and implementing the development of the province and its people in the fields of industry, commerce, agriculture, transport and finance. The following corporate strategic architecture was implemented during the period under review as part of ECDC’s strategic drive to transform itself into a development finance institution. ECDC was established to address prevailing socio-economic challenges and market failures within the Eastern Cape. An act of Parliament, ECDC Act 2 of 1997, legislates the creation of a corporation to be the vehicle to support the policy intervention. Therefore the purpose of ECDC is to be a development finance corporation for the promotion of economic growth in the Eastern Cape. Its focus is on assisting enterprises (emerging and existing), investors (local and international) and government. Its customer value proposition is to offer: a. Business finance to emerging and existing enterprises b. Relevant market information and finance to local and international investors c. Act as an agency for implementation of government special projects and d. Contribute to research and policy innovation. The underpinning corporate values are Integrity, Professionalism, Accountability and Teamwork.

Vision To be an innovative leader for promoting sustainable economic growth and development of the Eastern Cape

The corporate mission Its mission is to promote sustainable economic development in the Eastern Cape through focused: • Provision of innovative development finance • Leveraging of resources, strategic alliances, investment and partnerships.

ECDC strategic-goals 1. 2. 3. 4. 5.

Overview of current performance Development loans advanced The total disbursement of development loans for the current year amounted to more than R81 million. The bulk of these development loans have been disbursed to SME’s and geographically spread throughout the province of the Eastern Cape. Striking a healthy balance between obtaining a commercial return and at the same time effect sustainable socio economic development impact remains a challenge due to perceptions in the market that Development Finance Institutions are “soft” lenders. This perception and expectation in the market provides its own challenges in the area of debt collection.

Investment properties The Corporation continued to provide the infrastructure as a valuable resource in the re-generation of the economy in the Eastern Cape. The Property portfolio is being reviewed to ensure maximum return on investment is achieved by the corporation. Construction on the rezoned

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Directors’ Report residential site is complete and is in operation. The corporation continues to experience delays in property development projects due to land claims, municipal approvals and historical gaps in property information. An extensive drive to improve the integrity of the Asset register continues resulting in transfers of top structures, built on land owned by Municipalities to such entities.

Post balance sheet events review The directors are not aware of any material matter or circumstance arising since the end of the financial year under review other than what has been reported in the annual financial statements.

Authorised and issued share capital The authorised share capital of the Corporation remained unchanged at R 1billion rand worth of ordinary shares. Of this the Corporation issued R421 375 004 million worth of ordinary shares to the Provincial Government of the Eastern Cape (Department of Economic Development and Environmental Affairs). The issued share capital is made up of 210 687 502 million “A” shares of R1 each and 210 687 502 million “B” shares of R1 each.

Financial Results The results of the Corporation and the group are disclosed in the consolidated annual financial statements.

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

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

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

Subsidiaries The corporation has interests in various subsidiaries and associates. Financial information in respect of interests of the Corporation in such subsidiaries and associates is set out in Annexure 1.

Corporate Governance Matters A detailed account on the Corporate Governance Matters of the ECDC is reflected in the Corporate Governance section of this Annual Report.

Director’s Responsibilities for the consolidated annual financial statements for the year ended 31 March 2012 In terms of the PFMA and the ECDC Act the Board of directors has the responsibility to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements and related financial information included in this report. The directors are further responsible to ensure that the consolidated annual financial statements fairly represent the state of affairs of the Corporation as at the end of the financial year, and the results of its operations and cash flows for the period then ended, in conformity with South African Statements of Generally Accepted Accounting Practice as the accounting framework which is consistent with the audit report. The external auditors are engaged to express an independent opinion on the consolidated annual financial statements. The consolidated annual financial statements of the Corporation are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgments and estimates.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Directorsâ&#x20AC;&#x2122; Report The directors place considerable importance on maintaining a strong control environment. To this end the directors set standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. These standards include proper delegation an acceptable level of risk. During the year under review such controls were monitored as far as reasonably possible throughout the Corporation and all employees are required to maintain high ethical standards in ensuring the Corporationâ&#x20AC;&#x2122;s business is conducted in a manner that is above reproach in all reasonable circumstances. The risk management focus in the Corporation is on identifying, assessing, managing and monitoring all known forms of risk across the Corporation. While it is acknowledged that operating risk cannot be fully eliminated, the Corporation however endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied within predetermined procedures and constraints.

and not absolute, assurance against material misstatement or loss.

Going concern statement

existence for the future.

Directors and secretary

The directors and sub committee fees were paid as follows:

Adv. O. Mabandla Dr. S. Fikeni Prof. S. Buthelezi Mr P. Silinga Mr J. Cerff - (Resigned 26/05/2011) Ms N. Mlonzi - (Resigned 19/10/2011) Ms Y. Tyantsi Mr R. Nicholls Mr J. Njeke Ms N. Mteto Prof. M. Mazibuko Mr S. Somyo Mr L. Jiya - (Appointed 19/10/2011) Mr M. Rayi - (Appointed 19/10/2011) Ms N. Magwentshu

Prof Mkhalelwa Mazibuko Acting Chairman

EASTERN CAPE DEVELOPMENT CORPORATION

FEES SubCommittees

FEES Board Meeting

90 000 107 500 25 000 20 000 15 000 10 000 62 500 15 000 60 000 65 000 105 000 30 000 22 500 15 000

125 000 72 500 67 500 37 500 22 500 60 000 5 000 60 000 77 500 60 000 30 000 30 000

20 000

52 500

662 500

700 000

Sitembele Mase

ANNUAL REPORT 2011 / 12

After 16 years in operation Umtata Health Club unveiled its R4 million facelift which was co-financed by ECDC.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Ikhwezi Empowerment Centre in Mdantsane collects beer bottles as the main material to produce beads.

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

11 FINANCIAL REPORTS & ANNUAL FINANCIAL PERFORMANCE EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Index

Page

Statement of Financial Position

Statement of Financial Performance

Statement of Comprehensive Income

Statement of Changes in Equity

Statement of Cash Flows

Accounting Policies

Notes to the Consolidated Annual Financial Statements

108

Supplementary information

148

were approved by the Board of Directors on 08 August 2012 and were signed on its behalf by:

Prof Mkhalelwa Mazibuko Acting Chairman

EASTERN CAPE DEVELOPMENT CORPORATION

Sitembele Mase

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Statement of Financial Position Group Figures in Rand thousand

Note(s)

Company

2012

2011

2010

2012

2011

2010

Assets Non-Current Assets Investment property

1 441 903

1 428 271

1 396 797

604 602

568 812

533 957

Property, plant and equipment

469 062

400 247

377 128

26 907

21 853

22 837

Intangible assets

Investments in subsidiaries

23 002

26 120

Investments in associates

54 213

51 402

49 474

38 779

Loans to group companies

28 121

26 740

23 656

Investments

46 465

96 137

107 849

44 822

94 820

106 659

Deferred tax

Loans advanced

74 392

101 586

135 688

73 457

101 568

135 673

2 086 111

2 077 660

2 067 037

839 690

878 692

887 681

1 887

Current Assets Current tax receivable Trade and other receivables

81 443

51 520

47 113

46 229

32 262

29 699

Loans advanced

55 251

40 935

50 955

54 048

40 935

50 955

Cash and cash equivalents

Non-current assets held for sale Total Assets

792 650

702 514

625 708

359 116

309 646

281 508

929 344

794 969

725 663

459 393

382 843

362 162

11 192

7 136

8 773

11 192

7 136

8 773

3 026 647

2 879 765

2 801 473

1 310 275

1 268 671

1 258 616

Equity and Liabilities Equity Equity Attributable to Equity Holders of Parent Share capital

421 375

383 548

347 398

421 375

383 548

347 398

Reserves

579 543

672 100

745 103

802 198

757 354

715 172

Accumulated loss Non-controlling interest

9 707

26 646

29 077

(252 933)

(158 333)

(112 281)

1 010 625

1 082 294

1 121 578

970 640

982 569

950 289

(14 351)

10 942

4 202

996 274

1 093 236

1 125 780

970 640

982 569

950 289

Liabilities Non-Current Liabilities Loans from group companies

38 928

34 644

30 898

Interest bearing borrowings

3 889

2 867

14 429

1 611

2 847

14 429

Retirement benefit obligation

27 620

23 308

20 452

27 620

23 308

20 452

Deferred income

1 259 855

1 114 375

1 025 749

Deferred tax

439

1 291 364

1 140 989

1 060 630

68 159

60 799

65 779

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Statement of Financial Position Group Figures in Rand thousand

Company

Note(s)

2012

2011

2010

2012

2011

2010

1 288

11 519

1 544

1 220

11 496

1 483

Current tax payable

841

144

108

Finance lease obligation

132

Current Liabilities Interest bearing borrowings

Trade and other payables

260 381

221 817

295 968

166 333

179 609

207 287

Deferred income

476 367

412 060

317 443

103 923

34 198

33 778

739 009

645 540

615 063

271 476

225 303

242 548

Total Liabilities

2 030 373

1 786 529

1 675 693

339 635

286 102

308 327

Total Equity and Liabilities

3 026 647

2 879 765

2 801 473

1 310 275

1 268 671

1 258 616

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Statement of Financial Performance Group Figures in Rand thousand Revenue

Note(s) 18

Other income

Company

2012

2011

2010

2012

2011

2010

141 795

132 447

124 590

83 518

82 142

87 608

833

9 242

8 284

4 777

7 729

9 376

Government grants

252 921

216 146

218 126

92 157

84 709

80 749

Operating expenses

(457 065)

(382 887)

(384 342)

(292 489)

(243 298)

(259 150)

Operating loss

(61 516)

(25 052)

(33 342)

(112 037)

(68 718)

(81 417)

Investment revenue

17 268

24 001

22 987

17 905

24 261

23 470

Fair value adjustments

Income from equity accounted

325

127

496

2 811

1 929

1 898

(502)

(1 604)

(1 628)

(468)

(1 595)

(1 608)

(41 614)

(599)

(9 589)

(94 600)

(46 052)

(59 555)

investments Finance costs

Loss before taxation Taxation

(618)

(1 268)

(1 163)

(42 232)

(1 867)

(10 752)

(94 600)

(46 052)

(59 555)

Owners of the parent

(16 939)

(8 608)

(10 806)

(94 600)

(46 052)

(59 555)

Non-controlling interest

(25 293)

6 741

(42 232)

(1 867)

(10 752)

(94 600)

(46 052)

(59 555)

Loss for the year Loss attributable to:

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Statement of Comprehensive Income Group Figures in Rand thousand

Note(s)

Loss for the year

Company

2012

2011

2010

2012

2011

2010

(42 232)

(1 867)

(10 752)

(94 600)

(46 052)

(59 555)

(50 000)

(92 557)

(73 186)

54 603

44 844

42 182

42 757

(92 557)

(73 186)

4 603

44 844

42 182

(7 243)

(134 789)

(75 053)

(6 149)

(49 756)

(3 870)

(66 798)

(109 496)

(81 794)

(6 203)

(49 756)

(3 870)

(66 798)

(25 293)

6 741

(134 789)

(75 053)

(6 149)

(49 756)

(3 870)

(66 798)

Other comprehensive income: Available-for-sale financial assets adjustments Gains and losses on property revaluation Other comprehensive income

for the year net of taxation Total comprehensive loss Total comprehensive loss attributable to: Owners of the parent Non-controlling interest

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Statement of Changes in Equity Share capital

Revaluation reserve

Fair value adjustment assetsavailablefor-sale reserve

Accumulated loss

Total attributable to equity holders of the group/ company

Noncontrolling interest

Total equity

347 398

327 108

24 173

394 673

745 954

26 361

1 119 713

4 202

1 123 915

(851)

2 716

1 865

Balance at 01 April 2010 as restated

347 398

326 257

24 173

394 673

745 103

29 077

1 121 578

4 202

1 125 780

Fair value gains transferred/ Profit or (Loss)

(73 186)

(8 608)

(81 794)

6 741

(75 053)

36 150

Cimec reserve written off

6 177

Vat recovered

183

36 150

(73 186)

183

(73 003)

(2 431)

(39 284)

6 740

(32 544)

383 548

254 142

24 173

394 856

673 171

31 993

1 088 712

4 811

1 093 523

Prior year adjustments (refer to Note 38)

(1 071)

(4 604)

(5 675)

6 131

456

Balance at 01 April 2011 as restated

383 548

253 071

24 173

394 856

672 100

26 646

1 082 294

10 942

1 093 236

Fair value gains/ Profit or (Loss)

(92 557)

(16 939)

(109 496)

(25 293)

(134 789)

Issues of shares

37 827

Total changes

37 827

(92 557)

(16 939)

(71 669)

(25 293)

(96 962)

421 375

160 514

24 173

394 856

579 543

9 707

1 010 625

(14 351)

996 274

13 & 36

Figures in Rand thousand

Other NDR

Total reserves

Group Opening balance as previously reported Adjustments Prior year adjustments

Issue of shares

36 150

Changes in ownership interest control not lost Total changes Opening balance as previously reported Adjustment

Changes in equity

Balance at 31 March 2012 Note(s)

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Statement of Changes in Equity Share capital

Revaluation reserve

Fair value adjustment assetsavailablefor-sale reserve

347 398

307 578

24 180

384 265

(851)

347 398

306 727

42 182

Figures in Rand thousand

Other NDR

Total reserves

Accumulated loss

Total attributable to equity holders of the group/ company

Noncontrolling interest

Total equity

716 023

(114 997)

948 424

(851)

2 716

1 865

24 180

384 265

715 172

(112 281)

950 289

42 182

(46 052)

(3 870)

Company Opening balance as previously reported Adjustments Prior year adjustments Balance at 01 April 2010 as restated Changes in equity Fair value gains transferred/Profit or (Loss) Issue of shares

36 150

Total changes

36 150

42 182

(46 052)

32 280

383 548

349 979

24 180

384 265

758 424

(160 916)

981 056

(1 070)

2 583

1 513

383 548

348 909

24 180

384 265

757 354

(158 333)

982 569

44 844

(94 600)

(49 756)

Opening balance as previously reported Adjustments Prior year adjustments Balance at 01 April 2011 as restated Changes in equity Fair value gains transferred/Profit or (Loss) Issue of shares

37 827

Total changes

37 827

44 844

(94 600)

(11 929)

421 375

393 753

24 180

384 265

802 198

(252 933)

970 640

13 & 36

Balance at 31 March 2012 Note(s)

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Statement of Cash Flows Group Figures in Rand thousand

Note(s)

Company

2012

2011

2010

2012

2011

2010

236 199

144 351

379 914

(7 715)

(58 997)

(33 155)

13 818

19 731

17 410

16 199

20 157

17 918

125

100

(502)

(1 604)

(1 628)

(468)

(1 595)

(1 608)

(360)

1 342

163 859

395 847

8 016

(40 435)

(16 745)

Cash flows from operating activities Cash from/ (used) in operations

Interest income Dividends received Finance costs Tax (paid) received

Net cash from/(used) in operating activities

249 210

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

(85 853)

(66 309)

(185 499)

(6 425)

(797)

(1 354)

Sale of property, plant and equipment

502

Purchase of investment property

(131 776)

(89 702)

(77 049)

(3 204)

(1 110)

Sale of investment property

17 022

5 869

14 422

7 107

5 869

10 421

Purchase of other intangible assets

(85)

(45)

(6)

Loans to group companies repaid

2 345

1 898

5 434

(1 619)

(5 295)

(1 619)

(4 951)

7 547

13 062

7 547

13 062

Loans disbursed

(83 535)

(112 677)

(235 510)

(83 533)

(112 674)

(232 501)

Loans collected

91 302

129 303

219 639

91 302

129 303

219 639

(121 616)

(269 277)

15 139

33 992

(3 311)

37 827

36 150

48 715

37 827

36 150

48 715

Repayment of interest bearing borrowings

(11 532)

(1 587)

(1 661)

(11 512)

(1 569)

(1 651)

Net cash from financing activities

26 295

34 563

47 054

26 315

34 581

47 064

Total cash movement for the year

90 136

76 806

173 624

49 470

28 138

27 008

Cash and cash equivalents at the beginning of the year

702 514

625 708

452 084

309 646

281 508

254 500

792 650

702 514

625 708

359 116

309 646

281 508

Purchase of financial assets

Sale of financial assets/withdrawal from investments

Net cash (from)/generated from investing activities

(185 369)

Cash flows from financing activities Proceeds on share issue

Cash and cash equivalents at the end of the year

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Accounting Policies 1.

Presentation of Consolidated Annual Financial Statements

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

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

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

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

Average useful life Indefinite 25 - 50 years 5 years 4 years 6 - 10 years 4 - 5 years 4 - 5 years 3 years 3 years 5 years

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

EASTERN CAPE DEVELOPMENT CORPORATION

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

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

1.4 Investments in associates Associates are entities, including unincorporated partnerships and companies without a share capital, over which the Group exercises significant influence. Consolidated annual financial statements An investment in an associate is accounted for using the equity method, except when the asset is classified as held-for-sale in accordance with IFRS 5: Non-current assets held for sale and discontinued operations. Under the equity method, the investment is initially recognised at cost and the carrying amount is increased or decreased to recognise the group’s share of the profits or losses of the investee after acquisition date. The use of the equity method is discontinued from the date the group ceases to have significant influence over an associate. Any impairment losses are deducted from the carrying amount of the investment in associate. Distributions received from the associate reduce the carrying amount of the investment. Profits and losses resulting from transactions with associates are recognised only to the extent of unrelated investors’ interests in the associate. The excess of cost of acquisition over the group’s interest in the net fair value of an associate’s identifiable assets, liabilities and contingent liabilities is accounted for as goodwill, and is included in the carrying amount of the associate. The excess of the group’s share of the net fair value of an associate’s identifiable assets, liabilities and contingent liabilities over the cost is excluded from the carrying amount of the investment and is instead included as income in the period in which the investment is acquired. Corporation annual financial statements Associate companies are those companies in which the Corporation holds a long-term equity interest and over which it exercises a significant influence over its financial and operating policies, other than investments in companies acquired to protect advances or as a conduit for advances. The investments in associate companies are initially recorded at cost. Subsequent to initial recognition, the investment in the associate is carried at fair value as an available for sale financial asset in accordance with the accounting policy on financial assets. If fair value cannot be measured reliably, the investment is carried at cost. An appropriate provision is made where there is considered to be a permanent diminution in the value of the investment.

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ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Accounting Policies 1.5 Impairment of assets An impairment loss on an asset or cash-generating unit is the amount by which the carrying amount, i.e. the amount recognised on the balance sheet after deducting any accumulated depreciation and accumulated impairment losses, exceeds its recoverable amount. The recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use. Value in use is the present value of future cash flows expected to be derived from an asset or cash- generating unit. At each reporting date the carrying amount of the tangible and intangible assets are assessed to determine whether there is any indication that those assets may have suffered an impairment loss. If any such indication exists, the recoverable amount of the cash-generating unit to which the asset belongs is estimated. Value in use is estimated taking into account future cash flows, forecast market conditions and the expected useful lives of the assets. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount is reduced to the higher of its recoverable amount and zero. Impairment losses are recognised in profit or loss. The loss is first allocated to reduce the carrying amount of goodwill and then to the other assets of the cash-generating unit. Subsequent to the recognition of an impairment loss, the depreciation or amortisation charge for the asset is adjusted to allocate its remaining carrying value, less any residual value, over its remaining useful life. If an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, limited to the carrying amount that would have been recognised had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised in profit or loss. Impairments to goodwill are not reversed in subsequent accounting periods.

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

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ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Accounting Policies 1.6 Financial instruments (continued) Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses. Held-to-maturity investments are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses. Available for sale financial assets are subsequently measured at fair value. This excludes equity investments for which a fair value is not determinable, which are measured at cost less accumulated impairment losses. Gains and losses arising from changes in fair value are recognised directly in equity until the asset is disposed of or determined to be impaired. Interest on available for sale financial assets calculated using the effective interest method is recognised in profit or loss as part of other income. Dividends received on available for sale equity instruments are recognised in profit or loss as part of other income when the groupâ&#x20AC;&#x2122;s right to receive payment is established. Impairment of financial assets At each statement of financial position date the group assesses all financial assets, other than those at fair value through profit or loss, to determine whether there is objective evidence that a financial asset or group of financial assets has been impaired. For amounts due to the group, significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and default of payments are all considered indicators of impairment. Impairment losses are recognised in profit or loss, except for available-for-sale equity investments . Impairment losses are reversed when an increase in the financial assetâ&#x20AC;&#x2122;s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the financial asset at the date that the impairment is reversed shall not exceed what the carrying amount would have been had the impairment not been recognised. Reversals of impairment losses are recognised in profit or loss except for equity investments classified as available for sale. Impairment losses are also not subsequently reversed for available-for-sale equity investments which are held at cost because fair value was not determinable. Loans to (from) group companies These include loans to and from holding companies, fellow subsidiaries, subsidiaries, joint ventures and associates and are recognised initially at fair value plus direct transaction costs. Loans to group companies are classified as loans and receivables. Loans from group companies are classified as financial liabilities measured at amortised cost. Trade and other receivables Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The allowance recognised is measured as the difference between the assetâ&#x20AC;&#x2122;s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within operating expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in the income statement. Trade and other receivables are classified as loans and receivables.

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102

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Accounting Policies Trade and other payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value. Derivatives Derivative financial instruments, which are not designated as hedging instruments, consisting of foreign exchange contracts and interest rate swaps, are initially measured at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates. Derivatives embedded in other financial instruments or other non-financial host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value with unrealised gains or losses reported in profit or loss. Changes in the fair value of derivative financial instruments are recognised in profit or loss as they arise. Derivatives are classified as financial assets at fair value through profit or loss - held for trading.

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

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

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

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

EASTERN CAPE DEVELOPMENT CORPORATION

103

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Accounting Policies Government grants are recognised when there is reasonable assurance that: • the group will comply with the conditions attaching to them; and • the grants will be received. Government grants are recognised as income over the periods necessary to match them with the related costs that they are intended to compensate. A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs is recognised as income of the period in which it becomes receivable. Government grants related to assets, including non-monetary grants at fair value, are presented in the statement of financial position by setting up the grant as deferred income.

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

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

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

1.12 Employee benefits Short-term employee benefits Employee benefits cost include all forms of consideration given in exchange for services rendered by employees. The cost of providing employee benefits is recognised in profit or loss in the period they are earned by employees. The cost of short-term employee benefits is recognised in the period in which the service is rendered and is not discounted.

EASTERN CAPE DEVELOPMENT CORPORATION

104

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

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

1.13 Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. Operating leases - lessee Rentals payable under operating leases are recognised in profit or loss on a straight-line basis over the term of the relevant lease, or another basis if more representative of the time pattern of the Groupâ&#x20AC;&#x2122;s benefit. Any contingent rents are expensed in the period they are incurred.

EASTERN CAPE DEVELOPMENT CORPORATION

105

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

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

1.15 Key assumptions concerning the future and key sources of estimation The consolidated annual financial statements are prepared in accordance with and comply with SA GAAP for SME’s and its interpretations adopted by the Accounting Practices Board. In the preparation of the consolidated annual financial statements the corporation has assumed certain key sources of estimation in recording various assets and liabilities, as set out below. Credit impairment of loans and advances The Group adopted an incurred-loss approach to impairment in accordance with accounting policy 1.5. Impairment losses are incurred only if there is objective evidence of impairment as a result of one or more past events that has occurred since initial recognition. This necessitates the establishment of ‘impairment triggers’ on the occurrence of which an impairment loss may be recognised. Credit impairment is based on discounted estimated future cashflows on an asset or group of assets, where such objective evidence of impairment exists. The discount rates used to calculate the recoverable amount exclude consideration of any anticipated future credit losses. The group has created a portfolio provision for incurred but not reported (IBNR) losses. The purpose of the IBNR provision is to allow for latent losses on a portfolio of loans and advances that have not yet been individually evidenced. Generally, a period of time will elapse between the occurrence of an impairment event and objective evidence of the impairment becoming evident, which is known as the ‘emergence period’. The IBNR provision is based on the probability that loans that are ostensibly performing at the calculation date are impaired, and objective evidence of that impairment becomes evident during the emergence period. The implementation of these principles is at a corporation level and will be specific to the nature of their individual loan portfolios and the loan loss data available to the lending division. Provisions, contingent liabilities and contingent assets The group, in the ordinary course of business, enters into transactions that expose the group to tax, legal and business risks. Refer to notes 27 and 28 for further information on provisions, contingent liabilities and contingent assets.

EASTERN CAPE DEVELOPMENT CORPORATION

106

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Accounting Policies Fair value of Investment Properties For valuation methodologies utilised to fair value investment properties, refer to note 2. Unlisted investment valuations The valuation of unlisted investments is based on the discounted free cash flows of the investments taking into account the projected future activities of the entity. These values are established either by independent valuers or management and are reviewed by the Development Investment Committee.

1.16 Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligible for capitalisation is determined as follows: • •

Actual borrowing costs on funds specifically borrowed for the purpose of obtaining a qualifying asset less any temporary investment of those borrowings. Weighted average of the borrowing costs applicable to the entity on funds generally borrowed for the purpose of obtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs incurred.

The capitalisation of borrowing costs commences when: • • •

expenditures for the asset have occurred; borrowing costs have been incurred, and activities that are necessary to prepare the asset for its intended use or sale are in progress.

Capitalisation is suspended during extended periods in which active development is interrupted. Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. All other borrowing costs are recognised as an expense in the period in which they are incurred.

1.17 Intangible assets Computer software Acquired computer software licences are capitalised on the basis of costs incurred to acquire and bring to use the specific software. The cost of minor software and licences are recognised in the Statement of Financial Performance as an expense when incurred. Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in the Statement of Financial Performance as an expense when incurred. Amortisation Amortisation is charged to the Statement of Finnacial Performance on a straight - line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life are systematically tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for sale. The estimated useful lives are as follows: Computer software

18 months

EASTERN CAPE DEVELOPMENT CORPORATION

107

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 2.

Investment property

Group

Investment property

2012

2011

Cost / Valuation

Accumulated depreciation

Carrying value

Cost / Valuation

Accumulated depreciation

Carrying value

1 441 903

1 428 271

Cost / Valuation

Accumulated depreciation

Carrying value

1 396 797

Group

2010

Investment property Company

Investment property

2012

2011

Cost / Valuation

Accumulated depreciation

Carrying value

Cost / Valuation

Accumulated depreciation

Carrying value

604 602

568 812

Company

2010

Investment property

Cost / Valuation

Accumulated depreciation

Carrying value

533 957

Reconciliation of investment property - Group - 2012

Investment property

Opening balance

Additions

Disposals

Transfers and other movements

Fair value adjustment

Total

1 428 271

131 776

(17 352)

(7 469)

(93 323)

1 441 903

Opening balance

Additions

Disposals

Transfers and other movements

Fair value adjustment

Total

1 396 797

89 702

(5 972)

24 889

(77 145)

1 428 271

Opening balance

Additions

Disposals

Transfers and other movements

Fair value adjustment

Total

927 336

77 049

(16 082)

361 499

46 995

1 396 797

Reconciliation of investment property - Group - 2011

Investment property

Reconciliation of investment property - Group - 2010

Investment property

EASTERN CAPE DEVELOPMENT CORPORATION

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ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 2.

Investment property (continued)

Reconciliation of investment property - Company - 2012

Investment property

Opening balance

Additions

Disposals

Transfers and other movements

Fair value adjustment

Total

568 812

3 204

(7 437)

(4 056)

44 079

604 602

Opening balance

Additions

Disposals

Transfers and other movements

Fair value adjustment

Total

533 957

1 110

(5 972)

(2 465)

42 182

568 812

Opening balance

Disposals

Transfers and other movements

Fair value adjustment

Total

511 960

(12 081)

(4 671)

38 749

533 957

1 396 797

927 336

568 812

533 957

511 960

Reconciliation of investment property - Company - 2011

Investment property

Reconciliation of investment property - Company - 2010

Investment property Investment property

1 428 271

Disposals

(17 352)

(5 972)

(16 082)

(7 437)

(5 972)

(12 081)

Transfers

(7 469)

28 991

357 397

(4 056)

1 637

(8 773)

Additions

131 776

89 702

77 049

3 204

1 110

Fair value gains (losses)

(93 323)

(77 145)

46 995

44 079

42 182

38 749

Other movements

(4 102)

4 102

(4 102)

4 102

1 441 903

1 428 271

1 396 797

604 602

568 812

533 957

These properties are situated throughout the Eastern Cape, with the majority of properties concentrated in the areas in and surrounding King Sabatha Dalindyebo, Mnquma, Buffalo City and Chris Hani municipalities. The portfolio consists mainly of industrial, residential and commercial properties. Corporation - 2012

Percentage

Value

Number

Residential

233 654

473

Commercial

269 821

366

Vacant land

74 398

940

18 413

Type of properties

Industrial Other

EASTERN CAPE DEVELOPMENT CORPORATION

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ANNUAL REPORT 2011 / 12

8 316

100

604 602

1 854

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 2.

Investment property (continued)

Corporation - 2011

Percentage

Value

Number

Type of properties Residential

22 161

481

Commercial

252 648

368

Vacant land

70 122

969

Industrial

17 688

Other

6 193

100

568 812

1 886

Percentage

Value

Number

Residential

231 269

500

Commercial

116 012

252

Vacant land

30 905

601

134 561

193

21 183

115

100

533 957

1 661

Corporation - 2010 Type of properties

Industrial Other

Investment properties were valued in terms of the accounting policy, which requires a value determined by a sworn appraiser every three years. Valuations are normally based on comparable sales in the area or on the income earning potential of the building. Investment properties are subject to operating leases with tenants. No rental was charged on certain properties, mainly because the properties are vacant or undeveloped land or unoccupied buildings. Freehold title is held by the Corporation for the majority of properties, but not for all. Properties for which freehold title is not held are included in investment property when they are managed by the Corporation and result in the receipt of economic benefits and rewards and when the Corporation incurs the risks incidental to ownership. Freehold title is held as follows: Corporation - 2012

Percentage

Value

Number

Corporation

504 339

1 755

Government

52 997

Tribal land

30 138

Municipality

17 128

100

604 602

1 854

Percentage

Value

Number

Corporation

464 738

1 786

Government

52 971

Tribal land

29 978

Corporation - 2011

Municipality

EASTERN CAPE DEVELOPMENT CORPORATION

110

ANNUAL REPORT 2011 / 12

21 125

100

568 812

1 886

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 2.

Investment property (continued)

Corporation - 2010

Percentage

Value

Number

Corporation

432 938

1 474

Government

49 246

123

Tribal land

29 978

Municipality

21 795

100

533 957

1 661

The categories of freehold title are further described as follows: •

Corporation Freehold title is registered to the Corporation or one of the former corporations consolidated under the Corporation in terms of the Eastern Cape Development Corporation Act, No 2 of 1997, read with Proclamation 1 of 2001

•

Government The title over land is registered to government. The Corporation is in the process of analysing the properties within this group, which comprise mainly entitlement in terms of Proclamation 1 of 2001 by the Premier of the Eastern Cape.

•

Tribal land This group comprises mainly of properties where the Corporation has assumed “Permission to Occupy”. The majority of these properties are situated on forestry estates and hotels on the Wild Coast.

•

The Corporation’s right to occupy properties to the value of R46.7 million (2011: R58.2 million) (2010: R 78.7 million) included in the above, has not been reduced to writing. However, the Corporation has occupied these properties for a number of years and derives economic benefits from their use and carries the risks that are incidental to ownership. The valuation method used to value these properties assumes that the Corporation has the right to occupy these properties and will receive economic benefits in perpetuity. In the event that the right of occupation is disputed or expires, the valuation of these properties may be overstated. In terms of the accounting policy these rights are assessed on an annual basis and adjustments may be effected to the valuation of these properties if necessary.

•

Municipality The title is registered to different municipalities within the Eastern Cape, but improvements have been made by the Corporation.

Property, plant and equipment

Group

2012

Land Buildings and Infrastructure Finance lease asset

2011

Cost / Valuation

Accumulated depreciation

Carrying value

Cost / Valuation

Accumulated depreciation

Carrying value

11 685

8 272

508 532

(68 477)

440 055

429 004

(52 961)

376 043

(64)

(48)

Plant and machinery

1 841

(1 708)

133

1 841

(1 650)

191

Furniture and fixtures

5 486

(2 441)

3 045

5 332

(1 960)

3 372

Motor Vehicles

1 448

(752)

696

1 448

(559)

889

Office equipment IT equipment

1 750

(836)

914

1 661

(615)

1 046

28 910

(17 631)

11 279

23 023

(13 172)

9 851

Computer Software

3 544

(3 484)

3 474

(3 459)

Other property, plant and equipment

3 555

(2 376)

1 179

2 760

(2 224)

536

566 831

(97 769)

469 062

476 895

(76 648)

400 247

Total

EASTERN CAPE DEVELOPMENT CORPORATION

111

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 3.

Property, plant and equipment (continued)

Group

2010 Cost / Valuation

Land Buildings and Infrastructure

Accumulated depreciation

Carrying value

8 352

398 614

(37 187)

361 427

Finance lease asset

(32)

Plant and machinery

2 031

(1 807)

224

Furniture and fixtures

2 676

(1 646)

1 030

Motor Vehicles

1 361

(594)

767

817

(578)

239

14 663

(10 362)

4 301

3 474

(3 391)

Office equipment IT equipment Computer Software Other property, plant and equipment Total Company

2 756

(2 099)

657

434 824

(57 696)

377 128

2012

Land Buildings and Infrastructure Furniture and fixtures

2011

Cost / Valuation

Accumulated depreciation

Carrying value

Cost / Valuation

Accumulated depreciation

Carrying value

3 265

22 741

(3 355)

19 386

19 535

(2 941)

16 594

1 786

(1 515)

271

1 734

(1 362)

372

Motor Vehicles

184

(73)

111

184

(27)

157

Office equipment

520

(375)

145

527

(321)

206

IT equipment

9 690

(6 260)

3 430

5 862

(4 994)

868

Computer Software

3 544

(3 484)

3 474

(3 459)

Other property, plant and equipment Total

1 773

(1 534)

239

1 773

(1 397)

376

43 503

(16 596)

26 907

36 354

(14 501)

21 853

Cost / Valuation

Accumulated depreciation

Carrying value

3 265

19 535

(2 550)

16 985

1 694

(1 194)

500

Company

2010

Land Buildings and Infrastructure Furniture and fixtures Motor Vehicles

(97)

476

(326)

150

IT equipment

5 677

(4 376)

1 301

Computer Software

3 474

(3 391)

Other property, plant and equipment

1 776

(1 223)

553

35 994

(13 157)

22 837

Office equipment

Total

EASTERN CAPE DEVELOPMENT CORPORATION

112

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 3.

Property, plant and equipment (continued)

Reconciliation of property, plant and equipment - Group - 2012 Opening balance Land Buildings and infrastructure

Additions

Transfers and disposals

Revaluations

Depreciation & Impairments

Total

8 272

3 413

11 685

376 043

78 797

765

(15 550)

440 055

Finance lease asset

(16)

Plant and machinery

191

(58)

133

3 372

162

(489)

3 045

Furniture and fixtures

889

(193)

696

Office equipment

Motor vehicles

1 046

115

(1)

(246)

914

IT equipment

9 851

5 898

(3)

(4 467)

11 279

(25)

Computer software Other property, plant and equipment

536

809

(10)

(156)

1 179

400 247

85 851

3 399

765

(21 200)

469 062

Reconciliation of property, plant and equipment - Group - 2011

Land Buildings and infrastructure Finance lease asset Plant and machinery

Opening balance

Additions

Transfers and disposals

Revaluations

Depreciation & Impairments

Total

8 352

(80)

8 272

361 427

53 784

(27 384)

3 959

(15 743)

376 043

(16)

224

(33)

191

1 030

2 663

(321)

3 372

Motor vehicles

767

423

(219)

(82)

889

Office equipment

239

926

(1)

(118)

1 046

4 301

8 454

(36)

(2 868)

9 851

(68)

657

(5)

(130)

536

377 128

66 264

(27 725)

3 959

(19 379)

400 247

Furniture and fixtures

IT equipment Computer software Other property, plant and equipment

Reconciliation of property, plant and equipment - Group - 2010

Land Buildings and infrastructure Finance lease asset Plant and machinery Furniture and fixtures Motor vehicles Office equipment IT equipment

Opening balance

Additions

Transfers and disposals

Revaluations

Depreciation & Impairments

Total

21 914

(17 162)

3 600

8 352

535 677

182 298

(349 007)

4 008

(11 549)

361 427

(16)

253

(74)

224

1 216

107

(204)

(89)

1 030

959

(224)

767

219

102

(5)

(77)

239

4 385

2 727

(2 872)

4 301

Computer software

160

(93)

Other property, plant and equipment

710

167

132

(352)

657

565 557

185 493

(366 184)

7 608

(15 346)

377 128

EASTERN CAPE DEVELOPMENT CORPORATION

113

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 3.

Property, plant and equipment (continued)

Reconciliation of property, plant and equipment - Company - 2012

Land Buildings and infrastructure

Opening balance

Additions

Disposals

Revaluations

Depreciation

Total

3 265

16 594

2 441

765

(414)

19 386

Furniture and fixtures

372

(153)

271

Motor vehicles

157

(46)

111

Office equipment

206

(1)

(79)

145

IT equipment

868

3 838

(3)

(1 273)

3 430

Computer software Other property, plant and equipment

(25)

376

(1)

(140)

239

21 853

6 424

(5)

765

(2 130)

26 907

Opening balance

Additions

Disposals

Depreciation

Total

3 265

Reconciliation of property, plant and equipment - Company - 2011

Land Buildings and infrastructure Furniture and fixtures

16 985

(391)

16 594

500

(168)

372

423

(219)

(47)

157

Motor vehicles Office equipment IT equipment Computer software Other property, plant and equipment

150

120

(64)

206

1 301

210

(643)

868

(68)

553

(2)

(179)

376

22 837

797

(221)

(1 560)

21 853

Reconciliation of property, plant and equipment - Company - 2010

Land Buildings and infrastructure Furniture and fixtures Motor vehicles

Opening balance

Additions

Disposals

Revaluations

Depreciation

Total

3 265

13 368

4 008

(391)

16 985

634

(175)

500

(10)

Office equipment

107

(39)

150

IT equipment

917

1 054

(10)

(660)

1 301

Computer software

160

(93)

Other property, plant and

593

161

(1)

(200)

553

19 054

1 354

(11)

4 008

(1 568)

22 837

EASTERN CAPE DEVELOPMENT CORPORATION

114

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand

Note(s)

2012

2011

Company 2010

2012

2011

2010

Carrying amount 2012

Carrying amount 2011

Carrying amount 2010

24 336

27 454

Investments in subsidiaries

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

Investments at cost Impairment of investment in subsidiaries

24 336

27 454

(1 334)

23 002

26 120

Plan to dispose of the ECDC Subsidiaries Windsor Hotel (Proprietory) Limited In late 2007, the board of directors announced a plan to dispose of the Windsor Hotel. The disposal is consistent with the Groupâ&#x20AC;&#x2122;s long-term policy to focus its activities on its core operations and rationalize those operations where it is financially viable to do so. Subsequent to a Board resolution to sell Windsor Hotel (Proprietary) Limited, a suitable buyer was identified. A deed of sale was entered into however the conditions of the deed of sale have not been met. The Group has not recognised any impairment losses in respect of the Windsor Hotel (Proprietary) Limitedand has not reclassified the same as held for sale during or at the end of the reporting period as it does not, as yet, meet the measurement critieria per IFRS 5. Transido, USICO, TDC Properties, Transkei Share Investments In July 2006 the board of directors approved a strategy to focus its activities on its core operations and rationalize those subsidiary operations where it is financially viable to do so. The rationalization process will not involve a sale to a 3rd party but rather the net assets will vest in the ECDC and as such no active process was entered into to identify a buyer. During October 2008 a Board resolution was passed that confirmed the financial viability of the rationalization of the following subsidiary entities: Transido (Proprietary) Limited, USICO (Proprietary) Limited, TDC Properties (Proprietary) Limited, and Transkei Share Investments Limited. The process of winding up was made contingent on certain internal administrative requirements being met which would assist in limiting the costs of the rationalization thereof. These matters are still in process and as such has not reclassified the same as held for sale during or at the end of the reporting period as it does not, as yet, meet the measurement critieria per IFRS 5.

EASTERN CAPE DEVELOPMENT CORPORATION

115

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand

Note(s)

Company

2012

2011

2010

2012

2011

2010

63 542

60 731

58 803

48 108

63 542

60 731

58 803

48 108

Investments in associates

Reconciliation of carrying amount Investment at cost

(9 329)

54 213

51 402

49 474

38 779

42 891

42 651

42 411

302

235

168

Bushman Sands Developments (Proprietary) Limited Assets Liabilities Revenue

240

Profit/loss for the period

173

43 606

43 299

42 992

The above information is based on reconstructed management accounts of Bushman Sands Developments (Pty) Ltd for the year ended 31 March 2012. Bushman Sands Development (Pty) Ltd disposed of its shareholding in Bushman Sands Hospitality (Pty) Ltd. The group now holds a 50% (2011: 50%) (2010:50%) interest in the associate. Holiday Inn Transkei (Pty) Ltd 38 307

32 056

26 713

Liabilities

Assets

8 687

6 223

Revenue

40 363

35 118

31 037

5 455

3 689

3 615

Profit/loss for the period

The above information is based on the audited financial statements of Transkei Holiday Inn (Pty) Ltd for the year ended 31 March 2012. The group holds a 49.95% (2011: 49.95%) (2010:49.95%) interest in the associate of which 9.95% (2011: 9.95%) (2010: 9.95%) is held by the corporation.

EASTERN CAPE DEVELOPMENT CORPORATION

116

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand

2012

Company

2011

2010

2012

2011

2010

Loans to (from) group companies

Subsidiaries Eastern Cape Marketing Authority (Pty) LTD (ECMA)

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

15 775

14 349

13 052

Cimvest (PtyP LTD

(6 564)

(5 708)

(5 057)

Transido (Pty) LTD

78 063

78 048

78 030

Umtata Small Industries Complex (Pty) LTD (USICO)

397

392

390

Transkei Share Investment Company Limited (INTRASHARE)

(15 716)

(15 733)

(15 752)

TDC Property Investments (Pty) LTD

3 491

3 467

3 450

Transdev Properties (Pty) LTD

(16 648)

(13 203)

(10 089)

Windsor Hotel (Pty) LTD

913

1 015

1 014

Automotive Industrial Development Centre (AIDC)

2 000

5 265

4 706

4 205

5 265

4 706

4 205

Magwa Enterprise Tea (Pty) LTD Impairment of loans to subsidiaries

5 265

4 706

4 205

67 026

69 371

71 269

(5 265)

(4 706)

(4 205)

(77 833)

(77 275)

(78 511)

(10 807)

(7 904)

(7 242)

4 333

Associates Worthytrade 93 (Pty) LTD

4 333

(4 333)

(38 928)

(34 644)

(30 898)

Non-current assets

28 121

26 740

23 656

Non-current liabilities

(38 928)

(34 644)

(30 898)

(10 807)

(7 904)

(7 242)

8 089

81 608

82 844

82 395

Impairment of loans to associates

Reconciliation of provision for impairment of loans to group companies Opening balance

9 039

Provision for impairment

8 538

559

501

449

558

(1 236)

449

9 598

9 039

8 538

82 166

81 608

82 844

EASTERN CAPE DEVELOPMENT CORPORATION

117

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand

Company

2012

2011

2010

2012

2011

2010

1 643

1 317

1 190

25 000

60 031

64 512

60 409

60 031

64 512

60 409

13 062

Investments

At fair value through profit or loss - designated Listed shares Available for sale Unlisted shares Held to maturity Fixed Term Investments Other Investments Other financial assets

19 443

19 688

18 068

19 443

19 688

18 068

79 474

84 200

91 539

79 474

84 200

91 539

Held to maturity (impairments)

(59 652)

(14 380)

(9 880)

(59 652)

(14 380)

(9 880)

19 822

69 820

81 659

19 822

69 820

81 659

Total other financial assets

46 465

96 137

107 849

44 822

94 820

106 659

[The impairment of R59million against investments includes R49 million that relates to an ongoing fraud investigation against a third party. This has been reported to the Financial Services Board and South African Police Services. Non-current assets At fair value through profit or loss designated Available-for-sale Held to maturity

1 643

1 317

1 190

25 000

19 822

69 820

81 659

19 822

69 820

81 659

46 465

96 137

107 849

44 822

94 820

106 659

46 465

96 137

107 849

44 822

94 820

106 659

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

1 643

1 317

1 190

11 129

60 012

73 470

11 129

60 012

73 470

792 650

702 514

625 708

359 116

309 646

281 508

805 422

763 843

700 368

370 245

369 658

354 978

9 808

8 188

8 693

9 808

8 188

Level 3 Investment securities Loans and receivables

211 086

194 041

233 756

173 734

174 765

216 327

220 894

203 849

241 944

182 427

184 573

224 515

1 026 316

967 692

942 312

552 672

554 231

579 493

EASTERN CAPE DEVELOPMENT CORPORATION

118

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand 7.

2012

2011

Company 2010

2012

2011

2010

Opening balance

Gains or losses in profit or loss

Advances, Rentals & collections

Closing balance

9 808

(1 115)

8 693

194 041

(45 782)

62 827

211 086

203 849

(46 897)

62 827

219 779

Gains or losses in profit or loss

Purchases

Advances, Rentals & collections

Closing balance

Investments (continued)

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Group - 2012 Investment securities Loans and receivables

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

Opening balance

Investment securities Loans and receivables

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Group - 2010

8 188

1 620

9 808

233 756

(70 529)

30 814

194 041

241 944

(70 529)

1 620

30 814

203 849

Opening balance

Gains or losses in profit or loss

Purchases

Advances, Rentals & collections

Closing balance

Investment securities Loans and receivables

8 135

(3 101)

3 154

8 188

277 266

(55 022)

11 512

233 756

285 401

(58 123)

3 154

11 512

241 944

Opening balance

Gains or losses in profit or loss

Advances, Rentals & collections

Closing balance

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Company - 2012 Investment securities Loans and receivables

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

Opening balance

Investment securities Loans and receivables

Reconciliation of financial assets at fair value through profit or loss measured at level 3 - Company - 2010

EASTERN CAPE DEVELOPMENT CORPORATION

(1 115)

8 693

(47 449)

46 418

173 734

184 573

(48 564)

46 418

182 427

Gains or losses in profit or loss

Purchases

Advances, Rentals & collections

Closing balance

8 188

1 620

9 808

216 327

(74 738)

33 176

174 765

224 515

(74 738)

1 620

33 176

184 573

Opening balance

Gains or losses in profit or loss

Purchases

Advances, Rentals & collections

Closing balance

Investment securities Loans and receivables

9 808 174 765

8 135

(3 101)

3 154

8 188

246 859

(72 815)

42 283

216 327

254 994

(75 916)

3 154

42 283

224 515

119

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand 7.

2012

2011

Company 2010

2012

2011

2010

Investments (continued)

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

25 000

(75 000)

Transfers out of level 2 Investment securities

The transfer out of R75 million is as a result of changes to the observable market inputs which in prior years was a primarily independant source to proprietary source Transfers into level 3 Investment securities

75 000

The transfer in of R25 million is as a result of changes to the observable market inputs which in prior years was a primarily independant source to proprietary source. Reconciliation of available-for-sale financial assets measured at level 3 - Group - 2012

Investment securities

Opening balance

Closing balance

25 000

Opening balance

Closing balance

25 000

Reconciliation of available-for-sale financial assets measured at level 3 - Group - 2011

Investment securities Reconciliation of available-for-sale financial assets measured at level 3 - Group - 2010

Investment securities

EASTERN CAPE DEVELOPMENT CORPORATION

120

Opening balance

Gains or losses in other comprehensive income

Transfers into level 3

Closing balance

(50 000)

75 000

25 000

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand 7.

2012

2011

Company 2010

2012

2011

2010

Opening balance

Closing balance

25 000

Opening balance

Closing balance

25 000

Investments (continued)

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

Investment securities Reconciliation of available-for-sale financial assets measured at level 3 - Company - 2011

Investment in securities Reconciliation of available-for-sale financial assets measured at level 3 - Company - 2010

Investment in securities

Opening balance

Gains or losses in profit or loss

Transfers into level 3

Closing balance

(50 000)

75 000

25 000

Deferred tax

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

(439)

1 120

439

(504)

(1 055)

(439)

Reconciliation of deferred tax asset (liability) At beginning of the year Originating temporary difference on tangible fixed assets

Loans advanced

Loans advanced amounting to R117,153 and fully provided for, were written off during 2011/12 financial year. Loans advanced Impairment allowance

289 779

388 073

379 950

287 641

388 055

379 935

(160 136)

(245 552)

(193 307)

(160 136)

(245 552)

(193 307)

129 643

142 521

186 643

127 505

142 503

186 628

EASTERN CAPE DEVELOPMENT CORPORATION

121

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand 9.

2012

2011

Company 2010

2012

2011

2010

Loans advanced (continued)

Loans advanced Non-current assets

74 392

101 586

135 688

73 457

101 568

135 673

Current assets

55 251

40 935

50 955

54 048

40 935

50 955

129 643

142 521

186 643

127 505

142 503

186 628

Reclassification of assets

As previously reported (Group 2010)

Reclassification & adjustments

Restated

Non-current loans advanced

137 605

(1 917)

135 688

Trade and other receivables Trade and other payables

10.

43 686

712

44 398

(111 004)

2 132

(108 872)

52 299

30 141

25 473

38 672

22 613

21 233

3 735

644

347

1 930

(9)

Trade and other receivables

Trade receivables Employee costs in advance Prepayments Deposits VAT

11 654

3 160

526

901

Other receivables

13 673

17 561

21 266

5 033

8 748

8 475

81 443

51 520

47 113

46 229

32 262

29 699

11.

Cash and cash equivalents

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

449 454

408 029

347 089

15 920

15 161

2 889

343 196

294 485

278 619

343 196

294 485

278 619

792 650

702 514

625 708

359 116

309 646

281 508

EASTERN CAPE DEVELOPMENT CORPORATION

122

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand

12.

2012

2011

Company 2010

2012

2011

2010

Share Capital

Authorised 50 billion "A" shares of 1 cent each

500 000

50 billion "B" shares of 1 cent each

500 000

1 000 000

210 688

191 774

173 699

210 688

191 774

173 699

Issued "A" shares of 1 cent each â&#x20AC;&#x153;Bâ&#x20AC;? shares of 1 cent each

210 687

191 774

173 699

210 687

191 774

173 699

421 375

383 548

347 398

421 375

383 548

347 398

383 548

347 398

298 683

383 548

347 398

298 683

Reconciliation of number of shares issued: Reported as at 01 April 2011 Share capital received

13.

37 827

36 150

48 715

37 827

36 150

48 715

421 375

383 548

347 398

421 375

383 548

347 398

Reserves

Pre-incorporation reserves Pre-incorporation reserves represent the net book value of asset and liabilities transferred from previous corporations, adjusted for any changes in the value of these assets due to information which has been established during the current and prior years that refer to the value of assets taken over. Property revaluation reserve The property revaluation reserve represents the total revaluation of land and buildings and fair value adjustments on investment properties. Fair value adjustment available-for-sale-assets reserve Fair value reserves comprise all fair value adjustments that are recognised directly in equity and / or transfers from retained earnings. Pre-incorporation reserve

394 856

394 673

384 265

Property revaluation reserve

160 514

253 071

326 257

393 753

348 909

306 727

24 173

24 180

579 543

672 100

745 103

802 198

757 354

715 172

Fair value adjustment on available-for-sale reserve

EASTERN CAPE DEVELOPMENT CORPORATION

123

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand

14.

2012

2011

Company 2010

2012

2011

2010

Interest bearing borrowings

At fair value through profit or loss Finance lease Development Bank of Southern Africa

5 154

14 366

15 973

2 831

14 343

15 912

5 177

14 386

15 973

2 831

14 343

15 912

3 889

2 867

14 429

1 611

2 847

14 429

1 288

11 519

1 544

1 220

11 496

1 483

Non-current liabilities At fair value Current liabilities Fair value through profit or loss

15.

Retirement benefit obligation

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

(26 340)

(24 175)

(20 389)

(26 340)

(24 175)

(20 389)

(1 280)

867

(63)

(1 280)

867

(63)

(27 620)

(23 308)

(20 452)

(27 620)

(23 308)

(20 452)

(23 308)

(20 452)

(16 004)

(23 308)

(20 452)

(16 004)

240

237

214

240

237

214

Changes in present value Opening balance Contributions by members Net expense recognised in profit or loss

(4 552)

(3 093)

(4 662)

(4 552)

(3 093)

(4 662)

(27 620)

(23 308)

(20 452)

(27 620)

(23 308)

(20 452)

(1 110)

(1 542)

(1 456)

(1 110)

Net expense recognised in the income statement Current service cost

(1 542)

(1 456)

Interest cost

(2 361)

(2 226)

(1 483)

(2 361)

(2 226)

(1 483)

(649)

589

(2 069)

(649)

589

(2 069)

(4 552)

(3 093)

(4 662)

(4 552)

(3 093)

(4 662)

Actuarial (gains) losses

EASTERN CAPE DEVELOPMENT CORPORATION

124

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand

2012

2011

Company 2010

2012

2011

2010

15. Retirement benefit obligation (continued) Past (accrued) and future service liability Health care cost inflation

8,00 %

8,25 %

7,75 %

8,00 %

8,25 %

7,75 %

Discount rate used

9,00 %

9,25 %

9,00 %

9,25 %

Active members

23 484

21 097

17 525

23 484

21 097

17 525

CAWMs liability

2 856

3 078

2 864

2 856

3 078

2 864

26 340

24 175

20 389

26 340

24 175

20 389

16 543

15 218

12 741

16 543

15 218

12 741

820

781

532

820

781

532

1% increase - effect on accumulated benefit obligation

5 331

4 522

3 845

5 331

4 522

3 845

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

(648)

(615)

(423)

(648)

(615)

(423)

(4 253)

(3 612)

(3 088)

(4 253)

(3 612)

(3 088)

1 259 855

1 114 375

1 025 749

Present value of accrued liability

Future service liability Active members

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

1% decrease - effect on accumulated benefit obligation

16.

Deferred income

Non-current liabilities Current liabilities

476 367

412 060

317 443

103 923

34 198

33 778

1 736 222

1 526 435

1 343 192

103 923

34 198

33 778

103 923

34 198

33 778

103 923

34 198

33 778

1 631 372

1 492 043

1 309 261

927

194

153

1 736 222

1 526 435

1 343 192

103 923

34 198

33 778

Analysis per group company Eastern Cape Development Corporation East London Industrial Development Zone (Pty) Ltd Automotive Industrial Development Centre

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

EASTERN CAPE DEVELOPMENT CORPORATION

125

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand

17.

2012

2011

Company 2010

2012

2011

2010

Trade and other payables

Trade payables

79 735

26 876

53 919

2 068

1 262

1 471

1 124

506

13 067

Government funds

135 385

155 251

187 097

135 385

155 251

180 920

Accrued leave pay

VAT

10 563

8 405

6 991

7 027

5 994

4 800

Accrued bonus

5 879

1 717

1 660

5 315

1 535

1 266

Accrued expenses

5 923

6 996

9 050

4 926

6 007

8 048

Deposits received

5 222

4 959

3 938

3 512

3 225

2 702

Other payables

16 550

17 107

20 246

8 100

6 335

8 070

260 381

221 817

295 968

166 333

179 609

207 287

Rendering of services

29 441

25 837

21 365

4 164

4 670

6 370

Rental Income

87 846

85 963

76 451

54 846

56 825

54 464

Interest received on loans

24 508

20 647

26 774

24 508

20 647

26 774

141 795

132 447

124 590

83 518

82 142

87 608

18.

Revenue

EASTERN CAPE DEVELOPMENT CORPORATION

126

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand

19.

2012

2011

Company 2010

2012

2011

2010

Operating loss

Operating loss for the year is stated after accounting for the following: Operating lease charges Premises - Contractual amounts Equipment - Contractual amounts

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

2 848

2 606

2 287

2 324

2 063

1 823

858

816

751

846

804

740

3 706

3 422

3 038

3 170

2 867

2 563

(5)

163

(5)

(161)

(11)

Loss on sale of investment property

(330)

(103)

(1 595)

(330)

(103)

(1 660)

Bad debts recovered

2 994

2 637

3 399

2 994

2 637

3 399

Impairment on property, plant and equipment

(329)

Reversal of impairment on property, plant and equipment

44 160

4 500

3 101

48 393

4 500

3 101

Impairment on loans to group companies

558

501

449

558

449

Reversal of impairment on loans to group companies

(1 236)

Impairment of loans advanced

35 260

52 245

63 624

31 737

52 245

63 624

Impairment on trade and other receivables

11 300

17 866

10 183

20 546

9 190

Reversal of impairment on trade and other receivables

(5 887)

21 184

19 363

15 330

2 131

1 560

1 568

145 376

121 254

122 480

92 823

77 391

84 013

74 071

71 883

70 962

53 046

51 031

54 757

3 938

2 259

1 642

1 898

1 912

1 220

Impairment on investments

Amortisation on intangible assets Depreciation on property, plant and equipment Employee costs Direct property operating expenditure

20. Fees

Auditors' remuneration

EASTERN CAPE DEVELOPMENT CORPORATION

127

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand

21.

2012

Company

2011

2010

2012

2011

2010

Investment revenue

Dividend income Associates - Local Listed financial assets - Local

100

125

100

3 298

990

746

3 990

1 289

1 254

10 498

17 633

16 516

10 498

17 633

16 516

3 103

4 696

5 224

3 103

4 696

5 224

Interest revenue Current accounts Short-term deposits Investments Interest on Guarantee investments

22.

376

314

643

376

22 862

17 905

24 261

23 370

17 268

24 001

22 987

17 905

24 261

23 470

325

127

496

Finance costs

Finance leases Interest on Long term Loans

24.

643 23 962

Fair value adjustments through profit or loss

Other financial assets

23.

314 17 213

502

1 595

1 608

468

1 595

1 608

502

1 604

1 628

468

1 595

1 608

1 057

764

1 057

764

108

(439)

504

(2)

1 057

(439)

504

1 055

618

1 268

1 163

Taxation

Major components of the tax expense Current Local income tax - current period Local income tax - recognised in current tax for prior periods

Deferred Originating and reversing temporary differences Arising from prior period adjustments

EASTERN CAPE DEVELOPMENT CORPORATION

128

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand 24.

2012

2011

Company 2010

2012

2011

2010

Taxation (continued)

Reconciliation of the tax expense Reconciliation between accounting profit and tax expense. Accounting loss

(41 614)

(599)

(9 589)

(94 600)

(46 052)

(59 555)

Other temporary differences

(439)

504

1 055

Prior yearâ&#x20AC;&#x2122;s under-provision

1 057

108

618

504

1 163

Tax effect of adjustments on taxable income

The Corporation has been granted exemption from South African normal taxation in terms of Section 10(1)(cA)(i) of the Income Tax Act.

25.

Cash generated from (used in) operations

Loss before taxation

(41 614)

(599)

(9 589)

(94 600)

(46 052)

(59 555)

21 228

19 475

15 352

2 131

1 560

1 568

335

(60)

1 656

335

264

1 671

(2 811)

(1 928)

(1 898)

(55)

(39)

(125)

(100)

(41 721)

(44 609)

(48 544)

(43 776)

(44 908)

(50 144)

502

1 604

1 628

468

1 595

1 608

Adjustments for: Depreciation and amortisation Loss (profit) on sale of assets Income from equity accounted investments Dividends received Interest income Finance costs Fair value adjustments

(325)

(127)

(496)

(24 916)

72 935

59 777

(26 282)

76 185

76 364

Non cash movement in finance lease

2 455

Movements in retirement benefit assets and liabilities

4 312

2 856

4 448

4 312

2 856

4 448

117 153

245

6 177

(46 942)

(20 424)

25 327

(24 150)

(23 239)

(6 751)

38 566

(74 153)

195 724

(13 276)

(27 678)

177 609

Impairments

Loans written off Other investments written off Project grants written off Changes in working capital: Trade and other receivables Trade and other payables Deferred income

209 787

183 243

136 654

69 725

420

(179 873)

236 199

144 351

379 914

(7 715)

(58 997)

(33 155)

EASTERN CAPE DEVELOPMENT CORPORATION

129

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand

26.

2012

Company 2010

2012

2011

2010

Tax (paid) refunded

Balance at beginning of the year Current tax for the year recognised in profit or loss Reversal of tax provision (exemption granted) Prior year under-provision

27.

2011

(144)

1 779

1 913

(108)

(1 057)

(581)

841

144

(1 779)

(360)

1 342

Contingencies

The Corporation has exposure to litigation of R19,2 million (2011: R 18,2 million) (2010: R1,25 million) against it, as tabulated below. Matters under consideration: 1. Claim for outstanding payment on a government contract for which ECDC issued a performance guarantee. •

Approximate potential liability:

R200, 000

Status of matter: This matter was set down for trial on 15 January 2012. The claimant then removed the matter from the court roll. ECDC is now awaiting a new court date. 2. Damages for termination of lease •

Approximate potential liability:

R500, 000

Status of matter: The claimant appears to be reluctant to pursue the matter. We have not put them to terms to avoid the re-start of the proceedings. The matter is still pending. 3. Claim for outstanding employee transfer costs and short payment of performance bonuses. •

Approximate potential liability:

R1, 500, 000

Status of matter: The matter is going to trial during May 2012 and is being defended. 4. Claim for damages and loss of earnings/ profit for alleged breach of lease agreement •

Approximate potential liability:

R17, 000, 000

Status of matter: Summons was served on ECDC in February 2011. We have filed a plea and counter-claim for outstanding rental and eviction. ECDC is now awaiting a trial date.

EASTERN CAPE DEVELOPMENT CORPORATION

130

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement Group Figures in Rand thousand

28.

2012

2011

Company 2010

2012

2011

2010

Commitments

Authorised capital expenditure Already contracted for but not provided for â&#x20AC;˘ Purchase of shares

1 243

371 964

352 547

160 895

- within one year

3 453

2 935

3 691

3 378

2 860

1 667

- in second to fifth year inclusive

4 702

5 635

9 683

4 952

5 635

7 727

8 155

8 570

13 374

8 330

8 495

9 394

â&#x20AC;˘ Balance on contract work already in progress Operating leases - as lessee (expense) Minimum lease payments due

Operating leases - as lessor (income) Minimum lease payments due - within one year

28 463

21 844

20 390

- in second to fifth year inclusive

73 102

61 581

65 000

- later than five years

4 926

8 877

1 704

106 491

92 302

87 094

EASTERN CAPE DEVELOPMENT CORPORATION

131

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 29.

Related parties

Relationships Subsidiaries Shareholder

Refer to Annexure 1 Department of Economic Development and Environmental Affairs (DEDEA)

Directors Key management and other senior managers

Refer to the Directorâ&#x20AC;&#x2122;s report Eastern Cape Development Corporation B. Dlulane (Executive Manager: Development Investments) M. Lindie (Chief Economist) - appointed 01 November 2011 N Ncokazi (Executive: Development Support Services) L. Tsipa (Executive: Properties) M. Daca (Chief Financial Officer) - Resigned 31 December 2011 S. Mase (Chief Executive Officer) East London Industrial Development Zone (Proprietary) Limited S. Kondlo (Chief Executive Officer) N Madyibi (Chief Financial Officer) J. Burger (Executive Manager: Technical Services) T. Gwintsa (Executive Manager: Investor Services) T Zweni (Executive Manager: Business Development) AIDC Development Centre Eastern Cape (Proprietary) Limited J. Manilal (Chief Executive Officer)

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

Related party

Preference/ ordinary shares

Loan balance

Accumulated impairment

Border Copiers

7 765

Magwa Tea Enterprise (Proprietory) Ltd

5 265

(5 265)

EC Biomass

3 200

3 080

(1 848)

Global pack trading

1 500

4 048

(4 048)

48 108

Singisi Forest Products

3 061

Amatola berries

2 255

6 170

58 124

26 328

(11 161)

Bushman Sands Development (Proprietory) Ltd

Ndlambe Natural Industrial Products (Proprietory) Ltd

EASTERN CAPE DEVELOPMENT CORPORATION

132

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 29.

Related parties (continued)

Related party transactions Subsidiaries and associates Interest from subsidiaries

1 417

1 288

1 254

Rent paid to subsidiaries

1 820

1 654

1 429

Management fees

1 157

848

768

Border Copiers (Proprietory) Ltd

480

714

784

Ndlambe Natural Industrial Products (Proprietory) Ltd

536

757

1 197

1 783

2 290

1 136

Director's fees

Committees fees

Total

700

663

1 363

Director's fees

Committees fees

Total

913

325

1 238

Director's fees

Committees fees

Total

1 002

118

1 120

Basic salary

Allowances

Employer contribution to Funds

Total

Chief Executive Officer

910

491

170

1 571

Chief Financial Officer - Resigned 31 December 2011

644

302

1 025

Executive: Development Investments

814

264

153

1 231

Chief Economist - Appointed 01 November 2011

233

140

439

Executive: Development Support Services

516

378

979

Interest received from related parties

Operational expenditure paid on behalf of Eastern Cape Information Technology Initiative

30.

Director's and prescribed officer's emoluments

Non-executive 2012

2011

2010

Compensation to executive management 2012

Executive: Properties

EASTERN CAPE DEVELOPMENT CORPORATION

133

534

336

111

981

3 651

1 911

664

6 226

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 31.

Risk management

Introduction The essential function of risk management is to identify measure and monitor the risk profile of ECDC. Risk management underscores the fact that the survival of an organisation depends heavily on its capabilities to anticipate and prepare for the changes rather than waiting for the change and react to it.

Enterprise risk management (ERM) ECDC has established an ERM framework that is shareholder value based, organisationally embedded, supported and assured, and reviewed on a regular basis. ERM is considered from an enterprise wide portfolio perspective satisfying three requirements, namely integration (spanning all lines of business), comprehensive (covering all types of risk) and strategic (aligned with the overall business strategy). The objective of ERM is to continuously provide and update risk identification, validation, management and review of these risks. The business model strives to maximise financial and development returns while maintaining and acceptable risk profile.

Risk Appetite The board of directors has approved a risk appetite and tolerance framework which forms the basis of the extent to which ECDC tolerates risks as described by performance indicators, operational parameters and process controls to increase shareholders value. Risk tolerance levels assists management to make better informed business decisions, focus on risks that exceeds the risk appetite and to develop a culture where management is aware of the risks taken. The key risks have been classified according to the five broad risk categories namely, Strategic-, Financial, -Operational, -, Compliance and Information Technology Governance

Risk Management Department The risk department actively monitors and oversee key risks of the Corporation. The key roles and responsibilities of the unit are to: 1. 2. 3. 4. 5. 6. 7. 8.

Play an active role in instituting and promoting a sustainable and robust ERM process; Developing corporate-wide monitoring, assurance and reporting processes for risk management; Regularly reporting to the Chief Risk Officer, Executive Management and the Board Audit and Risk Committee and the Board on critical issues identified, on the progress in mitigating the risks and on any fundamental breaches of approved risk management policy guidelines. Assisting in refining the risk appetite and aligning it to the ECDC mandate, corporate and operational targets Advising Strategic Business units on mitigating controls, processes and procedures; Providing independent investment analysis for all investments proposals formally and informally; Concentration identification and analysis; Benchmarking of best practice risk management activities and application thereof where applicable.

Strategic Risk Strategic risks include the failure of ECDC to fulfil on its development role in terms of shareholders expectation, macro economic conditions, reputational risks and the availability of capital. ECDCâ&#x20AC;&#x2122;s manages strategic risks by the annual review of the risk appetite and tolerance framework, establishing whether risks should be accepted, mitigated or avoided, prioritising risk identification, evaluating the efficiency of risk policies, procedures, practises and controls applied within ECDC on a day to day basis and by determining and reviewing of the maximum mandate levels for the various Committees and staff who approves credit and assets liability decisions.

EASTERN CAPE DEVELOPMENT CORPORATION

134

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 31.

Risk management (continued)

Financial Risk Financial risks includes credit, interest and market risk. This risk group tries to minimise losses which may result due to ECDCâ&#x20AC;&#x2122;s own funding structure and as a result of its external investment and financing activities.

Financial Risk: Credit Risk Credit risk is the potential that a borrower or counter party fails to meet their obligations as per agreed terms. Credit risk is inherent to the business of lending funds and rental collections and is closely linked to market risk variables. Credit risk is a dominant risk within ECDC as the providing of loans, equity capital and rental accommodation is the core business of ECDC. Credit risk consists of two components namely the quantity of risk measured as outstanding accounts receivable balances at the date of default and the quality of risk measured as the severity of loss defined by both the probability of default as reduced by the recoveries that could be made in the event of default. ECDCâ&#x20AC;&#x2122;s approach to credit risk management is to: 1. 2. 3. 4. 5. 6. 7. 8.

Establish exposure ceilings (limits) in certain categories of loans within a certain amount range; Perform due diligence and investment screening on all new loan and rental applications to establish if the applications meets the basic criteria for funding (occupation); Operate a multi-tier credit approving authority based on the loan amount; Test the use of a risk rating model for small and medium businesses for implementation during 2013; Price loans according to the severity of perceived credit risk; Maximise portfolio management which emanates from the necessity to optimise benefits associated with diversification and to reduce the impact of concentration of exposures to a certain individual, sector or industry. Provide a loan review mechanism to identify loans with credit weaknesses and determine the adequacy of loan impairment provisions, adherence to lending policies and procedures and to propose mitigation actions where weaknesses in systems and procedures have been established. Regularly report to management on the risks identified

Financial: Market Risk Market Risk is defined as the possibility of loss to ECDC caused by the changes in market variables of both on and off balance sheet positions which will be adversely affected by movements in equity and interest rate markets. Financial: Interest rate risk Interest rate risk is the potential negative impact on Net Interest Income and it refers to the vulnerability of ECDCâ&#x20AC;&#x2122;s financial condition to the movement in interest rates. Changes in interest rates affects earnings, value of assets, liability off-balance sheet items and cash flow. The objective of interest rate risk management is to maintain earnings, improve the capability and ability to absorb potential loss and to ensure the adequacy of the compensation received for the risk taken and effect risk return trade-off. ECDC and the group are exposed to interest rate risk arising mainly from exposure to the Investment in Development Loans and Investment in surplus operational cash.

Liquidity risk Liquidity risk is defined as the risk of failure to meet all financial obligations on a timely basis, without incurring above normal costs. This risks specifically arises from the inability to honour obligations with respect to commitments to borrowers, lenders and investors and operational expenditure. The ECDC Investment Policy governs the liquidity requirements per investment type. Liquidity is held primarily in the form of money market instruments such as call deposits and bonds. The monthly management of the required liquidity levels is reported to Executive Management on a monthly basis.

EASTERN CAPE DEVELOPMENT CORPORATION

135

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 31.

Risk management (continued)

Operational Risk Operational risks, though defined as any risk that is not categorised as market or credit risk, is the risk of loss arising from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk but excludes systemic and reputational risk. In order to mitigate the above, an operational risk framework and risks registers have been developed per business unit to ensure that operational risks are consistently and comprehensively identified, assessed, mitigated, controlled, monitored and reported by each Business Unit Manager. Operational risk is also mitigated through: • The performance of regular internal audits • Business Continuity and disaster recovery plans which are being managed through VMWARE virtualization platform • Recruitment policies • Insurance through public liability and insurance of fixed assets • Commitment of employees to a code of conduct that encourages integrity, professionalism, accountability and teamwork • Performing fraud awareness training and the availability of a fraud reporting hotline

Compliance Risk ECDC is regulated through the Eastern Cape Development Corporation Act 2 of 1997 as amended. ECDC is accountable to its sole shareholder the Department of Economic Development, Environmental Affairs and Tourism A shareholders compact entered into between the parties manages the performance as well as ECDC capital management. ECDC is not required to hold any capital in terms of the Bank Act 94 of 1990 and may gear up to 100% of the available capital.

Information Technology Risk Technology is core to ECDC’s business. Technology governance is vital to striking the right balance between holding on to our technology lead and managing our costs. It is also fully integrated into our strategic and business processes. All IT decisions are benchmarked against best practice and according to COBIT standard where applicable. IT risk is managed by keeping up to date with the latest advances in technology and in terms of an approved IT Charter which aligns the technical strategy and business needs in by delivering value, managing performance; caters for security management, information management and business continuity management. This Charter is further strengthened by an Information Security, Internet and E-mail Policy which governs all access to information. Disaster recovery has been identified as having the highest impact on ECDC business operations and is being managed.

EASTERN CAPE DEVELOPMENT CORPORATION

136

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 32.

Financial assets by category

The accounting policies for financial instruments have been applied to the line items below: Group - 2012

Loans & receivables

Fair value through profit or lossdesignated

Held to maturity investments

Available for sale

Investments Loans advanced Trade and other receivables

12 772

8 693

25 000

46 465

129 643

81 443

Cash and cash equivalents

Group - 2011

792 650

211 086

805 422

8 693

25 000

1 050 201

Loans & receivables

Fair value through profit or lossdesignated

Held to maturity investments

Available for sale

Carrying amount

61 329

9 808

25 000

96 137

142 521

51 520

Investments Loans advanced Trade and other receivables Cash and cash equivalents

Group - 2010

702 514

194 041

763 843

9 808

25 000

992 692

Loans & receivables

Fair value through profit or lossdesignated

Held to maturity investments

Available for sale

Carrying amount

74 660

8 189

25 000

107 849

186 643

47 113

Investments Loans advanced Trade and other receivable Cash and cash equivalents

EASTERN CAPE DEVELOPMENT CORPORATION

Carrying amount

625 708

233 756

700 368

8 189

25 000

967 313

137

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 32.

Financial assets by category (continued)

Company - 2012

Loans & receivables

Fair value through profit or lossdesignated

Held to maturity investments

Available for sale

11 129

8 693

25 000

44 822

127 505

46 229

359 116

173 734

370 245

8 693

25 000

577 672

Loans & receivables

Fair value through profit or lossdesignated

Held to maturity investments

Available for sale

Carrying amount

60 012

9 808

25 000

94 820

142 503

32 262

309 646

174 765

369 658

9 808

25 000

579 231

Loans & receivables

Fair value through profit or lossdesignated

Held to maturity investments

Available for sale

Carrying amount

Investments Loans advanced Trade and other receivables Cash and cash equivalents

Company - 2011

Investments Loans advanced Trade and other receivables Cash and cash equivalents

Company - 2010

Investments Loans advanced Trade and other receivables

73 470

8 189

25 000

106 659

186 628

29 699

Cash and cash equivalents

EASTERN CAPE DEVELOPMENT CORPORATION

Carrying amount

281 508

216 327

354 978

8 189

25 000

604 494

138

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 33.

Financial liabilities by category

The accounting policies for consolidated annual financial instruments have been applied to the line items below: Group - 2012

Fair value through profit or loss - held for trading

Interest bearing borrowings Trade and other payables

Group - 2011

Interest bearing borrowings Trade and other payables

Group - 2010

Interest bearing borrowings Trade and other payables

Company - 2012

Interest bearing borrowings Trade and other payables

Company - 2011

Interest bearing borrowings Trade and other payables

Company - 2010

Interest bearing borrowings Trade and other payables

EASTERN CAPE DEVELOPMENT CORPORATION

139

ANNUAL REPORT 2011 / 12

Carrying amount

5 177

260 382

265 559

Fair value through profit or loss - held for trading

Carrying amount

14 386

221 817

236 203

Fair value through profit or loss - held for trading

Carrying amount

15 973

295 968

311 941

Fair value through profit or loss - held for trading

Carrying amount

2 831

166 333

169 164

Fair value through profit or loss - held for trading

Carrying amount

14 343

179 609

193 952

Fair value through profit or loss - held for trading

Carrying amount

15 912

207 287

223 199

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 34.

New standards and interpretations

New standards The following new standards have not been early-adopted by the group:

IFRS 9 Financial Instruments The IASB has issued IFRS 9 Financial Instruments, which is the first step in its project to replace IAS 39 Financial Instruments: recognition and measurement, in its entirety. The project has three main phases: • • •

Phase I: Classification and measurement of financial instruments; Phase II: amortised cost and impairment of financial assets; and Phase III: Hedge accounting.

IFRS 9, as currently issued, includes requirements for the classification and measurement of financial assets and liabilities derecognition requirements and additional disclosure requirements. The main requirements include the following: •

Financial assets are to be classified and measured based on the business model for managing the financial asset and the cash flow characteristics of the financial asset. There are two measurement approaches, namely fair value and amortised cost. The financial asset is carried at amortised cost if it is the business model of the entity to hold that asset for the purpose of collecting contractual cash flows and if those cash flows comprise principal repayments and interest. All other financial assets are carried at fair value.

•

A financial asset that would otherwise be at amortised cost may only be designated as at fair value through profit or loss if such a designation reduces an accounting mismatch.

•

The classification and measurement of financial liabilities include requirements similar to those contained in the existing standard IAS 39 Financial Instruments: recognition and measurement.

•

For financial liabilities designated as at fair value through profit or loss, a further requirement is that all changes in the fair value of financial liabilities attributable to credit risk be transferred to other comprehensive income with no recycling through profit or loss on disposal.

•

The requirements for derecognition are similar to those contained in the existing standard IAS 39 Financial Instruments: recognition and measurement, with certain additional disclosure requirements. Management does not anticipate these requirements to have a significant impact on the group’s consolidated annual financial statements. IFRS 9 is effective for the group for the year commencing 1 April 2013. However, the IASB adopted a phased approach for the release of IFRS 9, with the requirements for the classification and measurement of financial assets having been released in 2009 and the requirements for the classification and measurement of financial liabilities and derecognition having been released in 2010. Accordingly, the requirements released in 2010 cannot be earlyadopted without the simultaneous adoption of the 2009 requirements. However, the requirements released in 2009 may be separately early adopted. The IASB intends to expand IFRS 9 in 2011 to address the requirements for the offsetting of financial assets and financial liabilities, impairment of financial assets carried at amortised cost and hedge accounting. The implementation of IFRS 9 is anticipated to have a significant impact on the group’s consolidated annual financial statements. The group is evaluating the impact of the standard.

Revised standards The following revisions to IFRS have not been early-adopted by the group:

IFRS 7 financial instruments: disclosures The following amendments were made to this standard during the year: •

Clarification of certain qualitative and quantitative disclosures relating to the nature and extent of risks. The amendment is effective for the group for the year commencing 1 April 2011.

•

Additional disclosure requirements relating to the transfer of financial assets. This amendment is effective for the group for the year commencing 1 April 2012. These amendments address disclosure in the consolidated annual financial statements and will therefore not affect the financial position of the group.

EASTERN CAPE DEVELOPMENT CORPORATION

140

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 34.

New standards and interpretations (continued)

IFRS 3 Business combinations The amendment clarifies the measurement of non-controlling interests and provides additional guidance on unreplaced and voluntarily replaced share-based payment awards. The amendment is effective for the group for the year commencing 1 April 2011 and is not expected to have a significant impact on the group.

IAS 12 income taxes The amendment provides a practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair-value model in IAS 40 Investment property. The amendment is effective for the group for the year commencing on or after 1 April 2012 and is not expected to have a significant impact on the group as the holding company is exempt from income tax.

IAS 24 Related parties The amendment provides exemptions from certain disclosure requirements in respect of government-related entities and clarifies the definition of a related party. The amendment is effective for the group for the year commencing 1 April 2011. This amendment addresses disclosure in the annual financial statements and will therefore not affect the financial position of the group. Furthermore, the revisions to the disclosures are not expected to have a significant effect on the group.

IAS 32 Classification of rights issues’ issued in October 2009. The amendment applies to annual periods beginning on or after 1 February 2010. Earlier application is permitted. The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8. Accounting policies, changes in accounting estimates and errors’. The group will apply the amended standard from 1 April 2011.

Annual improvement project As part of its third annual improvement project the IASB has issued its 2010 edition of annual improvements. The annual improvement project aims to clarify and improve the accounting standards. The improvements include those involving terminology or editorial changes, with minimal effect on recognition and measurement. There are no significant changes in the improvement of the current year that will affect the group and the improvement is effective for the group commencing 1 April 2011.

Interpretations The following interpretations of existing standards are not yet effective and have not been early-adopted by the group:

IFRIC 19 Extinguishing financial liabilities with equity instruments The interpretation addresses divergent accounting by entities issuing equity instruments to extinguish all or part of a financial liability (often referred to as ‘debt for equity swaps’). The interpretation concludes that the issue of equity instruments to extinguish an obligation constitutes consideration paid. The consideration should be measured at the fair value of the equity instruments issued, unless that fair value is not readily determinable, in which case the equity instruments should be measured at the fair value of the obligation extinguished. Any difference between the fair value of the equity instruments issued and the carrying value of the liability extinguished is recognised in profit or loss. If the issue of equity instruments is to settle a portion of a financial liability, the entity should assess whether a part of the consideration relates to a renegotiation of the portion of the liability that remains outstanding. The adoption of this standard is not expected to have a material impact on the group’s consolidated annual financial statements. The standard is effective for the group for the year commencing 1 April 2011.

IFRIC 14 Prepayments of a minimum funding requirement. The amendments correct an unintended consequence of IFRIC 14, ‘IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction’. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct this. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented. The group will apply these amendments for the financial reporting period commencing on 1 April 2011.

EASTERN CAPE DEVELOPMENT CORPORATION

141

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 34.

New standards and interpretations (continued)

Standards and interpretations adopted in the current year Revised standards The following revisions to IFRS have been adopted by the group as their application has become mandatory for the reporting period:

Amendments to IFRS 2 group-settled arrangements The amendment provides additional guidance on the accounting for share-based payment transactions among group entities. The most significant change is that the entity receiving the goods or services will recognise the transaction as an equity-settled share-based payment transaction only if the awards granted are its own equity instruments or if it has no obligation to settle the transaction. In all other circumstances the entity will measure the transaction as a cash-settled share-based payment. The scope of IFRS 2 has also been amended to clarify that the standard applies to all share-based payment transactions, irrespective of whether or not the goods or services received under the share-based payment transaction can be individually identified. The adoption of the amendments to the standard did not have an effect on the group’s consolidated annual financial statements as the group is not party to share based payments arrangements. IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations’. The amendment clarifies that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, in particular paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1.

IAS 1 (amendment), ‘Presentation of financial statements’. The amendment clarifies that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or noncurrent. By amending the definition of current liability, the amendment permits a liability to be classified as noncurrent (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time.

IAS 36 (amendment), ‘Impairment of assets’, effective 1 January 2010. The amendment clarifies that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment, as defined by paragraph 5 of IFRS 8, ‘Operating segments’ (that is, before the aggregation of segments with similar economic characteristics).

Annual improvement project As part of its second annual improvement project, the IASB issued its 2009 edition of annual improvements. The annual improvement project aimed to clarify and improve the accounting standards. These improvements included those involving terminology or editorial changes with minimal effect on recognition and measurement. No significant changes were made to the group consolidated annual financial statements for the revisions that were effective for the year commencing 1 April 2010.

Interpretations The following amended IFRIC’s have been adopted by the group as their application has become mandatory for the reporting period:

IFRIC 17, ‘Distribution of non-cash assets to owners’ (effective on or after 1 July 2009) . The interpretation was published in November 2008. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. The adoption of the amendments to the standard did not have an effect on the group’s consolidated annual financial statements.

EASTERN CAPE DEVELOPMENT CORPORATION

142

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 34.

New standards and interpretations (continued)

IFRIC 18, ‘Transfers of assets from customers’, Effective for transfer of assets received on or after 1 July 2009. This interpretation clarifies the requirements of IFRSs for agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services (such as a supply of electricity, gas or water). In some cases, the entity receives cash from a customer that must be used only to acquire or construct the item of property, plant, and equipment in order to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services (or to do both). The adoption of this interpretation did not have an effect on the group’s consolidated annual financial statements.

IFRIC 9, ‘Reassessment of embedded derivatives and IAS 39, Financial instruments: Recognition and measurement’, effective 1 July 2009. This amendment to IFRIC 9 requires an entity to assess whether an embedded derivative should be separated from a host contract when the entity reclassifies a hybrid financial asset out of the ‘fair value through profit or loss’ category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. If the entity is unable to make this assessment, the hybrid instrument must remains classified as at fair value through profit or loss in its entirety.

IFRIC 16, ‘Hedges of a net investment in a foreign operation’ effective 1 July 2009. This amendment states that, in a hedge of a net investment in a foreign operation, qualifying hedging instruments may be held by any entity or entities within the group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements of IAS 39 that relate to a net investment hedge are satisfied. In particular, the group should clearly document its hedging strategy because of the possibility of different designations at different levels of the group. IAS 38 (amendment), ‘Intangible assets’, effective 1 January 2010. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. The amendment provides transitional provisions as a result of changes to IAS 27 (AC 132) Consolidated and Separate Financial Statements. The effective date of the amendment is for years beginning on or after 01 July 2010. The group has adopted the amendment for the first time in the 2012 consolidated annual financial statements. The impact of the amendment is set out in note Changes in Accounting Policy. The amendment allows first time adopters to apply the transitional provisions of IFRS 7 (AC144). The exemption is only allowed for consolidated annual financial statements where the earliest comparative is before years ending on 31 December 2009. The effective date of the amendment is for years beginning on or after 01 July 2010. The group has adopted the amendment for the first time in the 2012 consolidated annual financial statements. The impact of the amendment is set out in note Changes in Accounting Policy.

EASTERN CAPE DEVELOPMENT CORPORATION

143

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 35.

Financial instruments at fair value

Group

2012

Fixed term Investments Other investments Listed shares at fair value Unlisted shares at fair value

Interest bearing borrowings Trade and other payables

Company

2011

Carrying Amount

Fair Value

Carrying Amount

Fair Value

11 129

60 012

60 409

8 693

9 808

21 250

Other investments Unlisted shares at fair value

Interest bearing borrowings Trade and other payables

Carrying Amount

Fair Value

1 643

1 317

1 190

25 000

46 465

96 137

107 849

5 177

14 386

15 973

260 382

221 817

295 968

265 559

236 203

311 941

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Carrying Amount

Fair Value

11 129

60 012

60 409

2012

Fixed term Investments

2010

2011

2010

8 693

9 808

21 250

25 000

44 822

45 937

94 820

106 659

2 831

14 343

15 912

166 333

179 609

207 287

169 164

193 952

223 199

Determination of fair value Financial instruments with short-term maturities At year end the carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximated their fair values due to the short-term maturities of these assets and liabilities.

Unlisted shares carried at fair value During 2009/10, the Corporationâ&#x20AC;&#x2122;s investment in Singisi Forest Products was revalued to its fair value of R 25 million. The minority shareholding in Singisi Forest Products (Pty) Ltd has been valued using the projected dividends receivable from free cash flows (excess cash). The downturn in the world economy coupled with continuing low foreign exchange rates and closer to home, the local building industry (residential market) also having experienced a downswing, has resulting in an oversupply of lumber in the national market. This affected the company revenueâ&#x20AC;&#x2122;s negatively experiencing both a volume and price reduction which has resulted in the marked movement in the valuation from 2009.

Unlisted shares carried at cost In accordance with the accounting policy on available-for-sale financial assets, certain unlisted shares are carried at cost as their fair values could not be reliably determined, due to a lack of an active market for these instruments.

Held to maturity investments, loans advanced and interest bearing borrowings The fair values of these financial instruments are determined based on discounted cash flow techniques, taking account of market related discount rates appropriate to the instrument and economic conditions current at the balance sheet date. At this date, the fair value of the financial instruments approximated their carrying values

EASTERN CAPE DEVELOPMENT CORPORATION

144

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 36.

Other comprehensive income

Components of other comprehensive income - Group - 2012 Available-for-sale financial assets adjustments

Balance

Closing balance

24 173

Opening balance

(24 173) -

Movements on revaluation Closing balance

160 514

Opening balance

(253 071) (92 557)

Components of other comprehensive income - Group - 2011 Available-for-sale financial assets adjustments

Balance

Closing balance

24 173

Opening balance

(24 173) -

Movements on revaluation Closing balance

253 071

Opening balance

(326 257) (73 186)

Components of other comprehensive income - Group - 2010 Available-for-sale financial assets adjustments

Balance

Closing balance

24 173

Opening balance

(74 173) (50 000)

Movements on revaluation Closing balance

326 257

Opening balance

(271 654) 54 603

Components of other comprehensive income - Company - 2012 Available-for-sale financial assets adjustments

Balance

Closing balance

24 180

Opening balance

(24 180) -

Movements on property revaluation Closing balance

393 753

Opening balance

(348 909) 44 844

EASTERN CAPE DEVELOPMENT CORPORATION

145

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 36.

Other comprehensive income (continued)

Components of other comprehensive income - Company - 2011 Available-for-sale financial assets adjustments

Balance

Closing balance

24 180

Opening balance

(24 180) -

Movements on revaluation Closing balance

348 909

Opening balance

(306 727) 42 182

Components of other comprehensive income - Company - 2010 Available-for-sale financial assets adjustments

Balance

Closing balance

24 180

Opening balance

(74 180) (50 000)

Movements on revaluation Closing balance

306 727

Opening balance

(263 970) 42 757

37.

Prior period adjustments and Reclassifications

The consolidated annual financial statements have been restated to correct the effects of prior year adjustments and reclassification of assets and liabilities as tabulated below: Statement of Financial Position Non-current assets held for sale

7 136

8 773

Retained income/(loss)

Investment Properties

Non Controlling interest

Reserves

Trade and other receivables Current tax payable

7 136

8 773

(4 604)

2 716

2 583

2 716

(8 206)

(9 624)

(8 206)

(9 624)

6 131

1 070

851

1 070

851

(2 583)

(2 716)

(2 583)

(2 716)

(1 028)

Statement of Financial Position Government subsidies and grants

(2 350)

Expenses

1 028

2 350

1 028

EASTERN CAPE DEVELOPMENT CORPORATION

146

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Notes to the Consolidated Annual Financial Statement 37.

Prior period adjustments and Reclassifications (continued)

Reclassifications From Investment properties

(11 192)

(7 136)

(8 773)

To Non-current assets held for sale

11 192

7 136

8 773

From Project grants

(211 772)

(163 037)

(184 570)

To Deferred income

76 388

7 787

3 650

To Trade and other payables

135 384

155 250

180 920

Cost / Valuation

Accumulated amortisation

Carrying value

Cost / Valuation

Accumulated amortisation

Carrying value

150

(74)

(48)

Cost / Valuation

Accumulated amortisation

Carrying value

Opening balance

Additions

Amortisation

Total

(26)

Opening balance

Additions

Other changes, movements

Amortisation

Total

(65)

Opening balance

Additions

Amortisation

Total

(6)

38.

Intangible assets

Group

2012

Computer Software, internally generated

2011

Group

2011

Computer Software, internally generated Reconciliation of intangible assets - Group - 2012

Computer software, internally generated Reconciliation of intangible assets - Group - 2011

Computer software, internally generated Reconciliation of intangible assets - Group - 2010

Computer software, internally generated

39.

Post balance sheet events

Project funds amounting to R90 million, included in trade and other payables, were surrendered back to the Department of Economic Development, Environmental Affairs and Tourism after year end 31 March 2012.

EASTERN CAPE DEVELOPMENT CORPORATION

147

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Supplementary information Group

Company

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

Subsidiaries

Name of the subsidiary (consolidated)

Issued share capital

Percentage shareholding

Shares at cost less provision

Indebttedness less provision

2012 TDC property investments (Pty) Ltd

4 000

100

3 491

Transdev properties (Pty) Ltd

2 000

100

2 000

(16 648)

100

15 775

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

120

100

(6 564)

232 757

22 998 747

(15 716)

100

1 330 200

100

7 495

400

100

397

1 000

740

100

913

23 001 689

(10 807)

2011 TDC property investments (Pty) Ltd

4 000

100

3 467

Transdev properties (Pty) Ltd

2 000

100

2 000

(13 203)

100

14 349

120

100

(5 708)

232 757

26 117 248

(15 733)

100

1 330 200

100

7 479

400

100

392

1 000

740

100

1 015

100

26 120 190

(7 904)

EASTERN CAPE DEVELOPMENT CORPORATION

148

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Supplementary information Group

Company

The supplementary information presented does not form part of the consolidated annual financial statements and is unaudited 1.

Subsidiaries (continued)

Name of the subsidiary (consolidated)

Issued share capital

Percentage shareholding

Shares at cost less provision

Indebttedness less provision

2010 TDC property investments (Pty) Ltd

4 000

100

3 450

Transdev properties (Pty) Ltd

2 000

100

2 000

(10 089)

100

13 052

120

100

(5 057)

232 757

26 117 248

(15 752)

100

2 000

1 330 200

100

3 724

400

100

390

1 000

740

100

1 014

100

26 120 190

(7 242)

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

Entities which were not equity-accounted Certain equity investments in which the Group holds 20% or more of the equity have not been equity accounted as the investments were only acquired to protect loan advances. The entity affected is Border Copiers.

Availability of information A subsidiary, Windsor Hotel (Proprietary) Limited, and an associate, Bushman Sands Developments (Proprietary) Limited, have been consolidated on the basis of limited information due to financial statements for the year ended 31 March 2012 not being available.

EASTERN CAPE DEVELOPMENT CORPORATION

149

ANNUAL REPORT 2011 / 12

Eastern Cape Development Corporation Consolidated Annual Financial Statements for the year ended 31 March 2012

Supplementary information Group

Company

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

Interest bearing borrowings

Group

Installment

Date of final payment

700

Loan 13942/201 Loan 13942/301

Interest rate (%)

2012

2011

2010 R’000

2 012

713

1 427

2 105

164

538

461

2 016

2 118

2 581

3 061

10 171

10 208

Development Bank of Southern Africa Office Block Loan

Loan 13942/401 Finance lease

127

2013

1 288 Corporation

Installment

Date of final payment

713

2 012

Interest rate (%)

552

3 383

14 386

15 973

2012

2011

2010 R’000

713

1 427

2 105

Development Bank of Southern Africa Office Block Loan Loan 13942/201

164

538

Loan 13942/301

507

2 016

2 118

2 581

3 061

Loan 13942/401 1 220

10 171

10 208

2 831

14 343

15 912

Provincial Investment Fund 2012

Operational expenditure

3 101

Executive employee’s salary & benefits

1 207 4 308

During the financial year the Corporation commenced with the introduction of an investment fund with the objective of identifying, conceptualising, securing funding and implementing mega catalytic projects. The above expenditure is included in the corporation's operational loss (note 20).

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Furntech is a business incubator in furniture manufacturing. With several centres around South Africa, it also operates from an ECDC-owned building in the Vulindlela Industrial Area in Mthatha.

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The Keiskammahoek essential oil cluster which includes Hogsback is one of six areas within the province being developed in order to take advantage of a multibillion global industry.

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12 LIST OF ACCRONYMS

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LIST OF ACCRONYMS ABET

Adult basic education and training

AIDC

Automotive Industry Development Centre

BBBEE

Broad-based black economic empowerment

BPO

Business process outsourcing

CEO

Chief executive officer

CIPC

Companies and Intellectual Property Commission

DAFF

Department of Agriculture, Forestry and Fisheries

DBSA

Development Bank of Southern Africa

DEDEAT

Department of Economic Development, Environmental Affairs and Tourism

DFI

Development finance institution

DTI

Department of Trade and Industry

ECCTV

Eastern Cape Community Television

ECDC

Eastern Cape Development Corporation

FABCOS

Foundation for African Business and Consumer Services

FDI

Foreign direct investment

Human resources

ICT

Information and communication technology

IDC

Industrial Development Corporation

IDZ

Industrial Development Zone

Investment Promotion

LED

Local economic development

LRED

Local and regional economic development

MBSA

Mercedes Benz South Africa

MOA

Memorandum of agreement

MOU

Memorandum of understanding

NAFCOC

National African Federated Chamber of Commerce and Industry

NERSA

National Energy Regulator of South Africa

NMBM

Nelson Mandela Bay Municipality

NNMU

Nelson Mandela Metropolitan University

KPA

Key performance area

OEM

Original equipment manufacturer

PFMA

Public Finance Management Act

PGDP

Provincial Growth and Development Plan

SAITEX

South African International Trade Exhibition

SEDA

Small Enterprise Development Agency

SMME

Small, medium and micro enterprise

UNIDO

United Nations Industrial Development Organization

VCT

Voluntary counselling and testing

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