PUBIISIIED BY: [astern Cape De1·elopmenr Corporation Ocean Terrace Park, Moore Street, Quigney, East London PO Box 11197, Sourhermvood, 5213, South Africa c: Fastern CaJ>P DevPiopmenr Corporation, 2014

ENQUIRIES: Marketing Department Eastern Cape Development Corporation Telephone: +27 43 704 5600 · Fax: +27 43 704 5700 ir~{o@ecdc.co.za • 1vww.ecdc.co.za

ISBN: 978-0-620·62600-2 Eastern Cape Developmem Corporation (ECDC) Annual Report 2013/14

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contents 01 About ECDC

02 Board of 01rectors

03 Acting Chairperson's Foreword

04 Executive Management

OS Acting Ch1ef Executive Officer's Report

06 Financial Review

07 Operations Review I)

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08 Human Resources

09 Enterprise R1sk Management

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63

10 Performance Against 65 Predetermmed Objectives

11 statement of Responsibilities & Approval 77

12 Certificate of the company secretary 78

13 Corporate Governance 79

14 Audit. Risk & compliance comm1ttee Report 83

15 Directors' Report 86

16 Report of the Auditor-General 91

17 Annual rinancial Statements 95

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project last facts

LOCATION Rural Amarhule (lll'ur ~fa<l•·anc, wn)

ECDC INTERVENTION fm~aba Co-operau~·es Fund (gram & loan)

JOBS CREATED 5 permanem

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a) Provision of Innovative development finance; and b) Leveraging of resources. strategic alliances, investment and partnerships.

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/'\jfl < fl/ 1 \ PROFESSIONI\LISM \( C Ul 'V T \Rill I) ll::.J\M\\'ORK

INTEGRITY In all our dealings with all people, we are known for our spirit of honour. reliability and accuracy.

PROFESSIONALISM we are defined by our positive, presentable demeanour and our quest for continuous improvement.

ACCOUNTABILITY we are always ready to g1ve truthful, accurate account of our use of company time. assets and opportunities.

TEAMWORK None of us is as productive as all of us when we complement each other to achieve a common goal.

"hc.t IH llalue we Income

4 a Till tal report .!0 l ~ 14

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FCDC draws its mandate d1rect1y from the Eastern Cape Development Corporation Act (Act 2 of 1997) and is led by the economic development priorities of the prov1ncial government. as detailed in the Prov1nc1al Growth and Development Plan (PGDP), Provincial Industrial Development Strategy (PIDSl, policy statements and the budget speech of the Ministry of Economic Development. Environmental Affairs and Tourism.

The ECDC Act preamble states that the Corporation Will "plan, hnance, coordinate, market. promote and Implement development of the provmce and its people 1n the fields of Industry. commerce. agriculture, transport and finance".

111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111 strateg; c focu 5 ,,1,11111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111

AS DEFINED IN THE SHAREHOLDER'S COMPACT ENTERED INTO BY THE ECDC BOARD AND THE DEPARTMENT OF ECONOMIC DEVELOPMENT, ENVIRONMENTAL AFFAIRS AND TOURISM (DEDEAT), ECDC'S STRATEGY FOCUSES ON IT BECOMING A VIABLE DEVELOPMENT FINANCE CORPORATION BY:

• Stimulating economic act1v1ty through focused mvestment in v1tal sectors of the Eastern Cape economy; • Investing in Intellectual leadership; • Optimising all resources so as to max1m1se Investment returns and atta1n financ1al sustatnability; • Buildmg a strong brand; and • Establishmg mtegrated partnershiPS With stakeholders to ensure max1mum leverage of resources and

development outcomes

111111111111111111111111111111111111111111111111111111111111111111111111111 ecdc products & services 111111111111111111111111111111111111111111111111111111111111111111111111111

TO BE A DEVELOPMENT FINANCE CORPORATION FOR THE PROMOTION OF ECONOMIC GROWTH IN THE EASTERN CAPE, ECDC OFFERS A RANGE OF FINANCE PRODUCTS AND ENTERPRISE SUPPORT SERVICES RELATED TO THE FOLLOWING OPERATIONAL AREAS:

• Development F1nance (loans and equity) • Trade Promotion • Property Management and Development • eus1ness Support • Risk capital Facility • Spec1at Funds • Investment Promotion (lmvaba co-operative Fund and Job Stimulus Fund)

obourerdc 5

project fast {acts LOCATION

£1/iotdale

ECDC INTERVENTION Project Management

Financing, Social (acilitacion & Resource mobilization

JOBS CREATED 55 construction

32 permanent operational 5 temporary operational

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Prof. Mkhalelwa Mazibuko

Born 11 March 1954 Appointed May 2011

SUB-COMMITIEE • Funding and Investment

Committee • Governance and

NominatiOns comtmttee

QUALIFICATIONS • Bachelor of Arts (Internal

Studies). webster untverstty • Master of Sctence

(International Relattons). university of Zimbabwe

• Masters 1n Natural Resources Management/ Development Econom1cs. umvers•ty of Mallltoba

CURRENT POSITION • Chief Executive Officer

(CEO) RULIV (Promoting Rural and urban LivelihOOds)

DIRECTORSHIPS • Eastern cape Appeal

Development Tribunal

Mzuvuki/e Maqetuka Born: 28 January 1952 Appomted. November 2012

SUB-COMMITIEE • Social and Ethtcs Commtttee • HR & REMCO Commtttee

QUALIFICATIONS • BA (Honours). University of

westmm1ster (London, UK) • Certificate 1n Strateg•c

Management, Stellenbosch Business School

DIRECTORSHIPS • SaCOtl Umtted • Karoo Mtmng

Development(PTY) • lkhala LeMvelo Trading

(PTY) LTD • Living Aloe (PTY) LTD • Ernest Maqetuka

Family Trust • MaQ Couture (PTY) LTD

Reggie Naidoo

Born: 7 May 1961 Appotnted November 2012

SUB·COMMITIEE • HR & REMCO Commtttee • Funding and Investment

Committee

QUALIFICATIONS • Masters 1n Management,

umverstty of Witwatersrand • Post-graduate Diploma in

world Banktng and Finance, The Economtcs 1nst1tute -umvers1ty of Colorado <USA)

CURRENT POSITION • Age Group, Executive

Chairperson

Nondumiso Medupe Born 25 May 1971 Appointed February 2013

SUB·COMMITIEE • Audit and Rtsk committee,

Chairperson • Fundmg and Investment

Committee

QUALIFICATIONS • CA (SA) • Post-graduate Diploma 1n

Accountancy • Bachelor of Accountancy

CURRENT POSITION • CEO: lndyebo Consultmg

DIRECTORSHIPS • SAFCOL • Ctty Lodge

Nonkqubela Maliza Born 28 OCtober 1967 Appointed October 2011

SUB-COMMIITEE • Human Resource and

Remunerations comm1ttee (HR & REMCO), Chairperson

• Audit and R1sk comm1ttee • Governance and

Nominations comm1ttee

QUALIFICATIONS • MBA. Un1vers1ty of cape Town • Bachelor of Arts !Honours)

<EconomiCS), Rhodes UniverSity

CURRENT POSITION • Executive Director - Corporate

and Government Affa1rs: Volkswagen South Africa

DIRECTORSHIPS • volkswagen

Community Trust • Rhodes univerSity Foundation • Uitenhage Despatch

Development 1111t1at1ve

Themhn f:iki7nln

Born: 30Apnl1963 Appointed: November 2012

SUB COMMIITEE • HR & REMCO Committee • Governance and

Nommations comm1ttee

QUALIFICATIONS • BA {Honours)

(Labour Relat1ons and Human Resources)

• Bachelor of Law

board of dtrector.s

CURRENT POSITION • Human Resources and

Employee • Relations Director:

Umon Carnage & Wagon

Loyiso Jiya Born 11 April1969 Appointed· OCtober 2011

SUB-COMMITIEE • Funding and Investment

Committee, Chairperson • Audit and R1sk committee

QUALIFICATIONS • MBA Finance <cum laude),

umvers1ty of Massachusetts. Amherst

• BA (Honours) (EconomiCS), UCT

• BA (Economics and lndustnal SOCIOlogy), Rhodes

CURRENT POSITION • Jiya Associates.

Executive Chairperson

DIRECTORSHIPS • Bannow Afnca • RTI Holdings • RTI Energy Africa

BuiPiwn Nnndoln

Born: 18 October 1957 Appointed· November 2009

SUB-COMMITTEE • Audit and RISk comm1ttee • Funding and Investment

committee

QUALIFICATIONS • Bachelor of Accounting

Sciences !Fmanc1al Accounting}. UNISA

• Individual Professional Certificate CPubl ic Financ1a1 Management). Umversity of London

• MSc in Public Polley and Management (Un1vers1ty of London)

CURRENT POSITION • Deputy Director General

& Ch1ef Fmancial Officer: Eastern Cape Provincial Treasury

9

Sandile Sentwa Dalubuhle Mbelani Rowan Nicholl~ Born 29 August 1948 DIRECTORSHIPS

Born. 10 August 1977 Appointed: August 2012

Born· 15 March 1968 Appomted· september 2011 SUB·COMMITIEE

• AUdit and RISk committee. (External Member)

• Road TraffiC Management CorporatiOn

QUALIFICATIONS QUALIFICATIONS Bachelor of Accounting •

Sc1ence (Honours) Certificate in Theory of Accounting •

Higher Diploma in Auditing •

• certificate In Corporate Governance.

• Film & Publication Board

• Agncultural Research counc11

University of Johannesburg QUALIFICATIONS • Certified Financial

Planner, University of the Free State

CURRENT POSITION • suns: LLB Walter SISUIU University

Ch1ef F1nanc1al • OffiCer· ECDC

Noxolo Mteto

Born 9 August 1974 Appointed: November 2009

SUB·COMMITIEE • Property Disposal

Task Team • Audit & Risk comm1ttee • Governance and

Nominations committee

QUALIFICATIONS • Post Graduate Diploma

1n Corporate Law, UNISA • Bachelor Procuratlonis,

wsu

CURRENT POSITION • Attorney (conveyancer

& public notary)

DIRECTORSHIPS • East London IDZ

• CA (SA) • CIA • Registered

Accountant & AUditOr

• Central University of Technology counc11 !Bioemfoteln)

• s.com

CURRENT POSITION • Managmg Director

NIChOllS Stephen Accounting & related serv1ces

Dr Somadoda Fikeni

Born 1 october 1966 Appointed March 2009

SUB·COMMITIEE • Property Disposal

Task Team • Social and Eth1cs

Committee

QUALIFICATIONS • Doctor of PhilOSOphy

(PhD), MIChigan • MA, Queen's (Canada) • BA (Hens), wsu

CURRENT POSITION • Independent political

analyst

DIRECTORSHIPS • Independent

Development Trust, Chairperson

• Eminent Persons Group for Sport and Transformation

Sakhumzi Somyo

Born: 21 January 1960 Appointed May 2011

SUB-COMMITTEE • social and Eth1cs

comm1ttee, Chairperson • Property Disposal Task

Team. Chairperson • Funding and Investment

Committee • SOCial and EthiCS

committee

QUALIFICATIONS • BA. University of

Fort Hare

DIRECTORSHIPS • South Afncan Local

Government ASSOCiatiOn (SALGA)

• Amatola water • south African

Biodiversity Institute • Fort Hare Council • Local Government SETA

Nom(anelo Magwentsllu

Born: 25 May 1971 Appointed May 2011

SUB-COMMITTEE • Governance &

Nommauon comm1ttee

QUALIFICATIONS • Masters 1n Busmess

Administration (MBA), Gordon 1nst1tute of Business Sc1ence

• Bachelor of Sc1ence (Honours) (Statistics), university of Kwazulu-Natal

• BSc (Mathematics and StatistiCS), walter Sisulu Un1vers1ty (WSU)

I oord I dll-et ror-.

CURRENT POSITION • senior Advisor

MCKinsey Company

DIRECTORSHIPS • SAFCOL (South Afncan

Forestry Company) • Nampak Ltd Peregrine

Holdings Ltd • Coega Development

CorporatiOn • A1r TraffiC & NavigatiOn

Serv1ces Company • Jessen Daklle (PTY) Ltd • Peregrine Holdings Ltd

Sitembe/e Mase

Born. 20 August 1959 Appointed July 2010

QUALIFICATIONS • Masters m Busmess

LeaderShip, umvers1ty of south Africa. UNISA

• Post Graduate cerlf1cate in Investment EthiCS and Portfolio Management. UN ISA

• Bachelor of Commerce Honours. UNISA

• BCom. wsu

Mandla Rayi

Born 18 November 1959 Appointed October 2011

SUB-COMMITTEE • HR & REMCO Committee

QUALIFICATIONS • Certificate in Public

Management • Diploma in Labour Law • Adult Basic Educatton

DIRECTORSHIPS • OR Tambo Development

Agency • Fort cox Agncultural

College • lhmalethu (Sec 21) • East London Industrial

Development zone (IDZ)

CURRENT POSITION • COSATU PrOVInCial

Secretary

DIRECTORSHIPS • Eastern cape socio

Econom1c Consultative counc11 Board

• Eastern cape Parks and Tourism Agency

11

I?

project fast facts LOCATION

Bedford

ECDC INTERVENTION lmvaba Co-operatives Fund,

Jobs Stimulus Fund

JOBS CREATED 20

14

acting chairperson

While the financial year 2013/14 brought about challeng1ng responsibilities for the corporation, the Board 1s greatly encouraged by the support received through programmes from the Provincial government.

The additional new programme at the Eastern Cape Development Corporation (ECDC) is the Integrated social Infrastructure Delivery Programme (ISIDP). The added programme is a tribute to the achievements of ECDC m the past and the confidence of the Provincial cab1net 1n the Corporation. The associated appropriation act allocated R330 million to ECDC. wh1ch will be utilised to reduce social infrastructure backlogs in the Eastern cape.

The Board IS entrusted w1th the responsibility to lead the organisation in its strategic programmes and execution in fulfilment of rts fiduciary duties as espoused rn the relevant governance prescnpts, including the Memorandum of Incorporation, shareholder's compact and delegation of authority framework.

In response to limited liquidity, systematic and other administrative challenges, the Board and its executive management have developed a compelling case to diversify our revenue basket. attract the right skills,

and enhance the skills currently ava1lable 10 the organisation. As a consequence, the corporate Plan has been submitted to the shareholder department recommending, amongst others. the MEC's support for capitalisation of the corporation.

Dunng the reporting penod. ECDC sold back rts 74% stake in the ELIDZ to the provincial government we . extend our smcere thanks to the various sectors of gove1 nment who have supported and enabled this process

During the year under rev1ew we bid farewell to some of our colleagues. Mr Sakhumzi somyo has since been appointed as Member of the Executive council responsible for Finance and the Department of Economic Affairs and Tourism. we congratulate him on his appomtment and wish him. and the new provincial government led by the Honourable Premier Phumulo Masualle well. Others include the General Secretary of COSATU 10 the province, Mr Mandla Rayi, who retired due to 111 health and Ms Noxolo Mteto. The chairperson of the Board, Ms Nomranelo Magwentshu. also announced her retirement on 30 May 2014. our sincere gratitude for her compelling participation and steadfast leadershiP.

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The Board WIShes to extend our heartfelt and earnest gratitude to all those who have enabled us to perform our dut1es and make a beneflc1a11mpact on the provmce.

We hereby convey our thanks to the Honourable Deputy Mrnister of F1nance. Mcebisi Jonas. for sharing his mhentance with us for the past f1ve years and WISh him well in this very en tical functiOn

To our stakeholders, with whom we continue to work towards constructive relations, we thank you for your ongo1ng commitment in this regard.

Lastly, to the men and women employed at ECDC. led by the executive management team. we congratulate you and encourage your conttnued commitment towards the development of the people of the Eastern cape.

acting cf1D1rperson 5 foreword

Prof. Mkhalelwa Mazibuko ACTING CHAIRPERSON

15

DOES YOUR BUSINESS NEED A HAND? WE'LL HELP.

LET'S TALK FUNDING, FINANCE & NEW INDUSTRIES.

A honey co-op, pineapple producers and a construction company. What could these three radically

different enterprises possibly have in common?

Structured finance to get them up and running and a loan to keep operations going strong.

The results: profit margins that look set to beat the downturn - and dozens of new jobs created and saved. Talk to us. And see it all come together.

As you'll see. we'll do anything we can to help our clients.

Real funding. Real finance. Real results.

Talk to us about finance. loans. training or resources for any kind of busmess. or exciting new opportunities in

sustainable energy and agriculture, Let's make it happen. Call 043 704 5600 or email info@ecdc.co.za.

www.ecdc.co.za

~@ OC©O ~-- • 0 0 The oflicial Development Finance Institution lor the Eastern cape Province of South Africa. A wholly-owned division of the Eastern

Cape Government.

-----------~~--

1R

1111111111111111111111111111111111111111111111111111111111111111111 executive management team 1111111111111111111111111111111111111111111111111111111111111111111

FROM LEFT TO RIGHT: John Cerff (Executive Manager: ln{rastrucwre Projl!cts), Sandile Sentwa (Chief Financial Of(lcer), Nosipho Ngewu (Executive Manager: Corporate Services), Mxo/isi Linclie (Chief Economise), Ndzondelelo Diu lane (Execurive Manager: Developmenr lnvesrmenr), Noludwe Ncokazi (General Manager: Innovation & Produa De1·elopmenr), Graham Cowley (E.xecurive ISIDP), Reggie Naidoo (Acring Chief E>.ecurive OWcer)

annual rC'porc 1013 14

ABSENT FROM PHOTOGRAPH: Luyanda Tsipa (General Manager: Operalians)

executive management 19

20

project fast facts

LOCATION Mtharha

ECDC I~TERVENTION Busrness Financing

JOBS CREATED 245

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acting chief executive officer

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We have included a detailed report of our performance against the annual predetermined objectives and annual financial statements as mtegral parts of our annual report. However. it is worth reporting on activities or factors that influenced our performance during the year under review.

llllllllllllllfllllllllllllllllllllllllllllllllllllllllllllllllllllllllll riving the local econon1y """'"""""""""'""'"'""'""""'"""""'""'""'""

Developing the small and medium business sector remains a key avenue t t1rough which the Eastern Cape will grow its economy. This year has confirmed my optimism in ECDC as an organisation that is both well positioned and capable of ptay1ng a major role in supporting and facilitating the growth of SMMEs and co-operatives.

Our investment mto the busmess entities which drive the local economy · be they SMMEs or co-operatives ~ has resulted in more than R161 million being invested through loans and grants directly into enterprises in

acrinq dJie/ e.n·wuve of{lc er "> rt'porr

vanous economic growth sectors. This has created or saved more than 5 500 jobs In addition, 2 344 businesses received business support and traming. A concerted focus was also placed on ensunng that women and youth were the beneficiaries of our support.

Having spent R8.7 million on seeping new projects in key growth sectors. ECDC was able to leverage an additional R104 million. This attests to strong partner­ships between ECDC and other stakeholders. which enable us to drive the development of the regional economy together.

23

J4

111111111111111111111111111111111111111111111111111111111111 XfJDnding trade and invest1nenl 111111111111111111111111111111111111111111111111111111111111

ECDC has continued to explore new and innovative ways to expand the reach and impact of trade promot1on initiatives throughout the Eastern cape Trade promotion efforts and tt1e number of exporters from the province has been undertaken plimarily by facilitating access for local entrepreneurs to new international markets. Over the past four years. ECDC has seen the value of exports facilitated by the corpo­ration grow from R900 million in 2011 to R1.53 billion in 2014.

The global econom1c downturn. particularly in Europe, has had a mass1ve 1m pact on the Eastern Cape, which

has long relied on the European Union as a maJor trading partner. As a whole, !he Eastern Cape's total export value detenorated from R34 2 billion in 2011 to R29.5 billion in 2012 It therefore became essential that a revised strategy was adopted and new markets sought. New opportunities have opened up for the Eastern Cape during the year under review These have included emerging markets 1n China. Japan and Duba1 Two studies on new market opportunities -focussing on the Southern African Development Community (SADCl. East and west Africa; and on selected ASian markets namely India. China. south Korea and Japan were undertaken.

JUIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII 'rope rry ; 11 vest men~ IIIIIIIIUIIIIIIIIIIIIIIIIIIUIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIII

ECDC continues to own and manage a large residential and commewal property portfolio During the period under rev1ew. rental revenue of R59 8 million was collected. wh1ch IS 8'\. more than m the previous financial year.

The negative financial return on many of these proper­ties. due to increasmg ma1ntenance and management costs as well as poor mcome generation, prompted the deCiSIOn tO diSpose Of burdensome propertieS. To th1s end, the batched property disposal approach initiated during the period under review resulted In a

total of 42 res1dent1al properties being disposed of in a public process. The value of these disposed stand· alone houses is R44 .6 m1llion As at the end of the hnanc1al year. the sale of 25 of the sa1d properties had been completed and the remainder were still in the conveyancing process.

n1e residential property d1sposal has had 1ts fa1r share of challenges AS a result. the Corporation IS 1nvest1gat1ng reasonable means of ass1st1ng those tenants who are strugglmg to access home loans

lllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllltllllllllillllllllllllllllllllllll 1 u man cap; ttJ 1 IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUUIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII

At ECDC, we believe that human capital is our most valuable asset The loyalty and commitment of our staff in all areas of the Corporation continued to be the most critical element guaranteeing the ongoing successes of the corporation. As at the 31st March 2014, the staff complement at ECDC was 159 people and s temporary employees. Staff turnover was relatively low at6%.

Dunng the period under review. we took a decision to purposefully enhance the skills available within the corporation, based on the outcomes of a skills gap assessment To th1s end, ECDC committed RJ.OS million to HR development. This is tw1ce as much as was spent in the previous year. One of the benefits available to staff tncludes financial assistance to enable staff members to pursue further academic development.

111• olrqm11 (}I ~ I I

lllllltlllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllll efocus, n 1111111111111111111111111111111111111111 11 1111111111111 11 111111111111111111111111111111111 11 11111111111111

we. together with our shareholder, OED EAT. recogmse that unless ECDC's ftnancral position improves Significantly over the next few years. we will be unable to fulfil our mandate to deliver hlgh-qualrty economic development se>rvlces to the Eastern cape community. The challenges whrch we have faced th1s year have been both operational and financial, with pressures and constraints berng both rntrinsic and extrinsic to the organ1satron we are mindful of the pressing need to ensure that we, as an organisation, are properly equipped and Internally organrsed to address these challenges effectively

To thrs end. ECDC rs developrng a turnaround strategy to ensure that the financral posrtion of the Corporation rs strengthened rn the future. Elements of the strategy rnclude taking the organisatron through a clean-up process, creating organrsatronat stabrlrty; reducing costs to income ratios to be rn line With best practices of other DFis; introducing proper systems capitalisation

of ECDC and, last but not least. property and overall business realignment to ECDC people During the next financial year, the ECDC will prioritise a return to frnancral and commercial sustarnabihty The primary financial goal wrll be to grow revenue and diversify our income streams. on the non flnancral side, we aim to engender a culture of accountability and performance. whrch will be supported by the online performance management tool implemented this year. This initiative seeks to raise the performance and service levels of ECDC. overall, our aim remains to ensure efficiency and thereby meet customer and stakeholder expectations

It wrll remain the commrtment of ECDC to contrnue to invest rn rts employees and their well·being through the employee rnten~ention programmes. Tl1e corporation wrll also rmplement effective talent management processes in order to optimise both skills and leadership.

lllllllllllllllllllllllllllllllllllllltlllllllllllllllllltlllllllllllltlllllllllllllllllllllllllllll 1 pprec; at io lllllllllllllltlllllllllllllllllllltlllllllllllllllllllllllllllllllllllll lllllllllllllllllllllllllll

W1thrn the very short space of time 1 have been actmg CEO, 1 have witnessed the constant commitment of various stakeholders. ncludrng government entities, the private sector and the rnternational communrty Wrthout this support. ECDC's abrlity to make a meaningful impact on the provincial economy would be severely compromised.

1 am also most grateful to our Board of Directors for therr ongoing commitment and direction. Frnally, to our management team and staff. you have continued to rise to the challenges- thank you. we all look to the future with confidence and ambrtron

qg1 Natdoo ACTING CHIEF EXECUTIVE OFFICER

25

26

project fast facts

LOCATION Ea~t London

ECDC INTERVENTION Jobs Stimulus Fund, Busi11ess Financing

JOBS CREATED 24

ll

?R

chief financial officer

annua!JCfJOTl 07{ 14

At the end of the 2014 f1nanc1a1 year, ECDC's balance sheet rema1ned fairly strong with Net Asset Value of R1 04 bilhon. This net asset value is mainly driven by the high value of mvestment property. The Corporation's sustamablllty w111 be realised by a strong balance sheet that reflects ECDC's development 1mpact Th1s means eeoc needs to be substantially capitalised so 1t can have a Joan book large enough to make the required socio­economic 1rnpact and on the bottom line Disposal of both non-performing and non-core assets will also bring 1n a much needed cash Injection to ensure that ECDC rea11ses 1ts developmental mandate.

IIIIIIIIIIIIIIIOIIII balance sheet items for the past 5 years (R'million) 11111111111111111111

iiiV!'StlllCIII PropC'rly

Propt•rtv, Plonr & Equipment

lmoc,tml'lll~ ,'),. Loam in Subsidiariro ,cy .•hvx WI<">

Loans Ad•·anu·\

Tradl' & Ot/11•1 Rt•< 1'1\'Cib/es

Cash & I·"'" C:qwmlent~

The balance sheet reflected the corporation's assets which show a healthy cash balance and an increase In eeoc's Investment property portfolio.

The property business remams ECDC's biggest asset at R725 million of its balance sheet Loans account for R120 million The clarity that comes with the corporation's refocused mandate to become a high­performing DFI has energised eeoc to increase the value of 1ts loan book and equ1ty going forward The challenge is to convert its property portfolio into loans and equity assets to bring liquidity to the balance sheet

Operating loss for the financial penod under rev1ew improved from R57 million to R34.1 million.

financial review

,.

ThiS improvement IS mainly attributable to higher income for government funded projects and proper project costing recoveries for the projects implemented on behalf of DEOEAT.

Although costs for various expense items were kept within the plan. the corporation continues to be challenged by rental collection, especially in the Butterworth area. ThiS has resulted m impairment expense of R25 million during the year under review. Furthermore, high costs for rates and taxes were incurred during the year under review due to long outstanding disputes with municipalities. These diSputes were settled during the period under review as part of final settlement agreements with munici­palities involved

29

"'1111111111111111111"'11 impairments as a % of average loans advanced ll ll lllllllllllllllllllllll

50°n ,.... ' ,.... ,.... 38•o ,.... ,....

,....

101{) :?U/1 .!012 2013 '014

The impairment as a percentage of loan book has detenorated from 60'lb to 62"' m 2013 and 2014 respectively. This is attributable to lesser loans advanced and the loan book reaching matunty. Hence, the policy dec1s1on to reposition ECDC as a DFI aimmg towards 1ncreas1ng the loan book

lllllllllllllllllllll percentage return on average investment property 111111111111111111111

9%

JOO<J 2010 2011 211/l 2013 2014

The gross return on average investment property was stable, at a 10% average for the last five years

percentage return on average loan advances '"''11''''111111 111111111111111111111111 11 1111111111111111111 11 11111 11 111111111111 (before ; m pa i rmen ts) ll l llll tt••• ··~~~ ·· ··~~ · ~~~~ ····"~~ ''''" '' lll"' ' lll' '' 'll' ''''""'''"''' llllll

159-o 21"1> 21% 22%

.!009 2010 2011 2012 2013 L0/4

The average return on loans advanced has 1m proved over the past three financial years and remain stable.

The Corporation made a substantial Improvement as the comprehensive profit from R16.2 million to R49.8 million, resulting in growth of R58 million in the retained earnings of the entity Fair value adjustment on Investment property of R75 million (2013 R65 million) was recogn1sed dunng the period under review. The growth in the value of Investment property is expected to be realised in cash during the disposal of standalone

residential property and non-strategic property.

Key focus for ECDC for the next few years will be on disposal of non-performing assets, new revenue streams, operations efficiencies. optimismg on the assets of the entity and cash injection through capitalisation

THE CORPORATION EARNS INCOME PRIMARILY FROM THE FOLLOWING SOURCES:

• Rental1ncome on property portfolio; • Interest 1ncome on loans advanced; • Government grants,

• Income from rendering government-funded programmes:

• Investment income on cash: and • Revaluation movements.

The Corporation recogn1ses tl1e potential opportunity to optim1se and review its revenue model to ensure a more predictable and sustainable revenue base.

REFLECTED BELOW ARE THE CORPORATION'S SOURCES OF INCOME BETWEEN THE 2009 AND 2014 FINANCIAL YEARS:

"""""""""'"""""'"'""'""""'"" ecdc sources of income (R 'million) '""'"""""""""""""""'"""""""

Revaluation

Finance lllcome: Bank & Otht•r

Otlle1 Income

r.overnment Crams

llllt>rest on Loons

Rl'ntal fncamf!

The Corporation's audited financial statements were qualified, ("Except for") audit opinion for the first t1me 1n seven years. The enti ty did not posses original documentation namely 1nvo1ces and delivery notes of the items procured. The corporation was appo1nted by the Cabinet to be the pay master for the funeral on the 6 December 2014. AS the paymaster, ECDC processed all payments on approval and instruction by the Head of Department of the Provmcial Treasury Without followmg Its own procurement polices and

financial review

1009 1010 2011 2012 J0/3 2014

procedures and, furthermore, such expenditure was not approved by the Board of Directors. The Executive leadership has since met w1th the top shareholder, DEDEAT, and the Office of the Accountant General m the Provincial Treasury to look at ways to deal w1th the 1mpact of thiS qualificatiOn m the follow1ng year's Annual F1nanc1a1 Statements The plan go1ng forward IS to ensure the entity returns to 1ts clean, unqualified aud1t opinion.

31

32

project fast facts LOCATION

Hankey

ECOC INiERVENTION Jobs Slimulus Fund

JOBS CREATED 16

' 11111111"''11' 11111111' 111111111111111' 1111"'11""' responsive d eve I op men t financier 1111111111111111111111111111111111111111111111111111111

The corporation has not been Immune to the challengrng domestic and global economrc climate. Yet, rt continued to discharge its mandate and make a meanmgful contribution towards turnrng around the Eastern Cape's polarised economy. ECDC serves a market whrch boasts an urban-based economy centred, on the one hand. on the manufactunng, constructron and automotive sectors coupled wrth government servrces. On the other an under-developed rural economy largely comprising agro-processrng and subsistence agnculture. Throughout the prov1nce unemployment rates remains high, exceedrng 30%, mirroring the slow economrc growth both globally and natiOnally. Hence. supporting and rewarding JOb creatiOn. business sustarnabrlrty and competrtrveness have been key pnontres for the corporatron rn the review penod .

In order to remain both attentrve to its client-base and to adjust to the challengmg economic climate. the Cor­poratron has had to become rncreasingly rntrospectrve This meant cntically analysing the current loan book and product mix as well as rnvestigating the vrabrlrty of new commercralloan products. rncluding mrcro-financ­ing. While maintarning rts current clients. ECDC has continued to give access to servrces that are affordable and user-friendly thereby catering for the previously disadvantaged and realisrng a meaningful developmental impact rn the provrnce

111111111111111111111111111111111111111111111111 driving socio-econon1ic developtnent 111111111111111111111111111111111111111111111111

While ECDC's core interventrons as a development finance institution (DFI) are financial in nature. the programmes supporting the small, medrum and micro enterprise (SMME) sector have focused on developrng small business. These interventions have made significant Inroads in stimulating job creation and allevrating poverty in the province. The Corporation's hands-on development of entrepreneurs, especially rn the marginalised and depressed areas of the province, has seen small busrnesses receive real support. resources. investment capital and opportunities.

During the year under review. ECDC approved loan applications in the amount of R102.8 million to 313 enterprises. with the potential for creating or saving 1 627 jobs. In this period, a total of 357 loans were dis­bursed amounting to R122 7 mrllion and supporting

265 enterprises - rnclusive of drsbursements against loans approved in the prevrous financial year. This financial injeCtion has facilitated the creation or saving Of 1 320 jObS.

Furthermore, a sizeable portion of these loans were disbursed to youth and women. 85 youth-owned enterprises received disbursements totallrng R21 million, and R13 million was disbursed to 78 women­owned enterprises. The Corporation intends to grow its development finance contribution to previously marginalised grouprngs. especially to women and peo· pie with drsabilities Thrs is intended to redress past imbalances. and rn the case of support to youth owned enterprises. the Corporation ensures that young people have opportunities that spread the development impact

11111111111111111111111111111111111111111111111 products geared towards sector needs 11111111111111111111111111111111111111111111111

The marn contributors to the Eastern Cape's urban economy remain concentrated on manufacturing, constructron and the provisron of government servrces. Dunng the period under review, ECDC's products and programmes have contrnued to focus on supportrng the needs of businesses within these sectors

ECDC FINANCE PRODUCTS

• Nexus loan financrng provides SMMEs wrth short-term bridgrng funds to servrce therr government contracts. • workflow Contractor loans provrde emerging contractors with both financral and technrcal support. • TermCap and PowerPius are long-term loan products. • EquiTrader provrdes for equrty frnancrng marnly for the manufacturing and retarl sectors.

ww ml r purl .!l I ~ 11

111111111111111111111111111111111111111111 approval & disbursemenc o( loan procluccs (R'million) 111111111111111111111111111111111111111111

H51

R4 2

U..! n R0.4m jl __ _

\\(}r/flow Comroctor Loon~

Tam( UJl

[ 00115

Powt>rplus Smull Loans

Sexu~ Trade loans

£qui Trader Equrty Finann·

The bulk of loan movements dunng the review penod have centred on the workflow contractor and Nexus products, accounttng for 42% and 35% of the year's disbursements respecttvely. Thts trend 1s likely to conttnue, given that 49% of funding approved for the next ftnanctal year constitute Nexus loans and 28% workflow Contractor loans. The performance of these loans has shown dramatic tmprovement w1th the revision of ECDC's standard operating procedures, 1ncreased monitoring and the forg1ng of a more supportive environment within the relevant govern ment departments as public cess1onanes. The resultant decrease tn the 1mpa1rment rate of these loan products has had a profoundly pos1t1ve effect on the overall tmpairment rate of the current loan book

In the reVJew period. ECDC contmued to support those sectors that contnbute stgmficantly to the provtncial economy as shown m the sector spread of the Corporation's loan approvals and disbursements In the financial year The bulk of approvals centred on services and construction enterprises With regard to disbursements. RSS 9 mill1on was allocated to services. over R54 mtlhon to bus1nesses tn the construct10n sector, R5.6 million to manufactunng, R4.5 million to tourism enterprises, and R2 mtllion to businesses 1n the retail sector The remainder went to agricultural and agro-processing concerns

11111111111111111111111111101111111111111111111111 \'(1/Ue of loans approved & disbursed (R 'millio/l) IIIIIIIIIIIIIIIIIIUIIIIIIIIIIIIIIIIIIIIIIIIIIIIII

R55, m 164m

I tiC q 1• ol '

n i" '' ~r ', " I ( ( JfJ' I, "'' (JI(t~

11( ( ,f/'O'I''' n. f 'l) 11 I t /!( k

RO •,

drwuncml'uh

f\..__ d l sbUrs<' lll<'niS

Tourism Servrces Rewil Manufacturing CansrrtiCCian Agriculture

IJfWI Ill iOIIS H'VI{'\V 35

16

~ llOI

serv1ces

Construcuon

Manufacturing

Tounsm

Retail

Agriculture

'\m lUll!

tR'ml//10 1)

59 1

79 7

5.6

08

70

0.5

58%

29%

5%

1%

7%

0%

\{>provrtl

Number of Number of jOIJ;

815 413

478 17

165 6

4 2

159 11

6

DI~IJUr~t'cl

.. \mollnt 0 \ ;nbe• of "iumbc.•t of (R'mtllwn}

55 .9 54% 663 305

54 53% 485 33

5.6 5% 99 4

4 5 4% 3

20 2':\> 70 9

0.7 1% 3 3 ____________________________________ ._ ________________________ __

eeoc's additional investment into Stutterheim-based Bio-coal Manufacturers and Distributors {Ptyl Ltd shows the corporation's continued interest in supporting the renewable energy sector as a growth area. The Corporation Increased the total disbursement to the company to R4.4 million eeoc also has 30% equity in a project which involves converting organic waste 1nto bio·coal in cooperation with seven existing timber mills where offcuts and waste are sourced. The project has created 40 direct and 100 mdirect jobs.

IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIIIIIIIIIIIIIIIIIUIIIIIIIIIIIIIIIIIIIIIII d eve 10 p me 11 t ; n r·eg; 0 n5 IIIIIIIIIHIIUIIIIIIIIJIIIIIIIIIIIIIIHIIIIIIIIIIIIIIIIUIIIIIUIIIUIIIIIIII

Keeping With its obJective of spreadmg economic activity and job creation across the prov1nce. the Corporation financed enterprises in all reg1ons. with a healthy concentration on p1ev1ously marginalised areas, particularly the former Transkei area

The lion's share of loan disbursements, at 44%, went to enterprises in the Amathole district which includes rural areas and small towns such as Butterworth, centane. W1llowva1e and Stutterhe1m This was followed by the OR Tambo distnct which rece1ved 34% with an amount of R41 .9 million disbursed to busmesses in this region. This area has long been prioritised due to poverty and high unemployment rates. The majority of the loan funding contmues to support construction businesses given the implementation of the school building programme in the district. which is directly linked to the nat1onal infrastructure development programme. Recent Improvements in momtoring

workflow Contractor loans, together with the cooperatiOn of provmcial government departments, not only decreased the impa1rment risk for eeoc, but also supported emerging contractors to manage their contracts better- both financially and technically.

The Alfred Nzo district area recerved 10% of loans disbursed, with a total of R12.8 million, a significant increase from the previous year's R3.2 million. The Nelson Mandela Bay Metropole as a manufactunng and renewable energy hub received 5.4% of dis bursements. It was followed by Chris Ham at 5% of disbursements. and Joe Gqabl and cacadu districts, both at 1%. The low disbursement to these latter three areas 1s largely due to the fact that the main econom1c activity in these regions is primary agri­culture production, while the Corporation prioritises value chain financing in the agro-processing market.

111 lrl/( ( ICflOII ~'OJ i 14

llltlllllllllllllllllllllllllllllllltllllllllltiiiiiiiiUIIIIIUIIIIIIIIIIIIIIIIIIIII geog ra p/1 i c spread lllllllllllllllllllllllllllllllliiiiiiiiiUJIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIItf

u4t

OR Tumbo Nelson Mandelu Bay \.fetropole

lol' Gqabi Cocadu

uS':!

R/2

Amathole Alfred Nzo

Efforts in quest of maintarning a quality loan book resulted rn R17.7 millllon loan impairment containment dunng the review period. This is due to a number of strategic interventions Including better monitoring of loans and vigilant due diligence processes.

llllllllllflllllllllllllllllllllllllllllllllllllllllllllllllltlllllllllllllllllllllll 1 ooki ng to the future 1111111111111111111111111111111111111111111111111111111111111111111111111111111111111

oesp1te the Eastern cape's econom1c challenges, ECDC w111 contrnue to focus on grow1ng key sectors of the economy and further support enterpnses 1n terms of JOb creation, business viability and skills development interventions A key challenge which will be addressed 1n the future is the balancing of short-term bridging finance products with longer-term, lower-risk loans earmarked for the manufacturing, infrastructure, agro· process1ng and green energy sectors. The Corporation is targeting these sectors 1n order to grow and maintain a sustarnable loan book while accentuating econom1c development and the 1mpact thereof for the benefit of the provrnce and its people

opet at ions t"C\'tC\\' 37

38

llllll ll ll llll lll lll lillll ll llll ll lllllllllillilllllllllll re 1 easing non-perform; ng assets 1111111111111111111111111111111111111111111111111111111111

ECDC inherited a property portfolio mclus1ve of residential. 1ndustnal, commercial and retail properties from the development agencies of the former Transkei and Ciskei. An in-depth analys1s of the portfolio confirmed the challenges related to the poor performance of these properties where the costs of holding and administering industrial properties that are vacant far outweighs their income-generating capacity Furthermore. the lack of maintenance has resulted in deterioration over the years, making them impossible to lease without a huge financial outlay. Rising security costs. municipal rates. taxes and services as well as legal costs related to holding and rent collection, compound the challenge.

While the identified areas of maladministration are currently being addressed; extrinsic factors relating to a sense of entitlement regarding the allocation, owner­ship and transfer of residential properties are outside tne Corporation's control. Refusal to pay rent and unrealistic ownership claims have resulted m many of the residential properties becoming non-income generating

and unmanageable. The disposal of residential properties. Implemented in line with ECDC's policies and the Public Finance Management Act (PMFA), was kickstarted in the review period with the sale of properties in a batched approach. The plan is to use the proceeds to upgrade retained properties for better investments and finance development projects 111 areas such as business funding, initiation of catalytic projects and further investment in critical sectors of the Eastern cape economy.

Within the current review period, 25 properties were sold, bringing in an initial amount of R8.1 mill ion. An additional R36.5 million worth of sales is held up within conveyancing processes to be completed in the next financial year. TI1is brings the cumulative total to R44.6 million for the release of 42 properties. w1th substantial progress to be realised in the next financial year. The process of disposal of the identified properties IS taking longer than planned, principally due to delays in conveyancing and other extrinsic factors.

11111111111111111111111111111111111111111 rnanagement of ecdc"S property portfolio 11111110111111111111111111111111111111111

Notwithstanding the above, there is a significant portion of the portfolio that is performing and being actively managed. and this entails property maintenance. security and rental collection. During the period under review, the Corporation collected R59.5 million in rental revenue, an 8% improvement from the previous year's R55 million. This revenue covers administrative costs including rates and tax payments to the municipalities with surpluses being re-invested in existing properties. ECDC's concerted effort in streamlining the management and administration of this performing portfolio is paying off, as the Corporation is realising a year-on-year Improvement in rental collection as shown in the figure on page 39.

,,,,,,,JIII'flr>l/ .!11 1 i I I

111111111111111111111111111111111111111111111111111111111111111111111111111111111111 ft ve year 1·e11ta 1 va 1 tJe , .. ,IIIIIIIIIIIIIIIIIII IIIIIIIII IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIIIIIItlllllllllllll

R59

R50 R49

R49

200910 20/01// 2011112 2012113 2013114

llllltlllllllllllllllllllllltltlllllllllllllltlllllllllllfllllilllllllllllllllllllllllllllllllllllllll future fOcus 111111111111111 11 11111111111111111 111111 11 1111111111 11 1111 11 111111111111111 11 111111111111111 11 1111 11 11

eeoc plans to accelerate the disposal of its res1dent1al properties, as well as 1dent1fy and diSpose off dilapu:tated vacant industnal properties and commercial s1tes, mcluding some vacant land that have little or no future 1nvestment potential. Another pnonnty IS the implementation of ECDC's property Investment framework w111ch is expected to attract Investment 1nto the Corporation's retained vacant prime land, as well as into its commercial and 1ndustna1 stock Despite the outlined challenges, ECDC's property portfolio is envisaged to conttnue suppOrting development actiVItieS by prov1d1ng premises to mvestors and enterprises at competitive rental rates.

IJ(ICt ell ions review 39

1111111111111111111111111111111111111111111111111111111111 developing sn1mes with potential 1111111111111111111111111111111111111111111111111111111111

ul 1 1 l 11 r

I ' ' II • I I

Furthermore. once SMMEs have received funding, they need ongoing support through mentorship, market access opportunities. as well as bus1ness and financial management ECDC's non-financial support package IS therefore based on providing business development services which are aimed at building competitive enterprises, improving their performance and facilitating

1.. II I { I l(

ull 1f < l<C'fVI 1'l <. 1 I

II

'I L /1 I

I ( \ ( 1/ Jllul lhl< cJ ,II tf (/I I

access to markets. Business support offers both strategic and operational services to small businesses that are d1rected at improving the operations of an enterprise The envisage impact IS increased profitability and improved management processes that enhance the long-term VIability of enterprises.

THE BUSINESS SUPPORT SERVICES OFFERED BY THE CORPORATION INCLUDE:

• Advisory support services ; • Mentorshlp and coach1ng, • Due diligence and teas1b1hty stud1es; • Quality management support; and • Bus1ness plannmg, • Intellectual property management. • Marketing support;

c n•, I nport '01 ~ 1'

over 1 oo new enterprises were assisted With business planning, and 80 existing businesses were supported With marketing and branding services. Other services provided to existing SMMEs tncluded assistance with financial management, registration of patents and compliance testtng with the south African Bureua of Standards (SABS).

During the review penod, 272 SMMEs in the priority sectors outlined in the Corporation's strategy were provided with pre- and post-finance support, a sizeable increase from the previous year's 204 supported. Included in the SMMEs supported were 17 tourism enterprises that benefitted in the mentorship programme implemented in partnership with the Tourism Enterprise Partnership (TEP) and Eastern Cape Tourism and Parks Agency (ECTPA).

1111111111111111111111111111111111111111 business support interventions per region 1111111111111111111111111111111111111111

Chris I-I ani & .foe Gqabi

Nelson Mandela Bay & Cacadu

ORTambo& Alfred Nzo

Buffalo City & Amothole

1111111111111111111111111111111 11111111111 nature of business support interventions 111111111111111111111111111111111111111111

Ill I I h I '\"

111/1 • ,, "

7

Qualiry & Financial Managemenr

operations review

17

Tourism Memorship

67 ,...

Marker Access

80 ,....

Markering Supporr

101 r-

Business Planning

41

42

Dunng the review period 1 00 enterpnses were pr ovrded with srmple and user-fnendly accountrng software. These enterprises were trained to use the software which has been tailored for small business and is expected to help them rmprove with therr submission of statutory and other reports. as required by relevant stakeholders

Another notable milestone rs the extensrve capacrty buildrng programme within the Eastern Cape w11rch has resulted in a total of 1 197 businesses receivrng traming rna range of business skills. The training of these enterprises has been achieved through a partnershrp

with the Eastern Cape LIQuor Board, Eastern cape Tourism and Parks Agency (ECTPA) and the Tounsm Enteprise Programme (TEP}. Further capacrty building initiatives for enterprises included 29 sessions which comprised of business opportunitres workshops, conferences, seminars, trade farrs and exhrbitions.

The creatrve lndustnes Programme, whrch mainly focuses on facilitatmg access to markets and assisting in product development, supported a total of 138 craft producers/enterpnses Out of this number. 78% (1 08) were women and 53% (73} were youths.

ECDC ALSO FACILITATED PARTICIPATION OF THESE CRAFT PRODUCERS/ENTERPRISES IN 12 EXHIBITION AND EXPOS

• Absa Vuka Showcase • Beckman's Handcrafted Show (Chicago) • Decorex Cape Town • Decorex Johannesburg • East London Home Expo • Food and Wine Design Exhrbltron

These platforms are envrsaged to provide craft producers/ enterprises with exposure to current trends and market opportunities. as well as possibilities for penetrating news markets.

Besrdes these market access events. craft producers were also assisted wrth product development trainrng The training included export development. busrness development, costmg and pncing, as well as design, colours and trends ECDC also facilitated the Pllrticipation of 12 Eastern Cape designers to attend a 60-day training workshop 111 textile and clothing tec1111rques. as well as jewellery design in China. These enterprises were drawn from all the regrons in the Eastern Cape.

ICT is another area which ECDC continues to support through tts investment tn the Eastem Cape Information Technology Initiative (ECITI). During the period under review. the corporation's financral contribution toward the running of ECITI amounted to R3 million The programme rncubated 23 enterprises which created 109 JObs wrth income generated by the compantes exceeding R8.3 mrllion Furthermore, ECITI contrnued to build partnerships with srgnrficant organrsations 1n the ICT sector. Through partnershrps, ECITI played a key role rn organising an international conference on Innovation and Entrepreneurship. The conference was principally hosted by Global Forum on Innovation and Entrepreneurship but 01 ganrsed by local stake­holders. rncluding ECIT

• Grahamstown National Arts Festival • Indonesia International Furnrture Expo (Jakarta • Johannesburg Art Fair • L'artigiano rn Ftera Exhibrtion (Milan) • Wild Coast Jrkeleza Festival

ECITI also partnered with Drmensron Data and through this collaboration. 10 enterprises participated in a enterprise development trainmg programme which took place between April and October 2013. This programme was aimed at burlding the capacity of enterprises in order to prepare them to access potential contracts from Dimension Data ecm also entered into another partnership with telecommunications company Fibreco. Through this partnership 15 individuals were trained in the installation and maintenance of fibre optrc cable networks This programme was aimed at assisting existing enterprises to expand their product offering thereby creating new business opportunities for the unemployed.

eeoc also srgned a partnership agreement with TEP and ECPTA, showrng commitment to continue with the business management training and mentorship programme whrch supports enterprises in the tourism industry. As a result of the partnership, 595 enterprises benefitted from training done throughout the province in areas which Include East LOndon. Hankey. Mthatha, Port St Johns, Graaff Reinet and somerset East. Trainrng covered areas such as tourism awareness. seNice excellence. marketing, communication rn tourism, quality assurance and business management. A total of 17 enterprises were also mentored for the year through this programme.

The above images and product~ oil display taken (rom the Indonesia llllernational Furniture F.xpo m Jakarta. Indonesia

I he above images and product~ Oil display taken from the Beckman~ Handtr<l(ted Show in Cl!imgo

opcrocions review

44

I r I)( /tu J, I II ,, \I I /11 ,,, 111 , ,, , ,,, n1 1,, ,,., ,. ~1 r I ,,o11, r,, 1 J>~'' 111

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""''II'''"III'IIIIIIIUIItlltlllllllllllllllllllllllllllllllllllllll'l ; r11 va bo co-opera c i ,,e fu ,1 d ...... ,, .. ,ll,,,"''llllllltlllllllllllllllllllllllllllfllllllftlllllltll

Dunng the penod under revtew. a total of 24 new co-operatives were approved for funding for a total amount of R10.6 mtllton In the same period, a total amount of R11. 9 mtlllon was dtsbursed to these (24) co operatives and others approved for funding tn the prev1ous year

In 2013114, the rmvaba Co-operatrve Fund spent a further RS 6 mrllion on non·frnancial support tor approved co-operat•ves Delivered in partnership w1th Fort cox Agricultural College, the South Afncan Bureau of Standards and other serv1ce providers, support related to the following key acUv1t1es:

• Training on governance of co-operatives; • Training on occupational Health and Safety (OHS)

and f1rst aid: • Provision of personal protective equ1pment (PPE)

to members of funded co-operatives. since PPE prov1des the first line of defence for people who work in hazardous enwonments:

• Trainrng of co-operatrves on compliance with stadards and quality utilising the procedures out· lined by the International Standards Organisatron (ISO);

• Trainrng of co operative members on Health and Food Standards (HACCP); and

• conducting gap analyses for quality management systems of identrfied co-operatives

Dunng the year under review. a total of 91 co-operatives were trained w1th 118 co-operat1ve members having gone through the training. It IS estimated that the funded co-operatives created 696 jobs during the year under review.

These initratives have real Impact on people's lives. For example. the lmvaba co-operative Fund disbursed funding to somila Primary co-operative Ltd, a beneficiary of the Department of Rural Development and Land Reform's Proactive Land ACQUISitiOn Strategy (PLASJ programme. Established 1n 201 o, this agricultural co-operatiVe operates on a 479 hectare farm situated about 40km outside East London. With the financial1nvestment from the lmvaba co-operative Fund, the co-operatrve has rnstalled an irrigatiOn system and is grow1ng organic vegetables Including cabbage, spinach and beetroot. Their current customers mclude Spar, Food Lovers Market and Boxer. With ECDC's assistance, they are currently in the process of certification by the Department of

Ttade and Industry (dti) as an organic vegetable producer. Attaining this certification could open up more formal markets. one of their major challenges of getting their fresh produce to customers has been overcome by the purchase of an 8-ton truck. also made possible through the lmvaba co-operative Fund, and thiS has eliminated their dependence on unreliable and expensive transport providers.

The co-operative members have also benefited from the lmvaba Co-operatrve Fund's non-financial assistance programme as they completed a crop and broiler production training programme at Fort Cox College of Ag1 iculture and Forestry. Other traintng courses attended by members covered governance of co operatives (Co operatives Act 14 of 2005). OHS (systems and provision of protective clothes). and first a1d.

The Bedford Eagle Hout Manufacturer Primary Co-operative operating in the small rural town of Bedford in the Nkonkobe Municipality makes beautifully-crafted wooden furniture The co-operative was initiated by a local artisan who saw the potential for job creation 1n the small town. ECDC's investment in this co-operative mcludes funding from the lmvaba co-operat1ve and the Jobs Stimulus funds, as well as participation in various traming programmes. The co-operative also benefited from ECDC's creatrve mdustries programme which facilitated their participation at the lndonestan International Furniture Expo in March 2014, giving them inter· national exposure and potential access to new markets. With five members, the business is a thrrving sucesss employing 20 permanent staff and a number of trainees. most of whom were previously unemployed youth.

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A total of 101 appp11cat1ons were approved from the 198 applications received in the three windows open for submissions. The Jobs Stimulus Fund gained momentum in the review period, disbursing R26 7 millron to so businesses wh1ch rn turn supported the creation, savrng and/or retention of 2 670 jobs. S1nce 1ts launch in October 2011. the Jobs Stimulus Fund has drsbursed a total of R42.3 mrllion to 78 enterpnses, effectively creat1ng 4 226 JObs

The finance inJection facrlitated by the Jobs Stimulus Fund is making a difference to thousands of people, partrcularly the youth who are unemployed or seekrng permanent employment For example. Island Vibe Backpackers Lodge in Jeffrey's Bay has expanded rts operauons to mclude in-house catenng. an English language school and surfing mstructron facility Therr growth has prOVIded employment for an additional17 permanent staff members; thrs was made possrble

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wrth the support of the Jobs Stimulus Fund Island Vibe provides extensive administrative train1ng for their staff, includrng communication. computer literacy and hospitality, whrch upskills them for career development and further employment opportunrtres. The Jobs Stimulus Fund has also supported the newly-established Trelleborg Vibrocoustrc lkwezr whrch specialises rn the manufacture of bushes for the auto motive Industry Based in East London. the compay has created 24 new jobs With the support of the Jobs Stimulus Fund as well as a loan from ECDC. Most of the people employed are workrng as machine operators in the largely labour-intensrve operatron. Some of these new employees are graduates from the Buffalo City Further Educatron and Training (FET) College, who are bemg exposed to excitmg opportunrties such as specralised training rn Germany and Poland.

45

46

The strategic intent for ECDC's Risk capital Facility is to increase investment rn catalytic initiatives that unlock the economic potential of low income areas through innovation, local beneficiation and new product development. It is envisaged that this increased investment will lead to the establishment of new viable enterprises. expansion of existing enterprises. creation and saving of jobs and creation of sustainable economic growth in the province.

This work requires ECDC to invest in a portfolio of projects that are still at conceptual stages and therefore would not ordinarily be fundable by commercial banks. In so doing, ECDC takes a relatively high risk in partnering with project drivers/initiators during the exploratory stages of their ventures. However, ECDC takes on such projects with a medium-to-long term view of converting its contribution into equity once the feasibility results are positive or the project has reached its commercial stage.

ThiS instrument, although risky, provides ECDC with a unique ability to crowd in private sector investment and leverage third party funding from partners such as municipalities. national departments and other development finance institutions.

IN THE 2013/14 YEAR, ECDC SOLICITED THIRD PARTY FUNDING FROM THE FOLLOWING PARTNERS:

• Department of Agriculture, Forestry and Fisheries • Department of Rural Development and Land

Reform • Department of Social Development • Development Bank of southern Africa (Green Fund)

• Employment Creation Fund • Mbhashe Local Municipality • National Empowerment Fund • OR Tambo District Municipality • Technology Innovation Agency (TIA)

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BASED ON THE COMPARATIVE ADVANTAGES IN THE ECONOMIC LANDSCAPE OF THE PROVINCE, ECDC'S RISK CAPITAL PORTFOLIO IS LARGELY FOCUSED ON THE FOLLOWING SECTORS:

• Agro-processing (includrng aquaculture) • Manufacturing • Renewable energy • Green economy • Tounsm • Mining

The regional economrc profrling exercise conducted by ECDC over the past couple of years validates the agricultural potential throughout the province. Hence much focus of the programme is on agriculture-related ventures. The programme also aims to unleash tourism opportunities in the underdeveloped areas such as the Wild coast and Little Karoo which are well-endowed with natural beauty and a rich heritage.

operutiom '''l'icw 47

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IIIIIUIIIUIIIIIIIIIIIIIIIIIIIIIniiiiJUIIIIIIIIIIIIIIIIIIIHIIIUUIIIIIIIIIIIUIIIUI success r u I projects IIIIIIIIIUIIIIIIIUIIIIIUIIIIIIIIIIIIIIIIIIIIUIIIIIIUIIIIIUIIIIIUIIIUUUIIIIIIIII

• Polyflbre commerctal Ptlot plant produced Its first recycled plastic and pineapple fibre blended fumtture.

• samples from polyttmber prOduced and awaitmg SABS certification to secure building contracts

• Karoo catch started farming and processing 1n october 2013

• Soybean plantmg pilot for biO·diesel commenced well and farmers are bemg assisted by agnculture techn1c1ans from the Donl1e Research station. Dtscussions are at an advanced stage with potential investors 1n countnes such as Argentina. ·armers in the Chns Hani, Joe Gqabi and OR Tambo dtstricts have already availed 17 ooo hectares of land, paving way for a commercially-viable processing enterprise. By-products would also be valuable to the meat productiOn and processing 1ndustry

• Berrvmce Jams which are produced 1n Molteno entered the shelves of local Shoprite stores. The produrts have also been showcased m International markets such as China. Dubai and Japan where interest is growmg tremendously.

• Amathole Berries harvested 65 tons of berries In December 2013, exceeding its 2013/14 yield target of ss tons. A concerted effort to ;mprove yields. as backed by the company's shareholders and informed by the experience of other leading berry producers. is starttng to yield positive results as shown by the Improved yield in the rev1ew period.

• The jOurney in the development of new products from pineapple waste is reaching new heights. The latest development is the strategic partnership with pharmaceutical gtant. Du Pont. in the development of microcrystalline cellulose (MCC and bromelain The success of current tests could see pineapple by-products being used in the ever-growing baby food industry. Research and development is focused on the production of a htgh grade cellulose powder that can be used in food and beverages. dairy products. as well as in the pharmaceutical and nutraceutical industries Other research focuses on the use of pinapple by-products in the paint

industries as well as rn oil drilling as a non-abrasrve drilling compound

• Environmental authorisation was granted for two projects, namely the Giant Flag Project in Graaff Reinet and the Tyre Recycling Plant 1n Port Elizabeth. Tt11s 1s usually one of the delaymg factors 1n the Implementation of projects and therefore this constitutes an important milestone for both projects. The process of leveraging third party funding can also be accelerated as a result of this milestone being reached

• ECDC has entered tnto a Memorandum of Agreement with the Technology Innovation Agency (TIA) in line with the orgamsations' shared mandate of promoting and supporting 'nnovauon dnven enterprrses. The two partres have agreed to put as1de RS million each for the 2014/15 year to establish a jo1nt seed funding programme which wtll be available for local compan1es With near market-ready ideas/ proposals to apply Furthermore. the two partners have also agreed to set up a seed Fund Investment committee whose main mandate will be to adjudicate project applications in line with agreed upon framework.

• A strategic partnership was established wrth Eskom in advancing rts endeavours towards localisation. A fibre bag prototype will be developed In the 2014/15 financial year to partly contribute towards meetrng the demand for locally-produced goods.

• A number of projects funded under DEDEAT's Local and Regional Economic Development (LRED Fund were fast-tracked and completed 1n 2013/14 includrng, but not limited to. renovattons of the Lubisi Dam Lodge, Lathitha llanga Brickmaking 1n Matatiele, Khuthalani Sinoslzo Poultry in Matatiele and Hamburg Artist's retreat

• A study looking at honey production in the entire prov1nce IS underway as at the end of the ftnanctal year and it IS aimed at supporting the commercialisation of the 1ndustry and ensuring optimum value extraction through the entire value chain.

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• The turnaround t1me for the commercrallsatton of projects IS not easy to determine up front as it IS dependent on a number of factors beyond the positive feasibility resul ts Delays sometime dampens the spirit of entrepreneurs and th1s poses a c11allenge for ECDC as •t takes longer to convert these new innovations into the Corporation's balance sheet.

• Due to the high spec1ahsat1on tn certam areas 1t becomes a lengthy process to conclude procurement processes timeously

• There are generally fewer jobs that are created durrng the scoptngltesting phases

• Dealing with rntellectual property rematns a challenge as each project and transact ton has unique features and reqUirements

• A significant dedicated or ring-fenced fund rs required to take the new projects to commercial1sat1on stage 10 a well-structured, nsk-sharing manner.

• The drfferences 1n the planning and budgeting cycles at prov1nc1a1 and local spheres of government also affect projects negatively.

• unresolved land tenure issues continue to stifle development 1n most rural areas.

• MultJ·Stakeholder agreements have delayed some of the projects under the LRI:D Fund.

• There IS generally rrsk aversion on newly developed projects amongst financiers

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CArFISH FARMING AND PROCESSIN\­- Graaff Rei net Due to 1ts un1queness and innovation, this project has been able to attract support nationally and abroad. This phase of the project entailed a shift away from the tilapia species to the productiOn, processing and packag~ng of catfish. which ts more nutritious 1n

terms of 1ts protein content.

KHUPHUKANI LEATHER WORKS Mthatha Through LRED funding, ECDC assisted Khuphukani Leather works to establish a shoe manufacturing factory in Vuhndlela Heights in Mthatha This project is one of its kind in the Eastern cape to be owned and run by people w1th disabilities. The project 1s currently manu­facturing school shoes which are mainly sold to retail shops and government departments such as social Development Education, CorrectiOnal Services and Health The project currently employs 36 people.

NKANYA RIVER LODGE - Elllotdale An amount of R1 .4 million was secured from the Mbhashe Local Municipality for the construction of an access road A further R2 5 m1lllon was approved by DEDEAT and used towards the construction of e1ght chalets. A RSO million investment agreement was also s1gned between a private Investor and Nkanya Lodge Investment and Entertainment

opct at rom t'C\'ICW

QUNU r\'IULTI-PURPOSE OURISrvl C~NT A number of strategic partners such as the dti were approached and indicated interest in fund1ng the hotel component of the development. Two potential operators have been Identified as at the end of the rev1ew period Given the importance of this site. there IS even a greater need to engage with key stakeholders such as the Nelson Mandela Foundation, the Mandela fam11y and local community.

BEE DEW HONEY HOUSE Butterworth A sum of R2SO ooo was approved for the finishing touches of the honey house and this was spent on painting as well as on the purchase and installation of a bullnose, windows panes. plumbing supplies. tiling and garage door. The project employed 11 people during the 2013/14 financial year and this number is set to grow with the increase in demand for honey and its related products.

POLYFIBRE PRODUCTION AND COMMERCIAL PILOT PROJECT~ Port Alfred After a lengthy process of developing a new type of f1bre comb1n1ng recycled plastic and pineapple waste, efforts are paying off well as two major hardware stores BUCO and Penny Pinchers have shown an Interest. A few eng1neers in Port Elizabeth have also shown an interest in the product once certified. ECDC has also solicited Interest from the public, shop fitters, other building outlets from outs1de the province, as well as initiating d1scuss1ons w1th the Department of Hous~ng 1n the Eastern cape regarding the possible uptake of windows and doors frames for housing projects in the prov1nce. The process of patenting was underway as at the end of the financial year.

49

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STRATEGIC OBJECTIVES FOR THE PROGRAMME ARE TO:

• Attract foreign and local direct Investment into the Eastern Cape by continuously positiOning the prov1nce as a premium investment destination, 1mprovmg value propositions Including specifiC project packaging, promotmg the dtr mcentives and those specrfic to municipalities, as well as undertaking targeted m1ssions;

• Mamta1n and support existrng investments; and • Cross-leverage opportunities for ECDC loans and improve occupancy of ECDC properties.

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INVESTMENT PROr lOTIO!\; . R/JINING SUCCESS TI1e Investment Promotion na1n1ng Programme contJnues to be strengthened year-on-year The second provincial 1nvestment promotion trammg course was held 1n March 2014 and was well-attended by municipalities and other prov1nc1al government agenctes Ttte traintng favouraiJiy pos1t1ons ECDC as the lead agency for investment and trade 1n tne Eastem cape Ttte cont1nued endeavours to build capactty across the different spheres and stakeholders w111 pay off by way of Improved coord1nat1on of investment promotion efforts and 1mproved value of local and tore1gn direct Invest­ment A bUild up of thematic semmars and b1-annual sessions IS envtsaged going forward to bUild up the momentum

MULTIPLE lr,II>/ARO MISS · ·NS HO~ '1.0 2013114 saw the Investment Promotion Un1t host a number of fore1gn mcommg miSSions. In February 2014, FCDC hosted Audex. a big energy mult1-nat10nal from Singapore. The delegation was hosted in Nelson Mandela Bay Also In February. ECDC was 1nvolved m the hosting of a htgh-rankmg f1shenes and aquaculture delegation from Zhejl<!ng Prov1nce tn Cl11na. TI1e miSSIOn was led by the natiOnal Department of Agnculture, Forestry and Fisheries.

In March, ECDC was involved 111 hosting an automot1ve miss1on led by the Japan External Trade Organisation (JETRO) 1n Port Elizabeth.ThiS was closely followed by another mcom1ng miSSion from the China-based DY Group.

ECONOMIC DIPlOMACY lP.AINING PROGRAMME ECDC hosted a seven-member delegation of economic diplomats from the Department of International Relations and cooperation. Tile diplomats. to be placed at different foreign missions as part of the Eco­nomic Diplomacy Training Programme, were taken on s1te VISits of the East London and coega Industrial Development Zones (IDZs), metropolitan mumapalltles. as well as large mvestors and major exporters/ manufacturers in the reg1on ThiS presented a huge opportunitY for the Eastern Cape to showcase its potential and also created linkages to explore and enter export markets.

KEY SECTOR EVENTS AND CLUSTERS HOSTED The lntermodat Afnca Conference held from 20 to 22 November 2013 provided excellent publicity for ECDC and the prov1nce. and also created an environment which was conduc1ve for the establishment of good networks and new leads. lntermodal Africa is the largest annual ports, sh1pp1ng and transport logistics conference on the African comment. It was held 111 the Eastern cape for the first ume 1n Port Elizabeth and was attended by a total of 236 delegates from 23 countnes I::CDC was 1nvolved as a sponsor. presenter and exhibitor where the corporation shared ItS exhtbtt1on space with the Coega and East London IDZs.

Anotl1er major event tt the rev1ew period was the inaugural Eastern cape Ports and Shipping conference held 111 May 2013, where ECDC was a main sponsor. presenter and exhibitor The event. a lirst of Its kind for the provmce. brought together players from across the mant1me sector

INVESTMEN S N VARIOUS LCONOrJIIC SEC · ll · A number of Investment decisions, to an estimated value ot R170 million tn the forestry and agro­processing sectors were postponed to the 2014/15 financial year The unit fell short of tts R600 m1llton tnvestment target Desp1te the expans1ons from extstmg investors. the number of new greenfield investments rema1ns constrained across the province. Thts could be attributed to the tight macroeconomic envtronment and the known fact that many 1nvestors would walt until after the May 2014 elect1ons to make tnvestment decisions. There are, however, new pros­pects in the bio-fuel, ICT, renewable energy and tourism sectors There IS a need for tn·depth scop1ng and packagmg of new tnvestment opportunities for aqua­culture. particularly around the Wild coast (Qolora node) wh1ch needs to be done in partnership With the Department of Agnculture. Forestry and Ftshenes.

TOURISM Infrastructure remains a challenge 1n the rural parts of the province. with certain key tounsm operators battling to rematn operatiOnal due to the poor state of access roads and 1nterm1ttent e1ectnc1ty and water supply. ECDC IS lobbymg on vanous fronts to resolve this as JObs 111 the sector are at stake.

AGRO PROCESSING The co-hosting of a highly informattve workshop by ECDC with the TIA on product development and commercialisation of med1c1na1 plants of south Afnca was a great success Th1s workshop was facilitated by Carmara and Partners from SWitzerland, experts 10

product development in life sc1ences and regulatory reqwrements, especially in the European Un1on market. Th1s workshop stimulated a lot of Interest 1n traditiOnal medicines whtch the Eastern cape is known for tts endowment. This workhsop has made a valuable contribution towards the corporation's focus on the the development of med1cmal and aromatic plants.

The Signing of the Tnpart1te Agreement between ECDC, Eastern Cape Rural Development Agency (ECRDA) and the Development Bank of Southern Africa's (DBSA) Jobs Fund heralded the start tn the Implementation of the long-awaited agro processing Industrial initiative funded through the DBSA Jobs fund. Certain mtlestones have been achieved 1ncludtng, the stgnmg of the commun1ty agreement wtth the broader Ncorha communitieS withm 1nts11<a Yethu Local MunicipalitY 1n support of the Implementation of the trading post-mtlltng facility.

51

S1

A strong partnership demonstrated between the priVate sector wtthln the mohair tndustry and public sector organisations such as the Department of Rural Devel­opment and Agrarian Reform. DEDEAt ECDC, Cacadu District Municipality and lkwezi Local Muntctpality has kept the dream of revtving the declining mohatr tndustry alive. These partners invested resources to ensure that the lnternattonal Mohair summtt 2013 which took place in Jansenville became a success. The event attracted a total of 534 delegates and visitors whtch included foreign tndustry players and tnvestors from China, Japan, Italy, New Zealand. Australia, Mexico, Belgtum. Norway and SWitzerland.

RENEWABLE ENERGY The interest In wind energy In the province rematned high in the first quarter of 2013 as projected in ECDC's investment pipeline. During the review period, ECDC engaged developers and investors for various projects located mostly in the rural parts of the Eastern Cape. This Interest is increasing demand for skilled personnel and for support services.

ICT AND FILM The e-waste recycling project involving the disposal of over 1 200 old computers as part of its first phase started in August 2013. By the end of the revtew period. the project had sent a port1on of metals from the computers for metal recycling. generating some tncome. The project currently provides employment to graduates from five Further Education and Tratntng (FETJ colleges. The success of th1s project could lead to a province-wide roll-out servtctng the public sector. This in turn could create sustainable jobs for unemployed graduates and provide for an enhancement or their e-skills within sustainable green practices. More work will be undertaken tn the new financial year to explore the replication of the Initiative ustng old computers from government departments and munictpalities

In terms of local content, more efforts will be heightened in the 2014/15 financial year to accelerate the development tn this area through the launch of the Local Content Hub as renovations on the site are envisaged to be completed by June 2014. One of the key success factors is to ensure that the hub is well resourced in terms of relevant equipment and expertise. To this end. resources have been set aside for production

equipment and recruiting the services or an executive producer/head creative/technical production mentor There are endeavours to partner with key players in markets such as canada, USA, United Kingdom, Europe and Asia

Film tratntng will also continue into the new year and this should see a steady stream of local film directors and producers emergtng from the provtnce. The existing partnerships with the Media Development and Diversity Agency and the National Ftlm and Video Foundation have been key tn ECDC inttlatives towards developing the film tndustry.

MINING AND MINERALS A couple of projects have been packaged for potential local and foreign investors based on the Eastern Cape Mining and Minerals sector Plan.

PROVINCIAL SKILLS AUDIT In partnership with the coega Development corp­oration, ECDC undertook a provincial skills audit in line with the high Impact/strategic infrastructure projects earmarked for the province. As at the end of the financial year. the study was 95% complete with only the implementatton and resourcing plan outstandmg. The study focuses on selected sectors. namely alternattve energies (nuclear, wind. solar and hydro). agro-processing and tourism.

In response to the growing demand for skills in the renewable energy sector and in light of the five awarded renewable energy projects in the province to the value of R8.6 billion. ECDC has jotned forces with the East London IDZ to establish a Renewable Energy Training centre. The availability of trained people in this field is envisaged to encourage foreign and local tnvestors to invest tn the Eastern Cape. The success of the centre w111 also posttion the Eastern Cape on the renewable energy map and create momentum for further acttvity in the province.

The analysis in the above study reveals the potential of an unfolding green economy to lead to the creation of approxtmately 98 000 new direct jobs in the short term, almost 255,000 in the medium term and around 462 000 employment opportunities in the formal economy in the long term

THE DEMAND SIDE ANALYSIS FROM A SKILLS POINT IS SHOWN IN THE TABLE BELOW·

Protect development

Pre-feastbtllty and feastbihty studtes, wtnd speed measure· ments. energy production estimates, s1te destgns, turbtne selection, impact studies (notse. vtsual effects, enVIronmen tal). gnd connection. consenting. tendenng and contracung, meteorological mast mstallation and operatton

construction construction management

Civil and electrical engineenng of Balance of Plant

construct ton of Balance of Plant

Operauon & mdtntenance

Turbtne tnstallatlon and commtssionmg

Turbtne servtce and mamtenance

Turbme operatiOn superv1s1on

Wtnd farm management

•

Wtna turbme & component manufacture

Balance ol Plant servtce and maintenance

rower manufacture

•

component manufacture lincludmg mator components)

Blade manufacture

Nacelle assembly

111111111111111111111111111111111111111111111111111111111111111111 ( ·ha 11 e nges and opportunities 111111111111111111111111111111111111111111111111111111111111111111

• The Mtntster of Energy has set 1 october 2015 as the date for whtch the regulations for blendtng bio· dtesel tn dtesel and btoethanol in petrol will come mto operatton Canota, sunflower and soya are feedstock for btodiesel, whtle sugarcane and sugar beet are feedstock for ethanoL All of these are SUitable for growmg tn the Eastern Gape, presentmg a huge opportumty for the province. As such, ECDC ts developtng a clear programme of action to exploit opportumttes 1n thiS area.

• conunuat1on of the Renewable Energy Independent Power ProductiOn Programme presents a huge opportumty go111g forward.

• Shale gas expto1 at1on 111 the Little Karoo brought a new dtmenston to the econom1c outlook of the provtnce There are prospects of starttng a new tndustry wtth tts supporting Infrastructure, which

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could open the area for other developments or related industries and downstream opportunities.

• Ongoing 011 and gas exploration along the coast (lndtan Ocean) present huge opportunities for the Eastern Cape should the results be positive.

• The protracted strikes 111 the automotive Industry had a negattve effect on the whole Industry and thwarted endeavours to attract new investors

• The long turnaround t1me for securing land tenure affects vanous mvestment decisions in the agro processmg, renewable energy and tourism sectors.

• Infrastructure backlogs 1n key tourism nodes such as the Wtld coast 111 parttcular reQutres urgent a ttentton In the year under revtew. thts particular area was put under the spotlight w1th the launch of the Integrated Wtld coast Development Programme

53

STRATEGIC OBJECTIVES FOR THIS PROGRAMME ARE TO:

• Increase the number of exporters and volume of trade from the Eastern Cape to the rest of the world; • Focus on and explore new markets for Eastern Cape products, • Maximise opportunities offered by various policies, bilateral agreements and existing 1ncent1ves; and • Broaden trade w1thin Africa and facilitate access to emerging markets.

11111111111111111111 eastern cape permanent exhibition - ningbo, china 11111111111111111111

During Apnl2013, the Eastern Cape Permanent Exh1b1t10n 1n N1ngbo, China was officially opened. Th1s IS a result of a three-year partnership agreement between ECDC and the dt1 and which will be reviewed depending on the success of the first three-year cycle of the fa1r. The a 1m of the exhibition 1s to market and prov1de provincial products With structured market entry into the Chinese market

SIX COMPANIES SHOWCASING PRODUCTS IN THE CHINA-BASED EXHIBITION:

1. 1emos m Arnca Port F/uabech-ba\l•d nranu(aclurcr of mohwr gamJc>nts wilich sourn•s raw mutenals (rom tlw Cacadu district

2. : Cheny pepper produc:rr locawd in Graham.\to\vll

3. rllla~~;ana Meaoery Han!.")' bi:cr~meud 1qhJiiko located in Groham.,tohn

4. Menoaoam Port Flilalwth-bost•d bath re~urfaung kit manufacturer

5. Oceanw1se Cob fr~h producer located in Eu~c l.ondon

6. Berry N1ce BluC'Ix:rry produce.~ munu(acwn•d in Molwnn and Scuccerheim

Further, in December 2013, ECDC staged a mohair show in Ningbo whiCh resulted 1n the sale of mohair scarfs totalling R38 250 and mead w1ne (iqhihka) to the value of R30 000 (600 bottles) with a follow up of 1 600 bottles for the 2014 financ1al year.

Further to the launch, a Hyundai Beijing partnership was forged to strengthen the ECDC brand in China. The Eastern Cape products were also showcased at the Spring Festival in January 2014 m Chma which resulted in cherry peppers and mohair scarves being sold out A renowned Chinese Restaurant. Chengdu SEEA Restaurant co. Ltd. has entered mto a long-term partnership to fully support, promote and sell Cherry Peppers. Honey Mead and other similar products. The focus IS therefore on supporting as far as possible the various local entrepreneurs to meet and comply with the Chinese market entry reqwrements. There are endeavours to expand the product profile and preliminary assessments on the state of readiness of local companies from a quality management point of v1ew are underway.

1111111111" 11 quality management systems certification programme llllllllllllll

During the year under review, ECDC instituted a Quality Management Systems (QMS) Certification Programme to uplift the quality standards of local SMMEs The programme IS expected to y1eld good production standards, thus making SMMEs more competitive both nationally and internationally.

Fifteen qualifying SMMEs were selected as beneficiaries in the first rollout process to commence in the 2014/15 financial year. The SMMEs operate in a range of sectors from agriculture. manufacturing, engineering, ICT, serv1ces and construction. An amount of R943 000 has been earmarked for implementation and further funding Is expected to be allocated to the project during the year under review.

""'Ill 11 pur 'I I J ~ I

111111111111111111111111111111111111111111111111111111 east london exporters club chaptt, IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIU

rcDc successfully launched the East London Exporters Club Chapter in partnership w1th the Exporters Club of south Africa. Small Enterprise Development Agency {SEDA), Buffalo City Mumc1pality, East London IDZ, Border Ke1 Cham bel of Business and Transnet The launch was attended by 83 compan1es from the East London region and surrounding areas.

The Exporters Club prov1des a platform for exchangmg 1deas. mformatlon, and experience among members and also encourages liaison with other export-orientated clubs and bod1es The Prov1ncial Exporter of the Year Awards, scheduled for August 2014, 1s one of many networking functiOnS planned for the 2014115 f1nanc1al year.

11111111111111111111111111111111111111111111111111111111111111111 export -orienta ted \Vorksh ops 11111111111111111111111111111111111111111111111111111111111111111

ECDC held a number of workshops across the province 1n collaboration With SEDA and the dt1. The workshops introduced SMMEs to exports and provided them with Information on export incent1ves and other non-financial support available.

ECDC further conducted export training 1n the cacadu and Chns Hani reg1ons 1n partnership w1th SEDA and LED. benefitting a total of 35 SMMEs who received training in both regions.

1111111111111 11 11111111111111111111111111111111111111111111111111111111111 11 inc e r 11 a L; o rl a 1 ex /1 ; b; t i o 11 s IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIHIIIIIII

ECDC also participated 111 two of the world's acclaimed exhibitions in Dubal and Japan East London-based pmeapple products' manufacturer summerpride and Sage Kitchen from Port Elizabeth were selected by ECDC to partiCipate at the Gulfood exhibition 1n Dubai and they received more than so trade leads.

Foodex Japan also promises positive prospects as a number of positive trade leads were Identified The provincial delegation compnsed ECDC and Port Elizabeth-based sorbet producer Dynamic Commodities.

On both exhibitions, ECDC showcased products from vanous SMMEs ranging from honey producers, blueberry Jam, mead (IQillka), candles and chutney.

llllllllllllllllilllllllllllllllllllllllllllllllllllllllllllttllllllllllllll exp J 0 ring 11 e ~ v tn a , .. ke ts IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIIIIIIIIIU!IIIIIIIIIIIIIIIIIIIIIIIII

ECDC concluded two stud1es on new market opportumties with one focusing on the southern Afncan Development commumty (SADCl. East and west Africa. and the other on selected Asian markets namely, India. Ch1na. south Korea and Japan

oper Cll io 11~ rt?l'it'l\ 55

project fast facts

lOCATION Grao{/ R<>inl't

ECOC INTERVENTION Jobs Stimulus Fund,

Risk Capital

JOBS CREATED 143

""'"'""""""""'"""'""'"'"'""'""'""" human resources strategic focus """""""""""""""""""""""""""""' The Human Resources (HRl department provides integrated HR solutions for ECDC staff and the Board of Directors. With a passion for quali ty and customer serv1ce excellence, the corporation ensures the availability of the right skills for the right jobs at the right time.

The year under review has been a challenging penod 1n terms of ensunng the capacitation of employees while looking into the changes and challenges that come w1th bus1ness imperatives. It was a year of building relationships with stakeholders and finding better ways of improving HR management within ECDC.

IN ORDER TO ENSURE THAT THE MANDATE IS UPHELD THE FOLLOWING WERE THE AREAS Of FOCUS:

• Talent management • Employer/employee re1at10ns • HR development • Performance management • Employee integrated wellness

llll ll lll lll llllllllllltll lllll lllllllllllllllllllllltlllll llll lllllllllllllllllllllll ta I en t management 11111111111111111111111111111111111111111111111111111111111111111111111111111111111111

1n the year under review. ECDC's workforce was made up of 164 permanent staff. The vacancy rate was 8% due to several vacancies that were not filled as a result of cost containment measures. The staff turnover for this period was 6%.

Staff profr/C' as at31 March 2014

ECDC staff turnover

Employees at the start of the penod

Add· Recruitment

Less: Res1gnat1ons

Deaths

DiSmiSSals

Retirements

Expuy contracts

Total permanent employees at the end of penod

Total temporary employees at the end of penod

Staff turnover rate

vacancy rate

Actual

169

12

10

0

4

2

159

5

6%

8%

11111111al repML !0 I { 14

Otcupatwnal categories

Top management (Grade 20·25)

Semor management (17· 19)

Skilled superviSIOn (Grade 12·16)

Sem•·Skllled (Grade 7-11)

unskilled (Grade 2 6)

TOTAL PERMANENT

TOTAL TEMPORARY

Employees with disabilities

GRAND TOTAL

staff breakdown by age

18% 25 • 35 yr\

36 • 45 vrs

19% 46 • 50 yrs

Male

A(rrcan Coloured

4 0

8 0

28 1

15 0

1 0

56 1

1 0

0 0

57 1

51· 55yrs

12% 56· 60yr.~

Indian

0

2

0

0

0

2

0

0

2

1\'/ll(('

1

3

5

0

0

9

0

0

9

staff complement per department

12% Corporme St•rvKes

I-inane~

66% Operations

7~o Cemre o{ Excel/en(('

Infrastructure Drve/opmem

3% Office o( thr C FO

staff breakdown by gender

Male SSo, Female

staff breakdown by race

A{ncon

2"' Coloured

human resources

Indian

7% \~'hite

Femalt' Total

A(rrcan Coloured Indian Whit!!

3 0 0 0 8

4 0 0 1 18

35 2 0 3 74

36 0 0 0 51

7 0 0 0 8

85 2 0 4 159

4 0 0 0 5

0 0 0 0 0

89 2 0 4 164

3%

59

2%

11 1111 11 1111111111 11 11111111111111 11 1111111111 11 11 111111111111 11 human resources development llll llllllllllllllllllllllllllltttllllllilllllllllllllllllllllll

Actual tra1mng spend was R3.05 m1llion compared to R1.5 million for the prev1ous year The corporation has taken a decision to step up 1ts HR development to address the critical skills gap identified. ECDC pndes itself on staff improvements in areas such as due diligence. project management. monitoring evaluation and also the up-sk1lling of business adv1sors.

In the review period. there was an intake of five interns wh1ch positively impacted ECDC's strategy on youth development.

... 1,,1111111111111111111111111111111111111111111111111111111111111111111111111111111111 training camp 1 eted 1111111111111111111111111111111111111111111111111111111111111111111111111111111111111111

generic

66% Operations

f"illOIICI?

9~o 0/(lce of tht! U:.O

health & safety

64% Operations

Finance

6% Of{lce of rhe C LO

project management

85% OperatiOns

Morketmg

staff study assistance

64°., Opaauons Finance

7% fluman Rc~OUrt.l'\

2°o Legal

Human Resoun·e~

6°~ LegtJI

6o.-o Human Resourt-e> Finance

9~ 0{/ic~ of rhe CEO

8% Human Resources

IIHUIIIIIII IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIIIIIIIIIIIIIIIIIIIIIIIIII performa nee management IIIIIIIIIIIIIIIIUIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIIIIIIIIIIIIIIIIIIIII

Managing and improving performance remains a priority for ECDC and as a result an online performance management system was implemented.

1111111111111111111111 11 1111111111111111111111111111111111111111111111111111 11 1111111111 emp 1 oyee re 1 a ti ons '"'1111111111111111 11111111111111111111111111111111 11 1111111111111111111111111111 11 1111

ECDC HAS BEEN PARTICIPATING IN THE DELOITIE'S BEST COMPANY TO WORK FOR SURVEY SINCE 2010 A S A M EANS TO:

• Gain invaluable insight into the reported employment priorities, • Realise employee experiences and expectations in the short and long term: • Align talent strategies and plans with employee needs and expectations; • Give ECDC the ability to test and respond to employee perceptions; • Assess alignment of employees to ECDC business processes and operations: and • use the outcomes of the survey to assist ECDC in the development of employee value proposals.

THE SURVEY RESULTS INDICATE THAT ECDC IS STILL VIEWED BY ITS STAFF AS THE MOST DESIRABLE EMPLOYER- SEE FIGURE BELOW.

ecdc "best company to work for " 1111111111111111111111111111111111 111111111 11 11111 11 11111111 11111111111111111 11 111111111 mean score resu Its 1111111111 11 1111111 11 1111111111111111111111111111111111111111111111111111111111111111111

>3.7 Vet:v Positive I E.~cellenr 3.J8- 3.7 Posirive I Favourable 3.62

3.61 3.15 - 3.37 Area of Concern

2.63 <3.15 Problemaric

2010 2012 2013

1111111111111111 1111111111 1111111111111111111111111111111111111111111111111111111111111111 future focus areas llllllllllllll llll llll ll lll ll llllllll lll llll lllllt llllllll ll lll llllllllllllllll llllll lll ll

TO ENSURE OPTIMALINDIVIDUALAND ORGANISATIONAL EFFECTIVENESS, IMPROVED ORGANISATIONAL CAPACITY AND PERFORMANCE ALIGNMENT WITH ECDC'S BUSINESS NEEDS, THE CORPORATION WILL FOCUS ON THE FOLLOWING INITIATIVES:

• continUing to embed a performance management system and culture: • Continuing wi th capacity building in core and critical skills; • Providing an integrated employee well ness programme; and • Relationship building with institutions of higher learning.

human resources 61

project fast facts LOCAiiON

PCJrl Elitobi>lh

tCOC \NitRVtNiiON

Financial • Project \tonagcment & Resource [>1obililotion

lOBS CRtAitO 54

ECDC perfo1 med a robust annual as well as regular assessments of risks. followed by fully populated strategic and operational risk registers and treatment plans which were monitored by the Board on a regular basis.

The corporation uses a S-Iever maturity assessment model as the tool for Improvement of the ECDC risk management envuonment. The Board is satisfied that tile Corporation has adeQuately fulfilled the requrremems of Level 3.

In order for the CorporatiOn to achieve the next level of the maturity assessment model, the risk management has a sigmticant influence on the control environment at th1s stage

THE CORPORATION WILL THEREFORE PURSUE THE FOLLOWING RISK MANAGEMENT GOALS TO REACH LEVEL 4:

• Fma11se appointments of R1sk Champions; • Trarning all employees on the Importance of risk

management and risk processes in operations on an ongo1ng basis;

• Fully def1ne Risk Appetite; • Establish nsk tolerance levels for all major categories

of risk;

• Momtor. measure and report on enterpnse-wide risk; • Include nsk management in performance agreements

of the R1sk Champions, • Implement a nsk management automation system

(technology); and • Develop contingency plans and escalation procedures.

"""""'"""'"'"""""""'"'"""""""""""' fraud prevention and detection """"""""""""""""""""""""'"""'""" The Board strongly condemns fraudulent. unethical or corrupt pract1ces within the Corporation ECDC employees are encouraged to report any of these practices to a Fraud Hotline managed by an rndependent external serv1ce provider, the source of information remaming anonymous. This IS 1n accordance with the adopted Anti Fraud and Corruption and Whistle Blowing policies and complies With the requ1rements of the Protected Disclosures Act. No 26 of 2000 by creating an envrronmem in which 1t 1s safe for employees to report mpropnety An ongomg awareness programme will be conducted to ensure all employees are educated and mformed on how fraud 1mpacts upon their daily working envrronment.

63

project fast facts

LOCATION Jeffreys Bay & Pore Eli1obech

ECDC INTERVENTION Jobs Stimulus Fund

JOBS CREATED 17

,,0\ \I I 1 /~

... -- -- .... , ... /''"''

I Ill I pol/ JQ J ! ]..J

11111111111111111111111111111 erformance against predetermined objectiv£ 11111111111111111111111111111

ECDC used a balanced scorecard method to track and ensure all priorities are given adequate and balanced attentiOn by the various business un1ts. Performance against planned targets, as contamed in the Shareholder's compact. IS detailed in the follow1ng tables

Financ1al ',,, I •.! r o] I ,,4 Perspecitve Decrl'asr lo,~r~ on Grow teturns on lmptU\'l! C'OSI e{~Cit'll"J Maimam adequare leveh

oprrutit~os >nVC\IIIII"fiiS and 0$\eiS of lrquidiry

Customer II, Perspective Crow as the IC'nding lmprow cusmml'r Build strorC'gl(' Provh1011 u balanced

(rnancu.>r of c·hm< e munagemenr partnet ~hips wilh proclun and market srakeholdl't ~ pun folio

Internal I'll I' I ' /'II~ Processes lncre<ISe operatiOnal lncrruse Provincial f:{fenive/.v manay~ risk Levewye on the strengrh Perspective producriviry rhrough /tX>lprmt and reach in all pt'OC'l'\SI'S o{ f('f)( values and

streamlmP inno•·aftvl' /)l'alld solu11on\

Learning tn l Itt.! Ill·~ 114 & Growth Jnvesrm human Build a <ulrure of Increase eflccrive Build devflopment Perspective ropiw/ I'M!'III'nn• and leadcrsllifl decision makmg finance and t>conomic

inll'lltgPnce

OPERATIONS OFFICE

' IV~IUifllrl~ 1: Business Funding -' 't".;\,.,ttJI•tt· ,..,,1)1 .,., tJ ... l'lt:ll''•"\1 "' u.al ~ fl·•· I ol( I Ur:vw '"' ool>/1'>1hC ~· f.! Iii f ·' value of new R208 mlllton R122.7 m1111on ·41% Target not ach1eved

loans disbursed Clients take long to meet compliance requirements and other delays due to registratiOn of securities Under-disbursement of approved loans IS another factor which IS largely as per clients' request. Overall. the economic climate IS negatively affecting both bus1ness growth and new business opportunities

I/ lVI. % quality of the 46.5% 62% ·33% Target not achieved loan portfolio The reason and basis for thts IS the impaired dtrect correlat1on between loans and

impairment. Had the lending target of 208m been met the impairment would have been 26% assuming no impairment in the rust year of loan disbursement.

r: Number of jobs 1,714 , 320 ·23% Target not achieved. factiltated or This is dtrectly related to the low saved disbursements of loans. Further, a larger

portion of loans went to NEXUS (invOICe-based) and WORFLOW (construction) loans wh1ch have fewer JObs by nature. The prevathng unfavourable econom1c climate also limits employment

I I Number of 320 265 ·17% Target not ach1eved. SMMES funded

o1fnuul1 cport iO IJ 14

OPERATIONS OFFICE

IIV~l UIUfllc; 2: Administered Funds 1 '1r ,r,,,,,,,u 'I [11, uhn ( P ( l/lt 1 fl( 11 ( I Utld

\l•"t411lhll' Prr fnnttll'l• ~ '•lllli!N.i 1nwll 'r~v ,.,.,., f((,J'• '" /•>'' •·htrthlr II

I ,t Government· R20million R11 .97 million ·40% Target not achieved. managed portfolio Disbursements are directly related to disbursed lmvaba number of funded co-ops, and due to (Co·op incentive) funding constraints, this target was

not reached. DISbursements tailed off towards the end of the year and this is directly related to the availability of funds.

Non-financial R7 million R5.62 million ·20% Target not ach1eved. support to funded Non-financial support is directly related co-ops to number of funded co-ops. Targetted

number of funded co-ops was not reached due to funding constraints.

( ' Number of co-ops 40 24 ·40% Target not achieved. funded (CO· OP Numerous applications received could incentive) not be considered due to funding

constraints. I I Number of CO·OPS 40 72 80% Target achieved.

developed

'I Number of 200 136 ·32% Target not achieved. co-op members This is directly related to number of co· trained (New and ops approved for funding existing)

1: Number of jobs 1,400 206 ·85% Target not achieved. created This is directly related to number of

co-ops approved for funding.

OPERATIONS OFFICE

r1 v~r u nurn:; 2: Administered Funds {'t•JOitllllt'l'' .!. f. fii'VItnll ( 1 r lpcwi,\C lund

""'''"'''''t' P~r(o)f1J!UII<t' Pltll'llt'll o\Jruul ,. lkv•mlmr Hrov..ll' /(1( (~ft"CI,-.1" II

{ .. EC Jobs Stimulus R50 m1llion R25.47 million ·49% Target not achieved. Fund disbursed The disbursements tailed off towards

the end of the financial year due to the deadline for creating jobs being set at 31st December 2013 as well as the closing off of the programme. The reduced number of staff managing the programme was another factor which influenced disbursements as this meant there was inadequate manpower to follow-up on clients for submission of documentation. , .. Number of jobs 3,000 2,547 ·15% Target not achieved.

created or saved Impacted by the above target which has not been achieved.

('~'' {tlt mnnr~ against predetermmed obj~c·tinrr.'> 67

6R

OPERATIONS OFFICE

Progr umme 3: Property Management ... ,,.,,11' ,hit• JfPic•r IH ••

/IX:/

I ,t'i,/ I

I· I

p .• , , .. , ,,.,, ... ~''"'""''' \< llllll

,rrdf• II·~·· ltt•r/' 1r-lUW' /10'</'lr"'OI!o o•

Amount of rental R55.2 million R44.34 million collected on current rentals

Amount of arrears R12 m•llion R13.5 million collected

value of properties sold (disposal:'

R43.2 million R10 55 m1llion

•:. IJt•\'ltiiWII

-20%

13%

U·•u\oJII '"' ~.••''IUrdl~

Target not achreved Main factors rncluded the poor performance rn the SANCO-Iinked resrdential properties (Butterworth), Transrdo properties (Mthatha) and Mdantsane Mall. as well as prolonged legal eviction processes. A total of 41 90<. (R114 9 mrllion} of the total R273. 9 million (debt relates to ex-tenants who are payrng less than 2% and have tracing difficulties>

Target achiveved

-76% Target not achieved. Legal processes for transfer of ownership has taken longer than envisaged Part-payment of residential sites recerved, w1th the remarnder of payments expected in next f1nanc1al year. A sum of R36.5 million worth of approved sales are awaiting legal processes to be completed. An addlttonal19 applications. worth R12 4 million, are awaitrng internal

------------------------..;..:;approval.

l1'1nual tepCJtl 'fll { I.J

OPERATIONS OFFICE

Programme 4: Business Support \lo•w,lf•utolo· )Jrr ]tJIIttOIJt 1• l'lun•k-.:J 'lllldl "" fJ 'f1,;UfH1 .krU"'Ifl/tll

·'}'•J• r•\··· u)(fH uh' l"••fla•I'Tt'U,Hlct' /'<'-"I• lrhlllllo J,·\ultum

I I Number of 280 272 ·3% Target not ach1eved. SMMES prOVIded In the fmal quarter of the year, the w1th pre and demand for pre· and post-financial post-finance support dropped, leading to the annual support <business target not bemg reached. S1gn1ficant over-development achievement 1n other quarters reduced support) the full effect of the reduced demand

a) Number of 224 17S 1n last quarter It should be noted that

eXISting SMMES th1s kmd of support is demand-driven.

supported Further, significant over-achievement on the number of existing SMMEs supported

b) Number of 56 97 was due to the 1ncreased demand of new new SMMEs SMMEs requlnng support than existmg developed busmesses.

I I Number of 4 0 -100% Target not ach1eved. Initiatives Delays are as a result or targeted Implemented business chambers not being able with organ1sed to comply wltl1 reqtured regulatory business and documentatiOn such as audit outcomes other ent1t1es and 1nability to produce tax clearance

certificates · 10 partiCular, the National African Federated Chamber of commerce (NAFCOC) and Foundation for Afncan Business and consumer serv1ces (FABCOS)

Number of new 0% Target ach1eved. co-operation agreements entered 1nto

I I Number of 1000 1197 20% Target achieved. SMMEs tramed m bus1ness sk1lls

- woman (W) W:400 794 YOUth (Y) Y=400 427 DISabled (D) 0=5 9

'. Number of 16 29 81% Target ach1eved bus1ness opportunities workshops/ conferences/ seminars/trade fails/exhibitions held

I j Number 4 -75% Target not ach1eved. of supplier No adequate resources were allocated development lor this programme programmes

r • Number of 30 23 ·23% Target not achieved. enterpnses The recruitment of new enterprises was InCubated at ECITI linked to the availability of fund1ng

'. Number of 2 0 ·100% Target not ach1eved. incubators ThiS target was linked to ECITI's planned established expansion programme wh1ch was

targeting establishing new centres 10 Queenstown and Mthatha The delay 1n the transfer of fund1ng from the dtJ has led to non-achievement of th1s target.

I I SMME database 0% Target achieved.

69

70

CENTRE OF EXCELLENCE

1-tu!:J'·omme I: Economic Research \fr,]\L;fdJu,· f'r•}· "'11ffl" • ,, ..,rtttt•d \1 IIJul 'l· f )l•\'lt..ltun Hn..·ot~ fotr

I t'.WtU\'f (¥rt''''Pl' r r ,, ,. 6'illl'ft1Uon

I I Number of 4 7 75% Target achieved periodiC tndustry Three penodic industry analysis research trends research completed 1n quarter 4, bnng1ng the total

to 7 for the year 2013/14.

I I Research on the 2 2 0% Target achieved. f -1 performance and

impact of ECDC products

I I Research 2 3 50% Target achieved. 1nto market opportunittes in key growth reg1ons (Afnca and BRICS) and tradtttonal markets (EU. us etc)

I' Number of up- 2 2 0% Target achieved. to-date reg1ona1 Regional economtc profiles for two economtc profiles districts done in the last quarter developed

I I % socto-econom1c 0% Target achieved. tmpact analysts report on specific 1ntervent1ons done

L.4 Functional, 100% 90% ·10% Target not achieved. accessible and 90% has been achieved, the remainder is up to-date incorporating the des1gns dunng 2014/15. electrOniC h.nowledge hub

CENTRE OF EXCELLENCE

1-ru!:Jr urmne 2: Innovation & Produce Development ~lt'U\UWI>Ir

""'""f'>l' '·

I J

p,.,,.,flllt)rl<f'

'"•II•• Number of proJects Implemented from the prioritised sector plans/Provmc1al Industrial Development Strategy

Number of packaged projects/new local beneftctatton opportunities

l'raJHitl'tf •l<flWI ''r /)t•VI(Jfl•>ro Hl'(l'"'' fur ,~,f, .,,,,,,.. f ttrr'(urlllum• 6'-1f.!'ltlfJ

4 4 0% Target achieved.

4 4 0% Target achieved.

CENTRE OF EXCELLENCE

I I \J~I UIIIIH~ ~ . Innovation & Produce Development [•, ,,, If u'dlli '.I Ill\( '>lt!t• ,,, \.1d u,-~ f ap ca'

~t,•mw oll>ll' I '• rtnrm<~nrf' Plnnnrd \t 11111/ •• /if'11'h.'UOif llroJ(o 11(101

<tbjo•t I•• j)j II "'\'LJ'tun

I~ Number of 12 18 50% Target achieved. development This target was exceeded due to more projects identified proactive participation in business and which are aligned stakeholder platforms by staff In the to provincial various regions. priorities

r. Rand value spent R15 million R8.76 million -42% Target not achieved. on projects Although below target, the balance scoping in (over R10 million) has been committed. priority sectors Procurement processes and drawing up (innovation) of contracts took longer than anticipated

due to the specialised nature of work. ( I Third-party R80m11l10n R104.30 30% Target achieved.

funding leveraged million This target was exceeded due to good in risk sharing quality of business plans and value

propositions which led to improved Iunder confidence. The scoping exercise done in the previous years is also paying off.

t I Number of 7 7 0% Target achieved. development projects established , .. Number of a 0 ·100% Target not ach1eved projects This was mainly due to non-alignment commercialised. of policies between Risk capital and including Development Investments Units conversion 1nto the ECDC balance sheet

f.' Number of jobs 780 511 ·34% Target not achieved. facilitated and/or Most projects supported are in saved commercial pilot phase and hence

few jobs created. several delays in the transfer/disbursement of funds were also experienced by several projects which were funded by third parties.

per(nrmunce agamst predMermlned obJCCtinm 71

CENTRE OF EXCELLENCE

rlV!:jl\.HllliiC:: ...J . Investment & Trade Promotion & Coordination '\l,'ll~l.,ulllt' Pt."r/W fttlJJh. l'llll"l!l'd ,, ""'' ', /}.,vfcJII(IIt Rt'u"<lll/"' ,ol•i•· Tl•r ttl1U1ff

1-1 Number of leads 180 188 4% Target achieved. generated (new prospects)

t I Value and number R600 million R487.74 -19% Target not achieved of investments ml111on The 19% shortfall was due to fewer

greenfield investments in the current investment climate. A couple of investments (expansions) were postponed to next year namely Singisl Forest. carara, Grahamstown Meadery and Clover.

• I Number of 19 19 0% Target achieved. investments

I.' Number of jobs 1 200 1 071 -11% Target not achieved. created/saved Target will be realised once the delayed

investments are realised in the first two quarters of 2014/15.

I I Number of sector 6 8 33% Target achieved. workshops

I I Number of 2 3 50% Target achieved. clusters facilitated and/or supported

II Number of 20 140 600% Target achieved. people trained m investment and trade promotion , ' value of exports R1.4 brllion R1 .53 billion 9% Target achieved. facilitated

t J Number of new 40 81 103% Target achieved. and existing This target was exceeded due to new businesses products identified and new markets assisted with considered and pursued m 2013/14 integrated export which incldued Dubai and Japan. development support

72 (olllliiOI I CJlOI I 10/ ~ J.J

INFRASTRUCTURE DEVELOPMENT

•.1. \J , ... t.ll,Jc• l·'ni"''~'~U"'" f'/anttnl 1\..11<!/ .. 'NH(/11<.111 fll!"lUUtt lt•t

,.t.u·c.ht> •• ,d.._,,uttr 1\1'•1•Jrnh1n(,. Vf"'(ornH,n+,. ,h·•h.UIJI'I

I l Number of 2 2 0% Target achieved. new potential Infrastructure projects 1dent1f1ed

1-li J Pre· feas1b1llties 2 3 50% Target iJChieved. performed on prowcts

'" concepts 2 100% Target achieved. developed and feas1b11it1es performed

It Funding approvals 0% Target achieved. obtained · m principle

I' Funding approvals 0 ·100% Target not achieved. obtained nnal The final agreement for the Bh1sho

project was completed in the second quarter and submitted to the Iunder. By the end of the year. ECDC was still awa1tmg fmal acceptance of the agreement by the Iunder. Internal challenges w1thin the Public Investment corporation (PIC) and the resignation of government's project leader also influenced the delay

I I Projects 0 · 100% Target not ach1eved Implementation The final agreement for the Bh1sho commenced project was completed 1n the second

quarter and submitted to the funder By the end of the year, ECDC was still awa1ttng fmal acceptance of the agreement by the Iunder Internal challenges w1th1n the PIC and the resignation of government's project leader also Influenced the delay.

t ~ Projects 1dent1fied ROI >prime 15.8% 15.8% Target achieved. for the concept plus 2% development and feasibility studies must have a return on investment (ROI) > 12%

I.' Income generated R3m 0 ·100% Target not achieved. from fund The final agreement for the Bhisho activities project was completed 1n the second

quarter and submitted to the Iunder By the end of the year, ECDC was still awa1t1ng final acceptance of the agreement by the Iunder Internal challenges w1thm the PIC and the resignation of government's project leader also influenced the delay.

{)(•rformtJIIU oqum\1 prt•tktcrmllwd obJCWons 73

CORPORATE SERVICES

,umu11 rt:sources management -.t .. , .. .,,.Jfl" p.,,l~lfiiiUfl pt,,n,.,tl \r ft ~I' •.•. Llt•"4fUfttlt R.-, .... ,,. JtU

'"'1•'1111<' ,. I I' , ..... ,,, .. -l • % decrease on 10% 100% 900% Target achieved. litigation costs by employees againSt ECDC ,, Rand spent on R3 rn1lhon R3.05 million 2% Target achieved. traming and development

II Number of 4 6 50% Target achreved. employees on success1on plann1ng

/I Number of youth 6 4 ·33% Target not ach1eved developed The departure of the Internal Audit

Manager changed the plan of recruiting two additional interns

Percentile 8% 8% 0% Target achieved vacancy rate Th1s is based on the pos1tions budgeted

for 1n the year under review !_" Rand spent of R750000 R264 000 65% Target achieved.

recrUitment A savings of R486,000 was made due to positions filled by 1nterna11ncumbents and ECDC advertising directly on newspaper

I. % or employees 100% 98% 2% Target not achieved submitted The governance structure was not performance on finalised on t1me time

I.' % decrease m 10% 100% 900% Target achieved. litigat1on costs by employees aga1nst ECDC

CORPORATE SERVICES

~~~"'' .;cr Vfl.C'.)

\lnl"l' /1/r ,.,.,,,,.,,1 ttt" l'lmllll'<l \o "toll '' JJf-\ UJ1HJtt rto·u~m fr•• ri/>I~Ciht' 11 oil IJ/ur ,,,T('-If"UtnUf r ttr .. lfWntdlllr tlt·~ufth'n ,, %spent on 25% 21% 15% Target achieved.

collectrons I"• % collectrons 65% 7% ·90% Target not ach1eved.

{current book) Amendment to the Natrona! Credit Act recovered Non-performance of attorneys that is (collection/total now addressed. handed over arrear debt) ,., % collections {off 20% 2% ·91% Target not achreved balance sheet) The debt has been prescribed and is recovered difficult to collect The debt book has

consequently moved to debt collectors. F• ReductiOn 30% 7% -77% Target not achieved.

1n potentral There is no trial date yet for one matter risk exposure and the other two matters are set down (contrngent for hearing in 2014/15 frnancial year. liabrlity)

f • %of non-litigious 80% 100% 2S% Target achieved. matters resolved

74 unn m/l(port '01 1 1 '

CORPORATE SERVICES

IUUI I<C(wy

~

J

95% ·2% Target not ach1eved. oue to unstructured med1a enqUines

coverage management between December 2013 and March 2014. Media enquiries management rules and principles were not followed, resulting in unbalanced media reporting.

'· Level of customer 5 0 ·100% Target not ach1eved. satisfaction In the rev1ew penod, only a dipstiCk (Survey on a scale survey def1mng customer satiSfaction of 1 to 10) attnbutes was done.

'I % stakeholder 80% 93% 16% Target achieved. engagements as per the ECDC stakeholder matrix

CORPORATE SERVICES

informuuuu technology

I' I % applicatiOns 98% 100% 2% Target achieved. available ,. % upt1me of ECDC 98% 95% ·3% Target not achieved. network Actual report from Telkom indicates

94.7% which Is due to Mthatha & Butterworth unplanned outages. This measure IS aligned to Telkom SLA of 98% which underscores the unplanned outages. hence ECDC does not penalise Tellcom ., % IT mc1dent rate 6% 9% ·50% Target not ach1eved. The high InCident rate was due to a higher volume of helpdesl< and software calls.

%staff 95% 94% ·1% Target not ach1eved. sat1stfact10n w1th The survey done in the rev1ew period level of IT support was the first of its kind and was a means

to create a baseline. •c Average time to 12 hours 3 hours 75% Target ach1eved.

resolve hardware defects

% security and 96% 100% 4% Target achieved. risk threats prevented

11e1 (ormc1m e ayamst p~'rclt tcrtrllft~ d obJCCir 11~ 75

• e.astero cape {)elle\opmeot corporation

WHATEVER YOUR BUSINESS: YOU DO YOUR BIT WE DO OURS.

LET'S TALK FUNDING, FINANCE & NEW INDUSTRIES.

A tomato co-op. a berry production enterprise and a service station. What could these three radically different enterprises possibly have in common?

Structured finance to get them up and running and a loan to keep operations going strong.

The results: profit margins that look set to beat the downturn - and dozens of new jobs created and saved. Talk to us. And see it all come together.

As you'll see. we'll do anything we can to help our clients.

Real funding. Real finance. Real results.

Talk to us about f1nance. loans. train1ng or resources for any kind of bus1ness. or exciting new opportunities in

sustainable energy and agriculture. Let's make it happen. Call 043 704 5600 or email infO@ecdc.co.za.

www.ecdc.co.za

The oftlclal Development Finance Institution tor the Eastern cape Province of south Africa. A wholly-owned division of the Eastern

Cape Government.

-----------~~--

In terms of the Companies Act. PFMA and the ECDC Act. the Board has the responsibility to maintain adequate accounting records and is 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 annual financial statements fairly represent the state of affairs of the Corporation as at the end of the financ1al 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.

Tl1e external auditors are engaged to express an independent opinion on the annual financial statements.

The 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.

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

Reggie Naidoo

manner. These standards include proper delegation of responsibilities within a clearly defined frame­work, effective accounting procedures and adequate segregation of duties to ensure 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 corporation'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 infra­structures, controls, systems and ethical behaviour are applied Within predetermined procedures and constraints.

The Directors are of the opinion that the system of internal control provides reasonable assurance that the financial records may be relied upon for the prep­aration of annual financial statements. Any system of internal control can, however. provide only reason­able, and not absolute, assurance agamst material misstatement or loss.

Sandile Sentwa Prof. Mkhalelwa Mazibuko ACTING CHAIRPERSON ACTING CHIEF EXECUTIVE

OFFICER CHIEF FINANCIAL OFFICER

sratement of responsibilities & approval 77

78

1 cert1fy that the Corporation has lodged with the compan1es and Intellectual Property commiss1on (previously the compan1es and Intellectual Property Registration Office), all returns required of a public company in terms of the companies Act, 2008, 1n respect of the f1nanc1a1 year ended 31 March 2014 and that all such returns are true, correct and up-to-date.

Adv. Dalubullle Mbelani COMPANY SECRETARY

nm a/ 1 p rt >OJ 14

IIIIIUIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII IIIIIIIIIIIIIIIIIIIUIIIIIIIIIIIIIIIIIIIIIIIIIUIIIIIIII in trodu cti 0 n IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII IIIIUIIIIIIIIIIIIIIIIIIUIIIIII

The 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 matenal respects with the principles incorporated 1n these reports. The corporation further subscribes to the corporate governance pnnciples set out in the Public Finance Management Act (the PFMA) and the companies Act.

The 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 the ECDC's affairs are be1ng managed in an ethical and disciplined manner. The ECDC's philosophy IS founded on principles of service delivery, trust, integrity, transparency, accessibility, redress and ethics.

IIIIII IOIIIIIIIIIIII IOIIIIIIOIIIIIIIIIIIIIOIO II IOIIIIIIII corporate governance framework IIII IOII IIIOII IIIOIOIIIIIOIO II IIIIIOIOIIIIIOII IOII IIIIIII

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.

IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIUIIIIIIII conflict 0 f interests IIIIIIIIIUIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIIIIIUIIIIIIIIIIIIIIIIIIIIII

The corporation values are entrenched through an approved Code of Ethics (Code) which guides employee behaviour in all internal and external stakeholder relations.

In instances where a non-executive director has any direct or indirect personal or private busmess interest, he/she must withdraw from the proceedings when the matter is considered by the Board or any of its committees, unless the Board or any of its committees determines that a member's interest in the matter is tnvial or irrelevant

The Corporation requires all employees to s1gn declaration of interest forms on an annual basis prior to the commencement of the financial year.

The annual declaration of interests register for the Board is noted at the beginning of the financial year or as and when a revised declaration of interest Is submitted to the company secretary.

" """ """ """ " " """"11" " " ""11" """ """ 11" ' company secreta ria I function 11111111111111111111111111111111111111111111111111111111111111111

THE COMPANY SECRETARY IS RESPONSIBLE FOR:

• Ensuring that Board procedures are followed and reviewed regularly and that applicable rules and regulations for the conduct of the affa1rs of the Board are complied with;

• Guiding Board members as to how their responsibilities should be properly discharged in the best interests of the organisation;

corporate governance

• Keeping abreast of, and informing, the Board of current and new developments regarding corporate governance thinking and practice; and

• Maintaining statutory records in accordance with legal requirements.

79

80

The Board has access to the services and adv1ce of the company Secretary. In addition to various statutory functions, the Company secretary provides mdiv1dual non-executive directors and the Board w1th guidance on duties. responsibilities and powers. and the 1mpact of regulatory developments. The Board has empowered the Company Secretary w1th the responsibil ity of advising the Board. through the Chairperson, on all governance matters. The company secretary acts as the primary point of contact between the Board and the Corporation. The company secretary 1s qualified to perform the duties in accordance with the applicable legislation and is considered by the Board to be fit and proper for the position

·· ~~·· ··~~" '''''" ''''' ~~· ··· ~~·· ·· ~~~~ ·· ·~~· ·· ~~~~ ··· · ·······"''' ' 11'"' ' '111 '' 11" '' board composition ''''"'''"''''111'''''11"''''111'''11"'''11''''111"'''111''''"'''11111 11 11111111111

The Member of the ExecutiVe Council responsible for the Department of Econom1c Development. Environmental Affa1rs and Tounsm. appoints the Board of Directors rn terms of sectron 7(3) of the Eastern cape Development corporatron Act. 1997 (Act No.2 of 1997)

The corporation's Memorandum of Incorporation pro v1des that there shall not be less than 5 and not more

than 18 directors. As at 31 March 2013, the Board is comprrsed 13 directors of whom the majority (11). are non-execut1ve. Including the Chairperson

The Chairperson and the Ch1ef Executive's roles and responsibilities are separate.

llllll lllllllllllllllllllllllllllllfllllflllllllllllltllll board induction and information IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIIIUIIIUIIUIIIII

The Company Secretary is tasked with assisting the Board with the induction of new non executive directors and directors' orientation.

A formal induction programme rntroduces non-executive directors to the Corporation's business environment, risk management. regulatory environment. governance framework. sustainability issues and fiduciary duties as contarned in the PFMA and the companies. Act. Non-executive directors are regularly kept abreast of relevant Corporation matters and regulatory developments.

1111111 11 11111111111111111111111111111111 11111111111111111 111111111111111 11111111111 succession pI ann i ng IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIIIII IIIIIIII

The Chairperson is in constant engagement w1th the shareholder representative on the Corporation's needs and requirements as far as Board matters are concerned.

llllll l board and committees' membership and meeting attendance 1" 11 "

The Board has delegated some of its respons1b1hties to comm1ttees tn accordance w1th the approved delegation of authorrty Each Committee acts withrn the ambit of clearly defrned terms of reference approved by the Board These mandates are penodically rev1ewed and updated to address the recommendations of King 111 and the requ1rements of the Companres Act and Public Finance Management Act 1ncludrng Protocol on Corporate Governance tn the Public Sector

THE BOARD HAS FIVE COMMITIEES TO ASSIST IT IN DISCHARGING ITS ROLE AND RESPONSIBILITIES, NAMELY:

o Audit. Risk and Compliance Committee; o Human Resources and Remuneration committee; • Funding and Investment comm1ttee;

o Social and Ethics Committee; and • Governance and Nomrnations comm1ttee

Approprrate Committee structures have been established in line with leg1slat1ve requ1rements and business imperatives. These Committees continue to operate appropriately and assist the Corporation with comprehensive control Improvement and sound governance.

111r1 tJI lq)()rt OJ ~ I

non-executive directors Audit, Risk & HR & REM CO Funding &

Investment

N Magwentshu (Chairperson)

M Mazibuko (Deputy Chairperson)

N Mteto

B Nqadolo

N Maliza

L J1ya

MRay1

N Medupe

R Naidoo

M Maqetuka

T F1kizolo

s Somyo

s Fikeni

R Nicholls•

" External Audit Committee Member

Compliance

board and committee meeting attendance Board Board: Audit, Risk & HR& Funding & appointment Compliance: REM CO: Investment: & resignation 7 meetings 4 meetings 5 meetings 6 meetings date

N Magwentshu 26/05/2011 7

M Mazibuko 03/11/2009 6 6

N Mteto• 03/11/2009 3 2

B Nqadolo 03/11/2009 6 2 5

N Maliza 19/10/2011 5 3 5

LJ1ya 19/10/2011 7 4 6

M Rayi• 19/10/2011 4 3

N Medupe 16/02/2013 5 4 4

R Naidoo 08/11/2012 7 5 6

M Maqetuka 08/11/2012 6 4

TFikizolo 08/11/2012 5 4

s Somyo• 26/05/2011

s Fikeni• 01/03/2007

R Nicholls** 3

"'Member retired """External Audit Committee Member

corporate governance

Social & Ethics

Social & Eth-ics: 1 meeting

Governance & Nomination

Governance & Nomination : 1 meeting

81

82

""'"""'"""""""""""""""''""'"""'""'""'"'""""" delegati on of authority """""""""""'""""""'"""""""""""""""""""""'

The Board has delegated to the Chief Executive the day-to-day running of the business withm the approved Delegation of Authority Framework.

The Delegation of Authonty Framework applies to all employees of the Corporation

""""""""""""""""""""""""""' matters reserved for board decision """"""""""""""""""""""""""' • Approving the strategy, Corporate Plan, annual

budgets and any subsequent matenal changes tn strategic direction

• Approving annual financ1a1 statements. as well as the declaration of diVidends.

• Approv1ng any Slgntftcant changes 1n accounting po1tc1es or practices

• Recommending the acquiSiltOn or disposal of a sign11tcant sharehold1ng in the Corporation for lhe Shareholder's approval

• Recommending the acQUISitiOn or disposal of a s1gntficant asset for the Shareholders approval.

• Recommending amendments to the Corporation's Memorandum of Incorporation to the Shareholder

• Entenng 1nto a compact w1th the Shareholder. • Appointing and remov1ng the Company Secretary.

• Approving terms and conditions of the Corporation's rights issues, public officers, cap1tai1ssues or 1ssues of convertible securities, mclud1ng shares or convertible secunt1es 1ssued for acquisitions.

• Recommending the approval of any ordinary or spec1a1 reso1ut1ons 1n respect of the Corporation to the Shareholder

• Appointments and changes 1n the compos1t1on of the Board committees. as the Board may elect from tune to time.

• Effecting any changes 1n directors' fees and benefits as recommended by the Human Resources and RemuneratiOn comm1ttee and approved by the Shareholder

• Any amendment to such rules as recommended by the Human Resources and Remuneration committee.

11111111111111111111111111111111111111111111111111111111111111111111111111111 11111111111111111111111111111111 n1andate 111111111111111111111111111111111111111111111111111111111111 1111111111111111111111111111111111111111111111111

This report is provided by the Audit Risk and compliance committee (ARC) in respect of the 2013/14 financial year of Eastern Cape Development Corporation (ECDC). The ARC's function is guided by a detailed charter which is informed by the relevant governance prescript and aligned to the business.

111111111111111111111111111111111111111111111111111111111111 111111111111111111111111111111111111111111111111111 IJUrpose lllll llll lll lll tlllll ll lllll llll lll llll llll ll lll lllll lllll lll llll ll lllll llll lll lll lllll lll llll lll lll lll llll lll l

The purpose of the ARC is to assist the Board in discharging its duties relating to the safeguarding of assets, the operation of adequate systems, control and reporting processes, and the preparation of accurate reporting and financial statements in compliance with the applicable legal requirements and accounting standards.

1111111111111111 11111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111 ove rv 1 ew lll lllltll ll lllll tllt tlll llt llt llt llll ll lll ll llliiiiiiiiiii ii iii iiiiiiii iiiiii ii iiii iiiiiiii iiiiii ii iiii iiU

we are pleased to present our report for the financial year ended 31 March 2014 even though our audited results were qualified due to material findings relating to the irregular expenditure incurred on the funeral of the former State President.

audit, risk and compliance committee members and attendance

The Audit Risk and Compliance Committee consists of the members listed hereunder. As per 1ts terms of reference, the committee is required to meet at least 4 times a year. During the year under review, four (4) meetings were held.

IV ' . •r

R Nicholls

L Jiya

N Maliza

B Nqadolo

N Medupe

N Mteto

Present Absent with Clpolog_y

( "' ''"f' 01/04/2013 - 31/03/2014

01/04/2013- 31/03/2014

01/04/2013 - 31/03/2014

01/04/2013 - 31/03/2014

01/04/2013- 31/03/2014

01/04/2013- 31/03/2014

• •

audit, risk and compliance committee's role and responsibilities

The Audit, Risk and compliance committee is a committee of the Board and has discharged its responsibi li ties as they relate to the group's accounting, internal auditing, internal control and financial reporting practices. The Audit Risk and Compliance Committee has formal terms of reference; has regulated its affairs in compliance with these terms of reference; and has discharged its responsibilities contained therein.

olldit, risk ~ rumpliance committee trprm 83

84

1111111111""'11""'1111111111111111111111"'11111111111111 ffectiveness of internal control 1111111111111111111111111111111111111111111111111111111111111

During the year various reports of the Internal Auditor as well as the Audit Report on the Annual Financial Statements and Management Letter of the Auditor General indicated that the system of internal control has shortcomings. The Audit. Risk and compliance committee has noted these and based on the outcome of suct1 reviews and the information provided by Management, the committee is of the opinion that the internal controls of the Corporation were partially effective throughout the year under review. with the exception of the procurement processes in respect of the qualification raised by the Auditor General.

11111111111111111111111111 monthly and quarterly performance information 11111111111111111111111111

The Audit. Risk and Compliance Committee IS of the v1ew that the content and quality of monthly and quarterly reports prepared and issued by the Corporation dunng the year under review has been below standard but notes the significant improvement.

IIIIIIIIIIIIIIIIIIIIIIIUIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIIIIIUIIIIIIIIIIIIIIIIIIIIIIIIIIII , n tern a 1 au d 1 t IIIIIIU IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII

THE AUDIT, RISK AND COMPLIANCE COMMITIEE REVIEWED THE ACTIVITIES OF THE INTERNAL AUDIT FUNCTION AND HAS CONCLUDED THE FOLLOWING:

• The function 1s effective and that there were no UnJUStified restnctions or limitations • The internal audit reports were reviewed at quarterly meetings, including its annual work programme.

co-ordination with the external auditors. the reports of significant investigations and the responses of management to issues raised therein.

In respect of the co-ordination of assurance activities. the Audit. Risk and compliance committee reviewed the plans and work outputs of the external and internal auditors and concluded that these were adequate to address all significant financial risks facing the business.

The Head of Internal Audit has direct access to the Audit. Risk and compliance committee Chairperson and other members. The Audit, Risk and compliance committee is also responsible for the assessment of the performance of the Head of Internal Audit. and the internal audit function.

~~ ···~~ · ··· ··"' ''' '11" ''' .. ''''11'''''11"''11"'''''11"''''''"''11"'''"'''' 1 ega 1 and con1 p 1; a nee ,,,,,,,IIIIIJIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIJIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIUI

IN RESPECT OF LEGAL AND REGULATORY REQUIREMENTS TO THE EXTENT THAT IT MAY HAVE AN IMPACT ON THE FINANCIAL STATEMENTS, THE ARC:

• Reviewed the Corporation's Internal legal team and the adequacy and effectiveness of the corporation's procedures to ensure compliance with legal and regulatory responsibilities.

The Audit, Risk and compliance committee notes that its recommendations of the previous financial year to capacity building in the area of legal and compliance was not implemented. Notwithstanding this, there has been substantial compliance with its legal, regulatory, or other responsibilities.

1111111111111111111111111111111 risk management and inforrnation technology llllllllllllll lll llllllllllllll

IN RESPECT OF RISK MANAGEMENT AND INFORMATION TECHNOLOGY, THE ARC, INSOFAR AS RELEVANT TO ITS FUNCTIONS:

• Rev1ewed the policies on risk assessment and risk management. including IT risks as they pertain to financial reporting and the going concern assessment. and found them to be adequate.

• Considered and reviewed the findings and recommendations of the Internal Audit. • Monitored and evaluated significant IT investments, delivery of services. IT governance and the

management of IT.

Internal Audit performed a review on Risk Management for the year under assessment and found the system of internal controls to be partially effective. Internal Audit assessed the risk management processes at a level 3 of the maturity model.

,,ttwttlllf,l'' r 'II/~ 14

11111111111111111111111111111 11ief financial officer and tile finance functio 11111111111111111111111111111

The Audit RISk and compliance comm1ttee notes some shortcommgs m the Finance Department and Will embark on addressmg such dunng the course of the new financial year.

lllllllllllllllllllllllllllllllltii!HIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIHIIIIIIIIIIIIIIIIIIII xte rr1 a 1 a ud; tor 'l IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII

The Auditor General acted as the external auditors throughout the year The Audit, R1sk and compliance comm1ttee rev1ewed the external auditors' scope and work plan to ensure that key nsk areas of the business were being addressed during the aud1t process.

tfllllllllllllllllll llllll lllllllll lllll valuation of annual financial statemenr 1111111111111111111111111111111111111111

THE AUDIT. RISK AND COMPLIANCE COMMITIEE HAS:

• rev1ewed and discussed With the Auditor-General and the Accounting Authority, the audited annual financial statements to be mcluded m the annual report;

• rev1ewed the AuditOr General's aud1t report, the management letter and management responses thereto; and

• rev1ewed the sigmficant adJUStments resulting from the audit

The AUdit, RISk and Compliance comm1ttee notes the conclus1ons of the Auditor-General on the annual fmancial statements. The comm1ttee 1s 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, R1sk and Compliance Comm1ttee agrees that the adoption of the going concern premise is appropriate 1n preparing the annual financial statements.

CHAIRPERSON OF THE AUDIT, RISK AND COMPLIANCE COMMITTEE

cwdu, nsk & complumce ommlltPe n?por t 85

86

The directors are pleased to present their report and the audited fonancial statements for the year ended 31 March 2014. 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.

SHAREHOLDING

The Provincial Government of the Eastern Cape is the sole shareholder represented by the Member of the Executive council of the Department of Economic Affairs and Tourism.

DIRECTORS

The composition of the Board. together with summary curricula vitae of each Director is set out In the Corporate Governance Report.

COMPETENCY OF THE CHIEF FINANCIAL OFFICER

In accordance with King 111. the Audit, Risk and compliance Committee has assessed the competency of tile Chief Financial Officer and the Finance Function.

The Audit. Risk and compliance committee notes some shortcommgs in the Finance Department and will embark on addressing such dunng the course of the new financial year.

ACCOUNTING POLICIES

The accounting policies used in the preparatiOn of the annual financial statements for the year ended 31 March 2014 are in accordance with International Financial Reporting Standards (IFRIS) and consistent with those applied in the prior year.

CRITICAL JUDGMENTS AND ESTIMATIONS MADE IN APPLYING THE ACCOUNTING POLICIES

Judgements made by management and supported by the Board in the application of IFRIS that have a significant impact on the annual nnancial statements are disclosed in the accounting policies.

AUTHORISED AND ISSUED SHARE CAPITAL

The authorised share capital of the Corporation remained unchanged at R1 billion worth of Ordinary Shares. Of this the Corporation issued R427 589 674 million worth of ordinary shares to the Provincial Government of the Eastern Cape (Department of Economic Development and Environmental Affairs). Tile issued share capital is made up of 213 794 837

million "A" shares of R1 each and 213 794 837 million "B" shares of R1 each.

DIVISIONS, SUBSIDIARIES AND ASSOCIATE COMPANIES

A detailed list of subsidiaries and associate companies are contained in the supplementary information to the annual financial statements.

DIVIDENDS

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

JUDICIAL PROCEEDINGS

The annual financial statements include a best estJmate of expected settlement costs for judicial proceedings entered into by ECDC, as either defendant or plaintiff, where the outcome can be assessed with reasonable certainty. These estimates take into account the legal opinions obtained for the Corporation and the group. The contingent liabilities of the group have been disclosed in note 27 of the annual financial statements

POST BALANCE SHEET EVENTS REVIEW

At the Board meeting held on 14 March 2014, it transpired that the Chief Executive Officer; Mr Sitembele Mase, on or during 8th December 2013, whilst on sick leave. on instructions from the Provincial Treasury, approved the disbursement of funds totalling R22 214 271.11 from the Corporation's bank account.

The disbursement of R22 214 271.11 exceeded the CEO's delegation of authority i.e. RS million without seeking approval of the Board. The disbursement of the said funds was in contravention of National Treasury Regulation 28.3.1, the executive authority also did not approve the transaction as it was above the threshold of R20 million in accordance with the corporation's Significance and Materiality Framework.

The Board viewed the CEO's transgression seriously and was alarmed at his visible disregard of corporate governance as he showed no remorse for his actions in response to questions asked by the Board at the abovementioned meeting.

Ll/lrllJC/1 't.i'•Jfl .·t) I !. I I

As a consequence, the Boatel resolved to commission an independent review on the disbursement of funds totalling R22 214 271 .1 1 from the Cot poration's bank accounts by the CEO, on instructiOns from the Provincial Treasury wtthout due process followed in accordance with the Corporation's internal processes

After consideration of, amongst others, the forensic report the Board resolved that the relationship of trust between the Board and 1ts Chief Executive Officer had broken down 1rret11evably. Therefore, the contract of employment between the Board and the Chief Execut1ve Off1cer Mr Sltembele Mase was term1nated with immediate effect from 2 May 2014

At the Board meeung abOve tt also transpired that over and above the R22 214 271 .11 already disbursed, there were 1nV01Ces of work done but not paid relating to the Integrated soctal Infrastructure project, memorial services and the funeral of the late former State President, Nelson Mandela.

Furthermore, Mr Regg1e Naldoo. a non-executive director who had been actrng whtlst the Chief Executive Officer was on suspension from 18 March 2014, was also appointed to act for a period of six months and until appointment of the new CEO.

Tile Chairperson. Ms Nomfanelo Magwentshu, rettred from the Board of Directors wtth effect from 31 May 2014, due to personal reasons. T11e news was welcomed by the Board as she had a couple of months previously Indicated her unavailability to serve on any board due to the conflict of interest poltcy of her new employer. Professor Mkhalelwa Mazibuko was then appointed as the Acting Chairperson on 1 June 2014.

GOING CONCERN

Hav1ng reviewed the Corpot ation's cash flow forecast for the year to 31 March 2014 and, in the light of this revtew and current fmancial position. the Directors are satisfied that the corporation has. or has access to, adequate resources to cont1nue tts operational existence for the future

EXECUTIVE REMUNERATION

ECDC continues to regard its employees as the most valued asset of the bus1ness and the Human Resources strategy remains one of t11e pillars of the ECDC strategy and provides the framework for addresstng HR challenges.

The HR strategy rema1ns focused on providing the nght skills in the right place at the nght time to support delivery of business objeCtives.

eeoc recogntsed that remuneratiOn ts a business issue, not purely a human resources issue. as it has a direct impact on operational expenditure, organisational culture, employee behaviour and ultimately the

directors ' report

frnancial sustamability of the Corporation. As such the Eastern Cape Development corporation·s approach to reward is conststent w1th rts objectiVes and strategtc value dnvers.

ACCORDINGLY THE OBJECTIVE OF THE ECDC RE­MUNERATION PHILOSOPHY IS:

• To 1ncrease productivity by ensunng that lndtvtduals, teams are recognised and rewarded for sustained superior performance, whilst managmg the total cost of employment:

• Remunerations strategy allows ECDC to compete effecttvely in the labour market and to recruit and retam high calibre staff;

• eeoc has established reward as a strateg1c driVer of performance. to encourage and promote conttnuous improvement both at a personal, corporate and uOit level,

• ECDC's remuneration strategy allows tt to attract. mot1vate and retain skilled personnel to enable the Corporation to retain a competitive edge over its competitors;

• ECDC's remuneration strategy allows commensurate pay to performance.

EXECUTIVE REMUNERATION- GUARANTEED

The remuneration levels of the ECDC execut1ves are largely determined by the market. It is generally accepted that state-owned enterpnses reQUire people w1th excepttonal skills to lead them competently and create employment. State-owned compantes often manage businesses of the same magnitude as, or larger than, public listed companies. They also have the added responsibility of managing key national resources.

ECDC arms to remunerate employees at the market median and the guaranteed remuneration of executives at ECDC compares well with the market median. The aim rs to pay farrly for responsibility exercised and results achteved.

ECDC annually conducts an executtve remuneration benchmark exercise to compare the remuneration of the executtve teams with the external market

The executive remuneration benchmark survey is conducted based on the Deloitte "SA Guide to Executive Remuneration and Reward", a national remuneration survey published annually by Delo1tte Consulting. The outcome of the current remunerat1on study by the Prestdential Rev1ew committee tnto the remuneration of executtves at state-owned compantes will, tn future, also tmpact on the increases of Executives.

DIRECTOR'S FEES

Fees were patd to directors for the Board, sub-committee and ad-hoc attendance during the financial year under review.

87

Boord Audit, Hr& Funding& Social & Governance AD HOC Tara/ Fees Risk& Remco Investment Erhics &

Name Of Director Compliance Commiuee Commirree Nominations Commirree Commiuee

Mazibuko, M 60000 0 0 30000 0 5 000 60 000 155 000

Mteto, N 22 500 10000 0 0 0 0 12 500 45000

Somyo,S 7 500 0 0 5 000 7500 0 5 000 25000

Magwentshu, N 87 500 0 0 0 0 7 500 20 000 115 000

Maliza, N 37 500 15 000 30000 0 0 5 000 0 87 500

Jiya, L 52 500 20000 0 45 000 0 0 35000 152 500

Ray1, M 30000 0 15 000 0 0 0 0 45 000

Medupe, N 37 500 30000 0 20 000 0 0 7 500 95 000

Naidoo, R 52 500 0 25 000 30 000 0 0 2 500 110 000

Maqethuka, M 45 000 0 15 000 0 5000 0 5 000 65 000

FikiZOIO, T 35000 0 20 000 0 0 5 000 0 60000

Fikeni s 7500 5 000 5 000 17 500

Nicholls, R 0 22 500 0 0 0 0 5 000 27 500

TOTAL FEES 475 000 97 500 105 000 130 000 17 500 22 500 152 500 1 000 000

Name of Designation Basic Salary Allowances Employer Performance Tara/ Executive Contribution Bonus

To Funds (2013114)

Mr. s. Mase Chief Executive Officer 905 328 654 496 173 533 1 733 357

Mr. s. sentwa Chief Financial Officer 848 967 365 845 120916 1 335 728

Mr. N. Dlulane Executive Manager: Investments 835 391 416 919 160 535 1412845 and Funding

Mr. J. cerlf Executive Manager: Infrastructure 980369 576 166 118 193 1 674 728 Development

Mrs. N. Ngewu Executive Manager: corporate 912 648 299 501 175 423 1 387 572 services

Mr. M. Lindi Chief Economist 705 293 465 778 148 378 1 319 449

Mr. G. Cowley Executive Manager: Integrated 253 320 62 982 316 302 Social Infrastructure Programme -started 01/12/2013

5 441 316 2 841 687 896 978 9 179 981

88 wultwl rEpon.!OJ 5 14

EXECUTIVE REMUNERATION NON-GUARANTEED

Short Term Incentive (STI) Scheme

The STI was des1gned w1tl1 the specific objective to dnve the achievement of stretch business targets. • The STI must drive employee behaviour toward the

achievement of the ECDC strategiC objectives; and • It must further ensure more equitable reward for

the achievement of results.

THE FOLLOWING PRINCIPLES APPLY TO THE STI:

• The achievement of corporate objeCtives are given a weighted score of achievement from Aud1tor General whtch 1nd1cate corporate performance

• Individual strategic objeCtives of management employees were denved from and aligned with key performance Indicators as stated tn the Shareholder's compact and corporate Plan

Employe!' Ln-el

ceo Executive Management

30%

24%

The Shareholder Representattve approves. in advance, the fees payable to non-execuuve directors in line with the NatiOnal Treasury Remuneration Guidelines. Fees pa1d to non-executive directors vary based on the1r appotntments to the vanous comm1ttees of the Board.

The fees of the non-executive directors were not Increased dunng the report1ng penod 1n line With the directives 1ssued in respect of Directors' fees by the Shareholder Representative

FINANCIAL RESULTS

Tile results of the corp01at1on and the group are dis­closed 1n the annual f1nanc1al statements.

POLICY DIRECTIVES

Dunng the year under rev1ew, the CorporatiOn receiVed no new policy directives from the Member of the Executive Council responsible for the Department of Economic Development and EnVIronmental Affairs.

directors' report

PERFORMANCE REWARD PARAMETERS

Executives and general staff qual1fy for an annual STI payment provided that the strategiC ObjeCtives. as agreed with the Shareholder. have been ach1eved. Incentive eligibility percentages have been extensively benchmarked and are aligned With market practice. Individual bonus percentages are further mod1fled With indiVidual performance assessment ratings

NON·EXECUTIVE DIRECTORS' REMUNERATION

Non-executiVe directors are appo1nted by the Share­holder Representative for a three-year term SUbjeCt to annual confirmation and re-election at every annual general meet1ng of the company. Among the issues considered by the Shareholder Representative pnor to re electton is the individual non execut1ve director's performance and the Board's skillS requirements.

Bonus Cop

SO%

40%

INTEREST BEARING BORROWINGS

I 3rh Chl'qul'

No

NO

There were no new borrowings 1ncurred dunng the year The corporation continued to reduce 11s existing borrowings w1th the Development Bank of southern Africa Limited

SUBSIDIARIES

The Corporation has interests m vanous subsidiaries and associates. Financial information in respect of Interests of the corporation in such subsidiaries and assoc1ates is set out in Annexure 1

CORPORATE GOVERNANCE MATIERS

A detailed account on the Corporate Governance Matters of the ECDC is reflected m the Corporate Governance section of th1s Annual Report

89

90

to tl1e eastern cape provincial legislature on the eastern cape development corporac;on report on the consolidated and

separate financial statements

I NTROD11C'lll1~ 4. An audit 1nvolves performing procedures to obtain audit evidence about the amounts and dis-

1. 1 have audited the consolidated and separate closures in the consolidated and separate financial financial statements of the Eastern cape Development statements. The procedures selected depend on the corporation and its subsidiaries set out on pages auditor's judgement. including the assessment 96 to 150, which comprise the consolidated and or the risks of material misstatement of the con-separate statement of f111ancial position as at solidated and separate financial statements. 31 March 2014, the consolidated and separate whether due to fraud or error. In making those statements of financ1al performance and com pre- risk assessments, the auditor considers internal hensive income, statement of changes 1n equitY and control relevant to the entity's preparation and statement of cash flows for the year then ended, fair presentation of the consolidated and separate as well as the notes. comprising a summary of financial statements in order to design audit significant accounting policies and other explanatory procedures that are appropriate in the c1rcum-information. stances. but not for the purpose of expressing

an opinion on the effectiveness of the entity's AC'C.llvo.l 11NG AUTHORITY S RE.'iPONSit31LITY r OR internal control. An audit also Includes evaluating THE CONSOliDATFO AND SEPARAlf FINANCIAl theappropriatenessofaccountingpoliciesusedand C::TATI=MfNT<; the reasonableness of accounting estimates made

by management. as well as evaluating the overall 2. The accounting authority is responsible for the presentation of the consolidated and separate

preparation and fair presentation of these con- financial statements. solidated and separate financial statements in accordance with the south African statements 5. 1 believe that the audit evidence 1 have obtained of Generally Accepted Accounting Practice pre- is sufficient and appropriate to provide a basis for scribed by the Accounting Standards Board (SA my qualified audit opinion. Statements of GAAP) and the requirements of the Public Finance Management Act of south Africa. bASl, rvR 1,Ju11drii:I.J vf-1~ION 1999 (Act No.1 of 1999) (PFMA). and for such internal control as the accounting authoritY determines is PREPARATII"It-lc:; FOP STAT"' !:- llt-J~RAl f llPf"JSf

necessary to enable the preparation of consolidated and separate financial statements that are free 6. 1 was unable to obtain sufficient appropriate audit from material misstatement, whether due to fraud evidence for expenses of R36 million included in or error. note 19 to the consolidated and separate financial

statements. which was incurred by the entitY in AUOITOR-u~Nr:R"L S Rf<;PONS18:11TY relation to funeral and memorial related costs for

the late former state president This was due to 3. MY responsibilitY is to express an opinion on these a lack of control over documentation at the time

consolidated and separate financial statements the payments were made. resulting in a lack of based on my audit. 1 conducted my audit in sufficient appropriate audit evidence to confirm accordance with the Public Audit Act of South Africa. the amounts involved. or that goods and services 2004 (Act No. 25 of 2004) (PAA). the general notice had been received in all instances. 1 was unable issued in terms thereof and International to confirm the expenditure by alternative means. Standards on Auditing. Those standards require consequently 1 was unable to determine whether that 1 comply with ethical requirements. and plan any adjustment to the preparations for state and perform the audit to obtain reasonable assurance funeral expense stated at R36 million. as included about whether the consolidated and separate in note 19 to the consolidated and separate financial financial statements are free from material m1s- statements. was necessary. statement.

unnrwl IL'(U•rl 'OJ I II

IJ lALihfD OPINION

7. In my op1n1on. except for the poss1ble effects of the matter descnbed in the basis lor qualified opinion paragraph. the consolidated and separate financial statements present fa1rly, 10 all material respects. the financial position of the Eastern cape Development corporation and tts subsidiaries as at 31 March 2014 and tlletr financial performance and cash flows for the year then ended, in accordance with SA Statements of GAAP and the requirements of the PFMA.

tMPI1MIS 0~ ~liTTIO.OC

8. 1 draw attention to the matters below. My opinion is not modified 1n respect of these matters.

9. As disclosed 1n note 37 to the consolidated and separate financial statements, irregular expenditure to the amount of R50.9 million was incurred due to non-compliance with supply chain management requirements by the entity and its subsidiary. This includes the expenses relating to the preparations for state funeral as noted in my basis for qualified opinion paragraph In ad­dition. R2 1 millton was incurred due to salary mcreases Implemented without the accounting authonty's approval.

10. Included in note 9 and note 10 to the consolidated and separate financial statements are material Impairments relating to loans advanced and rental debtors. amounting to R17.6 million and R34 4 million respectively.

REPUt<l ON Om1:11 uuAl AND HU,UlATORY REQliiRfMENT"

11 111 accordance with the PAA and the general notice issued in terms thereof. 1 report the following findings on the reported performance information against predetem11ned objectives for selected programmes presented 10 the annual performance report, non·compliance with legislation, as well as internal control. The objective of my tests was to identify reportable findings as described under each sub heading but not to gather evidence to express assurance on these matters Accordingly, 1 do not express an opinion or concluston on these matters.

r'l.'f!OI'l of the fll4dltnr"i]<'"C'ra/

P1~tDE Tt.RMINED 013Jf CTIVfS

12. 1 performed procedures to obtain ev1dence about the usefulness and reliabtlity of the reported per­formance information for the operations office programme on pages 66 to 75 presented in the annual performance report of the entity for the year ended 31 March 2014.

13. 1 evaluated the reported performance information against the overall cnteria of usefulness and reliability.

14 1 evaluated the usefulness of the reported per­formance 1nformat1on to determine whether it was presented 111 accordance with the National Tteasury's annual reporting principles and whether the reported performance was consistent with the planned programmes. 1 further performed tests to determine whether indicators and targets were well defined, verifiable. specific, measurable, t1me bound and relevant, as required by the National Treasury's Framework for managing pro­gramme performance information (FMPPI).

15. 1 assessed tile reliability of the reported per­formance information to determine whether it was valid, accurate and complete.

16. 1 did not ratse any material findings on the useful­ness and reliability of the reported performance information for the selected programme.

ADDITIONAL MATTEH5

17 Although 1 raised no matenal findings on the usefulness and reliability of the reported per­fom18nce infom1ation for the selected programme, 1 draw attention to the following matters.

18. Achievement of targets is presented by management in the annual pertom1ance report on pages 66 to 75.

....... ·~h~l ()1- MATERIAL Ml~~~ ..... ~'"-"''~

19 1 Identified matenal misstatements 1n the annual performance report submitted for auditing on the reported performance information of the selected programme. As management subsequently corrected the misstatements, 1 did not raise any material findings on the usefulness and reliability of the reported performance information.

91

92

~OMPIIA.f>.lrr. WI1H lfGI'\1 ATUii'J

20. I performed procedures to obtarn evidence that the entity had complied with applicable legrslation regarding financial matters, financial management and other related matters. My findings on material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA, are as follows:

STRATllltl... r'LAI'I~INu ANU t'LHrUiiMANC£ M~~il{ji'MFI'.IT

21. Effective, efficient and transparent systems of risk management and internal controls with respect to performance information and management were not in place as requrred by section 51 (l)(a)(i) of the PFMA.

\. UN:.ULIUAIL IJ AND SEPARATE: FINANCIAL t;:T1\TFMH,JTc;. 1\~fl Rf.P()RTING

22. The consolidated and separate financial statements submitted for auditing were not prepared in accordance with the prescribed financial reportrng framework and supported by full and proper records as required by section 55(1) {a) and (b) of the PFMA.

23. Material mrsstatements of non-current assets, current assets, liabilities, revenue, expenditure and disclosure items rdentified by the auditors 111 the submitted consolidated and separate financial statements were subsequently corrected and the supporting records were provided, but the supporting records that could not be provided resulted in the consolidated and separate financial statements receiving a qualified audit opinion.

24. Goods, works or services were not procured through a procurement process which is fair, equitable, transparent and competitive as required by the PFMA section 51 (1 )(a)(ii i).

FXPI NDITIJf<[C MAN~\Gt:AJI~I\11

25. The accounting authority did not take effective steps to prevent irregular expenditure. as required by section 51 (1)(b)(ll) of the PFMA.

26. 1 considered internal control relevant to my audit of the consolidated and separate financial statements, the annual performance report and compliance with legislation. The matters reported below are limited

to the significant rnternal control deficiencies that resulted in the basis for qualified opinion, the findings on the performance report and the findings on non-compliance with legislation Included in thrs report.

It • ' .Jr f.t:"l t11t'

27 . The tone set by leadershrp has not had the desired 1m pact on financial administration of the entity as the accounting authority and the chief executive officer (CEO) were not effective in their oversight responsibility, as evidenced by the regression in the audit outcome from the prior year. Subsequent to year end the accounting authority terminated the CEO's employment contract. In addition, the chairperson of the accounting authority resigned, due to personal circumstances. These vacancies 1n key positions of leadership pose a risk of Instability in the leadership of the entity. There are however people appointed in the acting capacity The impact of these vacancies on the operations of the entity is uncertain at this time.

28. Management did not retain sufficient and appropriate financial records with respect to the state funeral expenditure. This arose due to the entity effecting payment before ensuring that all supporting documentation was in order, and that all goods and services had been received. This resulted in the qualification on expenditure and the irregular expenditure incurred as per note 37 to the consolidated and separate financial statements.

29. The reviews performed by management with key oversight responsibilities were not sufficiently detailed to identify errors in financial and per­formance information. In certain instances the entity did not report in accordance with the require­ments of the SA Statements of GAAP, resulting in material adjustments to the consolidated and separate financial statements.

30. Material misstatements, subsequently corrected, were noted between the reported performance information and the source documentation pro­vided. This was due to a Jack of adequate quarterly reviews being performed to ensure the reliability and credibility of performance information.

31. The audit committee and internal audit were not fully effective in the current year. Although they performed their required oversight and governance

LlrJtl/1/ILJ}0/1 111/.i I

responsibilities, the1r monitoring oversight d1d not prevent the qualification. the non-compliance findmgs and the matenal amendments to the consolidated and separate f1nanc1a1 statements in the current year

FR REP RTS

NV TGATIONS

32. lWo forens1c mvestigat1ons were commissioned by the accounting authority m the current year, the first into the salary mcreases implemented Without account1ng authonty's approval and the second into the alleged 1rregulanties with respect to the state funeral expenditure. Both reports have been final1sed. and the necessary act1on taken as recommended

33 Four investigatiOns of pnor year fraud and three investigations 1nto current year emplOyee fraud are presently pend1ng at the SOuth Afncan Police service and have also been referred to the Directorate for Prionty Cnme 1nvest1gat10n (DPCI} as at year end. In addition an allegation of Irregularities with respect to the state funeral procurement and an 1nvestigat1on mto the activities of an investee have also been referred to the DPCI. These inves­tigations were pendmg at year end and are likely to be concluded m the 2014·15 financial year.

East London 31 July 2014 _ .... ·, . - ....

L :- '')

AUDI T OR · OI!NI!RAL

SOU T H AFRI C A

Auditing to build public confidence

r rt oflhc audllor c ('fl ru/ 93

94

project fast facts LOCATION

Mtllatha

ECDC INTERVENTION Project Managemenr

& Fund Management

JOBS CREATED 21

96

lllllll llllllllllll lllllllllllllllllllllllllllllllfllllllllllllllllllllllllllllllllll genera 1 info rma ti on """ " """IIIIIIIIIIIIIIIIIII IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIUIIIIIIIIIIIIII

COUNTRY OF INCORPORATION AND DOMICILE I South Africa

LEGAL FORM 1 Government Business Enterprise

REGISTERED OFFICE 1 ocean Terrace Park, Moore Street, Quigney, East London

POSTAL ADDRESS I PO Box 11197, Southernwood, East London, 5213

111111111 11111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111 index 1111111111111111111111 1111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111

THE REPORTS AND STATEMENTS SET OUT BELOW COMPRISE THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS PRESENTED TO THE SHAREHOLDER:

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

97 98 99

100 102 103 113

THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS SET OUT ON PAGES 97 TO 150, WHICH HAVE BEEN PREPARED ON THE GOING CONCERN BASIS, WERE APPROVED BY THE BOARD OF DIRECTORS ON

30 JULY 2014 AND WERE SIGNED ON ITS BEHALF BY:

Prof. M. Mazibuko R. Naidoo - Acting Chairperson of the Board -Acting Chief Executive Officer

Qllrlllti!IC port .!() 1 1 I.J

Ea~tem Cape Development corporation

Statement of Financial Position C.mup ( OIIIJICIII\'

I rgure~ rn Rand (hou~arrd r>~ore(s} 20/-1 I(IJj .'012 :?OJ.l 2013 2012

A\\l'IS

''t>n-1. urr!'nr ASS!'IS

Investment property 2 2 051 831 1 713 981 1 421 236 724 921 658 123 604 602

Property, plant and equ1pment 3 531146 493 247 464 360 25 046 25 740 26907

Intangible assets 39 3 290 2 427 4 437

Investments m subs1d1anes 4 23 006 23006 23 002

Investments m assocratcs 5 47 365 43 928 54 213 25 752 25 752 38 779

Loans to group companres 6 23 808 20 904 28 121

Investments 7 34 871 35 782 46 465 32 454 33 399 44 822

Deferred tax 8 800 582 Loans advanced 9 70476 58 860 74 392 70476 58 371 73457

2 739 779 2 348 807 2 065 103 925 463 845 295 839 690 ( urrt'lll -b'<?IS

Loans to group compames 6 47 948

current tax receivable 173 4 93

Trade and other recervables 10 54 443 47 229 77 351 19 632 15 568 46229

Loans advanced 9 49 347 57 286 55 251 49 347 57 286 54 048

cash and cash equrvalents 11 606 486 391 147 742 634 470 407 228 542 359 116

710 449 495 666 923 277 539 386 301 396 459 393

Non-current assets held for sale 40 14 095 16 479 11 192 14 095 16 479 11192

3 464 323 2 860 952 2 999 572 1 478 944 1 163 170 1 310 275 f qurl\' and Uabr/rrrc>s

r 'l""l'

f qcllly Arrriburoblc> ro l.qulll'

Holders of Parent Share cap1ta 12 427 590 427 590 421 375 427 590 427 590 421 375

Reserves 13 427 740 417 529 419 029 407 403 406 945 408 445 Retarned income 417 526 236114 135 074 206 896 157 092 140 821

1 272 856 1 081 233 975 478 1 041 889 991 627 970 641

Non-controlling tn terest 42 651 (23 444) (1 4 351)

1 315 507 1 057 789 961 127 1 041 889 991 627 970 641 / 1<1/li/ii/I'S

Von-Curt'l'nr Liohiliiii'S

Loans from group companies 6 40 617 36 264 38 928 Interest bearing borrowings 14 948 1198 3889 898 1 151 1 611

Retirement benefit obligation 15 28 808 27 830 27 620 28 808 27 830 27 620 Deferred income 16 1 545 447 1456922 1 255 663

1 575 203 1 485 950 1 287 172 70 323 65 245 68 159 Ctrrrenr Liobiliries

Interest bearing borrowings 14 273 488 1 288 273 488 1 220 Current tax payable 108 375 329 Finance lease obligation 14 27 132 Trade and other payables 17 204 615 102 551 259 153 140 134 70 438 166 332 Deferred rncome 16 368 603 213 772 490 371 226 325 35 372 103 923

573 613 317 213 751 273 366 732 106 298 271 475

fora/ Llabi/uies 2148 816 1 803 163 2 038 445 437 055 171 543 339634 Tara/ l!quuy and Llobrllril'\ 3 464 323 2 860 952 2 999 572 1 478 944 1 163 170 1 310 275

annual financial scacemencs 97

Eastern Cape Development Corporation

n £'111~ fn til£ 1 o 'llrJ d 1 1c 1 /J I

Statement of Financial Performance Group Company

Figures in Rand thousand Note(s) 2014 2013 2012 2014 2013 2012

Revenue 18 180 603 172 156 157 203 106 594 100 052 98 935 Other income 4 490 12 814 (1 219) 3 836 8 844 4 777 Government grants 392 627 348 961 252 725 202 720 146 991 92 157 Operatmg expenses (574 604) (523 373) (480 844) (347 286) (312 929) (307 906) Operating pro(lt (lo~s) 19 3116 10 558 (72 135) (34 136) (57 042) (112037) Investment revenue 21 9452 8 843 17 226 9496 8 703 17 905 Fair value adjustments 22 234 624 70 368 (112 832) 75067 65 376 44 844 Income from equity accounted 3 438 2 948 2 811 tnvestments Finance costs 23 (3 344) (1102) (500) (624) (766) (468) Profit (loss) beforl! taxation 247 286 91 615 (165 430) 49 803 16 271 (49 756) Taxation 24 215 540 (13) Profu (loss) for tile yc•ar 247 501 92 155 (165 443) 49 803 16 271 (49 756)

Pro(ic (loss) otcributoble to:

owners of the parent 181 406 101 248 (140 150) 49803 16 271 (49 756) Non-controlling interest 66 095 (9 093) (25 293)

247 501 92 155 (165 443) 49 803 16 271 (49 756)

98 Q/1/l[l(/ fCJJOIJ _'l/ ~ 1

Eastern cape Development Corporatron

Statement of Comprehensive Income Group r:ompcmv

HcJure~ in Rand rlrousund NO!I'{s} 2014 !01 j 2012 2014 JUJ! !012

l'ro(ll (loss) (or rlw vear 247 501 92 155 (165 443) 49 803 16 271 (49 756)

Orl1rr comprehem1ve mcomr

Avarlable-for-sale frnancral (1 500) (1 500)

assets adjustments Garns and losses on property 9753

revaluation

OrhC'r comprehenSIVe inwmr 35 9 753 (1 500) (1 500)

fell rh£> v£>ar net of wxorion

low/ romprehensive inconw (/o\\) 257 254 90 655 (165 443) 49 803 14 771 (49 756)

lora/ comprehensh·e niCome

(lo,s) aunburoble ro ·

owners of the parent 191 159 99 748 (140 150) 49 803 14 771 (49 756)

Non·controllrng mterest 66095 (9093 25 293)

257 254 90 655 (165 443) 49 803 14 771 (49 756)

annual financial scacemenrs 99

,_ Eastern cape Development Corporation a

· "-,- ·"It i''ldcd Sf 'VIcJr• 11 _(}I ~ a ( II: )I do (I ':}r j ,lrll r f (II lr t II •• , I

Statement of Changes in Equity

Figures in Rand thousand Share coptwl Revoluo!tOn Folf value O!herNDR Tow/ Rtuained Tow/ Non-con1rolling 1owl equi1y reserve adjustment resC!rves income allributable to in1ercs1

assets- available- equi1y holders for-sale reserve of the group

company

Group

Opening balance as previously reported AdJuStments 421 375 24173 394 856 419 029 148 401 988 805 (14 351) 974 454 Prior year adjustments <refer to note 37) - (13 327) (13 327) (13 327)

-Balance at 01 Apri/2012 as res!O!ed 421 375 24173 394 856 419 029 135 074 975 478 (14 351) 961 127

Profit for the year 101 248 101 248 (9093) 92155

Fa1r value gains transferred/ Profit or (Loss) -(1 500) - (1 500) (1 500) (1 500)

Total comprehensive income (or !he year - (1 500) - (1 500) 101 248 99 748 (9 093) 90 655 - -Issue of shares 6 215 - 6 215 6 215

Prior year income from associate understated in the group but - (207) (207) - (207) not in the entity

Total contribUiions by and distributions 10 owners of company recog- 6 215 (207) 6 008 - 6 008 nised directly in equity

Opening balance as previously reported Adjustments 427 590 22673 394 856 417 529 133 852 978 971 (23 444) 955 527

Prior year adjustments (refer to Note 37) - 102 427 102 427 102 427 Balance a1 01 Apri/2013 as restmed 427 590 22 673 394 856 417 529 236 279 1 081 398 (23 444) 1 057 954

Profit for the year 181 406 181 406 66095 247 501

Fair value gains transferred/Profit or (Loss) 9 753 9 753 9 753 9 753

Total comprehensive income for the year 9 753 9 753 181 406 191 159 66 095 257 254

Revaluation of PPE 458 458 458 458 ~

Deregistered subsidiary Retained Income

~ (159) (159) (159)

,:::; T01a/ comribUiiOns by and distriburions to owners of company recog- 458 :=! 458 (159) 299 299

t-~ nised direc!ly in equily ::::,

Balance al31 March 2014 427 590 9 753 22 673 395 314 427 740 417 526 1 272 856 42 651 1 315 507 Note(S) 12 13&35 35 35 ...

Q :: c: e.

"':::) ::l Q ::l <")

[ In

6 ti)

~ ::l ii;

..... 0 ,__

Eastern cape Development corporation . , .. ' .._ "' -~. -~-· ·•··· · .• ~, c•tJdl'tl 'i/ \tun ll '0 I J

Statement of Changes in Equity

Figu~s in Rand rhousand SharP capiro/ Re,aluurian ~serve

Company

Balance at OJ Apri/2012 421 375

Profit for the year . Fair value gains transferred/Profit or (Loss) Toea/ comprehensive income {or rill! yrwr

Issue of shares 6 215 Toral conrributions by and disrribution~ to owners a{ company ~cog· 6 215 ms!'d directly in equiry

Open1ng balance as previously reported AdJUStments 427 590 -Pnor year adjustments (refer to Note 37) -Balance or OJ Aprii20J3 as rf!Stated 427 590

Profit for the year . Fa1r value gains transferred/Profit or (Loss) Total comprehensive income far rhe> y!'Or

Re-evaluation of properties • PPE -Toral conrributions by and distri/Jurrons to owners of company ~cog-nrsed directly in equiry

Balance ar3J March 2014 427 590

Note(s) 12 13&35

Futr volul' Other."\DR odju~rmc·nr

D'SC'I'· available-for· wll' r<">C'f'H'

24180 384 265 .

(1 500)

(1 500) .

.

22 680 384 265

22 680 384 265

. 458

458

22 680 384 723

35

foro/ RI'Wtnl'd lora/ Non-com rolling Tor a/ t•quiry /('~(\'('\ mcoml' ortnl>uruble to tnii'~SI

1'</Uity holden of the group I

compunv

408 445 140 821 970 641 . 970 641

16 271 16 271 16 271

(1 500) (1 500) . (1 500)

(1 500) 16 271 14 771 14 771

6 215 6 215

6 215 6 215

406 945 121 841 956 3/6 - 956 376

35 252 35 252 - 35 252

406 945 157 093 991 628 991 628

49 803 49 803 49803

- 49 803 49 803 49 803

458 458 - 458

458 458 458

407 403 206 896 1 041 889 1 041 889

35

Eastern Cape Development CorporatiOn

" 11d I

Statement of Cash Flows

Group Company F igurcs i11 Rand thousand Note(s) 2014 2013 2012 2014 20 /3 1012

Cash flows from opemting activities

cash from/ (used) 1n operations 25 364 747 (159 484} 232 653 223 593 (172 052) (7 715) Interest Income 10 870 8 942 17 213 7 979 7 146 16199 Dividends rece1ved 81 134 55 F1nance costs 26 (3 344) (1102) (500) (624) (766) (468) Tax (paid) received (378) 93 (962)

Net cash (rom (usl'd) in operating 371 976 (151 417) 248 459 230 948 (165 672) 8 016 octivities

Cash flows from inl'esling activicies

Purchase of property, plant and 3 (55 745) (48 226) (85 938) (1 229) (1 271) (6425) equipment Sale of property, plant and 3 16 289 9 equipment Purchase of mvestment property 2 (122 985) (236 462) (131 775) (3 204) Sale of Investment property 2 21 764 4 930 17 022 9 517 4 930 7107 Purchase of other intangible 39 (287) (326)

assets Loans from group companies 50 000 3064 3 054 2 345 repaid Loans advanced to group (50 000)

companies Purchase ot financial assets (428) (3 917) (428) (3 917)

Sale of fmanc1al 411 11 573 7 547 11 129 7 547 assets/withdrawal from investments Proceeds from de-registration of 145 SUbSidiary Loans disbursed (122 378) (129 900) (83 535) (122 378) (129 900) (83 533)

Loans collected 123 328 146 050 91 302 122 839 146 050 91302 Nee rash ((rom)'generat~td (rom (156 159) (205 989) (235 368) 11 385 30 075 15 139 investing activities

Cash Paws from financing accivities

Proceeds on share issue 12 6 215 37 827 6 215 37 827

Repayment of interest bearing (478) (1 207) (11 532) (468) (1192) (1 1 512)

borrowings Government grants rece1ved for 10 702 7 940 operations Government grants utilised for (9 791) (7 206) operations

Net cash from financing activities (478) 5 919 27 029 (468) 5 023 26 315

Total cash moveme/11 for the year 215 339 (351 487) 40 120 241 865 (130 574) 49 470

Cash and cash equivalents at 391 147 742 634 702 514 228 542 359 116 309 646 the beginning of the year Cash and cash equivalents at rile 11 606 486 391 147 742 634 470 407 228 542 359116 end of the year

102 wtmwlt ·pun

Eastern Cape Development Corporation j HI (I I r' I /1 illf'r 1(1 11/r 1 • II' I 1/ I

Accounting Policies

1. Presentation of Consolidaced Annual Financial Stacemems

The consolidated annual financial statements of the Eastern Cape Development Corporation have been prepared in accordance w1th south African Statements of Generally Accepted Accounting Pract•ce as prescribed by the Accounting Standards Board and 10 the manner reQUired by the Public F.nance Management Act (Act No. 1 of 1999, as amended) and the Eastern Cape Development Corporation Act The consohdated annual financldl statements have been prepared on the historical cost bas1s as modified by the revaluations of certa1n land and buildings. investment properties, available for sale financial assets and financial assets and financial liabilities (including derivative .nstrumentsJ at fair value through profit or loss.

The preparation of consolidated annual financial statements in conformity wtth South Afncan Statements of Generally Accepted Accounting Pract1ce requires the use of certain critical accounting estimates. It also requires management to exercise 1ts JUdgment in the process of applying the group's account1ng 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 m the Corporation's functional currency, the South African Rand

These accounting policies are consistent With the prev1ous financial year.

U11der/ying assumptions

The consolidated annual financ1ai statements are prepared on the going concern basis, wh1ch 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 ex1sts and the intention is either to settle on a net bas1s or to realise the asset and settle the liability simultaneously.

Changes in accounting policies are accounted for 10 accordance with the transitional provis1ons 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 1n the penod they occur. Prior period errors are retro~pectlvely restated unless 1t is 1mpract1cable to do so. In which case they are applied prospectively.

Recognition of A.~~ecs and Liabilities

An asset, being a resource controlled by the Corporation as a result of a past event from wh1ch future econom1c 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 econom1c resources from the Group, 1s recogmsed when it is probable that future econom1c benefits associated with 1t will flow from the Group and 1ts cost or fa1r value can be measured reliably

Derecognition of a~sets and liabilities

Financial assets or parts thereof are derecognised, i.e. removed from the balance sheet. when the contractual nghts to receive the cash flows have been transferred or have exp1red or 1f 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 financ1a1 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 Group's continuing 1nvo1vement in those assets.

All other assets are derecogmsed on disposal or when no future econom1c benefits are expected to flow to the Group from their use or disposal. Financial liabilities are derecognised when the relevant obligation has e1the1 been discharged or cancelled or has expired.

annual financial ,<;lalements 103

104

Post-bala11ce slteet events

Recogn1sed amounts m 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 or conditions that arose after the balance sheet date are dealt with by way of a note.

1.1 Investment property

Investment proJJerty IS held for long-term rental yields or for cap1tal appreciatiOn or both and compnses properties not occupied by the Group. Hotel buildings held by the Group are classified as investment property as the group is not 1nvolved in the hotel operations. Investment properties are m1t1ally measured at cost. including transaction costs, and are subsequently stated at fa1r value determined by an ,ndependent sworn appra1ser every th1rd year. Management reviews these valuations for reasonablhty and adJUStments are made where ·t is deemed to be necessary

Fair value

Subsequent to initial measurement Investment property IS measured at fair value. Fa1r value ga1ns and losses are recognised in the profit or loss for the period.

1.2 Properly, plant and equipment

The cost of an 1tem or property, plant and eqUipment is recogmsed as an asset when:

• It 1s probable that future economic benefits associated w1th the 1tem w1ll flow to the corporation, and • The cost of the 1tem can be measured reliably.

Property. plant and equipment is 1nit1ally measured at cost

Costs include costs 1ncurred Initially to acquire or construct an 1tem of property, plant and equipment and costs incurred subsequently to add to, replace part of. or service it. If a replacement cost is recognised 1n the carrying amount of an 1tem 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 fa11 value. determined by a sworn appraiser, every third year Subsequent to 1nitial 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 1tem 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 1n equity related to a specific item of property, plant and equipment is transferred directly to retamed earnings when the asset is derecognlsed.

Property, plant and equipment are depreciated over their expected useful lives to the1r estimated res1dual value

The useful lives of 1tems 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 Intangible assets Other property, plant and eQUipment

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

The residual value. useful life and depreciation method of each asset valued at more than R1 million are reviewed at the end of each reporting period. If the expectations differ from prev1ous 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 01 loss arising from the derecognition of an 1tem of property, plant and equipment is Included 1n 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.

I,,,',, I J•nll 'UI { J

1.3 Investments in subsidiaries

Subsldianes are ent1t1es. includmg unincorporated partnerships and compan1es Without a share capital, that ilre controlled by the Group. control ex1sts where the Group has the power to govern the fmancial and operatmg pohc1es of an ent1ty so as to obtam benefits from 1ts activ1ties.

Con!>alidated annual financial statements

The consolidated annual fmanc1a1 statements mcorporate the assets, liabilities, tncome, expenses and cast1 flows of the corporation and 1ts subsid1anes. The results of the subs1d1anes acqu1red or disposed dunng the year are included from the date of acqu1s1tion or up to the date of d1sposat Inter-company transactiOns and balances are eliminated on consolidation.

Corporation annual {tnancial ~wcements

111 the corporation's separate annual financial statements. Investments 111 subsid1anes are earned at cost less any accumulated Impairment

The cost of an Investment m a subsidiary is the aggregate of:

• The fair value. at the date of exchange. of assets g1ven, liabilities 1ncurred or assumed, and equity Instruments 1ssued by the corporatiOn; plus

• Any costs directly attributable to the purchase of the subsidiary.

An adjustment to the cost of a busmess combtnatiOn contingent on future events IS mcluded 1n the cost of the combination 1f the adjustment IS probable and can be measured reliably

1 4 Investments m assoc1ates

Associates are ent1t1es. 1ncludmg umncorporated partnerships and companies Without a share capital, over wh1ch the Group exerc1ses significant Influence.

Consolidated annual financial .statements

An mvestment 1n an assoc1ate 1s accounted for us1ng the eqwty method. except when the asset 1s classified as held-for-sale in accordance With IFRS s: Non-current assets held for sale and discontinued operat1ons Under the equity method, the 1nvestment 1s tn1t1ally recogn1sed 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 1s discontinued from the date the group ceases to have significant influence over an assoc1ate.

Any Impairment losses are deducted from the carrymg amount of the mvestment in assoc1ate

Distributions rece1ved from the assoc1ate reduce the carry1ng amount of the investment

Profits and losses resulting from transactions w1th assoc1ates are recogmsed only to the extent of unrelated Investors' interests 111 the assoc1ate.

The excess of cost of acqu1S1t10n over the group's Interest m the net fair value of an associate's 1dent1fiable assets, liabilities and contingent liabilities 1s accounted for as goodwill, and IS mcluded in the carry1ng amount of the assoc1ate.

The excess of the Group·s share of the net fa1r value of an associate's Identifiable assets. 11abiltt1es and contingent liabilities over the cost IS excluded from the carrying amount of the mvestment and is 1nstead 1ncluded as income 1n the period m wh1ch the investment 1s acquired

Corporation annual {inancw/ statements

Associate companies are those compan1es in whiCh the Corporation holds a long-term equity Interest and over wh1ch It exercises a Significant Influence over 1ts financ1al and operat1ng policies. other than 1nvestments m compames acquired to protect advances or as a conduit for advances.

The Investments In assoc1ate compan1es are initially recorded at cost Subsequent to 1111tial recogmtiOn. the Investment in the associate IS carried at fair value as an available for sale financial asset 1n accordance With the accounting policy on f1nanc1al assets. If fatr value cannot be measured reliably, the investment is earned at cost An appropnate provision IS made where there 1s considered to be a permanent dimmut1on 111 the value of the mvestment

annual financial sratements 105

106

1.5 Impairment of assets

An 1mpa1rment loss on an asset or cash-generating umt is the amount by whiCh the carrymg amount 1 e the amount recogn1sed on the balance sheet after deduct1ng any accumulated deprec1at1on and accumulated 1mpa1rment losses, exceeds 1ts recoverable amount The recoverable amount is the higher of an asset's or cash-generatmg umt's fan value less costs to sell and its value m use. Value muse Is the present value of future cash flows expected to be denved from an asset or cash generatmg unit

At each reporting date the carrying amount of the tangible and Intangible assets are assessed to determme whether there 1s any ind1cat1on that those assets may have suffered an 1mpa1rment loss If any such 1nd1cation exists, the recoverable amount of the cash-generating un1t to which the asset belongs 1s estimated value m use 1s estimated taking mto 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 umt) IS estimated to be 1ess than its carrying amount the carrymg amount IS reduced to the higher of 1ts recoverable amount and zero. 1mpa1rment losses are recogn1sed m profit or loss. The loss IS first allocated to reduce the carrying amount of goodwill and then to the other assets of tile cash·generating umt.Subsequent to the recognition of an impairment loss. the depreciation or amortisation charge for the asset is adjusted to allocate 1ts remaining carrymg value, less any residual value, over 1ts remalmng useful life.

If an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) 1s increased to the rev1sed estimate of its recoverable amount, l1m1ted to the carrying amount that would have been recogn1sed had no 1mpa1rment loss been recogmsed 1n pnor years A reversal of an 1mpa1rment loss is recogn1sed m profit or loss. Impairments to goodwill are not reversed in subsequent accounting penods.

1.6 Financial instruments

Classification

The Group classifies flnanc1a1 assets and financial liabilities into the following categories:

• F1nanc1al assets at fa1r value through profit or loss · designated • Held-to matunty mvestment • Loans and rece1vables • Available-for-sale hnanc1al assets

Classification depends on the purpose for wh1ch the f1nanc1a1 instruments were obtamed 1 mcurred and takes place at mitlal recognition. Classification is re-assessed on an annual bas1s. except financ1al assets designated as at fair value through prof1t or loss, which shall not be classified out of the fair value through profit or loss category.

Initial recognition and measurement

Financial instruments are recogmsed m1t1a11y when the group becomes a party to the contractual provisions of the instruments.

The Group class1f1es fmancialmstruments, or their component parts, on imtial recognition as a financ1a1 asset. a financial liability or an equ1ty mstrument m accordance w1th the substance of the contractual arrangement

Ftnanciallnstruments are measured 1nitially at fa1r value. except for equity investments for which a fa1r value is not determmable, which are measured at cost and are classified as available for sale financ1al assets

For financial instruments which are not at fair value through profit or loss. transactiOn costs are Included in the mitial measurement of the mstrument.

Transaction costs on financial Instruments at fair value through profit or loss are recognised In profit or loss.

Subsequent measurement

F1nanc1al instruments at fair value through profit or loss are subsequently measured at fair value, Wlth ga1ns and losses ansmg from changes m fair value be1ng Included m profit or loss for the penod

Net gams or losses on the financial instruments at fa1r value through profit or loss 1nclude Interest

DIVidend mcome 1s recogmsed tn profit or loss as part of other tncome when the Group's nght to rece1ve payment IS established

Loans and receivables are subsequently measured at amortised cost. using the effecttve mterest method. less accumulated impairment losses.

1111111ul r /)(Itt 'I I~ I J

Held to-maturity mvestments are subsequently measured at amort1sed cost, using the effective interest method. less accumulated impairment losses.

Available fo1 sale financial assets are subsequently measured at fatr value. This excludes equity mvestments for which a fair value is not determtnable. which are measured at cost less accumulated impairment losses.

Gains and losses ansing from changes In fair value are recognised directly in equ1ty unt1l the asset is disposed of or determined to be 1mpa1red. Interest on available for sale f1nancial assets calculated using the effective interest method IS r ecogn1sed in profit or loss as part of other income. Dividends received on available for sale equ1ty Instruments are recognised 1n profit or loss as part of other income when the group's right to rece1ve payment rs established.

Commitments

Loans approved and not yet disbursed are dislcosed as commrtments rn note 28

Impairment o/ {lncmdal assecs

At each statement of ftnanc1al pos1t10n date the Group assesses all financ1al assets, other than those at fa1r value through profit or loss. to determine whether there IS objecttve evidence that a financial asset or group of financial assets has been impaired.

For amounts due to the group. srgnificant financial diff1culties of the debtor. probability that the debtor w111 enter bankruptcy and default of payments are all considered indiCators of •mpairment

Impairment losses are recognised tn profit or loss. except for available· for-sale equity Investments

1mpa1rment losses are reversed when an increase 1n the fmancial asset's recoverable amount can be related ObJeCtively to an event occurnng after the impairment was recognised, subject to the restriction that the carry1ng amount of the financial asset at the date that the impairment IS reversed shall not exceed what the carrymg amount would have been had the impairment not been recogmsed.

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 fa1r value was not determinable

Loans to (from) group companies

These mclude loans to and from holding companies. fellow subsidiaries, subsidiaries, JOint ventures and assoc1ates and are recogmsed initially at fair value plus d1rect transactton costs.

Loans to group companies are class1fred as loans and receivables.

Loans from group companies are classified as financial liabilities measured at amortised cost

Trade and ocher receivables

Trade receivables are measured at initial recognition at fair value. and are subsequently measured at amort1sed cost us1ng 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 1s impaired Significant financial difficulties of the debtor. probability that the debtor w1ll enter bankruptcy or financial reorganisation. and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is 1mpalred. The allowance recognised IS measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at Initial recognition.

The carrying amount of the asset IS reduced through the use of an allowance account. and the amount of the loss 1s recognised in the mcome statement withtn operating expenses. When a trade receivable is uncollectible. 1t is written off agamst the allowance account for trade receivables. subsequent recoveries of amounts previously written off are credited agamst operating expenses in the income statement.

Trade and other receivables are classified as loans and receivables.

annual financial statemencs 107

108

Trade and ocller pavables

Trade payab1es are 1ntUar1y 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 m value. These are 1nitially and subsequently recorded at fatr value

Derivarives

Denvatrve financ1al Instruments, which are not designated as hedging instruments. cons1stmg of foreign exchange contracts and mterest rate swaps. are mitially measured at fair value on the contract date. and are re-measured to fatr value at subsequent reporting dates.

Derivatives embedded m 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 financ1al instruments are recognised in profit or loss as they anse.

DenvatJves are c.lass1fied as financ1a1 assets at fair value through profit or loss - held for tradtng.

1.7 Share capiwl and equity

Ordmary share capital, preference share capital or any fmanc1al Instrument 1ssued 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 prov1de for the exchange of flnanc1al instruments under cond1t1ons that are potentially unfavourable to the Group;

• Settlement m the Group's own equity mstruments 1s for a fixed number of equity Instruments at a fixed price. and

• The instrument represents a restdual interest in the assets of the group after deducting all of its liabilities.

The Group's ordinary sllare capital is classified as equity.

Consideration paid or received for equity instruments IS recognised directly in equity. EQuity instruments are initially measured at the proceeds received less incremental directly attributable 1ssue costs. No gain 1S recognised m 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 1nitrally measured at the residual amount after deducting from the fatr 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 1nstrument 1n proportion to the allocation of proceeds.

Distributions to holders of equity instruments are recognised as dividends wtthin equ1ty in the penod 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 quahfytng 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 toss on a systematic bas1s over the periods necessary to match them with the related costs. When they are for expenses or tosses already incurred, they are recognised in profit or toss immediately. The unrecogmsed portion of project spend at the balance sheet date is presented as deferred income. No value IS recognised for other government assistance.

dll'lllll 'I' '' ~I 1 s •

Government grants are rec.ogn1sed when there is reasonable as~urance that'

• The Group w1ll comply w1th the cond1ttons attaching to them. and • The grants will be rece1ved.

Government grants are recogntsed as income over the penods necessary to match them with the related costs that they are intended to compensate.

A government grant that becomes receivable as compensation lor expenses or losses already incuned or for the purpose of giving unmediate fmancial support to the entity wtth no future related costs is recogntsed as income of the period 111 which it becomes recetvable.

Government grants related to assets. including non- monetary grants at fair value. are ptesented 111 the statement of financial position by setting up the grant as deferred income

Deferred government grants are disclosed as commitments in note 28

1.9 Provisions

Provtsions are recognised when.

• The Group has a present obligation as a result of a past event; • It is probable that an outnow of resources embodying economic benefits w111 be required to settle the

obligation; and • A reliable estimate ran be made of the obligation

The amount of a provtston 1s the present value of the expenditUre expected to be required to settle the obligation.

where some or all of the expenditure requ1red to settle a prov1sion IS expected to be reimbursed by another party, the reimbursement shall be recognised when. and only when. it ts virtually certain that retmbursement will be received if the entity settles the obligation. The retmbursement shall be treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision.

Provisions are not recogn1sed for future operating losses.

When the Group has a contract that 1s onerous. the present obligation under the contract shall be recogntsed and measured as a provision .

Contingent assets and contingent liabilities are not recognised. Contingencies are dtsclosed tn a note 27

1.10 Revenue

Revenue is measured at the fair value of the consideration recetved or receivable and represents the amounts receivable for goods, servtces and operating lease income provided in the normal course of business. net of value added tax.

Interest is recognised, tn prof1t or loss. using the effective Interest rate method.

Operat1ng lease mcome IS recogmsed as income on a stralght·llne basis over the lease term or another systematic bas1s, if more representative of the ome pattern of the user's benefit

Dividends are recognised, in profit or loss. when the Group's nght to recetve payment has been established.

1.11 Employee bene(lts

Short-term employee bene{lls

Employee benefits cost Include all forms of consideration given 1n exchange for servtces rendered by employees. The cost of providing employee benefits is recognised 1n profit or loss rn the period they are earned by employees. The cost of short-term employee benefits is recogntsed in the period in which the service is rendered and is not dtscounted.

The expected cost of short-term accumulating compensated absences is recognised as an expense as the employees render service that tncreases 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 constructtve obhgatton to make such payments as a result of past performance.

annual financial statemellts 109

110

Po~1-employment bene{ll obligations

The cost of prov1ding defined benefits 1s determ1ned 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 contnbution 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 group's obligation under the schemes IS equivalent to those arising in a defined contribution retirement benefit plan.

De{med benefit plan~

For defined benefit plans the cost of providing the benefits is determ1ned using the projected unit credit method.

Actuarial valuations are conducted on an annual basis by independent actuaries separately for each plan.

Consideration is g1ven to any event that could impact the funds up to the end of the reporting penod where the Interim valuation is performed at an earlier date

Past service costs are recogn1sed immediately to the extent that the benefits are already vested, and are otherwise amortised on a straight line basis over the average penod 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 10 profit or loss over the expected average remaining serv1ce lives of participating employees. Actuarial gains or losses w1thin the corridor are not recognised.

Actuarial gains and losses are recognised in the year in which they anse, 1n other comprehensive 1ncome.

Ga1ns or losses on the curtailment or settlement of a defmed benefit plan is recognised when the group IS demonstrably comm1tted to curtailment or settlement.

When it is virtually certa1n that another party will re1mburse some or all of the expenditure reQuired to settle a defined benefit obligation, the right to reimbursement ts recogmsed as a separate asset. The asset 1s measured at fa1r 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 recogmsed 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 fa1r 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 rn future contributions to the plan.

1.12 Leases

A lease is classified as a ftnance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease 1f 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 Group's benefit Any contingent rents are expensed in the period they are Incurred.

Mimmum lease payments due in the next 12 months to five years are d1sclosed as commitments 10 note 28.

mrrwul 'l pvrl '! I ; 1

1.13 Tax

Currem tax

The charge for current tax rs based on the results for the year as adjusted for mcome that rs exempt and expenses that are not deductrble usrng tax rates that are applicable to the taxable mcome

Deferred tax

A deferred tax asset is the amount of income taxes recoverable tn future periods rn respecl of deduc.tible temporary drfferences, 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 rs probable that taxable profns wrll be available agarnst which deductrble temporary differe.,ces can be utilised, unless spec1f1cally exempt. It rs measured at the tax rates that have been enacted or substantrally enacted at the statement of financ1al positron and rs not diSCOUnted

A deferred tax liability 1s recognrsed for taxable temporary differences. unless specrfically exempt. at the tax rates that have been enacted or substantrally enacted at thestatement of frnancral position date and rs not discounted A deferred tax liability rs the amount of rncome taxes payable in future penods rn respect of taxable temporary differences Temporary differences are drfferences between the carryrng amount of an asset or liabrlrty and its tax base.

Deferred tax arising on rnvestments rn subs1draries. assoc1ates and JOint ventures is recognrsed except where the Group rs able to control ·he eversal of the temporary difference and 1t 1s probable that the temporary difference will not reverse m the forseeable future.

A deferred tax asset rs recognrsed for the carry forward of unused tax losses and unused STC credrts to the extent that it rs probable that future taxable profit wrll be avarlable aga1nst whrch 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 penod 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 pos1tron date

1.14 Key assumptions concerning the future and key sources of estimation

The consolidated annual llnanc1ar statements are prepared rn accordance with and comply w1th SA GAAP for SMEs and 1ts rnterpretations adopted by the Accounting Practrces Board. In the preparation of the consolidated annual financial statements the corporation has assumed certarn key sources of estimation in recordrng various assets and liabilities, as set out below

Credit impairmelll of loom and advances

The Group adopted an rncuned-loss approach to rmparrment in accordance with account1ng policy 1.5. lmparrmentlosses are tncurred only rf there rs objectiVe ev1dence of 1mparrment as a result of one or more past events that has occurred srnce rnrtral recognrtron. Th1s necessitates the establishment of 'rmpa~rment trrggers' on the occurrence of whrch an rmpairment loss may be recognised.

Cred1t rmparrment rs based on drscounted esumated future cashnows on an asset or group of assets, where such objective evrdence of 1mparrment exists. The discount rates used to calculate the recoverable amount exclude consrderatron of any anticipated future credit losses

The Group has created a portfolio provrsron for incurred but not reported (IBNR) losses. The purpose of the IBNR provrsron is to allow for latent losses on a portfolio of loans and advances that have not yet been 1nd1vidually evrdenced. Generally, a period of time will elapse between tt1e occurrence of an rmpairment event and objectrve evrdence 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 impa~red. and objective evidence or that rmpa~rment becomes evident dunng the emergence period

The Implementation of these princrples is at a corporation level and will be specrfic to the nature of therr lndrvrdualloan portfolios and the loan loss data available to the lendrng drvrsron.

annual financial scacement\ 111

112

Provisions, contingent liabilities and comingent 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.

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.

1.15 Intangible assets

computer software

Acquired computer software licences are capitalised on the basis of costs incurred to acquire and bnng 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, other 12 - 36 months

1.16 Non-current assets held for sale

Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Non-current assets held for sale (or disposal group) are measured at the lower of its carrying amount and fair value less costs to sell.

A non-current asset is not depreciated (or amortised) while it is classified as held for sale, or while it is part of a disposal group classified as held for sale.

anii /IC/1 r J'Or! 1 i I

Eastern Cape Development Corporatron II

'' ll \r , I I I l ... II ,,,,I , ., I• I 11 . \ ll• • , II

Notes to the Consolidated Annual Financial Statements

~. /N\t~TM[NI 1'/IOPERTI'

Group

Investment property

Group

Investment property

Company

Investment property

Company

Investment property

.!0/J

Co'r 1 Accumulated \iJ/uation det>rl'tiation

2 051 831

JOIJ

Cosr I ,\,cumulated \'il/uatian cil'prrciation

724 921

Rt•t oncrlimian afmvt'~lment pmpertv- Group JOJJ

Oper1ing balance

Additions

Carryinq vaftlt'

2013

C0\1 1 Acwrnulaled \a/uutiun depreciatwn

2 051 831 1 713 981

2012

Ca~t I -\ccumuloted \alualian deprecimian

1 421 236

1013

Carr)'inq ro~l lulu Arcumulatrd valur arran deprecJCIIiOII

724 921 658 123

20U

Co~t l t\ccumulotrd \aluatwn depreciation

604 602

Di~po~a/\ Classi{led a\ held (or salr

Fair vulur adjustm!'nt\

Carrymg ~·ulur

1 713 981

Carn·iny ~·ulur

1 421 236

Carr~mq

value

658 123

Carf\'mg value

604 602

Total

Investment property 1 713 981 122 985 (22 108) 2 383 234 590 2 051 831

Rruw11 i/101ion of im'l'stmem propcm·- Group- .Z0/3

Op<·ning balance

Investment property 1 421 236 236 462

Rrrwrciliacion o( invrstmem pmpt•rty- Group - 1012

0pl'ning l>Oiance

Investment property 1 428 271 131 775

Rrconliliation of mvt•,tmem pmpl'rty- Compcmy . 2014

Investment property

annual financial sratemcncs

Additions

(6 569)

AdditioM

(17 352)

Opening bolo ncr

658 123

Disposah rtassi{ll'rl as lrl'ld (or salr

Fair value odjustml'nt5

(5 986) (790) 69 628

Dispo~als Clossi{led O\ Fair vah11! held far sale adjustmcm\

(831) (7 470) (113 157)

Disposals Tran,(ers Fair value> adjustment\

(10 653) 2 384 75 067

Tmol

1 713 98

Total

1 421 23

Tow/

724 921

113

114

Eastern Cape Development Corporation l nom rt1r 'ltal 11 ( ''/\ f 1 til£' \ arc n 1t ct {I 'Hurc 11 '0 14

Notes to the Consolidated Annual Financial Statements

R('CO<Ktlrauon of inn~tnl<'nl pmpcr11· • Componv - 201-1

Openrng DISf>0\0/S Uas~ifiedas Fair value Total balance lll'ld (or soli' odju~tml'nts

Investment property 604 602 (6 569) (5 286) 65 376 658 123

/l('(onrrliauon of inwstmMt propcrry • Compony • 2012

0/X'ning Additions Dtspo<.al\ Transfers Fairwlul' Total bolancr adjustment\

568 812 3 204 (7 437) (4 056) 44 079 604 602 Investment property

Opening balance 1 713 981 1 421 236 1 428 271 658 123 604 602 568 812 Disposals (22108) (6 569) (17 352) (10 653) (6 569) (7 437)

Transfers (790) (7 470) {4 056) Add1t1ons 122 985 236 462 131 775 3 204 Fa1r value adjuSt- 234 590 69 628 (113157) 75067 65 376 44079 ments Other movements 2 383 (5 986) (831) 2 384 (5 286)

2 051 831 1 713 981 1 421 236 724 921 658 123 604 602

These propert1es are s1tuated throughout the Eastern cape, wrth the majonty or properties concentrated m the areas tn and surrounding Ktng 5abatha Daltndyebo. Mnquma, Buffalo City and Chris Hani munictpahlles. The portfoliO consists mamly of mdustnal. residential and commerc1al properties.

Cor porcllion - 2014

Typt• of proprmres

Residential commerctal vacant land tndustnal Other

Corpororion -2013

TY/X' of propmies

Restdenttal commerc1a1 vacant land tndustnal Other

Corporation - 2012

l'ype of properties

Restdential com mere~ a I vacant land lndustnal Other

Percentage

36 49

11

3

100

Percemoge

37 48

11

3

100

Percemoge

39 45

12

3

100

\ 1alul' Number

251 722 440

360 454 362 79 492 951

25 374 12

7 879 62 724 921 1 827

\illue Number

244 084 442

315 261 356

71 533 934

19 938 12

7 307 62

658 123 1 806

Value Number

233 654 473

269 821 366

74 398 940

18 413 12

8 316 63

604 602 1 854

IJil"WQ/tCjlOII IJl! l.:i

Eastern cape Development corporation

C OII~•JIId,•tc d 1\r,nual I IIIC/11( I til C.talllll('fll~ fu, /1!1 "'' u' I'IIC1 1 ~~ t /1 'l l I

Notes to the Consolidated Annual Financial Statements

Investment properties were valued in terms of the accounting policy. which requ1res a value determined by a sworn appraiser every three years Valuations are normally based on comparable sales m the area or on the 1ncome earnmg potential of the buildmg Investment properties are subject to operating leases with tenants. No rental was charged on certain properties. ma1nly because the properties are vacant or undeveloped land or unoccupied buildings. Freehold title is held by the Corporation for the majority or properties. but not for all Propert1es for wh1ch freehold title is not held are mcluded 1n investment property when they are managed by the Corporation and result1n the receipt or econom1c benefits and rewards and when the corporat1on 1ncurs the nsks mcidental to ownership.

Frcel1old tit II' 1s held a\ folio.,.., :

Corporation 2014 Per• cmage \alue Number

Corporation 78 564 586 1 726 Government 9 63 285 63 Tnballand 8 59 316 10 Municipality 5 37 734 28

100 724 921 1 827

Corporation · !013 Perr.enrage \!Jiut' .'lumber

Corporation 80 527 773 1 708 Government 9 59 468 60 Tnballand 5 33 178 10 MuniCipality 6 37 704 28

100 658 123 1 806

COfJ'OfOIIOII • 201 Pt'Nl'ntagt' ld/ti(' Nwn/X'r

corporation 83 504 339 1 755

Government 9 52 997 59 Tribal land 5 30138 10

Municipality 3 17 128 30

100 604 602 1 854

The categories of freehold title are furtner descnoed as follows:

CotpOiation Freehold title is reg1stered to the corporation or one of the former corporations consolidated under the Corporation 10 terms of the Eastern Cape Development Corporation Act, No 2 of 1997, read w1th ProclamatiOn 1 of 2001 GOI'('fllflll.'nl

The title over land Is registered to government. The CorporatiOn IS m the process of analySing the properties w1th1n thts group, which compr1se mainly entitlement 1n terms of Proclamation 1 of 2001 by the Premter of the Eastern Cape Trtba//and Th1s group compnses mainly of p1opert1es 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 R59,3 million (2013: R33,1 million) (2012' R30,1 m1lhon) 1ncluded 1n 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 propert1es assumes that the Corpora !Jon has the right to occupy these properties and w111 receive econom1c benefits in perpetuity In the event that the nght of occupation IS disputed or expires, the valuation of these propert1es may be overstated. In terms or the accounting policy these nghts are assessed on an annual basis and adjustments may be effected to the valuation of these properties if necessary. Mumcipoliry The title Is registered to different mun1cipallt1es within the Eastern Cape, but improvements have been made by the corporation.

annual financial statemencs 115

Eastern Cape Development Corporation I' tll('ll'~ for tht ~wt Ul(/ccl {} hlmr/1 '014

Notes to the Consolidated Annual Financial Statements

3. PROPERTY. PLANT AND EQUIPMENT

Group 2014 2013 Cost t Accunw/01ed Carrying Cost ' Accumulated Carrying

\'oluation depreciation value Valuation deprc>ciation value

Land 12 436 12 436 12 385 12 385

BUildings and mfrastructure 598 657 (104 916) 493 741 554 415 (85 417) 468 998 Fmance lease asset 80 (25) 55 80 (9) 71 Plant and machinery 1 871 (1 839) 32 1 841 (1 757) 84 Furniture and fixtures 7 280 (3 573) 3 707 6 557 (3 026) 3 531 Motor vehicles 1 703 (1 009) 694 1 703 (790) 913 Office equipment 1 239 (936) 303 1 295 (853) 442 IT equipment 33 231 (15 453) 17 778 30 712 (22 714) 7 998 Computer software 3 737 (12 260) (8 523) 3 589 (3 512) 77 Other property, plant and 14 530 (3 607) 10 923 1 489 (2 741) (1 252) equipment Total 674 764 (143 618) 531 146 614 066 (120 819) 493 247

Group 2012 Cost ! Accumulated Carrying

Valuation depreciation value

Land 11 685 11 685

Buildings and Infrastructure 508 532 (68 477) 440055

Fmance lease asset 80 (64) 16 Plant and machinery 1 841 (1 708) 133 Furniture and fixtures 6040 (2 489) 3 551 Motor vehicles 1 453 (752) 701

Office equipment 1196 (717) 479

IT equipment 28 920 (17 786) 11134

computer software 3 544 (3 757) (213)

Other property, plant and (805) (2 376) (3 181) equipment Total 562 486 (98 126) 464 360

Company 2014 2013

Cosc / Accumulated Carrying Cosc/ Accumulaced Carrying Valuation depreciation value Valuacion depreciacion value

Land 3 265 3 265 3 265 3265

Buildings and infrastructure 24054 (4 277) 19 777 23 284 (3 809) 19 475

Furniture and fixtures 2 688 (1 832) 856 2194 (1 675) 519

Motor vehicles 184 (165) 19 184 (119) 65

Office equipment 554 (486) 68 546 (446) 100

IT equipment 9 262 (8 366) 896 9 801 (7 679) 2 122

Computer software 3 737 (3 579) 158 3 589 (3 512) 77

Other property, plant and 1766 (1 759) 7 1 766 (1 649) 117 equipment Total 45 510 (20 464) 25 046 44 629 (18 889) 25 740

116 annuc,l 1 C'purl ..!0 1 ~ l ~

Eastern cape Development Corporatron ( 0/1 tl F II ror 11 ( J(' tr: I lire ('()r t'l d • 1ur I, '(1/

Notes to the Consolidated Annual Financial Statements

company 2012

Co~t "< wmularl'd ( arryinq \'aftJaiiQil depreciation •-a fur

Land 3 265 3 265

Burldings and Infrastructure 22 741 (3 355) 19 386

Furntture and fixtures 1 786 (1 515) 271

Motor vehicles 184 (73) 111

Office equipment 520 (375) 145 IT equipment 9 690 (6 260) 3430

Computer software 3 544 (3 484) 60 Other property. plant and 1773 (1 534) 239 equipment Total 43 503 (16 596) 26 907

Reconcr/iation of proprrl\', plant and t>quipment GrotJp 2014

Oprning Addition~ lmns{er~ ond RI!\'OiuotiOn~ Dc•preciotian Taw/ bola ncr dispowls und

lmpamnents

Land 12 385 1 50 12 436

Buildings and Infrastructure 468 998 36925 (18) 7 335 (19 499) 493 741

Frnance tease asset 71 (16) 55

Plant and machmery 84 30 (82) 32

Furnrture and fixtures 3 531 937 (102) (659) 3 707

Motor vehicles 913 (219) 694

Office equipment 442 61 (19) (181) 303

IT equrpment 7 998 15 584 (2 490) (3 314) 17 778

Computer software 77 148 (8 681) (67) (8 523)

Other property, plant and (1 252) 2059 11179 (1 063) 10923 equipment

493 247 55 745 (131) 7 385 (25 100) 531 146

Recondliarion of propr1 ty, p /anr ond t>quipmem Group • 2013

OJl<'ning Addtuons frons{<'r:. ond Rcvoluouans DPpreciotion Total balance di~posals cmd

lmpoirmenrs

Land 11 685 700 12 385

Buildtngs and Infrastructure 440055 45092 580 580 (17 309) 468 998

Finance lease asset 16 80 (9) (16) 71

Plant and machtnery 133 (49) 84

Furniture and fixtures 3 551 520 (540) 3 531

Motor vehicles 701 427 (8) (207) 913

Office equipment 479 118 (155) 442

IT equipment 11134 1 981 (4) (5113) 7 998

Computer software (213) 45 245 77

Other property, plant and (3 181) 55 1 874 (1 252) equipment

464 360 48 318 559 1 280 (21 270) 493 247

annual financial statements 117

Eastern Cape Development Corporation

Notes to the Consolidated Annual Financial Statements

Reconciliation of property, plant and equipment - Group - 2012

Opening Addicions Transfers and Revaluations D!!preciacion Total balance d1sposals and

Impairments

Land 8 272 3 413 11 685 Buildings and rnfrastructure 376 043 78 797 (4 811) (9974) 440055 Finance lease asset 32 (16) 16 Plant and machrnery 191 (58) 133 Furnrture and fixtures 3 372 249 (70) 3 551 Motor vehicles 889 (188) 701 Office equ1pment 1 046 115 (1) (681) 479 IT eQuipment 9 851 5 898 (3) (4 612) 11134 Computer software 15 70 (298) (213) Other property, plant and 536 809 (1) (4 034} (491} (3 181) equipment

400 247 85 938 3 408 (8 845) (16 388} 464 360

Rcconci/iarion of property, plant and l!quipment - Company- 2014

Opl'ning Additions Disposals Revaluacions Depreciaci011 Tarat balance

Land 3 265 3 265 Buildings and infrastructure 19 475 312 458 (468) 19 777 Furniture and fixtures 519 528 (191) 856 Motor veh1cles 65 (46) 19 Office equipment 100 32 (64} 68 IT equ1pment 2 122 209 (4) (1 431) 896

computer software 77 148 (67) 158 Other property, plant and 117 (110) 7 equipment

25 740 1 229 (4) 458 (2 377) 25 046

Reconciliacion of property. plonr and equipment- Company - 2013

Opening Additions Disposals Depreciacion Toto/ balcmce

Land 3 265 3 265

Buildings and infrastructure 19 386 542 (453) 19 475

Furniture and fixtures 271 408 (160) 519

Motor vehicles 111 (46) 65

Office equipment 145 26 (71) 100

IT equipment 3 430 242 (2) (1 548) 2 122

Computer software 60 45 (28) 77

Other property. plant and 239 8 {1) {129) 117 equipment

26 907 1 271 (3) (2 435) 25 740

118 U/llll/0/lC[)Orl 201 ~ /4

Eastern Cape Development Corporation

c Jll~o/I.Jar• d \r,•wol f- •nn• "01 "'ra'L'I'JL'nt\ I)/ tlu ~··u ndl{f I A ,, 11 CJI

Notes to the Consolidated Annual Financial Statements

Rc'fonclliouon of propcrl}', plam and c·qwpmcnr - Company - 2012

Opening Addlltons Dispo~ul\ Rc>valuariom Depreciation Total halancc

Land 3 265 3 265 Bu1ld1ngs and Infrastructure 16 594 2 441 765 (414) 19 386 Furn1ture and fixtures 372 52 (153) 271 Motor vehicles 157 (46) 111 Office equ1pment 206 19 (1) (79) 145 IT equipment 868 3838 (3) (1 273) 3 430 computer software 15 70 (25) 60 Other property, plant and 376 4 (1 ) 140) 239 equipment

21 853 6 424 (5) 765 (2 130) 26 907

4 , /,'1/\E.STMFNTS p.; SUBS/0/ARI£.'>

Investments at cost lmpa~rment of tnvestment in subs1d1aries

Figurl's in Rond thou~md Group Lompanv

2014 J013 20/.l 2014 .1013 201J

C.orrying Corrymg Corrymg omount2014 omount .!013 amount 2012

Investments at cost 24 336 24 336 24 336

24 336 24 336 24336

tmpa1rment of mvestment in subsldiarie (1 330) (1 330) (1334)

23 006 23 006 23 002

5. /NVESfMENTS IN ASSOCIATES

Reconciliation of carry1ng amount Currying Corrymg Corrymg omoum 2014 omoum ./013 omaum 20 J.l

Investment at cost 48 108 48108 48108

48108 48 108 48108

Impairment of investments 1n associates (22 356) (22 356) (9329)

25 752 25 752 38 779

Holiday Inn rrariskel (Pty) Ltd

ASSets 18099 46 277 38307

liabilities 24 389 10 671 8 687

Revenue 46472 44192 40363

Profit for the penod 6 882 5 902 5 455

The above InformatiOn IS based on the audited financial statements ofTranskei Holiday tnn (pty) Ltd for the year ended 31 March 2014. The group holds a 49.95% (2013: 49.95%) (2012:49 95%) interest in the associate of which 9.95% (2013: 9.95%) (2012. 9 95%) Is held by the Corporation Fatrvoluc> The Eastern Cape Development CorporatiOn holds 50% (2013:50%) (2012:50%) interest in Bushman Sands Development (Pty) Ltd. The fa1r value of the underlying assets in Bushman Sands Development (Pty) Ltd was assessed at the end of the reportmg penod Due to a pending litigation 1n favour of the corporation, against surety provided, the impairment 1s estimated to be still R19 million. Details pertainmg to the Investment In associates IS available for inspection from the company Secretary.

annual financial statements 119

Eastern cape Development corporation

1)/t'/1(~ fOI C/1( ~ l'ur UldC d lf l\1at (/1 '{1/4

Notes to the Consolidated Annual Financial Statements

Figures in Rand thousand Croup Company

2014 2013 2012 2014 2013 2012

6. LOANS TO (FROM) GROUP rOMPANIES

'iub~idiaries

1mont1 Industrial Development zone 47 948 (Pty) Ltd

Eastern Cape Marketing Authority 51 38 so (Pty) LTD (ECMA) Centre for Investment and Market· 11 496 10 266 15 775 ang m the Eastern Cape (CIMEC)

Cimvest (PtyP LTD (6 564) Trans1do (Pty) LTD 78 095 78 078 78 063 umtata small Industries Complex 400 398 397 (Pty) LTD (USICO) Transkel Share Investment (15 680) (15 697) (15 716) Company Limited (INTRASHARE) TDC Property Investments (Pty) LTD 3 536 3 514 3 491 Transdev PropertieS (Pty) LTD {24 937) (20 567) (16 648) Windsor Hotel (Pty) LTD 1 027 1 022 913 Automotive Industrial Development 2000 2000 2000 Centre (AIDC) Magwa Enterprise Tea (Pty) LTD 4 920 4 920 5 265 4920 4 920 5 265

4 920 4 920 53 213 60908 63 972 67 026 Impairment of loans to subsidiaries (4 920) (4 920) (5 265) (77 717) (79 332) (77 833)

47 948 (16 809) (15 360) (10 807)

Associates

Worthytrade 93 (Pty) LTD 4 333 4 333 4 333 4333 4 333 4 333

4 333 4 333 4333 4 333 4 333 4 333

Impairment of loans to associates (4 333) (4 333) (4 333) (4 333) (4 333) {4 333)

(40 617) (36 264) (38 928)

Non-current assets 23 808 20904 28 121

current assets 47 948

Non-current liabilities (40 617) {36 264) {38 928)

47 948 {16 809) {15 360) {10 807)

Reconciliation of provision for impairment of loans to group companies

Opening balance 9 253 10157 9 598 83 665 82 166 81608

Provision for impairment (904) 559 (1 615) 1499 558

9 253 9 253 10157 82 050 83 665 82 166

120 all IIllO/ rcpGII .!U i { l..J

Eastern Cape Development corporation ( rll'"l icl< 'r (I \ tiTliHt/[ 1/l(trll 1(1/ ~~ 1/ lfl(/11' fur (/!(' ~t'UT IJ(jr tJ i I \11) (/, {If J

Notes to the Consolidated Annual Financial Statements

Figurt'\ 1n Rand tlwusand Group Comp<my

201./ lOU 2012 20/.J 2013 201.!

7. IN\'L 'iTME!V 1:~

,,, fau wlue thruuqh profu or loss -1/e,il)nored

Listed shares 2 417 2 383 1 643

Available for sale

unlisted shares 23 500 23 500 25000 23 500 23 500 25000

Held to muwrity

Frxed Term Investments 48 902 48 902 60031 48902 48 902 60031 Other fmancral assets 22 798 22 370 19 443 22 798 22 370 19443

71 700 71 272 79 474 71 700 71 272 79 474 Held to matunty (impairments) (62 746) (61 373) (59 652) (62 746) (61 373) (59 652)

8 954 9 899 19 822 8 954 9 899 19 822 focal other ~none iul a551't\ 34 871 35 782 46 465 32 454 33 399 44 822

The Impairment of R63 million against investments Includes R49 million that relates to an ongo1ng fraud investigation agamst a third party. This has been reported to the Fmancral Services Board.

NOII •(Wrenr 0\WI\

At tarr value through profrt or loss • 2 417 2 383 1643 designated Available-for-sale 23 500 23 500 25000 23 500 23 500 25000 Held to matunty 8954 9 899 19 822 8954 9899 19 822

34 871 35 782 46 465 32 454 33 399 44 822

Fair value hierarchr of (munrial as't't\ ar (air •·alue throul)h pro{lt or loss

For f1nanc1al assets recogn1sed at farr value, disclosure is reqwred or a fair value hierarchy wh1ch reflects the significance of the mputs used to make the measurements.

Level I

Listed shares 2 417 2 383 1 643

Short-term Investments 11129 11 129

cash and cash eqUivalents 606 486 391 369 792 650 470 407 228 542 359 116

608 903 393 752 805 422 470 407 228 542 370 245

Le1•el J

Investment secuntres 8954 9899 8 693 8954 9 899 8 693 Loans and receivables 174 266 163 375 206 994 163 263 152 129 201 855

-183 220 173 274 215 687 172217 162 028 210548

792 123 567 026 1 021 109 642 624 390 570 580 793

annual financial statements 121

122

Eastern cape Development corporation

II" "/~ for t!Jr 1 car f'nchl -tl \1w r h '0 J 4

Notes to the Consolidated Annual Financial Statements

Figure~ in Rand rl1ou;and Group Company

2014 2013 2012 2014 2013

neconciliatian of financial assets at fair value through pro(lt or loss measured at level 3 • Group • 20/4

Opening Gainsar Purclwses Advances, balance losses in rentals and

pra(lt or Joss colleaions

Investment secunties 9 899 (1 373) 428 Loans and receivables 163 375 (44 302) 55193

173 274 (45 675) 428 55193

ReconCiliation of financial a~ser~ m fair ~olue through pro(lt or loss measurt!d ar level3 - Group- 2013

Opening Gains or Purchases Advances, balance losses ir1 rentals and

pro(lr or loss co/leer ions

Investment secunttes 8 693 (2 711) 3 917

Loans and receivables 206 994 (88 086) 44 467

215 687 (90 797) 3 917 44 467

Reconciliation of financral a~scts at fair value through profit or loss measured or level J- Group - 2012

Opening Gains or Advances, balance losses in rencols and

profit or loss collections

Investment securities 9 808 (1 115)

Loans and receivables 194 041 {45 782) 58 735

203 849 (46 897} 58 735

Reconciliation of (lnoncial assets at {air value through profit or loss measured atlevel3- Company - 2014

Investment securities Loans and receivables

Opening Gains or Advances. balance losses in rentals and

9 899

152 129

162 028

profit or loss collections

{945)

{41 517)

(42 462}

52 651

52 651

Reconciliation of (lnanciol assets or (air value tlirough profit or loss measured at level 3 - Company· 2013

Investment secunties Loans and receivables

Opening Goins or Purchases Advances, balance losses rentals and

8 693

201 855

210 548

in profit or collections Joss

(2 711)

(78 036)

{80 747)

3 917

3 917

28 310

28 310

Reconciliation o{(lnancial assets at (air value through profit or Joss measured at level 3 ·Company· 2012

Investment securities Loans and receivables

Opening Gains or Advances, balance losses in rema/s and

9 808 201 505

211 313

pro(lt or loss col/eccions

(1115)

{46 032)

{47 147)

46 382

46 382

2012

Closing balance

8 954

174 266

183 220

Closing balan,·e

9 899

163 375

173 274

Closing balance

8 693

206 994

215 687

Closing balance

8 954

163 263

172 217

Closing balance

9 899

152 129

162 028

Closing balance

8 693

201 855

210 548

cJ ' I'IIWI rcpull _(I I > I ,

Eastern Cape Development corporation

f '''lint tlll ~l•JI '" '•' {u1 tht' 1 C;Jr t '"'' J t 1 1\iort I '(1/4

Notes to the Consolidated Annual Financial Statements

FiguH'\ m Roll(/ thousand

2014

rair nrltre l1iercmlly of avai/oble-for ~ole ~naaual a~set\

Group

.!013

Componv

2012 2014 2013

For fmancial assets recogmsed at fa1r value. diSClosure is reQUired of a fa1r value hierarchy wh1ch reflects the s1gmflcance of the mputs used to make the measurements

Levell

Unlisted shares 23 500 23 500 25 000

Recon< tliatian of amilablt•-tor-sole (mancial aw·t~ mea\urt•d or 1nd 3 . Group. 2014

Investment secunt1es

Rl'connliation of availabiC'-(or-saiC' (mancia/ as~er~ mea~urt>d al/evd 1- Group 201-1

Investment secunt1es

Reconcilia1ion of OI'Oilabll•-for-sall' ~noncial a~~('ts measurl'd or ll'vc/3- Group - 2012

Investment securities

Reconcil•atioa of available-tor-sale ~nancial asstts measured at level3- Company· 2014

Investment secunlles

ReconCiliation of avallabll'·{or-sale ~nancial assl'ts meosurl'd or 11.'1'1.'13 · Group· 2014

Investment secunt1es

Reconciltauon of OI'Oilabll'·for-sa/1' ~nancia/ os~ets measured at lew•/3 ·Company- 2012

Investment sec unties

annual financial statements

23 500

OJX'mng balanc!'

25 000

Opening balanC'I.'

25 000

23 500

Opl'ning lxllance

23 500

Gains or lo~~sin

ather rompre-hl'n~ive illCOIJI('

(1 500)

Opt>ning balance

25 000

Opl'ning balance

23 500

Gains or IOSSt'S tn

other com pre-ltensive mcome

(1 500)

Opening balance

25 000

1012

25000

Closing balan<l!

23 500

Closmg balance

23 500

Closing balanet.'

25 000

Closing ba/ancl'

23 500

Closmq bolancl'

23 500

Closmg balance

25000

123

Eastern Cape Development corporation

mcnl f>riiJt \•a• tlldtd ~1 \lwciJ 111/.J

Notes to the Consolidated Annual Financial Statements

Figures in Rand thousand Group Company

2014 2013 2012 20J.l 20/3 2012

a. orrtRRED mx

Deferred wx asset

Deferred tax 800 582

Rl'connliatiorJ of deferred taY asset ( liobi/lr_y)

At beginntng of the year 582

Originating temporary dtfference on 218 582 tangtble fiXed assets

800 582

9. LOANSAOVANCFO

Loans advanced 314 377 293 138 289 779 314 377 292 649 287 641 lmpatrment allowance (194 554) {176 992) (160 136) (194 554) (176 992) (160 136)

119 823 116 146 129 643 119 823 115 657 127 505 Loons advanced

Non-current assets 70 476 58 860 74 392 70476 58 371 73 457

current assets 49 347 57 286 55 251 49 347 57 286 54 048 119 823 116 146 129 643 119 823 115 657 127 505

/0. TRADC AND OTHER RECEIVABLES

Trade recetvables 14 635 12 793 52 134 4 519 3091 38 672 Prepayments 5324 3033 3 735 752 1 685 1 930

Deposits 54 14 82 68

VAT 186 12 823 11 655 186 1 420 526

Other receivables 34 244 18 566 9 745 14 175 9 372 5 033

54443 47 229 77 351 19 632 15 568 46 229 rrocle receil•obles

Trade recetvables 343 681 307 459 274 898 309 375 282 397 257 367

Trade receivables impairments (329 046) (294 666) (222 764) (304 856) (279 306) (218 695)

14 635 12 793 52 134 4 519 3 091 38 672

1/. CASH AND CAS/-/ EQUJVALENTS

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

Bank balances 226 603 188 842 399 438 90524 26 237 15 920

Short-term deposits 379 883 202 305 343 196 379 883 202 305 343196

606 486 391147 742 634 470 407 228 542 359 116

124 tt/JIIIIOittporl .!Ul ' I l

Eastern Cape Development Corporation C r 'r"l/"IClft'/11\llllriCrl I t'l'lntllll 'l•u• ,, "Ill' fur rhl ~ "' , n" d ll \foJr I '•'

Notes to the Consolidated Annual Financial Statements

Fi<JUI<'S in Rand rhnu,and Group Com pan~·

! 014 !013 201! 2014 2013 !OJ.!

/.!. SHARE GAP/1t\L

Authorised 50 btllion A'' shares of 1 cent each 500000 500 000 500000 500 000 500000 500 000 50 billion "B" shares of 1 cent each 500000 500000 500000 500 000 500000 500 000

1 000 000 1 000 000 1000 000 1 000 000 1 000 000 1 000 000 l\\ttl!d

"A shares of 1 cent each 213 795 213 795 2 0688 213 795 213 795 210 688 "B" shares of 1 cent each 213 795 213 795 210 687 213 795 213 795 210 687

427 590 427 590 421 375 427 590 427 590 421 375 ls\tWd

Reported as at 01 April 2013 427 590 421 375 383 548 427 590 421 375 383 548 Share caprtal issued 6 215 37 827 6 215 37 827

427 590 427 590 421 375 427 590 427 590 421 375

13. RESF.I?\ LS

Pn•-incorpnrurion '"'er~es

Pre-1ncorporat1on reserves represent the net book value of asset and liab1ltt1es transferred from prevrous corporations. adjusted for any changes in the value of these assets due to information which has been established dunng the current and pnor years that refer to the value of assets taken over

f'cur value uclJUStmC'nt ovailahlr-for-\o/r-ossec~ reserve'

Fatr value reserves compnse all fatr value adjustments that are recognised dtreclly in equity and 1 or transfers from retained earn1ngs.

Pre-tncorporatton reserve 394 856 394 856 394 856 384 265 384 265 384 265

Property revaluation reserve (PPEl 10 211 458

Fatr value adJUStment on available· 22 673 22673 24173 22 680 22 680 24180 for-sa le reserve

427 740 417 529 419 029 407 403 406 945 408 445

14 /YTERLST BEARING BORR0\1'/'VGS

Ht•lcl or am<mised co~r

Ftnance lease 50 47 23

Development Bank of southern 1171 1 639 5154 1171 1639 2 831 Afnca

1 221 1 686 5 177 1171 1 639 2 831 '\'on-current /iabiliiiC'S

At amortised cost 948 1 198 3 889 898 1 151 1 611

Currem lial>iliries

At amortisation cost 273 488 1 288 273 488 1 220 -

annual financial statements 125

Eastern Cape Development corporation

1 • ' mc>n' (o1 1f1c 1 ca1 cndcct ~1 \lmdt .!VI

Notes to the Consolidated Annual Financial Statements

Figures in Rand thou~ond Group Campcmy

:!014 2013 2012 2014 2013 2012

15. RFTIRFMENT BENErtTOBUGATION

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 1n 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 SO% of the contributions to medical aid funds of retired employees.

Present value of the defined benefit (27 830) (27 620) (26 340) (27 830) (27 620) (26 340) obligation Net actuarial gams or losses not (978) (210) (1 280) (978) (210) (1 280) recogn1sed

(28 808) (27 830) (27 620) (28 808) (27 830) (27 620)

Chonges in presem value

Opening balance (27 830) (27 620) (23 308) (27 830) (27 620) (23 308)

contributions by members 290 355 240 290 355 240

Net expense recognised m profit (1 268) (565) (4 552) (1 268) (565) (4 552) or loss -

(28 808) (27 830) (27 620) (28 808) (27 830) (27 620)

Net expense recognised in the income statement

Current service cost (794) (873) (1 542) (794) (873) (1 542)

Interest cost (2 079) (2 355) (2 361) (2 079) (2 355) (2 361)

Actuanal (gains) losses 1 605 2 663 (649) 1 605 2 663 (649)

(1 268) (565) (4 552) (1 268) (565) (4 552)

Past (accrued) and {uwre ser111ce /iabi111y

Health care cost inflation 8,16% 7,13% 8,00% 8,16% 7,13% 8,00%

Discount rate used 9,36% 7,51% 9,00% 9,36% 7,51% 9,00%

Present wlue of accrued

liability

Active members 22 329 21 295 23 484 22 329 21 295 23 484

CAWMS liability 6 479 6 535 4136 6 479 6 535 4136

28 808 27 830 27 620 28 808 27 830 27 620

Effecr of I% chang<' in assumc.>d medical cost trend rares

1% increase - effect on current 607 607 773 607 607 773 service cost & interest cost 1% increase- effect on accumulated 5460 5 259 5084 5 460 5 259 5084 benefit obligation 1% decrease- effect on current (471) (471) (611) (471) (471) (611) service cost & interest cost 1% decrease-effect on accumulated (4 366) (4 158) (4 056) (4 366) (4158) (4 056) benefit obligation

126 !JillliJLif IL{J[)I• 10/ f II

Eastern Cape Development Corporatron

I Jl ~PIIdCI/( d \tllllJ(II f 11!1' II)/ I., ttl' llh ll( fur 1/l Iiiii l II ft d

Notes to the Consolidated Annual Financial Statements

rigt/11'\ m Rand II10U50IId Group Compan~

.!01./ .lUJJ ::!01.! :!01-1 1013 ::!01.!

16. Dl T ERRED INCOM/

Non-current liabilities 1 545 447 1 456 922 1 255 663 current liabilities 368 603 213 772 490 371 226 325 35 372 103 923

1 914 050 1 670 694 1 746 034 226 325 35 372 103 923

Anu/y\i\ per group compatl~'

Eastern Cape Development 226 325 35 372 103923 226 375 35 372 103 923 Corporation East London lndustnal 1 685 447 1 633 483 1 641 014 Development zone (Pty) Ltd Automotive Industrial 2 278 1 839 1097 Development Centre

1 914 050 1 670 694 1 746 034 226 325 35 372 103 923

Government grants are deferred to the extent that they are un-spent. The Eastern Cape Development corporatron rs responsible for the imptementatron of vanous protects on behalf of other government entrtres. Funds that have been rece1ved for these proJects but not yet spent as at 31 March are classrfied as deferred rncome. There were no unfulfilled conditrons relatmg to the condrtiOnal government grants at year end.

1". TRADE AVO OTHER ~l\ABLf.S

Trade payabtes 38 161 19697 79 560 3 116 2 205 2 068 VAT 6 593 900 1124 Government funds 23 707 22 370 135 385 23745 22 530 135 385 Performance bonus provision 3000 3000 Accrued leave pay 14 513 13123 10 563 9 133 8 545 7 027

Accrued bonus 2 194 2 600 5 879 1 546 1 643 5 315 Oeposrts rece1ved 2006 1 828 5 222 3 512 Other payables 114 441 42033 21 420 99 594 35 515 13 025

204 615 102 551 259 153 140 134 70 438 166 332

18. RHENL'E

Rendering of services 39 259 36 406 29 441 3 334 4292 4164

Rental Income 103 845 99973 87 837 65 761 59 983 54 846

Interest recerved on loans 22 189 21157 24 508 22189 21 157 24 508

Interest on rent 15 310 14 620 15 417 15 310 14 620 15 417

180 603 172 156 157 203 106 594 100 052 98 935

Comparative figures Prevrously, the rmpairment for rental revenue was set off agarnts the gross rental and rnterest. Thrs has now been changed such that the rental revenue is reported at gross amounts and the rmpairment Is included ln operating expenses. The comparative amounts for revenue has been restated retrospectively as tabulated below

Rental Income and interest on rent 93 900 87 847 55 315 54846 as previously stated Operatrng expenses 19 288 15 417 19 288 15 417

113 188 103 264 74 603 70 263

annual financial statements 127

Eastern Cape Development corporat1on \t ' 11. .o/ «;,r r, 'II(,,< f( • rlu \C ,n •, ,, d 1 'fan I I..J

Notes to the Consolidated Annual Financial Statements

Figures in Rar1d rllou\CJIId (,mup Companv

'JOJ.J 1()/J 2012 20/.J LOU 1012

/9. OPERAT/,'fC. P/Wf"/1 (I OSS)

Operating loss for the year IS stated after accountmg tor the followmg: Operatmg lease charges Premises • Contractual amounts EQuipment 3 830 3 732 2 848 3 209 3 143 2 324

• Contractual amounts 705 748 858 674 735 846

4 535 4 480 3 706 3 883 3 878 3 170

Loss on sale of property. plant 4 5 4 3 5 and eQuipment

Loss on sale of Investment 344 1 639 330 1136 1639 330 property

Bad debts wntten oil 149 246 117 153 117 153

Preparations for state funeral 35 963 35 963

1mpa1rment of mvestment in 13 027 13 027 assoc1ate

Bad debts recovered (2 382) (4 777) (2 994) (2 382) (4 777) (2 994)

1mpa1rment on property, plant 320 31 4 and equipment

lmpa~rment on Investments 1 373 977 45 275 1373 1 717 45 275

1mpa1rment on mvestments m 3 118 3 118 subs1d1anes

1mpa1rment on loans to group 558 1 499 558 compames

Reversal of 1mpa1rment on loans (345) (1 615) to group compan1es

Impairment of loans advanced 17 562 16 856 35 260 17 562 16 856 31 737

Impairment on rent debtors 34 303 69 296 11 300 25 473 60 611 10 183

Amortisation on intangible 2 256 2 064 2 208 assets

Depreciation on property, plant 25100 21 270 19 015 2 376 2 436 2 131 and equipment

Employee costs 186 257 155 356 145 393 99 952 89680 92 823

D1rect property operating 103 566 86697 74 071 72 648 66160 53046 expenditure

128 tl!IIIIIOI tqJOll U I ~ 1 •

Eastern Cape Development corporat1on I 1IJ (J/ ~· . ,, ,., t ,, rllt "' I 1 ,, I I •

Notes to the Consolidated Annual Financial Statements

f igun·' 1n Rand i/1ou~tmd Group Com pam•

2014 2013 2012 201-1 .!0/' 2012

10. AUnTTORS' R£MUNFRA1/0N

Fees 5 318 5 611 3 938 2 464 2 770 1 898

!I . JNVf~TMTNr R.EVI·NUE

D1vidrnd mconw

1sted fmanc1al assets - Local 81 134 55

lnrerc'' n·venut·

current accounts 2 352 172 , 893 3 991 1 607 3 990

Short-term depos1ts 5 505 7 096 10498 5 505 7 096 10 498

Investments 3 103 3 103

Interest on Guarantee 314 314 mvestments

Other interest 1 514 1 441 1 363

9 371 8 709 17 171 9496 8 703 17 905

9 452 8 843 17 226 9 496 8 703 17 905

22. FAIR VA/UP ADJUSTMENTS T/-/ROUG/1 PROFir OR LO'>S

Investment property 234 590 69628 (1 13 157} 75067 65 376 44 844

Other f1nanc1al assets 34 740 325

234 624 70 368 (112 832} 75 067 65 376 44 844

23. FINANCE COSTS

Interest on Interest beanng 3 344 1102 500 624 766 468 borrowmgs

24. TAXATION

Major components of the tax (income) expense

Currc>lll

Local 1ncome tax - current period (12) 57 452

Defem•d

Origmating and revers1ng (597) (439) temporary differences

Deferred tax (203)

(203} (597) (439)

(215} (540} 13

annual financial statements 129

Eastern Cape Development Corporatton

1111: 'If\ for CIJC' 1 eat r'nded {I \fore /1 ~'Ill 1

Notes to the Consolidated Annual Financial Statements

Figures in Rand thousand Group Company

2014 2013 2012 2014 2013 2012

Reconci/iorion n{ rh£> rax £>xpcnsl'

Reconciliation between accounting profit and tax expense

Accounting (loss) proftt 247 286 91 615 (165 430) 49 803 16 271 (49 756)

Tax at the applicable tax rate of (12) 116 455 28% (2013' 28%)(2012'28%)

To:>. ~tfen of adjulltn£'nrs on roxoble incoml!

Other temporary differences (203) (597) (439)

(215) (481) 16

25. CASH GENERATFD FROM (USED If\') OPERATfON5

Profit (loss) before taxation 247 286 91 615 (165 430) 49 803 16 271 (49 756)

Adjusrmems for:

Deprectatton of property, plant & 25 100 21 270 19015 2 377 2 435 2 131 equipment

Loss on sale of assets 344 1 639 330 1136 1 639 330

Loss on sale of property, plant & 4 3 5 4 3 5 equipment

Amortisation of intangible assets 2 256 2 064 2 208

Income from equity accounted (3 437) (2 948) (2 811) investments

Dividends recetved (81) (134) (55)

Interest income (33 059) (30 100) (41 721) (30 168) (28 304) (43 776)

Ftnance costs 3 344 1102 500 624 766 468

Fair value adJUStments (234 624) (70 368) 112 832 (75 067) (65 376) (44 844)

Impairments 53 238 99 832 (24 839) 42 793 93 706 (26 282)

Non-cash movement in finance 2 455 lease

Movements tn retirement benefit 978 210 4 312 978 210 4 312

assets and liabilities

Loans written off 994 117 153 994 117 153

Other investments wntten off 245 245

Changes in working capiro/:

Trade and other receivables (42 018) (42 717) (48 488) (29 536) (29 950) (24 150)

Trade and other payables 102060 (156 606) 37 343 69 696 (95 895) (13 276)

Deferred income 243 356 (75 340) 219 599 190 953 (68 551) 69 725

364 747 (159 484) 232 653 223 593 (172 052) (7 71 5)

130 anr11tal reporl .:ub 1

Eastern Cape Development Corporation ( Ill~ 11 <1 1 1)1 C..t I I l I(< /l I I I( II I I I I I

Notes to the Consolidated Annual Financial Statements

frgurr\ rn Rand thou~and

.!6. /;\\ (P/\JD) RF.FU:VDED

Balance at beg1nnmg of the year Closing balance

Charge to mcome statement Reversal of tax prov1s1on (exemption granted)

Prior year under·provislon

27. COM INC.. I- M /£$

.!0/.J

(371) (65)

(215)

273

(378)

Gmup

~013

(236)

432 (484) 381

93

J0/2

(144)

239 16

(1 073) (962)

.!0/.J

Cum porn

20/l

The Group has exposure to htigat1on of R9,8 million (2012:R 19.2 m1111onJ (2011.R 18.2 m1lhon) aga1nst1t.as tabulated below

Mauer\ undl'r r onsiderut1on:

I . Claim {or oulltondin<J l'mploy!'l' cron\fl'r co~c\ and short poymenr of pN(armunce bonU\1'5.

• Approximate potent•alliablhty: R1, 500, 000

Status of matter: summons were 1ssued against ECDC on 8 December 2010 eeoc Is ready for tnal and 1s awa111ng a tnal date to be allocated by the Registrar of the H1gh court.

2. Claim for nmcel/otionof ll'o\1' 171 Cape Roud Tru~l.

• Approximate potenualliablhty: R561, 088

Status of matter

2011

ECDC received summons on the 16th May 2013 ECDC w111 be defending the matter. This matter is set down for tnal on 3 June 2014

l Per(orman( e Bonu\ for employees

The ELIDZ entered mto performance· based contracts With employees 1n terms of whiCh performance bonuses may be paid out when the Board has approved the payment, normally after the aud1l results The performance bonuses liability IS est1mated at R7 766 313

28. COMMlTMFNTS

Authori\ed cap1tal e\pt>nditure

Alrl'ody concroued for b111 not proviclrd [or

• Purchase of shares • Balance on contract work already

in progress • Loans approved not yet disbursed

annual financial scatements

1 243 337 112

8 246

1 243

260 219

29 459

1 243 495 009

29 661

260 232

8 246

70774 103 923

29459 29661

131

132

Eastern Cape Development corporation

1 nlt'Pl'> fut tlw ~cw • '1 1' J 1 '\fun 1, _•o 14

Notes to the Consolidated Annual Financial Statements

Figures in Rand thousand Croup Company

2014 2013 2012 20N 2013 2012

Opt>rating leaSI'S- as lessee (exp('nse)

Minimum lease paymellls due

~ Within one year 6082 4 697 3 378 3 952 3 096 3 378 ~ In second to f1fth year mcluslve 11 838 14 470 4 952 10 894 12 554 4 952

17 920 19167 8 330 14 846 15 650 8 330

The m1n1mum lease payments above mclude rentals due for office equipment. The rental payments are considered to be 1mmatenal and therefore Management has classified the lease as an operating lease

Operating leases as les~or (uKome)

Mimmum lease paymems due

• within one year ~ in second to fifth year mclusive later than five years

29. RELAT£0 PARTIE!>

RelationshiPS Shareholder

Directors

61958

123 198

56 075

241 231

Key management and other senior managers

Related party balances

Subsidiaries and associates

48 561

158 275

23 670

230 506

32 901 32 392 18 503 7 067 77 547 36 259 98 789 113 946 26130 9 940 11 964 15 310

136 578 78 591 129 256 136 323

Department of EconomiC Development and Environmental Affa1rs and Tourism (DE DEAD

Refer to the Director's report Eastern cape Development Corporation

B. Diu lane (Executive Manager: Development Investments) M. Lindie (Chief Economist) N Ngewu (Executive: Corporate serv1ces) s. Sentwa (Chief Financial Officer) s. Mase (Chief Executive Officer)

East London Industrial Development zone (Proprietary) Lim1ted s. Kondlo (Chief EXecutive Officer) G. Matengamb1ri (Acting Chief Financial Officer) J. Burger (Executive Manager: Technical services) T. Gwintsa (Executive Manager: Investor services) T. zweni (Executive Manager. Business Development) A Magwentshu (Executive Manager: corporate services)

AI DC Development Centre Eastern Cape (Proprietary) Lim1ted J. Manila! (Chief Executive Officer)

Related party balances with subsidiaries and associates are disclosed in Note 6: Loans to I (from) subsidiaries and associates.

Oflllltaltepurt _(/J) /.J

Eastern Cape Development CorporatiOn ,, 1< '> , l I ~ I I ( ' ll ll

Notes to the Consolidated Annual Financial Statements

l lt/1er refuted pumes

The corporatron acQuires eQUity investments in certain entitles to wh1ch rt has advanced loan funds as secunty for these loans or as part of its rnvestment strategy Outstanding balances With these ent1ttes were as follows:

Related party

Border cop1ers Automotrve Industry Development Centre Eastern Cape Magwa Tea Enterprise (Propnetory> Ltd Bio Coal Manufacturers and DIStributors (Pty) Ltd 01g1tisation & Remanufactunng Jnstrtute of south Afnca (DRISA> Crossmed Health Care (Pty) Ltd Bushman Sands Development (Propnetory) Ltd Srngisi Forest Products Ndlambe Naturallndustnal Products (Propnetory) Ltd

RC'Iored party trunsaCIIOII<

Subsid1one< a11d a<SOCiatcs

Interest from subsidiaries Rent pa1d to subsrd1anes Management fees

lmere<t i i'Ceivrd from rl'lated pcmies

Border Copiers (Proprietary) Ltd Ndlambe Natural Industrial Products (Proprietary) Ltd

Op<'r<ltional 1'\j>enditun• paid an brhol/ of

Eastern Cape Information Technology Initiative

annual financial statements

Prt•[cn•ll< e ordmarv

<hares

100

30

22 48108

o20 952

50032

1 514 1 931 1 231

315 383

3 000

l oon Anummu/utt~l balann• impmrmr111

3807 761

2 000 4 920 4 920 4 351 218 3 750

3 503 22356

4 958 27 289 28 255

1 558 1 417 1 614 1820 1178 1157

636 480

338 536

2 921 1 783

133

134

Eastern Cape Development corporation 111('11[<; f(/1 fllC I CUI I lrJr d lf J\ far r /I 1( 14

Notes to the Consolidated Annual Financial Statements

30. 0/RI:.CTOR'SAND PRESCRJBED OFFICER'S EMOLUMENTS

Non-e.w.>cutive

2014 Director's fees Total 1000 1000

2013 Director's fees Total 803 803

2012 Director's fees Total 1 363 1 363

Compensalion to exewtil•e management

2014 Basic Salary Allowancl.'s Employer Torol

comribulion ro Funds

Mr S. Mase (CEO) 905 328 654 496 173 533 1 733 357 Mr s. sentwa (Chief Financial Officer) 848 967 365 845 120 916 1 335 728 Mr N. Dlulane (Executive Manager: Investments ana Funding) 835 391 416 919 160 535 1 412 845 Mr J cerff (Executive Manager: Infrastructure Development) 980 369 576 166 118 193 1 674 728

Mrs. N. Ngewu (Executive Manager: corporate services) 912 648 299 501 175 423 1 387 572

Mr. M. Lindi (Chief Economist) 705 293 465 778 148 378 1 319 449

Mr. G. Cowley (Executive Manager: Integrated Social 253 320 62 982 316 302 Infrastructure Programme) - started 01/12/2013

5 441 316 2 841 687 896 978 9 179 981

31. RISK MANAGEMEN1

lmroducrior1

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 1ts capab11it1es to ant1c1pate and prepare for changes rather than waiting for the change and reacting to it.

Enterprise R1sk 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 bus1ness 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 an acceptable risk profile.

onnt1al rcpmt ..!UJ ~ I

Eastern Cape Development Corporation ( II J~t'l Jfll( J ,111 fl!JJ [ 1 1iur1 1 II ,(1 I • •!( :l(

'' I ' '" I

Notes to the Consolidated Annual Financial Statements

R"k 4J1JINIII'

The board of dtrectors has approved a nsk appetrte and tolerance framework which forms the basts of the extent to whtch ECDC tolerates risks as described by performance Indicators. operational parameters and process controls to rncrease shareholders value R1sk tolerance levels ass1st management to make better tnformed business decisions, focus on risks that exceeds the risk appetite and to develop a culture where management 1s aware or the risks taken. The key nsks have been classtfied according to the f1ve broad risk categones namely: Strateg1c, Financ1al. OperatiOnal, compliance and Information Technology Governance

Rl\k \fcmaqt·mem O.•parrmrm

The risk department actiVely mon1tors and oversee key risks of the CorporatiOn The key roles and responsibilities of the un1t are to. 1 Play an acttve role in inStituting and promotmg a sustarnable and robust ERM process; 2 Developing corporate-wide monttoring. assurance and reportmg processes for risk management' 3 Regularly reporting to the Chtef Rtsk Officer, ExecutJVe Management and the Board Audrt and RISk Committee

and the Board on cnucaltssues Identified, on the progress in mltrgatrng the nsks and on any fundamental breaches of approved risk management policy gurdeltnes.

4 Assisting m refmtng the nsk appetite and a!igntng •t to the ECDC mandate corporate and operational targets; 5 Advrsrng Strategrc Busrness unrts on mrtrgating controls. processes and procedures; 6 Providing Independent investment analysis for all rnvestments proposals. formally and informally; 7 ConcentratiOn Identification and analysrs. and 8 Benchmarking of best practice risk management actiVIties and application the1eof, where applicable

5lrlll<'gic R"k

Strategic risks include the farlure of ECDC to fulfil on rts development role In terms of shareholders expectation. macro economic conditions. reputa!IOnal nsks and the avarlabllrty of cap1tal ECDC manages strategic rrsks by the annual rev•ew of the fiSk appetite and tolerance framework, establishtng whether risks should be accepted, mitJgated or avoided, prloritising risk tdentiflcatlon. evaluatmg the etflctency of nsk policres. procedures. practises and controls applied Within ECDC on a day-to-day basis and by determrmng and reviewmg of the maximum mandate levels for the vanous comm1ttees and staff who approve credit and assets liabrllty declsrons

rmonciol R~>k

Frnancral risks includes cred1t, interest and market nsk. These nsks try to m•nimise losses whiCh may result due to ECDC's own fundrng structure and as a result of rts external investment and frnancrng actrvities

Financial Ri\k: CrPdll Risk

Credit nsk •s the potential that a borrower or counter partY fa• Is to meet therr obligations as per agreed terms Credit fiSk Is inherent to the business of lending funds and rental collectrons and rs closely linked to market risk vanables. Credit risk 1s a dom•nant fiSk within ECDC as the providing of loans. equity capital and rental ac.commodatlon Is the core busrness of ECDC credit nsk consists of two components namely the quantity of risk measured as outstandrng accounts receivable balances at the date of default and the quality of risk measured as the seventy of loss defrned by both the probability of default as reduced by the recoveries that could be made in the event of default

ECDC's approach to credrt risk management IS to: 1 Establish exposure cerlings (limrtsl in certain categories of loans w1th10 a certarn amount range, 2 Perform due dilrgence and investment screenrng on all new loan and rental applications to establish if the

applications meets the basic crltena for funding I occupation: 3 operate a multi· tier credit approving authority based on the loan amount. 4 Test the use of a nsk rating model for small and med1um bus1nesses for lmplementatron during 2013, 5 Pnce loans according to the severity of perceived credrt risk; 6 Maxtmise portfolio management whrch emanates from the necess1ty to optimise benefrts assocrated w1th

diversification and to reduce the rmpact of concentrauon of exposures to a certain indiVidual. sector or rndustry 7 Provide a loan review mechanrsm to identify loans with credit weaknesses and determine the adequacy of loan

rmpairment provisions, adherence to lendrng policies and procedures and to propose m1t1gatron actions where weaknesses 1n systems and procedures have been established, and

8 Regularly repolt to management on the nsks identified.

annual financial scatemencs 135

136

Eastern Cape Development Corporation

'''' •II, fut !It(' )' ut crw, cJ 'I 11.1111 r It _Ill J

Notes to the Consolidated Annual Financial Statements

Financial: Mar~ct Risk

Market risk is defined as the possibility of loss to ECDC caused by the changes m market vanables of both on and off balance sheet pos1t10ns which w111 be adversely affected by movements in equity and interest rate markets.

Fmoncral: lflll'resl rotl' risk

Interest rate risk is the potential negative 1mpact on Net Interest Income and it refers to the vulnerability or ECDC's financial condition to the movement in rnterest 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 earn1ngs, Improve the capability and ability to absorb potential loss and to ensure the adequacy of the compensation received for the risk taken and effect nsk return trade-off. ECDC and the Group are exposed to interest rate nsk arising mamly from exposure to the Investment in Development Loans and Investment in surplus operational cash.

Li<1uidiry risk

lJQU1d1ty nsk IS defined as the risk of failure to meet all financial obligations on a timely baSIS, without incurring above normal costs. ThiS risks specifically anses from the 1nabihty to honour obligations w1th respect to commitments to borrowers, lenders and rnvestors and operational expend1ture. The ECDC Investment Poltcy 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 Executtve Management on a monthly basis.

OJieratiorwl Risk

operational nsks, though defined as any risk that Is not categorised as market or cred1t risk, is the risk of loss arising from inadequate or failed internal processes. people and systems or from external events. This definition includes legal nsk but excludes systemic and reputational risk. In order to mttigate the above, an operational nsk framework and risks reg1sters have been developed per busmess untt to ensure that operational risks are consistently and comprehensively identified. assessed. mitigated, conLrolled, monitored and reported by each Business Unit Manager.

Operational risk IS also m1t1gated through· • The performance of regular internal audits, • Busmess Continutty and dtsaster recovery plans which are be1ng managed through VMWARE virtualisation platform, • Recruitment policies; • Insurance through public liability and insurance of fixed assets; • commitment of employees to a code of conduct that encourages integnty, professionalism. accountability

and teamwork; and • Performing fraud awareness training and the availability of a fraud reportmg 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 ts core to ECDC's business. Technology governance is vital to stnking 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 nsk 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 by delivering value; managing performance; catering for security management. information management and business continuity management. This Charter is further strengthened by an Information security, Internet and E-mail Polley which governs all access to information. Disaster recovery has been identified as having the highest 1mpact on ECDC business operations and Is being managed.

11/II)Holf Ft'J)• 1r( _'IJ/ {

Eastern cape Development CorporatiOn ' t 11•\nl 1!(1(( c.J \rJ/Irlt~l TIt /null/ o, •I " 't (r,, r/1(' tJ I

II( I I l I I >I) I

Notes to the Consolidated Annual Financial Statements

~.! rJNAN( IAL A'>SI fS B}" ( j \ TH~OIH '

The accounting policies for rmanc1al1nstruments have been applied to the line items below:

Group - 2014

Loan~ and Fair ;·alar IJeld 10 A•'Oilable rl'tril'<ll>frs rlllrlllgh profit mururiry (or ~ale

or lo\\ - inve\lmenr\ tlesignult'd

Investments 2 417 8 954 23 500 Loans advanced 119 823 Trade and other receivables 54 443

Cash and cash equtvalents 606 486 174 266 608 903 8 954 23 500

Group- 2013 Loon\ and Fatr wlu~ flrld ro A•·ailable

recel'ubks rhrouglr pm/11 mururirr (or \ale or IO\\ • itlvt'\lllll'niS

drstgnutfd

Investments 2 383 9899 23 500 Loans advanced 116 146 Trade and other receivables 47 229 cash and cash equivalents 391 369

163 375 393 752 9 899 23 500

Group- 2012

Laall\ and l 'airvalue 1/eld ro Available rrteivables rhmugh pro~ I mawriry {or ~ale

or loss mwsrmenrs dr~ignawd

tnv• •stments 12 772 8 693 25000

Loans advanced 129 643

Trade and other recervable 77 351

cash and cash equ1va1ents 792 650

206 994 805 422 8 693 25 000

company 2014 Loam and FairvaluC' 1/eld ro Available

rC"ceivall/es rluuugh pro(u maruriry (or ~ale or IO\S im•e\tmenrs

dC"signarrd

Investments 8 954 23 500

Loans advanced 119 823

Trade and other receivables 19 632

Loans to group compan1es 23808

cash and cash equ1va1ents 470 407

163 263 470 407 8 954 23 500

annual financial statemencs

Curn,my amaum

34 871

119 823

54 443

606486

815 623

Carrying amoum

35 782 116 146

47 229

391 369 590 526

Carryim] amoum

46 465

129 643

77 351 792 650

1 046109

Carrying 0111011111

32 454

119 823

19 632

23 808

470 407

666124

137

Eastern cape Development corporation

Notes to the Consolidated Annual Financial Statements

Company- 2013

Loons and F01r value Held to Available Canying receivables through profit mowrity (or sale amaum

or lo.~s- investmencs designated

Investments 9 899 23 500 33 399 Loans advanced 115 657 115 657 Trade and other recetvables 15 568 15 568 Loans to group compames 20 904 20904 cash and cash eQuivalents 228 542 228 542

152 129 228 542 9 899 23 500 414 070

Company - 2012

Loans and Fair value Held to Available Carrying receivables chrovgh profit maw dry (or sole amoum

or loss · it1ve~rmems

dc>signated

Investments 11 129 8693 25000 44 822 Loans advanced 127 505 127 505 Trade and other rece1vables 46 229 46 229 Loans to group companies 28 121 28 121 cash and cash eQUIValents 359 116 359 116

201 855 370 245 8 693 25 000 605 793

33. FINANCIAL L/ABIL/T/£5 BY CATEGORY

The account1ng policies for consolidated annual financial instruments have been applied to the line items below:

Group - 2014 Financial Carrying

liabilities at amoum amortised

cost

Interest bearing borrowings 1 235 1 235

Trade and other payables 204 615 204 615

205 850 205 850

Group · 2013 Financial Carrying

liabilities at amount amorlised

COSl

Interest bearing bOrrowings 1 713 1 713

Trade and other payables 102 555 102 555

104 268 104 268

138 anrwal reporl.:Ul ~ 14

Eastern cape Development corporatiOn ( 0/I~OlttfutC'cf 'llrlwJflll'"ll(l>f <.;rJ(t/lU>(' f()> (/)( \( •r ,,t,,, I ~f.J, 1, .'(1/'

Notes to the Consolidated Annual Financial Statements

Group- 2012

Fimmctal Carrymg liabilitil•, ar amount

amormrd CO>I

Interest bearing borrow1ngs 5 309 5 309 Trade and other payables 259 158 259158

264 467 264 467

company - 2014

Financial Corrymg lwbiliti~' m amount

amor r~l'd COS/

Interest bearing borrowings 1 171 1171 Trade and other payables 140 134 140 134 Loans from group compan1es 40 617 40 617

181 922 181 922

company 2013 Finu11c10/ Carrying

liabilil>l'\ ar amounr omormed

COS I

Interest beanng borrowings 1 639 1 639 Trade and other payables 70438 70438

Loans from group compan1es 36 264 36 264

108 341 108 341

Company- 2012 Financial Carn.·mg

liabilities at amount omortisl'd

COSI

Interest bearing borrowings 2 831 2 831

Trade and other payables 166 332 166 332

Loans from group compames 38 928 38 928

208 091 208 091

annual financial statements 139

140

Eastern Cape Development Corporation ,. ,, ' ,, rn Til' /!1' tlu \tf/1 .·ntJ d ltl\1c•rtll_ll/ f

Notes to the Consolidated Annual Financial Statements

J-1. N£\V S1ANDARDS AND INTFRPR£TIITIONS

JrRs 9 Finantiallnstruml'ms

The IASB has Issued I FRS 9 Financial Instruments, which is the first step in Its project to replace lAS 39 Financial Instruments: Recognition and Measurement. In its entirety. The project has three main phases.

• Phase 1: Classification and measurement of financial instruments. • Phase II: Amortised cost and impairment of f1nanc1al assets; and • Phase 111: Hedge accounting.

I FRS 9, as currently issued. Includes requirements for the classification and measurement of flnanc1a1 assets and l1ab1litles derecognition requ~rements and additional disclosure requirements. The ma1n requirements mclude the following: • Financial assets are to be classified and measured based on the bus1ness model for managing the f1nanc1a1

asset and the cash flow characteristics of the financial asset There are two measurement approaches, namely fa1r value and amortised cost. The financial asset 1s carried at amortised cost if it is the business model of the ent1ty to 11old that asset for the purpose of collecting contractual cash flows and 1f those cash flows compnse 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 1f such a designatiOn reduces an accounting m1smatch.

• The classification and measurement of financial liabilities include requirements Similar to those contamed m the ex1st1ng standard lAS 39 Fmanciallnstruments: Recognition and Measurement.

• For financial liabilities des1gnated as at fa1r value through profit or loss. a further reQuirement 1s that all changes in the fair value of flnancialliabllities attributable to credit risk be transferred to other comprehensive Income w1th no recycling through prof1t or loss on disposal.

• The requirements for derecognition are similar to those contained m the existing standard lAS 39 Financial Instruments: Recognition and Measurement. with certain additional disclosure requirements. Management does not anttc1pate 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 I FRS 9, with the requirements for the classification and measurement of financ1al assets havmg been released m 2009 and the reQuirements for the classification and measurement of flnanclalliabllities and derecognition having been released in 2010. Accordingly, the requirements released in 2010 cannot be early-adopted without the simultaneous adoption of the 2009 requirements. However. the requirements released m 2009 may be separately early adopted. The lASB mtends 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 Group has not adopted the requirements of I FRS 9 released in 2009

Revised scandarcls

The following amendments were made to this standard during the year:

/FRS 7 Financiallnscrumenc~: disclosure~

• Clarification of certain qualitative and quantitative disclosures relating to the nature and extent of nsks. The amendment is effective 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 w111 therefore not affect the financial position of the Group.

IFRSJ Business combinations

The amendment clarifies the measurement of non-controlling interests and prov1des additional guidance on unreplaced and voluntarily replaced share-based payment awards. The amendment is effective for the year commencing 1 April 2011 and is not applicable to the Group.

ci/1/1/Jit/l!'por/ '(1/ 1 4

Eastern Cape Development Corporation I ,/ I ' \ I' I r/ I rl 1 ,p \ILrt r Ill {• 1 rl, r, r,' , \lrr I I J

Notes to the Consolidated Annual Financial Statements

14..~ I~ lncnmt· ru.\r'

The amendment provides a pracucal approach for measuring deferred tax liabilities and deferred tax assP.ts when Investment property IS measured us1ng the fa1r-va1ue model in lAS 40 Investment property The amendment ts effectiVe for the Group for the year commenctng on or after 1 Aprtl 2012 and is not expected to have a s1gn1ficant impact on the Group as the holdtng company is exempt from Income ta)(

The amendment prov1des exemptions from certam disclosure reqUirements 111 respect of government-related ent1t1es and clanftes the definitiOn of a related party, The amendment IS effective for tile Group for the year commenc1ng 1 April 201 1. Th1s amendment addresses disclosure In the annual f1nanc1al statements and will therefore not affect the financial position of the Group. Furthermore. the rev1sions to the dtsclosures are not expected to have a signtftcant effect on the Group.

/r\5 :l.:! (.la!>~t/ll urion a{ riqh" rssur\ ' Mued in October 2009

The amendment applies to annual periods begmn1ng on or after 1 February 2010. Earlier apphcatton is permitted The amendment addresses the accounting for rights 1ssues t11at are denom1nated 1n a currency other than the funcuonal currency of the 1ssuer Provided certa1n conditiOns are met, such nghts 1ssues are now classified as eqUity regardless of the currency 1n wh1ch the exerc1se pnce 1s denommated Previously, these issues had to be accounted for as denvauve liabilities. The amendment appltes retrospectively 111 accordance With lAS 8 Accounting po1tc1es. changes 111 accounttng est1mates and errors The amended standard IS not applicable to the Group.

As part or 1ts third annual improvement prOJect the IASB has issued its 2010 edition of annualtmprovements. The annual improvement project a1ms to clanfy and 1m prove the accountmg standards The improvements tnclude those involving termtnology or editorial changes, With minimal effect on recognition and measurement. There are no S1gn1flcant changes in the 1mprovement that will affect the Group.

lmcrp~t•tarions

The followmg lnterpretatrons of ex1sling stdndards are not yet elfectllle and have not been early-adopted by the Group.

IFRIC I 'I E>rringuillting {rfllmcialliabilttics 1virh r<luir_v inwument\

The interpretation addresses divergent accounttng by entities ISSuing equ1ty instruments to ext1ngu1sh all or part of a financial liability {often referred to as 'debt for equity swaps'). The Interpretation concludes that the issue of equ1ty Instruments to extmgUtsh an obligation constitutes cons1derauon pard. The consideratiOn should be measured at the fair value of the eqUity Instruments 1ssued, unless that fa1r value IS not readily determinable. tn whiCh case the equity Instruments should be measured at the fair value of the obligation extmguished. Any difference between the fair value of the equ1ty Instruments 1ssued and the carrymg value of the 11ab1hty extmguished IS recognised tn profit or loss. If the issue of equ1ty 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 This standard Is however not applicable to the ECDC Group

IF RIC 14 Prepavmen(S of a minimum funding rcqurremenr.

The amendments correct an unmtended consequence of IF RIC 14, 'lAS 19- The limit on a defined benefit asset, minimum funding requirements and their interaclJOn' Without the amendments. entities are not permitted to recogntse as an asset some voluntary prepayments for mm1mum fundmg contnbutions. Th1s was not intended when IFRIC 14 was issued. and the amendments correct thiS. The amendments are effective for annual penods beginnrng 1 January 2011 Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative penod presented.Thls standard is however not applicable to the ECDC Group

annual {inanciol statemems 141

142

Eastern Cape Development corporatton

Notes to the Consolidated Annual Financial Statements

.Stontlarcls and imerprc>toriorrs acluprecl intire mrrem yem

Revisr?d standards

The following revisions to I FRS have been adopted by the Group as their application has become mandatory for the reporting period:

Amc>ndmmrs co I FRS 2 group-seuleJ arrangemenrs

The amendment provides additional gutdance on the accounting for share-based payment transactions among Group entities. The most significant change ts that the entity recetving the goods or services wtll recognise the transaction as an equity-settled share-based payment transaction only if the awards granted are tts own equity tnstruments or if it has no obligation to settle the transaction. In all other circumstances the entity will measure the transactton as a cash-settled share-based payment. The scope of I FRS 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 recetved under the sllare-based payment transaction can be mdividually identtfied. The adoption of the amendments to the standard did not have an effect on the Group's consolidated annual financral statements as the Group ts 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 spectfies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or disconttnued operations. It also clarifies that the general reqUirement of lAS 1 still apply, in particular paragraph 1 s (to achieve a fatr presentation) and paragraph 125 (sources of estimatton uncertatnty) of lAS 1.

lAS J (amendmem). 'Presenwtion of ~nancia/ statements '.

The amendment clarifies that the potentral settlement of a liability by the issue of equity is not relevant to tts classification as current or non-current By amending the defini tion of current liability, the amendment permits a liability to be classified as non-current (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 ttme.

lAS 36 (amendmenl), '/mpairmenl of assets', effective 1 January 2010.

The amendment clarif1es that the largest cash-generating unit (or group of untts) to which goodwill should be allocated for the purposes of impatrment testing is an operating segment. as defined by paragraph 5 of IFRS s. 'Operating segments' (that is, before the aggregation of segments with simtlar economic characteristics)

lnwrprerarions

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

IF RIC 17, 'Distributton 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 lor arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. I FRS 5 has also been amended to require that assets are classified as held lor distribution only when they are available for distribution in their present condition and the distribution is highly probable.

0/IIIIWIII!/)Ort _'UI :l I.J

Eastern Cape Development Corporation \rli1L' I f I I It \r1 1 1 • r1 /II I I' If J '· /J

Notes to the Consolidated Annual Financial Statements

IF-RIC Ill, 'Tramfers of O\><'IS from cu>wmer.',

Effective for transfer of assets received on or after 1 July 2009 ThiS Interpretation clanfles the reqUirements or IFRSs for agreements in wh1ch an ent1ty rece1ves from a customer an 1tem of property, plant and equ1pment that the ent1ty must then use e1thcr to connect the customer to a network or to provide the customer With ongotng access to a supply of goods or services (such as a supply of electncity. gas or water) 1n some cases. the entity rece1ves cash from a customer that must be used only to acqu1re or construct the item of property. plant, and equipment m order to connect the customer to a network or provide the customer with ong01ng access to a supply of goods or services (or to do both). The adoption of th1s Interpretation IS not applicable to the Group.

IF RIC '1. 'Rea,>essmc•IJI a{ emht•ddrd duil'utn·('~ and f.\<; 39, Fmunt ialln~lruml'nt~ : Rt•coqnlllon and meu~ut<'mrnt •, •·lfecril'r I Julr ]009.

Th1s amendment to IF RIC 9 requ1res an ent1ty to assess whether an embedded denvat1ve should be separated from a host contract when the entity reclass1f1es a hybrid fmanc1a1 asset out of the 'lair value through profit or loss' category This assessment IS to be made based on circumstances that existed on the later or the date the ent1ty 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 rema1n classified as at 1a1r value through prof1t or loss in its entirety The adoption or th1s Interpretation is not applicable to the Group

IFR/( IIi, 'Hedcws of u nrc inq•,tmt'fll rn u jor,•rqn oprrurwn 'r/11'< fill! I Ju{v .?nil'!.

This amendment states that. in a hedge of a net mvestment in a foreign operation, quallfymg hedgmg mstruments may be held by any entity or ent1t1es Within the Group, mcludmg the fore1gn operation itself, as long as the designation, documentatiOn and effectiveness requirements of lAS 39 that relate to a net investment hedge are satiSfied. In particular. the group should clearly document 1ts hedg1ng strategy because of the poss11J1hty of different designatiOns at different levels of the group lAS 38 (amendment), 'Intangible assets'. effect1ve 1 January 2010. The amendment clarifies gUidance in measuring the fair value of an Intangible asset acquired in a bus1ness combination and permits the groupmg o11ntang1ble assets as a s1ngle asset 1f each asset has Similar useful econom1c liVes This standard is however not applicable to the ECDC Group.

annual financial statements 143

144

Eastern Cape Development Corporation

" mtt't~ (o• Ill< ~ca, endrd ~~ l'vtarrl, .'0/.f

Notes to the Consolidated Annual Financial Statements

35. OTHER COMPREHENSIVE INCOME

Componen1s of other comprehensive income • Group - 2014

Movements on revaluation

Closing balance

Components of orher comprehensive income . Group. 2013

Available-for-sale (lnancial assers adjustments

Closing balance Opening balance

Components of orher comprehensive income- Company- 2013

Available-for-sale (rnancial assets adjustments

Closing balance opening balance

Available-for-sale financial assets adjuscmenrs

Closing balance Opening balance

36. FRUITLESS AND WASTEFUL EXPENDITURE

Fruitless and wasteful expenditure

2014

Balance

9 753

22 673 (24 173) (1 500)

22 680 (24 180) (1 500)

24180 (24 180)

2014 2013

624 283 624 283

The company incurred interest and penalties to SARS totalling R624. The penalties and interest were as a result of VAT adjustments that were processed in the general ledger after the initial submission of VAT returns.

2013

The company tncurred charges of interest and penalties to SARS income taxes amounting to R11 and R42 respectively. The company also incurred penalties and interest in respect of VAT during the 2013 financial year totalling R230.

amwol repm t ..!0 13 14

Eastern Cape Development Corporation

" tu 1 \1 1 ul I 1 r ,, '-1.,1 •r tl I +

Notes to the Consolidated Annual Financial Statements

~ 7 IRRFC.uLAR HPLNDITt 'Rr

The Eastern Cape Development Corporatron (ECDC) rncurred irregular expendrture totalling R44.884 due to non­compliance with the Supply Charn Management Polley (SCM) and the PFMA. Thrs expendrture has been recorded rn the relevant expenditure accounts and has been condoned by the Board Also. salary increases totalling R2,111 million paid was not approved by the Board and has not been condoned The ELIDZ rncurred rrregular expendrture totalmg to R5 995 (2013 R4 273) due to non·compllance w1t11 SCM pohcres. the PFMA and Treasury Regulation Thrs expendrture has been paid and recorded on their relevant expenditure accounts The expendrture not condoned rs strll to be nvestrgated to determine whether 1t constitutes an rrregular expendrture to be recovered from responsrble officials

Openrng balance current year Irregular expenditure Condoned by the Board

18. PRIOR PFRIOD l:.RRO~

2014

4 273 52 990

(55 152)

2013

4 273

2012 2014

46 995 (44 884)

2013 2012

The financ1a1 statements have been prepared rn accordance with the soutn Alncan Statementr. or Generally Accepted Accountrng Practice on a basrs consistent wrth the prior year Where adJUstments were done rn t11e current annual financial statements. management considered the rmpact on the openrng balances or the earliest comparattve ligures and these were adJuSted accordingly EL IDZ did not prepare consolidated financral statements since the sole subsidrary, Monti tndustrral Development zone (Pty) Ltd. has been dereg1stered tn the 2014 frnancrat year However '.he deconsolldat1on has been done retrospectrvely The aggregate effect of the pnor penod adjustment on the financ1al statementS for the year ended 31 March 2014 relating to the East London IDZ are as follows:

Adju!>lnlt'niS 10 drsdo~un• not('\

The financral statementS nave been prepared in accordance wrth SA GAAP on a basrs consistent With the pnor year where adjustments were done rn the current annual financral statements. management considered the impact on the opening balances of the earliest comparative figures and these were adJusted accordingly The aggregate effect of the pnor penod adJUStment on the financral statements for the year ended 31 March 2014 rs as follows: Employee benefits Orsclosure of contributtons to defined contnbutton plans totaling R5 141 hds been made and Included rn employee costs drsclosed in note 19. Bad debts: DISClosure of bad debts written off totaling R246 has now been made rn note 19 Related partres·. AdJUStments to amounts reflected for Buffalo City Munrcrpality- water expense (R4) and Buffalo City Municipality- rates and taxes (R1 816). cash flow statement An error tn the classrficatron. calculation and drsclosure of the movement In other financial assets of R423 has been corrected In the statement of cash flows. commrtments · Authorised capital expendrture The total value of caprtal commitments disclosed 1n the pnor year was overstated by R50 386. The error has been corrected retrospectively under disclosure note 30. Frurtless & wasteful expenditure DISClosure of certain SARS penalties and Interest incurred totalrng R53 and penaltres and rnterest 1n respect of VAT totalling R230 nas now been drsclosed under note 36.

annual financial statements 145

146

Eastern Cape Development CorporatiOn

'I • \ I llu f II ltJ1 1111 I)( r 11,, ,( c•• n I• tl "'1 \ ICrlt /J I .J

Notes to the Consolidated Annual Financial Statements

Comnwmt•nr' - Of'<'Hlllng leuo;e O\ Lcssor(incume). Note 30. :

Dunng tne recalcuratiOil of the operating lease payments due from the lessees as at 31 March 2014, 1t was noted that t11e pnor year OISclosure of m1mmum lease payments due from the lessee per 31 March 2013 annual report was not correct. The error was corrected retrospectively ano the prior year diSClosure wa5 appropriately restated as follows.

\lmimum lrasr pd\'llll'lll' due

NO later than one year tater than one year and not later than five years

• L<tte1 than 5 years

ll hlar. h t\djusrment 31 March .?013 Annue1/ 2013 Resta!l'd

llt•pw·r

30 019

58 976 11 316

39 510 390

30058 SQ 486 11 706

Irregular expenditure: Disclosure or wregular expenditure was om1tted 1n the pnor year The error has been corrected retrospectively per the disclosure in note 37

Irregular expenditure for the year 4 273

/11\'('S!nH'Ill\ PHIJ)('fl)

The mcorrect rental rates and square metres were used when valUing Income-generating Investments properties m prror year ThiS error has been corrected retrospectively and comparative f1gures have been appropnately restated. The effect of the error on the 2013 financial results 1s an increase in Investment by R2 338.

A plant that was under construction was capitalised as Investment property mstead ol benlg class1f1ed as property, plant and cqutpment. This error has been corrected retrospecttvely and comparatiVe frgures have been appropriately restated. The ellect of the error on the 2013 financ1al results is a decrease 1n Investment properties by 13 200

A p1ece ol owner-occupied land with a fa1r value of R67 000 was mcorrectly classified as Investment property. This error has been corrected retrospectively and comparative figures have been appropnately restated.

Proprrrv. Plaru and fquipml'nt.

Reclass111cat10n to tntangible assets- (2 251 680) (4 361 484)

Adjustments have been made for; (a) reclassification of R1 from Investment property to owner-occupied land and reclasstficatlon from property, plant and equipment to Intangible assets. (b) errors Is the calculation of the depreciation. (C) assets that were d1sposeCI off or written off but which depreclatton continued to be charged. The effect of the adjustment (b) and (c) were an increase in property, plant and equtpment R68 ln 2014 (d) Computer software that was Incorrectly classified as property. plant and equipment mstead of intangible assets.

The lAS 39 adjustment has been recalculated after the changes m the pnor year balances. The effect or the adJuStment is the decrease in financial assets by R3. The error has been corrected retrospectively and comparative ligures have been appropriately restated.

n 'RRI::N1 ASSL TS

Jrudt> und orhcr rl't·l'i••abiPS

2013 Adjustments that relate to mvo1ces that were disputed with tenants 1n the prior years have been made. The recervables balance was reduced to be in line w1th amounts that are not disputed The adjustments resulted m a R680 decrease in receivables.

AdJUStment of R1 906 rncrease to receiVables is due to lease smoothing calculatton error that was done in the prior year.

2012 R10 630 decrease in receivables relates to invoices that should have been reversed 1n the pnor years as they were Incorrectly debited to the debtors account. Value Added Tax (VAD was overclarmed in the pnor years; SARS deducted the overclaim on the VAT receivable balance in 2013 financ1al year. ELIDZ did not update the financial records with an amount ol R4 oao 790 that was deducted by SARS from a refund that the organisation was supporse to get. The errors have been corrected retrospectively and comparative ligures have been appropriately restated.

c1/lfll•fJI tl'pOI I '(Jl f

Eastern Cape Development Corpora! ron I ld fl/t/ 1, J \lol I'U/ I Ill• I' <1/ 'o't 1 P I /,/11 1/lt ~ tl 1 I 'l ! •II

Notes to the Consolidated AnnuaL Financial Statements

.\Of\ CURRf .. 'I,TLI-\HIUI/C<;

D1•/ared imume

In 2013 deferred income was undertaken by an over release of statement of comprehensive rncome of R11 947. The error was corcrcted retrospectively and comparative figures have been approproately restated.

Deferred Income was overstated by an under release to statement of comprehensive mcome of R3 508 rn 2012. The error was corrected retrospectively and comparative frgures have been appropnately restated.

AdJuStment has been made to deferred Income that was uuhsed in the pnor years but was not released to tncome statement Thrs error has been corrected retrospectrvely and comparat1ve figures have been appropnately restated. The effect of the adjustment was an rncrease rn retarned rncome by R87 828 AdJUStment has been made to deferred 1ncome that was over released to Income •n 2012. Th1s error has been corrected retrospectrvely and comparatrve frgures have been appropriately restated. The effect of the adjustment was an decrease in retarned Income by R13 108

Trudr am/ mlirr po\•uble~

Creditors were omitted from the credrtors hstrng tn the prior year The error has bt• •r corrected by rncludrng the omitted credrtors rn the hstrng and correcttng credttors balances retrospectrvely wrth an rncrease of R799 The comparatrve figures have been appropriately restated. In 2012 an error was due to overstatement or the creditors balance by R171 for an rnvoice that was drsputed and was rncluded as payable but never pa1d The error has been corrected retrospectively and comparative figure has been restated

Provo$ ions

Retentions that were paid were still reflected as provisions at the end of prior year rn error. The error has been corrected retrospectrvely and comparatives frgures have been appropnately restated. The effect of correctong the error is the decrease rn provision by R 1 624

Ta., Llabllirv

Tax was incorrectly calculated 1n the 2012 financial year. The error has been corrected retrospectively and comparatove figures have been appropnatcly restated. The effect of the correction of the error is the decrease of the tax liabrllty by R602.

RH£'\'UI

Rt'ntal l ncoml'

<a> As a result of the correction of the error 1n the rental smoothing calculation, rental revenue has been mcreased by R1 405. (bl Rental revenue has been increased by reclass1ficat1on adjustment of R4 wh1ch was classified as revenue from rendenng of servrces rn error rnstead of rental revenue

The errors have been corrected retrospectively and comparatiVe figure has been appropnatety restated

Rendering CJ{ ~erv1ct•

(a) Credit notes have been raised of R23 for the invoices relating to revenue from rendering of servtces that were disputed m the prior year (b) The error was as a result of the change 111 the trme value of money for revenue that was recalculated based on the restated amount of R242. (c) Revenue from rendering of servrces has been decreased by a reclassificatiOn adjustment of R4 which should be classified as rental revenue The errors have been corrected retrospectively and comparatiVe figure has been appropnately restated.

COST OF SALES

An error was noted relating to an rnvo1ce that was processed tw1ce in the prior year and reversed. The prior period error has been corrected retrospectrvely and comparative figures have been appropriately restated

annual financial statements 147

148

Eastern Cape Development Corporation n · ·rrtellh fn llw \tar ended{} \lnrr·fl 11114

Notes to the Consolidated Annual Financial Statements

OTHER INCOME

The adjustment of R77 070 relates to the following: • Incorrect calculatiOn or the deferred income amortisation release m the prior year for an amount of R76 790

which was not released to statement of comprehensive income; • The understatement of IAS39 adjustment of R130; • An adJUStment of grant release relating to mvestment properties on the statement of comprehensive mcome by

R72;and • An error 1n accounting for property. plant and equ1pment resulting in the understatement of profit on disposal by

R221 An amount of R1 420 was mcorrectly classified as ot11er income instead of operating expenditure. The errors have been corrected retrospectively and comparative figure has been appropriately restated.

OPERATING EXPENSES

The adjustment has been made to invoices that were omitted m the pnor year expenditure for the serv1ce that we have rece1ved before year end. An amount of R1 420 was mcorrectly classified as other Income instead of operating expenditure. The errors have been corrected retrospectively and comparative figure has been appropriately restated.

/AIR VALUEADJUSIMENT

The incorrect rental rates and square metres were used when valuing income generating Investment properties in prior year. This error has been corrected retrospectively and comparative figures have been appropriately restated. The effect of the error on the 2013 financral results is an increase m Investment properties by R2 338.

FINANCE COST

The adjustment was to correct the error in the calculation of the time value of money in the pnor year. This error has been corrected retrospectively and comparative figures have been appropriately restated.

TAX EXPENSE

EUDZ incorrectly adjusted a 2012 tax calculation error in 2013 prospectively instead of retrospectively. We have corrected the error retrospectively and comparative figures have been restated appropriately.

INTEREST RECENED

R1 025 relatrng to an IAS39 adjustment was mcorrectly classified as other income instead of being classified as finance Income, and EUDZ ommitted to charge interest of R589 from an outstanding amount from a debtor The error has been corrected retrospectively and comparative figures have been restated appropriately.

INTANGIBLE ASSETS

As a result of incorrect calculation of amortisation, the net book value of intangible assets was overstated by R273 rn 2012 financial year. IT equipment and computer software was combined as an item of property, plant and equipment. Only IT equipment should be an 1tem of property, plant and equipment and computer software should be an item of intangible assets. A reclassification adjustment was performed to move the balances of computer software to intangible assets. The error has been corrected retrospectively and comparative figures have been restated.

PRJOR PERTOD ADJUSTMENTS: £CDC

The aggregate effect of the prior period adjustment on the financial statements for the year ended 31 March 2014 relating to the Eastern Cape Development Corporation are as follows:

Cash {low staremenr disclosure:

cash generated from (used in) operations

An error in the calculation and disclosure of the movement in deferred income of R35 402 has been corrected.

Other errors identified in the cash flow have been corrected. These errors had no impact on the balances In the statement or position and total cash movement for the year.

DEFERRED INCOME

The deferred Income in 2013 was overstated by R35 402 which should have been recognised as government subsidy income. The government subsidy income for 2013 was understated and has been restated by R35 402.

Ullllll<tl I I'{JOI t .!U I ~ I~

Eastern Cape Development Corporatron

( < •11\r •f'lllr'l' I '\1111 IJ/ f llll/rlt 1 1/ ~I"! •Ill ; 11\ fr>r t/1 1 '< I J '.(I ')II

Notes to the Consolidated Annual Financial Statements

IV\ f '>T\ff ''IT PROPf RTf£'>

Investment properties were overstated by R150 000 in the prior year This error has been corrected retrospectively and comparative f1gures have been restated

f j\IR \:.\LUI' ADJU.\TM£.'>1'>

The fa1r value adJUStments were overstated by R150 ooo 1n the prior year This error has been corrected retrospectively and comparative f1gures have been restated

fl TTCT Of AOJU.'>l MENl'> IOAU OUNI' RALANC'l ~ 4RE 1!\RUI \If D BEl 011;

2 013 2 012 2 013

Property. plant and eQUipment 13 687 (68)

Reta1ned 1ncome/ loss (799) 171 Retained income/loss 102 427 (13 327) (35 252)

Trade and other rece1vables 1 226 (4 091)

Investment properties (10 8611 PrOVISiOnS 1 624 Taxation liability 602 Deferred 1ncome non-current (11 947) 3 508 Deferred 1ncome - current 87 828 22 293 35 402 Rental revenue 1405

Rendering of serv1ces • revenue (265) Government subs1dy 35 402 (35402) 35402 Computer software (273)

Investment properties (150}

F1nance costs (158}

Fa1r value adjustments 2 338 150 150

Income tax expense (602}

Interest rece1ved (589)

39. IVT\IIiCTBtE ASSETS

Group 2014 2013

Cost -\ccumulaled Carryrng Cost Accumulated Valuation amorli~ation value Valuation amonismion

Computer software, Internally 3 579 (289) 3 290 2 563 (136} generated

Group 2012

Cosr / -\ccumulaled \'i:lluauon amorti\ation

Computer software, Internally 4 511 (74) generated

annt~al {i11ancial scatements

2 012

Corry1119 valuC'

2 427

Carryrng value

4437 .

149

150

Eastern cape Development Corporation

nl''lll'- 1 r tile 1 or end( d I \1nrc 11 '0 I t

Notes to the Consolidated Annual Financial Statements

l?econciliation of intangible assecs • Group- 2014

Opening Addie ions Disposals Amorcisacion Total balance and

impoirmenc

computer software. Internally 2 427 3132 (13) (2 256) 3 290 generated

Reconciliocion of intangible assecs • Group · 2013

Opening Addie ion~ Dispo~als Amorcisorion Thea/ balance and

impoirmenc

computer software. Internally 4 437 326 (5) (2 331) 2 427 generated

Rec:onciliacion o( intangible assecs- Group- 2012

Opening Addicions Transfers Amorrisacion Total balance

Computer software. Internally 17 85 4 361 (26) 4 437 generated

40. NON-CURRENT ASSETS HELD FOR SALE

The Corporation has committed to dispose of certain mvestment properties. some of the non-current assets held for sale have been pa1d for in full and therefore mcluded in trade and other payables. The disposal, which meets the crietria m paragraphs 7 and 8 of IFRS 5 to be classified as held for sale, takes the form of two disposal groups, as set out below.

Disposal groups

cash received but not yet transferred Deed of sale signed but no cash received yet

Assecs and liabilicies

Non-currenc assecs held {or sale

Investment property 14 095 16479 11192 14 095 16 479 -----

Carrying amounc a{cer classi(icacion

as held for sale

498

13 597

14 095

11192

unmwl u:por l .!0 1 ~ /..J

HEAD OFFICE

ECDCHouse Ocean Terrace Park, Moore Srreet

Quigney, East London PO Box 11197. Sowllernwood, 5213

ret: +27 (OJ 43 704 5600 · Fax: +27 (0) 43 704 5700

REGIONAL OFFICES

MTHATilA 7 Sisson Srtl'et, Fort Gale

Private Bag X5028, Mthatha, 5099 Tel: +27 (0) 47 501 2200 • Fax: +27 (0) 47 532 3548

PORT ELIZABETH 68 Cape Road, Mill Park

PO Box 1331, Port Elizabeth, 6000 fel: +27 (0) 41373 8260 • Fax: +27 (0) 41 374 4447

QUEENSTOWN 22 Cathcarr Road

Privare Bag X7180, Queenstown, 5320 rei: +27 (0) 45 8381910 · Fax: +27 (0) 45 839 3014

SATELLITE OFFICES

ALIWAL NORTH 98 Somerset Srreer

P 0 Box .198, Aliwal Norrh, 9750 Tel: +27 (0) 51 633 3007

BUTTERWORTH 24 High Streer

PO Box 117, Burterworrh, 4960 Tel: +27 (0) 47 401 2700 • Fax: +27 (0) 47 491 0443

KING WILLIAM'S TOII'N 75 Alexander Road

PO Box 498, King Williams Town, 5600 Tel: +27 (0) 43 604 8800 • Fax: +27 (0) 43 642 4199

MOUNT AYLIFF SEDA Building

Nolangeni Street, Mounr Aylif{. 4735 fe/: +27 (0) 39 254 6501 • Fax: +27 (0) 39 254 0599

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ECONOMIC I

www.ecdc.co.za