DIRECTORS’ REPORT

INTRODUCTION

The Industrial Development Corporation of South Africa Limited (IDC) was established in 1940 by the Industrial Development Corporation Act, No 22 of 1940. It is a registered public corporation and a Schedule 2 listed entity in terms of the Public Finance Management Act (PFMA), No 1 of 1999, and the related Treasury regulations. This report is presented in accordance with the provisions of the prescribed legislation and addresses the performance of the IDC, as well as relevant statutory information requirements. The Board of Directors is the Accounting Authority as prescribed in the PFMA.

NATURE OF BUSINESS

The IDC is a State-owned development finance institution that provides financing to entrepreneurs engaged in competitive industries, follows normal Company policies and procedures in its operations, pays income tax at corporate rates, and, subject to performance, pays dividends to its shareholder.

The IDC’s vision is to be the primary driving force of commercially sustainable industrial development and innovation for the benefit of South Africa and the rest of Africa. Its objective is to lead industrial capacity development.

As part of its industry development activities, the IDC has equity interests in several companies operating in other industries throughout the economy. Although we aim to keep our shareholding in these companies to levels below 50%, we do in some instances gain control of these businesses for various reasons. Details of trading subsidiaries and joint ventures are set out in the notes to the financial statement on pages 58 to 64.

PERFORMANCE MANAGEMENT

The IDC’s performance indicators reflect the Corporation’s goals as set out earlier in the Integrated Report. Measures related to our key objective of industrial capacity development are complemented with other indicators that measure our development impact, financial sustainability and efficiency, stakeholder relations, as well as the performance of important subsidiaries.

Our primary performance evaluation focus is on our financing activities. The performance measurement system ensures that the IDC remains aligned with its mandated objectives. We review performance indicators annually to account for changes in our external and internal environments and ensure that long-term objectives will be achieved. Performance indicators and targets form part of our annual Corporate Plan and are approved by the shareholder representative prior to the start of a financial year. Targets may also be reviewed mid-year to take into account performance achievement in the previous year and potential changes in the environment.

Performance targets are set at “base”, and “target” levels. The “base” defines levels of acceptable performance and the “target” levels of exceptional performance. Performance targets are set at corporate, team and individual levels and performance-linked remuneration is based on the achievement of such targets.

Performance against indicators is measured and reported on regularly to the IDC’s Executive and the Board. Regular activity reports and management accounts ensure that target deviations can be detected and, if necessary, corrected.

PERFORMANCE INDICATORS

The IDC adopted a balanced approach to performance measuring and adapted the principles of the balanced scorecard to support its own objectives and operations. We measure indicators in the following five areas:

  • Development impact
  • Financial sustainability and efficiency
  • People
  • Stakeholders
  • Subsidiaries.

The performance measurement process and outcomes are audited by external auditors to ensure that targets are achieved accordingly and that the overall performance is a fair reflection of the Corporation’s activities during the period. Detailed performance against predetermined indicators for both short- and long-term targets are shown on pages 18 to 19.

PERFORMANCE OVERVIEW

On most fronts, the IDC’s performance improved compared to 2016. The value of funding approvals increased to R15.3 billion, 5.7% higher than the previous high reached in 2016. This amount excludes R922 million that was approved from off-balance sheet funds (funds managed on behalf of third parties). Levels of disbursements remained flat, with R11.0 billion disbursed in the period compared to R11.4 billion in 2016. This should be seen in relation to a downward trend in the level of fixed investment in the manufacturing sector as a whole which was experienced during the year. Disbursements of R525 million from off-balance sheet funds are not included in this total.

The bulk of funding approved in 2017 was for projects and start-ups (46% of total), with capacity expansions making up the second highest category (29%). Smaller amounts went to funding for distressed businesses (13%), ownership changes (10%) and expansionary acquisitions (2%).

Good performance was recorded on all remaining development indicators. The number of jobs expected to be created from IDC’s funding approvals during the year increased by 53.9% to 18 206 while the number of jobs expected to be saved was 2 675. The total number of jobs expected to be created and saved in transactions approved during the year increased by 36.7% to 20 881, the highest number recorded in the last three years. Improved jobs numbers also resulted in the cost-per-job for funds approved decreasing from the previous year.

Information gathered from clients show that employment at the IDC’s clients1 decreased by 0.2% over the year, with more than 150 000 people employed by those clients. If the indirect impact of these jobs are included, the total impact that the IDC’s clients have on employment increased by 1.7%, slightly lower than the growth in non-government formal employment over the last year.

Significant impact was made this year on the value of funding approved for Black Industrialists (63% increase to R4.7 billion), black-empowered companies (increase of 104% to R10.1 billion), women-empowered and youth-empowered businesses (increases of 178%, and 142%, reaching R3.2 billion and R2.3 billion respectively).

1. Employees at South African clients (excluding mature companies such as Sasol, Kumba etc) that have been in IDC’s portfolio throughout the measurement period.

TRENDS FOR DEVELOPMENT INDICATORS

The IDC Mini-Group posted a R2.8 billion profit (net profit after tax) compared to R1.2 billion in the previous year. This was achieved predominantly on the back of a significant reduction in impairments and write-offs (42.8%). Impairments as a percentage of the portfolio at cost decreased to 16.7% from 16.9%. The value of IDC’s reserves increased by 7.5%, slightly lower than the yield on long-term government bonds over the period.

PERFORMANCE AGAINST PREDETERMINED OBJECTIVES

The tables below show performance against objectives for short- and long-term targets.

FUNDING

The IDC sources loan funding mainly from international development agencies, facilities from commercial banks and bond issuances. The general 2017 funding requirements for the IDC Mini Group to, inter alia, finance advances of R11.0 billion and borrowing redemptions of R10.6 billion, amounted to R22 billion (2016: R18.8 billion). These requirements were met mainly out of R9.5 billion of internally generated funds, namely repayments received and profits. New borrowings amounted to R12.6 billion for the year.

CORPORATE GOVERNANCE

The IDC’s directors endorse the King III Report on Corporate Governance and, during the review period, endeavoured to adhere to those recommendations or explain non-adherence.

Our performance in this regard is outlined in the Corporate Governance section of the Integrated Report.

PUBLIC FINANCE MANAGEMENT ACT

The IDC Board is responsible for the development of the Corporation’s strategic direction. Our Board-approved strategy and business plan are captured in the Shareholder’s Compact and Corporate Plan. Following agreement for the strategy and business plan with the Economic Development Department, the documents form the basis for detailed action plans and continuous performance evaluation.

Our business units and departments are guided by the Shareholder’s Compact and Corporate Plan to prepare annual business plans, budgets and capital programmes to meet their strategic objectives.

Day-to-day management responsibility is vested in line management through a clearly defined organisational structure and formal, delegated authority.

We have a comprehensive system of internal controls designed to ensure that we meet corporate objectives and the requirements of the PFMA. Processes are in place to ensure that where controls fail, the failure is detected and corrected.

DIVIDENDS

A dividend of R20 million was paid during the financial year. On 28 June 2017, the directors declared a dividend of R50 million.

VALUATION OF SHARES

The value of the Group’s investment in listed shares increased to R44.8 billion at the end of the 2017 financial year (2016: R40.0 billion).

POST REPORTING DATE EVENT

The value of the Group’s listed shares decreased by R4.6 billion between financial year-end and approval date, however the portfolio had fully recovered at publication date.

SHARE CAPITAL

The authorised (R1.5 billion) and issued share capital (R1.4 billion) remained unchanged during the reporting year.

AUDIT COMMITTEE INFORMATION

The names of the Audit Committee members are reflected on page 22 of the Integrated Report.

GOING CONCERN

The directors assessed the IDC as being a going concern in terms of financial, operational and other indicators. The directors are of the view that our status as a going concern is assured.

DIRECTORS AND SECRETARY

The current directors of the IDC and the name and registered office of the Secretary appears on the inside back cover of the Integrated Report.