The Industrial Development Corporation of South Africa Limited (IDC) was established in 1940 by an Act of Parliament. It is a registered public corporation and a Schedule 2 listed entity in terms of the Public Finance Management Act (PFMA), 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 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 111 to 195.
The IDC’s performance indicators reflect the Corporation’s goals as set out earlier in this integrated report. Measures related to our key objective of industrial capacity development are integrated 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 and dedicated, wholly-owned financing subsidiaries.
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 against indicators is measured and reported on a quarterly basis to the IDC’s Executive and Board. Regular activity reports and management accounts ensure that target deviations can be detected and corrected, if necessary.
The achievement of targets represents the expected level of performance. Performance targets are set at corporate, team and individual levels and performance-linked remuneration is based on the achievement of such targets.
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:
- Industrial capacity development
- Development impact
- Financial sustainability and efficiency
- Customer satisfaction
- Stakeholder relations
Performance against predetermined objectives
In some areas we exceeded targets, while targets could not be achieved in others. In this section we discuss our performance against predetermined objectives.
External auditors review the measurement of performance to ensure that targets are achieved according to the original intent and that the overall performance is a fair reflection of the Corporation’s activities during the period under review.
Despite lower investment activity in the economy, we maintained high levels of funding approvals. During the past financial year, approved funding came to R11.5 billion (2014: R13.8 billion) and signed transaction agreements to R10.1 billion (2014: R13 billion). We achieved these high funding levels despite a significant reduction in funding for the renewable energy programme, with only R348 million approved for round 4 of the REIPPPP in 2015 compared to R13.3 billion for rounds 1 to 3 in the 2012 to 2014 financial years. The reduced participation in the renewable energy programme and lower than expected funding for the mining industry contributed to not achieving the targets for this indicator. High levels of funding approvals in previous years, however, enabled us to keep disbursement levels relatively high at R10.9 billion (2014: R11.2 billion).
We included a target for funding black industrialists for the first time in 2015. We defined a black industrialist as a black entrepreneur who creates and owns industrial capacity, provides long-term strategic and operational business leadership and is, by definition, not a portfolio or purely financial investor. The following are characteristics of a black industrialist:
- Provides strategic and operational leadership to the business
- Has a high level of ownership (>50%) and/or exercises control over the business
- Identifies opportunities and develops business to take advantage of these opportunities (entrepreneurial)
- Takes personal risk in the business
- Does business in manufacturing and related sectors, particularly within the IPAP and IDC focus areas
- Makes a long-term commitment to the business and is a medium- to long-term investor
The R2.3 billion approved and agreements signed for black industrialists in 2015 exceeded the target of R1.5 billion.
We use project implementation milestones to measure our progress in long-term industry interventions. Progress during the reporting year included the introduction of competition into the steel industry through a MoU with Chinese partners to reduce the price of steel. Detailed feasibility studies are underway. Progress was also made with feasibility studies for developing community forestry projects. In the tourism industry, a potential project to establish a large reserve was cancelled due to negative results from environmental studies, but a project to upgrade tourist attractions at God’s Window in Mpumalanga is ongoing. We did not achieve the milestones for the establishment of a multi-brand vehicle assembly plant.
We implemented most of the 2015 strategic projects, with the exception of the Khi Solar One concentrated solar plant, where an accident caused regrettable fatalities and delayed project implementation.
Job creation remains the most important development outcome we pursue in our funding activities. Funding agreements signed during the past financial year, will facilitate the creation or saving of 19 731 direct jobs of which 13 830 will be created. 8 436 of these jobs are in rural areas. This is lower than the base objective of 24 000 jobs. IDC also measures actual jobs created and saved by its clients, including those for whom funding was approved in previous years and where information could be confirmed. Through this process 21 252 jobs were verified.
We exceeded the 45% target of approved funding for businesses with at least 25% black ownership by 3%. In addition, funding for projects that produce inputs for infrastructure or government procurement reached R3.4 billion against a targeted R1.5 billion.
Financial sustainability and efficiency
Income for the IDC and its financing subsidiaries, which excludes dividends from large mature-listed equity investments, was 61% higher than budgeted due to higher dividend receipts, fees and other income. Operating expenses, excluding impairments, were 5% lower than budgeted. As a result, the cost-to-income ratio was more favourable than targeted.
We stabilised the value of impairments at 16.7% (2014: 18.2%) of the portfolio. The indicative 9.4% Internal Rate of Return (IRR) on investments for the past four years is encouraging and was driven primarily by investments in renewable energy and mining projects. Reserves overall declined over the past year and increased by 2.9% on average per year over the last five years. This was due mainly to a drop in the value of listed shares by due to commodity prices affecting Sasol, BHP Billiton and Kumba Iron Ore share prices. We are reviewing options to reduce concentration risk in the IDC’s listed equity portfolio.
Customer satisfaction and stakeholder relations
The average turnaround time of non-complex transactions, from date of due-diligence to date of sending a legal agreement to the client improved to 14 working days against the targeted 15 days.
The impact of sefa on funding SMEs continued its upward trend. During the past year, sefa disbursed R1.3 billion (2014: R549 million) to 68 724 SMMEs and Cooperatives (2014: 46 407).
Scaw and Foskor, however, posted disappointing financial results. Returning these companies to profitability will be a priority in the next financial year.
The details of performance against indicators are shown in the table below.
IDC sources loan funding mainly from international development agencies, commercial facilities through our relationships with commercial banks and bond issuances. During the 2015 financial year, we continued the public bond issuances under the IDC Domestic Medium-Term Note programme (DMTN), with an additional R1 billion issued during the year. This issuance was well-received by investors with the bond 1.7 times oversubscribed and issued over three-, five- and ten-year maturity periods.
The general 2015 funding requirements for the IDC Mini Group to inter alia finance advances of R10.9 billion and borrowing redemptions of R3.2 billion amounted to R14.5 billion (2014: R16.5 billion). These requirements were met mainly out of R8.3 billion of internally generated funds, namely repayments received and profits. New borrowings amounted to R6.6 billion for the year.
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 this annual 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 Public Finance Management Act (PFMA), No 1 of 1999. Processes are in place to ensure that where controls fail, the failure is detected and corrected.
Discussions with the Economic Development Department and National Treasury regarding certain PFMA exemptions for the IDC and its subsidiaries, which expired during the past year, were not concluded by the 2015 financial year-end.
A dividend of R50 million was paid during the financial year. On 30 June 2015 the Directors declared a dividend of R50 million.
Valuation of shares
The value of the Group’s investment in listed shares decreased to R45.0 billion at the end of the 2015 (2014: R65.3 billion) financial year.
Review of post-balance sheet events
The post-year-end value of the Group’s listed shares increased by R547 million as a result of movements in the listed equities market.
The authorised (R1.5 billion) and issued share capital (R1.4 billion) remained unchanged during the reporting year.
Audit Committee information
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 remains intact.
Directors and secretary
The current directors of the IDC, with brief biographies, are reflected on pages 16 to 19.
The name and registered office of the Secretary appears on the inside back cover.