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 124 to 129.
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 regularly to the IDC’s Executives 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:
- Development impact
- Financial sustainability and efficiency
PERFORMANCE AGAINST PREDETERMINED OBJECTIVES
External auditors review the performance measurement process and outcomes to ensure that targets are achieved accordingly and that the overall performance is a fair reflection of the Corporation’s activities during the period under review.
Overall, the Corporation has recorded satisfactory performance, especially on short-term targets, in spite of prevailing economic conditions.
In terms of funding activity, the overall level of funding approvals, at R14.5 billion for the year, were at the highest levels ever. The value of funding disbursements increased to R11.4 billion, the second highest level ever, but not enough to reach the base of R12.5 billion. Despite high levels of funding approved, the IDC could not leverage funding to the same extent as it has in previous years, with fewer large new projects approved and, in some cases, the IDC being the only funder injecting funds to alleviate the situation of companies in distress.
IDC funding approvals, for which agreements were signed, are expected to create and save about 18 010 jobs, above the base expectations of 14 062. Information gathered from clients indicates that in excess of 15 000 actual jobs were created.
Excellent achievement was recorded with targets for funding to black industrialists, and women and youth-empowered companies and localisation was exceeded. Overall, government departments’ impression of the IDC’s inputs into policy development was extremely favourable as indicated by survey ratings, with positive feedback received in a wide range of areas including inputs into policies related to black industrialists, collaboration on IPAP, steel pricing and other areas.
The IDC’s contained costs and income figures were higher than budgeted, resulting in good performance on the indicator measuring the cost-to-income ratio. Impairments, as a percentage of the portfolio at cost, were better than the base expectations, but this came as a result of write-offs and remains an area of concern. Economic conditions and continued pressure on commodity prices continued to put pressure on the value of the IDC’s reserves.
Staff turnover on the management band was high, but for other professional staff, it was much better than expected.
The average turnaround time on non-complex transactions was better than expected but the feedback from clients indicates that there is scope for further improvement.
sefa’s performance was slightly above expectations. Scaw’s turnaround strategy is performing in line with expectations while Foskor’s financial performance is a cause for concern, with plans being implemented to address this.
* Refers to the number of jobs as when agreements are signed whereas the number quoted elsewhere in the document refers to jobs as when a transaction gets approved
The IDC sources loan funding mainly from international development agencies, commercial facilities through our relationships with commercial banks, and bond issuances. The general 2015 funding requirements for the IDC Mini Group to, inter alia, finance advances of R11.4 billion and borrowing redemptions of R5.0 billion, amounted to R18.8 billion (2015: R14.5 billion). These requirements were met mainly out of R6.2 billion of internally generated funds, namely repayments received and profits. New borrowings amounted to R10.5 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 PFMA. Processes are in place to ensure that where controls fail, the failure is detected and corrected.
A dividend of R50 million was paid during the financial year.
VALUATION OF SHARES
The value of the Group’s investment in listed shares decreased to R40.0 billion at the end of the 2016 financial year (2014: R45.0 billion).
REVIEW OF POST-BALANCE SHEET EVENTS
The post-year-end value of the Group’s listed shares decreased by R320 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 names of the Audit Committee members are reflected on page 56.
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, with brief biographies, are reflected on pages 12 to 15. The name and registered office of the Secretary appears on the inside back cover.