Description
Description tell about introducing sefa.
2 Smal l Enterpri se Fi nance Agency
1.1 Corporate profle
Following a Cabinet decision and the State of the Nation address of 2011, the Small Enterprise Finance Agency (SOC)
Limited (sefa), was established on 1 April 2012 in terms of section 3 (d) of the Industrial Development Corporation Act,
No. 22 of 1940 (IDC Act). sefa is a wholly owned subsidiary of the Industrial Development Corporation (IDC) and brings
together the activities of three previous structures (Khula, samaf and the IDC small business activities). sefa operates as a
Development Finance Institution (DFI) to foster the establishment, development and growth of small, medium and micro
enterprises (SMMEs) and contribute towards poverty alleviation and job creation.
1.2 Vision
To be the leading catalyst for the development of sustainable survivalist, micro, small and medium enterprises through
the provision of fnance.
1.3 Mission
To provide simple access to fnance with support in an effcient and sustainable manner to survivalist, micro, small and
medium enterprises throughout South Africa by:
• Delivering wholesale and direct lending
• Providing credit guarantees to SMMEs
• Supporting the institutional strengthening of fnancial intermediaries (FIs) so that they can be effective in assisting
SMMEs
• Creating strategic partnerships with a range of institutions for sustainable SMME development and support
• Monitoring the effectiveness and impact of our fnancing, credit guarantee and capacity development activities, and
• Developing, through partnerships, innovative fnance products, tools and channels to catalyse increased market
participation in the provision of affordable fnance.
1.4 Strategic objectives
Our strategic objectives are to:
• Increase access to and provision of fnance to SMMEs and thereby contribute towards job creation
• Develop and implement a national footprint for effective product and service delivery
• Build an effective and effcient sefa that is a sustainable and performance-driven organisation
• Build a learning organisation
• Build a sefa that meets all legislative, regulatory and good governance requirements, and
• Build a strong and effective sefa brand emphasising accessibility to SMMEs.
1.5 Values
The values and guiding principles which we strive to entrench in order to deepen institutional culture and organisational
success are:
• Kuyasheshwa: We act with speed and urgency
• Passion for development: Solution-driven attitude, commitment to serve
• Integrity: Dealing with clients and stakeholders in an honest and ethical manner
• Transparency: Ensuring compliance with best practice on the dissemination and sharing of information with all
stakeholders, and
• Innovation: Continuously looking for new and better ways to serve our customers.
INTRODUCING sefa
3 ANNUAL REPORT 2013
1.6 Group structure
Human Capital
& Remuneration
Committee
Enterprise Risk
Committee
Audit
Committee
Wholesale
Investment
Committee
Direct Lending
Committee
Economic Development Department (EDD)
Industrial Development Corporation (IDC)
Board of Directors
Chief Executive Offcer
Head: Strategy, Business Planning and Reporting
Company Secretary
Executive Personal Assistant
Head: Internal Audit
Chief Financial
Offcer
Executive Manager:
Direct Lending
Executive Manager:
Wholesale Lending
Chief Risk
Offcer
Executive Manager:
Human Capital
Head: Stakeholder Relations and Communication
Head: Information Technology
4 Smal l Enterpri se Fi nance Agency
1.7 Operational framework
sefa’s organisational framework is captured in the following diagram:
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Customers SMMEs and Co-operatives
Direct Lending
• Working capital
loan
• Asset fnance
• Term loans
• Revolving loan
• Bridging loan
• Short-term trade
fnance
R500 R5 million
Distribution
Channels
sefa’s Regional Offces, RFIs, MFIs, Co-ops, Commercial Banks,
Specialised Funds, Provincial Development Corporations (PDCs), Post
Offce & Post Bank
Wholesale Financing
• Business loans –
(RFIs/MFIs/Co-ops/
FIs)
• Equity investments
– Specialised funds
• Credit Guarantee
Scheme
• Land Reform
Empowerment
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Capacity Building
• Pre-/post-loan
mentoring
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• Board
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Values: Kuyasheshwa, Passion for Development, Integrity, Transparency, Innovation
Mission: To provide simple access to fnance with support in an effcient and
sustainable manner to survivalist, micro, small and medium enterprises throughout
South Africa.
Vision: To be the leading catalyst for the development of sustainable survivalist, micro,
small and medium enterprises through the provision of fnance.
Mandate: To promote the establishment, survival and growth of SMMEs and thus
contribute towards poverty alleviation and job creation. IDC Act s(3)(d)
5 ANNUAL REPORT 2013
1.8 Operational footprint
Western Cape
Northern Cape
Eastern Cape
Free State
KwaZulu-
Natal
North West
Gauteng
Limpopo
Mpumalanga
BOTSWANA
NAMIBIA
Cape Town
Mossel Bay
Port Elizabeth
East London
Mthatha
Durban
Pietermaritzburg
Hluhluluwe
Bloemfontein Kimberley
Upington
Klerksdorp
Mafkeng
Polokwane
Hoedspruit
Johannesburg
Pretoria
LESOTHO
INDIAN
OCEAN
ATLANTIC
OCEAN
Existing sefa offces
Planned sefa branch/satellite offces (branch offce is a small staffed offce. Satellite offce is a desk in e.g. seda/
Post Offce, manned at specifc times)
Cities/towns
Mbombela
Rustenburg
6 Smal l Enterpri se Fi nance Agency
1.9 Product portfolio mix
Wholesale Lending
Product Description
Business loans Partnership with intermediaries for on-lending to SMMEs.
Specialised funds: joint ventures
and partnerships
Partnership with mainly private and public sector entities for on-lending to SMMEs.
Credit Guarantee Scheme
sefa provides guarantees to banks and fnancial institutions, enabling loans to small
businesses that do not otherwise have suffcient collateral/security to support facilities.
Land Reform Empowerment
Fund
Facility through which sefa lends money to commercial banks and other reputable
agricultural lenders for on-lending to land reform benefciaries, including production,
moveable assets, equity, etc.
Non-Financial Support Description
Institutional strengthening Aimed at providing institutional strengthening and technical assistance to intermediaries
who have beneftted from facilities provided by sefa.
Post-loan business support This service is provided to SMMEs who have beneftted from facilities provided by the
intermediaries. Support is provided through the Direct Lending Division and its partners.
Direct Lending
Product Description
Revolving/bridging loans/working
capital loans
To facilitate short-term capital requirements or bridging fnance for delivery of contracts
or orders (e.g. a small business gets a contract to supply stationery, but needs fnance
to buy the stock). The capital repayment is structured according to the cash fow
projections of the borrower.
Asset fnance For acquisition of fxed assets for use in the operations or expansion of the business.
Term loans To fnance longer-term business expansion requirements and specifc capital acquisitions
(similar to asset fnance, but not necessarily linked to a specifc asset).
Post-loan mentorship
This service is provided to SMMEs that have beneftted from facilities provided by sefa
and its fnancing partners as a risk mitigating intervention (e.g. sefa provides a mentor
to a small business to assist with specifc aspects of running the business).
7 ANNUAL REPORT 2013
LEADERSHIP COMMENTARY
BOARD OF DIRECTORS
Ms Hlonela Lupuwana
Member: Human Capital & Remuneration
Committee
Ms Katinka Schumann
Member: Wholesale Investment Committee
Member: Direct Lending Committee
Mr Lawrence Mavundla
Chair: Direct Lending Committee
Member: Wholesale Investment Committee
Mr Ismail Tayob
Chair: Audit Committee
Member: Enterprise Risk Committee
Member: Human Capital & Remuneration Committee
Mr Thakhani Makhuvha
Chief Executive Offcer
Mr Richard Mutshekwane
Chair: Human Capital & Remuneration Committee
Member: Enterprise Risk Committee
Member: Audit Committee
Mr Gert Gouws
Chair: Enterprise Risk Committee
Member: Audit Committee
Ms Barbara Calvin
Member: Wholesale Investment Committee
Member: Direct Lending Committee
Mr Setlakalane Molepo
Member: Wholesale Investment Committee
Member: Human Capital & Remuneration
Committee
Mr Marius Ferreira
Chair: Wholesale Investment Committee
Member: Direct Lending Committee
Dr Sizeka Magwentshu-Rensburg
Chairperson of the Board
8 Smal l Enterpri se Fi nance Agency
The integration creates a platform for greater
customer outreach, a one-stop fnancing
house, streamlined business processes and
for effective small business fnance delivery to
SMMEs. sefa flls the gap by providing funding
with support through its Direct Lending and
Wholesale Lending channels.
CHAIRPERSON’ S STATEMENT
The establishment and success of small, medium and micro
enterprises (SMMEs), including survivalists and co-operatives,
is globally recognised as critical to address the challenges of
job creation, poverty alleviation, socio-economic conditions
and equality for all. This is especially the case in South
Africa where the role of SMMEs is vital to drive economic
growth, employment, innovation and competitiveness. It is
estimated that South Africa has some 5.9 million SMMEs
which generate 40% of its gross domestic product and
60% of employment in the country.
Small business owners have identifed the lack of access to
fnance and business support as key impediments to their
growth and sustainability.
The New Growth Path (NGP) adopted in 2010 identifed
enterprise development as a key priority. Resultant policies
aim to promote small business and entrepreneurship by
improving access to and effciency of government funding and
making more resources available to SMMEs. A subsequent
business case recommended the merger of Khula, samaf
and the IDC’s small business activities into one organisation
– the Small Enterprise Finance Agency (sefa).
The integration creates a platform for greater customer
outreach, a one-stop fnancing house, streamlined business
processes and for effective small business fnance delivery to
SMMEs. sefa flls the gap by providing funding with support
through its Direct Lending and Wholesale Lending channels.
Our greatest challenge as the board of sefa has been to
strategically position the organisation with a sustainable
business model to create access to funding for SMMEs
who have traditionally been excluded from mainstream
fnancial institutions.
It is essential that we follow best practice and learn from
the experiences of others in the world of micro- and
small business fnancing. In this regard we are strategically
aligning the organisation to provide business support and
institutional strengthening to both clients and intermediaries.
In the fve years to 2017/18, sefa plans to:
• Increase access to fnance for SMMEs through the
approval of loan products to the value of R6.4 billion and
the disbursement into the economy of approximately
R5.7 billion
• Facilitate ±R1.7 billion to fnance youth-owned
businesses since sefa recognises that a large number
of young people are unemployed
• Contribute to the facilitation of about 140,000 jobs
over the next fve years and assist approximately
120,000 small businesses over the same period
9 ANNUAL REPORT 2013
• Build strategic partnerships to grow and strengthen
the SMME sector in South Africa
• Expand and strengthen sefa’s organisational capability
to improve service to the SMME market, including
improvements to the deliver y model, system
infrastructure, risk management and research and
development capabilities, and
• Increase stakeholder outreach and communication.
In concluding, I wish to extend my sincere appreciation to the
Minister of Economic Development, Mr Ebrahim Patel, for
his passion for small business development. I thank the IDC,
especially the CEO, Mr Geoffrey Qhena and his management
team, as our shareholder for their on-going support as we
move forward in launching sefa to be a formidable institution
for small businesses in our country. Let me express my
gratitude to my fellow members of the board of directors
of sefa for your dedication and for sharing your expertise
so generously. And fnally, I thank sefa’s CEO, Mr Thakhani
Makhuvha, for the professional and enthusiastic approach
that he and his management team and staff have adopted.
I look forward to a productive year ahead.
Dr Sizeka Magwentshu-Rensburg
Chairperson
10 Smal l Enterpri se Fi nance Agency
We will intensify our effort to ensure access
to fnance with support to small businesses.
Of critical importance is up-skilling of our core
functional teams and provision of on-the-job-
training and other interventions in order to
increase our own capacity.
CHIEF EXECUTIVE OFFICER’ S STATEMENT
Introduction
I am pleased to present this inaugural annual report of sefa
following the merger of Khula, samaf and the small business
activities of the IDC in April last year.
The year under review has marked an important milestone
in government’s on-going support for small businesses in
South Africa. sefa, as a development fnance institution, has
been given a mandate to address the challenges faced by
SMMEs, including survivalist businesses and co-operatives.
Aspiring and existing small business owners experience
diffculties in accessing fnance from mainstream fnancial
institutions such as commercial lenders to start, grow
and expand their business operations, primarily due to
the perceived risks inherent in SMMEs. Whilst sefa needs
to be a responsible provider of access to fnance for the
development of sustainable small businesses, we have a
higher appetite for risk than commercial fnanciers. Our
ultimate objective is to contribute towards the reduction
of unemployment, poverty and inequality.
Implementation of the merger process
The year under review was characterised by bedding
down the merger processes, including organisational
change management, human capital integration, IT systems
and processes, and the development of enterprise-wide
policies and procedures. These processes have laid the
critical foundation for sefa to begin delivering on its key
strategic objectives.
The integration of staff from the erstwhile institutions was
essential and critical to the merged entity, and as such has
occupied a great deal of management’s time as it required
engagement and collaboration with organised labour. We
have also, during this period, enhanced internal capacity
and developed the necessary capability by way of in-house
and outsourced training interventions. The relocation of
staff from separate head offces into a single headquarters
towards the end of October 2012 has played a signifcant
role in fast tracking the integration process and has helped
to embed our corporate identity and our sefa brand. We
have also successfully set up operational regional offces
in nine provinces. Key strategic positions have been flled
during the year under review.
sefa operating model
Our operating model is based on key delivery channels,
namely Direct Lending, Wholesale Lending through retail
fnancial and microfnance intermediaries, as well as the
Credit Guarantee Scheme offerings through commercial
lenders. The last two channels are equally important to
generate critical mass and reach, especially in the rural areas.
11 ANNUAL REPORT 2013
Whilst it is vital to provide access to fnance for SMMEs,
sefa has also identifed the need to provide non-fnancial
support such as mentorship and monitoring to assist small
business owners with specifc aspects of running their
businesses. This support is provided in collaboration with
our strategic partners. We also support the institutional
strengthening of fnancial intermediaries so that they can
be effective in assisting SMMEs.
Performance overview
The fnancial position of sefa is sound, with total assets in
excess of R2.1 billion and suffcient capital and reserves
(approximately R1 billion at year-end) available to lend
to small businesses. We are an organisation in transition
following the merger and we are not expecting to post
profts in the immediate future as we build up the loan
book from a low base. For the year under review, sefa’s
initial start-up net losses amounted to R64.4 million. A
grant of R170 million was received from the government
to support sefa’s activites. The grant was paid to IDC, which
is conducting the required oversight over sefa’s operations,
and will be made avalible to sefa as and when required for
operational purposes.
I am pleased to report that, notwithstanding merger-related
challenges, sefa’s performance in terms of approvals and
disbursements exceeded the combined results of its
predecessor institutions. During the year under review, sefa
approved credit facilities of approximately R440 million which
represents about 78.5% of its set target for the year. Of
this, R146 million was achieved through the Direct Lending
channel. The set target for the Direct Lending channel was
R185 million (thus, an achievement of 78.9%). Overall,
sefa’s approvals were 108.2% higher than the combined
approvals of ex-Khula and ex-samaf in the 2011/12 fnancial
year. We have also disbursed approximately R200 million,
which went into the economy during the period under
review. Approximately 45.4% of the disbursements are
to small businesses operating in the priority provinces,
and women-owned businesses represent about 39.8% of
the disbursements. The predecessor institutions together
disbursed about R143 million in the last fnancial year.
The number of SMMEs assisted through both the Wholesale
and Direct Lending channels amount to over 28,300 small
businesses. sefa anticipates creating approximately 19,900
permanent and non-permanent jobs through our funding
to small businesses.
Future prospects
We will intensify our effort to ensure access to fnance
with support to small businesses. Of critical importance is
up-skilling of our core functional teams and provision of
on-the-job-training and other interventions in order to
increase our own capacity.
Our structure and processes will continue to be reviewed to
align them with our strategic objectives and corporate plan
and to enable us to fulfl our developmental mandate. We
hope to improve signifcantly on our 2012/13 performance
and to be more customer-centric in our approach.
Acknowledgements
I would like to extend my sincere thanks to the sefa board
of directors for their support during this challenging period
and to the Chairperson of the Board, Dr Sizeka Magwentshu-
Rensburg, for her continued counsel and leadership as we
entered the journey of the post-merger period, whilst at
the same time needing to deliver on our mandate. I am
grateful to the management of the IDC, our shareholder,
and the team at the Economic Development Department
(EDD) for being there to lend the necessary support to
this young institution.
I would also like to express my special appreciation to
my predecessors, Mr Willie Fourie, the Interim Managing
Director of Khula and Mr Loni Mamatela, the Acting Chief
Executive Offcer of samaf, for overseeing the merger
process. Lastly, and most importantly, I would like to express
my heartfelt gratitude to my management team and staff
for enthusiastically embracing our new organisation despite
the uncertainties that characterise a merger of this nature.
This has been a year in transition!
Mr Thakhani Makhuvha
Chief Executive Offcer
12 Smal l Enterpri se Fi nance Agency
EXECUTIVE MANAGEMENT
Mr Thakhani Makhuvha
Chief Executive Offcer
Mr Piet Swanepoel
Executive Manager: Direct Lending
Mr Dennis Jackson
Executive Manager: Wholesale Lending
Ms Leonie van Lelyveld
Chief Risk Offcer
Mr Andile Ramavhunga
Chief Financial Offcer
Ms Lesego Mashishi
Executive Manager: Human Capital
13 ANNUAL REPORT 2013
3.1 Financial review
Introduction
While much of the world struggled in the wake of the global economic
downturn, South Africa has managed to stay on its feet, largely due to its
countercyclical fscal and monetary policies. The economy continues to grow,
driven largely by domestic consumption, however the growth is at a slower
rate than previously forecast.
It is projected that the economy will grow at a rate of 2.7% in 2013 and 3.5% in
2014. sefa has not been immune to the slower growth rate. Although approvals
in the current year have exceeded the approvals done by both predecessor
companies combined, there is still a shortage of quality, fundable transactions.
During the period under review, sefa adopted the International Financial Reporting
Standards (IFRS). This was to align the organisation with international reporting
trends as well as to improve the manner in which we disclose our information.
Financial performance
As a result of fully embedding the merger, there were some challenges in achieving fnancial targets, however, the group
still managed to achieve a satisfactory development target score.
The successes and challenges are highlighted below:
• The collection rate in the retail businesses exceeded 93%
• Approvals and disbursements exceeded those of the predecessor companies combined, and
• The disbursement of approved loans proved challenging as a result of clients not being able to fulfl the conditions
as per scheduled payment agreements.
The group reported a loss of R64.4 million for the fnancial year under review. This is mainly on the back of a fair value
loss on the valuation of investment properties and an impairment expense raised on a loan granted to Marang, one of
the microfnance intermediaries.
Impairments in the loan portfolio are high due to the existence of legacy transactions, which were fully provided for, but
not written off. Minimal impairments have been raised on new loans, specifcally on the Direct Lending business. These
are mainly as a result of late payments by government departments.
Total assets increased by 14% when compared to the prior year, mainly due to the inclusion of the samaf assets into the
results.
During the current fnancial year, the board approved a turnaround strategy for the Investment Property Portfolio, which
will be implemented in the 2013/14 fnancial year. This strategy is expected to yield results by way of increased rental
collections and property values.
To improve customer service, and thereby improve fnancial results, management is currently working on refning and
improving its internal processes to successfully resolve the challenge of turning approvals into disbursements.
PERFORMANCE OVERVIEW
14 Smal l Enterpri se Fi nance Agency
3.2 Direct Lending Division
Direct Lending is primarily designed to offer simple access to fnance and
business support services to SMME’s. The focus is geared towards supporting
entrepreneurs that intend starting, expanding or acquiring viable or potentially
viable enterprises. The disbursement of approved loans proved challenginging
as a result of clients not being to fulfll conditions as per scheduled payment
agreements. The programme provides debt facilities ranging from a minimum
of R50,000 to a maximum of R5 million.
The Direct Lending market offerings are provided through sefa’s suite of regional
Offces. There are currently nine (9) regional offces located in each of South
African’s nine provinces. In order to broaden the distribution network, branch
offces will be established on a co-location basis with the Small Enterprise
Development Agency (seda) and/or the Industrial Development Corporation
(IDC). It is anticipated that a total of fourteen (14) branches will be established
during the 2013/14 fnancial year.
Performance of Direct Lending
The Direct Lending Division achieved 78.9% of the set target for approvals for the reporting period. The disbursement of
approved loans proved challenging as a result of clients not being able to fulfl the conditions as per scheduled payment
agreements. Inadequate credit assessment skills and expertise affected turnaround times and the quality of customer
service. Staff training and development, as well the simplifcation of the application process will be the focus for the
2013/14 fnancial year.
2012/13
Actual
Facilities disbursed to youth-owned SMMEs 22%
Facilities disbursed to rural-based SMMEs 30%
Facilities disbursed to women-owned SMMEs 39%
Facilities disbursed to black-owned SMMEs 97%
Facilities less than R250,000 disbursed to SMMEs 22%
Approvals
2012/13 (R million)
Disbursements
2012/13 (R million)
32
114
25
16
Total: 146 Total: 41
Bridging Finance
Term Loans
Bridging Finance
Term Loans
15 ANNUAL REPORT 2013
Monitoring and collections
One of the main challenges that faced the collections team during the early stages of direct lending was limited capacity
and resources. This has now been addressed by having dedicated resources both at Head Offce and at Regional Offce
level. Despite these challenges the team did reasonably well to maintain a collections rate in excess of 93% during the
fnancial year.
Payment delays to small businesses negatively impacted on their cash fow, which in turn infuenced their ability to pay
sefa as per scheduled payment agreements.
To support small businesses in the start-up phase, sefa extended mostly bridging fnance facilities as a means to overcome
their cash fow challenges. The uptake of the term loan product is low in comparison with bridging fnance due to the
quality of the business plans submitted and lack of demonstration of long-term sustainability of these businesses. sefa
has entered into a number of strategic partnerships with public and private institutions (e.g. seda and the South African
Institute of Chartered Accountants (SAICA)) to provide small businesses with pre-loan support.
Success Story
Bridging finance facilitates project completion
Mr Wilson Khetisa Matete is thankful to sefa for the R3 milion
bridging loan awarded to him. He is the owner of BBT Construction,
a company which undertakes electrical, plumbing, construction and
maintenance. As a young man, Mr Matete gained his artisanship and
went on to gain work experience while employed by large companies
like Anglo American Corporation and LTA Construction Limited.
When his entrepreneurial character took hold, he went on to set
up his own business, initially as a sub-contractor. In 1998, having
gained a good grading from the CIDB, he registered his own
company and began to pitch for tenders in his own right.
In 2012 Mr Matete was awarded two large tenders, valued at
R10 million, by the Mangaung Metropolitan Council for the
construction and maintenance of roads in the Botshabelo and
Bloemfontein areas. With a staff complement of 165 people to
consider and faced by cash fow constraints, he approached the
sefa Bloemfontein regional offce for a bridging loan of R3 million.
This was granted and allowed Mr Matete to complete the projects.
The loan also allowed Mr Matete to realise a profit
which enabled him to repay the loan in full and to invest
in further assets to grow his business. During the process,
fur ther jobs were created and skills were transferred to
Mr Matete’s construction workers.
16 Smal l Enterpri se Fi nance Agency
Success Story
Joint venture set for growth
With a Chief Operations Offcer like Magdeline Paledi, Mudzhadzhi Mmagongwana
Joint Venture (MMJV) is set to achieve great things in the future, and sefa is
committed to assist them. Based in Burgersfort, the business is a joint venture
between Mudzhadzhi Building Contractors and Mmagongwana General
Construction, the latter of which is owned by Ms Paledi.
This industrious business woman worked her way up to start her own
company, Mmagongwana General Construction, in 2002. Ms Paledi is also
involved with various community projects, and serves as the chairperson of
Bokamaso Women Investment Club, as the co-ordinator for South African
Women in Mining (Tubatse and Greater Sekhukune area), and as an executive member of the Tubatse branch of
the National African Chamber of Commerce and Industry.
In 2003 Ms Paledi entered into the joint venture with Mudzhadzhi Building Contractors. Since its inception, the joint
venture has grown signifcantly, and has completed some big projects, such as the De Hoop Dam Housing Project
in Limpopo. The company has trained its entire staff, and over the last nine years many unskilled labourers have
become skilled workers who deliver quality products.
Anglo American Platinum Ltd recently awarded MMJV the contract for the development of a school in Serafa Village,
Burgersfort. In order to fulfll their commitments on this project, MMJV approached sefa Limpopo regional offce for
a bridging loan of facility of R3 million. This assisted the JV to fulfll its obligation. Ms Paledi was invited to parliament
in May 2013 as one of the sefa benefciaries.
sefa is ensuring that SMME’s such as MMJV are able to achieve their goals by making funding accessible to all South
Africans.
17 ANNUAL REPORT 2013
3.3 Wholesale Lending Division
The Wholesale Lending Division complements Direct Lending by forming
synergistic partnerships, focussed on providing access to fnance with support
to survivalist, micro, small and medium businesses, including co-operatives. These
partnerships are formed on the developmental requirements as stipulated in
the New Growth Path, addressing the needs of specifc sectors and/or markets
not serviced by Direct Lending. The disbursement target is lower due to lack
of drawdowns by clients .Through these relationships sefa is able to extend
its reach in servicing the fnancial needs of SMMEs. The Wholesale Lending
operations focuses on productive sectors of the economy with labour-intensive
initiatives. These include the development of new business initiatives in markets
that addresses the needs of women, youth, rural development, people with
disabilities and priority provinces.
Together with our partners, the division is able to target specifc sectors and/
or markets while addressing the needs of its clients:
• Microfnance Intermediaries – survivalists and micro-enterprise businesses
• Retail Intermediaries – small and medium businesses
• Banking and Financial Institutions – micro, small and medium businesses
• Specialised Funds (JV partners) – micro, small and medium businesses
• Land Reform Empowerment Fund – small and medium agricultural businesses, and
• Co-operatives (Apex) – survivalists, micro, small and medium businesses.
Performance of Wholesale Lending
During the initial period of the merger much time was taken in addressing the integration process, which impacted on
performance. However, during the latter half of the year performance levels improved with 85% of the approval target
being reached and 35% of the disbursement target being achieved. The disbursement target is lower due to the low level
of drawdowns by intermediaries.
Together with our partners, the division was able to address its developmental targets for SMMEs fnanced and jobs
created. This process needs further refnement, given the nature and profle of the intermediaries and their reach.
Approvals
2012/13 (R million)
Disbursements
2012/13 (R million)
213
80
109
48
Total: 293 Total: 157
Microfnance
SMME
Microfnance
SMME
18 Smal l Enterpri se Fi nance Agency
Success Story
Entrepreneur opens her own business
The funds sefa issues to retail fnance institutions allows
many entrepreneurs, who would not have had access to
fnance, to start their own businesses thanks to short- to
medium-term loans.
One such entrepreneur, Vuyiswa Bheyi, approached
Tetla Development Services, a sefa-funded MFI based
in Observatory, Cape Town, for funding.
Vuyiswa moved from Lusikisiki in the Eastern Cape to
Cape Town to look for employment opportunities. In
1998, she decided to start her own business, initially
doing sewing. In an effort to maintain a faster turnover,
she changed her business and started selling fruit and
vegetables, later adding groceries to her products.
In order to fund her growing business, Vuyiswa took out an initial R1,300 loan through Tetla in 2008, followed by fve
more loans. She has repaid fve of the loans, totalling R8,300, and is busy repaying the last R1,400 loan.
Many other entrepreneurs, especially women and young people from rural communities, have indirectly benefted
from sefa’s funding.
2012/13
Actual
Facilities disbursed to youth-owned SMMEs 16%
Facilities disbursed to rural-based SMMEs 45%
Facilities disbursed to women-owned SMMEs 40%
Facilities disbursed to black-owned SMMEs 76%
Facilities less than R250,000 disbursed to SMMEs 48%
Monitoring and collections
One of the key aspects of the Wholesale Lending Division was the creation of the Post-Investment Monitoring Unit. The
unit supports the division by:
• Protecting its investments and ensuring that losses are minimised
• Focusing on compliance and governance control of all agreements, and
• Monitoring requirements as stipulated in sefa’s provision of funding.
19 ANNUAL REPORT 2013
Success Story
Small business now a force to be reckoned with
The funds sefa makes available to retail fnancial institutions, gives many burgeoning entrepreneurs the opportunity
to grow their businesses.
In 2009, one such business owner, Mr Mqwathi, approached Retmil, a Bloemfontein-based fnancial institution funded
by sefa, for a loan to save his struggling security business and buy out his business partner. At that stage the business,
SSS Security Services, was struggling with severe cash fow problems. In addition, the business completely relied on
government contracts and could only afford to employ 100 people.
Retmil made short-term funding available to Mr Mqwathi, and also awarded him a R1.8 million loan to buy out his
business partner. Since then, Mr Mqwathi has made a tremendous success of his business.
Mr Mqwathi has not only repaid his loan in full, but
has been awarded several additional loans in the
past four years, which he has serviced according to
the agreed terms. All were made possible by sefa’s
funding of Retmil.
SSS Security Services is now 100% black-owned,
and operates across the Free State and North West
provinces. The business now employs 1,500 full-time
employees and has branched out to sectors outside
the government sphere.
20 Smal l Enterpri se Fi nance Agency
3.4 Risk Management review
Inherent in exploiting business opportunities is risk taking and the management
thereof, especially in the development fnance environment where the rewards
sought transcend fnancial returns to include a range of socio-economic
development impacts. The activity of fnancing small, medium and micro
enterprises (SMMEs) traditionally entails the assumption of a higher degree of
risk than what traditional fnanciers would necessarily assume. As a result, the
imperative of an effective risk management system for sefa was, and remains,
the determination of an appropriate level of risk to ensure development and
fnancial return.
During the year under review, risks embedded within the continuing activities of
the previously existing entities were managed in accordance with the practices
and processes previously governing these activities. A specifc assessment was
performed and risk management mechanisms adopted for the merger process. The enhanced risk management practices
and procedures required for the newly merged entity were conceptualised for implementation by an enhanced and fully
capacitated Risk Management Division.
Risk management objectives
The objectives of effective risk management within sefa are:
• To ensure the sustainability of sefa and its interventions, i.e. the development impact created, and
• To empower sefa to exploit business opportunities with confdence, having the capability to effectively manage the
risks taken.
Risk management model
Considerable effort was directed at developing an integrated risk management strategy for the newly merged sefa to
achieve the stated objectives on an enterprise-wide basis.
The strategy is to be achieved through an integrated model for the risk management functions and responsibilities, adapted
from the internationally recognised three lines of defence model, as the basis for an effective risk management system.
This approach not only ensures the principle of integrated risk management, but assigns responsibility for the management
of specifc risks to the relevant tier of management of the business. Support is provided by the Risk Management Division,
as a centre of excellence in risk management practice, and independent assurance on the effectiveness of risk management
is provided by the Internal Audit function. Ultimately, all risk management activities are championed and governed by the
sefa board through its Audit and Enterprise Risk committees.
21 ANNUAL REPORT 2013
Risk universe
sefa’s risk universe can be broadly categorised as follows:
The critical risks that sefa faces are:
• Credit – The risk that a borrower will default on any type of debt by failing to make payments which it is obligated
to do. The risk is primarily that of the lender and includes lost principal and interest, disruption to cash fow, and
increased collection costs. The loss may be complete or partial. It is envisaged that the credit risk profle of sefa will
increase based on the aspirations of an increased portfolio of facilities granted directly to SMMEs through the Direct
Lending Division
• Operational – Operational risk is the potential loss that emanates from inadequate, absent or failed systems or
processes. It is not inherent in fnancial, systematic or market-wide risk and can be triggered internally or externally
• Regulatory – Potential losses that may arise as a result of non-compliance with legislative and regulatory requirements,
as well as recognised codes and policies, and
• Strategic – The current and prospective impact on earnings or capital arising from adverse business decisions, improper
implementation of decisions, or lack of responsiveness to industry changes. This risk is a function of the compatibility
of an organisation’s strategic goals, the business strategies developed to achieve those goals, the resources deployed
against these goals, and the quality of implementation.
Implementation philosophy
Risk management is a balancing act of risk-taking for reward. In respect of this, sefa’s challenge is the ability to meet high
expectations for delivery of fnancing (primarily through a debt instrument), whilst managing the expectation of recovery
of debt and its own fnancial sustainability.
The key to overcoming the above challenge is to determine the appropriate level of risk to be taken for the achievement
of development impact and fnancial return. Hence, sefa has adopted the following principles in implementing an effective
risk management system:
• Gradual maturity of risk management – Implement basic governance policies and structures frst
• Embed risk management through management, ownership and accountability
• Balanced approach and on-going engagement with all stakeholders
• Leveraging technology by automating the risk assessment and reporting processes, and
• Effective monitoring of and reporting on the risks taken and being managed.
Strategic risk Operational risk Financial risk Governance risk
Clients, product and
business practices
Execution, delivery and
process management
Employment practice
and workplace practice
External and internal
fraud and theft
Business disruption
and systems failure
Damage to physical
assets
People
Stakeholder
Macro-economic
Reputation
Credit
Market
Concentration
Liquidity
Capital structure
Financial sustainability
Corporate governance
Political risk
Regulatory risk
Supply chain
Legal
IT governance
22 Smal l Enterpri se Fi nance Agency
Building risk management capability
The next reporting period will see specifc focus on building enhanced risk management capability, whilst ensuring that
all risk exposures assumed are effectively assessed and managed. This will include:
• Fostering a culture of risk awareness and practice to enable sefa to respond to risks where and as they arise
• Acquisition and development of people with the right level of risk management knowledge and skills, thereby creating
a centre of excellence in risk management to serve the business areas in the identifcation, assessment, treatment,
monitoring and reporting of risks
• Developing technological solutions to dynamically record, monitor and report on risks, including risk models which
inform us on the behaviour of the risks, specifcally credit risk, and
• Improving governance processes, including policies, procedures, tools and templates to create a standard that will
ensure uniformity, effciency and effectiveness in the management of risks.
23 ANNUAL REPORT 2013
3.5 Human Capital review
Underpinning Human Capital’s objectives for the period under review was the
establishment of an integrated organisation following the merger which included:
• Establishment and approval of the organisational structure
• Transfer and placement of employees into the new organisation
• Implementation of a change management programme that supports and
enhances an integrated organisational culture and values
• Relocating to new offces, and
• Development of new conditions of employment, human capital policies,
procedures, processes and systems.
Staff complement
The table below indicates the staff complement as at 31 March 2013. The
number of employees is expected to increase to 191.
Table 1: Employment equity profle
Level
Male Female
Total Black Coloured Indian White Black Coloured Indian White
Executive 2 0 1 0 1 0 0 0 4
Manager 13 0 0 1 13 0 1 3 31
Professional 27 1 0 5 39 4 2 3 81
Administrative 8 0 0 0 25 4 2 1 40
Support 2 0 0 0 5 0 0 0 7
Total 52 1 1 6 83 8 5 7 163
The percentage of black employees is 92% of the overall staff complement. Female employees constitute approximately
69% of sefa’s staff.
Table 2: Employment equity target versus actual at 31 March 2013
African Coloured Indian White Employees with disabilities
Target 78% 10% 4% 8% 1%
Actual 83% 5% 4% 8% 0.6%
Variance 5% -5% 0% 0% -0.4%
Table 2 indicates that the target for Indian and White representation has been met, whilst minimal variance exists in
terms of the other race groups. sefa uses natural attrition and new appointments for movement towards its EE targets.
Learning and development
sefa is registered with the BANKSETA, in compliance with the Skills Development Levies Act. To capacitate sefa’s employees
to deliver on our strategic mandate, training initiatives were undertaken in line with the individual development plans and
organisational needs. 130 training interventions were undertaken to the value of approximately R1 million.
Occupational health and safety
In line with occupational health and safety regulatory requirements, employees underwent the necessary training to create
awareness of health and safety expectations, requirements and obligations.
sefa engages the services of Independent Counselling Advisory Service (ICAS) Southern Africa for a Employee Assistance
Programme (EAP). The aim is to provide support for employees and their families in terms of both psychological and physical
health. All employees have access to the ICAS Employee Wellbeing Programme which offers counselling and advisory
services to them and their dependents on health (e.g. HIV/AIDS), fnance and performance matters, amongst others.
24 Smal l Enterpri se Fi nance Agency
Performance Indicator
Target
2012/13
Actual
achieved
2012/13
Achieved as
% of target Reason for Variance
CUSTOMER
PERSPECTIVE
45%
Access to finance by SMEs
and business support
R560 million approvals R560 million R440 million 78.5% Lower target achieved due
to work done towards
embedding the merger.
R450.4 million disbursements R450 million R198 million 44.0% Lower target achieved due
to conditions precedent not
being met by clients.
11,812 loans to SMMEs
(number of SMMEs fnanced)
11,812 28,362 240.1% Overachievement was due to
expansion in the microfnance
and small loan programmes.
13,196 jobs created* 13,196 19,853 150.4% Overachievement was due to
expansion in the microfnance
and small loan programmes.
30% of facilities disbursed
must be youth-owned –
25–35 years old
30% 16.5% 54.8% Limited viable business
propositions and
entrepreneurship amongst
youth.
45% of facilities disbursed
must be in priority rural
provinces
45% 45.4% 100.9%
40% of facilities disbursed
must be women-owned
businesses
40% 39.8% 99.5%
70% of facilities disbursed
must be black-owned
businesses
70% 78.1% 111.6% It was a target focus to
support black-owned SMMEs.
40% of facilities less or equal
to R250,000 to be disbursed
to end-users
40% 45.4% 113.5% Overachievement was due to
expansion in the microfnance
and small loan programmes.
FINANCIAL
PERSPECTIVE
25%
Ensuring sefa's sustainability
plus strengthening risk
management & compliance
Net operating income as a %
of average assets at cost
1% -9% -900.0% Lower target achieved due to
limited disbursement.
Cost to income ratio
(excluding impairments and
fnance charges)
146% 124% 117.7% Target achieved due to cost
containment as a result of
restricted income.
Bad debt ratio (wholesale and
direct lending loans issued by
sefa) – (Impairments as a %
of portfolio at cost)
34% 30% 113.3% Target achieved due to low
bad debt in the operating year.
Portfolio at risk of active
clients less than or equal to
5%
5% 23% -460.0% Target under-achievement due
to aggressive target setting for
the nature of business as well
as SMME trading conditions.
Ratio of claims provisions vs.
amount indemnifed of 20%
20% 5% 400.0% Limited activity by banks on
the indemnity scheme.
Actions taken to mitigate risk
included in risk register – 75%
of actions identifed
75% 100% 133.3% Target achieved due to
increased internal control and
risk mitigation measures.
Reduce clients handed over
to loss control from 5 to 2
in 2013
2.0 1 200.0% Target achieved due to
increased internal control and
risk mitigation measures.
PERFORMANCE AGAINST PREDETERMINED OBJECTIVES
25 ANNUAL REPORT 2013
Performance Indicator
Target
2012/13
Actual
achieved
2012/13
Achieved as
% of target Reason for Variance
INTERNAL
BUSINESS
PROCESSES
15%
Improved internal business
processes & systems
Development of at least
5 key policies, processes,
systems and procedures
5 5 100.0%
Integration and
implementation of business
application systems
100% 100% 100.0%
99.9% uptime of critical
systems
100% 100% 100.0%
PEOPLE
LEARNING
AND
GROWTH
15%
Alignment, development and
motivation of Human Capital
8% Labour Turn Over Rate
(LTO)
8% 8% 100%
80% of Employees have
Individual Development Plans
(IDPs)
80% 53% 66% Lower target achieved due
to work done towards
embedding the merger and
aligning employee performance
management system.
Performance management
assessments conducted by
100% of Managers for the
year ending 31 March 2013
100% 54% 54% Lower target achieved due
to work done towards
embedding the merger and
aligning employee performance
management system.
Employee engagement survey
conducted by 31 March 2013
100% 100% 100%
* A factor of 0.7 was applied to the number of SMMEs fnanced to derive the number of jobs created.
26 Smal l Enterpri se Fi nance Agency
5.1 Introduction
Governance of sefa is guided by the Public Finance Management Act, No. 1 of 1999 (PFMA), and the King Report on
Governance for South Africa 2009 (King III). In keeping with best practice, sefa also ensures that its governance practices
and procedures comply with the Companies Act, No. 71 of 2008.
5.2 Board and committees
sefa’s board is constituted to ensure a wide range of skills and knowledge necessary to meet strategic objectives.
The size of the sefa board is dictated by its Memorandum of Incorporation, which permits a minimum of fve and a
maximum of ffteen directors to be appointed by the shareholder.
sefa has a unitary board structure, and as at 31 March 2013 the board comprised one executive and ten non-executive
members and a gender composition of four female and seven male directors.
The Chairperson of the sefa board is an independent, non-executive director. In line with the recommendations of King III,
the positions of Chairperson and Chief Executive Offcer are separately held to ensure a clear division of duties. The
non-executive directors are not involved in day-to-day operations of the business and do not draw any remuneration
from sefa other than board fees.
Directors’ terms of appointment are governed by the company’s Memorandum of Incorporation and are subject to
periodic re-election and the shareholder’s approval.
Our directors are individuals of high calibre with diverse backgrounds and expertise, facilitating independent judgement
and effective deliberation in the decision-making process, whilst pursuing sefa’s strategic objectives. The board met for
the frst time on 20 April 2012 since the appointment of the new board members.
The board is responsible to the shareholder for setting economic, social and environmental direction through strategic
objectives and key policies, and monitors implementation through structured reporting systems. The board accepts
responsibility for the annual fnancial statements.
The adequacy of the board and the appointment of new directors are reviewed periodically by the shareholder.
GOVERNANCE
27 ANNUAL REPORT 2013
Board members attended the following board meetings during the reporting period:
20/04 03/05 18/05 07/06 13/08 23/08 01/10 20/11 30/01 06/03
S Magwentshu-
Rensburg ? ? ? ? ? ? ? ? ? ?
M Ferreira ? ? ? ? ? ? ? ? ? ?
IAS Tayob ? ? ? ? A ? ? ? ? ?
H Lupuwana A A A A A ? ? A ? A
SA Molepo ? ? ? ? A A A A ? ?
LB Mavundla ? ? ? ? ? ? A ? ? A
VG Mutshekwane ? ? ? ? ? ? ? ? ? ?
BP Calvin ? ? ? ? A ? ? ? ? A
GS Gouws ? ? A ? ? ? ? ? ? ?
K Schumann ? ? ? ? ? ? ? ? ? ?
W Fourie ? ? ? ? ? ? ? - - -
T Makhuvha - - - - - - - ? ? ?
? Present
A Apology
Remuneration
sefa directors were remunerated as follows:
Name of director
R’000
2013
R’000
2012
S Magwentshu-Rensburg (Chairperson) 218 178
M Ferreira 246 160
D Jackson (Resigned 23 February 2012) - 200
M Kekana (Resigned 31 March 2012) - 40
Z Lees (Resigned 31 March 2012) - 143
N Swana (Resigned 31 March 2012) - 137
V Twala (Resigned 31 March 2012) - 181
IAS Tayob 215 152
H Lupuwana 102 -
SA Molepo 155 -
LB Mavundla 210 -
VG Mutshekwane 275 -
BP Calvin 214 -
GS Gouws* - -
K Schumann* - -
Total 1,635 1,191
The difference in directors’ remuneration can be attributed to the increasing number of meetings held.
* Mr Gouws and Ms Schumann are employed by the IDC and do not earn director’s fees for services rendered to sefa.
sefa non-executive board members are remunerated for the meetings they attend at (market-related) rates approved
by the shareholder. No performance-based remuneration or retainer fees are paid to directors.
Senior management and other employees are paid market-related salaries as well as remuneration through the sefa
short-term incentive schemes based on performance.
28 Smal l Enterpri se Fi nance Agency
5.3 Delegation of authority
While the board delegates its authority to management, it retains the responsibility concerning the exercise of its delegated
authority. In terms of Section 56 of the PFMA, the board may confrm, vary or revoke any decision taken by an offcial as
a result of a delegation of powers by the board.
The board has established fve standing committees, namely Audit Committee, Enterprise Risk Committee, Wholesale
Investment Committee, Human Capital and Remuneration Committee and Direct Lending Committee, all of which are
ultimately accountable to the board.
Audit Committee (Audit)
The committee monitors the adequacy of fnancial controls and reporting, reviews audit plans and adherence to these
by the external and internal auditors; ascertains the reliability of the audit; ensures that fnancial reporting complies with
International Financial Reporting Standards (IFRS) and the Companies Act; ensures the integrity of integrated reporting;
ensures that there are effective measures in place on Information Technology risks as they relate to fnancial reporting;
reviews and makes recommendations on all fnancial matters; and recommends to the board the appointment and
removal of auditors.
Enterprise Risk Committee
The primary duty of the Risk Committee is the governance of risk. It assists management with the responsible stewardship
of sustainability, including stakeholder impact, management of material issues, sustainability governance and reporting.
Wholesale Investment Committee (WIC)
The purpose of the WIC is to act on behalf of the board by considering transactions mandated to it by the board which
would, prior to the creation of the committee, vest with the board. The WIC considers transactions relating to the
wholesale products where sefa exposure is less than R50 million. The WIC also considers transactions relating to the
indemnity scheme where the transaction exposure is above R5 million and up to R50 million. WIC approval is required
for all claims relating to the indemnity scheme that exceed R5 million.
Human Capital and Remuneration Committee (HCRC)
The main objective of the HCRC is to assist the board in the development of compensation policies, plans and performance
goals, as well as specifc compensation levels for sefa. The HCRC assists the board in fulflling its oversight responsibilities
relating to succession planning as well as overall compensation and human resource policies for all sefa employees.
Direct Lending Committee (DLC)
The purpose of the DLC is to act on behalf of the board by considering transactions and policicies mandated to it by
the board.
5.4 Shareholder engagement
The shareholder meets the sefa board at least once a year in order to discuss the shareholder’s strategy and expectations.
sefa contracts annually with the shareholder through the Shareholder Compact and reports on the year under review
through the annual report. The report is distributed to members of parliament and is available to the public on request.
In an effort to enhance communication and achieve the vision of the company, the board has unrestricted access to
executive management. In addition, communication with sefa employees is done through board feedback sessions
convened by the CEO.
29 ANNUAL REPORT 2013
Ethics policy
Board members are required to declare their interests in the declaration register before attending sefa board meetings.
sefa recognises the need for directors and employees to observe the highest standards of behaviour and business ethics
when engaging in business activities. All directors and employees are expected to act in accordance with the law and
with the highest standards of propriety and to comply with sefa’s Code of Ethics. The Social and Ethics Committee is in
the process of being established.
5.5 Company Secretary
The Company Secretary is responsible to the board for, inter alia, ensuring compliance with procedures and applicable
statutes and regulations. To enable the board to function effectively, all directors have full and timely access to information
that may be relevant to the proper discharge of their duties. This includes information such as corporate announcements,
investor communications, agenda items for board meetings and other developments which may affect sefa and its operations.
This also includes access to management where required.
5.6 Internal Audit
Internal Audit is an independent appraisal function to provide the Audit Committee and the Enterprise Risk Comittee
with assurance on the adequacy and effectiveness of the company’s systems of internal control, as well as to provide
consultative and forensic investigation services.
5.7 Enterprise risk management
Effective risk management is integral to sefa’s objective of consistently adding value to the business. Management continuously
develops and enhances its risk and control procedures to improve mechanisms for identifying, monitoring and mitigating
risks. The Audit and Enterprise Risk committees as well as the board of directors monitor areas of signifcant business risk
on a continuous basis. Once particular risks are identifed, it is the responsibility of the board to ensure that management
takes such action as is required to mitigate and minimise the risk.
Risk management is dealt with in the fnancial statements.
5.8 Internal control
The board has the overall responsibility of establishing and maintaining the company’s internal controls and for reviewing
the effectiveness thereof. The directors, through the relevant committees, have reviewed the effectiveness of the internal
controls in operation throughout the year. The role of the company’s management is to implement approved policies
on risk and control. sefa’s management implements on-going risk management process for identifying, evaluating and
managing signifcant risks faced by the company. This process is reviewed by the board during the course of any year.
sefa and its subsidiaries maintain fnancial and operational systems of internal control in order to fulfl the responsibility
for providing reliable fnancial information. These controls are designed to provide reasonable assurance that transactions
are concluded in accordance with management’s authority, that assets are adequately protected against material loss or
unauthorised acquisition, use, or disposal; and that transactions are properly authorised and recorded. This system includes
a documented organisational structure and division of responsibility, as well as established policies and procedures, including
a Code of Ethics, to foster a strong ethical climate, which are communicated throughout the company. The system also
includes careful selection, training and development of people.
30 Smal l Enterpri se Fi nance Agency
The company has its own Internal Audit Department which assesses risk and conducts internal audit activities. The internal
auditors not only assist the board in monitoring the operation of the internal control system, but report their fndings
and recommendations to management and the Audit Committee. Corrective actions and any other measures are taken
to address control defciencies and to improve the said system once those control defciencies are identifed. The board,
through its Audit Committee, provides supervision of the fnancial reporting process and internal control system.
There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error
and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only
reasonable assurance with respect to the preparation of fnancial statements and the safeguarding of assets. Furthermore,
the effectiveness of an internal control system can change with circumstances. However, to date, no signifcant breakdown
or circumvention of controls has occurred.
The key procedures, which the directors have established to review the effectiveness of the system of internal control,
include the following:
Management structure
The board has the overall responsibility for the company and there is a formal schedule of matters specifcally reserved
for the board. The Chief Executive Offcer, as the executive director, together with key senior management and executives,
constitute the Executive Committee, which meets regularly to discuss day-to-day operational matters. The Chief Executive
Offcer also meets regularly with the senior executives of the divisions and their management teams.
Risk assessment
The risk register identifes the key risks that the business is faced with, the probability of those risks occurring, the impact
in the event the risk occurs, and the actions taken to mitigate and manage those risks at the appropriate level. The risk
assessment is performed on a continuous basis and reports are presented to the board periodically.
Quality and integrity of employees
The integrity and competency of employees are maintained through competitive recruitment standards and subsequent
training. Competent human capital is seen as an essential part of the control environment and employees are evaluated
through a performance management system.
Budgetary process
Each year the board approves the annual budget and updated business plan. Key risk areas are identifed, performance is
monitored and relevant action is taken throughout the year via quarterly reporting to the board on variances from the
budget, updated forecasts for the year, together with information on key risk areas.
Capital expenditure
Capital expenditure is regulated by budgetary processes and authorisation levels. For expenditure beyond specifed levels,
detailed written proposals have to be submitted to the board for approval.
Audit Committee
The Audit Committee monitors the controls which are in force and any perceived gaps in the control environment. The
committee also considers and determines relevant mitigation taken in respect of any concerns relating to controls raised
by management, the internal auditors and/or the external auditors.
31 ANNUAL REPORT 2013
CONSOLIDATED AND SEPARATE
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2013
REGISTRATION NUMBER: 1995/011258/06
Statement of responsibility by the board of directors 32
Report of the board audit committee 33
Directors’ report 36
Declaration by the group company secretary 41
Report of the independent auditor 42
Statements of fnancial position 44
Statements of comprehensive income 45
Statements of changes in equity 46
Statements of cash fows 47
Notes to the fnancial statements 48
The consolidated and separate fnancial statements have been prepared under the supervision of Mr Andile Ramavhunga
CA (SA), the Group’s Chief Financial Offcer.
The fnancial statements have been audited in compliance with section 30 of the Companies Act, No. 71 of 2008.
32 Smal l Enterpri se Fi nance Agency
The Public Finance Management Act, No. 1 of 1999 (PFMA) requires the directors to ensure that sefa and its subsidiaries
keep full and proper records of its fnancial affairs. The fnancial statements should fairly present the state of affairs of the
company, its fnancial results, its performance against pre-determined objectives and its fnancial position at the end of
any given fnancial year in terms of International Financial Reporting Standards (IFRS).
The directors are responsible for the preparation and fair presentation of the consolidated and separate annual fnancial
statements of sefa, comprising of the statements of fnancial position as at 31 March 2013, and the statements of
comprehensive income, changes in equity and cash fows for the year ended, and the notes of the fnancial statements
which include a summary of signifcant accounting policies and other explanatory notes, in accordance with IFRS, the
Companies Act of South Africa, the PFMA and the Public Act, 2004.
The directors are ultimately responsible for the internal controls; and management assists the directors to meet these
responsibilities. Standards and systems of internal control are designed and implemented by management to provide
reasonable assurance as to the integrity and reliability of the fnancial statements in accordance with IFRS and to adequately
safeguard, verify and maintain accountability for assets. Accounting policies supported by judgements, estimates and
assumptions which comply with IFRS, are applied on a consistent and going concern basis. Systems and controls include
the proper delegation of responsibilities within a clearly defned framework, effective accounting procedures and adequate
segregation of duties.
Based on the information and explanations given by management and the internal auditors and discussions held with
external auditors on the results of their audits, the directors are of the opinion that the internal accounting controls are
adequate to ensure that the fnancial records are relied upon for preparing the fnancial statements, and accountability
for assets and liabilities is maintained.
Nothing has come to the attention of the directors indicating any breakdown in the functioning of these controls,
resulting in material loss to the company during the year under review and until the date of this report. The directors
have a reasonable expectation that the company and its subsidiaries have adequate resources to continue in operational
existence for the foreseeable future. For this reason, the directors continue to adopt the going concern approach in the
preparation of the fnancial statements.
The auditor is responsible for reporting on whether the consolidated and separate fnancial statements are fairly presented
in accordance with the applicable fnancial reporting framework.
In the opinion of the directors and, based on the information available to date, the fnancial statements fairly present the
fnancial position of sefa as at 31 March 2013 and the results of its operations and cash fow information for the year
then ended.
The fnancial statements prepared in accordance with IFRS, which appear on pages 44 to128 were approved by the board
of directors on 23 August 2013 and are signed on its behalf by:
Dr Sizeka Magwentshu-Rensburg Mr Thakhani Makhuvha
Chairperson of the Board of Directors Chief Executive Offcer
STATEMENT OF RESPONSIBILITY BY THE BOARD
OF DIRECTORS
FOR THE YEAR ENDED 31 MARCH 2013
33 ANNUAL REPORT 2013
The audit committee is pleased to present its report for the fnancial year ended 31 March 2013.
This report is in compliance with the requirements of the Companies Act, No. 71 of 2008 and the King Report on
Corporate Governance for South Africa 2009 (King III).
Audit committee mandate
The committee is governed by a formal audit committee charter that has been updated to incorporate the requirements
of the Companies Act, No. 71 of 2008 which came into effect on 1 May 2011. This charter guides the committee in terms
of its objectives, authority and responsibilities.
The audit committee recognises its important role as part of the risk management and corporate governance processes
and procedures of sefa.
Role of the audit committee
The role of the audit committee is, inter alia:
General
• To ensure that the respective roles and functions of external audit and internal audit are suffciently clarifed and
co-ordinated and that the combined assurance received is appropriate to address all signifcant risks;
• Assist the board in carrying out its risk management responsibilities; and
• Receive and deal appropriately with any complaints.
External auditors
• To evaluate the independence, effectiveness and performance of the external auditors, and obtain assurance from
the auditors that adequate accounting records are being maintained and appropriate accounting principles are in
place which have been consistently applied;
• To evaluate the appointment of the external auditors on an annual basis;
• To approve the audit fee and fees in respect of any non-audit services;
• To consider and respond to any questions from the board and shareholders regarding the resignation or dismissal
of the external auditor, if necessary;
• To review and approve the external audit plan; and
• To ensure that the scope of the external audit has no limitations imposed by management and that there is no
impairment on its independence.
Internal control and internal auditors
• To review the effectiveness of the group’s systems of internal control, including internal fnancial control and risk
management and to ensure that effective internal control systems are maintained;
• To monitor and supervise the effective functioning and performance of the internal auditors;
• To review and approve the annual internal audit plan and the internal audit charter; and
• To ensure that the scope of the internal audit function has no limitations imposed by management and that there
is no impairment on its independence.
REPORT OF THE BOARD AUDIT COMMITTEE
FOR THE YEAR ENDED 31 MARCH 2013
34 Smal l Enterpri se Fi nance Agency
Financial results
• Consider any accounting treatments, signifcant unusual transactions, or accounting judgements that could be
contentious;
• To review the annual report, as well as annual fnancial statements;
• To review interim reports, preliminary reports or other fnancial information prior to submission and approval by
the board; and
• To provide as part of the annual report, a report by the audit committee.
Specifc responsibilities
The committee confrms that it has carried out its functions in terms of section 94(7) of the Companies Act, No. 71 of
2008 by:
• Confrming the nomination of KPMG Inc. as the group’s registered auditor and being satisfed that they are independent
of the company;
• Approving the terms of engagement and fees to be paid to KPMG Inc.;
• Ensuring that the appointment of KPMG Inc. complies with the provisions of the Companies Act;
• Determining the nature and extent of any non-audit services which the external auditors provide to the company,
or a related company;
• Pre-approving any proposed agreement with KPMG Inc. for the provision of any non-audit services;
• Preparing this report for inclusion in the annual fnancial statements as well as in the annual report;
• Receiving and dealing appropriately with any relevant concerns or complaints;
• Making submissions to the board on any matter concerning the company’s accounting policies, fnancial control,
records and reporting; and
• Performing such other oversight functions as may be determined by the board.
Internal fnancial control
Based on the assessment of the system of internal fnancial controls conducted by sefa’s internal audit function, as well
as information and explanations given by management and discussions held with the external auditor on the results of
their audit, the committee is of the opinion that sefa’s system of internal fnancial controls is effective and forms a basis
for the preparation of reliable fnancial statements in respect of the year under review.
Risk management
While the board is ultimately responsible for the maintenance of an effective risk management process, the committee,
together with the risk committee, assists the board in assessing the adequacy of the risk management process. The
chairperson of this committee has an open invitation to risk committee meetings to ensure that relevant information is
regularly shared. The committee fulflls an oversight role regarding fnancial reporting risks, internal fnancial controls, fraud
risk as it relates to fnancial reporting and information technology risks as they relate to fnancial reporting.
REPORT OF THE BOARD AUDIT COMMITTEE (Continued)
35 ANNUAL REPORT 2013
External auditors
The group’s external auditors are KPMG Inc. and the designated partner is Mr WGE Pretorius.
KPMG Inc. is afforded unrestricted access to the group’s records and management and presents any signifcant issues arising
from the annual audit to the committee. In addition, KPMG Inc. raises matters of concern directly with the chairperson
of the committee.
The committee gave due consideration to the independence of the external auditors and is satisfed that KPMG Inc. is
independent of the group and management and therefore able to express an independent opinion on the group’s annual
fnancial statements.
Financial management
The committee has reviewed the fnancial statements of the company and the group and is satisfed that they comply
with IFRS.
In addition, the committee has reviewed management’s assessment of going concern and recommended to the board
that the going concern concept be adopted by sefa.
Approval
The committee recommended the approval of the annual fnancial statements to the board.
On behalf of the board audit committee:
Mr Ismail Tayob
Chairperson of the Board Audit Committee
23 August 2013
36 Smal l Enterpri se Fi nance Agency
Introduction
In his 2011 State of the Nation Address, the Honourable President of South Africa, Mr JG Zuma, introduced the notion of
“merging” the three small business funding agencies namely; Khula Enterprise Finance Limited (Khula), the South African
Micro Finance Apex Fund (samaf) and the Industrial Development Corporation’s (IDC) small business funding activities
into a single entity. In response, the Economic Development Department (EDD), in collaboration with several government
departments, started working towards the creation of this new entity.
The following events occurred during the fnancial year under review as a result of the President’s announcement:
• Khula’s legal name was changed to Small Enterprise Finance Agency SOC Limited (sefa);
• samaf’s business, with all its assets and liabilities, was transferred to sefa as a going concern; and
• sefa became a wholly owned subsidiary of the IDC.
The merger was accounted for as a common control transaction. A common control transaction is a business combination
where the combining entities or businesses are ultimately controlled by the same party or parties both before and after
the combination. In this case, Khula (now sefa) and the business of samaf were ultimately controlled by the South African
government both before and after the combination.
sefa is registered as a State Owned Company (SOC) in terms of the Companies Act and is listed as a Schedule 2 entity
in terms of the PFMA and Treasury Regulations.
Nature of business
sefa is a development fnance institution, which provides fnance to small, micro and medium enterprises (SMMEs) directly
through its branch network and indirectly through Financial Intermediaries (FI’s) and other suitable fnancial institutions.
Finance is provided in the form of loans, equity capital and indemnities. The group also owns a portfolio of business
premises that are leased to commercial undertakings.
Funding
sefa’s loan funding requirements are sourced mainly from grants received from the EDD. In addition to grants received,
the IDC has committed advances through a shareholders loan to the value of R921 million for on-lending activities.
Public Finance Management Act
sefa’s board is responsible for the development of the company’s strategic direction. The company’s strategy and business
plan are captured in the shareholder’s compact and approved by the board. After approval the shareholder’s agreement
is obtained and thereafter the compact forms the basis for the company’s detailed action plans and on-going performance
evaluation.
The responsibility for the day-to-day management of the company vests in line management through a clearly defned
organisational structure and through formal delegated authorities.
DIRECTORS’ REPORT
FOR THE YEAR ENDED 31 MARCH 2013
37 ANNUAL REPORT 2013
sefa has a comprehensive system of internal controls, which are designed to ensure that the company’s objectives are
met, including the requirements of the Companies Act and the recommendations of King III. These systems and controls
meet the requirements of the PFMA. There are processes in place to ensure that where these controls fail, such failure
is detected and corrected.
Adoption of IFRS and changes in accounting policies
IFRS were adopted for the frst time during the current fnancial year and changes were made to selected accounting
policies. Refer to notes 1.2 and 2 in the fnancial statements for more information.
Signifcant matters
During the fnancial year, Marang Financial Services (Pty) Ltd (Marang), a large micro-fnance intermediary and a client of
sefa was placed under liquidation. A Final Liquidation order was granted by the Master of the High Court on the 26
th
of
March 2013. The liquidation of Marang is expected to have a negative effect on the micro-fnance sector, however sefa
is investigating options for remedying the situation to ensure that service delivery in the sector is not severely impacted.
sefa owns a property portfolio with a value of R171.4 million. During the fnancial year a fair value loss of R21.9 million
relating to the property portfolio was recognised in proft or loss as a result of an adjustment in the valuation method used.
This portfolio is faced with challenges ranging from an ageing infrastructure to non-collection of rentals. During the fnancial
year, the board approved a turnaround strategy for the portfolio which will be implemented in the 2013/14 fnancial year.
It is envisaged that the strategy will deal effectively with the identifed challenges.
Subsidiaries, joint ventures and associates
Details of each trading subsidiary, joint venture and associate are set out in the notes to the fnancial statements.
Dividends
No dividends have been declared during the year and none are recommended (2012: Rnil).
Share capital
The authorised and issued share capital remained unchanged during the year (2012: unchanged).
Materiality and signifcance
Materiality levels for reporting in terms of section 55(2)(b)(i) of the PFMA
Section 55(2)(b)(i) of the PFMA states that the annual report and fnancial statements should include particulars of any
material losses through criminal conduct and irregular expenditure and fruitless and wasteful expenditure that occurred
during the fnancial year. The term material has not been defned in the Act.
Signifcance levels related to sections 51(1)(g) and 54(2) of the PFMA
Sections 51(1)(g) and 54(2) of the PFMA read in conjunction with the related practice note requires the use of a
signifcance framework.
38 Smal l Enterpri se Fi nance Agency
Based on the guidelines in the practice note and after evaluating the total assets, total revenue and proft after tax for the
sefa group, a signifcance level of R18 million had been adopted.
Unauthorised, irregular, fruitless and wasteful expenditure
Fruitless and wasteful expenditure
The PFMA defnes fruitless and wasteful expenditure as expenditure which was made in vain and would have been
avoided had reasonable care been exercised.
2013 2012
Note R’000 R’000
Opening balance 632 2,300
Fruitless and wasteful expenditure current year
Projects abandoned prior to implementation 76 313
Interest on late payment of supplier invoice 5 -
Penalty on under estimation of provisional tax - 665
Penalty on under estimation of provisional tax (1) 665 (665)
Interest on late payment of provisional tax 39 289
Interest on late payment of VAT - 30
Condoned or written off by accounting authority - (2300)
Fruitless and wasteful expenditure awaiting condonement 1,417 632
(1) The full amount relates to a penalty paid to the Receiver of Revenue relating to the 2011 tax year for the under estimation of
provisional tax. This penalty was reported as fruitless and wasteful expenditure in the 2012 year and simultaneously a contingent asset
was raised on the table of fruitless and wasteful expenditure. The contingent asset was a result of expectations that the Receiver of
Revenue would waive the penalty or that losses will be recovered from a 3
rd
party. It has become evident during the current fnancial
year that the expense is likely to be irrecoverable.
DIRECTORS’ REPORT (Continued)
39 ANNUAL REPORT 2013
Irregular expenditure
Irregular expenditure signifes expenditure incurred without adhering to established rules, regulations, procedural guidelines,
policies, principles or practices that have been implemented to ensure compliance with the PFMA, relevant tender
regulations as well as any other relevant procurement regulations.
2013 2012
Note R’000 R’000
Opening balance - -
Irregular expenditure current year 5,922 -
Condoned or written off by accounting authority (5,429) -
Irregular expenditure awaiting condonement (1) 493 -
(1) Management is in the process of regularising these matters and have not yet requested condonement from the board of directors.
Audit committee information
Audit committee members have attended the following audit committee meetings during the reporting period:
Name of director 26/07 02/10 11/12 22/01 25/02
IAS Tayob ? A ? ? ?
VG Mutshekwane ? ? ? ? ?
GS Gouws ? ? ? ? ?
? - Present
A - Apology
40 Smal l Enterpri se Fi nance Agency
Directors
The directors in offce during the fnancial year and up to the date of the approval of the annual fnancial statements were:
Appointed Resigned
Executive:
T Makhuvha 1 November 2012 -
W Fourie (Interim Managing Director) 1 September 2011 31 October 2012
Non-executive:
S Magwentshu-Rensburg (Chairperson) 7 April 2010 -
IAS Tayob 7 April 2003 -
M Ferreira 7 April 2010 -
H Lupuwana 1 April 2012 -
SA Molepo 1 April 2012 -
K Schumann 1 April 2012 -
L Mavundla 1 April 2012 -
VG Mutshekwane 1 April 2012 -
GS Gouws 1 April 2012 -
B Calvin 1 April 2012 -
Post reporting date events
The directors are not aware of any other matter or circumstance arising since the end of the fnancial year and
23 August 2013, not otherwise dealt with in the report that would affect the operations of the company or the group
signifcantly.
DIRECTORS’ REPORT (Continued)
41 ANNUAL REPORT 2013
In terms of section 88(2)(e) of the Companies Act, No. 71 of 2008, I certify that, to the best of my knowledge and
belief, sefa has lodged with the Registrar of Companies for the fnancial year ended 31 March 2013 all such returns as
are required in terms of the Companies Act, and that such returns are true, correct and up to date. I certify that for the
fnancial year ended 31 March 2013, sefa has lodged with the Minister of Economic Development the fnancial statements
in respect of the preceding fnancial year.
Mr Bheki Dlamini
Group Company Secretary (Acting)
23 August 2013
DECLARATION BY THE GROUP COMPANY SECRETARY
FOR THE YEAR ENDED 31 MARCH 2013
42 Smal l Enterpri se Fi nance Agency
Report on the fnancial statements
We have audited the consolidated and separate fnancial statements of the Small Enterprise Finance Agency SOC Limited
as set out on pages 44 to 128, which comprise the statements of fnancial position as at 31 March 2013, the statements
of comprehensive income, statements of changes in equity and the statements of cash fows for the year then ended, and
the notes, comprising a summary of signifcant accounting policies and other explanatory information.
The directors’ responsibility for the fnancial statements
The Board of Directors, which constitutes the accounting authority, is responsible for the preparation and fair presentation
of these fnancial statements in accordance with International Financial Reporting Standards, the requirements of the
Public Finance Management Act of South Africa and the Companies Act of South Africa, and for such internal control
as the accounting authority determines is necessary to enable the preparation of fnancial statements that are free from
material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these fnancial statements based on our audit. We conducted our audit in
accordance with the Public Audit Act of South Africa, the General Notice issued in terms thereof and International Standards
on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the fnancial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fnancial statements.
The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of
the fnancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the fnancial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall presentation of the fnancial statements.
We believe that the audit evidence we have obtained is suffcient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, these fnancial statements present fairly, in all material respects, the consolidated and separate fnancial
position of the Small Enterprise Finance Agency SOC Limited as at 31 March 2013, and its consolidated and separate
fnancial performance and the consolidated and separate cash fows for the year then ended in accordance with
International Financial Reporting Standards and the requirements of the Public Finance Management Act of South Africa
and the Companies Act of South Africa.
Other reports required by the Companies Act
As part of our audit of the fnancial statements for the year ended 31 March 2013, we have read the Directors’ Report,
the Audit Committee’s Report and the Company Secretary’s Certifcate for the purpose of identifying whether there are
material inconsistencies between these reports and the audited fnancial statements. These reports are the responsibility
of the respective preparers. Based on reading these reports we have not identifed material inconsistencies between
these reports and the audited fnancial statements. However, we have not audited these reports and accordingly do not
express an opinion on these reports.
INDEPENDENT AUDITOR’ S REPORT
TO PARLIAMENT ON THE SMALL ENTERPRISE FINANCE AGENCY SOC LIMITED
43 ANNUAL REPORT 2013
Report on other legal and regulatory requirements
Public Audit Act Requirements (PAA)
In accordance with the Public Audit Act of South Africa, and the General Notice issued in terms thereof, we report the
following fndings relevant to performance against predetermined objectives, compliance with laws and regulations and
internal control, but not for the purpose of expressing an opinion.
Predetermined objectives
We performed procedures to obtain evidence about the usefulness and reliability of the information in the Performance
against Predetermined Objectives section as set out on pages 24 to 25 of the annual report, and reported thereon to the
Accounting Authority.
The reported performance against predetermined objectives was evaluated against the overall criteria of usefulness and
reliability. The usefulness of information in the annual performance report relates to whether it is presented in accordance
with the National Treasury’s annual reporting principles and whether the reported performance is consistent with the planned
objectives. The usefulness of information further relates to whether indicators and targets are measurable (i.e. well defned,
verifable, specifc, measurable and time bound) and relevant as required by the National Treasury Framework for managing
programme performance information.
The reliability of the information in respect of the selected objectives is assessed to determine whether it adequately refects
the facts (i.e. whether it is valid, accurate and complete).
We report that there were no material fndings from our report to the Accounting Authority.
Other matters
We draw attention to the matters below. Our opinion is not modifed in respect of these matters.
Achievement of planned targets
Of the total number of 23 targets planned for the year, 9 of targets were not achieved during the year under review. This
represents 39.13 % of total planned targets that were not achieved during the year under review.
Material adjustments to the Performance against Predetermined Objectives section
Material audit adjustments in the annual performance report were identifed during the audit and all adjustments were
corrected by management.
Compliance with laws and regulations
We performed procedures to obtain evidence that the entity has complied with applicable laws and regulations regarding
fnancial matters, fnancial management and other related matters. We did not identify any instances of material non-compliance
with specifc matters in key applicable laws and regulations as set out in the General Notice issued in terms of the PAA.
Internal control
We considered internal control relevant to our audit of the fnancial statements, Performance against Predetermined
Objectives and compliance with laws and regulations, but not for the purpose of expressing an opinion on the effectiveness
of internal control. We did not identify any defciencies in internal control that we considered suffciently signifcant for
inclusion in this report.
KPMG Inc.
Per WGE Pretorius
Chartered Accountant (SA)
Registered Auditor
Director
23 August 2013
KPMG Crescent
85 Empire Road
Parktown
Johannesburg
Gauteng
2193
44 Smal l Enterpri se Fi nance Agency
STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 MARCH 2013
Group Company
2013 2012
1 April
2011 2013 2012
1 April
2011
Note R’000 R’000 R’000 R’000 R’000 R’000
Assets
Cash and cash equivalents 5 909,998 725,792 571,793 808,767 517,682 346,184
Trade and other receivables 6 21,303 24,431 22,108 22,695 21,764 21,939
Tax receivable 29 60 - 8,446 - - 8,323
Loans and advances 7 303,060 249,485 296,859 211,576 162,245 212,397
Investments 8 26,409 47,871 68,502 26,409 47,871 68,502
Investments in subsidiaries 9 - - - 141,604 139,674 142,452
Investments in associates 10 604,914 576,005 559,663 108,982 99,909 98,622
Investments in joint ventures 11 53,037 48,702 53,955 7,047 7,264 48,012
Deferred tax asset 12 75,193 39,617 35,469 113,338 74,453 56,859
Investment properties 13 171,435 195,264 187,508 171,435 195,264 187,508
Equipment 14 12,401 1,535 2,005 12,280 1,385 2,005
Intangible assets 15 1,874 1,817 - 1,699 1,550 -
Total assets 2,179,684 1,910,519 1,806,308 1,625,832 1,269,061 1,192,803
Equity and liabilities
Share capital 16 308,300 308,300 308,300 308,300 308,300 308,300
Reserves 756,901 618,885 605,163 254,725 145,412 173,958
Equity attributable to owners
of the parent 1,065,201 927,185 913,463 563,025 453,712 482,258
Non-controlIing interest - 4 2 - - -
Total equity 1,065,201 927,189 913,465 563,025 453,712 482,258
Liabilities
Trade and other payables 18 136,784 132,878 122,048 101,911 22,150 26,083
Tax payable 29 - 5,518 199 - 5,157 -
Shareholders Ioans 17 944,542 794,131 703,852 944,542 774,462 684,462
Outstanding claims reserve 19 11,073 27,043 55,412 - - -
Deferred tax liability 12 15,628 13,225 - 16,354 13,580 -
Unearned risk reserve 19 6,456 10,535 11,332 - - -
Total liabilities 1,114,483 983,330 892,843 1,062,807 815,349 710,545
Total equity and liabilities 2,179,684 1,910,519 1,806,308 1,625,832 1,269,061 1,192,803
45 ANNUAL REPORT 2013
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2013
Group Company
2013 2012 2013 2012
Note R’000 R’000 R’000 R’000
Income
Revenue 20 116,759 113,738 101,693 97,492
Other income 21 3,663 8,091 1,774 12,105
Grant income 22 48,870 5,000 48,870 5,000
Net fair value (loss)/gain on fnancial
and other assets 23 (21,929) 7,077 (21,929) 7,756
147,363 133,906 130,408 122,353
Expenses
Personnel expenses (85,157) (36,999) (85,157) (36,991)
Investment property expenses (33,193) (45,214) (33,193) (45,214)
Movement on impairments and bad
debt provisions (68,542) 8,696 (71,187) (29,353)
Bad debts written off (10,476) (30,870) - (10,413)
Other operating expenses (76,194) (71,565) (70,099) (27,786)
Operating loss 24 (126,199) (42,046) (129,228) (27,404)
Proft from equity accounted
investments, net of tax 28,979 19,301 - -
Loss before tax (97,220) (22,745) (129,228) (27,404)
Income tax income/(expense) 25 32,806 (14,469) 36,110 (1,142)
Net loss for the year (64,414) (37,214) (93,118) (28,546)
Other comprehensive income for the
year, net of tax - - - -
Total comprehensive loss for
the year (64,414) (37,214) (93,118) (28,546)
Loss and total comprehensive loss
attributable to:
Owners of the parent (64,410) (37,215)
Non-controlling interest (4) 1
Total loss and comprehensive
loss for the year (64,414) (37,214)
46 Smal l Enterpri se Fi nance Agency
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2013
Share
Capital
Contingency
Reserve
Danida
Reserve
(1)
Retained
Earnings
Non-
controlling
Interest Total
Group
R’000 R’000 R’000 R’000 R’000 R’000
Balance at 31 March 2011 308,300 795 10,155 193,429 3 512,682
Changes due to adoption of IFRS
and changes in policies - - - 400,784 - 400,784
Balance at 1 April 2011
adjusted 308,300 795 10,155 594,213 3 913,466
Changes due to adoption of IFRS
and changes in policies - - - 35,240 - 35,240
Transfer to retained earnings. - (795) - 795 - -
Changes in participation ratio in
subsidiaries and joint ventures. - - - 15,691 - 15,691
Total comprehensive (loss)/
income for the year - - - (37,214) 1 (37,213)
Balance at 31 March 2012 308,300 - 10,155 608,725 4 927,184
Gain on the transfer of samaf
assets and liabilities - - - 202,431 - 202,431
TotaI comprehensive loss for
the year - - - (64,410) (4) (64,414)
Balance at 31 March 2013 308,300 - 10,155 746,746 - 1,065,201
Company
Balance at 31 March 2011 308,300 - - 173,957 - 482,257
Changes due to adoption of IFRS
and changes in policies - - - - - -
Balance at 1 April 2011
adjusted 308,300 - - 173,957 - 482,257
Changes due to adoption of IFRS
and changes in policies - - - - - -
TotaI comprehensive loss for
the year - - - (28,545) - (28,545)
Balance at 31 March 2012 308,300 - - 145,412 - 453,712
Gain on the transfer of samaf
assets and liabilities - - - 202,431 - 202,431
Total comprehensive loss for
the year - - - (93,118) - (93,118)
Balance at 31 March 2013 308,300 - - 254,725 - 563,025
(1) This reserve arises from expired credit guarantees funded by the government of Denmark, out of which Khula Credit Guarantee
Limited may issue its own further credit guarantees.
47 ANNUAL REPORT 2013
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2013
Group Company
2013 2012 2013 2012
Note R R R R
Cash fows from operating
activities
Cash utilised by operations 28 (194,982) (58,917) (113,018) (37,128)
(lncrease)/decrease in loans and
advances (50,896) 2,654 (31,392) 22,405
Grant income received 48,870 5,000 48,870 5,000
Interest and dividends received 51,151 42,729 45,150 37,053
Tax (paid)/received 29 (5,945) 8,372 (5,157) 8,323
Net cash (utilised)/generated by
operating activities (151,802) (162) (55,547) 35,653
Cash fows from investing
activities
Purchase of equipment (12,282) (147) (12,273) (147)
Purchase of intangible assets (571) (1,827) (572) (1,770)
Repayments from En Commandite
partnership 13,904 17,041 13,904 17,041
Investments in associates (9,808) (2,234) (9,808) (2,234)
Advances to joint ventures 638 40,532 638 40,532
Repayments from subsidiaries - - (9,057) (16,819)
Acquisition of subsidiary (net of cash
acquired) 30 191,709 2,730 191,709 -
Net cash infow on disposal of
subsidiary 31 - 7,733 - 9,000
Proceeds from sale of property and
equipment 107 54 111 53
Proceeds from sale of investment
properties 1,900 - 1,900 190
Net cash generated by investing
activities 185,597 63,882 176,552 45,846
Cash fows from fnancing
activities
Capital funding received from
shareholders 150,411 90,279 170,080 89,999
Net cash from fnancing activities 150,411 90,279 170,080 89,999
Net increase in cash and cash
equivalents 184,206 153,999 291,085 171,498
Cash and cash equivalents at
beginning of year 725,792 571,793 517,682 346,184
Cash and cash equivalents at
end of year 909,998 725,792 808,767 517,682
48 Smal l Enterpri se Fi nance Agency
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2013
1. Accounting policies
1.1 Reporting entity
In his 2011 State of the Nation Address, the Honourable President of South Africa, Mr JG Zuma, introduced the notion
of “merging” the three small business funding agencies namely; Khula Enterprise Finance Limited (Khula), the South African
Micro Finance Apex Fund (samaf) and the Industrial Development Corporation’s (IDC) small business funding activities
into a single entity. In response, the Economic Development Department (EDD), in collaboration with several government
departments, started working towards the creation of this new entity.
The following events occurred during the fnancial year under review as a result of the President’s announcement:
• Khula’s legal name was changed to Small Enterprise Finance Agency SOC Limited (sefa);
• samaf’s business, with all its assets and liabilities, was transferred to sefa as a going concern; and
• sefa became a wholly owned subsidiary of the IDC.
The merger was accounted for as a common control transaction. A common control transaction is a business combination
where the combining entities or businesses are ultimately controlled by the same party or parties both before and after
the combination. In this case, Khula (now sefa) and the business of samaf were ultimately controlled by the South African
government both before and after the combination.
sefa is domiciled in South Africa.
The consolidated fnancial statements for the year ended 31 March 2013 comprise sefa, its subsidiaries and the group’s
interest in associates and jointly controlled entities (referred to as the group). Where reference is made to the group in
the fnancial statements, it applies to the company as well, unless otherwise noted.
The fnancial statements were authorised for issue by the directors on 23 August 2013.
1.2 Adoption of IFRS and changes in accounting policies
The prior year fnancial statements of both Khula and samaf were compiled in accordance with South African General
Accepted Accounting Practices (SA GAAP).
International Financial Reporting Standards (IFRS) were adopted for the frst time during the current fnancial year. The
separate and consolidated fnancial statements have been prepared in accordance with IFRS and IFRS 1 – First-time
Adoption of International Financial Reporting Standards (IFRS 1) has been applied. Subject to certain transition elections
and exceptions disclosed in note 2, the company and group have consistently applied the accounting policies used in
the preparation of its opening IFRS statement of fnancial position at 1 April 2011 throughout all periods presented, as if
these policies had always been in effect. Note 2 discloses the impact of the transition to IFRS on the company and group’s
reported fnancial position, fnancial performance and cash fows, including the nature and effect of signifcant changes in
accounting policies from those used in the separate and consolidated fnancial statements for the year ended 31 March
2012 prepared under SA GAAP.
49 ANNUAL REPORT 2013
1.3 Statement of compliance
The separate and consolidated fnancial statements have been prepared in accordance with and comply with IFRS and
its interpretations adopted by the International Accounting Standards Board (IASB) as well as the requirements of the
PFMA, as amended.
1.4 Basis of preparation
The separate and consolidated fnancial statements are presented in South African Rand, which is the company’s functional
currency, rounded to the nearest thousand.
These separate and consolidated fnancial statements are prepared on the historical cost basis, except for the following:
• Investment properties are measured at fair value;
• Financial instruments held-for-trading are measured at fair value; and
• Financial instruments classifed as available-for-sale are measured at fair value.
International Financial Reporting Standards, amendments and interpretations effective for the first time in the current
year:
• Amendment to IFRS 7 – Disclosures - Transfer of fnancial assets (Effective 1 July 2011). The amendments are intended
to address concerns raised during the fnancial crisis by the G20, among others, that fnancial statements did not
allow users to understand the on-going risks the entity faced due to derecognised receivables and other fnancial
assets. The amendment did not have a signifcant impact on the disclosures provided in the fnancial statements.
• Amendments to IAS12 – IAS12 Income Taxes requires an entity to measure deferred tax relating to an asset depending
on whether the entity expects to recover the carrying amount of an asset through use or sale.
The amendment made by Deferred Tax: Recovery of Underlying Assets (Effective 1 January 2012) provides a practical
solution to the application of these requirements in relation to investment property under IAS 40 Investment Property,
introducing a presumption that recovery of the carrying amount of an investment property will normally be through
sale. This amendment did not have an impact on the current fnancial year as deferred tax on Investment Property was
previously calculated using the capital gains inclusion rate.
• IASB Annual improvement project - As part of its fourth annual improvement project the IASB has issued its 2011
edition of improvements. The annual improvement project aims to clarify and improve the current accounting standards.
The improvements include items involving terminology or editorial changes, with minimal effect on recognition and
measurement.
Standards, amendments and interpretations to existing standards not yet effective and also not early adopted
• IFRS 9 - IFRS 9 (2009) introduces new requirements for the classifcation and measurement of fnancial assets. Under
IFRS 9 (2009), fnancial assets are classifed and measured based on the business model in which they are held and
the characteristics of their contractual cash fows. IFRS 9 (2010) introduces additions relating to fnancial liabilities. The
IASB currently has an active project to make limited amendments to the classifcation and measurement requirements
of IFRS 9 and add new requirements to address the impairment of fnancial assets and hedge accounting.
50 Smal l Enterpri se Fi nance Agency 50 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
IFRS 9 (2009) and (2010) are effective for annual periods beginning on or after 1 January 2015 with early adoption
permitted. The group and company will adopt this standard for the fnancial year commencing 1 April 2015. The
adoption of IFRS 9 (2010) is expected to have an impact on the group and company’s fnancial assets, but not any
impact on the group and company’s fnancial liabilities.
• Consolidation suite of standards
The IASB released the suite of consolidation standards in 2011. The suite of standards is IFRS 10 – Consolidated
Financial Statements, IFRS 11 – Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 – Separate
Financial Statements (2011) and IAS 28 – Investments in Associates and Joint Ventures (2011). This suite of standards
will need to be adopted simultaneously by the group, with an effective date for the reporting year commencing
1 April 2013.
- IFRS 10 – Consolidated Financial Statements (Effective 1 January 2013). The standard requires a parent company
to present consolidated fnancial statements as a single economic entity, replacing IAS 27 – Consolidated and
Separate Financial Statements and SIC-12 Consolidation: special purpose entities (SPEs). The standard identifes
the principles of control, determines how to identify whether an investor controls an investee, and therefore
the requirement to consolidate the investee, and sets out the principles for the preparation of consolidated
fnancial statements. The standard introduces a single consolidation model for all entities based on control,
irrespective of the nature of the investee (ie whether an entity is controlled through voting rights of investors
or through other contractual arrangements as is common in SPEs interpretation).
- IFRS 11 – Joint Arrangements (Effective 1 January 2013) - IFRS 11 replaces IAS 31 – Interests in Joint Ventures.
It requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved
by assessing its rights and obligations and then account for those rights and obligations in accordance with that
type of joint arrangement.
- IFRS 12 – Disclosure of Interests in Other Entities (Effective 1 January 2013) – This standard requires extended
disclosure of information that will enable users of fnancial statements to evaluate the nature of, and risks
associated with, interests in other entities and the effects of those interests on an entity’s fnancial position,
fnancial performance and cash fows.
• IFRS 13 – Fair-value Measurement (Effective 1 January 2013) – This standard replaces the guidance on fair-value
measurement in the various existing IFRS accounting conceptual framework, standards and interpretations with a single
standard. IFRS 13 defnes fair value, provides guidance on how to determine fair value and the required disclosures of
fair value measurements. However, IFRS 13 does not change the requirements regarding which assets and liabilities
should be measured or disclosed at fair value. IFRS 13 applies when another standard or interpretation requires or
permits fair value measurements or disclosures of fair value measurements. With certain exceptions, the standard
requires entities to classify these measurements into a ‘fair value hierarchy’ based on the nature of the inputs.
• Amendment to IAS 1 – Presentation of Financial Statements (Effective 1 January 2013) – The following amendments
are required:
- Items presented in other comprehensive income are to be grouped, based on whether such items are potentially
reclassifable to proft or loss subsequently, i.e. those that might be reclassifed and those that will not be
reclassifed.
- Tax associated with items presented before tax is to be disclosed separately for each of the two groups of
other comprehensive income items (without changing the option to present such items of other comprehensive
income either before tax or net of tax).
• Amendments to IAS 19 – IAS 19 (2011) changes the defnition of short-term and long-term employee benefts to
clarify the distinction between the two. Items previously classifed as short-term employee benefts may need to be
51 ANNUAL REPORT 2013
reclassifed as long-term employee benefts as a result of the change. The rest of the amendments are not expected
to have an impact on the Group. IAS 19 (2011) is effective for annual periods beginning on or after 1 January 2013
with early adoption permitted.
• Revised IAS 27 – Separate Financial Statements (2011). The amended version of IAS 27 deals with the requirements
for separate fnancial statements. The standard requires that, when an entity prepares separate fnancial statements,
investments in subsidiaries, associates and jointly controlled entities are accounted for either at cost or in accordance
with IFRS 9 – Financial Instruments. The standard also deals with the recognition of dividends and certain group
reorganisations, and includes related disclosure requirements. The amendment to this standard is required to be
adopted in conjunction with the consolidation suite of standards.
• Revised IAS 28 – Investments in Associates and Joint Ventures (2011) (Effective 1 January 2013) – This standard
supersedes IAS 28 – Investments in Associates and prescribes the accounting for investments in associates and
sets out the requirements for the application of the equity method when accounting for investments in associates
and joint ventures. The standard defnes ‘signifcant infuence’ and provides guidance on how the equity method of
accounting is to be applied and also prescribes how investments in associates and joint ventures must be tested for
impairment.
• Amendments to IAS 32 – Financial Instruments: Presentation and IFRS 7 – Financial Instruments: Disclosure The
amendment of IAS 32 – Financial Instruments: Presentation of Financial Assets and Financial Liabilities clarifes certain
aspects in view of diversity in the application of the requirements on offsetting and focuses on four main areas:
- The meaning of ‘currently has a legally enforceable right of setoff ’.
- The application of simultaneous realisation and settlement.
- The offsetting of collateral amounts.
- The unit of account for applying the offsetting requirements.
The amendment of IFRS 7 requires disclosure of amounts set off in the fnancial statement and requires disclosure of
information about recognised fnancial instruments, subject to enforceable master netting arrangements and similar
agreements even if they are not set off under IAS 32. The revised standard (IAS 32) is effective for the group for the
fnancial year commencing 1 April 2014, with certain additional disclosures (IFRS 7) being required from 1April 2013.
• IASB annual improvement project – As part of its ffth annual improvement project the IASB has issued its 2012
edition of improvements. The annual improvement project aims to clarify and improve the current accounting standards.
The improvements include items involving terminology or editorial changes, with minimal effect on recognition and
measurement.
1.5 Investments in subsidiaries
Subsidiaries are entities controlled by sefa. Control exists when sefa has the power, directly or indirectly, to govern the
fnancial and operating policies of an entity so as to obtain benefts from its activities. In assessing control, potential voting
rights that are presently exercisable or convertible are taken into account. The fnancial statements of subsidiaries are
included in the consolidated fnancial statements from the date that control commences until the date that control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by sefa. The cost of an
acquisition is measured as the fair value of assets given, equity instruments issued and liabilities incurred or assumed at the
date of exchange. The assets, liabilities and contingent liabilities acquired are assessed and included in the statement of
fnancial position at their estimated fair value to the group. If the cost of acquisition is higher than the net assets acquired,
any difference between the net asset value and the cost of acquisition of a subsidiary is treated in accordance with the
52 Smal l Enterpri se Fi nance Agency 52 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
group’s accounting policy for goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognised directly in proft or loss.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated on
consolidation.
Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of
impairment.
Investments in subsidiaries in the company’s separate fnancial statements are carried at cost less impairment.
1.6 Special purpose entities
The group has established or participated in a number of SPEs for trading and investment purposes. SPEs are entities
that are created to accomplish narrow and well-defned objectives. An SPE is consolidated if, based on an evaluation of
the substance of the relationship with the group and the SPEs’ risks and rewards, the group concludes that it controls
the SPE. SPEs controlled by the group are generally those established under terms that impose strict limitations on the
decision-making powers of the SPEs’ management and that result in the group receiving the majority of the benefts
related to the SPEs’ operations and net assets.
Investments in SPEs in the company’s separate fnancial statements are carried at cost less impairment.
1.7 Transfer of businesses under common control
Consolidated financial statements
Recognition
The receiving entity recognises the assets and liabilities acquired through a transfer of businesses on the effective date of
the transfer. All income and expenses that relate to the businesses transferred are also recognised from the effective date
of the transfer. The recognition of these income and expenses are governed by the accounting policies related to those
specifc income and expenses and accordingly this policy does not provide further guidance thereon.
Measurement
Assets and liabilities acquired, by the receiving entity, through a transfer of businesses are measured at initial recognition
at the same carrying value that they were held by the transferring entity immediately prior to the transfer. The difference
between the carrying value of the assets and liabilities transferred and any consideration paid for the assets and liabilities
transferred is recognised in accumulated surplus or defcit. The carrying value at which the assets and liabilities are initially
recognised is therefore the deemed cost thereof. Therefore for the subsequent measurement of these assets and liabilities,
the accounting policies relevant to those assets and liabilities are followed. Accordingly, this accounting policy does not
provide additional guidance on the subsequent measurement of the transferred assets and liabilities.
Derecognition
The transferring entity derecognises the assets and liabilities on the effective date of the transfer of businesses. These
transferred assets and liabilities are measured at their carrying values upon derecognition. The resulting difference between
the carrying value of the assets and liabilities transferred and any consideration received for the assets and liabilities
transferred is recognised in accumulated surplus or defcit.
53 ANNUAL REPORT 2013
Separate financial statements
When a common control transaction is effected through the acquisition of assets and liabilities constituting a business
rather than by acquiring shares in that business, the company accounts for the transaction in the same manner described
above under “consolidated fnancial statements”.
The investment in a subsidiary acquired in a common control transaction is accounted for at the book value of the
investment recognised by the transferring entity. The difference between the book value of the investment recognised
and the amount paid for the investment, if any, is included in equity as it is in substance a transaction with the shareholder.
1.8 Investments in associates
Associates are all entities over which the group has signifcant infuence but not control, generally accompanying a
shareholding of between 20% and 50% of the voting rights.
Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost.
The group’s investment in associates includes goodwill identifed on acquisition.
The group’s share of its associates’ post-acquisition profts and losses is recognised in proft or loss, and its share of post-
acquisition other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition
movements are adjusted for against the carrying amount of the investment. Distributions received from associates reduce
the carrying amount of the investment. When the group’s share of losses in an associate equals or exceeds its interest in
the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred
legal or constructive obligations or made payments on behalf of the associate.
Unrealised gains and losses arising from transactions with equity-accounted investments are eliminated against the
investment to the extent of the group’s interest in the investment. Unrealised losses are eliminated only to the extent
that there is no evidence of impairment.
Investments in incorporated associates in the company’s separate fnancial statements are carried at cost less impairment.
1.9 Joint ventures and partnerships
Joint ventures and partnerships are those entities over whose activities the group has joint control, established by contractual
agreement and requiring unanimous consent for strategic and operating decision. The consolidated fnancial statements
include the group’s share of the total recognised gains and losses of joint ventures on an equity-accounted basis, from
the date that joint control is established by contractual agreement until the date that it ceases. When the group’s share
of losses exceeds its interest in a joint venture, the group’s carrying amount is reduced to nil and recognition of further
losses is discontinued, except to the extent that the group has incurred legal or constructive obligations or made payments
on behalf of a joint venture.
Unrealised gains and losses arising from transactions with equity-accounted joint ventures and partnerships are eliminated
against the investment to the extent of the group’s interest in the investment. Unrealised losses are eliminated only to
the extent that there is no evidence of impairment.
Investments in incorporated joint ventures and partnerships in the company’s separate fnancial statements are carried
at cost less impairment.
54 Smal l Enterpri se Fi nance Agency 54 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
1.10 Financial instruments
1.10.1 Financial assets
The group classifes its fnancial assets into the following categories: fnancial assets at fair value through proft or loss;
loans and receivables; held-to-maturity investments; and available-for-sale fnancial assets.
Management determines the classifcation of its fnancial assets at initial recognition.
Financial assets at fair value through proft or loss
This category has two sub-categories: fnancial assets held-for-trading and those designated at fair value through proft
or loss at inception.
A fnancial asset is classifed in this category if acquired principally for the purpose of selling in the short-term or if so
designated by management. Derivatives are also categorised as held-for-trading unless they are designated as hedging
instruments.
The group designates fnancial assets at fair value through proft or loss when either:
• The assets are managed, evaluated and reported internally on a fair value basis;
• The designation eliminates or signifcantly reduces an accounting mismatch which would otherwise arise; and
• The asset contains an embedded derivative that signifcantly modifes the cash fows that would otherwise be required
under the contract.
Loans and receivables
Loans and receivables are non-derivative fnancial assets with fxed or determinable payments that are not quoted in
an active market other than those that the group intends to sell in the near future. They arise when the group provides
money, goods or services directly to a debtor with no intention of trading the receivable.
Held-to-maturity
Held-to-maturity investments are non-derivative fnancial assets with fxed or determinable payments and fxed maturity
that the group has the positive intent and ability to hold to maturity. If the group were to sell other than an insignifcant
amount of held-to-maturity assets, the entire category would be tainted and reclassifed as available-for-sale.
Available-for-sale
Available-for-sale investments are non-derivative investments that are not designated as another category of fnancial
assets. Available-for-sale investments are those intended to be held for an indefnite period of time, which may be sold
in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.
Recognition and measurement
Purchases and sales of fnancial assets at fair value through proft or loss, held-to-maturity and available-for-sale are
recognised on trade date – the date on which the group commits to purchase or sell the asset. Loans are recognised
when the cash is advanced to the borrowers. Financial assets are initially recognised at fair value plus transaction costs
for all fnancial assets not carried at fair value through proft or loss.
55 ANNUAL REPORT 2013
Available-for-sale fnancial assets and fnancial assets at fair value through proft or loss are subsequently carried at fair
value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest
rate method less impairment loss. Gains and losses arising from changes in the fair value of the fnancial instruments
through proft or loss category are included in proft or loss in the period in which they arise. Gains and losses arising from
changes in the fair value of available-for-sale fnancial assets are recognised directly in other comprehensive income, until
the fnancial asset is disposed of, derecognised or impaired, at which time the cumulative gain or loss previously recognised
in other comprehensive income should be recognised in proft or loss. However, interest calculated using the effective
interest method is recognised in proft or loss for available-for-sale debt investments. Dividends on available-for-sale equity
instruments are recognised in proft or loss when the entity’s right to receive payment is established.
Financial assets (or, where applicable, a part of a fnancial asset or part of a group of similar fnancial assets) are derecognised
when the contractual rights to receive cash fows from the fnancial assets have expired or where the group has transferred
substantially all the risks and rewards of ownership, without retaining control. Any interest in the transferred fnancial assets
that is created or retained by the group is recognised as a separate asset or liability.
The fair values of quoted investments in active markets are based on current bid prices.
If the market for a fnancial asset is not active (and for unlisted securities), the group establishes fair value by using valuation
techniques. These include the use of recent arm’s length transactions, discounted cash fow analysis, option pricing models
and other valuation techniques commonly used by market participants. Any instrument that does not have a quoted
market price in an active market and whose fair value cannot be reliably measured is stated at its cost, including transaction
costs, less impairment.
1.10.2 Financial liabilities
Financial liabilities are recognised initially at fair value, generally being their issue proceeds net of transaction costs incurred.
Financial liabilities, other than those at fair value through proft or loss, are subsequently stated at amortised cost and
interest is recognised over the period of the borrowing using the effective interest method.
Where the group classifes certain liabilities at fair value through proft or loss, changes in fair value are recognised in
proft or loss. This designation by the group takes place when either:
• The liabilities are managed, evaluated and reported internally on a fair value basis, or
• The designation eliminates or signifcantly reduces an accounting mismatch which would otherwise arise, and
• The liability contains an embedded derivative that signifcantly modifes the cash fows that would otherwise be
required under the contract.
A fnancial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. Where an
existing fnancial liability is replaced by another from the same lender on substantially different terms, or the terms of an
existing of an existing liability are substantially modifed, such an exchange or modifcation is treated as a derecognition
of the original liability and the recognition of a new liability , and the difference in the respective carrying amounts is
recognised in proft or loss.
Financial guarantees
Financial guarantees are contracts that require the group to make specifed payments to reimburse the holder for a
loss it incurs because a specifed debtor fails to make payment when due in accordance with the terms of the debts
56 Smal l Enterpri se Fi nance Agency 56 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
instrument. Financial guarantee liabilities are initially recognised at their fair value which is amortised over the life of the
fnancial guarantee. The guarantee liability is subsequently carried at the higher of this amortised amount and the present
value of any expected payment (when payment under the guarantee has become probable).
The group is specifcally involved in indemnity contracts:
Indemnity contracts – classifcation
Contracts under which the group accepts signifcant indemnity risk from another party (the indemnity holder) by agreeing
to compensate the indemnity holder or other benefciary if a specifed uncertain future event (the indemnifed event)
adversely affects the indemnity holder, are classifed as indemnity contracts. Indemnity risk is a risk other than fnancial
risk. Indemnity contracts may also transfer some fnancial risk.
Unearned risk reserve
Unearned risk reserve consists of:
• Provision for unearned fees
Unearned fees, which represent the proportion of fees written in the current year which relate to risks that have
not expired by the end of the fnancial year, are calculated on the 365th basis.
• Provision for unexpired risk
Provision is made for unexpired risks where the expected value of claims and expenses attributable to the unexpired
periods of policies in force at the reporting date exceeds the unearned fee provision in relation to such policies. The
provision for unexpired risks is calculated separately by reference to class of business that are managed together,
after taking into account the relevant investment returns.
Outstanding claims reserve
Provision is made on a prudent basis for the estimated fnal cost of all claims that had not been settled on the reporting
date, less amounts already paid based on calculations performed by independent actuaries. Claims and loss adjustment
expenses are charged to proft or loss as incurred based on the estimated liability for compensation owed to indemnity
holders. The group’s own assessors individually assess claims. The claims reserve includes an estimated portion of the
direct expenses of processing the claims. Provision is also made for claims arising from indemnifed events that occurred
before the close of the accounting period, but which had not been reported to the group by that date. While the directors
consider that the gross reserve is fairly stated on the basis of the information currently available to them, the ultimate
liability may vary as a result of subsequent information and events and may result in signifcant adjustments to the amounts
provided. The methods used to calculate the reserve, and the estimates made, are reviewed regularly.
Claims incurred consist of claims and claims handling expenses paid during the fnancial year. The movement in the provision
for outstanding claims is disclosed separately in the notes to the fnancial statements.
Statutory contingency reserve
A statutory contingency reserve for catastrophes is provided as required by the Short-Term Insurance Act, No. 53 of
1998 (repealed Act 1953). The group is required to raise a contingency reserve of 10% of gross indemnity fees raised.
The reserve can be utilised only with the prior permission of the Financial Services Board. Transfers to this reserve are
refected in the statement of changes in equity, and are indicated in the statement of fnancial position as part of ‘reserves’
57 ANNUAL REPORT 2013
under capital and reserves. This reserve fell away in terms of the FSB Board Notice 169 of 2011, which came into effect
on 1 January 2012.
Receivables and payables related to indemnity contracts
Receivables and payables are recognised when due. These include amounts due to and from indemnity contract holders
and are included under receivables and payables. If there is objective evidence that the indemnity receivable is impaired,
the group reduces the carrying amount of the indemnity receivable accordingly and recognises the impairment loss in
proft or loss. The group gathers the objective evidence that an indemnity receivable is impaired using the same process
adopted for loans and receivables. The impairment loss is calculated under the same method used for loans and receivables.
Salvage reimbursement
The indemnity contracts require the indemnifed party to make all reasonable efforts to recover as much of the loss as
possible and to refund the group its proportionate share of the claim recovered. Estimates of these salvage recoveries
are included as an allowance in the measurement of the indemnity liability for claims. The allowance is the assessment of
the group’s share of the amount that can be recovered from the action against the liable third party.
Liability adequacy test
At each reporting date, liability adequacy tests are performed to ensure the adequacy of the contract liabilities. In performing
these tests, current best estimates of future contractual cash fows and claims handling and administration expenses are
used. Any defciency is immediately charged to proft or loss by establishing a provision for losses arising from liability
adequacy tests (the unexpired risk provision).
The ultimate liability arising from claims made under indemnity contracts
The estimation of the ultimate liability arising from claims made under indemnity contracts is one of the group’s most
critical accounting estimates. Several sources of uncertainty have to be considered in estimating the liability that the group
will ultimately be exposed to for such claims. The risk environment can change quickly and unexpectedly owing to a wide
range of events or infuences. The group is constantly refning the tools with which it monitors and manages risk to place
the group in a position to assess risk situations appropriately, despite the greatly increased pace of change. The growing
complexity and dynamic nature of the environment in which it operates means that there are natural limits, however.
There cannot and never will be absolute security when it comes to identifying risks at an early stage, measuring them
suffciently, or correctly estimating their real hazard potential.
1.10.3 Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of fnancial position when there is
a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the
asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by the
accounting standards, or for gains and losses arising from a group of similar transactions such as in the group’s trading activity.
58 Smal l Enterpri se Fi nance Agency 58 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
1.11 Impairment of assets
Impairment of financial assets carried at amortised cost
The group assesses whether there is objective evidence that a fnancial asset or group of fnancial assets not carried at fair
value is impaired at each reporting date. A fnancial asset or group of fnancial assets is impaired and impairment losses
are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred
after the initial recognition of the asset and that loss event (or events) has an impact on the estimated future cash fows
of the fnancial asset or group of fnancial assets that can be reliably estimated. Impairment losses are recognised in proft
or loss and refected in an allowance account against loans and advances.
Objective evidence that a fnancial asset or group of assets is impaired includes observable data that comes to the attention
of the group about the following loss events:
• Signifcant fnancial diffculty of the issuer or obligor;
• A breach of contract, such as default of delinquency in interest or principal payments;
• The group granting to the borrower, for economic or legal reasons relating to the borrower’s fnancial diffculty, a
concession that the lender would not otherwise consider;
• It becoming probable that the borrower will enter bankruptcy or other fnancial reorganisation;
• The disappearance of an active market for that fnancial asset resulting in fnancial diffculties; and
• Observable data indicating that there is a measurable decrease in the estimated future cash fows from a group of
fnancial assets since the initial recognition of those assets, although the decrease cannot yet be identifed with the
individual fnancial assets in the group.
The group frst assesses whether objective evidence of impairment exists individually for fnancial assets that are individually
signifcant, referred to as specifc impairments, and individually or collectively for fnancial assets that are not individually
signifcant. If the group determines that no objective evidence of impairment exists for an individually assessed fnancial
asset, whether signifcant or not, it includes the asset in a group (portfolio) of fnancial assets with similar credit risk
characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for
which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.
The amount of specifc impairments raised is the amount needed to reduce the carrying value of the asset to the present
value of the expected ultimate cash fows, taking into consideration the fnancial status of the underlying client and any
security in place for the recoverability of the fnancial asset.
The recoverable amount of the asset is calculated as the present value of estimated future cash fows, discounted at the
original effective interest rate (i.e. the effective interest rate computed at initial recognition of the asset).
Impairment of available-for-sale financial assets
The group assesses at each reporting date whether there is objective evidence that a fnancial asset or a group of fnancial
assets is impaired. In the case of equity investments classifed as available-for-sale, a signifcant or prolonged decline in the
fair value of the instrument below its cost is an indication of an impairment.
If any such evidence exists for available-for-sale fnancial assets, the cumulative loss – measured as the difference between
the acquisition cost and the current fair value, less any impairment loss on that fnancial asset previously recognised in
59 ANNUAL REPORT 2013
proft or loss – is removed from equity and recognised in proft or loss. Impairment losses recognised in proft or loss on
equity instruments are not reversed through proft or loss.
Any increase in the fair value after an impairment loss has been recognised is treated as a revaluation and is recognised
directly in other comprehensive income. If, in a subsequent period, the fair value of a debt instrument classifed as
available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss
was recognised in proft or loss, the impairment loss is reversed through proft or loss.
Impairment of non-financial assets
The carrying amounts for the group’s non-fnancial assets, other than deferred tax assets and investment properties are
reviewed at each reporting date to determine whether there is any indication of impairment. If such an indication exists,
the asset’s recoverable amount is estimated.
The recoverable amount of non-fnancial assets is the greater of fair value less cost to sell and its value in use. Fair value
less cost to sell is the amount obtainable from the sale of an asset or cash-generating unit in an arm’s length transaction
between knowledgeable, willing parties, less the costs of disposal. In assessing value in use, the expected future cash fows
from the asset are discounted to their present value using a pre-tax discount rate that refects current market assessments
of the time value of money and the risks specifc to the asset. For an asset that does not generate largely independent
cash infows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its
recoverable amount.
An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately
in proft or loss.
The recoverable amount for intangible assets that have an indefnite useful life or intangible assets that are not yet available-
for-use is estimated at each reporting date.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has
decreased or no longer exists.
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount
and only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had been recognised.
1.12 Cash-generating units
A cash-generating unit is the smallest group of assets that generates cash infows from continuing use that are largely
independent of the cash infows of other assets or group of assets.
For an asset whose cash fows are largely dependent on those of other assets, the recoverable amount is determined
for the cash-generating unit to which the asset belongs. The recoverable amount of a cash-generating unit is the greater
of its value in use and its fair value less costs to sell. Impairment losses recognised in respect of cash-generating units are
allocated frst to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the
carrying amount of the other assets in the unit (group on units) on a pro rata basis. Impairment losses are recognised
in proft or loss.
60 Smal l Enterpri se Fi nance Agency 60 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
1.13 Intangible assets
Intangible assets with fnite useful lives that are acquired separately are carried at cost less accumulated amortisation and
accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The
estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any
changes in estimate being accounted for on a prospective basis.
Amortisation
Amortisation is recognised in proft or loss on a straight-line basis, based on the estimated useful lives of the underlying
assets. Amortisation is calculated on the cost less any impairment and expected residual value. The estimated useful lives
for the current and comparative periods are as follows:
Computer software 3 – 4 years
Intellectual property 3 years
The residual values, useful lives and amortisation methods are re-assessed at each fnancial year-end and adjusted if
appropriate.
1.14 Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill acquired in a business combination
is initially measured at cost, being the difference between the fair value of the consideration of the business combination
over the interest of sefa in the fair value of the net identifable assets acquired.
The recoverable amount for goodwill is estimated at each reporting date. Impairment losses are recognised in proft or
loss. Impairment losses relating to goodwill are not reversed.
Negative goodwill arising on acquisition is recognised directly in proft or loss. Goodwill is subsequently stated at cost less
any accumulated impairment losses. Goodwill that is allocated to cash-generating units is tested annually for impairment
or more frequently if events or changes in circumstances indicate that it might be impaired.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
1.15 Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both.
Measurement
Investment property is measured initially at cost, including transaction costs and directly attributable expenditure in
preparing the asset for its intended use. Subsequently, all investment properties are measured at fair value.
Valuation takes place annually, based on the aggregate of the net annual rental receivable from the properties, considering
and analysing rentals received in similar properties in the neighbourhood, less associated costs (insurance, maintenance,
repairs, and management fees). A capitalisation rate which refects the specifc risks inherent in the net cash fows is applied
to the net annual rentals to arrive at the property valuations.
The fair value of undeveloped land held as investment property is based on comparative market prices after intensive
market surveys.
61 ANNUAL REPORT 2013
Gains or losses arising from a change in fair value are recognised in proft or loss.
External, independent valuators having appropriate, recognised professional qualifcations and recent experience in the
location and category of the property being valued, perform valuations on the portfolio every three years.
1.16 Property, plant and equipment
Measurement
All items of property, plant and equipment recognised as assets, are initially measured at cost. Cost includes expenditures
that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of material
and direct labour and any other cost directly attributable to bringing the asset to a working condition for its intended
use, and the cost of dismantling and removing the items and restoring the site on which they are located. All items of
property, plant and equipment are subsequently measured at cost less accumulated depreciation and any accumulated
impairment losses.
Where parts of an item of property, plant and equipment have signifcantly different useful lives, they are accounted for
as separate items of property, plant and equipment. Although individual components are accounted for separately, the
fnancial statements continue to disclose a single asset.
Gains and losses on disposal of an asset are determined by comparing the proceeds from disposal with the carrying
amount of the asset and are recognised in proft or loss within “other income”.
Subsequent costs
The group recognises the cost of replacing part of such an item of property, plant and equipment in the carrying amount
of the item when that cost is incurred and if it is probable that future economic benefts embodied with the item will
fow to the group and the cost of the item can be measured reliably. The carrying amount of the part that is replaced is
derecognised. All other costs are recognised in proft or loss as an expense as they are incurred.
Depreciation
Depreciation is recognised in proft or loss on a straight-line basis, based on the estimated useful lives of the underlying
assets. Depreciation is calculated on the cost less any impairment and expected residual value. The estimated useful lives
for the current and comparative periods are as follows:
Computer equipment 3 – 4 years
Offce equipment 4 – 6 years
Furniture and fttings 5 – 6 years
Motor vehicles 5 years
Leasehold improvements 7 years
The residual values, useful lives and depreciation method are re-assessed at each fnancial yearend and adjusted if appropriate.
Derecognition
The carrying amount of items of property, plant and equipment are derecognised on disposal or when no future economic
benefts are expected from their use or disposal.
Gains or losses arising from derecognition are determined as the difference between the net disposal proceeds and the
carrying amount of the item of property, plant and equipment and included in proft or loss when the items are derecognised.
62 Smal l Enterpri se Fi nance Agency 62 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
1.17 Leases
Finance leases
Leases of assets under which the lessee assumes all the risks and benefts of ownership are classifed as fnance leases.
Finance leases – group as lessee
Finance leases are recognised as assets and liabilities in the statement of fnancial position at amounts equal to the fair
value of the leased asset or, if lower, the present value of the minimum lease payments. The corresponding liability to the
lessor is included in the statement of fnancial position as a fnance lease obligation.
The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease.
The lease payments are apportioned between the fnance charge and reduction of the outstanding liability. The fnance
charge is allocated to each period during the lease term so as to produce a constant periodic rate on the remaining
balance of the liability.
The leased asset is accounted for in accordance with the accounting policy for property, plant and equipment.
Finance leases – group as lessor
The group recognises fnance lease receivables in the statement of fnancial position.
Finance income is recognised based on a pattern refecting a constant periodic rate of return on the group’s net investment
in the fnance lease.
Operating leases
Leases of assets under which the lessor effectively retains all the risks and benefts of ownership are classifed as operating
leases.
Operating leases – group as lessee
Lease payments arising from operating leases are recognised in proft or loss on a straight-line basis over the lease term.
Lease incentives received are recognised in proft or loss as an integral part of the total lease expense.
Operating leases – group as lessor
Receipts in respect of operating leases are accounted for as income on the straight-line basis over the period of the lease.
The assets subject to operating leases are presented in the statement of fnancial position according to the nature of
the assets.
Determining whether an arrangement contains a lease
At inception of an arrangement, the group determines whether such an arrangement is or contains a lease. A specifc asset
is the subject of a lease if fulflment of the arrangement is dependent on the use of that specifed asset. An arrangement
conveys the right to use the asset if the arrangement conveys to the group the right to control the use of the underlying asset.
63 ANNUAL REPORT 2013
At inception or upon re-assessment of the arrangement, the group separates payments and other consideration required
by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If
the group concludes for a fnance lease that it is impracticable to separate the payments reliably, an asset and a liability are
recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments
are made and an imputed fnance charge on the liability is recognised using the group’s incremental borrowing rate.
1.18 Cash and cash equivalents
For the purpose of the cash fow statement, cash and cash equivalents comprise cash on hand, deposits held on call with
banks, and investments in money market instruments and bank overdrafts, all of which are available for use by the group
unless otherwise stated. Cash and cash equivalents are available within three months.
Cash and cash equivalents are carried at amortised cost in the statement of fnancial position.
1.19 Provisions
Provisions are recognised when:
• The group has a present obligation as a result of a past event;
• It is probable that an outfow of resources embodying economic benefts will be required to settle the obligation;
and
• A reliable estimate can be made of the obligation.
The amount of a provision is the present value of the expenditure expected to be required to settle the obligation.
Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party,
the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if
the entity settles the obligation. The reimbursement shall be treated as a separate asset. The amount recognised for the
reimbursement shall not exceed the amount of the provision.
Provisions are not recognised for future operating losses.
A provision for restructuring is recognised when the group has approved a detailed and formal restructuring plan and
the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for.
After their initial recognition, contingent liabilities identifed in business combinations that are separate are subsequently
measured at the higher of:
• The amount that would be recognised as a provision; and
• The amount initially recognised less cumulative amortisation.
Other contingent assets and contingent liabilities are not recognised, but disclosed in the notes.
Onerous contracts
A provision for onerous contracts is recognised when the expected benefts to be derived by the group from a contract
are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present
value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract.
Before a provision is established, the group recognises any impairment loss on the assets associated with that contract.
64 Smal l Enterpri se Fi nance Agency 64 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
1.20 Contingent assets, liabilities and commitments
Contingent liabilities
A contingent liability is a possible obligation that arises from past events and whose existence will be confrmed only by
the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the group.
Contingent liabilities are not recognised in the statement of fnancial position of the group but disclosed in the notes.
Commitments
Items are classifed as commitments where the group has committed itself to future transactions.
Commitments are not recognised in the statement of fnancial position of the group but disclosed in the notes.
Contingent assets
A contingent asset is a possible asset that arises from past events and whose existence will be confrmed only by the
occurrence or non-occurrence of one or more uncertain events not wholly within the control of the group.
Contingent assets are not recognised in the statement of fnancial position of the group but disclosed in the notes. However,
when the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is
appropriate.
1.21 Taxation
Deferred tax
Deferred tax is recognised in respect of all temporary differences arising between the carrying amount of assets and
liabilities in the fnancial statements and the corresponding tax bases used in the computation of taxable income.
In principle, deferred tax is recognised for all taxable temporary differences between the carrying amounts of assets and
liabilities for fnancial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognised to
the extent that it is probable that future taxable proft will be available against which unused tax deductions can be utilised.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that
the related tax will be realised.
Deferred tax is not recognised if the temporary differences arise from:
• The initial recognition of goodwill;
• The initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects
neither taxable income nor accounting income; and
• Temporary differences relating to investments in associates, subsidiaries and joint ventures to the extent that it is
probable that they will not reverse in the foreseeable future and the timing of the reversal of the temporary difference
is controlled.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse,
based on the laws that have been enacted or substantively enacted by the reporting date.
65 ANNUAL REPORT 2013
Deferred tax is charged or credited in proft or loss, except when it relates to items credited or charged to other
comprehensive income or directly to equity, in which case the deferred tax is also recognised in other comprehensive
income or equity.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets,
and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities,
but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised
simultaneously.
Current tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the year. Current taxes are recognised
as income or an expense and included in proft or loss for the period, except to the extent that the tax arises from a
transaction or event which is recognised, in the same or a different period, in other comprehensive income or in equity.
Current tax also includes any adjustment to tax payable in respect of previous years when necessary.
1.22 Revenue
Revenue comprises net invoiced sales to customers, indemnity fees, dividends, interest, rentals and fee income, but
excludes value added tax, and is measured at the fair value of the consideration received or receivable, net of returns
and allowances, trade discounts and volume rebates.
Sales to customers
Revenue from sale of goods is recognised in the statement of comprehensive income when the signifcant risks and
rewards of ownership have been transferred to the customer, recovery of the consideration is probable, associated costs
and possible return of goods can be estimated reliably and there is no continuing managerial involvement with the goods.
Indemnity Fees
Indemnity fees earned is included in revenue and comprise the fees on contracts entered into during the year, irrespective
of whether they relate in whole or in part to a later accounting period. Indemnity fees earned include adjustments to
fees written in prior accounting periods and estimates for “pipeline fees” (fees written relating to the current accounting
period but not reported by the reporting date). Fees are earned from the date the risk attaches, over the indemnity
period, based on the pattern of the risk underwritten.
Dividends
Dividend income is recognised in the statement of comprehensive income on the date the group’s right to receive payment
is determined. Capitalisation shares received are not recognised as income.
Interest
Interest income is recognised in the statement of comprehensive income using the effective interest rate method. The
effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the
expected life of the fnancial asset (or, where appropriate, a shorter period) to the carrying amount of the fnancial asset.
The effective interest rate is established on initial recognition of the fnancial asset and is not revised subsequently.
66 Smal l Enterpri se Fi nance Agency 66 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Fees
• Income earned on the execution of a signifcant act is recognised when the signifcant act has been performed.
• Income earned from the provision of services is recognised as the service is rendered by reference to the stage of
completion of the service.
• Income that forms an integral part of the effective interest rate of a fnancial instrument is recognised as an adjustment
to the effective interest rate and recorded in interest income.
Grants received from donors
Donor funding is recognised at its fair value where there is reasonable assurance that the funding will be received and
the group will comply with all attached conditions.
Funding relating to costs are deferred and recognised in proft or loss over the period necessary to match them with the
costs for which they are intended to compensate and is included in Trade and other payables.
Government grants
Government grants are not recognised until there is reasonable assurance that the group will comply with the conditions
attaching to them and that the grants will be received.
Government grants are recognised in proft or loss on a systematic basis over the periods in which the group recognises
as expenses the related costs for which the grants are intended to compensate. Government grants whose primary
condition is that the group should purchase, construct or otherwise acquire non-current assets are recognised as deferred
revenue in the statement of fnancial position and transferred to proft or loss on a systematic and rational basis over
the useful lives of the related assets.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of
giving immediate fnancial support to the group with no future related costs are recognised in proft or loss in the period
in which they become receivable.
Rental
See policy on leases.
1.23 Borrowing costs
Borrowing costs are expensed in the period in which they are incurred, except to the extent that they are capitalised
when directly attributable to the acquisition, construction or production of a qualifying asset.
1.24 Employee benefts
Short-term employee benefits
Short-term employee beneft obligations are measured on an undiscounted basis and are expensed as the related service
is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or proft-sharing
plans if the group has a present legal or constructive obligation to pay this amount as a result of past service provided by
the employee, and the obligation can be estimated reliably.
67 ANNUAL REPORT 2013
Defined contribution plan
The group has a provident fund scheme as well as a pension fund scheme which are both defned contribution plans. A
defned contribution plan is a pension plan under which the group pays fxed contributions into a separate entity (a fund)
and will have no legal or constructive obligation to pay further amounts. Contributions to defned contribution plans are
recognised as an employee beneft expense in proft or loss in the year to which they relate.
1.25 Discontinued operations and non-current assets held-for-sale
Discontinued operations
A discontinued operation is a component if the group’s business that represents a separate major line of business or
geographical area of operations or is a subsidiary acquired exclusively with a view to resale.
Classifcation as a discounted operation occurs upon disposal or when the operation meets the criteria to be classifed
as held-for-sale, if earlier. A disposal group that is to be abandoned may also qualify.
Non-current assets held-for-sale
Non-current assets and disposal groups are classifed as held-for-sale if their carrying amount will be recovered through
a sale transaction rather than continuing use. This classifcation is only met if the sale is highly probable and the assets are
available for immediate sale.
Measurement
Immediately before classifcation as held-for-sale, the measurement of the assets (and all assets and liabilities in a disposal
group) is brought up-to-date in accordance with the applicable IFRS. Then, on initial classifcation as held-for-sale, the
non-current assets and disposal groups are recognised at the lower of carrying amount and fair value less costs to sell.
Any impairment loss on a disposal group is frst allocated to goodwill and then to remaining assets and liabilities on a pro
rata basis, except that no loss is allocated to inventories, fnancial assets, deferred tax assets, employee beneft assets and
investment property, which continue to be measured in accordance with the group’s accounting policies.
Impairment losses on initial classifcation as held-for-sale are included in proft and loss even when there is a revaluation.
The same applies to gains and losses on subsequent measurement.
Reclassification
The non-current asset held-for-sale will be reclassifed immediately when there is a change in intention to sell. At that
date, it will be measured at the lower of: its net book value before the asset was classifed as held-for-sale, adjusted for
any depreciation, amortisation or revaluations that would have been recognised had the asset not been classifed as held-
for-sale; and its recoverable amount at the date of the subsequent decision not to sell.
1.26 Related parties
Key management are defned as individuals with the authority and responsibility for planning, directing and controlling the
activities of the entity. All individuals from the level of executive management up to the board of directors are regarded
as key management as per the defnition of the standard.
68 Smal l Enterpri se Fi nance Agency 68 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Close family members of key management personnel are considered to be those family members who may be expected
to infuence, or be infuenced by key management individuals in their dealings with the entity.
Other related party transactions are also disclosed in terms of the requirements of IAS 24 – Related Party Disclosures.
1.27 Determination of fair values
A number of the group’s accounting policies and disclosures require the determination of fair value, for both fnancial and
non-fnancial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based
on the following methods. When applicable, further information about the assumptions made in determining fair values
is disclosed in the notes specifc to that asset or liability.
Investment property
Valuation methods and assumptions used in determining the fair value of investment property:
• Capitalisation method
The value of the property refects the present value of the sum of the future benefts which an owner may expect
to derive from the property. These benefts are expressed in monetary terms and are based upon the estimated
rentals such a property would fetch, i.e. the market-related rental between a willing landlord and tenant. The usual
property outgoings are deducted to achieve a net rental, which is then capitalised at a rate an investor would require
receiving the income.
• Comparative method
The method involves the identifcation of comparable properties sold in the area or in a comparable location within
a reasonable time. The selected comparable properties are analysed and compared with the subject property.
Adjustments are then made to their values to refect any differences that may exist. This method is based on the
assumption that a purchaser will pay an amount equal to what others have paid or are willing to pay.
• Residual land valuation method
This method determines the residual value which is the result of the present value of expected infows less all
outfows (including income tax) less the developer’s required profts. This is the maximum that the developer can
afford to pay for the real estate. This residual value is in theory also the market value of the land.
1.28 Critical accounting policies and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by defnition
rarely equal the related actual results. The estimates and assumptions that have a signifcant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next fnancial year are outlined below:
Income taxes
Signifcant judgement is required in determining the provision for income taxes. There are many transactions and calculations
for which the ultimate tax determination is uncertain during the ordinary course of business. The group recognises liabilities
for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the fnal tax outcome
of these matters is different from the amounts that were initially recorded, such differences will impact the income tax
and deferred tax provisions in the period in which such determination is made.
69 ANNUAL REPORT 2013
Fair value of financial assets
The fair value of fnancial instruments that are note traded in an active market is determined by using valuation techniques.
The group uses its judgement to make assumptions that are mainly based on market conditions existing at each reporting date.
Unlisted equities are valued based on various valuation methods, including free cash fow, price: earnings (PE) and net
asset value (NAV) bases.
Judgement and assumptions in the valuations and impairments include:
• Free cash fows of investees;
• Replacement values;
• Determining the discount or premium applied to sefa’s stake in investees;
• Sector/sub-sector betas;
• Debt weighting – this is the target interest-bearing debt level;
• Determining the realisable value of assets; and
• Probabilities of failure in using the NAV model.
Impairment of non-financial assets
The group follows the guidance of IAS 36 – Impairment of Assets, to determine when an asset is impaired. This determination
requires signifcant judgement. In making this judgement, the group evaluates the impairment indicators that could exist
at yearend.
Impairment of financial assets
The group follows the guidance of IAS 39 – Financial Instruments: Recognition and Measurement in assessing specifc and
collective impairment. The group assess available information for indications of impairment. Management’s judgement
is required to establish whether current economic and credit conditions are such that the actual losses are likely to be
greater or lesser than suggested by impairment indications identifed.
2. Effect of IFRS adoption on the fnancial statements
International Financial Reporting Standards (IFRS) were adopted for the frst time during the current fnancial year. The
separate and consolidated fnancial statements have been prepared in accordance with IFRS and IFRS 1 – First-time
Adoption of International Financial Reporting Standards (IFRS 1) has been applied.
IFRS 1 requires frst-time adopters to apply the amended requirements of IFRS 3 (2008) and IAS 21 retrospectively to
all business combinations that occurred before the date of transition to IFRSs, unless the voluntary exception IFRS1C1
is elected. This voluntary exception was elected and previous business combinations accounted under SA GAAP were
not retrospectively restated.
First-time adopters are required under IFRS 1 to apply the requirements of IAS 18 and IAS 27 retrospectively to all
dividends received, unless the voluntary exception of IFRS1.D15(b)(ii) is elected.
70 Smal l Enterpri se Fi nance Agency 70 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Changes to accounting treatments and policies were effected simultaneous to the adoption of IFRS, which includes the
following:
• Change in the accounting policy applicable to joint ventures
The accounting policy used to account for joint ventures was changed from pro-portionate consolidation to equity
accounting as a result of an initiative to align the accounting policies of sefa with those of the IDC.
As a result the group’s share of its joint ventures’ assets and liabilities are no longer consolidated on a line by line basis
but rather in a single line item using the equity method of accounting. The group’s share of income and expenses
is also now included in the statement of comprehensive income as a single line item, “Proft or loss from equity
accounted investments, net of tax”.
• Reclassification from and investment to an associate
The accounting treatment of all investments was reassessed during the fnancial year. sefa holds an equity investment
in Business Partners Limited which was previously classifed as an investment that was carried at cost less impairment
in both the company and group fnancials.
This investment has been reclassifed as an associate in both the company and group fnancial statements. The
investment will continue to be carried at cost less impairment in the company and will be included in the group
using the equity method of accounting.
• Reclassification from a joint venture to a subsidiary
As a result of a reassessment done on all investments it became evident that the investment in Small Business Growth
Trust Fund should rather be treated as a subsidiary.
The group’s share in the assets and liabilities of Small Business Growth Trust Fund were previously included on a line
by line basis. Instead of only the group’s share being included, the investment will now be consolidated in full and
the portion of the assets and liabilities that are not to attributable to the group, will be recognised in a single line on
the statement of fnancial position, “Non-controlling interest”.
Similarly the income and expenses that are attributable to non-controlling interest will be recognised in a single line
in the statement of comprehensive income, “Non-controlling interest”.
• Reclassification from an associate to a joint venture
It became evident during the year that it will be more appropriate to treat the investment in Enablis Khula Loan
Fund as a joint venture rather than an associate.
Both joint ventures and associates are now accounted for under the equity method as a result of the adoption of
IFRS.
• Adjustment of deferred taxation effects not previously eliminated on consolidation
The elimination of intra-group transactions may result in temporary differences between accounting and tax balances.
If this is the case, adjustments must also be made to the related deferred tax assets and deferred tax liabilities in the
group fnancial statements.
The statements below are presented prior to taking any changes in classifcation or presentation into account (refer to
note 36 for more information).
71 ANNUAL REPORT 2013
2.1 Effect on the statement of fnancial position
2.1.1 Group (2011 and 2012)
Group
As at 31 March 2012 As at 1 April 2011
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Note R’000 R’000 R’000 R’000 R’000 R’000
Assets
Non-current assets 503,154 463,329 966,483 618,720 434,126 1,052,846
Offce equipment, furniture
and other tangibles - 1,535 - 1,535 2,005 - 2,005
Intangible assets - 1,817 - 1,817 - - -
Loans and advances a 69,932 (1,035) 68,897 141,727 4,017 145,744
Investment properties - 195,264 - 195,264 187,508 - 187,508
Core business investments b 63,437 (15,566) 47,871 115,009 (46,507) 68,502
Non-core business
investments c 98,622 (98,622) - 98,622 (98,622) -
Investments in associates d 8,552 567,453 576,005 12,908 546,755 559,663
Investments in joint ventures e - 48,702 48,702 - 53,955 53,955
Deferred tax asset g 63,995 (37,603) 26,392 60,941 (25,472) 35,469
Current assets 862,074 (21,944) 840,130 699,501 (33,164) 666,337
Loans and advances a 195,949 (15,361) 180,588 184,727 (33,612) 151,115
Trade and other receivables h 17,241 153 17,394 13,997 95 14,092
Related party loans - 7,037 - 7,037 8,016 - 8,016
Managed funds - (90,681) - (90,681) (87,125) - (87,125)
Tax receivable - - - - 8,446 - 8,446
Cash and cash equivalents i 732,528 (6,736) 725,792 571,440 353 571,793
Total assets 1,365,228 441,385 1,806,613 1,318,221 400,962 1,719,183
72 Smal l Enterpri se Fi nance Agency 72 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group
As at 31 March 2012 As at 1 April 2011
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Note
R’000 R’000 R’000 R’000 R’000 R’000
Equity and liabilities
Equity attributable to owners
of the parent 1,283,315 438,000 1,721,315 1,216,531 400,784 1,617,315
Share capital - 308,300 - 308,300 308,300 - 308,300
Reserves n 180,884 438,000 618,884 204,379 400,784 605,163
Shareholders loans - 794,131 - 794,131 703,852 - 703,852
Non-controlling interest j 4 - 4 3 - 3
Non-current liabilities 10,535 - 10,535 15,929 (4,597) 11,332
Unearned risk reserve - 10,535 - 10,535 11,332 - 11,332
Deferred tax liability k - - - 4,597 (4,597) -
Current liabilities 71,374 3,384 74,758 85,758 4,775 90,533
Outstanding claims reserve - 27,043 - 27,043 55,412 - 55,412
Trade and other payables l 37,911 4,287 42,198 30,194 4,728 34,922
Tax payable m 6,420 (902) 5,518 152 47 199
Total equity and liabilities 1,365,228 441,385 1,806,613 1,318,221 400,962 1,719,183
73 ANNUAL REPORT 2013
2.1.2 Company (2011 and 2012)
Company
As at 31 March 2012 As at 1 April 2011
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Note R’000 R’000 R’000 R’000 R’000 R’000
Assets
Non-current assets 576,146 - 576,146 695,868 - 695,868
Offce equipment, furniture
and other tangibles - 1,385 - 1,385 2,005 - 2,005
Intangible assets - 1,550 - 1,550 - - -
Loans and advances a 22,355 - 22,355 91,908 - 91,908
Investment properties - 195,264 - 195,264 187,508 - 187,508
Core business investments b 47,871 - 47,871 68,502 - 68,502
Non-core business
investments c 98,622 (98,622) - 98,622 (98,622) -
Investments in associates d 8,552 91,358 99,910 12,908 85,714 98,622
Investments in joint ventures e 17,570 (10,306) 7,264 48,277 (265) 48,012
Investments in subsidiaries f 122,104 17,570 139,674 129,279 13,173 142,452
Deferred tax asset g 60,873 - 60,873 56,859 - 56,859
Current assets 679,336 - 679,336 496,934 - 496,934
Loans and advances a 139,890 - 139,890 120,489 - 120,489
Trade and other receivables h 13,938 - 13,938 13,922 - 13,922
Related party loans - 7,826 - 7,826 8,016 - 8,016
Tax receivable - - - - 8,323 - 8,323
Cash and cash equivalents i 517,682 - 517,682 346,184 - 346,184
Total assets 1,255,482 - 1,255,482 1,192,802 - 1,192,802
Equity and liabilities
Equity attributable to owners
of the parent 1,228,174 - 1,228,174 1,166,720 - 1,166,720
Share capital - 308,300 - 308,300 308,300 - 308,300
Reserves n 145,412 - 145,412 173,958 - 173,958
Shareholders loans - 774,462 - 774,462 684,462 - 684,462
Current liabilities 27,308 - 27,308 26,082 - 26,082
Trade and other payables l 22,151 - 22,151 26,082 - 26,082
Tax payable m 5,157 - 5,157 - - -
Total equity and liabilities 1,255,482 - 1,255,482 1,192,802 - 1,192,802
74 Smal l Enterpri se Fi nance Agency 74 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
2.2 Effect of IFRS adoption on the statements of comprehensive income for the year ended
31 March 2012
2.2.1 Group and company (2012)
Group Company
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Note R’000 R’000 R’000 R’000 R’000 R’000
Revenue 146,792 (12,886) 133,906 122,353 - 122,353
Indemnity fees 5,219 - 5,219 - - -
Interest from lending
operations o 26,086 (1,702) 24,384 14,014 - 14,014
Investment property rental
income - 45,931 - 45,931 45,931 - 45,931
Other income p 8,717 (301) 8,416 12,430 - 12,430
Grant income - 5,000 - 5,000 5,000 - 5,000
Investment income q 47,009 (9,130) 37,879 37,222 - 37,222
Net fair value gain/(loss) on
fnancial assets r 8,830 (1,753) 7,077 7,756 - 7,756
Expenses (182,537) 6,585 (175,952) (149,757) - (149,757)
Personnel expenses - (36,999) - (36,999) (36,991) - (36,991)
Investment property expenses - (45,214) - (45,214) (45,214) - (45,214)
Movement on impairments
and bad debt provisions s 7,669 1,027 8,696 (29,353) - (29,353)
Bad debt written off t (37,956) 7,086 (30,870) (10,413) - (10,413)
Other operating expenses u (70,037) (1,528) (71,565) (27,786) - (27,786)
Operating loss (35,745) (6,301) (42,046) (27,404) - (27,404)
Income from equity accounted
investments v (457) 19,758 19,301 - - -
Proft/(loss) before tax (36,202) 13,457 (22,745) (27,404) - (27,404)
Income tax expense w (2,983) (11,486) (14,469) (1,142) - (1,142)
Net loss for the year (39,185) 1,971 (37,214) (28,546) - (28,546)
Other comprehensive income
for the year, net of tax - - - - - - -
Total comprehensive loss
for the year (39,185) 1,971 (37,214) (28,546) - (28,546)
Proft attributable to:
Owners of the parent (39,186) 1,971 (37,215)
Non-controlling interest (I/S) j 1 - 1
Total loss and comprehensive
loss for the year (39,185) 1,971 (37,214)
75 ANNUAL REPORT 2013
2.3 Reconciliation of equity
Group Company
31 March
2012 1 April 2011
31 March
2012 1 April 2011
R’000 R’000 R’000 R’000
Total equity under previous GAAP
beginning of the year 1,283,315 1,216,531 1,228,174 1,166,720
Adjustments to equity:
Reclassifcation from an investment to
an associate 476,095 461,041 - -
Equity accounting for joint ventures
previously consolidated on pro-
portionate method 353 (34,751) - -
Reclassifying a joint venture to a
subsidiary (873) (682) - -
Reclassifying an associate to a joint
venture - - - -
Adjustment of deferred taxation
effects not previously eliminated on
consolidation (37,575) (24,824) - -
Total equity under IFRSs 1,721,315 1,617,315 1,228,174 1,166,720
76 Smal l Enterpri se Fi nance Agency 76 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
2.4 Notes to the effect of IFRS adoption on the fnancial statements
The following refects the impact on the fnancial statements:
2.4.1 Differences in the statement of financial position
2.4.1.1 Group 2012
Group – 2012
2012 Note
Investment
reclassified
as
associate
Change
in joint
venture
policy
Joint
venture
reclassified
as
subsidiary
Associate
reclassified
as joint
venture
Deferred
tax not
previously
eliminated Total
Assets
Loans and advances a - (20,142) 3,746 - - (16,396)
Core business investments b - (15,566) - - - (15,566)
Non-core business
investments c (98,622) - - - - (98,622)
Investments in associates d 574,717 - - (7,264) - 567,453
Investments in joint ventures e - 41,438 - 7,264 - 48,702
Deferred tax asset g - (28) - - (37,575) (37,603)
Trade and other receivables h - (6) 159 - - 153
Cash and cash equivalents i - (7,144) 408 - - (6,736)
476,095 (1,448) 4,313 - (37,575) 441,385
Equity and liabilities
Reserves n 476,095 353 (873) - (37,575) 438,000
Shareholders loans - - - - - - -
Trade and other payables l - (899) 5,186 - - 4,287
Tax payable m - (902) - - - (902)
476,095 (1,448) 4,313 - (37,575) 441,385
77 ANNUAL REPORT 2013
2.4.1.2 Group 2011
Group – 2011
2011 Note
Investment
reclassified
as
associate
Change
in joint
venture
policy
Joint
venture
reclassified
as
subsidiary
Associate
reclassified
as joint
venture
Deferred
tax not
previously
eliminated Total
Assets
Loans and advances a - (32,618) 3,023 - - (29,595)
Core business investments b - (46,507) - - - (46,507)
Non-core business
investments c (98,622) - - - - (98,622)
Investments in associates d 559,663 - - (12,908) - 546,755
Investments in joint ventures e - 41,047 - 12,908 - 53,955
Deferred tax asset g - (648) - - (24,824) (25,472)
Trade and other receivables h - (18) 113 - - 95
Cash and cash equivalents i - (1,014) 1,367 - - 353
461,041 (39,758) 4,503 - (24,824) 400,962
Equity and liabilities
Reserves n 461,041 (34,751) (682) - (24,824) 400,784
Shareholders loans - - - - - - -
Deferred tax liability k - (4,597) - - - (4,597)
Trade and other payables l - (457) 5,185 - - 4,728
Tax payable m - 47 - - - 47
461,041 (39,758) 4,503 - (24,824) 400,962
2.4.1.3 Company 2012
Company – 2012
2012 Note
Investment
reclassified
as
associate
Change
in joint
venture
policy
Joint
venture
reclassified
as
subsidiary
Associate
reclassified
as joint
venture
Deferred
tax not
previously
eliminated Total
Assets
Non-core business
investments c (98,622) - - - - (98,622)
Investments in associates d 98,622 - - (7,264) - 91,358
Investments in joint ventures e - - (17,570) 7,264 - (10,306)
Investments in subsidiaries f - - 17,570 - - 17,570
- - - - - -
78 Smal l Enterpri se Fi nance Agency 78 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
2.4.1.4 Company 2011
Company – 2011
2011 Note
Investment
reclassified
as
associate
Change
in joint
venture
policy
Joint
venture
reclassified
as
subsidiary
Associate
reclassified
as joint
venture
Deferred
tax not
previously
eliminated Total
Assets
Non-core business
investments c (98,622) - - - - (98,622)
Investments in associates d 98,622 - - (12,908) - 85,714
Investments in joint ventures e - - (13,173) 12,908 - (265)
Investments in subsidiaries f - - 13,173 - - 13,173
- - - - - -
2.4.2 Differences in the statement of comprehensive income
2.4.2.1 Group 2012
Group – 2012
2012 Note
Investment
reclassified
as
associate
Change
in joint
venture
policy
Joint
venture
reclassified
as
subsidiary
Associate
reclassified
as joint
venture
Deferred
tax not
previously
eliminated Total
Interest from lending
operations o - (2,101) 399 - - (1,702)
Other income p - (313) 12 - - (301)
Investment income q (4,329) (4,825) 24 - - (9,130)
Net fair value loss on fnancial
assets r - (1,753) - - - (1,753)
Movement on impairments
and bad debt provisions s - 1,301 (274) - - 1,027
Bad debt written off t - 7,121 (35) - - 7,086
Other operating expenses u - (1,069) (459) - - (1,528)
Income from equity accounted
investments v 19,384 374 - - - 19,758
Income tax expense w - 1,265 - - (12,751) (11,486)
15,055 - (333) - (12,751) 1,971
79 ANNUAL REPORT 2013
2.4.3 Detailed notes
Group Company
2012 2011 2012 2011
R’000 R’000 R’000 R’000
a) Loans and advances
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (20,142) (32,618) - -
Joint venture reclassifed as a
subsidiary 3,746 3,023 - -
(16,396) (29,595) - -
b) Core business investments
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (15,566) (46,507) - -
c) Non-core business investments
Investment reclassifed as an associate (98,622) (98,622) (98,622) (98,622)
d) Investments in associates
Investment reclassifed as an associate 574,717 559,663 98,622 98,622
Associate reclassifed as a joint
venture (7,264) (12,908) (7,264) (12,908)
567,453 546,755 91,358 85,714
e) Investments in joint ventures
Joint ventures being accounted for
under equity method (previously line-
to-line basis) 41,438 41,047 - -
Associate reclassifed as a joint
venture 7,264 12,908 7,264 12,908
Joint venture reclassifed as a
subsidiary - - (17,570) (13,173)
48,702 53,955 (10,306) (265)
f) Investments in subsidiaries
Joint venture reclassifed as a
subsidiary - - 17,570 13,173
80 Smal l Enterpri se Fi nance Agency 80 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group Company
2012 2011 2012 2011
R’000 R’000 R’000 R’000
g) Deferred tax asset
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (28) (648) - -
Adjustment of deferred taxation
effects not previously eliminated on
consolidation (37,575) (24,824) - -
(37,603) (25,472) - -
h) Trade and other receivables
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (6) (18) - -
Joint venture reclassifed as a
subsidiary 159 113 - -
153 95 - -
i) Cash and cash equivalents
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (7,144) (1,014) - -
Joint venture reclassifed as a
subsidiary 408 1,367 - -
(6,736) 353 - -
j) Non-controlling interest
Small Business Growth Trust Fund was reclassifed from a joint venture to a subsidiary. Small Business Growth Trust
Fund is not a wholly owned subsidiary of sefa and another party holds a non-controlling interest.
k) Deferred tax liability
Joint ventures being accounted for
under equity method (previously
line-to-line basis) - (4,597) - -
l) Trade and other payables
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (899) (457) - -
Joint venture reclassifed as a
subsidiary 5,186 5,185 - -
4,287 4,728 - -
81 ANNUAL REPORT 2013
Group Company
2012 2011 2012 2011
R’000 R’000 R’000 R’000
m) Tax payable
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (902) 47 - -
n) Reserves
Investment reclassifed as an associate 476,095 461,041 - -
Joint ventures being accounted for
under equity method (previously
line-to-line basis) 353 (34,751) - -
Joint venture reclassifed as a
subsidiary (873) (682) - -
Adjustment of deferred taxation
effects not previously eliminated on
consolidation (37,575) (24,824) - -
438,000 400,784 - -
Group Company
2012 2012
R’000 R’000
o) Interest from lending operations
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (2,101) -
Joint venture reclassifed as a
subsidiary 399 -
(1,702) -
p) Other income
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (313) -
Joint venture reclassifed as a
subsidiary 12 -
(301) -
82 Smal l Enterpri se Fi nance Agency 82 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group Company
2012 2012
R’000 R’000
q) Investment income
Investment reclassifed as an associate (4,329) -
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (4,825) -
Joint venture reclassifed as a
subsidiary 24 -
(9,130) -
r) Net fair value loss on fnancial
assets
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (1,753) -
s) Movement on impairments and
bad debt provisions
Joint ventures being accounted for
under equity method (previously
line-to-line basis) 1,301 -
Joint venture reclassifed as a
subsidiary (274) -
1,027 -
t) Bad debt written off
Joint ventures being accounted for
under equity method (previously line-
to-line basis) 7,121 -
Joint venture reclassifed as a
subsidiary (35) -
7,086 -
u) Other operating expenses
Joint ventures being accounted for
under equity method (previously line-
to-line basis) (1,069) -
Joint venture reclassifed as a
subsidiary (459) -
(1,528) -
83 ANNUAL REPORT 2013
Group Company
2012 2012
R’000 R’000
v) Income from equity accounted
investments
Investment reclassifed as an associate 19,384 -
Joint ventures being accounted for
under equity method (previously line-
to-line basis) 374 -
19,758 -
w) Income tax expense
Joint ventures being accounted for
under equity method (previously line-
to-line basis) 1,265 -
Adjustment of deferred taxation
effects not previously eliminated on
consolidation (12,751) -
(11,486) -
3. Financial assets and liabilities
The table below sets out the group and company’s classifcation of each class of fnancial assets and liabilities, and their
fair values:
Loans and
receivables
Cost less
impairment
(1)
Other
amortised cost Total
Group – 2013 R’000 R’000 R’000 R’000
Assets
Loans and advances 303,060 - - 303,060
Investments - 26,409 - 26,409
Trade and other receivables 20,579 - - 20,579
Cash and cash equivalents 909,998 - - 909,998
1,233,637 26,409 - 1,260,046
Liabilities
Trade and other payables - - 136,784 136,784
- - 136,784 136,784
Total fnancial assets and liabilities 1,233,637 26,409 136,784 1,396,830
(1) Any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is
stated at its cost, including transaction costs, less impairment.
84 Smal l Enterpri se Fi nance Agency 84 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Loans and
receivables
Cost less
impairment
(1)
Other
amortised cost Total
Group – 2012 R’000 R’000 R’000 R’000
Assets
Loans and advances 249,485 - - 249,485
Investments - 47,871 - 47,871
Trade and other receivables 22,971 - - 22,971
Cash and cash equivalents 725,792 - - 725,792
998,248 47,871 - 1,046,119
Liabilities
Trade and other payables - - 132,878 132,878
- - 132,878 132,878
Total fnancial assets and liabilities 998,248 47,871 132,878 1,178,997
Loans and
receivables
Cost less
impairment
(1)
Other
amortised cost Total
Company – 2013 R’000 R’000 R’000 R’000
Assets
Loans and advances 211,576 - - 211,576
Investments - 26,409 - 26,409
Trade and other receivables 21,971 - - 21,971
Cash and cash equivalents 808,767 - - 808,767
1,042,314 26,409 - 1,068,723
Liabilities
Trade and other payables - - 101,911 101,911
- - 101,911 101,911
Total fnancial assets and liabilities 1,042,314 26,409 101,911 1,170,634
(1) Any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is
stated at its cost, including transaction costs, less impairment.
85 ANNUAL REPORT 2013
Loans and
receivables
Cost less
impairment
(1)
Other
amortised cost Total
Company – 2012 R’000 R’000 R’000 R’000
Assets
Loans and advances 162,245 - - 162,245
Investments - 47,871 - 47,871
Trade and other receivables 20,803 - - 20,803
Cash and cash equivalents 517,682 - - 517,682
700,730 47,871 - 748,601
Liabilities
Trade and other payables - - 22,150 22,150
- - 22,150 22,150
Total fnancial assets and liabilities 700,730 47,871 22,150 770,751
(1) Any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is
stated at its cost, including transaction costs, less impairment.
4. Financial risk management
The group has exposure to the following risks from its use of fnancial instruments:
• Credit risk;
• Liquidity risk; and
• Market risk.
This note presents information about the group’s exposure to each of the above risks, the group’s objectives, policies and
processes for measuring and managing risk, and the group’s management of capital. Further quantitative disclosures are
included throughout these fnancial statements.
The board of directors has overall responsibility for the establishment and oversight of the group’s risk management
framework. The board has established the Audit & Enterprise Risk Committees, which are responsible for developing
and monitoring the group’s risk management policies. The committees report regularly to the board of directors on
their activities.
The group’s risk management policies are established to identify and analyse the risks faced by the group, to set appropriate
risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed
regularly to refect changes in market conditions and the group’s activities. The group, through its training and management
standards and procedures, aims to develop a disciplined and constructive control environment in which all employees
understand their roles and obligations.
86 Smal l Enterpri se Fi nance Agency 86 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
The Enterprise Risk Committee oversees how management monitors compliance with the group’s risk management
policies and procedures and review the adequacy of the risk management framework in relation to the risks faced by
the group. The Enterprise Risk Committee is assisted by the internal audit function which undertakes both regular and ad
hoc reviews of risk management controls and procedures, the results of which are reported to the Audit & Enterprise
Risk Committees.
Credit risk
Credit risk is the risk of fnancial loss to the group if a customer or counter-party to a fnancial instrument fails to meet its
contractual obligations, and arises principally from the group’s receivables from customers and investment securities.
Loans and advances and trade and other receivables
The group’s exposure to credit risk is infuenced mainly by the individual characteristics of each customer. The demographics
of the group’s customer base, including the default risk of the industry and the country, in which customers operate, has
less of an infuence on credit risk. No signifcant percentage of the group’s revenue can be contributed to transactions
with one customer and there is no geographical concentration of credit risk.
Risk management has established a credit policy under which each new customer is analysed individually for creditworthiness
before the group will transact with the customer. The group’s review includes external ratings, when available, due diligence
exercises and in some cases, bank references.
Loans and advances are subject to comprehensive and substantial security clauses to protect the group in the event of
non-payment.
All credit risk arises from normal operations of the group, with the major credit risk arising from the group’s receivables
and loans and advances. The investment committee, established by the board of directors, reviews the group’s loan book
on an on-going basis. All applications for credit are thoroughly scrutinised covering fnancial, technical and reputational risks.
sefa, being a development fnance institution, has a different risk profle compared to traditional commercial banks.
The group establishes an allowance for impairment that represents its estimate of incurred losses in respect of receivables,
loans and advances and investments. The main components of this allowance are a specifc loss component that relates
to individually signifcant exposures, and a collective loss component established for groups of similar assets in respect
of losses that have been incurred but not yet identifed. The collective loss allowance is determined based on historical
data of payment for similar assets.
Investments
The group limits its exposure to credit risk in respect of its money market transactions by only investing in funds that
have approved high credit quality fnancial ratings and public sector institutions in accordance with predetermined limits
approved by executive management and the board. Money market investments are refected as cash and cash equivalents.
Liquidity risk
Liquidity risk is the risk that the group will not be able to meet its fnancial obligations as they fall due. The group’s approach
to managing liquidity is to ensure, as far as possible, that it will always have suffcient liquidity to meet its liabilities when
due, under both normal and stressed conditions, without incurring unacceptable losses or risk damage to the group’s
reputation.
87 ANNUAL REPORT 2013
Due to the nature of the business, the group’s cash management process aims to maintain fexibility in funding by keeping
committed credit lines available. Cash requirements and infows are monitored by management to ensure that suffcient
cash is available to meet all fnancial commitments including operational expenditure. Typically the group ensures that it
has suffcient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of
fnancial obligations; this excludes the potential impact of extreme circumstances that cannot be reasonably predicted;
such as natural disasters.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will
affect the group’s income or the value of its holdings of fnancial instruments. The objective of market risk management
is to manage and control market risk exposures within acceptable parameters, while optimising the return. The group
does not deal in derivatives.
Interest rate risk
Interest rate risk is the risk that the value of a fnancial instrument will fuctuate due to changes in market interest rates.
The group’s income and operating cash fows are substantially dependent on changes in market interest rates and the
group has signifcant interest-bearing assets. The group’s policy is to maintain most of its investments in the form of money
market instruments. Interest rate risk is limited to the group’s investment in foating-rate instruments such as deposits,
negotiable certifcates of deposits and banker’s acceptances as well as loans which are normally issued at rates linked to
the prime interest rate. The investment management function has been outsourced to Andisa Capital Proprietary Limited
and the Industrial Development Corporation. Regular management and board sub-committee meetings are held in order
to review sefa’s interest rate view, which would affect the level of interest rate risk taken in respect of surplus funds.
Money market investments are refected as cash and cash equivalents.
Capital management
The board’s policy is to maintain a strong capital base so as to maintain shareholder, creditor and market confdence and
to sustain future development of the business. The board of directors monitors return on capital, which the group defnes
as net operating income divided by total shareholders’ equity.
The board seeks to maintain a balance between higher returns and its developmental mandate. There were no changes
in the group’s approach to capital management during the year. A subsidiary, Khula Credit Guarantee Limited is subject
to capital requirements imposed on it by the Financial Services Board in terms of the Short-Term Insurance Act. Neither
the company nor any of its other subsidiaries are subject to externally imposed capital requirements.
The group recognises equity and reserves as capital. For statutory purposes share capital consists of ordinary shares.
Ordinary shares are refected as equity under share capital. The group’s objectives when managing capital are:
• To comply with capital requirements required for insurers as determined by the Short-Term Insurance Act, 53 of
1998; and
• To safeguard the group’s ability to continue as a going concern so that it can provide returns for the shareholder
and benefts for other stakeholders.
88 Smal l Enterpri se Fi nance Agency 88 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Khula Credit Guarantee Limited submits quarterly and annual returns to the Financial Services Board in terms of the Short-
Term Insurance Act, 53 of 1998. Khula Credit Guarantee Limited is required at all times to maintain a statutory surplus
asset ratio as defned in the Short-Term Insurance Act, 53 of 1998. The returns submitted to the regulator showed that
Khula Credit Guarantee Limited met the minimum capital requirements throughout the year. When managing ordinary
share capital, the group’s objectives are to maintain a minimum level of capital without compromising the ability to operate
effectively. This is achieved by using available cash balances to fund working capital requirements and returning capital to
the shareholder as and when excess cash is generated.
Indemnity risk
The group issues indemnity contracts that transfer insurance risk. The board and executive committee manage the
indemnity risk according to the group’s risk appetite.
The risk under any one indemnity contract is the likelihood that the indemnifed event will occur, and the uncertainty
of the amount of the resulting claims. For a portfolio of indemnity contracts where the theory of probability is applied
to provisioning, the principle risk that the group faces is that the actual claims and beneft payments will exceed the
carrying amount of the indemnity liabilities. By the very nature of an indemnity contract, the risk is random and therefore
unpredictable. Changing risk parameters and unforeseen factors, such as economical and geographical circumstances, may
result in unexpectedly large claims. Indemnifed events are random and from one year to the next, and the actual number
of claims will vary from the estimate established by means of statistical techniques.
The net claims ratio for the company, which is important in monitoring indemnity risk, has developed as follows over the
past 5 years:
2013 2012 2011 2010 2009
Loss history
Claims paid and provided % 19% 34% 389% 248% 196%
(Expressed as a percentage of gross indemnity fees
written)
Factors that aggravate indemnity risk include lack of risk diversifcation in terms of type and amount of risk and geographical
location covered. Experience shows that the larger the portfolio of similar indemnity contracts, the smaller the relative
variability about the expected outcome will be, therefore a more diversifed portfolio is less likely to be affected across
the board by a change in any subset of the portfolio. The group only underwrites indemnity contracts in South Africa.
The group does not have the right to re-price and change the conditional risks on renewal of individual indemnities.
The group establishes a provision for claims using independent actuarial methods. Claim provisions are regularly checked
by way of internal reviews and audits to ensure they are suffcient. These analyses draw on the expertise and experience
of a wide range of specialists, such as actuaries, auditors and accounting experts.
Limiting exposure to indemnity risk
The group limits its exposure to indemnity risk through setting a clearly defned underwriting strategy and limits and
adopting appropriate risk assessment techniques. Each of these risk management aspects is dealt with below in more detail.
89 ANNUAL REPORT 2013
(i) Underwriting strategy and limits and policies for mitigating indemnity risk
The group’s underwriting strategy seeks diversity to ensure a balanced portfolio of indemnity risks. The strategy also aims
to establish a suffciently large portfolio to reduce the variability of the outcome. To this end the group underwrites a
wide variety of risks spread across fnancial and commercial indemnity holders, which includes the underwriting of risks
in niche markets with favourable claims expectations.
On an annual basis the group prepares an underwriting budget that is based on the underwriting strategy to be followed
in the next 3 years. The underwriting strategy is updated for changes in the underwriting results of the group and the
industry, the group’s available risk capital, its developmental mandate as well as existing concentrations of indemnity risk.
(ii) Risk assessment
The group relies on a rigorous process followed by the indemnifed parties before they propose and accept a specifc
indemnity risk. Some of the factors considered during the underwriting stage include:
• Past loss experience associated with the proposed risk;
• Indemnifable interest;
• Probability of success;
• Level of mitigation procedures adopted by the proposed indemnifed;
• Location of the proposed risk;
• Past and proposed rating terms of the risk;
• Scope and terms of cover considered;
• Results of surveys completed, where applicable; and
• Possible variations that may be applied to the risks indemnifed.
Concentration of indemnity risks
The group’s insurance portfolio consists of indemnity risks. The concentration of indemnity risks is managed by different
levels of diversifcation mainly through the fnancial institutions that are underwritten and the geographical areas in which
the risks are situated, with single risks spread across all areas of the country.
90 Smal l Enterpri se Fi nance Agency 90 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group
Sector analysis at carrying value
Loans and advances and investments
2013 2012
R’000 R’000 R’000 R’000
Loans and
advances Investments
Loans and
advances Investments
Agriculture, forestry and fshing 54,942 - 47,909 -
Basic chemicals 227 - 264 -
Beverages 216 - 2,057 -
Building construction 12,274 - 990 -
Business services 4,704 - 1,214 -
Catering and accommodation
services 3,482 - 4,019 -
Communication 724 - 462 -
Electricity, gas and steam 3,626 - 2,285 -
Finance and insurance 188,268 26,409 162,245 47,871
Food 2,344 - 2,346 -
Machinery and equipment 199 - 557 -
Medical, dental and other health and
veterinary services 4,591 - 4 -
Motor vehicles, parts and accessories 507 - 900 -
Non-metallic minerals 2,243 - 2,306 -
Other community, social and personal
services 220 - 218 -
Other chemicals and man-made
fbres 129 - 225 -
Other services 5,098 - 6,552 -
Paper and paper products 138 - 239 -
Plastic products 694 - 360 -
Printing, publishing and recorded
media 3,087 - 1,992 -
Professional and scientifc equipment 321 - 23 -
Television, radio and communication
equipment 747 - 516 -
Textiles 48 - 133 -
Transport and storage 2,623 - 2,009 -
Wearing apparel 2,066 - 2,984 -
Wholesale and retail trade 8,550 - 5,769 -
Wood and wood products 992 - 907 -
303,060 26,409 249,485 47,871
91 ANNUAL REPORT 2013
Company
2013 2012
R’000 R’000 R’000 R’000
Loans and
advances Investments
Loans and
advances Investments
Building construction 10,701 - - -
Business services 3,688 - - -
Catering and accommodation
services 205 - - -
Electricity, gas and steam 711 - - -
Finance and insurance 188,268 26,409 162,245 47,871
Medical, dental and other health and
veterinary services 3,745 - - -
Motor vehicles, parts and accessories 63 - - -
Non-metallic minerals 1 - - -
Other community, social and personal
services 1 - - -
Other chemicals and man-made
fbres 1 - - -
Other services 1,118 - - -
Printing, publishing and recorded
media 886 - - -
Professional and scientifc equipment 241 - - -
Wholesale and retail trade 1,947 - - -
211,576 26,409 162,245 47,871
92 Smal l Enterpri se Fi nance Agency 92 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group Company
2013 2013
R’000 R’000 R’000 R’000
Credit risk exposure
Loans and
advances Investments
Loans and
advances Investments
Individually impaired 65,369 26,409 43,277 26,409
Past due but not impaired 15,724 - 5,315 -
Neither past due nor impaired 221,967 - 162,984 -
Total carrying value 303,060 26,409 211,576 26,409
Individually impaired
Low risk client 4,781 - - -
Medium risk client 70,578 67,880 51,252 67,880
High risk client 223,057 5,000 189,013 5,000
Gross amount 298,416 72,880 240,265 72,880
Allowance for impairment (233,047) (46,471) (196,988) (46,471)
Carrying amount 65,369 26,409 43,277 26,409
Past due but not impaired
Low risk client 10,410 - 4,704 -
Medium risk client 5,303 - 611 -
High risk client 11 - - -
Carrying amount 15,724 - 5,315 -
Past due but not impaired
comprises:
0 – 30 days 6,283 - 4,439 -
31 – 60 days 704 - 90 -
61 – 90 days 1,697 - 13 -
91 – 120 days 847 - 10 -
121 days + 6,193 - 763 -
Carrying amount 15,724 - 5,315 -
Neither past due nor impaired
Low risk client 211,795 - 160,224 -
Medium risk client 9,771 - 2,760 -
High risk client 401 - - -
Carrying amount 221,967 - 162,984 -
Portfolio impairment - - - -
Total carrying amount 221,967 - 162,984 -
93 ANNUAL REPORT 2013
Group Company
2012 2012
R’000 R’000 R’000 R’000
Credit risk exposure
Loans and
advances Investments
Loans and
advances Investments
Individually impaired 20,402 47,871 15,856 47,871
Past due but not impaired 21,021 - 4,720 -
Neither past due nor impaired 208,062 - 141,669 -
Total carrying value 249,485 47,871 162,245 47,871
Individually impaired
Low risk client 15,574 47,871 15,575 47,871
Medium risk client 4,365 - - -
High risk client 169,731 5,000 138,184 5,000
Gross amount 189,670 52,871 153,759 52,871
Allowance for impairment (169,268) (5,000) (137,903) (5,000)
Carrying amount 20,402 47,871 15,856 47,871
Past due but not impaired
Low risk client 4,172 - 4,199 -
Medium risk client 14,961 - 521 -
High risk client 1,888 - - -
Carrying amount 21,021 - 4,720 -
Past due but not impaired
comprises:
0 – 30 days 5,312 - 2,756 -
31 – 60 days 2,808 - 631 -
61 – 90 days 2,359 - 488 -
91 – 120 days 941 - 670 -
121 days + 9,601 - 175 -
Carrying amount 21,021 - 4,720 -
Neither past due nor impaired
Low risk client 199,418 - 141,669 -
Medium risk client 5,899 - - -
High risk client 2,745 - - -
Carrying amount 208,062 - 141,669 -
Portfolio impairment - - - -
Total carrying amount 208,062 - 141,669 -
94 Smal l Enterpri se Fi nance Agency 94 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Credit quality of loans neither past due nor impaired
The group has every reason to believe that the underlying debtors have the ability and intention to repay these loans
and that the likelihood of default is low.
Collateral held
Collateral is normally taken on all loans and ranges from cessions over moveable and immoveable assets to personal surety.
Due to the nature of the business of sefa, the value of collateral held is low compared to the carrying value of the related
loans.
Liquidity risk exposure
The following are the remaining contractual maturities at the end of the reporting period of recognised and unrecognised
fnancial liabilities, including estimated interest payments and excluding the impact of netting agreements:
Group
31 March 2013
Carrying
value
R’000
Total
R’000
Within 1
year
R’000
2 – 5
years
R’000
More than
5 years
R’000
Trade and other payables 53,281 53,281 53,281 - -
Guarantees/indemnities issued to fnancial
institutions
(1)
17,529 17,529 17,529 - -
Operating lease commitments - 37,285 5,395 13,786 18,104
Undrawn fnancing facilities approved - 275,916 275,916 - -
Undrawn guarantees/indemnities approved
(2)
- 1,242 1,242 - -
70,810 385,253 353,363 13,786 18,104
(1) Total guarantees/indemnities issued to fnancial institutions amount to R96,390 million. However, it is not considered likely that the
full balance indemnifed will result in future outfows of cash. The calculations by external actuaries were used to calculate the liability
recognised at year end and represents an estimate of possible future cash outfows within 1 year. It amounts to 18% required reserves
of the total portfolio indemnifed.
(2) Undrawn guarantees/indemnities approved amounts to R6,802 million. It is estimated that 18% of undrawn facilities may result in
future claims. Due to the timing of these claims being uncertain, the full balance is allocated to the 1 year period.
95 ANNUAL REPORT 2013
Group
31 March 2012
Carrying
value
R’000
Total
R’000
Within 1
year
R’000
2 – 5
years
R’000
More than
5 years
R’000
Operating lease commitments - 34,828 3,346 18,632 12,850
Trade and other payables 31,348 31,348 31,348 - -
Undrawn fnancing facilities approved - 193,944 193,944 - -
Guarantees/indemnities issued to fnancial
institutions
(1)
37,578 37,578 37,578 - -
Undrawn guarantees/indemnities approved
(2)
- 452 452 - -
68,926 298,150 266,668 18,632 12,850
(1) Total guarantees/indemnities issued to fnancial institutions amounted to R174,167 million. However it is not considered likely that
the full balance indemnifed will result in future outfows of cash. The required reserves calculated by external actuaries were used
to calculate the liability recognised at year end and represents an estimate of possible future cash outfows within 1 year. It amounts
to 22% of the total portfolio indemnifed.
(2) Undrawn guarantees/indemnities approved amounted to R2,055 million. It is estimated that 22% of undrawn facilities may result in
future claims. Due to the timing of these claims being uncertain, the full balance is allocated to the 1 year period.
Company
31 March 2013
Carrying
value
R’000
Total
R’000
Within 1
year
R’000
2 – 5
years
R’000
More than
5 years
R’000
Operating lease commitments - 37,285 5,395 13,786 18,104
Trade and other payables 18,409 18,409 18,409 - -
Undrawn fnancing facilities approved - 255,065 255,065 - -
18,409 310,759 278,869 13,786 18,104
Company
31 March 2012
Carrying
value
R’000
Total
R’000
Within 1
year
R’000
2 – 5
years
R’000
More than
5 years
R’000
Operating lease commitments - 34,828 3,346 18,632 12,850
Trade and other payables 11,301 11,301 11,301 - -
Undrawn fnancing facilities approved - 170,648 170,648 - -
11,301 216,777 185,295 18,632 12,850
96 Smal l Enterpri se Fi nance Agency 96 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group Company
2013 2012 2013 2012
Interest rate risk R’000 R’000 R’000 R’000
At the reporting date the interest
rate profle of the group's interest-
bearing fnancial instruments was:
Variable rate instruments
Financial assets 1,198,876 1,096,082 1,050,972 882,509
Financial liabilities - (5,518) - (5,157)
Balance at end of the year 1,198,876 1,090,564 1,050,972 877,352
Cash flow sensitivity analysis for variable rate instruments
A change in 100 basis points in the interest rates at the reporting date would have increased/(decreased) equity and
proft or loss by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is
performed on the same basis for 2012.
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
100 basis points increase 11,989 10,906 10,510 8,774
100 basis points decrease (11,989) (10,906) (10,510) (8,774)
Fair values
Fair values versus carrying amounts
The fair value of fnancial assets approximate the carrying amounts shown in the statement of fnancial position due to
the following reasons:
• The short-term nature of many fnancial assets;
• Decreases in credit risk ratings result in impairments of loans; and
• Loans are issued at rates linked to the prime interest rate.
The fair value of fnancial liabilities approximate the carrying amounts shown in the statement of fnancial position due
to the short-term nature of all recognised fnancial liabilities.
97 ANNUAL REPORT 2013
5. Cash and cash equivalents
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Cash in bank and in hand 106,213 47,888 82,302 26,760
Money market investments 803,785 677,904 726,465 490,922
909,998 725,792 808,767 517,682
Cash and cash equivalents comprises cash deposits with banks and short-term money market instruments maturing within
three months. These attract interest at market-related rates.
6. Trade and other receivables
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Trade receivables 8,786 5,123 9,264 2,485
Rental debtors 43,931 64,680 43,931 64,678
Pre-payments 724 1,460 724 961
Related party loans (refer to note 34) 1,145 7,037 2,461 7,826
Staff loans 1,033 672 631 354
Trade and other receivables before
bad debt provision 55,619 78,972 57,011 76,304
Bad debt provision on rental debtors (34,316) (54,541) (34,316) (54,540)
21,303 24,431 22,695 21,764
No trade and other receivables are pledged as security.
98 Smal l Enterpri se Fi nance Agency 98 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
7. Loans and advances
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Loans and advances to clients 536,211 418,753 408,564 300,148
Specifc impairments of loans and advances (233,151) (169,268) (196,988) (137,903)
303,060 249,485 211,576 162,245
Reconciliation of impairment of loans
and advances
Specifc allowances for impairment
Balance at 1 April 169,268 190,668 137,903 170,353
Impairment loss for the year
- Charge/(release) for the year 71,461 5,911 56,186 (22,037)
- Recoveries - - - -
Write offs (10,476) (30,870) - (10,413)
Balances taken on from subsidiaries acquired 2,898 3,559 2,899 -
Balance at 31 March 233,151 169,268 196,988 137,903
Maturity of loans and advances
- Due within one year 281,918 180,587 223,048 139,890
- Due after one year but within two years 89,978 112,730 68,534 84,301
- Due after two years but within three years 75,233 54,297 54,620 31,095
- Due after three years but within four years 37,529 41,471 25,092 24,632
- Due after four years but within fve years 41,607 29,668 37,270 20,230
- Due after fve years 9,947 - - -
- Impairment of loans and advances (233,152) (169,268) (196,988) (137,903)
303,060 249,485 211,576 162,245
99 ANNUAL REPORT 2013
8. Investments
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Unlisted equities 5,000 5,000 5,000 5,000
Investment in En Commandite partnership 67,880 81,784 67,880 81,784
72,880 86,784 72,880 86,784
Impairment of unlisted equities (5,000) (5,000) (5,000) (5,000)
Impairment of investment in Investment in
En Commandite partnership (41,471) (33,913) (41,471) (33,913)
26,409 47,871 26,409 47,871
Specifc allowances for impairment -
Unlisted equities
Balance at 1 April 5,000 - 5,000 -
Impairment loss for the year
- Charge/(release) for the year - 5,000 - 5,000
- Recoveries - - - -
Write offs - - - -
Other movement - - - -
Balance at 31 March 5,000 5,000 5,000 5,000
Specifc allowances for impairment -
En Commandite partnership
Balance at 1 April 33,913 30,323 33,913 30,323
Impairment loss for the year
- Charge/(release) for the year 7,558 3,590 7,558 3,590
Balance at 31 March 41,471 33,913 41,471 33,913
These investments do not have a quoted market price in an active market and their fair value cannot be reliably measured.
They are therefore stated at cost, including transaction costs, less impairment.
100 Smal l Enterpri se Fi nance Agency 100 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
9. Investments in subsidiaries
Company
2013 2012
R’000 R’000
Unlisted shares in subsidiaries 55,002 55,002
Impairment of shares - -
Loans receivable 204,572 195,514
Impairment of loans (117,970) (110,842)
141,604 139,674
Companies 2013 2012 2013 2012
% interest % interest
Nature of
activities
Total company
exposure
before
impairments
R’000
Total company
exposure
before
impairments
R’000
Khula Credit Guarantee Ltd
100% 100%
Short term
indemnities 55,185 61,575
New Cape Equity Fund
(Pty) Ltd 100% 100%
Private equity
funding 13,955 13,589
MKN Equity Fund (Pty) Ltd 100% 100%
Private equity
funding 4,850 4,850
New Business Finance (Pty)
Ltd 100% 100% SME Financing 51,298 51,298
Khula Business Premises
(Pty) Ltd 100% 100%
Property
rental - -
Khula Emerging Contractors
Fund 100% 100% SME Financing 20,394 20,394
Khula Akwandze Fund (Pty)
Ltd 75% 75% SME Financing 36,994 28,494
Identity Development Fund
Partnership 100% 100% SME Financing 29,532 24,188
Small Business Growth Trust
Fund 81% 80% SME Financing 22,366 21,128
The Khula-Enablis SME
Acceleration Fund 80% 80% SME Financing 25,000 25,000
259,574 250,516
All subsidiaries are incorporated in the Republic of South Africa.
All subsidiaries have the same reporting date as the holding company, except for New Business Finance (Pty) Ltd whose
year-end is February.
101 ANNUAL REPORT 2013
The aggregate net profts and losses after taxation of subsidiaries attributable to sefa were as follows:
Group
2013 2012
R’000 R’000
Profts 10,110 4,489
Losses (5,848) (26,576)
4,262 (22,087)
10. Investments in associates
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Unlisted shares in associates 98,622 98,622 98,622 98,622
Impairment of shares - - - -
Accumulated equity-accounted income, losses
and impairments 494,249 475,148 - -
Loans receivable 12,043 2,235 12,043 2,235
Impairment of loans - - (1,683) (948)
604,914 576,005 108,982 99,909
Companies 2013 2012 2013 2012
% interest % interest
Nature of
activities
Total company
exposure
before
impairments
R’000
Total company
exposure
before
impairments
R’000
Business Partners Limited 21% 21% SME Financing 98,622 98,622
The Utho SME
Infrastructure Fund
(1)
51% 42% SME Financing 12,043 2,235
110,665 100,857
(1) Although the ownership interest in The Utho SME Infrastructure Fund is 51%, the voting interest is only 40%.
102 Smal l Enterpri se Fi nance Agency 102 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group
2013 2012
R’000 R’000
The aggregate amounts attributable to sefa were as follows:
Statement of fnancial position
Non-current assets 591,568 558,339
Current assets 98,368 77,141
689,936 635,480
Equity 543,162 511,563
Non-current liabilities 120,997 61,531
Current liabilities 25,777 62,386
689,936 635,480
Statement of comprehensive income
Revenue 90,315 84,220
Expenses (62,075) (62,363)
28,240 21,857
11. Investments in joint ventures
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Accumulated equity-accounted income, losses
and impairments 24,000 19,027 - -
Loans receivable 29,037 29,675 29,037 29,675
Impairment of loans - - (21,990) (22,411)
53,037 48,702 7,047 7,264
103 ANNUAL REPORT 2013
Companies 2013 2012 2013 2012
% interest % interest
Nature of
activities
Total company
exposure
before
impairments
R’000
Total company
exposure
before
impairments
R’000
Anglo Khula Mining Fund
(Pty) Ltd
50% 50%
Financing
mining activities - -
Izibulo SME Trust Fund 65% 65% SME Financing 21,728 21,728
Enablis Khula Loan Fund 40% 40% SME Financing 7,309 7,947
29,037 29,675
Group
2013 2012
R’000 R’000
The aggregate amounts attributable to sefa were as follows:
Statement of fnancial position
Non-current assets 24,016 15,593
Current assets 31,922 35,692
55,938 51,285
Equity 53,037 48,702
Non-current liabilities 1,345 -
Current liabilities 1,556 2,583
55,938 51,285
Statement of comprehensive income
Revenue 8,455 13,039
Expenses (3,001) (12,160)
5,454 879
104 Smal l Enterpri se Fi nance Agency 104 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
12. Deferred tax assets and liabilities
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Composition of deferred taxation asset
is as follows:
Income received in advance - 247 - -
Tax loss 19,314 3,913 19,314 3,913
Other provisions 31,517 20,363 69,664 55,446
Fair value adjustments on investment property 24,362 15,094 24,360 15,094
75,193 39,617 113,338 74,453
Movement on the deferred taxation
asset is as follows:
At beginning of the year 39,617 35,469 74,453 56,859
Temporary differences 35,576 4,148 38,885 17,594
- Current year 36,007 8,738 39,316 22,183
- Previous year (431) (4,590) (431) (4,589)
At end of the year 75,193 39,617 113,338 74,453
Unrecognised deductible temporary differences, unused tax losses and unused tax credits
Deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax assets have been
recognised are attributable to the following:
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Tax losses (Revenue in nature) 16,751 18,750 - -
105 ANNUAL REPORT 2013
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Composition of deferred taxation
liability is as follows:
Prepaid expenses (163) (109) (163) (109)
Debtor allowances (15,465) (13,116) (16,191) (13,471)
(15,628) (13,225) (16,354) (13,580)
Movement on the deferred taxation
liability is as follows:
At beginning of the year (13,225) - (13,580) -
Temporary differences (2,403) (13,225) (2,774) (13,580)
- Current year (2,403) (13,225) (2,774) (13,580)
- Previous year - - - -
At end of the year (15,628) (13,225) (16,354) (13,580)
13. Investment properties
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Opening carrying amount 195,264 187,508 195,264 187,508
Additions - - - -
Disposals (1,900) - (1,900) -
Fair value adjustments (21,929) 7,756 (21,929) 7,756
Closing balance 171,435 195,264 171,435 195,264
106 Smal l Enterpri se Fi nance Agency 106 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
14. Offce equipment, furniture and other tangible assets
Group Company
Cost
Accumulated
depreciation
and
impairment
Carrying
value Cost
Accumulated
depreciation
and
impairment
Carrying
value
2013 R’000 R’000 R’000 R’000 R’000 R’000
Motor vehicle 518 411 107 472 384 88
Computer equipment 8,819 6,689 2,130 8,669 6,594 2,075
Offce equipment 3,289 1,979 1,310 3,274 1,963 1,311
Furniture and fttings 6,077 2,349 3,728 5,938 2,259 3,679
Lease improvements 5,715 589 5,126 5,716 589 5,127
24,418 12,017 12,401 24,069 11,789 12,280
2012
Motor vehicle 354 334 20 308 305 3
Computer equipment 8,306 7,052 1,254 8,156 6,973 1,183
Offce equipment 376 254 122 360 239 121
Furniture and fttings 1,527 1,388 139 1,389 1,311 78
10,563 9,028 1,535 10,213 8,828 1,385
The movement in the carrying value of offce equipment, furniture and other tangible assets is as follows:
Group
Motor
vehicles
Computer
equipment
Office
equipment
Furniture
and fittings
Lease
improve-
ments Total
2013 R’000 R’000 R’000 R’000 R’000 R’000
Carrying value at
1 April 2012 20 1,254 122 139 - 1,535
Additions - 1,816 806 3,935 5,715 12,272
Assets acquired through
a business combination 120 548 705 148 - 1,521
Disposals - (5) - - - (5)
Transfers 1 (639) 71 (42) - (609)
Depreciation charge (34) (844) (394) (452) (589) (2,313)
Carrying value at
31 March 2013 107 2,130 1,310 3,728 5,126 12,401
107 ANNUAL REPORT 2013
Group
Motor
vehicles
Computer
equipment
Office
equipment
Furniture
and fittings
Lease
improve-
ments Total
2012 R’000 R’000 R’000 R’000 R’000 R’000
Carrying value at
1 April 2011 31 1,702 151 121 - 2,005
Additions 18 126 3 - - 147
Assets acquired through
a business combination - 86 70 156
Disposals - (7) - - - (7)
Depreciation charge (29) (653) (32) (52) - (766)
Carrying value at
31 March 2012 20 1,254 122 139 - 1,535
Company
Motor
vehicles
Computer
equipment
Office
equipment
Furniture
and fittings
Lease
improve-
ments Total
2013 R’000 R’000 R’000 R’000 R’000 R’000
Carrying value at
1 April 2012 3 1,183 121 78 - 1,385
Additions - 1,816 806 3,935 5,716 12,273
Assets acquired through
a business combination 119 547 707 147 - 1,520
Disposals - (5) - - - (5)
Transfers - (639) 71 (42) - (610)
Depreciation charge (34) (827) (394) (439) (589) (2,283)
Carrying value at
31 March 2013 88 2,075 1,311 3,679 5,127 12,280
108 Smal l Enterpri se Fi nance Agency 108 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Company
Motor
vehicles
Computer
equipment
Office
equipment
Furniture
and fittings
Lease
improve-
ments Total
2012 R’000 R’000 R’000 R’000 R’000 R’000
Carrying value at
1 April 2011 31 1,702 151 121 - 2,005
Additions - 126 2 - - 128
Disposals - (7) - - - (7)
Depreciation charge (28) (638) (32) (43) - (741)
Carrying value at
31 March 2012 3 1,183 121 78 - 1,385
No offce equipment, furniture or other tangible assets are pledged as security for liabilities (2012: Rnil).
15. Intangible assets
Group Company
Cost
Accumulated
amortisation
and
impairment
Carrying
value Cost
Accumulated
amortisation
and
impairment
Carrying
value
2013 R’000 R’000 R’000 R’000 R’000 R’000
Software 3,965 3,362 603 3,468 3,040 428
Intellectual property 2,200 929 1,271 2,200 929 1,271
Goodwill 31,899 31,899 - - - -
38,064 36,190 1,874 5,668 3,969 1,699
2012
Software 497 230 267 - - -
Intellectual property 1,770 220 1,550 1,770 220 1,550
Goodwill 31,899 31,899 - - - -
34,166 32,349 1,817 1,770 220 1,550
109 ANNUAL REPORT 2013
The movement in the carrying value of intangible assets are as follows:
Group
Software
Intellectual
property Goodwill Total
2013 R’000 R’000 R’000 R’000
Carrying value at 1 April 2012 267 1,550 - 1,817
Additions 141 430 - 571
Assets acquired through a business
combination 609 - - 609
Transfer 610 - - 610
Amortisation (1,024) (709) - (1,733)
Carrying value at 31 March 2013 603 1,271 - 1,874
2012
Carrying value at 1 April 2011 - - - -
Additions 56 1,770 31,899 33,725
Assets acquired through a business
combination 283 - - 283
Amortisation (72) (220) - (292)
Impairment - - (31,899) (31,899)
Carrying value at 31 March 2012 267 1,550 - 1,817
Company
Software
Intellectual
property Goodwill Total
2013 R’000 R’000 R’000 R’000
Carrying value at 1 April 2012 - 1,550 - 1,550
Additions 141 430 - 571
Assets acquired through a business
combination 609 - - 609
Transfers 610 - - 610
Amortisation (932) (709) - (1,641)
Carrying value at 31 March 2013 428 1,271 - 1,699
110 Smal l Enterpri se Fi nance Agency 110 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Company
Software
Intellectual
property Goodwill Total
2012 R’000 R’000 R’000 R’000
Carrying value at 1 April 2011 - - - -
Additions - 1,770 - 1,770
Amortisation - (220) - (220)
Carrying value at 31 March 2012 - 1,550 - 1,550
No intangible assets are pledged as security for liabilities (2012: Rnil)
16. Share capital
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Authorised
500,000,000 ordinary shares at R1 each 500,000 500,000 500,000 500,000
Issued
308,300,000 ordinary shares at R1 each 308,300 308,300 308,300 308,300
17. Shareholders loans
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Loan from shareholder 944,542 794,131 944,542 774,462
This loan is unsecured, bears no interest and has no specifc repayment terms.
111 ANNUAL REPORT 2013
18. Trade and other payables
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Trade payables 53,281 31,348 18,409 11,301
Deferred grant 11,588 5,059 11,588 5,059
Accrued bonus
(1)
10,989 4,884 10,988 4,884
Accrued leave pay
(2)
3,727 906 3,727 906
Managed funds
(3)
57,199 90,681 57,199 -
136,784 132,878 101,911 22,150
1) Accrued Bonuses
Balances at the beginning of the year 4,884 3,203 4,884 3,203
Additional accruals raised during the year 6,105 1,681 6,104 1,681
Utilised during the year - - - -
Balance at the end of the year 10,989 4,884 10,988 4,884
2) Accrued leave pay
Balances at the beginning of the year 906 810 907 810
Additional accruals raised during the year 3,559 672 3,558 672
Utilised during the year (738) (576) (738) (576)
Balance at the end of the year 3,727 906 3,727 906
3) Managed funds
The group is managing funds and holding cash
balances on behalf of the following parties:
Unops 40,129 - 40,129 -
Norad 6,925 - 6,925 -
European Union 10,145 - 10,145 -
Mafsa - 90,681 - -
57,199 90,681 57,199 -
112 Smal l Enterpri se Fi nance Agency 112 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
19. Unearned risk reserve and outstanding claims reserve
The technical provisions recognised in the statements of fnancial position are detailed below and are determined as
described in the following paragraphs:
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Unexpired risk reserve
- At beginning of the year 10,535 11,332 - -
- Movement recorded in proft or loss (4,079) (797) - -
At end of the year 6,456 10,535 - -
Outstanding claims reserve
- At beginning of the year 27,043 55,412 - -
- Movement recorded in proft or loss (15,970) (28,369) - -
At end of the year 11,073 27,043 - -
The calculation of the reserves was performed by an independent actuarial consulting frm, Matlotlo Group (Proprietary)
Limited.
The summary of the valuation method is as follows:
The Unearned Premium Reserve is calculated on a straight-line basis, assuming indemnity fees received are earned
uniformly over the 12 months for which they have been paid for. The Additional Unexpired Risk Reserve (AURR) is the
additional reserve required should the net discounted value of the expected claims from active policies not be covered
by the Unearned Premium Reserve and the net present value of expected future indemnity fees. The AURR is held at a
75% suffciency level as a result of simulating claims severity and frequency.
The Outstanding Claims Reserve (OCR) is in respect of those policies of Khula Credit Guarantee that may result in
claims due to a claim event that has happened prior to the fnancial year-end. For each policy, the OCR is determined
as (probability of claiming) x (current indemnity) x (claim severity). The total OCR is raised at a 75% suffciency level by
simulating the claim severity.
All reserves have been calculated on a run-off basis (i.e. assuming Khula Credit Guarantee Ltd does not write new business)
and allowance for claim handling expenses has been made.
113 ANNUAL REPORT 2013
The principal valuation assumptions are as follows:
Group
2013 2012
Ultimate probability of claim 21% 19%
Claim severity 80% 80%
Claim expense rate 4.70% 4.91%
Discount rates (per government bond yield curve) 5.09% - 7.80% 5.25% - 7.83%
The sensitivity of the total reserves to the key assumptions is as follows:
Group
2013 2012 2013 2012
R R % %
Probability of claim (+10%) 978,579 1,713,470 5,83% 4,52%
Claim severity (+10%) 2,750,568 5,452,335 16,40% 14,37%
Claim expense rate (+1%) 211,019 415,772 1,26% 1,10%
Discount rates (+1%) (65,188) (89,265) -0,39% -0,24%
Group
Solvency margin: 2013 2012
Solvency margin 2,241% 950%
The solvency margin is calculated by expressing the capital and reserves as a percentage of net written indemnity fees.
20. Revenue
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Dividends received 1,766 144 6,282 6,177
Indemnity fees earned 2,646 5,219 - -
Interest received on cash and cash equivalents 41,306 31,117 36,339 24,416
Interest received on loans and advances to
clients 30,207 26,521 18,909 16,163
Other interest earned 3,174 4,480 2,528 4,480
Fee income 2,768 325 2,743 325
Investment property rental income 34,892 45,932 34,892 45,931
116,759 113,738 101,693 97,492
114 Smal l Enterpri se Fi nance Agency 114 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
21. Other income
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Bad debts recovered 343 702 129 382
Management fee – Subsidiaries - - - 5,747
Management fee – Related parties 620 5,053 620 5,053
Management fee – Other 790 - 790 -
Other sundry income 1,910 2,336 235 923
3,663 8,091 1,774 12,105
22. Grant income
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Balance at 1 April 5,059 3,011 5,059 3,011
Grants received during the year 1,250 8,509 1,250 8,509
Deferred grants acquired through a business
combination 57,853 - 57,853 -
Grants recognised as income during the year (48,870) (5,000) (48,870) (5,000)
Grants utilised to reduce expenses during the
year (3,704) (1,461) (3,704) (1,461)
Balance at 31 March 11,588 5,059 11,588 5,059
23. Net fair value (loss)/gain on fnancial and other assets
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Investments - (679) - -
Investment properties (21,929) 7,756 (21,929) 7,756
(21,929) 7,077 (21,929) 7,756
115 ANNUAL REPORT 2013
24. Operating loss
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Is arrived at after taking into account the
following:
Specifc items:
Depreciation 2,313 766 2,283 741
Amortisation 1,733 292 1,641 220
Loss on disposal of equity investment - 358 - 3,327
Penalties and interest – South African Revenue
Service 233 984 39 984
Auditors Remuneration
– Audit Fees 2,457 1,648 2,267 1,153
Auditors Remuneration
– Other Fees - 238 - -
Operating lease charges – Equipment 867 640 867 633
Operating lease charges – Property 11,896 (1,186) 11,896 (1,174)
19,499 3,740 18,993 5,884
The following impairments were recognised:
Equity investments written off - 12,673 - 12,673
Impairment of associates - - 735 948
(Impairment reversal)/impairment of joint
ventures (420) (1,364) (420) 209
Impairment of Investment in En Commandite
partnership 7,558 3,590 7,558 3,590
Impairment of subsidiaries 420 1,364 7,128 44,384
Impairment of goodwill - 31,899 - -
Increase/(decrease) in bad debt provision
– Loans and advances 60,985 (24,959) 56,186 (32,450)
Irrecoverable debt written off
– Loans and advances 10,476 30,870 - 10,413
Decrease/(increase) in bad debt provision
– Rental debtors (20,226) 2,189 (20,226) 2,189
Irrecoverable debt written off – Rental
debtors 19,546 12,577 19,546 12,577
Total net impairments 78,339 68,839 70,507 54,533
The following items relating to the
indemnity product were recognised:
Indemnity claims incurred 16,463 30,155 - -
Decrease in claims provision (15,970) (28,369) - -
Decrease in indemnity reserves (4,079) (797) - -
(3,586) 989 - -
116 Smal l Enterpri se Fi nance Agency 116 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Net increase/(decrease) in impairments
Agriculture, forestry and fshing 1,189 (648) - -
Building construction 2,913 3,707 2,476 -
Business services 3,431 2,669 3,509 -
Catering and accommodation services 103 138 - -
Communication (1,500) 1,783 - -
Electricity, gas and steam 1,433 (947) 7 -
Finance and insurance 58,000 (23,664) 64,754 29,353
Food 330 (1,611) - -
Medical, dental and other health and
veterinary services 93 779 17 -
Motor vehicles, parts and accessories (1,962) - 64 -
Other chemicals and man-made fbres 128 - - -
Other industries 594 - - -
Other services 2,109 7,151 161 -
Other transport equipment - (410) - -
Paper and paper products 138 - - -
Printing, publishing and recorded media (4) 160 - -
Professional and scientifc equipment (194) 171 - -
Television, radio and communication
equipment 6 - - -
Textiles 42 530 - -
Transport and storage - 144 - -
Wearing apparel 1,040 353 - -
Wholesale and retail trade 653 999 199 -
68,542 (8,696) 71,187 29,353
Bad debts written off/(recovered)
– Loans and advances
Agriculture, forestry and fshing 642 - - -
Business services 88 - - -
Communication 1,950 - - -
Finance and insurance (129) 29,988 (129) 10,031
Food 289 - - -
Motor vehicles, parts and accessories 2,204 - - -
Other services 2,229 180 - -
Printing, publishing and recorded media 84 - - -
Wearing apparel 337 - - -
Wholesale and retail trade 2,439 - - -
10,133 30,168 (129) 10,031
117 ANNUAL REPORT 2013
25. Income tax (income)/expense
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Current tax expense 366 5,393 - 5,157
- Current year 375 236 - -
- Prior year (over)/under provision (9) 5,157 - 5,157
Deferred taxation (33,172) 9,076 (36,110) (4,015)
- Current year (33,604) 4,487 (36,542) (8,604)
- Prior year under provision 432 4,589 432 4,589
Income tax expense (32,806) 14,469 (36,110) 1,142
Reconciliation of taxation amount
Loss before taxation (97,220) (22,745) (129,228) (27,404)
Taxation at standard rate of 28% (2012: 28%) (27,222) (6,369) (36,184) (7,673)
Tax effect of permanent differences (4,446) 9,890 (357) 1,047
Tax effect of deferred tax asset not recognised 379 4,024 - -
Tax loss recognised (1,948) (844) - -
Tax effect of non-taxable income - (1,978) - (1,978)
Taxation – Relating to prior year 431 9,746 431 9,746
Capital gains tax - - - -
Taxation (income)/expense to
statement of comprehensive income (32,806) 14,469 (36,110) 1,142
Taxation expense relating to current year (33,237) 4,723 (36,541) (8,604)
Effective tax rate – Based on current year
taxation expense 34% (21%) 28% 31%
26. Directors’ and prescribed offcers’ remuneration
Prescribed offcers as prescribed by the Companies Act, No. 71 of 2008, are individuals who, despite not being a director
of the company:
• Exercises general executive control over and management of the whole, or a signifcant portion, of the business and
activities of the company; or
• Regularly participates to a material degree in the exercise of general executive control over and management of
the whole, or a signifcant portion, of the business and activities of the company.
118 Smal l Enterpri se Fi nance Agency 118 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
The company considers all individuals at the level of executive management as the prescribed offcers.
Key management are individuals with the authority and responsibility for planning, directing and controlling the activities
of the entity. All individuals from the level of executive management up to the board of directors are regarded as key
management personnel. The remuneration of the directors and prescribed offcers is disclosed below as required by
the Companies Act.
Board of directors:
The non-executive directors are not involved in day-to-day operations of the business and do not draw any remuneration
from sefa other than for board fees.
2013 2012
R’000 R’000
M Kekana
(1)
- 40
S Magwentshu-Rensburg (Chairperson)
(1)
218 178
IAS Tayob 215 152
M Ferreira 246 160
D Jackson
(2)
- 200
N Swana - 137
Z Lees - 143
M Mohoto - -
V Twala - 181
VG Mutshekwane 275 -
BP Calvin 214 -
HN Lupuwana 102 -
SA Molepo 155 -
LB Mavundla 210 -
GS Gouws
(3)
- -
K Schumann
(3)
- -
1,635 1,191
(1) Mr Kekana was appointed as chairperson on 7 April 2010. After the resignation of Mr Molepo, he was appointed as acting managing
director with effect from 1 August 2010 to 31 August 2011. During his appointment as acting managing director, board meetings
were chaired by the deputy chairperson, Ms Magwentshu-Rensburg (acting chairperson). Ms Magwentshu-Rensburg has subsequently
been appointed as chairperson during the 2013 fnancial year. Mr Kekana resigned as acting managing director on 31 August 2011
and resigned from the board of directors on 31 March 2012.
(2) Mr Jackson became an employee of sefa on 9 October 2012.
(3) Mr Gouws and Ms Schumann are employed by the IDC and do not earn director’s fees for services rendered to sefa. Remuneration
earned from the IDC is disclosed in the annual fnancial statements of the IDC.
119 ANNUAL REPORT 2013
Executive management:
Basic
salary
Retirement,
medical
and other
benefits Total
2013 Period R’000 R’000 R’000
T Makhuvha
(2)
1 November 2012 – 31 March 2013 - - -
W Fourie
(1)
1 April 2012 – 31 October 2012 - - -
AMA Ramavhunga 1 April 2012 – 31 March 2013 1,180 304 1,484
MI Mazibuko 1 April 2012 – 28 September 2012 819 136 955
CH Maseko 1 April 2012 – 31 March 2013 1,465 395 1,860
LG Mashishi 18 June 2012 – 31 March 2013 798 202 1,000
V Malale
(3)
1 April 2012 – 30 June 2012 204 91 295
D Jackson 9 October 2012 – 31 March 2013 749 - 749
D Mashele
(3)
1 November 2012 – 31 March 2013 336 121 457
5,551 1,249 6,800
Basic
salary
Retirement,
medical
and other
benefits Total
2012 Period R’000 R’000 R’000
M Kekana 1 April 2011 – 31 August 2011 764 9 773
W Fourie
(1)
1 September 2011 – 31 March 2012 - - -
AMA Ramavhunga 1 February 2012 – 31 March 2012 233 - 233
CH Maseko 18 July 2011 – 31 March 2012 943 153 1,096
D De Jager 1 April 2011 – 30 June 2011 356 43 399
JL Law 1 April 2011 – 31 December 2011 1,192 - 1,192
LN Mutewera 1 April 2011 – 31 March 2012 880 131 1,011
MI Mazibuko 1 April 2011 – 31 March 2012 1,182 225 1,407
Z Mosheshe 1 April 2011 – 28 June 2011 299 45 344
5,849 606 6,455
No member of executive management earned any income from any other company within the group.
(1) Mr Fourie has been seconded to the company by the IDC and no remuneration has been paid to him by sefa.
(2) Mr Makhuvha has been seconded to the company by the IDC and no remuneration has been paid to him by sefa.
(3) Mr Malale and Mr Mashele acted in executive positions during the fnancial year.
120 Smal l Enterpri se Fi nance Agency 120 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
27. Operating leases
Operating lease commitments
The future minimum lease payments under non-cancellable operating leases are as follows:
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Equipment - 1,068 - 1,068
Within 1 year - 508 - 508
From 2 – 5 years - 560 - 560
Land and buildings 37,285 33,760 37,285 33,760
Within 1 year 5,395 2,838 5,395 2,838
From 2 – 5 years 13,786 18,072 13,786 18,072
More than 5 years 18,104 12,850 18,104 12,850
37,285 34,828 37,285 34,828
The lease agreement for the head offce building stipulates that there will be an escalation of 8% per annum. The lease
agreement is for 7 years and will expire on 30 June 2019.
121 ANNUAL REPORT 2013
28. Reconciliation of net proft for the year to cash utilised by operations
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Loss before tax (97,220) (22,745) (129,228) (27,404)
Adjustments for:
Depreciation 2,313 766 2,283 742
Amortisation 1,733 291 1,642 220
Fair value adjustment 21,929 (7,077) 21,929 (7,756)
Impairment provision – Investments 7,558 3,590 7,558 3,590
Impairment provision – Subsidiaries and joint
ventures - 12,673 6,707 44,393
Impairment provision – Equity accounted
investments (Associates) - - 735 1,147
Impairment provision – Goodwill - 31,899 - -
Income from associate (27,599) (17,232) - -
Dividends received from associate (1,380) (2,215) (4,905) (690)
Decrease in indemnity reserves (4,079) (797) - -
Investment income (46,247) (37,564) (40,245) (36,363)
Grant income (48,870) (5,000) (48,870) (5,000)
Loss on sale of equity investment - 3,327 - 3,327
Proft on sale of equipment (103) (26) (103) (26)
Provision for bad debts 39,747 (22,770) 34,948 (30,261)
Bad debts written off 30,032 43,514 19,546 23,058
Equity investments written off - - - 12,673
Provision for claims (15,970) (28,369) - -
Operating loss before changes in
working capital (138,156) (47,735) (128,003) (18,350)
Changes in working capital (56,826) (11,182) 14,985 (18,778)
Increase in trade and other receivables (1,861) (5,930) (5,376) (2,271)
Loans received from related parties 10,256 979 9,729 -
(Decrease)/increase in trade and other
payables and provisions (65,221) (6,231) 10,632 (16,507)
Cash utilised by operations (194,982) (58,917) (113,018) (37,128)
122 Smal l Enterpri se Fi nance Agency 122 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
29. Tax paid
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Tax (payable)/receivable at the beginning of
the year (5,518) 8,247 (5,157) 8,323
Tax as per statement of comprehensive
income (net of deferred tax) (367) (5,393) - (5,157)
Tax paid 5,945 (8,372) 5,157 (8,323)
Tax receivable/(payable) at the end of the year 60 (5,518) - (5,157)
30. Acquisition of subsidiary (net of cash acquired)
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Offce equipment, furniture and other
tangibles 1,520 175 1,520 -
Intangible assets 609 282 609 -
Loans and advances 73,113 20,727 73,113 -
Trade and other receivables 241 312 241 -
Cash and cash equivalents 191,709 2,732 191,709 -
Long-term loan - (51,637) - -
Reserves (202,430) - (202,430)
Trade and other payables (64,762) (4,494) (64,762) -
Net assets acquired - (31,903) - -
Consideration paid - 2 - -
Goodwill acquired - 31,899 - -
Cash and cash equivalent acquired 191,709 2,732 191,709 -
Cash infow on acquisition of shares 191,709 2,730 191,709 -
123 ANNUAL REPORT 2013
31. Net cash infow on disposal of subsidiary
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Analysis of assets and liabilities over
which control was lost:
Loans and advances - 7,900 - -
Cash and cash equivalents - 1,267 - -
Other assets - 3,160 - -
Net assets disposed of - 12,327 - -
Loss on disposal of subsidiary:
Consideration received - 9,000 - -
Net assets disposed of - (12,327) - -
Loss on disposal - (3,327) - -
Net cash infow on disposal of subsidiary:
Consideration received in cash and cash
equivalents - 9,000 - 9,000
Less: cash and cash equivalents balance
disposed of - (1,267) - -
Net cash infow - 7,733 - 9,000
32. Commitments
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Undrawn fnancing facilities approved 275,916 193,944 255,065 170,648
Undrawn guarantee facilities approved 6,802 2,055 - -
282,718 195,999 255,065 170,648
Commitments will be fnanced by loans and internally generated funds.
124 Smal l Enterpri se Fi nance Agency 124 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
33. Contingent liabilities
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Indemnities issued to fnancial institutions 96,390 174,167 - -
Less technical reserves already provided (17,529) (37,578) - -
78,861 136,589 - -
34. Related party transactions
Parent and ultimate controlling party
sefa is a wholly owned subsidiary of the Industrial Development Corporation (IDC).
Other related parties
Description Relationship
Khula Credit Guarantee Limited Wholly owned subsidiary of sefa
Khula Land Reform Empowerment Facility Wholly owned subsidiary of sefa
(1)
Khula Institutional Support Services Limited Wholly owned subsidiary of sefa
(1)
New Business Finance (Pty) Ltd Wholly owned subsidiary of sefa
Stearbright Limited Previous shareholder of New Business Finance
GJE Watson Previous shareholder of New Business Finance and
current employee of sefa
Thetha Import and Export CC GJE Watson is a member of Thetha Import and Export
and signed personal surety for a loan repayable to New
Business Finance.
Gain Props 1017 CC Business owned by GJE Watson
Transactions between the company and its subsidiaries, which are related parties, have been eliminated in the group
fnancial statements, however these are not eliminated in the individual company fnancial statements.
(1) Registered as a Non-proft company. This company is not consolidated as a subsidiary due to sefa not being able to beneft from
the company.
125 ANNUAL REPORT 2013
The following transactions were entered into with related parties:
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Interest (paid to)/received from related
parties
New Business Finance (Pty) Ltd - (25) - -
Thetha Import and Export CC - 12 - -
- (13) - -
Management fees charged to related
parties
Khula Institutional Support Services Limited - 4,461 - 4,461
Khula Land Reform Empowerment Facility 620 592 620 592
620 5,053 620 5,053
Related party balances (payable)/
receivable
Khula Institutional Support Services
(1)
(4,364) 6,280 (4,364) 6,278
Khula Land Reform Empowerment Facility
(1)
1,145 757 1,146 757
New Business Finance (Pty) Ltd - - 1,315 791
Stearbright Limited - (2,325) - -
GJE Watson 400 266 - -
Thetha Import and Export CC 694 844 - -
(2,125) 5,822 (1,903) 7,826
(1) Registered as a Non-proft company. This company is not consolidated as a subsidiary due to sefa not being able to beneft from
the company.
Any outstanding amounts are unsecured and will be settled in cash. No guarantees have been given or received. No
expenses have been recognised in the period for bad or doubtful debts in respect of the amounts owed by related parties.
Transactions with key management personnel
No material contracts were entered into involving the interest of any director or executive management member. All
compensation paid to key management personnel is short-term in nature and is disclosed in note 26.
35. Transfer of the assets and liabilities of samaf
samaf’s business, with all its assets and liabilities, was transferred to sefa as a going concern at no cost.
The merger was accounted for as a common control transaction. A common control transaction is a business combination
where the combining entities or businesses are ultimately controlled by the same party or parties both before and after
the combination. In this case, Khula (now sefa) and the business of samaf were ultimately controlled by the South African
government both before and after the combination.
126 Smal l Enterpri se Fi nance Agency 126 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
sefa recognised the assets and liabilities acquired through the transfer of samaf on 1 April 2012 (effective date of the
transfer) at the values which the assets and liabilities were disclosed in the annual report of samaf on 31 March 2012. The
carrying value of the net assets and liabilities of samaf amounted to R202.4 million on 31 March 2012 and was accounted
for directly in equity and is refected in the statements of changes in equity.
This transaction had the same impact on both the group and company as the assets and liabilities were transferred
directly to the company.
Please refer to accounting policy 1.7 for more information on how common control transactions are accounted for.
The following assets and liabilities were transferred from samaf to sefa on 1 April 2012:
R’000
Offce equipment, furniture and other tangibles 1,520
Intangible assets 609
Loans and advances 73,113
Trade and other receivables 241
Cash and cash equivalents 191,709
Trade and other payables (64,762)
Net asset carrying value 202,430
Consideration paid -
Gain on the transfer of samaf assets and liabilities 202,430
36. Change in classifcation or presentation
Shareholders loans
Shareholders loans which do not attract interest and with no specifc repayment terms were previously classifed as equity.
It is considered more appropriate to classify these loans under current liabilities and comparatives were restated accordingly.
The following values were reclassifed:
Group Company
2013 2012 2013 2012
Shareholders loans moved from equity to
short term liabilities 944,542 794,131 944,542 774,462
127 ANNUAL REPORT 2013
Managed funds
The group is involved in managing cash balances on behalf of other parties.
On receipt of cash balances to be managed a liability is created accordingly. In the past the net amount with which the
funds held exceed the liability was recognised as a net asset.
It is considered more appropriate to disclose the cash component and the liability component separately and comparatives
were restated accordingly.
Group Company
2013 2012 2013 2012
Increase in cash 57,202 92,712 57,202 -
Increase in trade and other payables (57,199) (90,681) (57,199) -
Decrease in trade and other receivables (3) (2,031) (3) -
37. Unauthorised, irregular, fruitless and wasteful expenditure
Fruitless and wasteful expenditure
The PFMA defnes fruitless and wasteful expenditure as expenditure which was made in vain and would have been
avoided had reasonable care been exercised.
2013 2012
Note R’000 R’000
Opening balance 632 2,300
Fruitless and wasteful expenditure current year
Projects abandoned prior to implementation 76 313
Interest on late payment of supplier invoice 5 -
Penalty on under estimation of provisional tax - 665
Penalty on under estimation of provisional tax – to be recovered
(contingent asset) (1) 665 (665)
Interest on late payment of provisional tax 39 289
Interest on late payment of VAT - 30
Condoned or written off by accounting authority - (2300)
Fruitless and wasteful expenditure awaiting condonement 1,417 632
(1) The full amount relates to a penalty paid to the Receiver of Revenue relating to the 2011 tax year for the under estimation of
provisional tax. This penalty was reported as fruitless and wasteful expenditure in the 2012 year and simultaneously a contingent asset
was raised on the table of fruitless and wasteful expenditure. The contingent asset was a result of expectations that the Receiver of
Revenue would waive the penalty or that losses will be recovered from a 3
rd
party. It has become evident during the current fnancial
year that the expense is likely to be irrecoverable.
128 Smal l Enterpri se Fi nance Agency 128 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Irregular expenditure
Irregular expenditure signifes expenditure incurred without adhering to established rules, regulations, procedural guidelines,
policies, principles or practices that have been implemented to ensure compliance with the PFMA, relevant tender
regulations as well as any other relevant procurement regulations.
2013 2012
Note R’000 R’000
Opening balance - -
Irregular expenditure current year 5,922 -
Condoned or written off by accounting authority (5,429) -
Irregular expenditure awaiting condonement (1) 493 -
(1) Management is in the process of regularising these matters and have not yet requested condonement from the board of directors.
doc_502803238.pdf
Description tell about introducing sefa.
2 Smal l Enterpri se Fi nance Agency
1.1 Corporate profle
Following a Cabinet decision and the State of the Nation address of 2011, the Small Enterprise Finance Agency (SOC)
Limited (sefa), was established on 1 April 2012 in terms of section 3 (d) of the Industrial Development Corporation Act,
No. 22 of 1940 (IDC Act). sefa is a wholly owned subsidiary of the Industrial Development Corporation (IDC) and brings
together the activities of three previous structures (Khula, samaf and the IDC small business activities). sefa operates as a
Development Finance Institution (DFI) to foster the establishment, development and growth of small, medium and micro
enterprises (SMMEs) and contribute towards poverty alleviation and job creation.
1.2 Vision
To be the leading catalyst for the development of sustainable survivalist, micro, small and medium enterprises through
the provision of fnance.
1.3 Mission
To provide simple access to fnance with support in an effcient and sustainable manner to survivalist, micro, small and
medium enterprises throughout South Africa by:
• Delivering wholesale and direct lending
• Providing credit guarantees to SMMEs
• Supporting the institutional strengthening of fnancial intermediaries (FIs) so that they can be effective in assisting
SMMEs
• Creating strategic partnerships with a range of institutions for sustainable SMME development and support
• Monitoring the effectiveness and impact of our fnancing, credit guarantee and capacity development activities, and
• Developing, through partnerships, innovative fnance products, tools and channels to catalyse increased market
participation in the provision of affordable fnance.
1.4 Strategic objectives
Our strategic objectives are to:
• Increase access to and provision of fnance to SMMEs and thereby contribute towards job creation
• Develop and implement a national footprint for effective product and service delivery
• Build an effective and effcient sefa that is a sustainable and performance-driven organisation
• Build a learning organisation
• Build a sefa that meets all legislative, regulatory and good governance requirements, and
• Build a strong and effective sefa brand emphasising accessibility to SMMEs.
1.5 Values
The values and guiding principles which we strive to entrench in order to deepen institutional culture and organisational
success are:
• Kuyasheshwa: We act with speed and urgency
• Passion for development: Solution-driven attitude, commitment to serve
• Integrity: Dealing with clients and stakeholders in an honest and ethical manner
• Transparency: Ensuring compliance with best practice on the dissemination and sharing of information with all
stakeholders, and
• Innovation: Continuously looking for new and better ways to serve our customers.
INTRODUCING sefa
3 ANNUAL REPORT 2013
1.6 Group structure
Human Capital
& Remuneration
Committee
Enterprise Risk
Committee
Audit
Committee
Wholesale
Investment
Committee
Direct Lending
Committee
Economic Development Department (EDD)
Industrial Development Corporation (IDC)
Board of Directors
Chief Executive Offcer
Head: Strategy, Business Planning and Reporting
Company Secretary
Executive Personal Assistant
Head: Internal Audit
Chief Financial
Offcer
Executive Manager:
Direct Lending
Executive Manager:
Wholesale Lending
Chief Risk
Offcer
Executive Manager:
Human Capital
Head: Stakeholder Relations and Communication
Head: Information Technology
4 Smal l Enterpri se Fi nance Agency
1.7 Operational framework
sefa’s organisational framework is captured in the following diagram:
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Customers SMMEs and Co-operatives
Direct Lending
• Working capital
loan
• Asset fnance
• Term loans
• Revolving loan
• Bridging loan
• Short-term trade
fnance
R500 R5 million
Distribution
Channels
sefa’s Regional Offces, RFIs, MFIs, Co-ops, Commercial Banks,
Specialised Funds, Provincial Development Corporations (PDCs), Post
Offce & Post Bank
Wholesale Financing
• Business loans –
(RFIs/MFIs/Co-ops/
FIs)
• Equity investments
– Specialised funds
• Credit Guarantee
Scheme
• Land Reform
Empowerment
Fund
Capacity Building
• Pre-/post-loan
mentoring
Institutional
Strengthening
• Board
representation
• Management and
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Values: Kuyasheshwa, Passion for Development, Integrity, Transparency, Innovation
Mission: To provide simple access to fnance with support in an effcient and
sustainable manner to survivalist, micro, small and medium enterprises throughout
South Africa.
Vision: To be the leading catalyst for the development of sustainable survivalist, micro,
small and medium enterprises through the provision of fnance.
Mandate: To promote the establishment, survival and growth of SMMEs and thus
contribute towards poverty alleviation and job creation. IDC Act s(3)(d)
5 ANNUAL REPORT 2013
1.8 Operational footprint
Western Cape
Northern Cape
Eastern Cape
Free State
KwaZulu-
Natal
North West
Gauteng
Limpopo
Mpumalanga
BOTSWANA
NAMIBIA
Cape Town
Mossel Bay
Port Elizabeth
East London
Mthatha
Durban
Pietermaritzburg
Hluhluluwe
Bloemfontein Kimberley
Upington
Klerksdorp
Mafkeng
Polokwane
Hoedspruit
Johannesburg
Pretoria
LESOTHO
INDIAN
OCEAN
ATLANTIC
OCEAN
Existing sefa offces
Planned sefa branch/satellite offces (branch offce is a small staffed offce. Satellite offce is a desk in e.g. seda/
Post Offce, manned at specifc times)
Cities/towns
Mbombela
Rustenburg
6 Smal l Enterpri se Fi nance Agency
1.9 Product portfolio mix
Wholesale Lending
Product Description
Business loans Partnership with intermediaries for on-lending to SMMEs.
Specialised funds: joint ventures
and partnerships
Partnership with mainly private and public sector entities for on-lending to SMMEs.
Credit Guarantee Scheme
sefa provides guarantees to banks and fnancial institutions, enabling loans to small
businesses that do not otherwise have suffcient collateral/security to support facilities.
Land Reform Empowerment
Fund
Facility through which sefa lends money to commercial banks and other reputable
agricultural lenders for on-lending to land reform benefciaries, including production,
moveable assets, equity, etc.
Non-Financial Support Description
Institutional strengthening Aimed at providing institutional strengthening and technical assistance to intermediaries
who have beneftted from facilities provided by sefa.
Post-loan business support This service is provided to SMMEs who have beneftted from facilities provided by the
intermediaries. Support is provided through the Direct Lending Division and its partners.
Direct Lending
Product Description
Revolving/bridging loans/working
capital loans
To facilitate short-term capital requirements or bridging fnance for delivery of contracts
or orders (e.g. a small business gets a contract to supply stationery, but needs fnance
to buy the stock). The capital repayment is structured according to the cash fow
projections of the borrower.
Asset fnance For acquisition of fxed assets for use in the operations or expansion of the business.
Term loans To fnance longer-term business expansion requirements and specifc capital acquisitions
(similar to asset fnance, but not necessarily linked to a specifc asset).
Post-loan mentorship
This service is provided to SMMEs that have beneftted from facilities provided by sefa
and its fnancing partners as a risk mitigating intervention (e.g. sefa provides a mentor
to a small business to assist with specifc aspects of running the business).
7 ANNUAL REPORT 2013
LEADERSHIP COMMENTARY
BOARD OF DIRECTORS
Ms Hlonela Lupuwana
Member: Human Capital & Remuneration
Committee
Ms Katinka Schumann
Member: Wholesale Investment Committee
Member: Direct Lending Committee
Mr Lawrence Mavundla
Chair: Direct Lending Committee
Member: Wholesale Investment Committee
Mr Ismail Tayob
Chair: Audit Committee
Member: Enterprise Risk Committee
Member: Human Capital & Remuneration Committee
Mr Thakhani Makhuvha
Chief Executive Offcer
Mr Richard Mutshekwane
Chair: Human Capital & Remuneration Committee
Member: Enterprise Risk Committee
Member: Audit Committee
Mr Gert Gouws
Chair: Enterprise Risk Committee
Member: Audit Committee
Ms Barbara Calvin
Member: Wholesale Investment Committee
Member: Direct Lending Committee
Mr Setlakalane Molepo
Member: Wholesale Investment Committee
Member: Human Capital & Remuneration
Committee
Mr Marius Ferreira
Chair: Wholesale Investment Committee
Member: Direct Lending Committee
Dr Sizeka Magwentshu-Rensburg
Chairperson of the Board
8 Smal l Enterpri se Fi nance Agency
The integration creates a platform for greater
customer outreach, a one-stop fnancing
house, streamlined business processes and
for effective small business fnance delivery to
SMMEs. sefa flls the gap by providing funding
with support through its Direct Lending and
Wholesale Lending channels.
CHAIRPERSON’ S STATEMENT
The establishment and success of small, medium and micro
enterprises (SMMEs), including survivalists and co-operatives,
is globally recognised as critical to address the challenges of
job creation, poverty alleviation, socio-economic conditions
and equality for all. This is especially the case in South
Africa where the role of SMMEs is vital to drive economic
growth, employment, innovation and competitiveness. It is
estimated that South Africa has some 5.9 million SMMEs
which generate 40% of its gross domestic product and
60% of employment in the country.
Small business owners have identifed the lack of access to
fnance and business support as key impediments to their
growth and sustainability.
The New Growth Path (NGP) adopted in 2010 identifed
enterprise development as a key priority. Resultant policies
aim to promote small business and entrepreneurship by
improving access to and effciency of government funding and
making more resources available to SMMEs. A subsequent
business case recommended the merger of Khula, samaf
and the IDC’s small business activities into one organisation
– the Small Enterprise Finance Agency (sefa).
The integration creates a platform for greater customer
outreach, a one-stop fnancing house, streamlined business
processes and for effective small business fnance delivery to
SMMEs. sefa flls the gap by providing funding with support
through its Direct Lending and Wholesale Lending channels.
Our greatest challenge as the board of sefa has been to
strategically position the organisation with a sustainable
business model to create access to funding for SMMEs
who have traditionally been excluded from mainstream
fnancial institutions.
It is essential that we follow best practice and learn from
the experiences of others in the world of micro- and
small business fnancing. In this regard we are strategically
aligning the organisation to provide business support and
institutional strengthening to both clients and intermediaries.
In the fve years to 2017/18, sefa plans to:
• Increase access to fnance for SMMEs through the
approval of loan products to the value of R6.4 billion and
the disbursement into the economy of approximately
R5.7 billion
• Facilitate ±R1.7 billion to fnance youth-owned
businesses since sefa recognises that a large number
of young people are unemployed
• Contribute to the facilitation of about 140,000 jobs
over the next fve years and assist approximately
120,000 small businesses over the same period
9 ANNUAL REPORT 2013
• Build strategic partnerships to grow and strengthen
the SMME sector in South Africa
• Expand and strengthen sefa’s organisational capability
to improve service to the SMME market, including
improvements to the deliver y model, system
infrastructure, risk management and research and
development capabilities, and
• Increase stakeholder outreach and communication.
In concluding, I wish to extend my sincere appreciation to the
Minister of Economic Development, Mr Ebrahim Patel, for
his passion for small business development. I thank the IDC,
especially the CEO, Mr Geoffrey Qhena and his management
team, as our shareholder for their on-going support as we
move forward in launching sefa to be a formidable institution
for small businesses in our country. Let me express my
gratitude to my fellow members of the board of directors
of sefa for your dedication and for sharing your expertise
so generously. And fnally, I thank sefa’s CEO, Mr Thakhani
Makhuvha, for the professional and enthusiastic approach
that he and his management team and staff have adopted.
I look forward to a productive year ahead.
Dr Sizeka Magwentshu-Rensburg
Chairperson
10 Smal l Enterpri se Fi nance Agency
We will intensify our effort to ensure access
to fnance with support to small businesses.
Of critical importance is up-skilling of our core
functional teams and provision of on-the-job-
training and other interventions in order to
increase our own capacity.
CHIEF EXECUTIVE OFFICER’ S STATEMENT
Introduction
I am pleased to present this inaugural annual report of sefa
following the merger of Khula, samaf and the small business
activities of the IDC in April last year.
The year under review has marked an important milestone
in government’s on-going support for small businesses in
South Africa. sefa, as a development fnance institution, has
been given a mandate to address the challenges faced by
SMMEs, including survivalist businesses and co-operatives.
Aspiring and existing small business owners experience
diffculties in accessing fnance from mainstream fnancial
institutions such as commercial lenders to start, grow
and expand their business operations, primarily due to
the perceived risks inherent in SMMEs. Whilst sefa needs
to be a responsible provider of access to fnance for the
development of sustainable small businesses, we have a
higher appetite for risk than commercial fnanciers. Our
ultimate objective is to contribute towards the reduction
of unemployment, poverty and inequality.
Implementation of the merger process
The year under review was characterised by bedding
down the merger processes, including organisational
change management, human capital integration, IT systems
and processes, and the development of enterprise-wide
policies and procedures. These processes have laid the
critical foundation for sefa to begin delivering on its key
strategic objectives.
The integration of staff from the erstwhile institutions was
essential and critical to the merged entity, and as such has
occupied a great deal of management’s time as it required
engagement and collaboration with organised labour. We
have also, during this period, enhanced internal capacity
and developed the necessary capability by way of in-house
and outsourced training interventions. The relocation of
staff from separate head offces into a single headquarters
towards the end of October 2012 has played a signifcant
role in fast tracking the integration process and has helped
to embed our corporate identity and our sefa brand. We
have also successfully set up operational regional offces
in nine provinces. Key strategic positions have been flled
during the year under review.
sefa operating model
Our operating model is based on key delivery channels,
namely Direct Lending, Wholesale Lending through retail
fnancial and microfnance intermediaries, as well as the
Credit Guarantee Scheme offerings through commercial
lenders. The last two channels are equally important to
generate critical mass and reach, especially in the rural areas.
11 ANNUAL REPORT 2013
Whilst it is vital to provide access to fnance for SMMEs,
sefa has also identifed the need to provide non-fnancial
support such as mentorship and monitoring to assist small
business owners with specifc aspects of running their
businesses. This support is provided in collaboration with
our strategic partners. We also support the institutional
strengthening of fnancial intermediaries so that they can
be effective in assisting SMMEs.
Performance overview
The fnancial position of sefa is sound, with total assets in
excess of R2.1 billion and suffcient capital and reserves
(approximately R1 billion at year-end) available to lend
to small businesses. We are an organisation in transition
following the merger and we are not expecting to post
profts in the immediate future as we build up the loan
book from a low base. For the year under review, sefa’s
initial start-up net losses amounted to R64.4 million. A
grant of R170 million was received from the government
to support sefa’s activites. The grant was paid to IDC, which
is conducting the required oversight over sefa’s operations,
and will be made avalible to sefa as and when required for
operational purposes.
I am pleased to report that, notwithstanding merger-related
challenges, sefa’s performance in terms of approvals and
disbursements exceeded the combined results of its
predecessor institutions. During the year under review, sefa
approved credit facilities of approximately R440 million which
represents about 78.5% of its set target for the year. Of
this, R146 million was achieved through the Direct Lending
channel. The set target for the Direct Lending channel was
R185 million (thus, an achievement of 78.9%). Overall,
sefa’s approvals were 108.2% higher than the combined
approvals of ex-Khula and ex-samaf in the 2011/12 fnancial
year. We have also disbursed approximately R200 million,
which went into the economy during the period under
review. Approximately 45.4% of the disbursements are
to small businesses operating in the priority provinces,
and women-owned businesses represent about 39.8% of
the disbursements. The predecessor institutions together
disbursed about R143 million in the last fnancial year.
The number of SMMEs assisted through both the Wholesale
and Direct Lending channels amount to over 28,300 small
businesses. sefa anticipates creating approximately 19,900
permanent and non-permanent jobs through our funding
to small businesses.
Future prospects
We will intensify our effort to ensure access to fnance
with support to small businesses. Of critical importance is
up-skilling of our core functional teams and provision of
on-the-job-training and other interventions in order to
increase our own capacity.
Our structure and processes will continue to be reviewed to
align them with our strategic objectives and corporate plan
and to enable us to fulfl our developmental mandate. We
hope to improve signifcantly on our 2012/13 performance
and to be more customer-centric in our approach.
Acknowledgements
I would like to extend my sincere thanks to the sefa board
of directors for their support during this challenging period
and to the Chairperson of the Board, Dr Sizeka Magwentshu-
Rensburg, for her continued counsel and leadership as we
entered the journey of the post-merger period, whilst at
the same time needing to deliver on our mandate. I am
grateful to the management of the IDC, our shareholder,
and the team at the Economic Development Department
(EDD) for being there to lend the necessary support to
this young institution.
I would also like to express my special appreciation to
my predecessors, Mr Willie Fourie, the Interim Managing
Director of Khula and Mr Loni Mamatela, the Acting Chief
Executive Offcer of samaf, for overseeing the merger
process. Lastly, and most importantly, I would like to express
my heartfelt gratitude to my management team and staff
for enthusiastically embracing our new organisation despite
the uncertainties that characterise a merger of this nature.
This has been a year in transition!
Mr Thakhani Makhuvha
Chief Executive Offcer
12 Smal l Enterpri se Fi nance Agency
EXECUTIVE MANAGEMENT
Mr Thakhani Makhuvha
Chief Executive Offcer
Mr Piet Swanepoel
Executive Manager: Direct Lending
Mr Dennis Jackson
Executive Manager: Wholesale Lending
Ms Leonie van Lelyveld
Chief Risk Offcer
Mr Andile Ramavhunga
Chief Financial Offcer
Ms Lesego Mashishi
Executive Manager: Human Capital
13 ANNUAL REPORT 2013
3.1 Financial review
Introduction
While much of the world struggled in the wake of the global economic
downturn, South Africa has managed to stay on its feet, largely due to its
countercyclical fscal and monetary policies. The economy continues to grow,
driven largely by domestic consumption, however the growth is at a slower
rate than previously forecast.
It is projected that the economy will grow at a rate of 2.7% in 2013 and 3.5% in
2014. sefa has not been immune to the slower growth rate. Although approvals
in the current year have exceeded the approvals done by both predecessor
companies combined, there is still a shortage of quality, fundable transactions.
During the period under review, sefa adopted the International Financial Reporting
Standards (IFRS). This was to align the organisation with international reporting
trends as well as to improve the manner in which we disclose our information.
Financial performance
As a result of fully embedding the merger, there were some challenges in achieving fnancial targets, however, the group
still managed to achieve a satisfactory development target score.
The successes and challenges are highlighted below:
• The collection rate in the retail businesses exceeded 93%
• Approvals and disbursements exceeded those of the predecessor companies combined, and
• The disbursement of approved loans proved challenging as a result of clients not being able to fulfl the conditions
as per scheduled payment agreements.
The group reported a loss of R64.4 million for the fnancial year under review. This is mainly on the back of a fair value
loss on the valuation of investment properties and an impairment expense raised on a loan granted to Marang, one of
the microfnance intermediaries.
Impairments in the loan portfolio are high due to the existence of legacy transactions, which were fully provided for, but
not written off. Minimal impairments have been raised on new loans, specifcally on the Direct Lending business. These
are mainly as a result of late payments by government departments.
Total assets increased by 14% when compared to the prior year, mainly due to the inclusion of the samaf assets into the
results.
During the current fnancial year, the board approved a turnaround strategy for the Investment Property Portfolio, which
will be implemented in the 2013/14 fnancial year. This strategy is expected to yield results by way of increased rental
collections and property values.
To improve customer service, and thereby improve fnancial results, management is currently working on refning and
improving its internal processes to successfully resolve the challenge of turning approvals into disbursements.
PERFORMANCE OVERVIEW
14 Smal l Enterpri se Fi nance Agency
3.2 Direct Lending Division
Direct Lending is primarily designed to offer simple access to fnance and
business support services to SMME’s. The focus is geared towards supporting
entrepreneurs that intend starting, expanding or acquiring viable or potentially
viable enterprises. The disbursement of approved loans proved challenginging
as a result of clients not being to fulfll conditions as per scheduled payment
agreements. The programme provides debt facilities ranging from a minimum
of R50,000 to a maximum of R5 million.
The Direct Lending market offerings are provided through sefa’s suite of regional
Offces. There are currently nine (9) regional offces located in each of South
African’s nine provinces. In order to broaden the distribution network, branch
offces will be established on a co-location basis with the Small Enterprise
Development Agency (seda) and/or the Industrial Development Corporation
(IDC). It is anticipated that a total of fourteen (14) branches will be established
during the 2013/14 fnancial year.
Performance of Direct Lending
The Direct Lending Division achieved 78.9% of the set target for approvals for the reporting period. The disbursement of
approved loans proved challenging as a result of clients not being able to fulfl the conditions as per scheduled payment
agreements. Inadequate credit assessment skills and expertise affected turnaround times and the quality of customer
service. Staff training and development, as well the simplifcation of the application process will be the focus for the
2013/14 fnancial year.
2012/13
Actual
Facilities disbursed to youth-owned SMMEs 22%
Facilities disbursed to rural-based SMMEs 30%
Facilities disbursed to women-owned SMMEs 39%
Facilities disbursed to black-owned SMMEs 97%
Facilities less than R250,000 disbursed to SMMEs 22%
Approvals
2012/13 (R million)
Disbursements
2012/13 (R million)
32
114
25
16
Total: 146 Total: 41
Bridging Finance
Term Loans
Bridging Finance
Term Loans
15 ANNUAL REPORT 2013
Monitoring and collections
One of the main challenges that faced the collections team during the early stages of direct lending was limited capacity
and resources. This has now been addressed by having dedicated resources both at Head Offce and at Regional Offce
level. Despite these challenges the team did reasonably well to maintain a collections rate in excess of 93% during the
fnancial year.
Payment delays to small businesses negatively impacted on their cash fow, which in turn infuenced their ability to pay
sefa as per scheduled payment agreements.
To support small businesses in the start-up phase, sefa extended mostly bridging fnance facilities as a means to overcome
their cash fow challenges. The uptake of the term loan product is low in comparison with bridging fnance due to the
quality of the business plans submitted and lack of demonstration of long-term sustainability of these businesses. sefa
has entered into a number of strategic partnerships with public and private institutions (e.g. seda and the South African
Institute of Chartered Accountants (SAICA)) to provide small businesses with pre-loan support.
Success Story
Bridging finance facilitates project completion
Mr Wilson Khetisa Matete is thankful to sefa for the R3 milion
bridging loan awarded to him. He is the owner of BBT Construction,
a company which undertakes electrical, plumbing, construction and
maintenance. As a young man, Mr Matete gained his artisanship and
went on to gain work experience while employed by large companies
like Anglo American Corporation and LTA Construction Limited.
When his entrepreneurial character took hold, he went on to set
up his own business, initially as a sub-contractor. In 1998, having
gained a good grading from the CIDB, he registered his own
company and began to pitch for tenders in his own right.
In 2012 Mr Matete was awarded two large tenders, valued at
R10 million, by the Mangaung Metropolitan Council for the
construction and maintenance of roads in the Botshabelo and
Bloemfontein areas. With a staff complement of 165 people to
consider and faced by cash fow constraints, he approached the
sefa Bloemfontein regional offce for a bridging loan of R3 million.
This was granted and allowed Mr Matete to complete the projects.
The loan also allowed Mr Matete to realise a profit
which enabled him to repay the loan in full and to invest
in further assets to grow his business. During the process,
fur ther jobs were created and skills were transferred to
Mr Matete’s construction workers.
16 Smal l Enterpri se Fi nance Agency
Success Story
Joint venture set for growth
With a Chief Operations Offcer like Magdeline Paledi, Mudzhadzhi Mmagongwana
Joint Venture (MMJV) is set to achieve great things in the future, and sefa is
committed to assist them. Based in Burgersfort, the business is a joint venture
between Mudzhadzhi Building Contractors and Mmagongwana General
Construction, the latter of which is owned by Ms Paledi.
This industrious business woman worked her way up to start her own
company, Mmagongwana General Construction, in 2002. Ms Paledi is also
involved with various community projects, and serves as the chairperson of
Bokamaso Women Investment Club, as the co-ordinator for South African
Women in Mining (Tubatse and Greater Sekhukune area), and as an executive member of the Tubatse branch of
the National African Chamber of Commerce and Industry.
In 2003 Ms Paledi entered into the joint venture with Mudzhadzhi Building Contractors. Since its inception, the joint
venture has grown signifcantly, and has completed some big projects, such as the De Hoop Dam Housing Project
in Limpopo. The company has trained its entire staff, and over the last nine years many unskilled labourers have
become skilled workers who deliver quality products.
Anglo American Platinum Ltd recently awarded MMJV the contract for the development of a school in Serafa Village,
Burgersfort. In order to fulfll their commitments on this project, MMJV approached sefa Limpopo regional offce for
a bridging loan of facility of R3 million. This assisted the JV to fulfll its obligation. Ms Paledi was invited to parliament
in May 2013 as one of the sefa benefciaries.
sefa is ensuring that SMME’s such as MMJV are able to achieve their goals by making funding accessible to all South
Africans.
17 ANNUAL REPORT 2013
3.3 Wholesale Lending Division
The Wholesale Lending Division complements Direct Lending by forming
synergistic partnerships, focussed on providing access to fnance with support
to survivalist, micro, small and medium businesses, including co-operatives. These
partnerships are formed on the developmental requirements as stipulated in
the New Growth Path, addressing the needs of specifc sectors and/or markets
not serviced by Direct Lending. The disbursement target is lower due to lack
of drawdowns by clients .Through these relationships sefa is able to extend
its reach in servicing the fnancial needs of SMMEs. The Wholesale Lending
operations focuses on productive sectors of the economy with labour-intensive
initiatives. These include the development of new business initiatives in markets
that addresses the needs of women, youth, rural development, people with
disabilities and priority provinces.
Together with our partners, the division is able to target specifc sectors and/
or markets while addressing the needs of its clients:
• Microfnance Intermediaries – survivalists and micro-enterprise businesses
• Retail Intermediaries – small and medium businesses
• Banking and Financial Institutions – micro, small and medium businesses
• Specialised Funds (JV partners) – micro, small and medium businesses
• Land Reform Empowerment Fund – small and medium agricultural businesses, and
• Co-operatives (Apex) – survivalists, micro, small and medium businesses.
Performance of Wholesale Lending
During the initial period of the merger much time was taken in addressing the integration process, which impacted on
performance. However, during the latter half of the year performance levels improved with 85% of the approval target
being reached and 35% of the disbursement target being achieved. The disbursement target is lower due to the low level
of drawdowns by intermediaries.
Together with our partners, the division was able to address its developmental targets for SMMEs fnanced and jobs
created. This process needs further refnement, given the nature and profle of the intermediaries and their reach.
Approvals
2012/13 (R million)
Disbursements
2012/13 (R million)
213
80
109
48
Total: 293 Total: 157
Microfnance
SMME
Microfnance
SMME
18 Smal l Enterpri se Fi nance Agency
Success Story
Entrepreneur opens her own business
The funds sefa issues to retail fnance institutions allows
many entrepreneurs, who would not have had access to
fnance, to start their own businesses thanks to short- to
medium-term loans.
One such entrepreneur, Vuyiswa Bheyi, approached
Tetla Development Services, a sefa-funded MFI based
in Observatory, Cape Town, for funding.
Vuyiswa moved from Lusikisiki in the Eastern Cape to
Cape Town to look for employment opportunities. In
1998, she decided to start her own business, initially
doing sewing. In an effort to maintain a faster turnover,
she changed her business and started selling fruit and
vegetables, later adding groceries to her products.
In order to fund her growing business, Vuyiswa took out an initial R1,300 loan through Tetla in 2008, followed by fve
more loans. She has repaid fve of the loans, totalling R8,300, and is busy repaying the last R1,400 loan.
Many other entrepreneurs, especially women and young people from rural communities, have indirectly benefted
from sefa’s funding.
2012/13
Actual
Facilities disbursed to youth-owned SMMEs 16%
Facilities disbursed to rural-based SMMEs 45%
Facilities disbursed to women-owned SMMEs 40%
Facilities disbursed to black-owned SMMEs 76%
Facilities less than R250,000 disbursed to SMMEs 48%
Monitoring and collections
One of the key aspects of the Wholesale Lending Division was the creation of the Post-Investment Monitoring Unit. The
unit supports the division by:
• Protecting its investments and ensuring that losses are minimised
• Focusing on compliance and governance control of all agreements, and
• Monitoring requirements as stipulated in sefa’s provision of funding.
19 ANNUAL REPORT 2013
Success Story
Small business now a force to be reckoned with
The funds sefa makes available to retail fnancial institutions, gives many burgeoning entrepreneurs the opportunity
to grow their businesses.
In 2009, one such business owner, Mr Mqwathi, approached Retmil, a Bloemfontein-based fnancial institution funded
by sefa, for a loan to save his struggling security business and buy out his business partner. At that stage the business,
SSS Security Services, was struggling with severe cash fow problems. In addition, the business completely relied on
government contracts and could only afford to employ 100 people.
Retmil made short-term funding available to Mr Mqwathi, and also awarded him a R1.8 million loan to buy out his
business partner. Since then, Mr Mqwathi has made a tremendous success of his business.
Mr Mqwathi has not only repaid his loan in full, but
has been awarded several additional loans in the
past four years, which he has serviced according to
the agreed terms. All were made possible by sefa’s
funding of Retmil.
SSS Security Services is now 100% black-owned,
and operates across the Free State and North West
provinces. The business now employs 1,500 full-time
employees and has branched out to sectors outside
the government sphere.
20 Smal l Enterpri se Fi nance Agency
3.4 Risk Management review
Inherent in exploiting business opportunities is risk taking and the management
thereof, especially in the development fnance environment where the rewards
sought transcend fnancial returns to include a range of socio-economic
development impacts. The activity of fnancing small, medium and micro
enterprises (SMMEs) traditionally entails the assumption of a higher degree of
risk than what traditional fnanciers would necessarily assume. As a result, the
imperative of an effective risk management system for sefa was, and remains,
the determination of an appropriate level of risk to ensure development and
fnancial return.
During the year under review, risks embedded within the continuing activities of
the previously existing entities were managed in accordance with the practices
and processes previously governing these activities. A specifc assessment was
performed and risk management mechanisms adopted for the merger process. The enhanced risk management practices
and procedures required for the newly merged entity were conceptualised for implementation by an enhanced and fully
capacitated Risk Management Division.
Risk management objectives
The objectives of effective risk management within sefa are:
• To ensure the sustainability of sefa and its interventions, i.e. the development impact created, and
• To empower sefa to exploit business opportunities with confdence, having the capability to effectively manage the
risks taken.
Risk management model
Considerable effort was directed at developing an integrated risk management strategy for the newly merged sefa to
achieve the stated objectives on an enterprise-wide basis.
The strategy is to be achieved through an integrated model for the risk management functions and responsibilities, adapted
from the internationally recognised three lines of defence model, as the basis for an effective risk management system.
This approach not only ensures the principle of integrated risk management, but assigns responsibility for the management
of specifc risks to the relevant tier of management of the business. Support is provided by the Risk Management Division,
as a centre of excellence in risk management practice, and independent assurance on the effectiveness of risk management
is provided by the Internal Audit function. Ultimately, all risk management activities are championed and governed by the
sefa board through its Audit and Enterprise Risk committees.
21 ANNUAL REPORT 2013
Risk universe
sefa’s risk universe can be broadly categorised as follows:
The critical risks that sefa faces are:
• Credit – The risk that a borrower will default on any type of debt by failing to make payments which it is obligated
to do. The risk is primarily that of the lender and includes lost principal and interest, disruption to cash fow, and
increased collection costs. The loss may be complete or partial. It is envisaged that the credit risk profle of sefa will
increase based on the aspirations of an increased portfolio of facilities granted directly to SMMEs through the Direct
Lending Division
• Operational – Operational risk is the potential loss that emanates from inadequate, absent or failed systems or
processes. It is not inherent in fnancial, systematic or market-wide risk and can be triggered internally or externally
• Regulatory – Potential losses that may arise as a result of non-compliance with legislative and regulatory requirements,
as well as recognised codes and policies, and
• Strategic – The current and prospective impact on earnings or capital arising from adverse business decisions, improper
implementation of decisions, or lack of responsiveness to industry changes. This risk is a function of the compatibility
of an organisation’s strategic goals, the business strategies developed to achieve those goals, the resources deployed
against these goals, and the quality of implementation.
Implementation philosophy
Risk management is a balancing act of risk-taking for reward. In respect of this, sefa’s challenge is the ability to meet high
expectations for delivery of fnancing (primarily through a debt instrument), whilst managing the expectation of recovery
of debt and its own fnancial sustainability.
The key to overcoming the above challenge is to determine the appropriate level of risk to be taken for the achievement
of development impact and fnancial return. Hence, sefa has adopted the following principles in implementing an effective
risk management system:
• Gradual maturity of risk management – Implement basic governance policies and structures frst
• Embed risk management through management, ownership and accountability
• Balanced approach and on-going engagement with all stakeholders
• Leveraging technology by automating the risk assessment and reporting processes, and
• Effective monitoring of and reporting on the risks taken and being managed.
Strategic risk Operational risk Financial risk Governance risk
Clients, product and
business practices
Execution, delivery and
process management
Employment practice
and workplace practice
External and internal
fraud and theft
Business disruption
and systems failure
Damage to physical
assets
People
Stakeholder
Macro-economic
Reputation
Credit
Market
Concentration
Liquidity
Capital structure
Financial sustainability
Corporate governance
Political risk
Regulatory risk
Supply chain
Legal
IT governance
22 Smal l Enterpri se Fi nance Agency
Building risk management capability
The next reporting period will see specifc focus on building enhanced risk management capability, whilst ensuring that
all risk exposures assumed are effectively assessed and managed. This will include:
• Fostering a culture of risk awareness and practice to enable sefa to respond to risks where and as they arise
• Acquisition and development of people with the right level of risk management knowledge and skills, thereby creating
a centre of excellence in risk management to serve the business areas in the identifcation, assessment, treatment,
monitoring and reporting of risks
• Developing technological solutions to dynamically record, monitor and report on risks, including risk models which
inform us on the behaviour of the risks, specifcally credit risk, and
• Improving governance processes, including policies, procedures, tools and templates to create a standard that will
ensure uniformity, effciency and effectiveness in the management of risks.
23 ANNUAL REPORT 2013
3.5 Human Capital review
Underpinning Human Capital’s objectives for the period under review was the
establishment of an integrated organisation following the merger which included:
• Establishment and approval of the organisational structure
• Transfer and placement of employees into the new organisation
• Implementation of a change management programme that supports and
enhances an integrated organisational culture and values
• Relocating to new offces, and
• Development of new conditions of employment, human capital policies,
procedures, processes and systems.
Staff complement
The table below indicates the staff complement as at 31 March 2013. The
number of employees is expected to increase to 191.
Table 1: Employment equity profle
Level
Male Female
Total Black Coloured Indian White Black Coloured Indian White
Executive 2 0 1 0 1 0 0 0 4
Manager 13 0 0 1 13 0 1 3 31
Professional 27 1 0 5 39 4 2 3 81
Administrative 8 0 0 0 25 4 2 1 40
Support 2 0 0 0 5 0 0 0 7
Total 52 1 1 6 83 8 5 7 163
The percentage of black employees is 92% of the overall staff complement. Female employees constitute approximately
69% of sefa’s staff.
Table 2: Employment equity target versus actual at 31 March 2013
African Coloured Indian White Employees with disabilities
Target 78% 10% 4% 8% 1%
Actual 83% 5% 4% 8% 0.6%
Variance 5% -5% 0% 0% -0.4%
Table 2 indicates that the target for Indian and White representation has been met, whilst minimal variance exists in
terms of the other race groups. sefa uses natural attrition and new appointments for movement towards its EE targets.
Learning and development
sefa is registered with the BANKSETA, in compliance with the Skills Development Levies Act. To capacitate sefa’s employees
to deliver on our strategic mandate, training initiatives were undertaken in line with the individual development plans and
organisational needs. 130 training interventions were undertaken to the value of approximately R1 million.
Occupational health and safety
In line with occupational health and safety regulatory requirements, employees underwent the necessary training to create
awareness of health and safety expectations, requirements and obligations.
sefa engages the services of Independent Counselling Advisory Service (ICAS) Southern Africa for a Employee Assistance
Programme (EAP). The aim is to provide support for employees and their families in terms of both psychological and physical
health. All employees have access to the ICAS Employee Wellbeing Programme which offers counselling and advisory
services to them and their dependents on health (e.g. HIV/AIDS), fnance and performance matters, amongst others.
24 Smal l Enterpri se Fi nance Agency
Performance Indicator
Target
2012/13
Actual
achieved
2012/13
Achieved as
% of target Reason for Variance
CUSTOMER
PERSPECTIVE
45%
Access to finance by SMEs
and business support
R560 million approvals R560 million R440 million 78.5% Lower target achieved due
to work done towards
embedding the merger.
R450.4 million disbursements R450 million R198 million 44.0% Lower target achieved due
to conditions precedent not
being met by clients.
11,812 loans to SMMEs
(number of SMMEs fnanced)
11,812 28,362 240.1% Overachievement was due to
expansion in the microfnance
and small loan programmes.
13,196 jobs created* 13,196 19,853 150.4% Overachievement was due to
expansion in the microfnance
and small loan programmes.
30% of facilities disbursed
must be youth-owned –
25–35 years old
30% 16.5% 54.8% Limited viable business
propositions and
entrepreneurship amongst
youth.
45% of facilities disbursed
must be in priority rural
provinces
45% 45.4% 100.9%
40% of facilities disbursed
must be women-owned
businesses
40% 39.8% 99.5%
70% of facilities disbursed
must be black-owned
businesses
70% 78.1% 111.6% It was a target focus to
support black-owned SMMEs.
40% of facilities less or equal
to R250,000 to be disbursed
to end-users
40% 45.4% 113.5% Overachievement was due to
expansion in the microfnance
and small loan programmes.
FINANCIAL
PERSPECTIVE
25%
Ensuring sefa's sustainability
plus strengthening risk
management & compliance
Net operating income as a %
of average assets at cost
1% -9% -900.0% Lower target achieved due to
limited disbursement.
Cost to income ratio
(excluding impairments and
fnance charges)
146% 124% 117.7% Target achieved due to cost
containment as a result of
restricted income.
Bad debt ratio (wholesale and
direct lending loans issued by
sefa) – (Impairments as a %
of portfolio at cost)
34% 30% 113.3% Target achieved due to low
bad debt in the operating year.
Portfolio at risk of active
clients less than or equal to
5%
5% 23% -460.0% Target under-achievement due
to aggressive target setting for
the nature of business as well
as SMME trading conditions.
Ratio of claims provisions vs.
amount indemnifed of 20%
20% 5% 400.0% Limited activity by banks on
the indemnity scheme.
Actions taken to mitigate risk
included in risk register – 75%
of actions identifed
75% 100% 133.3% Target achieved due to
increased internal control and
risk mitigation measures.
Reduce clients handed over
to loss control from 5 to 2
in 2013
2.0 1 200.0% Target achieved due to
increased internal control and
risk mitigation measures.
PERFORMANCE AGAINST PREDETERMINED OBJECTIVES
25 ANNUAL REPORT 2013
Performance Indicator
Target
2012/13
Actual
achieved
2012/13
Achieved as
% of target Reason for Variance
INTERNAL
BUSINESS
PROCESSES
15%
Improved internal business
processes & systems
Development of at least
5 key policies, processes,
systems and procedures
5 5 100.0%
Integration and
implementation of business
application systems
100% 100% 100.0%
99.9% uptime of critical
systems
100% 100% 100.0%
PEOPLE
LEARNING
AND
GROWTH
15%
Alignment, development and
motivation of Human Capital
8% Labour Turn Over Rate
(LTO)
8% 8% 100%
80% of Employees have
Individual Development Plans
(IDPs)
80% 53% 66% Lower target achieved due
to work done towards
embedding the merger and
aligning employee performance
management system.
Performance management
assessments conducted by
100% of Managers for the
year ending 31 March 2013
100% 54% 54% Lower target achieved due
to work done towards
embedding the merger and
aligning employee performance
management system.
Employee engagement survey
conducted by 31 March 2013
100% 100% 100%
* A factor of 0.7 was applied to the number of SMMEs fnanced to derive the number of jobs created.
26 Smal l Enterpri se Fi nance Agency
5.1 Introduction
Governance of sefa is guided by the Public Finance Management Act, No. 1 of 1999 (PFMA), and the King Report on
Governance for South Africa 2009 (King III). In keeping with best practice, sefa also ensures that its governance practices
and procedures comply with the Companies Act, No. 71 of 2008.
5.2 Board and committees
sefa’s board is constituted to ensure a wide range of skills and knowledge necessary to meet strategic objectives.
The size of the sefa board is dictated by its Memorandum of Incorporation, which permits a minimum of fve and a
maximum of ffteen directors to be appointed by the shareholder.
sefa has a unitary board structure, and as at 31 March 2013 the board comprised one executive and ten non-executive
members and a gender composition of four female and seven male directors.
The Chairperson of the sefa board is an independent, non-executive director. In line with the recommendations of King III,
the positions of Chairperson and Chief Executive Offcer are separately held to ensure a clear division of duties. The
non-executive directors are not involved in day-to-day operations of the business and do not draw any remuneration
from sefa other than board fees.
Directors’ terms of appointment are governed by the company’s Memorandum of Incorporation and are subject to
periodic re-election and the shareholder’s approval.
Our directors are individuals of high calibre with diverse backgrounds and expertise, facilitating independent judgement
and effective deliberation in the decision-making process, whilst pursuing sefa’s strategic objectives. The board met for
the frst time on 20 April 2012 since the appointment of the new board members.
The board is responsible to the shareholder for setting economic, social and environmental direction through strategic
objectives and key policies, and monitors implementation through structured reporting systems. The board accepts
responsibility for the annual fnancial statements.
The adequacy of the board and the appointment of new directors are reviewed periodically by the shareholder.
GOVERNANCE
27 ANNUAL REPORT 2013
Board members attended the following board meetings during the reporting period:
20/04 03/05 18/05 07/06 13/08 23/08 01/10 20/11 30/01 06/03
S Magwentshu-
Rensburg ? ? ? ? ? ? ? ? ? ?
M Ferreira ? ? ? ? ? ? ? ? ? ?
IAS Tayob ? ? ? ? A ? ? ? ? ?
H Lupuwana A A A A A ? ? A ? A
SA Molepo ? ? ? ? A A A A ? ?
LB Mavundla ? ? ? ? ? ? A ? ? A
VG Mutshekwane ? ? ? ? ? ? ? ? ? ?
BP Calvin ? ? ? ? A ? ? ? ? A
GS Gouws ? ? A ? ? ? ? ? ? ?
K Schumann ? ? ? ? ? ? ? ? ? ?
W Fourie ? ? ? ? ? ? ? - - -
T Makhuvha - - - - - - - ? ? ?
? Present
A Apology
Remuneration
sefa directors were remunerated as follows:
Name of director
R’000
2013
R’000
2012
S Magwentshu-Rensburg (Chairperson) 218 178
M Ferreira 246 160
D Jackson (Resigned 23 February 2012) - 200
M Kekana (Resigned 31 March 2012) - 40
Z Lees (Resigned 31 March 2012) - 143
N Swana (Resigned 31 March 2012) - 137
V Twala (Resigned 31 March 2012) - 181
IAS Tayob 215 152
H Lupuwana 102 -
SA Molepo 155 -
LB Mavundla 210 -
VG Mutshekwane 275 -
BP Calvin 214 -
GS Gouws* - -
K Schumann* - -
Total 1,635 1,191
The difference in directors’ remuneration can be attributed to the increasing number of meetings held.
* Mr Gouws and Ms Schumann are employed by the IDC and do not earn director’s fees for services rendered to sefa.
sefa non-executive board members are remunerated for the meetings they attend at (market-related) rates approved
by the shareholder. No performance-based remuneration or retainer fees are paid to directors.
Senior management and other employees are paid market-related salaries as well as remuneration through the sefa
short-term incentive schemes based on performance.
28 Smal l Enterpri se Fi nance Agency
5.3 Delegation of authority
While the board delegates its authority to management, it retains the responsibility concerning the exercise of its delegated
authority. In terms of Section 56 of the PFMA, the board may confrm, vary or revoke any decision taken by an offcial as
a result of a delegation of powers by the board.
The board has established fve standing committees, namely Audit Committee, Enterprise Risk Committee, Wholesale
Investment Committee, Human Capital and Remuneration Committee and Direct Lending Committee, all of which are
ultimately accountable to the board.
Audit Committee (Audit)
The committee monitors the adequacy of fnancial controls and reporting, reviews audit plans and adherence to these
by the external and internal auditors; ascertains the reliability of the audit; ensures that fnancial reporting complies with
International Financial Reporting Standards (IFRS) and the Companies Act; ensures the integrity of integrated reporting;
ensures that there are effective measures in place on Information Technology risks as they relate to fnancial reporting;
reviews and makes recommendations on all fnancial matters; and recommends to the board the appointment and
removal of auditors.
Enterprise Risk Committee
The primary duty of the Risk Committee is the governance of risk. It assists management with the responsible stewardship
of sustainability, including stakeholder impact, management of material issues, sustainability governance and reporting.
Wholesale Investment Committee (WIC)
The purpose of the WIC is to act on behalf of the board by considering transactions mandated to it by the board which
would, prior to the creation of the committee, vest with the board. The WIC considers transactions relating to the
wholesale products where sefa exposure is less than R50 million. The WIC also considers transactions relating to the
indemnity scheme where the transaction exposure is above R5 million and up to R50 million. WIC approval is required
for all claims relating to the indemnity scheme that exceed R5 million.
Human Capital and Remuneration Committee (HCRC)
The main objective of the HCRC is to assist the board in the development of compensation policies, plans and performance
goals, as well as specifc compensation levels for sefa. The HCRC assists the board in fulflling its oversight responsibilities
relating to succession planning as well as overall compensation and human resource policies for all sefa employees.
Direct Lending Committee (DLC)
The purpose of the DLC is to act on behalf of the board by considering transactions and policicies mandated to it by
the board.
5.4 Shareholder engagement
The shareholder meets the sefa board at least once a year in order to discuss the shareholder’s strategy and expectations.
sefa contracts annually with the shareholder through the Shareholder Compact and reports on the year under review
through the annual report. The report is distributed to members of parliament and is available to the public on request.
In an effort to enhance communication and achieve the vision of the company, the board has unrestricted access to
executive management. In addition, communication with sefa employees is done through board feedback sessions
convened by the CEO.
29 ANNUAL REPORT 2013
Ethics policy
Board members are required to declare their interests in the declaration register before attending sefa board meetings.
sefa recognises the need for directors and employees to observe the highest standards of behaviour and business ethics
when engaging in business activities. All directors and employees are expected to act in accordance with the law and
with the highest standards of propriety and to comply with sefa’s Code of Ethics. The Social and Ethics Committee is in
the process of being established.
5.5 Company Secretary
The Company Secretary is responsible to the board for, inter alia, ensuring compliance with procedures and applicable
statutes and regulations. To enable the board to function effectively, all directors have full and timely access to information
that may be relevant to the proper discharge of their duties. This includes information such as corporate announcements,
investor communications, agenda items for board meetings and other developments which may affect sefa and its operations.
This also includes access to management where required.
5.6 Internal Audit
Internal Audit is an independent appraisal function to provide the Audit Committee and the Enterprise Risk Comittee
with assurance on the adequacy and effectiveness of the company’s systems of internal control, as well as to provide
consultative and forensic investigation services.
5.7 Enterprise risk management
Effective risk management is integral to sefa’s objective of consistently adding value to the business. Management continuously
develops and enhances its risk and control procedures to improve mechanisms for identifying, monitoring and mitigating
risks. The Audit and Enterprise Risk committees as well as the board of directors monitor areas of signifcant business risk
on a continuous basis. Once particular risks are identifed, it is the responsibility of the board to ensure that management
takes such action as is required to mitigate and minimise the risk.
Risk management is dealt with in the fnancial statements.
5.8 Internal control
The board has the overall responsibility of establishing and maintaining the company’s internal controls and for reviewing
the effectiveness thereof. The directors, through the relevant committees, have reviewed the effectiveness of the internal
controls in operation throughout the year. The role of the company’s management is to implement approved policies
on risk and control. sefa’s management implements on-going risk management process for identifying, evaluating and
managing signifcant risks faced by the company. This process is reviewed by the board during the course of any year.
sefa and its subsidiaries maintain fnancial and operational systems of internal control in order to fulfl the responsibility
for providing reliable fnancial information. These controls are designed to provide reasonable assurance that transactions
are concluded in accordance with management’s authority, that assets are adequately protected against material loss or
unauthorised acquisition, use, or disposal; and that transactions are properly authorised and recorded. This system includes
a documented organisational structure and division of responsibility, as well as established policies and procedures, including
a Code of Ethics, to foster a strong ethical climate, which are communicated throughout the company. The system also
includes careful selection, training and development of people.
30 Smal l Enterpri se Fi nance Agency
The company has its own Internal Audit Department which assesses risk and conducts internal audit activities. The internal
auditors not only assist the board in monitoring the operation of the internal control system, but report their fndings
and recommendations to management and the Audit Committee. Corrective actions and any other measures are taken
to address control defciencies and to improve the said system once those control defciencies are identifed. The board,
through its Audit Committee, provides supervision of the fnancial reporting process and internal control system.
There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error
and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only
reasonable assurance with respect to the preparation of fnancial statements and the safeguarding of assets. Furthermore,
the effectiveness of an internal control system can change with circumstances. However, to date, no signifcant breakdown
or circumvention of controls has occurred.
The key procedures, which the directors have established to review the effectiveness of the system of internal control,
include the following:
Management structure
The board has the overall responsibility for the company and there is a formal schedule of matters specifcally reserved
for the board. The Chief Executive Offcer, as the executive director, together with key senior management and executives,
constitute the Executive Committee, which meets regularly to discuss day-to-day operational matters. The Chief Executive
Offcer also meets regularly with the senior executives of the divisions and their management teams.
Risk assessment
The risk register identifes the key risks that the business is faced with, the probability of those risks occurring, the impact
in the event the risk occurs, and the actions taken to mitigate and manage those risks at the appropriate level. The risk
assessment is performed on a continuous basis and reports are presented to the board periodically.
Quality and integrity of employees
The integrity and competency of employees are maintained through competitive recruitment standards and subsequent
training. Competent human capital is seen as an essential part of the control environment and employees are evaluated
through a performance management system.
Budgetary process
Each year the board approves the annual budget and updated business plan. Key risk areas are identifed, performance is
monitored and relevant action is taken throughout the year via quarterly reporting to the board on variances from the
budget, updated forecasts for the year, together with information on key risk areas.
Capital expenditure
Capital expenditure is regulated by budgetary processes and authorisation levels. For expenditure beyond specifed levels,
detailed written proposals have to be submitted to the board for approval.
Audit Committee
The Audit Committee monitors the controls which are in force and any perceived gaps in the control environment. The
committee also considers and determines relevant mitigation taken in respect of any concerns relating to controls raised
by management, the internal auditors and/or the external auditors.
31 ANNUAL REPORT 2013
CONSOLIDATED AND SEPARATE
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2013
REGISTRATION NUMBER: 1995/011258/06
Statement of responsibility by the board of directors 32
Report of the board audit committee 33
Directors’ report 36
Declaration by the group company secretary 41
Report of the independent auditor 42
Statements of fnancial position 44
Statements of comprehensive income 45
Statements of changes in equity 46
Statements of cash fows 47
Notes to the fnancial statements 48
The consolidated and separate fnancial statements have been prepared under the supervision of Mr Andile Ramavhunga
CA (SA), the Group’s Chief Financial Offcer.
The fnancial statements have been audited in compliance with section 30 of the Companies Act, No. 71 of 2008.
32 Smal l Enterpri se Fi nance Agency
The Public Finance Management Act, No. 1 of 1999 (PFMA) requires the directors to ensure that sefa and its subsidiaries
keep full and proper records of its fnancial affairs. The fnancial statements should fairly present the state of affairs of the
company, its fnancial results, its performance against pre-determined objectives and its fnancial position at the end of
any given fnancial year in terms of International Financial Reporting Standards (IFRS).
The directors are responsible for the preparation and fair presentation of the consolidated and separate annual fnancial
statements of sefa, comprising of the statements of fnancial position as at 31 March 2013, and the statements of
comprehensive income, changes in equity and cash fows for the year ended, and the notes of the fnancial statements
which include a summary of signifcant accounting policies and other explanatory notes, in accordance with IFRS, the
Companies Act of South Africa, the PFMA and the Public Act, 2004.
The directors are ultimately responsible for the internal controls; and management assists the directors to meet these
responsibilities. Standards and systems of internal control are designed and implemented by management to provide
reasonable assurance as to the integrity and reliability of the fnancial statements in accordance with IFRS and to adequately
safeguard, verify and maintain accountability for assets. Accounting policies supported by judgements, estimates and
assumptions which comply with IFRS, are applied on a consistent and going concern basis. Systems and controls include
the proper delegation of responsibilities within a clearly defned framework, effective accounting procedures and adequate
segregation of duties.
Based on the information and explanations given by management and the internal auditors and discussions held with
external auditors on the results of their audits, the directors are of the opinion that the internal accounting controls are
adequate to ensure that the fnancial records are relied upon for preparing the fnancial statements, and accountability
for assets and liabilities is maintained.
Nothing has come to the attention of the directors indicating any breakdown in the functioning of these controls,
resulting in material loss to the company during the year under review and until the date of this report. The directors
have a reasonable expectation that the company and its subsidiaries have adequate resources to continue in operational
existence for the foreseeable future. For this reason, the directors continue to adopt the going concern approach in the
preparation of the fnancial statements.
The auditor is responsible for reporting on whether the consolidated and separate fnancial statements are fairly presented
in accordance with the applicable fnancial reporting framework.
In the opinion of the directors and, based on the information available to date, the fnancial statements fairly present the
fnancial position of sefa as at 31 March 2013 and the results of its operations and cash fow information for the year
then ended.
The fnancial statements prepared in accordance with IFRS, which appear on pages 44 to128 were approved by the board
of directors on 23 August 2013 and are signed on its behalf by:
Dr Sizeka Magwentshu-Rensburg Mr Thakhani Makhuvha
Chairperson of the Board of Directors Chief Executive Offcer
STATEMENT OF RESPONSIBILITY BY THE BOARD
OF DIRECTORS
FOR THE YEAR ENDED 31 MARCH 2013
33 ANNUAL REPORT 2013
The audit committee is pleased to present its report for the fnancial year ended 31 March 2013.
This report is in compliance with the requirements of the Companies Act, No. 71 of 2008 and the King Report on
Corporate Governance for South Africa 2009 (King III).
Audit committee mandate
The committee is governed by a formal audit committee charter that has been updated to incorporate the requirements
of the Companies Act, No. 71 of 2008 which came into effect on 1 May 2011. This charter guides the committee in terms
of its objectives, authority and responsibilities.
The audit committee recognises its important role as part of the risk management and corporate governance processes
and procedures of sefa.
Role of the audit committee
The role of the audit committee is, inter alia:
General
• To ensure that the respective roles and functions of external audit and internal audit are suffciently clarifed and
co-ordinated and that the combined assurance received is appropriate to address all signifcant risks;
• Assist the board in carrying out its risk management responsibilities; and
• Receive and deal appropriately with any complaints.
External auditors
• To evaluate the independence, effectiveness and performance of the external auditors, and obtain assurance from
the auditors that adequate accounting records are being maintained and appropriate accounting principles are in
place which have been consistently applied;
• To evaluate the appointment of the external auditors on an annual basis;
• To approve the audit fee and fees in respect of any non-audit services;
• To consider and respond to any questions from the board and shareholders regarding the resignation or dismissal
of the external auditor, if necessary;
• To review and approve the external audit plan; and
• To ensure that the scope of the external audit has no limitations imposed by management and that there is no
impairment on its independence.
Internal control and internal auditors
• To review the effectiveness of the group’s systems of internal control, including internal fnancial control and risk
management and to ensure that effective internal control systems are maintained;
• To monitor and supervise the effective functioning and performance of the internal auditors;
• To review and approve the annual internal audit plan and the internal audit charter; and
• To ensure that the scope of the internal audit function has no limitations imposed by management and that there
is no impairment on its independence.
REPORT OF THE BOARD AUDIT COMMITTEE
FOR THE YEAR ENDED 31 MARCH 2013
34 Smal l Enterpri se Fi nance Agency
Financial results
• Consider any accounting treatments, signifcant unusual transactions, or accounting judgements that could be
contentious;
• To review the annual report, as well as annual fnancial statements;
• To review interim reports, preliminary reports or other fnancial information prior to submission and approval by
the board; and
• To provide as part of the annual report, a report by the audit committee.
Specifc responsibilities
The committee confrms that it has carried out its functions in terms of section 94(7) of the Companies Act, No. 71 of
2008 by:
• Confrming the nomination of KPMG Inc. as the group’s registered auditor and being satisfed that they are independent
of the company;
• Approving the terms of engagement and fees to be paid to KPMG Inc.;
• Ensuring that the appointment of KPMG Inc. complies with the provisions of the Companies Act;
• Determining the nature and extent of any non-audit services which the external auditors provide to the company,
or a related company;
• Pre-approving any proposed agreement with KPMG Inc. for the provision of any non-audit services;
• Preparing this report for inclusion in the annual fnancial statements as well as in the annual report;
• Receiving and dealing appropriately with any relevant concerns or complaints;
• Making submissions to the board on any matter concerning the company’s accounting policies, fnancial control,
records and reporting; and
• Performing such other oversight functions as may be determined by the board.
Internal fnancial control
Based on the assessment of the system of internal fnancial controls conducted by sefa’s internal audit function, as well
as information and explanations given by management and discussions held with the external auditor on the results of
their audit, the committee is of the opinion that sefa’s system of internal fnancial controls is effective and forms a basis
for the preparation of reliable fnancial statements in respect of the year under review.
Risk management
While the board is ultimately responsible for the maintenance of an effective risk management process, the committee,
together with the risk committee, assists the board in assessing the adequacy of the risk management process. The
chairperson of this committee has an open invitation to risk committee meetings to ensure that relevant information is
regularly shared. The committee fulflls an oversight role regarding fnancial reporting risks, internal fnancial controls, fraud
risk as it relates to fnancial reporting and information technology risks as they relate to fnancial reporting.
REPORT OF THE BOARD AUDIT COMMITTEE (Continued)
35 ANNUAL REPORT 2013
External auditors
The group’s external auditors are KPMG Inc. and the designated partner is Mr WGE Pretorius.
KPMG Inc. is afforded unrestricted access to the group’s records and management and presents any signifcant issues arising
from the annual audit to the committee. In addition, KPMG Inc. raises matters of concern directly with the chairperson
of the committee.
The committee gave due consideration to the independence of the external auditors and is satisfed that KPMG Inc. is
independent of the group and management and therefore able to express an independent opinion on the group’s annual
fnancial statements.
Financial management
The committee has reviewed the fnancial statements of the company and the group and is satisfed that they comply
with IFRS.
In addition, the committee has reviewed management’s assessment of going concern and recommended to the board
that the going concern concept be adopted by sefa.
Approval
The committee recommended the approval of the annual fnancial statements to the board.
On behalf of the board audit committee:
Mr Ismail Tayob
Chairperson of the Board Audit Committee
23 August 2013
36 Smal l Enterpri se Fi nance Agency
Introduction
In his 2011 State of the Nation Address, the Honourable President of South Africa, Mr JG Zuma, introduced the notion of
“merging” the three small business funding agencies namely; Khula Enterprise Finance Limited (Khula), the South African
Micro Finance Apex Fund (samaf) and the Industrial Development Corporation’s (IDC) small business funding activities
into a single entity. In response, the Economic Development Department (EDD), in collaboration with several government
departments, started working towards the creation of this new entity.
The following events occurred during the fnancial year under review as a result of the President’s announcement:
• Khula’s legal name was changed to Small Enterprise Finance Agency SOC Limited (sefa);
• samaf’s business, with all its assets and liabilities, was transferred to sefa as a going concern; and
• sefa became a wholly owned subsidiary of the IDC.
The merger was accounted for as a common control transaction. A common control transaction is a business combination
where the combining entities or businesses are ultimately controlled by the same party or parties both before and after
the combination. In this case, Khula (now sefa) and the business of samaf were ultimately controlled by the South African
government both before and after the combination.
sefa is registered as a State Owned Company (SOC) in terms of the Companies Act and is listed as a Schedule 2 entity
in terms of the PFMA and Treasury Regulations.
Nature of business
sefa is a development fnance institution, which provides fnance to small, micro and medium enterprises (SMMEs) directly
through its branch network and indirectly through Financial Intermediaries (FI’s) and other suitable fnancial institutions.
Finance is provided in the form of loans, equity capital and indemnities. The group also owns a portfolio of business
premises that are leased to commercial undertakings.
Funding
sefa’s loan funding requirements are sourced mainly from grants received from the EDD. In addition to grants received,
the IDC has committed advances through a shareholders loan to the value of R921 million for on-lending activities.
Public Finance Management Act
sefa’s board is responsible for the development of the company’s strategic direction. The company’s strategy and business
plan are captured in the shareholder’s compact and approved by the board. After approval the shareholder’s agreement
is obtained and thereafter the compact forms the basis for the company’s detailed action plans and on-going performance
evaluation.
The responsibility for the day-to-day management of the company vests in line management through a clearly defned
organisational structure and through formal delegated authorities.
DIRECTORS’ REPORT
FOR THE YEAR ENDED 31 MARCH 2013
37 ANNUAL REPORT 2013
sefa has a comprehensive system of internal controls, which are designed to ensure that the company’s objectives are
met, including the requirements of the Companies Act and the recommendations of King III. These systems and controls
meet the requirements of the PFMA. There are processes in place to ensure that where these controls fail, such failure
is detected and corrected.
Adoption of IFRS and changes in accounting policies
IFRS were adopted for the frst time during the current fnancial year and changes were made to selected accounting
policies. Refer to notes 1.2 and 2 in the fnancial statements for more information.
Signifcant matters
During the fnancial year, Marang Financial Services (Pty) Ltd (Marang), a large micro-fnance intermediary and a client of
sefa was placed under liquidation. A Final Liquidation order was granted by the Master of the High Court on the 26
th
of
March 2013. The liquidation of Marang is expected to have a negative effect on the micro-fnance sector, however sefa
is investigating options for remedying the situation to ensure that service delivery in the sector is not severely impacted.
sefa owns a property portfolio with a value of R171.4 million. During the fnancial year a fair value loss of R21.9 million
relating to the property portfolio was recognised in proft or loss as a result of an adjustment in the valuation method used.
This portfolio is faced with challenges ranging from an ageing infrastructure to non-collection of rentals. During the fnancial
year, the board approved a turnaround strategy for the portfolio which will be implemented in the 2013/14 fnancial year.
It is envisaged that the strategy will deal effectively with the identifed challenges.
Subsidiaries, joint ventures and associates
Details of each trading subsidiary, joint venture and associate are set out in the notes to the fnancial statements.
Dividends
No dividends have been declared during the year and none are recommended (2012: Rnil).
Share capital
The authorised and issued share capital remained unchanged during the year (2012: unchanged).
Materiality and signifcance
Materiality levels for reporting in terms of section 55(2)(b)(i) of the PFMA
Section 55(2)(b)(i) of the PFMA states that the annual report and fnancial statements should include particulars of any
material losses through criminal conduct and irregular expenditure and fruitless and wasteful expenditure that occurred
during the fnancial year. The term material has not been defned in the Act.
Signifcance levels related to sections 51(1)(g) and 54(2) of the PFMA
Sections 51(1)(g) and 54(2) of the PFMA read in conjunction with the related practice note requires the use of a
signifcance framework.
38 Smal l Enterpri se Fi nance Agency
Based on the guidelines in the practice note and after evaluating the total assets, total revenue and proft after tax for the
sefa group, a signifcance level of R18 million had been adopted.
Unauthorised, irregular, fruitless and wasteful expenditure
Fruitless and wasteful expenditure
The PFMA defnes fruitless and wasteful expenditure as expenditure which was made in vain and would have been
avoided had reasonable care been exercised.
2013 2012
Note R’000 R’000
Opening balance 632 2,300
Fruitless and wasteful expenditure current year
Projects abandoned prior to implementation 76 313
Interest on late payment of supplier invoice 5 -
Penalty on under estimation of provisional tax - 665
Penalty on under estimation of provisional tax (1) 665 (665)
Interest on late payment of provisional tax 39 289
Interest on late payment of VAT - 30
Condoned or written off by accounting authority - (2300)
Fruitless and wasteful expenditure awaiting condonement 1,417 632
(1) The full amount relates to a penalty paid to the Receiver of Revenue relating to the 2011 tax year for the under estimation of
provisional tax. This penalty was reported as fruitless and wasteful expenditure in the 2012 year and simultaneously a contingent asset
was raised on the table of fruitless and wasteful expenditure. The contingent asset was a result of expectations that the Receiver of
Revenue would waive the penalty or that losses will be recovered from a 3
rd
party. It has become evident during the current fnancial
year that the expense is likely to be irrecoverable.
DIRECTORS’ REPORT (Continued)
39 ANNUAL REPORT 2013
Irregular expenditure
Irregular expenditure signifes expenditure incurred without adhering to established rules, regulations, procedural guidelines,
policies, principles or practices that have been implemented to ensure compliance with the PFMA, relevant tender
regulations as well as any other relevant procurement regulations.
2013 2012
Note R’000 R’000
Opening balance - -
Irregular expenditure current year 5,922 -
Condoned or written off by accounting authority (5,429) -
Irregular expenditure awaiting condonement (1) 493 -
(1) Management is in the process of regularising these matters and have not yet requested condonement from the board of directors.
Audit committee information
Audit committee members have attended the following audit committee meetings during the reporting period:
Name of director 26/07 02/10 11/12 22/01 25/02
IAS Tayob ? A ? ? ?
VG Mutshekwane ? ? ? ? ?
GS Gouws ? ? ? ? ?
? - Present
A - Apology
40 Smal l Enterpri se Fi nance Agency
Directors
The directors in offce during the fnancial year and up to the date of the approval of the annual fnancial statements were:
Appointed Resigned
Executive:
T Makhuvha 1 November 2012 -
W Fourie (Interim Managing Director) 1 September 2011 31 October 2012
Non-executive:
S Magwentshu-Rensburg (Chairperson) 7 April 2010 -
IAS Tayob 7 April 2003 -
M Ferreira 7 April 2010 -
H Lupuwana 1 April 2012 -
SA Molepo 1 April 2012 -
K Schumann 1 April 2012 -
L Mavundla 1 April 2012 -
VG Mutshekwane 1 April 2012 -
GS Gouws 1 April 2012 -
B Calvin 1 April 2012 -
Post reporting date events
The directors are not aware of any other matter or circumstance arising since the end of the fnancial year and
23 August 2013, not otherwise dealt with in the report that would affect the operations of the company or the group
signifcantly.
DIRECTORS’ REPORT (Continued)
41 ANNUAL REPORT 2013
In terms of section 88(2)(e) of the Companies Act, No. 71 of 2008, I certify that, to the best of my knowledge and
belief, sefa has lodged with the Registrar of Companies for the fnancial year ended 31 March 2013 all such returns as
are required in terms of the Companies Act, and that such returns are true, correct and up to date. I certify that for the
fnancial year ended 31 March 2013, sefa has lodged with the Minister of Economic Development the fnancial statements
in respect of the preceding fnancial year.
Mr Bheki Dlamini
Group Company Secretary (Acting)
23 August 2013
DECLARATION BY THE GROUP COMPANY SECRETARY
FOR THE YEAR ENDED 31 MARCH 2013
42 Smal l Enterpri se Fi nance Agency
Report on the fnancial statements
We have audited the consolidated and separate fnancial statements of the Small Enterprise Finance Agency SOC Limited
as set out on pages 44 to 128, which comprise the statements of fnancial position as at 31 March 2013, the statements
of comprehensive income, statements of changes in equity and the statements of cash fows for the year then ended, and
the notes, comprising a summary of signifcant accounting policies and other explanatory information.
The directors’ responsibility for the fnancial statements
The Board of Directors, which constitutes the accounting authority, is responsible for the preparation and fair presentation
of these fnancial statements in accordance with International Financial Reporting Standards, the requirements of the
Public Finance Management Act of South Africa and the Companies Act of South Africa, and for such internal control
as the accounting authority determines is necessary to enable the preparation of fnancial statements that are free from
material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these fnancial statements based on our audit. We conducted our audit in
accordance with the Public Audit Act of South Africa, the General Notice issued in terms thereof and International Standards
on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the fnancial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fnancial statements.
The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of
the fnancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the fnancial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall presentation of the fnancial statements.
We believe that the audit evidence we have obtained is suffcient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, these fnancial statements present fairly, in all material respects, the consolidated and separate fnancial
position of the Small Enterprise Finance Agency SOC Limited as at 31 March 2013, and its consolidated and separate
fnancial performance and the consolidated and separate cash fows for the year then ended in accordance with
International Financial Reporting Standards and the requirements of the Public Finance Management Act of South Africa
and the Companies Act of South Africa.
Other reports required by the Companies Act
As part of our audit of the fnancial statements for the year ended 31 March 2013, we have read the Directors’ Report,
the Audit Committee’s Report and the Company Secretary’s Certifcate for the purpose of identifying whether there are
material inconsistencies between these reports and the audited fnancial statements. These reports are the responsibility
of the respective preparers. Based on reading these reports we have not identifed material inconsistencies between
these reports and the audited fnancial statements. However, we have not audited these reports and accordingly do not
express an opinion on these reports.
INDEPENDENT AUDITOR’ S REPORT
TO PARLIAMENT ON THE SMALL ENTERPRISE FINANCE AGENCY SOC LIMITED
43 ANNUAL REPORT 2013
Report on other legal and regulatory requirements
Public Audit Act Requirements (PAA)
In accordance with the Public Audit Act of South Africa, and the General Notice issued in terms thereof, we report the
following fndings relevant to performance against predetermined objectives, compliance with laws and regulations and
internal control, but not for the purpose of expressing an opinion.
Predetermined objectives
We performed procedures to obtain evidence about the usefulness and reliability of the information in the Performance
against Predetermined Objectives section as set out on pages 24 to 25 of the annual report, and reported thereon to the
Accounting Authority.
The reported performance against predetermined objectives was evaluated against the overall criteria of usefulness and
reliability. The usefulness of information in the annual performance report relates to whether it is presented in accordance
with the National Treasury’s annual reporting principles and whether the reported performance is consistent with the planned
objectives. The usefulness of information further relates to whether indicators and targets are measurable (i.e. well defned,
verifable, specifc, measurable and time bound) and relevant as required by the National Treasury Framework for managing
programme performance information.
The reliability of the information in respect of the selected objectives is assessed to determine whether it adequately refects
the facts (i.e. whether it is valid, accurate and complete).
We report that there were no material fndings from our report to the Accounting Authority.
Other matters
We draw attention to the matters below. Our opinion is not modifed in respect of these matters.
Achievement of planned targets
Of the total number of 23 targets planned for the year, 9 of targets were not achieved during the year under review. This
represents 39.13 % of total planned targets that were not achieved during the year under review.
Material adjustments to the Performance against Predetermined Objectives section
Material audit adjustments in the annual performance report were identifed during the audit and all adjustments were
corrected by management.
Compliance with laws and regulations
We performed procedures to obtain evidence that the entity has complied with applicable laws and regulations regarding
fnancial matters, fnancial management and other related matters. We did not identify any instances of material non-compliance
with specifc matters in key applicable laws and regulations as set out in the General Notice issued in terms of the PAA.
Internal control
We considered internal control relevant to our audit of the fnancial statements, Performance against Predetermined
Objectives and compliance with laws and regulations, but not for the purpose of expressing an opinion on the effectiveness
of internal control. We did not identify any defciencies in internal control that we considered suffciently signifcant for
inclusion in this report.
KPMG Inc.
Per WGE Pretorius
Chartered Accountant (SA)
Registered Auditor
Director
23 August 2013
KPMG Crescent
85 Empire Road
Parktown
Johannesburg
Gauteng
2193
44 Smal l Enterpri se Fi nance Agency
STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 MARCH 2013
Group Company
2013 2012
1 April
2011 2013 2012
1 April
2011
Note R’000 R’000 R’000 R’000 R’000 R’000
Assets
Cash and cash equivalents 5 909,998 725,792 571,793 808,767 517,682 346,184
Trade and other receivables 6 21,303 24,431 22,108 22,695 21,764 21,939
Tax receivable 29 60 - 8,446 - - 8,323
Loans and advances 7 303,060 249,485 296,859 211,576 162,245 212,397
Investments 8 26,409 47,871 68,502 26,409 47,871 68,502
Investments in subsidiaries 9 - - - 141,604 139,674 142,452
Investments in associates 10 604,914 576,005 559,663 108,982 99,909 98,622
Investments in joint ventures 11 53,037 48,702 53,955 7,047 7,264 48,012
Deferred tax asset 12 75,193 39,617 35,469 113,338 74,453 56,859
Investment properties 13 171,435 195,264 187,508 171,435 195,264 187,508
Equipment 14 12,401 1,535 2,005 12,280 1,385 2,005
Intangible assets 15 1,874 1,817 - 1,699 1,550 -
Total assets 2,179,684 1,910,519 1,806,308 1,625,832 1,269,061 1,192,803
Equity and liabilities
Share capital 16 308,300 308,300 308,300 308,300 308,300 308,300
Reserves 756,901 618,885 605,163 254,725 145,412 173,958
Equity attributable to owners
of the parent 1,065,201 927,185 913,463 563,025 453,712 482,258
Non-controlIing interest - 4 2 - - -
Total equity 1,065,201 927,189 913,465 563,025 453,712 482,258
Liabilities
Trade and other payables 18 136,784 132,878 122,048 101,911 22,150 26,083
Tax payable 29 - 5,518 199 - 5,157 -
Shareholders Ioans 17 944,542 794,131 703,852 944,542 774,462 684,462
Outstanding claims reserve 19 11,073 27,043 55,412 - - -
Deferred tax liability 12 15,628 13,225 - 16,354 13,580 -
Unearned risk reserve 19 6,456 10,535 11,332 - - -
Total liabilities 1,114,483 983,330 892,843 1,062,807 815,349 710,545
Total equity and liabilities 2,179,684 1,910,519 1,806,308 1,625,832 1,269,061 1,192,803
45 ANNUAL REPORT 2013
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2013
Group Company
2013 2012 2013 2012
Note R’000 R’000 R’000 R’000
Income
Revenue 20 116,759 113,738 101,693 97,492
Other income 21 3,663 8,091 1,774 12,105
Grant income 22 48,870 5,000 48,870 5,000
Net fair value (loss)/gain on fnancial
and other assets 23 (21,929) 7,077 (21,929) 7,756
147,363 133,906 130,408 122,353
Expenses
Personnel expenses (85,157) (36,999) (85,157) (36,991)
Investment property expenses (33,193) (45,214) (33,193) (45,214)
Movement on impairments and bad
debt provisions (68,542) 8,696 (71,187) (29,353)
Bad debts written off (10,476) (30,870) - (10,413)
Other operating expenses (76,194) (71,565) (70,099) (27,786)
Operating loss 24 (126,199) (42,046) (129,228) (27,404)
Proft from equity accounted
investments, net of tax 28,979 19,301 - -
Loss before tax (97,220) (22,745) (129,228) (27,404)
Income tax income/(expense) 25 32,806 (14,469) 36,110 (1,142)
Net loss for the year (64,414) (37,214) (93,118) (28,546)
Other comprehensive income for the
year, net of tax - - - -
Total comprehensive loss for
the year (64,414) (37,214) (93,118) (28,546)
Loss and total comprehensive loss
attributable to:
Owners of the parent (64,410) (37,215)
Non-controlling interest (4) 1
Total loss and comprehensive
loss for the year (64,414) (37,214)
46 Smal l Enterpri se Fi nance Agency
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2013
Share
Capital
Contingency
Reserve
Danida
Reserve
(1)
Retained
Earnings
Non-
controlling
Interest Total
Group
R’000 R’000 R’000 R’000 R’000 R’000
Balance at 31 March 2011 308,300 795 10,155 193,429 3 512,682
Changes due to adoption of IFRS
and changes in policies - - - 400,784 - 400,784
Balance at 1 April 2011
adjusted 308,300 795 10,155 594,213 3 913,466
Changes due to adoption of IFRS
and changes in policies - - - 35,240 - 35,240
Transfer to retained earnings. - (795) - 795 - -
Changes in participation ratio in
subsidiaries and joint ventures. - - - 15,691 - 15,691
Total comprehensive (loss)/
income for the year - - - (37,214) 1 (37,213)
Balance at 31 March 2012 308,300 - 10,155 608,725 4 927,184
Gain on the transfer of samaf
assets and liabilities - - - 202,431 - 202,431
TotaI comprehensive loss for
the year - - - (64,410) (4) (64,414)
Balance at 31 March 2013 308,300 - 10,155 746,746 - 1,065,201
Company
Balance at 31 March 2011 308,300 - - 173,957 - 482,257
Changes due to adoption of IFRS
and changes in policies - - - - - -
Balance at 1 April 2011
adjusted 308,300 - - 173,957 - 482,257
Changes due to adoption of IFRS
and changes in policies - - - - - -
TotaI comprehensive loss for
the year - - - (28,545) - (28,545)
Balance at 31 March 2012 308,300 - - 145,412 - 453,712
Gain on the transfer of samaf
assets and liabilities - - - 202,431 - 202,431
Total comprehensive loss for
the year - - - (93,118) - (93,118)
Balance at 31 March 2013 308,300 - - 254,725 - 563,025
(1) This reserve arises from expired credit guarantees funded by the government of Denmark, out of which Khula Credit Guarantee
Limited may issue its own further credit guarantees.
47 ANNUAL REPORT 2013
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2013
Group Company
2013 2012 2013 2012
Note R R R R
Cash fows from operating
activities
Cash utilised by operations 28 (194,982) (58,917) (113,018) (37,128)
(lncrease)/decrease in loans and
advances (50,896) 2,654 (31,392) 22,405
Grant income received 48,870 5,000 48,870 5,000
Interest and dividends received 51,151 42,729 45,150 37,053
Tax (paid)/received 29 (5,945) 8,372 (5,157) 8,323
Net cash (utilised)/generated by
operating activities (151,802) (162) (55,547) 35,653
Cash fows from investing
activities
Purchase of equipment (12,282) (147) (12,273) (147)
Purchase of intangible assets (571) (1,827) (572) (1,770)
Repayments from En Commandite
partnership 13,904 17,041 13,904 17,041
Investments in associates (9,808) (2,234) (9,808) (2,234)
Advances to joint ventures 638 40,532 638 40,532
Repayments from subsidiaries - - (9,057) (16,819)
Acquisition of subsidiary (net of cash
acquired) 30 191,709 2,730 191,709 -
Net cash infow on disposal of
subsidiary 31 - 7,733 - 9,000
Proceeds from sale of property and
equipment 107 54 111 53
Proceeds from sale of investment
properties 1,900 - 1,900 190
Net cash generated by investing
activities 185,597 63,882 176,552 45,846
Cash fows from fnancing
activities
Capital funding received from
shareholders 150,411 90,279 170,080 89,999
Net cash from fnancing activities 150,411 90,279 170,080 89,999
Net increase in cash and cash
equivalents 184,206 153,999 291,085 171,498
Cash and cash equivalents at
beginning of year 725,792 571,793 517,682 346,184
Cash and cash equivalents at
end of year 909,998 725,792 808,767 517,682
48 Smal l Enterpri se Fi nance Agency
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2013
1. Accounting policies
1.1 Reporting entity
In his 2011 State of the Nation Address, the Honourable President of South Africa, Mr JG Zuma, introduced the notion
of “merging” the three small business funding agencies namely; Khula Enterprise Finance Limited (Khula), the South African
Micro Finance Apex Fund (samaf) and the Industrial Development Corporation’s (IDC) small business funding activities
into a single entity. In response, the Economic Development Department (EDD), in collaboration with several government
departments, started working towards the creation of this new entity.
The following events occurred during the fnancial year under review as a result of the President’s announcement:
• Khula’s legal name was changed to Small Enterprise Finance Agency SOC Limited (sefa);
• samaf’s business, with all its assets and liabilities, was transferred to sefa as a going concern; and
• sefa became a wholly owned subsidiary of the IDC.
The merger was accounted for as a common control transaction. A common control transaction is a business combination
where the combining entities or businesses are ultimately controlled by the same party or parties both before and after
the combination. In this case, Khula (now sefa) and the business of samaf were ultimately controlled by the South African
government both before and after the combination.
sefa is domiciled in South Africa.
The consolidated fnancial statements for the year ended 31 March 2013 comprise sefa, its subsidiaries and the group’s
interest in associates and jointly controlled entities (referred to as the group). Where reference is made to the group in
the fnancial statements, it applies to the company as well, unless otherwise noted.
The fnancial statements were authorised for issue by the directors on 23 August 2013.
1.2 Adoption of IFRS and changes in accounting policies
The prior year fnancial statements of both Khula and samaf were compiled in accordance with South African General
Accepted Accounting Practices (SA GAAP).
International Financial Reporting Standards (IFRS) were adopted for the frst time during the current fnancial year. The
separate and consolidated fnancial statements have been prepared in accordance with IFRS and IFRS 1 – First-time
Adoption of International Financial Reporting Standards (IFRS 1) has been applied. Subject to certain transition elections
and exceptions disclosed in note 2, the company and group have consistently applied the accounting policies used in
the preparation of its opening IFRS statement of fnancial position at 1 April 2011 throughout all periods presented, as if
these policies had always been in effect. Note 2 discloses the impact of the transition to IFRS on the company and group’s
reported fnancial position, fnancial performance and cash fows, including the nature and effect of signifcant changes in
accounting policies from those used in the separate and consolidated fnancial statements for the year ended 31 March
2012 prepared under SA GAAP.
49 ANNUAL REPORT 2013
1.3 Statement of compliance
The separate and consolidated fnancial statements have been prepared in accordance with and comply with IFRS and
its interpretations adopted by the International Accounting Standards Board (IASB) as well as the requirements of the
PFMA, as amended.
1.4 Basis of preparation
The separate and consolidated fnancial statements are presented in South African Rand, which is the company’s functional
currency, rounded to the nearest thousand.
These separate and consolidated fnancial statements are prepared on the historical cost basis, except for the following:
• Investment properties are measured at fair value;
• Financial instruments held-for-trading are measured at fair value; and
• Financial instruments classifed as available-for-sale are measured at fair value.
International Financial Reporting Standards, amendments and interpretations effective for the first time in the current
year:
• Amendment to IFRS 7 – Disclosures - Transfer of fnancial assets (Effective 1 July 2011). The amendments are intended
to address concerns raised during the fnancial crisis by the G20, among others, that fnancial statements did not
allow users to understand the on-going risks the entity faced due to derecognised receivables and other fnancial
assets. The amendment did not have a signifcant impact on the disclosures provided in the fnancial statements.
• Amendments to IAS12 – IAS12 Income Taxes requires an entity to measure deferred tax relating to an asset depending
on whether the entity expects to recover the carrying amount of an asset through use or sale.
The amendment made by Deferred Tax: Recovery of Underlying Assets (Effective 1 January 2012) provides a practical
solution to the application of these requirements in relation to investment property under IAS 40 Investment Property,
introducing a presumption that recovery of the carrying amount of an investment property will normally be through
sale. This amendment did not have an impact on the current fnancial year as deferred tax on Investment Property was
previously calculated using the capital gains inclusion rate.
• IASB Annual improvement project - As part of its fourth annual improvement project the IASB has issued its 2011
edition of improvements. The annual improvement project aims to clarify and improve the current accounting standards.
The improvements include items involving terminology or editorial changes, with minimal effect on recognition and
measurement.
Standards, amendments and interpretations to existing standards not yet effective and also not early adopted
• IFRS 9 - IFRS 9 (2009) introduces new requirements for the classifcation and measurement of fnancial assets. Under
IFRS 9 (2009), fnancial assets are classifed and measured based on the business model in which they are held and
the characteristics of their contractual cash fows. IFRS 9 (2010) introduces additions relating to fnancial liabilities. The
IASB currently has an active project to make limited amendments to the classifcation and measurement requirements
of IFRS 9 and add new requirements to address the impairment of fnancial assets and hedge accounting.
50 Smal l Enterpri se Fi nance Agency 50 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
IFRS 9 (2009) and (2010) are effective for annual periods beginning on or after 1 January 2015 with early adoption
permitted. The group and company will adopt this standard for the fnancial year commencing 1 April 2015. The
adoption of IFRS 9 (2010) is expected to have an impact on the group and company’s fnancial assets, but not any
impact on the group and company’s fnancial liabilities.
• Consolidation suite of standards
The IASB released the suite of consolidation standards in 2011. The suite of standards is IFRS 10 – Consolidated
Financial Statements, IFRS 11 – Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 – Separate
Financial Statements (2011) and IAS 28 – Investments in Associates and Joint Ventures (2011). This suite of standards
will need to be adopted simultaneously by the group, with an effective date for the reporting year commencing
1 April 2013.
- IFRS 10 – Consolidated Financial Statements (Effective 1 January 2013). The standard requires a parent company
to present consolidated fnancial statements as a single economic entity, replacing IAS 27 – Consolidated and
Separate Financial Statements and SIC-12 Consolidation: special purpose entities (SPEs). The standard identifes
the principles of control, determines how to identify whether an investor controls an investee, and therefore
the requirement to consolidate the investee, and sets out the principles for the preparation of consolidated
fnancial statements. The standard introduces a single consolidation model for all entities based on control,
irrespective of the nature of the investee (ie whether an entity is controlled through voting rights of investors
or through other contractual arrangements as is common in SPEs interpretation).
- IFRS 11 – Joint Arrangements (Effective 1 January 2013) - IFRS 11 replaces IAS 31 – Interests in Joint Ventures.
It requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved
by assessing its rights and obligations and then account for those rights and obligations in accordance with that
type of joint arrangement.
- IFRS 12 – Disclosure of Interests in Other Entities (Effective 1 January 2013) – This standard requires extended
disclosure of information that will enable users of fnancial statements to evaluate the nature of, and risks
associated with, interests in other entities and the effects of those interests on an entity’s fnancial position,
fnancial performance and cash fows.
• IFRS 13 – Fair-value Measurement (Effective 1 January 2013) – This standard replaces the guidance on fair-value
measurement in the various existing IFRS accounting conceptual framework, standards and interpretations with a single
standard. IFRS 13 defnes fair value, provides guidance on how to determine fair value and the required disclosures of
fair value measurements. However, IFRS 13 does not change the requirements regarding which assets and liabilities
should be measured or disclosed at fair value. IFRS 13 applies when another standard or interpretation requires or
permits fair value measurements or disclosures of fair value measurements. With certain exceptions, the standard
requires entities to classify these measurements into a ‘fair value hierarchy’ based on the nature of the inputs.
• Amendment to IAS 1 – Presentation of Financial Statements (Effective 1 January 2013) – The following amendments
are required:
- Items presented in other comprehensive income are to be grouped, based on whether such items are potentially
reclassifable to proft or loss subsequently, i.e. those that might be reclassifed and those that will not be
reclassifed.
- Tax associated with items presented before tax is to be disclosed separately for each of the two groups of
other comprehensive income items (without changing the option to present such items of other comprehensive
income either before tax or net of tax).
• Amendments to IAS 19 – IAS 19 (2011) changes the defnition of short-term and long-term employee benefts to
clarify the distinction between the two. Items previously classifed as short-term employee benefts may need to be
51 ANNUAL REPORT 2013
reclassifed as long-term employee benefts as a result of the change. The rest of the amendments are not expected
to have an impact on the Group. IAS 19 (2011) is effective for annual periods beginning on or after 1 January 2013
with early adoption permitted.
• Revised IAS 27 – Separate Financial Statements (2011). The amended version of IAS 27 deals with the requirements
for separate fnancial statements. The standard requires that, when an entity prepares separate fnancial statements,
investments in subsidiaries, associates and jointly controlled entities are accounted for either at cost or in accordance
with IFRS 9 – Financial Instruments. The standard also deals with the recognition of dividends and certain group
reorganisations, and includes related disclosure requirements. The amendment to this standard is required to be
adopted in conjunction with the consolidation suite of standards.
• Revised IAS 28 – Investments in Associates and Joint Ventures (2011) (Effective 1 January 2013) – This standard
supersedes IAS 28 – Investments in Associates and prescribes the accounting for investments in associates and
sets out the requirements for the application of the equity method when accounting for investments in associates
and joint ventures. The standard defnes ‘signifcant infuence’ and provides guidance on how the equity method of
accounting is to be applied and also prescribes how investments in associates and joint ventures must be tested for
impairment.
• Amendments to IAS 32 – Financial Instruments: Presentation and IFRS 7 – Financial Instruments: Disclosure The
amendment of IAS 32 – Financial Instruments: Presentation of Financial Assets and Financial Liabilities clarifes certain
aspects in view of diversity in the application of the requirements on offsetting and focuses on four main areas:
- The meaning of ‘currently has a legally enforceable right of setoff ’.
- The application of simultaneous realisation and settlement.
- The offsetting of collateral amounts.
- The unit of account for applying the offsetting requirements.
The amendment of IFRS 7 requires disclosure of amounts set off in the fnancial statement and requires disclosure of
information about recognised fnancial instruments, subject to enforceable master netting arrangements and similar
agreements even if they are not set off under IAS 32. The revised standard (IAS 32) is effective for the group for the
fnancial year commencing 1 April 2014, with certain additional disclosures (IFRS 7) being required from 1April 2013.
• IASB annual improvement project – As part of its ffth annual improvement project the IASB has issued its 2012
edition of improvements. The annual improvement project aims to clarify and improve the current accounting standards.
The improvements include items involving terminology or editorial changes, with minimal effect on recognition and
measurement.
1.5 Investments in subsidiaries
Subsidiaries are entities controlled by sefa. Control exists when sefa has the power, directly or indirectly, to govern the
fnancial and operating policies of an entity so as to obtain benefts from its activities. In assessing control, potential voting
rights that are presently exercisable or convertible are taken into account. The fnancial statements of subsidiaries are
included in the consolidated fnancial statements from the date that control commences until the date that control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by sefa. The cost of an
acquisition is measured as the fair value of assets given, equity instruments issued and liabilities incurred or assumed at the
date of exchange. The assets, liabilities and contingent liabilities acquired are assessed and included in the statement of
fnancial position at their estimated fair value to the group. If the cost of acquisition is higher than the net assets acquired,
any difference between the net asset value and the cost of acquisition of a subsidiary is treated in accordance with the
52 Smal l Enterpri se Fi nance Agency 52 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
group’s accounting policy for goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognised directly in proft or loss.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated on
consolidation.
Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of
impairment.
Investments in subsidiaries in the company’s separate fnancial statements are carried at cost less impairment.
1.6 Special purpose entities
The group has established or participated in a number of SPEs for trading and investment purposes. SPEs are entities
that are created to accomplish narrow and well-defned objectives. An SPE is consolidated if, based on an evaluation of
the substance of the relationship with the group and the SPEs’ risks and rewards, the group concludes that it controls
the SPE. SPEs controlled by the group are generally those established under terms that impose strict limitations on the
decision-making powers of the SPEs’ management and that result in the group receiving the majority of the benefts
related to the SPEs’ operations and net assets.
Investments in SPEs in the company’s separate fnancial statements are carried at cost less impairment.
1.7 Transfer of businesses under common control
Consolidated financial statements
Recognition
The receiving entity recognises the assets and liabilities acquired through a transfer of businesses on the effective date of
the transfer. All income and expenses that relate to the businesses transferred are also recognised from the effective date
of the transfer. The recognition of these income and expenses are governed by the accounting policies related to those
specifc income and expenses and accordingly this policy does not provide further guidance thereon.
Measurement
Assets and liabilities acquired, by the receiving entity, through a transfer of businesses are measured at initial recognition
at the same carrying value that they were held by the transferring entity immediately prior to the transfer. The difference
between the carrying value of the assets and liabilities transferred and any consideration paid for the assets and liabilities
transferred is recognised in accumulated surplus or defcit. The carrying value at which the assets and liabilities are initially
recognised is therefore the deemed cost thereof. Therefore for the subsequent measurement of these assets and liabilities,
the accounting policies relevant to those assets and liabilities are followed. Accordingly, this accounting policy does not
provide additional guidance on the subsequent measurement of the transferred assets and liabilities.
Derecognition
The transferring entity derecognises the assets and liabilities on the effective date of the transfer of businesses. These
transferred assets and liabilities are measured at their carrying values upon derecognition. The resulting difference between
the carrying value of the assets and liabilities transferred and any consideration received for the assets and liabilities
transferred is recognised in accumulated surplus or defcit.
53 ANNUAL REPORT 2013
Separate financial statements
When a common control transaction is effected through the acquisition of assets and liabilities constituting a business
rather than by acquiring shares in that business, the company accounts for the transaction in the same manner described
above under “consolidated fnancial statements”.
The investment in a subsidiary acquired in a common control transaction is accounted for at the book value of the
investment recognised by the transferring entity. The difference between the book value of the investment recognised
and the amount paid for the investment, if any, is included in equity as it is in substance a transaction with the shareholder.
1.8 Investments in associates
Associates are all entities over which the group has signifcant infuence but not control, generally accompanying a
shareholding of between 20% and 50% of the voting rights.
Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost.
The group’s investment in associates includes goodwill identifed on acquisition.
The group’s share of its associates’ post-acquisition profts and losses is recognised in proft or loss, and its share of post-
acquisition other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition
movements are adjusted for against the carrying amount of the investment. Distributions received from associates reduce
the carrying amount of the investment. When the group’s share of losses in an associate equals or exceeds its interest in
the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred
legal or constructive obligations or made payments on behalf of the associate.
Unrealised gains and losses arising from transactions with equity-accounted investments are eliminated against the
investment to the extent of the group’s interest in the investment. Unrealised losses are eliminated only to the extent
that there is no evidence of impairment.
Investments in incorporated associates in the company’s separate fnancial statements are carried at cost less impairment.
1.9 Joint ventures and partnerships
Joint ventures and partnerships are those entities over whose activities the group has joint control, established by contractual
agreement and requiring unanimous consent for strategic and operating decision. The consolidated fnancial statements
include the group’s share of the total recognised gains and losses of joint ventures on an equity-accounted basis, from
the date that joint control is established by contractual agreement until the date that it ceases. When the group’s share
of losses exceeds its interest in a joint venture, the group’s carrying amount is reduced to nil and recognition of further
losses is discontinued, except to the extent that the group has incurred legal or constructive obligations or made payments
on behalf of a joint venture.
Unrealised gains and losses arising from transactions with equity-accounted joint ventures and partnerships are eliminated
against the investment to the extent of the group’s interest in the investment. Unrealised losses are eliminated only to
the extent that there is no evidence of impairment.
Investments in incorporated joint ventures and partnerships in the company’s separate fnancial statements are carried
at cost less impairment.
54 Smal l Enterpri se Fi nance Agency 54 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
1.10 Financial instruments
1.10.1 Financial assets
The group classifes its fnancial assets into the following categories: fnancial assets at fair value through proft or loss;
loans and receivables; held-to-maturity investments; and available-for-sale fnancial assets.
Management determines the classifcation of its fnancial assets at initial recognition.
Financial assets at fair value through proft or loss
This category has two sub-categories: fnancial assets held-for-trading and those designated at fair value through proft
or loss at inception.
A fnancial asset is classifed in this category if acquired principally for the purpose of selling in the short-term or if so
designated by management. Derivatives are also categorised as held-for-trading unless they are designated as hedging
instruments.
The group designates fnancial assets at fair value through proft or loss when either:
• The assets are managed, evaluated and reported internally on a fair value basis;
• The designation eliminates or signifcantly reduces an accounting mismatch which would otherwise arise; and
• The asset contains an embedded derivative that signifcantly modifes the cash fows that would otherwise be required
under the contract.
Loans and receivables
Loans and receivables are non-derivative fnancial assets with fxed or determinable payments that are not quoted in
an active market other than those that the group intends to sell in the near future. They arise when the group provides
money, goods or services directly to a debtor with no intention of trading the receivable.
Held-to-maturity
Held-to-maturity investments are non-derivative fnancial assets with fxed or determinable payments and fxed maturity
that the group has the positive intent and ability to hold to maturity. If the group were to sell other than an insignifcant
amount of held-to-maturity assets, the entire category would be tainted and reclassifed as available-for-sale.
Available-for-sale
Available-for-sale investments are non-derivative investments that are not designated as another category of fnancial
assets. Available-for-sale investments are those intended to be held for an indefnite period of time, which may be sold
in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.
Recognition and measurement
Purchases and sales of fnancial assets at fair value through proft or loss, held-to-maturity and available-for-sale are
recognised on trade date – the date on which the group commits to purchase or sell the asset. Loans are recognised
when the cash is advanced to the borrowers. Financial assets are initially recognised at fair value plus transaction costs
for all fnancial assets not carried at fair value through proft or loss.
55 ANNUAL REPORT 2013
Available-for-sale fnancial assets and fnancial assets at fair value through proft or loss are subsequently carried at fair
value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest
rate method less impairment loss. Gains and losses arising from changes in the fair value of the fnancial instruments
through proft or loss category are included in proft or loss in the period in which they arise. Gains and losses arising from
changes in the fair value of available-for-sale fnancial assets are recognised directly in other comprehensive income, until
the fnancial asset is disposed of, derecognised or impaired, at which time the cumulative gain or loss previously recognised
in other comprehensive income should be recognised in proft or loss. However, interest calculated using the effective
interest method is recognised in proft or loss for available-for-sale debt investments. Dividends on available-for-sale equity
instruments are recognised in proft or loss when the entity’s right to receive payment is established.
Financial assets (or, where applicable, a part of a fnancial asset or part of a group of similar fnancial assets) are derecognised
when the contractual rights to receive cash fows from the fnancial assets have expired or where the group has transferred
substantially all the risks and rewards of ownership, without retaining control. Any interest in the transferred fnancial assets
that is created or retained by the group is recognised as a separate asset or liability.
The fair values of quoted investments in active markets are based on current bid prices.
If the market for a fnancial asset is not active (and for unlisted securities), the group establishes fair value by using valuation
techniques. These include the use of recent arm’s length transactions, discounted cash fow analysis, option pricing models
and other valuation techniques commonly used by market participants. Any instrument that does not have a quoted
market price in an active market and whose fair value cannot be reliably measured is stated at its cost, including transaction
costs, less impairment.
1.10.2 Financial liabilities
Financial liabilities are recognised initially at fair value, generally being their issue proceeds net of transaction costs incurred.
Financial liabilities, other than those at fair value through proft or loss, are subsequently stated at amortised cost and
interest is recognised over the period of the borrowing using the effective interest method.
Where the group classifes certain liabilities at fair value through proft or loss, changes in fair value are recognised in
proft or loss. This designation by the group takes place when either:
• The liabilities are managed, evaluated and reported internally on a fair value basis, or
• The designation eliminates or signifcantly reduces an accounting mismatch which would otherwise arise, and
• The liability contains an embedded derivative that signifcantly modifes the cash fows that would otherwise be
required under the contract.
A fnancial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. Where an
existing fnancial liability is replaced by another from the same lender on substantially different terms, or the terms of an
existing of an existing liability are substantially modifed, such an exchange or modifcation is treated as a derecognition
of the original liability and the recognition of a new liability , and the difference in the respective carrying amounts is
recognised in proft or loss.
Financial guarantees
Financial guarantees are contracts that require the group to make specifed payments to reimburse the holder for a
loss it incurs because a specifed debtor fails to make payment when due in accordance with the terms of the debts
56 Smal l Enterpri se Fi nance Agency 56 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
instrument. Financial guarantee liabilities are initially recognised at their fair value which is amortised over the life of the
fnancial guarantee. The guarantee liability is subsequently carried at the higher of this amortised amount and the present
value of any expected payment (when payment under the guarantee has become probable).
The group is specifcally involved in indemnity contracts:
Indemnity contracts – classifcation
Contracts under which the group accepts signifcant indemnity risk from another party (the indemnity holder) by agreeing
to compensate the indemnity holder or other benefciary if a specifed uncertain future event (the indemnifed event)
adversely affects the indemnity holder, are classifed as indemnity contracts. Indemnity risk is a risk other than fnancial
risk. Indemnity contracts may also transfer some fnancial risk.
Unearned risk reserve
Unearned risk reserve consists of:
• Provision for unearned fees
Unearned fees, which represent the proportion of fees written in the current year which relate to risks that have
not expired by the end of the fnancial year, are calculated on the 365th basis.
• Provision for unexpired risk
Provision is made for unexpired risks where the expected value of claims and expenses attributable to the unexpired
periods of policies in force at the reporting date exceeds the unearned fee provision in relation to such policies. The
provision for unexpired risks is calculated separately by reference to class of business that are managed together,
after taking into account the relevant investment returns.
Outstanding claims reserve
Provision is made on a prudent basis for the estimated fnal cost of all claims that had not been settled on the reporting
date, less amounts already paid based on calculations performed by independent actuaries. Claims and loss adjustment
expenses are charged to proft or loss as incurred based on the estimated liability for compensation owed to indemnity
holders. The group’s own assessors individually assess claims. The claims reserve includes an estimated portion of the
direct expenses of processing the claims. Provision is also made for claims arising from indemnifed events that occurred
before the close of the accounting period, but which had not been reported to the group by that date. While the directors
consider that the gross reserve is fairly stated on the basis of the information currently available to them, the ultimate
liability may vary as a result of subsequent information and events and may result in signifcant adjustments to the amounts
provided. The methods used to calculate the reserve, and the estimates made, are reviewed regularly.
Claims incurred consist of claims and claims handling expenses paid during the fnancial year. The movement in the provision
for outstanding claims is disclosed separately in the notes to the fnancial statements.
Statutory contingency reserve
A statutory contingency reserve for catastrophes is provided as required by the Short-Term Insurance Act, No. 53 of
1998 (repealed Act 1953). The group is required to raise a contingency reserve of 10% of gross indemnity fees raised.
The reserve can be utilised only with the prior permission of the Financial Services Board. Transfers to this reserve are
refected in the statement of changes in equity, and are indicated in the statement of fnancial position as part of ‘reserves’
57 ANNUAL REPORT 2013
under capital and reserves. This reserve fell away in terms of the FSB Board Notice 169 of 2011, which came into effect
on 1 January 2012.
Receivables and payables related to indemnity contracts
Receivables and payables are recognised when due. These include amounts due to and from indemnity contract holders
and are included under receivables and payables. If there is objective evidence that the indemnity receivable is impaired,
the group reduces the carrying amount of the indemnity receivable accordingly and recognises the impairment loss in
proft or loss. The group gathers the objective evidence that an indemnity receivable is impaired using the same process
adopted for loans and receivables. The impairment loss is calculated under the same method used for loans and receivables.
Salvage reimbursement
The indemnity contracts require the indemnifed party to make all reasonable efforts to recover as much of the loss as
possible and to refund the group its proportionate share of the claim recovered. Estimates of these salvage recoveries
are included as an allowance in the measurement of the indemnity liability for claims. The allowance is the assessment of
the group’s share of the amount that can be recovered from the action against the liable third party.
Liability adequacy test
At each reporting date, liability adequacy tests are performed to ensure the adequacy of the contract liabilities. In performing
these tests, current best estimates of future contractual cash fows and claims handling and administration expenses are
used. Any defciency is immediately charged to proft or loss by establishing a provision for losses arising from liability
adequacy tests (the unexpired risk provision).
The ultimate liability arising from claims made under indemnity contracts
The estimation of the ultimate liability arising from claims made under indemnity contracts is one of the group’s most
critical accounting estimates. Several sources of uncertainty have to be considered in estimating the liability that the group
will ultimately be exposed to for such claims. The risk environment can change quickly and unexpectedly owing to a wide
range of events or infuences. The group is constantly refning the tools with which it monitors and manages risk to place
the group in a position to assess risk situations appropriately, despite the greatly increased pace of change. The growing
complexity and dynamic nature of the environment in which it operates means that there are natural limits, however.
There cannot and never will be absolute security when it comes to identifying risks at an early stage, measuring them
suffciently, or correctly estimating their real hazard potential.
1.10.3 Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of fnancial position when there is
a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the
asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by the
accounting standards, or for gains and losses arising from a group of similar transactions such as in the group’s trading activity.
58 Smal l Enterpri se Fi nance Agency 58 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
1.11 Impairment of assets
Impairment of financial assets carried at amortised cost
The group assesses whether there is objective evidence that a fnancial asset or group of fnancial assets not carried at fair
value is impaired at each reporting date. A fnancial asset or group of fnancial assets is impaired and impairment losses
are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred
after the initial recognition of the asset and that loss event (or events) has an impact on the estimated future cash fows
of the fnancial asset or group of fnancial assets that can be reliably estimated. Impairment losses are recognised in proft
or loss and refected in an allowance account against loans and advances.
Objective evidence that a fnancial asset or group of assets is impaired includes observable data that comes to the attention
of the group about the following loss events:
• Signifcant fnancial diffculty of the issuer or obligor;
• A breach of contract, such as default of delinquency in interest or principal payments;
• The group granting to the borrower, for economic or legal reasons relating to the borrower’s fnancial diffculty, a
concession that the lender would not otherwise consider;
• It becoming probable that the borrower will enter bankruptcy or other fnancial reorganisation;
• The disappearance of an active market for that fnancial asset resulting in fnancial diffculties; and
• Observable data indicating that there is a measurable decrease in the estimated future cash fows from a group of
fnancial assets since the initial recognition of those assets, although the decrease cannot yet be identifed with the
individual fnancial assets in the group.
The group frst assesses whether objective evidence of impairment exists individually for fnancial assets that are individually
signifcant, referred to as specifc impairments, and individually or collectively for fnancial assets that are not individually
signifcant. If the group determines that no objective evidence of impairment exists for an individually assessed fnancial
asset, whether signifcant or not, it includes the asset in a group (portfolio) of fnancial assets with similar credit risk
characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for
which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.
The amount of specifc impairments raised is the amount needed to reduce the carrying value of the asset to the present
value of the expected ultimate cash fows, taking into consideration the fnancial status of the underlying client and any
security in place for the recoverability of the fnancial asset.
The recoverable amount of the asset is calculated as the present value of estimated future cash fows, discounted at the
original effective interest rate (i.e. the effective interest rate computed at initial recognition of the asset).
Impairment of available-for-sale financial assets
The group assesses at each reporting date whether there is objective evidence that a fnancial asset or a group of fnancial
assets is impaired. In the case of equity investments classifed as available-for-sale, a signifcant or prolonged decline in the
fair value of the instrument below its cost is an indication of an impairment.
If any such evidence exists for available-for-sale fnancial assets, the cumulative loss – measured as the difference between
the acquisition cost and the current fair value, less any impairment loss on that fnancial asset previously recognised in
59 ANNUAL REPORT 2013
proft or loss – is removed from equity and recognised in proft or loss. Impairment losses recognised in proft or loss on
equity instruments are not reversed through proft or loss.
Any increase in the fair value after an impairment loss has been recognised is treated as a revaluation and is recognised
directly in other comprehensive income. If, in a subsequent period, the fair value of a debt instrument classifed as
available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss
was recognised in proft or loss, the impairment loss is reversed through proft or loss.
Impairment of non-financial assets
The carrying amounts for the group’s non-fnancial assets, other than deferred tax assets and investment properties are
reviewed at each reporting date to determine whether there is any indication of impairment. If such an indication exists,
the asset’s recoverable amount is estimated.
The recoverable amount of non-fnancial assets is the greater of fair value less cost to sell and its value in use. Fair value
less cost to sell is the amount obtainable from the sale of an asset or cash-generating unit in an arm’s length transaction
between knowledgeable, willing parties, less the costs of disposal. In assessing value in use, the expected future cash fows
from the asset are discounted to their present value using a pre-tax discount rate that refects current market assessments
of the time value of money and the risks specifc to the asset. For an asset that does not generate largely independent
cash infows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its
recoverable amount.
An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately
in proft or loss.
The recoverable amount for intangible assets that have an indefnite useful life or intangible assets that are not yet available-
for-use is estimated at each reporting date.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has
decreased or no longer exists.
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount
and only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had been recognised.
1.12 Cash-generating units
A cash-generating unit is the smallest group of assets that generates cash infows from continuing use that are largely
independent of the cash infows of other assets or group of assets.
For an asset whose cash fows are largely dependent on those of other assets, the recoverable amount is determined
for the cash-generating unit to which the asset belongs. The recoverable amount of a cash-generating unit is the greater
of its value in use and its fair value less costs to sell. Impairment losses recognised in respect of cash-generating units are
allocated frst to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the
carrying amount of the other assets in the unit (group on units) on a pro rata basis. Impairment losses are recognised
in proft or loss.
60 Smal l Enterpri se Fi nance Agency 60 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
1.13 Intangible assets
Intangible assets with fnite useful lives that are acquired separately are carried at cost less accumulated amortisation and
accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The
estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any
changes in estimate being accounted for on a prospective basis.
Amortisation
Amortisation is recognised in proft or loss on a straight-line basis, based on the estimated useful lives of the underlying
assets. Amortisation is calculated on the cost less any impairment and expected residual value. The estimated useful lives
for the current and comparative periods are as follows:
Computer software 3 – 4 years
Intellectual property 3 years
The residual values, useful lives and amortisation methods are re-assessed at each fnancial year-end and adjusted if
appropriate.
1.14 Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill acquired in a business combination
is initially measured at cost, being the difference between the fair value of the consideration of the business combination
over the interest of sefa in the fair value of the net identifable assets acquired.
The recoverable amount for goodwill is estimated at each reporting date. Impairment losses are recognised in proft or
loss. Impairment losses relating to goodwill are not reversed.
Negative goodwill arising on acquisition is recognised directly in proft or loss. Goodwill is subsequently stated at cost less
any accumulated impairment losses. Goodwill that is allocated to cash-generating units is tested annually for impairment
or more frequently if events or changes in circumstances indicate that it might be impaired.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
1.15 Investment property
Investment property is property held either to earn rental income or for capital appreciation or for both.
Measurement
Investment property is measured initially at cost, including transaction costs and directly attributable expenditure in
preparing the asset for its intended use. Subsequently, all investment properties are measured at fair value.
Valuation takes place annually, based on the aggregate of the net annual rental receivable from the properties, considering
and analysing rentals received in similar properties in the neighbourhood, less associated costs (insurance, maintenance,
repairs, and management fees). A capitalisation rate which refects the specifc risks inherent in the net cash fows is applied
to the net annual rentals to arrive at the property valuations.
The fair value of undeveloped land held as investment property is based on comparative market prices after intensive
market surveys.
61 ANNUAL REPORT 2013
Gains or losses arising from a change in fair value are recognised in proft or loss.
External, independent valuators having appropriate, recognised professional qualifcations and recent experience in the
location and category of the property being valued, perform valuations on the portfolio every three years.
1.16 Property, plant and equipment
Measurement
All items of property, plant and equipment recognised as assets, are initially measured at cost. Cost includes expenditures
that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of material
and direct labour and any other cost directly attributable to bringing the asset to a working condition for its intended
use, and the cost of dismantling and removing the items and restoring the site on which they are located. All items of
property, plant and equipment are subsequently measured at cost less accumulated depreciation and any accumulated
impairment losses.
Where parts of an item of property, plant and equipment have signifcantly different useful lives, they are accounted for
as separate items of property, plant and equipment. Although individual components are accounted for separately, the
fnancial statements continue to disclose a single asset.
Gains and losses on disposal of an asset are determined by comparing the proceeds from disposal with the carrying
amount of the asset and are recognised in proft or loss within “other income”.
Subsequent costs
The group recognises the cost of replacing part of such an item of property, plant and equipment in the carrying amount
of the item when that cost is incurred and if it is probable that future economic benefts embodied with the item will
fow to the group and the cost of the item can be measured reliably. The carrying amount of the part that is replaced is
derecognised. All other costs are recognised in proft or loss as an expense as they are incurred.
Depreciation
Depreciation is recognised in proft or loss on a straight-line basis, based on the estimated useful lives of the underlying
assets. Depreciation is calculated on the cost less any impairment and expected residual value. The estimated useful lives
for the current and comparative periods are as follows:
Computer equipment 3 – 4 years
Offce equipment 4 – 6 years
Furniture and fttings 5 – 6 years
Motor vehicles 5 years
Leasehold improvements 7 years
The residual values, useful lives and depreciation method are re-assessed at each fnancial yearend and adjusted if appropriate.
Derecognition
The carrying amount of items of property, plant and equipment are derecognised on disposal or when no future economic
benefts are expected from their use or disposal.
Gains or losses arising from derecognition are determined as the difference between the net disposal proceeds and the
carrying amount of the item of property, plant and equipment and included in proft or loss when the items are derecognised.
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Notes to the fnancial statements (Continued)
1.17 Leases
Finance leases
Leases of assets under which the lessee assumes all the risks and benefts of ownership are classifed as fnance leases.
Finance leases – group as lessee
Finance leases are recognised as assets and liabilities in the statement of fnancial position at amounts equal to the fair
value of the leased asset or, if lower, the present value of the minimum lease payments. The corresponding liability to the
lessor is included in the statement of fnancial position as a fnance lease obligation.
The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease.
The lease payments are apportioned between the fnance charge and reduction of the outstanding liability. The fnance
charge is allocated to each period during the lease term so as to produce a constant periodic rate on the remaining
balance of the liability.
The leased asset is accounted for in accordance with the accounting policy for property, plant and equipment.
Finance leases – group as lessor
The group recognises fnance lease receivables in the statement of fnancial position.
Finance income is recognised based on a pattern refecting a constant periodic rate of return on the group’s net investment
in the fnance lease.
Operating leases
Leases of assets under which the lessor effectively retains all the risks and benefts of ownership are classifed as operating
leases.
Operating leases – group as lessee
Lease payments arising from operating leases are recognised in proft or loss on a straight-line basis over the lease term.
Lease incentives received are recognised in proft or loss as an integral part of the total lease expense.
Operating leases – group as lessor
Receipts in respect of operating leases are accounted for as income on the straight-line basis over the period of the lease.
The assets subject to operating leases are presented in the statement of fnancial position according to the nature of
the assets.
Determining whether an arrangement contains a lease
At inception of an arrangement, the group determines whether such an arrangement is or contains a lease. A specifc asset
is the subject of a lease if fulflment of the arrangement is dependent on the use of that specifed asset. An arrangement
conveys the right to use the asset if the arrangement conveys to the group the right to control the use of the underlying asset.
63 ANNUAL REPORT 2013
At inception or upon re-assessment of the arrangement, the group separates payments and other consideration required
by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If
the group concludes for a fnance lease that it is impracticable to separate the payments reliably, an asset and a liability are
recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments
are made and an imputed fnance charge on the liability is recognised using the group’s incremental borrowing rate.
1.18 Cash and cash equivalents
For the purpose of the cash fow statement, cash and cash equivalents comprise cash on hand, deposits held on call with
banks, and investments in money market instruments and bank overdrafts, all of which are available for use by the group
unless otherwise stated. Cash and cash equivalents are available within three months.
Cash and cash equivalents are carried at amortised cost in the statement of fnancial position.
1.19 Provisions
Provisions are recognised when:
• The group has a present obligation as a result of a past event;
• It is probable that an outfow of resources embodying economic benefts will be required to settle the obligation;
and
• A reliable estimate can be made of the obligation.
The amount of a provision is the present value of the expenditure expected to be required to settle the obligation.
Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party,
the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if
the entity settles the obligation. The reimbursement shall be treated as a separate asset. The amount recognised for the
reimbursement shall not exceed the amount of the provision.
Provisions are not recognised for future operating losses.
A provision for restructuring is recognised when the group has approved a detailed and formal restructuring plan and
the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for.
After their initial recognition, contingent liabilities identifed in business combinations that are separate are subsequently
measured at the higher of:
• The amount that would be recognised as a provision; and
• The amount initially recognised less cumulative amortisation.
Other contingent assets and contingent liabilities are not recognised, but disclosed in the notes.
Onerous contracts
A provision for onerous contracts is recognised when the expected benefts to be derived by the group from a contract
are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present
value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract.
Before a provision is established, the group recognises any impairment loss on the assets associated with that contract.
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Notes to the fnancial statements (Continued)
1.20 Contingent assets, liabilities and commitments
Contingent liabilities
A contingent liability is a possible obligation that arises from past events and whose existence will be confrmed only by
the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the group.
Contingent liabilities are not recognised in the statement of fnancial position of the group but disclosed in the notes.
Commitments
Items are classifed as commitments where the group has committed itself to future transactions.
Commitments are not recognised in the statement of fnancial position of the group but disclosed in the notes.
Contingent assets
A contingent asset is a possible asset that arises from past events and whose existence will be confrmed only by the
occurrence or non-occurrence of one or more uncertain events not wholly within the control of the group.
Contingent assets are not recognised in the statement of fnancial position of the group but disclosed in the notes. However,
when the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is
appropriate.
1.21 Taxation
Deferred tax
Deferred tax is recognised in respect of all temporary differences arising between the carrying amount of assets and
liabilities in the fnancial statements and the corresponding tax bases used in the computation of taxable income.
In principle, deferred tax is recognised for all taxable temporary differences between the carrying amounts of assets and
liabilities for fnancial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognised to
the extent that it is probable that future taxable proft will be available against which unused tax deductions can be utilised.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that
the related tax will be realised.
Deferred tax is not recognised if the temporary differences arise from:
• The initial recognition of goodwill;
• The initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects
neither taxable income nor accounting income; and
• Temporary differences relating to investments in associates, subsidiaries and joint ventures to the extent that it is
probable that they will not reverse in the foreseeable future and the timing of the reversal of the temporary difference
is controlled.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse,
based on the laws that have been enacted or substantively enacted by the reporting date.
65 ANNUAL REPORT 2013
Deferred tax is charged or credited in proft or loss, except when it relates to items credited or charged to other
comprehensive income or directly to equity, in which case the deferred tax is also recognised in other comprehensive
income or equity.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets,
and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities,
but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised
simultaneously.
Current tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the year. Current taxes are recognised
as income or an expense and included in proft or loss for the period, except to the extent that the tax arises from a
transaction or event which is recognised, in the same or a different period, in other comprehensive income or in equity.
Current tax also includes any adjustment to tax payable in respect of previous years when necessary.
1.22 Revenue
Revenue comprises net invoiced sales to customers, indemnity fees, dividends, interest, rentals and fee income, but
excludes value added tax, and is measured at the fair value of the consideration received or receivable, net of returns
and allowances, trade discounts and volume rebates.
Sales to customers
Revenue from sale of goods is recognised in the statement of comprehensive income when the signifcant risks and
rewards of ownership have been transferred to the customer, recovery of the consideration is probable, associated costs
and possible return of goods can be estimated reliably and there is no continuing managerial involvement with the goods.
Indemnity Fees
Indemnity fees earned is included in revenue and comprise the fees on contracts entered into during the year, irrespective
of whether they relate in whole or in part to a later accounting period. Indemnity fees earned include adjustments to
fees written in prior accounting periods and estimates for “pipeline fees” (fees written relating to the current accounting
period but not reported by the reporting date). Fees are earned from the date the risk attaches, over the indemnity
period, based on the pattern of the risk underwritten.
Dividends
Dividend income is recognised in the statement of comprehensive income on the date the group’s right to receive payment
is determined. Capitalisation shares received are not recognised as income.
Interest
Interest income is recognised in the statement of comprehensive income using the effective interest rate method. The
effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the
expected life of the fnancial asset (or, where appropriate, a shorter period) to the carrying amount of the fnancial asset.
The effective interest rate is established on initial recognition of the fnancial asset and is not revised subsequently.
66 Smal l Enterpri se Fi nance Agency 66 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Fees
• Income earned on the execution of a signifcant act is recognised when the signifcant act has been performed.
• Income earned from the provision of services is recognised as the service is rendered by reference to the stage of
completion of the service.
• Income that forms an integral part of the effective interest rate of a fnancial instrument is recognised as an adjustment
to the effective interest rate and recorded in interest income.
Grants received from donors
Donor funding is recognised at its fair value where there is reasonable assurance that the funding will be received and
the group will comply with all attached conditions.
Funding relating to costs are deferred and recognised in proft or loss over the period necessary to match them with the
costs for which they are intended to compensate and is included in Trade and other payables.
Government grants
Government grants are not recognised until there is reasonable assurance that the group will comply with the conditions
attaching to them and that the grants will be received.
Government grants are recognised in proft or loss on a systematic basis over the periods in which the group recognises
as expenses the related costs for which the grants are intended to compensate. Government grants whose primary
condition is that the group should purchase, construct or otherwise acquire non-current assets are recognised as deferred
revenue in the statement of fnancial position and transferred to proft or loss on a systematic and rational basis over
the useful lives of the related assets.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of
giving immediate fnancial support to the group with no future related costs are recognised in proft or loss in the period
in which they become receivable.
Rental
See policy on leases.
1.23 Borrowing costs
Borrowing costs are expensed in the period in which they are incurred, except to the extent that they are capitalised
when directly attributable to the acquisition, construction or production of a qualifying asset.
1.24 Employee benefts
Short-term employee benefits
Short-term employee beneft obligations are measured on an undiscounted basis and are expensed as the related service
is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or proft-sharing
plans if the group has a present legal or constructive obligation to pay this amount as a result of past service provided by
the employee, and the obligation can be estimated reliably.
67 ANNUAL REPORT 2013
Defined contribution plan
The group has a provident fund scheme as well as a pension fund scheme which are both defned contribution plans. A
defned contribution plan is a pension plan under which the group pays fxed contributions into a separate entity (a fund)
and will have no legal or constructive obligation to pay further amounts. Contributions to defned contribution plans are
recognised as an employee beneft expense in proft or loss in the year to which they relate.
1.25 Discontinued operations and non-current assets held-for-sale
Discontinued operations
A discontinued operation is a component if the group’s business that represents a separate major line of business or
geographical area of operations or is a subsidiary acquired exclusively with a view to resale.
Classifcation as a discounted operation occurs upon disposal or when the operation meets the criteria to be classifed
as held-for-sale, if earlier. A disposal group that is to be abandoned may also qualify.
Non-current assets held-for-sale
Non-current assets and disposal groups are classifed as held-for-sale if their carrying amount will be recovered through
a sale transaction rather than continuing use. This classifcation is only met if the sale is highly probable and the assets are
available for immediate sale.
Measurement
Immediately before classifcation as held-for-sale, the measurement of the assets (and all assets and liabilities in a disposal
group) is brought up-to-date in accordance with the applicable IFRS. Then, on initial classifcation as held-for-sale, the
non-current assets and disposal groups are recognised at the lower of carrying amount and fair value less costs to sell.
Any impairment loss on a disposal group is frst allocated to goodwill and then to remaining assets and liabilities on a pro
rata basis, except that no loss is allocated to inventories, fnancial assets, deferred tax assets, employee beneft assets and
investment property, which continue to be measured in accordance with the group’s accounting policies.
Impairment losses on initial classifcation as held-for-sale are included in proft and loss even when there is a revaluation.
The same applies to gains and losses on subsequent measurement.
Reclassification
The non-current asset held-for-sale will be reclassifed immediately when there is a change in intention to sell. At that
date, it will be measured at the lower of: its net book value before the asset was classifed as held-for-sale, adjusted for
any depreciation, amortisation or revaluations that would have been recognised had the asset not been classifed as held-
for-sale; and its recoverable amount at the date of the subsequent decision not to sell.
1.26 Related parties
Key management are defned as individuals with the authority and responsibility for planning, directing and controlling the
activities of the entity. All individuals from the level of executive management up to the board of directors are regarded
as key management as per the defnition of the standard.
68 Smal l Enterpri se Fi nance Agency 68 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Close family members of key management personnel are considered to be those family members who may be expected
to infuence, or be infuenced by key management individuals in their dealings with the entity.
Other related party transactions are also disclosed in terms of the requirements of IAS 24 – Related Party Disclosures.
1.27 Determination of fair values
A number of the group’s accounting policies and disclosures require the determination of fair value, for both fnancial and
non-fnancial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based
on the following methods. When applicable, further information about the assumptions made in determining fair values
is disclosed in the notes specifc to that asset or liability.
Investment property
Valuation methods and assumptions used in determining the fair value of investment property:
• Capitalisation method
The value of the property refects the present value of the sum of the future benefts which an owner may expect
to derive from the property. These benefts are expressed in monetary terms and are based upon the estimated
rentals such a property would fetch, i.e. the market-related rental between a willing landlord and tenant. The usual
property outgoings are deducted to achieve a net rental, which is then capitalised at a rate an investor would require
receiving the income.
• Comparative method
The method involves the identifcation of comparable properties sold in the area or in a comparable location within
a reasonable time. The selected comparable properties are analysed and compared with the subject property.
Adjustments are then made to their values to refect any differences that may exist. This method is based on the
assumption that a purchaser will pay an amount equal to what others have paid or are willing to pay.
• Residual land valuation method
This method determines the residual value which is the result of the present value of expected infows less all
outfows (including income tax) less the developer’s required profts. This is the maximum that the developer can
afford to pay for the real estate. This residual value is in theory also the market value of the land.
1.28 Critical accounting policies and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by defnition
rarely equal the related actual results. The estimates and assumptions that have a signifcant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next fnancial year are outlined below:
Income taxes
Signifcant judgement is required in determining the provision for income taxes. There are many transactions and calculations
for which the ultimate tax determination is uncertain during the ordinary course of business. The group recognises liabilities
for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the fnal tax outcome
of these matters is different from the amounts that were initially recorded, such differences will impact the income tax
and deferred tax provisions in the period in which such determination is made.
69 ANNUAL REPORT 2013
Fair value of financial assets
The fair value of fnancial instruments that are note traded in an active market is determined by using valuation techniques.
The group uses its judgement to make assumptions that are mainly based on market conditions existing at each reporting date.
Unlisted equities are valued based on various valuation methods, including free cash fow, price: earnings (PE) and net
asset value (NAV) bases.
Judgement and assumptions in the valuations and impairments include:
• Free cash fows of investees;
• Replacement values;
• Determining the discount or premium applied to sefa’s stake in investees;
• Sector/sub-sector betas;
• Debt weighting – this is the target interest-bearing debt level;
• Determining the realisable value of assets; and
• Probabilities of failure in using the NAV model.
Impairment of non-financial assets
The group follows the guidance of IAS 36 – Impairment of Assets, to determine when an asset is impaired. This determination
requires signifcant judgement. In making this judgement, the group evaluates the impairment indicators that could exist
at yearend.
Impairment of financial assets
The group follows the guidance of IAS 39 – Financial Instruments: Recognition and Measurement in assessing specifc and
collective impairment. The group assess available information for indications of impairment. Management’s judgement
is required to establish whether current economic and credit conditions are such that the actual losses are likely to be
greater or lesser than suggested by impairment indications identifed.
2. Effect of IFRS adoption on the fnancial statements
International Financial Reporting Standards (IFRS) were adopted for the frst time during the current fnancial year. The
separate and consolidated fnancial statements have been prepared in accordance with IFRS and IFRS 1 – First-time
Adoption of International Financial Reporting Standards (IFRS 1) has been applied.
IFRS 1 requires frst-time adopters to apply the amended requirements of IFRS 3 (2008) and IAS 21 retrospectively to
all business combinations that occurred before the date of transition to IFRSs, unless the voluntary exception IFRS1C1
is elected. This voluntary exception was elected and previous business combinations accounted under SA GAAP were
not retrospectively restated.
First-time adopters are required under IFRS 1 to apply the requirements of IAS 18 and IAS 27 retrospectively to all
dividends received, unless the voluntary exception of IFRS1.D15(b)(ii) is elected.
70 Smal l Enterpri se Fi nance Agency 70 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Changes to accounting treatments and policies were effected simultaneous to the adoption of IFRS, which includes the
following:
• Change in the accounting policy applicable to joint ventures
The accounting policy used to account for joint ventures was changed from pro-portionate consolidation to equity
accounting as a result of an initiative to align the accounting policies of sefa with those of the IDC.
As a result the group’s share of its joint ventures’ assets and liabilities are no longer consolidated on a line by line basis
but rather in a single line item using the equity method of accounting. The group’s share of income and expenses
is also now included in the statement of comprehensive income as a single line item, “Proft or loss from equity
accounted investments, net of tax”.
• Reclassification from and investment to an associate
The accounting treatment of all investments was reassessed during the fnancial year. sefa holds an equity investment
in Business Partners Limited which was previously classifed as an investment that was carried at cost less impairment
in both the company and group fnancials.
This investment has been reclassifed as an associate in both the company and group fnancial statements. The
investment will continue to be carried at cost less impairment in the company and will be included in the group
using the equity method of accounting.
• Reclassification from a joint venture to a subsidiary
As a result of a reassessment done on all investments it became evident that the investment in Small Business Growth
Trust Fund should rather be treated as a subsidiary.
The group’s share in the assets and liabilities of Small Business Growth Trust Fund were previously included on a line
by line basis. Instead of only the group’s share being included, the investment will now be consolidated in full and
the portion of the assets and liabilities that are not to attributable to the group, will be recognised in a single line on
the statement of fnancial position, “Non-controlling interest”.
Similarly the income and expenses that are attributable to non-controlling interest will be recognised in a single line
in the statement of comprehensive income, “Non-controlling interest”.
• Reclassification from an associate to a joint venture
It became evident during the year that it will be more appropriate to treat the investment in Enablis Khula Loan
Fund as a joint venture rather than an associate.
Both joint ventures and associates are now accounted for under the equity method as a result of the adoption of
IFRS.
• Adjustment of deferred taxation effects not previously eliminated on consolidation
The elimination of intra-group transactions may result in temporary differences between accounting and tax balances.
If this is the case, adjustments must also be made to the related deferred tax assets and deferred tax liabilities in the
group fnancial statements.
The statements below are presented prior to taking any changes in classifcation or presentation into account (refer to
note 36 for more information).
71 ANNUAL REPORT 2013
2.1 Effect on the statement of fnancial position
2.1.1 Group (2011 and 2012)
Group
As at 31 March 2012 As at 1 April 2011
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Note R’000 R’000 R’000 R’000 R’000 R’000
Assets
Non-current assets 503,154 463,329 966,483 618,720 434,126 1,052,846
Offce equipment, furniture
and other tangibles - 1,535 - 1,535 2,005 - 2,005
Intangible assets - 1,817 - 1,817 - - -
Loans and advances a 69,932 (1,035) 68,897 141,727 4,017 145,744
Investment properties - 195,264 - 195,264 187,508 - 187,508
Core business investments b 63,437 (15,566) 47,871 115,009 (46,507) 68,502
Non-core business
investments c 98,622 (98,622) - 98,622 (98,622) -
Investments in associates d 8,552 567,453 576,005 12,908 546,755 559,663
Investments in joint ventures e - 48,702 48,702 - 53,955 53,955
Deferred tax asset g 63,995 (37,603) 26,392 60,941 (25,472) 35,469
Current assets 862,074 (21,944) 840,130 699,501 (33,164) 666,337
Loans and advances a 195,949 (15,361) 180,588 184,727 (33,612) 151,115
Trade and other receivables h 17,241 153 17,394 13,997 95 14,092
Related party loans - 7,037 - 7,037 8,016 - 8,016
Managed funds - (90,681) - (90,681) (87,125) - (87,125)
Tax receivable - - - - 8,446 - 8,446
Cash and cash equivalents i 732,528 (6,736) 725,792 571,440 353 571,793
Total assets 1,365,228 441,385 1,806,613 1,318,221 400,962 1,719,183
72 Smal l Enterpri se Fi nance Agency 72 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group
As at 31 March 2012 As at 1 April 2011
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Note
R’000 R’000 R’000 R’000 R’000 R’000
Equity and liabilities
Equity attributable to owners
of the parent 1,283,315 438,000 1,721,315 1,216,531 400,784 1,617,315
Share capital - 308,300 - 308,300 308,300 - 308,300
Reserves n 180,884 438,000 618,884 204,379 400,784 605,163
Shareholders loans - 794,131 - 794,131 703,852 - 703,852
Non-controlling interest j 4 - 4 3 - 3
Non-current liabilities 10,535 - 10,535 15,929 (4,597) 11,332
Unearned risk reserve - 10,535 - 10,535 11,332 - 11,332
Deferred tax liability k - - - 4,597 (4,597) -
Current liabilities 71,374 3,384 74,758 85,758 4,775 90,533
Outstanding claims reserve - 27,043 - 27,043 55,412 - 55,412
Trade and other payables l 37,911 4,287 42,198 30,194 4,728 34,922
Tax payable m 6,420 (902) 5,518 152 47 199
Total equity and liabilities 1,365,228 441,385 1,806,613 1,318,221 400,962 1,719,183
73 ANNUAL REPORT 2013
2.1.2 Company (2011 and 2012)
Company
As at 31 March 2012 As at 1 April 2011
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Note R’000 R’000 R’000 R’000 R’000 R’000
Assets
Non-current assets 576,146 - 576,146 695,868 - 695,868
Offce equipment, furniture
and other tangibles - 1,385 - 1,385 2,005 - 2,005
Intangible assets - 1,550 - 1,550 - - -
Loans and advances a 22,355 - 22,355 91,908 - 91,908
Investment properties - 195,264 - 195,264 187,508 - 187,508
Core business investments b 47,871 - 47,871 68,502 - 68,502
Non-core business
investments c 98,622 (98,622) - 98,622 (98,622) -
Investments in associates d 8,552 91,358 99,910 12,908 85,714 98,622
Investments in joint ventures e 17,570 (10,306) 7,264 48,277 (265) 48,012
Investments in subsidiaries f 122,104 17,570 139,674 129,279 13,173 142,452
Deferred tax asset g 60,873 - 60,873 56,859 - 56,859
Current assets 679,336 - 679,336 496,934 - 496,934
Loans and advances a 139,890 - 139,890 120,489 - 120,489
Trade and other receivables h 13,938 - 13,938 13,922 - 13,922
Related party loans - 7,826 - 7,826 8,016 - 8,016
Tax receivable - - - - 8,323 - 8,323
Cash and cash equivalents i 517,682 - 517,682 346,184 - 346,184
Total assets 1,255,482 - 1,255,482 1,192,802 - 1,192,802
Equity and liabilities
Equity attributable to owners
of the parent 1,228,174 - 1,228,174 1,166,720 - 1,166,720
Share capital - 308,300 - 308,300 308,300 - 308,300
Reserves n 145,412 - 145,412 173,958 - 173,958
Shareholders loans - 774,462 - 774,462 684,462 - 684,462
Current liabilities 27,308 - 27,308 26,082 - 26,082
Trade and other payables l 22,151 - 22,151 26,082 - 26,082
Tax payable m 5,157 - 5,157 - - -
Total equity and liabilities 1,255,482 - 1,255,482 1,192,802 - 1,192,802
74 Smal l Enterpri se Fi nance Agency 74 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
2.2 Effect of IFRS adoption on the statements of comprehensive income for the year ended
31 March 2012
2.2.1 Group and company (2012)
Group Company
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Previous
GAAP
Effect of
transition
to IFRSs
and
changes in
policies IFRSs
Note R’000 R’000 R’000 R’000 R’000 R’000
Revenue 146,792 (12,886) 133,906 122,353 - 122,353
Indemnity fees 5,219 - 5,219 - - -
Interest from lending
operations o 26,086 (1,702) 24,384 14,014 - 14,014
Investment property rental
income - 45,931 - 45,931 45,931 - 45,931
Other income p 8,717 (301) 8,416 12,430 - 12,430
Grant income - 5,000 - 5,000 5,000 - 5,000
Investment income q 47,009 (9,130) 37,879 37,222 - 37,222
Net fair value gain/(loss) on
fnancial assets r 8,830 (1,753) 7,077 7,756 - 7,756
Expenses (182,537) 6,585 (175,952) (149,757) - (149,757)
Personnel expenses - (36,999) - (36,999) (36,991) - (36,991)
Investment property expenses - (45,214) - (45,214) (45,214) - (45,214)
Movement on impairments
and bad debt provisions s 7,669 1,027 8,696 (29,353) - (29,353)
Bad debt written off t (37,956) 7,086 (30,870) (10,413) - (10,413)
Other operating expenses u (70,037) (1,528) (71,565) (27,786) - (27,786)
Operating loss (35,745) (6,301) (42,046) (27,404) - (27,404)
Income from equity accounted
investments v (457) 19,758 19,301 - - -
Proft/(loss) before tax (36,202) 13,457 (22,745) (27,404) - (27,404)
Income tax expense w (2,983) (11,486) (14,469) (1,142) - (1,142)
Net loss for the year (39,185) 1,971 (37,214) (28,546) - (28,546)
Other comprehensive income
for the year, net of tax - - - - - - -
Total comprehensive loss
for the year (39,185) 1,971 (37,214) (28,546) - (28,546)
Proft attributable to:
Owners of the parent (39,186) 1,971 (37,215)
Non-controlling interest (I/S) j 1 - 1
Total loss and comprehensive
loss for the year (39,185) 1,971 (37,214)
75 ANNUAL REPORT 2013
2.3 Reconciliation of equity
Group Company
31 March
2012 1 April 2011
31 March
2012 1 April 2011
R’000 R’000 R’000 R’000
Total equity under previous GAAP
beginning of the year 1,283,315 1,216,531 1,228,174 1,166,720
Adjustments to equity:
Reclassifcation from an investment to
an associate 476,095 461,041 - -
Equity accounting for joint ventures
previously consolidated on pro-
portionate method 353 (34,751) - -
Reclassifying a joint venture to a
subsidiary (873) (682) - -
Reclassifying an associate to a joint
venture - - - -
Adjustment of deferred taxation
effects not previously eliminated on
consolidation (37,575) (24,824) - -
Total equity under IFRSs 1,721,315 1,617,315 1,228,174 1,166,720
76 Smal l Enterpri se Fi nance Agency 76 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
2.4 Notes to the effect of IFRS adoption on the fnancial statements
The following refects the impact on the fnancial statements:
2.4.1 Differences in the statement of financial position
2.4.1.1 Group 2012
Group – 2012
2012 Note
Investment
reclassified
as
associate
Change
in joint
venture
policy
Joint
venture
reclassified
as
subsidiary
Associate
reclassified
as joint
venture
Deferred
tax not
previously
eliminated Total
Assets
Loans and advances a - (20,142) 3,746 - - (16,396)
Core business investments b - (15,566) - - - (15,566)
Non-core business
investments c (98,622) - - - - (98,622)
Investments in associates d 574,717 - - (7,264) - 567,453
Investments in joint ventures e - 41,438 - 7,264 - 48,702
Deferred tax asset g - (28) - - (37,575) (37,603)
Trade and other receivables h - (6) 159 - - 153
Cash and cash equivalents i - (7,144) 408 - - (6,736)
476,095 (1,448) 4,313 - (37,575) 441,385
Equity and liabilities
Reserves n 476,095 353 (873) - (37,575) 438,000
Shareholders loans - - - - - - -
Trade and other payables l - (899) 5,186 - - 4,287
Tax payable m - (902) - - - (902)
476,095 (1,448) 4,313 - (37,575) 441,385
77 ANNUAL REPORT 2013
2.4.1.2 Group 2011
Group – 2011
2011 Note
Investment
reclassified
as
associate
Change
in joint
venture
policy
Joint
venture
reclassified
as
subsidiary
Associate
reclassified
as joint
venture
Deferred
tax not
previously
eliminated Total
Assets
Loans and advances a - (32,618) 3,023 - - (29,595)
Core business investments b - (46,507) - - - (46,507)
Non-core business
investments c (98,622) - - - - (98,622)
Investments in associates d 559,663 - - (12,908) - 546,755
Investments in joint ventures e - 41,047 - 12,908 - 53,955
Deferred tax asset g - (648) - - (24,824) (25,472)
Trade and other receivables h - (18) 113 - - 95
Cash and cash equivalents i - (1,014) 1,367 - - 353
461,041 (39,758) 4,503 - (24,824) 400,962
Equity and liabilities
Reserves n 461,041 (34,751) (682) - (24,824) 400,784
Shareholders loans - - - - - - -
Deferred tax liability k - (4,597) - - - (4,597)
Trade and other payables l - (457) 5,185 - - 4,728
Tax payable m - 47 - - - 47
461,041 (39,758) 4,503 - (24,824) 400,962
2.4.1.3 Company 2012
Company – 2012
2012 Note
Investment
reclassified
as
associate
Change
in joint
venture
policy
Joint
venture
reclassified
as
subsidiary
Associate
reclassified
as joint
venture
Deferred
tax not
previously
eliminated Total
Assets
Non-core business
investments c (98,622) - - - - (98,622)
Investments in associates d 98,622 - - (7,264) - 91,358
Investments in joint ventures e - - (17,570) 7,264 - (10,306)
Investments in subsidiaries f - - 17,570 - - 17,570
- - - - - -
78 Smal l Enterpri se Fi nance Agency 78 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
2.4.1.4 Company 2011
Company – 2011
2011 Note
Investment
reclassified
as
associate
Change
in joint
venture
policy
Joint
venture
reclassified
as
subsidiary
Associate
reclassified
as joint
venture
Deferred
tax not
previously
eliminated Total
Assets
Non-core business
investments c (98,622) - - - - (98,622)
Investments in associates d 98,622 - - (12,908) - 85,714
Investments in joint ventures e - - (13,173) 12,908 - (265)
Investments in subsidiaries f - - 13,173 - - 13,173
- - - - - -
2.4.2 Differences in the statement of comprehensive income
2.4.2.1 Group 2012
Group – 2012
2012 Note
Investment
reclassified
as
associate
Change
in joint
venture
policy
Joint
venture
reclassified
as
subsidiary
Associate
reclassified
as joint
venture
Deferred
tax not
previously
eliminated Total
Interest from lending
operations o - (2,101) 399 - - (1,702)
Other income p - (313) 12 - - (301)
Investment income q (4,329) (4,825) 24 - - (9,130)
Net fair value loss on fnancial
assets r - (1,753) - - - (1,753)
Movement on impairments
and bad debt provisions s - 1,301 (274) - - 1,027
Bad debt written off t - 7,121 (35) - - 7,086
Other operating expenses u - (1,069) (459) - - (1,528)
Income from equity accounted
investments v 19,384 374 - - - 19,758
Income tax expense w - 1,265 - - (12,751) (11,486)
15,055 - (333) - (12,751) 1,971
79 ANNUAL REPORT 2013
2.4.3 Detailed notes
Group Company
2012 2011 2012 2011
R’000 R’000 R’000 R’000
a) Loans and advances
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (20,142) (32,618) - -
Joint venture reclassifed as a
subsidiary 3,746 3,023 - -
(16,396) (29,595) - -
b) Core business investments
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (15,566) (46,507) - -
c) Non-core business investments
Investment reclassifed as an associate (98,622) (98,622) (98,622) (98,622)
d) Investments in associates
Investment reclassifed as an associate 574,717 559,663 98,622 98,622
Associate reclassifed as a joint
venture (7,264) (12,908) (7,264) (12,908)
567,453 546,755 91,358 85,714
e) Investments in joint ventures
Joint ventures being accounted for
under equity method (previously line-
to-line basis) 41,438 41,047 - -
Associate reclassifed as a joint
venture 7,264 12,908 7,264 12,908
Joint venture reclassifed as a
subsidiary - - (17,570) (13,173)
48,702 53,955 (10,306) (265)
f) Investments in subsidiaries
Joint venture reclassifed as a
subsidiary - - 17,570 13,173
80 Smal l Enterpri se Fi nance Agency 80 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group Company
2012 2011 2012 2011
R’000 R’000 R’000 R’000
g) Deferred tax asset
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (28) (648) - -
Adjustment of deferred taxation
effects not previously eliminated on
consolidation (37,575) (24,824) - -
(37,603) (25,472) - -
h) Trade and other receivables
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (6) (18) - -
Joint venture reclassifed as a
subsidiary 159 113 - -
153 95 - -
i) Cash and cash equivalents
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (7,144) (1,014) - -
Joint venture reclassifed as a
subsidiary 408 1,367 - -
(6,736) 353 - -
j) Non-controlling interest
Small Business Growth Trust Fund was reclassifed from a joint venture to a subsidiary. Small Business Growth Trust
Fund is not a wholly owned subsidiary of sefa and another party holds a non-controlling interest.
k) Deferred tax liability
Joint ventures being accounted for
under equity method (previously
line-to-line basis) - (4,597) - -
l) Trade and other payables
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (899) (457) - -
Joint venture reclassifed as a
subsidiary 5,186 5,185 - -
4,287 4,728 - -
81 ANNUAL REPORT 2013
Group Company
2012 2011 2012 2011
R’000 R’000 R’000 R’000
m) Tax payable
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (902) 47 - -
n) Reserves
Investment reclassifed as an associate 476,095 461,041 - -
Joint ventures being accounted for
under equity method (previously
line-to-line basis) 353 (34,751) - -
Joint venture reclassifed as a
subsidiary (873) (682) - -
Adjustment of deferred taxation
effects not previously eliminated on
consolidation (37,575) (24,824) - -
438,000 400,784 - -
Group Company
2012 2012
R’000 R’000
o) Interest from lending operations
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (2,101) -
Joint venture reclassifed as a
subsidiary 399 -
(1,702) -
p) Other income
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (313) -
Joint venture reclassifed as a
subsidiary 12 -
(301) -
82 Smal l Enterpri se Fi nance Agency 82 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group Company
2012 2012
R’000 R’000
q) Investment income
Investment reclassifed as an associate (4,329) -
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (4,825) -
Joint venture reclassifed as a
subsidiary 24 -
(9,130) -
r) Net fair value loss on fnancial
assets
Joint ventures being accounted for
under equity method (previously
line-to-line basis) (1,753) -
s) Movement on impairments and
bad debt provisions
Joint ventures being accounted for
under equity method (previously
line-to-line basis) 1,301 -
Joint venture reclassifed as a
subsidiary (274) -
1,027 -
t) Bad debt written off
Joint ventures being accounted for
under equity method (previously line-
to-line basis) 7,121 -
Joint venture reclassifed as a
subsidiary (35) -
7,086 -
u) Other operating expenses
Joint ventures being accounted for
under equity method (previously line-
to-line basis) (1,069) -
Joint venture reclassifed as a
subsidiary (459) -
(1,528) -
83 ANNUAL REPORT 2013
Group Company
2012 2012
R’000 R’000
v) Income from equity accounted
investments
Investment reclassifed as an associate 19,384 -
Joint ventures being accounted for
under equity method (previously line-
to-line basis) 374 -
19,758 -
w) Income tax expense
Joint ventures being accounted for
under equity method (previously line-
to-line basis) 1,265 -
Adjustment of deferred taxation
effects not previously eliminated on
consolidation (12,751) -
(11,486) -
3. Financial assets and liabilities
The table below sets out the group and company’s classifcation of each class of fnancial assets and liabilities, and their
fair values:
Loans and
receivables
Cost less
impairment
(1)
Other
amortised cost Total
Group – 2013 R’000 R’000 R’000 R’000
Assets
Loans and advances 303,060 - - 303,060
Investments - 26,409 - 26,409
Trade and other receivables 20,579 - - 20,579
Cash and cash equivalents 909,998 - - 909,998
1,233,637 26,409 - 1,260,046
Liabilities
Trade and other payables - - 136,784 136,784
- - 136,784 136,784
Total fnancial assets and liabilities 1,233,637 26,409 136,784 1,396,830
(1) Any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is
stated at its cost, including transaction costs, less impairment.
84 Smal l Enterpri se Fi nance Agency 84 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Loans and
receivables
Cost less
impairment
(1)
Other
amortised cost Total
Group – 2012 R’000 R’000 R’000 R’000
Assets
Loans and advances 249,485 - - 249,485
Investments - 47,871 - 47,871
Trade and other receivables 22,971 - - 22,971
Cash and cash equivalents 725,792 - - 725,792
998,248 47,871 - 1,046,119
Liabilities
Trade and other payables - - 132,878 132,878
- - 132,878 132,878
Total fnancial assets and liabilities 998,248 47,871 132,878 1,178,997
Loans and
receivables
Cost less
impairment
(1)
Other
amortised cost Total
Company – 2013 R’000 R’000 R’000 R’000
Assets
Loans and advances 211,576 - - 211,576
Investments - 26,409 - 26,409
Trade and other receivables 21,971 - - 21,971
Cash and cash equivalents 808,767 - - 808,767
1,042,314 26,409 - 1,068,723
Liabilities
Trade and other payables - - 101,911 101,911
- - 101,911 101,911
Total fnancial assets and liabilities 1,042,314 26,409 101,911 1,170,634
(1) Any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is
stated at its cost, including transaction costs, less impairment.
85 ANNUAL REPORT 2013
Loans and
receivables
Cost less
impairment
(1)
Other
amortised cost Total
Company – 2012 R’000 R’000 R’000 R’000
Assets
Loans and advances 162,245 - - 162,245
Investments - 47,871 - 47,871
Trade and other receivables 20,803 - - 20,803
Cash and cash equivalents 517,682 - - 517,682
700,730 47,871 - 748,601
Liabilities
Trade and other payables - - 22,150 22,150
- - 22,150 22,150
Total fnancial assets and liabilities 700,730 47,871 22,150 770,751
(1) Any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is
stated at its cost, including transaction costs, less impairment.
4. Financial risk management
The group has exposure to the following risks from its use of fnancial instruments:
• Credit risk;
• Liquidity risk; and
• Market risk.
This note presents information about the group’s exposure to each of the above risks, the group’s objectives, policies and
processes for measuring and managing risk, and the group’s management of capital. Further quantitative disclosures are
included throughout these fnancial statements.
The board of directors has overall responsibility for the establishment and oversight of the group’s risk management
framework. The board has established the Audit & Enterprise Risk Committees, which are responsible for developing
and monitoring the group’s risk management policies. The committees report regularly to the board of directors on
their activities.
The group’s risk management policies are established to identify and analyse the risks faced by the group, to set appropriate
risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed
regularly to refect changes in market conditions and the group’s activities. The group, through its training and management
standards and procedures, aims to develop a disciplined and constructive control environment in which all employees
understand their roles and obligations.
86 Smal l Enterpri se Fi nance Agency 86 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
The Enterprise Risk Committee oversees how management monitors compliance with the group’s risk management
policies and procedures and review the adequacy of the risk management framework in relation to the risks faced by
the group. The Enterprise Risk Committee is assisted by the internal audit function which undertakes both regular and ad
hoc reviews of risk management controls and procedures, the results of which are reported to the Audit & Enterprise
Risk Committees.
Credit risk
Credit risk is the risk of fnancial loss to the group if a customer or counter-party to a fnancial instrument fails to meet its
contractual obligations, and arises principally from the group’s receivables from customers and investment securities.
Loans and advances and trade and other receivables
The group’s exposure to credit risk is infuenced mainly by the individual characteristics of each customer. The demographics
of the group’s customer base, including the default risk of the industry and the country, in which customers operate, has
less of an infuence on credit risk. No signifcant percentage of the group’s revenue can be contributed to transactions
with one customer and there is no geographical concentration of credit risk.
Risk management has established a credit policy under which each new customer is analysed individually for creditworthiness
before the group will transact with the customer. The group’s review includes external ratings, when available, due diligence
exercises and in some cases, bank references.
Loans and advances are subject to comprehensive and substantial security clauses to protect the group in the event of
non-payment.
All credit risk arises from normal operations of the group, with the major credit risk arising from the group’s receivables
and loans and advances. The investment committee, established by the board of directors, reviews the group’s loan book
on an on-going basis. All applications for credit are thoroughly scrutinised covering fnancial, technical and reputational risks.
sefa, being a development fnance institution, has a different risk profle compared to traditional commercial banks.
The group establishes an allowance for impairment that represents its estimate of incurred losses in respect of receivables,
loans and advances and investments. The main components of this allowance are a specifc loss component that relates
to individually signifcant exposures, and a collective loss component established for groups of similar assets in respect
of losses that have been incurred but not yet identifed. The collective loss allowance is determined based on historical
data of payment for similar assets.
Investments
The group limits its exposure to credit risk in respect of its money market transactions by only investing in funds that
have approved high credit quality fnancial ratings and public sector institutions in accordance with predetermined limits
approved by executive management and the board. Money market investments are refected as cash and cash equivalents.
Liquidity risk
Liquidity risk is the risk that the group will not be able to meet its fnancial obligations as they fall due. The group’s approach
to managing liquidity is to ensure, as far as possible, that it will always have suffcient liquidity to meet its liabilities when
due, under both normal and stressed conditions, without incurring unacceptable losses or risk damage to the group’s
reputation.
87 ANNUAL REPORT 2013
Due to the nature of the business, the group’s cash management process aims to maintain fexibility in funding by keeping
committed credit lines available. Cash requirements and infows are monitored by management to ensure that suffcient
cash is available to meet all fnancial commitments including operational expenditure. Typically the group ensures that it
has suffcient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of
fnancial obligations; this excludes the potential impact of extreme circumstances that cannot be reasonably predicted;
such as natural disasters.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will
affect the group’s income or the value of its holdings of fnancial instruments. The objective of market risk management
is to manage and control market risk exposures within acceptable parameters, while optimising the return. The group
does not deal in derivatives.
Interest rate risk
Interest rate risk is the risk that the value of a fnancial instrument will fuctuate due to changes in market interest rates.
The group’s income and operating cash fows are substantially dependent on changes in market interest rates and the
group has signifcant interest-bearing assets. The group’s policy is to maintain most of its investments in the form of money
market instruments. Interest rate risk is limited to the group’s investment in foating-rate instruments such as deposits,
negotiable certifcates of deposits and banker’s acceptances as well as loans which are normally issued at rates linked to
the prime interest rate. The investment management function has been outsourced to Andisa Capital Proprietary Limited
and the Industrial Development Corporation. Regular management and board sub-committee meetings are held in order
to review sefa’s interest rate view, which would affect the level of interest rate risk taken in respect of surplus funds.
Money market investments are refected as cash and cash equivalents.
Capital management
The board’s policy is to maintain a strong capital base so as to maintain shareholder, creditor and market confdence and
to sustain future development of the business. The board of directors monitors return on capital, which the group defnes
as net operating income divided by total shareholders’ equity.
The board seeks to maintain a balance between higher returns and its developmental mandate. There were no changes
in the group’s approach to capital management during the year. A subsidiary, Khula Credit Guarantee Limited is subject
to capital requirements imposed on it by the Financial Services Board in terms of the Short-Term Insurance Act. Neither
the company nor any of its other subsidiaries are subject to externally imposed capital requirements.
The group recognises equity and reserves as capital. For statutory purposes share capital consists of ordinary shares.
Ordinary shares are refected as equity under share capital. The group’s objectives when managing capital are:
• To comply with capital requirements required for insurers as determined by the Short-Term Insurance Act, 53 of
1998; and
• To safeguard the group’s ability to continue as a going concern so that it can provide returns for the shareholder
and benefts for other stakeholders.
88 Smal l Enterpri se Fi nance Agency 88 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Khula Credit Guarantee Limited submits quarterly and annual returns to the Financial Services Board in terms of the Short-
Term Insurance Act, 53 of 1998. Khula Credit Guarantee Limited is required at all times to maintain a statutory surplus
asset ratio as defned in the Short-Term Insurance Act, 53 of 1998. The returns submitted to the regulator showed that
Khula Credit Guarantee Limited met the minimum capital requirements throughout the year. When managing ordinary
share capital, the group’s objectives are to maintain a minimum level of capital without compromising the ability to operate
effectively. This is achieved by using available cash balances to fund working capital requirements and returning capital to
the shareholder as and when excess cash is generated.
Indemnity risk
The group issues indemnity contracts that transfer insurance risk. The board and executive committee manage the
indemnity risk according to the group’s risk appetite.
The risk under any one indemnity contract is the likelihood that the indemnifed event will occur, and the uncertainty
of the amount of the resulting claims. For a portfolio of indemnity contracts where the theory of probability is applied
to provisioning, the principle risk that the group faces is that the actual claims and beneft payments will exceed the
carrying amount of the indemnity liabilities. By the very nature of an indemnity contract, the risk is random and therefore
unpredictable. Changing risk parameters and unforeseen factors, such as economical and geographical circumstances, may
result in unexpectedly large claims. Indemnifed events are random and from one year to the next, and the actual number
of claims will vary from the estimate established by means of statistical techniques.
The net claims ratio for the company, which is important in monitoring indemnity risk, has developed as follows over the
past 5 years:
2013 2012 2011 2010 2009
Loss history
Claims paid and provided % 19% 34% 389% 248% 196%
(Expressed as a percentage of gross indemnity fees
written)
Factors that aggravate indemnity risk include lack of risk diversifcation in terms of type and amount of risk and geographical
location covered. Experience shows that the larger the portfolio of similar indemnity contracts, the smaller the relative
variability about the expected outcome will be, therefore a more diversifed portfolio is less likely to be affected across
the board by a change in any subset of the portfolio. The group only underwrites indemnity contracts in South Africa.
The group does not have the right to re-price and change the conditional risks on renewal of individual indemnities.
The group establishes a provision for claims using independent actuarial methods. Claim provisions are regularly checked
by way of internal reviews and audits to ensure they are suffcient. These analyses draw on the expertise and experience
of a wide range of specialists, such as actuaries, auditors and accounting experts.
Limiting exposure to indemnity risk
The group limits its exposure to indemnity risk through setting a clearly defned underwriting strategy and limits and
adopting appropriate risk assessment techniques. Each of these risk management aspects is dealt with below in more detail.
89 ANNUAL REPORT 2013
(i) Underwriting strategy and limits and policies for mitigating indemnity risk
The group’s underwriting strategy seeks diversity to ensure a balanced portfolio of indemnity risks. The strategy also aims
to establish a suffciently large portfolio to reduce the variability of the outcome. To this end the group underwrites a
wide variety of risks spread across fnancial and commercial indemnity holders, which includes the underwriting of risks
in niche markets with favourable claims expectations.
On an annual basis the group prepares an underwriting budget that is based on the underwriting strategy to be followed
in the next 3 years. The underwriting strategy is updated for changes in the underwriting results of the group and the
industry, the group’s available risk capital, its developmental mandate as well as existing concentrations of indemnity risk.
(ii) Risk assessment
The group relies on a rigorous process followed by the indemnifed parties before they propose and accept a specifc
indemnity risk. Some of the factors considered during the underwriting stage include:
• Past loss experience associated with the proposed risk;
• Indemnifable interest;
• Probability of success;
• Level of mitigation procedures adopted by the proposed indemnifed;
• Location of the proposed risk;
• Past and proposed rating terms of the risk;
• Scope and terms of cover considered;
• Results of surveys completed, where applicable; and
• Possible variations that may be applied to the risks indemnifed.
Concentration of indemnity risks
The group’s insurance portfolio consists of indemnity risks. The concentration of indemnity risks is managed by different
levels of diversifcation mainly through the fnancial institutions that are underwritten and the geographical areas in which
the risks are situated, with single risks spread across all areas of the country.
90 Smal l Enterpri se Fi nance Agency 90 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group
Sector analysis at carrying value
Loans and advances and investments
2013 2012
R’000 R’000 R’000 R’000
Loans and
advances Investments
Loans and
advances Investments
Agriculture, forestry and fshing 54,942 - 47,909 -
Basic chemicals 227 - 264 -
Beverages 216 - 2,057 -
Building construction 12,274 - 990 -
Business services 4,704 - 1,214 -
Catering and accommodation
services 3,482 - 4,019 -
Communication 724 - 462 -
Electricity, gas and steam 3,626 - 2,285 -
Finance and insurance 188,268 26,409 162,245 47,871
Food 2,344 - 2,346 -
Machinery and equipment 199 - 557 -
Medical, dental and other health and
veterinary services 4,591 - 4 -
Motor vehicles, parts and accessories 507 - 900 -
Non-metallic minerals 2,243 - 2,306 -
Other community, social and personal
services 220 - 218 -
Other chemicals and man-made
fbres 129 - 225 -
Other services 5,098 - 6,552 -
Paper and paper products 138 - 239 -
Plastic products 694 - 360 -
Printing, publishing and recorded
media 3,087 - 1,992 -
Professional and scientifc equipment 321 - 23 -
Television, radio and communication
equipment 747 - 516 -
Textiles 48 - 133 -
Transport and storage 2,623 - 2,009 -
Wearing apparel 2,066 - 2,984 -
Wholesale and retail trade 8,550 - 5,769 -
Wood and wood products 992 - 907 -
303,060 26,409 249,485 47,871
91 ANNUAL REPORT 2013
Company
2013 2012
R’000 R’000 R’000 R’000
Loans and
advances Investments
Loans and
advances Investments
Building construction 10,701 - - -
Business services 3,688 - - -
Catering and accommodation
services 205 - - -
Electricity, gas and steam 711 - - -
Finance and insurance 188,268 26,409 162,245 47,871
Medical, dental and other health and
veterinary services 3,745 - - -
Motor vehicles, parts and accessories 63 - - -
Non-metallic minerals 1 - - -
Other community, social and personal
services 1 - - -
Other chemicals and man-made
fbres 1 - - -
Other services 1,118 - - -
Printing, publishing and recorded
media 886 - - -
Professional and scientifc equipment 241 - - -
Wholesale and retail trade 1,947 - - -
211,576 26,409 162,245 47,871
92 Smal l Enterpri se Fi nance Agency 92 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group Company
2013 2013
R’000 R’000 R’000 R’000
Credit risk exposure
Loans and
advances Investments
Loans and
advances Investments
Individually impaired 65,369 26,409 43,277 26,409
Past due but not impaired 15,724 - 5,315 -
Neither past due nor impaired 221,967 - 162,984 -
Total carrying value 303,060 26,409 211,576 26,409
Individually impaired
Low risk client 4,781 - - -
Medium risk client 70,578 67,880 51,252 67,880
High risk client 223,057 5,000 189,013 5,000
Gross amount 298,416 72,880 240,265 72,880
Allowance for impairment (233,047) (46,471) (196,988) (46,471)
Carrying amount 65,369 26,409 43,277 26,409
Past due but not impaired
Low risk client 10,410 - 4,704 -
Medium risk client 5,303 - 611 -
High risk client 11 - - -
Carrying amount 15,724 - 5,315 -
Past due but not impaired
comprises:
0 – 30 days 6,283 - 4,439 -
31 – 60 days 704 - 90 -
61 – 90 days 1,697 - 13 -
91 – 120 days 847 - 10 -
121 days + 6,193 - 763 -
Carrying amount 15,724 - 5,315 -
Neither past due nor impaired
Low risk client 211,795 - 160,224 -
Medium risk client 9,771 - 2,760 -
High risk client 401 - - -
Carrying amount 221,967 - 162,984 -
Portfolio impairment - - - -
Total carrying amount 221,967 - 162,984 -
93 ANNUAL REPORT 2013
Group Company
2012 2012
R’000 R’000 R’000 R’000
Credit risk exposure
Loans and
advances Investments
Loans and
advances Investments
Individually impaired 20,402 47,871 15,856 47,871
Past due but not impaired 21,021 - 4,720 -
Neither past due nor impaired 208,062 - 141,669 -
Total carrying value 249,485 47,871 162,245 47,871
Individually impaired
Low risk client 15,574 47,871 15,575 47,871
Medium risk client 4,365 - - -
High risk client 169,731 5,000 138,184 5,000
Gross amount 189,670 52,871 153,759 52,871
Allowance for impairment (169,268) (5,000) (137,903) (5,000)
Carrying amount 20,402 47,871 15,856 47,871
Past due but not impaired
Low risk client 4,172 - 4,199 -
Medium risk client 14,961 - 521 -
High risk client 1,888 - - -
Carrying amount 21,021 - 4,720 -
Past due but not impaired
comprises:
0 – 30 days 5,312 - 2,756 -
31 – 60 days 2,808 - 631 -
61 – 90 days 2,359 - 488 -
91 – 120 days 941 - 670 -
121 days + 9,601 - 175 -
Carrying amount 21,021 - 4,720 -
Neither past due nor impaired
Low risk client 199,418 - 141,669 -
Medium risk client 5,899 - - -
High risk client 2,745 - - -
Carrying amount 208,062 - 141,669 -
Portfolio impairment - - - -
Total carrying amount 208,062 - 141,669 -
94 Smal l Enterpri se Fi nance Agency 94 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Credit quality of loans neither past due nor impaired
The group has every reason to believe that the underlying debtors have the ability and intention to repay these loans
and that the likelihood of default is low.
Collateral held
Collateral is normally taken on all loans and ranges from cessions over moveable and immoveable assets to personal surety.
Due to the nature of the business of sefa, the value of collateral held is low compared to the carrying value of the related
loans.
Liquidity risk exposure
The following are the remaining contractual maturities at the end of the reporting period of recognised and unrecognised
fnancial liabilities, including estimated interest payments and excluding the impact of netting agreements:
Group
31 March 2013
Carrying
value
R’000
Total
R’000
Within 1
year
R’000
2 – 5
years
R’000
More than
5 years
R’000
Trade and other payables 53,281 53,281 53,281 - -
Guarantees/indemnities issued to fnancial
institutions
(1)
17,529 17,529 17,529 - -
Operating lease commitments - 37,285 5,395 13,786 18,104
Undrawn fnancing facilities approved - 275,916 275,916 - -
Undrawn guarantees/indemnities approved
(2)
- 1,242 1,242 - -
70,810 385,253 353,363 13,786 18,104
(1) Total guarantees/indemnities issued to fnancial institutions amount to R96,390 million. However, it is not considered likely that the
full balance indemnifed will result in future outfows of cash. The calculations by external actuaries were used to calculate the liability
recognised at year end and represents an estimate of possible future cash outfows within 1 year. It amounts to 18% required reserves
of the total portfolio indemnifed.
(2) Undrawn guarantees/indemnities approved amounts to R6,802 million. It is estimated that 18% of undrawn facilities may result in
future claims. Due to the timing of these claims being uncertain, the full balance is allocated to the 1 year period.
95 ANNUAL REPORT 2013
Group
31 March 2012
Carrying
value
R’000
Total
R’000
Within 1
year
R’000
2 – 5
years
R’000
More than
5 years
R’000
Operating lease commitments - 34,828 3,346 18,632 12,850
Trade and other payables 31,348 31,348 31,348 - -
Undrawn fnancing facilities approved - 193,944 193,944 - -
Guarantees/indemnities issued to fnancial
institutions
(1)
37,578 37,578 37,578 - -
Undrawn guarantees/indemnities approved
(2)
- 452 452 - -
68,926 298,150 266,668 18,632 12,850
(1) Total guarantees/indemnities issued to fnancial institutions amounted to R174,167 million. However it is not considered likely that
the full balance indemnifed will result in future outfows of cash. The required reserves calculated by external actuaries were used
to calculate the liability recognised at year end and represents an estimate of possible future cash outfows within 1 year. It amounts
to 22% of the total portfolio indemnifed.
(2) Undrawn guarantees/indemnities approved amounted to R2,055 million. It is estimated that 22% of undrawn facilities may result in
future claims. Due to the timing of these claims being uncertain, the full balance is allocated to the 1 year period.
Company
31 March 2013
Carrying
value
R’000
Total
R’000
Within 1
year
R’000
2 – 5
years
R’000
More than
5 years
R’000
Operating lease commitments - 37,285 5,395 13,786 18,104
Trade and other payables 18,409 18,409 18,409 - -
Undrawn fnancing facilities approved - 255,065 255,065 - -
18,409 310,759 278,869 13,786 18,104
Company
31 March 2012
Carrying
value
R’000
Total
R’000
Within 1
year
R’000
2 – 5
years
R’000
More than
5 years
R’000
Operating lease commitments - 34,828 3,346 18,632 12,850
Trade and other payables 11,301 11,301 11,301 - -
Undrawn fnancing facilities approved - 170,648 170,648 - -
11,301 216,777 185,295 18,632 12,850
96 Smal l Enterpri se Fi nance Agency 96 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group Company
2013 2012 2013 2012
Interest rate risk R’000 R’000 R’000 R’000
At the reporting date the interest
rate profle of the group's interest-
bearing fnancial instruments was:
Variable rate instruments
Financial assets 1,198,876 1,096,082 1,050,972 882,509
Financial liabilities - (5,518) - (5,157)
Balance at end of the year 1,198,876 1,090,564 1,050,972 877,352
Cash flow sensitivity analysis for variable rate instruments
A change in 100 basis points in the interest rates at the reporting date would have increased/(decreased) equity and
proft or loss by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is
performed on the same basis for 2012.
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
100 basis points increase 11,989 10,906 10,510 8,774
100 basis points decrease (11,989) (10,906) (10,510) (8,774)
Fair values
Fair values versus carrying amounts
The fair value of fnancial assets approximate the carrying amounts shown in the statement of fnancial position due to
the following reasons:
• The short-term nature of many fnancial assets;
• Decreases in credit risk ratings result in impairments of loans; and
• Loans are issued at rates linked to the prime interest rate.
The fair value of fnancial liabilities approximate the carrying amounts shown in the statement of fnancial position due
to the short-term nature of all recognised fnancial liabilities.
97 ANNUAL REPORT 2013
5. Cash and cash equivalents
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Cash in bank and in hand 106,213 47,888 82,302 26,760
Money market investments 803,785 677,904 726,465 490,922
909,998 725,792 808,767 517,682
Cash and cash equivalents comprises cash deposits with banks and short-term money market instruments maturing within
three months. These attract interest at market-related rates.
6. Trade and other receivables
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Trade receivables 8,786 5,123 9,264 2,485
Rental debtors 43,931 64,680 43,931 64,678
Pre-payments 724 1,460 724 961
Related party loans (refer to note 34) 1,145 7,037 2,461 7,826
Staff loans 1,033 672 631 354
Trade and other receivables before
bad debt provision 55,619 78,972 57,011 76,304
Bad debt provision on rental debtors (34,316) (54,541) (34,316) (54,540)
21,303 24,431 22,695 21,764
No trade and other receivables are pledged as security.
98 Smal l Enterpri se Fi nance Agency 98 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
7. Loans and advances
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Loans and advances to clients 536,211 418,753 408,564 300,148
Specifc impairments of loans and advances (233,151) (169,268) (196,988) (137,903)
303,060 249,485 211,576 162,245
Reconciliation of impairment of loans
and advances
Specifc allowances for impairment
Balance at 1 April 169,268 190,668 137,903 170,353
Impairment loss for the year
- Charge/(release) for the year 71,461 5,911 56,186 (22,037)
- Recoveries - - - -
Write offs (10,476) (30,870) - (10,413)
Balances taken on from subsidiaries acquired 2,898 3,559 2,899 -
Balance at 31 March 233,151 169,268 196,988 137,903
Maturity of loans and advances
- Due within one year 281,918 180,587 223,048 139,890
- Due after one year but within two years 89,978 112,730 68,534 84,301
- Due after two years but within three years 75,233 54,297 54,620 31,095
- Due after three years but within four years 37,529 41,471 25,092 24,632
- Due after four years but within fve years 41,607 29,668 37,270 20,230
- Due after fve years 9,947 - - -
- Impairment of loans and advances (233,152) (169,268) (196,988) (137,903)
303,060 249,485 211,576 162,245
99 ANNUAL REPORT 2013
8. Investments
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Unlisted equities 5,000 5,000 5,000 5,000
Investment in En Commandite partnership 67,880 81,784 67,880 81,784
72,880 86,784 72,880 86,784
Impairment of unlisted equities (5,000) (5,000) (5,000) (5,000)
Impairment of investment in Investment in
En Commandite partnership (41,471) (33,913) (41,471) (33,913)
26,409 47,871 26,409 47,871
Specifc allowances for impairment -
Unlisted equities
Balance at 1 April 5,000 - 5,000 -
Impairment loss for the year
- Charge/(release) for the year - 5,000 - 5,000
- Recoveries - - - -
Write offs - - - -
Other movement - - - -
Balance at 31 March 5,000 5,000 5,000 5,000
Specifc allowances for impairment -
En Commandite partnership
Balance at 1 April 33,913 30,323 33,913 30,323
Impairment loss for the year
- Charge/(release) for the year 7,558 3,590 7,558 3,590
Balance at 31 March 41,471 33,913 41,471 33,913
These investments do not have a quoted market price in an active market and their fair value cannot be reliably measured.
They are therefore stated at cost, including transaction costs, less impairment.
100 Smal l Enterpri se Fi nance Agency 100 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
9. Investments in subsidiaries
Company
2013 2012
R’000 R’000
Unlisted shares in subsidiaries 55,002 55,002
Impairment of shares - -
Loans receivable 204,572 195,514
Impairment of loans (117,970) (110,842)
141,604 139,674
Companies 2013 2012 2013 2012
% interest % interest
Nature of
activities
Total company
exposure
before
impairments
R’000
Total company
exposure
before
impairments
R’000
Khula Credit Guarantee Ltd
100% 100%
Short term
indemnities 55,185 61,575
New Cape Equity Fund
(Pty) Ltd 100% 100%
Private equity
funding 13,955 13,589
MKN Equity Fund (Pty) Ltd 100% 100%
Private equity
funding 4,850 4,850
New Business Finance (Pty)
Ltd 100% 100% SME Financing 51,298 51,298
Khula Business Premises
(Pty) Ltd 100% 100%
Property
rental - -
Khula Emerging Contractors
Fund 100% 100% SME Financing 20,394 20,394
Khula Akwandze Fund (Pty)
Ltd 75% 75% SME Financing 36,994 28,494
Identity Development Fund
Partnership 100% 100% SME Financing 29,532 24,188
Small Business Growth Trust
Fund 81% 80% SME Financing 22,366 21,128
The Khula-Enablis SME
Acceleration Fund 80% 80% SME Financing 25,000 25,000
259,574 250,516
All subsidiaries are incorporated in the Republic of South Africa.
All subsidiaries have the same reporting date as the holding company, except for New Business Finance (Pty) Ltd whose
year-end is February.
101 ANNUAL REPORT 2013
The aggregate net profts and losses after taxation of subsidiaries attributable to sefa were as follows:
Group
2013 2012
R’000 R’000
Profts 10,110 4,489
Losses (5,848) (26,576)
4,262 (22,087)
10. Investments in associates
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Unlisted shares in associates 98,622 98,622 98,622 98,622
Impairment of shares - - - -
Accumulated equity-accounted income, losses
and impairments 494,249 475,148 - -
Loans receivable 12,043 2,235 12,043 2,235
Impairment of loans - - (1,683) (948)
604,914 576,005 108,982 99,909
Companies 2013 2012 2013 2012
% interest % interest
Nature of
activities
Total company
exposure
before
impairments
R’000
Total company
exposure
before
impairments
R’000
Business Partners Limited 21% 21% SME Financing 98,622 98,622
The Utho SME
Infrastructure Fund
(1)
51% 42% SME Financing 12,043 2,235
110,665 100,857
(1) Although the ownership interest in The Utho SME Infrastructure Fund is 51%, the voting interest is only 40%.
102 Smal l Enterpri se Fi nance Agency 102 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group
2013 2012
R’000 R’000
The aggregate amounts attributable to sefa were as follows:
Statement of fnancial position
Non-current assets 591,568 558,339
Current assets 98,368 77,141
689,936 635,480
Equity 543,162 511,563
Non-current liabilities 120,997 61,531
Current liabilities 25,777 62,386
689,936 635,480
Statement of comprehensive income
Revenue 90,315 84,220
Expenses (62,075) (62,363)
28,240 21,857
11. Investments in joint ventures
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Accumulated equity-accounted income, losses
and impairments 24,000 19,027 - -
Loans receivable 29,037 29,675 29,037 29,675
Impairment of loans - - (21,990) (22,411)
53,037 48,702 7,047 7,264
103 ANNUAL REPORT 2013
Companies 2013 2012 2013 2012
% interest % interest
Nature of
activities
Total company
exposure
before
impairments
R’000
Total company
exposure
before
impairments
R’000
Anglo Khula Mining Fund
(Pty) Ltd
50% 50%
Financing
mining activities - -
Izibulo SME Trust Fund 65% 65% SME Financing 21,728 21,728
Enablis Khula Loan Fund 40% 40% SME Financing 7,309 7,947
29,037 29,675
Group
2013 2012
R’000 R’000
The aggregate amounts attributable to sefa were as follows:
Statement of fnancial position
Non-current assets 24,016 15,593
Current assets 31,922 35,692
55,938 51,285
Equity 53,037 48,702
Non-current liabilities 1,345 -
Current liabilities 1,556 2,583
55,938 51,285
Statement of comprehensive income
Revenue 8,455 13,039
Expenses (3,001) (12,160)
5,454 879
104 Smal l Enterpri se Fi nance Agency 104 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
12. Deferred tax assets and liabilities
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Composition of deferred taxation asset
is as follows:
Income received in advance - 247 - -
Tax loss 19,314 3,913 19,314 3,913
Other provisions 31,517 20,363 69,664 55,446
Fair value adjustments on investment property 24,362 15,094 24,360 15,094
75,193 39,617 113,338 74,453
Movement on the deferred taxation
asset is as follows:
At beginning of the year 39,617 35,469 74,453 56,859
Temporary differences 35,576 4,148 38,885 17,594
- Current year 36,007 8,738 39,316 22,183
- Previous year (431) (4,590) (431) (4,589)
At end of the year 75,193 39,617 113,338 74,453
Unrecognised deductible temporary differences, unused tax losses and unused tax credits
Deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax assets have been
recognised are attributable to the following:
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Tax losses (Revenue in nature) 16,751 18,750 - -
105 ANNUAL REPORT 2013
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Composition of deferred taxation
liability is as follows:
Prepaid expenses (163) (109) (163) (109)
Debtor allowances (15,465) (13,116) (16,191) (13,471)
(15,628) (13,225) (16,354) (13,580)
Movement on the deferred taxation
liability is as follows:
At beginning of the year (13,225) - (13,580) -
Temporary differences (2,403) (13,225) (2,774) (13,580)
- Current year (2,403) (13,225) (2,774) (13,580)
- Previous year - - - -
At end of the year (15,628) (13,225) (16,354) (13,580)
13. Investment properties
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Opening carrying amount 195,264 187,508 195,264 187,508
Additions - - - -
Disposals (1,900) - (1,900) -
Fair value adjustments (21,929) 7,756 (21,929) 7,756
Closing balance 171,435 195,264 171,435 195,264
106 Smal l Enterpri se Fi nance Agency 106 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
14. Offce equipment, furniture and other tangible assets
Group Company
Cost
Accumulated
depreciation
and
impairment
Carrying
value Cost
Accumulated
depreciation
and
impairment
Carrying
value
2013 R’000 R’000 R’000 R’000 R’000 R’000
Motor vehicle 518 411 107 472 384 88
Computer equipment 8,819 6,689 2,130 8,669 6,594 2,075
Offce equipment 3,289 1,979 1,310 3,274 1,963 1,311
Furniture and fttings 6,077 2,349 3,728 5,938 2,259 3,679
Lease improvements 5,715 589 5,126 5,716 589 5,127
24,418 12,017 12,401 24,069 11,789 12,280
2012
Motor vehicle 354 334 20 308 305 3
Computer equipment 8,306 7,052 1,254 8,156 6,973 1,183
Offce equipment 376 254 122 360 239 121
Furniture and fttings 1,527 1,388 139 1,389 1,311 78
10,563 9,028 1,535 10,213 8,828 1,385
The movement in the carrying value of offce equipment, furniture and other tangible assets is as follows:
Group
Motor
vehicles
Computer
equipment
Office
equipment
Furniture
and fittings
Lease
improve-
ments Total
2013 R’000 R’000 R’000 R’000 R’000 R’000
Carrying value at
1 April 2012 20 1,254 122 139 - 1,535
Additions - 1,816 806 3,935 5,715 12,272
Assets acquired through
a business combination 120 548 705 148 - 1,521
Disposals - (5) - - - (5)
Transfers 1 (639) 71 (42) - (609)
Depreciation charge (34) (844) (394) (452) (589) (2,313)
Carrying value at
31 March 2013 107 2,130 1,310 3,728 5,126 12,401
107 ANNUAL REPORT 2013
Group
Motor
vehicles
Computer
equipment
Office
equipment
Furniture
and fittings
Lease
improve-
ments Total
2012 R’000 R’000 R’000 R’000 R’000 R’000
Carrying value at
1 April 2011 31 1,702 151 121 - 2,005
Additions 18 126 3 - - 147
Assets acquired through
a business combination - 86 70 156
Disposals - (7) - - - (7)
Depreciation charge (29) (653) (32) (52) - (766)
Carrying value at
31 March 2012 20 1,254 122 139 - 1,535
Company
Motor
vehicles
Computer
equipment
Office
equipment
Furniture
and fittings
Lease
improve-
ments Total
2013 R’000 R’000 R’000 R’000 R’000 R’000
Carrying value at
1 April 2012 3 1,183 121 78 - 1,385
Additions - 1,816 806 3,935 5,716 12,273
Assets acquired through
a business combination 119 547 707 147 - 1,520
Disposals - (5) - - - (5)
Transfers - (639) 71 (42) - (610)
Depreciation charge (34) (827) (394) (439) (589) (2,283)
Carrying value at
31 March 2013 88 2,075 1,311 3,679 5,127 12,280
108 Smal l Enterpri se Fi nance Agency 108 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Company
Motor
vehicles
Computer
equipment
Office
equipment
Furniture
and fittings
Lease
improve-
ments Total
2012 R’000 R’000 R’000 R’000 R’000 R’000
Carrying value at
1 April 2011 31 1,702 151 121 - 2,005
Additions - 126 2 - - 128
Disposals - (7) - - - (7)
Depreciation charge (28) (638) (32) (43) - (741)
Carrying value at
31 March 2012 3 1,183 121 78 - 1,385
No offce equipment, furniture or other tangible assets are pledged as security for liabilities (2012: Rnil).
15. Intangible assets
Group Company
Cost
Accumulated
amortisation
and
impairment
Carrying
value Cost
Accumulated
amortisation
and
impairment
Carrying
value
2013 R’000 R’000 R’000 R’000 R’000 R’000
Software 3,965 3,362 603 3,468 3,040 428
Intellectual property 2,200 929 1,271 2,200 929 1,271
Goodwill 31,899 31,899 - - - -
38,064 36,190 1,874 5,668 3,969 1,699
2012
Software 497 230 267 - - -
Intellectual property 1,770 220 1,550 1,770 220 1,550
Goodwill 31,899 31,899 - - - -
34,166 32,349 1,817 1,770 220 1,550
109 ANNUAL REPORT 2013
The movement in the carrying value of intangible assets are as follows:
Group
Software
Intellectual
property Goodwill Total
2013 R’000 R’000 R’000 R’000
Carrying value at 1 April 2012 267 1,550 - 1,817
Additions 141 430 - 571
Assets acquired through a business
combination 609 - - 609
Transfer 610 - - 610
Amortisation (1,024) (709) - (1,733)
Carrying value at 31 March 2013 603 1,271 - 1,874
2012
Carrying value at 1 April 2011 - - - -
Additions 56 1,770 31,899 33,725
Assets acquired through a business
combination 283 - - 283
Amortisation (72) (220) - (292)
Impairment - - (31,899) (31,899)
Carrying value at 31 March 2012 267 1,550 - 1,817
Company
Software
Intellectual
property Goodwill Total
2013 R’000 R’000 R’000 R’000
Carrying value at 1 April 2012 - 1,550 - 1,550
Additions 141 430 - 571
Assets acquired through a business
combination 609 - - 609
Transfers 610 - - 610
Amortisation (932) (709) - (1,641)
Carrying value at 31 March 2013 428 1,271 - 1,699
110 Smal l Enterpri se Fi nance Agency 110 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Company
Software
Intellectual
property Goodwill Total
2012 R’000 R’000 R’000 R’000
Carrying value at 1 April 2011 - - - -
Additions - 1,770 - 1,770
Amortisation - (220) - (220)
Carrying value at 31 March 2012 - 1,550 - 1,550
No intangible assets are pledged as security for liabilities (2012: Rnil)
16. Share capital
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Authorised
500,000,000 ordinary shares at R1 each 500,000 500,000 500,000 500,000
Issued
308,300,000 ordinary shares at R1 each 308,300 308,300 308,300 308,300
17. Shareholders loans
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Loan from shareholder 944,542 794,131 944,542 774,462
This loan is unsecured, bears no interest and has no specifc repayment terms.
111 ANNUAL REPORT 2013
18. Trade and other payables
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Trade payables 53,281 31,348 18,409 11,301
Deferred grant 11,588 5,059 11,588 5,059
Accrued bonus
(1)
10,989 4,884 10,988 4,884
Accrued leave pay
(2)
3,727 906 3,727 906
Managed funds
(3)
57,199 90,681 57,199 -
136,784 132,878 101,911 22,150
1) Accrued Bonuses
Balances at the beginning of the year 4,884 3,203 4,884 3,203
Additional accruals raised during the year 6,105 1,681 6,104 1,681
Utilised during the year - - - -
Balance at the end of the year 10,989 4,884 10,988 4,884
2) Accrued leave pay
Balances at the beginning of the year 906 810 907 810
Additional accruals raised during the year 3,559 672 3,558 672
Utilised during the year (738) (576) (738) (576)
Balance at the end of the year 3,727 906 3,727 906
3) Managed funds
The group is managing funds and holding cash
balances on behalf of the following parties:
Unops 40,129 - 40,129 -
Norad 6,925 - 6,925 -
European Union 10,145 - 10,145 -
Mafsa - 90,681 - -
57,199 90,681 57,199 -
112 Smal l Enterpri se Fi nance Agency 112 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
19. Unearned risk reserve and outstanding claims reserve
The technical provisions recognised in the statements of fnancial position are detailed below and are determined as
described in the following paragraphs:
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Unexpired risk reserve
- At beginning of the year 10,535 11,332 - -
- Movement recorded in proft or loss (4,079) (797) - -
At end of the year 6,456 10,535 - -
Outstanding claims reserve
- At beginning of the year 27,043 55,412 - -
- Movement recorded in proft or loss (15,970) (28,369) - -
At end of the year 11,073 27,043 - -
The calculation of the reserves was performed by an independent actuarial consulting frm, Matlotlo Group (Proprietary)
Limited.
The summary of the valuation method is as follows:
The Unearned Premium Reserve is calculated on a straight-line basis, assuming indemnity fees received are earned
uniformly over the 12 months for which they have been paid for. The Additional Unexpired Risk Reserve (AURR) is the
additional reserve required should the net discounted value of the expected claims from active policies not be covered
by the Unearned Premium Reserve and the net present value of expected future indemnity fees. The AURR is held at a
75% suffciency level as a result of simulating claims severity and frequency.
The Outstanding Claims Reserve (OCR) is in respect of those policies of Khula Credit Guarantee that may result in
claims due to a claim event that has happened prior to the fnancial year-end. For each policy, the OCR is determined
as (probability of claiming) x (current indemnity) x (claim severity). The total OCR is raised at a 75% suffciency level by
simulating the claim severity.
All reserves have been calculated on a run-off basis (i.e. assuming Khula Credit Guarantee Ltd does not write new business)
and allowance for claim handling expenses has been made.
113 ANNUAL REPORT 2013
The principal valuation assumptions are as follows:
Group
2013 2012
Ultimate probability of claim 21% 19%
Claim severity 80% 80%
Claim expense rate 4.70% 4.91%
Discount rates (per government bond yield curve) 5.09% - 7.80% 5.25% - 7.83%
The sensitivity of the total reserves to the key assumptions is as follows:
Group
2013 2012 2013 2012
R R % %
Probability of claim (+10%) 978,579 1,713,470 5,83% 4,52%
Claim severity (+10%) 2,750,568 5,452,335 16,40% 14,37%
Claim expense rate (+1%) 211,019 415,772 1,26% 1,10%
Discount rates (+1%) (65,188) (89,265) -0,39% -0,24%
Group
Solvency margin: 2013 2012
Solvency margin 2,241% 950%
The solvency margin is calculated by expressing the capital and reserves as a percentage of net written indemnity fees.
20. Revenue
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Dividends received 1,766 144 6,282 6,177
Indemnity fees earned 2,646 5,219 - -
Interest received on cash and cash equivalents 41,306 31,117 36,339 24,416
Interest received on loans and advances to
clients 30,207 26,521 18,909 16,163
Other interest earned 3,174 4,480 2,528 4,480
Fee income 2,768 325 2,743 325
Investment property rental income 34,892 45,932 34,892 45,931
116,759 113,738 101,693 97,492
114 Smal l Enterpri se Fi nance Agency 114 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
21. Other income
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Bad debts recovered 343 702 129 382
Management fee – Subsidiaries - - - 5,747
Management fee – Related parties 620 5,053 620 5,053
Management fee – Other 790 - 790 -
Other sundry income 1,910 2,336 235 923
3,663 8,091 1,774 12,105
22. Grant income
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Balance at 1 April 5,059 3,011 5,059 3,011
Grants received during the year 1,250 8,509 1,250 8,509
Deferred grants acquired through a business
combination 57,853 - 57,853 -
Grants recognised as income during the year (48,870) (5,000) (48,870) (5,000)
Grants utilised to reduce expenses during the
year (3,704) (1,461) (3,704) (1,461)
Balance at 31 March 11,588 5,059 11,588 5,059
23. Net fair value (loss)/gain on fnancial and other assets
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Investments - (679) - -
Investment properties (21,929) 7,756 (21,929) 7,756
(21,929) 7,077 (21,929) 7,756
115 ANNUAL REPORT 2013
24. Operating loss
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Is arrived at after taking into account the
following:
Specifc items:
Depreciation 2,313 766 2,283 741
Amortisation 1,733 292 1,641 220
Loss on disposal of equity investment - 358 - 3,327
Penalties and interest – South African Revenue
Service 233 984 39 984
Auditors Remuneration
– Audit Fees 2,457 1,648 2,267 1,153
Auditors Remuneration
– Other Fees - 238 - -
Operating lease charges – Equipment 867 640 867 633
Operating lease charges – Property 11,896 (1,186) 11,896 (1,174)
19,499 3,740 18,993 5,884
The following impairments were recognised:
Equity investments written off - 12,673 - 12,673
Impairment of associates - - 735 948
(Impairment reversal)/impairment of joint
ventures (420) (1,364) (420) 209
Impairment of Investment in En Commandite
partnership 7,558 3,590 7,558 3,590
Impairment of subsidiaries 420 1,364 7,128 44,384
Impairment of goodwill - 31,899 - -
Increase/(decrease) in bad debt provision
– Loans and advances 60,985 (24,959) 56,186 (32,450)
Irrecoverable debt written off
– Loans and advances 10,476 30,870 - 10,413
Decrease/(increase) in bad debt provision
– Rental debtors (20,226) 2,189 (20,226) 2,189
Irrecoverable debt written off – Rental
debtors 19,546 12,577 19,546 12,577
Total net impairments 78,339 68,839 70,507 54,533
The following items relating to the
indemnity product were recognised:
Indemnity claims incurred 16,463 30,155 - -
Decrease in claims provision (15,970) (28,369) - -
Decrease in indemnity reserves (4,079) (797) - -
(3,586) 989 - -
116 Smal l Enterpri se Fi nance Agency 116 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Net increase/(decrease) in impairments
Agriculture, forestry and fshing 1,189 (648) - -
Building construction 2,913 3,707 2,476 -
Business services 3,431 2,669 3,509 -
Catering and accommodation services 103 138 - -
Communication (1,500) 1,783 - -
Electricity, gas and steam 1,433 (947) 7 -
Finance and insurance 58,000 (23,664) 64,754 29,353
Food 330 (1,611) - -
Medical, dental and other health and
veterinary services 93 779 17 -
Motor vehicles, parts and accessories (1,962) - 64 -
Other chemicals and man-made fbres 128 - - -
Other industries 594 - - -
Other services 2,109 7,151 161 -
Other transport equipment - (410) - -
Paper and paper products 138 - - -
Printing, publishing and recorded media (4) 160 - -
Professional and scientifc equipment (194) 171 - -
Television, radio and communication
equipment 6 - - -
Textiles 42 530 - -
Transport and storage - 144 - -
Wearing apparel 1,040 353 - -
Wholesale and retail trade 653 999 199 -
68,542 (8,696) 71,187 29,353
Bad debts written off/(recovered)
– Loans and advances
Agriculture, forestry and fshing 642 - - -
Business services 88 - - -
Communication 1,950 - - -
Finance and insurance (129) 29,988 (129) 10,031
Food 289 - - -
Motor vehicles, parts and accessories 2,204 - - -
Other services 2,229 180 - -
Printing, publishing and recorded media 84 - - -
Wearing apparel 337 - - -
Wholesale and retail trade 2,439 - - -
10,133 30,168 (129) 10,031
117 ANNUAL REPORT 2013
25. Income tax (income)/expense
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Current tax expense 366 5,393 - 5,157
- Current year 375 236 - -
- Prior year (over)/under provision (9) 5,157 - 5,157
Deferred taxation (33,172) 9,076 (36,110) (4,015)
- Current year (33,604) 4,487 (36,542) (8,604)
- Prior year under provision 432 4,589 432 4,589
Income tax expense (32,806) 14,469 (36,110) 1,142
Reconciliation of taxation amount
Loss before taxation (97,220) (22,745) (129,228) (27,404)
Taxation at standard rate of 28% (2012: 28%) (27,222) (6,369) (36,184) (7,673)
Tax effect of permanent differences (4,446) 9,890 (357) 1,047
Tax effect of deferred tax asset not recognised 379 4,024 - -
Tax loss recognised (1,948) (844) - -
Tax effect of non-taxable income - (1,978) - (1,978)
Taxation – Relating to prior year 431 9,746 431 9,746
Capital gains tax - - - -
Taxation (income)/expense to
statement of comprehensive income (32,806) 14,469 (36,110) 1,142
Taxation expense relating to current year (33,237) 4,723 (36,541) (8,604)
Effective tax rate – Based on current year
taxation expense 34% (21%) 28% 31%
26. Directors’ and prescribed offcers’ remuneration
Prescribed offcers as prescribed by the Companies Act, No. 71 of 2008, are individuals who, despite not being a director
of the company:
• Exercises general executive control over and management of the whole, or a signifcant portion, of the business and
activities of the company; or
• Regularly participates to a material degree in the exercise of general executive control over and management of
the whole, or a signifcant portion, of the business and activities of the company.
118 Smal l Enterpri se Fi nance Agency 118 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
The company considers all individuals at the level of executive management as the prescribed offcers.
Key management are individuals with the authority and responsibility for planning, directing and controlling the activities
of the entity. All individuals from the level of executive management up to the board of directors are regarded as key
management personnel. The remuneration of the directors and prescribed offcers is disclosed below as required by
the Companies Act.
Board of directors:
The non-executive directors are not involved in day-to-day operations of the business and do not draw any remuneration
from sefa other than for board fees.
2013 2012
R’000 R’000
M Kekana
(1)
- 40
S Magwentshu-Rensburg (Chairperson)
(1)
218 178
IAS Tayob 215 152
M Ferreira 246 160
D Jackson
(2)
- 200
N Swana - 137
Z Lees - 143
M Mohoto - -
V Twala - 181
VG Mutshekwane 275 -
BP Calvin 214 -
HN Lupuwana 102 -
SA Molepo 155 -
LB Mavundla 210 -
GS Gouws
(3)
- -
K Schumann
(3)
- -
1,635 1,191
(1) Mr Kekana was appointed as chairperson on 7 April 2010. After the resignation of Mr Molepo, he was appointed as acting managing
director with effect from 1 August 2010 to 31 August 2011. During his appointment as acting managing director, board meetings
were chaired by the deputy chairperson, Ms Magwentshu-Rensburg (acting chairperson). Ms Magwentshu-Rensburg has subsequently
been appointed as chairperson during the 2013 fnancial year. Mr Kekana resigned as acting managing director on 31 August 2011
and resigned from the board of directors on 31 March 2012.
(2) Mr Jackson became an employee of sefa on 9 October 2012.
(3) Mr Gouws and Ms Schumann are employed by the IDC and do not earn director’s fees for services rendered to sefa. Remuneration
earned from the IDC is disclosed in the annual fnancial statements of the IDC.
119 ANNUAL REPORT 2013
Executive management:
Basic
salary
Retirement,
medical
and other
benefits Total
2013 Period R’000 R’000 R’000
T Makhuvha
(2)
1 November 2012 – 31 March 2013 - - -
W Fourie
(1)
1 April 2012 – 31 October 2012 - - -
AMA Ramavhunga 1 April 2012 – 31 March 2013 1,180 304 1,484
MI Mazibuko 1 April 2012 – 28 September 2012 819 136 955
CH Maseko 1 April 2012 – 31 March 2013 1,465 395 1,860
LG Mashishi 18 June 2012 – 31 March 2013 798 202 1,000
V Malale
(3)
1 April 2012 – 30 June 2012 204 91 295
D Jackson 9 October 2012 – 31 March 2013 749 - 749
D Mashele
(3)
1 November 2012 – 31 March 2013 336 121 457
5,551 1,249 6,800
Basic
salary
Retirement,
medical
and other
benefits Total
2012 Period R’000 R’000 R’000
M Kekana 1 April 2011 – 31 August 2011 764 9 773
W Fourie
(1)
1 September 2011 – 31 March 2012 - - -
AMA Ramavhunga 1 February 2012 – 31 March 2012 233 - 233
CH Maseko 18 July 2011 – 31 March 2012 943 153 1,096
D De Jager 1 April 2011 – 30 June 2011 356 43 399
JL Law 1 April 2011 – 31 December 2011 1,192 - 1,192
LN Mutewera 1 April 2011 – 31 March 2012 880 131 1,011
MI Mazibuko 1 April 2011 – 31 March 2012 1,182 225 1,407
Z Mosheshe 1 April 2011 – 28 June 2011 299 45 344
5,849 606 6,455
No member of executive management earned any income from any other company within the group.
(1) Mr Fourie has been seconded to the company by the IDC and no remuneration has been paid to him by sefa.
(2) Mr Makhuvha has been seconded to the company by the IDC and no remuneration has been paid to him by sefa.
(3) Mr Malale and Mr Mashele acted in executive positions during the fnancial year.
120 Smal l Enterpri se Fi nance Agency 120 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
27. Operating leases
Operating lease commitments
The future minimum lease payments under non-cancellable operating leases are as follows:
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Equipment - 1,068 - 1,068
Within 1 year - 508 - 508
From 2 – 5 years - 560 - 560
Land and buildings 37,285 33,760 37,285 33,760
Within 1 year 5,395 2,838 5,395 2,838
From 2 – 5 years 13,786 18,072 13,786 18,072
More than 5 years 18,104 12,850 18,104 12,850
37,285 34,828 37,285 34,828
The lease agreement for the head offce building stipulates that there will be an escalation of 8% per annum. The lease
agreement is for 7 years and will expire on 30 June 2019.
121 ANNUAL REPORT 2013
28. Reconciliation of net proft for the year to cash utilised by operations
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Loss before tax (97,220) (22,745) (129,228) (27,404)
Adjustments for:
Depreciation 2,313 766 2,283 742
Amortisation 1,733 291 1,642 220
Fair value adjustment 21,929 (7,077) 21,929 (7,756)
Impairment provision – Investments 7,558 3,590 7,558 3,590
Impairment provision – Subsidiaries and joint
ventures - 12,673 6,707 44,393
Impairment provision – Equity accounted
investments (Associates) - - 735 1,147
Impairment provision – Goodwill - 31,899 - -
Income from associate (27,599) (17,232) - -
Dividends received from associate (1,380) (2,215) (4,905) (690)
Decrease in indemnity reserves (4,079) (797) - -
Investment income (46,247) (37,564) (40,245) (36,363)
Grant income (48,870) (5,000) (48,870) (5,000)
Loss on sale of equity investment - 3,327 - 3,327
Proft on sale of equipment (103) (26) (103) (26)
Provision for bad debts 39,747 (22,770) 34,948 (30,261)
Bad debts written off 30,032 43,514 19,546 23,058
Equity investments written off - - - 12,673
Provision for claims (15,970) (28,369) - -
Operating loss before changes in
working capital (138,156) (47,735) (128,003) (18,350)
Changes in working capital (56,826) (11,182) 14,985 (18,778)
Increase in trade and other receivables (1,861) (5,930) (5,376) (2,271)
Loans received from related parties 10,256 979 9,729 -
(Decrease)/increase in trade and other
payables and provisions (65,221) (6,231) 10,632 (16,507)
Cash utilised by operations (194,982) (58,917) (113,018) (37,128)
122 Smal l Enterpri se Fi nance Agency 122 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
29. Tax paid
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Tax (payable)/receivable at the beginning of
the year (5,518) 8,247 (5,157) 8,323
Tax as per statement of comprehensive
income (net of deferred tax) (367) (5,393) - (5,157)
Tax paid 5,945 (8,372) 5,157 (8,323)
Tax receivable/(payable) at the end of the year 60 (5,518) - (5,157)
30. Acquisition of subsidiary (net of cash acquired)
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Offce equipment, furniture and other
tangibles 1,520 175 1,520 -
Intangible assets 609 282 609 -
Loans and advances 73,113 20,727 73,113 -
Trade and other receivables 241 312 241 -
Cash and cash equivalents 191,709 2,732 191,709 -
Long-term loan - (51,637) - -
Reserves (202,430) - (202,430)
Trade and other payables (64,762) (4,494) (64,762) -
Net assets acquired - (31,903) - -
Consideration paid - 2 - -
Goodwill acquired - 31,899 - -
Cash and cash equivalent acquired 191,709 2,732 191,709 -
Cash infow on acquisition of shares 191,709 2,730 191,709 -
123 ANNUAL REPORT 2013
31. Net cash infow on disposal of subsidiary
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Analysis of assets and liabilities over
which control was lost:
Loans and advances - 7,900 - -
Cash and cash equivalents - 1,267 - -
Other assets - 3,160 - -
Net assets disposed of - 12,327 - -
Loss on disposal of subsidiary:
Consideration received - 9,000 - -
Net assets disposed of - (12,327) - -
Loss on disposal - (3,327) - -
Net cash infow on disposal of subsidiary:
Consideration received in cash and cash
equivalents - 9,000 - 9,000
Less: cash and cash equivalents balance
disposed of - (1,267) - -
Net cash infow - 7,733 - 9,000
32. Commitments
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Undrawn fnancing facilities approved 275,916 193,944 255,065 170,648
Undrawn guarantee facilities approved 6,802 2,055 - -
282,718 195,999 255,065 170,648
Commitments will be fnanced by loans and internally generated funds.
124 Smal l Enterpri se Fi nance Agency 124 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
33. Contingent liabilities
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Indemnities issued to fnancial institutions 96,390 174,167 - -
Less technical reserves already provided (17,529) (37,578) - -
78,861 136,589 - -
34. Related party transactions
Parent and ultimate controlling party
sefa is a wholly owned subsidiary of the Industrial Development Corporation (IDC).
Other related parties
Description Relationship
Khula Credit Guarantee Limited Wholly owned subsidiary of sefa
Khula Land Reform Empowerment Facility Wholly owned subsidiary of sefa
(1)
Khula Institutional Support Services Limited Wholly owned subsidiary of sefa
(1)
New Business Finance (Pty) Ltd Wholly owned subsidiary of sefa
Stearbright Limited Previous shareholder of New Business Finance
GJE Watson Previous shareholder of New Business Finance and
current employee of sefa
Thetha Import and Export CC GJE Watson is a member of Thetha Import and Export
and signed personal surety for a loan repayable to New
Business Finance.
Gain Props 1017 CC Business owned by GJE Watson
Transactions between the company and its subsidiaries, which are related parties, have been eliminated in the group
fnancial statements, however these are not eliminated in the individual company fnancial statements.
(1) Registered as a Non-proft company. This company is not consolidated as a subsidiary due to sefa not being able to beneft from
the company.
125 ANNUAL REPORT 2013
The following transactions were entered into with related parties:
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Interest (paid to)/received from related
parties
New Business Finance (Pty) Ltd - (25) - -
Thetha Import and Export CC - 12 - -
- (13) - -
Management fees charged to related
parties
Khula Institutional Support Services Limited - 4,461 - 4,461
Khula Land Reform Empowerment Facility 620 592 620 592
620 5,053 620 5,053
Related party balances (payable)/
receivable
Khula Institutional Support Services
(1)
(4,364) 6,280 (4,364) 6,278
Khula Land Reform Empowerment Facility
(1)
1,145 757 1,146 757
New Business Finance (Pty) Ltd - - 1,315 791
Stearbright Limited - (2,325) - -
GJE Watson 400 266 - -
Thetha Import and Export CC 694 844 - -
(2,125) 5,822 (1,903) 7,826
(1) Registered as a Non-proft company. This company is not consolidated as a subsidiary due to sefa not being able to beneft from
the company.
Any outstanding amounts are unsecured and will be settled in cash. No guarantees have been given or received. No
expenses have been recognised in the period for bad or doubtful debts in respect of the amounts owed by related parties.
Transactions with key management personnel
No material contracts were entered into involving the interest of any director or executive management member. All
compensation paid to key management personnel is short-term in nature and is disclosed in note 26.
35. Transfer of the assets and liabilities of samaf
samaf’s business, with all its assets and liabilities, was transferred to sefa as a going concern at no cost.
The merger was accounted for as a common control transaction. A common control transaction is a business combination
where the combining entities or businesses are ultimately controlled by the same party or parties both before and after
the combination. In this case, Khula (now sefa) and the business of samaf were ultimately controlled by the South African
government both before and after the combination.
126 Smal l Enterpri se Fi nance Agency 126 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
sefa recognised the assets and liabilities acquired through the transfer of samaf on 1 April 2012 (effective date of the
transfer) at the values which the assets and liabilities were disclosed in the annual report of samaf on 31 March 2012. The
carrying value of the net assets and liabilities of samaf amounted to R202.4 million on 31 March 2012 and was accounted
for directly in equity and is refected in the statements of changes in equity.
This transaction had the same impact on both the group and company as the assets and liabilities were transferred
directly to the company.
Please refer to accounting policy 1.7 for more information on how common control transactions are accounted for.
The following assets and liabilities were transferred from samaf to sefa on 1 April 2012:
R’000
Offce equipment, furniture and other tangibles 1,520
Intangible assets 609
Loans and advances 73,113
Trade and other receivables 241
Cash and cash equivalents 191,709
Trade and other payables (64,762)
Net asset carrying value 202,430
Consideration paid -
Gain on the transfer of samaf assets and liabilities 202,430
36. Change in classifcation or presentation
Shareholders loans
Shareholders loans which do not attract interest and with no specifc repayment terms were previously classifed as equity.
It is considered more appropriate to classify these loans under current liabilities and comparatives were restated accordingly.
The following values were reclassifed:
Group Company
2013 2012 2013 2012
Shareholders loans moved from equity to
short term liabilities 944,542 794,131 944,542 774,462
127 ANNUAL REPORT 2013
Managed funds
The group is involved in managing cash balances on behalf of other parties.
On receipt of cash balances to be managed a liability is created accordingly. In the past the net amount with which the
funds held exceed the liability was recognised as a net asset.
It is considered more appropriate to disclose the cash component and the liability component separately and comparatives
were restated accordingly.
Group Company
2013 2012 2013 2012
Increase in cash 57,202 92,712 57,202 -
Increase in trade and other payables (57,199) (90,681) (57,199) -
Decrease in trade and other receivables (3) (2,031) (3) -
37. Unauthorised, irregular, fruitless and wasteful expenditure
Fruitless and wasteful expenditure
The PFMA defnes fruitless and wasteful expenditure as expenditure which was made in vain and would have been
avoided had reasonable care been exercised.
2013 2012
Note R’000 R’000
Opening balance 632 2,300
Fruitless and wasteful expenditure current year
Projects abandoned prior to implementation 76 313
Interest on late payment of supplier invoice 5 -
Penalty on under estimation of provisional tax - 665
Penalty on under estimation of provisional tax – to be recovered
(contingent asset) (1) 665 (665)
Interest on late payment of provisional tax 39 289
Interest on late payment of VAT - 30
Condoned or written off by accounting authority - (2300)
Fruitless and wasteful expenditure awaiting condonement 1,417 632
(1) The full amount relates to a penalty paid to the Receiver of Revenue relating to the 2011 tax year for the under estimation of
provisional tax. This penalty was reported as fruitless and wasteful expenditure in the 2012 year and simultaneously a contingent asset
was raised on the table of fruitless and wasteful expenditure. The contingent asset was a result of expectations that the Receiver of
Revenue would waive the penalty or that losses will be recovered from a 3
rd
party. It has become evident during the current fnancial
year that the expense is likely to be irrecoverable.
128 Smal l Enterpri se Fi nance Agency 128 Smal l Enterpri se Fi nance Agency
Notes to the fnancial statements (Continued)
Irregular expenditure
Irregular expenditure signifes expenditure incurred without adhering to established rules, regulations, procedural guidelines,
policies, principles or practices that have been implemented to ensure compliance with the PFMA, relevant tender
regulations as well as any other relevant procurement regulations.
2013 2012
Note R’000 R’000
Opening balance - -
Irregular expenditure current year 5,922 -
Condoned or written off by accounting authority (5,429) -
Irregular expenditure awaiting condonement (1) 493 -
(1) Management is in the process of regularising these matters and have not yet requested condonement from the board of directors.
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