Description
Small Enterprise Finance Agency (SOC) Limited Annual Report 2014
Annual Report 2014
Annual Report 2014
Name and Registration Number:
Small Enterprise Finance Agency (SOC) Limited with registration
Number 1995/01/1258/06
Holding Company:
Industrial Development Corporation of South Africa Limited (IDC)
Country of Incorporation and Domicile:
South Africa
Physical Business Address:
EcoFusion 5
Block D
Cnr 1004 Teak Close & Witch-Hazel Avenue
Eco Park
Centurion
Postal Address:
P.O. Box 11011
Zwartkop
0051
Contact:
Telephone: +27 12 748 9600
Call Centre: +27 86 000 7332
Fax: +27 12 748 9691
Email: [email protected]
Website: www.sefa.org.za
External Auditors: KPMG Inc
Bankers: Standard Bank of South Africa Limited
Company Board Secretary: Ms Nthabiseng Mongali
Reporting Period:
The Annual Report of The Small Enterprise Finance Agency (sefa) is presented
For the period 1 April 2013 to 31 March 2014.
Scope and boundary
This scope covers the operating environment, the organisational
achievements and results for the declared period.
The report is prepared for sefa’s shareholder, the Industrial Development Corporation (IDC),
The Economic Development Department (EDD) and the broader SMME stakeholder community.
Annual Report 2014
Table of contents
1. sefa Company Profle 2
1.1. Introduction 2
1.2. sefa Mandate, Mission and Values 2
1.3. sefa Strategic Objectives 3
1.4. sefa Target Market 4
1.5. sefa Loan Criteria 4
1.6. sefa Products and Service Distribution Model 5
1.7. sefa Footprint 6
1.8. sefa Group Structure 7
1.9. sefa Governing Structure 8
1.10. sefa Organisational Framework 9
2. Board of Directors 10
3. Chairperson's Statement 14
4. Chief Executive Offcer’s Statement 16
5. Executive Management 18
6. Corporate Performance Overview 20
6.1. Financial Performance Overview 20
6.2. Risk and Compliance Management Performance Overview 23
6.3. Direct Lending Performance Overview 29
6.4. Wholesale Lending Performance Overview 34
6.5. Human Capital Management Performance Overview 43
7. Performance Against Predetermined Objectives 46
8. Corporate Governance Statement 48
9. Group and Company Annual Financial Statements 52
1
COMPANY PROFILE
1.1 Introduction
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 the 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, Micro and Medium Enterprises (SMMEs) and
contributes towards poverty alleviation, job creation and economic growth.
sefa provides products and services to qualifying SMMEs as defned in the National Small Business Act of 1996, as amended in 2004, through a hybrid of
wholesale and direct lending channels.
1.2 sefa Mandate, Mission and Values
Annual Report 2014
M
a
n
d
a
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e
• To be the leading catalyst for the development of sustainable SMMEs through the provision of fnance.
M
i
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s
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Our mission is to provide simple access to fnance in an effcient and sustainable manner to SMMEs throughout South Africa by:
• delivering Wholesale and Direct Lending credit facilities or products;
• providing credit guarantees to SMMEs;
• supporting the institutional strengthening of Financial Intermediaries so that they can effectively assist 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 speed up increased market participation in the provision
of affordable fnance.
V
a
l
u
e
s
sefa’s values and guiding principles to deepen institutional culture and organisational cohesion 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.
2
1
1.3 sefa Strategic Objectives
Annual Report 2014
3
Strategic Objective 1 Increase access and provision of fnance to SMME’s thereby contribute towards job creation
• Implement a robust sefa delivery network through branches and Financial Intermediaries.
Strategic Objective 4 Build a learning organisation
• Expand direct lending through partnerships in all provinces;
• Expand partnerships with microfnance institutions;
• Establish stronger partnerships with Retail Finance Intermediaries (RFIs) in SME wholesale fnance;
• Increase the utilisation of Credit Guarantee Indemnity Scheme by commercial banks.
Strategic Objective 2 Develop and implement a national footprint for effective product and service delivery
Strategic Objective 3 Build an effective and effcient sefa that is a sustainable performance driven organisation
• Create, develop and retain a dynamic human capital with values and culture aligned to sefa’s mandate;
• Build an effective sefa with robust and effcient business processes, systems and infrastructure;
• Build a fnancially sustainable and viable sefa.
• Develop and implement a dynamic research and development capacity;
• Develop effective sefa monitoring and evaluation, and knowledge management systems and practices.
Strategic Objective 5 Build a sefa that meets all legislative, regulatory and good governance requirements
• Ensure an effectively governed and compliant organisation.
Strategic Objective 6 Build a strong and effective sefa brand emphasizing accessibility to SMMEs Strategic Objective 6 Build a strong and effective sefa brand emphasizing accessibility to SMMEs
• Develop and implement an effective marketing and promotion programme to communicate sefa’s product offering to SMMEs.
Annual Report 2014
4
1.4 sefa Target Market
sefa funds qualifying business ventures within the following SMME sectors:
• services (including retailing, wholesaling and tourism);
• manufacturing (including agro-processing);
• agriculture (specifcally land reform benefciaries and micro-farming activities);
• construction (small construction contractors);
• mining (specifcally small miners); and
• green industries (renewable energy, waste and recycling management).
1.5 sefa Loan Criteria
In granting loan fnancing to qualifying businesses, the applicant must:
• be a South African citizen or a permanent resident;
• be registered entity including, sole traders with a fxed physical address;
• be within the required contractual capacity;
• be registered within South Africa;
• be compliant with generally accepted corporate governance practices appropriate to the client’s legal status;
• have a written proposal or business plan that meets the requirements of sefa’s loan application criteria;
• demonstrate the character and ability to repay the loan;
• have provided personal and/or credit references (if available);
• be the majority shareholder and the owner manager of the business;
• where available, provide relevant securities/collateral; and
• have a valid Tax Clearance Certifcate.
1.6 sefa Products and Service Distribution Model
Annual Report 2014
5
sefa Funding Model
sefa
Wholesale
Lending
sefa Direct
Lending
Credit
Guarantee
Scheme
sefa Regional
Offces and seda
co-locations
Formal Registered
Financial Institutions
FINANCE
INTERMEDIARIES:
(Co-operative Financial
Institutions, Micro Finance
Institutions, Joint Ventures
& Funds, Retail Finance
Intermediaries)
R500 to R5m R50k to R5m Up to R5m
SMMEs can access sefa funding solutions through any of the above channels
Annual Report 2014
6
1.7 sefa Footprint
9 sefa Regional Offces
2 sefa Branch Offces
10 Co-operative Financial Institutions
16 Micro-Finance Intermediaries
6 Retail Finance Intermediaries
25 seda Co-location Referral Offces
8 Specialised Funds
*
Limpopo
Mpumalanga
North West
Free State KwaZulu-Natal
Eastern Cape
Western Cape
Northern Cape
Gauteng
*
**
*
*
*
*
Annual Report 2014
7
1.8 sefa Group Structure
Wholly owned subsidiaries not consolidated:
• Khula Land Reform and Empowerment
Facility NPC
• Khula Institutional Support
Services NPC
Dormant Subsidiaries:
• Khula Business Premises
(Pty) Ltd
• New Cape Equity Fund
(Pty) Ltd
• MKN Equity Fund (Pty) Ltd
Consolidated
Entities
Consolidated
Investment
Subsidiaries
Associates Joint Ventures
sefa
Khula Credit
Guarantee
New Business
Finance
100%
100%
Khula Emerging
Contractors Fund
Khula
Akwandze Fund
Identity
Development
Fund
75%
Small Business
Growth Trust
Fund
82%
100%
100%
Business Partners
Utho Capital
SME Fund
49%
21%
Anglo American
Khula Mining Fund
sefa Awethu
Youth Fund
Enablis Khula
Loan Fund
50%
Izibulo
65%
50%
40%
Khula - Enablis
SME Acceleration
Fund
75%
Annual Report 2014
8
1.9 sefa Governing Structure
Board
Company Secretariat Internal Audit CEO
Chief
Financial
Offcer
Executive
Manager:
Wholesale
Lending
Executive
Manager:
Direct
Lending
Chief Risk
Offcer
Executive
Manager:
Human
Capital
Management
Board
Enterprise Risk
Committee
Audit
Committee
Human Capital &
Remuneration
Committee
Wholesale
Investment
Committee
Direct Lending
Committee
Annual Report 2014
9
1.10 sefa Organisational Framework
C
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Clients
Distribution Channels
SMMEs and Co-operatives
sefa’s Regional Offces, RFIs, MFIs, Co-operatives Financial Institutions,
Commercial Banks, Specialised Funds, Provincial Development
Corporations (PDCs)
R500 R5 million
Product Portfolio Direct Lending Wholesale
Financing
Capacity Building
• Working Capital
Loan;
• Asset Finance;
• Term Loans;
• Revolving Loan;
• Bridging Loan;
• Short-term
Trade Finance.
• Business Loans –
(RFIs/MFIs/
Co-operatives/
FIs);
• Joint Ventures
–Specialised
Funds;
• Credit
Guarantee
Scheme;
• Land Reform
Empowerment
Fund.
• Pre and Post
Loan Mentoring
Institutional
Strengthening
• Board
Representation;
• Management
and Technical
Support.
BOARD OF DIRECTORS
Dr Sizeka Magwentshu-Rensburg
Chairperson of the Board
Mr Thakhani Makhuvha
Chief Executive Offcer
Ms Hlonela Lupuwana
Member: Human Capital
& Remuneration Committee
2
Qualifcations:
• DPhil (Business Management)
(University of Johannesburg)
• MBA (Webster University)
• BA (Management in Accounting
and Business Administration
(Webster University)
• Advanced Certifcate in
Purchasing Management
(University of South Africa)
Age: 54
Other Directorships:
• Director: Findevco (Pty) Ltd
• Director: IDC
• Director: Girl Guides South
Africa
• Member: merSETA Finance and
Grants Committee
Current Employment:
• Independent Consultant
Qualifcations:
• MCom Financial Management
(University of Johannesburg)
• BCompt (Hons)
(University of South Africa)
• BCom Accounting
(University of Venda)
• Leadership Development
Programme (Gordon Institute of
Business Studies)
Age: 45
Other Directorships:
• Director: seda
Current Employment:
• CEO: sefa
Qualifcations:
• MBA (University of Pretoria)
• BSc (Social Sciences) (University
of Cape Town)
• Associate in Management (AIM)
(University of Cape Town)
Age: 45
Other Directorships:
• Director: Anglo American Zimele
• Member: International Women’s
Forum South Africa
Current Employment
• MD: Anglo American Zimele
• Former CEO: seda
10
BOARD OF DIRECTORS
Mr Ismail Tayob
Chairman: Audit Committee,
Member: Enterprise Risk Committee,
Member: Human Capital &
Remuneration Committee
Ms Katinka Schumann
Member: Wholesale Investment Committee
Member: Direct Lending Committee
Mr Lawrence Mavundla
Chairman: Direct Lending Committee
Member: Wholesale Investment Committee
Qualifcations:
• CA (SA)
• BCom (Accounting)(University of
Durban Westville)
• Post Graduate Diploma in
Accounting (University of Durban
Westville)
Age: 49
Other Directorships:
• None
Current Employment:
• Executive Director: CH Chartered
Accountants (Pty) Ltd
Qualifcations:
• MBA (University of Stellenbosch)
• B Home Economics (University of
Stellenbosch)
• Advanced Management Programme,
(INSEAD, France)
Age: 45
Other Directorships:
• Director: African Continental
Resources Ventures (Pty) Ltd
• Director: Tourism Enterprise
Partnership
• Director: Palabora Copper (Pty) Ltd
• Trustee: Women Private Equity Fund
Current Employment:
• Divisional Executive: IDC
Qualifcations:
• Business Management,
(Cranefeld College, UK)
• Chamber Management (CIPE,
USA)
• Business Management and
Development (Swedish
Chamber)
Age: 49
Other Directorships:
• President: NAFCOC
• Chairman: Adifash Investments
• Chairman: Silver Vanity
Investments
• Chairman: Medi Card (Pty) Ltd
• Vice President: The Black Business
Council
Current Employment:
• Businessman
11
BOARD OF DIRECTORS
Mr Richard Mutshekwane
Chairman: Human Capital & Remuneration
Committee Member: Enterprise Risk Committee
Member: Audit Committee
Ms Barbara Calvin
Member: Wholesale Investment Committee
Member: Direct Lending Committee
Mr Gert Gouws
Chairman: Enterprise Risk Committee
Member: Audit Committee
Qualifcations:
• BCom (Hons) (Queen’s
University, Canada)
Age: 54
Other Directorships:
• None
Current Employment:
• Director: Vulindlela Development
Finance Consultants (Pty) Ltd
Qualifcations:
• Advanced Executive Programme (UNISA
Graduate School of Business Leadership)
• Credit Diploma (Institute of Bankers of
South Africa)
• Certifcate in Banking (Institute of Bankers
of South Africa)
Age: 64
Other Directorships:
• Vice Chairman: Midrand Child Welfare
Current Employment:
• Shareholder and Director: Pennine Energy
Innovation
Qualifcations:
• CA (SA)
• BCom (Law) (University of
Johannesburg)
• BCom (Hons) (University of
Johannesburg)
• FCMA, CGMA
• Advanced Management
Programme (INSEAD, France)
Age: 55
Other Directorships:
• Director: Kumba Iron Ore Ltd,
• Chairman: Herdmans SA (Pty) Ltd
• Chairman: Pebble Bed Modular
Reactor SOC Ltd
• Director: Findevco (Pty) Ltd
Current Employment:
• CFO: IDC
12
BOARD OF DIRECTORS
Mr Setlakalane Molepo
Member: Wholesale Investment
Committee Member: Human Capital
& Remuneration Committee
Mr Marius Ferreira
Chairman: Wholesale Investment Committee
Member: Direct Lending Committee
Qualifcations:
• MBL (UNISA, SBL)
• Certifcate in Financial Management
(Rand Afrikaans University)
• BSc Engineering (Civil) University
of Witwatersrand;
• National Diploma in Civil
Engineering Northern Transvaal
Technikon
Age: 52
Other Directorships:
• BusaMed Holdings (Pty) Ltd
• South Africa Metals Equity
(Pty) Ltd
• Zastrovect Investments (Pty) Ltd
Current Employment:
• Divisional Executive: SME &
Rural Development and National
Empowerment Fund (NEF)
Qualifcations:
• BCom (Hons) (Rand Afrikaans
University)
Age: 59
Other Directorships:
• None
Current Employment:
• Director: Imalivest (Pty) Ltd
• CFO: Imalivest Mineral Resources
(Pty) Ltd
13
Annual Report 2014
CHAIRPERSON'S STATEMENT
3
14
…facilitating increased access to fnance for South Africa’s small business sector…
The focus for 2013/14 fnancial year was consolidation, following the merger, and reaching
signifcantly higher numbers of SMMEs. I am happy to report that both these have been achieved.
sefa experienced enormous growth in the direct lending loan programme with the loan book
doubling from last fnancial year.
We have expanded our footprint ensuring that more SMMEs can access our products and
services with ease. We have also enhanced our capacity to better serve the SMMEs with
innovative products and services.
Through our strategic partnerships with fnancial intermediaries, sefa was enabled to extend
sector focused loan fnancing products and services to sectors such as mining, agriculture, transport,
automotive and microfnance. We recognise that by combining the industry-specifc expertise of the
intermediaries with the fnancial support expertise of sefa, we can increase the chances of survival
and growth of SMMEs, thus contributing to job creation and economic growth of South Africa.
Following the merger process, the integration of human resources, administrative and management systems have been fnalised and improvements effected where
necessary. A few challenges with regard to human resources still remain but these are being resolved.
Developing and growing the SMME sector takes collective effort and as sefa we placed emphasis on building partnership with other SMME support institutions,
the government and the private sector. To this extent we developed strategic partnerships with the National Empowerment Fund (NEF), the Small Enterprise
Development Agency (seda), the South African Institute of Chartered Accountants (SAICA), National Youth Development Agency (NYDA) and National and
Regional Chambers of Commerce and Industries. These partnerships contributed to greater awareness of our organisation’s products and services, outreach to
SMMEs, increase in our loan book and effective post investment support to funded enterprises.
We have also identifed some challenges that we have prioritised for the next fnancial year and these are:
• Impairments have increased and one of the main reason being non-payment of SMMEs by their clients and therefore being unable to service their loans
with sefa;
• Some of our intermediary partners charge SMMEs very high interest rates.
In addition to these, we will focus on the following for the next fnancial year:
• reaching more SMMEs, especially those located in rural communities, through continued expansion of our footprint and growing the loan book through
innovative products and services;
• streamlining business processes to increase turn-around times on loan applications;
• use of information and communication technology to signifcantly improve effciencies, thus reducing the cost of fnance to SMMEs;
• increase collaboration with institutions that provide business support to SMMEs to reduce the default rates;
• enhance collaboration with commercial banks so that together we can reach more SMMEs with loan products;
• explore and build partnerships with Co-operative Financial Institutions (CFIs) to increase access to funding for small and micro enterprises and develop a
strong fnancial co-operative sector; and
• developing targeted enterprise loan programmes for youth, women, people living with disabilities and rural communities.
Annual Report 2014
As the Board of Directors and management of sefa, we would like to express our gratitude to the Honourable Minister of Economic Development Department,
Minister Ebrahim Patel, for his guidance and continued support to sefa and the promotion of small business development in South Africa.
I would also like to acknowledge the contribution made by our shareholder, the IDC in sefa’s success. They have been exceptionally supportive in augmenting
sefa’s capacity during a very challenging period. I also thank the NEF for their assistance which directly contributed to enhanced loan processes and therefore
the growth of our loan book.
I also wish to thank my fellow board members for their commitment to the SMME sector and to making sefa a strong fnancier of SMMEs in South Africa. I also
commend the CEO, executive management and staff of sefa for their dedication during the reporting period.
Entrepreneurs are our pathfnders to growth and societal wellbeing, it is our collective responsibility to nurture and support them.
Dr Sizeka Magwentshu-Rensburg
Chairperson of the Board
15
Annual Report 2014
…increasing access to fnance to create jobs…
There is growing recognition of the important role that small businesses play as an effcient
and prolifc job creators, being seeds of big businesses and the fuel of economic engines. Small
enterprises are sources of dynamism, innovation, competition, growth and job creation.
Our role as sefa is to champion the development of small businesses in South Africa by creating
enabling platforms and programmes for small businesses to access fnance at the right cost.
Dynamic Growth in Loan Book
In the fscal year 2013/14, we continued to position ourselves as a leading catalyst for the
development of small businesses and have approved R1.1 billion in loan facilities for small business
development through our various loan programmes. This represents a 142% increase on the
2012/3 fnancial year approvals.
CHIEF EXECUTIVE OFFICER’S STATEMENT
4
Likewise, we were able to increase our disbursements by a 176%, to the value of R549 million to SMMEs and fnancial intermediaries. The growth in our loan
book represents an encouraging developmental trajectory given the development phase of the organisation and the challenges linked to the merger.
Development Impact
For the fnancial year under review, sefa’s fnancial support resulted in 46, 407 entrepreneurs benefting from our different loan products and services to the
value of R822 million. Of the 46,407 entrepreneurs supported:
• 10, 291 were youth owned enterprises with loan funding support to the value of R157 million;
• 44, 302 were women owned businesses with funding support to the value of R362 million;
• 36, 729 were rural-based enterprises with a total funding of R429 million; and
• 43, 643 were black owned enterprises funded to the value of R599 million.
Financial Performance
We closed the fscal year with total assets amounting to R2,2 billion. Our revenue stream prior to considering fair value adjustments to investment properties
and grants recognised in income has increased by 17.5% to R141.5 million. This is largely attributable to the increase in interest and fees from lending activities. An
allocation was received from government which is channelled through the IDC as a shareholder’s loan, this amounted to R231 million.
Risk Management
Impairments and bad debt movements relate to legacy credit facilities granted prior to the merger and the growing loan book, especially our Direct Lending book.
sefa operates as a lender of last resort to entrepreneurs. Most of the enterprises we fund, are those that commercial lenders do not have appetite for, hence
our high operating risk.
We subsequently strengthened our risk and governance institutional framework to embed and enhance risk culture and management across sefa. We also
adopted a credit policy and framework; capacitated our credit evaluation business unit, and strengthened our credit management committees and overall
compliance and fraud prevention strategies.
The inability to service debts by our clients remains an area of concern. As a result, sefa has entered into an agreement with the South African Institute of
Chartered Accountants (SAICA) to support loan benefciaries/ clients with book keeping and fnancial skills. The partnership is growing and is yielding results to
both sefa and our clients.
16
Annual Report 2014
17
Human Capital Management
Our staff are our greatest asset. We therefore strive to create a working environment that is conducive for both their personal wellbeing and work life. sefa has
therefore collaborated with the Institute for Counselling and Advisory Services (ICAS) for their Employee Assistance Programme (EAP) to provide psychological
care and support to enable employees to optimise their competencies in the workplace.
Learning and development is key to increasing our capacity and building a knowledge organisation, as our business is principally based on the management of
information and money. Thirty-fve percent of our staff is supported by the sefa bursary programme. To enhance ongoing skills development various short-term
interventions were implemented. Expenditure on training and development represented 2% of payroll.
Partnership Development
We have built synergies and partnerships with a number of organisations and institutions that share our developmental agenda. These collaborations have enabled
sefa to increase its funding to small businesses on a national scale. sefa has entered into targeted collaborative initiatives with other national development fnance
institutions such as the IDC, the NEF, seda and the NYDA.
Partnering with the IDC has enabled us to leverage off the development fnance expertise of the Corporation which was built over many decades. The
collaboration with the NEF gave us the much needed scale following increased demand of fnancing requirements by our clients, whilst seda has helped us to
extend our footprint as we have co-located into 25 of seda’s offces nationally thereby bringing sefa much closer to our clients, simplifying the access route to
funding. In addition we were able to build a strategic partnership with the NYDA in tackling economic and unemployment challenges amongst the youth.
Just as no journey to success is without hills and valleys, sefa’s establishment in 2012/13, and its growth in 2013/14, was not without diffculties. We continued
to embed sefa’s values, with the aim to improve our value proposition and offerings to our clientele. Some areas of enhancement identifed include the need
to improve our turnaround times; and we are inculcating an entrepreneurial performance culture that is linked to a passion for development across all functional
areas of our business in order to fulfl our national mandate.
To speed up our responses to stakeholders, we have implemented an online application facility on the sefa website for potential clients to apply online. Systems
and processes were also enhanced to improve the workfow and turnaround times. The sefa Loan Administration System (sefaLAS) has also been enhanced to
ensure that all core products are being managed from one integrated platform.
The past fscal year has indeed marked a period of increasing access to fnance and job creation. I am particularly humbled with a deep sense of appreciation and
privileged to have been given the opportunity to lead this young organisation which has enormous potential to contribute positively to the lives and aspirations
of our people. We are driven by the passion for development and prospects of promoting sustainable entrepreneurship that can address the triple challenges of
unemployment (especially among the youth), alleviation of poverty and inequality.
We are in a unique position to precipitate and facilitate the development of SMMEs and to create a vibrant job market.
I thank my management team and staff for working tirelessly and giving their best to produce the results that epitomise our intended development objectives
under trying circumstances.
I also wish to express my sincere gratitude to our Chairperson, Dr Sizeka Magwentshu-Rensburg, and my fellow colleagues on the Board of Directors, for their
sterling leadership and guidance during another challenging year. We thank our shareholder, the IDC, the Honourable Minister Ebrahim Patel and the team at the
Economic Development Department (EDD) for their unwavering support and holding us accountable.
We remain steadfast and committed to the course of increasing access to fnance for SMMEs and thereby contribute to building inclusive economic growth.
Mr Thakhani Makhuvha
Chief Executive Offcer
Mr Thakhani Makhuvha
Chief Executive Offcer
Ms Lesego Mashishi
Executive Manager: Human Capital Management
Mr Piet Swanepoel
Executive Manager: Direct Lending
EXECUTIVE MANAGEMENT 5
18
Ms Vuyelwa Matsiliza
Executive Manager: Wholesale Lending
Ms Leonie van Lelyveld
Chief Risk Offcer & Acting
Chief Financial Offcer from December 2013
EXECUTIVE MANAGEMENT
19
Annual Report 2014
20
…enabling increased access to fnance …
The Finance Division has played a vital role in supporting various business processes.
During 2013/14, the division managed to achieve the following:
• adequately maintaining and improving systems that were implemented in the previous
fnancial year;
• identifying fruitless, wasteful, irregular, and unauthorised expenditure on a continuous basis
and implementing processes to minimise such expenditure;
• cost centres within the organisation were clearly defned and aligned with the organisational
structure to enhance reporting;
• further systems migration were done to ensure effective processing and reporting.
The Finance Division has various projects planned to enhance the effectiveness and effciency of supporting business processes. These projects include:
• cost saving initiatives which are expected to have a direct impact on the cost to income ratio;
• assisting in the creation of a fnancial model for sefa, which will address sefa’s sustainability and assist in defning, measuring and reporting on the key
measures for the entity;
• automation of various manual processes that are currently in use;
• developing and implementing an integrated reporting tool to provide timeous information of high quality to support management’s decision;
• as business activity is increasing, internal policies and controls are to be enhanced to cope with the increased workload.
CORPORATE PERFORMANCE OVERVIEW
6
6.1 Financial Performance Overview
Annual Report 2014
21
Due to various cost saving initiatives as well as an increase in interest from loans and advances, a cost to income ratio of 97% was achieved, which is well below
the target of 129%.
The institution’s growth is evident in loans and advances and investments which represented 57% of the total group assets, compared to the 44% of the previous
year. The interest from loans and advances increased by 37% from the previous year.
2014 2013
Dividends
Interest: Cash
Other Income
Properties Income
Indemnity Premiums
Interest: Loans & Advances
Fee Income
Grant Income
Dividends
Interest: Cash
Other Income
Properties Income
Indemnity Premiums
Interest: Loans & Advances
Fee Income
Grant Income
24%
9%
5%
28%
27%
6%
1%
0% 1%
29%
21%
4%
18%
24%
1%
2%
Composition of Group Income
Annual Report 2014
22
The increase in loans and advances caused a decrease in cash balances from 42% to 32% of total assets, ultimately coinciding with the objective to increase access
to fnance from SMMEs in South Africa.
Composition of Group Assets
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Other Assets Investments
0%
2%
36%
22%
8%
32%
5%
31%
14%
8%
42%
Loans & Advances Investment Properties Cash & Cash Equivalents
2014 2013
Annual Report 2014
23
Board
of Directors
Board Committees
ERC / AC / WIC / HCRC / DLC
Risk Governance
• Setting risk strategy
• Set risk appetite and approve risk
policies
• Manage risk exposures
Risk Guidance, Monitoring & Reporting
• Development of risk guidance policies,
procedures, systems and tools
• Monitoring and reporting on consolidated risk
exposures
Risk Division Internal Audit External Audit Risk Assurance
Risk Taking & Management
• Identifcation, assessment and management of
day to day risks
• Bear the consequences of loss arising from risks
materialising
Risk Facilitator
(Champions
Specialists)
Business Divisions
Risk Culture
Overview
Taking risk to exploit business opportunities is inherent in any business. In sefa’s development fnance sphere, rewards are sought that transcend fnancial returns
to include a range of socio-economic development impact indicators. Risks taken by sefa are typically higher compared to those taken by commercial entities. As a
result, it is imperative for sefa to implement an effective risk management system to determine the appropriate level of risk that ensures the desired organisational
balance of development impact and fnancial return.
During the reporting period, sefa made signifcant strides in managing its risk in a robust and holistic manner. Amidst a challenging development fnance landscape,
the Risk Division has enhanced and embedded the culture of risk management into the business to drive value creation for the organisation. This requires effective
strategic planning, performance management and effective risk management, which are embedded in the daily operations of the organisation. Adopting the
three- lines-of-defence model as the base for building an effective risk management system within sefa, the integrated model for the risk management functions
and responsibilities have been applied, as indicated below.
An Integrated Enterprise Risk Management Model for sefa
6.2 Risk and Compliance Management Performance Overview
Annual Report 2014
24
Risk Appetite
sefa’s risk appetite statement has been reviewed and approved by the Board to link business strategies with risk-taking capacities and optimise risk-return
trade-offs.
Risk Management Maturity
One of the aims of the risk management strategy is to achieve an optimal risk maturity level proportionate to the resources and risk to which sefa is exposed.
The risk maturity level defnes the degree of sophistication of its risk management activities. Hence, the greater the level of sophistication, the greater the benefts
of enterprise risk management. sefa benchmarks its risk management maturity against the following risk maturity matrix:
Based on our pro-active risk management implementation, we rate ourselves as level 3 on the above risk maturity matrix.
Risk Maturity Key Characteristics
Level 1 Risk Naive • There is no formal approach developed for risk management
Level 2 Risk Aware • scattered silo-based and fragmented approach to risk management;
• risk is defned differently at different levels and parts of the company;
• risk management is reactive;
• limited alignment of risk management to strategy; uncoordinated monitoring and reporting of risk.
Level 4 Risk Managed • enterprise wide approach to risk management developed and communicated;
• risk management activities coordinated across business areas;
• enterprise risk monitoring, measuring and reporting is established; opportunity risks identifed and exploited.
Level 5 Risk Enabled • risk management and internal control fully embedded into the decisions and operations of the company;
• on-going risk assessment processes;
• risk discussion embedded in strategic planning, capital allocation, product development, etc.; risk management is
linked to performance measurement and incentives system.
Level 3 Risk Defned • risk strategy and policies are in place and communicated; risk appetite defned; common risk assessment
process/responses adopted; company-wide risk assessment performed; identifed risk universe; risk mitigation
action plans implemented in response to high priority key risks; communication of key risks to the Executive
Committee and the Board.
Annual Report 2014
Credit Risk
Credit risk is defned as the fnancial loss arising from the failure of a counter party to fulfl its contractual obligations to sefa. The credit risk that sefa faces arises
mainly from providing fnance to survivalist, micro, small and medium businesses throughout South Africa. The granting of credit is therefore sefa’s major source
of income and as such the most signifcant risk. sefa therefore dedicates considerable resources to its control.
Credit Risk Management Framework
Credit risk management encompasses the process of identifcation, measurement, monitoring and controlling of all credit decisions and exposures. Credit risk
management is an integral part of sefa’s core business and its management is ingrained into all of the institution’s operations. The primary objective of credit
risk management is therefore to ensure that sefa’s risk is in line with the institution’s risk appetite and threshold, and that all risk issues inherent in sefa’s lending
decisions are mitigated and managed.
sefa’s credit risk framework acknowledges that in the fulflment of sefa’s mandate, it is highly exposed to various levels of credit risk that are material and require
comprehensive controls and ongoing oversight.
The credit risk unit was formed in June 2013 as a dedicated resource within the Risk Division. Its role is to assist the Chief Risk Offcer in setting and maintaining
best practice credit risk management by providing analytical and advisory services in respect of risk taking, control, measuring and reporting credit risk exposures,
trends and quality of assets at portfolio level.
Credit decision-making is made at committee level. sefa has three Credit Committees, namely:
• Executive Credit Committee
• Management Credit Committee
• Small Enterprise Credit Committee
These Credit Committees have clearly defned mandates, delegated authority and membership.
Credit Risk Management Enhancement
The credit risk unit has since its inception embarked on a number of improvements to review existing policies to avoid undue credit risk and potential loss without
compromising sustainability and development impact. The changes focused on building stronger interdepartmental relations at various levels with the business
units as they are primarily responsible to manage risks. This approach balances strong independent oversight at corporate level. These changes also encompass
the adoption of credit risk-assessment models.
sefa’s credit policies, which have been approved by the Board and implemented, will ensure the following:
• independence and integrity of decision making and risk reviews;
• sound and consistent credit granting standards;
• effective credit risk management;
• proactive identifcation of potential defaults;
• robust credit granting processes and procedures.
sefa has also introduced new credit risk methodologies and models to measure and monitor credit risk. These models are aimed at assisting the institution in
frontline credit decision making on new transactions and in the management of the existing portfolio. These models ensure that sefa has a credit score for
each client.
25
Annual Report 2014
26
Credit Rating
As part of the credit process, sefa classifes clients according to their respective risk profles. The main objectives of risk classifcation are to rank sefa’s client base
according to risk and to estimate the probability of default for each client. The risk classifcation process also ensures that there is a shared understanding across
the institution of the credit risk that clients pose.
However, in view of sefa’s mandate, the institution has devised a discounted credit risk charge for all its clients. sefa therefore does not charge a risk premium
that is in line with the probability of default of its clients. sefa has developed an internal 10-grade scale, which refects the discounted risk margin associated with
a particular grade.
Reporting
In order to achieve its mandate, the fnancial sustainability of sefa is critical. sefa therefore dedicates resources to gaining a clear and accurate understanding
of credit risk across its portfolios in order to ensure that its balance sheet accurately refects the value of the assets in accordance with applicable accounting
principles. This process can be summarized in the following broad stages:
• measuring and quantifcation of exposures;
• monitoring adverse trends and weakness within the portfolios;
• identifying potential problem loans;
• raising provisions for impaired loans;
• writing off assets when the whole or part of a debt is considered irrecoverable.
Credit Risk Mitigation
Although sefa does not offer funds based on collateral, collateral serves as an instrument to enhance the quality of credit and mitigate credit risk inherent in
sefa’s lending transactions. This is done by increasing the ratio of recoverable debt in the event of default and by implication reducing the loss given default (LGD)
of credit exposures. In some instances, the element of ensuring personal commitment is also locked in through the taking of collateral.
The security coverage required is determined by the risk profle, materiality of the loan, and sustainability of the funds application. Financial covenants are also an
important tool for credit mitigation within sefa.
Collections
The sefa mandate of creating developmental impact does not end with the extension of fnance to SMMEs. sefa also extends assistance to these enterprises to
establish sustainable, commercially viable businesses.
Inherent to the sustained commercial viability of any business is the ability to service its debt timeously. sefa management has created a dedicated collections
function to expand the assistance to businesses to service debt.
The aim of this collections function is twofold. Firstly, the timeous collection of amounts owing to sefa and secondly, the rendering of assistance to clients that
are unable to service their debts.
The inability to service debts is often because of inappropriate business practice or structures resulting from a lack of commercial skill. The sefa Workout &
Restructure function employs experienced and skilled business persons to engage with and assist these clients. The Workout and Restructure team has an
agreement with the South African Institute of Chartered Accountants whereby sefa can draw on skills from SAICA when the need arises.
The creation of the Collections function, of which Workout and Restructure forms a large part, has created renewed focus on this area of the business with the
aim to expand on its early successes during the next fnancial year.
Annual Report 2014
27
Compliance Management
The compliance management function is currently incorporated within the Risk Division of sefa. The overarching objective of the compliance function is to guide
sefa through regulatory requirements and/or changes with the intent of preventing the severe non-compliance implications (including but not limited to fnancial
and reputational consequences). Compliance management within sefa must meet the regulators’ expectations and emerging statutory requirements.
The compliance function facilitates the relevant legislative and regulatory requirements to assist management with compliance, which includes the compliance
universe and compliance monitoring plans.
Highlights
For 2013/14, the Risk Division can report the following highlights:
• growing of risk and governance initiatives to embed and enhance risk culture and management across sefa in support of our strategic objectives;
• implementing credit policy and credit risk framework;
• improving risk reporting to management, Audit and Risk Committees and the Board;
• improving decision-making governance and turnaround time for credit decisions;
• enhancing and streamlining enterprise-wide risk reporting for effective risk oversight and consistent practices across sefa;
• updating strategic and divisional risk registers;
• initiating and implementing a credit risk pricing model, automated risk database and various reporting mechanisms to ensure robust risk capabilities through
technology;
• establishing the collections function.
The Risk Division has intimate knowledge of the high-risk environment that sefa works in, but also the passion to balance the risks with the urgency to increase
access to funding and create jobs. Careful balancing of institutional goals and economic demands will remain our focus.
Direct Lending
… increasing access to direct-lending fnance …
sefa’s Direct Lending is geared towards supporting aspiring entrepreneurs who want to start,
expand, or acquire businesses. sefa provides access to fnancing directly to Small, Micro, and
Medium Enterprises (SMMEs) and to co-operative enterprises operating in all sectors of the
economy. The loans, which range from a minimum of R50, 000 to a maximum of R5 million, have
gradually increased access to fnance in the SMME lending space during 2013/14.
The approval and disbursement levels show a marked improvement compared to the previous
fnancial year. Approvals refect a 151% increase, while disbursements recorded a 537% increase.
The increases are derived from a relatively low base and are the result of the development of
a solid lending platform and a proactive drive towards increased approvals and disbursements.
Annual Report 2014
Direct Lending Approvals and Disbursements
400
350
300
250
200
150
100
50
Rm
2012/13
29
The above graph refects a funding total of R366 million for 2013/14. During this period, 295 businesses were funded creating 7, 620 jobs. These
enterprises contributed towards rural economic development and supported youth, women and black owned businesses.
6.3 Direct Lending Performance Overview
0
Rm
2013/14
146
41
366
261
Approvals Disbursements
Annual Report 2014
The sustainability of our portfolio as well as our investee companies is important to us, hence our increased attention to post investment support to manage the
rate of impairments. A post investment unit is now pro-actively providing business support and tailored mentorship services to SMME clients. Partnerships with
private sector service providers have been established to provide tailored and industry-specifc business support and mentorship programmes, aided by effective
workout and restructuring interventions.
Public sector partnerships with the Small Enterprise Development Agency (seda) and other Provincial Development Corporations (PDCs) have contributed to
minimise duplications and overlaps and ensured that the services provided by government agencies are now streamlined and complementary to sefa’s focus.
During the year we have improved our credit risk assessment and approval processes to rigorously evaluate the risk associated with every application. The system
is developed to allow for adequate fexibility in order for each application to be assessed on its own merit. In cases where applications are rejected, adequate
feedback is provided on the reasons for the rejection.
In up-skilling internal staff (particularly those manning the branch offces) during 2013/14, a tailored credit-assessment course was developed and presented in
partnership with First National Bank’s (FNB) Training Academy.
The sectorial allocation of our direct lending activities for the year is depicted in the table below:
The investment activities are still skewed towards services and trade as well as the construction and engineering sectors. The challenge is to increase our portfolio
towards the manufacturing/ productive sector in the next fnancial year.
Planning for next year includes the following:
• strengthening and building investment offcer skills and capacities;
• increasing process effciencies to reduce turnaround times on applications;
• building post-investment skills and capabilities to pro-actively manage potential defaults and impairments
• expanding Direct Lending’s footprint through further strategic partnerships and alliances with organisations such as co-operative associations and franchise
organisations.
The growth in the Direct Lending loan book over the period under review, demonstrates the crucial enabling role that the division plays in increasing direct
fnance access to its SMME clients.
30
Number of
Approvals
Value of Approvals
R'000
Manufacturing 31 50, 256
Construction and Engineering 87 142, 379
Services and Trade 158 145, 314
Other 13 13, 817
Total 294 366, 529
Agriculture and Agro-processing 5 14, 763
Sector
Annual Report 2014
31
Development Impact: Direct Lending Loan Programmes
Number of SMMEs
Funded
Rand Value
R'000
Support to youth-owned enterprises 65 41, 639
Support to enterprises in priority rural provinces 79 101, 542
Support to women-enterprises 64 68, 779
Support to black-owned enterprises 194 196, 420
Support to entrepreneurs or enterprises with loans less or equal to R250K 75 9, 895
Support to SMMEs 209 225,481
Annual Report 2014
32
Resotec Africa Import Export CC: 100% pure water out of air (Resotec Africa)
Thandie Selele, the 100% owner of Resotec Africa was awarded the contract for the supply and full installation of Atmospheric Water Generators to provide the
community of Dingamazi Village, Giyani in Limpopo Province, with pure drinking water out of the atmosphere. However, the company did not have money to
execute a project of this magnitude and desperately knocked on all kinds of doors for funding. The prolonged complicated processes and lack of understanding
of the technology that the company is using by commercial banks and other institutions only complicated matters. sefa understood their unique challenges and
technology, and extended a loan of R3, 5 million to Resotec Africa.
The Atmospheric Water Generating project is the frst of its kind in the country. Resotec has successfully managed to install two fully functional Atmospheric
Water Generators, which are producing and supplying 100% pure clean drinking water to the community of Dingamazi Village.
Work was provided to about twenty community members during the construction of the foundations and laying of the slabs at Dingamazi village, while two
permanent employment opportunities were created.
Zik Zik Creations
Becoming her own boss is the drive that has seen Nontuthuzelo Nxele being celebrated as one of the most inspiring success stories in the Eastern Cape. She
was a teacher by profession and started her own business in 2003.
She was awarded a contract to supply patient linen to the Grey Hospital in Free State. Battling with capacity as she had three tenders to deliver on, she decided
to approach sefa for a business loan that would allow her to build capacity and to maintain jobs that she had already created in her previous contracts.
sefa funded her with an amount of R156, 740 to supply patients clothing to the hospital. The drive for business is skin deep for her as she recalled. “The passion
for business came from my mother who was entrepreneurial and very brave. After spending some time as a teacher I dedided to venture into business. Starting
a business was always going to be challenging”, says Nontuthuzelo.
The assistance from sefa gave her a much needed cash-fow and material. Already she has delivered on her contracts and forever grateful to sefa for giving her
a head start and her business is now doing exceptionally well.
The company manufactures and distributes linen and uniforms for the Eastern Cape Hospitals and Clinics and employs twelve people.
Amava Chrome
Amava Chrome, a chrome manufacturing company approached sefa for funding in order to convert from Diesel Generator power to Eskom to reduce cost and
upgrade the capacity by installing additional spirals to bring down the cost per ton of chrome ore feed processed. The company was funded R4,47 million by sefa.
Pillai Brapaharan acknowledges that the funding assisted his company to bring down costs, and helped the company to increase its proftability. "The funding came
at a right time for our company and capacitated us. From where I stand I believe that as a company we are doing extremely well since then”, says Pillai.
A GLANCE AT OUR DIRECT LENDING FUNDED SMMEs
Wholesale Lending
Annual Report 2014
34
Product enhancements
Business Loans (to RFIs and MFIs), the LREF and the Khula Credit Guarantee Scheme were enhanced to provide more customised services to intermediaries and
to reduce fnance costs to sefa’s target market; the SMMEs that require funding between R500 and R5 million. The co-operative sector products and services
were also reviewed to align sefa with the Co-operatives Amendment Act No 6 of 2013.
BUSINESS LOANS
A revolving business loan facility was introduced to curb the decapitalisation of intermediaries and the subsequent reduction of fnancial support to SMMEs. This
product is offered to intermediaries which possess specialised skills, infrastructure and local market intelligence required to service niche SMME market segments.
They complement our Direct Lending loan programme and also manage risks through close monitoring of SMMEs.
When funded through a revolving facility, the intermediary is able to draw down, repay and re-draw loans advanced to it. This fexibility of repayment and
re-borrowing within the approved facility allows the intermediary the capacity to further on-lend to the end benefciaries, without the risk of decapitalisation.
The revolving loan facility agreement clearly states the conditions that the intermediary must meet before it can re-draw money from the approved facility. These
conditions ordinarily include meeting periodic targets, reporting on development statistics and submitting cash fow projections covering the contract period. This
product will also be extended to the rest of the MFIs as well as RFIs that enable achievement of sefa’s development targets, that is, funding of black, women and
youth owned SMMEs at reasonable cost as well as those that increase sefa’s reach to South Africa’s priority provinces.
LAND REFORM EMPOWERMENT FACILITY
A new agreement with the Department of Rural Development and Land Reform (DRDLR), the sole funder of the Land Reform Empowerment Facility, was
negotiated and signed off in November 2013 to include production loans, mechanisation fnance, equity warehousing, and wholesale loan facilities to emerging
farmers.
During the year under review, sefa’s Wholesale Lending division focused on developing
innovative products. This entails entering into agreements with technical partners and fnancial
intermediaries who provide customised funding and development solutions that translate into
simple access to fnance SMMEs. Co-operative Financial Institutions are included in the SMME
products and services offered.
The division channels SMME development and funding support through:
• Micro-fnance Intermediaries (MFIs) for survivalists and micro enterprises;
• Retail Financial Intermediaries (RFIs) for small and medium businesses;
• Banking and Financial Institutions (BFIs) for delivery of the Land Reform Empowerment
Facility (LREF) products and the Khula Credit Guarantee Scheme to SMMEs;
• Specialised Funds and Joint Ventures for SMMEs in targeted markets and/or sectors; and
Co-operative Financial Institutions.
6.4 Wholesale Lending Performance Overview
Annual Report 2014
35
KHULA CREDIT GUARANTEE SCHEME
sefa is revamping the Khula Credit Guarantee Scheme (the Scheme) which was created to assist SMMEs that need fnancing from commercial banks/fnancial
institutions for establishing, expanding or acquiring new or existing viable businesses but do not have adequate and unencumbered collateral. Currently, the
Scheme works through mutually exclusive partnership arrangements with the four major banking institutions in the form of ABSA, First National Bank, Nedbank
and Standard Bank. The partnerships are regulated in terms of agreements concluded in 2007, which superseded the original agreements signed in 1997. As a
result of the ongoing renegotiations of the existing agreements, a new R100 million portfolio guarantee for First National Bank was approved within the year
under review and plans to extend the Scheme to more fnancial institutions that support SMMEs are underway.
CO-OPERATIVES SUPPORT
The Board approved the “sefa Integrated Strategy on CFIs”, which was aligned to the Co-operatives Amendment Act No 6 of 2013. The strategy serves as a
guiding document for sefa to provide fnancial support to the co-operative sector.
sefa will co-ordinate efforts on co-operative enterprises funding with other government agencies and seeks to complement seda, the Co-operative Banks
Development Agency (CBDA) and the Co-operatives Development Agency products and services. sefa has signed a Memorandum of Understanding with seda
and CBDA that outlines areas of mutual programme co-operation.
New Wholesale Business Models & Products
sefa identifed opportunities to pilot the hybrid model and venture into private-public partnerships. This is in line with the government’s view that development
fnance institutions should work with public and private sector players to multiply the impact of their limited fnancial contribution to small business development.
Transactions concluded during this fnancial year under the new hybrid model and the private-public partnership for enterprise supplier development are tabled
below.
HYBRID MODEL
During 2013/14, a new hybrid model of sector focus loan fnancing was introduced. This model comprises elements of both the Direct and Wholesale Lending
loan programmes. The model utilises the technical expertise of an external technical partner who conducts technical due diligence on potential clients and
provides business support required, whilst sefa provides credit assessment and fnancial support.
Two hybrid transactions were concluded in the transport and toursim sectors. The transport transaction faciltated the fnancing of taxi opeators whilst the
tourism transaction involves support to small toursim operators.. These partnerships extend a holistic funding support that encompasses both the pre and post
loan support to the SMMEs.
sefa will continue to leverage existing public and private sector technical expertise and resources by entering into agreements with partners who do not wish
to create SMME lending capacity but are willing to co-ordinate mutually benefcial SMME support programmes.
ENTERPRISE SUPPLIER DEVELOPMENT SUPPORT
To facilitate supply chain fnancing, sefa concluded the Godisa Supplier Development Fund (Godisa). Godisa is a strategic partnership between sefa, Transnet
and Anglo-American Zimele that facilitates SMME entry into the Transnet supply chain.
Annual Report 2014
36
Specialised Funds & Joint Ventures
Specialised funds and joint ventures are used as vehicles to address specifc SMME market segments. sefa leverages the existing technical capacity and resources
to provide a comprehensive package of development and fnancial support to SMMEs.
sefa AWETHU YOUTH FUND
To encourage youth entrepreneurship and employment generation, sefa established a R64 million youth fund in collaboration with Awethu Youth Enterprise
Incubator (Awethu). Awethu utilises a unique Incubation model that supports young entrepreneurs through business idea generation, business planning, fnancing,
marketing and post loan support. The programme targets entrepreneurs between the ages of 18-35 years.
TONGAAT HULETT FACILITY
In partnership with Tongaat Hulett Sugar (THS), sefa established the emerging sugar cane farmers loan programme. The loan programme provides production
input fnance for fertilizer, cane seed, insecticides, agro-chemicals, agricultural equipment and machinery to small scale emerging sugarcane growers who have
signed cane supply off-take agreements with THS. The participating farmers visited by sefa highly appreciated the comprehensive technical and fnancial support.
The Wholesale Lending division’s performance fgures are below:
Approvals
Disbursements
Actual Achieved
2013/14
R’m
Target
R’m
% Achieved
659 430 153%
288 362 80%
Annual Report 2014
37
In 2013/14, the Wholesale Lending Division achieved 80% of its R362 million disbursement target which equates to R288 million. There is a time lag between
approvals and disbursements as sefa disburses conditionally and on a drawdown basis. The graph above shows that the credit guarantee scheme uptake by the
major commercial banks has been low. sefa is currently revamping the scheme and the uptake is expected to improve in the next fnancial year.
The targeted post-investment support to SMMEs by intermediaries has contributed to the improvement and long term qualitative prospects of the loan book.
sefa will continue to review and enhance its product offerings to SMMEs to strengthen their long term growth.
Wholesale Lending Approvals and Disbursements
2013/14
R 150
R 100
R -
SME Credit Guarantee MFIs
M
i
l
l
i
o
n
s
R 50
R 250
R200
R 450
R350
R 500
R 400
R 300
R 440
R 209
R108
R 14
R 111
R 65
Approvals Disbursements
The total Wholesale Lending approval target of R430 million was outperformed by 53% in 2013/14, attributed to increasing fnancial and non-fnancial commitment
by public and private sectors for promotion of SMME development.
Annual Report 2014
38
Development Impact: Wholesale Lending Loan Programmes
Number of SMMEs
Funded
Rand Value
R'000
Support to youth-owned enterprises
Support to enterprises in priority rural provinces 95 96,193
Support to women-enterprises 68 68, 384
Support to black-owned enterprises 78 101, 712
Support to entrepreneurs or enterprises with loans less or equal to R250K 179 52, 927
Support to SMMEs 272 253, 249
Business Loans
60 52, 005
Number of SMMEs
Funded
Rand Value
R'000
Support to youth-owned enterprises
Support to enterprises in priority rural provinces 300 89, 573
Support to women-enterprises 134 21, 931
Support to black-owned enterprises 310 83, 976
Support to entrepreneurs or enterprises with loans less or equal to R250K 292 9, 886
Support to SMMEs 315 100, 755
Joint Ventures & Specialised Funds
18 9, 707
The tables below depicts the development impact under the Wholesale Lending loan programmes.
Annual Report 2014
39
Number of SMMEs
Funded
Rand Value
R'000
Support to youth-owned enterprises
Support to enterprises in priority rural provinces 6 2, 755
Support to women-enterprises 10 2, 549
Support to black-owned enterprises 11 9, 782
Support to entrepreneurs or enterprises with loans less or equal to R250K 6 759
Support to SMMEs 21 13, 798
Khula Credit Indemnities
9 6, 297
Number of SMMEs
Funded
Rand Value
R'000
Support to youth-owned enterprises
Support to enterprises in priority rural provinces 36, 146 139, 123
Support to women-enterprises 43, 330 189, 492
Support to black-owned enterprises 41, 991 186, 998
Support to entrepreneurs or enterprises with loans less or equal to R250K 44, 141 199, 434
Support to SMMEs 44, 151 199, 996
Microfnance
9, 807 40, 514
Annual Report 2014
40
Number of SMMEs
Funded
Rand Value
R'000
Support to youth-owned enterprises
Support to enterprises in priority rural provinces 103 756
Support to women-enterprises 696 11, 619
Support to black-owned enterprises 1, 059 20, 711
Support to entrepreneurs or enterprises with loans less or equal to R250K 1, 439 28, 820
Support to SMMEs 1, 439 28, 820
Co-operative Financial Institutions
332 7, 223
Total number of SMMEs fnanced within the wholesale division are 46, 198 and the amount disbursed to SMMEs is R596 million.
Annual Report 2014
Khula Akwandze Fund in Mpumalanga Province
Khula Akwandze Fund (the Fund) is a specialised fund established by sefa and Tsb Sugar SA’ (Tsb) black economic empowerment vehicle which is known as
Akwandze Agricultural Finance (Pty) Ltd (Akwandze). The fund was established to fnance black small scale sugar cane growers and mechanisation contractors who
have signed a cane delivery agreement with Tsb Sugar SA.
Ligugulethu Co-operative with a membership base of 744 and Tsb are equal shareholders in Akwandze Agricultural Finance. Members of the co-operative
enterprises receive preferential interest rates from the Fund.
The Fund approved 2, 711 loans to the value of R131million at an average loan size of R48, 000. The Fund strategically targets those niche markets for which
commercial banks have no appetite to service. Fifty-eight percent of the Fund’s investments are invested in businesses owned by the members of the co-operative
enterprises.
Anglo American sefa Mining Fund - Manngwe Mining (Pty) Ltd
Anglo American sefa Mining Fund invested R10 million in Manngwe Mining in December 2013 for a 20% stake in the company. Manngwe Mining was a 100% BEE
company before equity investment was made. The company is developing the Assen Iron Ore project in Thabazimbi. The Department of Minerals and Resources
issued a Bulk Sampling permit to the company to extract 300 000 tonnes of iron ore. The funding provided assisted the company to pay for its rehabilitation
guarantee and enable it to start extracting iron ore from the mine.
The mining activities have created permanent and casual work opportunities. As at 31 March 2014, Manngwe had created 5 permanent positions. There were also
a number of casual labourers from the surrounding areas that were used as security guards and for construction of the fence together with initial clearing of the
mining area. The numbers exclude the employees from the mining contractor on site who are performing the actual mining. The project will continue to create
more job opportunities as delivery of the tonnages to Sishen Iron Ore Company commences.
Manngwe will use the revenues from the project to fund the project to the next stage of Mining Right application and Bankable Feasibility study.
Mettle Administrative Services (Pty) Ltd - Alfa Bodyworks CC
The business was started in 1997, in a garage by the two brothers owning 50% each. It is a 100% BEE owned Close Corporation panel-beating service based in
Western Cape. It started with two employees and the staff complement has increased to 52. It has an administration and fnance unit, supported by two staff
members. The rest of the staff work on the panelbeating side.
The business is accredited by major insurance companies. They work closely with various dealerships and have factory approvals from all major manufacturers such
as Toyota, Honda, Nissan, KIA, OPEL, Ford, Cadillac, etc.
Alfa Bodyworks is a member of the RMI and SAMBRA. Panelbeating is labour intensive and requires skilled labour. Invoice discounting assisted them in maintaining
existing jobs by having cash immediately to pay employees, as they are paid every Friday. With Mettle, they do invoice discounting to the amount of R1,7 million
per month. They initially rented premises and are now owning their own building due to improved cash fows. The business has a 10 year relationship with Mettle.
In 2013, it received an award for an AA quality assured Autobody repairer.
41
A GLANCE AT OUR WHOLESALE LENDING FUNDED SMMEs
Annual Report 2014
Talent Victoria Hlongwa
Kwa-Zulu Natal Financial Services Co-operative, known as K-Ladies received a loan amounting to R1, 198,050 from sefa for on-lending to its members. The
co-operative enterprise affords its members the benefts of savings and loan services .
Talent joined the Financial co-operative enterprise in 2012 as one of the enterprising members. She owns a construction company, Buhlebakhe Trading Enterprise
CC which employs seven people. She has received a loan of R60, 000 from K-Ladies for her business which she used for working capital and to pay salaries and
wages for her employees. Her company specialises in building construction work, minor repairs and renovations delivering of goods and services.
According to her, the loan from K-Ladies has assisted her to grow her business which has brought about changes in her family. In her own words this what she said:
“The business has done lot of changes in my family, because I have seven children, six of them are my brother’s children and now I’m able to give them support,
by putting food on the table and giving them a future by taking them to school and paying for their school fees. “
42
Annual Report 2014
43
sefa operates in a competitive market where all players have access to the same technology,
systems, people and customers. As a result, there is a growing understanding that our people
are what will distinguish us in the marketplace. Our Human Capital Management strategy serves
as the foundation to transform our employees into a truly diverse and competitive workforce
geared to execute sefa strategy. We have two strategy focus areas:
• Talent: ensuring that we have capable human capital to execute current and future business
strategies.
• Culture: establishing a shared value-based organisational culture which is driven through
effective leadership and refected in the behaviour/performance of all employees.
Human Capital Management’s focus for the year under review was to keep our people safe
and healthy at work, develop talent to take sefa into the future, provide fair and competitive
remuneration, enhance systems and procedures, and improve employment relations climate.
6.5 Human Capital Management Performance Overview
Headcount
Our permanent staff complement as at 31 March 2014 was 194. This headcount was categorised as follows:
• Executive level accounted for 3%
• Management level accounted for 25%
• Professional level accounted for 46%
• Administration level accounted for 19%, and
• Support level accounted for 7%
A C I W Coloured African White Indian
Total A C I W A C I W
Male Female
Executive 5 1 0 0 1 2 0 0 1
Manager 49 21 2 0 1 20 1 1 3
Professional 90 24 3 1 6 46 5 1 4
Administrative 37 5 0 0 0 26 4 1 1
Support 13 5 1 0 3 4 0 0 0
Totals 194 56 6 1 11 98 10 3 9
Level
Annual Report 2014
EE Targets vs. Actuals
44
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
78% 78%
10% 8%
4% 3%
8% 11%
African Coloured Indian White
EE Target EE Actual
Performance Management
During 2013/14, a principle that rewards performance and value creation underpinned our performance management system. All employees were motivated to
perform through participative target setting, and undertook regular performance assessments, which is a process that involves regular feedback/review sessions
and development plans. A performance management workshop was conducted to ensure understanding of sefa’s existing practices and consistent application.
The process of agreeing on targets between employees and their managers and then assessing performance against these objectives has become frmly
entrenched in sefa’s culture of delivery of corporate targets.
Employee Engagement
In addition to this, sefa took steps during the year to measure employee engagement through an employee engagement survey. The survey gave employees
an opportunity to share their views on a number of specifed employee engagement dimensions within the company, such as leadership, job satisfaction,
communication, collaboration, prospects for growth, reward, and recognition.
The following areas of strength were identifed by employees:
• clear understanding of the purpose of the organisation;
• understanding of their role and contribution to the organisation;
• commitment of sefa employees to the success of the organisation;
• pride in working for sefa;
• Employee satisfaction/engagement remains a key pillar of the Human Capital Management strategy. sefa will continue to invest in employee
engagement initiatives to enhance an entrepreneurial workforce that is responsive to the SMME sector.
Occupational Health and Safety
Ensuring the post-merger health and wellness of sefa employees, was an absolute priority during 2013/14. In response to the stress that affects employees at
a personal and work-related level, sefa collaborated with the Institute for Counselling and Advisory Services (ICAS) for their Employee Assistance Programme
(EAP) to provide psychological care and support to enable employees to optimise their competencies in the workplace. Employees and their families have access
to a 24-hour, confdential and professional support service at ICAS to assist them in the management of daily personal and work-related diffculties. Over the
course of the year under review, 37% of sefa employees, cutting across gender, language and occupational positions utilised this service.
Annual Report 2014
Learning and Development
Our learning and development programmes for 2013/14 aimed at building organisational capacity in the skills level required to deliver on organisational strategy,
and to develop succession depth for senior roles. We also offered graduate training programmes to improve our resource pipeline for talent and supplemented
it with in-house and external development programmes. Our annual training budget, which constitutes 2% of payroll for learning and development was utilised
for these employee development interventions. Further initiatives included learning forums, and study loans with special focus on skills gaps identifed.
Categories of skills enhancements:
• micro-fnance
• fnancial analysis
• credit assessment
• due diligence
• fnancial modelling
• management and leadership
• customer interface
• interpersonal skills
Employee Relations
During 2013/14, post-merger employee relations issues continued to be addressed. In ensuring that due labour relations processes are followed and implemented,
we had regular engagements with organised labour at various levels, established different engagement fora and signed a Recognition Agreement. The purpose of
these structures was to provide and disseminate information to all employees and resolve issues quickly.
Human Capital Management will continue to inculcate a culture of organisational high performance, passion for development, integrity, and honesty so that
employees are motivated to ensure access to funding for all of sefa’s clients.
45
Annual Report 2014
PERFORMANCE AGAINST PREDETERMINED OBJECTIVES
7
Performance Indicator
2013/14
Target
Actual Achieved
for 2013/14
Reason for Variance
CUSTOMER
PERSPECTIVE 45%
Access to Finance by SMMEs and Development Impact
Approvals R 815 million R 1,065 billion Due to the growth in the loan books,
strengthening of internal capacity and targetted
marketing efforts
Disbursements R 737 million R 549 million The Wholesale transactions are approved over
a multi-year cycle and the draw downs are
scheduled according to the approval cycle.
Number of SMMEs fnanced 15,129 46,407 Overachievement is due to growth in the
Micro-fnance and Direct Lending loan books.
Number of jobs created 18,311 46,402
Facilities disbursed must be youth-
owned - 18-35 years old
30% 21% Limited viable business propositions and
entrepreneurship amongst the youth.
Facilities disbursed must be in priority
rural provinces
45% 58%
Overachievement is linked to the growth of
the loan book compared to the previous
fnancial year.
Facilities disbursed must be women-
owned businesses
40% 49%
Facilities disbursed must be black-
owned businesses
70% 81%
Facilities less than R250K disbursed to
end-users
40% 34%
FINANCIAL
PERSPECTIVE 25%
Ensuring sefa’s Sustainability and Strengthening Risk Management & Compliance
Net operating income as a % of
average assets at cost
0.8% -5% Target not achieved due to lower interest
income.
Cost to income ratio (excluding
Impairments & fnance charges)
129% 97% Overachievement is linked to the growth in the
loan book, an increase in interest income and
implementation costs containment strategy.
Bad debt ratio (Wholesale & Direct
lending loans issued by sefa) -
(Impairments as a % of portfolio at
cost)
31% 25% Target was achievement due to better post
investment monitoring and the write-off legacy
transactions (ex Khula and ex samaf).
Portfolio at risk of active clients less
than or equal to:
5% 22% Impairment provision linked to the growth in
the Direct Lending loan book.
Ratio of claims provisions vs amount
indemnifed of:
20% 16% Tightening of claims management an
strengthening of the overall claims business
process related to the credit guarantee
programme.
Reduce clients handed over to loss
control from 5 to 2 in 2014
2% 0% Target no acheived due to increase impairments
especially in the Direct Lending loan book.
46
Underachievement is due to lack of targeted
marketing and outreach initiatives.
Annual Report 2014
Performance Indicator
2013/14
Target
Actual Achieved
for 2013/14
Reasons for Variance
INTERNAL
BUSINESS
PROCESSES 15%
Improved Internal Business Processes & Systems
Development of at least ten key
policies; processes; systems; and
procedures
10% 16% Target exceeded due to consolidation of the
organisation post the merger and strengthening
of the governance environment.
Enhancement of Business Application
Processes - (Combine all loan
administration systems)
100% 100% All legacy systems have been transferred to the
the sefa loan management system.
Uptime/availability of critical systems 99.90% 100% Achievement is linked to the robustness of
the IT infrastructure and effective network
monitoring and management.
PEOPLE LEARNING
AND GROWTH 15%
Alignment, Development and Motivation of Human Capital
Labour Turn Over Rate (LTO) 7% 6% Stabilisation of the human resources
environment post the merger
Staff have Individual Development
Plans (IDPs) received and
implemented
80% 81% Achievement in the human resource indicators
is linked to strengthening of the Human Capital
Management capability.
Performance management
assessments conducted by Managers
for the year ending 31 March 2014.
100% 58% New performance policy was only implemented
in September 2013 and under achievement is
linked to the associated change management
process.
Establish Employee Engagement Index
(EEI) baseline score
5% 5% Employee Engagement Survey completed using
the Investors in People standard.
47
Annual Report 2014
48
Governance
The organisation applies the governance principles contained in the King Report on Governance for South Africa (King III) and continues to improve and
strengthen recommended practices in its governance structures, systems, processes, and procedures.
Key Developments
The Board approved, inter alia, the following strategies and policies:
• sefa Integrated strategy on co?operatives
• Performance management and development policy
• Remuneration policy
• IT Information security policy
• Anti?fraud and corruption policy
• Operational risk management framework and policy
• Enterprise risk management framework
sefa Board and Committees
sefa has a unitary Board structure comprising one executive director and ten non?executive directors, majority of whom are independent. The Board functions
in accordance with King III and within the context of the Public Finance Management Act of 1999 and the Companies Act 71 of 2008 (the Companies Act). The
Board composition refects a wide range of skills and knowledge, necessary to meet sefa’s strategic objectives.
The Memorandum of Incorporation (MOI) prescribes the size of the sefa Board; it permits a minimum of fve and a maximum of ffteen Directors. Directors’
term of offce is governed by the Company’s MOI and is subject to periodic re?election by the Shareholder.
The Chairperson of the Board of sefa is a Non?Executive Director. No individual has unfettered powers; the roles of Chairperson and Chief Executive Offcer
are separate to ensure a clear separation of duties. The Non?Executive Directors are not involved in the day?to?day running of the business of sefa and do not
draw any remuneration from the company, other than the fees paid for meeting attendance and other ad hoc duties assigned to them by the Chairperson.
The Board’s role is to exercise leadership and sound judgement in directing sefa, to achieve its mandate and growth, in the best interest of all its stakeholders.
Conficts of Interest
The Board recognises the importance of acting in the best interest of the company. The Board applies the provisions of the Companies Act by disclosing and
avoiding conficts of interest. Directors are required to declare their general interests annually and at each meeting in accordance with the Companies Act.
CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 2014 8
Annual Report 2014
49
Board and Committee Meetings Attendance
Chairmanship
Dr S Magwentshu?Rensburg Chairperson of the Board
Mr VG Mutshekwane Chairman of the Human Capital and Remuneration Committee
Mr IAS Tayob Chairman of the Audit Committee
Mr LB Mavundla Chairman of the Direct Lending Committee
Mr GS Gouws Chairman of the Enterprise Risk Committee
Mr M Ferreira Chairman of the Wholesale Investment Committee
Remuneration
sefa Non?Executive Directors are remunerated for the meetings attended at a rate which has been approved by the shareholder. No performance?based
remuneration or retainer fees are paid to Directors.
sefa Directors’ remuneration is represented in note 27 in the Annual Financial Statements.
Board Performance Assessment
The Board performance assessments were conducted during December 2013. Areas needing improvement have been identifed and processes to address these
are underway.
Board
Number of meetings held
during the year (incl. special
meetings)
Board Audit
Committee
Enterprise
Risk
Committee
Human Capital &
Remuneration
Committee
Wholesale
Investment
Committee
Direct Lending
Committee
13 6 4 8 8 4
Dr S Magwentshu?Rensburg 11 n / a n / a n / a n / a n / a
Mr VG Mutshekwane 13 6 4 8 n / a n / a
Mr IAS Tayob 9 6 4 7 n / a n / a
Mr SA Molepo 10 n / a n / a 8 6 n / a
Mr LB Mavundla 10 n / a n / a n / a 8 4
Mr GS Gouws 11 6 4 n / a n / a n / a
Mr M Ferreira 13 n / a n / a n / a 8 4
Ms BP Calvin 6 n / a n / a n / a 7 3
Ms H Lupuwana 8 n / a n / a 5 n / a n / a
Ms K Schumann 11 n / a n / a n / a 4 1
Mr T Makhuvha* 13 6 4 6 8 4
* Chief Executive Offcer
Annual Report 2014
50
Director Development
sefa encourages ongoing director development to enhance governance practices within the Board and in the best interest of the Company. A formal director
development workshop was conducted for the Board and senior management by the Institute of Directors in Southern Africa, during the year under review.
Delegation of Authority
While the Board delegates its authority to management, it retains the responsibility concerning the exercise of the delegated authority. In terms of Section 56
of the Public Finance Management Act, 1 of 1999 (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.
Board Committees
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. These committees play an important role in enhancing good corporate governance. Each
committee acts in accordance with a written charter, setting out its mandate, membership, duties and reporting requirements.
In terms of the Companies Act, sefa is required to establish a Social and Ethics Committee (SEC). The Companies Act further provides that exemption may be
granted by the Companies and Intellectual Property Commission (CIPC), provided that the functions that would have otherwise been performed by the SEC are
performed by other structures within the company. Certain functions of the SEC are performed by other sefa Board Committees. The process of ensuring that
the remaining functions are fulflled somewhere in the organisational structures is underway.
Audit Committee (AC)
The AC monitors the adequacy of fnancial controls and reporting, reviews audit plans and adherence to these by external and internal auditors; ascertains the
reliability of the audit reports; ensures that fnancial reporting complies with IFRS, the Companies Act and the Public Finance Management Act; 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 the appointment and removal of auditors to the Board.
Enterprise Risk Committee (ERC)
The primary duty of the ERC is the governance of risk. It assists the Board with the responsible stewardship of sustainability, including stakeholder impact,
management of material risks, sustainability, governance, and reporting. The ERC reviews procedures for the identifcation of risks, manages the impact of such
risks on the company, and recommends the approval of risk policies to the Board.
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. 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.
Human Capital and Remuneration Committee (HCRC)
The main objective of the HCRC is to assist the Board in the development of compensation and human resources policies, plans and performance goals, as well
as specifc compensation levels for sefa. The HCRC assists the Board in fulflling its oversight responsibilities as well as overall compensation and human capital
matters.
Direct Lending Committee (DLC)
The DLC acts on behalf of the Board by considering transactions mandated to it by the Board and within its delegated authority. The committee plays an oversight
role with regards to the performance of the Direct Lending loan programme and assessment of the performance of the loan portfolio.
Annual Report 2014
51
Shareholder Engagement
The shareholder meets with the Board on a regular basis. The relationship between sefa and the shareholder is governed by the MOI and the Shareholder
Compact. sefa reports to the shareholder on a quarterly basis as required by the PFMA and Companies Act.
Ethical Leadership
sefa remains committed to ethical and responsible leadership. The Board provides effective leadership based on a foundation of principles and the Company
subscribes to high ethical standards. sefa is also committed to good governance practices characterised by responsibility, fairness, accountability, and transparency.
Company Secretary
The Company secretary is responsible to the Board for, amongst others, ensuring compliance with Board procedures and applicable statutes and regulations. To
enable the Board to function effectively, all directors have full and unrestricted access to the Company Secretary. Directors regularly receive information relevant
for the proper discharge of their duties through the Company Secretary.
Internal Audit
Internal Audit is an independent appraisal function, which provides the Board with assurance on the adequacy and effectiveness of the Company’s systems of
internal control. Internal audit follow a risk?based approach and reports to the Audit Committee and administratively to the Chief Executive Offcer.
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 an ongoing basis. The Board is ultimately responsible for the management of risk, and to ensure that
management takes such action as required to mitigate and minimise all identifed risks.
Internal Control
The Board has the overall responsibility of establishing and maintaining the company’s internal controls and for reviewing effectiveness thereof. The Directors,
through its relevant committees have reviewed the effectiveness of the internal controls in sefa operations throughout the year. The role of management is to
implement approved policies on risk and internal control. sefa management implemented ongoing risk management processes for identifying, evaluating and
managing signifcant risks faced by the Company. This process is reviewed annually by the Board.
sefa and its subsidiaries maintain fnancial and operational systems of internal controls in order to fulfl its responsibility in 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, established policies and procedures, including a Code of Ethics to foster
a strong ethical climate, which are communicated throughout the Company.
The internal auditors assist the Board in monitoring the operation of the internal control system and report their fndings and recommendations to management
and the Audit Committee. Corrective actions and any other measures are taken to address identifed control defciencies and to improve controls. 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. Therefore, effective internal control systems only provide reasonable assurance regarding the fnancial statements’ preparation and safeguarding of assets.
No signifcant breakdown or circumvention of controls has occurred to date.
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 of the company, together with senior management constitute the Executive Committee, which meets regularly, to discuss the day-to-day
operational matters. The Chief Executive Offcer also meets regularly with divisional heads and other members of the management team.
The Board has unrestricted access to the executive management in an effort to enhance communication and achievement of the vision of the Company. Further
communication with sefa employees is done through Board feedback sessions convened by the CEO.
Statement of Responsibility by the Board of Directors 53
Report of the Audit Committee 54
Directors’ Report 56
Declaration by the Group Company Secretary 60
Independent Auditor’s Report 61
Statements of Financial Position 64
Statements of Proft or Loss and Other Comprehensive Income 65
Statements of Changes in Equity 66
Statements of Cash Flows 67
Notes to the Financial Statements 68
The fnancial statements have been prepared under the supervision of the Group’s Chief Executive Offcer, Mr T Makhuvha.
The fnancial statements have been audited in compliance with section 30 of the Companies Act, No 71 of 2008.
GROUP AND COMPANY ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014
REGISTRATION NUMBER: 1995/011258/06
9
52
Annual Report 2014
53
The Public Finance Management Act, 1 of 1999 (PFMA) requires the directors to ensure that sefa and its subsidiaries keep full and proper records of fnancial
affairs. The directors are responsible for the preparation and integrity of the Group and company annual fnancial statements and related fnancial information to
ensure that these 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.
The Group and company annual fnancial statements, set out in this Annual Report from pages (64?129), comprised of the statements of fnancial position at 31
March 2014, and the statements of proft or loss and other comprehensive income, changes in equity and cash fows, and the notes to the fnancial statements
which includes a summary of signifcant accounting policies and other explanatory notes, have been prepared in accordance with the International Financial
Reporting Standards (IFRS) and in the manner required by the Companies Act 71 of 2008 (Companies Act) and the PFMA. In addition, the Directors are
responsible for preparing the Directors’ report.
The Directors acknowledge that they are ultimately responsible for the process of risk management and the system of internal controls. 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 annual fnancial statements in accordance with IFRS and to 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
of internal 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, the internal audit function and discussions held with the external auditor, on the results of their
audits, the Directors are of the opinion that the internal fnancial 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 to indicate that any material breakdown has occurred in the functioning of these internal controls,
procedures and systems during the year under review. 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 a going concern approach in
preparation of the fnancial statements.
The Group and company annual fnancial statements have been audited by the Company’s independent external auditor, KPMG Inc., who has been given unrestricted
access to all fnancial records and related information, including minutes of shareholder; Board and Board Committee meetings. KPMG Inc.’s unmodifed audit report is
contained in this annual report on page 61.
The Directors are of the opinion, based on the information available to date, that the Group and company annual fnancial statements fairly present the fnancial
position of sefa and the group at 31 March 2014 and the results of its operations and cash fow for the year then ended.
The Group and company Annual Financial Statements, which were prepared in accordance with IFRS, the Companies Act and the PFMA, appear on pages 64 to
129, and were approved by the Board of Directors on 13 August 2014 and are signed on its behalf by:
Dr Sizeka Magwentshu?Rensburg Mr Thakhani Makhuvha
Chairperson of the Board of Directors Chief Executive Offcer
13 August 2014 13 August 2014
STATEMENT OF RESPONSIBILITY BY THE BOARD OF DIRECTORS FOR THE
YEAR ENDED 31 MARCH 2014
Annual Report 2014
54
REPORT OF THE AUDIT COMMITTEE FOR THE YEAR ENDED 31 MARCH 2014
The Audit Committee (the Committee) has pleasure in submitting this report to the shareholder as required by the Companies Act of South Africa 71 of
2008 (the Companies Act), and as recommended by King Report on Corporate Governance for South Africa (King III).
Committee Membership
The Committee, which had been appointed by the shareholder for the fnancial year ended 31 March 2014, consisted of Mr IAS Tayob (Chairman),
Mr VG Mutshekwane and Mr GS Gouws.
Committee Responsibilities and Charter
The Committee reports that it has complied with its responsibilities as contained in section 38 (1)(a) of the Public Finance Management Act (PFMA), Treasury
Regulation 3.1., and the Companies Act. The Committee also confrms that it has adopted an appropriate formal Audit Committee Charter; has regulated its
affairs in compliance with this charter and has discharged all its responsibilities as stipulated therein.
The role of the Audit Committee
The Committee is satisfed that, during the year under review, it has performed the functions required by law. Among others those functions included the
requirements as set out in section 94 (7) of the Companies Act, Treasury Regulations 27.1.8 – 10, the PFMA and King III. In this regard, the Committee has, inter alia:
• ensured that the respective roles and functions of external audit and internal audit are suffciently clarifed and coordinated and that the combined assurance
received was appropriate to address all signifcant risks;
• reviewed the effectiveness of the company’s policies, systems and procedures for detecting and preventing fraud;
• reviewed and monitored the effectiveness and performance of the internal audit function, its standing, staffng plans, audit plans to provide adequate support
to enable the committee to meet its objectives;
• reviewed and approved the annual internal audit plan and the internal audit charter;
• ensured that the scope of the internal audit function had no limitations imposed by management and that there was no impairment on its independence;
• reviewed the results of the work performed by the internal audit function in relation to fnancial reporting, corporate governance, risk, internal controls and
any signifcant investigation and management responses;
• assisted the Board in carrying out its risk management responsibilities;
• evaluated the independence, effectiveness and performance of the external auditor, and obtained assurance from the auditors that adequate accounting
records were being maintained and appropriate accounting principles were in place and had been consistently applied;
• evaluated the appointment of the external auditor on an annual basis;
• approved the audit fee and fees in respect of any non?audit services;
• reviewed and approved the external audit plan;
• ensured that the scope of the external audit had no limitations imposed by management and that there was no impairment on its independence;
• reviewed the external auditor’s fndings and reports submitted to management and the independence and objectivity of the external auditor;
• reviewed the effectiveness of the company’s systems of internal controls, including internal fnancial control and risk management and ensured that effective
internal control systems were maintained;
• reviewed and addressed matters referred to it by the Board;
• reviewed the annual report, as well as annual fnancial statements to ensure that they present a balanced, true position and performance of the Company;
• reviewed interim reports, preliminary reports or/and other fnancial information prior to submission to and approval by the Board;
• provided as part of the Annual Report, a report of the Audit Committee.
Annual Report 2014
55
The Effectiveness of Internal Controls
The Company’s system of internal controls is designed to provide reasonable assurance, such that assets are safeguarded and the liabilities and working capital
are effectively managed.
Based on the assessment of the system of internal fnancial controls conducted by sefa’s internal audit, as well as information and explanations given by manage-
ment 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
Whilst the Board is ultimately responsible for the maintenance of an effective risk management process, the Committee, together with the Enterprise Risk
Committee, assisted the Board in assessing the adequacy of the risk management process. The Chairman of the Committee is also a member of the Enterprise
Risk Committee; this ensures that all relevant information is regularly shared. The Committee fulfls an oversight role regarding fnancial reporting risks, internal
fnancial controls, fraud and information technology risks as they relate to fnancial reporting.
External Auditor
The Committee gave due consideration to the independence of the external auditor and is satisfed that KPMG Inc. is independent of the Company and
management and therefore able to express an independent opinion on the Group’s annual fnancial statements.
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.
Financial Management
The Committee reviewed the annual fnancial statements of the Company and the Group and related information and is satisfed that they comply with
International Financial Reporting Standards. 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 of Directors.
On behalf of the Audit Committee:
Mr IAS Tayob
Chairman of the Audit Committee
13 August 2014
Annual Report 2014
56
Introduction
sefa is registered as a State Owned Company (SOC) in terms of the Companies Act 71 of 2008 (Companies Act) and is a Schedule 2 listed entity in terms of
the Public Finance Management Act (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 (FIs) 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 funding requirements are sourced from a transfer payment via the Economic Development Department's budget vote, retained reserves and the
R921 million IDC shareholder loan committed.
A grant of R231 million (2013: R170 million) was received from government to support sefa’s activities. The grant was paid to the IDC, which is conducting the
required oversight over sefa’s operations, and was made available to sefa for operational purposes through a loan.
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, this is agreed with the shareholder and thereafter they form 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.
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 the King report on Corporate Governance for South Africa (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.
DIRECTORS’ REPORT FOR THE YEAR ENDED 31 MARCH 2014
Annual Report 2014
57
Short Term Insurance Act
The indemnity product of sefa's wholly owned subsidiary, Khula Credit Guarantee, is registered as an insurance product with the Financial Services Board (FSB)
and is regulated by the Short Term Insurance Act, 53 of 1998 (STIA). Quarterly and annual returns must be submitted to the FSB. The company is required at all
times to maintain a statutory surplus asset ratio as defned by the STIA. The 2013 annual return submitted to the FSB showed a defcit regarding the minimum
capital requirements throughout the year as the counter-party diversifcation did not meet the minimum requirements. Despite sefa having adequate assets in
both years to meet liabilities, these assets were not adequately diversifed as per the regulations issued by the FSB. This has been partially addressed in the current
year by further diversifcation to the investment portfolio. Adequate diversifcation was obtained shortly after the fnancial year end.
The indemnity product issued under Khula Credit Guarantee has traditionally been managed by the holding company as part of its management and governance
processes. The resulting institutional arrangements do not comply fully with the requirements of the FSB in a manner that gives effect with the provisions of the
STIA. During the fnancial year, the company commenced a process to ensure appropriate measures are put in place to comply fully with all of the requirements
of the STIA.
Signifcant Matters
On 20 November 2013, the Board of Directors approved the sale of certain properties in the property portfolio.
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 (2013: Rnil).
Share Capital
The authorised and issued share capital remained unchanged during the year (2013: 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, fruitless and wasteful expenditure that occurred during the fnancial year. Materiality was set at R879,000 for the year under review.
SIGNIFICANCE 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.
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
R15.6 million had been adopted.
Unauthorised, Fruitless and Wasteful and Irregular Expenditure
UNAUTHORISED EXPENDITURE
No expenditure was classifed as unauthorised during the fnancial year under review.
FRUITLESS AND WASTEFUL EXPENDITURE
The PFMA defnes fruitless and wasteful expenditure as expenditure incurred in vain and would have been avoided had reasonable care been exercised.
Annual Report 2014
58
Fruitless and wasteful expenditure amounted to R333, 000 (2013: R785, 000).
Corrective action is being taken regarding the fruitless and wasteful expenditure incurred during the year under review.
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.
Opening balance
Irregular expenditure current year
Items reclassifed as not irregular after investigation performed
Condoned or written off by accounting authority
2014
R’000
2013
R’000
3,068 5,922
(14)
-
(3,547)
(5,429)
493 -
Irregular expenditure awaiting condonement -
493¹
¹ The balance was condoned during the current fnancial year.
Mr IAS Tayob
Mr VG Mutshekwane
Mr GS Gouws
10/06 23/08 19/09 Name of Director 29/10 17/02 24/03
AUDIT COMMITTEE INFORMATION
Audit Committee members have attended the following Audit Committee meetings during the reporting period:
? Present
Annual Report 2014
59
Directors
The Directors in offce during the fnancial year and up to the date of the approval of the Annual Financial Statements were:
Executive: Appointed
Mr T Makhuvha* 1 November 2012
Non - Executive:
Dr S Magwentshu?Rensburg (Chairperson) 7 April 2010
Mr IAS Tayob 7 April 2003
Mr M Ferreira 7 April 2010
Ms H Lupuwana 1 April 2012
Mr SA Molepo 1 April 2012
Ms K Schumann 1 April 2012
Mr L Mavundla 1 April 2012
Mr VG Mutshekwane 1 April 2012
Mr GS Gouws 1 April 2012
Ms B Calvin 1 April 2012
*Chief Executive Offcer
There were no resignations during the year under review.
Post reporting date events
The Directors are not aware of any other matter or circumstance arising since the end of the fnancial year and 13 August 2014, not otherwise dealt with in the
report that would affect the operations of the company or the Group signifcantly.
Annual Report 2014
60
I hereby certify that, to the best of my knowledge and belief, the Company has lodged with the Companies and Intellectual Property Commission, all such returns
required in terms of the Companies Act 71 of 2008, in respect of the fnancial year ended 31 March 2014 and all such returns are true, correct and up to date.
Ms NB Mongali
Company Secretary
13 August 2014
DECLARATION BY THE GROUP COMPANY SECRETARY
Annual Report 2014
61
Report on the Financial Statements
We have audited the group fnancial statements and fnancial statements of the Small Enterprise Finance Agency SOC Limited as set out on pages 64-129, which
comprise the statements of fnancial position as at 31 March 2014, the statements of proft or loss and other comprehensive income, statements of changes in
equity and statements of cash fows for the year then ended, and the notes, which include a summary of signifcant accounting policies and other explanatory
information to the fnancial statements.
THE DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL 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 and 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 2014, 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 2014, we have read, the Statement of Responsibility by the Board of Directors’, the
Report of the Audit Committee, the Directors’ Report and the Declaration by the Group Company Secretary 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 AUDITORS REPORT
TO PARLIAMENT ON SMALL ENTERPRISE FINANCE AGENCY SOC LIMITED
Annual Report 2014
62
Report on Other Legal and Regulatory Requirements
Public Audit Act Requirements
In accordance with the Public Audit Act of South Africa (PAA), and the General Notice issued in terms thereof, we report the following fndings relevant to
the reported performance against predetermined objectives, compliance with laws and regulations as well as internal control. We performed tests to identify
reportable fndings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, we do not express an
opinion or conclusion on these matters.
Predetermined Objectives
We performed procedures to obtain evidence about the usefulness and reliability of the information in the Performance Information Report as set out on pages
46 to 47 of the annual report, and reported thereon to the Accounting authority. The procedures performed were limited to the following selected objectives:
• Access to fnance by SMEs and Development Impact;
• Ensuring sefa’s sustainability and strengthening Risk Management and Compliance.
The reported performance against predetermined objectives was evaluated against the overall criteria of usefulness and reliability.
The usefulness of information in the reported performance against predetermined objectives 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 well defned, verifable, specifc, measurable, time bound and relevant as required by the National Treasury Framework
for managing programme performance information.
The reliability of the information in the reported performance against predetermined objectives is assessed to determine whether it is valid, accurate and com-
plete.
We report that there were no material fndings on the Performance Information Report concerning the usefulness and reliability of the information.
ADDITIONAL MATTER
Although no material fndings concerning the usefulness and reliability of the reported performance against predetermined objectives were identifed, we drew
attention to the following matter in our report to the Accounting Authority.
MATERIAL ADJUSTMENTS TO THE PERFORMANCE AGAINST PREDETERMINED OBJECTIVES SECTION
Material audit adjustments in the Performance Information Report were identifed during the audit and all adjustments were corrected by management.
Annual Report 2014
63
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 Information Report 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
13 August 2014
KPMG Crescent
85 Empire Road
Parktown
Johannesburg
Gauteng
2193
Annual Report 2014
64
STATEMENTS OF FINANCIAL POSITION AS AT 31 MARCH 2014
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
715,208 909,998 589,392 808,767
30,902 21,303 26,361 22,695
-
60 - -
479,363
303,060 387,412 211,576
18,189
26,409 18,189 26,409
-
- 170,652 141,604
641,261
604,914 114,344 108,982
133,530
53,037 89,208 7,047
11,782
75,193 12,581 113,338
159,146
171,435 159,146 171,435
25,567
- 25,567 -
11,635
12,401 11,549 12,280
611
1,874 611 1,699
2,227,194
2,179,684 1,605,012 1,625,832
Assets
Cash and cash equivalents 4
Trade and other receivables 5
Tax receivable 30
Loans and advances 6
Investments 7
Investments in subsidiaries 8
Investments in associates 9
Investments in joint ventures 10
Deferred tax asset 11
Investment properties 12
Investment properties held-for-sale 13
Equipment, furniture and other tangible assets 14
Intangible assets 15
Total Assets
Equity and Liabilities
308,300 308,300 308,300 308,300
585,018 756,901
7,714 254,725
893,318 1,065,201 316,014 563,025
2
- - -
893,320 1,065,201 316,014 563,025
135,092 136,784 100,480 101,911
163 - - -
1,175,521 944,542 1,175,521 944,542
6,282 11,073 - -
11,541 15,628 12,581 16,354
4, 859 6, 456 - -
416
-
416 -
1, 333, 874 1, 114, 483 1, 288, 998 1, 062, 807
2, 227,194 2, 179, 684 1, 605, 012 1, 625, 832
Share Capital 16
Reserves
Equity attributable to owners of the parent
Non-controlling interest
Total Equity
Liabilities
Trade and other payables 18
Tax payable 30
Shareholder loan 17
Outstanding claims provision 19
Deferred tax liability 11
Unearned risk provision 19
Post-retirement liability 20
Total Liabilities
Total Equity and Liabilities
NOTE
Annual Report 2014
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2014
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
135,420 116,759 122,175 101,693
6,087 3,663 6,035 1,774
8,983 48,870 8,983 48,870
15,677
(21,929) 13,278 (21,929)
166,167 147,363 150,471 130,408
(98,363)
(85,157) (98,363) (85,157)
(42,944) (33,193) (42,944) (33,193)
(89,926) (79,018) (92,789) (71,187)
(79,991)
(76,194) (66,046) (70,099)
(145,057) (126,199) (149,671) (129,228)
33,368 28,979 - -
(111,689)
(97,220) (149,671) (129,228)
(59,996) 32,806 (97,339) 36,110
(171,685) (64,414) (247,010) (93,118)
- - - -
(171,685) (64,414) (247,010) (93,118)
Revenue 21
NOTE
Income
Other income 22
Grant income 23
Net fair value gain/(loss) on fnancial and other assets 24
Personnel expenses
Investment property expenses
Movement on impairments and bad debt provisions 25
Other operating expenses
Operating loss 25
Proft from equity accounted investments, net of tax
Loss before tax
Income tax (expense)/credit 26
Net loss for the year
Other comprehensive income for the year, net of tax
Loss and total comprehensive loss for the year
Expenses
(171,687)
(64,410)
2
(4)
(171,685) (64,414)
Loss and total comprehensive loss attributable to:
Owners of the parent
Non-controlling interest
Loss and total comprehensive loss for the year
65
Annual Report 2014
66
Group
Share capital
Danida re-
serve*
Retained earn-
ings
Non-control
interest
Total
R'000 R'000 R'000 R'000 R'000
Balance as 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
Total comprehensive loss for the year
- - (64, 410) (4) (64, 414)
Balance as at 31 March 2013
308,300 10,155 746,746 - 1 065,201
Transfer to retained earnings
- (10,155) 10,155 - -
Distribution
-
-
(196) - (196)
Total comprehensive loss for the year
- -
(171,687)
2
(171,685)
Balance as at 31 March 2014
308,300 - 585,018 2 893,320
Company
Balance as 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 as at 31 March 2013
308,300 - 254,725 - 563,025
Total comprehensive loss for the year
- -
(247,010)
-
(247,010)
Balance as at 31 March 2014
308,300 - 7,714 - 316,014
STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2014
* This reserve arose from expired credit indemnities funded by the government of Denmark out of which Khula Credit Guarantee Limited may issue its own
further credit terms of the indemnities. In accordance with the funding agreement, all the funds remaining after a relevant loan has been discharged accrues to
Khula Credit Guarantee Limited, provided that such funds should be used solely for the purpose of any guarantee scheme conducted by Khula Credit Guarantee
Limited in support of the South African small business sector. These funds have accrued to Khula Credit Guarantee Limited and, as such have been transferred
to retained earnings.
Annual Report 2014
67
STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2014
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Cash fows from operating activities
Cash utilised by operations 29 (134,573) (194,982) (123,343) (113,018)
Increase in loans and advances (265,573) (50,896) (259,153) (31,392)
Grant income received 8,983 48,870 8,983 48,870
Interest and dividends received 46,444 51,151 42,963 45,150
Tax paid 30 (450) (5,945) (355) (5,157)
Net cash utilised by operating activities (345,169) (151,802) (330,905) (55,547)
Cash fows from investing activities
Purchase of equipment, furniture and
other tangible assets
(2,563) (12,282) (2,555) (12,273)
Purchase of intangible assets - (571) - (572)
Repayments from En-Commandite partnership 10,878 13,904 10,878 13,904
Investments in associates (5,893) (9,808) (5,893) (9,808)
Advances to joint ventures (82,832) 638 (82,832) 638
Repayments from subsidiaries - - (39,053) (9,057)
Acquisition of subsidiary (net of cash acquired) 35 - 191,709 - 191,709
Proceeds from sale of equipment, furniture and
other tangible assets
6 107 6 111
Proceeds from sale of investment properties - 1, 900 - 1, 900
Net cash (utilised)/generated by investing activities (80,404) 185,597 (119,449) 176,552
Cash fows from fnancing activities
Dividends payable (196) - - -
Capital funding received from shareholder 230,979 150,411 230,979 170,080
Net cash generated from fnancing activities 230,783 150,411 230,979 170,080
Net (decrease)/increase in cash and cash equivalents (194,790) 184,206 (219,375) 291,085
Cash and cash equivalents at beginning of year 909,998 725,792 808,767 517,682
Cash and cash equivalents at end of year 715,208 909,998 589,392 808,767
NOTE
Annual Report 2014
1. ACCOUNTING POLICIES
1.1 Reporting Entity
The Small Enterprise Finance Agency SOC Limited is domiciled in the Republic of South Africa. The company's registered offce is Eco Fusion 5, Building D, 1004
Teak Close, Witch Hazel avenue, Highveld Centurion, 0157. The consolidated fnancial statements as at and for the year ended 31 March 2014 comprise sefa, its
subsidiaries and the Group’s interest in associates and joint ventures (referred to as the Group). Where reference is made to the Group in the fnancial statements,
it applies to the company also, unless otherwise noted.
The Group is primarily involved in providing access to fnance to SMMEs directly through its branch network and indirectly through Financial Intermediaries (FIs)
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 prem-
ises that are leased to commercial undertakings.
The fnancial statements were authorised for issue by the Directors on 13 August 2014.
1.2 Statement of Compliance
The separate and consolidated fnancial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as well as the
requirements of the Public Finance Management Act (Act No. 1 of 1999), (PFMA), as amended.
1.3 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;
• investment properties held?for?sale are measured at fair value.
International Financial Reporting Standards, amendments and interpretations effective for the frst time in the current year:
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of
initial application of 1 April 2013.
a) Disclosures – offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7)
b) IFRS 10 Consolidated Financial Statements
c) IFRS 11 Joint Arrangements
d) IFRS 12 Disclosure of Interests in Other Entities
e) IFRS 13 Fair Value Measurement
f) Presentation of Items of Other Comprehensive Income (Amendments to IAS 1)
g) IAS 19 Employee benefts
h) IAS 27 Separate Financial Statements
i) IAS 28 Investments in Associates and Joint ventures
68
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014
Annual Report 2014
69
The nature and effects of the changes are explained below.
a) 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 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 1 April 2013.
b) IFRS 10: Consolidated Financial Statements. As a result of IFRS 10 (2011), the Group has changed its accounting policy for determining whether it has
control over and consequently whether it consolidates its investees. The standard introduces a new control model that focuses on whether the Group
has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those
returns.
In accordance with the transitional provisions of IFRS 10 (2011), the Group reassessed the control conclusion for its investees as at 1 April 2013. There
were no changes in the accounting treatment of any of its investments previously disclosed as subsidiaries.
c) IFRS 11: Joint Arrangements (Effective 1 January 2013) ? IFRS 11 replaces IAS 31 Interests in Joint Ventures. The Group has classifed its interests in joint
arrangements as either joint operations (if the Group has rights to the assets, and obligations for the liabilities, relating to an arrangement) or joint
ventures (if the Group has rights only to the net assets of an arrangement). When making the assessment, the Group considered the structure of the
arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances. Previously the
structure of the arrangement was the sole focus of classifcation.
The Group has re?evaluated its involvement in all its joint arrangements and has classifed all of these arrangements as joint ventures. Notwithstanding
the classifcation, the investments continue to be recognised by applying the equity method and there has been no impact on the recognised assets,
liabilities and comprehensive income of the Group.
d) 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. The Group has expanded its disclosures about its interests in subsidiaries and equity?accounted
investees.
e) 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. In accordance with the transitional provisions of IFRS 13, the Group has applied the new fair value
measurement guidance prospectively and has not provided anycomparative information for new disclosures. Notwithstanding the above, the change had
no signifcant impact on the measurements of the Groups assets and liabilities.
f) Amendment to IAS 1: Presentation of Financial Statements (Effective 1 January 2013). As a result of the amendments to IAS 1, the Group has
modifed the presentation of items of OCI in its statement of proft or loss and OCI, to present separately items that would be reclassifed to proft or
loss from those that would never be.
• The meaning of "currently has a legally enforceable right of set off"
• The application of simultaneous realisation and settlement
• The offsetting of collateral amounts
• The unit of account for applying the offsetting requirements
Annual Report 2014
70
g) Amendments to IAS 19: IAS 19 (2011) change 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 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.
h) Amendments to IAS 27: Separate fnancial statements. The amended standard now only deals with the requirements for separate fnancial
statements, which have been carried over largely unchanged from IAS 27 Consolidated and Separate Financial Statements. Requirements for
consolidated fnancial statements are now contained in IFRS 10 Consolidated Financial 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
IAS 39 Financial Instruments: Recognition and Measurement. 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.
i) Amendments to IAS 28: Investments in Associates and Joint Ventures. 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
(incl. exemptions from applying the equity method in some cases). It also prescribes how investments in associates and joint ventures should be tested
for impairment.
j) IASB annual improvement project: 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
• Amendments to IFRS 10: Investment Entities (Effective 1 January 2014). The statement has been amended to provide investment entities (as
defned) anexemption from the consolidation of particular subsidiaries and instead require that an investment entity measure the investment in each
eligible subsidiary at fair value through proft or loss in accordance with IAS 39 Financial instruments: Recognition and Measurement. This amendment is
not expected to have any effect on the Group or the Company’s fnancial statements.
• Amendments to IAS 36: Recoverable amounts disclosure for Non?Financial Assets (Effective 1 January 2014). The amendment is to reduce the
circumstances in which the recoverable amount of assets and cash?generating units is required to be disclosed, clarify the disclosures required, and to
introduce an explicit requirement to disclose the discount rate used in determining impairment (or reversals) where recoverable amount (based on
fair value less costs of disposal) is determined using a present value technique. This amendment is not expected to have an impact on either the Group
or the Company.
• Amendments to IAS 39: Financial Instruments: Recognition and Measurement (Effective 1 January 2014). The amendment is specifcally in regard
of hedge accounting. The amendment makes it clear that there is no need to discontinue hedge accounting if a hedging derivative is novated, provided
certain criteria are met. This amendment is not expected to have an impact on the Group or Company’s assets or liabilities..
• Amendments to IAS 19: Defned beneft plans: Employee contributions (Effective 1 July 2014). The amendment provides clarifcation on the require
ments that relate to how contributions from employees or third parties, which are linked to service, should be attributable to periods of service. In
addition, it permits a practical expedient if the amount of the contributions is independent of the number of years of the service, in that contributions
can, but are not required, to be recognised as a reduction in the service cost in the period in which the related service is rendered. This may have an
effect on the recognition of contributions from employees.
• IFRIC 21 Levies:This interpretation provides guidance on when to recognise a liability for a levy imposed by the government, both for levies that are
accounted for in accordance with IAS 37 Provisions, Contingent Liabilities and Assets and those where the timing and the amount of the levies are
uncertain.
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• 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. IFRS 9 (2010 and 2009) currently does
not have an effective date. 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.
1.4 Investments in Subsidiaries
Subsidiaries are entities controlled by sefa. Control exists when sefa is exposed to, or has the rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the entity. 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 consideration transferred in the acquisition is measured
as the fair value of assets given, equity instruments issued and liabilities incurred or assumed at the date of acquisition. The assets, liabilities and contingent liabilities
(a contingent liability acquired in a business combination is recognised in the acquisition accounting if it is a present obligation and its fair value can be measured
reliably) 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 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. Non?controlling interests (NCI) are measured at
their proportionate share of the acquiree’s identifable net assets at the acquisition date. Changes in the sefa’s interest in a subsidiary that do not result in loss of
control are accounted for as equity transactions. When the group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any
related NCI and other components of equity. Any resulting gain or loss is recognised in proft or loss. Any interest retained in the former subsidiary is measured
at fair value when control is lost. Investments in subsidiaries in the Company’s separate fnancial statements are carried at cost less impairment.
1.5 Structured Entities
The Group has established or participated in a number of structured entities (SEs) for trading and investment purposes. SEs are entities that are created to
accomplish narrow and well?defned objectives. Investments in SEs in the Company’s separate fnancial statements are carried at cost less impairment.
1.6 Business Combinations 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.
MEASUREMENT
Assets and liabilities acquired by the receiving entity, through a business combination under common control 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 retained earnings/accumulated loss. The carrying value at which the
assets and liabilities are initially recognised is therefore the book value. Therefore, for the subsequent measurement of these assets and liabilities the accounting
policies relevant to those assets and liabilities are followed.
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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 retained earnings/accumulated loss.
SEPARATE FINANCIAL STATEMENTS
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 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.
1.7 Interest in Equity?accounted Investees
The Group’s interests in equity?accounted investees comprise interests in associates and joint ventures.
Associates are all entities over which the Group has signifcant infuence but not control or joint control, over the fnancial and operating policies. Joint ventures
are those entities over whose activities the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its
assets and obligations for its liabilities.
Investments in associates and joint ventures are accounted for using the equity method of accounting and are initially recognised at cost, which includes transaction
costs. Subsequent to the initial recognition, the consolidated fnancial statements include the Group’s share of the proft or loss and OCI of equity?accounted
investees, until the date on which signifcant infuence or joint control ceases.
The Group’s investment in equity?accounted investees includes goodwill identifed on acquisition. 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 equity-accounted investee equals or exceeds its interest in the equity?accounted investee, 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 equity?accounted investee.
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 and joint ventures in the Company’s separate fnancial statements are carried at cost less impairment.
1.8 Financial Instruments
1.8.1 Financial Assets
The Group classifes its fnancial assets into the category of loans and receivables.
Management determines the classifcation of its fnancial assets at initial recognition.
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.
RECOGNITION AND MEASUREMENT
Loans and receivables are carried at amortised cost using the effective interest method less impairment loss.
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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.
1.8.2 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 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.
INDEMNITY CONTRACTS – CLASSIFICATION
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 effects 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 PROVISION
Unearned risk provision consists of:
• Provision for unearned premiums
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 premium provision in relation to such policies. The provision for unexpired risks is calculated separately by reference to class of busi-
ness that are managed together, after taking into account the relevant investment returns.
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OUTSTANDING CLAIMS PROVISION
Provision is made 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, also referred to as incurred but not
reported (IBNR) provisions. Whilst 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.
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 premium 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 dynamism 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.
1.8.3 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 Company of similar transactions such as in the Company’s
trading activity.
1.8.4 Share Capital
Share capital consists of ordinary shares and is classifed as equity. Issued share capital is measured at the fair value of the proceeds received less any directly
attributable issue costs. An amount equal to the par value of the shares issued is presented as share capital.
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75
1.9 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 or 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 re?organisation;
• The disappearance of an active market for that fnancial asset resulting in fnancial diffculties;
• 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).
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 indication exists, the asset’s recoverable amount is estimated.
The recoverable amount of non?fnancial assets is the greater of fair value less cost of disposal and its value in use. Fair value less cost of disposal is the amount
obtainable from the sale of an asset or cash?generating unit in an orderly transaction between market participants at the measurement date, 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.
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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 the 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.
1.10 Intangible Assets
Intangible assets with fnite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amor-
tisation is recognised on a straight?line basis over their estimated useful lives.
Subsequent expenditure is capitalised only when it increases the future economic benefts embodied in the specifc asset to which it relates. All other expenditure,
including expenditure on internally generated goodwill and brands, is recognised in proft or loss as incurred.
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, with the effect of any changes in
estimate being accounted for on a prospective basis.
1.11 Goodwill
All business combinations are accounted for by applying the acquisition method. Goodwill acquired in a business combination is initially measured at cost, being the
difference between the fair values 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.
Gain on bargain purchase 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.
1.12 Investment Property
Investment property is property held to earn rental income or for capital appreciation or for both.
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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 that 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.
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.
Gain or loss on the disposal of investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item)
is recognised in proft and loss.
1.13 Non?current Assets Held for Sale
Non?current assets, or disposal groups comprising assets and liabilities, are classifed as held?for?sale if it is highly probable that they will be recovered primarily
through sale rather than through continuing use.
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 or held?for?distribution and subsequent gains and losses on re?measurement are recognised in proft or
loss.
Once classifed as held?for?sale, intangible assets and property, plant and equipment are no longer amortised or depreciated, and any equity?accounted investee
is no longer equity accounted.
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
carrying amount 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.
1.14 Equipment, Furniture and other Intangible Assets
MEASUREMENT
All items of equipment, furniture and other intangible assets recognised as assets are initially measured at cost. Cost includes expenditures that are directly
attributable to the acquisition of the asset. All items of equipment, furniture and other intangible assets are subsequently measured at cost less accumulated
depreciation and any accumulated impairment losses.
Where parts of an item of equipment, furniture and other intangible assets have signifcantly different useful lives, they are accounted for as separate items of
equipment, furniture and other intangible assets. Although individual components are accounted for separately, the fnancial statements continue to disclose a
single asset.
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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 equipment, furniture and other intangible assets 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 year?end and adjusted if appropriate.
Derecognition
The carrying amount of items of equipment, furniture and other intangible assets 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 equipment,
furniture and other intangible assets and included in proft or loss when the items are derecognised.
1.15 Leases
Operating leases
Leases of assets under which the lessor effectively retains substantially 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.
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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.
1.16 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.
1.17 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;
• 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. Provisions are determined by discounting the
expected future cash fows at a pre?tax discount rate that refects the current market assessments of the time value of money and the risks specifc to the liability.
The unwinding of the discount is recognised as fnance cost.
Where some or all of the expenditure that is 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;
• The amount initially recognised less cumulative amortisation.
1.18 Contingent 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.
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1.19 Taxation
INCOME TAX
Income tax expenses comprise current and deferred tax. It is recognised in proft or loss except to the extent that it relates to a business combination, or items
recognised directly in other comprehensive income or equity.
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.
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
proft or loss.
Temporary differences relating to investments in associates, subsidiaries and joint ventures that differ to the extent that it is probable that they will not reverse in
the near future, and when 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.
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.
The measurement of deferred tax refects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover
or settle the carrying amount of its assets and liabilities. For this purpose, the carrying amount of investment property measured at fair value is presumed to be
recovered through sale, and the Group has not rebutted this presumption.
CURRENT TAX
Current tax is the expected tax payable or receivable on the taxable income or loss for the year. It is measured using tax rates enacted or substantively enacted
at the reporting date. 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.
1.20 Revenue
Revenue comprises net invoiced indemnity premiums, dividends, interest, rental income and management 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.
Annual Report 2014
81
INDEMNITY PREMIUMS
Indemnity premiums earned is included in revenue and comprise the premiums on contracts entered into during the year, irrespective of whether they relate in
whole or in part to a later accounting period. Indemnity premiums earned include adjustments to premiums written in prior accounting periods and estimates
for ‘pipeline premiums’ (premiums written relating to the current accounting period but not reported by the reporting date). Premiums 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 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.
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, 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.
Annual Report 2014
82
1.21 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.
1.22 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.
DEFINED CONTRIBUTION PLAN
The Group has a provident fund scheme, which is a defned contribution plan. 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.
DEFINED BENEFIT PLANS
The Group has a post?retirement medical obligation, which is classifed as a defned beneft plan. A defned beneft plan is post?employment beneft plans other
than defned contribution plans.
The Group’s net obligation in respect of the defned beneft plan is calculated by estimating the amount of future beneft that employees have earned in the
current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The calculation of defned beneft obligations is performed annually by a qualifed actuary using the projected unit credit method. When the calculation results
in a potential asset for the Group, the recognised asset is limited to the present value of economic benefts available in the form of any future refunds from the
plan or reductions in the future contributions to the plan. To calculate the present value of economic benefts, consideration is given to any applicable minimum
funding requirements.
Re?measurements of the net defned beneft liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the
asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income (OCI). The Group determines the net interest expense (or
income) on the net defned beneft liability (or asset) for the period by applying the discount rate used to measure the defned beneft obligation at the beginning
of the annual period to the then?net defned beneft liability (or asset), taking into account any changes in the net defned beneft liability (or asset) during the
period as a result of contributions and beneft payments. Net interest expense and other expenses related to defned beneft plans are recognised in proft or loss.
When the benefts of a plan are changed or when a plan is curtailed, the resulting change in beneft that relates to past service or the gain or loss on curtailment
is recognised immediately in proft or loss. The Group recognises gains and losses on the settlement of a defned beneft plan when the settlement occurs.
1.23 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 measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels
in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Annual Report 2014
83
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices)
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
If the inputs used to measure the fair value of an asset or liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement
is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is signifcant to the entire measurement.
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. 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 AND INVESTMENT PROPERTY HELD?FOR?SALE
Valuation methods and assumptions used in determining the fair value of investment property and investment property held?for?sale:
CAPITALISATION METHOD
The sefa property portfolio is mostly made up of Income producing properties, with the result that the Income Capitalisation method has been adopted for the
determination of value. 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
Of the entire portfolio, two properties are Sectional Title in nature and one comprises of vacant land. These properties have been valued on the Direct Comparison
Basis, as this is how they trade in the open market. 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.
1.24 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.
Annual Report 2014
84
DEFERRED TAX ASSET
Deferred tax assets are recognised to the extent that it is probable that taxable income will be available in the future against which it can be utilised.
FAIR VALUE OF FINANCIAL ASSETS
The fair value of fnancial instruments that are not 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
• 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 year?end.
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.
CLASSIFICATION OF JOINT ARRANGEMENTS
The Group follows the guidance of IFRS 11: Joint Arrangements in assessing the classifcation of the arrangement or partnership. In making this judgement, the
Group evaluates the agreement as it is at year?end.
POST?RETIREMENT MEDICAL LIABILITY
The actuarial method used to value the post?retirement liability is the Projected Unit Credit Method prescribed by IAS 19. Future benefts valued are projected
using specifc actuarial assumptions and the liability for in?service members is accrued over expected working lifetime.
Annual Report 2014
85
Group - 2014
Loans and
receivables
Cost less
impairment*
Other
amortised cost
Total
R'000 R'000 R'000 R'000
Assets
Loans and advances
479,363 - - 479,363
Investments
- 18,189 - 18,189
Trade and other receivables
29,370
-
- 29,370
Cash and cash equivalents
715,208
-
- 715,208
1,223,941 18,189 - 1,242,130
Liabilities
Trade and other payables -
-
135,092
135,092
Total Financial Assets and Liabilities
1,223,941 18,189 135,092 1,377,222
2. Financial Assets and Liabilities
The table below sets out the Group and the Company's classifcation of each class of fnancial assets and liabilities, and their fair values:
Group - 2013
Loans and
receivables
Cost less
impairment*
Other
amortised cost
Total
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
Total Financial Assets and Liabilities 1,233,637 26,409 136,784 1,396,830
* 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.
The carrying values of fnancial assets and liabilities approximate the fair values shown in the statement of fnancial position, for more detail refer to note 3.
Annual Report 2014
Company - 2014
Loans and
receivables
Cost less
impairment*
Other amortised
cost
Total
R'000 R'000 R'000 R'000
Assets
Loans and advances 387,412
- -
387,412
Investments
-
18,189
-
18,189
Trade and other receivables
25,328 - -
25,328
Cash and cash equivalents
589,392 - -
589,392
1,002,132 18,189 -
1,020,321
Liabilities
Trade and other payables
- -
100,480 100,480
Total fnancial assets and liabilities 1,002,132
18,189 100,480 1,120,801
86
Company - 2013
Loans and
receivables
Cost less
impairment*
Other amortised
cost
Total
R'000 R'000 R'000 R'000
Assets
Loans and advances 211,576 - - 211,576
Investments
-
- - -
Trade and other receivables
21,971
- - 21,971
Cash and cash equivalents 808,767 - - 808,767
1,042,314 - - 1,042,314
Liabilities
Trade and other payables - - 101,911 101,911
Total fnancial assets and liabilities 1,042,314 -
101,911 1,144,225
* 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.
Annual Report 2014
87
3. Financial Risk Management
The Group has exposure to the following risks from its use of fnancial instruments:
• Operational risk
• Credit risk
• Liquidity risk
• 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.
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 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.
Operational Risk
Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. It is
associated with human error, system failures and inadequate procedures and controls. Operational risk also includes legal risk, which arises when a transaction
proves unenforceable in law, but excludes strategic and reputation risk.
Management has identifed the following risks as sefa’s operational risks:
• Clients, products and business practices
• Execution, delivery and process management
• Employment practice & workplace safety
• External and internal fraud and theft
• Damage to physical assets
• Business disruption and systems failure
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, is also taken into account. 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.
Annual Report 2014
88
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 market 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.
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.
Annual Report 2014
89
Capital Management
The Board’s policy is to achieve a capital base that will ensure the long term sustainability of sefa and monitors progress towards this goal 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 sustainable 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 53 of 1998. 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.
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. The Company 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 the Company had a defcit regarding the minimum capital requirements throughout the year as the asset
spreading did not meet the minimum requirements. This has been partly addressed in the current year by opening additional bank accounts and will be fully
addressed in the new year.
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:
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.
2014
R'000
2013
R'000
2012
R'000
2011
R'000
2010
R'000
Loss history
Claims paid and provided % 140% 19% 34% 389% 248%
* Expressed as a
percentage of gross
indemnity fees written
Annual Report 2014
90
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.
(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. To this end the Group underwrites a wide varie-
ty 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 con-
sidered 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.
Annual Report 2014
Group
2014 2013
R'000
Loans and
advances
R'000
Investments
R'000
Loans and
advances
R'000
Investments
Agriculture, forestry and fshing 47,774 - 54,942 -
Basic chemicals 207 - 227 -
Beverages 4,801 - 216 -
Building construction 61,225 - 12,274 -
Business services 1,180 - 4,704 -
Catering and accommodation services 5,850 - 3,482 -
Communication 1,429 - 724 -
Electricity, gas and steam
2,491 - 3,626 -
Finance and insurance 1,426 18,189 188,268 26,409
Food 4,975 - 2,344 -
Machinery and equipment 1,789 - 199 -
Medical, dental and other health and veterinary services 3,350 - 4,591 -
Motor vehicles, parts and accessories 2,600 - 507 -
Non-metallic minerals 2,403 - 2,243 -
Other community, social and personal services 1,669 - 220 -
Other chemicals and man-made fbres 131 - 129 -
Other services 72,233 - 5,098 -
Other industries 15,502 - - -
Other mining 183 - - -
Paper and paper products 115 - 138 -
Plastic products 443 - 694 -
Printing, publishing and recorded media 1,790 - 3,087 -
Professional and scientifc equipment - -
321 -
Television, radio and communication equipment 582 - 747 -
Textiles 1,139 - 48 -
Transport and storage 11,754 -
2,623 -
Wearing apparel 2,085 - 2,066 -
Wholesale and retail trade
229,663
- 8,550 -
Wood and wooden products
574
- 992 -
479,363
18,189 303,060 26,409
91
Sector analysis at carrying value: Loans and advances
and investments
Annual Report 2014
92
Company
2014 2013
R'000
Loans and
advances
R'000
Investments
R'000
Loans and
advances
R'000
Investments
Agriculture, forestry and fshing 242
-
- -
Beverages 4,566
-
- -
Building construction 61,446
- 10,701 -
Business services -
- 3,688 -
Catering and accommodation services 5,271
- 205 -
Electricity, gas and steam 898
- 711 -
Finance and insurance 1,426
18,189 188,268 26,409
Food 3,211 - - -
Machinery and equipment 1,789
-
- -
Medical, dental and other health and veterinary services 3,239
- 3,745 -
Motor vehicles, parts and accessories 2,403
- 63 -
Non-metallic minerals -
- 1 -
Other community, social and personal services 391
- 1 -
Other chemicals and man-made fbres -
- 1 -
Other services 72,179
- 1,118 -
Other industries 12,566
- - -
Other mining 183
- - -
Printing, publishing and recorded media -
- 886 -
Professional and scientifc equipment -
- 241 -
Textiles 1,139
- - -
Transport and storage 4,817
- - -
Wholesale and retail trade 211,410
- 1,947 -
Wood and wooden products 236
-
- -
387,412 18,189 211,576 26,409
Annual Report 2014
93
Group
2014 2014
R'000 R'000
R'000 R'000
Loans and
advances
Investments Loans and
advances
Investments
Credit risk exposure Company
Individually impaired
210,014 18,189 183,209 18,189
Past due but not impaired
211,329 - 202,541 -
Neither past due nor impaired 58,020
-
1,662
-
Total carrying value
479,363 18,189 387,412 18,189
Individually impaired
Low risk client
218,903 - 211,945 -
Medium risk client
28,038 57,002 3,462 57,002
High risk client 113,732 5,000 73,980 5,000
Gross amount
360,673 62,002 289,387 62,002
Allowance for impairment
(150,659)
(43,813) (106,178) (43,813)
Carrying amount
210,014 18,189 183,209 18,189
Past due but not impaired
Low risk client 203,072
- 197,771 -
Medium risk client
6,776 - 4,770 -
High risk client
1,481 - - -
Carrying amount
211,329 - 202,541 -
Past due but not impaired comprises:
0 - 30 days
190,158 - 189,316 -
31 - 60 days
401 - - -
61 - 90 days
850 - - -
91 - 120 days
591 - - -
120 days +
19,329 - 13,225 -
Carrying amount 211,329 - 202,541 -
Neither past due nor impaired
Low risk client 63,736 - 11,939 -
Medium risk client 4,012 - - -
High risk client 567 - 18 -
Carrying amount 68,315 - 11,957 -
Portfolio impairment (10,295) - (10,295) -
Total carrying amount 58,020 - 1,662 -
Annual Report 2014
94
Group
2013 2013
R'000 R'000
R'000
R'000
Loans and
advances
Investments Loans and
advances
Investments
Credit risk exposure
Company
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 -
120 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 -
Low risk - no impairment triggers exist
Medium risk - impairment triggers exist, debtor responding to legal action - recovery likely
High risk - impairment triggers exist, debtor not responding to legal action - recovery not likely
Annual Report 2014
95
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
Carrying value
R'000
Total
R'000
Within 1 year
R'000
2 - 5 years
R'000
More than 5
years
R'000
31 March 2014
Trade and other payables 53,929
53,929 53,929 - -
Operating lease commitments
- 37,721 7,822 29,148 751
Undrawn fnancing facilities approved
- 104,522 104,522 - -
Guarantees/indemnities issued to fnancial
institutions ¹
11,141 11,141 11,141 - -
Off-balance sheet items
Undrawn guarantees/indemnities
approved ²
- 66 66
-
-
65,070 207,379 177,480 29,148 751
¹ Total guarantees/indemnities issued to fnancial institutions amount to R 69,295 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 16% required reserves of the total portfolio indemnifed.
² Undrawn guarantees/indemnities approved amounts to R410 thousand. It is estimated that 16% 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.
Annual Report 2014
96
Group
Carrying value
R'000
Total
R'000
Within 1 year
R'000
2 - 5 years
R'000
More than
5 years
R'000
31 March 2013
Trade and other payables 53,281
53,281 53,281 - -
Operating lease commitments
- 37,285 5,395 13,786 18,104
Undrawn fnancing facilities approved
- 275,916 275,916 - -
Guarantees/indemnities issued to fnancial
institutions ¹
17,529 17,529 17,529 - -
Off-balance sheet items
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 R 96,39 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 R 6,802 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.
31 March 2014 Company
Operating lease commitments
- 37,721 7,822 29,148 751
Trade and other payables 19,313 19,313 19,313 - -
Undrawn fnancing facilities approved
- 87,766 87,766 - -
19,313
144,800 114,901 29,148 751
31 March 2013 Company
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
Annual Report 2014
97
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Interest Rate Risk
1,083,588 1,198,876 901,892 1,050,972
(163) - - -
1,083,425 1,198,876 901,892 1,050,972
At the reporting date the interest rate profle of the
Group's interest-bearing fnancial instruments was:
Cash fow 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 2013.
10,834 11,989 9,019 10,510
(10,834) (11,989) (9,019) (10,510)
100 basis points increase
100 basis points decrease
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
• Loans are issued at rates linked to the prime interest rate
4. Cash and Cash Equivalents
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
194,382 110,814 115,452 82,302
520,826 799,184 473,940 726,465
715,208 909,998 589,392 808,767
Cash in bank and in hand
Cash managed by shareholder
Cash and cash equivalents are all current assets. Cash managed by the Industrial Development Corporation are immediately available as and when requested.
Variable rate instruments
Financial assets
Financial liabilities
Balance at the end of the year
Annual Report 2014
98
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
9,767 8,786 6,002 9,264
46,476 43,931 46,476 43,931
1,532 724 1,033 724
6,498 1,145 6,676 2,461
1,667 1,033 1,212 631
65,940 55,619 61,399 57,011
(35,038) (34,316) (35,038) (34,316)
30,902 21,303 26,361 22,695
5. Trade and Other Receivables
Trade receivables
Rental debtors
Pre?payments
Related party loans (refer to note 32)
Staff loans
Trade and other receivables before bad debt provision
Bad debt provision on rental debtors
No trade and other receivables are pledged as security, and are all current assets.
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
640,316 536,211 503,885 408,564
(160,953) (233,151) (116,473) (196,988)
479,363 303,060 387,412 211,576
6. Loans and Advances
Loans and advances to clients
Impairments of loans and advances
Reconciliation of impairment of loans and advances
233,151 169,268 196,988 137,903
92,593 71,461 84,240 56,186
(164,791) (10,476) (164,755) -
- 2,898 - 2,899
160,953
233,151 116,473 196,988
Balance as at 1 April
Impairment charged for the year
Write offs
Acquisition of subsidiaries
Balance as at 31 March
Allowances for impairment
Annual Report 2014
99
Maturity of loans and advances
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
311,183 281,918 252,711 223,048
119,176 89,978 86,812 68,534
91,239 75,233
72,527 54,620
60,314 37,529 44,833 25,092
54,867 41,607 44,194 37,270
3,538 9,947 2,808 -
(160,954) (233,152) (116,473) (196,988)
479,363 303,060
387,412 211,576
• Due within 1 year
• Due after one year but within 2 years
• Due after two years but within 3 years
• Due after three years but within 4 years
• Due after four years but within 5 years
• Due after 5+ years
• Impairment of loans and advances
Loans and advances are both current and non?current assets, balances recoverable within 12 months are current.
7. Investments
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
5,000 5,000 5,000 5,000
57,002 67,880 57,002 67,880
62,002
72,880
62,002 72,880
(5,000) (5,000)
(5,000) (5,000)
(38,813) (41,471) (38,813) (41,471)
18,189
26,409
18,189 26,409
5,000
5,000 5,000 5,000
-
- - -
5,000
5,000 5,000 5,000
41,471
33,913 41,471 33,913
(2,658)
7,558 (2,658) 7,558
38,813
41,471 38,813 41,471
Unlisted equities
Investment in En-Commandite partnership
Impairment of unlisted equities
Impairment of investment in En-Commandite partnership
Specifc allowances for impairment - Unlisted equities
Balance as at 1 April
Write offs
Balance as at 31 March
Balance as at 1 April
Impairment loss for the year
- (Release)/charge for the year
Balance as at 31 March
Specifc allowances for impairment - En-Commandite
partnership
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. All investments are non?current assets.
Annual Report 2014
100
8. Investments in Subsidiaries
Company
2014
R'000
2013
R'000
55,002
55,002
243,624
204,572
(127,974) (117,970)
170,652 141,604
Loans receivable
Impairment of loans
Unlisted shares in subsidiaries
Companies
2014
% interest
2013
% interest
Nature of activities
2014 Total company
exposure before
impairments
R'000
2013 Total company
exposure before
impairments
R'000
Khula Credit Guarantee
Ltd
100% 100% Short term indemnities 55,002 55,185
New Cape Equity Fund
(Pty) Ltd
100% 100% Private equity funding 13,955 13,955
MKN Equity Fund (Pty)
Ltd
100% 100% Private equity funding 4,850 4,850
New Business Finance
(Pty) Ltd
100% 100% SME Financing 51,296 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 56,413 36,994
Identity Development
Fund Partnership
100% 100% SME Financing 48,753 29,532
Small Business Growth
Trust Fund
82% 81% SME Financing 22,963 22,366
The Khula-Enablis SME
Acceleration Fund
80% 80% SME Financing 25,000 25,000
298,626 259,574
All subsidiaries are incorporated in the Republic of South Africa and have the same reporting date as the holding company.
The companies classifed as subsidiaries are all under the control of sefa, which has rights to the variable returns and has the ability to use its control to affect the
amount of returns. The investments in subsidiaries are all non?current assets.
Annual Report 2014
101
Group
2014
R'000
2013
R'000
4,435 10,110
(1,700)
(5,848)
2,735
4,262
Losses
Profts
9. Investments in Associates
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
98,622 98,622 98,622 98,622
524,702 494,249 - -
17,937 12,043
17,937
12,043
- - (2,215)
(1,683)
641,261 604,914 114,344 108,982
Unlisted shares in associates
Accumulated equity-accounted income, losses and impairments
Loans receivable
Impairment of loans
Company
Companies
2014
% interest
2013
% interest
Nature of activities
2014 Total company
exposure before
impairments
R'000
2013 Total company
exposure before
impairments
R'000
Business Partners
Limited
21% 21% SME Financing 98, 622 98, 622
The Utho SME
Infrastructure Fund ¹
49% 51% SME Financing 17, 937 12, 043
116, 559 110, 665
¹ Although the ownership interest in The Utho SME Infrastructure Fund is 49%, the voting interest is only 40%.
Annual Report 2014
102
Group
2014
R'000
2013
R'000
679,195 591,568
105,110
98,368
784,305
689,936
579,094
543,162
172,836
120,997
32,375
25,777
784,305
689,936
100,357
90,315
(66,980)
(62,075)
33,377
28,240
The aggregate amounts attributable to sefa were as follows:
Statement of fnancial position
Non?current assets
Current assets
Equity
Non?current liabilities
Current liabilities
Statement of proft or loss and other comprehensive
income
Revenue
Expenses
There are no signifcant restrictions on the ability of the associates to transfer funds to sefa in the form of cash dividends or to repay loans advanced. There
are no additional risks associated with sefa's investments other than impairment recognised and the risks identifed in the fnancial risk management note. All
investments in associates are non?current assets.
10. Investments in Joint Ventures
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
21,662
24,000 - -
111,868
29,037 111,868 29,037
-
- (22,660) (21,990)
133,530
53,037 89,208 7,047
Accumulated equity?accounted income, losses and impairments
Loans receivable
Impairment of loans
Investments in joint arrangements were assessed and it was concluded that these agreements should be classified as joint ventures. In performing the assessment,
the group considered the structure of the arrangements, the legal form of any separate vehicle, the contractual terms of the arrangements and other facts and
circumstances.
Annual Report 2014
103
Companies
2014
% interest
2013
% interest
Nature of activities
2014 Total company
exposure before
impairments
R'000
2013 Total company
exposure before
impairments
R'000
Anglo Khula Mining Fund
(Pty) Ltd
50% 50%
Financing mining
activities
38,442 -
Izibulo SME Trust Fund 65% 65% SME Financing 21,728 21,728
sefa Awethu Youth Fund
(Pty) Ltd
50% N/A SME Financing 45,046 -
Enablis Khula Loan Fund 40% 40% SME Financing 6,652 7,309
111,868 29,037
2014
R'000
2013
R'000
35,456 24,016
100,614 31,922
136,070
55,938
133,530
53,037
-
1,345
2,540
1,556
136,070
55,938
5,149
8,455
(6,333)
(3,001)
(1,184)
5,454
The aggregate amounts attributable to sefa were as follows:
Statement of fnancial position
Non?current assets
Current assets
Equity
Non?current liabilities
Current liabilities
Statement of proft or loss and other
comprehensive income
Revenue
Expenses
There are no significant restrictions on the ability of the joint ventures to transfer funds to sefa in the form of cash dividends or to repay loans advanced. There
are no additional risks associated with sefa's investments other than impairment recognised and the risks identified in the financial risk management note. All
investments in joint ventures are non?current assets.
Annual Report 2014
104
11. Deferred Tax Assets and Liabilities
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
63
- 52 -
51 - 51 -
-
19,314 - 19,314
7,945 31,517
8,755
69,664
3,723 24,362
3,723
24,360
11,782 75,193
12,581
113,338
75,193 39,617
113,338
74,453
(63,411) 35,576
(100,757)
38,885
(65,874) 36,007
(103,220)
39,316
2,463 (431)
2,463
(431)
11,782 75,193
12,581
113,338
Composition of deferred taxation asset is as follows:
Equipment, furniture and other tangible assets
Other provisions
Tax loss
Fair value adjustments on investment property
Temporary differences recognised in proft and loss
• Current year
• Previous year
At end of the year
Income received in advance
Movement on the deferred taxation asset is as follows:
At beginning of the year
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:
158, 205 16, 751
142, 939
-
Tax losses (Revenue in nature)
Annual Report 2014
105
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
(136) (163) (136) (163)
(11,405) (15,465) (12,445) (16,191)
(11,541) (15,628) (12,581) (16,354)
(15,628) (13,225)
(16,354)
(13,580)
4,087 (2,403) 3,773 (2,774)
4,087 (2,403) 3,773 (2,774)
- - - -
(11,541) (15,628)
(12,581)
(16,354)
Composition of deferred taxation liability is as follows:
Debtor allowances
Prepaid expenses
Movement on the deferred taxation liability is as follows:
• Current year
Temporary differences recognised in proft and loss
• Previous year
At end of the year
At beginning of the year
12. Investment Properties
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
171,435 195,264 171,435 195,264
- (1,900) - (1,900)
(25,232) - (25,232) -
12,943 (21,929) 12,943 (21,929)
159,146 171,435 159,146 171,435
Opening carrying amount as at 1 April
Disposals
Reclassifcation to investment properties held?for?sale
Fair value adjustments
Closing balance as at 31 March
Investment properties are valued externally by independent valuators every three years. All investment properties were valued on 15 March 2014, by
Spectrum Valuators (Proprietary) Limited. Investment properties are non?current assets.
The fair value measurement for investment property of R12.9 million has been categorised as a Level 3 fair value based on the inputs to the
valuation technique used (refer to the accounting policy: Determination of fair values).
The following summarises the valuation technique used in measuring the fair value of investment properties, as well as the significant unobservable inputs
used:
Annual Report 2014
106
Valuation Technique
Income capitalisation method and direct comparison basis: sefa's property portfolio consists mainly of income producing properties. This is the fundamental
basis on which the valuation of investment properties is determined. Investment properties produce a perpetual income stream and the capitalisation of such net
revenue flow is an accurate means of determining the value. Included in the portfolio, are two properties which are sectional title in nature and one comprises
of vacant land. These properties have been valued on the direct comparison basis.
Highest Lowest Average
33% 2% 11%
17% 10% 13%
Signifcant unobservable inputs
• Budgeted capital expenditure growth rate
• Capitalisation percentage
Inter?relationship between key unobservable inputs and fair value measurement:
The estimated fair value would increase /(decrease) if:
• Budgeted capital expenditure growth were higher/(lower)
• Capitalisation percentage were increased/(decreased)
13. Investment Properties Held-for-Sale
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
- - - -
25,232 - 25,232 -
335 - 335 -
25,567 - 25,567 -
Opening carrying amount as at 1 April
Reclassifcation to investment properties held?for?sale
Fair value adjustment
Closing balance as at 31 March
On 20 November 2013, the Board of Directors approved the sale of certain properties in the property portfolio. Investment properties held?for?sale are current
assets.
Purchase offers for fourteen of the sixteen properties reclassified for sale has been concluded and are awaiting registration at the Deeds Office. The remaining
two properties are in the process of sales negotiations.
Annual Report 2014
107
14. Equipment, Furniture and Other Tangible Assets
All equipment, furniture and other tangible assets are non?current assets.
Group Company
Cost
R'000
Accumulated
depreciation
and
impairment
R'000
Carrying
value
R'000
Cost
R'000
Accumulated
depreciation
and
impairment
R'000
Carrying
value
R'000
2014
Motor vehicle 354 336 18 309 309
-
Computer equipment 9,202 7,321 1,881 9,051 7,203 1,848
Office equipment 3,392 2,347 1,045 3,377 2,332 1,045
Furniture and fittings 5,642 2,516 3,126 5,504 2,414 3,090
Lease improvements 7,104 1,539 5,565 7,105 1,539 5,566
25,694 14,059 11,635 25,346 13,797 11,549
2013
Motor vehicle 518 411 107 472 384 88
Computer equipment 8,819 6,689 2,130 8,669 6,594 2,075
Office equipment 3,289 1,979 1,310 3,274 1,963 1,311
Furniture and fittings 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
Annual Report 2014
108
Group
Motor
vehicles
R'000
Computer
equipment
R'000
Offce
equipment
R'000
Furniture and
fttings
R'000
Lease
improvements
R'000
Total
R'000
2014
Carrying value as at 1 April 2013
107 2,130 1,310 3,728 5,126 12,401
Additions - 826 104 236 1,389 2,555
Disposals (77) (13) - (1) - (91)
Depreciation charges (12) (1,062) (369) (837) (950) (3,230)
Carrying value as at 31 March 2014
18 1,881 1,045 3,126 5,565 11,635
2013
Carrying value as 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 charges (34) (844) (394) (452) (589) (2,313)
Carrying value as at 31 March 2013
107 2,130
1,310 3,728 5,126 12,401
The movement in the carrying value of office equipment, furniture and other tangible assets is as follows:
2014
Annual Report 2014
109
Company
Motor
vehicles
R'000
Computer
equipment
R'000
Offce
equipment
R'000
Furniture and
fttings
R'000
Lease
improvements
R'000
Total
R'000
Carrying value as at 1 April 2013
88
2,075
1,311 3,679 5,127 12,280
Additions - 827 103 236 1,389 2,555
Disposals (76) (14) - (1) - (91)
Depreciation charges (12) (1,040) (369) (824) (950) (3,195)
Carrying value as at 31 March 2014 - 1,848 1,045 3,090 5,566 11,549
2013
Carrying value as 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 charges (34) (827) (394) (439) (589) (2,283)
Carrying value as at 31 March 2013 88 2,075 1,311 3,679 5,127 12,280
No equipment, furniture or other tangible assets are pledged as security for liabilities (2013: Rnil).
Annual Report 2014
110
15. Intangible Assets
All intangible assets are non?current assets.
Group Company
Cost
R'000
Accumulated
depreciation
and
impairment
R'000
Carrying
value
R'000
Cost
R'000
Accumulated
depreciation
and
impairment
R'000
Carrying
value
R'000
Software
3,965 3,893 72 3,468 3,395 73
Intellectual property 2,200
1,661 539 2,200 1,662 538
Goodwill
31,899
31,899 - - - -
38,064 37,453 611 5,668 5,057 611
2013
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
The movement in the carrying value of office equipment, furniture and other tangible assets is as follows:
.
2014
Group
Software
R'000
Intellectual
Property
R'000
Goodwill
R'000
Total
R'000
Carrying value as at 1 April 2013
603
1,271 - 1,874
Amortisation
(531) (732) -
(1,263)
Carrying value as at 31 March 2014 72 539 - 611
2013
Carrying value as 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 as at 31 March 2013
603 1,271
- 1,874
2014
Annual Report 2014
111
Company
Software
R'000
Intellectual
Property
R'000
Goodwill
R'000
Total
R'000
Carrying value as at 1 April 2013
428
1,271 - 1,699
Amortisation (355) (733) - (1,088)
Carrying value as at 31 March 2014 73 538 - 611
2013
Carrying value as 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 as at 31 March 2013
428
1,271 - 1,699
2014
16. Share Capital
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
500,000 500,000 500,000 500,000
308,300
308,300 308,300 308,300
Authorised
500,000,000 ordinary shares at R1 each
Issued
308,300,000 ordinary shares at R1 each
Annual Report 2014
112
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
- 944,542 - 944, 542
1, 175, 521 - 1, 175, 521 -
At 31 March 2013, the loan was unsecured, bore no interest and had no specific repayment terms. Accordingly it was classified as a current liability.
During the financial year under review the terms and conditions of the loan was amended as follows:
• The loan bears no interest
• The loan is unsecured
• The shareholder has subordinated its demand on repayment of the loan until 31 March 2023.
A grant of R 231 million (2013: R 170 million) was received from government to support sefa's activities. The grant was paid to the IDC, who are conducting
the required oversight over sefa's operations, and was made available to sefa for operational purposes through a loan.
17. Shareholder loan
Current liability
Non?current liability
Annual Report 2014
113
18. Trade and Other Payables
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Trade payables 53,929 53,281 19,313
18,409
Deferred grant 819 11,588 819 11,588
Accrued bonus ¹
16,842 10,989 16,842 10,988
Accrued leave pay ²
3,564 3,727 3,564 3,727
Managed funds ³
59,938 57,199 59,942 57,199
135,092
136,784 100,480 101,911
Trade and other payables are current
liabilities.
1) Accrued bonuses
Balances at the beginning of the year
10,989 4,884 10,989 4,884
Additional accruals raised during the year
16,842 6,105 16,842 6,104
Reversed during the year
(10,989) - (10,989) -
Balance at the end of the year
16,842 10,989 16,842 10,988
2) Accrued leave pay
Balances at the beginning of the year
3,727 906 3,727 907
Additional accruals raised during the year
1,251 3,559 1,251 3,558
Utilised during the year (1,414) (738) (1,414) (738)
Balance at the end of the year
3,564 3,727 3,564 3,727
3) Managed funds
The group is managing funds and holding
cash balances on behalf of the following
parties:
Unops
42,267 40,129 42,271 40,129
Norad
7,160 6,925 7,160 6,925
European Union
10,511 10,145 10,511 10,145
59,938 57,199 59,942 57,199
Annual Report 2014
114
19. Unearned Risk Provision and Outstanding Claims Provision
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Unearned risk provision
• At the beginning of the year
6,456 10,535 - -
• Movement recorded in proft or loss
(1,597) (4,079) - -
At the end of the year
4,859 6,456 - -
Outstanding claims provision
• At the beginning of the year 11,073 27,043 - -
• Movement recorded in proft or loss
(4,791) (15,970) - -
At the end of the year
6,282 11,073 - -
Unearned risk provision
• Unearned Premium Provision
464 813 - -
• Additional Unexpired Risk Provision
4,395 5,643 - -
At the end of the year
4,859 6,456 - -
Movement recorded in proft or loss
(1,597) (4,079)
Outstanding claims provision
• Notifed Outstanding Claims Provision
504 3,563 - -
• Incurred but not Reported Provision
5,778 7,510 - -
6,282 11,073 - -
Movement recorded in proft or loss
(4,791) (15,970)
Total exposure
Indemnities issued to fnancial institutions
69,295 96,390 - -
Less technical reserves already provided
(11,141) (17,529) - -
58,154
78,861 - -
The calculation of the provisions was performed by an independent actuarial consulting firm, Matlotlo Group Proprietary Limited.
The provisions recognised in the statements of financial position are non-current liabilities. They are detailed below and are determined as described in the following
paragraph:
Annual Report 2014
115
The summary of the valuation method is as follows:
The Unearned Premium Provision is calculated on a straight line basis, assuming indemnity premiums received are earned uniformly over the 12 months for which
they have been paid for. The Additional Unexpired Risk Provision (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 Provision and the net present value of expected future indemnity fees. The AURR is held
at a 75% sufficiency 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 financial 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% sufficiency level by simulating the claim severity.
All provisions 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.
The principal valuation assumptions are as follows:
2014 2013 2014 2013
R R % %
Probability of claim (+10%)
483,747
978,579 4.43 5.83
Claim severity (+10%) 1,569,898 2,750,568 14.37 16.40
Claim expense rate (+1%)
122,057
211,019 1.12 1.26
Discount rates (+1%)
(28,992) (65,188)
(0.27) (0.39)
2014 2013
26% 21%
81% 80%
4.56% 4.7%
5.68% - 8.8% 5.09% - 7.8%
Ultimate probability of claim
Claim severity
Claim expense rate
Discount rates (per government bond yield curve)
The sensitivity of the total provisions to the key assumptions is as follows:
2014 2013
4232% 2241%
Solvency margin:
The solvency margin is calculated by expressing the capital and provisions as a percentage of net written indemnity premiums.
Solvency margin:
Annual Report 2014
116
20. Post-Retirement Liability
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
416 - 416 -
The post-retirement medical liability is unfunded and has no plan assets, is attributable to employees, who were prior to the merger, employees of South African
Micro Finance Apex Fund and who qualifies for the benefit. This is the first year the liability is raised, and the liability value is equal to the movement in profit and
loss. No additional amounts were recognised in other comprehensive income.
The liability is a non?current liability and the calculation was performed by an independent actuarial consulting firm, Alexander Forbes Health Proprietary Limited.
416
- 416 -
416 - 416 -
Present value of unfunded obligations
Present value of obligations in excess of plan assets
The following table shows a reconciliation of the net
liability recognised in the statement of financial position:
- - - -
416 416
416 - 416 -
Liability raised
Closing balance as at 31 March
Components of the defined benefit cost:
416 - 416 -
416 - 416 -
Liability raised
Expense
Components of profit and loss:
Post-retirement liability
Opening balance as at 1 April
Annual Report 2014
117
The sensitivity of the post?retirement liability to the healthcare cost inflation rate is as follows:
The actuarial valuation assumptions are as follows:
2014 2013
9.7% N/A
9.0% N/A
8.4% N/A
60 years N/A
Discount rates
Healthcare cost inflation
Expected increase in salaries
Expected retirement age
Assumptions regarding mortality have been based on published statistics and mortality tables.
Pre?retirement mortality assumption SA85?90 (lite) N/A
Post?retirement mortality assumption PA (90) N/A
The duration of the liability was 20.5 years, this is based on the duration of the liability as at 31 March 2014.
Central
assumption
?1% +1%
R'000 % %
-
- -
- -
-
Accrued liability
Current service cost and interest cost
Annual Report 2014
118
21. Revenue
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Dividends received
- 1,766
4,046
6,282
Indemnity premiums earned
1,504 2,646 - -
Interest received on cash and cash equivalents
40,808 41,306 36,627
36,339
Interest received on loans and advances to clients
41,514 30,207 30,055
18,909
Other interest earned 1,949
3,174
1,891
2,528
Fee income
13,474 2,768 13,385 2,743
Investment property rental income
36,171
34,892
36,171 34,892
135,420 116,759 122,175 101,693
22. Other Income
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Bad debts recovered 305 343 253 129
Management fee - Related parties 648 620
648 620
Management fee - Other - 790 - 790
Other sundry income 5,134 1,910 5,134 235
6,087
3,663
6,035 1,774
23. Grant Income
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Balance as at 1 April 11,588 5,059 11,588 5,059
Grants received during the year - 1,250
-
1,250
Deferred grants acquired through a business
combination
- 57,853 - 57,853
Grants recognised as income during the year (8,983) (48,870) (8,983) (48,870)
Grants utilised to reduce expenses during the year (1,786) (3,704) (1,786) (3,704)
Balance as at 31 March
819
11,588 819
11,588
Annual Report 2014
119
24. Net Fair Value Gain/(Loss) on Financial and Other Assets
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Investments 2,399 - - -
Investment properties 13,278 (21,929)
13,278 (21,929)
15,677 (21,929) 13,278 (21,929)
25. Operating Loss
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Operating loss is arrived at after taking into account
the following:
Specific items:
Depreciation
3,230
2,313 3,195 2,283
Amortisation
1,263
1,733 1,088 1,641
Penalties and interest - South African Revenue
Services
50
233 50 39
Operating lease charges - Equipment
911
867 911 867
Operating lease charges - Property
14,587
11,896 14,587 11,896
20,041
17,042 19,831 16,726
The following impairments were recognised:
Impairment of investments in associates
-
- 532 735
Impairment/(impairment reversal) of joint ventures 671 (420) 671 (420)
Impairment of Investment in En-Commandite
partnership
(2,658) 7,558 (2,658) 7,558
Impairment of subsidiaries
(671)
420 10,004 7,128
(Decrease)/increase in bad debt provision - Loans
and advances
(72,207)
60,985 (80,515) 56,186
Irrecoverable debt written off - Loans and advances
164,791
10,476 164,755 -
Increase/(decrease) in bad debt provision - Rental
debtors
722 (20,226) 722 (20,226)
Irrecoverable debt written off - Rental debtors 4 19,546 4 19,546
Total net impairments 90,652 78,339 93,515 70,507
Annual Report 2014
120
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
The following items relating to the indemnity
product were recognised:
Indemnity claims incurred
6,891
16,463 - -
Decrease in claims provision (4,791) (15,970) - -
Decrease in indemnity reserves (1,597) (4,079) - -
503 (3,586) - -
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Agriculture, forestry and fishing
2,942 1,189 2,030 -
Basic chemicals
763
- 763 -
Beverages 634 - 344 -
Building construction 13,675 2,913 16,387 2,476
Business services (1,122) 3,431 1,794 3,509
Catering and accommodation services 1,378 103
756 -
Communication (533) (1,500)
- -
Electricity, gas and steam 2,316 1,433
2,819 7
Finance and insurance (2,228) 58,000
9,464 64,754
Food 8,121 330
5,676 -
Glass and glass products 27 -
- -
Machinery and equipment 135 -
135 -
Medical, dental and other health and veterinary
services
700 93
1,202 17
Motor vehicles, parts and accessories 831 (1,962)
877 64
Other community, social and personal services 17,623 -
92 -
Other chemicals and man-made fibres 31 128
- -
Other industries 4,933 594
4,294 -
Other mining 14 -
14 -
Other services 4,339 2,109
13,738 161
Paper and paper products 36 138
- -
Plastic products 212 -
- -
Printing, publishing and recorded media 501 (4)
178 -
Professional and scientific equipment (15) (194)
- -
Net increase/(decrease) in impairments:
Annual Report 2014
121
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Television, radio and communication equipment
3 6 - -
Textiles
1,005
42 1,694 -
Transport and storage 9,479 - 8,576 -
Water supply 1,615 - 1,615 -
Wearing apparel 31 1,040 - -
Wholesale and retail trade (148,733) 653
(150,035) 199
Wood and wooden products 6,422 -
5,621 -
(74,865) 68,542
(71,966) 71,187
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Bad debts written off/(recovered)
- Loans and advances
Agriculture, forestry and fishing 92 642 90 -
Building construction 10 - 10 -
Business services - 88 - -
Catering and accommodation services 5 - 5 -
Communication - 1,950 - -
Finance and insurance - (129) -
(129)
Food 21 289 - -
Motor vehicles, parts and accessories - 2,204 - -
Other services (71) 2,229 (43) -
Printing, publishing and recorded media - 84 - -
Wearing apparel - 337 - -
Wholesale and retail trade 164,429 2,439 164,440 -
164,486 10,133 164,502 (129)
Annual Report 2014
122
26. Income Tax Expense/(Credit)
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Current tax expense 672 366 355
-
Current year 317 375 - -
Prior year under/(over) provision 355 (9) 355 -
Deferred taxation 59,324 (33,172) 96,984 (36,110)
Current year 61,787 (33,604) 99,447 (36,542)
Prior year under/(over) provision (2,463) 432 (2,463) 432
59,996 (32,806) 97,339 (36,110)
Reconciliation of taxation amount
Loss before taxation (111,689) (97,220) (149,671) (129,228)
Taxation at standard rate of 28% (2013: 28%) (31,273) (27,222) (41,908) (36,184)
Tax effect of permanent differences (7,772) (4,446) (1,584) (357)
Tax effect of deferred tax asset not recognised 102,182 379 142,939 -
Tax loss recognised
(967)
(1,948) - -
Taxation - Relating to prior year
(2,174)
431 (2,108) 431
Taxation charged to statement of profit or loss and
comprehensive income
59,996
(32,806) 97,339 (36,110)
Taxation expense relating to current year
62,170
(33,237) 99,447 (36,541)
Effective tax rate - Based on current year taxation
expense
(56%) 34% (66%) 28%
27. Directors' and Prescribed Officers' Remuneration
Prescribed officers as prescribed by the Companies Act 71 of 2008 (Companies Act), are individuals who, despite not being a director of the Company:
• exercises general executive control over and management of the whole, or a significant 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 significant portion, of the
business and activities of the Company.
Income tax expense/(credit)
Annual Report 2014
123
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.
2014
R'000
2013
R'000
Appointment term
S Magwentshu-Rensburg (Chairperson) 7 April 2010 to date 206 218
IAS Tayob 7 April 2003 to date 165 215
M Ferreira 7 April 2010 to date 241 246
VG Mutshekwane 1 April 2012 to date 257 275
BP Calvin 1 April 2012 to date 151 214
HN Lupuwana 1 April 2012 to date 127 102
SA Molepo 1 April 2012 to date 219 155
LB Mavundla 1 April 2012 to date 174 210
GS Gouws (1) 1 April 2012 to date - -
K Schumann (1) 1 April 2012 to date - -
1,540 1,635
¹ Mr Gouws and Ms Schumann are employed by the IDC and do not earn Director’s fees for services rendered to sefa.
Executive Management:
2014 Period
Basic salary
R'000
Incentive
bonus
R'000
Retirement,
medical and
other benefts
R'000
Total
R'000
Mr T Makhuvha ¹ 1 April 2013 - 31 March 2014 1,527 752 340 2,619
Mr AMA Ramavhunga 1 April 2013 - 30 November 2013 843 - 65 908
Ms LG Mashishi 1 April 2013 - 31 March 2014 1,011 - 217 1,228
Mr D Jackson 1 April 2013 - 31 October 2013 868 -
-
868
Mr D Mashele ² 1 April 2013 - 30 June 2013 248 89
48
385
Ms L van Lelyveld 15 April 2013 - 31 March 2014 1,417 -
-
1,417
Mr P Swanepoel 1 July 2013 - 31 March 2014 1,168 - 163 1,331
Ms V Matsiliza 1 November 2013 - 31 March 2014 553 97 91 741
Mr A Dirks 1 July 2013 - 31 March 2014 774 131 108 1,013
8,409 1,069
1,032
10,510
The company considers all individuals at the level of executive management as the prescribed officers.
Key management, as defined in IAS 24 Related Party Disclosure, 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. The remuneration
of the Directors and prescribed officers is disclosed below as per the Companies Act requirements.
Annual Report 2014
124
2013 Period
Basic salary
R'000
Incentive bonus
R'000
Retirement, med-
ical and other
benefts
R'000
Total
R'000
Mr T Makhuvha ¹ 1 November 2012 - 31 March 2013 607 - 207 814
Mr AMA Ramavhunga 1 April 2012 - 31 March 2013 1,180 - 304 1,484
Mr MI Mazibuko 1 April 2012 - 28 September 2012 819 - 136 955
Mr CH Maseko 1 April 2012 - 31 March 2013 1,465 - 395 1,860
Ms LG Mashishi 18 June 2012 - 31 March 2013 798 - 202 1,000
Ms V Malale ³ 1 April 2012 - 30 June 2012 204 - 91 295
Mr D Jackson 9 October 2012 - 31 March 2013 749 - - 749
Mr D Mashele ² 1 November 2012 - 31 March 2013 336 -
121
457
6,158 - 1,456 7,614
¹ Mr T Makhuvha has been seconded to the company by the (IDC) and no remuneration has been paid to him by sefa.
² Mr D Mashele acted in an executive position during the current and prior financial year.
³ Ms V Malale acted in an executive position during the prior financial year.
No member of executive management earned any income from any other company within the Group.
28. Operating Leases
Operating lease commitments
The future minimum lease payments under non?cancellable operating leases are as follows:
Lease agreements range from two to nine years, the last one ending 31 December 2020. There are lease agreements for each branch as well as for head office.
The annual escalations range between 8% and 15% per annum.
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
7,822 5,395 7,572
5,395
29,148 13,786 29,148
13,786
751 18,104 751
18,104
37,721 37,285 37,471 37,285
Land and buildings
Within 1 year
From 2 to 5 years
More than 5 years
Annual Report 2014
125
29. Reconciliation of the Net Loss Before Tax for the Year to Cash Utilised by Operations
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Loss before tax (111,689) (97,220) (149,671)
(129,228)
Adjustments for:
Depreciation 3,230 2,313 3,195 2,283
Amortisation 1,263 1,733 1,088 1,642
Fair value adjustment (15,677) 21,929 (13,278) 21,929
Impairment provision - Investments (2,658) 7,558 (2,658)
7,558
Impairment provision - Subsidiaries and joint
ventures
- -
10,675 6,707
Impairment provision - Equity accounted
investments (Associates)
- - 532 735
Income from associate (31,988) (27,599) - -
Dividends received from associate (1,380) (1,380) (5,252)
(4,905)
Decrease in indemnity reserves (1,597) (4,079)
- -
Investment income (41,192) (46,247) (37,710)
(40,245)
Grant income (8,983) (48,870) (8,983) (48,870)
Profit/(loss) on sale of equipment 86 (103) 86 (103)
Provision for bad debts (70,541) 39,747 (78,858)
34,948
Bad debts written off 164,795 30,032
164,759 19,546
Realisation of day-one-loss (1,858) - (1,858)
-
Post-retirement liability 416 - 416 -
Provision for claims (4,791) (15,970)
- -
Operating loss before changes in working capital (122,564) (138,156)
(117,517) (128,003)
Changes in working capital (12,009) (56,826) (5,826)
14,985
Increase in trade and other receivables (4,973) (1,861) (177)
(5,376)
Loans (made to)/received from related parties
(9,716) 10,256 (8,579)
9,729
Increase/(decrease) in trade, - other payables and
provisions
2,680 (65,221) 2,930
10,632
Cash utilised by operations (134,573) (194,982) (123,343) (113,018)
Annual Report 2014
126
30. Tax (Payable)/Receivable
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Tax receivable/(payable) at the beginning of the year 60 (5,518) - (5,157)
Tax as per statement of profit or loss and other
comprehensive income (net of deferred tax)
(673)
(367) (355) -
Tax paid 450 5,945 355 5,157
Tax (payable)/receivable at the end of the year (163) 60 - -
31. Commitments
Group Company
Off-balance sheet items
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Undrawn financing facilities approved
104,522 275,916 87,766 255,065
Undrawn guarantee facilities approved
410 6,802 -
-
104,932 282,718 87,766 255,065
32. Related Party Transactions
Parent and ultimate controlling party
sefa is a wholly owned subsidiary of the IDC.
Other related parties
Description Relationship
Khula Land Reform Empowerment Facility Wholly owned subsidiary of sefa ¹
Khula Institutional Support Services Limited Wholly owned subsidiary of sefa ¹
Khula Credit Guarantee Limited Wholly owned subsidiary of sefa
New Business Finance (Pty) Ltd Wholly owned subsidiary of sefa
GJE Watson Previous shareholder of New Business Finance (Pty) Ltd and current employee of
sefa
Thetha Import and Export CC GJE Watson is a member of Thetha Import and Export CC and signed personal
surety for a loan repayable to New Business Finance (Pty) Ltd.
Gain Props 1017 CC Close corporation owned by GJE Watson
Economical Development Department Shareholder of the IDC
Transactions between the company and its subsidiaries, which are related parties, have been eliminated in the Group financial statements, however these are
not eliminated in the individual Company financial statements.
Annual Report 2014
127
The following transactions were entered into with related parties:
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Rental income received from related parties
Economical Development Department
4,654
- 4,654
-
Investment income received from related parties
Industrial Development Corporation
40,067 20,021 36,290 18,241
Management fees charged to related parties
Khula Land Reform Empowerment Facility
648 620 648 620
Related party balances receivable/(payable)
Khula Institutional Support Services ¹
5,667 (4,364) 5,667 (4,364)
Khula Land Reform Empowerment Facility ¹
831 1,145 831 1,146
New Business Finance (Pty) Ltd
- - 178 1,315
GJE Watson
400 400 - -
Thetha Import and Export CC
514 694
- -
Industrial Development Corporation
- Cash managed
520,826 799,184 473,940 726,465
Industrial Development
Corporation - Shareholder loan
1,175,521 944,542 1,175,521 944,542
1,703,759 1,741,601 1,656,137 1,669,104
¹ Registered as a Non?Profit Company. This company is not consolidated as a subsidiary due to sefa not being able to benefit 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 27.
Annual Report 2014
128
33. 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 in the prior financial year.
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 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 reflected 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 1.6 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
1,520
609
73,113
241
191,709
(64,762)
202,430
-
202,430
Office equipment, furniture and other tangibles
Intangible assets
Loans and advances
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Net asset carrying value
Consideration paid
Gain on the transfer of samaf assets and liabilities
Annual Report 2014
129
34. Unauthorised, Fruitless and Wasteful and Irregular Expenditure
Unauthorised expenditure
No expenditure was classifed as unauthorised during the fnancial year under review .
Fruitless and wasteful expenditure
The PFMA defnes fruitless and wasteful expenditure as expenditure which was incurred and would have been avoided had reasonable care been exercised.
Fruitless and wasteful expenditure for the year amounted to R333, 000 (2013: R785, 000).
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.
Opening balance
Irregular expenditure current year
Items reclassifed as not irregular after investigation performed
Condoned or written off by accounting authority
2014
R’000
2013
R’000
3,068 5,922
(14)
-
(3,547)
(5,429)
493 -
Irregular expenditure awaiting condonement -
493¹
¹ The balance was condoned during the current fnancial year.
Annual Report 2014
Notes
Annual Report 2014
Notes
Annual Report 2014
Notes
Annual Report 2014
Notes
Annual Report 2014
GLOSSARY OF TERMS
CEO Chief Executive Offcer
CFO Chief Financial Offcer
CIS Credit Indemnity Scheme
CRO Chief Risk Offcer
DBSA Development Bank of Southern Africa
DFIs Development Finance Institutions
Dti Department of Trade and Industry
EDD Economic Development Department
ESI Employee Engagement Score
FI Financial Intermediaries
GDP Gross Domestic Product
GEM Global Entrepreneurship Monitor
HR Human Resources
IDC Industrial Development Corporation
IPAP Industrial Policy Action Plan
IT Information Technology
KD Khula Direct
KPIs Key Performance Indicators
LREF Land Reform Empowerment Fund
MFIs Micro Finance Intermediaries
MOU Memorandum of Understanding
MSEs Micro and Small Enterprises
MTSF Medium Term Strategic Framework
NBF New Business Finance
NEF National Empowerment Fund
NGOs Non-Governmental Organisations
NGP New Growth Path
PDPs Personal Development Plans
PFMA Public Finance Management Act
RFIs Retail Finance Intermediaries
RSA Republic of South Africa
SA South Africa
samaf South African Micro Finance Apex Fund
seda Small Enterprise Development Agency
sefa Small Enterprise Finance Agency
SMMEs Small Micro and Medium Enterprises (including survivalists)
SMEs Small and Medium Enterprises
TEA Total Early Stage entrepreneurship Activity Index
EcoFusion 5
Block D
Cnr 1004 Teak Close & Witch-Hazel Avenue
Eco Park Centurion
P.O. Box 11011
Zwartkop 0051
Call Centre: +27 86 000 7332 (sefa)
www.sefa.org.za
RP166/2014 ISBN: 978-0-621-42818-6
Fraud Hotline Number
Tip-off Anonymous
0800 30 33 36
24 hours every day administered by Deloitte and Touche
doc_155855738.pdf
Small Enterprise Finance Agency (SOC) Limited Annual Report 2014
Annual Report 2014
Annual Report 2014
Name and Registration Number:
Small Enterprise Finance Agency (SOC) Limited with registration
Number 1995/01/1258/06
Holding Company:
Industrial Development Corporation of South Africa Limited (IDC)
Country of Incorporation and Domicile:
South Africa
Physical Business Address:
EcoFusion 5
Block D
Cnr 1004 Teak Close & Witch-Hazel Avenue
Eco Park
Centurion
Postal Address:
P.O. Box 11011
Zwartkop
0051
Contact:
Telephone: +27 12 748 9600
Call Centre: +27 86 000 7332
Fax: +27 12 748 9691
Email: [email protected]
Website: www.sefa.org.za
External Auditors: KPMG Inc
Bankers: Standard Bank of South Africa Limited
Company Board Secretary: Ms Nthabiseng Mongali
Reporting Period:
The Annual Report of The Small Enterprise Finance Agency (sefa) is presented
For the period 1 April 2013 to 31 March 2014.
Scope and boundary
This scope covers the operating environment, the organisational
achievements and results for the declared period.
The report is prepared for sefa’s shareholder, the Industrial Development Corporation (IDC),
The Economic Development Department (EDD) and the broader SMME stakeholder community.
Annual Report 2014
Table of contents
1. sefa Company Profle 2
1.1. Introduction 2
1.2. sefa Mandate, Mission and Values 2
1.3. sefa Strategic Objectives 3
1.4. sefa Target Market 4
1.5. sefa Loan Criteria 4
1.6. sefa Products and Service Distribution Model 5
1.7. sefa Footprint 6
1.8. sefa Group Structure 7
1.9. sefa Governing Structure 8
1.10. sefa Organisational Framework 9
2. Board of Directors 10
3. Chairperson's Statement 14
4. Chief Executive Offcer’s Statement 16
5. Executive Management 18
6. Corporate Performance Overview 20
6.1. Financial Performance Overview 20
6.2. Risk and Compliance Management Performance Overview 23
6.3. Direct Lending Performance Overview 29
6.4. Wholesale Lending Performance Overview 34
6.5. Human Capital Management Performance Overview 43
7. Performance Against Predetermined Objectives 46
8. Corporate Governance Statement 48
9. Group and Company Annual Financial Statements 52
1
COMPANY PROFILE
1.1 Introduction
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 the 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, Micro and Medium Enterprises (SMMEs) and
contributes towards poverty alleviation, job creation and economic growth.
sefa provides products and services to qualifying SMMEs as defned in the National Small Business Act of 1996, as amended in 2004, through a hybrid of
wholesale and direct lending channels.
1.2 sefa Mandate, Mission and Values
Annual Report 2014
M
a
n
d
a
t
e
• To be the leading catalyst for the development of sustainable SMMEs through the provision of fnance.
M
i
s
s
i
o
n
Our mission is to provide simple access to fnance in an effcient and sustainable manner to SMMEs throughout South Africa by:
• delivering Wholesale and Direct Lending credit facilities or products;
• providing credit guarantees to SMMEs;
• supporting the institutional strengthening of Financial Intermediaries so that they can effectively assist 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 speed up increased market participation in the provision
of affordable fnance.
V
a
l
u
e
s
sefa’s values and guiding principles to deepen institutional culture and organisational cohesion 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.
2
1
1.3 sefa Strategic Objectives
Annual Report 2014
3
Strategic Objective 1 Increase access and provision of fnance to SMME’s thereby contribute towards job creation
• Implement a robust sefa delivery network through branches and Financial Intermediaries.
Strategic Objective 4 Build a learning organisation
• Expand direct lending through partnerships in all provinces;
• Expand partnerships with microfnance institutions;
• Establish stronger partnerships with Retail Finance Intermediaries (RFIs) in SME wholesale fnance;
• Increase the utilisation of Credit Guarantee Indemnity Scheme by commercial banks.
Strategic Objective 2 Develop and implement a national footprint for effective product and service delivery
Strategic Objective 3 Build an effective and effcient sefa that is a sustainable performance driven organisation
• Create, develop and retain a dynamic human capital with values and culture aligned to sefa’s mandate;
• Build an effective sefa with robust and effcient business processes, systems and infrastructure;
• Build a fnancially sustainable and viable sefa.
• Develop and implement a dynamic research and development capacity;
• Develop effective sefa monitoring and evaluation, and knowledge management systems and practices.
Strategic Objective 5 Build a sefa that meets all legislative, regulatory and good governance requirements
• Ensure an effectively governed and compliant organisation.
Strategic Objective 6 Build a strong and effective sefa brand emphasizing accessibility to SMMEs Strategic Objective 6 Build a strong and effective sefa brand emphasizing accessibility to SMMEs
• Develop and implement an effective marketing and promotion programme to communicate sefa’s product offering to SMMEs.
Annual Report 2014
4
1.4 sefa Target Market
sefa funds qualifying business ventures within the following SMME sectors:
• services (including retailing, wholesaling and tourism);
• manufacturing (including agro-processing);
• agriculture (specifcally land reform benefciaries and micro-farming activities);
• construction (small construction contractors);
• mining (specifcally small miners); and
• green industries (renewable energy, waste and recycling management).
1.5 sefa Loan Criteria
In granting loan fnancing to qualifying businesses, the applicant must:
• be a South African citizen or a permanent resident;
• be registered entity including, sole traders with a fxed physical address;
• be within the required contractual capacity;
• be registered within South Africa;
• be compliant with generally accepted corporate governance practices appropriate to the client’s legal status;
• have a written proposal or business plan that meets the requirements of sefa’s loan application criteria;
• demonstrate the character and ability to repay the loan;
• have provided personal and/or credit references (if available);
• be the majority shareholder and the owner manager of the business;
• where available, provide relevant securities/collateral; and
• have a valid Tax Clearance Certifcate.
1.6 sefa Products and Service Distribution Model
Annual Report 2014
5
sefa Funding Model
sefa
Wholesale
Lending
sefa Direct
Lending
Credit
Guarantee
Scheme
sefa Regional
Offces and seda
co-locations
Formal Registered
Financial Institutions
FINANCE
INTERMEDIARIES:
(Co-operative Financial
Institutions, Micro Finance
Institutions, Joint Ventures
& Funds, Retail Finance
Intermediaries)
R500 to R5m R50k to R5m Up to R5m
SMMEs can access sefa funding solutions through any of the above channels
Annual Report 2014
6
1.7 sefa Footprint
9 sefa Regional Offces
2 sefa Branch Offces
10 Co-operative Financial Institutions
16 Micro-Finance Intermediaries
6 Retail Finance Intermediaries
25 seda Co-location Referral Offces
8 Specialised Funds
*
Limpopo
Mpumalanga
North West
Free State KwaZulu-Natal
Eastern Cape
Western Cape
Northern Cape
Gauteng
*
**
*
*
*
*
Annual Report 2014
7
1.8 sefa Group Structure
Wholly owned subsidiaries not consolidated:
• Khula Land Reform and Empowerment
Facility NPC
• Khula Institutional Support
Services NPC
Dormant Subsidiaries:
• Khula Business Premises
(Pty) Ltd
• New Cape Equity Fund
(Pty) Ltd
• MKN Equity Fund (Pty) Ltd
Consolidated
Entities
Consolidated
Investment
Subsidiaries
Associates Joint Ventures
sefa
Khula Credit
Guarantee
New Business
Finance
100%
100%
Khula Emerging
Contractors Fund
Khula
Akwandze Fund
Identity
Development
Fund
75%
Small Business
Growth Trust
Fund
82%
100%
100%
Business Partners
Utho Capital
SME Fund
49%
21%
Anglo American
Khula Mining Fund
sefa Awethu
Youth Fund
Enablis Khula
Loan Fund
50%
Izibulo
65%
50%
40%
Khula - Enablis
SME Acceleration
Fund
75%
Annual Report 2014
8
1.9 sefa Governing Structure
Board
Company Secretariat Internal Audit CEO
Chief
Financial
Offcer
Executive
Manager:
Wholesale
Lending
Executive
Manager:
Direct
Lending
Chief Risk
Offcer
Executive
Manager:
Human
Capital
Management
Board
Enterprise Risk
Committee
Audit
Committee
Human Capital &
Remuneration
Committee
Wholesale
Investment
Committee
Direct Lending
Committee
Annual Report 2014
9
1.10 sefa Organisational Framework
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
B
o
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r
d
o
f
D
i
r
e
c
t
o
r
s
,
s
e
f
a
M
a
n
a
g
e
m
e
n
t
,
R
i
s
k
&
C
o
m
p
l
i
a
n
c
e
,
I
n
t
e
r
n
a
l
C
o
n
t
r
o
l
s
,
A
u
d
i
t
&
F
r
a
u
d
P
r
e
v
e
n
t
i
o
n
a
n
d
L
e
g
a
l
E
N
A
B
L
I
N
G
/
S
U
P
P
O
R
T
H
u
m
a
n
C
a
p
i
t
a
l
M
a
n
a
g
e
m
e
n
t
,
I
T
S
y
s
t
e
m
s
,
S
t
a
k
e
h
o
l
d
e
r
R
e
l
a
t
i
o
n
s
&
C
o
m
m
u
n
i
c
a
t
i
o
n
s
,
F
i
n
a
n
c
e
a
n
d
P
r
o
c
u
r
e
m
e
n
t
Clients
Distribution Channels
SMMEs and Co-operatives
sefa’s Regional Offces, RFIs, MFIs, Co-operatives Financial Institutions,
Commercial Banks, Specialised Funds, Provincial Development
Corporations (PDCs)
R500 R5 million
Product Portfolio Direct Lending Wholesale
Financing
Capacity Building
• Working Capital
Loan;
• Asset Finance;
• Term Loans;
• Revolving Loan;
• Bridging Loan;
• Short-term
Trade Finance.
• Business Loans –
(RFIs/MFIs/
Co-operatives/
FIs);
• Joint Ventures
–Specialised
Funds;
• Credit
Guarantee
Scheme;
• Land Reform
Empowerment
Fund.
• Pre and Post
Loan Mentoring
Institutional
Strengthening
• Board
Representation;
• Management
and Technical
Support.
BOARD OF DIRECTORS
Dr Sizeka Magwentshu-Rensburg
Chairperson of the Board
Mr Thakhani Makhuvha
Chief Executive Offcer
Ms Hlonela Lupuwana
Member: Human Capital
& Remuneration Committee
2
Qualifcations:
• DPhil (Business Management)
(University of Johannesburg)
• MBA (Webster University)
• BA (Management in Accounting
and Business Administration
(Webster University)
• Advanced Certifcate in
Purchasing Management
(University of South Africa)
Age: 54
Other Directorships:
• Director: Findevco (Pty) Ltd
• Director: IDC
• Director: Girl Guides South
Africa
• Member: merSETA Finance and
Grants Committee
Current Employment:
• Independent Consultant
Qualifcations:
• MCom Financial Management
(University of Johannesburg)
• BCompt (Hons)
(University of South Africa)
• BCom Accounting
(University of Venda)
• Leadership Development
Programme (Gordon Institute of
Business Studies)
Age: 45
Other Directorships:
• Director: seda
Current Employment:
• CEO: sefa
Qualifcations:
• MBA (University of Pretoria)
• BSc (Social Sciences) (University
of Cape Town)
• Associate in Management (AIM)
(University of Cape Town)
Age: 45
Other Directorships:
• Director: Anglo American Zimele
• Member: International Women’s
Forum South Africa
Current Employment
• MD: Anglo American Zimele
• Former CEO: seda
10
BOARD OF DIRECTORS
Mr Ismail Tayob
Chairman: Audit Committee,
Member: Enterprise Risk Committee,
Member: Human Capital &
Remuneration Committee
Ms Katinka Schumann
Member: Wholesale Investment Committee
Member: Direct Lending Committee
Mr Lawrence Mavundla
Chairman: Direct Lending Committee
Member: Wholesale Investment Committee
Qualifcations:
• CA (SA)
• BCom (Accounting)(University of
Durban Westville)
• Post Graduate Diploma in
Accounting (University of Durban
Westville)
Age: 49
Other Directorships:
• None
Current Employment:
• Executive Director: CH Chartered
Accountants (Pty) Ltd
Qualifcations:
• MBA (University of Stellenbosch)
• B Home Economics (University of
Stellenbosch)
• Advanced Management Programme,
(INSEAD, France)
Age: 45
Other Directorships:
• Director: African Continental
Resources Ventures (Pty) Ltd
• Director: Tourism Enterprise
Partnership
• Director: Palabora Copper (Pty) Ltd
• Trustee: Women Private Equity Fund
Current Employment:
• Divisional Executive: IDC
Qualifcations:
• Business Management,
(Cranefeld College, UK)
• Chamber Management (CIPE,
USA)
• Business Management and
Development (Swedish
Chamber)
Age: 49
Other Directorships:
• President: NAFCOC
• Chairman: Adifash Investments
• Chairman: Silver Vanity
Investments
• Chairman: Medi Card (Pty) Ltd
• Vice President: The Black Business
Council
Current Employment:
• Businessman
11
BOARD OF DIRECTORS
Mr Richard Mutshekwane
Chairman: Human Capital & Remuneration
Committee Member: Enterprise Risk Committee
Member: Audit Committee
Ms Barbara Calvin
Member: Wholesale Investment Committee
Member: Direct Lending Committee
Mr Gert Gouws
Chairman: Enterprise Risk Committee
Member: Audit Committee
Qualifcations:
• BCom (Hons) (Queen’s
University, Canada)
Age: 54
Other Directorships:
• None
Current Employment:
• Director: Vulindlela Development
Finance Consultants (Pty) Ltd
Qualifcations:
• Advanced Executive Programme (UNISA
Graduate School of Business Leadership)
• Credit Diploma (Institute of Bankers of
South Africa)
• Certifcate in Banking (Institute of Bankers
of South Africa)
Age: 64
Other Directorships:
• Vice Chairman: Midrand Child Welfare
Current Employment:
• Shareholder and Director: Pennine Energy
Innovation
Qualifcations:
• CA (SA)
• BCom (Law) (University of
Johannesburg)
• BCom (Hons) (University of
Johannesburg)
• FCMA, CGMA
• Advanced Management
Programme (INSEAD, France)
Age: 55
Other Directorships:
• Director: Kumba Iron Ore Ltd,
• Chairman: Herdmans SA (Pty) Ltd
• Chairman: Pebble Bed Modular
Reactor SOC Ltd
• Director: Findevco (Pty) Ltd
Current Employment:
• CFO: IDC
12
BOARD OF DIRECTORS
Mr Setlakalane Molepo
Member: Wholesale Investment
Committee Member: Human Capital
& Remuneration Committee
Mr Marius Ferreira
Chairman: Wholesale Investment Committee
Member: Direct Lending Committee
Qualifcations:
• MBL (UNISA, SBL)
• Certifcate in Financial Management
(Rand Afrikaans University)
• BSc Engineering (Civil) University
of Witwatersrand;
• National Diploma in Civil
Engineering Northern Transvaal
Technikon
Age: 52
Other Directorships:
• BusaMed Holdings (Pty) Ltd
• South Africa Metals Equity
(Pty) Ltd
• Zastrovect Investments (Pty) Ltd
Current Employment:
• Divisional Executive: SME &
Rural Development and National
Empowerment Fund (NEF)
Qualifcations:
• BCom (Hons) (Rand Afrikaans
University)
Age: 59
Other Directorships:
• None
Current Employment:
• Director: Imalivest (Pty) Ltd
• CFO: Imalivest Mineral Resources
(Pty) Ltd
13
Annual Report 2014
CHAIRPERSON'S STATEMENT
3
14
…facilitating increased access to fnance for South Africa’s small business sector…
The focus for 2013/14 fnancial year was consolidation, following the merger, and reaching
signifcantly higher numbers of SMMEs. I am happy to report that both these have been achieved.
sefa experienced enormous growth in the direct lending loan programme with the loan book
doubling from last fnancial year.
We have expanded our footprint ensuring that more SMMEs can access our products and
services with ease. We have also enhanced our capacity to better serve the SMMEs with
innovative products and services.
Through our strategic partnerships with fnancial intermediaries, sefa was enabled to extend
sector focused loan fnancing products and services to sectors such as mining, agriculture, transport,
automotive and microfnance. We recognise that by combining the industry-specifc expertise of the
intermediaries with the fnancial support expertise of sefa, we can increase the chances of survival
and growth of SMMEs, thus contributing to job creation and economic growth of South Africa.
Following the merger process, the integration of human resources, administrative and management systems have been fnalised and improvements effected where
necessary. A few challenges with regard to human resources still remain but these are being resolved.
Developing and growing the SMME sector takes collective effort and as sefa we placed emphasis on building partnership with other SMME support institutions,
the government and the private sector. To this extent we developed strategic partnerships with the National Empowerment Fund (NEF), the Small Enterprise
Development Agency (seda), the South African Institute of Chartered Accountants (SAICA), National Youth Development Agency (NYDA) and National and
Regional Chambers of Commerce and Industries. These partnerships contributed to greater awareness of our organisation’s products and services, outreach to
SMMEs, increase in our loan book and effective post investment support to funded enterprises.
We have also identifed some challenges that we have prioritised for the next fnancial year and these are:
• Impairments have increased and one of the main reason being non-payment of SMMEs by their clients and therefore being unable to service their loans
with sefa;
• Some of our intermediary partners charge SMMEs very high interest rates.
In addition to these, we will focus on the following for the next fnancial year:
• reaching more SMMEs, especially those located in rural communities, through continued expansion of our footprint and growing the loan book through
innovative products and services;
• streamlining business processes to increase turn-around times on loan applications;
• use of information and communication technology to signifcantly improve effciencies, thus reducing the cost of fnance to SMMEs;
• increase collaboration with institutions that provide business support to SMMEs to reduce the default rates;
• enhance collaboration with commercial banks so that together we can reach more SMMEs with loan products;
• explore and build partnerships with Co-operative Financial Institutions (CFIs) to increase access to funding for small and micro enterprises and develop a
strong fnancial co-operative sector; and
• developing targeted enterprise loan programmes for youth, women, people living with disabilities and rural communities.
Annual Report 2014
As the Board of Directors and management of sefa, we would like to express our gratitude to the Honourable Minister of Economic Development Department,
Minister Ebrahim Patel, for his guidance and continued support to sefa and the promotion of small business development in South Africa.
I would also like to acknowledge the contribution made by our shareholder, the IDC in sefa’s success. They have been exceptionally supportive in augmenting
sefa’s capacity during a very challenging period. I also thank the NEF for their assistance which directly contributed to enhanced loan processes and therefore
the growth of our loan book.
I also wish to thank my fellow board members for their commitment to the SMME sector and to making sefa a strong fnancier of SMMEs in South Africa. I also
commend the CEO, executive management and staff of sefa for their dedication during the reporting period.
Entrepreneurs are our pathfnders to growth and societal wellbeing, it is our collective responsibility to nurture and support them.
Dr Sizeka Magwentshu-Rensburg
Chairperson of the Board
15
Annual Report 2014
…increasing access to fnance to create jobs…
There is growing recognition of the important role that small businesses play as an effcient
and prolifc job creators, being seeds of big businesses and the fuel of economic engines. Small
enterprises are sources of dynamism, innovation, competition, growth and job creation.
Our role as sefa is to champion the development of small businesses in South Africa by creating
enabling platforms and programmes for small businesses to access fnance at the right cost.
Dynamic Growth in Loan Book
In the fscal year 2013/14, we continued to position ourselves as a leading catalyst for the
development of small businesses and have approved R1.1 billion in loan facilities for small business
development through our various loan programmes. This represents a 142% increase on the
2012/3 fnancial year approvals.
CHIEF EXECUTIVE OFFICER’S STATEMENT
4
Likewise, we were able to increase our disbursements by a 176%, to the value of R549 million to SMMEs and fnancial intermediaries. The growth in our loan
book represents an encouraging developmental trajectory given the development phase of the organisation and the challenges linked to the merger.
Development Impact
For the fnancial year under review, sefa’s fnancial support resulted in 46, 407 entrepreneurs benefting from our different loan products and services to the
value of R822 million. Of the 46,407 entrepreneurs supported:
• 10, 291 were youth owned enterprises with loan funding support to the value of R157 million;
• 44, 302 were women owned businesses with funding support to the value of R362 million;
• 36, 729 were rural-based enterprises with a total funding of R429 million; and
• 43, 643 were black owned enterprises funded to the value of R599 million.
Financial Performance
We closed the fscal year with total assets amounting to R2,2 billion. Our revenue stream prior to considering fair value adjustments to investment properties
and grants recognised in income has increased by 17.5% to R141.5 million. This is largely attributable to the increase in interest and fees from lending activities. An
allocation was received from government which is channelled through the IDC as a shareholder’s loan, this amounted to R231 million.
Risk Management
Impairments and bad debt movements relate to legacy credit facilities granted prior to the merger and the growing loan book, especially our Direct Lending book.
sefa operates as a lender of last resort to entrepreneurs. Most of the enterprises we fund, are those that commercial lenders do not have appetite for, hence
our high operating risk.
We subsequently strengthened our risk and governance institutional framework to embed and enhance risk culture and management across sefa. We also
adopted a credit policy and framework; capacitated our credit evaluation business unit, and strengthened our credit management committees and overall
compliance and fraud prevention strategies.
The inability to service debts by our clients remains an area of concern. As a result, sefa has entered into an agreement with the South African Institute of
Chartered Accountants (SAICA) to support loan benefciaries/ clients with book keeping and fnancial skills. The partnership is growing and is yielding results to
both sefa and our clients.
16
Annual Report 2014
17
Human Capital Management
Our staff are our greatest asset. We therefore strive to create a working environment that is conducive for both their personal wellbeing and work life. sefa has
therefore collaborated with the Institute for Counselling and Advisory Services (ICAS) for their Employee Assistance Programme (EAP) to provide psychological
care and support to enable employees to optimise their competencies in the workplace.
Learning and development is key to increasing our capacity and building a knowledge organisation, as our business is principally based on the management of
information and money. Thirty-fve percent of our staff is supported by the sefa bursary programme. To enhance ongoing skills development various short-term
interventions were implemented. Expenditure on training and development represented 2% of payroll.
Partnership Development
We have built synergies and partnerships with a number of organisations and institutions that share our developmental agenda. These collaborations have enabled
sefa to increase its funding to small businesses on a national scale. sefa has entered into targeted collaborative initiatives with other national development fnance
institutions such as the IDC, the NEF, seda and the NYDA.
Partnering with the IDC has enabled us to leverage off the development fnance expertise of the Corporation which was built over many decades. The
collaboration with the NEF gave us the much needed scale following increased demand of fnancing requirements by our clients, whilst seda has helped us to
extend our footprint as we have co-located into 25 of seda’s offces nationally thereby bringing sefa much closer to our clients, simplifying the access route to
funding. In addition we were able to build a strategic partnership with the NYDA in tackling economic and unemployment challenges amongst the youth.
Just as no journey to success is without hills and valleys, sefa’s establishment in 2012/13, and its growth in 2013/14, was not without diffculties. We continued
to embed sefa’s values, with the aim to improve our value proposition and offerings to our clientele. Some areas of enhancement identifed include the need
to improve our turnaround times; and we are inculcating an entrepreneurial performance culture that is linked to a passion for development across all functional
areas of our business in order to fulfl our national mandate.
To speed up our responses to stakeholders, we have implemented an online application facility on the sefa website for potential clients to apply online. Systems
and processes were also enhanced to improve the workfow and turnaround times. The sefa Loan Administration System (sefaLAS) has also been enhanced to
ensure that all core products are being managed from one integrated platform.
The past fscal year has indeed marked a period of increasing access to fnance and job creation. I am particularly humbled with a deep sense of appreciation and
privileged to have been given the opportunity to lead this young organisation which has enormous potential to contribute positively to the lives and aspirations
of our people. We are driven by the passion for development and prospects of promoting sustainable entrepreneurship that can address the triple challenges of
unemployment (especially among the youth), alleviation of poverty and inequality.
We are in a unique position to precipitate and facilitate the development of SMMEs and to create a vibrant job market.
I thank my management team and staff for working tirelessly and giving their best to produce the results that epitomise our intended development objectives
under trying circumstances.
I also wish to express my sincere gratitude to our Chairperson, Dr Sizeka Magwentshu-Rensburg, and my fellow colleagues on the Board of Directors, for their
sterling leadership and guidance during another challenging year. We thank our shareholder, the IDC, the Honourable Minister Ebrahim Patel and the team at the
Economic Development Department (EDD) for their unwavering support and holding us accountable.
We remain steadfast and committed to the course of increasing access to fnance for SMMEs and thereby contribute to building inclusive economic growth.
Mr Thakhani Makhuvha
Chief Executive Offcer
Mr Thakhani Makhuvha
Chief Executive Offcer
Ms Lesego Mashishi
Executive Manager: Human Capital Management
Mr Piet Swanepoel
Executive Manager: Direct Lending
EXECUTIVE MANAGEMENT 5
18
Ms Vuyelwa Matsiliza
Executive Manager: Wholesale Lending
Ms Leonie van Lelyveld
Chief Risk Offcer & Acting
Chief Financial Offcer from December 2013
EXECUTIVE MANAGEMENT
19
Annual Report 2014
20
…enabling increased access to fnance …
The Finance Division has played a vital role in supporting various business processes.
During 2013/14, the division managed to achieve the following:
• adequately maintaining and improving systems that were implemented in the previous
fnancial year;
• identifying fruitless, wasteful, irregular, and unauthorised expenditure on a continuous basis
and implementing processes to minimise such expenditure;
• cost centres within the organisation were clearly defned and aligned with the organisational
structure to enhance reporting;
• further systems migration were done to ensure effective processing and reporting.
The Finance Division has various projects planned to enhance the effectiveness and effciency of supporting business processes. These projects include:
• cost saving initiatives which are expected to have a direct impact on the cost to income ratio;
• assisting in the creation of a fnancial model for sefa, which will address sefa’s sustainability and assist in defning, measuring and reporting on the key
measures for the entity;
• automation of various manual processes that are currently in use;
• developing and implementing an integrated reporting tool to provide timeous information of high quality to support management’s decision;
• as business activity is increasing, internal policies and controls are to be enhanced to cope with the increased workload.
CORPORATE PERFORMANCE OVERVIEW
6
6.1 Financial Performance Overview
Annual Report 2014
21
Due to various cost saving initiatives as well as an increase in interest from loans and advances, a cost to income ratio of 97% was achieved, which is well below
the target of 129%.
The institution’s growth is evident in loans and advances and investments which represented 57% of the total group assets, compared to the 44% of the previous
year. The interest from loans and advances increased by 37% from the previous year.
2014 2013
Dividends
Interest: Cash
Other Income
Properties Income
Indemnity Premiums
Interest: Loans & Advances
Fee Income
Grant Income
Dividends
Interest: Cash
Other Income
Properties Income
Indemnity Premiums
Interest: Loans & Advances
Fee Income
Grant Income
24%
9%
5%
28%
27%
6%
1%
0% 1%
29%
21%
4%
18%
24%
1%
2%
Composition of Group Income
Annual Report 2014
22
The increase in loans and advances caused a decrease in cash balances from 42% to 32% of total assets, ultimately coinciding with the objective to increase access
to fnance from SMMEs in South Africa.
Composition of Group Assets
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Other Assets Investments
0%
2%
36%
22%
8%
32%
5%
31%
14%
8%
42%
Loans & Advances Investment Properties Cash & Cash Equivalents
2014 2013
Annual Report 2014
23
Board
of Directors
Board Committees
ERC / AC / WIC / HCRC / DLC
Risk Governance
• Setting risk strategy
• Set risk appetite and approve risk
policies
• Manage risk exposures
Risk Guidance, Monitoring & Reporting
• Development of risk guidance policies,
procedures, systems and tools
• Monitoring and reporting on consolidated risk
exposures
Risk Division Internal Audit External Audit Risk Assurance
Risk Taking & Management
• Identifcation, assessment and management of
day to day risks
• Bear the consequences of loss arising from risks
materialising
Risk Facilitator
(Champions
Specialists)
Business Divisions
Risk Culture
Overview
Taking risk to exploit business opportunities is inherent in any business. In sefa’s development fnance sphere, rewards are sought that transcend fnancial returns
to include a range of socio-economic development impact indicators. Risks taken by sefa are typically higher compared to those taken by commercial entities. As a
result, it is imperative for sefa to implement an effective risk management system to determine the appropriate level of risk that ensures the desired organisational
balance of development impact and fnancial return.
During the reporting period, sefa made signifcant strides in managing its risk in a robust and holistic manner. Amidst a challenging development fnance landscape,
the Risk Division has enhanced and embedded the culture of risk management into the business to drive value creation for the organisation. This requires effective
strategic planning, performance management and effective risk management, which are embedded in the daily operations of the organisation. Adopting the
three- lines-of-defence model as the base for building an effective risk management system within sefa, the integrated model for the risk management functions
and responsibilities have been applied, as indicated below.
An Integrated Enterprise Risk Management Model for sefa
6.2 Risk and Compliance Management Performance Overview
Annual Report 2014
24
Risk Appetite
sefa’s risk appetite statement has been reviewed and approved by the Board to link business strategies with risk-taking capacities and optimise risk-return
trade-offs.
Risk Management Maturity
One of the aims of the risk management strategy is to achieve an optimal risk maturity level proportionate to the resources and risk to which sefa is exposed.
The risk maturity level defnes the degree of sophistication of its risk management activities. Hence, the greater the level of sophistication, the greater the benefts
of enterprise risk management. sefa benchmarks its risk management maturity against the following risk maturity matrix:
Based on our pro-active risk management implementation, we rate ourselves as level 3 on the above risk maturity matrix.
Risk Maturity Key Characteristics
Level 1 Risk Naive • There is no formal approach developed for risk management
Level 2 Risk Aware • scattered silo-based and fragmented approach to risk management;
• risk is defned differently at different levels and parts of the company;
• risk management is reactive;
• limited alignment of risk management to strategy; uncoordinated monitoring and reporting of risk.
Level 4 Risk Managed • enterprise wide approach to risk management developed and communicated;
• risk management activities coordinated across business areas;
• enterprise risk monitoring, measuring and reporting is established; opportunity risks identifed and exploited.
Level 5 Risk Enabled • risk management and internal control fully embedded into the decisions and operations of the company;
• on-going risk assessment processes;
• risk discussion embedded in strategic planning, capital allocation, product development, etc.; risk management is
linked to performance measurement and incentives system.
Level 3 Risk Defned • risk strategy and policies are in place and communicated; risk appetite defned; common risk assessment
process/responses adopted; company-wide risk assessment performed; identifed risk universe; risk mitigation
action plans implemented in response to high priority key risks; communication of key risks to the Executive
Committee and the Board.
Annual Report 2014
Credit Risk
Credit risk is defned as the fnancial loss arising from the failure of a counter party to fulfl its contractual obligations to sefa. The credit risk that sefa faces arises
mainly from providing fnance to survivalist, micro, small and medium businesses throughout South Africa. The granting of credit is therefore sefa’s major source
of income and as such the most signifcant risk. sefa therefore dedicates considerable resources to its control.
Credit Risk Management Framework
Credit risk management encompasses the process of identifcation, measurement, monitoring and controlling of all credit decisions and exposures. Credit risk
management is an integral part of sefa’s core business and its management is ingrained into all of the institution’s operations. The primary objective of credit
risk management is therefore to ensure that sefa’s risk is in line with the institution’s risk appetite and threshold, and that all risk issues inherent in sefa’s lending
decisions are mitigated and managed.
sefa’s credit risk framework acknowledges that in the fulflment of sefa’s mandate, it is highly exposed to various levels of credit risk that are material and require
comprehensive controls and ongoing oversight.
The credit risk unit was formed in June 2013 as a dedicated resource within the Risk Division. Its role is to assist the Chief Risk Offcer in setting and maintaining
best practice credit risk management by providing analytical and advisory services in respect of risk taking, control, measuring and reporting credit risk exposures,
trends and quality of assets at portfolio level.
Credit decision-making is made at committee level. sefa has three Credit Committees, namely:
• Executive Credit Committee
• Management Credit Committee
• Small Enterprise Credit Committee
These Credit Committees have clearly defned mandates, delegated authority and membership.
Credit Risk Management Enhancement
The credit risk unit has since its inception embarked on a number of improvements to review existing policies to avoid undue credit risk and potential loss without
compromising sustainability and development impact. The changes focused on building stronger interdepartmental relations at various levels with the business
units as they are primarily responsible to manage risks. This approach balances strong independent oversight at corporate level. These changes also encompass
the adoption of credit risk-assessment models.
sefa’s credit policies, which have been approved by the Board and implemented, will ensure the following:
• independence and integrity of decision making and risk reviews;
• sound and consistent credit granting standards;
• effective credit risk management;
• proactive identifcation of potential defaults;
• robust credit granting processes and procedures.
sefa has also introduced new credit risk methodologies and models to measure and monitor credit risk. These models are aimed at assisting the institution in
frontline credit decision making on new transactions and in the management of the existing portfolio. These models ensure that sefa has a credit score for
each client.
25
Annual Report 2014
26
Credit Rating
As part of the credit process, sefa classifes clients according to their respective risk profles. The main objectives of risk classifcation are to rank sefa’s client base
according to risk and to estimate the probability of default for each client. The risk classifcation process also ensures that there is a shared understanding across
the institution of the credit risk that clients pose.
However, in view of sefa’s mandate, the institution has devised a discounted credit risk charge for all its clients. sefa therefore does not charge a risk premium
that is in line with the probability of default of its clients. sefa has developed an internal 10-grade scale, which refects the discounted risk margin associated with
a particular grade.
Reporting
In order to achieve its mandate, the fnancial sustainability of sefa is critical. sefa therefore dedicates resources to gaining a clear and accurate understanding
of credit risk across its portfolios in order to ensure that its balance sheet accurately refects the value of the assets in accordance with applicable accounting
principles. This process can be summarized in the following broad stages:
• measuring and quantifcation of exposures;
• monitoring adverse trends and weakness within the portfolios;
• identifying potential problem loans;
• raising provisions for impaired loans;
• writing off assets when the whole or part of a debt is considered irrecoverable.
Credit Risk Mitigation
Although sefa does not offer funds based on collateral, collateral serves as an instrument to enhance the quality of credit and mitigate credit risk inherent in
sefa’s lending transactions. This is done by increasing the ratio of recoverable debt in the event of default and by implication reducing the loss given default (LGD)
of credit exposures. In some instances, the element of ensuring personal commitment is also locked in through the taking of collateral.
The security coverage required is determined by the risk profle, materiality of the loan, and sustainability of the funds application. Financial covenants are also an
important tool for credit mitigation within sefa.
Collections
The sefa mandate of creating developmental impact does not end with the extension of fnance to SMMEs. sefa also extends assistance to these enterprises to
establish sustainable, commercially viable businesses.
Inherent to the sustained commercial viability of any business is the ability to service its debt timeously. sefa management has created a dedicated collections
function to expand the assistance to businesses to service debt.
The aim of this collections function is twofold. Firstly, the timeous collection of amounts owing to sefa and secondly, the rendering of assistance to clients that
are unable to service their debts.
The inability to service debts is often because of inappropriate business practice or structures resulting from a lack of commercial skill. The sefa Workout &
Restructure function employs experienced and skilled business persons to engage with and assist these clients. The Workout and Restructure team has an
agreement with the South African Institute of Chartered Accountants whereby sefa can draw on skills from SAICA when the need arises.
The creation of the Collections function, of which Workout and Restructure forms a large part, has created renewed focus on this area of the business with the
aim to expand on its early successes during the next fnancial year.
Annual Report 2014
27
Compliance Management
The compliance management function is currently incorporated within the Risk Division of sefa. The overarching objective of the compliance function is to guide
sefa through regulatory requirements and/or changes with the intent of preventing the severe non-compliance implications (including but not limited to fnancial
and reputational consequences). Compliance management within sefa must meet the regulators’ expectations and emerging statutory requirements.
The compliance function facilitates the relevant legislative and regulatory requirements to assist management with compliance, which includes the compliance
universe and compliance monitoring plans.
Highlights
For 2013/14, the Risk Division can report the following highlights:
• growing of risk and governance initiatives to embed and enhance risk culture and management across sefa in support of our strategic objectives;
• implementing credit policy and credit risk framework;
• improving risk reporting to management, Audit and Risk Committees and the Board;
• improving decision-making governance and turnaround time for credit decisions;
• enhancing and streamlining enterprise-wide risk reporting for effective risk oversight and consistent practices across sefa;
• updating strategic and divisional risk registers;
• initiating and implementing a credit risk pricing model, automated risk database and various reporting mechanisms to ensure robust risk capabilities through
technology;
• establishing the collections function.
The Risk Division has intimate knowledge of the high-risk environment that sefa works in, but also the passion to balance the risks with the urgency to increase
access to funding and create jobs. Careful balancing of institutional goals and economic demands will remain our focus.
Direct Lending
… increasing access to direct-lending fnance …
sefa’s Direct Lending is geared towards supporting aspiring entrepreneurs who want to start,
expand, or acquire businesses. sefa provides access to fnancing directly to Small, Micro, and
Medium Enterprises (SMMEs) and to co-operative enterprises operating in all sectors of the
economy. The loans, which range from a minimum of R50, 000 to a maximum of R5 million, have
gradually increased access to fnance in the SMME lending space during 2013/14.
The approval and disbursement levels show a marked improvement compared to the previous
fnancial year. Approvals refect a 151% increase, while disbursements recorded a 537% increase.
The increases are derived from a relatively low base and are the result of the development of
a solid lending platform and a proactive drive towards increased approvals and disbursements.
Annual Report 2014
Direct Lending Approvals and Disbursements
400
350
300
250
200
150
100
50
Rm
2012/13
29
The above graph refects a funding total of R366 million for 2013/14. During this period, 295 businesses were funded creating 7, 620 jobs. These
enterprises contributed towards rural economic development and supported youth, women and black owned businesses.
6.3 Direct Lending Performance Overview
0
Rm
2013/14
146
41
366
261
Approvals Disbursements
Annual Report 2014
The sustainability of our portfolio as well as our investee companies is important to us, hence our increased attention to post investment support to manage the
rate of impairments. A post investment unit is now pro-actively providing business support and tailored mentorship services to SMME clients. Partnerships with
private sector service providers have been established to provide tailored and industry-specifc business support and mentorship programmes, aided by effective
workout and restructuring interventions.
Public sector partnerships with the Small Enterprise Development Agency (seda) and other Provincial Development Corporations (PDCs) have contributed to
minimise duplications and overlaps and ensured that the services provided by government agencies are now streamlined and complementary to sefa’s focus.
During the year we have improved our credit risk assessment and approval processes to rigorously evaluate the risk associated with every application. The system
is developed to allow for adequate fexibility in order for each application to be assessed on its own merit. In cases where applications are rejected, adequate
feedback is provided on the reasons for the rejection.
In up-skilling internal staff (particularly those manning the branch offces) during 2013/14, a tailored credit-assessment course was developed and presented in
partnership with First National Bank’s (FNB) Training Academy.
The sectorial allocation of our direct lending activities for the year is depicted in the table below:
The investment activities are still skewed towards services and trade as well as the construction and engineering sectors. The challenge is to increase our portfolio
towards the manufacturing/ productive sector in the next fnancial year.
Planning for next year includes the following:
• strengthening and building investment offcer skills and capacities;
• increasing process effciencies to reduce turnaround times on applications;
• building post-investment skills and capabilities to pro-actively manage potential defaults and impairments
• expanding Direct Lending’s footprint through further strategic partnerships and alliances with organisations such as co-operative associations and franchise
organisations.
The growth in the Direct Lending loan book over the period under review, demonstrates the crucial enabling role that the division plays in increasing direct
fnance access to its SMME clients.
30
Number of
Approvals
Value of Approvals
R'000
Manufacturing 31 50, 256
Construction and Engineering 87 142, 379
Services and Trade 158 145, 314
Other 13 13, 817
Total 294 366, 529
Agriculture and Agro-processing 5 14, 763
Sector
Annual Report 2014
31
Development Impact: Direct Lending Loan Programmes
Number of SMMEs
Funded
Rand Value
R'000
Support to youth-owned enterprises 65 41, 639
Support to enterprises in priority rural provinces 79 101, 542
Support to women-enterprises 64 68, 779
Support to black-owned enterprises 194 196, 420
Support to entrepreneurs or enterprises with loans less or equal to R250K 75 9, 895
Support to SMMEs 209 225,481
Annual Report 2014
32
Resotec Africa Import Export CC: 100% pure water out of air (Resotec Africa)
Thandie Selele, the 100% owner of Resotec Africa was awarded the contract for the supply and full installation of Atmospheric Water Generators to provide the
community of Dingamazi Village, Giyani in Limpopo Province, with pure drinking water out of the atmosphere. However, the company did not have money to
execute a project of this magnitude and desperately knocked on all kinds of doors for funding. The prolonged complicated processes and lack of understanding
of the technology that the company is using by commercial banks and other institutions only complicated matters. sefa understood their unique challenges and
technology, and extended a loan of R3, 5 million to Resotec Africa.
The Atmospheric Water Generating project is the frst of its kind in the country. Resotec has successfully managed to install two fully functional Atmospheric
Water Generators, which are producing and supplying 100% pure clean drinking water to the community of Dingamazi Village.
Work was provided to about twenty community members during the construction of the foundations and laying of the slabs at Dingamazi village, while two
permanent employment opportunities were created.
Zik Zik Creations
Becoming her own boss is the drive that has seen Nontuthuzelo Nxele being celebrated as one of the most inspiring success stories in the Eastern Cape. She
was a teacher by profession and started her own business in 2003.
She was awarded a contract to supply patient linen to the Grey Hospital in Free State. Battling with capacity as she had three tenders to deliver on, she decided
to approach sefa for a business loan that would allow her to build capacity and to maintain jobs that she had already created in her previous contracts.
sefa funded her with an amount of R156, 740 to supply patients clothing to the hospital. The drive for business is skin deep for her as she recalled. “The passion
for business came from my mother who was entrepreneurial and very brave. After spending some time as a teacher I dedided to venture into business. Starting
a business was always going to be challenging”, says Nontuthuzelo.
The assistance from sefa gave her a much needed cash-fow and material. Already she has delivered on her contracts and forever grateful to sefa for giving her
a head start and her business is now doing exceptionally well.
The company manufactures and distributes linen and uniforms for the Eastern Cape Hospitals and Clinics and employs twelve people.
Amava Chrome
Amava Chrome, a chrome manufacturing company approached sefa for funding in order to convert from Diesel Generator power to Eskom to reduce cost and
upgrade the capacity by installing additional spirals to bring down the cost per ton of chrome ore feed processed. The company was funded R4,47 million by sefa.
Pillai Brapaharan acknowledges that the funding assisted his company to bring down costs, and helped the company to increase its proftability. "The funding came
at a right time for our company and capacitated us. From where I stand I believe that as a company we are doing extremely well since then”, says Pillai.
A GLANCE AT OUR DIRECT LENDING FUNDED SMMEs
Wholesale Lending
Annual Report 2014
34
Product enhancements
Business Loans (to RFIs and MFIs), the LREF and the Khula Credit Guarantee Scheme were enhanced to provide more customised services to intermediaries and
to reduce fnance costs to sefa’s target market; the SMMEs that require funding between R500 and R5 million. The co-operative sector products and services
were also reviewed to align sefa with the Co-operatives Amendment Act No 6 of 2013.
BUSINESS LOANS
A revolving business loan facility was introduced to curb the decapitalisation of intermediaries and the subsequent reduction of fnancial support to SMMEs. This
product is offered to intermediaries which possess specialised skills, infrastructure and local market intelligence required to service niche SMME market segments.
They complement our Direct Lending loan programme and also manage risks through close monitoring of SMMEs.
When funded through a revolving facility, the intermediary is able to draw down, repay and re-draw loans advanced to it. This fexibility of repayment and
re-borrowing within the approved facility allows the intermediary the capacity to further on-lend to the end benefciaries, without the risk of decapitalisation.
The revolving loan facility agreement clearly states the conditions that the intermediary must meet before it can re-draw money from the approved facility. These
conditions ordinarily include meeting periodic targets, reporting on development statistics and submitting cash fow projections covering the contract period. This
product will also be extended to the rest of the MFIs as well as RFIs that enable achievement of sefa’s development targets, that is, funding of black, women and
youth owned SMMEs at reasonable cost as well as those that increase sefa’s reach to South Africa’s priority provinces.
LAND REFORM EMPOWERMENT FACILITY
A new agreement with the Department of Rural Development and Land Reform (DRDLR), the sole funder of the Land Reform Empowerment Facility, was
negotiated and signed off in November 2013 to include production loans, mechanisation fnance, equity warehousing, and wholesale loan facilities to emerging
farmers.
During the year under review, sefa’s Wholesale Lending division focused on developing
innovative products. This entails entering into agreements with technical partners and fnancial
intermediaries who provide customised funding and development solutions that translate into
simple access to fnance SMMEs. Co-operative Financial Institutions are included in the SMME
products and services offered.
The division channels SMME development and funding support through:
• Micro-fnance Intermediaries (MFIs) for survivalists and micro enterprises;
• Retail Financial Intermediaries (RFIs) for small and medium businesses;
• Banking and Financial Institutions (BFIs) for delivery of the Land Reform Empowerment
Facility (LREF) products and the Khula Credit Guarantee Scheme to SMMEs;
• Specialised Funds and Joint Ventures for SMMEs in targeted markets and/or sectors; and
Co-operative Financial Institutions.
6.4 Wholesale Lending Performance Overview
Annual Report 2014
35
KHULA CREDIT GUARANTEE SCHEME
sefa is revamping the Khula Credit Guarantee Scheme (the Scheme) which was created to assist SMMEs that need fnancing from commercial banks/fnancial
institutions for establishing, expanding or acquiring new or existing viable businesses but do not have adequate and unencumbered collateral. Currently, the
Scheme works through mutually exclusive partnership arrangements with the four major banking institutions in the form of ABSA, First National Bank, Nedbank
and Standard Bank. The partnerships are regulated in terms of agreements concluded in 2007, which superseded the original agreements signed in 1997. As a
result of the ongoing renegotiations of the existing agreements, a new R100 million portfolio guarantee for First National Bank was approved within the year
under review and plans to extend the Scheme to more fnancial institutions that support SMMEs are underway.
CO-OPERATIVES SUPPORT
The Board approved the “sefa Integrated Strategy on CFIs”, which was aligned to the Co-operatives Amendment Act No 6 of 2013. The strategy serves as a
guiding document for sefa to provide fnancial support to the co-operative sector.
sefa will co-ordinate efforts on co-operative enterprises funding with other government agencies and seeks to complement seda, the Co-operative Banks
Development Agency (CBDA) and the Co-operatives Development Agency products and services. sefa has signed a Memorandum of Understanding with seda
and CBDA that outlines areas of mutual programme co-operation.
New Wholesale Business Models & Products
sefa identifed opportunities to pilot the hybrid model and venture into private-public partnerships. This is in line with the government’s view that development
fnance institutions should work with public and private sector players to multiply the impact of their limited fnancial contribution to small business development.
Transactions concluded during this fnancial year under the new hybrid model and the private-public partnership for enterprise supplier development are tabled
below.
HYBRID MODEL
During 2013/14, a new hybrid model of sector focus loan fnancing was introduced. This model comprises elements of both the Direct and Wholesale Lending
loan programmes. The model utilises the technical expertise of an external technical partner who conducts technical due diligence on potential clients and
provides business support required, whilst sefa provides credit assessment and fnancial support.
Two hybrid transactions were concluded in the transport and toursim sectors. The transport transaction faciltated the fnancing of taxi opeators whilst the
tourism transaction involves support to small toursim operators.. These partnerships extend a holistic funding support that encompasses both the pre and post
loan support to the SMMEs.
sefa will continue to leverage existing public and private sector technical expertise and resources by entering into agreements with partners who do not wish
to create SMME lending capacity but are willing to co-ordinate mutually benefcial SMME support programmes.
ENTERPRISE SUPPLIER DEVELOPMENT SUPPORT
To facilitate supply chain fnancing, sefa concluded the Godisa Supplier Development Fund (Godisa). Godisa is a strategic partnership between sefa, Transnet
and Anglo-American Zimele that facilitates SMME entry into the Transnet supply chain.
Annual Report 2014
36
Specialised Funds & Joint Ventures
Specialised funds and joint ventures are used as vehicles to address specifc SMME market segments. sefa leverages the existing technical capacity and resources
to provide a comprehensive package of development and fnancial support to SMMEs.
sefa AWETHU YOUTH FUND
To encourage youth entrepreneurship and employment generation, sefa established a R64 million youth fund in collaboration with Awethu Youth Enterprise
Incubator (Awethu). Awethu utilises a unique Incubation model that supports young entrepreneurs through business idea generation, business planning, fnancing,
marketing and post loan support. The programme targets entrepreneurs between the ages of 18-35 years.
TONGAAT HULETT FACILITY
In partnership with Tongaat Hulett Sugar (THS), sefa established the emerging sugar cane farmers loan programme. The loan programme provides production
input fnance for fertilizer, cane seed, insecticides, agro-chemicals, agricultural equipment and machinery to small scale emerging sugarcane growers who have
signed cane supply off-take agreements with THS. The participating farmers visited by sefa highly appreciated the comprehensive technical and fnancial support.
The Wholesale Lending division’s performance fgures are below:
Approvals
Disbursements
Actual Achieved
2013/14
R’m
Target
R’m
% Achieved
659 430 153%
288 362 80%
Annual Report 2014
37
In 2013/14, the Wholesale Lending Division achieved 80% of its R362 million disbursement target which equates to R288 million. There is a time lag between
approvals and disbursements as sefa disburses conditionally and on a drawdown basis. The graph above shows that the credit guarantee scheme uptake by the
major commercial banks has been low. sefa is currently revamping the scheme and the uptake is expected to improve in the next fnancial year.
The targeted post-investment support to SMMEs by intermediaries has contributed to the improvement and long term qualitative prospects of the loan book.
sefa will continue to review and enhance its product offerings to SMMEs to strengthen their long term growth.
Wholesale Lending Approvals and Disbursements
2013/14
R 150
R 100
R -
SME Credit Guarantee MFIs
M
i
l
l
i
o
n
s
R 50
R 250
R200
R 450
R350
R 500
R 400
R 300
R 440
R 209
R108
R 14
R 111
R 65
Approvals Disbursements
The total Wholesale Lending approval target of R430 million was outperformed by 53% in 2013/14, attributed to increasing fnancial and non-fnancial commitment
by public and private sectors for promotion of SMME development.
Annual Report 2014
38
Development Impact: Wholesale Lending Loan Programmes
Number of SMMEs
Funded
Rand Value
R'000
Support to youth-owned enterprises
Support to enterprises in priority rural provinces 95 96,193
Support to women-enterprises 68 68, 384
Support to black-owned enterprises 78 101, 712
Support to entrepreneurs or enterprises with loans less or equal to R250K 179 52, 927
Support to SMMEs 272 253, 249
Business Loans
60 52, 005
Number of SMMEs
Funded
Rand Value
R'000
Support to youth-owned enterprises
Support to enterprises in priority rural provinces 300 89, 573
Support to women-enterprises 134 21, 931
Support to black-owned enterprises 310 83, 976
Support to entrepreneurs or enterprises with loans less or equal to R250K 292 9, 886
Support to SMMEs 315 100, 755
Joint Ventures & Specialised Funds
18 9, 707
The tables below depicts the development impact under the Wholesale Lending loan programmes.
Annual Report 2014
39
Number of SMMEs
Funded
Rand Value
R'000
Support to youth-owned enterprises
Support to enterprises in priority rural provinces 6 2, 755
Support to women-enterprises 10 2, 549
Support to black-owned enterprises 11 9, 782
Support to entrepreneurs or enterprises with loans less or equal to R250K 6 759
Support to SMMEs 21 13, 798
Khula Credit Indemnities
9 6, 297
Number of SMMEs
Funded
Rand Value
R'000
Support to youth-owned enterprises
Support to enterprises in priority rural provinces 36, 146 139, 123
Support to women-enterprises 43, 330 189, 492
Support to black-owned enterprises 41, 991 186, 998
Support to entrepreneurs or enterprises with loans less or equal to R250K 44, 141 199, 434
Support to SMMEs 44, 151 199, 996
Microfnance
9, 807 40, 514
Annual Report 2014
40
Number of SMMEs
Funded
Rand Value
R'000
Support to youth-owned enterprises
Support to enterprises in priority rural provinces 103 756
Support to women-enterprises 696 11, 619
Support to black-owned enterprises 1, 059 20, 711
Support to entrepreneurs or enterprises with loans less or equal to R250K 1, 439 28, 820
Support to SMMEs 1, 439 28, 820
Co-operative Financial Institutions
332 7, 223
Total number of SMMEs fnanced within the wholesale division are 46, 198 and the amount disbursed to SMMEs is R596 million.
Annual Report 2014
Khula Akwandze Fund in Mpumalanga Province
Khula Akwandze Fund (the Fund) is a specialised fund established by sefa and Tsb Sugar SA’ (Tsb) black economic empowerment vehicle which is known as
Akwandze Agricultural Finance (Pty) Ltd (Akwandze). The fund was established to fnance black small scale sugar cane growers and mechanisation contractors who
have signed a cane delivery agreement with Tsb Sugar SA.
Ligugulethu Co-operative with a membership base of 744 and Tsb are equal shareholders in Akwandze Agricultural Finance. Members of the co-operative
enterprises receive preferential interest rates from the Fund.
The Fund approved 2, 711 loans to the value of R131million at an average loan size of R48, 000. The Fund strategically targets those niche markets for which
commercial banks have no appetite to service. Fifty-eight percent of the Fund’s investments are invested in businesses owned by the members of the co-operative
enterprises.
Anglo American sefa Mining Fund - Manngwe Mining (Pty) Ltd
Anglo American sefa Mining Fund invested R10 million in Manngwe Mining in December 2013 for a 20% stake in the company. Manngwe Mining was a 100% BEE
company before equity investment was made. The company is developing the Assen Iron Ore project in Thabazimbi. The Department of Minerals and Resources
issued a Bulk Sampling permit to the company to extract 300 000 tonnes of iron ore. The funding provided assisted the company to pay for its rehabilitation
guarantee and enable it to start extracting iron ore from the mine.
The mining activities have created permanent and casual work opportunities. As at 31 March 2014, Manngwe had created 5 permanent positions. There were also
a number of casual labourers from the surrounding areas that were used as security guards and for construction of the fence together with initial clearing of the
mining area. The numbers exclude the employees from the mining contractor on site who are performing the actual mining. The project will continue to create
more job opportunities as delivery of the tonnages to Sishen Iron Ore Company commences.
Manngwe will use the revenues from the project to fund the project to the next stage of Mining Right application and Bankable Feasibility study.
Mettle Administrative Services (Pty) Ltd - Alfa Bodyworks CC
The business was started in 1997, in a garage by the two brothers owning 50% each. It is a 100% BEE owned Close Corporation panel-beating service based in
Western Cape. It started with two employees and the staff complement has increased to 52. It has an administration and fnance unit, supported by two staff
members. The rest of the staff work on the panelbeating side.
The business is accredited by major insurance companies. They work closely with various dealerships and have factory approvals from all major manufacturers such
as Toyota, Honda, Nissan, KIA, OPEL, Ford, Cadillac, etc.
Alfa Bodyworks is a member of the RMI and SAMBRA. Panelbeating is labour intensive and requires skilled labour. Invoice discounting assisted them in maintaining
existing jobs by having cash immediately to pay employees, as they are paid every Friday. With Mettle, they do invoice discounting to the amount of R1,7 million
per month. They initially rented premises and are now owning their own building due to improved cash fows. The business has a 10 year relationship with Mettle.
In 2013, it received an award for an AA quality assured Autobody repairer.
41
A GLANCE AT OUR WHOLESALE LENDING FUNDED SMMEs
Annual Report 2014
Talent Victoria Hlongwa
Kwa-Zulu Natal Financial Services Co-operative, known as K-Ladies received a loan amounting to R1, 198,050 from sefa for on-lending to its members. The
co-operative enterprise affords its members the benefts of savings and loan services .
Talent joined the Financial co-operative enterprise in 2012 as one of the enterprising members. She owns a construction company, Buhlebakhe Trading Enterprise
CC which employs seven people. She has received a loan of R60, 000 from K-Ladies for her business which she used for working capital and to pay salaries and
wages for her employees. Her company specialises in building construction work, minor repairs and renovations delivering of goods and services.
According to her, the loan from K-Ladies has assisted her to grow her business which has brought about changes in her family. In her own words this what she said:
“The business has done lot of changes in my family, because I have seven children, six of them are my brother’s children and now I’m able to give them support,
by putting food on the table and giving them a future by taking them to school and paying for their school fees. “
42
Annual Report 2014
43
sefa operates in a competitive market where all players have access to the same technology,
systems, people and customers. As a result, there is a growing understanding that our people
are what will distinguish us in the marketplace. Our Human Capital Management strategy serves
as the foundation to transform our employees into a truly diverse and competitive workforce
geared to execute sefa strategy. We have two strategy focus areas:
• Talent: ensuring that we have capable human capital to execute current and future business
strategies.
• Culture: establishing a shared value-based organisational culture which is driven through
effective leadership and refected in the behaviour/performance of all employees.
Human Capital Management’s focus for the year under review was to keep our people safe
and healthy at work, develop talent to take sefa into the future, provide fair and competitive
remuneration, enhance systems and procedures, and improve employment relations climate.
6.5 Human Capital Management Performance Overview
Headcount
Our permanent staff complement as at 31 March 2014 was 194. This headcount was categorised as follows:
• Executive level accounted for 3%
• Management level accounted for 25%
• Professional level accounted for 46%
• Administration level accounted for 19%, and
• Support level accounted for 7%
A C I W Coloured African White Indian
Total A C I W A C I W
Male Female
Executive 5 1 0 0 1 2 0 0 1
Manager 49 21 2 0 1 20 1 1 3
Professional 90 24 3 1 6 46 5 1 4
Administrative 37 5 0 0 0 26 4 1 1
Support 13 5 1 0 3 4 0 0 0
Totals 194 56 6 1 11 98 10 3 9
Level
Annual Report 2014
EE Targets vs. Actuals
44
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
78% 78%
10% 8%
4% 3%
8% 11%
African Coloured Indian White
EE Target EE Actual
Performance Management
During 2013/14, a principle that rewards performance and value creation underpinned our performance management system. All employees were motivated to
perform through participative target setting, and undertook regular performance assessments, which is a process that involves regular feedback/review sessions
and development plans. A performance management workshop was conducted to ensure understanding of sefa’s existing practices and consistent application.
The process of agreeing on targets between employees and their managers and then assessing performance against these objectives has become frmly
entrenched in sefa’s culture of delivery of corporate targets.
Employee Engagement
In addition to this, sefa took steps during the year to measure employee engagement through an employee engagement survey. The survey gave employees
an opportunity to share their views on a number of specifed employee engagement dimensions within the company, such as leadership, job satisfaction,
communication, collaboration, prospects for growth, reward, and recognition.
The following areas of strength were identifed by employees:
• clear understanding of the purpose of the organisation;
• understanding of their role and contribution to the organisation;
• commitment of sefa employees to the success of the organisation;
• pride in working for sefa;
• Employee satisfaction/engagement remains a key pillar of the Human Capital Management strategy. sefa will continue to invest in employee
engagement initiatives to enhance an entrepreneurial workforce that is responsive to the SMME sector.
Occupational Health and Safety
Ensuring the post-merger health and wellness of sefa employees, was an absolute priority during 2013/14. In response to the stress that affects employees at
a personal and work-related level, sefa collaborated with the Institute for Counselling and Advisory Services (ICAS) for their Employee Assistance Programme
(EAP) to provide psychological care and support to enable employees to optimise their competencies in the workplace. Employees and their families have access
to a 24-hour, confdential and professional support service at ICAS to assist them in the management of daily personal and work-related diffculties. Over the
course of the year under review, 37% of sefa employees, cutting across gender, language and occupational positions utilised this service.
Annual Report 2014
Learning and Development
Our learning and development programmes for 2013/14 aimed at building organisational capacity in the skills level required to deliver on organisational strategy,
and to develop succession depth for senior roles. We also offered graduate training programmes to improve our resource pipeline for talent and supplemented
it with in-house and external development programmes. Our annual training budget, which constitutes 2% of payroll for learning and development was utilised
for these employee development interventions. Further initiatives included learning forums, and study loans with special focus on skills gaps identifed.
Categories of skills enhancements:
• micro-fnance
• fnancial analysis
• credit assessment
• due diligence
• fnancial modelling
• management and leadership
• customer interface
• interpersonal skills
Employee Relations
During 2013/14, post-merger employee relations issues continued to be addressed. In ensuring that due labour relations processes are followed and implemented,
we had regular engagements with organised labour at various levels, established different engagement fora and signed a Recognition Agreement. The purpose of
these structures was to provide and disseminate information to all employees and resolve issues quickly.
Human Capital Management will continue to inculcate a culture of organisational high performance, passion for development, integrity, and honesty so that
employees are motivated to ensure access to funding for all of sefa’s clients.
45
Annual Report 2014
PERFORMANCE AGAINST PREDETERMINED OBJECTIVES
7
Performance Indicator
2013/14
Target
Actual Achieved
for 2013/14
Reason for Variance
CUSTOMER
PERSPECTIVE 45%
Access to Finance by SMMEs and Development Impact
Approvals R 815 million R 1,065 billion Due to the growth in the loan books,
strengthening of internal capacity and targetted
marketing efforts
Disbursements R 737 million R 549 million The Wholesale transactions are approved over
a multi-year cycle and the draw downs are
scheduled according to the approval cycle.
Number of SMMEs fnanced 15,129 46,407 Overachievement is due to growth in the
Micro-fnance and Direct Lending loan books.
Number of jobs created 18,311 46,402
Facilities disbursed must be youth-
owned - 18-35 years old
30% 21% Limited viable business propositions and
entrepreneurship amongst the youth.
Facilities disbursed must be in priority
rural provinces
45% 58%
Overachievement is linked to the growth of
the loan book compared to the previous
fnancial year.
Facilities disbursed must be women-
owned businesses
40% 49%
Facilities disbursed must be black-
owned businesses
70% 81%
Facilities less than R250K disbursed to
end-users
40% 34%
FINANCIAL
PERSPECTIVE 25%
Ensuring sefa’s Sustainability and Strengthening Risk Management & Compliance
Net operating income as a % of
average assets at cost
0.8% -5% Target not achieved due to lower interest
income.
Cost to income ratio (excluding
Impairments & fnance charges)
129% 97% Overachievement is linked to the growth in the
loan book, an increase in interest income and
implementation costs containment strategy.
Bad debt ratio (Wholesale & Direct
lending loans issued by sefa) -
(Impairments as a % of portfolio at
cost)
31% 25% Target was achievement due to better post
investment monitoring and the write-off legacy
transactions (ex Khula and ex samaf).
Portfolio at risk of active clients less
than or equal to:
5% 22% Impairment provision linked to the growth in
the Direct Lending loan book.
Ratio of claims provisions vs amount
indemnifed of:
20% 16% Tightening of claims management an
strengthening of the overall claims business
process related to the credit guarantee
programme.
Reduce clients handed over to loss
control from 5 to 2 in 2014
2% 0% Target no acheived due to increase impairments
especially in the Direct Lending loan book.
46
Underachievement is due to lack of targeted
marketing and outreach initiatives.
Annual Report 2014
Performance Indicator
2013/14
Target
Actual Achieved
for 2013/14
Reasons for Variance
INTERNAL
BUSINESS
PROCESSES 15%
Improved Internal Business Processes & Systems
Development of at least ten key
policies; processes; systems; and
procedures
10% 16% Target exceeded due to consolidation of the
organisation post the merger and strengthening
of the governance environment.
Enhancement of Business Application
Processes - (Combine all loan
administration systems)
100% 100% All legacy systems have been transferred to the
the sefa loan management system.
Uptime/availability of critical systems 99.90% 100% Achievement is linked to the robustness of
the IT infrastructure and effective network
monitoring and management.
PEOPLE LEARNING
AND GROWTH 15%
Alignment, Development and Motivation of Human Capital
Labour Turn Over Rate (LTO) 7% 6% Stabilisation of the human resources
environment post the merger
Staff have Individual Development
Plans (IDPs) received and
implemented
80% 81% Achievement in the human resource indicators
is linked to strengthening of the Human Capital
Management capability.
Performance management
assessments conducted by Managers
for the year ending 31 March 2014.
100% 58% New performance policy was only implemented
in September 2013 and under achievement is
linked to the associated change management
process.
Establish Employee Engagement Index
(EEI) baseline score
5% 5% Employee Engagement Survey completed using
the Investors in People standard.
47
Annual Report 2014
48
Governance
The organisation applies the governance principles contained in the King Report on Governance for South Africa (King III) and continues to improve and
strengthen recommended practices in its governance structures, systems, processes, and procedures.
Key Developments
The Board approved, inter alia, the following strategies and policies:
• sefa Integrated strategy on co?operatives
• Performance management and development policy
• Remuneration policy
• IT Information security policy
• Anti?fraud and corruption policy
• Operational risk management framework and policy
• Enterprise risk management framework
sefa Board and Committees
sefa has a unitary Board structure comprising one executive director and ten non?executive directors, majority of whom are independent. The Board functions
in accordance with King III and within the context of the Public Finance Management Act of 1999 and the Companies Act 71 of 2008 (the Companies Act). The
Board composition refects a wide range of skills and knowledge, necessary to meet sefa’s strategic objectives.
The Memorandum of Incorporation (MOI) prescribes the size of the sefa Board; it permits a minimum of fve and a maximum of ffteen Directors. Directors’
term of offce is governed by the Company’s MOI and is subject to periodic re?election by the Shareholder.
The Chairperson of the Board of sefa is a Non?Executive Director. No individual has unfettered powers; the roles of Chairperson and Chief Executive Offcer
are separate to ensure a clear separation of duties. The Non?Executive Directors are not involved in the day?to?day running of the business of sefa and do not
draw any remuneration from the company, other than the fees paid for meeting attendance and other ad hoc duties assigned to them by the Chairperson.
The Board’s role is to exercise leadership and sound judgement in directing sefa, to achieve its mandate and growth, in the best interest of all its stakeholders.
Conficts of Interest
The Board recognises the importance of acting in the best interest of the company. The Board applies the provisions of the Companies Act by disclosing and
avoiding conficts of interest. Directors are required to declare their general interests annually and at each meeting in accordance with the Companies Act.
CORPORATE GOVERNANCE STATEMENT FOR THE YEAR ENDED 31 MARCH 2014 8
Annual Report 2014
49
Board and Committee Meetings Attendance
Chairmanship
Dr S Magwentshu?Rensburg Chairperson of the Board
Mr VG Mutshekwane Chairman of the Human Capital and Remuneration Committee
Mr IAS Tayob Chairman of the Audit Committee
Mr LB Mavundla Chairman of the Direct Lending Committee
Mr GS Gouws Chairman of the Enterprise Risk Committee
Mr M Ferreira Chairman of the Wholesale Investment Committee
Remuneration
sefa Non?Executive Directors are remunerated for the meetings attended at a rate which has been approved by the shareholder. No performance?based
remuneration or retainer fees are paid to Directors.
sefa Directors’ remuneration is represented in note 27 in the Annual Financial Statements.
Board Performance Assessment
The Board performance assessments were conducted during December 2013. Areas needing improvement have been identifed and processes to address these
are underway.
Board
Number of meetings held
during the year (incl. special
meetings)
Board Audit
Committee
Enterprise
Risk
Committee
Human Capital &
Remuneration
Committee
Wholesale
Investment
Committee
Direct Lending
Committee
13 6 4 8 8 4
Dr S Magwentshu?Rensburg 11 n / a n / a n / a n / a n / a
Mr VG Mutshekwane 13 6 4 8 n / a n / a
Mr IAS Tayob 9 6 4 7 n / a n / a
Mr SA Molepo 10 n / a n / a 8 6 n / a
Mr LB Mavundla 10 n / a n / a n / a 8 4
Mr GS Gouws 11 6 4 n / a n / a n / a
Mr M Ferreira 13 n / a n / a n / a 8 4
Ms BP Calvin 6 n / a n / a n / a 7 3
Ms H Lupuwana 8 n / a n / a 5 n / a n / a
Ms K Schumann 11 n / a n / a n / a 4 1
Mr T Makhuvha* 13 6 4 6 8 4
* Chief Executive Offcer
Annual Report 2014
50
Director Development
sefa encourages ongoing director development to enhance governance practices within the Board and in the best interest of the Company. A formal director
development workshop was conducted for the Board and senior management by the Institute of Directors in Southern Africa, during the year under review.
Delegation of Authority
While the Board delegates its authority to management, it retains the responsibility concerning the exercise of the delegated authority. In terms of Section 56
of the Public Finance Management Act, 1 of 1999 (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.
Board Committees
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. These committees play an important role in enhancing good corporate governance. Each
committee acts in accordance with a written charter, setting out its mandate, membership, duties and reporting requirements.
In terms of the Companies Act, sefa is required to establish a Social and Ethics Committee (SEC). The Companies Act further provides that exemption may be
granted by the Companies and Intellectual Property Commission (CIPC), provided that the functions that would have otherwise been performed by the SEC are
performed by other structures within the company. Certain functions of the SEC are performed by other sefa Board Committees. The process of ensuring that
the remaining functions are fulflled somewhere in the organisational structures is underway.
Audit Committee (AC)
The AC monitors the adequacy of fnancial controls and reporting, reviews audit plans and adherence to these by external and internal auditors; ascertains the
reliability of the audit reports; ensures that fnancial reporting complies with IFRS, the Companies Act and the Public Finance Management Act; 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 the appointment and removal of auditors to the Board.
Enterprise Risk Committee (ERC)
The primary duty of the ERC is the governance of risk. It assists the Board with the responsible stewardship of sustainability, including stakeholder impact,
management of material risks, sustainability, governance, and reporting. The ERC reviews procedures for the identifcation of risks, manages the impact of such
risks on the company, and recommends the approval of risk policies to the Board.
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. 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.
Human Capital and Remuneration Committee (HCRC)
The main objective of the HCRC is to assist the Board in the development of compensation and human resources policies, plans and performance goals, as well
as specifc compensation levels for sefa. The HCRC assists the Board in fulflling its oversight responsibilities as well as overall compensation and human capital
matters.
Direct Lending Committee (DLC)
The DLC acts on behalf of the Board by considering transactions mandated to it by the Board and within its delegated authority. The committee plays an oversight
role with regards to the performance of the Direct Lending loan programme and assessment of the performance of the loan portfolio.
Annual Report 2014
51
Shareholder Engagement
The shareholder meets with the Board on a regular basis. The relationship between sefa and the shareholder is governed by the MOI and the Shareholder
Compact. sefa reports to the shareholder on a quarterly basis as required by the PFMA and Companies Act.
Ethical Leadership
sefa remains committed to ethical and responsible leadership. The Board provides effective leadership based on a foundation of principles and the Company
subscribes to high ethical standards. sefa is also committed to good governance practices characterised by responsibility, fairness, accountability, and transparency.
Company Secretary
The Company secretary is responsible to the Board for, amongst others, ensuring compliance with Board procedures and applicable statutes and regulations. To
enable the Board to function effectively, all directors have full and unrestricted access to the Company Secretary. Directors regularly receive information relevant
for the proper discharge of their duties through the Company Secretary.
Internal Audit
Internal Audit is an independent appraisal function, which provides the Board with assurance on the adequacy and effectiveness of the Company’s systems of
internal control. Internal audit follow a risk?based approach and reports to the Audit Committee and administratively to the Chief Executive Offcer.
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 an ongoing basis. The Board is ultimately responsible for the management of risk, and to ensure that
management takes such action as required to mitigate and minimise all identifed risks.
Internal Control
The Board has the overall responsibility of establishing and maintaining the company’s internal controls and for reviewing effectiveness thereof. The Directors,
through its relevant committees have reviewed the effectiveness of the internal controls in sefa operations throughout the year. The role of management is to
implement approved policies on risk and internal control. sefa management implemented ongoing risk management processes for identifying, evaluating and
managing signifcant risks faced by the Company. This process is reviewed annually by the Board.
sefa and its subsidiaries maintain fnancial and operational systems of internal controls in order to fulfl its responsibility in 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, established policies and procedures, including a Code of Ethics to foster
a strong ethical climate, which are communicated throughout the Company.
The internal auditors assist the Board in monitoring the operation of the internal control system and report their fndings and recommendations to management
and the Audit Committee. Corrective actions and any other measures are taken to address identifed control defciencies and to improve controls. 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. Therefore, effective internal control systems only provide reasonable assurance regarding the fnancial statements’ preparation and safeguarding of assets.
No signifcant breakdown or circumvention of controls has occurred to date.
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 of the company, together with senior management constitute the Executive Committee, which meets regularly, to discuss the day-to-day
operational matters. The Chief Executive Offcer also meets regularly with divisional heads and other members of the management team.
The Board has unrestricted access to the executive management in an effort to enhance communication and achievement of the vision of the Company. Further
communication with sefa employees is done through Board feedback sessions convened by the CEO.
Statement of Responsibility by the Board of Directors 53
Report of the Audit Committee 54
Directors’ Report 56
Declaration by the Group Company Secretary 60
Independent Auditor’s Report 61
Statements of Financial Position 64
Statements of Proft or Loss and Other Comprehensive Income 65
Statements of Changes in Equity 66
Statements of Cash Flows 67
Notes to the Financial Statements 68
The fnancial statements have been prepared under the supervision of the Group’s Chief Executive Offcer, Mr T Makhuvha.
The fnancial statements have been audited in compliance with section 30 of the Companies Act, No 71 of 2008.
GROUP AND COMPANY ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014
REGISTRATION NUMBER: 1995/011258/06
9
52
Annual Report 2014
53
The Public Finance Management Act, 1 of 1999 (PFMA) requires the directors to ensure that sefa and its subsidiaries keep full and proper records of fnancial
affairs. The directors are responsible for the preparation and integrity of the Group and company annual fnancial statements and related fnancial information to
ensure that these 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.
The Group and company annual fnancial statements, set out in this Annual Report from pages (64?129), comprised of the statements of fnancial position at 31
March 2014, and the statements of proft or loss and other comprehensive income, changes in equity and cash fows, and the notes to the fnancial statements
which includes a summary of signifcant accounting policies and other explanatory notes, have been prepared in accordance with the International Financial
Reporting Standards (IFRS) and in the manner required by the Companies Act 71 of 2008 (Companies Act) and the PFMA. In addition, the Directors are
responsible for preparing the Directors’ report.
The Directors acknowledge that they are ultimately responsible for the process of risk management and the system of internal controls. 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 annual fnancial statements in accordance with IFRS and to 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
of internal 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, the internal audit function and discussions held with the external auditor, on the results of their
audits, the Directors are of the opinion that the internal fnancial 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 to indicate that any material breakdown has occurred in the functioning of these internal controls,
procedures and systems during the year under review. 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 a going concern approach in
preparation of the fnancial statements.
The Group and company annual fnancial statements have been audited by the Company’s independent external auditor, KPMG Inc., who has been given unrestricted
access to all fnancial records and related information, including minutes of shareholder; Board and Board Committee meetings. KPMG Inc.’s unmodifed audit report is
contained in this annual report on page 61.
The Directors are of the opinion, based on the information available to date, that the Group and company annual fnancial statements fairly present the fnancial
position of sefa and the group at 31 March 2014 and the results of its operations and cash fow for the year then ended.
The Group and company Annual Financial Statements, which were prepared in accordance with IFRS, the Companies Act and the PFMA, appear on pages 64 to
129, and were approved by the Board of Directors on 13 August 2014 and are signed on its behalf by:
Dr Sizeka Magwentshu?Rensburg Mr Thakhani Makhuvha
Chairperson of the Board of Directors Chief Executive Offcer
13 August 2014 13 August 2014
STATEMENT OF RESPONSIBILITY BY THE BOARD OF DIRECTORS FOR THE
YEAR ENDED 31 MARCH 2014
Annual Report 2014
54
REPORT OF THE AUDIT COMMITTEE FOR THE YEAR ENDED 31 MARCH 2014
The Audit Committee (the Committee) has pleasure in submitting this report to the shareholder as required by the Companies Act of South Africa 71 of
2008 (the Companies Act), and as recommended by King Report on Corporate Governance for South Africa (King III).
Committee Membership
The Committee, which had been appointed by the shareholder for the fnancial year ended 31 March 2014, consisted of Mr IAS Tayob (Chairman),
Mr VG Mutshekwane and Mr GS Gouws.
Committee Responsibilities and Charter
The Committee reports that it has complied with its responsibilities as contained in section 38 (1)(a) of the Public Finance Management Act (PFMA), Treasury
Regulation 3.1., and the Companies Act. The Committee also confrms that it has adopted an appropriate formal Audit Committee Charter; has regulated its
affairs in compliance with this charter and has discharged all its responsibilities as stipulated therein.
The role of the Audit Committee
The Committee is satisfed that, during the year under review, it has performed the functions required by law. Among others those functions included the
requirements as set out in section 94 (7) of the Companies Act, Treasury Regulations 27.1.8 – 10, the PFMA and King III. In this regard, the Committee has, inter alia:
• ensured that the respective roles and functions of external audit and internal audit are suffciently clarifed and coordinated and that the combined assurance
received was appropriate to address all signifcant risks;
• reviewed the effectiveness of the company’s policies, systems and procedures for detecting and preventing fraud;
• reviewed and monitored the effectiveness and performance of the internal audit function, its standing, staffng plans, audit plans to provide adequate support
to enable the committee to meet its objectives;
• reviewed and approved the annual internal audit plan and the internal audit charter;
• ensured that the scope of the internal audit function had no limitations imposed by management and that there was no impairment on its independence;
• reviewed the results of the work performed by the internal audit function in relation to fnancial reporting, corporate governance, risk, internal controls and
any signifcant investigation and management responses;
• assisted the Board in carrying out its risk management responsibilities;
• evaluated the independence, effectiveness and performance of the external auditor, and obtained assurance from the auditors that adequate accounting
records were being maintained and appropriate accounting principles were in place and had been consistently applied;
• evaluated the appointment of the external auditor on an annual basis;
• approved the audit fee and fees in respect of any non?audit services;
• reviewed and approved the external audit plan;
• ensured that the scope of the external audit had no limitations imposed by management and that there was no impairment on its independence;
• reviewed the external auditor’s fndings and reports submitted to management and the independence and objectivity of the external auditor;
• reviewed the effectiveness of the company’s systems of internal controls, including internal fnancial control and risk management and ensured that effective
internal control systems were maintained;
• reviewed and addressed matters referred to it by the Board;
• reviewed the annual report, as well as annual fnancial statements to ensure that they present a balanced, true position and performance of the Company;
• reviewed interim reports, preliminary reports or/and other fnancial information prior to submission to and approval by the Board;
• provided as part of the Annual Report, a report of the Audit Committee.
Annual Report 2014
55
The Effectiveness of Internal Controls
The Company’s system of internal controls is designed to provide reasonable assurance, such that assets are safeguarded and the liabilities and working capital
are effectively managed.
Based on the assessment of the system of internal fnancial controls conducted by sefa’s internal audit, as well as information and explanations given by manage-
ment 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
Whilst the Board is ultimately responsible for the maintenance of an effective risk management process, the Committee, together with the Enterprise Risk
Committee, assisted the Board in assessing the adequacy of the risk management process. The Chairman of the Committee is also a member of the Enterprise
Risk Committee; this ensures that all relevant information is regularly shared. The Committee fulfls an oversight role regarding fnancial reporting risks, internal
fnancial controls, fraud and information technology risks as they relate to fnancial reporting.
External Auditor
The Committee gave due consideration to the independence of the external auditor and is satisfed that KPMG Inc. is independent of the Company and
management and therefore able to express an independent opinion on the Group’s annual fnancial statements.
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.
Financial Management
The Committee reviewed the annual fnancial statements of the Company and the Group and related information and is satisfed that they comply with
International Financial Reporting Standards. 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 of Directors.
On behalf of the Audit Committee:
Mr IAS Tayob
Chairman of the Audit Committee
13 August 2014
Annual Report 2014
56
Introduction
sefa is registered as a State Owned Company (SOC) in terms of the Companies Act 71 of 2008 (Companies Act) and is a Schedule 2 listed entity in terms of
the Public Finance Management Act (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 (FIs) 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 funding requirements are sourced from a transfer payment via the Economic Development Department's budget vote, retained reserves and the
R921 million IDC shareholder loan committed.
A grant of R231 million (2013: R170 million) was received from government to support sefa’s activities. The grant was paid to the IDC, which is conducting the
required oversight over sefa’s operations, and was made available to sefa for operational purposes through a loan.
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, this is agreed with the shareholder and thereafter they form 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.
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 the King report on Corporate Governance for South Africa (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.
DIRECTORS’ REPORT FOR THE YEAR ENDED 31 MARCH 2014
Annual Report 2014
57
Short Term Insurance Act
The indemnity product of sefa's wholly owned subsidiary, Khula Credit Guarantee, is registered as an insurance product with the Financial Services Board (FSB)
and is regulated by the Short Term Insurance Act, 53 of 1998 (STIA). Quarterly and annual returns must be submitted to the FSB. The company is required at all
times to maintain a statutory surplus asset ratio as defned by the STIA. The 2013 annual return submitted to the FSB showed a defcit regarding the minimum
capital requirements throughout the year as the counter-party diversifcation did not meet the minimum requirements. Despite sefa having adequate assets in
both years to meet liabilities, these assets were not adequately diversifed as per the regulations issued by the FSB. This has been partially addressed in the current
year by further diversifcation to the investment portfolio. Adequate diversifcation was obtained shortly after the fnancial year end.
The indemnity product issued under Khula Credit Guarantee has traditionally been managed by the holding company as part of its management and governance
processes. The resulting institutional arrangements do not comply fully with the requirements of the FSB in a manner that gives effect with the provisions of the
STIA. During the fnancial year, the company commenced a process to ensure appropriate measures are put in place to comply fully with all of the requirements
of the STIA.
Signifcant Matters
On 20 November 2013, the Board of Directors approved the sale of certain properties in the property portfolio.
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 (2013: Rnil).
Share Capital
The authorised and issued share capital remained unchanged during the year (2013: 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, fruitless and wasteful expenditure that occurred during the fnancial year. Materiality was set at R879,000 for the year under review.
SIGNIFICANCE 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.
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
R15.6 million had been adopted.
Unauthorised, Fruitless and Wasteful and Irregular Expenditure
UNAUTHORISED EXPENDITURE
No expenditure was classifed as unauthorised during the fnancial year under review.
FRUITLESS AND WASTEFUL EXPENDITURE
The PFMA defnes fruitless and wasteful expenditure as expenditure incurred in vain and would have been avoided had reasonable care been exercised.
Annual Report 2014
58
Fruitless and wasteful expenditure amounted to R333, 000 (2013: R785, 000).
Corrective action is being taken regarding the fruitless and wasteful expenditure incurred during the year under review.
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.
Opening balance
Irregular expenditure current year
Items reclassifed as not irregular after investigation performed
Condoned or written off by accounting authority
2014
R’000
2013
R’000
3,068 5,922
(14)
-
(3,547)
(5,429)
493 -
Irregular expenditure awaiting condonement -
493¹
¹ The balance was condoned during the current fnancial year.
Mr IAS Tayob
Mr VG Mutshekwane
Mr GS Gouws
10/06 23/08 19/09 Name of Director 29/10 17/02 24/03
AUDIT COMMITTEE INFORMATION
Audit Committee members have attended the following Audit Committee meetings during the reporting period:
? Present
Annual Report 2014
59
Directors
The Directors in offce during the fnancial year and up to the date of the approval of the Annual Financial Statements were:
Executive: Appointed
Mr T Makhuvha* 1 November 2012
Non - Executive:
Dr S Magwentshu?Rensburg (Chairperson) 7 April 2010
Mr IAS Tayob 7 April 2003
Mr M Ferreira 7 April 2010
Ms H Lupuwana 1 April 2012
Mr SA Molepo 1 April 2012
Ms K Schumann 1 April 2012
Mr L Mavundla 1 April 2012
Mr VG Mutshekwane 1 April 2012
Mr GS Gouws 1 April 2012
Ms B Calvin 1 April 2012
*Chief Executive Offcer
There were no resignations during the year under review.
Post reporting date events
The Directors are not aware of any other matter or circumstance arising since the end of the fnancial year and 13 August 2014, not otherwise dealt with in the
report that would affect the operations of the company or the Group signifcantly.
Annual Report 2014
60
I hereby certify that, to the best of my knowledge and belief, the Company has lodged with the Companies and Intellectual Property Commission, all such returns
required in terms of the Companies Act 71 of 2008, in respect of the fnancial year ended 31 March 2014 and all such returns are true, correct and up to date.
Ms NB Mongali
Company Secretary
13 August 2014
DECLARATION BY THE GROUP COMPANY SECRETARY
Annual Report 2014
61
Report on the Financial Statements
We have audited the group fnancial statements and fnancial statements of the Small Enterprise Finance Agency SOC Limited as set out on pages 64-129, which
comprise the statements of fnancial position as at 31 March 2014, the statements of proft or loss and other comprehensive income, statements of changes in
equity and statements of cash fows for the year then ended, and the notes, which include a summary of signifcant accounting policies and other explanatory
information to the fnancial statements.
THE DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL 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 and 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 2014, 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 2014, we have read, the Statement of Responsibility by the Board of Directors’, the
Report of the Audit Committee, the Directors’ Report and the Declaration by the Group Company Secretary 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 AUDITORS REPORT
TO PARLIAMENT ON SMALL ENTERPRISE FINANCE AGENCY SOC LIMITED
Annual Report 2014
62
Report on Other Legal and Regulatory Requirements
Public Audit Act Requirements
In accordance with the Public Audit Act of South Africa (PAA), and the General Notice issued in terms thereof, we report the following fndings relevant to
the reported performance against predetermined objectives, compliance with laws and regulations as well as internal control. We performed tests to identify
reportable fndings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, we do not express an
opinion or conclusion on these matters.
Predetermined Objectives
We performed procedures to obtain evidence about the usefulness and reliability of the information in the Performance Information Report as set out on pages
46 to 47 of the annual report, and reported thereon to the Accounting authority. The procedures performed were limited to the following selected objectives:
• Access to fnance by SMEs and Development Impact;
• Ensuring sefa’s sustainability and strengthening Risk Management and Compliance.
The reported performance against predetermined objectives was evaluated against the overall criteria of usefulness and reliability.
The usefulness of information in the reported performance against predetermined objectives 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 well defned, verifable, specifc, measurable, time bound and relevant as required by the National Treasury Framework
for managing programme performance information.
The reliability of the information in the reported performance against predetermined objectives is assessed to determine whether it is valid, accurate and com-
plete.
We report that there were no material fndings on the Performance Information Report concerning the usefulness and reliability of the information.
ADDITIONAL MATTER
Although no material fndings concerning the usefulness and reliability of the reported performance against predetermined objectives were identifed, we drew
attention to the following matter in our report to the Accounting Authority.
MATERIAL ADJUSTMENTS TO THE PERFORMANCE AGAINST PREDETERMINED OBJECTIVES SECTION
Material audit adjustments in the Performance Information Report were identifed during the audit and all adjustments were corrected by management.
Annual Report 2014
63
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 Information Report 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
13 August 2014
KPMG Crescent
85 Empire Road
Parktown
Johannesburg
Gauteng
2193
Annual Report 2014
64
STATEMENTS OF FINANCIAL POSITION AS AT 31 MARCH 2014
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
715,208 909,998 589,392 808,767
30,902 21,303 26,361 22,695
-
60 - -
479,363
303,060 387,412 211,576
18,189
26,409 18,189 26,409
-
- 170,652 141,604
641,261
604,914 114,344 108,982
133,530
53,037 89,208 7,047
11,782
75,193 12,581 113,338
159,146
171,435 159,146 171,435
25,567
- 25,567 -
11,635
12,401 11,549 12,280
611
1,874 611 1,699
2,227,194
2,179,684 1,605,012 1,625,832
Assets
Cash and cash equivalents 4
Trade and other receivables 5
Tax receivable 30
Loans and advances 6
Investments 7
Investments in subsidiaries 8
Investments in associates 9
Investments in joint ventures 10
Deferred tax asset 11
Investment properties 12
Investment properties held-for-sale 13
Equipment, furniture and other tangible assets 14
Intangible assets 15
Total Assets
Equity and Liabilities
308,300 308,300 308,300 308,300
585,018 756,901
7,714 254,725
893,318 1,065,201 316,014 563,025
2
- - -
893,320 1,065,201 316,014 563,025
135,092 136,784 100,480 101,911
163 - - -
1,175,521 944,542 1,175,521 944,542
6,282 11,073 - -
11,541 15,628 12,581 16,354
4, 859 6, 456 - -
416
-
416 -
1, 333, 874 1, 114, 483 1, 288, 998 1, 062, 807
2, 227,194 2, 179, 684 1, 605, 012 1, 625, 832
Share Capital 16
Reserves
Equity attributable to owners of the parent
Non-controlling interest
Total Equity
Liabilities
Trade and other payables 18
Tax payable 30
Shareholder loan 17
Outstanding claims provision 19
Deferred tax liability 11
Unearned risk provision 19
Post-retirement liability 20
Total Liabilities
Total Equity and Liabilities
NOTE
Annual Report 2014
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2014
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
135,420 116,759 122,175 101,693
6,087 3,663 6,035 1,774
8,983 48,870 8,983 48,870
15,677
(21,929) 13,278 (21,929)
166,167 147,363 150,471 130,408
(98,363)
(85,157) (98,363) (85,157)
(42,944) (33,193) (42,944) (33,193)
(89,926) (79,018) (92,789) (71,187)
(79,991)
(76,194) (66,046) (70,099)
(145,057) (126,199) (149,671) (129,228)
33,368 28,979 - -
(111,689)
(97,220) (149,671) (129,228)
(59,996) 32,806 (97,339) 36,110
(171,685) (64,414) (247,010) (93,118)
- - - -
(171,685) (64,414) (247,010) (93,118)
Revenue 21
NOTE
Income
Other income 22
Grant income 23
Net fair value gain/(loss) on fnancial and other assets 24
Personnel expenses
Investment property expenses
Movement on impairments and bad debt provisions 25
Other operating expenses
Operating loss 25
Proft from equity accounted investments, net of tax
Loss before tax
Income tax (expense)/credit 26
Net loss for the year
Other comprehensive income for the year, net of tax
Loss and total comprehensive loss for the year
Expenses
(171,687)
(64,410)
2
(4)
(171,685) (64,414)
Loss and total comprehensive loss attributable to:
Owners of the parent
Non-controlling interest
Loss and total comprehensive loss for the year
65
Annual Report 2014
66
Group
Share capital
Danida re-
serve*
Retained earn-
ings
Non-control
interest
Total
R'000 R'000 R'000 R'000 R'000
Balance as 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
Total comprehensive loss for the year
- - (64, 410) (4) (64, 414)
Balance as at 31 March 2013
308,300 10,155 746,746 - 1 065,201
Transfer to retained earnings
- (10,155) 10,155 - -
Distribution
-
-
(196) - (196)
Total comprehensive loss for the year
- -
(171,687)
2
(171,685)
Balance as at 31 March 2014
308,300 - 585,018 2 893,320
Company
Balance as 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 as at 31 March 2013
308,300 - 254,725 - 563,025
Total comprehensive loss for the year
- -
(247,010)
-
(247,010)
Balance as at 31 March 2014
308,300 - 7,714 - 316,014
STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2014
* This reserve arose from expired credit indemnities funded by the government of Denmark out of which Khula Credit Guarantee Limited may issue its own
further credit terms of the indemnities. In accordance with the funding agreement, all the funds remaining after a relevant loan has been discharged accrues to
Khula Credit Guarantee Limited, provided that such funds should be used solely for the purpose of any guarantee scheme conducted by Khula Credit Guarantee
Limited in support of the South African small business sector. These funds have accrued to Khula Credit Guarantee Limited and, as such have been transferred
to retained earnings.
Annual Report 2014
67
STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2014
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Cash fows from operating activities
Cash utilised by operations 29 (134,573) (194,982) (123,343) (113,018)
Increase in loans and advances (265,573) (50,896) (259,153) (31,392)
Grant income received 8,983 48,870 8,983 48,870
Interest and dividends received 46,444 51,151 42,963 45,150
Tax paid 30 (450) (5,945) (355) (5,157)
Net cash utilised by operating activities (345,169) (151,802) (330,905) (55,547)
Cash fows from investing activities
Purchase of equipment, furniture and
other tangible assets
(2,563) (12,282) (2,555) (12,273)
Purchase of intangible assets - (571) - (572)
Repayments from En-Commandite partnership 10,878 13,904 10,878 13,904
Investments in associates (5,893) (9,808) (5,893) (9,808)
Advances to joint ventures (82,832) 638 (82,832) 638
Repayments from subsidiaries - - (39,053) (9,057)
Acquisition of subsidiary (net of cash acquired) 35 - 191,709 - 191,709
Proceeds from sale of equipment, furniture and
other tangible assets
6 107 6 111
Proceeds from sale of investment properties - 1, 900 - 1, 900
Net cash (utilised)/generated by investing activities (80,404) 185,597 (119,449) 176,552
Cash fows from fnancing activities
Dividends payable (196) - - -
Capital funding received from shareholder 230,979 150,411 230,979 170,080
Net cash generated from fnancing activities 230,783 150,411 230,979 170,080
Net (decrease)/increase in cash and cash equivalents (194,790) 184,206 (219,375) 291,085
Cash and cash equivalents at beginning of year 909,998 725,792 808,767 517,682
Cash and cash equivalents at end of year 715,208 909,998 589,392 808,767
NOTE
Annual Report 2014
1. ACCOUNTING POLICIES
1.1 Reporting Entity
The Small Enterprise Finance Agency SOC Limited is domiciled in the Republic of South Africa. The company's registered offce is Eco Fusion 5, Building D, 1004
Teak Close, Witch Hazel avenue, Highveld Centurion, 0157. The consolidated fnancial statements as at and for the year ended 31 March 2014 comprise sefa, its
subsidiaries and the Group’s interest in associates and joint ventures (referred to as the Group). Where reference is made to the Group in the fnancial statements,
it applies to the company also, unless otherwise noted.
The Group is primarily involved in providing access to fnance to SMMEs directly through its branch network and indirectly through Financial Intermediaries (FIs)
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 prem-
ises that are leased to commercial undertakings.
The fnancial statements were authorised for issue by the Directors on 13 August 2014.
1.2 Statement of Compliance
The separate and consolidated fnancial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as well as the
requirements of the Public Finance Management Act (Act No. 1 of 1999), (PFMA), as amended.
1.3 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;
• investment properties held?for?sale are measured at fair value.
International Financial Reporting Standards, amendments and interpretations effective for the frst time in the current year:
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of
initial application of 1 April 2013.
a) Disclosures – offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7)
b) IFRS 10 Consolidated Financial Statements
c) IFRS 11 Joint Arrangements
d) IFRS 12 Disclosure of Interests in Other Entities
e) IFRS 13 Fair Value Measurement
f) Presentation of Items of Other Comprehensive Income (Amendments to IAS 1)
g) IAS 19 Employee benefts
h) IAS 27 Separate Financial Statements
i) IAS 28 Investments in Associates and Joint ventures
68
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014
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69
The nature and effects of the changes are explained below.
a) 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 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 1 April 2013.
b) IFRS 10: Consolidated Financial Statements. As a result of IFRS 10 (2011), the Group has changed its accounting policy for determining whether it has
control over and consequently whether it consolidates its investees. The standard introduces a new control model that focuses on whether the Group
has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those
returns.
In accordance with the transitional provisions of IFRS 10 (2011), the Group reassessed the control conclusion for its investees as at 1 April 2013. There
were no changes in the accounting treatment of any of its investments previously disclosed as subsidiaries.
c) IFRS 11: Joint Arrangements (Effective 1 January 2013) ? IFRS 11 replaces IAS 31 Interests in Joint Ventures. The Group has classifed its interests in joint
arrangements as either joint operations (if the Group has rights to the assets, and obligations for the liabilities, relating to an arrangement) or joint
ventures (if the Group has rights only to the net assets of an arrangement). When making the assessment, the Group considered the structure of the
arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances. Previously the
structure of the arrangement was the sole focus of classifcation.
The Group has re?evaluated its involvement in all its joint arrangements and has classifed all of these arrangements as joint ventures. Notwithstanding
the classifcation, the investments continue to be recognised by applying the equity method and there has been no impact on the recognised assets,
liabilities and comprehensive income of the Group.
d) 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. The Group has expanded its disclosures about its interests in subsidiaries and equity?accounted
investees.
e) 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. In accordance with the transitional provisions of IFRS 13, the Group has applied the new fair value
measurement guidance prospectively and has not provided anycomparative information for new disclosures. Notwithstanding the above, the change had
no signifcant impact on the measurements of the Groups assets and liabilities.
f) Amendment to IAS 1: Presentation of Financial Statements (Effective 1 January 2013). As a result of the amendments to IAS 1, the Group has
modifed the presentation of items of OCI in its statement of proft or loss and OCI, to present separately items that would be reclassifed to proft or
loss from those that would never be.
• The meaning of "currently has a legally enforceable right of set off"
• The application of simultaneous realisation and settlement
• The offsetting of collateral amounts
• The unit of account for applying the offsetting requirements
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70
g) Amendments to IAS 19: IAS 19 (2011) change 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 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.
h) Amendments to IAS 27: Separate fnancial statements. The amended standard now only deals with the requirements for separate fnancial
statements, which have been carried over largely unchanged from IAS 27 Consolidated and Separate Financial Statements. Requirements for
consolidated fnancial statements are now contained in IFRS 10 Consolidated Financial 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
IAS 39 Financial Instruments: Recognition and Measurement. 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.
i) Amendments to IAS 28: Investments in Associates and Joint Ventures. 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
(incl. exemptions from applying the equity method in some cases). It also prescribes how investments in associates and joint ventures should be tested
for impairment.
j) IASB annual improvement project: 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
• Amendments to IFRS 10: Investment Entities (Effective 1 January 2014). The statement has been amended to provide investment entities (as
defned) anexemption from the consolidation of particular subsidiaries and instead require that an investment entity measure the investment in each
eligible subsidiary at fair value through proft or loss in accordance with IAS 39 Financial instruments: Recognition and Measurement. This amendment is
not expected to have any effect on the Group or the Company’s fnancial statements.
• Amendments to IAS 36: Recoverable amounts disclosure for Non?Financial Assets (Effective 1 January 2014). The amendment is to reduce the
circumstances in which the recoverable amount of assets and cash?generating units is required to be disclosed, clarify the disclosures required, and to
introduce an explicit requirement to disclose the discount rate used in determining impairment (or reversals) where recoverable amount (based on
fair value less costs of disposal) is determined using a present value technique. This amendment is not expected to have an impact on either the Group
or the Company.
• Amendments to IAS 39: Financial Instruments: Recognition and Measurement (Effective 1 January 2014). The amendment is specifcally in regard
of hedge accounting. The amendment makes it clear that there is no need to discontinue hedge accounting if a hedging derivative is novated, provided
certain criteria are met. This amendment is not expected to have an impact on the Group or Company’s assets or liabilities..
• Amendments to IAS 19: Defned beneft plans: Employee contributions (Effective 1 July 2014). The amendment provides clarifcation on the require
ments that relate to how contributions from employees or third parties, which are linked to service, should be attributable to periods of service. In
addition, it permits a practical expedient if the amount of the contributions is independent of the number of years of the service, in that contributions
can, but are not required, to be recognised as a reduction in the service cost in the period in which the related service is rendered. This may have an
effect on the recognition of contributions from employees.
• IFRIC 21 Levies:This interpretation provides guidance on when to recognise a liability for a levy imposed by the government, both for levies that are
accounted for in accordance with IAS 37 Provisions, Contingent Liabilities and Assets and those where the timing and the amount of the levies are
uncertain.
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71
• 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. IFRS 9 (2010 and 2009) currently does
not have an effective date. 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.
1.4 Investments in Subsidiaries
Subsidiaries are entities controlled by sefa. Control exists when sefa is exposed to, or has the rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the entity. 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 consideration transferred in the acquisition is measured
as the fair value of assets given, equity instruments issued and liabilities incurred or assumed at the date of acquisition. The assets, liabilities and contingent liabilities
(a contingent liability acquired in a business combination is recognised in the acquisition accounting if it is a present obligation and its fair value can be measured
reliably) 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 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. Non?controlling interests (NCI) are measured at
their proportionate share of the acquiree’s identifable net assets at the acquisition date. Changes in the sefa’s interest in a subsidiary that do not result in loss of
control are accounted for as equity transactions. When the group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any
related NCI and other components of equity. Any resulting gain or loss is recognised in proft or loss. Any interest retained in the former subsidiary is measured
at fair value when control is lost. Investments in subsidiaries in the Company’s separate fnancial statements are carried at cost less impairment.
1.5 Structured Entities
The Group has established or participated in a number of structured entities (SEs) for trading and investment purposes. SEs are entities that are created to
accomplish narrow and well?defned objectives. Investments in SEs in the Company’s separate fnancial statements are carried at cost less impairment.
1.6 Business Combinations 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.
MEASUREMENT
Assets and liabilities acquired by the receiving entity, through a business combination under common control 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 retained earnings/accumulated loss. The carrying value at which the
assets and liabilities are initially recognised is therefore the book value. Therefore, for the subsequent measurement of these assets and liabilities the accounting
policies relevant to those assets and liabilities are followed.
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72
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 retained earnings/accumulated loss.
SEPARATE FINANCIAL STATEMENTS
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 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.
1.7 Interest in Equity?accounted Investees
The Group’s interests in equity?accounted investees comprise interests in associates and joint ventures.
Associates are all entities over which the Group has signifcant infuence but not control or joint control, over the fnancial and operating policies. Joint ventures
are those entities over whose activities the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its
assets and obligations for its liabilities.
Investments in associates and joint ventures are accounted for using the equity method of accounting and are initially recognised at cost, which includes transaction
costs. Subsequent to the initial recognition, the consolidated fnancial statements include the Group’s share of the proft or loss and OCI of equity?accounted
investees, until the date on which signifcant infuence or joint control ceases.
The Group’s investment in equity?accounted investees includes goodwill identifed on acquisition. 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 equity-accounted investee equals or exceeds its interest in the equity?accounted investee, 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 equity?accounted investee.
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 and joint ventures in the Company’s separate fnancial statements are carried at cost less impairment.
1.8 Financial Instruments
1.8.1 Financial Assets
The Group classifes its fnancial assets into the category of loans and receivables.
Management determines the classifcation of its fnancial assets at initial recognition.
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.
RECOGNITION AND MEASUREMENT
Loans and receivables are carried at amortised cost using the effective interest method less impairment loss.
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73
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.
1.8.2 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 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.
INDEMNITY CONTRACTS – CLASSIFICATION
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 effects 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 PROVISION
Unearned risk provision consists of:
• Provision for unearned premiums
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 premium provision in relation to such policies. The provision for unexpired risks is calculated separately by reference to class of busi-
ness that are managed together, after taking into account the relevant investment returns.
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74
OUTSTANDING CLAIMS PROVISION
Provision is made 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, also referred to as incurred but not
reported (IBNR) provisions. Whilst 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.
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 premium 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 dynamism 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.
1.8.3 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 Company of similar transactions such as in the Company’s
trading activity.
1.8.4 Share Capital
Share capital consists of ordinary shares and is classifed as equity. Issued share capital is measured at the fair value of the proceeds received less any directly
attributable issue costs. An amount equal to the par value of the shares issued is presented as share capital.
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75
1.9 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 or 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 re?organisation;
• The disappearance of an active market for that fnancial asset resulting in fnancial diffculties;
• 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).
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 indication exists, the asset’s recoverable amount is estimated.
The recoverable amount of non?fnancial assets is the greater of fair value less cost of disposal and its value in use. Fair value less cost of disposal is the amount
obtainable from the sale of an asset or cash?generating unit in an orderly transaction between market participants at the measurement date, 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.
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76
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 the 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.
1.10 Intangible Assets
Intangible assets with fnite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amor-
tisation is recognised on a straight?line basis over their estimated useful lives.
Subsequent expenditure is capitalised only when it increases the future economic benefts embodied in the specifc asset to which it relates. All other expenditure,
including expenditure on internally generated goodwill and brands, is recognised in proft or loss as incurred.
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, with the effect of any changes in
estimate being accounted for on a prospective basis.
1.11 Goodwill
All business combinations are accounted for by applying the acquisition method. Goodwill acquired in a business combination is initially measured at cost, being the
difference between the fair values 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.
Gain on bargain purchase 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.
1.12 Investment Property
Investment property is property held to earn rental income or for capital appreciation or for both.
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77
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 that 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.
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.
Gain or loss on the disposal of investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item)
is recognised in proft and loss.
1.13 Non?current Assets Held for Sale
Non?current assets, or disposal groups comprising assets and liabilities, are classifed as held?for?sale if it is highly probable that they will be recovered primarily
through sale rather than through continuing use.
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 or held?for?distribution and subsequent gains and losses on re?measurement are recognised in proft or
loss.
Once classifed as held?for?sale, intangible assets and property, plant and equipment are no longer amortised or depreciated, and any equity?accounted investee
is no longer equity accounted.
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
carrying amount 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.
1.14 Equipment, Furniture and other Intangible Assets
MEASUREMENT
All items of equipment, furniture and other intangible assets recognised as assets are initially measured at cost. Cost includes expenditures that are directly
attributable to the acquisition of the asset. All items of equipment, furniture and other intangible assets are subsequently measured at cost less accumulated
depreciation and any accumulated impairment losses.
Where parts of an item of equipment, furniture and other intangible assets have signifcantly different useful lives, they are accounted for as separate items of
equipment, furniture and other intangible assets. Although individual components are accounted for separately, the fnancial statements continue to disclose a
single asset.
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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 equipment, furniture and other intangible assets 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 year?end and adjusted if appropriate.
Derecognition
The carrying amount of items of equipment, furniture and other intangible assets 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 equipment,
furniture and other intangible assets and included in proft or loss when the items are derecognised.
1.15 Leases
Operating leases
Leases of assets under which the lessor effectively retains substantially 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.
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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.
1.16 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.
1.17 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;
• 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. Provisions are determined by discounting the
expected future cash fows at a pre?tax discount rate that refects the current market assessments of the time value of money and the risks specifc to the liability.
The unwinding of the discount is recognised as fnance cost.
Where some or all of the expenditure that is 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;
• The amount initially recognised less cumulative amortisation.
1.18 Contingent 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.
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80
1.19 Taxation
INCOME TAX
Income tax expenses comprise current and deferred tax. It is recognised in proft or loss except to the extent that it relates to a business combination, or items
recognised directly in other comprehensive income or equity.
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.
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
proft or loss.
Temporary differences relating to investments in associates, subsidiaries and joint ventures that differ to the extent that it is probable that they will not reverse in
the near future, and when 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.
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.
The measurement of deferred tax refects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover
or settle the carrying amount of its assets and liabilities. For this purpose, the carrying amount of investment property measured at fair value is presumed to be
recovered through sale, and the Group has not rebutted this presumption.
CURRENT TAX
Current tax is the expected tax payable or receivable on the taxable income or loss for the year. It is measured using tax rates enacted or substantively enacted
at the reporting date. 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.
1.20 Revenue
Revenue comprises net invoiced indemnity premiums, dividends, interest, rental income and management 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.
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81
INDEMNITY PREMIUMS
Indemnity premiums earned is included in revenue and comprise the premiums on contracts entered into during the year, irrespective of whether they relate in
whole or in part to a later accounting period. Indemnity premiums earned include adjustments to premiums written in prior accounting periods and estimates
for ‘pipeline premiums’ (premiums written relating to the current accounting period but not reported by the reporting date). Premiums 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 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.
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, 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.
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82
1.21 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.
1.22 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.
DEFINED CONTRIBUTION PLAN
The Group has a provident fund scheme, which is a defned contribution plan. 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.
DEFINED BENEFIT PLANS
The Group has a post?retirement medical obligation, which is classifed as a defned beneft plan. A defned beneft plan is post?employment beneft plans other
than defned contribution plans.
The Group’s net obligation in respect of the defned beneft plan is calculated by estimating the amount of future beneft that employees have earned in the
current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The calculation of defned beneft obligations is performed annually by a qualifed actuary using the projected unit credit method. When the calculation results
in a potential asset for the Group, the recognised asset is limited to the present value of economic benefts available in the form of any future refunds from the
plan or reductions in the future contributions to the plan. To calculate the present value of economic benefts, consideration is given to any applicable minimum
funding requirements.
Re?measurements of the net defned beneft liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the
asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income (OCI). The Group determines the net interest expense (or
income) on the net defned beneft liability (or asset) for the period by applying the discount rate used to measure the defned beneft obligation at the beginning
of the annual period to the then?net defned beneft liability (or asset), taking into account any changes in the net defned beneft liability (or asset) during the
period as a result of contributions and beneft payments. Net interest expense and other expenses related to defned beneft plans are recognised in proft or loss.
When the benefts of a plan are changed or when a plan is curtailed, the resulting change in beneft that relates to past service or the gain or loss on curtailment
is recognised immediately in proft or loss. The Group recognises gains and losses on the settlement of a defned beneft plan when the settlement occurs.
1.23 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 measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels
in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
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83
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices)
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
If the inputs used to measure the fair value of an asset or liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement
is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is signifcant to the entire measurement.
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. 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 AND INVESTMENT PROPERTY HELD?FOR?SALE
Valuation methods and assumptions used in determining the fair value of investment property and investment property held?for?sale:
CAPITALISATION METHOD
The sefa property portfolio is mostly made up of Income producing properties, with the result that the Income Capitalisation method has been adopted for the
determination of value. 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
Of the entire portfolio, two properties are Sectional Title in nature and one comprises of vacant land. These properties have been valued on the Direct Comparison
Basis, as this is how they trade in the open market. 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.
1.24 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.
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84
DEFERRED TAX ASSET
Deferred tax assets are recognised to the extent that it is probable that taxable income will be available in the future against which it can be utilised.
FAIR VALUE OF FINANCIAL ASSETS
The fair value of fnancial instruments that are not 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
• 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 year?end.
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.
CLASSIFICATION OF JOINT ARRANGEMENTS
The Group follows the guidance of IFRS 11: Joint Arrangements in assessing the classifcation of the arrangement or partnership. In making this judgement, the
Group evaluates the agreement as it is at year?end.
POST?RETIREMENT MEDICAL LIABILITY
The actuarial method used to value the post?retirement liability is the Projected Unit Credit Method prescribed by IAS 19. Future benefts valued are projected
using specifc actuarial assumptions and the liability for in?service members is accrued over expected working lifetime.
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85
Group - 2014
Loans and
receivables
Cost less
impairment*
Other
amortised cost
Total
R'000 R'000 R'000 R'000
Assets
Loans and advances
479,363 - - 479,363
Investments
- 18,189 - 18,189
Trade and other receivables
29,370
-
- 29,370
Cash and cash equivalents
715,208
-
- 715,208
1,223,941 18,189 - 1,242,130
Liabilities
Trade and other payables -
-
135,092
135,092
Total Financial Assets and Liabilities
1,223,941 18,189 135,092 1,377,222
2. Financial Assets and Liabilities
The table below sets out the Group and the Company's classifcation of each class of fnancial assets and liabilities, and their fair values:
Group - 2013
Loans and
receivables
Cost less
impairment*
Other
amortised cost
Total
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
Total Financial Assets and Liabilities 1,233,637 26,409 136,784 1,396,830
* 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.
The carrying values of fnancial assets and liabilities approximate the fair values shown in the statement of fnancial position, for more detail refer to note 3.
Annual Report 2014
Company - 2014
Loans and
receivables
Cost less
impairment*
Other amortised
cost
Total
R'000 R'000 R'000 R'000
Assets
Loans and advances 387,412
- -
387,412
Investments
-
18,189
-
18,189
Trade and other receivables
25,328 - -
25,328
Cash and cash equivalents
589,392 - -
589,392
1,002,132 18,189 -
1,020,321
Liabilities
Trade and other payables
- -
100,480 100,480
Total fnancial assets and liabilities 1,002,132
18,189 100,480 1,120,801
86
Company - 2013
Loans and
receivables
Cost less
impairment*
Other amortised
cost
Total
R'000 R'000 R'000 R'000
Assets
Loans and advances 211,576 - - 211,576
Investments
-
- - -
Trade and other receivables
21,971
- - 21,971
Cash and cash equivalents 808,767 - - 808,767
1,042,314 - - 1,042,314
Liabilities
Trade and other payables - - 101,911 101,911
Total fnancial assets and liabilities 1,042,314 -
101,911 1,144,225
* 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.
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87
3. Financial Risk Management
The Group has exposure to the following risks from its use of fnancial instruments:
• Operational risk
• Credit risk
• Liquidity risk
• 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.
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 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.
Operational Risk
Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. It is
associated with human error, system failures and inadequate procedures and controls. Operational risk also includes legal risk, which arises when a transaction
proves unenforceable in law, but excludes strategic and reputation risk.
Management has identifed the following risks as sefa’s operational risks:
• Clients, products and business practices
• Execution, delivery and process management
• Employment practice & workplace safety
• External and internal fraud and theft
• Damage to physical assets
• Business disruption and systems failure
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, is also taken into account. 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.
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88
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 market 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.
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.
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89
Capital Management
The Board’s policy is to achieve a capital base that will ensure the long term sustainability of sefa and monitors progress towards this goal 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 sustainable 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 53 of 1998. 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.
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. The Company 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 the Company had a defcit regarding the minimum capital requirements throughout the year as the asset
spreading did not meet the minimum requirements. This has been partly addressed in the current year by opening additional bank accounts and will be fully
addressed in the new year.
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:
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.
2014
R'000
2013
R'000
2012
R'000
2011
R'000
2010
R'000
Loss history
Claims paid and provided % 140% 19% 34% 389% 248%
* Expressed as a
percentage of gross
indemnity fees written
Annual Report 2014
90
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.
(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. To this end the Group underwrites a wide varie-
ty 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 con-
sidered 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.
Annual Report 2014
Group
2014 2013
R'000
Loans and
advances
R'000
Investments
R'000
Loans and
advances
R'000
Investments
Agriculture, forestry and fshing 47,774 - 54,942 -
Basic chemicals 207 - 227 -
Beverages 4,801 - 216 -
Building construction 61,225 - 12,274 -
Business services 1,180 - 4,704 -
Catering and accommodation services 5,850 - 3,482 -
Communication 1,429 - 724 -
Electricity, gas and steam
2,491 - 3,626 -
Finance and insurance 1,426 18,189 188,268 26,409
Food 4,975 - 2,344 -
Machinery and equipment 1,789 - 199 -
Medical, dental and other health and veterinary services 3,350 - 4,591 -
Motor vehicles, parts and accessories 2,600 - 507 -
Non-metallic minerals 2,403 - 2,243 -
Other community, social and personal services 1,669 - 220 -
Other chemicals and man-made fbres 131 - 129 -
Other services 72,233 - 5,098 -
Other industries 15,502 - - -
Other mining 183 - - -
Paper and paper products 115 - 138 -
Plastic products 443 - 694 -
Printing, publishing and recorded media 1,790 - 3,087 -
Professional and scientifc equipment - -
321 -
Television, radio and communication equipment 582 - 747 -
Textiles 1,139 - 48 -
Transport and storage 11,754 -
2,623 -
Wearing apparel 2,085 - 2,066 -
Wholesale and retail trade
229,663
- 8,550 -
Wood and wooden products
574
- 992 -
479,363
18,189 303,060 26,409
91
Sector analysis at carrying value: Loans and advances
and investments
Annual Report 2014
92
Company
2014 2013
R'000
Loans and
advances
R'000
Investments
R'000
Loans and
advances
R'000
Investments
Agriculture, forestry and fshing 242
-
- -
Beverages 4,566
-
- -
Building construction 61,446
- 10,701 -
Business services -
- 3,688 -
Catering and accommodation services 5,271
- 205 -
Electricity, gas and steam 898
- 711 -
Finance and insurance 1,426
18,189 188,268 26,409
Food 3,211 - - -
Machinery and equipment 1,789
-
- -
Medical, dental and other health and veterinary services 3,239
- 3,745 -
Motor vehicles, parts and accessories 2,403
- 63 -
Non-metallic minerals -
- 1 -
Other community, social and personal services 391
- 1 -
Other chemicals and man-made fbres -
- 1 -
Other services 72,179
- 1,118 -
Other industries 12,566
- - -
Other mining 183
- - -
Printing, publishing and recorded media -
- 886 -
Professional and scientifc equipment -
- 241 -
Textiles 1,139
- - -
Transport and storage 4,817
- - -
Wholesale and retail trade 211,410
- 1,947 -
Wood and wooden products 236
-
- -
387,412 18,189 211,576 26,409
Annual Report 2014
93
Group
2014 2014
R'000 R'000
R'000 R'000
Loans and
advances
Investments Loans and
advances
Investments
Credit risk exposure Company
Individually impaired
210,014 18,189 183,209 18,189
Past due but not impaired
211,329 - 202,541 -
Neither past due nor impaired 58,020
-
1,662
-
Total carrying value
479,363 18,189 387,412 18,189
Individually impaired
Low risk client
218,903 - 211,945 -
Medium risk client
28,038 57,002 3,462 57,002
High risk client 113,732 5,000 73,980 5,000
Gross amount
360,673 62,002 289,387 62,002
Allowance for impairment
(150,659)
(43,813) (106,178) (43,813)
Carrying amount
210,014 18,189 183,209 18,189
Past due but not impaired
Low risk client 203,072
- 197,771 -
Medium risk client
6,776 - 4,770 -
High risk client
1,481 - - -
Carrying amount
211,329 - 202,541 -
Past due but not impaired comprises:
0 - 30 days
190,158 - 189,316 -
31 - 60 days
401 - - -
61 - 90 days
850 - - -
91 - 120 days
591 - - -
120 days +
19,329 - 13,225 -
Carrying amount 211,329 - 202,541 -
Neither past due nor impaired
Low risk client 63,736 - 11,939 -
Medium risk client 4,012 - - -
High risk client 567 - 18 -
Carrying amount 68,315 - 11,957 -
Portfolio impairment (10,295) - (10,295) -
Total carrying amount 58,020 - 1,662 -
Annual Report 2014
94
Group
2013 2013
R'000 R'000
R'000
R'000
Loans and
advances
Investments Loans and
advances
Investments
Credit risk exposure
Company
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 -
120 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 -
Low risk - no impairment triggers exist
Medium risk - impairment triggers exist, debtor responding to legal action - recovery likely
High risk - impairment triggers exist, debtor not responding to legal action - recovery not likely
Annual Report 2014
95
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
Carrying value
R'000
Total
R'000
Within 1 year
R'000
2 - 5 years
R'000
More than 5
years
R'000
31 March 2014
Trade and other payables 53,929
53,929 53,929 - -
Operating lease commitments
- 37,721 7,822 29,148 751
Undrawn fnancing facilities approved
- 104,522 104,522 - -
Guarantees/indemnities issued to fnancial
institutions ¹
11,141 11,141 11,141 - -
Off-balance sheet items
Undrawn guarantees/indemnities
approved ²
- 66 66
-
-
65,070 207,379 177,480 29,148 751
¹ Total guarantees/indemnities issued to fnancial institutions amount to R 69,295 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 16% required reserves of the total portfolio indemnifed.
² Undrawn guarantees/indemnities approved amounts to R410 thousand. It is estimated that 16% 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.
Annual Report 2014
96
Group
Carrying value
R'000
Total
R'000
Within 1 year
R'000
2 - 5 years
R'000
More than
5 years
R'000
31 March 2013
Trade and other payables 53,281
53,281 53,281 - -
Operating lease commitments
- 37,285 5,395 13,786 18,104
Undrawn fnancing facilities approved
- 275,916 275,916 - -
Guarantees/indemnities issued to fnancial
institutions ¹
17,529 17,529 17,529 - -
Off-balance sheet items
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 R 96,39 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 R 6,802 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.
31 March 2014 Company
Operating lease commitments
- 37,721 7,822 29,148 751
Trade and other payables 19,313 19,313 19,313 - -
Undrawn fnancing facilities approved
- 87,766 87,766 - -
19,313
144,800 114,901 29,148 751
31 March 2013 Company
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
Annual Report 2014
97
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Interest Rate Risk
1,083,588 1,198,876 901,892 1,050,972
(163) - - -
1,083,425 1,198,876 901,892 1,050,972
At the reporting date the interest rate profle of the
Group's interest-bearing fnancial instruments was:
Cash fow 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 2013.
10,834 11,989 9,019 10,510
(10,834) (11,989) (9,019) (10,510)
100 basis points increase
100 basis points decrease
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
• Loans are issued at rates linked to the prime interest rate
4. Cash and Cash Equivalents
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
194,382 110,814 115,452 82,302
520,826 799,184 473,940 726,465
715,208 909,998 589,392 808,767
Cash in bank and in hand
Cash managed by shareholder
Cash and cash equivalents are all current assets. Cash managed by the Industrial Development Corporation are immediately available as and when requested.
Variable rate instruments
Financial assets
Financial liabilities
Balance at the end of the year
Annual Report 2014
98
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
9,767 8,786 6,002 9,264
46,476 43,931 46,476 43,931
1,532 724 1,033 724
6,498 1,145 6,676 2,461
1,667 1,033 1,212 631
65,940 55,619 61,399 57,011
(35,038) (34,316) (35,038) (34,316)
30,902 21,303 26,361 22,695
5. Trade and Other Receivables
Trade receivables
Rental debtors
Pre?payments
Related party loans (refer to note 32)
Staff loans
Trade and other receivables before bad debt provision
Bad debt provision on rental debtors
No trade and other receivables are pledged as security, and are all current assets.
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
640,316 536,211 503,885 408,564
(160,953) (233,151) (116,473) (196,988)
479,363 303,060 387,412 211,576
6. Loans and Advances
Loans and advances to clients
Impairments of loans and advances
Reconciliation of impairment of loans and advances
233,151 169,268 196,988 137,903
92,593 71,461 84,240 56,186
(164,791) (10,476) (164,755) -
- 2,898 - 2,899
160,953
233,151 116,473 196,988
Balance as at 1 April
Impairment charged for the year
Write offs
Acquisition of subsidiaries
Balance as at 31 March
Allowances for impairment
Annual Report 2014
99
Maturity of loans and advances
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
311,183 281,918 252,711 223,048
119,176 89,978 86,812 68,534
91,239 75,233
72,527 54,620
60,314 37,529 44,833 25,092
54,867 41,607 44,194 37,270
3,538 9,947 2,808 -
(160,954) (233,152) (116,473) (196,988)
479,363 303,060
387,412 211,576
• Due within 1 year
• Due after one year but within 2 years
• Due after two years but within 3 years
• Due after three years but within 4 years
• Due after four years but within 5 years
• Due after 5+ years
• Impairment of loans and advances
Loans and advances are both current and non?current assets, balances recoverable within 12 months are current.
7. Investments
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
5,000 5,000 5,000 5,000
57,002 67,880 57,002 67,880
62,002
72,880
62,002 72,880
(5,000) (5,000)
(5,000) (5,000)
(38,813) (41,471) (38,813) (41,471)
18,189
26,409
18,189 26,409
5,000
5,000 5,000 5,000
-
- - -
5,000
5,000 5,000 5,000
41,471
33,913 41,471 33,913
(2,658)
7,558 (2,658) 7,558
38,813
41,471 38,813 41,471
Unlisted equities
Investment in En-Commandite partnership
Impairment of unlisted equities
Impairment of investment in En-Commandite partnership
Specifc allowances for impairment - Unlisted equities
Balance as at 1 April
Write offs
Balance as at 31 March
Balance as at 1 April
Impairment loss for the year
- (Release)/charge for the year
Balance as at 31 March
Specifc allowances for impairment - En-Commandite
partnership
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. All investments are non?current assets.
Annual Report 2014
100
8. Investments in Subsidiaries
Company
2014
R'000
2013
R'000
55,002
55,002
243,624
204,572
(127,974) (117,970)
170,652 141,604
Loans receivable
Impairment of loans
Unlisted shares in subsidiaries
Companies
2014
% interest
2013
% interest
Nature of activities
2014 Total company
exposure before
impairments
R'000
2013 Total company
exposure before
impairments
R'000
Khula Credit Guarantee
Ltd
100% 100% Short term indemnities 55,002 55,185
New Cape Equity Fund
(Pty) Ltd
100% 100% Private equity funding 13,955 13,955
MKN Equity Fund (Pty)
Ltd
100% 100% Private equity funding 4,850 4,850
New Business Finance
(Pty) Ltd
100% 100% SME Financing 51,296 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 56,413 36,994
Identity Development
Fund Partnership
100% 100% SME Financing 48,753 29,532
Small Business Growth
Trust Fund
82% 81% SME Financing 22,963 22,366
The Khula-Enablis SME
Acceleration Fund
80% 80% SME Financing 25,000 25,000
298,626 259,574
All subsidiaries are incorporated in the Republic of South Africa and have the same reporting date as the holding company.
The companies classifed as subsidiaries are all under the control of sefa, which has rights to the variable returns and has the ability to use its control to affect the
amount of returns. The investments in subsidiaries are all non?current assets.
Annual Report 2014
101
Group
2014
R'000
2013
R'000
4,435 10,110
(1,700)
(5,848)
2,735
4,262
Losses
Profts
9. Investments in Associates
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
98,622 98,622 98,622 98,622
524,702 494,249 - -
17,937 12,043
17,937
12,043
- - (2,215)
(1,683)
641,261 604,914 114,344 108,982
Unlisted shares in associates
Accumulated equity-accounted income, losses and impairments
Loans receivable
Impairment of loans
Company
Companies
2014
% interest
2013
% interest
Nature of activities
2014 Total company
exposure before
impairments
R'000
2013 Total company
exposure before
impairments
R'000
Business Partners
Limited
21% 21% SME Financing 98, 622 98, 622
The Utho SME
Infrastructure Fund ¹
49% 51% SME Financing 17, 937 12, 043
116, 559 110, 665
¹ Although the ownership interest in The Utho SME Infrastructure Fund is 49%, the voting interest is only 40%.
Annual Report 2014
102
Group
2014
R'000
2013
R'000
679,195 591,568
105,110
98,368
784,305
689,936
579,094
543,162
172,836
120,997
32,375
25,777
784,305
689,936
100,357
90,315
(66,980)
(62,075)
33,377
28,240
The aggregate amounts attributable to sefa were as follows:
Statement of fnancial position
Non?current assets
Current assets
Equity
Non?current liabilities
Current liabilities
Statement of proft or loss and other comprehensive
income
Revenue
Expenses
There are no signifcant restrictions on the ability of the associates to transfer funds to sefa in the form of cash dividends or to repay loans advanced. There
are no additional risks associated with sefa's investments other than impairment recognised and the risks identifed in the fnancial risk management note. All
investments in associates are non?current assets.
10. Investments in Joint Ventures
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
21,662
24,000 - -
111,868
29,037 111,868 29,037
-
- (22,660) (21,990)
133,530
53,037 89,208 7,047
Accumulated equity?accounted income, losses and impairments
Loans receivable
Impairment of loans
Investments in joint arrangements were assessed and it was concluded that these agreements should be classified as joint ventures. In performing the assessment,
the group considered the structure of the arrangements, the legal form of any separate vehicle, the contractual terms of the arrangements and other facts and
circumstances.
Annual Report 2014
103
Companies
2014
% interest
2013
% interest
Nature of activities
2014 Total company
exposure before
impairments
R'000
2013 Total company
exposure before
impairments
R'000
Anglo Khula Mining Fund
(Pty) Ltd
50% 50%
Financing mining
activities
38,442 -
Izibulo SME Trust Fund 65% 65% SME Financing 21,728 21,728
sefa Awethu Youth Fund
(Pty) Ltd
50% N/A SME Financing 45,046 -
Enablis Khula Loan Fund 40% 40% SME Financing 6,652 7,309
111,868 29,037
2014
R'000
2013
R'000
35,456 24,016
100,614 31,922
136,070
55,938
133,530
53,037
-
1,345
2,540
1,556
136,070
55,938
5,149
8,455
(6,333)
(3,001)
(1,184)
5,454
The aggregate amounts attributable to sefa were as follows:
Statement of fnancial position
Non?current assets
Current assets
Equity
Non?current liabilities
Current liabilities
Statement of proft or loss and other
comprehensive income
Revenue
Expenses
There are no significant restrictions on the ability of the joint ventures to transfer funds to sefa in the form of cash dividends or to repay loans advanced. There
are no additional risks associated with sefa's investments other than impairment recognised and the risks identified in the financial risk management note. All
investments in joint ventures are non?current assets.
Annual Report 2014
104
11. Deferred Tax Assets and Liabilities
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
63
- 52 -
51 - 51 -
-
19,314 - 19,314
7,945 31,517
8,755
69,664
3,723 24,362
3,723
24,360
11,782 75,193
12,581
113,338
75,193 39,617
113,338
74,453
(63,411) 35,576
(100,757)
38,885
(65,874) 36,007
(103,220)
39,316
2,463 (431)
2,463
(431)
11,782 75,193
12,581
113,338
Composition of deferred taxation asset is as follows:
Equipment, furniture and other tangible assets
Other provisions
Tax loss
Fair value adjustments on investment property
Temporary differences recognised in proft and loss
• Current year
• Previous year
At end of the year
Income received in advance
Movement on the deferred taxation asset is as follows:
At beginning of the year
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:
158, 205 16, 751
142, 939
-
Tax losses (Revenue in nature)
Annual Report 2014
105
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
(136) (163) (136) (163)
(11,405) (15,465) (12,445) (16,191)
(11,541) (15,628) (12,581) (16,354)
(15,628) (13,225)
(16,354)
(13,580)
4,087 (2,403) 3,773 (2,774)
4,087 (2,403) 3,773 (2,774)
- - - -
(11,541) (15,628)
(12,581)
(16,354)
Composition of deferred taxation liability is as follows:
Debtor allowances
Prepaid expenses
Movement on the deferred taxation liability is as follows:
• Current year
Temporary differences recognised in proft and loss
• Previous year
At end of the year
At beginning of the year
12. Investment Properties
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
171,435 195,264 171,435 195,264
- (1,900) - (1,900)
(25,232) - (25,232) -
12,943 (21,929) 12,943 (21,929)
159,146 171,435 159,146 171,435
Opening carrying amount as at 1 April
Disposals
Reclassifcation to investment properties held?for?sale
Fair value adjustments
Closing balance as at 31 March
Investment properties are valued externally by independent valuators every three years. All investment properties were valued on 15 March 2014, by
Spectrum Valuators (Proprietary) Limited. Investment properties are non?current assets.
The fair value measurement for investment property of R12.9 million has been categorised as a Level 3 fair value based on the inputs to the
valuation technique used (refer to the accounting policy: Determination of fair values).
The following summarises the valuation technique used in measuring the fair value of investment properties, as well as the significant unobservable inputs
used:
Annual Report 2014
106
Valuation Technique
Income capitalisation method and direct comparison basis: sefa's property portfolio consists mainly of income producing properties. This is the fundamental
basis on which the valuation of investment properties is determined. Investment properties produce a perpetual income stream and the capitalisation of such net
revenue flow is an accurate means of determining the value. Included in the portfolio, are two properties which are sectional title in nature and one comprises
of vacant land. These properties have been valued on the direct comparison basis.
Highest Lowest Average
33% 2% 11%
17% 10% 13%
Signifcant unobservable inputs
• Budgeted capital expenditure growth rate
• Capitalisation percentage
Inter?relationship between key unobservable inputs and fair value measurement:
The estimated fair value would increase /(decrease) if:
• Budgeted capital expenditure growth were higher/(lower)
• Capitalisation percentage were increased/(decreased)
13. Investment Properties Held-for-Sale
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
- - - -
25,232 - 25,232 -
335 - 335 -
25,567 - 25,567 -
Opening carrying amount as at 1 April
Reclassifcation to investment properties held?for?sale
Fair value adjustment
Closing balance as at 31 March
On 20 November 2013, the Board of Directors approved the sale of certain properties in the property portfolio. Investment properties held?for?sale are current
assets.
Purchase offers for fourteen of the sixteen properties reclassified for sale has been concluded and are awaiting registration at the Deeds Office. The remaining
two properties are in the process of sales negotiations.
Annual Report 2014
107
14. Equipment, Furniture and Other Tangible Assets
All equipment, furniture and other tangible assets are non?current assets.
Group Company
Cost
R'000
Accumulated
depreciation
and
impairment
R'000
Carrying
value
R'000
Cost
R'000
Accumulated
depreciation
and
impairment
R'000
Carrying
value
R'000
2014
Motor vehicle 354 336 18 309 309
-
Computer equipment 9,202 7,321 1,881 9,051 7,203 1,848
Office equipment 3,392 2,347 1,045 3,377 2,332 1,045
Furniture and fittings 5,642 2,516 3,126 5,504 2,414 3,090
Lease improvements 7,104 1,539 5,565 7,105 1,539 5,566
25,694 14,059 11,635 25,346 13,797 11,549
2013
Motor vehicle 518 411 107 472 384 88
Computer equipment 8,819 6,689 2,130 8,669 6,594 2,075
Office equipment 3,289 1,979 1,310 3,274 1,963 1,311
Furniture and fittings 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
Annual Report 2014
108
Group
Motor
vehicles
R'000
Computer
equipment
R'000
Offce
equipment
R'000
Furniture and
fttings
R'000
Lease
improvements
R'000
Total
R'000
2014
Carrying value as at 1 April 2013
107 2,130 1,310 3,728 5,126 12,401
Additions - 826 104 236 1,389 2,555
Disposals (77) (13) - (1) - (91)
Depreciation charges (12) (1,062) (369) (837) (950) (3,230)
Carrying value as at 31 March 2014
18 1,881 1,045 3,126 5,565 11,635
2013
Carrying value as 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 charges (34) (844) (394) (452) (589) (2,313)
Carrying value as at 31 March 2013
107 2,130
1,310 3,728 5,126 12,401
The movement in the carrying value of office equipment, furniture and other tangible assets is as follows:
2014
Annual Report 2014
109
Company
Motor
vehicles
R'000
Computer
equipment
R'000
Offce
equipment
R'000
Furniture and
fttings
R'000
Lease
improvements
R'000
Total
R'000
Carrying value as at 1 April 2013
88
2,075
1,311 3,679 5,127 12,280
Additions - 827 103 236 1,389 2,555
Disposals (76) (14) - (1) - (91)
Depreciation charges (12) (1,040) (369) (824) (950) (3,195)
Carrying value as at 31 March 2014 - 1,848 1,045 3,090 5,566 11,549
2013
Carrying value as 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 charges (34) (827) (394) (439) (589) (2,283)
Carrying value as at 31 March 2013 88 2,075 1,311 3,679 5,127 12,280
No equipment, furniture or other tangible assets are pledged as security for liabilities (2013: Rnil).
Annual Report 2014
110
15. Intangible Assets
All intangible assets are non?current assets.
Group Company
Cost
R'000
Accumulated
depreciation
and
impairment
R'000
Carrying
value
R'000
Cost
R'000
Accumulated
depreciation
and
impairment
R'000
Carrying
value
R'000
Software
3,965 3,893 72 3,468 3,395 73
Intellectual property 2,200
1,661 539 2,200 1,662 538
Goodwill
31,899
31,899 - - - -
38,064 37,453 611 5,668 5,057 611
2013
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
The movement in the carrying value of office equipment, furniture and other tangible assets is as follows:
.
2014
Group
Software
R'000
Intellectual
Property
R'000
Goodwill
R'000
Total
R'000
Carrying value as at 1 April 2013
603
1,271 - 1,874
Amortisation
(531) (732) -
(1,263)
Carrying value as at 31 March 2014 72 539 - 611
2013
Carrying value as 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 as at 31 March 2013
603 1,271
- 1,874
2014
Annual Report 2014
111
Company
Software
R'000
Intellectual
Property
R'000
Goodwill
R'000
Total
R'000
Carrying value as at 1 April 2013
428
1,271 - 1,699
Amortisation (355) (733) - (1,088)
Carrying value as at 31 March 2014 73 538 - 611
2013
Carrying value as 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 as at 31 March 2013
428
1,271 - 1,699
2014
16. Share Capital
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
500,000 500,000 500,000 500,000
308,300
308,300 308,300 308,300
Authorised
500,000,000 ordinary shares at R1 each
Issued
308,300,000 ordinary shares at R1 each
Annual Report 2014
112
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
- 944,542 - 944, 542
1, 175, 521 - 1, 175, 521 -
At 31 March 2013, the loan was unsecured, bore no interest and had no specific repayment terms. Accordingly it was classified as a current liability.
During the financial year under review the terms and conditions of the loan was amended as follows:
• The loan bears no interest
• The loan is unsecured
• The shareholder has subordinated its demand on repayment of the loan until 31 March 2023.
A grant of R 231 million (2013: R 170 million) was received from government to support sefa's activities. The grant was paid to the IDC, who are conducting
the required oversight over sefa's operations, and was made available to sefa for operational purposes through a loan.
17. Shareholder loan
Current liability
Non?current liability
Annual Report 2014
113
18. Trade and Other Payables
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Trade payables 53,929 53,281 19,313
18,409
Deferred grant 819 11,588 819 11,588
Accrued bonus ¹
16,842 10,989 16,842 10,988
Accrued leave pay ²
3,564 3,727 3,564 3,727
Managed funds ³
59,938 57,199 59,942 57,199
135,092
136,784 100,480 101,911
Trade and other payables are current
liabilities.
1) Accrued bonuses
Balances at the beginning of the year
10,989 4,884 10,989 4,884
Additional accruals raised during the year
16,842 6,105 16,842 6,104
Reversed during the year
(10,989) - (10,989) -
Balance at the end of the year
16,842 10,989 16,842 10,988
2) Accrued leave pay
Balances at the beginning of the year
3,727 906 3,727 907
Additional accruals raised during the year
1,251 3,559 1,251 3,558
Utilised during the year (1,414) (738) (1,414) (738)
Balance at the end of the year
3,564 3,727 3,564 3,727
3) Managed funds
The group is managing funds and holding
cash balances on behalf of the following
parties:
Unops
42,267 40,129 42,271 40,129
Norad
7,160 6,925 7,160 6,925
European Union
10,511 10,145 10,511 10,145
59,938 57,199 59,942 57,199
Annual Report 2014
114
19. Unearned Risk Provision and Outstanding Claims Provision
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Unearned risk provision
• At the beginning of the year
6,456 10,535 - -
• Movement recorded in proft or loss
(1,597) (4,079) - -
At the end of the year
4,859 6,456 - -
Outstanding claims provision
• At the beginning of the year 11,073 27,043 - -
• Movement recorded in proft or loss
(4,791) (15,970) - -
At the end of the year
6,282 11,073 - -
Unearned risk provision
• Unearned Premium Provision
464 813 - -
• Additional Unexpired Risk Provision
4,395 5,643 - -
At the end of the year
4,859 6,456 - -
Movement recorded in proft or loss
(1,597) (4,079)
Outstanding claims provision
• Notifed Outstanding Claims Provision
504 3,563 - -
• Incurred but not Reported Provision
5,778 7,510 - -
6,282 11,073 - -
Movement recorded in proft or loss
(4,791) (15,970)
Total exposure
Indemnities issued to fnancial institutions
69,295 96,390 - -
Less technical reserves already provided
(11,141) (17,529) - -
58,154
78,861 - -
The calculation of the provisions was performed by an independent actuarial consulting firm, Matlotlo Group Proprietary Limited.
The provisions recognised in the statements of financial position are non-current liabilities. They are detailed below and are determined as described in the following
paragraph:
Annual Report 2014
115
The summary of the valuation method is as follows:
The Unearned Premium Provision is calculated on a straight line basis, assuming indemnity premiums received are earned uniformly over the 12 months for which
they have been paid for. The Additional Unexpired Risk Provision (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 Provision and the net present value of expected future indemnity fees. The AURR is held
at a 75% sufficiency 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 financial 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% sufficiency level by simulating the claim severity.
All provisions 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.
The principal valuation assumptions are as follows:
2014 2013 2014 2013
R R % %
Probability of claim (+10%)
483,747
978,579 4.43 5.83
Claim severity (+10%) 1,569,898 2,750,568 14.37 16.40
Claim expense rate (+1%)
122,057
211,019 1.12 1.26
Discount rates (+1%)
(28,992) (65,188)
(0.27) (0.39)
2014 2013
26% 21%
81% 80%
4.56% 4.7%
5.68% - 8.8% 5.09% - 7.8%
Ultimate probability of claim
Claim severity
Claim expense rate
Discount rates (per government bond yield curve)
The sensitivity of the total provisions to the key assumptions is as follows:
2014 2013
4232% 2241%
Solvency margin:
The solvency margin is calculated by expressing the capital and provisions as a percentage of net written indemnity premiums.
Solvency margin:
Annual Report 2014
116
20. Post-Retirement Liability
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
416 - 416 -
The post-retirement medical liability is unfunded and has no plan assets, is attributable to employees, who were prior to the merger, employees of South African
Micro Finance Apex Fund and who qualifies for the benefit. This is the first year the liability is raised, and the liability value is equal to the movement in profit and
loss. No additional amounts were recognised in other comprehensive income.
The liability is a non?current liability and the calculation was performed by an independent actuarial consulting firm, Alexander Forbes Health Proprietary Limited.
416
- 416 -
416 - 416 -
Present value of unfunded obligations
Present value of obligations in excess of plan assets
The following table shows a reconciliation of the net
liability recognised in the statement of financial position:
- - - -
416 416
416 - 416 -
Liability raised
Closing balance as at 31 March
Components of the defined benefit cost:
416 - 416 -
416 - 416 -
Liability raised
Expense
Components of profit and loss:
Post-retirement liability
Opening balance as at 1 April
Annual Report 2014
117
The sensitivity of the post?retirement liability to the healthcare cost inflation rate is as follows:
The actuarial valuation assumptions are as follows:
2014 2013
9.7% N/A
9.0% N/A
8.4% N/A
60 years N/A
Discount rates
Healthcare cost inflation
Expected increase in salaries
Expected retirement age
Assumptions regarding mortality have been based on published statistics and mortality tables.
Pre?retirement mortality assumption SA85?90 (lite) N/A
Post?retirement mortality assumption PA (90) N/A
The duration of the liability was 20.5 years, this is based on the duration of the liability as at 31 March 2014.
Central
assumption
?1% +1%
R'000 % %
-
- -
- -
-
Accrued liability
Current service cost and interest cost
Annual Report 2014
118
21. Revenue
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Dividends received
- 1,766
4,046
6,282
Indemnity premiums earned
1,504 2,646 - -
Interest received on cash and cash equivalents
40,808 41,306 36,627
36,339
Interest received on loans and advances to clients
41,514 30,207 30,055
18,909
Other interest earned 1,949
3,174
1,891
2,528
Fee income
13,474 2,768 13,385 2,743
Investment property rental income
36,171
34,892
36,171 34,892
135,420 116,759 122,175 101,693
22. Other Income
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Bad debts recovered 305 343 253 129
Management fee - Related parties 648 620
648 620
Management fee - Other - 790 - 790
Other sundry income 5,134 1,910 5,134 235
6,087
3,663
6,035 1,774
23. Grant Income
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Balance as at 1 April 11,588 5,059 11,588 5,059
Grants received during the year - 1,250
-
1,250
Deferred grants acquired through a business
combination
- 57,853 - 57,853
Grants recognised as income during the year (8,983) (48,870) (8,983) (48,870)
Grants utilised to reduce expenses during the year (1,786) (3,704) (1,786) (3,704)
Balance as at 31 March
819
11,588 819
11,588
Annual Report 2014
119
24. Net Fair Value Gain/(Loss) on Financial and Other Assets
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Investments 2,399 - - -
Investment properties 13,278 (21,929)
13,278 (21,929)
15,677 (21,929) 13,278 (21,929)
25. Operating Loss
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Operating loss is arrived at after taking into account
the following:
Specific items:
Depreciation
3,230
2,313 3,195 2,283
Amortisation
1,263
1,733 1,088 1,641
Penalties and interest - South African Revenue
Services
50
233 50 39
Operating lease charges - Equipment
911
867 911 867
Operating lease charges - Property
14,587
11,896 14,587 11,896
20,041
17,042 19,831 16,726
The following impairments were recognised:
Impairment of investments in associates
-
- 532 735
Impairment/(impairment reversal) of joint ventures 671 (420) 671 (420)
Impairment of Investment in En-Commandite
partnership
(2,658) 7,558 (2,658) 7,558
Impairment of subsidiaries
(671)
420 10,004 7,128
(Decrease)/increase in bad debt provision - Loans
and advances
(72,207)
60,985 (80,515) 56,186
Irrecoverable debt written off - Loans and advances
164,791
10,476 164,755 -
Increase/(decrease) in bad debt provision - Rental
debtors
722 (20,226) 722 (20,226)
Irrecoverable debt written off - Rental debtors 4 19,546 4 19,546
Total net impairments 90,652 78,339 93,515 70,507
Annual Report 2014
120
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
The following items relating to the indemnity
product were recognised:
Indemnity claims incurred
6,891
16,463 - -
Decrease in claims provision (4,791) (15,970) - -
Decrease in indemnity reserves (1,597) (4,079) - -
503 (3,586) - -
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Agriculture, forestry and fishing
2,942 1,189 2,030 -
Basic chemicals
763
- 763 -
Beverages 634 - 344 -
Building construction 13,675 2,913 16,387 2,476
Business services (1,122) 3,431 1,794 3,509
Catering and accommodation services 1,378 103
756 -
Communication (533) (1,500)
- -
Electricity, gas and steam 2,316 1,433
2,819 7
Finance and insurance (2,228) 58,000
9,464 64,754
Food 8,121 330
5,676 -
Glass and glass products 27 -
- -
Machinery and equipment 135 -
135 -
Medical, dental and other health and veterinary
services
700 93
1,202 17
Motor vehicles, parts and accessories 831 (1,962)
877 64
Other community, social and personal services 17,623 -
92 -
Other chemicals and man-made fibres 31 128
- -
Other industries 4,933 594
4,294 -
Other mining 14 -
14 -
Other services 4,339 2,109
13,738 161
Paper and paper products 36 138
- -
Plastic products 212 -
- -
Printing, publishing and recorded media 501 (4)
178 -
Professional and scientific equipment (15) (194)
- -
Net increase/(decrease) in impairments:
Annual Report 2014
121
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Television, radio and communication equipment
3 6 - -
Textiles
1,005
42 1,694 -
Transport and storage 9,479 - 8,576 -
Water supply 1,615 - 1,615 -
Wearing apparel 31 1,040 - -
Wholesale and retail trade (148,733) 653
(150,035) 199
Wood and wooden products 6,422 -
5,621 -
(74,865) 68,542
(71,966) 71,187
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Bad debts written off/(recovered)
- Loans and advances
Agriculture, forestry and fishing 92 642 90 -
Building construction 10 - 10 -
Business services - 88 - -
Catering and accommodation services 5 - 5 -
Communication - 1,950 - -
Finance and insurance - (129) -
(129)
Food 21 289 - -
Motor vehicles, parts and accessories - 2,204 - -
Other services (71) 2,229 (43) -
Printing, publishing and recorded media - 84 - -
Wearing apparel - 337 - -
Wholesale and retail trade 164,429 2,439 164,440 -
164,486 10,133 164,502 (129)
Annual Report 2014
122
26. Income Tax Expense/(Credit)
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Current tax expense 672 366 355
-
Current year 317 375 - -
Prior year under/(over) provision 355 (9) 355 -
Deferred taxation 59,324 (33,172) 96,984 (36,110)
Current year 61,787 (33,604) 99,447 (36,542)
Prior year under/(over) provision (2,463) 432 (2,463) 432
59,996 (32,806) 97,339 (36,110)
Reconciliation of taxation amount
Loss before taxation (111,689) (97,220) (149,671) (129,228)
Taxation at standard rate of 28% (2013: 28%) (31,273) (27,222) (41,908) (36,184)
Tax effect of permanent differences (7,772) (4,446) (1,584) (357)
Tax effect of deferred tax asset not recognised 102,182 379 142,939 -
Tax loss recognised
(967)
(1,948) - -
Taxation - Relating to prior year
(2,174)
431 (2,108) 431
Taxation charged to statement of profit or loss and
comprehensive income
59,996
(32,806) 97,339 (36,110)
Taxation expense relating to current year
62,170
(33,237) 99,447 (36,541)
Effective tax rate - Based on current year taxation
expense
(56%) 34% (66%) 28%
27. Directors' and Prescribed Officers' Remuneration
Prescribed officers as prescribed by the Companies Act 71 of 2008 (Companies Act), are individuals who, despite not being a director of the Company:
• exercises general executive control over and management of the whole, or a significant 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 significant portion, of the
business and activities of the Company.
Income tax expense/(credit)
Annual Report 2014
123
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.
2014
R'000
2013
R'000
Appointment term
S Magwentshu-Rensburg (Chairperson) 7 April 2010 to date 206 218
IAS Tayob 7 April 2003 to date 165 215
M Ferreira 7 April 2010 to date 241 246
VG Mutshekwane 1 April 2012 to date 257 275
BP Calvin 1 April 2012 to date 151 214
HN Lupuwana 1 April 2012 to date 127 102
SA Molepo 1 April 2012 to date 219 155
LB Mavundla 1 April 2012 to date 174 210
GS Gouws (1) 1 April 2012 to date - -
K Schumann (1) 1 April 2012 to date - -
1,540 1,635
¹ Mr Gouws and Ms Schumann are employed by the IDC and do not earn Director’s fees for services rendered to sefa.
Executive Management:
2014 Period
Basic salary
R'000
Incentive
bonus
R'000
Retirement,
medical and
other benefts
R'000
Total
R'000
Mr T Makhuvha ¹ 1 April 2013 - 31 March 2014 1,527 752 340 2,619
Mr AMA Ramavhunga 1 April 2013 - 30 November 2013 843 - 65 908
Ms LG Mashishi 1 April 2013 - 31 March 2014 1,011 - 217 1,228
Mr D Jackson 1 April 2013 - 31 October 2013 868 -
-
868
Mr D Mashele ² 1 April 2013 - 30 June 2013 248 89
48
385
Ms L van Lelyveld 15 April 2013 - 31 March 2014 1,417 -
-
1,417
Mr P Swanepoel 1 July 2013 - 31 March 2014 1,168 - 163 1,331
Ms V Matsiliza 1 November 2013 - 31 March 2014 553 97 91 741
Mr A Dirks 1 July 2013 - 31 March 2014 774 131 108 1,013
8,409 1,069
1,032
10,510
The company considers all individuals at the level of executive management as the prescribed officers.
Key management, as defined in IAS 24 Related Party Disclosure, 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. The remuneration
of the Directors and prescribed officers is disclosed below as per the Companies Act requirements.
Annual Report 2014
124
2013 Period
Basic salary
R'000
Incentive bonus
R'000
Retirement, med-
ical and other
benefts
R'000
Total
R'000
Mr T Makhuvha ¹ 1 November 2012 - 31 March 2013 607 - 207 814
Mr AMA Ramavhunga 1 April 2012 - 31 March 2013 1,180 - 304 1,484
Mr MI Mazibuko 1 April 2012 - 28 September 2012 819 - 136 955
Mr CH Maseko 1 April 2012 - 31 March 2013 1,465 - 395 1,860
Ms LG Mashishi 18 June 2012 - 31 March 2013 798 - 202 1,000
Ms V Malale ³ 1 April 2012 - 30 June 2012 204 - 91 295
Mr D Jackson 9 October 2012 - 31 March 2013 749 - - 749
Mr D Mashele ² 1 November 2012 - 31 March 2013 336 -
121
457
6,158 - 1,456 7,614
¹ Mr T Makhuvha has been seconded to the company by the (IDC) and no remuneration has been paid to him by sefa.
² Mr D Mashele acted in an executive position during the current and prior financial year.
³ Ms V Malale acted in an executive position during the prior financial year.
No member of executive management earned any income from any other company within the Group.
28. Operating Leases
Operating lease commitments
The future minimum lease payments under non?cancellable operating leases are as follows:
Lease agreements range from two to nine years, the last one ending 31 December 2020. There are lease agreements for each branch as well as for head office.
The annual escalations range between 8% and 15% per annum.
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
7,822 5,395 7,572
5,395
29,148 13,786 29,148
13,786
751 18,104 751
18,104
37,721 37,285 37,471 37,285
Land and buildings
Within 1 year
From 2 to 5 years
More than 5 years
Annual Report 2014
125
29. Reconciliation of the Net Loss Before Tax for the Year to Cash Utilised by Operations
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Loss before tax (111,689) (97,220) (149,671)
(129,228)
Adjustments for:
Depreciation 3,230 2,313 3,195 2,283
Amortisation 1,263 1,733 1,088 1,642
Fair value adjustment (15,677) 21,929 (13,278) 21,929
Impairment provision - Investments (2,658) 7,558 (2,658)
7,558
Impairment provision - Subsidiaries and joint
ventures
- -
10,675 6,707
Impairment provision - Equity accounted
investments (Associates)
- - 532 735
Income from associate (31,988) (27,599) - -
Dividends received from associate (1,380) (1,380) (5,252)
(4,905)
Decrease in indemnity reserves (1,597) (4,079)
- -
Investment income (41,192) (46,247) (37,710)
(40,245)
Grant income (8,983) (48,870) (8,983) (48,870)
Profit/(loss) on sale of equipment 86 (103) 86 (103)
Provision for bad debts (70,541) 39,747 (78,858)
34,948
Bad debts written off 164,795 30,032
164,759 19,546
Realisation of day-one-loss (1,858) - (1,858)
-
Post-retirement liability 416 - 416 -
Provision for claims (4,791) (15,970)
- -
Operating loss before changes in working capital (122,564) (138,156)
(117,517) (128,003)
Changes in working capital (12,009) (56,826) (5,826)
14,985
Increase in trade and other receivables (4,973) (1,861) (177)
(5,376)
Loans (made to)/received from related parties
(9,716) 10,256 (8,579)
9,729
Increase/(decrease) in trade, - other payables and
provisions
2,680 (65,221) 2,930
10,632
Cash utilised by operations (134,573) (194,982) (123,343) (113,018)
Annual Report 2014
126
30. Tax (Payable)/Receivable
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Tax receivable/(payable) at the beginning of the year 60 (5,518) - (5,157)
Tax as per statement of profit or loss and other
comprehensive income (net of deferred tax)
(673)
(367) (355) -
Tax paid 450 5,945 355 5,157
Tax (payable)/receivable at the end of the year (163) 60 - -
31. Commitments
Group Company
Off-balance sheet items
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Undrawn financing facilities approved
104,522 275,916 87,766 255,065
Undrawn guarantee facilities approved
410 6,802 -
-
104,932 282,718 87,766 255,065
32. Related Party Transactions
Parent and ultimate controlling party
sefa is a wholly owned subsidiary of the IDC.
Other related parties
Description Relationship
Khula Land Reform Empowerment Facility Wholly owned subsidiary of sefa ¹
Khula Institutional Support Services Limited Wholly owned subsidiary of sefa ¹
Khula Credit Guarantee Limited Wholly owned subsidiary of sefa
New Business Finance (Pty) Ltd Wholly owned subsidiary of sefa
GJE Watson Previous shareholder of New Business Finance (Pty) Ltd and current employee of
sefa
Thetha Import and Export CC GJE Watson is a member of Thetha Import and Export CC and signed personal
surety for a loan repayable to New Business Finance (Pty) Ltd.
Gain Props 1017 CC Close corporation owned by GJE Watson
Economical Development Department Shareholder of the IDC
Transactions between the company and its subsidiaries, which are related parties, have been eliminated in the Group financial statements, however these are
not eliminated in the individual Company financial statements.
Annual Report 2014
127
The following transactions were entered into with related parties:
Group Company
2014
R'000
2013
R'000
2014
R'000
2013
R'000
Rental income received from related parties
Economical Development Department
4,654
- 4,654
-
Investment income received from related parties
Industrial Development Corporation
40,067 20,021 36,290 18,241
Management fees charged to related parties
Khula Land Reform Empowerment Facility
648 620 648 620
Related party balances receivable/(payable)
Khula Institutional Support Services ¹
5,667 (4,364) 5,667 (4,364)
Khula Land Reform Empowerment Facility ¹
831 1,145 831 1,146
New Business Finance (Pty) Ltd
- - 178 1,315
GJE Watson
400 400 - -
Thetha Import and Export CC
514 694
- -
Industrial Development Corporation
- Cash managed
520,826 799,184 473,940 726,465
Industrial Development
Corporation - Shareholder loan
1,175,521 944,542 1,175,521 944,542
1,703,759 1,741,601 1,656,137 1,669,104
¹ Registered as a Non?Profit Company. This company is not consolidated as a subsidiary due to sefa not being able to benefit 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 27.
Annual Report 2014
128
33. 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 in the prior financial year.
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 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 reflected 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 1.6 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
1,520
609
73,113
241
191,709
(64,762)
202,430
-
202,430
Office equipment, furniture and other tangibles
Intangible assets
Loans and advances
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Net asset carrying value
Consideration paid
Gain on the transfer of samaf assets and liabilities
Annual Report 2014
129
34. Unauthorised, Fruitless and Wasteful and Irregular Expenditure
Unauthorised expenditure
No expenditure was classifed as unauthorised during the fnancial year under review .
Fruitless and wasteful expenditure
The PFMA defnes fruitless and wasteful expenditure as expenditure which was incurred and would have been avoided had reasonable care been exercised.
Fruitless and wasteful expenditure for the year amounted to R333, 000 (2013: R785, 000).
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.
Opening balance
Irregular expenditure current year
Items reclassifed as not irregular after investigation performed
Condoned or written off by accounting authority
2014
R’000
2013
R’000
3,068 5,922
(14)
-
(3,547)
(5,429)
493 -
Irregular expenditure awaiting condonement -
493¹
¹ The balance was condoned during the current fnancial year.
Annual Report 2014
Notes
Annual Report 2014
Notes
Annual Report 2014
Notes
Annual Report 2014
Notes
Annual Report 2014
GLOSSARY OF TERMS
CEO Chief Executive Offcer
CFO Chief Financial Offcer
CIS Credit Indemnity Scheme
CRO Chief Risk Offcer
DBSA Development Bank of Southern Africa
DFIs Development Finance Institutions
Dti Department of Trade and Industry
EDD Economic Development Department
ESI Employee Engagement Score
FI Financial Intermediaries
GDP Gross Domestic Product
GEM Global Entrepreneurship Monitor
HR Human Resources
IDC Industrial Development Corporation
IPAP Industrial Policy Action Plan
IT Information Technology
KD Khula Direct
KPIs Key Performance Indicators
LREF Land Reform Empowerment Fund
MFIs Micro Finance Intermediaries
MOU Memorandum of Understanding
MSEs Micro and Small Enterprises
MTSF Medium Term Strategic Framework
NBF New Business Finance
NEF National Empowerment Fund
NGOs Non-Governmental Organisations
NGP New Growth Path
PDPs Personal Development Plans
PFMA Public Finance Management Act
RFIs Retail Finance Intermediaries
RSA Republic of South Africa
SA South Africa
samaf South African Micro Finance Apex Fund
seda Small Enterprise Development Agency
sefa Small Enterprise Finance Agency
SMMEs Small Micro and Medium Enterprises (including survivalists)
SMEs Small and Medium Enterprises
TEA Total Early Stage entrepreneurship Activity Index
EcoFusion 5
Block D
Cnr 1004 Teak Close & Witch-Hazel Avenue
Eco Park Centurion
P.O. Box 11011
Zwartkop 0051
Call Centre: +27 86 000 7332 (sefa)
www.sefa.org.za
RP166/2014 ISBN: 978-0-621-42818-6
Fraud Hotline Number
Tip-off Anonymous
0800 30 33 36
24 hours every day administered by Deloitte and Touche
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