IDC Annual Report - 2006/07 Accelerating Sustainable Economic Development

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IDC Annual Report - 2006/07Accelerating
Sustainable Economic Development

• Geoffrey QhenaCEO

10 October 2007
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Mission and Vision

• To be the primary driving force of commercially
  sustainable industrial development and
  innovation to the benefit of South Africa and
  the rest of the African continent
• Contribute to the generation of balanced,
  sustainable economic growth in South Africa and
  Africa
• Economically empower the South African population
• Promote entrepreneurship through the building of
  competitive industries and enterprises based on
  sound business principles

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IDCs Role

• To support sustainable development, IDC invests
  in businesses showing economic merit
• Some businesses are not often funded because of
  perceived high risks
• IDC views this as a market failure
• IDC does more detailed assessments and funds
  investments which would not otherwise happen
• IDC plays a critical role in assisting industries
  to develop, in ways which meet South Africas
  needs
• Supporting industrial policy development
• ASGISA
• Investments in targeted sectors
• Cooperate with national and provincial
  government, DFIs, and other COTII institutions.

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IDCs Objectives

• Sustainable job creation
• Regional development
• Rural areas
• Provincial spread
• Townships
• IDZs
• BBBEE
• SMEs
• Entrepreneurs
• Enhance balance of payments position by
  encouraging exports
• Support industrial development in the rest of
  Africa
• Achieve these goals while remaining financially
  sustainable.

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2006/07 Annual Highlights
 

• Facilitated the creation of a record of more than
  33 000 direct jobs in South Africa with a
  further 3 900 in the rest of Africa as a result
  of funding activities
• R5.9 billion in funding approvals for 241
  enterprises
• About 24 of the jobs to be created and 20 of
  approvals to three provinces with highest
  unemployment rates
• 69 of the number of approvals relate to SMEs
• 162 transactions totalling R3.4 billion to black
  empowered companies
• More than 680 SMEs received training and business
  support
• Earmarked R250 million in venture capital for the
  next five years
• Facilitated six workers trusts and 15 community
  foundations in our investments
• The IDC won Businessmap Foundation/Business
  Report award for Top Development Financier for
  Black Economic Empowerment for the fourth
  consecutive year, with one of our clients winning
  the Top Black Business award and another two
  clients reaching finals in this category.

Job Creation
Approval Value
9-month period
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Regional Development
Some Development Agency Projects

• R597 million approved for developments in
  townships, expecting to create 5 100 new jobs and
  save 1 400 existing ones
• Over 9 100 jobs will be created in rural
  districts of South Africa
• Development agencies enable IDC to participate
  more intensively in rural development and unlock
  economic potential of various provinces
• The agency concept starting to bear fruit, with
  various projects identified and being implemented.

Agency Inception Project Information
Nkonkobe 2003 Instrumental in reviving Kat River citrus development
Blue Crane 2004 Boschberg Mountain Development (with Tourism) estimated R800 m project Flower project 8 women own project Vegetable seed project with 28 beneficiaries Airport project accessed R5m grant and employs 53 temporary workers Fruit project 4 permanent and 32 temporary workers Pomegranates project (4000 tree pilot)
Hibiscus 2003 Beachfront plan approved project team in place, funding received from National Treasury
Mandela Bay 2003 Govan Mbeki Avenue upgrade (R 12m) Donkin Reserve (R 9m) UDZ tax incentive facilitation Cleaning and security (300 jobs)
Illembe 2003 Amatikula Fisheries (R36 m) KZN Growth Fund 3 Gijima funded projects, 5 under review
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BEE

• 162 transactions totaling R3.4 billion to black
  empowered companies
• BEE accounted for 68 of the total number of
  approvals and 58 of the total value of financing
  approved
• Specific targeting of expansions and new BEE
  companies, and reduced focus on BEE acquisitions
  financed
• 32 of funding approved was for expansions and
  start-ups by black business
• R1 026 million approved for acquisitions
• Extension of the competitive financing scheme.

Value of Empowerment Approvals
Number of Empowerment Approvals
9-month period
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SME Support

• Financing provided to 167 SMEs
• 70 of the number and 18 (R985m) of the value
  of IDCs approvals are to SMEs
• To provide finance to a wider range of SMEs
  (especially new entrepreneurs), some gaps need to
  be addressed
• Lack of skills
• Lack of necessary support systems
• Lack of access to financial institutions
• Entrepreneurial development initiatives
  introduced to promote entrepreneurship and
  enhance sustainability of IDC funded businesses
• IDC business support to clients
• More than 680 delegates attended entrepreneurship
  courses sponsored by IDC in Gauteng, Northern
  Cape, Eastern Cape, Limpopo, and Free State.

Examples of Business Support provided
Client Support Provided
Hlumisa - Eastern Cape Assistance in selecting and setting up financial management systems, design and documentation of costing system, design of leads management system (new clients) and developing marketing strategy
ITT - East Rand Assisted in implementing QA system, capacity management
VAC Cleaning -Cape Town Assisted through development of financial management system, and in strategic decision-making while mentoring owners over long period
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Competitive Financing for Development

• R1 billion fund providing financing for 5 schemes
  expired December 2006
• Pro SME Jobs Scheme
• Pro BEE Expansionary acquisitions scheme
• Pro Franchise Scheme
• Pro Forestry Scheme
• Pro Orchards Scheme
• Loans priced at up to prime less 5
• Assisting 115 SMEs to create 7450 direct job
  opportunities
• Extension of Pro Orchards, Pro Forestry, Pro BEE
  Expansionary Acquisitions Schemes.

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Some High Impact Projects

• IDC identified the berry industry as a industry
  with potential
• High value agricultural crop
• High international demand healthy food
  consumption trends
• Labour intensive
• Export crop

Project Location Impact
Blue Mountain Berries George, Western Cape Blueberries, 70ha, 450 jobs
Amathole Berries Stutterheim, Eastern Cape Blueberries, 330ha, 2,300 jobs
Echo Berries Brits, North West Strawberries
Amajuba Berries Charlestown, KwaZulu-Natal Raspberries, 100ha, 795 jobs
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Some High Impact Projects

• The fish processing industry
• IDCs current exposure (including commitments) to
  this industry R60m
• Exports
• The budgeted export volumes will contribute at
  least R6.7m in export earnings per annum.
• Sub-sectors supported
• Abalone
• Fish Packing canning and
• Ice production for the fish industry.
• Regional exposure in Western, Eastern Northern
  Cape
• BEE exposure includes
• Bluefin
• Mosselbay Fish Processors
• Industry development needs
• Shortage of processing capacity (hake and
  lobster) in Hout Bay
• Lack of HACCP compliant facilities
• Lack and availability of ice.

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Some High Impact Projects

• Eastern Cape Biomass
• Black empowered company situated in Coega
  Industrial Development zone
• Manufacture of fuel pellets
• 10 000 tons per month for European markets
• Biomass is an environmentally friendly
  alternative source of energy
• In line with IDC strategy to invest in clean
  fuels
• 370 full time jobs created
• Ownership shared with workers and community
• IDC investment R59m

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Some Other Investment Approvals

• Marine fabrication and construction yard catering
  for the West African offshore oil and gas
  industry Saldanha, Western Cape 700 permanent
  jobs 5 community participation
• Mining services for the diamond mining industry
  Barkley West, Northern Cape 212 permanent jobs
  10 workers participation
• Cement blending supplying the cement brick and
  construction industry Mabopane, North West 50
  permanent jobs 100 black owned and managed
• Tourist lodges catering for the local and foreign
  3-star market Nkambeni, Mpumulanga 250
  permanent jobs
• Expansion of dried fruit plant catering for the
  export market Marulaneng, Limpopo 80
  permanent jobs
• 250 bed private hospital eThekwini,
  KwaZulu-Natal 570 permanent jobs
• Call centre services Randburg, Gauteng 540
  permanent jobs
• Production of fertilizers, further beneficiating
  the upstream chemicals industrys products
  Sasolburg, Free State 58 permanent jobs 44
  black ownership
• Stainless steel strip cold rolling mill Coega,
  Eastern Cape 105 permanent jobs

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Beyond Investment

• Herdmans Atlantis, Western Cape
• Herdmans is a producer of linen yarn, located in
  Atlantis in the Western Cape.
• IDC became involved with the company in 2001,
  when it provided funding to help fund a portion
  of Herdmans Irelands operations to relocate to
  South Africa.
• By 2005, all the Irish operations except a dye
  house and the marketing operations had been
  relocated to the premises in Atlantis.
• At the start of 2005, quotas on Chinese exports
  in the textiles sector were lifted worldwide, and
  the company soon started facing difficult market
  conditions.
• By 2006, the companys Irish bankers and
  shareholders withdrew support for the company and
  Herdmans ceased manufacturing.
• In an attempt to save some of the jobs at the
  company, IDC took ownership of the company and
  started a process of restructuring.
• With the help from the landlord, Khula, and major
  creditors such as the City of Cape Town, 95 jobs
  were saved in the company.
• Herdmans is still facing significant challenges,
  but the IDC is positive about the companys
  future.

IDCs development focus extends beyond the
investment decision, and plays an integral part
of the investment monitoring process
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Touching Lives

• Knysna Elephant Park
• STANFORD MOTAU, Head Trainer Leads the handlers
  and their partner elephants in rigorous daily
  training sessions.
• SHEILA MSOPI, Ticket Office and Education Centre
  My job is very interesting, Im learning a
  lot.
• NOLA NDEBENDWANA, Statistics and Bookings
  Studying towards a Diploma in Public Finance and
  Accounting.
• MOSEKETSI MPETA, Senior Account Manager, Tourism
  SBU As a development finance institution, we
  seek to fund those projects which commercial
  banks consider to be high risk. For a very long
  time the IDC was the only institution funding
  tourism. And when we decide to fund a project, we
  conduct a very detailed due diligence, so we know
  exactly the risks that are involved.
• NIEK WOLMARANS, Senior Account Manager, Tourism
  SBU A normal commercial bank would probably
  not have funded a project like this. But now, in
  an area on the border of the Eastern Cape, which
  is very poor, they are employing about 60 people,
  and they are probably supporting quite a few
  people themselves.

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Touching Lives

• Bethlehem Farmers Trust
• JOSEPH TSHABALALA, Field Manager Unemployed for
  eight years before being selected as one of the
  94 farmers who would be trained in managing and
  maintaining apple orchards.
• PIETER FOURIE, Project Manager If this project
  were to fail in the future once ownership has
  been transferred into the hands of the farmers, I
  would not have done my job properly
• MASONTAHA TITEBE, Farmer and Project Secretary
  I dont want to focus only on apple farming. In
  coming years I want to see myself farming cattle
  too.
• RIAN COETZEE, SBU Head Food, Beverage Agro
  Industries We often review projects with
  community involvement. Quite often the
  individuals in the community trust get lost
  because its a trust with thousands of
  beneficiaries. At Bethlehem Farmers Trust
  theres real ownership clearly identified
  beneficiaries who have taken up ownership of the
  project.
• KALVENIE RAJA, Senior Account Manager, Risk
  Capital Facility SBU What I like very much
  about this project is its focus on training and
  skills development. Empowerment is not just about
  ownership. Through training, the farmers
  operational involvement has made the project more
  meaningful to them, boosting its sustainability
  and removing dependency on others to do for them
  what they now can do for themselves.

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Touching Lives

• Amka Products
• ISMAIL KALLA, Amka CEO Its always been a
  win-win relationship. Theyve been more than a
  bank to us, offering us technical as well as
  financial support. They forced us to budget
  forward and think in terms of good results,
  getting us focused in the right direction.
• RONALD MAKOLA, Black Like Me Marketing Manager
  Although we treat the SADC region as our local
  market, we are busy establishing ourselves in the
  Democratic Republic of Congo, Mozambique, Angola,
  Kenya and Nigeria.
• MARY KWINDA, Lecturer Amka Academy I was very
  curious about this thing of hair. With no formal
  education, I saw that it was a skill that could
  help me to advance myself. Students from
  Zimbabwe, Togo, Nambia they all know me
• MOHAMED SHAIK-AMOD, Senior Account Manager,
  Chemicals, Textiles and Allied Industries SBU
  Amka is one of IDCs success stories. Weve been
  with them for many, many years, so theres a long
  history to the association. Weve taken them from
  a small SMME to a very large corporate, which is
  now a multi-billion rand turnover company, if you
  factor in all the companies within the group.
• WILLIE FOURIE, Head Chemicals, Textiles and
  Allied Industries SBU One of our clients
  started out supplying solely to Amka and their
  business has grown hugely. Having developed a
  niche of its own they no longer supply Amka, so
  the Kallas have gone on to develop another
  company which manufactures jars for their
  products. Amka favours developing new
  entrepreneurs, so the pool gets bigger and bigger
  around them, while they increase their own
  footprint.

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Touching Lives

• Ntuso Forestry
• THAMI ZIMU, Owner I couldnt forget the way I
  grew up. It was an important foundation for me.
  If there is nobody in your area to look up to, it
  is very difficult to pick yourself up.
• BHEKI MHLUNGU , Farm Manager Im managing to
  support my family and send my three kids to
  school. As one of the permanent employees, he
  will soon be a beneficiary of the workers trust.
• RENTIA VAN TONDER, Head Wood Paper SBU
  Given the situation in the country with limited
  resources in timber, we decided that, as the IDC,
  we would like to make a difference. But initially
  we found that it was impossible given our general
  guidelines and norms. We needed long-term finance
  and special funding structures, and had to think
  out of the box to achieve true empowerment in
  this sector. We structured the transaction in
  such a way that Thami and her family trust would
  acquire 70 percent of the company and the
  workers trust would acquire 30 percent, which
  supports our objective to facilitate broad-based
  structures. Thats really close to my heart, as
  its in a rural area with high poverty where the
  people that will benefit had very little.

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Financial Results
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Abridged Group Income Statement for the Year
Ended 31 March 2007
R million 2007 2006
Analysis of Net Profit/Loss
Revenue 5 169 4 524 14 Cost of Sales 2 082 1
928 8
Financing Expenses 457 495 (8) GROSS PROFIT 2
630 2 101 25
Exxaro
Net Capital Gains 1 796 341 427
Other Income 133 55 142 Operating Expenses 1
914 2 119 (10) OPERATING INCOME 2 645 378 600
Share of Equity-Accounted Investments 1
673 417 301 PROFIT BEFORE TAX 4
318 795 443 Taxation (27) 42 164 PROFIT FOR
THE YEAR 4 345 753 477
9-month period
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Abridged Group Balance Sheet as at 31 March 2007
R million 2007 2006
Strengthened Financial Base
Assets Loans, Advances and Investments 54 951 40
613 Cash and Cash Equivalents 4 466 3
558 Property, Plant Equipment Inventories 3
137 3 046 Other Assets 1 061 938 63 615 48 155
Equity and Liabilities Capital and Reserves 52
574 38 984 Long-term Loans 5 716 5 525 Deferred
Taxation 3 640 1 997 Other Liabilities 1 685 1
649 63 615 48 155
Debt/Equity Ratio 11 14
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Summary and Prospects
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2006/07 Summary

• Leadership in Development entrenched in the
  organisation
• Record levels of job creation
• Improvement in development impact largely the
  result of increased activity
• Financial performance exceeded budgets
• Undertook a review of all processes in the IDC to
  determine fit with strategy and efficiency
• Rebranding process to reflect IDC development
  role
• Businessmap/Business Report BEE award 3rd
  consecutive year
• 2nd year of improving customer satisfaction
• IDC on track to exceed its 5yr job creation
  target.

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IDCs Role in Implementing the National
Industrial Policy

• IDCs role in supporting the policy is on two
  levels
• Directly through the provision of finance and
  other services
• Indirectly through the support and finance that
  it provides to specific businesses.

The three domains of South Africas industrial
policy and illustrative interventions
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Sector Specific Actions Supporting the
Industrial Policy Action Plan (IPAP)

• The following initiatives related to the four
  lead sectors are already in place
• Capital/Transport equipment and Metal Fabrication
• SOE Public Sector Capex Programme
• National Tooling Initiative
• Project Hoefyster
• Initiatives are also underway to improve
  competition in the upstream metals sector
• Automotives and Components
• Supply development programme to improve component
  manufacturing capacity expertise and increase
  of local content
• Chemicals, Plastic Fabrication and
  Pharmaceuticals
• Direct involvement in the Fluoro-chemicals
  expansion initiative
• Promoting the local production pharmaceuticals
• Forestry, Pulp and Paper, and Furniture
• Forestry
• Pulp and Paper
• Furniture

All Business Units Sector Development Strategies
are being reviewed to ensure maximum alignment
and impact in these sectors
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Sector Specific Actions Supporting the
Industrial Policy Action Plan (IPAP) (continued)

• Initiatives related to other sector actions
• ASGI-SA
• Business Process Outsourcing Offshoring
• Biofuels
• Tourism
• Other substantive sector projects
• Diamond beneficiation and jewellery

IDCs structure, industry knowledge and networks
makes it one of the premier organisations for the
implementation of the industrial policy
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Prospects

• Be leaders in the implementation of the national
  industrial policy
• Enhancing regional presence
• Roll-out of regional managers
• Develop regional development strategies for IDC
• Closer to clients
• Improved customer service
• Approve first investments under the internally
  managed venture capital fund
• Enhance product development in line with client
  needs and economic development focus areas
• Double impact on job creation in 5 years
• Investigate feasibility of key projects to
  improve South Africas competitiveness.

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Industrial Development Corporation 19 Fredman
Drive, Sandown PO Box 784055, Sandton, 2146 South
Africa Telephone [phone] Facsimile (011)
269 2116 E-mail callcentre_at_idc.co.za