Committed to servingpmg-assets.s3-website-eu-west-1.amazonaws.com/docs/2010/10112… · 2 Highlights of the year assets under management The fair value of assets under management

Client: PIC

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Date: 19 August 2010

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Annual Report 2010

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www.pic.gov.za

The Public Investment Corporation Limited (PIC) has almost a century of experience in managing public sector funds.

Initially founded in 1911 as the Public Debt Commissioners, the organisation became the Public Investment Commissioners in 1984 and then, in 2005, a corporation. This transformation into a modern asset management operation was achieved when the Public Investment Corporation Act, 2004, came into effect on 1 April 2005.

PIC is wholly owned by the South African Government and invests funds on behalf of public sector entities, mainly pension, provident, social security and guardian funds. Of the 36 clients whose funds are managed by PIC, the top five are the Government Employees Pension Fund (GEPF), the Unemployment Insurance Fund (UIF), the Associated Institutions Pension Fund (AIPF), the Compensation Commissioner Pension Fund (CC:PF) and the Compensation Commissioner Fund (CC).

Every PIC client has its own separate portfolio, which is managed in line with a mandate agreed to with the client.

Investments are based on the following broad asset classes: listed equities, capital markets, money markets, property and the Isibaya Fund, which is a fund that promotes socially responsible and infrastructure investments.

PIC operates in a complex legislative and regulatory environment. As a public entity, the Corporation’s financial management and reporting must comply with the Public Finance Management Act, 1999. As a financial services provider, it is registered with the Financial Services Board (FSB), which regulates its investment activities.

Assets under PIC management have grown from R308 billion as at 31 March 2003 to R910,9 billion as at 31 March 2010.

Company profile

Contents

ifc Company profile1 The Public Investment Corporation

strategic intent2 Highlights of the year3 Minister’s note to Parliament4 Our clients5 Chairman’s report6 Chief Executive Officer’s report9 Board of Directors13 Executive Committee15 Corporate governance statement21 Audit and Risk Committee report23 Economic and market review26 Investment performance33 Risk management statement36 Report of the Auditor-General

37 Directors’ responsibilities and approval39 Directors’ report42 Discussion and analysis of

annual financial statements44 Statement of financial position45 Statement of comprehensive income46 Statement of changes in equity47 Statement of cash flows48 Accounting policies60 Notes to the annual financial statements76 Disclosure of remuneration78 Statement from secretary79 Top 40 listed equity holdings80 General information

1

...our clients drive our business

VisionTo meet or exceed our clients’ investment objectives and commitments to stakeholders

Mission The PIC – having been established by an Act of Parliament to provide for the investment by the Corporation of certain monies received or held by, for or on behalf of the Government of the Republic and certain bodies, councils, funds and accounts – will:

• Deliver investment returns in line with client mandates• Create a working environment that will ensure that the best skills are attracted and retained• Be a beacon of good corporate governance• Contribute positively to South Africa’s development

ValuesWe have integrity • We strive to be fair in all our dealings and act in good faith• We take action against unethical and fraudulent behaviour

We are results driven • We are committed to serving our customers• We define and communicate expectations

We care for our people • We treat people with respect, integrity and empathy• We create a learning environment and encourage the development and

growth of people

We are accountable • We are willing to face the consequences of our actions• We stand as one when collective decisions are made

We strive for financial sustainability • Customer service is everybody’s business as anyone may be a potential client• We all strive to support the PIC in becoming the asset manager of choice

The Public Investment Corporation strategic intent

2

Highlights of the year

assetsundermanagement

The fair value of assets under management increased by 23% from

R739,7 billion in March 2009 to R910,9 billion as at 31 March 2010.

R910,9 billion

Drivingresponsibleinvestment

Together with GEPF, PIC played an active part in the South African

network of the United Nations Principles for Responsible Investment

(UNPRI).

Strengtheningourstrategicintent

The PIC Board revitalised the Corporation’s vision and strategy

formulation process, resulting in an enhanced vision and mission

statement and set of corporate values.

profitfortheGEPF

The MTN transaction enabled more than 3 200 MTN employees

to become significant shareholders in their company whilst earning

GEPF a R14 billion profit.

R14 billion

investedinKwaMashu

The R740 million Bridge City shopping mall opened in KwaMashu,

KwaZulu-Natal in October 2009. Bridge City is an investment of the

Community Property Fund, which is 60% owned by GEPF.

R740 million

3

Minister’s note to Parliament

SpeakerofParliament

Annual report of the Public Investment Corporation Limited for the period ended 31 March 2010.

I have the honour, in terms of section 65 of the Public Finance Management Act, 1999 (Act No 1 of 1999), to present the annual report of the Public Investment Corporation Limited for the period 1 April 2009 to 31 March 2010.

PJGordhanMinister of FinanceSeptember 2010

MrPravinGordhan,Minister of Finance

4

3%

48%

36%

8%1%

1% 3%

Isibaya Fund

Structured investment products

Cash

Equity

Capital market

Property

Money market

Percentage of assets under management

Growth of assets under management from March 2003 – March 2010

Ran

d b

illio

n

308377

461

598

719786

739

910

0

250

500

750

1 000

1 250

Mar 10Mar 09Mar 08Mar 07Mar 06Mar 05Mar 04Mar 03

The PIC is the asset manager for South Africa’s public sector, managing assets worth R910,9 billion as at 31 March 2010.

PIC’s largest client is the Government Employees Pension Fund which, as at 31 March 2010, had assets worth R819 billion under PIC management. As shown on the table below, other major clients are the Unemployment Insurance Fund, Associated Institutions Pension Fund, Compensation Commissioner Pension Fund and Compensation Commissioner Fund.

Client

%ofassetsunder

PICmanagement

Government Employees Pension Fund 90

Unemployment Insurance Fund 5

Associated Institutions Pension Fund 1

Compensation Commissioner: Pension Fund

1

Compensation Commissioner Fund 1

Other* 2

Total 100

*Constitutes a number of clients with smaller portfolios

Client mandates are the cornerstoneEach client’s specific investment objectives are expressed in a detailed client investment mandate prescribing the desired asset allocation, expected returns and reporting requirements, as well as risk parameters, performance benchmarks and management fees. All client mandates are individually negotiated with the client concerned and approved by the Financial Services Board, with which PIC is registered as a financial service provider, in line with the Financial Advisory and Intermediary Services Act, 2002.

Comprehensive investment service providedPIC’s investment mix includes fixed income investments in the capital and money markets, equities listed on the JSE and properties in the industrial, commercial and retail sectors. PIC also provides solutions for clients requiring specialised investment products such as equities index tracking with derivative overlays and single stock equities options. Finally, an asset class that is unique to PIC is the Isibaya Fund. This Fund, which PIC manages on behalf of the GEPF, manages socially responsible investments and projects that enhance socio-economic transformation.

To cater for the varying investment objectives of clients and to keep abreast of investment developments in the marketplace, PIC continually explores new investment products and services.

* The calculations and disclosure of fair value are based on standard market practice and have not been amended to take into account fair value adjustments as required by SA GAAP.

Our clients

5

MrNhlanhlaNene,Chairman

The renewal of PIC’s vision and values has positively affected the execution of the Board’s strategy.

Despite clear signs of economic recovery from the second half of 2009/10, investment conditions remained difficult. PIC’s focus was on increasing the value of assets under management and ensuring performance within the constraints posed by markets in a state of flux. This resulted in the value of assets slowly returning to pre-recession levels, ending the year at R910,9 billion.

With a view to securing sustainable future growth for the Corporation’s clients, the Board revitalised PIC’s vision and strategy-setting process. This culminated in the Board approving an enhanced vision, mission statement and set of corporate values. Briefly, PIC’s vision is to “meet or exceed our clients’ investment requirements and commitments to stakeholders”. In support of this, the five corporate values reflect our determination to operate with integrity and responsibility, to deliver on investment mandates in line with client mandates, to create a conducive working environment, to be a beacon of good corporate governance and to contribute positively towards South Africa’s development.

The renewal of PIC’s vision and values has also positively affected the way in which the Board’s strategy is executed and progress against it is measured. A direct link has been established between the corporate strategy and the Balanced Scorecard that management uses to drive organisational performance and rewards. We have also introduced more precise performance measures and more frequent performance evaluation.

Responsible Investment (RI) was another important theme for the PIC Board during 2009/10. The GEPF launched several major RI initiatives, including its RI Policy and the establishment of the South African network of the United Nations Principles for Responsible Investment (UNPRI). PIC supports these initiatives and looks forward to jointly implementing several of them.

Two non-executive members of the Board resigned during the year under review. General (retired) Siphiwe Nyanda resigned in May 2009 after being appointed Minister of Communications, while Ms Ntombifuthi Mtoba resigned in October after a policy change on directorships on the part of her employer. We sincerely

thank them both for contributing their considerable expertise to the deliberations of the Board.

As a point of governance, I believe it is necessary to report on PIC’s stance towards expenditure on the FIFA 2010 South Africa World Cup and the 2009 South Africa Confederations Cup.

In 2009, during the FIFA Confederations Cup, the PIC took a decision to entertain its clients as part of a stakeholder relationship building process. A total of 100 soccer tickets were bought at R210 each, amounting to R21 000. Clients and their partners from various client companies were invited to attend the event hosted by PIC executives and senior managers. No tickets were purchased for the 2010 World Cup.

Towards the end of the financial year, the Chief Executive Officer, Mr Brian Molefe, notified the Board of his intention to pursue other career directions when his five-year contract expired in mid-April 2010. In the interest of a smooth transition, the CEO agreed to remain with PIC until the end of July 2010.

The contracts of two other members of top management came up for renewal at the same time. The Board was pleased that both Ms Albertinah Kekana, Chief Operating Officer, and Dr Dan Matjila, Chief Investment Officer, agreed to renew their contracts for a further five years.

The Board and shareholder have engaged each other on the process of appointing a new CEO for PIC, and a decision will be made in due course. In the meantime, both the shareholder and the Board are satisfied that PIC has sufficient leadership capacity to keep moving the Corporation forward.

The Board is indebted to Mr Molefe for the contribution he has made to PIC over the past seven years. Under his management, PIC evolved from a commission to an agile, efficient asset management corporation. He also championed the cause of shareholder activism in South Africa, drawing public attention to corporate practices that were not in step with the country’s transformation or governance imperatives.

I extend my gratitude to my fellow Board members for so rigorously fulfilling their fiduciary responsibilities towards PIC’s clients and other stakeholders. On behalf of the Board, I also express appreciation to the management team and staff of PIC for their loyalty and commitment.

MrNhlanhlaNeneChairman

Chairman’s report

6

Although the markets continued to be challenging and the economic recovery tentative, investors won back some of the ground lost in the previous financial year. At PIC, the fair value of assets under management (AUM) increased by 23% from R739,7 billion in March 2009 to R910,9 billion as at 31 March 2010.

The listed equities portfolio was a major contributor to the growth achieved, increasing in value from R270 billion to R437 billion by the end of the 2009/10 financial year. This represents growth of 62%. However, the return on the equities portfolio was below the agreed client benchmark. The underperformance was largely due to the ongoing restructuring of the listed equities portfolio, as discussed in more detail later in the report.

The fixed income portfolio grew from R408 billion to R410 billion, an increase of 0,49%. This segment of the portfolio exceeded its benchmarks, the compositeof the Barclays BESA inflation linked bond index andAll Bond Index (ALBI) for capital markets and Alexander Forbes short-term fixed interest (STeFI) index for cash and money markets for all of the client portfolios it manages.

The value of property assets under management increased by 15%, rising from R23,4 billion in March 2009 to R26,9 billion at the end of March 2010. While the portfolio performed relatively well in terms of income returns on an annual basis, capital growth was flat to negative, reflecting the generally poor conditions in the property market.On the upside, the properties portfolio ended the year well positioned to take advantage of opportunities for future growth. The investment in the Airports Company of South Africa (ACSA) is expected to benefit as the impact of that programme is felt through better operating efficiencies at airports.

During the financial year, the Isibaya Fund’s portfolio exposure reduced from R31 billion in March 2009 to R5,9 billion as at 31 March 2010. This was due primarily to the unwinding and transfer out of the Isibaya Fund of

the MTN, Telkom and Vodacom assets. The reduction was a positive development that has freed up a considerable amount of funding for new investments. In line with the development strategy of the GEPF, such new investments will focus on social infrastructure, economic infrastructure, development finance for small and medium enterprises (SMEs) and broad-based black economic empowerment. The portfolio has achieved an Internal Rate of Return (IRR) of 25% per annum to date.

Major investment initiativesRestructuring the listed equities portfolio and promoting the United Nations Principles for Responsible Investment (UNPRI) were PIC priorities for 2009/10.

UNPRIAs a signatory to both the UNPRI and the United Nations Global Compact (UNGC), PIC is at the forefront of efforts to raise the profile in South Africa of the principles of responsible investment. In this regard, PIC collaborated with its major client the GEPF and various role players in the investment community on a range of responsible investment initiatives. These included refining the matrix mechanism developed in partnership with the University of Stellenbosch to measure the disclosure practices of listed companies, especially in respect of environmental, social and governance (ESG) matters. The revised matrix has many more environmental and social indicators than before, which is in step with the new Companies Act of 2008 and the King III report.

Together with the GEPF, the Corporation was also a leading player in the South African UNPRI network and was actively involved with the RI activities of the Institute of Directors and the Association of Savings and Investments South Africa.

Equities restructuringGood progress was made during 2009/10 with the ongoing restructuring of the equities portfolio of the GEPF. This multi-stage process began in late 2006 when a decision was made to split the GEPF’s equities portfolio into enhanced passive and active components, using a 75:25 ratio. The first step was to bring equities valued at approximately R168 billion in-house, and then to issue an open tender to select external fund managers to manage 25% of the GEPF’s equities. The tender was awarded to 16 external asset managers who began managing their portfolios of shares from 1 April 2009.

Chief Executive Officer’s report

The value of assets under management has grown and the scene has been set for a greater focus on Responsible Investment.

MrBrianMolefe,Chief Executive Officer

7

For the year ended 31 March 2010, the external fund managers collectively exceeded the SWIX benchmark. Although this outperformance was slight, working out at 28 basis points, it confirms that PIC and the GEPF are achieving their objective of creating a well-balanced equity fund structure able to deliver on the GEPF’s equities mandate.

The equities strategy gained further momentum in 2009/10 when additional mandates were awarded to two BEE asset managers. This is in line with the GEPF mandate of contributing to industry transformation, as well as with PIC’s incubation manager policy, where we annually select the best emerging BEE managers from the universe of available managers.

The next and final step is to complete the restructuring of the internal component of the equities portfolio.

Strengthening delivery capacityTo strengthen the capabilities of the business and improve succession planning, PIC restructured some of its senior management portfolios during 2009/10. One of the main changes was the appointment of the head of Corporate Strategy and the General Manager: Risk and Compliance. The strategy position is a new role that enables a concerted focus at all organisational levels on delivery against the corporate strategy, along with more effective performance monitoring and evaluation. In the case of Risk and Compliance, the three previously separate divisions (Financial Risk, Middle Office and Regulatory Compliance) were consolidated to create a single point of accountability.

We implemented new portfolio management systems for two investment divisions. The Charles River Investment Management System was implemented for the Fixed Income division, while e-Front was introduced for the Isibaya Fund.

Turning to human capital development, PIC conducted a skills audit to gain a clear view of our current and desired skills. One of the immediate outcomes was the launch in October 2009 of a new training initiative that promotes cross-functional teamwork, organisational effectiveness and personal performance.

Demonstrating the power of teamwork, all our employees collectively participated in articulating and developing PIC’s core values, which define what we stand for as a business. As a result of this collective effort, there is a widespread understanding among PIC employees as to how each person and division contributes to achieving PIC’s vision and the strategic objectives set in the corporate plan. Through the performance management system, a direct link is being established between individual performance and delivery on corporate strategy.

Delivery capacity was also strengthened through selective recruitment and PIC ended the year with 195 employees, compared to 160 in the previous year. This injected fresh skills into strategic parts of the business and enabled us to continue developing the employee equity profile. Black employees accounted for 69% of the overall workforce and women for 60% as at 31 March 2010. At executive director level, blacks accounted for 100% of executives and women for 33%.

Performance against predetermined objectivesThe PIC has agreed to a shareholder’s compact and corporate plan in accordance with the Public Finance Management Act, 1999. The predetermined objectives as set out in the shareholder’s compact and corporate plan for the financial year under review formed the basis of the balanced scorecards of the corporate, investment and operations components. The alignment of the objectives and targets in the balanced scorecards with those in the corporate plan ensures that the focus of the executive management of PIC is in line with those of the Corporation as per the predetermined objectives. The predetermined objectives for the financial year ending on 31 March 2010 included but were not limited to the following:

Investments• Deliver investment performance which consistently

exceeds client benchmarks• Ensure rigorous investment processes for each asset

class• Optimise asset allocation• Implement a long-term Isibaya Fund operational

strategy• Make investments targeted at the second economy• Focus on corporate governance and shareholder

activism

Operations• Ensure the sustainable profitability of PIC operations• Acquire and retain core competencies and skills• Implement a training and development plan• Ensure dynamic and robust enterprise wide risk

management• Maintain sufficient reserves• Achieve revenue diversification• Increase corporate strategy awareness

All employees collectively

participated in articulating

and developing PIC’s

core values.

8

The overall performance for the year has been well on track to meet the predetermined objectives. PIC’s performance against these objectives was reviewed by the Board of Directors and these objectives were achieved, as highlighted in the rest of the report, the portfolio review, the risk management statement, the report of the Audit and Risk Committee and the Group annual financial statements.

Appreciation PIC ended the year in a strong position operationally and financially, with a clear corporate strategy to guide us in achieving our vision, which is to meet or exceed clients’ investment objectives, and our commitments

to stakeholders. The solid footing on which the Corporation stands is due to the guidance and insight of the Board, followed through with teamwork, passion and commitment on the part of PIC management and employees.

MrBrianMolefeChief Executive Officer

Chief Executive Officer’s report (continued)

Dr Daniel Mmushi MatjilaChief Investment Officer

• BSc (Hons) in Applied Mathematics (Fort Hare University)• MSc Applied Mathematics (Rhodes University)• PhD in Mathematics (University of the Witwatersrand)• Postgraduate Diploma in Mathematical Finance (Oxford University)• Senior Management Programme (University of Pretoria)• Advanced Management Programme (Harvard Business School)• Serves on the Board of Entabeni Holdings

Mr Brian MolefeChief Executive Officer

• BCom (Unisa)• Postgraduate Diploma in Economics (University of London)• Master of Business Leadership (Unisa)• Advanced Management Programme (Harvard Business School)• Deputy Director-General: Asset and Liability Management, National Treasury 2000

to 2003• Serves on the Board of Telkom SA Limited• Chairman of the CBS Property Management Board

Ms Albertinah KekanaChief Operating Officer

• CA(SA)• Bachelor of Commerce (University of Cape Town)• Postgraduate Diploma in Accounting (University of Cape Town)• Advanced Management Programme (Harvard Business School)• Serves on the Investment Committee of the Eskom Pension and Provident Fund• Member of the Boards of Airports Company of South Africa, Advent Asset

Management, CBS Property Management, Community Property Company and Harith Fund Managers

Mr Nhlanhla Musa Nene, MPChairman of the PIC Board

• BCom (Hons) in Economics (University of the Western Cape)• Advanced Diploma in Economic Policy (University of the Western Cape)• Diploma in Marketing Management (DMS)• Co-Chairperson of the Joint Budget Committee from 2002 to 2005• Chairperson on the Portfolio Committee on Finance from 2005 to November 2008• Deputy Minister of Finance of the Republic of South Africa from November 2008• Chairman of the Directors’ Affairs Committee of the Board of PIC

9

Board of Directors

1 0

Board of Directors (continued)

Mr Athol Rhoda**Independent non-executive director

• Member of the PIC Board, the Audit and Risk Committee and the Investment Committee

• CA(SA)• Member of the South African Institute of Chartered Accountants (SAICA)• Presently runs a consultancy practice• Previously worked in the Anglo American group of companies, including as

Executive Head of Finance and Strategy, Anglo Gold South Africa Operations

Mr Veli NtombelaIndependent non-executive director

• Member of the PIC Board, the Investment Committee and the Audit and Risk Committee

• BA (Law), LLB, LLM (Tax Law), HDip Tax Law• Tax Specialist and Director in charge of SizweNtsaluba VSP Taxation Services• Previously worked for Ebony Financial Services (Pty) Limited, Arthur Andersen and

Ernst & Young

Ms Ntombifuthi Mtoba*Independent non-executive director

• Member of the PIC Board and Chairman of the Investment Committee• CA(SA)• BA Econ (Hons) and BCompt (Hons) (Unisa)• Higher Diploma in Banking Law (RAU)• Chairman of Deloitte Southern Africa• Member of the SARB’s Standing Committee for the Revision of the Banks Act• Trustee of the Women Development Bank• Chairman of the Council of the University of Pretoria• Recipient of the Business Woman of the Year Award 2004 of the Nedbank Business

Women’s Association• Recipient of the 2005 International Woman of the Year Award of the Organisation of

Women in Trade, United States• Member of the Board of the United Nations Global Compact

Ms Moira MosesIndependent non-executive director

• Member of the PIC Board, the Audit and Risk Committee and the Human Resources and Remuneration Committee

• BA • Management Advancement Programme (Wits Business School)• CEO Transnet Capital Projects• Trustee of GEPF• Board member of the Thusanang Trust

* Resigned in October 2009** Resigned subsequent to 31 March 2010

Mr Jan StrydomIndependent non-executive director

• Member of the PIC Board, Chairman of the Investment Committee, member of the Human Resources and Remuneration Committee and the Directors’ Affairs Committee

• CA(SA)• BCom (Acc), MCom (Acc)• Founder member of Strydoms Inc, Chartered Accountants, a firm specialising in

business valuations and litigation support• Member of the Board, Audit Committee and Risk Management Committee of

MTN Group Limited• Member of the Board, BEE Committee and Audit Committee and Chairman of the

Risk Management Committee of GrowthPoint Properties Limited• Senior Member of the Special Income Tax Court for Taxation Appeals

1 1

Mr Ignatius SehooleIndependent non-executive director

• Member of the PIC Board, Chairman of the Audit and Risk Committee and member of the Human Resources and Remuneration Committee and the Directors’ Affairs Committee

• CA(SA)• Executive President of the South African Institute of Chartered Accountants

(resigned during July 2009)• Chairman of the Developing Nations Committee of the International Federation of

Accountants (IFAC)• Board Member of the Global Accounting Alliance (GAA) (resigned during July 2009)• Committee Member of the King Committee on Corporate Governance

(resigned during July 2009)• Chairman of the Audit Committee for the National Treasury• Serves on the Accounting Standards Board (ASB)• Member of the Standing Advisory Committee on Company Law• Trustee Member of the Thuthuka Project, SAICA (resigned during July 2009)• Board Member of Harith and member of its Human Resources and

Remuneration Committee

Mr Zakhele SitholeIndependent non-executive director

• Member of the PIC Board, Chairman of the Human Resources and Remuneration Committee and member of the Audit and Risk Committee and the Directors’ Affairs Committee

• CA(SA)• BCom Accounting (University of Zululand)• B Accountancy (University of the Witwatersrand)• HDip Tax Law (University of the Witwatersrand)• HDip Company Law (University of the Witwatersrand)• Member of the Public Accountants and Auditors Board• Member of the Board of Governors of the University of Zululand• Member of the Board and Chairman of the Audit Committee of South African Airways• Member of the Board and Chairman of the Audit Committee of Allied Technologies

Limited • Member of the Board and Chairman of the Board of Command Holdings Limited• Audit Committee member of EDI Holdings

1 2

Mr Younaid WajaIndependent non-executive director


• CA(SA)• BCom, BCompt (Hons) and HDip Tax Law • Practising Tax and Business Consultant• Member of the Board, Audit Committee and Procurement Committee of

Pareto Limited• Member of the Board, Audit Committee and Risk Committee of

Imperial Holdings Limited• Member of the Board and Audit Committee of Blue IQ Investment Holdings (Pty)

Limited• Member of the Board and Audit Committee of Supplier Park Development

Company (Pty) Limited• Trustee of the Diabo (Telkom Employees’ Share) Trust • Black Business Council founding member and former vice-president of the Association

for the Advancement of Black Accountants in Southern Africa (ABASA)• Former member of the Income Tax Special Court• Former Director of Finance of the South African Tennis Association

Board of Directors (continued)

General (Retired) Siphiwe Nyanda*Independent non-executive director


• Bachelor of Arts, majoring in Economics and Public Administration (Unisa)• Postgraduate Diploma in Economic Principles (University of London)• MSc Financial Management (University of London)• Civil Service Programme (Civil Service College (UK))• Senior Command and Staff Duties (SA Army College)• Joint Staff Course (SA Defence College)• Member of the National Executive Committee of the ANC from 1991 to 1994 and

since December 2007• Chief of Staff, Umkhonto we Sizwe from 1992 to 1994• Chief of Staff, South African National Defence Force (SANDF) from 1994 to 1997• Deputy Chief, SANDF in 1997 and 1998• Chief of the SANDF from 1998 to 2005

* Resigned in May 2009

1 3

Ms Claire BusettiGeneral Manager: Isibaya Fund

• BSc Chemistry (University of Natal)• MBA (University of the Witwatersrand)• Previously Chairman of Time Mining Holdings (Pty) Limited and a director

of BW Investments• Serves as a judge for Ernst & Young’s South African Entrepreneur of the Year Award

Mr Brian MolefeChief Executive Officer

• BCom (Unisa)• Postgraduate Diploma in Economics (University of London)• Master of Business Leadership (Unisa)• Advanced Management Programme (Harvard Business School)• Deputy Director-General: Asset and Liability Management,

National Treasury 2000 to 2003• Serves on the Board of Telkom SA Limited• Chairman of the CBS Property Management Board

Executive Committee

Ms Albertinah KekanaChief Operating Officer

• CA(SA)• Bachelor of Commerce (University of Cape Town)• Postgraduate Diploma in Accounting (University of Cape Town)• Advanced Management Programme (Harvard Business School)• Serves on the Investment Committee of the Eskom Pension and Provident Fund• Member of the Boards of Airports Company of South Africa, Advent Asset

Management, CBS Property Management, Community Property Company and Harith Fund Managers

Dr Daniel Mmushi MatjilaChief Investment Officer

• BSc (Hons) in Applied Mathematics (Fort Hare University)• MSc Applied Mathematics (Rhodes University)• PhD in Mathematics (University of the Witwatersrand)• Postgraduate Diploma in Mathematical Finance (Oxford University)• Senior Management Programme (University of Pretoria)• Advanced Management Programme (Harvard Business School)• Serves on the Board of Entabeni Holdings

Mrs Kameshni NaidooChief Financial Officer

• CA(SA)• Bachelor of Accountancy (University of KwaZulu-Natal)• Certificate in the Theory of Accounting Science (CTA) (University of KwaZulu-Natal)• Advanced Certificate in Auditing (University of Johannesburg)• Serves on the Board of Harith (alternate director) and is a member of its Audit Committee• Member of the South African Institute of Chartered Accountants

1 4

Mr Maqhawe Elias DlaminiGeneral Manager: Listed Equities

• Chartered Financial Analyst, South Africa• BSc (University of Swaziland)• MBA (University of the Witwatersrand)• Chief Investment Officer: Metal Industries Benefit Fund Administrators 2006 to 2009

Mr Leon SmitGeneral Manager: Fixed Income and Dealing

• BCom• Certificate in Treasury Management• RPE Qualification

Ms Petro DekkerGeneral Manager: Corporate Services

• BCom Accounting (University of Pretoria)• BCom (Hons) Business Management (Unisa)• Programme in Investment Analysis and Portfolio Management (Unisa)• Serves on the Board of CBS Property Management and Advent Asset Management

Mr Wayne van der VentGeneral Manager: Properties

• BA (Law) (University of Cape Town)• Chairperson, Build a Better Society• Trustee of Partners in Afterschool Care Projects• Member of the Boards of ACSA, Pareto, Community Property Company and Advent

Asset Management

Dr Enoch Zulu XabaGeneral Manager: Risk and Compliance

• BSc (Hons) Applied Mathematics (Fort Hare University)• MSc Applied Mathematics (Unisa)• PhD Applied Mathematics (University of California at Berkeley)• Executive Development Programme (Wits Business School)• Member of the Board of Trustees, Audit and Risk Committee and Investment

Committee of Eskom Pension and Provident Fund 2004 to 2010

Executive Committee (continued)

1 5

PIC’s objective is to invest certain funds received or held by, for or on behalf of the Government of South Africa and certain other bodies, councils, funds and accounts. This requires us to conduct our business in compliance with leading practices on how the Corporation should be governed. Issues such as transparency, accountability and business ethics are key to achieving our objective. We are proud of our reputation in the financial markets and need to ensure that PIC continues to be held in high esteem within the financial markets.

Corporate governance is used as the tool to direct and control PIC’s activities. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in PIC, such as the Board of Directors, managers, PIC’s clients and other stakeholders, and spells out the rules and procedures for making decisions on the Corporation’s affairs. The Board endorses the principles which have been adopted in the Code of Corporate Governance Practices and Conduct contained in the third King Report on Corporate Governance in South Africa (King III). The Board is satisfied that it has complied with the provisions of King III for the reporting period.

Complying with these provisions also provides the structure through which PIC’s objectives are set, as well as the means of attaining those objectives and monitoring performance.

The Board’s mandate is received from the shareholder, represented by the Minister of Finance. This mandate is to ensure that PIC is a world-class and responsible public entity by putting an executive team in place with certain targets to be achieved. The Board is accountable and ultimately responsible for all actions of the Board, Board committees and management, and for ensuring that PIC is run in accordance with the mandate described in PIC’s Memorandum and Articles of Association. The Board further ensures that the various stakeholder interests, such as those of the employees, the clients, the Government and the community in which the business operates, are balanced and receive the required attention.

The Board is structured in such a manner that the majority of its directors are independent, non-executive directors, which means that they are not involved in the

daily running of the Corporation. Whilst it is the Board as a whole which is the final authority, executive and non-executive directors are likely to contribute in different ways to its work and are accountable to the shareholder for creating and delivering value through the effective governance of the Corporation.

The Chairman of the Board is a non-executive director and the role of the Chairman is separate from that of the Chief Executive Officer. All directors are able to take independent professional advice in furtherance of their duties if necessary.

Two members of the Board resigned during the 2009/10 financial year. In May 2009, General (retired) Siphiwe Nyanda resigned as director from the Board following his appointment as Minister of Communications. In October 2009 Ms Ntombifuthi Mtoba also resigned as director following a change in the policies of her employer. These resignations did not in any way affect the continuity of the affairs of the Board, as can be seen in the Board meeting attendance record on page 17. After the end of the financial year Mr Athol Rhoda resigned for personal reasons.

Non-executive directors have two particularly important contributions to make to the governance process as a consequence of their independence from executive responsibility. Neither contribution is in conflict with the unitary nature of the Board. The first contribution is in reviewing the performance of the Board and of the executives. The second is in taking the lead where potential conflicts of interest in the boardroom arise.

The Board is fully committed to ensuring that the highest standards of corporate governance are observed throughout PIC and its subsidiaries so that the affairs of PIC are conducted with integrity and professionalism with the objective of safeguarding its clients’ investments and ultimately enhancing their value. The Board recognises that the specific interests of the executives and the wider interests of PIC may at times diverge. The independent, non-executive directors are then well placed to help resolve such situations.

The Board is responsible for overall strategy, acquisition and divestment policy, approval of major capital expenditure projects and consideration of significant financing matters. It monitors the exposure to key business risks and reviews the strategic direction of individual trading subsidiaries, their annual budgets, their progress towards achievement of those budgets and their capital expenditure programmes. As part of this process, the Chief Executive Officer and senior executives annually present their strategic plans to the Board for review and approval.

Corporate governance statement

The Board is fully committed to ensuring that the highest standards of corporate governance are observed throughout the PIC group.

1 6

The Board also considers employee issues and key appointments and ensures that, as part of succession planning, it familiarises itself with the executive team at meetings (both formal and informal). Considerable attention is given to leadership development throughout the Corporation in order to develop and retain a pool of talented individuals. All directors receive appropriate training on appointment and then subsequently as appropriate.

Skills, knowledge, experience and attributes of directorsThe Board considers that the non-executive directors and the executive directors together have the range of skills, knowledge and experience necessary to enable them to effectively govern the business. The non-executive directors contribute experience, understanding of the financial sectors in which PIC operates, knowledge of local and international capital markets and an understanding of the health, safety, environmental and community challenges that PIC faces. The executive directors bring additional perspectives to the Board’s work through a deep understanding of PIC’s business.

The profiles of the directors are presented on pages 9 to 12.

Board CharterThe Board is governed by a Charter that sets out the framework of accountability, responsibility and duty of the Board to the Corporation. The elements of the Board Charter are derived from various sources, including the Public Investment Corporation Act, 2004, the Public Finance Management Act, 1999, King III and the Companies Act, 1973. A corporate governance review of the Board Charter and the Terms of Reference of the different Board committees was conducted to ensure that all the provisions of the King II Report and newly published King Report on Governance for South Africa 2009 (King III) are adhered to.

The Board Charter, which is reviewed annually, provides for various responsibilities and/or duties of the Board. These include but are not limited to:• Having ultimate responsibility for regulatory

compliance;• Ensuring that PIC complies with all relevant laws,

regulations and codes of business practice, and ensuring that reporting by the Board is comprehensive;

• Setting appropriate policies and confirming that necessary processes are implemented to ensure the integrity of the internal controls and risk management of PIC;

• Reviewing PIC’s objectives and strategies and ensuring that procedures are in place for monitoring and evaluating the implementation of these strategies, policies and business plans for achieving those objectives;

• Annually reviewing and assessing achievement against objectives;

• Reviewing and monitoring the performance of the Chief Executive Officer and the executive team;

• Establishing the values of PIC in support of its mission, and establishing principles and standards of ethical business practice in support of such values;

• Reviewing and approving PIC’s annual business plan and budget;

• Reviewing, approving and reporting on PIC’s annual financial statements;

• Reviewing, monitoring and reporting on PIC’s integrated sustainability management;

• Reviewing Board and committee mandates at least annually and approving recommended changes;

• Ensuring that an adequate budget and planning process exists, that performance is measured against budgets and plans and that the annual budget is approved; and

• Considering and approving the annual financial statements, dividend announcements and notices to the shareholder, and considering and agreeing on the basis for assessing the going concern status of PIC.

Delegation of authority and effective controlThe Board retains effective control over the operations of PIC through a well-developed governance structure that comprises various Board committees. These committees regularly report to the Board in terms of their agreed mandates. Management performance is monitored through effective and regular reporting against Board-approved strategies and budgets.

A comprehensive Delegation of Authority framework is in place to ensure timeous and effective implementation of the Board’s strategy. The Delegation of Authority does not divest the Board of its responsibilities and is reviewed on an annual basis. The Board retains the prerogative to withdraw any given delegation of authority at any time.

Issues are openly debated at Board meetings and directors are free to question or challenge the opinions of others.

Corporate governance statement (continued)

1 7

Access to informationIn order to facilitate effective control, the information needs of the Board are assessed on a continual basis. Board members can request any further information they require from management.

The Board considers access to information as a cornerstone of good corporate governance and has unrestricted access, collectively and by individual directors, to all PIC information, records, documents and property to enable it to discharge its responsibilities. Non-executive directors have access to management and may meet separately with management without the attendance of executive directors. Prior to every scheduled Board meeting, the non-executive directors meet without the presence of management.

The provision made for access to information applies to the Board as a whole, as well as to the committees of the Board. All Board and committee mandates specify that members are entitled to take independent advice at the Corporation’s expense.

Board meetingsThe Board has a formal schedule of matters reserved to it and meets once a quarter, with additional meetings whenever deemed necessary. Where directors are unable to attend a meeting personally, video- and teleconference facilities are made available to include them in the proceedings and enable their participation in discussions. Eight Board meetings were held during the year, four of which were scheduled meetings in terms of the Board Charter. Details of individual attendance at Board meetings are set out alongside.

Directors are afforded the opportunity to provide inputs in the agenda and are provided with comprehensive Board documentation at least five days prior to each of the scheduled meetings to enable the Board to reach objective and well-informed decisions. The tabling of documents at Board meetings is done only on an exceptional basis.

The Board meets with management annually for two full days to debate and agree on proposed strategies and to consider long-term issues.

Issues are openly debated at Board meetings and directors are free to question or challenge the opinions of others. Both non-executive and executive directors commit to the collective decision-making processes of the Board.

The Company Secretary attends all Board meetings and ensures that accurate and adequate records are kept of the proceedings of Board meetings and decisions taken.

DirectorMeetingsattended

Attendancerecord

Mr N Nene, MP (Chairman) 8 8 out of 8

Mr Y Waja 7 7 out of 8

Mr V Ntombela 7 7 out of 8

Mr J Strydom 8 8 out of 8

Mr Z Sithole 8 8 out of 8

Mr I Sehoole 4 4 out of 8

Mr A Rhoda 7 7 out of 8

Ms M Moses 4 4 out of 8

Gen (retired) S Nyanda* 0 0 out of 1

Ms N Mtoba** 3 3 out of 4

Mr B Molefe 7 7 out of 7

Ms A Kekana 6 6 out of 7

Dr D Matjila 6 6 out of 7

* Gen Nyanda resigned during May 2009

** Ms Mtoba resigned during October 2009

Board effectivenessThe Board, through the Directors’ Affairs Committee, evaluated its performance and considered its effectiveness during the year. The evaluation process was overseen by KPMG, who submitted a positive evaluation report to the Board. The Board is committed to addressing areas of improvement as identified through the evaluation process.

Board sub-committeesThe Board has established and mandated a number of committees to which certain of its functions have been delegated. All these committees comprise a majority of independent, non-executive directors and are all chaired by an independent non-executive director.

The permanent committees of the Board are the:• Directors’ Affairs Committee• Audit and Risk Committee• Investment Committee• Human Resources and Remuneration Committee

Each committee operates under approved Terms of Reference. These mandates describe:• The extent of the committee’s powers;• The responsibilities and duties delegated to it;• Its membership;• Its role and function;• Procedures for reporting to the Board; and• Its authority to act.

At Board meetings, a summary of the decisions taken by each committee is submitted and the Chairman of each committee reports on the committee’s activities.

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Directors’ Affairs CommitteeThe Board has delegated to the Directors’ Affairs Committee (DAC) its responsibilities and role in respect of the composition of the Board and Board committees. Its purpose is to provide a focus on corporate governance that will enhance corporate performance and ensure on behalf of the Board that PIC’s corporate governance system is effective. The DAC has no decision-making powers except where expressly provided by the Board through the Delegation of Authority.

The DAC comprises four non-executive directors, with the majority being independent.

The DAC’s key Terms of Reference include the following:• Setting criteria for the nomination of directors and

committee members of the Board and subsidiaries and identifying, evaluating and recommending nominees for appointments;

• Identifying, evaluating and nominating directors and PIC employees to be appointed as PIC’s representatives on the Boards of Investee Companies;

• Considering corporate governance best practice;• Conducting an annual assessment of the performance

of the Board and reviewing the effectiveness of the Audit and Risk Committee; and

• Periodically reviewing the format and content of the Board and committee structures and mandates.

The DAC has a formal and transparent procedure in place for the recommendation of remuneration for non-executive directors. Non-executive directors are paid attendance allowances for Board and Board committee meetings that they attend, as well as a retainer fee. Directors’ fees are approved at the Annual General Meeting by the shareholder. The remuneration of each director for the financial year ended 31 March 2010 is disclosed on page 76.

MeetingsThe DAC held five meetings during the year. Directors’ attendance of these meetings is shown on the following table:


Attendancerecord

Mr N Nene (Chairman) 5 5 out of 5Mr I Sehoole 3 3 out of 5Mr Z Sithole 5 5 out of 5Mr J Strydom 5 5 out of 5

Audit and Risk CommitteePIC’s financial reporting and the adequacy and effectiveness of its system of internal control and risk management are overseen by the Audit and Risk Committee (ARC), which comprises six independent non-executive directors. PIC’s risk management processes are detailed in the enterprise wide risk management

framework and related policy and procedure documents. Fundamental to the management of risk, is the risk framework endorsed by the Board.

The Chairman of the Board may not be the Chairman of the ARC.

The majority of the members of the ARC are independent, all the members are financially literate and none of the members has any personal financial interest, conflicts of interests arising from cross-directorships or day-to-day involvement in the running of the Corporation. The Chief Executive Officer, external and internal auditors and relevant members of management are required to attend ARC meetings.

The ARC specifically oversees:• The integrity of the financial statements;• The appointment, qualifications, independence and

performance of the external auditors and the integrity of the audit process as a whole;

• The performance and leadership of the internal audit function;

• The effectiveness of the system of internal controls and risk management;

• Compliance with applicable legal and regulatory requirements;

• Reviews of accounting policies and proposed changes thereto;

• Reviews of reports on material defalcations; and• Compliance by management with constraints imposed

by the Board.

The ARC has access to all sources of information that it may require from within PIC. In addition, the committee or its individual members may, if they deem it necessary in the course of discharging their responsibilities, seek guidance and counsel from external experts at PIC’s cost. The ARC has authority to invite any person that it deems necessary in the discharge of its duties, including PIC employees/officers and external advisors, to attend the meetings.

Statement of material breakdownsDuring the period under review, nothing came to the attention of the ARC to suggest that any material breakdown had occurred in the functioning of PIC’s systems, procedures and controls which could lead to material losses, contingencies or uncertainties that would require disclosure in the financial statements.

MeetingsThe ARC meets on a quarterly basis and additional meetings are held as and when required. Each ARC meeting is held before the Board meeting to ensure that all critical issues highlighted are brought timeously to the attention of the directors.


1 9

The minutes of the ARC meetings are available to the Board as a whole as and when required.

The committee membership and attendance at the four meetings held during the financial year ended 31 March 2010 were as follows:


Attendancerecord

Mr I Sehoole (Chairman) 4 4 out of 4



Mr Z Sithole 3 3 out of 4



Investment CommitteeThe purpose of the Investment Committee (IC) is to assist the Board to discharge its statutory duties and its oversight responsibilities in relation to investment activities. This is achieved by monitoring the investment mandates, policy, strategy and strategy implementation of all investments managed by PIC.

The IC consists of six members, of whom four are independent non-executive directors and two are executive directors.

MeetingsThe Terms of Reference of the IC provide that the IC meets at least 10 times during the year with additional meetings at the discretion of the Chairman of the IC. During the period under review, the IC held 16 meetings, 10 of which were scheduled meetings in accordance with the Terms of Reference.

Attendance of IC meetings during the 2009/10 financial year is shown on the following table:


Attendancerecord

Ms N Mtoba (Chairman)* 8 8 out of 9

Mr J Strydom (Chairman)** 14 14 out of 16

Gen (retired) S Nyanda*** 1 1 out of 3




Mr B Molefe 11 11 out of 16

Dr D Matjila 11 11 out of 16

Ms A Kekana**** 9 9 out of 16

* Ms Mtoba resigned during October 2009** Mr Strydom was appointed as Chairman of the IC during

November 2009*** Gen Nyanda resigned during May 2009**** Alternate to Mr Molefe

Human Resources and Remuneration CommitteeThe Human Resources and Remuneration Committee (HR & Remco) comprises four independent non-executive directors.

The purpose of the HR & Remco is to:• Ensure a formal and transparent procedure for

developing policies on executive remuneration and performance, and recommending remuneration packages for executive directors;

• Consider policies regarding the conditions of employment, remuneration and benefits of PIC employees and all aspects related to these;

• Approve the policies and principles of the performance bonus scheme and criteria to be applied within the PIC, which is based on corporate and individual performance; and

• Ensure compliance with all relevant laws and regulations.

The executive directors are invited to HR & Remco meetings but do not participate in discussions about their own remuneration packages.

MeetingsHR & Remco held seven meetings during the year ended 31 March 2010, with attendance as follows:


Attendancerecord

Mr Z Sithole (Chairman) 7 7 out of 7

Mr I Sehoole 6 6 out of 7

Mr J Strydom 7 7 out of 7


Company SecretaryThe Company Secretary is responsible to the Board for ensuring that Board procedures are complied with and advising the Board on governance matters. All directors have access to the Company Secretary for advice and services. The Board appoints and removes the Company Secretary.

To enable her to fulfil her duties, the Company Secretary has been fully empowered by the Board and has complete access to people and resources to facilitate this.

Going concernThe Board considers the going concern concept in the context of its deliberations on the annual financial statements. The facts and assumptions underlying the Board’s assessment are documented. In accordance with the requirements of the Companies Act, the Board records its approval of the annual financial statements and its opinion on going concern aspects on pages 38 to 41 of the annual report.

2 0

Code of EthicsThe Board has adopted a Code of Ethics to promote proper standards of conduct and sound and prudent practices for PIC and its employees in dealing with stakeholders, including clients, suppliers and customers. PIC’s employees are committed to managing its affairs in an ethical and disciplined manner.

Fraud Prevention PolicyPIC has a formalised Fraud Prevention Policy to prevent and detect fraud and fraudulent activities and to protect the Corporation, and the assets under its management, from any form of dishonest or unethical conduct. The Fraud Prevention Policy outlines that PIC management and all employees should adopt the highest standards of honesty, propriety, personal integrity and accountability, and be fully attentive to misappropriations, irregular transactions and other unlawful conduct affecting PIC.

The Fraud Prevention Policy also sets out the fraud discovery reporting procedures and warns employees of the disciplinary action taken against fraudulent conduct. To promote the achievement of this, management has contracted with a “whistle blowing” company.

Anti-Money Laundering PolicyAnti-money laundering (AML) is a term mainly used in the financial and legal industries to describe the legal controls that financial institutions and other regulated entities must observe to prevent or report money laundering activities.

The Board has approved and adopted an Anti-Money Laundering Policy for PIC to ensure that PIC is not compromised by unlawful activities associated with money laundering and financing of transactions.

PIC employees are given regular updates on the latest changes in procedures and developments on money laundering. Part and parcel of this communication is training to promote the understanding of employees’ fundamental responsibility in adhering to the procedures for verifying customers and reporting suspicious transactions.

CompliancePIC’s Compliance Office oversees the adoption of governance and other best practices by PIC’s business units to ensure that the Corporation complies with all financial services and other relevant legislation. Whilst PIC management remains ultimately responsible for compliance with legislation, the Compliance Office is responsible for the implementation processes.

During the reporting period, the PIC’s Compliance Manual and compliance risk management plans were updated. A number of internal compliance reviews

were also conducted, with a view to assessing general compliance or PFMA compliance, or both, as the case may be.

All compliance officers are required to perform their duties with the level of due skill, care and diligence expected of a responsible and competent person operating within the compliance framework. The Compliance office is responsible for:• Drafting compliance policies;• Facilitating the implementation of compliance

processes using the compliance risk management methodology in line with international best practice;

• Monitoring and reviewing implemented compliance processes;

• Providing a central point of reference for advice and consultation on compliance-related issues;

• Facilitating compliance education and awareness programmes; and

• Establishing and enhancing a compliance culture throughout PIC.

The Board and the ARC oversaw PIC’s compliance with statutory and regulatory requirements throughout the year.

ConclusionPIC’s Board is alert to the changing nature of the governance landscape in the financial services sector and the fact that new governance requirements will come into effect in the coming financial year. The Board has familiarised itself with the implications of the amendments to the Companies Act and the Third King Report on Corporate Governance in South Africa (King III). As the body charged with overall responsibility for PIC governance, the Board is ensuring that the Corporation is fully prepared for these developments. The Board remains committed to being well informed and attentive in respect of all existing and future governance obligations.

Declaration by the Company SecretaryIn terms of section 268(G) of the Companies Act, 1973, as amended (the Companies Act), I hereby declare that, to the best of my knowledge and belief, the Public Investment Corporation Limited (PIC) has lodged with the Registrar of Companies, for the financial year ended 31 March 2010, all such returns as are required of a public company in terms of the Companies Act, and that all such returns are true and up to date.

WilhelminaJFLouwCompany Secretary


2 1

In the aftermath of the global economic crisis, it is to be expected that financial services providers will be ever more closely scrutinised for the depth and quality of their attention to risk and compliance matters. The Audit and Risk Committee (ARC), which oversees PIC’s financial reporting, internal control and risk management, is pleased to report that the Corporation’s already rigorous policies and procedures were further strengthened during the 2009/10 financial year.

As at 31 March 2010, the ARC consisted of six independent non-executive directors, namely:• Mr I Sehoole (ARC Chairman)• Mr Y Waja• Mr Z Sithole• Mr V Ntombela• Mr A Rhoda• Ms M Moses

Overview of activitiesThe ARC held four meetings in 2009/10 to fulfil its role of assisting the Board to meet its fiduciary responsibilities, with the emphasis on the integrity of financial reporting and the effectiveness of the compliance, risk management and internal audit functions.

Internal auditInternal Audit uses a risk-based approach to determine the annual audit plan and audits operational and Information Technology (IT) risk. For both, the main focus is on risk management, governance management and control. The ARC approved the audit plan for 2009/10 at the beginning of the financial year and also approved the annual revision of the Internal Audit Charter, which governs internal audit and especially its independence, objectivity and access to records.

The Internal Audit staff complement was increased from three to five members, reflecting the importance attached to the internal auditing function within PIC. In addition, a slight change was made in the reporting lines of internal audit. The division continued to report functionally to the ARC but now reports administratively to the Chief Executive Officer instead of the Chief Operating Officer. This ensures greater distance from the operations of PIC, which is in line with best practice in internal auditing.

Consolidation of risk and complianceWith effect from 1 April 2009, PIC consolidated its compliance and risk management functions into a single organisational unit, Risk and Compliance. Headed by the General Manager: Risk and Compliance, the consolidated unit has three main focus areas, namely compliance, operational risk management and financial risk management.

Compliance The Compliance office monitors PIC compliance with legislation and regulation, provides compliance training for staff and reports to the ARC at least once a quarter. During the year under review, the office reported that there were no material complaints by clients or any material breaches of legislation.

Some of the most important tasks that Compliance undertook were compliance reviews, staff training and the updating of the Compliance Manual and Compliance Risk Management Plans.

Five compliance reviews were conducted, focusing on PIC’s Finance department, Supply Chain Management, Listed Equities, Fixed Income and Investment Administration. The ARC accepted the review reports, noted the recommendations made and requested regular reports on the progress made in implementing these.

In terms of training, all PIC employees were required to attend training sessions on PIC’s Anti-Money Laundering rules, which are derived from the Financial Intelligence Centre Act (FICA), 2001, and the Personal Account Trading Policy, drawn from the Securities Services Act, 2004.

The Compliance Risk Management plans were reviewed and extended where necessary. By the end of the financial year, there were 10 such plans in place, one for each of the 10 key laws pertaining to PIC’s business. These pieces of legislation are:• Companies Act, 1973• Companies Act, 2008• Securities Services Act, 2004• Public Investment Corporation Act, 2004• Financial Advisory and Intermediary Services Act, 2002• Financial Intelligence Centre Act, 2001• Promotion of Access to Information Act, 2000• Public Finance Management Act, 1999• Occupational Health and Safety Act, 1993• Electronic Communications and Transactions Act,

2002.

The Compliance Manual, which is revised annually, was updated to reflect not only the standards of the Compliance Institute of South Africa but also those of advanced economies such as Australia and New Zealand.

Close attention was paid to ensuring the effectiveness of PIC’s internal controls and compliance and risk management processes in 2009/10.

Audit and Risk Committee report

2 2

A need was identified to raise awareness among PIC employees about the whistle blowing forum, hosted by an external service provider. To raise the profile of the service, the Compliance office joined forces with the Stakeholder Relations department to run an awareness campaign that uses various internal communications media.

RiskThrough the Risk and Compliance division, PIC continued to manage its top risks, broadly grouped into operational risk and financial risk. The section responsible for operational risk focused on performance and attribution, static data management and enterprise risk management (ERM), while the financial risk section concentrated on market risk and credit risk.

The annual enterprise risk assessment was conducted early in the financial year and the resulting report was presented to the ARC, which was satisfied with the enterprise wide risk (EWR) process and findings.

PFMA responsibilitiesThe ARC has complied with its responsibilities as stipulated in section 3.1 of the 15 March 2005 Treasury Regulation (Gazette no 27388) and section 77 of the PFMA, as amended. Furthermore, the ARC has regulated its affairs and discharged its responsibilities in accordance with its formal terms of reference.

With regard to the PFMA reports of the accounting officer, the ARC is satisfied with the content and quality of the reports prepared and issued during the year.

Evaluation of financial statementsThe annual financial statements of the PIC for 2009/10 have been audited and, in reviewing these, the ARC has:• Discussed the financial statements with the

Auditor-General and the accounting authority;• Reviewed the Auditor-General’s management letter

and management response;

• Confirmed that there were no changes in accounting policies and practices; and

• Confirmed that no adjustments resulted from the audit.

The ARC acknowledges the conclusions of the Auditor-General on the annual financial statements and is of the opinion that the statements be accepted and read together with the report of the Auditor-General.

Having evaluated the annual report for the year ended 31 March 2010, the ARC is of the opinion that the report complies in all material respects with the requirements of the PFMA and GAAP. The ARC concurs with the adoption of the going concern premise in framing the annual financial statements.

At its meeting on 21 July 2010, the ARC recommended the adoption of the annual financial statements by the PIC Board.

MrIgnatiusSehooleChairman – Audit and Risk Committee

PIC consolidated its

compliance and risk

management functions

into a single organisational

unit.

Audit and Risk Committee report (continued)

2 3

After experiencing the deepest recession in more than

six decades, the global economy showed signs of

gradual recovery, which began filtering through to

the investment environment, internationally and in

South Africa.

Global economyThe outlook in April 2009 was uncertain. The main

concern was that policies would be insufficient to offset

the impact of both the weakening economy and the

deteriorating financial conditions. That provoked fears

of a global depression which contributed to the drop in

global economic activity.

Along with the weakening global economy, inflationary

pressures continued to ease. Headline inflation in the

advanced economies fell below 0% while in emerging

economies it decelerated from 4,5% to 1,0% in

May 2009.

The US dollar continued to weaken against the euro from

1,32 in April to reach 1,50 in November on the back of

the uncertain economic outlook. Although by this time

there were signs of recovery, economic indicators in the

US were still not convincing, consequently impacting

on the currency. In the beginning of 2010 the euro area

experienced the sovereign credit crisis which led to flight

to quality and resulted in the US dollar strengthening

significantly against the euro.

Firms operated with large excess capacity and lending conditions remained tight. This led to continued job losses. The unemployment rate heightened to record levels, especially in the advanced economies. The US unemployment rate rose to a 26-year high of 9,7% in August and exceeded 10,0% by October. Although euro area unemployment rose to similar levels, the rate of increase was more moderate.

In light of the uncertain path of recovery, governments launched major fiscal stimulus programmes while supporting banks with capital injections and guarantees. Central banks also reacted with exceptionally large interest rate cuts and unconventional measures to sustain credit. The unprecedented macro-economic and financial support helped stabilise the economy and eliminated fears of a global depression.

From the monetary policy side, most central banks lowered policy rates to the lowest levels ever, with the Fed fund rate reaching 0,25% and euro repo at 1,00%. The amount of money injected into the economy from the fiscal side amounted to $1,13 trillion in 2009 and a further $970 billion in early 2010, totalling $2,10 trillion altogether.

Commodity prices rebounded ahead of the recovery, reflecting improved market sentiment. Brent crude oil price increased by 36,0% from $50,63 a barrel in April to $71,70 in July. Forward markets projected an increase in the oil price to $74,50 a barrel in 2010 amid expectations of high excess capacity to buffer growing demand.

By September the global economy began to gradually pull out of recession. Emerging and developing economies were further ahead on the road to recovery, led by resurgence in Asia. A rebound in manufacturing and a turn in the inventory cycle, coupled with signs of gradually stabilising retail sales, firmer housing markets and returning consumer confidence, led the recovery.

Economic and market review

PIC’s investment activities are informed by reliable intelligence on global and national economic and market trends.

Source: IMF WEO database April 2010

Annual % change in real GDP

2007 2008 2009

-6

-3

0

3

6

9

12

Developing AsiaAfricaCentral & Eastern EuropeEuro areaUSAWorld

5,2

-0,6

2,13

0,4

2,7

0,6

-2,4

-4,1

5,5

3

-3,7

6,35,5

2,1

10,6

7,96,6

%

Figure 1

2 4

With the exception of the euro area, most economies turned positive in the third quarter of 2009. For 2009 as a whole, economic growth was negative as depicted in figure 1, with the US economy averaging (2,4%), the euro area (4,1%) and Japan (5,2%).

Africa and Asian economies were resilient and recorded positive growth. Having recorded growth of 8,7% last year, the Chinese economy continued to lead the recovery in 2010, increasing by 11,1% in the first quarter. Rapid growth in emerging markets, large yield differentials and increased appetite for risk drove renewed capital flows in emerging markets. Financial flows from advanced to emerging markets picked up as both equity and bond flows accelerated.

In summary, the economic recession reached the trough of the cycle in March 2009, grew less negative in June and turned positive in September 2009 led by the resurgence in Asian economies. Consumer prices fell and even deflated in most of the advanced economies. Financial markets rebounded strongly in response to this macro-economic environment.

The domestic environmentAs global economic activity recovered, the South African economy was not left behind. Domestic economic indicators were in line with the global trend, where inflation gradually moderated while economic growth recovered. With monetary policy being accommodative mainly to support growth, the rand strengthened against major currencies and mainly against the US dollar.

The rebound in the domestic economy was also experienced in September, recording the first positive growth following three consecutive quarters of recession. Real GDP (measured over one quarter and seasonally adjusted) increased by 0,9% in the quarter ending September 2009 compared to (2,8%) recorded in the previous quarter. The positive growth was attributed

to both the secondary and tertiary sectors, which respectively increased by 7,0% ((6,9% previously) and 0,8% (1,7%). Manufacturing production led the way to recovery and continued to increase in the fourth quarter, taking economic growth to 3,2% on a quarterly basis. Technically the economy moved out of recession in December, as it recorded two consecutive quarters of positive growth. Nevertheless, on an annual basis the economy still averaged (1,8%) in 2009 from 3,6% in the previous year.

From the demand side, expenditure by general government as well as capital formation by public corporations held the fort. Both maintained positive growth rates which partially offset the slump in household consumption expenditure. The contraction in consumption expenditure bottomed in the second quarter and improved to (1,9%) quarter on quarter in the third quarter. Growth in exports and imports rebounded in the December quarter, mainly reflecting recovery in global activity.

Domestic inflation as measured by CPI trended downwards after remaining above 8,0% for an extended period. CPI fell from 8,4% in April 2009 to 5,8% in November and further to 5,1% in March 2010.

The deceleration in food prices from above 13,0% in April to below 4,0% in November has been the main driver behind falling inflation. Food inflation decelerated further to 0,5% in March 2010. The combination of falling inflation and slow economic recovery prompted the Monetary Policy Committee (MPC) to continue with the accommodative policy. The easing cycle continued and the repo rate was cut from 9,5% in March and paused at 7,0% in August. In March 2010, the MPC cut the repo rate by a further 50 basis points to 6,5%.

There were renewed capital flows to emerging markets due to the uncertain direction of the US economy. This helped the rand to strengthen from R7,70/$ in June to R7,40/$ in December. In addition, the current account deficit improved to 2,8% of GDP in the December quarter. The rand continued to strengthen to R7,28/$ by the end of the financial year.

In line with the global trend, high frequency indicators suggest that the South African economy is on the road to recovery.

Economic and market review (continued)

By September, the global

economy began to pull

out of recession; however,

recovery was expected to

be sluggish and uneven.

2 5

Investment implicationsAs economic activity showed signs of recovery, confidence improved and investors moved back into equities from the money market and bonds. Following a negative return in the last financial year, equities rebounded strongly. Returns on the all-share index recorded 44,1% in March 2010, quite a comeback compared to the (28,1%) recorded last year and outperforming all asset classes. With inflation and monetary policy easing, inflation-linked bonds and cash delivered moderate returns.

The returns of different asset classes are depicted in figure 2. The outperformance in equities is attributed to an expectation of an economic recovery. This asset class returned more than 40%. Conventional bonds returned 9,0%, followed by the money market at 8,1% and inflation-linked bonds at 5,1%.

OutlookGlobal outlookExtraordinary policy intervention laid the foundation for recovery, thereby eliminating the risk of a second great depression. Given the severity of the recession, the strength of the rebound has been moderate in many economies but overall global recovery has turned out better than expected. Most of the economies are technically out of recession (two consecutive quarters of positive growth) and the IMF projects that the world economy will expand by 4,2% in 2010. In key emerging Asian economies, output already exceeds pre-crisis levels by a wide margin. Activity will recover at varying speeds, solidly in emerging markets and tepidly in advanced

economies. The commodity rebound ended the deflation era in some of the advanced economies. Inflation is now trending upwards but will remain at low levels in 2010 due to excess capacity. Unemployment has moderated although it will be a major constraint to consumption expenditure. The monetary policy stance will remain flat with tightening expected in early 2011.

Domestic outlookIn line with the global trend, high frequency indicators suggest that the South African economy is on the road to recovery. The expansion in the fourth quarter of 2009 formally took the economy out of recession and projections are that the first quarter of 2010 will also show strong performance. Growth will be mainly supported by government expenditure as well as inventory restocking; consumption expenditure is expected to start picking up in the second half of the year. Real GDP is forecast to average 2,7% in 2010.

Food prices have decelerated to 0,5% and are expected to remain at low levels for the foreseeable future. The current level of the rand is also helping inflation stay at moderate levels. Inflation (CPI) will continue falling and may bottom at 4,5% in the third quarter of 2010. With low inflation, the Monetary Policy Committee is expected to leave the repo rate unchanged for the remainder of the year.

Equities are likely to outperform given that the economy is recovering. Returns on inflation-linked bonds and cash will be lower due to the low-inflation environment, as well as flat monetary policy. Conventional bonds return will be capped by the expected supply of bonds.

Source: INet-Bridge, PIC estimates

Benchmark returns

0

15

30

45

SteFiInflation-linkedAll BondFull SwixSwix 40All share

44,140,7

43,2

9,0

5,18,1

March 2010

%

Figure 2

2 6

With the economy in recession for much of the year, investment conditions were challenging. PIC’s main investment priorities were to increase the value of assets under management and produce acceptable investment returns while also working with clients to alleviate some of the socio-economic strain associated with the aftermath of economic recession.

Socio-economic impact of investmentsIn an effort to help curb job losses, the Unemployment Insurance Fund (UIF) established a R2 billion loan to create and sustain jobs in response to recession. The funds are being managed by the Industrial Development Corporation (IDC). PIC assisted in the structuring and finalising of the loan.

PIC, on behalf of a number of other clients, including the GEPF, was the holder of various other social impact bonds, including bonds used to fund power and roads infrastructure, during the year. The total value of social bonds held during 2009/10 amounted to R86,3 billion.

A number of investments in other asset classes also had a socio-economic impact. The GEPF, through the Isibaya Fund, made major investments in areas such as low-cost housing, education and entrepreneurial development, and made preparations to intensify its focus on developmental investment in the coming financial year.

Listed Equities, which mostly invests on behalf of the GEPF, has established an incubation fund to build the skills of upcoming black economic empowerment asset managers. Two BEE managers were awarded equity mandates during the 2009/10 financial year. The intention is to appoint two new incubation managers annually.

Formally measuring the social impact of investments is an integral part of PIC’s responsible investment (RI) practice. The Isibaya Fund, which operates in the unlisted space, is a unique asset class that uses developmental investments for job creation, poverty alleviation and economic empowerment. In the listed environment PIC is assessing the performance of top listed companies in disclosing their environmental, social and governance performance.

Portfolio performance review 2009/10The fair value of assets under management as at 31 March 2010 totalled R910,9 billion, compared to R739,7 billion as at 31 March 2009.

These assets were managed in four main asset classes, namely listed equities, fixed income investments, properties and the unlisted social responsible investments.

The following is a review of key client portfolios and the performance of PIC’s four investment divisions during the 2009/10 financial year.

Performance of key client portfoliosPIC’s top four clients are the Government Employees Pension Fund (GEPF), the Unemployment Insurance Fund (UIF), the Compensation Commissioner Fund (CC) and the Compensation Commissioner Pension Fund (CC:PF). Together, these four clients account for 97% of the assets under PIC management.

GEPFGEPF is Africa’s largest pension fund and manages pensions and other benefits for government employees in South Africa. Owing to the long-term nature of GEPF’s liabilities and the size of funds under management, its investment strategy focuses on diversification and long-term investment time horizons.

The GEPF portfolio underperformed its benchmark by a margin of negative 3,08%. The main contributor to this underperformance was listed equities, which delivered a composite return of negative 2,55%. This was largely due to the transitional stage of restructuring of the equities portfolio, as discussed in more detail on page 28.

The capital market component outperformed its benchmarks, with conventional bonds exceeding the benchmark by 0,61% and inflation-linked bonds by 1,43%. Cash and money markets outperformed the benchmark by 1,00%.

The properties portfolio produced a negative return of 2,93% relative to the Investment Property Databank (IPD) all properties total return. The underperformance is due to the conservative cap rate used relative to IPD, as well as the concentration of high-grade properties in the GEPF portfolio, which does not reflect the mix in the IPD composition.

The Isibaya Fund returned negative 39,45% relative to the benchmark return of 12,60 which is the 10-year bond plus 500 basis points, mainly due to huge concentration in the Information and Communication Technologies (ICT) sector. However the fund has delivered an internal rate of return (IRR) of 25%.

Unemployment Insurance Fund (UIF), Compensation Commissioner Pension Fund (CC:PF) and Compensation Commissioner Fund (CC)As social security funds, these clients have investment mandates that allow for very limited risk and are more focused on short-term liquidity and capital preservation.

Investment performance

Although investment conditions remained uncertain, PIC was able to achieve solid growth in the value of assets managed for clients.

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Overall, all three client portfolios outperformed the benchmarks set for the year ended 31 March 2010. The asset allocation of these funds are distributed among conventional bonds, inflation-linked bonds, money markets and capital-protected equities.

Unemployment Insurance FundThe Fund’s assets grew by 20,85% for the 12 months to 31 March 2010 and the portfolio outperformed its benchmark by 0,98%. With the exception of inflation-linked bonds, all asset classes contributed positively to the outperformance of the portfolio. Conventional bonds returned 0,77%, while inflation-linked bonds returned negative 1,71% relative to its benchmarks. Hedged equities outperformed the short-term fixed interest (STeFI) benchmark by 13,92%, while money markets outperformed the benchmark by 0,91%.

Compensation Commissioner Pension FundThe Fund’s assets declined by 4,72% for the year ending 31 March 2010. The portfolio outperformed its overall benchmark by 0,92% and all asset classes outperformed the benchmarks set. Conventional bonds returned 0,59% against the benchmark and inflation-linked bonds delivered 1,41%. Hedged equities outperformed the STeFI benchmark by 11,10%. Relative to its benchmark, money markets delivered a return of 0,77%.

Compensation Commissioner FundFor the 12-month period, the Fund’s assets grew by 41,48% and the portfolio outperformed its total benchmark by 0,68%. All assets contributed positively to the outperformance of the portfolio with the exception of inflation-linked bonds, which returned negative 1,71% against its benchmark. Conventional bonds outperformed the benchmark by 0,77%. Money markets delivered a return of 0,91% against the benchmark, while hedged equities outperformed the benchmark by 13,92%.

Asset classesFixed incomeAlthough not as buoyant as in the prior period, the capital and money markets had another good year in 2009/10. In the South African bond market, the overall return for the year as measured by the All-Bonds Index (ALBI) was 9,02% compared to 13,10% in the previous year. The money market returned 8,15% against last year’s 11,75%, according to the Alexander Forbes short-term fixed interest (STeFI) index.

For the third consecutive year, PIC’s fixed income and dealing division outperformed benchmarks for conventional bonds on all the portfolios that they manage.

Fixed income trends in 2009/10The start of the financial year coincided with the first signs of world economic recovery and, as confidence slowly returned, investors began to move back into equities. Nevertheless, bonds and the money market

continued to be seen as offering relatively good value, especially considering the lingering uncertainties over the depth of the recovery.

In South Africa, recessionary fears spurred a series of rate cuts, with the repo rate starting at 9,50% in April 2009 and falling to 6,50% by the end of March 2010. However, rather than following a clear trading trend, the bond market showed considerable volatility, albeit in a narrow band. This is best illustrated by the movements of the benchmark bond, the R157 (maturity 15 September 2015). This bond started the year at a level of 8,18%, but in early July 2009 it reached a high of 8,80%, only to trade down to the 8,00% level in mid-September 2009. From there, the R157 weakened for the remainder of the 2009 calendar year, again reaching the same levels as in early July. From the beginning of the new calendar year until 31 March 2010, the R157 strengthened from 8,60% to just below 8%. The bond rally was driven mainly by the repo rate cut on the back of lower inflation expectations.

Another major factor in the domestic capital market was the significant increase in issuances, mainly by government and parastatals for infrastructure spending. The additional supply of bonds was well taken up, especially by foreigners benefiting from high interest rates differentials, in that they could borrow at home at low rates and invest in South Africa at higher rates (the carry trade).

As a result of the continued issuances of longer dated bonds, the bond yield curve continued to normalise. This was evidenced by the spread between the 2015 (R157) bond and the 2026 (R186). The differential between them started at 50 basis points at the beginning of the year and closed with the shorter dated bond trading 85 basis points lower than the longer bond.

In the money market, the three-month rate started the year trading above the 12-month rate but ended 2009/10 trading below it by around 80 basis points. More specifically, the three-month rate started at 8,80% and ended at 6,67%. In contrast, the 12-month rate started at 8,35% and ended at 7,48%. In the declining interest rate environment, the normalisation of the curve gave investors good opportunities to invest in longer-term rates.

Additional highlights in the period under review:As at 31 March 2010, the fixed income team was managing assets valued at R410 billion, compared to R408 billion in the prior period.

PIC is optimistic about the trading opportunities in the capital and money markets.

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Furthermore, the division successfully implemented its new portfolio management and dealing system. After evaluating several systems, the Charles River Investment Management System was selected for its flexibility, user-friendliness and compatibility with existing PIC systems such as HiPort, the main accounting system. In-house implementation commenced on 1 June 2009 and was completed on budget and ahead of schedule. The solution went live on 7 October 2009 and is rapidly proving itself as an effective tool in positioning PIC as the leading asset manager in Africa.

In another highlight of the year, PIC’s fixed income division won a JSE Spire Award as the Best Asset Management Trading Team of 2009.

ConclusionEquipped with the requisite fixed income skills and investment tools, PIC is well positioned for the coming year and optimistic about the trading opportunities in the capital and money markets. Aside from market developments such as the increase in bond issuances, changes are also expected in the trading technology used by the JSE/BESA. Such changes are expected to add value to players in the marketplace by enabling greater trading transparency than the current trading system.

Listed equitiesDriven by renewed investor confidence on the back of rescue packages and increased liquidity into the markets, equities underwent a dramatic recovery in 2009/10. The SWIX benchmark grew 44,03% in a broad-based market upsurge that saw financials climb 55%, industrials 47% and resources 41%.

The value of listed equities under PIC management came to R437 billion as at 31 March 2010, up from the previous year’s R270 billion. The change was due to market movements as well as a strategic buying up of equities over the period. The equities portfolio performance for the period was 40,3%. Consequently, the composite equities portfolio underperformed the SWIX benchmark by 2,55%.

The underperformance came from the internally managed component of the portfolio, which missed the benchmark by (3,41%). This can be ascribed to the fact that the fund is in a transitional phase of restructuring. The transition fund consists of a strategic fund and the residual from the allocation to external fund managers, both of which are now being brought together into a single internal fund, a benchmark tracker fund.

On the other hand, the externally managed equities achieved growth of 44,43%, meaning this component of the portfolio outperformed the benchmark by 28 basis points. This demonstrates the value already being added through the external equity fund structure that was introduced on 1 April 2009.

The implementation of the external fund structure during the year has been an important element in carrying out the equities mandate of the GEPF, which owns 96% of the equities under PIC management. Another key element of the equities mandate is encouraging Environmental, Social and Governance (ESG) disclosure on the part of listed companies in which PIC invests on behalf of the GEPF and other clients.

Promoting ESG disclosureIn the previous financial year, PIC collaborated with the University of Stellenbosch’s Unit for Corporate Governance in Africa in developing a matrix mechanism to measure the governance performance of listed companies in which PIC is invested. This partnership took the matrix a considerable step forward in 2009/10 by aligning it with the King III report on corporate governance and the Companies Act of 2008. Thus, where the matrix originally focused mainly on governance issues, it now has a much better ESG balance. The environmental indicators alone have been increased from five to 27, accounting for almost a third of the matrix’s 92 measures.

PIC has already used the matrix to rate the ESG disclosure practices of the top 40 companies listed on the JSE and aims to extend this to at least the top 100 companies. In the mean time, as a signatory to the United Nations Principles for Responsible Investment (UNPRI), the Corporation has also been promoting the PRI within the South African investment industry and collaborating with various industry players to enhance implementation of the PRI. In this regard, during the year under review, PIC:• Was a key player in the South African network of the

UNPRI, which is chaired by the Head: Investments and Actuarial of the GEPF;

• In collaboration with several external fund managers, helped establish the Association of Savings and Investments South Africa (ASISA), which has a Responsible Investment sub-committee; and

Investment performance (continued)

PIC is assessing the

performance of top listed

companies in disclosing

their environmental,

social and governance

performance.

2 9

• Participated in drafting the Code for Responsible Investments in South Africa (CRISA) of the Institute of Directors.

In addition, PIC continued to attend and vote at the Annual General Meetings of investee companies, and to publish its voting record on the Corporation’s website. The main issues that PIC monitored during 2009/10 were board independence, attendance of board meetings, excessive remuneration, retrospective approval of board fees, blank authority to keep shares under direct control and blank authority to issue shares for cash. In future, social and environmental performance will also be more closely scrutinised.

PropertiesAs is to be expected, the property market’s recovery has lagged that of other asset classes, accounting for the generally flat performance of the industry in 2009/10. Nevertheless, certain positive trends started to take shape during the year under review, from which the PIC properties portfolio is well positioned to benefit.

One of the most significant of these trends is the expected impact of infrastructure development, especially improved roadways and airports and the advent of the Gautrain. Quite a number of PIC properties in Sandton and Pretoria are well located to use the new infrastructure that has been put in place. PIC (on behalf of the Government Employees Pension Fund), as an investor in the Airports Company of South Africa (ACSA), is also poised to benefit from the completion of ACSA’s R22 billion capital expenditure programme. Completed during 2009/10, this programme has already increased the value of GEPF’s shareholding in ACSA. Further value is expected to be added to this investment as a result of better operating efficiencies at the upgraded airports.Similarly, through its involvement in the Community Property Fund, PIC has become one of the first fund managers to participate in the development of township retail centres with intermodal transport facilities. A prime example is Bridge City shopping mall outside KwaMashu in KwaZulu-Natal, which was opened in October 2009 and is leading the way in linking public transport with retail facilities, overcoming the transport problems traditionally faced by South Africans living in townships.

All these developments will have a positive effect on the value of the portfolio and the take-up of space in GEPF buildings managed by PIC. Thus, although 2009/10 was a lacklustre year marked by the effects of the recent global meltdown, its upside was the opportunities available to prepare for future growth.

Value of the portfolioAs at 31 March 2010, the market value of the portfolio was R26,9 billion, against R23,4 billion in March 2009, an increase of 15%. This was based on valuations conducted in March 2010 by independent valuers, and approved by the PIC Board.

The table below shows the growth in value of all three categories of properties in the portfolio, namely directly held, indirectly held (unlisted) and listed properties.

March2010R’million

March 2009R’million

Listed 10276 8 435

Directly held 6785 5 552

Indirectly held 9957 9 043

Totalvalue 26918 23 374

The Properties portfolio accounted for 3,35% of GEPF assets under management as at 31 March 2010, compared to 3,54% in March 2009.

The growth in the value of the portfolio can be ascribed to the increase in the value of the ACSA investment and acquisitions by the Community Property Fund, as follows:• GEPF’s 20% shareholding in ACSA increased from

R1,6 billion in March 2009 to R1,8 billion at 31 March 2010. The growth in value of this asset follows the completion of ACSA’s R22 billion capital programme, which entailed the construction of the new King Shaka Airport in Durban, the renovation of Cape Town International Airport and OR Tambo International, and the upgrading of all ACSA’s regional airports.

• The Community Property Company, which is 60% owned by the GEPF, and managed by PIC’s subsidiary Advent Asset Management, acquired Bridge City shopping mall, a new 40 000m² shopping centre outside KwaMashu near Durban. This R740 million development has two levels with 150 retail and commercial outlets and is directly linked to the city of Durban by rail and taxi. Bridge City, which has its own train station, was more than 80% occupied when it opened its doors to the public at the end of October 2009.

Portfolio performance in 2009/10DirectlyheldpropertiesThis component of the PIC portfolio consists of properties in which PIC’s main client, the GEPF, holds the title deeds. The directly held portfolio focuses on high-quality office and industrial properties. The office component represents 68% of the directly held portfolio and consists mainly of Premium grade and A grade offices.

As at 31 March 2010, the portfolio was valued at R6,8 billion, compared to R5,6 billion in March 2009 as depicted in figure 3.

The Properties portfolio has assembled the right assets for good performance in the long term.

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The table below shows the capital and income returns of the portfolio in comparison with the returns recorded by the market benchmark, the Investment Property Databank (IPD).

ReturnPICdirectly

held IPD

Capital return (%) (8,9) 0,3

Income return (%) 9,8 8,4

Total return 0,1 8,7

IndirectlyheldpropertiesThis portfolio consists of investments in ACSA, Pareto Limited, CBS Property Management and the Community Property Fund.

During 2009/10, the value of indirectly held properties increased by 9,1%, rising from R9,04 billion at the end of March 2009 to R9,86 billion at 31 March 2010 as depicted on figure 4.

The portfolio delivered a return of 5,4% against the benchmark of 10,1% (CPI + 5%).

ListedpropertiesThis component consists of investments in property investment companies listed on the JSE, including SA Corporate and GrowthPoint.

As at 31 March 2010, the listed portfolio was valued at R10,3 billion, compared to R8,4 billion at the end of March 2009 as depicted in figure 5.

Overall, these investments underperformed the J253T listed property benchmark, due to the overweight position in funds such as SA Corporate and GrowthPoint, which had a difficult year. The PIC portfolio produced a total return of 22,4% in 2009/10, against the benchmark return of 27,1%.

ConclusionIn the past five years, the properties portfolio has grown significantly in size, quality and geographical diversity. Through well-considered acquisitions in the best locations, the portfolio has assembled the right assets to position the fund for good performance in the long term. In gearing up for this, PIC is preparing to consolidate its property management capabilities. The intention is to bring the three separate entities that currently manage the property investments, namely PIC Properties, Advent Asset Management and CBS Property Management, under one set of governance arrangements. This consolidation, due to take place in the next financial year, is aimed at strengthening governance, improving service delivery and using resources optimally, with the ultimate aim of adding sustainable value to clients and ensuring that investment returns meet or exceed client mandates.


Directly held property portfolio (including developments) property value March 2010

0

2

4

6

8

Mar-10Mar-09Mar-08Mar-07Mar-06

1,391,96

3,03

5,606,79

Billi

ons

Indirectly-held property portfolio property value March 2010

0

2

4

6

8

10

12


4,044,64

7,70

9,049,86

Billi

ons

Figure 3

Figure 4

3 1

Isibaya FundDuring the year the unlisted Isibaya Fund portfolio was substantially reduced due to the unwinding of the MTN, Telkom and Vodacom investments enabling the Fund to begin rebuilding and restructuring the portfolio to focus more strongly on developmental investments. This is in line with the investment mandate of the Government Employees Pension Fund (GEPF), whose Board has directed the Isibaya Fund to play a defining role in supporting the national development agenda.

Therefore in accordance with the updated Isibaya Fund strategy, which the PIC Board approved in February 2010, the portfolio is being rebuilt to focus on investments with measurable social and developmental impact. This approach demonstrates the commitment of both the GEPF and PIC to their obligations as signatories to the United Nations Principles for Responsible Investment (UNPRI).

Hence the Isibaya Fund has been restructured to explicitly address GEPF’s developmental investment strategy by focusing on four main investment themes:• Economicinfrastructure, including infrastructure for

energy, logistics, water, broadband and commuter transport;

• Socialinfrastructure, focusing on health, education, housing and development finance;

• Economicgrowth investments in sectors that foster growth, job creation and broad-based black economic empowerment particularly in those priority sectors identified by government’s Industrial Policy Action Plan (IPAP), including agriculture, agro-processing, alternative energy and environmental projects; and

• Dinamane, which focuses on microfinance and investment in small, medium and micro enterprises (SMMEs).

For all four themes, the Isibaya Fund will maintain a balance between socially responsible investment impact and financial returns. The Fund has therefore developed an ESG framework for measuring the impact of Isibaya’s unlisted investments in terms of job creation, job retention, poverty alleviation, BBBEE transformation and regional upliftment.

Refocused strategy supports socially responsible investmentsAlthough the Isibaya Fund’s updated investment strategy was approved late in the financial year, the developmental focus was already evident in the types of investment financing proposals being approved, examples being:• The R718 million loan to Batho Bonke Capital (Pty)

Limited, enabling black staff and customers of ABSA to acquire 5% of the bank;

• A five-year, R20 million revolving credit facility provided to Women’s Development Business for microloans for rural black women entrepreneurs;

• A five-year, R130 million loan to Eduloan to provide tertiary education finance to individuals who do not qualify for finance through the formal banking sector or the National Student Financial Aid Scheme;

• A R450 million refinancing programme for the Bakwena Platinum Corridor Toll Road, which has a 30-year toll road concession contract with the South African National Roads Agency;

Listed property portfolio property value March 2010

0

2

4

6

8

10

12


0,541,92

7,878,44

10,28

Billi

ons

Figure 5

The MTN transaction

enabled more than 3 200

MTN employees to become

significant shareholders

in their company whilst

earning GEPF a R14 billion

profit.

3 2

• A R48 million, five-year term facility for Spartan Technology Rentals, to be used as rental finance for up to 500 SMMEs wishing to acquire IT hardware and software; and

• A R317 million loan to the Trust for Urban Housing Finance, which provides affordable housing to low-income earners.

Post year-end the Board of the PIC approved a R1 billion investment in Old Mutual’s Housing Impact Fund which will provide development finance for the low-cost affordable housing gap market, where families who do not qualify for housing subsidies struggle to purchase houses or apartments.

Consequently a total of eight developmental investment transactions worth R2,8 billion have been approved by the PIC over the last 14 months.

Highlights of Isibaya Fund’s portfolio performance for 2009/10To date the Isibaya Fund has returned an IRR of 25%, which means it has outperformed its benchmark return (10-year bond plus 500bp) by more than 11% per annum.

MTNIn 2002 the PIC initially invested R2,1 billion to fund MTN’s Broad Based BEE employee share scheme. Over time a further R8,8 billion worth of loans was also provided to enhance the structure. Collectively these monies facilitated more than 3 200 BEE MTN employees becoming MTN shareholders and when the transaction was finally unwound resulted in an IRR of 33% and a cash profit of just over R14 billion for GEPF.

TelkomIn 2004 the PIC provided R6,6 billion to fund the Elephant Consortium’s participation in Telkom’s BEE transaction. The transaction was finally unwound after Telkom listed Vodacom in May 2009, which resulted in an IRR of 54% and a cash profit for GEPF of R3,7 billion.

AfrisamPIC became an investor in Afrisam in 2008 when a BEE consortium, Bunker Hills, applied for funding to restructure and refinance their purchase of 85% of

Afrisam’s equity. At the time Afrisam was an operationally sound company and showed the potential to generate strong cashflows. Additionally this was a landmark BEE transaction for the PIC to invest in. The R6 billion transaction was based on a typical leveraged buyout private equity model where the valuation was based on anticipated future cash flows. Since the transaction was concluded in 2008, the local and global economies have slowed significantly, affecting the financial performance of all companies in the cement industry. Whilst Afrisam has continued to be an operationally sound company generating strong cash flows, the company has been severely constrained by its highly geared capital structure.

As at 31 March 2010, the investment in Afrisam was valued by KPMG at R1,175 billion. This represents a mark-to-market valuation in accordance with International Accounting Standards and is not necessarily indicative of the returns that can be expected upon exit of this transaction. PIC is actively managing this investment in order to protect and enhance it on behalf of the GEPF.

The overall Isibaya portfolio IRR of 25% was achieved despite the investment in Afrisam being materially impaired.

BrevityIn 2006 the PIC invested R74,5 million to assist Numsa Investment Company to purchase shares in Doves Group Holdings. Over time the investment experienced difficulties; however the PIC has recovered R104 million with an IRR of 14.94% which is higher than the Isibaya Fund benchmark of 10-year bond plus 500bp.

SupportforBEEprivateequityfundmanagersThe PIC has committed R575 million to support six start-up BEE private equity fund managers. Collectively these BEE incubator fund managers have invested R353 million and their underlying investments at year-end were worth R485 million.

DrDanielMmushiMatjilaChief Investment Officer


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IntroductionThe investment of client funds to achieve the best possible risk-adjusted return is a core function and objective of PIC. PIC deems risk management to be a core competency that forms an integral component of its processes. The PIC’s clients, inclusive of PIC Operations Fund (PICOF), dictate specific risk parameters in accordance with their risk appetite, which is expressed in formal investment mandates. However, the ultimate responsibility for risk management oversight lies with the PIC Board of Directors. The Board determines the overall risk policy and culture but relies on management to operate within the established control structures and approved frameworks. The Board has accordingly delegated responsibility for implementation of the PIC Risk Framework to management, thereby promoting a culture of ownership and accountability.

Senior management has an active role in the risk processes of the PIC and is responsible for maintaining and enforcing compliance with the Risk Management Framework and policies. Senior management also ensures consistent adoption of policies and procedures for measuring, managing and reporting risk. The Board is kept abreast of developments through formal reporting structures.

Risk governance structuresThe following Board committees have been delegated to deal with risk-related responsibilities in the Corporation:• InvestmentCommittee is responsible for matters

related to PIC investment activities, investment policy and strategy implementation.

• AuditandRiskCommittee is responsible for the integrity of the financial reporting, safeguarding of assets, the operation of adequate systems and controls, effective risk management and audit processes, ensuring good corporate governance and compliance with all statutory and regulatory requirements.

PIC management assumes operational responsibility across all business areas, with risk managed by the following management committees:• PortfolioManagementCommittee is responsible for

all listed investment management activities, including mitigating risks that arise in investments in capital markets, money markets, equities and externally managed funds.

• ValuationsCommittee is responsible for considering the valuations of unlisted investments and making recommendations to the Board for approval.

• InformationManagementSteeringCommittee is responsible for information technology and information management-related risks. It also manages the PIC disaster recovery plan and business continuity risk, as well as the IT infrastructure of the Corporation, and reports to the Executive Committee.

• ExecutiveCommittee is responsible for the day-to-day operations of PIC, reviewing and recommending to the Investment Committee any new business and investment opportunities that may arise across all investment classes.

Risk functionThe Risk division is represented on all PIC committees and reports to the Chief Executive Officer. The division, led by the General Manager: Risk and Compliance, is responsible for the following risk management objectives:• Instilling a culture of risk management and ownership

within the Corporation;• Promoting an awareness and understanding of risk

across all levels of the organisation, and• Managing risks, within the approved risk appetite of

PIC and that of its clients.

In fulfilling its risk management responsibilities, the Risk division focuses on four functions, namely credit risk, market risk, performance and attribution and operational risk. The division’s risk management activities comprise the implementation of the PIC’s risk framework and policies.

Key risksDuring the course of conducting its business, PIC Operations Fund (PICOF) is exposed to a variety of risks that may arise due to various reasons that are inherent in the investment management process. These risks are managed in accordance with the investment mandate and within established and approved risk management policies and procedures. These include limit setting on individual assets, sectors and asset classes, while being cognisant of the relationships between assets and the benefits of diversifying investment risk. A summary follows of major risks that are of particular significance to PICOF.

Risk management statement

An awareness and understanding of risk is being embedded at all levels of PIC.

Client funds are invested to

achieve the best possible

risk-adjusted return.

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PIC Operations Fund (PICOF)At 31 March 2010 PICOF fund was invested in cash and short-term money market instruments only.

Effectiveassetallocation

Asset sector31March2010

Randassetvalue31 March 2009

Rand asset value

Equity – 470 483

Money market 324620547 199 590 397

Cash 4008534 6 740 474

Total 328629082 206 801 354

Market riskMarket risk refers to the risk of a change in the actual or effective market value or earnings of a portfolio of financial instruments caused by a move in market variables such as equity, bond and commodity prices, currency exchange rates, interest rates, credit spreads, correlations and implied volatilities of those variables.

The operational controls implemented to manage risks arising from market volatility include:• Management of monies in accordance with investment

mandates, which dictate the investment parameters, maximum holdings and investment limits;

• Portfolio review by virtue of daily access to portfolio information and regular reporting;

• Monitoring of positions against mandate limits; and• Auditing by internal and external auditors.

Interest rate riskInterest rate risk is defined as the potential financial loss as a result of adverse movements in interest rates that affect the value of bonds, money market instruments, and other interest rate sensitive assets. PICOF has exposure to interest rate sensitive instruments as stated above. The investment mandate prescribes how the assets should be managed, in line with liquidity needs and liability profiles.

PICOF interest rate sensitivity analysisThe tables below reflect the interest rate sensitivity analysis of the money market portfolio for FY2009 and FY2010.

The portfolio modified duration for FY2010 was 0,39 and 0,38 for FY2009, which indicates that the portfolio interest rate sensitivity has remained relatively unchanged.

Risk management statement (continued)

FY2010

Spread (basis points) (200) (100) 100 200

Profit/loss 2 543 852 1 264 981 (1 251 365) (2 489 378)

% change 0,78 0,39 (0,38) (0,77)

FY2009

Spread (basis points) (200) (100) 100 200

Profit/loss 860 000 420 000 (420 000) (860 000)

% change 0,43 0,21 (0,21) (0,43)

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Liquidity riskLiquidity risk is the risk of being unable to close out open financial instrument positions quickly enough and in sufficient quantities at near-market prices to avoid adverse financial impacts as a result of there being insufficient volume in the market (or where the market is suspended or closed).

The PICOF’s strategic asset allocation stipulates a range of 60% to 100% of the total holdings that must comprise liquid assets. The maturity analysis for interest bearing assets at year end was as follows:

FY2010Randassetvalue

FY2009Rand asset value

<6 months 266081199 142 966 124

>6 months 58539347 56 624 275

324620546 199 590 399

Credit riskThis refers to the risk that a borrower or counterparty to a financial transaction will fail to perform according to the terms and conditions of the contract, thus causing the holder of the claim to suffer a loss in cash flow or market value.

Factors that influence PIC’s credit decisions include credit rating, assessments of the general operating environment, the competitive market position of a counterparty or issuer, reputation, deal tenor, the level and volatility of earnings, corporate governance, risk management policies, liquidity and capital management.

Credit risk is managed according to the mandate parameters and PIC’s internal credit risk policy. Credit mitigation techniques are transaction dependent but may include, where appropriate, the right to be furnished with collateral or an equity injection by counterparties, particularly in unlisted investments. No collateral was held on PICOF for the period under review, which is consistent with previous periods.

PIC also utilises various models to guide limit setting as well as credit ratings from external rating agencies. Limits are approved by the relevant committees, in accordance with the Board-approved delegation of authority. Risk reports on these exposures are regularly submitted to the Portfolio Committee, Investment Committee, Audit and Risk Committee and Board. Impairment tests are undertaken according to PIC approved guidelines, and are approved in accordance with the delegation of authority.

As at 31 March 2010, the credit rating distribution on interest-bearing exposures for PICOF was as follows:

Credit ratings FY2010 FY2009

AAA 29% 21%

AA+ 18% 23%

AA 6% 0%

AA- 38% 40%

A+ 9% 15%

Total 100% 100%

Concentration riskConcentration risk is the risk of losses arising due to poor diversification within funds. This relates to both credit and market risk as excessive concentrations in a particular or correlated asset class, sector, issuer, term structure or financial instrument type can result in undesirable risk exposures. PIC manages this risk in accordance with the investment mandates and approved policies, which dictate the level of concentration.

Operational riskOperational risk is defined as the direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events.

Risk of this nature is managed through systems of internal control and annual external audits, as well as continual internal audits to review the effectiveness of the control environment, risk management programmes and external insurance policies.

DrEnochZuluXabaGeneral Manager: Risk and Compliance

PIC manages risk by using

various best practice

models.

3 6

Report on the consolidated financial statements IntroductionI have audited the accompanying consolidated financial statements and financial statements of the Public Investment Corporation Limited (PIC), which comprise the consolidated and separate statement of financial position as at 31 March 2010, and the consolidated and separate statement of financial performance, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information, and the accounting authority’s report as set out on pages 39 to 77. Accounting authority’s responsibility for the consolidated financial statementsThe accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and in the manner required by the Public Finance Management Act of South Africa, 1999 (Act No. 1 of 1999) (PFMA) and the Companies Act of South Africa, 1973 (Act No. 61 of 1973). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor-General’s responsibilityAs required by section 188 of the Constitution of South Africa, 1996 (Act No. 108 of 1996) and section 4 of the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004), my responsibility is to express an opinion on these financial statements based on my audit.

I conducted my audit in accordance with International Standards on Auditing and General Notice 1570 of 2009 issued in Government Gazette 32758 of 27 November 2009. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial 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 financial 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 financial statements.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

OpinionIn my opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial position of the Public Investment Corporation Limited (PIC) as at 31 March 2010, and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and in the manner required by the PFMA and Companies Act of South Africa. Report on other legal and regulatory requirementsIn terms of the PAA of South Africa and General Notice 1570 of 2009, issued in Government Gazette No. 32758 of 27 November 2009 I include below my findings on the report on predetermined objectives, compliance with the PFMA, Companies Act of South Africa and financial management (internal control).

Report of the Auditor-General to Parliament on the Group annual financial statements of Public Investment Corporation Limited for the year ended 31 March 2010

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FindingsPredetermined objectives• Non-compliance with regulatory and reporting requirements Inadequate first quarterly reporting on performance information The quarterly reports of the PIC did not track progress against outputs, indicators and targets as per the approved

corporate plan for the first quarter and therefore did not facilitate effective performance monitoring and evaluation, as required by Treasury Regulation Section 29.3.1.

Internal control I considered internal control relevant to my audit of the financial statements and the report on predetermined objectives and compliance with the PFMA and Companies Act of South Africa, but not for the purposes of expressing an opinion on the effectiveness of internal control. The matters reported below are limited to the deficiencies identified during the audit.• Financial and performance management The quarterly reporting on predetermined objectives for the first quarter was not prepared due to the fact that the

corporate balance scorecard was only finalised at the end of the first quarter. Other reports• Agreed upon procedures engagement At the request of the Public Investment Corporation Limited, an engagement was conducted during the year

under review solely to identify weaknesses and formulate recommendations on how to improve internal controls to increase the effectiveness of the Chinese wall within the Assets Under Management. The term “Chinese Wall” is used to describe procedures enforced by a company to ensure that its departments are separated in order to restrict access to non-public information to ensure that such information is not used illegally for e.g. inside information, front-running etc. The PIC put in place separation both physically as well as restricting access to information technology. The report covered the period April 2009 to March 2010 and was issued on 21 April 2010.

As requested by the Public Investment Corporation Limited, an engagement was conducted during the year under review concerning reporting to the regulating body, Bond Exchange of South Africa, with respect to the implementation and maintenance of internal controls and risk management, and evaluating the adequacy of the fidelity insurance cover. The report covered the period April 2009 to March 2010 and was issued on 30 June 2010.

As requested by the Public Investment Corporation Limited, an engagement was conducted during the year under review concerning reporting to the regulating body, Financial Services Board, regarding the amount of money and assets at year end held by the provider on behalf of clients, and that such money and assets were throughout the financial year kept separate from those of the business of the provider, and in the case of non-compliance, the extent thereof; and any other information required by the Registrar. The report covered the period April 2009 to March 2010 and was issued on 30 July 2010, within six months after the year end of the Provider as requested by the Registrar.

Auditor-General

Pretoria30 July 2010

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The directors are required by the Companies Act of South Africa, 1973, to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements and related financial information included in this report. It is their responsibility to ensure that the annual financial statements fairly present the state of affairs of the Group as at the end of the financial year and the results of its operations and cash flows for the year then ended, in conformity with South African Statements of Generally Accepted Accounting Practice and in terms of Treasury Regulation 28.1.1 of the Public Finance Management Act, 1999 (Act No 1 of 1999, as amended). The external auditors are engaged to express an independent opinion on the financial statements. The prescribed disclosure of emoluments in terms of Treasury Regulations 28.1.1 is reflected under the “disclosure of remuneration section”.

The financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.

The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the Group and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the Board of Directors sets standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the Group and all employees are required to maintain the highest ethical standards in ensuring the Group’s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the Group is on identifying, assessing, managing and monitoring all known forms of risk across the Group. While operating risk cannot be fully eliminated, the Group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.

The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the annual financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The directors have reviewed the Group’s cash flow forecast for the year to 31 March 2011 and, in the light of this review and the current financial position, they are satisfied that the Group has access to adequate resources to continue in operational existence for the foreseeable future.

The annual financial statements have been audited by the Auditor-General, who was given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the Board of Directors and committees of the Board. The directors believe that all representations made to the independent auditors during their audit are valid and appropriate.

The external auditors are responsible for independently reviewing and reporting on the Group’s annual financial statements. The financial statements have been examined by the Group’s external auditors and their report is presented on pages 36 to 37.

The Group annual financial statements set out on pages 44 to 77, which have been prepared on the going concern basis, were approved by the Board of Directors on 30 July 2010 and were signed on its behalf by:

Mr Nhlanhla Nene (Deputy Minister of Finance) Mr Brian MolefeChairman (Non-executive) CEO (Executive)

Directors’ responsibilities and approval

3 9

Directors’ report

The directors have pleasure in presenting their report for the year ended 31 March 2010.

Nature of businessThe Public Investment Corporation Limited (PIC), the holding company of the Group, is incorporated and domiciled in the Republic of South Africa. It is a schedule 3B state owned entity as defined in the Public Finance Management Act, 1999 (PFMA).

The Group provides asset management services. It invests and operates principally in South Africa, with the exception of its associate Harith Fund Managers (Pty) Limited (Harith), which invests in infrastructure on the African continent.

The annual financial statements set out fully the financial position, results of operations and cash flows for the Group and the company for the year ended 31 March 2010.

Financial resultsProfit attributable to shareholders is R72 million (2009: R158 million) for the year, this is 55% lower than the prior year. Due to the nature of our business PIC does not maximise profit but generate sufficient surplus for its sustainability.

The major contributor to the reduction in profits is the disposal of a 54% shareholding in Harith and the decline in revenue. The revenue year on year is lower due to reduced management fees earned which is based on the market value of assets under management.

The assets under management were affected by the decline in the South African economy which in turn was impacted by the adverse global economy.

Refer to the financial analysis report on page 42 for a high level review of the Group’s financial performance.

Subsidiaries and associateSubsidiariesAt year-end the PIC had two subsidiaries, namely, Advent Asset Management 100% (2009: 100%) and Pan African Infrastructure Development Fund (PAIDF) Facilitation Trust 100% (2009: 100%).

The PAIDF Facilitation Trust has been dormant since 2009 and is in the process of being wound up.

In June 2009 the Group disposed of 54% (2009: 100%) of its controlling interest in Harith.

AssociateAt year-end the only associate of the Group was Harith at 46% (2009: 100%)

Refer to note 6.

Share capitalThere were no changes in the authorised or issued share capital of the companies in the PIC Group for the financial year under review. There are no shares held in reserve. The Group does not operate a share incentive scheme except for Harith.

Refer to note 13.

Performance Incentives SchemeLong-term incentive schemeDuring the financial year the directors approved and introduced for the first time a long-term incentive scheme (LTI), to attract, retain and reward high performing employees of the PIC company. The employees of the PIC are only eligible to participate in the LTI if the company achieves an overall performance rating of 3,5 and if the employee achieves a minimum individual performance rating of 3,5.

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Directors’ report (continued)

The incentive scheme is targeted at management and the year under review was the first time it was introduced.

Short-term incentive schemeThe companies in the Group continue to incentivise employees using a short-term incentive (STI) bonus which is related to their individual performance, divisional performance and company performance. This is paid out annually three months after year-end.

DividendsThe Group has achieved a historic landmark. The PIC for the first time declared and paid a dividend of R86 million (inclusive of STC) to its shareholder. This was achieved and made possible by stringent cost containment and the disposal of its controlling interest in Harith. The dividend of R79 million (excluding STC) was paid on 4 February 2010.

Going concern statementThe directors have reviewed the financial budgets with their underlying business plans for the period to 31 March 2011. In the light of the current financial position, we consider it appropriate that the annual financial statements be prepared on the going concern basis.

DirectorsThe composition of the Board of Directors during the year and to the statement of financial position date is given on page 9 to 12 of the annual report. The directors are all of South African nationality. General (Retired) Siphiwe Nyanda (non-executive) resigned in May 2009.

Ms Ntombifuthi Mtoba (non-executive) resigned in October 2009.

Apart from the above, there are no other changes to the non-executive directors except for matters disclosed under the subsequent events paragraph below. The remuneration and fees of the directors are set out on page 76.

AuditorsThe Auditor-General of South Africa is the registered auditor of the PIC Company and Group. The auditors of Advent Asset Management are Grant Thornton and the auditors of Harith are KPMG Inc.

Subsequent eventsThe following non-adjusting event occurred subsequent to 31 March 2010:

The Chief Executive Officer (CEO), Mr Brian Molefe’s fixed term contract ended on 12 April 2010. The CEO’s contract was extended until 31 July 2010 to facilitate a smooth transition.

Mr Athol Rhoda, a non-executive director for the PIC Board, resigned in July 2010.

Code of Corporate Practices and Conduct The Group complies with the recommendations of the Code of Corporate Practices and Conduct included in the King III Report on Corporate Governance.

Accounting policiesThe Group adopted IAS 1 (revised). The revised standard requires that changes in equity resulting from transactions with owners (holders of instruments classified as equity) be presented separately from non-owner changes in equity (also known as other comprehensive income). In addition, specific disclosures for components of other comprehensive income have been introduced. The adoption had no effect on the financial position or performance of the Group.

4 1

SecretaryThe Secretary of the company is Ms Wilhelmina Louw.

Ultimate holding companyThe company’s ultimate holding company is the National Government of the Republic of South Africa.

Disclosure of remunerationAccording to the Treasury Regulations section 28 and the PFMA section 55, the annual financial statements must include a report by the accounting authority which must include the disclosure of remuneration in respect of all members of the accounting authority, which is the PIC Board, its subsidiary and the senior management.

The detail of the disclosure is included in the disclosure of remuneration on pages 76 to 77.

Special resolutionsNo special resolutions were passed during the year under review.

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Discussion and analysis of Group annual financial statements

IntroductionThis review is to provide further insight into the financial performance and position of the Group in the context of the environment in which we operate.

Economic overview of the country in which we operateThe Group primarily operates in South Africa. In the first six months of the financial year the South African economy was in a recession. This turned around in the last quarter of the financial year.

Operating performanceThe performance of the Group (excluding the effects of disposing of the controlling interest in Harith) was affected by the South African economy which was impacted by the decline in the global economy. The full effect of the economy was offset by careful management of costs. The following table illustrates the high level performance of the Group for the past three years:

DescriptionGroup 2010

R’millionGroup 2009

R’millionGroup 2008

R’millionRevenue 310 390 349Operating expenses 229 211 156Net profit before tax 118 226 229Net profit after tax 72 158 163Net assets 411 418 268

DividendsOur policy is to pay a dividend to our shareholder which is dependent on the results of the PIC company over a three year period. The factors reviewed, as per the approved dividend policy, are the cash position, net profit and reserves over a three year period ensuring that the company remains a going concern. For the year under review the Group paid a dividend to the shareholder of R86 million (including STC). The dividend of R79 million (excluding STC) was paid on 4 February 2010.

Changes in the GroupOn 30 June 2009 the PIC company disposed of 54% of its controlling stake in Harith Fund Managers (Pty) Limited remaining with an equity accounted associate at year-end. The cash profit on the sale of 54% of Harith is R57 million.

The following are the key indicators of our operating performance during the year:

RevenueStrained in a demanding economic environment

• Group decrease year on year of 20% • No increases in fees charged to clients • Fees remain significantly below industry levels• Further decline from disposal of Harith on 30 June 2009

Operating expensesActive cost containment except for employee head count which increased as planned

• Group increase year on year of 9%• Primary cost drivers are employee and IT costs • Head count increased from 160 to 195 in line with strategic initiatives to

grow the business• Other operating costs actively contained by careful monthly monitoring

Net profit after taxSignificantly reduced after disposal of Harith

• Group decrease year on year of 55%• 54% of Harith disposed on 30 June 2009

Net assets: Continues to grow in line with business activities

• Group decrease year on year of 2%• Cash increase from Harith dividend of R62 million (excluding STC)• Offset by dividend paid to National Treasury of R86 million (including STC)

Group financial sustainability targetsExceeded for the year under review

• Return on equity 17% • Earnings before interest and tax 38%• Personnel costs/management fees 44% • IT costs/management fees 5%

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We are committed to preserving our positive cash flow position and continuing to be self sustainable without any assistance from our shareholder.

Our focus remains firmly on ongoing financial sustainability, cost containment and re-engineering our operational processes to unlock value. We are committed to growing our business and our people during the 2010/11 financial year, thereby giving full effect to our corporate strategic plans. Our IT and employee costs will continue to be the primary drivers of our operating expenses.

AcknowledgementsWe extend our thanks to all our financial personnel. It is through their dedication and enthusiasm that we are able to produce quality financial information for our stakeholders. We appreciate and look forward to their ongoing support and commitment in the year ahead.

Albertinah KekanaChief Operating Officer

The year ahead

4 4

Statement of financial position

as at 31 March 2010

Group CompanyFigures in Rand thousand Note(s) 2010 2009 2010 2009

AssetsNon-current assets Property, plant and equipment 3 20 732 10 803 19 711 7 135Intangible assets 4 10 625 8 789 10 451 8 558Investment in subsidiary 5 – – 71 71Investments in associates 6 8 407 – – –Deferred tax 9 1 502 1 938 1 502 1 177

41 266 21 530 31 735 16 941

Current assets Financial assets at fair value through profit or loss 7 185 114 41 181 185 114 41 181Current tax receivable 16 8 791 3 118 5 737 1 608Trade and other receivables 11 34 398 43 510 32 981 35 392Cash and cash equivalents 12 174 204 339 172 164 353 253 475

402 507 426 981 388 185 331 656

Total assets 443 773 448 511 419 920 348 597

Equity and liabilities Equity Share capital 13 1 1 1 1Retained income 410 917 417 974 391 441 326 725

410 918 417 975 391 442 326 726

Liabilities Non-current liabilities Finance lease obligation 14 608 527 608 527Operating lease liability 10 164 168 – –

772 695 608 527

Current liabilities Current tax payable 16 – 608 – –Finance lease obligation 14 950 621 950 621Operating lease liability 10 226 45 226 45Trade and other payables 17 21 721 19 459 20 191 16 279Provisions 15 9 186 9 108 6 503 4 399

32 083 29 841 27 870 21 344

Total liabilities 32 855 30 536 28 478 21 871

Total equity and liabilities 443 773 448 511 419 920 348 597

4 5

Statement of comprehensive income

For the year ended 31 March 2010


Revenue 18 310 247 390 097 244 225 253 930Other income 19 3 145 7 422 3 218 8 386Operating expenses (229 072) (210 683) (182 918) (156 357)

Operating profit 20 84 320 186 836 64 525 105 959Investment income 21 30 933 37 808 105 369 40 472Fair value adjustments 22 421 1 120 421 1 120Income from equity accounted investments 2 253 – – –Finance costs 23 (245) (169) (240) (164)

Profit before taxation 117 682 225 595 170 075 147 387Taxation 24 (45 832) (67 313) (26 450) (38 884)

Profit for the year 71 850 158 282 143 625 108 503

Total comprehensive income attributable to: Owners of the parent 71 850 156 180 143 625 108 503Non-controlling interest – 2 102 – –

71 850 158 282 143 625 108 503

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Statement of changes in equity

Total attributable to equity holders of Non- Share Retained the Group/ controlling TotalFigures in Rand thousand capital income company interest equity

Group Balance at 1 April 2008 1 261 794 261 795 6 235 268 030Changes in equity Total comprehensive income for the year – 156 180 156 180 2 102 158 282Dividends – – – (8 337) (8 337)

Total changes – 156 180 156 180 (6 235) 149 945

Balance at 1 April 2009 1 417 974 417 975 – 417 975Changes in equity Total comprehensive income for the year – 71 850 71 850 – 71 850Dividends – (78 911) (78 911) – (78 911)Other 4 4 – 4

Total changes – (7 057) (7 057) – (7 057)

Balance at 31 March 2010 1 410 917 410 918 – 410 918

Note(s) 13

Company Balance at 1 April 2008 1 218 222 218 223 – 218 223Changes in equity Total comprehensive income for the year – 108 503 108 503 – 108 503

Total changes – 108 503 108 503 – 108 503

Balance at 1 April 2009 1 326 725 326 726 – 326 726Changes in equity Total comprehensive income for the year – 143 625 143 625 – 143 625Dividends – (78 911) (78 911) – (78 911)Other 2 2 – 2

Total changes – 64 716 64 716 – 64 716

Balance at 31 March 2010 1 391 441 391 442 – 391 442

Note(s) 13

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Statement of cash flows



Cash flows from operating activitiesCash generated from operations 26 109 745 203 595 77 933 124 474Interest income 30 933 37 808 28 257 27 966Finance costs (245) (169) (240) (164)Tax paid 27 (40 120) (98 527) (30 905) (57 999)

Net cash from operating activities 100 313 142 707 75 045 94 277

Cash flows from investing activities Purchase of property, plant and equipment 3 (17 041) (4 915) (16 410) (3 836)Sale of property, plant and equipment 3 – 96 – 96Purchase of other intangible assets 4 (3 817) (3 998) (3 707) (3 787)Realisation of Harith reserves 57 091 – – –Sale/purchase of financial assets (223 013) 14 645 (142 661) 14 645Acquisition of subsidiary – – – (71)Dividends received – – 77 112 12 506

Net cash from investing activities (186 780) 5 828 (85 666) 19 553

Cash flows from financing activities Finance lease payments 410 261 410 261Dividends paid 28 (78 911) (8 337) (78 911) –

Net cash from financing activities (78 501) (8 076) (78 501) 261

Total cash movement for the year (164 968) 140 459 (89 122) 114 091Cash at beginning of the year 339 172 198 713 253 475 139 384

Total cash at end of the year 12 174 204 339 172 164 353 253 475

4 8


Accounting policies

1. Presentation of financial statementsThe annual financial statements have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice, the Companies Act of South Africa, 1973, and the Public Finance Management Act, 1999 (Act No. 1 of 1999). The annual financial statements have been prepared in accordance with the going concern principle under the historical cost basis, except for the measurement of investment properties and certain financial instruments at fair value, and incorporate the principal accounting policies set out below.

The nature of the business of the holding company, Public Investment Corporation Limited (PIC), is such that trust and surplus funds, under the control of government departments, provincial administrations and bodies as well as institutions approved by the Minister of Finance, which may be available for investment, are payable to PIC which is responsible for investing the funds. These funds are managed by PIC on behalf of these parties (hereafter, clients) and any income or loss derived therefrom accrues directly to the above-mentioned parties. The total amount of these assets under management is therefore disclosed in note 37.

These accounting policies are consistent with the previous period.

1.1 Significant judgementsIn preparing the annual financial statements, management is required to make estimates and assumptions that affect the amounts presented in the annual financial statements and related disclosures. Use of available information and the application of judgement is inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the annual financial statements. Significant judgements include:

Trade receivablesThe Group assesses its trade receivables for impairment at each balance sheet date. In determining whether an impairment loss should be recognised in the income statement, the Group makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from a financial asset.

The impairment for the trade receivables is calculated on a portfolio basis, based on historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence period.

Fair value estimationThe fair value of financial instruments traded in active markets (such as trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price.

The fair value of financial instruments that are not traded in an active market (unlisted securities) is determined by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date.

ProvisionsProvisions were raised and management determined an estimate based on the information available. Additional disclosure of these estimates of provisions are included in note 15 – Provisions.

TaxationJudgement is required in determining the provision for income taxes due to the complexity of the tax legislation. There are many transactions and calculations for which the ultimate tax treatment 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 final 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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1. Presentation of financial statements (continued)1.1 Significant judgements (continued)

Taxation (continued)The Group recognises the net future tax benefit related to deferred tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred tax assets requires the Group to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred tax assets recorded at the balance sheet date could be impacted.

Estimates of residual values and useful lives of property, plant and equipmentThe Group assesses annually the residual values and remaining useful lives of significant assets. The residual values of these assets is estimated as the amount that the Group would currently obtain from disposal of the asset after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of the useful life. The useful life is the period over which an asset is expected to be available for use by the Group. Technological innovation and maintenance programmes impact the useful lives and residual values of the assets.

Contingent liabilitiesManagement applies its judgement to the fact patterns and advice it receives from its attorneys, advocates and other advisors in assessing if an obligation is probable, more likely than not, or remote. This judgement application is used to determine if the obligation is recognised as a liability or disclosed as a contingent liability.

1.2 Property, plant and equipmentProperty, plant and equipment are tangible items that is held for use in the supply of services, or for administrative purposes and are expected to be used during more than one period.

The cost of an item of property, plant and equipment are only recognised when:• if it is probable that future economic benefits associated with the item will flow to the company; and• the cost of the item can be measured reliably.

Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently if the recognition criteria are met.

The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located are also included in the cost of property, plant and equipment.

Property, plant and equipment is carried at cost less accumulated depreciation and any accumulated impairment losses. Useful lives have been determined to be as follows:

Average Furniture and fixtures 5 – 10 years Motor vehicles 5 years Office equipment 5 – 8 years IT equipment 3 – 5 years Leasehold improvements 5 years

Depreciation is charged to the income statement on a straight-line basis and is calculated to reduce the original costs to the expected residual values over the estimated useful lives. Useful lives and residual values are assessed on an annual basis.

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Accounting policies (continued)

1. Presentation of financial statements (continued)1.2 Property, plant and equipment (continued)

The carrying values of property and equipment are written down to their estimated recoverable amounts, where the estimated recoverable amount is lower than the carrying value. The recoverable amount of property and equipment is determined as the higher of the asset’s fair value less costs to sell and the value in use.

All gains or losses arising on the disposal or scrapping of property and equipment are recognised in the income statement in the period of disposal or scrapping. Repairs and maintenance are charged to the income statement when the expenditure is incurred.

1.3 GoodwillGoodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary or associate and this is recognised at the date of acquisition.

Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. The carrying amount of goodwill is reviewed annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

Negative goodwill, which represents the excess of the Group’s interest in the fair value of the identifiable assets and liabilities acquired over the cost of acquisition, is recognised immediately in the income statement.

At the acquisition date, goodwill acquired is allocated to cash-generating units and any impairment is determined using the value-in-use methodology in relation to these units.

On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

1.4 Intangible assetsIntangible assets are identifiable non-monetary assets without physical substance. No intangible asset is recognised arising from research. Expenditure on research (or on the research phase of an internal project) is recognised as an expense when it is incurred.

An intangible asset is recognised when:• it is probable that the expected future economic benefits that are attributable to the asset will flow to the

entity; and• the cost of the asset can be measured reliably.

Intangible assets are initially recognised at cost.

An intangible asset arising from development (or from the development phase of an internal project) is recognised when:• it is technically feasible to complete the asset so that it will be available for use or sale;• there is an intention to complete and use or sell it;• there is an ability to use or sell it;• it will generate probable future economic benefits;• there are available technical, financial and other resources to complete the development and to use or sell

the asset; and• the expenditure attributable to the asset during its development can be measured reliably.

Intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

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1. Presentation of financial statements (continued)1.4 Intangible assets (continued)

Subsequent expenditure relating to intangible assets is capitalised when it is probable that future economic benefits from the use of the assets will be increased and will be realised. All other subsequent expenditure is recognised as an expense in the year in which it is incurred.

Surpluses and deficits on the disposal of intangible assets are credited or charged to income. The surplus or deficit is the difference between the net disposal proceeds and the carrying value of the asset at the date of sale.

The amortisation period and the amortisation method for intangible assets are reviewed every period-end. Amortisation is charged to the income statement on a straight-line basis and is calculated to reduce the original costs to the expected residual values over the estimated useful lives. Useful lives and residual values are assessed on an annual basis. Useful lives have been determined to be as follows:

Average Computer software 3 – 5 years Other intangible assets 5 – 8 years

1.5 Investment in subsidiaryGroup annual financial statementsThe Group annual financial statements include those of the holding company and its subsidiaries. The results of the subsidiaries are included from the effective date of acquisition.

Company annual financial statementsIn the company’s annual financial statements, investments in subsidiaries are carried at cost less any accumulated impairment.

1.6 Investments in associatesCompany financial statementsAn investment in an associate is carried at cost less any accumulated impairment.

1.7 Financial instrumentsInitial recognition and measurementA financial instrument is defined as a contract that gives rise to a financial asset in one entity and a financial liability or equity instrument in another entity.

Financial instruments, as reflected on the balance sheet, include all financial assets, financial liabilities, derivative instruments and equity instruments held for investment, trading, hedging or liquidity purposes, but exclude investments in subsidiaries, associates, employee benefit plans, property and equipment, deferred taxation, taxation payable, intangible assets and goodwill.

Financial instruments are accounted for under IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures.

Financial assets are classified into the following specified categories:• financial assets at fair value through profit or loss;• held-to-maturity investments;• loans and receivables; and• available-for-sale financial assets.

Financial liabilities are classified as either:• financial liabilities at fair value through profit or loss; or• other financial liabilities.

The classification of financial assets and financial liabilities depends on the nature and purpose of the financial instrument and is determined at the time of initial recognition.

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1. Presentation of financial statements (continued)1.7 Financial instruments (continued)

Initial recognition and measurement (continued)The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement.

Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes party to the contractual provisions of the instrument.

All financial instruments are initially recognised at fair value plus transaction costs, except those carried at fair value through profit or loss where transaction costs are recognised immediately through the statement of comprehensive income.

Subsequent to initial measurement, financial instruments are measured at either fair value or amortised cost, depending on their classification.

Fair value determinationFair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

The best evidence of the fair value of a financial instrument on initial recognition is the transaction price, i.e. the fair value of the consideration paid or received. Directly attributable transaction costs are included in the initial fair value of financial assets and financial liabilities, other than those at fair value through profit or loss.

Subsequent to initial recognition, the fair values of financial assets and liabilities are based on current bid prices. If the market for a financial asset is not active or the instrument is an unlisted instrument, the fair value is determined by using applicable valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs.

Loans to/(from) Group companiesLoans to/(from) Group companies are classified as loans and receivables.

Trade and other receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those designated by the Group as at fair value through profit or loss or designated as available-for-sale.

Trade receivables and other receivables that are not held for trading purposes and have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within operating expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in the statement of comprehensive income.

Trade and other receivables are classified as loans and receivables.

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Trade and other payablesTrade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

Cash and cash equivalentsCash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at amortised cost.

Financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss are financial assets held for trading and financial assets designated at fair value through profit or loss. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term.

Financial assets and financial liabilities at fair value through profit or loss are measured at fair value. Net gains and losses arising from financial instruments categorised as at fair value through profit or loss are determined inclusive of interest or dividend income. Transaction costs are recognised in the income statement as an expense. Dividend income is recognised in the income statement as part of investment income when the Group’s right to receive payment is established.

An investment is classified as held for trading if:• it has been acquired principally for the purpose of selling in the near future; or• it is a part of an identified portfolio of financial instruments that the Group manages together and has a

recent actual pattern of short-term profit-taking; or• it is a derivative that is not designated and effective as a hedging instrument.

An investment other than a financial asset held for trading may be designated as at fair value through profit or loss upon initial recognition if:• the investment forms part of a group of financial assets or financial liabilities or both, which is managed

and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

• it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at fair value through profit or loss.

DerivativesDerivative financial instruments, which are not designated as hedging instruments, consisting of foreign exchange contracts and interest rate swaps, are initially measured at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates.

Derivatives embedded in other financial instruments or other non-financial host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value with unrealised gains or losses reported in profit or loss.

Changes in the fair value of derivative financial instruments are recognised in profit or loss as they arise. Derivatives are classified as financial assets at fair value through profit or loss – held for trading.

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Available-for-sale financial assetsThese financial assets are non-derivatives that are either designated in this category or not classified elsewhere. Investments are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned.

These investments are measured initially and subsequently at fair value. Gains and losses arising from changes in fair value are recognised directly in equity until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the period.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities may be impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement.

Impairment losses recognised in profit or loss for equity investments classified as available-for-sale are not subsequently reversed through profit or loss. Impairment losses recognised in profit or loss for debt instruments classified as available-for-sale are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss.

Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analysed between translation differences resulting from changes in amortised cost of the security and other changes in the carrying amount of the security. The translation differences on monetary securities are recognised in profit or loss, while translation differences on non-monetary securities are recognised in equity. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognised in equity.

Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement as part of ‘other income’. Dividends on available-for-sale equity instruments are recognised in the income statement as part of ‘other income’ when the Group’s right to receive payments is established.

Equity investments for which a fair value is not determinable are held at cost. Impairments on such investments are not reversed.

Held to maturityHeld-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has both the positive intent and ability to hold to maturity, other than those that meet the definition of loans and receivables or those that were designated as at fair value through profit or loss or designated as available-for-sale.

Held-to-maturity financial assets are measured at amortised cost, using the effective interest method, less any provisions for impairment, with the interest income recognised in the income statement.

The effective interest method is a method of calculating the amortised cost of a financial asset or liability and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts/payments (including all fees receivable that form an integral part of the effective interest rate) through the expected life of the financial asset/liability or, where appropriate, a shorter period.

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Held to maturity (continued)At subsequent reporting dates these are measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the carrying value would have been had the impairment not been recognised.

Financial assets that the Group has the positive intention and ability to hold to maturity are classified as held-to-maturity.

The Group derecognises a financial asset (or group of financial assets) or a part of a financial asset (or part of a group of financial assets) when and only when:• the contractual rights to the cash flows arising from the financial asset have expired; or• it transfers the contractual rights to receive the cash flows from the financial asset; or• it retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual

obligation to pay the cash flows to one or more recipients.

A financial liability (or group of financial liabilities) or a part of a financial liability (or part of a group of financial liabilities) is derecognised when and only when the liability is extinguished, i.e. when the obligation specified in the contract is discharged, cancelled or has expired.

1.8 TaxCurrent tax assets and liabilitiesDirect taxation in the income statement consists of South African and foreign jurisdiction corporate income tax, inclusive of capital gains tax (CGT) (currently payable, prior year adjustments and deferred), secondary tax on companies (STC) as well as foreign jurisdiction withholding taxes and secondary tax on companies (STC) (currently payable and deferred).

STC on dividends, net of STC credits earned, is expensed through the income statement in the period in which the dividend paid is accounted for.

Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.

Current tax is the expected taxation payable based on the taxable income, inclusive of capital gains, for the year, using taxation rates enacted or substantially enacted at the balance sheet date, and any adjustment to the taxation payable in respect of previous years. Taxable income is determined by adjusting the profit before taxation for items which are non-taxable or disallowed in terms of tax legislation.

Current tax is charged or credited to the income statement, except to the extent that it relates to items charged or credited directly to the statement of changes in equity, in which case the tax is also dealt with in equity. STC that arises from the distribution of dividends is recognised at the same time as the liability to pay the related dividend.

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1. Presentation of financial statements (continued)1.8 Tax (continued)

Deferred tax assets and liabilitiesA deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction which, at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). Temporary differences are differences between the carrying amounts of assets and liabilities for financial reporting purposes and their taxation base.

Deferred tax is charged or credited in the income statement, except to the extent that it relates to items charged or credited directly to the statement of changes in equity, in which case the deferred tax is also dealt with in equity.

The effect on deferred taxation of any changes in taxation rates is recognised in the income statement, except to the extent that it relates to items previously charged or credited directly to equity.

A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction at the time of the transaction, that affects neither accounting profit nor taxable profit (tax loss).

A deferred tax asset is recognised for the carry forward of unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.

1.9 LeasesA lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

Finance leases – lesseeFinance leases are recognised as assets and liabilities in the balance sheet at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease.

The lease payments are apportioned between the finance charge and reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of the remaining balance of the liability.

Operating leases – lesseeOperating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease asset or liability. This liability is not discounted.

Any contingent rents are expensed in the period they are incurred.

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1. Presentation of financial statements (continued)1.10 Impairment of assets

The Group assesses at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset.

If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset.

If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss.

An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in profit or loss. Any impairment loss of a revalued asset is treated as a revaluation decrease.

An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated.

The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods.

A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in profit or loss. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase.

1.11 Share capital and equityOrdinary shares are classified as equity. Share capital issued by the company is recorded as the value of the proceeds received less the external costs directly attributable to the issue of the shares.

Dividends to equity holders are recognised as a liability in the period in which they are declared and are accounted for in the statement of changes in equity. Dividends declared after balance sheet date are disclosed in the dividends note.

1.12 Employee benefitsShort-term employee benefitsThe cost of short-term employee benefits (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care) is recognised in the period in which the service is rendered and is not discounted.

The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, in the case of non-accumulating absences, when the absence occurs.

The expected cost of bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance and when the amount can reliably be estimated at year-end.

Payments (employer contributions) to both the defined contribution retirement plans and defined benefit retirement plans are charged as an expense as they fall due.

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1. Presentation of financial statements (continued)1.12 Employee benefits (continued)

Defined contribution plansUnder defined contribution plans:(a) the Group’s legal or constructive obligation is limited to the amount that it agrees to contribute to the

fund. Thus, the amount of the post-employment benefits received by the employee is determined by the amount of contributions paid by both the employer and employee to a post-employment benefit plan, together with investment returns arising from the contributions; and

(b) in consequence, actuarial risk (that benefits will be less than expected) and investment risk (that assets invested will be insufficient to meet expected benefits) fall on the employee.

Defined benefit plansUnder defined benefit plans:(a) the Group’s legal or constructive obligation is limited to the amount that it agrees to contribute to the

fund; and(b) in consequence, actuarial risk (that benefits will be less than expected) and investment risk (that assets

invested will be insufficient to meet expected benefits) fall on the Government Employees Pension Fund.

1.13 Provisions and contingenciesProvisions represent liabilities of uncertain timing or amount and are measured at the expenditure or cash outflow required to settle the present obligation.

Provisions are recognised when:• the Group has a present obligation as a result of a past event;• it is probable that an outflow of resources embodying economic benefits will be required to settle the

obligation; and• a reliable estimate can be made of the obligation.

The amount of a provision is the present value of the expenditure expected to be required to settle the obligation.

The present obligations arising under any onerous contracts are recognised and measured as a provision. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits that are expected to be received by the Group under such contract.

The cost of providing employee benefits is accounted for in the period in which the benefits are earned by employees. The expected cost of short-term accumulating compensated absences is recognised as an expense as the employees render services that give them the right to entitlement of such absence.

Provisions are not recognised for future operating losses.

If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision.

1.14 RevenueWhen the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the stage of completion of the transaction at the balance sheet date. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied:• the amount of revenue can be measured reliably;• it is probable that the economic benefits associated with the transaction will flow to the Group;• the stage of completion of the transaction at the balance sheet date can be measured reliably; and• the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

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1. Presentation of financial statements (continued)1.14 Revenue (continued)

Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and services provided in the normal course of business, net of trade discounts and volume rebates, and value added tax.

Revenue comprises management fees and letting commission charged to parties on whose behalf the assets are managed and rental income collected.

1.15 Investment incomeInterest is recognised, as part of investment income, using the effective interest rate method.

Dividends are recognised, as part of investment income, when the company’s right to receive payment has been established.

1.16 ComparativesWhere applicable, comparative figures have been restated.

1.17 OffsettingFinancial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Income and expense items are offset only to the extent that their related instruments have been offset in the balance sheet.

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2. New standards and interpretations2.1 Standards and interpretations effective and adopted in the current year

In the current year, the Group has adopted the following standards and interpretations that are effective for the current financial year and that are relevant to its operations:IFRS 7Financial instruments: Disclosures

IAS 1Presentation of financial statements

IAS 8Accounting policies, changes in accounting estimates and errors

IAS 10Events after the reporting period

IAS 16Property, plant and equipment

IAS 18Revenue

IAS 27Consolidated and separate financial statements

IAS 28Investments in associate

IAS 32Financial instruments: Presentation

IAS 36Impairment of assets

IAS 38Intangible assets

IAS 39Financial instruments: Recognition and measurement

The Group has adopted the above standards for the first time in the 2010 financial statements. The impact is not material to the results of the Group except for IAS 1 that has resulted in additional disclosure.

2.2 Standards and interpretations not yet effective or relevantOf the standards and interpretations not yet effective or relevant in the current year, none have a material impact on the Group’s annual financial statements.


Notes to the annual financial statements

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3. Property, plant and equipment 2010 2009 Cost/ Accumulated Carrying Cost/ Accumulated CarryingFigures in Rand thousand valuation depreciation value valuation depreciation value

GroupBuildings 7 335 – 7 335 – – –Furniture and fixtures 6 874 (5 191) 1 683 7 129 (5 187) 1 942Motor vehicles 439 (264) 175 949 (304) 645Office equipment 6 681 (3 450) 3 231 5 386 (2 839) 2 547IT equipment 10 406 (4 580) 5 826 7 113 (3 732) 3 381Leasehold improvements 4 908 (3 893) 1 015 5 072 (3 882) 1 190Finance leases – IT equipment 3 275 (1 808) 1 467 1 817 (719) 1 098

Total 39 918 (19 186) 20 732 27 466 (16 663) 10 803

CompanyBuildings 7 335 – 7 335 – – –Furniture and fixtures 6 072 (4 864) 1 208 5 614 (4 753) 861Motor vehicles 439 (264) 175 439 (176) 263Office equipment 6 264 (3 252) 3 012 4 839 (2 647) 2 192IT equipment 9 754 (4 214) 5 540 5 016 (2 852) 2 164Leasehold improvements 4 732 (3 758) 974 4 010 (3 453) 557Finance leases – IT equipment 3 275 (1 808) 1 467 1 817 (719) 1 098

Total 37 871 (18 160) 19 711 21 735 (14 600) 7 135

Reconciliation of property, plant and equipment – Group – 2010 Opening Disposal of Impairment Figures in Rand thousand balance Additions subsidiary Depreciation loss Total

Buildings – 7 335 – – – 7 335Furniture and fixtures 1 942 755 (550) (458) (6) 1 683Motor vehicles 645 – (357) (113) – 175Office equipment 2 547 1 686 (315) (678) (9) 3 231IT equipment 3 381 5 086 (908) (1 682) (51) 5 826Leasehold improvements 1 190 722 (496) (401) – 1 015Finance leases – IT equipment 1 098 1 457 – (1 088) – 1 467

10 803 17 041 (2 626) (4 420) (66) 20 732

Reconciliation of property, plant and equipment – Group – 2009 Opening Impairment Figures in Rand thousand balance Additions Disposals Depreciation loss Total

Furniture and fixtures 2 193 683 – (931) (3) 1 942Motor vehicles 943 – (101) (197) – 645Office equipment 2 370 795 – (618) – 2 547IT equipment 2 327 1 968 – (914) – 3 381Leasehold improvements 1 623 504 – (937) – 1 190Finance leases – IT equipment 854 965 – (721) – 1 098

10 310 4 915 (101) (4 318) (3) 10 803

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3. Property, plant and equipment (continued)Reconciliation of property, plant and equipment – Company – 2010 Opening Impairment Figures in Rand thousand balance Additions Depreciation loss Total

Buildings – 7 335 – – 7 335Furniture and fixtures 861 646 (293) (6) 1 208Motor vehicles 263 – (88) – 175Office equipment 2 192 1 435 (606) (9) 3 012IT equipment 2 164 4 815 (1 388) (51) 5 540Leasehold improvements 557 722 (305) – 974Finance leases – IT equipment 1 098 1 457 (1 088) – 1 467

7 135 16 410 (3 768) (66) 19 711

Reconciliation of property, plant and equipment – Company – 2009 Opening Impairment Figures in Rand thousand balance Additions Disposals Depreciation loss Total

Furniture and fixtures 1 236 309 – (681) (3) 861Motor vehicles 459 – (101) (95) – 263Office equipment 1 951 759 – (518) – 2 192IT equipment 1 200 1 299 – (335) – 2 164Leasehold improvements 724 504 – (671) – 557Finance leases – IT equipment 854 965 – (721) – 1 098

6 424 3 836 (101) (3 021) (3) 7 135

Group CompanyFigures in Rand thousand 2010 2009 2010 2009

Assets subject to finance lease (Net carrying amount)Leasehold improvements 1 015 1 190 974 557Finance leases 1 467 1 098 1 467 1 098

2 482 2 288 2 441 1 655

4. Intangible assets 2010 2009 Cost/ Accumulated Carrying Cost/ Accumulated CarryingFigures in Rand thousand valuation amortisation value valuation amortisation value

GroupComputer software 24 565 (16 492) 8 073 21 640 (14 909) 6 731Other intangible assets 3 173 (621) 2 552 2 344 (286) 2 058

Total 27 738 (17 113) 10 625 23 984 (15 195) 8 789

2010 2009 Cost/ Accumulated Carrying Cost/ Accumulated CarryingFigures in Rand thousand valuation amortisation value valuation amortisation value

Company Computer software 23 980 (16 081) 7 899 21 103 (14 603) 6 500Other intangible assets 3 173 (621) 2 552 2 344 (286) 2 058

Total 27 153 (16 702) 10 451 23 447 (14 889) 8 558


Notes to the annual financial statements (continued)

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4. Intangible assets (continued)Reconciliation of intangible assets – Group – 2010 Opening Disposal of Figures in Rand thousand balance Additions subsidiary Amortisation Total

Computer software 6 731 2 987 (28) (1 617) 8 073Other intangible assets 2 058 830 - (336) 2 552

8 789 3 817 (28) (1 953) 10 625

Reconciliation of intangible assets – Group – 2009 Opening Figures in Rand thousand balance Additions Amortisation Total

Computer software 5 693 2 111 (1 073) 6 731Other intangible assets 208 1 887 (37) 2 058

5 901 3 998 (1 110) 8 789

Reconciliation of intangible assets – Company – 2010 Opening Figures in Rand thousand balance Additions Amortisation Total

Computer software 6 500 2 877 (1 478) 7 899Other intangible assets 2 058 830 (336) 2 552

8 558 3 707 (1 814) 10 451

Reconciliation of intangible assets – Company – 2009 Opening Figures in Rand thousand balance Additions Amortisation Total

Computer software 5 558 1 899 (957) 6 500Other intangible assets 208 1 888 (38) 2 058

5 766 3 787 (995) 8 558

5. Investment in subsidiary Carrying Carrying amount amount % holding % holding R’000 R’000Name of company 2010 2009 2010 2009

Advent Asset Management 100 100 71 71

The carrying amount of subsidiary is shown at cost, net of impairment losses. There has been no change in the shareholding of Advent in the current year. The PIC has been a beneficiary of the Pan African Infrastructure Development Fund Facilitation Trust since its establishment. PAIDF has been dormant since 2009 and is in the process of being deregistered.

The directors’ value of the unlisted subsidiaries in the Group equates to the net asset value of the subsidiaries (investment) hence there is no impairment in the current year.

Subsidiaries for which control was lost during the yearThe Group lost control of Harith Fund Managers on 30 June 2009.


Loss on disposal (7 224) – – –

The Group disposed of its controlling interest of 54% in Harith Fund Managers. The accounting loss has been included in operating expenses in the statement of comprehensive income.

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6. Investments in associates Carrying Carrying amount amount % holding % holding R’000 R’000Name of company 2010 2009 2010 2009

Harith Fund Managers 46 100 8 407 –

Harith Fund ManagersThe carrying amount of the associate is shown net of impairment losses. There has been no impairment loss in the associate in the current year. The carrying value approximates the fair value of the associate.


7. Financial assets at fair value through profit or lossAt fair value through profit or loss – designatedUnlisted shares – 1 202 – 1 202Terms and conditionsCertificate of Deposit 127 784 37 554 127 784 37 554Promissory notes 19 175 – 19 175 –Bills 38 155 – 38 155 –

185 114 38 756 185 114 38 756

At fair value through profit or loss – held for tradingAsset-backed securitisation vehicle – 2 425 – 2 425Terms and conditions

Current assetsDesignated at fair value through profit or loss 185 114 38 756 185 114 38 756At fair value through profit or loss – held for trading – 2 425 – 2 425

185 114 41 181 185 114 41 181

The fair values of the financial assets were determined as follows:• The fair values of listed or quoted investments are based on the quoted market price.• The fair values on investments not listed or quoted are estimated using the yield curve valuation technique

using the nominal rate of interest compounded continuously. The method is consistent with the prior year.

For debt securities classified as at fair value through profit or loss, the maximum exposure to credit risk at the reporting date is the carrying amount.

The Group has not reclassified any financial assets from cost or amortised cost to fair value, or from fair value to cost or amortised cost during the current or prior year.

The maximum exposure to credit risk at the reporting date is the fair value of each class of financial instrument mentioned above and the fair value of the trade and other receivable disclosed in note 11. The Group has not pledged any collateral as security.

The hierarchy of all the financial instruments is level 2.

Credit quality of other financial assetsThe credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates.



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7. Financial assets at fair value through profit or loss (continued)Debt securities at fair value through profit or lossHeld for tradingCredit ratingAAA – 2 425 – 2 425

Designated at fair value through profit/loss Credit rating AAA 53 376 20 284 53 376 20 284AA+ 40 785 17 270 40 785 17 270AA/AA- 80 792 – 80 792 –A+ 10 161 – 10 161 –Other – unlisted shares – 1 202 – 1 202

185 114 38 756 185 114 38 756

8. Financial instruments by categoryThe carrying value of the financial instruments approximates the fair value. All financial liabilities are carried at amortised cost.

The accounting policies for financial instruments have been applied to the line items below: Fair value Fair value through through profit or profit Loans and loss – held or loss – Figures in Rand thousand receivables for trading designated Total

Group – 2010Other financial assets – – 185 114 185 114Trade and other receivables 29 648 – – 29 648Cash and cash equivalents 174 204 – – 174 204

203 852 – 185 114 388 966

Group – 2009 Other financial assets – 2 425 38 756 41 181Trade and other receivables 39 373 – – 39 373Cash and cash equivalents 339 172 – – 339 172

378 545 2 425 38 756 419 726

Company – 2010 Other financial assets – – 185 114 185 114Trade and other receivables 28 356 – – 28 356Cash and cash equivalents 164 353 – – 164 353

192 709 – 185 114 377 823

Company – 2009 Other financial assets – 2 425 38 756 41 181Trade and other receivables 31 714 – – 31 714Cash and cash equivalents 253 475 – – 253 475

285 189 2 425 38 756 326 370

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9. Deferred taxDeferred tax assetDeferred tax 1 502 1 938 1 502 1 177

Reconciliation of deferred tax asset (liability)At beginning of the year 1 938 1 977 1 177 1 211Leave pay (340) 687 (251) 635Prepayments (350) (37) (386) –Fixed assets (269) (284) (269) (284)Bonus provision (662) (29) – –Unrealised profit 125 (314) 125 (314)Leases 15 82 61 73Other provision 840 (147) 840 (147)Equity investments 205 – 205 –Other – 3 – 3

1 502 1 938 1 502 1 177

10. Operating lease asset (accrual)Non-current liabilities (164) (168) – –Current liabilities (226) (45) (226) (45)

(390) (213) (226) (45)

Amount expensed (7 411) 3 984 (6 301) (1 049)Amount paid 7 234 (4 197) 6 120 1 004

(177) (213) (181) (45)

11. Trade and other receivables Trade receivables 28 153 34 601 25 259 26 351Prepayments 4 750 3 826 4 625 3 678VAT – 311 – –Loan account – 2 364 1 698 2 259Other receivable 1 495 2 408 1 399 3 104

34 398 43 510 32 981 35 392

Trade and other receivables past due but not impaired 60 to 90 days 444 468 444 –

Reconciliation of the allowance for doubtful debts (trade receivables) Opening balance 80 113 80 113Unused amounts reversed – (33) – (33)

80 80 80 80

As at year-end none of the trade and other receivables were individually determined to be impaired and the allowance for doubtful debts was not utilised during the year.



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12. Cash and cash equivalentsCash and cash equivalents consist of:Cash on hand 6 17 2 4Bank balances 34 691 179 153 24 844 93 860Short-term deposits 139 507 160 002 139 507 159 611

174 204 339 172 164 353 253 475

Credit quality of cash at bank and short-term deposits The credit quality of cash at bank and short-term deposits that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or historical information about counterparty default rates:

Credit rating AAA 41 788 122 215 41 788 41 905AA+ 40 171 117 750 40 171 117 750AA- 71 214 26 392 61 367 21 005A+ 21 025 72 811 21 025 72 811Other 6 4 2 4

174 204 339 172 164 353 253 475

13. Share capitalAuthorised100 ordinary shares of R10 each 1 1 1 1

Issued100 ordinary shares of R10 each 1 1 1 1

14. Finance lease obligation Minimum lease payments due– within one year 1 061 698 1 061 698– in second to fifth year inclusive 634 548 634 548

1 695 1 246 1 695 1 246Less: Future finance charges (137) (98) (137) (98)

Present value of minimum lease payments 1 558 1 148 1 558 1 148

Present value of minimum lease payments due – within one year 950 621 950 621– in second to fifth year inclusive 608 527 608 527

1 558 1 148 1 558 1 148

Non-current liabilities 608 527 608 527Current liabilities 950 621 950 621

1 558 1 148 1 558 1 148

It is the Group’s policy to lease certain equipment under finance leases. Finance leases are leases of which substantially all the risks and rewards incidental to ownership of an asset have been transferred, although the title has not been transferred. These finance leases consist of nine different contracts with different effective dates and are over a three year period, repayable in quarterly instalments over the lease period.

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15. ProvisionsReconciliation of provisions – Group – 2010

Opening Utilised/ Disposal of Figures in Rand thousand balance Additions forfeited Reversed subsidiary Total

Legal proceedings 1 180 3 000 – (1 180) – 3 000Leave pay 5 564 3 499 (4 329) – (849) 3 885Bonus 2 364 – (63) – – 2 301

9 108 6 499 (4 392) (1 180) (849) 9 186

Reconciliation of provisions – Group – 2009 Opening Utilised/Figures in Rand thousand balance Additions forfeited Total

Legal proceedings – 1 180 – 1 180Leave pay 2 668 3 100 (204) 5 564Bonus 2 467 – (103) 2 364Workman’s Compensation 194 – (194) –

5 329 4 280 (501) 9 108

Reconciliation of provisions – Company – 2010Legal proceedings – 3 000 – 3 000Leave pay 4 399 3 433 (4 329) 3 503

4 399 6 433 (4 329) 6 503

Reconciliation of provisions – Company – 2009 Leave pay 2 133 2 464 (198) 4 399


16. Current tax payable (receivable)Opening balance (2 510) 28 744 (1 608) 17 542Income tax for the year 42 539 67 273 26 776 38 849Tax paid during the year (inclusive of adjustment on sale of businesses) (48 820) (98 527) (30 905) (57 999)

(8 791) (2 510) (5 737) (1 608)

17. Trade and other payablesTrade payables 12 045 9 057 11 133 7 320VAT 1 653 3 264 1 164 2 159Accrued expenses 5 890 5 396 5 816 5 000Other payables 2 133 1 742 2 078 1 800

21 721 19 459 20 191 16 279

18. RevenueManagement fees 310 247 390 097 244 225 253 930

19. Other income Other income consists of:Consulting fees – 6 115 – 6 115Board fees 1 706 1 257 1 779 2 234Sponsorships 330 50 330 37Profit on sale of financial assets 850 – 850 –Profit on forex 250 – 250 –Other 9 – 9 –

3 145 7 422 3 218 8 386



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20. Operating profitOperating profit for the year is stated after accounting for the following:Income from subsidiariesDividends – – 77 112 12 506

Operating lease chargesPremises• Contractual amounts 8 873 7 767 7 285 5 669Equipment • Contractual amounts 1 877 2 101 1 766 1 881

10 750 9 868 9 051 7 550

(Loss)/ profit on sale of property, plant and equipment – (5) – (5)(Loss)/profit on sale of investment (or subsidiaries, joint ventures and associates) (7 224) – – –(Loss)/profit on sale of financial assets at fair value through profit or loss 850 – 850 –Impairment on property, plant and equipment 66 3 66 3Loss/(profit) on exchange differences (242) 34 (250) 28Amortisation on intangible assets 1 953 1 110 1 814 995Depreciation on property, plant and equipment 4 420 4 318 3 768 3 021Employee costs 137 312 125 620 108 576 96 044Research and development 150 – – –

21. Investment income Dividend incomeSubsidiaries – Local – – 77 112 12 506

Interest income Financial assets at fair value through profit/loss 25 133 29 461 23 083 21 877Bank 5 800 8 347 5 174 6 089

30 933 37 808 105 369 40 472

22. Fair value adjustmentsOther financial assets 421 1 120 421 1 120

Fair value through profit or loss Unrealised profit or loss on financial assets 421 389 421 389Unrealised fair value on unlisted investment – 731 – 731

421 1 120 421 1 120

23. Finance costsBank 245 169 240 164

24. TaxationMajor components of the tax expenseCurrentLocal income tax – current period 34 827 65 189 26 776 38 849STC 7 712 2 084 – –

42 539 67 273 26 776 38 849

Deferred Temporary differences 3 293 40 (326) 35

45 832 67 313 26 450 38 884

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24. Taxation (continued)Reconciliation of the tax expenseReconciliation between accounting profit and tax expense

Accounting profit 117 682 225 594 170 075 147 386

Tax at the applicable tax rate of 28% (2009: 28%) 32 951 63 167 47 621 41 268

Tax effect of adjustments on taxable income Deferred tax correction (prior year) – 587 – 587Prior year underprovision – 347 – – Permanent differences 5 169 262 (21 171) (2 971) Secondary Tax on Companies 7 712 2 084 – – Temporary differences – 866 – –

45 832 67 313 26 450 38 884

25. Auditors’ remunerationFees 3 112 3 034 2 874 2 786

26. Cash generated from operationsProfit before taxation 117 682 225 595 170 075 147 387Adjustments for: Depreciation and amortisation 6 373 5 428 5 582 4 016Loss/(profit) on sale of assets 6 374 5 (850) 5Income from equity accounted investments (2 253) – – –Dividends received – – (77 112) (12 506)Interest received (30 933) (37 808) (28 257) (27 966)Finance costs 245 169 240 164Fair value adjustments (421) (1 120) (421) (1 120)Impairment loss 66 3 66 3Movements in operating lease assets and accruals 177 (462) 181 (493)Movements in provisions 1 341 3 779 2 104 2 266

Changes in working capital: Trade and other receivables 4 839 9 728 2 411 13 104Trade and other payables 6 255 (1 722) 3 914 (386)

109 745 203 595 77 933 124 474

27. Tax paid Balance at beginning of the year 2 510 (28 744) 1 608 (17 542)Current tax for the year recognised in profit or loss (42 539) (67 273) (26 776) (38 849)Adjustment in respect of businesses sold and acquired during the year including exchange rate movements 8 700 – – –Balance at end of the year (8 791) (2 510) (5 737) (1 608)

(40 120) (98 527) (30 905) (57 999)

28. Dividends paid Dividends (78 911) (8 337) (78 911) –



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29. CommitmentsOperating leases – as lessee (expense) Minimum lease payments due– within one year 6 620 8 223 6 243 6 120– in second to fifth year inclusive 1 441 860 – 5 476

8 061 9 083 6 243 11 596

Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for terms ranging from two to five years for the Group.

30. Related partiesRelationshipsSubsidiaries Refer to note 5Associates Refer to note 6Members of key management Refer to the disclosure of remuneration on pages 76 to 77Related party balances

Services deliveredState controlled entities and national departments – – 20 282 23 185

Purchased services Other – – (830) (60)

Related party transactions

Services delivered State controlled entities and national departments – – 244 225 253 930

Purchased services Other – – (3 970) (2 915)

Compensation to executive directors and senior management Short-term employee benefits – – 34 257 32 879Post-employment benefits – Pension – Defined contribution plan – – 1 715 1 613

– – 35 972 34 492

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31. Directors’ emoluments Pension Figures in Rand thousand Emoluments paid Total

Executive 2010For services as employees 9 976 435 10 411

Non-executive 2010For services as directors 3 166 – 3 166

32. Prior period errors2009Included in trade and other receivables in the 2008 Group annual financial statements was a negative “Receivable from subsidiary” of R1 967 531 disclosed in note 10. The R1 967 531 comprises the following balances:

Property, plant and equipment (2 354 796)PAIDF – Current account 387 265

Receivable from subsidiary (1 967 531)

This prior year error has been corrected in the 2009 Group annual financial statements. The PAIDF Trust loan has been eliminated on consolidation as it is a loan to Harith Fund Managers. Both the PAIDF Trust and Harith are subsidiaries of the Group.

The PAIDF current account of R387 265 remains, as the PAIDF is external to the Group and this amount is owed to Harith from the PAIDF. This has no impact on the reported retained earnings for 2008, hence it was not restated.

33. Risk managementInterest rate riskDefinition: The potential financial loss as a result of adverse movements in interest rates that affects the value of bonds, money market instruments, and other interest rate sensitive assets.

PICOF has exposure to interest rate sensitive instruments as stated above. The investment mandates prescribe how the assets should be managed, in line with liquidity needs and liability profiles.

Market riskDefinition: The risk of a change in the actual or effective market value or earnings of a portfolio of financial instruments caused by a move in market variables such as equity, bond and commodity prices, currency exchange rates, interest rates, credit spreads, recovery rates, correlations and implied volatilities in all of the above.

The operational controls implemented to manage risks arising from market volatility include:• Management of monies in accordance with investment mandates, which dictate the investment parameters,

maximum holdings and investment limits;• Portfolio review by virtue of daily access to portfolio information and regular reporting;• Monitoring of positions against mandate limits; and• Auditing by internal and external auditors.

The degree of market risk prevalent in any portfolio is primarily determined by the benchmark portfolio composition, as expressed in the investment mandate.



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33. Risk management (continued)PIC’s fee income is contained in each client’s mandate. The chart below reflects the movement on PIC’s money market portfolio for FY2010 and FY2009.

Liquidity riskDefinition: This refers to the risk of being unable to close out open financial instrument positions quickly enough and in sufficient quantities at near-market prices to avoid adverse financial impacts as a result of there being insufficient volume in the market (or where the market is suspended or closed).

The PIC Operations Fund’s strategic asset allocation stipulates a range of 60% – 100% of the total holdings that must comprise liquid assets.

The maturity analysis for interest bearing assets at year-end was as follows:

Credit riskDefinition: The risk that a borrower or counterparty to a financial transaction will fail to perform according to the terms and conditions of the contract, thus causing the holder of the claim to suffer a loss in cash flow or market value.

Factors that influence PIC’s credit decisions include credit rating agencies, assessments of the general operating environment, the competitive market position of a counterparty or issuer, reputation, deal tenor, the level and volatility of earnings, corporate governance, risk management policies, liquidity and capital management.

The mandate credit risk parameters, as well as the PIC credit risk policy, as well as the mandate credit risk policy are the primary tools used to constrain the magnitude and tenor of exposures to counterparties and issuers. The mandate of the PIC Operations Fund permits investment in the following asset classes: cash, money markets, debt capital markets that are less than seven years and equities.

Credit risk limits incorporate measures of both current and potential exposures and are set and monitored by broad risk type, product type and maturity. Credit mitigation techniques are transaction dependent but may include, where appropriate, the right to be furnished with collateral or an equity injection by counterparties, particularly in unlisted investments.

Sensitivity analysis

Basis points-3 000

-2 000

-1 000

0

1 000

2 000

3 000

-200 -150 -100 -50 0

50 100 150 200

2009/10 2008/09

R’0

00

PICOF – Maturity analysis for interest bearing assets

6 months 6 months

Ran

d m

illio

n

0

50

100

150

200

250

300

20092010

266

59

143

57

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33. Risk management (continued)Credit risk (continued)PIC manages credit risk by utilising various best practice models as a guide on limit setting for banks and ratings from external credit rating agencies on counterparties. Limits are approved by the relevant committees, in accordance with the Board-approved delegation of authority. Risk reports on these exposures are regularly submitted to the Portfolio Committee, Investment Committee, Audit and Risk Committee and Board.

Financial assets exposed to credit risk at year-end were as follows:


Financial instrument Asset backed securitisation vehicle – 2 425 – 2 425Certificate of deposit 127 784 37 554 127 784 37 554Cash and cash equivalents 174 204 339 172 164 353 253 475Trade and other receivables 29 648 39 373 28 356 31 714Bills 38 155 – 38 155 – Unlisted investment – 1 202 – 1 202Promissory notes 19 174 – 19 174 –

Other riskCollateral riskThis is regarded as integral to credit risk, no collateral was held on the Group for the period under review, which is consistent with previous periods.

Operational riskOperational risk is the risk of financial loss and the reputational loss arising as a result of human or system error, a failure in internal procedures, or losses that arise due to external factors that are not a consequence of market risk in the portfolio. Examples of risk categories are errors in transaction settlements, in PIC’s inability to recruit and retain employees with the right expertise, IT-system down time or delivery failure by external suppliers. Risks of this nature are guarded against by systems of internal control, annual external audits, and continuous internal audits to review the effectiveness of the control environment, risk management programmes and external insurance policies.

The Risk Framework approved by the Board sets out how operational risks should be managed across the corporation. The Group’s Internal Audit department conducts regular tests to ensure Corporation wide compliance with the Risk Framework. An enterprise wide risk analysis will be undertaken annually to assess areas where risk treatment needs to be prioritised. The outputs of the enterprise wide risk assessment accordingly inform amendments to the Risk Framework policies and procedures.

Regulatory and legislative risksAs the financial services environment is highly regulated, the Group’s business could be seriously impacted by non compliance to regulatory and legislative requirements. Recent years have included changes in the corporate governance arena, anti-money laundering laws, disclosure of conflicts of interest and qualifications, auditor independence and disclosure practises.

PIC Compliance and Internal Audit departments undertake frequent reviews to ensure compliance with relevant legislation.

Concentration riskConcentration risk is the risk of losses arising due to poor diversification within funds. This relates to both credit and market risk as excessive concentrations in a particular or correlated asset class, sector, issuer, term structure or financial instrument type can result in undesirable risk exposures. This risk is managed in accordance with the investment mandate, which dictates the level of concentration.

The fixed income portfolio was heavily skewed towards money market investments, which are spread across banks to reduce and diversify the risk, thereby reducing the risk the Group has to the domestic financial market in the (unlikely) event that a liquidity crisis is suffered by an issuer.



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33. Risk management (continued)Currency riskThe Group is exposed to currency risk as Harith’s main source of income is derived from management fees on the Pan African Infrastructure Development Fund (PAIDF). These fees are calculated as a percentage of the committed capital amount by the investors in the PAIDF. Management fees are denominated in the currency of the PAIDF, being in US dollars. Management fees are settled on a quarterly basis in advance, in rand.

Management fees are drawn down from the investors in US dollars by the PAIDF as a percentage of the committed funds. The conversion to rand is done at the time of receipt of the fees and paid over to the company in rand.

Capital adequacy riskCapital adequacy requirements are reviewed on a regular basis to ensure that cash resources are adequate to meet funding requirements and obligations.

34. Going concernThe financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.

35. Post balance sheet eventsThe Group’s financial statements were issued on 31 May 2010 as required by the Public Finance Management Act, 1999 (Act No 1 of 1999). The Chairman has authorised the Group financial statements for issue. The Board has the power to amend the financial statements after the issue date.

The Chief Executive Officer (CEO), Mr Brian Molefe’s fixed term contract ended on 12 April 2010. The CEO’s contract was extended for a further four months to facilitate a smooth transition.

Mr Athol Rhoda, a non-executive director for the PIC Board, resigned in July 2010.

36. Assets under managementThe PIC is entrusted to manage investments on behalf of its clients.

The fair value of the assets under management by PIC for 2010 is R911,8 billion (2009: R738,3 billion)

The fair value of the assets under management by Advent for 2010 is R3,7 billion (2008: R2,5 billion).

37. Capital managementThe Group is licensed as a financial services provider in terms of section 8 of the Financial Advisory and Intermediary Services Act, 2002 (Act No 37 of 2002). The Financial Services Board (FSB) requirements are monitored and adhered to. There are no regulatory capital management ratios imposed on the Group.

38. Capital commitmentsCapital commitments includes all items of capital expenditure for which specific Board approval has been obtained up to the reporting date. There were no capital commitment approvals during the financial year under review. The new office building for the PIC company is funded using internal resources, hence there is no interest accrued.


Authorised capital expenditure* 278 000 278 000 278 000 278 000Less: Expenditure to the end of year (7 335) – (7 335) –

270 665 278 000 270 665 278 000

*The Board had approved the development of a new office building for the PIC company of R278 million on 13 March 2009.

39. Contingent liabilitiesPIC restructuringThere are potential advisory fees amounting to R1,5 million.

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1. Non-executive directors (excluding Advent)Figures in Rand thousand Fees for Names services Pension Medical Bonus Total

Moses, M 235 602 – – – 235 602Mtoba, N* 109 160 – – – 109 160Ntombela, V 452 810 – – – 452 810Nyanda, S* 14 739 – – – 14 739Rhoda, A 543 697 – – – 543 697Sehoole, I 312 861 – – – 312 861Sithole, Z 402 527 – – – 402 527Strydom, J 534 685 – – – 534 685Waja, Y 559 879 – – – 559 879

3 165 960 – – – 3 165 960

* These non-executive directors resigned during the current financial year.

2. Executive directors Basic salary and other Names allowances Pension Medical Bonus Total

Kekana, A (COO) 1 755 636 131 506 28 202 1 368 680 3 284 024Matjila, D (CIO) 1 722 321 131 506 61 617 1 431 290 3 346 734Molefe, B (CEO) 1 972 560 172 089 61 617 1 574 396 3 780 662

5 450 517 435 101 151 436 4 374 366 10 411 420

3. Senior management (excluding Advent) Basic salary and other Pension/ Names allowances Provident Medical Bonus Total

Busetti, C 1 471 716 111 648 16 636 – 1 600 000Dekker, P 918 415 71 155 45 579 710 000 1 745 149Dlamini, M 360 460 27 040 – – 387 500Naidoo, K 893 011 66 989 – – 960 000Smit, L 1 123 673 100 736 36 768 847 978 2 109 155Van der Vent, W 1 341 424 103 427 61 617 967 692 2 474 160Xaba, EZ 242 191 19 190 13 620 – 275 001Sishi, N 433 282 33 727 16 324 – 483 333Chikwata, P 255 404 18 143 5 490 – 279 037Moloi, M 612 853 53 302 16 377 289 339 971 871Louw, W 459 742 38 894 – 200 000 698 636Motsamai, P 526 383 42 600 51 505 338 006 958 494Szcesniak, A* 699 276 49 109 19 688 876 693 1 644 766More, M 496 486 38 379 15 135 – 550 000Varghese, S 1 002 901 72 726 – 653 725 1 729 352De Nyschen, G 693 107 51 094 – 475 000 1 219 201Murray, J 87 779 6 597 5 624 – 100 000Muleya, D 612 587 47 701 34 494 250 000 944 782Mabuza, Z 580 354 44 600 24 666 70 795 720 415Solomon, R 919 443 69 716 26 286 521 201 1 536 646Rughubar, A 795 049 62 378 51 135 353 621 1 262 183Macheka, P 743 236 62 877 – 486 773 1 292 886De Jonge, M 676 738 53 164 51 765 – 781 667Creighton, T* 470 227 35 189 27 510 304 218 837 144

16 415 737 1 280 381 520 219 7 345 041 25 561 378

* These senior managers resigned during the current financial year.

Disclosure of remuneration

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4. Non-executive directors – AdventFigures in Rand thousand Fees for Names services Pension Medical Bonus Total

Van der Westhuizen, R 152 440 – – – 152 440

5. Senior management – Advent Basic salary and other Pension/ Names allowances Provident Medical Bonus Total

Arthur, C 503 816 41 595 8 496 292 528 846 435August, N 424 647 35 623 15 714 227 777 703 761Goliath, G 549 816 45 848 13 779 305 266 914 709

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Statement from secretary

In terms of section 268G(d) of the Companies Act, 61 of 1973 as amended (the Companies Act), I certify that, to the best of my knowledge and belief, the Group has lodged with the Registrar of Companies for the year ended 31 March2010, all such returns as are required of a public company in terms of the Companies Act and that such returns are true, correct and up to date.

Wilhelmina LouwGroup secretary

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Top 40 listed equity holdings

Percent of company held Company name (%)

1. Growthpoint Properties Limited 27,572. MTN Group Limited 23,183. Brait SA 20,034. Mondi Limited 19,595. Freeworld Coatings Limited 19,566. Lewis Group Limited 19,127. Netcare Limited 18,808. Clicks Group Limited 18,659. Remgro 18,2910. Bidvest Group Limited 18,2011. Tongaat-Hulett Limited 17,7012. AECI Limited 17,3713. Spar Group Limited 17,2814. Woolworths Holdings 17,1915. J.D. Group 17,1816. Mr. Price Group 16,9117. Barloworld 16,5218. Sasol Limited 16,4719. Foschini 15,9420. JSE Limited 15,7321. Iliad Africa 15,3222. Truworths International 15,3123. Reunert 15,2424. Sanlam 15,0925. Metropolitan Holdings Limited 15,0126. Steinhoff International 14,8927. Nampak 14,7528. Massmart 14,7229. Reinet Investments Sca 14,6030. Investec Limited 14,4531. Imperial Holdings 14,3532. Pretoria Portland Cement 14,3533. Shoprite Holdings 14,3334. African Bank Investment 14,3035. Adcock Ingram Holdings 14,2436. RMB Holdings 13,9937. Alexander Forbes Preference Share Investment Limited 13,7738. Murray & Roberts Holdings 13,3139. AVI Limited 13,1940. Aveng 12,82

as at 31 March 2010

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General information

Country of incorporation and domicile South Africa

Nature of business and principal activities Investment management

Directors Nene Nhlanhla (Deputy Minister of Finance) (Chairman) (Non-executive)

Ms Kekana, Albertinah (Executive) (COO) Dr Matjila, Daniel (Executive) (CIO) Ms Moses, Moira (Non-executive) Mr Ntombela, Veli (Non-executive) Mr Sehoole, Ignatius (Non-executive) Mr Sithole, Zakhele (Non-executive) Mr Strydom, Jan (Non-executive) Mr Waja, Younaid (Non-executive)

Registered office PIC Building Glenfield Office Park Cnr Oberon and Glenwood Road Faerie Glen 0043

Business address PIC Building Glenfield Office Park Cnr Oberon and Glenwood Road Faerie Glen 0043

Postal address Private Bag X187 Pretoria South Africa 0001

Auditors Office of the Auditor-General of South Africa

Secretary Wilhelmina Louw

Company registration number 2005/009094/06

Address of Secretary PIC Building Glenfield Office Park Cnr Oberon and Glenwood Road Faerie Glen 0043

RP 92/2010ISBN: 978-0-621-39418-4

www.pic.gov.za

Documents

Committed to servingpmg-assets.s3-website-eu-west-1.amazonaws.com/docs/2010/10112… · 2 Highlights of the year assets under management The fair value of assets under management