14 November 2007

IDC Annual Report - 2006/07Accelerating Sustainable Economic Development

Geoffrey QhenaCEO

Mission and Vision

“To be the primary driving force of commercially sustainable

industrial development and innovation to the benefit of South Africa and the rest of the African continent”

• Contribute to the generation of balanced, sustainable economic growth in South Africa and Africa

• Economically empower the South African population

• Promote entrepreneurship through the building of competitive industries and enterprises based on sound business principles

IDC’s Role

• To support sustainable development, IDC invests in businesses showing economic merit;

• Some businesses are not often funded because of perceived high risks;

– IDC views this as a market failure;

– IDC does more detailed assessments and funds investments which would not otherwise happen;

• IDC plays a critical role in assisting industries to develop, in ways which meet South Africa’s needs:

– ASGISA;

– Supporting industrial policy development;

– Investments in targeted sectors;

• Cooperate with national and provincial government, DFIs, and other COTII institutions;

IDC’s Objectives

• Sustainable job creation;

• Regional development– Rural areas

– Provincial spread

– Townships

– IDZs;

• BBBEE;

• SMEs;

• Entrepreneurs;

• Enhance balance of payments position by encouraging exports;

• Support industrial development in the rest of Africa;

• Achieve these goals while remaining financially sustainable

2006/07 Annual Highlights

• Facilitated the creation of a record of more than

33 000 direct jobs in South Africa with a further 3 900 in the rest of Africa as a result of funding activities;

• R5.9 billion in funding approvals for 241 enterprises;

• About 24% of the jobs to be created and 20% of approvals to three provinces with highest unemployment rates;

• 69% of the number of approvals relate to SMEs;

• 162 transactions totalling R3.4 billion to black empowered companies;

• More than 680 SMEs received training and business support;

• Earmarked R250 million in venture capital for the next five years;

• Facilitated six workers’ trusts and 15 community foundations in our investments;

• The IDC won Businessmap Foundation/Business Report award for Top Development Financier for Black Economic Empowerment for the fourth consecutive year, with one of our clients winning the Top Black Business award and another two clients reaching finals in this category.

 

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Job Creation

Approval Value

*9-month period

Provincial Involvement

Examples of specific investment approvals

• Marine fabrication and construction yard catering for the West African offshore oil and gas industry – Saldanha, Western Cape – 700 permanent jobs – 5% community participation

• Mining services for the diamond mining industry – Barkley West, Northern Cape – 212 permanent jobs – 10% workers participation

• Cement blending supplying the cement brick and construction industry – Mabopane, North West – 50 permanent jobs – 100% black owned and managed

• Tourist lodges catering for the local and foreign 3-star market – Nkambeni, Mpumulanga – 250 permanent jobs

• Expansion of dried fruit plant catering for the export market – Marulaneng, Limpopo – 80 permanent jobs

• 250 bed private hospital – eThekwini, KwaZulu-Natal – 570 permanent jobs

• Call centre services – Randburg, Gauteng – 540 permanent jobs

• Production of fertilizers, further beneficiating the upstream chemicals industry’s products – Sasolburg, Free State – 58 permanent jobs – 44% black ownership

• Stainless steel strip cold rolling mill – Coega, Eastern Cape – 105 permanent jobs

Value of IDC Approvals per Province (2006/07) Relative to Provincial GDP

Eastern Cape

Free State

Gauteng

KwaZulu-Natal

Limpopo

Mpumalanga

North West

Northern Cape

Western Cape

SA Total

Source: StatsSA, IDC Calculations

Regional Development

• R597 million approved for developments in townships, expecting to create 5 100 new jobs and save 1 400 existing ones

• Over 9 100 jobs will be created in rural districts of South Africa

• “Development agencies” enable IDC to participate more intensively in rural development and unlock economic potential of various provinces

• The agency concept starting to bear fruit, with various projects identified and being implemented

Agency Inception Project Information

Nkonkobe 2003 • Instrumental in reviving Kat River citrus development

Blue Crane 2004 • Boschberg Mountain Development (with Tourism) estimated R800 m project

• Flower project 8 women own project• Vegetable seed project with 28 beneficiaries• Airport project accessed R5m grant and

employs 53 temporary workers• Fruit project 4 permanent and 32 temporary

workers• Pomegranates project (4000 tree pilot)

Hibiscus 2003 • Beachfront plan approved – project team in place, funding received from National Treasury

Mandela Bay 2003 • Govan Mbeki Avenue upgrade (R 12m)• Donkin Reserve (R 9m)• UDZ tax incentive facilitation • Cleaning and security (300 jobs)

Illembe 2003 • Amatikula Fisheries (R36 m) KZN Growth Fund

• 3 Gijima funded projects, 5 under review

Some Development Agency Projects

BEE

• 162 transactions totaling R3.4 billion to black empowered companies;

• BEE accounted for 68% of the total number of approvals and 58% of the total value of financing approved;

• Specific targeting of expansions and new BEE companies, and reduced focus on BEE acquisitions financed;

• 32% of funding approved was for expansions and start-ups by black business;

• R1 026 million approved for acquisitions;

• Extension of the competitive financing scheme.

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Number of Empowerment Approvals

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SME Support

Examples of Business Support provided• Financing provided to 167 SMEs;

• 70% of the number and 18% (R985m) of the value of IDC’s approvals are to SMEs;

• To provide finance to a wider range of SMEs (especially new entrepreneurs), some gaps need to be addressed:

• Lack of skills;

• Lack of necessary support systems;

• Lack of access to financial institutions;

• Entrepreneurial development initiatives introduced to promote entrepreneurship and enhance sustainability of IDC funded businesses

• IDC business support to clients;

• More than 680 delegates attended entrepreneurship courses sponsored by IDC in Gauteng, Northern Cape, Eastern Cape, Limpopo, and Free State.

Client Support Provided

Hlumisa - Eastern Cape

• Assistance in selecting and setting up financial management systems, design and documentation of costing system, design of leads management system (new clients) and developing marketing strategy

ITT - East Rand • Assisted in implementing QA system, capacity management

VAC Cleaning -Cape Town

• Assisted through development of financial management system, and in strategic decision-making while mentoring owners over long period

Competitive Financing for Development

• R1 billion fund providing financing for 5 schemes expired December 2006:

• Pro SME Jobs Scheme;

• Pro BEE Expansionary acquisitions scheme;

• Pro Franchise Scheme;

• Pro Forestry Scheme;

• Pro Orchards Scheme;

• Loans priced at up to prime less 5%;

• Assisting 115 SMEs to create 7450 direct job opportunities;

• Extension of Pro Orchards, Pro Forestry, Pro BEE Expansionary Acquisitions Schemes.

Some High Impact Projects

IDC identified the berry industry as a industry with potential:

• High value agricultural crop

• High international demand – healthy food consumption trends

• Labour intensive

• Export crop

Project Location Impact

Blue Mountain Berries

George, Western Cape

Blueberries, 70ha, 450 jobs

Amathole Berries

Stutterheim, Eastern Cape

Blueberries, 330ha, 2,300 jobs

Echo Berries Brits, North West

Strawberries

Amajuba Berries

Charlestown, KwaZulu-Natal

Raspberries, 100ha, 795 jobs

Some High Impact Projects

The fish processing industry

IDC’s current exposure (including commitments) to this industry = R60m

Exports

• The budgeted export volumes will contribute at least R6.7m in export earnings per annum.

Sub-sectors supported:

• Abalone;

• Fish Packing & canning; and

• Ice production for the fish industry.

Regional: exposure in Western, Eastern & Northern Cape;

BEE exposure includes:

• Bluefin;

• Mosselbay Fish Processors

Industry development needs

• Shortage of processing capacity (hake and lobster) in Hout Bay;

• Lack of HACCP compliant facilities;

• Lack and availability of ice.

Some High Impact Projects

Eastern Cape Biomass

• Black empowered company situated in Coega Industrial Development zone;

• Manufacture of fuel pellets;

• 10 000 tons per month for European markets;

• Biomass is an environmentally friendly alternative source of energy;

• In line with IDC strategy to invest in clean fuels;

• 370 full time jobs created;

• Ownership shared with workers and community;

• IDC investment R59m

Some Other Investment Approvals

• Marine fabrication and construction yard catering for the West African offshore oil and gas industry – Saldanha, Western Cape – 700 permanent jobs – 5% community participation

• Mining services for the diamond mining industry – Barkley West, Northern Cape – 212 permanent jobs – 10% workers participation

• Cement blending supplying the cement brick and construction industry – Mabopane, North West – 50 permanent jobs – 100% black owned and managed

• Tourist lodges catering for the local and foreign 3-star market – Nkambeni, Mpumulanga – 250 permanent jobs

• Expansion of dried fruit plant catering for the export market – Marulaneng, Limpopo – 80 permanent jobs

• 250 bed private hospital – eThekwini, KwaZulu-Natal – 570 permanent jobs

• Call centre services – Randburg, Gauteng – 540 permanent jobs

• Production of fertilizers, further beneficiating the upstream chemicals industry’s products – Sasolburg, Free State – 58 permanent jobs – 44% black ownership

• Stainless steel strip cold rolling mill – Coega, Eastern Cape – 105 permanent jobs

Beyond Investment

Herdmans – Atlantis, Western Cape

• Herdmans is a producer of linen yarn, located in Atlantis in the Western Cape.

• IDC became involved with the company in 2001, when it provided funding to help fund a portion of Herdmans Ireland’s operations to relocate to South Africa.

• By 2005, all the Irish operations except a dye house and the marketing operations had been relocated to the premises in Atlantis.

• At the start of 2005, quotas on Chinese exports in the textiles sector were lifted worldwide, and the company soon started facing difficult market conditions.

• By 2006, the company’s Irish bankers and shareholders withdrew support for the company and Herdmans ceased manufacturing.

• In an attempt to save some of the jobs at the company, IDC took ownership of the company and started a process of restructuring.

• With the help from the landlord, Khula, and major creditors such as the City of Cape Town, 95 jobs were saved in the company.

• Herdmans is still facing significant challenges, but the IDC is positive about the company’s future.

IDC’s development focus extends beyond the investment decision, and plays an integral part of the investment monitoring process

IDC’s development focus extends beyond the investment decision, and plays an integral part of the investment monitoring process

Financial Results

R’ million 2007 2006 %

Abridged Group Income Statement for the Year Ended 31 March 2007

Revenue 5 169 4 524 14

Cost of Sales 2 082 1 928 8

Net Capital Gains 1 796 341 427

Financing Expenses 457 495 (8)

GROSS PROFIT 2 630 2 101 25

Other Income 133 55 142

Operating Expenses 1 914 2 119 (10)

OPERATING INCOME 2 645 378 600Share of Equity-Accounted Investments 1 673 417 301

PROFIT BEFORE TAX 4 318 795 443

Taxation (27) 42 164

PROFIT FOR THE YEAR 4 345 753 477

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R’ million 2007 2006

Abridged Group Balance Sheet as at 31 March 2007

Strengthened Financial Base

Assets

Loans, Advances and Investments 54 951 40 613

Cash and Cash Equivalents 4 466 3 558

Property, Plant & Equipment & Inventories 3 137 3 046

Other Assets 1 061 938

63 615 48 155

Debt/Equity Ratio 11% 14%

Equity and Liabilities

Capital and Reserves 52 574 38 984

Long-term Loans 5 716 5 525

Deferred Taxation 3 640 1 997

Other Liabilities 1 685 1 649

63 615 48 155

*9-month period

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Summary and Prospects

2006/07 Summary

• Leadership in Development entrenched in the organisation;

• Record levels of job creation;

• Improvement in development impact largely the result of increased activity;

• Financial performance exceeded budgets;

• Undertook a review of all processes in the IDC to determine fit with strategy and efficiency;

• Rebranding process to reflect IDC development role;

• Businessmap/Business Report BEE award 3rd consecutive year

• 2nd year of improving customer satisfaction;

• IDC on track to exceed its 5yr job creation target.

IDC’s Role in Implementing the National Industrial Policy

• IDC’s role in supporting the policy is on two levels:– Directly through the provision of finance and other services;

– Indirectly through the support and finance that it provides to specific businesses.

• Currency/interest rates

• Transport/Logistics

• Utility regulation

• Labour cost/productivity

• Cost of capital:Selected sectors/activities

• Competition policy

• Selected import tariffs

• Market access

Cost based interventions

• Support for labour intensive sectors/activities

• Small Business

• Co-op support

• BBBEE

• Spatial interventions

Inclusion based interventions

• Sector / activity specific financing

• Manufacturing excellence support

• Industry-specific technical infrastructure

• Skills development

• Innovation and technology support

• Leveraging public expenditure

• Standard, quality and accreditation support

Industrial upgrading interventions

Direct support through the IDC’s services and activities

Indirect support through the businesses that IDC finance

Legend

The three domains of South Africa’s industrial policy and illustrative interventions

Sector Specific Actions Supporting the Industrial Policy Action Plan (IPAP)

The following initiatives related to the four lead sectors are already in place:

• Capital/Transport equipment and Metal Fabrication

– SOE Public Sector Capex Programme

– National Tooling Initiative

– Initiatives are also underway to improve competition in the upstream metals sector

• Automotives and Components

– Supply development programme to improve component manufacturing capacity & expertise and increase of local content

• Chemicals, Plastic Fabrication and Pharmaceuticals

– Direct involvement in the Fluoro-chemicals expansion initiative

– Promoting the local production pharmaceuticals

• Forestry, Pulp and Paper, and Furniture

– Forestry

– Pulp and Paper

– Furniture

All Business Units’ Sector Development Strategies are being reviewed to ensure maximum alignment and impact in these sectors

All Business Units’ Sector Development Strategies are being reviewed to ensure maximum alignment and impact in these sectors

Sector Specific Actions Supporting the Industrial Policy Action Plan (IPAP) (continued)

Initiatives related to other sector actions:

• ASGI-SA

– Business Process Outsourcing & Offshoring

– Biofuels

– Tourism

• Other substantive sector projects

– Diamond beneficiation and jewellery

IDC’s structure, industry knowledge and networks makes it one of the premier organisations for the implementation of the industrial policy

IDC’s structure, industry knowledge and networks makes it one of the premier organisations for the implementation of the industrial policy

Prospects

• Be leaders in the implementation of the national industrial policy;

• Enhancing regional presence:

– Roll-out of regional managers

Develop regional development strategies for IDC

Closer to clients

Improved customer service

• Approve first investments under the internally managed venture capital fund;

• Enhance product development in line with client needs and economic development focus areas;

• Double impact on job creation in 5 years;

• Investigate feasibility of key projects to improve South Africa’s competitiveness.

Industrial Development Corporation19 Fredman Drive, SandownPO Box 784055, Sandton, 2146South AfricaTelephone (011) 269 3000Facsimile (011) 269 2116E-mail callcentre@idc.co.za