IDC Annual Report - 2006/07 Accelerating Sustainable Economic Development

1. IDC Annual Report - 2006/07Accelerating Sustainable Economic Development Geoffrey QhenaCEO 10 October 2007

2. 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

3. 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: • Supporting industrial policy development; • ASGISA; • Investments in targeted sectors; • Cooperate with national and provincial government, DFIs, and other COTII institutions.

4. 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.

5. 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. 2006/07 Annual Highlights Job Creation Approval Value *9-month period

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

7. BEE • 162 transactions totaling R3.4 billion to black empowered companies; • BEE accounted for 68% of the total number of approvals and 58% of the total value of financing approved; • Specific targeting of expansions and new BEE companies, and reduced focus on BEE acquisitions financed; • 32% of funding approved was for expansions and start-ups by black business; • R1 026 million approved for acquisitions; • Extension of the competitive financing scheme. Value of Empowerment Approvals Number of Empowerment Approvals *9-month period

8. SME Support • 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. Examples of Business Support provided

9. 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.

10. 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

11. 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.

12. 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

13. 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

14. 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

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

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

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

18. Touching Lives Ntuso Forestry • THAMI ZIMU, Owner – ‘I couldn’t forget the way I grew up. It was an important foundation for me. If there is nobody in your area to look up to, it is very difficult to pick yourself up.’ • BHEKI MHLUNGU , Farm Manager – ‘I’m managing to support my family and send my three kids to school.’ As one of the permanent employees, he will soon be a beneficiary of the workers trust. • RENTIA VAN TONDER, Head: Wood & Paper SBU – ‘Given the situation in the country with limited resources in timber, we decided that, as the IDC, we would like to make a difference. But initially we found that it was impossible given our general guidelines and norms. We needed long-term finance and special funding structures, and had to think out of the box to achieve true empowerment in this sector. We structured the transaction in such a way that Thami and her family trust would acquire 70 percent of the company and the workers’ trust would acquire 30 percent, which supports our objective to facilitate broad-based structures. That’s really close to my heart, as it’s in a rural area with high poverty where the people that will benefit had very little.’

19. Financial Results

20. Abridged Group Income Statement for the Year Ended 31 March 2007 R’ million 20072006% Analysis of Net Profit/Loss Revenue 5 169 4 524 14 Cost of Sales 2 082 1 928 8 Financing Expenses 457 495 (8) GROSS PROFIT 2 630 2 101 25 Exxaro Net Capital Gains 1 796 341 427 Other Income 133 55 142 Operating Expenses 1 914 2 119 (10) OPERATING INCOME 2 645 378 600 Share of Equity-Accounted Investments 1 673 417 301 PROFIT BEFORE TAX 4 318 795 443 Taxation (27) 42 164 PROFIT FOR THE YEAR 4 345 753 477 *9-month period

21. 60 40% Fair value revaluation Excl. fair value revaluation 35% Debt/Equity ratio 50 30% 40 25% Debt/Equity Ratio - % Capital and Reserves - R billion 30 20% 15% 20 10% 10 5% - 0% 00 01 02 03 04 05* 06 07 Financial year *9-month period Abridged Group Balance Sheet as at 31 March 2007 R’ million 20072006 Strengthened Financial Base Assets Loans, Advances and Investments 54 951 40 613 Cash and Cash Equivalents 4 466 3 558 Property, Plant & Equipment & Inventories 3 137 3 046 Other Assets 1 061 938 63 615 48 155 Equity and Liabilities Capital and Reserves 52 574 38 984 Long-term Loans 5 716 5 525 Deferred Taxation 3 640 1 997 Other Liabilities 1 685 1 649 63 615 48 155 Debt/Equity Ratio 11% 14%

22. Summary and Prospects

23. 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.

24. Inclusion based interventions • Support for labour intensive sectors/activities • Small Business • Co-op support • BBBEE • Spatial interventions Cost based interventions Industrial upgrading interventions • Currency/interest rates • Transport/Logistics • Utility regulation • Labour cost/productivity • Cost of capital:Selected sectors/activities • Competition policy • Selected import tariffs • Market access • 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 Legend Direct support through the IDC’s services and activities  Indirect support through the businesses that IDC finance  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. The three domains of South Africa’s industrial policy and illustrative interventions            

25. Sector Specific Actions Supporting the Industrial Policy Action Plan (IPAP) The following initiatives related to the four lead sectors are already in place: • Capital/Transport equipment and Metal Fabrication • SOE Public Sector Capex Programme • National Tooling Initiative • Project Hoefyster • Initiatives are also underway to improve competition in the upstream metals sector • Automotives and Components • Supply development programme to improve component manufacturing capacity & expertise and increase of local content • Chemicals, Plastic Fabrication and Pharmaceuticals • Direct involvement in the Fluoro-chemicals expansion initiative • Promoting the local production pharmaceuticals • Forestry, Pulp and Paper, and Furniture • Forestry • Pulp and Paper • Furniture All Business Units’ Sector Development Strategies are being reviewed to ensure maximum alignment and impact in these sectors

26. 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

27. 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.

28. Industrial Development Corporation 19 Fredman Drive, Sandown PO Box 784055, Sandton, 2146 South Africa Telephone (011) 269 3000 Facsimile (011) 269 2116 E-mail callcentre@idc.co.za