SOUTH AFRICAN DIAMOND AND PRECIOUS METALS REGULATOR (SADPMR)

1. SOUTH AFRICAN DIAMOND AND PRECIOUS METALS REGULATOR (SADPMR)

2. PRESENTATION TO THE PORTFOLIO COMMITTEE ON SADPMR’s ANNUAL REPORT FOR THE 2012/ 2013 FINANCIAL YEAR

3. PRESENTATION OUTLINE • Introduction • Outstanding Audit matters raised by AG for 2011/2012 financial year • Annual Report for the 2012/ 2013 financial year • Human Resources 4. Achievements 5. Challenges 6. Discussions

4. INTRODUCTION • This audit report covers the period 2012/2013 financial year. • During this period our policies have been reviewed and aligned to the PFMA requirements • Relevant financial systems and controls have been established and correctly implemented

5. OUTSTANDING AUDIT MATTERS RAISED BY AG FOR 2011/2012 FINANCIAL YEAR • The South African Diamond and Precious Metals Regulator did not have audit issues that needed to be addressed; • A clean audit opinion was obtained by SADPMR

6. ANNUAL REPORT FOR THE 2012/13 FINANCIAL YEAR

7. FINANCIAL PERFORMANCE- AUDIT REPORT AUDIT OPINION • A clean audit report has again been obtained by SADPMR Matters reported • Restatement of corresponding figures – As disclosed in note 26 to the financial statement, the corresponding figures for 31 March 2012 were restated as a result of an error discovered during 31 March 2013 in the financial statements of the SADPMR for the year ended 31 March 2012 Action taken • The financial statements were revised accordingly and internal controls to prevent recurrence of similar error are in place.

8. PERFORMANCE INFORMATION- AUDIT REPORT Report on other legal and regulatory requirements • Predetermined objectives No material findings concerning the usefulness and reliability of the information • Compliance with laws and regulations No instances of material non-compliance were identified • Internal control No deficiencies were identified

9. ANNUAL FINANCIAL STATEMENTS OVERVIEW • The Regulator submitted the 2012/13 budget of R 62,521 million to National Treasury via the Department of Mineral Resources. • The final allocation was R41,601 million which left the Regulator with a shortfall of R20,920 million. • The budget and the classification of funds were adjusted in accordance with the final allocation. • In order to enable the Regulator to respond to its mandate, the National Treasury granted approval to retain accumulated surplus for contractual obligations and other capital projects.

10. ANNUAL FINANCIAL STATEMENTS REVENUE • The audited actual revenue was R70,254 million inclusive of Transfer Payment of R41,601 million. • The in-house generated revenue has increased by 37% to R28,653 million compared to the budgeted amount of R 20,920 million. • The increase emanates from the implementation of Regulation 10 (2) (b) service fees which took effect from 02 May 2012.

11. ANNUAL FINANCIAL STATEMENTS EXPENDITURE • The actual audited expenditure for the year under review was R72,351 million inclusive of non-cash items such as depreciation and other provisions. • The highest cost drivers were: • Compensation of employees: R48,706 million; • Other operating expenditure: R19,211 million and • Non-cash expenditure: R4,434 million. • Spending was kept within the allocated budget in order to deliver on the Regulator’s mandate.

12. ANNUAL FINANCIAL STATEMENTS TRANSFER PAYMENT Transfer payment has been capped at an average of R40,500 million for the last three years as depicted below: 2012/13 2011/12 2010/11 R’000 R’000R’000 Approved budget 62 521 68 607 55 533 (by the Board) Grant received 41 601 39 374 40 643 Add: Actual in house revenue 28 653 7 978 8 811 less: Expenditure 72 314 60 280 52 882 Restated Surplus/ (deficit) * (2 098) * (13 774) *(3 428) (* excluding accumulated funds retained for capital projects and other contractual obligations as per National Treasury’s approval)

13. ANNUAL FINANCIAL STATEMENTS TRENDS ON UTILISATION OF FUNDS Highest cost drivers 2012/13 2011/12 2010/11 R’000 R’000R’000 Compensation of employees 48 706 40 912 34 270 Other operating expenses 19 174 15 559 14 657 Payment for Capex 3 059 7 495 1 045 • Increase in employees’ compensation is attributable to increased head count as a result of the expansion/review of the organisational structure in order to align human resources to desired outcomes as well as the cost of living adjustment. • The operating expense has increased to ensure delivery of predetermined objectives set out in the annual performance plan.

14. CURRENT YEAR REPORT AS AT 30 SEPTEMBER 2013 EXPENDITURE R’000 • Projected 17 785 • Actual 21 580 • Variance (Deficit)(3 795) • Reasons for Variance: The Deficit reported was as a result of non-cash transactions, namely, depreciation and armotisation –R1,195 m, CAPEX – R1,023 and other provisions. Monitoring of spending is done on a continuous basis to ensure that expenditure is kept within the budget.

15. CURRENT YEAR REPORT AS AT 30 SEPTEMBER 2013 REVENUE R’000 • Projected 17 632 • Actual 19 658 • Variance (Surplus) 2 026 The surplus realised was as a result of the levy, license, penalty and service fees collected during the 2nd quarter which exceeded the budgeted revenue by 41% - R7,503 million as opposed to the R5,324 million.

16. HUMAN RESOURCES

17. EMPLOYMENT EQUITY • As at 31 March 2013, the employment equity staffing ratios stood at 96% Blacks to 4% Whites; 59% Females to 41% Males; and 51% Core Function to 49% support function staff. The Regulator headcount currently stands at 116 employees as indicated at the below table:

18. EMPLOYMENT EQUITY FIGURES

19. HUMAN RESOURCE DEVELOPMENT

20. HUMAN RESOURCES • Employees were trained in the following core skills programme: - Rough diamond and planning course - Jewellery manufacturing basic level - Diamond familiarisation course - Professional diploma programme in Jewellery - Rough Diamond evaluation and grading

21. ACHIEVEMENTS Successful Chairship of the KPCS by the Republic of South Africa • During 2013, the Republic of South Africa successfully resumed the chairship of the Kimberley Process Certification Scheme; • The Republic was reviewed by KP review team and still awaiting the final report. Marketing of polished diamonds • The Regulator has successfully facilitated four (4) polished diamond tenders against a target of two which were planned for the year; • The demand for polished diamond tenders is increasing.

22. ACHIEVEMENTS Overall organizational performance • During the 2012/2013 financial year; the Regulator attained a 100% achievement on all set targets Improved inspections for diamonds and precious metal • Inspections within the diamonds and precious metals industries has improved significantly including disruptive operations with SAPS and or SARS Strengthened stakeholder relations • Engagements with the diamond and precious metals clients have continued to improve; • Industries have easy access to the Regulator, Board and CEO. Commendation by the Office of the Auditor General • SADPMR has been nominated to receive a trophy for its consistent clean audit reports for the past two financial years Appointment of the new board (October 2012) • SADPMR’s board was appointed with effect from October 2012, is under the leadership of Ms Nombulelo Mkhumane

23. CHALLENGES • Due to the capping of grant to an average of R40,500 million per annum for the past three years while the cost of operations has been increasing, the Regulator is compelled to identify other revenue streams to generate revenue that can sustain its operation. • Access to funding for emerging businesses is still a problem • Access to rough diamonds is dominated by financially stronger buyers

24. THANK YOU & DISCUSSIONS