The IDC is a going concern. Due to the current state of the economy we expect profitability to be under pressure in the short- to medium-term. Our efforts to ensure sustainable development in the South African economy require that the Corporation remains financially sustainable.

We have sufficient liquidity to meet our current obligations and are confident that, for the foreseeable future, we can raise enough funding through a combination of new debt and internally generated funds (profits, repayments on existing facilities or equity divestments) to invest in new advances into the economy.

Managing impairments is key to ensuring our financial sustainability. We have and will continue to implement initiatives to ensure that impairments remain within acceptable levels.




The 2017 financial year was a challenging year for the global economy, South Africa and the IDC Group. Most of our subsidiaries and certain associated companies are feeling the strain of the unfavourable economic environment. Notwithstanding, the Group made a consolidated profit of R2 200 million compared to a profit of R223 million in 2016.


Group revenue for the year decreased by 10.5% to R17.4 billion from R19.4 billion, in 2016.

Interest income for the Group of R4.3 billion was 84% above the previous year due to an increase in loans and advances during the year and a higher interest rate environment.

Dividends received were 35% lower compared to the previous financial year. In 2016, the IDC received a dividend in-specie from BHP Billiton upon the unbundling of South32 Limited. Shareholders retained their BHP Billiton shareholdings and received an in-specie distribution of shares in South32 on a pro-rata, 1:1 basis for no consideration. A dividend of R684 million was included in 2016 and not repeated in 2017. This was partially off-set by Sasol declaring dividends to the IDC to the value of R1 billion. Mozal also paid a dividend of R450 million.

Scaw’s full year revenue, including that of the discontinued operations, of R5.5 billion is 3% lower than the previous financial year (R5.7 billion) due to continuing difficult trading conditions within the steel sector and slower growth in China (which is the largest consumer of steel), increasing cost of electricity, low spending by the mining sector due to falling commodity prices and subdued growth in the local economy. Management has initiated several interventions aimed at improving performance. Some of these include: improving efficiency through process reviews; focus on core business and selling non-core assets; restructuring the company's balance sheet; proposed further reduction of its workforce, which the company is currently discussing with trade unions, as well as repositioning the company as the main exporter to the African continent. Significant cost savings are expected from these initiatives, with more benefits expected to flow from the Strategic Equity Partner implementation. Scaw has applied IFRS 5 non-current assets held for sale and discontinued operations in 2017. On 30 November 2016, management committed to a plan to dispose of the grinding media and cast products divisions of Scaw. At year-end, management is in negotiations with potential buyers and the sale is expected to be finalised within the next financial year. A net loss of R362 million has been recognised in profit or loss.

Revenue from Foskor was down 5% from the previous year to R5.9 billion, mainly due to lower market prices, a strong exchange rate, high cost of production and plant inefficiencies. The lower commodity prices and the stronger than expected rand continue to have a significant impact on the revenue of Foskor. A number of cost interventions have been identified for the reduction of production costs, as reflected in the decrease in the cost of production.


The operating profit for the year was R616 million (2016: R494 million loss) mainly due to an increase in Net Capital gains combined with a reduction in the impairment charge and a decrease in dividends as indicated above.

Impairments for the Group decreased significantly by R2 207 million, from R3 161 million to R954 million, mainly driven by initiatives implemented, the focus on investee companies and the difficult trading conditions persisting in the South African economy. In response to the higher risk of the IDC book, the Corporation has embarked on various initiatives to contain any further increases in impairments. The Corporation is confident that these interventions will be effective in curbing the growth in impairments, whilst continuing to play its counter-cyclical role in the economy. The impairments in the current financial year (R954 million) were attributed to the adverse macroeconomic environment and the protracted slump in commodities prices. The impact of the weakening rand, interest rate hikes and the drought also had a negative impact on some exposures.

Financing costs for the Group increased to R2 607 million (2016: R1 317 million) mainly due to exchange rate losses during the year. Operating expenses (excluding impairments) increased from R4 540 million to R5 348 million.

The Group made a capital profit of R1.7 billion from the disposal of certain listed and unlisted investments during the year, compared to R453 million in the previous year. The main contributor to the capital gain was the derecognition of the IDC’s investment in Main Street 333. During the 2017 financial year, we received R213 million from the South African Government to fund the Small Enterprise Finance Agency (sefa) (2016: R406 million).


The equity-accounted investments showed an improved performance during the reporting period, with the Group’s share of profits at R963 million compared to a profit of R557 million in 2016. The continued positive impact is encouraging, given the protracted pressure on commodity prices.


The IDC advanced R11.0 billion in new loans, advances and investments during the year, down from R11.4 billion in 2016. This resulted in loans and advances growing to R25.8 billion (net of repayments), from R23.5 billion and investments increasing from R33.0 billion to R38.3 billion (net of disposals and preference share redemptions).

The revaluation of investments to fair value increased from R38.6 billion to R40.0 billion, mainly due to the increase in the value of listed equities following some recovery in oil, platinum, manganese, steel and iron ore prices. The largest declines in market values were as a result of Sasol.

The IDC is committed to diversifying its portfolio over the medium term to minimise the current concentration risk towards commodities by investing in a diverse portfolio, with more stable growth prospects.


The growth in our borrowings portfolio was aligned with our strategy to fund growth in the loans and advances book predominantly from borrowings. Borrowings for the year grew to R30.4 billion, from R28.0 billion in 2016.

Borrowing activity during the year amounted to R12.6 billion with repayments of R3.7 billion. A large portion of the borrowings was raised mainly from local lenders, while foreign commercial banks showed great appetite for IDC credit by providing more funding support. These funds were offered in both short- and long-tenure through bilateral arrangements. We continued to utilise the IDC Domestic Medium-term Note (DMTN) programme to issue public bonds amounting to R722 million in November 2016. To date, the DMTN programme capacity to issue more bonds is R28.1 billion.

The demand and pricing of the bond issuances reflected investors’ confidence in the IDC’s creditworthiness and financial standing. We will continue our bond issuance programme as part of our strategy to diversify funding sources. This strategy will also be informed by local and international market conditions, pricing and liquidity available in these financial markets. Traditional sources, namely commercial banks (both local and international) and Development Financial Institutions (DFIs) will also be explored as part of our funding sources. The DFIs that we have bilateral agreements with are Kreditanstalt für Wiederaufbau (KfW), African Development Bank (ADB), Agence Française de Développement (AfD)/Proparco, European Investment Bank (EIB), China Development Bank (CDB) and China Construction Bank (CCB).

The Public Investment Corporation (PIC), acting on behalf of the Government Employee Pension Fund supported the green efficiency strategy by providing a longer tenure private placement bond. The Unemployment Insurance Fund (UIF), in their quest to reduce unemployment, partnered with the IDC to provide funding to assist companies which would save and create new jobs. This was facilitated by the PIC.

This diversified pool of funding provides the IDC with the flexibility to raise borrowings when required, depending on market volatility at

the time of raising funding. The IDC continues to meet its financial obligations emanating from these funding sources whilst maintaining excellent relationships with its lenders and investors.


Total assets increased from R121.3 billion in 2016 to R129.8 billion during the review period, mainly as a result of the increase in the fair value of BHP Billiton and Kumba Iron Ore Limited (largely due to higher iron ore prices). Our borrowings rose in line with the growth in loans and advances, resulting in an increase in the debt/equity ratio from 33% in 2016 to 34.5% in 2017.


The impairments level has increased steadily over the past five years in value terms, from R8.6 billion in 2013 to R12.3 billion in 2017. A 5% increase occurred in cumulative impairments between the 2016 and 2017 financial years. As a ratio of the total outstanding financing book at cost, however, impairment levels decreased from 16.9% in the previous year to 16.7% during the period under review. The impairment level remains within the threshold of 20% as set by the Board.

The current impairment levels are aligned with our risk appetite and role in supporting high-risk sectors and businesses that may be unattractive to commercial financiers. The trend also reflects our focus on funding early-stage projects and start-up operations. The impairment charge to the income statement of R954 million for the year ended 31 March 2017 was 70% lower than the charge reported at financial year-end in 2016.

We compiled a comprehensive list of impairment initiatives to mitigate the rising trend of impairments. This was approved by the IDC Board’s Risk and Sustainability Committee and implemented during the 2017 financial year.

The IDC Executive Management and Board Risk and Sustainability Committee receive quarterly reports on impairments and credit risk measures.


The IDC writes off investments only after, inter alia, viable turnaround and restructuring options have been exhausted fully and the exposure is regarded as unrecoverable.

During the year under review, R1.3 billion was written off (2016: R2 billion), a decrease of 35% compared to the previous year.

Funding for businesses operating in the industrial infrastructure and construction industries accounted for 38% of the write-offs. The reasons related mainly to poor management and market penetration, as well as fraud and mismanagement of funds. Written-off businesses have a low probability of recovery, while in some instances we recoup already written-off amounts.


Liquidity risk

Liquidity risk refers to an inability by the Group to meet its obligations promptly for all maturing liabilities, increase in financing assets, including commitments and any other financial obligations (funding liquidity risk), or to do so at materially disadvantageous terms (market liquidity risk).

Liquidity risk is governed by the Asset and Liability Management Policy. The Asset and Liability Committee (ALCO) provides the objective oversight and makes delegated decisions related to liquidity risk exposures.

Sources of liquidity risk include:

  • Unpredicted accelerated drawdowns on approved financing or call-ups of guarantee obligations
  • Inability to roll and/or access new funding
  • Unforeseen inability to collect what is contractually due to the Group
  • Liquidity stress at subsidiaries and/or other SOEs
  • A recall without due notice of on-balance sheet funds managed by the Group on behalf of third-parties
  • A breach of covenant(s), resulting in the forced maturity of borrowing(s)
  • Inability to liquidate assets in a timely manner with minimal risk of capital losses.

Corporate Treasury manages liquidity on a day-to-day basis within Board-approved treasury limits to ensure that:

  • Sufficient, readily-available liquidity to meet probable operational cash flow requirements for a rolling three-month period is available at all times
  • Excess liquidity is minimised to limit the consequential drag on profitability.

Liquidity coverage ratios aim to ensure that suitable levels of unencumbered high-quality liquid assets are held to protect against unexpected, yet plausible, liquidity stress events. Two separate liquidity stresses are considered. Firstly, an acute three-month liquidity stress that impacts strongly on both funding and market liquidity and secondly, a protracted twelve-month liquidity stress with a moderate effect on both funding and market liquidity. Approved high-quality liquid assets include cash, near-cash, committed facilities, as well as a portion of the Group’s listed equity investments after applying forced-sale discounts.

Structural liquidity mismatch ratios aim to ensure adequate medium- to long-term liquidity mismatch capacity by maintaining a stable funding profile. This is done by restricting, within reasonable levels, potential future borrowing requirements as a percentage of total funding-related liabilities. A robust funding structure reduces the likelihood of deterioration in the Group’s liquidity position should sources of funding be disrupted. The structural liquidity mismatch is based on conservative cash flow profiling with the added assumption that liquidity, in the form of high-quality liquid assets, are treated as readily available (i.e. recognised in the first-time bucket).

Market risk

Market risk is the risk that the value of a financial position or portfolio will decline due to adverse movements in market rates. In respect of market risk, the Group is exposed to interest rate risk, exchange rate risk and equity price risk. Market risk is governed by the Asset and Liability Management Policy and ALCO provides the objective oversight and makes delegated decisions related to market risk exposures.

Interest rate risk

Interest rate risk is the risk that adverse changes in market interest rates may cause a reduction in the IDC’s future net interest income and/or economic value of its shareholders’ equity. The IDC’s interest rate risk is a function of its interest-bearing assets and liabilities.

The primary sources of interest rate risk include:

  • Repricing risk: as a result of interest-bearing assets and liabilities that reprice within different periods. This includes the endowment effect due to an overall quantum difference between interestbearing assets and liabilities
  • Basis risk: as a result of the imperfect correlation between interest rate changes (spread volatility) on interest-bearing assets and liabilities that reprice within the same period
  • Yield curve risk: as a result of unanticipated yield curve shifts (i.e. twists and pivots)
  • Optionality: as a result of embedded options in assets (i.e. prepayment) and liabilities (i.e. early settlement), which may be exercised based on interest rate considerations.

The sensitivity to interest rate shocks and/or changes in interestbearing balances is measured by means of earnings and economic value approaches. The former quantifies the impact on net interest income over the next twelve months and the latter gauges the impact on the fair market value of assets, liabilities and equity.


Exchange rate risk is the risk that adverse changes in exchange rates may cause a reduction in the IDC’s future earnings and/or its shareholders equity.

In the normal course of business, the IDC is exposed to exchange rate risk through its trade finance book and exposure to investments in and outside Africa. The risk is divided into:

  • Translation risk, which refers to the exchange rate risk associated with the consolidation of offshore assets and liabilities or the financial statements of foreign subsidiaries for financial reporting purposes
  • Transaction risk, which arises where the IDC has cash flows/ transactions (i.e. a monetary asset or liability, off-balance sheet commitment or forecasted exposure) denominated in foreign currencies whose values are subject to unanticipated changes in exchange rates.

Any open (unhedged) position in a particular currency gives rise to exchange rate risk. Open positions can be short (we need to buy foreign currency to close the position) or long (we need to sell foreign currency to close the position) with the net open foreign currency position referring to the sum of all open positions (spot and

forward) in a particular currency. For purposes of hedging, net open foreign currency positions are segmented into the following components:

  • All exposures related to foreign currency denominated lending and borrowing
  • All foreign currency denominated payables in the form of operating and capital expenditure, as well as foreign currency denominated receivables in the form of dividends and fees.

Equity price risk

Equity price risk is the risk that adverse movements in equity prices may cause a reduction in the value of the Group’s investments in listed and/or unlisted equity investments and therefore includes future earnings and/or value of shareholders’ equity.

Sources of equity price risk include:

  • Systematic risk or volatility in relation to the market as a whole
  • Unsystematic risk or company-specific risk factors.

The investment portfolio’s beta is used as an indication of systematic, non-diversifiable risk. Due to the long-term nature of the Group’s investments, unsystematic risk is managed through diversification.

Sensitivity analyses were performed on the Group’s equity portfolio to determine the possible effect on the fair value should a range of variables change, such as cash flow, earnings and net asset values. These assumptions were built into the applicable valuation models.

Our Asset and Liability Management and Risk Management practices, together with regular scenario planning, assist Management to ensure that this objective is achieved.


We expect 2018 to be another challenging year as a result of a difficult set of conditions in the South African economy and modest growth globally.

Profitability could be impacted significantly in the year ahead mainly due to lower dividend income forecasts. Our balance sheet remains strong and we intend growing it further during the next five years, with advances of between R96 billion and R123 billion in total over that period. This will be funded from borrowings of between R58 billion and R62 billion, with the balance funded through internally generated funds. Gearing levels are expected to increase over the next few years in line with the strategy to utilise more debt funding.



We have undertaken a limited assurance engagement on selected performance information, as described below, and presented in the 2017 Integrated Report of Industrial Development Corporation of South Africa Limited (IDC) for the year ended 31 March 2017 (the Report), as well as in the supplementary online information available on the IDC website, at (the supplementary online information).This engagement was conducted by a multidisciplinary team of sustainable development and assurance specialists with relevant experience in integrated and sustainability reporting.


We are required to provide limited assurance on the following selected performance information, marked with a ‘LA’ on the relevant pages in the Report and the supplementary online information. The selected performance information described below has been prepared in accordance with IDC’s specific guidelines and for selected performance information – the Global Reporting Initiative Sustainability Reporting (GRI G4 Guidelines), collectively referred to as the “IDC reporting criteria”.