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THE KZN GROWTH FUND TRUST

5 year Corporate Plan

2016/17 – 2020/21

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TABLE OF CONTENTS

Table of Contents ............................................................................................................................................ 2

1 OVERVIEW OF THE KZN GROWTH FUND TRUST .......................................................................... 3

2 REVIEW OF THE 2015/16 fINANCIAL YEAR ...................................................................................... 5

3 STRATEGIC OVERVIEW ..................................................................................................................... 7

4 ECONOMIC ENVIRONMENT ............................................................................................................ 16

5 GOVERNANCE STRUCTURE AND ORGANISATIONAL ANALYSIS .............................................. 19

6 PROGRAMME DESCRIPTIONS AND OBJECTIVES ........................................................................ 25

7 FINANCIAL PLAN AND EXPENDITURE ESTIMATES ...................................................................... 31

8 ORGANISATIONAL STRUCTURE ..................................................................................................... 42

9 RISK MANAGEMENT PLAN .............................................................................................................. 47

10 FRAUD PREVENTION PLAN ............................................................................................................. 48

11 MATERIALITY/SIGNIFICANT FRAMEWORK.................................................................................... 48

ANNEXURES

ANNEXURE A - KEY ANNUAL BUDGET ASSUMPTIONS

ANNEXURE B - ENTERPRISE RISK MANAGEMENT POLICY

ANNEXURE C - ENTERPRISE RISK MANAGEMENT FRAMEWORK

ANNEXURE D - RISK MANAGEMENT PLAN

ANNEXURE E - FRAUD PREVENTION PLAN

ANNEXURE F - MATERIALITY / SIGNIFICANT FRAMEWORK

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1 OVERVIEW OF THE KZN GROWTH FUND TRUST

The KwaZulu-Natal Growth Fund Trust (KGFT – referred herein as the “Trust”) was set up in 2008 as an

initiative of the KZN Government’s Department of Economic Development, Tourism and Environmental

Affairs (EDTEA) to administer the KZN Growth Fund (“KGF Debt Fund 1”). The Fund was set up as a 15

year R1,087.5bn closed debt fund with a commitment period of 6 years, structured as a unique public-

private partnership between the EDTEA (R362,5m), Standard Bank of South Africa (SBSA – R200m),

Infrastructure Finance Corporation (INCA – R300m) and the Development Bank of Southern Africa (DBSA

– R225m). The commitment period ended in August 2015. KGF Debt Fund 1, which became operational

in 2009, financed medium to large scale sustainable private sector projects throughout the KwaZulu-Natal

(“KZN”) province. The fund size reduced to R787.5m due to the exit of INCA from the fund in November

2013 because of a change in its business model. This initiative was a first in South Africa, aimed at creating

sustainable economic development, job creation, broad based black economic empowerment (B-BBEE)

and reducing inequality in KZN.

The KGF Debt Fund 1 was a closed debt fund and in order to give effect to new funds and products

(restricted under KGF Debt Fund 1), the Trust unencumbered its capital from the existing security in the

KGF Debt Fund 1 by prepayment of the existing exposures and cancellation of all debt facilities on 31

March 2015. The Trust now caters for both a debt and an equity fund and is able to bring on board

additional investors to participate in either.

The evolution of KGFT over time has been characterised by a number of significant events that happened

from the date of inception in 2009 to date, both from the governance structure and the funding model.

Figure 1.1 below portrays a diagrammatic view of these events.

Figure 1.1: Evolution of KGFT

PERIOD 09/10 10/11 11/12 12/13 13/14 14/15

Utitary governance structure. KGFT took over the operations of

KGFM. Reduction in cost based and more competitive pricing

resulted in increased number of projects financed.

GO

VER

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NC

E ST

RU

CTU

RE

FUN

DIN

G M

OD

EL

Complex Governance Structure - Ithala,

KZN Growth Fund Managers Soc (Ltd)

(KGFM) and KZN Growth Fund Trust (KGFT).

Debt Fund 1 - PPP between lenders SBSA, DBSA &

EDTEA - Fund size R787,5m - closed fund with 15 year

life until 2024 and availability period until Aug 2015.

Unencumbered the Trust by

prepaying the Lenders.

Trust's assets base of R1bn.

Apr 2015 to Sep 2015 October 2015

En-commandite Partnership

Funding Model: Debt Fund 2

and Equity Fund.

IMPLEMENTATION OF THE EVOLUTION STRATEGY

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A brief explanation of the various periods of the evolution of the KGFT is presented below:

2009/10 – 2013/14 period:

o KZN Growth Fund Trust (KGFT) was established in 2008 by KZN Provincial Government and became

operational in 2009;

o It was structured as a closed project finance debt fund with a 15 year life span until 2024; and

o It was managed by the KZN Growth Fund Managers (Soc) Ltd (KGFM) – a subsidiary of Ithala

Development Finance Corporation until March 2014.

2013/14 – 2014/15 period:

o Restructured into a unitary governance structure from 1 April 2014;

o KGFT took over the operations of the KGFM through a sale of business agreement;

o The Trust developed and finalized an Evolution Strategy in February 2015; and

o MEC for EDTEA approved the Evolution Strategy and the setting up of an Equity Fund in February

2015.

2015/16:

o Implemented the Evolution Strategy and a more attractive funding model.

o Unencumbered the assets of the Trust by prepaying the lenders and closed on Debt Fund 1 that

was within a Public Private Partnership (PPP) arrangement; and

o Set up Debt Fund 2, a new Equity Fund and a Guarantee Fund (for implementation in 2016/17).

Significant progress in the implementation of the evolution strategy has been made in the 2015/16

financial year, and is outlined below.

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2 REVIEW OF THE 2015/16 FINANCIAL YEAR

2.1 Evolution Strategy

KGFT commenced with the implementation of the evolution strategy post the approval from the MEC:

EDTEA. The previous lenders facilities were early settled on 31 March 2015 thereby unencumbering

Governments capital. This facilitated additional funds that were received and held in a warehousing

capacity to be utilised in the expansion of products (equity, quasi-equity and guarantees) as envisaged in

the evolution strategy.

The Trust Deed, policies and governance related documents were successfully updated and approved

during the period in order to facilitate the introduction of these products and the change in the funding

model to an en-commandite partnership. Additionally, the evolution strategy was presented to the

Provincial cabinet and the necessary support was obtained.

Following the development of the Private Placement Memorandums (PPM) and appointment of external

legal counsel for the development of partnership agreements and relevant opinions, the Trust

commenced engaging potential funders as Limited Partners within the new funding model. During the

period, the Trust commenced advanced discussions with a potential partner for the equity fund and the

necessary due diligence processes has commenced on the fund. The outcome of these engagements are

not known at the date of this report.

The Trust has also applied for listing in terms of the Public Finance Management Act (PFMA) following

the unencumbering of government capital. A Schedule 3D (Government Business enterprise) listing has

been applied for to assist with the funding model requirements being embarked on. The listing

application has obtained the necessary support from EDTEA and Provincial Treasury. An initial response

from National Treasury was received in December 2015 which noted areas to be addressed by EDTEA.

The Board of Trustees are confident the listing process will be satisfactorily concluded in the 2016/17

financial year.

2.2 Projects

The expanded product offering which includes equity finance has been able to unlock a wider range of

projects in the province. Major achievements during the 2015/16 financial year include:

An R118m approval for the development of a 70-bed and 3-theatre private hospital in Stanger. The

project comprised of R70m in senior debt and R48m equity.

An additional R100m approval and disbursement to Dark Fibre Africa to be used in its quest to lay

further fibre cables to improve interconnectivity in South Africa;

Reached financial close in the R63.4m facility to iDube Cold Storage for the development of a cold

storage facility at the Dube Trade Port;

Several other projects in need of more than R600m worth of KGFT funding are currently being assessed

with a view for funding approval. These projects require either debt or equity funding. The Trust’s

reputation and track record has been further supported by the maintenance of a 100% performing

portfolio. The monitoring and aftercare of projects continue to be a focus area within the business.

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The experience of the projects team has been strengthened by the appointment of qualified employees

with equity experience. Further, the relevant project and support team members have attended the

necessary private equity training to assist with the requirements of servicing the expanded product

offering and the new funding model being embarked on.

2.3 Guarantee Fund

KGFT began the process of establishing a guarantee fund in order to address market failure in the issuance

of construction performance guarantees to smaller BEE building contractors. The KGFT met with the

market leaders in the guarantee space and with the Department of Public Works and explored ways in

dealing with the operationalization of the guarantee fund. The Trust will seek to develop the Guarantee

Fund policy and obtain necessary approval from the Board of Trustees and the MEC: EDTEA. It is envisaged

that the KGFT will commence with the implementation of the Guarantee Fund during the 2016/17

financial year.

2.4 Financial Report

The projected net asset value as at 31 March 2016 is estimated to amount to R1,103bn. This is made up

of a total asset base of R1,108bn against total liabilities amounting to R0,004bn. KGFT is projecting a profit

of R85.5m for the financial year ending 31 March 2016. The results reflect a positive variance of R83,4m

when compared to the budget for the financial year. This is largely attributable to the interest income of

R42m recognised on previous interest earned on other funding held in a warehousing capacity prior to

the encumbering of funds as noted above. Additionally, the repayments received from borrowers,

resulted in a positive variance in interest income of R38.7m. Operating expenses for the 2015/16 financial

year is projected to be 13% under-spent against the budget. This was attributed to an underspending on

new funding model set up costs, marketing, consulting fees and personnel costs savings from the vacant

positions.

The Trusts financial position remains sound with positive cash flows being generated from projects and

surplus funds. All funds received from Government are utilised for capital for projects and are not used

for funding of operating expenditure i.e. the Trust remains financially sustainable in the medium to long

term.

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3 STRATEGIC OVERVIEW

3.1 Vision, Mission, Mandate and Values

3.1.1 Vision

To be KZN’s leading Development Financier and Impact Investor

3.1.2 Mission

To provide competitive and innovative financing solutions to private sector investments that propel socio-

economic growth for a better future.

3.1.3 Mandate

To support sustainable growth by financing private sector projects that drive economic success, stimulate

job creation, promote broad based black economic empowerment (B-BBEE) and reduce inequality.

3.1.4 Values

The Trust’s values are:

Respect;

Accountability;

Integrity;

Stewardship; and

Enterprising.

“RAISE”

3.2 Strategic Goals

The Trust’s strategic goals are as follows:

To manage the Trust’s resources efficiently and effectively so as to remain financially sustainable;

To be a catalyst investor by utilising government capital to leverage off private / institutional

sector funding and to maximise the development impact.

3.3 Strategic Objectives

The strategic objectives of the Trust are:

To maintain sound corporate governance and an unqualified audit opinion;

To utilise government capital to leverage off institutional/private investor’s capital so as to grow

the assets under management;

To identify and finance viable private sector projects which demonstrate beneficial, measurable

socio economic impact whilst being environmentally sustainable and maximises the

developmental impact of the Trust’s investments;

To remain financially sustainable by fully committing available funds under management and

ensuring appropriate post investment management.

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To achieve the strategic objectives of the Fund, the Trust has adopted the following high level initiatives:

To manage funds that can offer competitive financing products to attract private participation;

To build long term relationships with other Development Finance Institutions (DFIs) and lending

institutions to cross-refer and co-finance projects and build on the public private partnership

(PPP) model;

To further implement the comprehensive marketing strategy;

To adequately resource and retain the necessary human capital and skills in the Trust; and

To implement and maintain sound policies, procedures, and systems of internal controls to

ensure good corporate governance.

By implementing the above strategies, the Trust will be able to achieve its strategic objectives, hence

establishing a successful track record and a reputation for effective delivery. The strategy of the Trust will

be driven by a single minded goal of developmental finance and growing the assets under management.

3.4 Strategic Planning Process

During the course of financial year 2014/15, the MEC approved the KZN Growth Fund Trust’s Evolution

Strategy. This was designed to ensure the sustainability of the Trust post the exit of Lenders and has also

received full support of the KZN Cabinet. The implementation of the Evolution Strategy started in the

current financial year 2015/16; this largely entailed the closing of Debt Fund 1 that was within a PPP

arrangement, the opening of Debt Fund 2 and setting up a new Equity Fund to operate under an en-

commandite partnership model (further detail in section 5.5 below). The new model and governance

structure enables implementation of separate funds and introduction of new funding instruments as and

when deemed necessary by the Trust’s beneficiary. The Trust’s investment strategy is informed by and

aligned with the EDTEA Departmental Strategy and the Provincial Growth and Development Strategy

(PGDS).

At the request of the beneficiary, the Trust is investigating and preparing for setting up a new Guarantee

Fund to assist construction companies owned by previously disadvantaged individuals with performance

guarantees. The policy and fund model will be presented to the Board of Trustees for approval. The Trust

is also working together with the provincial EDTEA and national DTI in the development of a strategy to

fast track the development of Black Industrialists in the province.

Fund raising roadshows for the Equity Fund targeted at local and international DFI’s as well as other

financial institutions and investors with a developmental mandate and aligned investment strategy have

commenced during the 2015/16 financial year. Lessons learnt from the Trust’s first experience continue

to be incorporated into the planning for the near to medium term.

The review of the strategy and lessons learnt were discussed by the Board of Trustees during meetings

held in August and September 2015. The five year corporate plan has been prepared on the basis of the

above whilst incorporating the key learnings from the fundraising activities as well as seeking to stay

aligned to the Trust beneficiary’s strategy and priorities.

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3.5 Alignment to Provincial Strategies

3.5.1 Alignment to Provincial Growth and Development Strategy (PGDS)

The Trust has aligned itself to the KZN 2012-2030 PGDS through its mandate, mission and investment

policy. The Trust is set up to provide Project Finance to projects within specific target sectors, in areas

where gaps or backlogs in economic development and job creation have not been adequately addressed

by traditional financial institutions. The Trust seeks to align itself to 4 of the 7 strategic goals identified in

the KZN PGDS, namely job creation, strategic infrastructure development, environmental sustainability,

governance and policy.

Table 2.1 below shows the alignment between the PGDS goals and the Fund’s activities.

Table 2.1: Alignment of the Trust to PGDS

Provincial Strategic Goal Objective Trust Alignment

Goal 1 – Job Creation

To expand Provincial

economic output and

employment

Enhance industrial

development

through trade,

investment and

exports.

The Trust invests in projects with a high potential of

creating sustainable jobs in major economic sectors

i.e. Manufacturing, Tourism , Mining and Mineral

Beneficiation, Agro-processing and Transport and

Logistics

Goal 4 – Strategic

Infrastructure development

To provide Infrastructure for

the social and economic

growth and development

needs of KZN.

Development of ICT

Infrastructure.

Develop and

improve energy

production and

supply.

The Trust funds projects which are infrastructure in

nature i.e. ICT, Telecoms, Transport & Logistics and

Healthcare infrastructure. It also seeks to improve

energy production by funding projects which seek

to generate, transmit and distribute energy sources

such as coal, hydro, wind, solar, gas, steam, bio-

diesel, wave power and nuclear.

Goal 5 - Environmental

Sustainability

To reduce global greenhouse

gas emissions and create a

social-ecological capacity to

adapt to climate change

Advance alternative

energy generation

and reduce reliance

on fossil fuels.

The Trust aligns itself by ensuring that projects being

funded adhere to Equator Principles (the principles

adopted by the financial industry as a benchmark for

determining, assessing and managing social and

environmental risk in project financing). The Trust

ensures that all projects funded are in compliance

with environmental regulations as per EDTEA. The

fund also supports alternative energy generation

projects.

Goal 6 - Governance and

Policy

The population of KZN

is satisfied with the levels of

government service delivery

Eradicate fraud and

corruption in

government so that

it is corruption free

Promote

participative,

facilitative and

accountable

governance

The Trust adheres to good corporate governance,

PFMA and King III.

The Trust strives to maintain its Clean Audit record.

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3.5.2 Alignment to EDTEA Strategic Goals

The Trust has aligned itself to EDTEA 2013-2018 strategic goals through its mandate, mission and

investment policy as follows:

Table 2.2: Alignment of the Trust to EDTEA

Strategic Goals Strategic Objectives Trust Alignment

Lead and Coordinate

Integrated Economic

Planning and

Development.

To facilitate the implementation

of B-BBEE strategy and policies.

To drive growth of the KZN

provincial economy.

The Trust‘s investment mandate promotes

B-BBEE by requiring a minimum of 30% BEE

shareholding or level 4 B-BBEE in all projects

it provides funding.

The Trust was initially created to fund

projects which bring economic development

in the province. The Trust mandate has

expanded to include investment of no more

than 50% of funds under management in the

rest of South Africa

Facilitate sustainable

and inclusive

economic growth to

ensure job creation.

To enhance sector and industrial

development through Trade,

Investment and Exports Logistics,

ICT, Manufacturing, Green

economy, agri-business, Tourism,

Creative Industries, Maritime,

Aerotropolis, Aviation.

Development of Industrial

Economic Hubs and Special

Economic Zones.

To investigate and develop viable

alternative energy generation

options.

The Trust funds infrastructure projects in

the following sectors; Manufacturing, ICT,

Agro-processing Mining and Mineral

Beneficiation, Energy and Transport and

Logistics in support of this objective.

Develop and

Transform the

tourism sector to

achieve destination

competitiveness

To develop and fund the

implementation of tourism sector

specific products.

The Trust supports projects in the Tourism

sector by funding infrastructure associated

with natural, cultural, man-made and

business attractions. It also funds

Infrastructure including accommodation

facilities such as hotels, lodges and game

parks.

3.6 SWOT Analysis

The Trust has identified the following strengths, weaknesses, opportunities and threats in order to

formulate an effective strategy to deliver on its mandate.

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3.6.1 Strengths

Financial backing from KZN Provincial Government;

Experienced and highly skilled Board of Trustees to provide oversight;

The ability to attract and retain experienced and skilled personnel;

KZN Provincial Governments’ contribution is provided at no expected rate of return hence lower

cost of capital;

Expanded product offering to include equity and guarantee instruments; and

Self-sustaining entity that is able to fund operating expenditure from internally generated funds.

3.6.2 Weaknesses

The Trust has recently established the Equity Fund, therefore it lacks presence within the Private

Equity market;

The current investment team and investment committee has limited experience across the full

Private Equity value chain;

No previous track record or experience in fund raising due to first equity fund being established.

3.6.3 Opportunities

Funding of spin-off projects from major infrastructure projects identified by government in the

Strategic Infrastructure Programme (SIP);

Opportunity to co-fund or partner with traditional financiers and DFI’s thereby creating valuable

alliances and synergies;

Global liquidity challenges present financing opportunities for the Trust to fill the gap that will

exist as a result of regulatory measures, such as Basel III capital adequacy requirements on

commercial banks; and

Further marketing in order to increase awareness of the Fund and improve quantity and quality

of assets.

3.6.4 Threats

Adverse changes in macroeconomic environment may cause approved projects to fail, thus

resulting in the erosion of capital invested by KZN Provincial Government;

Projects competing with experienced and established competitors in the market who own a large

proportion of the market share of the industry;

Political and strategic changes in the KZN Provincial Government can adversely impact on the

Fund;

Reputational risk due to perceived negative history; and

Competition from other development finance institutions such as NEF, IDC and DBSA, as well as

commercial banks.

The Trust will utilise its strengths and exploit all opportunities while combating any threats and improving

on its weaknesses in its efforts to deliver on its mandate. Accordingly, the Trust will continually assess

and improve its competitive position in the market.

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3.7 Strategic Risk Analysis

The Trust faces a number of strategic risks that could affect its business operations and ultimately its

ability to create value in the long term. A strategic risk assessment workshop was facilitated in January

2016 with the objective of identifying the top ten strategic risks that could prevent the Trust from

achieving its strategic objectives. Changes to the Trust’s operating environment and the change in funding

model were taken into account when identifying the strategic risks. The graph below reflects the Inherent

risk of each strategic risk as well as the residual risk after taking existing controls into account.

Table 2.3 – Inherent Risk vs Residual Risk

The table below provides an analysis of the top ten strategic risks affecting the Trust, the current controls

in place to mitigate those risks and the opportunities presented.

0

10

20

30

40

50

60

70

80

90

100

Inherent Risk vs Residual Risk

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Table 2.4 – summary of top ten strategic risks

Rank Key Risk Risk

Category

Current controls Opportunity

1 Inability of the

fund to source

deals that fulfil its

investment

strategy to

deliver on the

mandate (job

creation and B-

BBEE)

Strategic

Risk

- Implementation of strategy, Corporate plan and Annual Performance Plan which is aligned with the provincial government strategies of EDTEA

- Marketing and Branding the Fund - Strategic partnerships, relationships with

Banks and stakeholder e.g. TIKZN - Introduction of equity finance and

diversity in product range enabling more promoters to access funding

- Expansion of product offering and mandate

2 Inadequate

capital to support

strategic

objectives

Strategic

risk

- Mechanisms in place to ensure relevance - continuous reporting to EDTEA and delivery of mandate

- Manage relationships with all critical stakeholders.

- Proactive restructuring of loans and investments

- Efficient diversification of assets and sectors

- Proactive review, monitoring and reporting on portfolio including independent monitoring of value add and exit thesis

- Attract new sources of capital through alternate funding structures

3 Failure to attract,

retain and

develop key staff

Operational

Risk

- Training and development framework and plans

- Employee wellness scheme in place - Benchmarking of salaries and Employee

Incentive scheme in place - Succession planning - Employee climate survey performed

resulting in action plan

- Attract additional investment skills to the province

4 Credit and

Investment Risk

Credit Risk - Policies and Procedures which are reviewed on a regular basis

- Key criteria of Investment and Credit policy is captured in submissions made.

- Proactive review, monitoring and reporting on portfolio including independent monitoring of value add and exit thesis

- Project subject to comprehensive due diligence which is reviewed by the Investment Committee

- Formulation of separate debt and equity investment teams and committees to address potential conflict of interest

- Implementation of findings of due diligence reports to prepare project company for exit

- Fulfil developmental mandate in assisting ailing project companies

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Rank Key Risk Risk

Category

Current controls Opportunity

5 Market Risk Market Risk - Proactive review, monitoring and reporting on portfolio including independent monitoring and implementation of value add and exit strategies

- Proactive restructuring of loans and investments

- Efficient diversification of assets and sectors

- Sensitivity and scenario analysis on each project's financial model prior to approval at FAR stage

- Project team ensures that legal agreements makes provision for adequate restructuring in the event of adverse changes in macro and micro economic environment

- Implementation of Bloomberg as a research tool

- Establishment of in-house views and forecasts

- Encouraging a forward looking and proactive culture

6 Governance,

Regulatory, Legal

and Compliance

Regulatory

Risk

- Policies and Procedures which are reviewed on a regular basis.

- Monitoring and reporting of compliance and risk via independent function to relevant committees

- Communication, Training and roll out of policies and procedures

- Implementation of combined assurance model framework

- Maintain good governance

7 Geo-political Risk Political

Risk

- Monitor political landscape by constant engagement /lobbing with key stakeholders and managing key relationships.

- Continuous reporting to EDTEA and delivery of mandate

- EDTEA's representation at key KGFT meetings

- Encouraging a forward looking and proactive culture

8 Reputation Risk Operational

Risk

- Adherence to policies such as Politically Exposed People policy and Communication & media policies

- Upfront communication with regards to financing with promoters

- Adequate staff complement with the right skills

- Background checks and due diligence performed

- Building an ethical company culture

- Turn employees into brand ambassadors

9 Failure to remain

financially

sustainable

Financial

Risk

- Effective annual budgeting process including monthly monitoring of Actual vs Budget variances

- Cost cutting measures are implemented - Deals are priced according to loan pricing

policy approved by the Trust

- Cost saving initiatives

- Better financial control

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Rank Key Risk Risk

Category

Current controls Opportunity

- Effective due diligence and post investment monitoring of projects by the projects team

- Maintaining a diversified portfolio - Proactive Cash flow management - Policies, Procedures and Delegation of

Authority in place and reviewed annually - Update of Fund Financial model quarterly - Quarterly solvency and liquidity testing

10 Ineffective and

inefficient

processes and

systems to

effectively

support the

strategy of the

business

Operational

Risk

- Policies and procedures in place and reviewed regularly

- BCP and DRP approved by Board of Trustees and tested

- Risk assessment undertaken to determine high risk threats to KGFT

- External tip-off line for reporting and identification of fraud

- Introduction of new technologies to streamline processes

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4 ECONOMIC ENVIRONMENT

4.1 Global Economy

The global economy is expected to expand 2.9 percent in 2016, up from 2.4 percent in 2015. This forecast by the World Bank is informed by four key optimistic assumptions for global growth: that commodity prices will stabilize after plummeting in 2015; continued gains in major high-income countries, a gradual tightening of financing conditions, and that the Chinese government will keep growth in the world's second-biggest economy from imploding as it manages a difficult transition away from fast but unsustainable growth based on excessive investment in factories and real estate in favour of a greater focus on consumption and services. The World Bank expects developing countries to collectively grow 4.8 percent, up from a six-year low 4.3 percent in 2015. China, the world's second-biggest economy, is expected to register 6.7 percent growth, down from 6.9 percent in 2015 and the slowest pace since 1990. The economic prospects of advanced economies appear to be brightening as the developing world struggles. The World Bank expects the U.S. economy to grow 2.7 percent this year, up from 2.5 percent in 2015 and the fastest pace since 2006. The 19-country eurozone economy is seen expanding 1.7 percent, up from 1.5 in 2015 and fastest since 2011. And the World Bank expects the Japanese economy, lifted by the Bank of Japan's easy-money policies, to grow 1.3 percent, up from 0.8 percent in 2015. The countries of sub-Saharan Africa are expected to grow 4.2 percent, up from 3.4 percent last year. But the World Bank expects wide disparities among African countries. South Africa, for instance, is forecast to grow just 1.4 percent, while Ethiopia is expected to expand 10.2 percent and Rwanda 7.6 percent. The forecasts are however subject to substantial downside risks, including a sharper-than-expected slowdown in major emerging and developing economies, financial market turmoil arising from a sudden increase in borrowing costs that could combine with deteriorating fundamentals, lingering vulnerabilities in some countries and heightened geopolitical tensions. 4.2 SA Economy

South Africa’s growth prospects continue to deteriorate. A mix of adverse demand and supply-side factors are taking a toll on the economy’s performance and affecting its overall expansion potential. The mining and manufacturing sectors are under serious strain for various reasons, and their output levels are still below those achieved before the 2008 global financial crisis. Further, the agricultural sector has been severely affected by the worst drought in more than twenty years. The Mid-term Budget Policy Statement (MTBPS) delivered in October 2015 revised the GDP growth trajectory over the medium term to be more closely aligned with those of the South African Reserve Bank and Bloomberg median forecasts. The economy is forecast to grow 1.7 percent (previously 2.4 percent) in 2016 before rising to 2.6 percent in 2017. Growth forecasts for both household spending and gross fixed capital formation were also revised downwards.

Therefore the outlook for 2016 and 2017 is uncertain and economic activity will likely remain subdued.

Expected increases in electricity supply from investments in generating capacity should raise supply only

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by 2017, easing constraints that have hindered production and increasing investor confidence. Also,

strengthening growth in major trade partners, such as Europe and the United States, should reinforce

export growth. Inflation is hovering around the upper end of the target band, driven by the depreciation

of the rand and higher electricity and food prices.

The Rand together with other emerging currencies have continued to take serious beating against major

currencies. A weaker rand will see the cost of imported goods rise, leading to imported inflation.

Households are likely to face numerous challenges in the form of higher debt financing costs and difficult

access to credit, higher personal income tax and indirect taxes, rising electricity tariffs and lower rates of

increase in disposable income.

Low commodity prices and weak global demand will exert downward pressure on South Africa’s mineral

exports. However, the balance of payments should continue to benefit from expected increases in

exports due to a weaker Rand and, on the import front, from low crude oil prices. Hence, the current

account deficit is projected to improve.

For South Africa, implementing the National Development Plan and the Medium Term Strategic

Framework, delivering social and economic programmes, reducing macroeconomic imbalances, and

narrowing the budget deficit remain a key priorities.

4.3 KZN Economy

The KwaZulu-Natal economy (“KZN or the Province”) is characterised by manufacturing, agriculture,

transport and tourism. The provincial manufacturing sector is the second largest in the country, after

Gauteng and is geared for export, with nearly a third of South Africa's manufactured exports being

produced in the Province. Its diversified nature is significant in the KwaZulu-Natal's economic growth

rate, and generates about 20% of provincial employment. As a result, deterioration in the performance

of these sectors is immediately felt via slower provincial GDP growth, as was the case in 2015.

With more than 90% of Africa’s imports and exports being conducted by sea, there is potential for further

development of the maritime industry. The Port of Durban remains one of Africa’s most active general

cargo ports. This port handles an average of 60% of South Africa’s cargo in comparison to other South

African ports. The Richards Bay coal terminal is positioned as one of the world’s deep sea ports with an

ability to handle large ships and large volumes. This port currently has the capacity to export 91 million

tons of coal per year. Plans to increase the terminal’s capacity by another 19 million tons to 110 million

tons augurs well for fixed capital formation in the province, job creation and economic development.

Employment in the province, still falls short of the highest level of 2.584 million jobs recorded before the

financial crisis of 2008/2009.

In 2016, the general provincial economy’s performance, like in the past, is expected to follow that of the

country. However, the Rand’s depreciation should continue to facilitate external market penetration by

KZN export-oriented enterprises.

18 | P a g e

4.4 Implications for Business, Households and Infrastructure Investment

Domestically, economic growth is expected to remain subdued due to unsatisfactory demand conditions, a weak Rand and unfavourable external conditions. Household consumption expenditure is slowing, government spending is being constrained by fiscal limitations and fixed investment activity is at low levels. Consumers are likely to cut back on spending in light of a worsening consumer environment, including higher interest rates, which will raise financial distress. Business enterprises that are reliant on household expenditure, are therefore faced with difficult trading conditions. In view of government’s commitment to reduce spending, businesses that are reliant on governmental procurement, may find it challenging to sustain sales. Declining infrastructure investment in real terms by state-owned enterprises could have adverse implications for various sub-sectors of the domestic economy. These could include construction companies, civil engineering contractors and various suppliers of materials, including cement, steel and chemicals, as well as machinery and equipment, among others. Prospects for private sector fixed investment in South Africa remain subdued as businesses have become very cautious in their investment plans.

On the positive side, certain global and domestic factors could be beneficial for local business enterprises. The anticipated stronger growth momentum in the US and UK economies, should provide increased business opportunities for local enterprises. Further, the Rand’s depreciation should continue to facilitate external market penetration by export-oriented enterprises. Therefore, investments in new production capacity or in the expansion of existing capacity should be made to take advantage of potential opportunities ahead.

These developments give development finance institutions such as KGFT a ray of hope to continue to

deliver on their mandates of facilitating economic development and job creation and fighting poverty and

inequality.

19 | P a g e

5 GOVERNANCE STRUCTURE AND ORGANISATIONAL ANALYSIS

5.1 Governance Structure

The KGF Debt Fund 1 was structured as a closed fund with an availability period until August 2015 to

commit the capital and the debt facilities granted by the Lenders. Following the approval of the Evolution

Strategy by the MEC, the Trust commenced with the implementation thereof by firstly unencumbering

the capital which resulted in the Lenders being paid out in full on the 31 March 2015, 5 months prior to

the end of the availability period of the first Debt Fund.

By implementing the Evolution Strategy (since 1 April 2015), the Trust has now become a stand-alone

entity which manages its own capital. Figure 3.1 shows the governance structure of the Trust from 1 April

2015.

Figure 3.1 Governance Structure of the Trust from 1 April 2015

The Trust was formed and registered with the Master of the High Court in terms of the Trust Property

Control Act, 57 of 1988. The Trust Deed is the founding document of the Trust. The Trust is the custodian

of the Fund and its assets. The Trust Deed was amended and registered with the Master’s Office in

October 2015 to cater for the lenders’ exit from the funding model and their subsequent rights.

The Board has 7 (seven) Trustees which comprise of 6 (six) independent Trustees appointed by the MEC

for EDTEA, and the Chief Executive Officer (CEO) who is a Trustee by virtue of his position as the CEO of

the Trust. The Board of Trustees has 3 (three) sub-committees, namely, the Investment Committee (IC),

the Audit and Risk Committee (ARC) and the Human Resources and Remuneration Committee

(HR&REMCO).

The CEO and his executive team run the day-to-day operation of the Trust. The team operates within the

Delegation of Authority Framework as approved by the Board of Trustees.

EDTEA

KZN GROWTH FUND BOARD OF TRUSTEES

Investment Committee

Chief Executive Officer

Audit & Risk Committee

HR & Remuneration Committee

Chief Investment Officer

Chief Risk Officer Chief Financial

Officer

20 | P a g e

5.2 Legislative and Other Mandates

The Trust is established in terms of a Trust Deed which is legally governed by the Trust Property Control

Act, 57 of 1998. KGFT strives for the overarching governance principles of accountability, fairness,

transparency and responsibility. Historically, the entity was neither a Company nor a listed Public Entity

in terms of the Public Finance Management Act, 1 of 1999 (PFMA). When the Debt Fund was set up in

2008, it was deemed not to be a PFMA entity by virtue of private sector lenders’ facilities being more

than 50 per cent of the size of the Fund as well as the fact that some of the decisions at a governance

level needed to be made through consultation between the lenders and government.

However, the Board of Trustees elected to comply with the PFMA as a schedule 3D Public Entity

(government business enterprise). In terms of the new funding model, the Trust will be deemed to be a

PFMA entity and has therefore begun the process of listing as a public entity with National Treasury. KGFT

endorses King III and has endeavoured to adhere to the recommendations thereof as far as possible.

The Trust has a duty to take effective and active measures to be financially efficient, effective, transparent

and economical. The PFMA and the prevailing Treasury Regulations regulate the Trust in terms of

procurement, financial management, internal control, risk management, budgeting and reporting, board

and audit committee structures and financing.

A Schedule 3D public entity is also subject to the Preferential Procurement Policy Framework Act, 5 of

2000 and the Broad Based Black Economic Empowerment (B-BBEE) Act, 53 of 2003 which provides for

the granting of preferences by public entities to previously disadvantaged individuals and to promote

Black Economic Empowerment and SME development, respectively.

In summary the critical legislations that govern the Trust are:

Trust Property Control Act, 57 of 1988;

Public Finance Management Act, 1 of 1999

Preferential Procurement Policy Framework Act , 5 of 2000;

B-BBEE Act, 53 of 2003

B-BBEE Codes of Good Practise;

Treasury Regulations, 2005;

King Report on Corporate Governance (King III); and

Financial Intelligence Centre Act (FICA).

5.3 Fund Size and Assets Allocation

The Evolution Strategy had been designed to ensure the sustainability of the KGFT post the commitment

period of the KGF Debt Fund 1 (August 2015) and to make room for the establishment of a structure that

would enable the introduction of new funds and funding instruments like equity. In terms of its mandate,

the KGFT has approval to offer the following products:

• Debt;

• Equity; and

• Guarantees.

21 | P a g e

The Trust has assets under management or a capital base of R1bn as at 31 March 2016, excluding its cash

on hand for operational expenditure. The Table 3.2 shows the Trust’s total assets under management

and sources thereof.

Table 3.2 Sources and Uses of Assets Under Management

The asset allocation for the Trust capital is done taking into account the long-term sustainability of the

Trust and is reviewed regularly. All investment income of the funds (dividends and interest) may be

utilised for the operational expenditure of the Trust. It is therefore imperative that the Funds have critical

mass to support the operations of the KGFT. Equity as a portfolio tool is used to increase the return profile

of the investment portfolio and gain capital growth above inflation whereas debt is used as income

generative investment.

Besides taking into account the different risk and return profiles of the assets classes, the Trust is

cognisant of expected limited partners to come on-board in a partnership with the Trust for the Equity

Fund. It is therefore important to allocate capital to these assets classes whereby the beneficiary’s capital

can be leveraged by the limited partners’ commitments. For the 2016/17 financial year, the Trust has

allocated the following amounts to the three asset classes, R795m to debt and R290m to Equity. Table

3.2 above shows the expected assets allocation of the Trust for the 2016/17 – 2019/20 period taking all

considerations into account.

5.4 Funding Model

As per the approved Evolution Strategy, the Trust is currently managing a Debt Fund and an Equity Fund.

The Trust further intends on setting up a Guarantee fund. It is the intention of the Trust to run the

Guarantee Fund off the balance sheet of the Trust along with the Debt Fund.

Additional funds are however sought to accompany the Trust’s capital for the Equity Fund. The Trust has

had a number of capital raising road shows in 2015/16 in order to attract investors (limited partners) into

the Equity Fund. If an investor comes in, then an en-commandite partnership (also known as limited

Rmillion 2015/16 2016/17 2017/18 2018/19 2019/20

Source of Capital under management by KGFT 1,000.0 1,114.4 1,258.8 1,408.2 1,633.2

Initial Capital contribution for Fund 1 362.5 362.5 362.5 362.5 362.5

Fund 2 Capital (as 2014/15) 360.0 360.0 360.0 360.0 360.0

Capital injection by EDTEA - INCA repayment 48.0 48.0 48.0 48.0 48.0

Annual EDTEA allocation * 95.0 159.4 223.8 258.2 353.2

Capitalised Trust earnings 134.5 184.5 264.5 379.5 509.5

Asset Allocation of Capital under management 1,000.0 1,114.4 1,258.8 1,408.2 1,633.2

Equity Fund 250.0 300.0 325.0 325.0 325.0

Guarantee Fund 24.4 25.6 25.6

Debt Fund 750.0 814.4 909.4 1,057.6 1,282.6

*The annual allocation from EDTEA is earmarked for project disbursements.

Reduction in annual allocation from R95m to R64.4m - resulting in reduced contributions to the Equity Fund

and delayed implementation of the Guarantee fund.

22 | P a g e

liability partnership) will be set up to manage the Equity Fund. However, until such time as an investor is

found, the Equity investments will also be financed off the Trust’s balance sheet.

In the event of the Trust being successful in attracting investors, the Trust intends to set-up an en-

commandite (or limited liability) partnership. The Trust will act as the “General Partner” (defined below)

in an en-commandite partnership with the new investors (limited partners) being ‘silent’. In this structure,

the Trust is given the fund management mandate by each partner to manage the funds and act on behalf

of the partnership. This new funding model is presented in Figure 3.3 below and does not involve the

creation of a new Trust or a new governance structure. The structure makes use of the existing Trust as

well as the existing Board of Trustees and its Sub-Committees.

Figure 3.3: Funding Model

An en-commandite partnership is an extraordinary partnership that differs from an ordinary partnership

with regards to the partner’s liability to third parties for the partnership’s debts.

The Trust’s overarching consideration in choosing this vehicle was that the Equity Fund should be

established in accordance with the generally accepted structures and methods used internationally and

in South Africa. The Trust also considered the need to have a simple and effective governance structure

that is practical together with the need to minimise the operational expenses of both the existing Debt

Fund and the Equity Fund.

It is preferred that limited partners do not get actively involved in the day to day running of the

partnership(s) they are party to. However, they may participate in an advisory committee (as shown in

grey in Figure 3.3) which may consist of Trustees or their representatives, a representative of each

investor in fund and some external persons. An advisory committee is not a governance body and does

not get involved in the operations of the fund it oversees.

It generally meets quarterly, with the primary functions being to:

review issues related to conflicts of interests arising from time to time:

EDTEA

KZN GROWTH FUND TRUST(GENERAL PARTNER & FUND MANAGER) INVESTORS

KGF DEBT FUND 2 KGF EQUITY FUND

PROJECT PROJECT PROJECT PROJECT

Advisory Board

GUARANTEE FUND

23 | P a g e

approve the valuation methods for the fund’s current investments; and

review, from time to time, the funds’ adherence to its investment objectives.

It is envisaged that the partnership’s investment decisions will be taken by Investment Committee(s) at

the General Partnership (KGFT) level.

5.5 Deal Approval Process

In performing its mandate, the Trust is assisted by an Investment Committee (IC) which considers

investment proposals presented by Executive Management, and recommends these to the Board of

Trustees for approval. The IC also provides oversight of the post investment management of funded

projects. The IC is guided by the Trust’s Investment, Credit and Loan Pricing policies which are regularly

reviewed to ensure that they are appropriate and aligned to best industry practices.

The IC is generally made up of academically qualified members with experience in banking, project

finance, accounting and investment banking. Three of the IC members, including the Chairman, are

appointed by the Trustees and two members are independent members.

In line with the key governing policies, the Fund finances projects up to R200m. Projects requiring

amounts over the upper limit are co-funded with other financial institutions.

Due to legal and governance requirements dictating the structure of the Funds being managed by the

Trust, the Trust makes provision for two ICs in the event that an en-commandite partnership structure is

formed by the Trust as the General Partner. The delegation of authority will also be amended to reflect

the final decision of approval to be that of the Investment Committee. The two ICs are critical to avoid

conflicts of interest and independent decision making for the different funds being managed and conflicts

arising when doing deals with different financing instruments being utilised e.g. Debt and Equity.

5.6 Project Disbursements and Pipeline

The Trust has disbursed loans amounting to R452.8m from the Debt Fund year to date. It has approved

projects requiring loans amounting to R133.4m for debt and R48.0m in equity during the 2015/16

financial year. It is currently appraising projects requiring debt loans amounting to R88.0m and equity

investments of R30m. The fund has also developed a project pipeline in debt and equity with deals of

circa R500m which it is currently appraising.

The pipeline below in table 3.4 is a snapshot of projects that are currently being reviewed. Projects at due

diligence stage were used to support the projections in the Fund Model for 2016/17 financial year. The

Fund Model projections for future years are based on a typical pipeline, which may not be the exact same

projects as presented below. The table further highlights the debt and equity transactions of the

Investment Team to date together with the projects in various stages of the approval cycle.

24 | P a g e

Table 3.4 Summary of the Debt and Equity transactions

PROJECTS DESCRIPTION Debt R’m Equity R’m

DISBURSED 452.8 0.0

Dark Fibre Africa 2 Telecommunication 145.0 0.0

Link Africa Telecommunication 65.0 0.0

SA Shipyards Transport and Logistics 42.8 0.0

Mpact Ltd Manufacturing 200.0 0.0

APPROVED 133.4 48.0

Cold Storage Transport and Logistics 63.4 0.0

Private Hospital Health Care 70.0 48.0

DUE DILIGENCE 88.0 30.0

Packaging Manufacturing 55.0 0.0

HealthCare Manufacturing 33.0 0.0

Cookware Manufacturing 0.0 30.0

PRE-ISR PIPELINE 105.0 395.0

Radiology Healthcare 30.0 0.0

Construction Manufacturing 50.0 30.0

Granite Mining & Beneficiation 25.0 0.0

Coal terminal Transport & Logistics 0.0 65.0

Private Hospital Healthcare 0.0 30.0

Mother & Child Private Hospital Healthcare 0.0 60.0

Coal power generation Power & Energy 0.0 50.0

Footwear Manufacturing 0.0 50.0

Private Hospital Healthcare 0.0 30.0

International School Education 0.0 50.0

Automotive components Manufacturing 0.0 30.0

PARKED 30.0 0.0

Fresh Produce Agro Processing 30.0 0.0

TOTAL 809.2 473.0

25 | P a g e

6 PROGRAMME DESCRIPTIONS AND OBJECTIVES

The programmes of the Trust are structured as two main programmes, namely Finance and

Administration and Project Investments, with underlying sub-programmes as summarised in Table 4.1

below:

6.1 Table 4.1 – Programme structure

Programme Sub-programmes per programme

1. Finance and Administration

1.1 Office of the CEO

1.2 Secretariat and Governance

1.3 Financial administration

2. Project Investments

2.1 Project administration and Marketing

2.2 Project origination and appraisal

2.3 Legal, Risk and Compliance

2.4 Investment monitoring and aftercare

6.2 Programme 1 – Finance and Administration

This programme provides transversal support to the entire organisation. Table 4.2 lists the strategic

objectives for each sub-programme under Programme 1: Administration.

6.2.1 Table 4.2: Programme 1 – Sub-Programme Objectives

Programme 1: Finance and Administration

Sub Programme 1.1: Office

of the CEO

To provide strategic direction and leadership to KGFT

To secure beneficial partnerships for KGFT

Sub Programme 1.2:

Secretariat and

Governance

To promote sound corporate governance to the organisation and

the Board

Sub Programme 1.3:

Financial Administration

To provide effective and transparent financial management systems

A brief description of each sub-programme under Programme 1: Finance and Administration is given

below:

6.2.2 Sub-programme 1.1: Office of the CEO

The Office of the CEO provides strategic direction and leadership ensuring alignment across all

operational programmes. It is responsible for the effective management of the Trust and implementation

of strategy, policy and directives of the Board of Trustees. The Office is further responsible for

performance monitoring and promoting sound corporate governance.

26 | P a g e

6.2.3 Sub-programme 1.2: Secretariat and Governance

The secretariat and governance function is responsible for promoting sound corporate governance. The

function is further responsible for performance monitoring and managing all stakeholder communication

of the Board and office of the CEO.

6.2.4 Sub-programme 1.3: Financial Administration

Financial Administration provides effective, efficient and transparent systems of financial management

and internal control. Financial Administration encompasses Supply Chain Management, Credit Risk,

Financial Management and Reporting and Budgeting. It ensures that there is an appropriate procurement

and provisioning system which is fair, equitable, transparent, competitive and cost effective. The function

is responsible for providing management with financial reports that are valid, accurate and complete. It

also ensures that project risks are identified, allocated to various project participants and mitigated.

6.3 Programme 2 – Project Investments

Project Investments is the core function of the organisation. The programme originates and assesses the

viability of the projects by performing due diligences and thereafter presenting the proposals to relevant

committees for approval. The programme is responsible for negotiating the legal terms with the

promoter and facilitating financial close as well as providing general legal counsel. The programme is

further responsible for marketing and promoting the Trust.

Another facet of the programme is the function of Risk and Compliance which co-ordinates the risk

management and compliance activities of the Trust. The role of this function is to assist management in

discharging their responsibilities to comply with applicable legislative and regulatory requirements. This

function further assists through the identification, assessment, management, monitoring and reporting

of the risks faced by the Trust.

The strategic objectives per sub-programme under Programme 2: Investments are shown in Table 4.3

below followed by a brief description of each sub-programme.

6.3.1 Table 4.3: Programme 2 – Sub-Programme Objectives

Programme 2: Project Investments

Sub programme 2.1:

Project Administration and

Marketing

To promote the brand of the fund and to support the investment

team in delivering on its mandate.

Sub programme 2.2:

Project origination and

appraisal

To ensure that the Trusts fully disburses available funds into viable

projects.

To ensure that the Trust approves to viable projects that meet the

Trust’s mandate.

Sub programme 2.3: Legal,

Risk and Compliance

To manage and co-ordinate the risk management and compliance

activities of the Trust

To ensure that the Trust’s interests are protected through legal

structuring

27 | P a g e

Sub programme 2.4: Post

Investment monitoring

and aftercare

To effectively manage the investment portfolio to ensure the fund

remains financially sustainable;

To ensure the investments perform in line with approved covenants;

and

Where equity is held, to give strategic guidance and management

direction to project companies.

6.3.2 Sub-programme 2.1: Project Administration and Marketing

The Project Administration function is a support function and is responsible for the administration

matters of the investments division. The main functions include maintaining the projects register,

compiling monthly and quarterly reports on the activities of the investments division as well as screening

projects at initial stages so as to ensure that such projects meet with the fundamental criteria of the fund.

Additional functions include marketing the fund’s product offering to prospective promoters and financial

intermediaries, performing preliminary reviews of proposals, conducting project due diligences,

compiling and presenting investment recommendations to the Investment Committee and the Board of

Trustees for approval as well as overseeing financial close and disbursement.

6.3.3 Sub-programme 2.2: Project origination and appraisal

The main purpose of this sub programme is to source viable investments through performing preliminary

reviews of proposals, conducting project due diligences, compiling and presenting investment

recommendations to the Investment Committee and the Board of Trustees for approval as well as

overseeing financial close and disbursement.

6.3.4 Sub-programme 2.3: Legal, Risk and Compliance

The main purpose of this sub programme is to ensure that the approved funds are fully disbursed into

viable projects within the availability period. The programme is responsible for negotiating the legal terms

with the promoter and facilitating financial close which requires ensuring that the conditions precedent

to loan draw-downs have been met by the borrower and disbursements are made in line with the signed

legal agreements.

Another facet of programme is the function of Risk and Compliance which co-ordinates the risk

management and compliance activities of the Trust. The role of this function is to assist management in

discharging their responsibilities to comply with applicable legislative and regulatory requirements. This

function further assists through the identification, assessment, management, monitoring and reporting

of the risks faced by the Trust.

6.3.5 Sub-programme 2.4: Post Investment monitoring and Aftercare

The Post Investment function is responsible for monitoring investments post disbursement. This entails

amongst others the analysis of management reports and annual financial statements, monitoring exits,

repayments and adherence to loan covenants. As a value add, the function provides strategic guidance

and management direction to project companies where an equity investment is held.

28 | P a g e

6.4 Key Performance Targets

The Trust’s strategic goals have been further analysed to show the strategic objective, performance

measures / indicators, as well as targets that the Trust has set itself for the next five years. These are

illustrated in Tables 4.4 and 4.5 below.

6.4.1 Table 4.4: Programme 1 – Key Performance Indicators and Annual Targets

Programme 1: Finance and Administration

Objectives Measure/

KPI

Period Outputs Annual Targets

2016/17 2017/18 2018/19 2019/20 2020/21

Office of the CEO

To obtain and

maintain an

unqualified

audit opinion

with no

matters of

emphasis

Maintain

external

unqualified

audit opinion

with no

matters of

emphasis

Annual External

Audit

reports

Achieve a

clean

audit

report for

the

2015/16

financial

year end

Achieve a

clean

audit

report for

the

2016/17

financial

year end

Achieve a

clean

audit

report for

the

2017/18

financial

year end

Achieve a

clean

audit

report for

the

2018/19

financial

year end

Achieve a

clean

audit

report for

the

2019/20

financial

year end

To remain

financially

sustainable by

growing the

assets under

management by

the Trust

% Growth in

the Fund size

(current Fund

size R1bn)

Annual Annual

Performa

nce

Report

Equal to or

more than

CPI as at

31 March

2017

Equal to

or more

than CPI

as at 31

March

2018

Equal to or

more than

CPI as at

31 March

2019

Equal to

or more

than CPI

as at 31

March

2020

Equal to

or more

than CPI

as at 31

March

2021

Financial administration

To provide

effective and

transparent

financial

management

systems

%

procurement

spend on

targeted

B-BBEE

suppliers

(procurement

spend on

targeted

suppliers

/total

procurement

spend)

Annual Annual

Performa

nce

Report

75% of

procurem

ent from

suppliers

with a BEE

level of 4

and below

and/or

20% of

total

spend on

entities

with

women

ownership

75% of

procurem

ent from

suppliers

with a BEE

level of 4

and below

and/or

20% of

total

spend on

entities

with

women

ownership

75% of

procurem

ent from

suppliers

with a BEE

level of 4

and below

and/or

20% of

total

spend on

entities

with

women

ownership

75% of

procurem

ent from

suppliers

with a BEE

level of 4

and below

and/or

20% of

total

spend on

entities

with

women

ownership

75% of

procurem

ent from

suppliers

with a BEE

level of 4

and below

and/or

20% of

total

spend on

entities

with

women

ownershi

p

Solvency

ratios (total

assets/total

liabilities)

Quarterly Quarterly

performa

nce

reports

1:1 1:1 1:1 1:1 1:1

Liquidity ratio

(current

assets/current

liabilities)

Quarterly Quarterly

performa

nce

reports

1:1 1:1 1:1 1:1 1:1

29 | P a g e

6.4.2 Table 4.5: Programme 2 – Key Performance Indicators and Annual Targets

Programme 2: Project Investments

Objectives Measure/

KPI

Period Outputs Annual Targets

2016/17 2017/18 2018/19 2019/20 2020/21

Project Origination and appraisal

Contribution to

socio-economic

development

Estimated

(direct/

indirect) job

opportunities

to be

supported or

created1

Annual Annual

performa

nce

reports

170 182 105 100 94

% of

disbursed

projects

meeting

B-BBEE

Investment

policy criteria

(no of

projects

meeting the

B-BBEE

criteria/total

no of projects

disbursed)

Quarterly Quarterly

performa

nce

reports

100% of

projects

meeting B-

BBEE

Investment

policy

criteria

100% of

projects

meeting

B-BBEE

Investme

nt policy

criteria

100% of

projects

meeting

B-BBEE

Investmen

t policy

criteria

100% of

projects

meeting

B-BBEE

Investmen

t policy

criteria

100% of

projects

meeting

B-BBEE

Investmen

t policy

criteria

Project Disbursements

Fully commit all

available funds

to viable

projects

Rand value of

projects

disbursed in

Annual Annual

performa

nce

reports

Disbursem

ent of 30%

of

available

capital

during the

year

Disburse

ment of

30% of

available

capital

during

the year

Disburse

ment of

30% of

available

capital

during the

year

Disbursem

ent of

30% of

available

capital

during the

year

Disburse

ment of

30% of

available

capital

during the

year

Post Investment monitoring and aftercare

To ensure

appropriate

portfolio

management

and aftercare is

being performed

so as to strive

toward good

asset quality and

long term

sustainable

growth of the

Trust.

To maintain

at least 90%

of performing

loans in the

portfolio

(No. of loans

performing/

total no. of

loans)

[Debt]

Quarterly Quarterly

performa

nce

reports

At least

90%

performan

ce loans

within the

total loan

portfolio

At least

90%

performa

nce loans

within

the total

loan

portfolio

At least

90%

performa

nce loans

within the

total loan

portfolio

At least

90%

performa

nce loans

within the

total loan

portfolio

At least

90%

performa

nce loans

within the

total loan

portfolio

At the time of

valuation of

the

Quarterly Quarterly

performa

nce and

At least

65% of the

total cost

At least

65% of

the total

At least

65% of

the total

At least

65% of

the total

At least

65% of

the total

1 The number of jobs created is an estimated number derived through the use of project specific funding models requirements, automation level

conditions and general internally accepted guidelines and principles at the time of project funding approvals by the KGFT Board of Trustees.

30 | P a g e

6.4.2 Table 4.5: Programme 2 – Key Performance Indicators and Annual Targets

Programme 2: Project Investments

Objectives Measure/

KPI

Period Outputs Annual Targets

2016/17 2017/18 2018/19 2019/20 2020/21

investment

portfolio, the

value should

not be less

than or equal

to 35% of its

cost

[equity]

valuation

reports

of the

investment

portfolio

to be

maintained

based on

annual

valuations

and

provisions.

cost of

the

investme

nt

portfolio

to be

maintain

ed based

on

annual

valuation

s and

provision

s.

cost of

the

investmen

t portfolio

to be

maintaine

d based

on annual

valuations

and

provision.

cost of the

investmen

t portfolio

to be

maintaine

d based

on annual

valuations

and

provision.

cost of

the

investmen

t portfolio

to be

maintaine

d based

on annual

valuations

and

provision.

Progress towards meeting the above targets is monitored during the year through quarterly reports that

are circulated to the Board of Trustees as well as to EDTEA. At the end of the financial year, the

performance against predetermined targets is reported in the Trust’s integrated annual report.

31 | P a g e

7 FINANCIAL PLAN AND EXPENDITURE ESTIMATES

The projected Statement of Comprehensive Income, Statement of Financial Position and Statement of

Cash Flows have been prepared using the Financial Fund Model for the Fund.

Summary of assumptions (refer to Annexure A for detailed assumptions)

Income in the form of raising fees will be earned at 1% of the committed amount;

Annual inflationary escalation (CPI%) for the financial years ending, 2016/17, 2017/18,

2018/19,2019/20 and 2020/21 will be, 5.9% , 5.6%, 5.5%, 5.5% and 5.5% respectively;

Staff remuneration will increase annually at an anticipated blended rate of approximately 7% per

annum. Additional increases in staff complement that may be required once a limited partner is

identified has not be factored into the budget.

Anticipated Debt and Equity drawdowns have been forecast only to the extent of fully utilising

the available fund allocations. Fund sizes increase based on an estimated split of the annual

R64.4m (for the first 3 years and R95m thereafter) allocation received from the EDTEA. No

capitalisations from surplus cash balances generated from project returns are modelled and

represent an opportunity for the entity to grow funds under management further.

Expenditure is based on current overheads incurred over the five year budget period and is based

on the assumption that the Equity Fund will be operational during this period; and

Fund Management income that will be earned once the Trust performs the function of “Fund

Manager” for funds under management in the en-commandite partnership has not been

budgeted due to the uncertainty of the value of the fund.

7.1 Summary of Revenue and Expenditure by programme and economic classification

A summary of revenue, payments and budgeted estimates by programme and economic classification for

the Fund, for the period 2012/13 to 2020/21 are detailed below in Tables 5.1, and 5.2. The detailed

analysis of the summary of payments and estimates by economic classification is presented in Table 5.3

below.

Table 5.1 Summary of Revenues

Table 5.2 Summary of payments and estimates by programme

Approved

Budget

Revised

Estimate

2012/13 2013/14 2014/15 2015/16 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

Net interest earned on projects 8 811 421 25 638 912 26 701 314 27 812 405 38 884 658 63 160 859 99 015 585 122 890 975 135 333 833 138 623 479

Interest on surplus funds 560 660 3 525 020 25 288 977 10 564 671 80 887 068 35 041 163 30 037 118 30 379 434 37 037 866 50 158 541

Commitment fee income 412 901 30 397 55 026 - 33 699 - - - - -

Raising Fee 697 500 - 900 000 2 967 230 187 368 2 695 488 2 696 525 1 350 000 1 000 000 937 810

Grant from KGF Operational Expenses Fund 39 110 547 11 719 000 - - - - - - - -

Reversal of impairment provision - - 22 313 332 - - - - - - -

Other Sundry Income - 617 152 3 308 183 - 21 065 - . - - -

Total Revenue 49 593 029 41 530 481 78 566 832 41 344 307 120 013 857 100 897 511 131 749 228 154 620 408 173 371 699 189 719 831

Rands

Medium-term estimatesAudited Outcome

Approved

Budget

Revised

Estimate

2012/13 2013/14 2014/15 2015/16 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

Financial Administration 33 819 883 29 471 785 19 637 711 27 626 778 16 665 788 19 289 592 22 385 406 21 535 360 22 294 608 23 496 149

Project Investments 8 165 568 5 251 287 9 007 496 13 310 313 18 562 560 26 692 464 27 149 503 28 734 431 30 424 177 32 341 949

Total Payments 41 985 451 34 723 072 28 645 207 40 937 091 35 228 348 45 982 056 49 534 909 50 269 791 52 718 785 55 838 098

Revenue 49 593 029 41 530 481 78 566 832 41 344 307 120 013 857 100 897 511 131 749 228 154 620 408 173 371 699 189 719 831

Net Surplus 7 607 578 6 807 409 49 921 625 407 216 84 785 509 54 915 455 82 214 320 104 350 618 120 652 914 133 881 733

Rands

Medium-term estimatesAudited Outcome

32 | P a g e

Table 5.3 Summary of payments and estimates by economic classification

The audited outcome for the 2012/13 financial year is reflective of the financial position prior to the

restructure, when the operations of the Trust were managed by KGFM in its capacity as Fund Manager

and thus all operational costs were borne by the Fund Management Company. These costs were

encapsulated by KGFT via the Fund management Fee. Further expenditure comprised costs relating to

the various governance committees. The 2013/14 audited outcome is reflective of seven months of

operations prior to the restructure in line with the 2012/13 financial year and five months as a unitary

structure post the restructure, which is evidenced by the increase in settlement proceeds from the

acquisition of the operations, remuneration and operational expenditure. The 2014/15 financial year is

the first year that fully operated under the Trust.

The 2015/16 financial year represents the first year post unencumbering from lenders and the formation

of both the debt and equity fund. This year serves as a basis for projecting the budget periods 2016/17

to 20120/21 which includes providing both debt and equity products. The effect of the provision of

guarantee products have not been forecast due to model currently being developed. The budget further

does not take into account the effect of further funds under management from any en-commandite

partnership being formed (estimated that a fund management fee income will be received that will assist

with the recovery of project specific costs).

The budget structure, which largely conforms to the uniform budget and programme structure for KGFT

is made up of two programmes, Finance and Administration and Project Investments.

7.2 Programme Description

The revenue, payments and budgeted estimates for each programme are summarised in terms of sub-

programmes and economic classification, details of which are given in the tables below.

Approved

Budget

Revised

Estimate

2012/13 2013/14 2014/15 2015/16 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

Current payments 41 985 451 34 115 536 27 994 932 39 687 091 34 531 514 44 892 056 46 484 909 49 319 791 52 248 785 55 388 098

Compensation of employees 2 253 892 7 760 990 14 451 888 25 544 805 21 435 751 28 239 582 29 937 251 31 663 667 33 490 627 35 424 051

Goods and services 39 731 560 26 354 545 13 543 044 14 142 286 13 095 763 16 652 474 16 547 658 17 656 124 18 758 158 19 964 047

Communication - 75 321 209 625 217 280 249 423 264 139 278 930 294 271 310 456 327 531

Computer services - 174 238 284 717 306 731 530 372 561 664 593 117 625 739 660 154 696 463

Consultants and professional services 35 229 228 20 490 121 1 254 114 3 870 517 2 787 855 5 239 001 5 515 856 6 055 361 6 538 152 7 062 470

Maintenance, repairs and running costs 567 111 4 677 762 7 855 526 4 397 357 4 679 108 5 379 123 4 992 491 5 164 940 5 359 429 5 585 804

Operating leases - 180 826 942 590 533 135 1 019 312 1 079 451 1 520 759 1 604 400 1 692 642 1 785 738

Travel and subsistence 5 131 298 045 778 251 1 195 483 951 780 957 935 1 011 579 1 067 216 1 125 913 1 187 838

Advertising - 138 723 1 988 975 1 394 828 907 486 1 141 028 1 204 925 1 271 196 1 341 112 1 414 873

Legal 237 872 319 509 229 248 2 226 956 1 970 428 2 030 134 1 430 000 1 573 000 1 730 300 1 903 330

Impairments 3 692 218 - - - - - - - - -

Interest and rent on Land - - - - - - - - - -

Transfers and subsidies - - - - - - - - - -

Departments - - - - - - - - - -

Payments for capital assets - 607 536 650 275 1 250 000 696 834 1 090 000 3 050 000 950 000 470 000 450 000

Building and other fixed structures - 49 428 39 381 50 000 16 906 20 000 2 000 000 300 000 50 000 50 000

Machinery and equipment - 533 108 580 894 950 000 479 928 370 000 850 000 450 000 220 000 200 000

Software and other intangibles assets - 25 000 30 000 250 000 200 000 700 000 200 000 200 000 200 000 200 000

Total 41 985 451 34 723 072 28 645 207 40 937 091 35 228 348 45 982 056 49 534 909 50 269 791 52 718 785 55 838 098

Rands

Medium-term estimatesAudited Outcome

33 | P a g e

7.2.1 Programme 1 – Administration

The main purpose of Programme 1 – Finance and Administration is to provide for the overall management

of KGFT and to render a support service to the Project Investment in respect of transversal functions. This

programme consists of three sub-programmes, namely Office of the CEO, Secretariat and Governance

and Financial Administration.

Tables 5.5 below illustrate the payments and forecasts of this programme over the seven year period

2012/13 to 2020/21. The detailed summary of payments and estimates by economic classification for

Programme 1 is presented in Table 5.6.

Table 5.5 Summary of payments and estimates – Programme 1: Finance and Administration

Table 5.6 Summary of payments and estimates by economic classification – Programme 1: Finance and

Administration

No costs were allocated to the Office of the CEO sub-programme in 2012/2013 (prior to the restructure)

due to the outsourced administration function to the Fund Manager. The expenditure during that period

consisted of various fees paid to the Board of Trustees and its sub-committees members.

Post the restructure, KGFT has incurred higher financial administration costs arising from the Human

Resources and Remuneration, CEO and Board of Trustees and sub-committee fees.

Approved

Budget

Revised

Estimate

2012/13 2013/14 2014/15 2015/16 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

Office of the CEO 2 253 892 3 095 187 1 810 888 9 619 307 3 427 672 3 855 302 4 180 058 4 415 626 4 664 547 4 927 583

Secretariat and Governance 180 000 190 000 97 036 - 3 149 390 3 613 734 3 879 825 4 137 769 4 413 018 4 706 744

Financial Administration 31 385 992 26 186 597 17 729 788 18 007 471 10 088 725 11 820 556 14 325 523 12 981 965 13 217 042 13 861 822

Total 33 819 883 29 471 785 19 637 711 27 626 778 16 665 788 19 289 592 22 385 406 21 535 360 22 294 608 23 496 149

Rands

Medium-term estimatesAudited Outcome

Approved

Budget

Revised

Estimate

2012/13 2013/14 2014/15 2015/16 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

Current payments 33 819 883 28 864 248 18 987 436 26 376 778 16 358 918 19 034 592 19 910 406 20 960 360 22 084 608 23 296 149

Compensation of employees 2 253 892 4 450 990 8 410 188 17 489 650 11 102 305 13 019 960 14 078 396 14 911 082 15 793 653 16 729 137

Goods and services 31 565 992 24 413 258 10 577 249 8 887 128 5 256 613 6 014 633 5 832 010 6 049 278 6 290 955 6 567 012

Communication - 75 321 209 625 217 280 62 356 66 035 69 733 73 568 77 614 81 883

Computer services - 174 238 284 717 306 731 265 174 280 819 296 545 312 855 330 062 348 215

Consultants and professional services 30 993 750 19 007 067 506 541 3 151 522 186 657 288 000 308 160 325 109 342 990 361 854

Maintenance, repairs and running costs 567 111 4 677 762 7 855 526 3 482 978 3 852 059 4 456 880 3 992 562 4 108 659 4 243 603 4 407 056

Operating leases - 180 826 942 590 533 135 509 656 539 726 760 379 802 200 846 321 892 869

T ravel and subsistence 5 131 298 045 778 251 1 195 483 380 712 383 174 404 632 426 886 450 365 475 135

Advertising - - - - - - - - - -

Legal - - - - - - - - - -

Impairments - - - - - - - - - -

Interest and rent on Land - - - - - - - - - -

Transfers and subsidies - - - - - - - - - -

Departments - - - - - - - - - -

Payments for capital assets - 607 536 650 275 1 250 000 306 870 255 000 2 475 000 575 000 210 000 200 000

Building and other fixed structures - 49 428 39 381 50 000 16 906 20 000 2 000 000 300 000 50 000 50 000

Machinery and equipment - 533 108 580 894 950 000 239 964 185 000 425 000 225 000 110 000 100 000

Software and other intangibles assets - 25 000 30 000 250 000 50 000 50 000 50 000 50 000 50 000 50 000

Total 33 819 883 29 471 785 19 637 711 27 626 778 16 665 788 19 289 592 22 385 406 21 535 360 22 294 608 23 496 149

Rands

Medium-term estimatesAudited Outcome

34 | P a g e

Compensation of employees has also increased in 2013/2014 in relation to prior years due to the transfer

of staff from Fund Manager to KGFT which is in line with the restructuring process. Subsequent increases

in the 2015/16 financial year onwards was due to the anticipated staffing of employees at full capacity

and the implementation of employee incentive schemes.

For the 2015/16 financial year, the reduction in the anticipated overall expenditure is lower than was

originally budgeted by R6m. This is attributable to a R2.5m and R1.3m cost saving in project consultants

costs and legal fees respectively as these costs were transferred to the promoter. Additional cost savings

of R2.5m relation to compensation to employees is due to the number of vacancies as at the close of the

financial year end. The maintenance, repairs and running costs increased by R3m and this includes the

general inflationary increase of expenses. Included in this amount is the higher than initially projected

expenses relating to the operational expenses of the leased property of R0.8m, depreciation of R0.3m

and interest paid on a derivative financial instrument of R1.4m.

No increase in employee head count has been budgeted for which may arise from the successful

conclusion of an en-commandite partnership. Expenses have been reviewed and budgeted for based on

anticipated increases. Utilities such as water and electricity, lease rentals etc. have a slightly higher than

inflationary increase as per market norms. Depreciation and amortisation have taken into account the

addition of assets and the growth of the organisation.

7.2.2 Programme 2 – Project Investments

The main purpose of this programme is to originate and assess the viability of the projects by performing

due diligence and thereafter presenting proposals to relevant committees for approval. This programme

consists of five sub-programmes, namely Project Administration and marketing, Project Origination and

Appraisal, Legal, Risk and Compliance and Post investment monitoring and Aftercare.

Table 5.7 illustrates the payments and estimates of this programme over the seven year period from

2012/2013 to 2020/2021. The detailed summary of payments and estimates by economic classification

for Programme 2 is presented in Table 5.8 below:

Table 5.7 Summary of payments and estimates – Programme 2: Project Investments

Approved

Budget

Revised

Estimate

2012/13 2013/14 2014/15 2015/16 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

Project administration and Marketing 3 692 218 2 898 723 7 442 175 9 449 983 12 525 900 16 265 128 16 128 047 16 897 414 17 706 071 18 671 575

Project origination and appraisal 4 235 478 887 398 435 295 718 995 660 032 2 341 065 3 025 171 3 327 688 3 660 457 4 026 503

Project Legal, Risk and Compliance 237 872 319 509 229 248 2 226 956 4 549 579 7 164 029 6 996 355 7 453 048 7 941 823 8 465 123

Post Investment, Monitoring and Aftercare - 1 145 657 900 778 914 379 827 049 922 243 999 930 1 056 281 1 115 826 1 178 748

Total 8 165 568 5 251 287 9 007 496 13 310 313 18 562 560 26 692 464 27 149 503 28 734 431 30 424 177 32 341 949

Rands

Medium-term estimatesAudited Outcome

35 | P a g e

Table 5.8 Summary of payments and estimates by economic classification – Programme 2: Investments

The substantial decrease in Project Administration in the 2013/2014 Actual audited outcome is mainly

due to restructuring and re allocation of cost to other sub-programme such as Project Legal, Project

Disbursement and Aftercare. The Compensation of employees increased substantially in 2013/2014, this

is due to the Sub Programme being used for the first time during the financial year.

The allocation to the Legal, Risk and Compliance sub-programme only commenced in 2013/2014, the

costs are forecasted to increase due to the establishment and set up of the en-commandite partnership

including the reviews and drafting of legal agreements for projects. The review of legal documents are

outsourced to legal external counsel.

During the current financial year, Project origination and appraisals were low as there were few projects

that reached final appraisal and disbursement stage due to project promoter’s inability to obtain

sufficient equity, this resulted in projects being parked.

This was necessary in order to ensure a healthy pipeline of projects that will reach Final Appraisal and

disbursement stage prior to the close of the debt fund availability period in August 2015, thus ensuring

that KGFT delivers on its mandate, as well the necessary resources to facilitate the fund management of

the funds under the en-commandite partnership.

The key variable cost drivers relate to project origination, project appraisal and the impairments. These

costs vary in line with the investment activity undertaken by the fund. It is envisaged that over the next

5 years that on a year on year basis the number of deals executed should be consistent and in line with

cash facilities available for drawdowns. This is based on number of investment officers and the funding

available for disbursement.

Approved

Budget

Revised

Estimate

2012/13 2013/14 2014/15 2015/16 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

Current payments 8 165 568 5 251 287 9 007 496 13 310 313 18 172 597 25 857 464 26 574 503 28 359 431 30 164 177 32 091 949

Compensation of employees - 3 310 000 6 041 700 8 055 155 10 333 447 15 219 623 15 858 855 16 752 585 17 696 974 18 694 914

Goods and services 8 165 568 1 941 287 2 965 796 5 255 158 7 839 150 10 637 841 10 715 648 11 606 846 12 467 203 13 397 035

Communication - - - - 187 067 198 104 209 198 220 704 232 842 245 649

Computer services - - - - 265 198 280 845 296 572 312 884 330 092 348 247

Consultants and professional services 4 235 478 1 483 055 747 573 718 995 2 601 198 4 951 001 5 207 696 5 730 252 6 195 162 6 700 616

Maintenance, repairs and running costs - - - 914 379 827 049 922 243 999 930 1 056 281 1 115 826 1 178 748

Operating leases - - - - 509 656 539 726 760 379 802 200 846 321 892 869

T ravel and subsistence - - - - 571 068 574 761 606 947 640 329 675 548 712 703

Advertising - 138 723 1 988 975 1 394 828 907 486 1 141 028 1 204 925 1 271 196 1 341 112 1 414 873

Legal 237 872 319 509 229 248 2 226 956 1 970 428 2 030 134 1 430 000 1 573 000 1 730 300 1 903 330

Impairments 3 692 218 - - - - - - - - -

Interest and rent on Land - - - - - - - - - -

Transfers and subsidies - - - - - - - - - -

Departments - - - - - - - - - -

Payments for capital assets - - - - 389 964 835 000 575 000 375 000 260 000 250 000

Building and other fixed structures - - - - - - - - - -

Machinery and equipment - - - - 239 964 185 000 425 000 225 000 110 000 100 000

Software and other intangibles assets - - - - 150 000 650 000 150 000 150 000 150 000 150 000

Total 8 165 568 5 251 287 9 007 496 13 310 313 18 562 560 26 692 464 27 149 503 28 734 431 30 424 177 32 341 949

Rands

Medium-term estimatesAudited Outcome

36 | P a g e

The compensation of employees has increased during 2015/2016 and 2020/2021 due to the

appointments of additional employees as required and detailed in the HR strategy and organogram.

Subsequent increases in the 2015/2016 financial year onwards is due to the proposed introduction of

employee bonus incentives and the projected growth in employees with higher retention periods.

Project impairments have not been budgeted due to its inherent uncertainties. Further, no signs of

distress has been noted within the current portfolio that may provide indications of provisions that may

be required. Table 5.9. below presents the sensitivity impact to the profitability of the business from a

deterioration in the book (debt and equity):

Table 5.9: Sensitivity Analysis of Impairments from Book deterioration

Objectives Annual Targets

2016/17 2017/18 2018/19 2019/20 2020/21

Debt Fund

Debt funds to viable projects R621.1m R746.2m R881.2m R981.2m R1,075m

Provision at 10% of debt Portfolio

Value

R62.1m R74.6m R88.1m R98.1m R107.5m

Equity Fund

Equity funds to viable projects R137m R300m R300m R300m R300m

Provision at 20% of equity Portfolio

Value

R 27.4m R60m R60m R60m R60m

A sensitivity impact of a 10 % provision has been presented for the debt portfolio. It is noted that a 10%

provisioning impact on the Debt portfolio is considered aggressive in light of the current performing

portfolio.

A sensitivity impact of a 20 % provision has been presented for the equity portfolio. Variations in the

portfolio are expected to temporarily occur due to the projects not gaining significant value in the initial

phases of the project. It is anticipated that the portfolio will on average retain at least 80% of its market

value within the first 5 years of the investment period based on review of similar investment portfolios

within a private equity fund.

In the 2014/15 financial year, marketing costs increased due to the brand re-launch and new marketing

strategy that has been adopted by KGFT which will result in increased brand awareness as compared to

preceding years. The actual costs during 2013/14 for Risk and Compliance sub-programme is attributable

to the legal costs incurred on restructuring.

Some of the Marketing initiatives that were previously budgeted for in 2016/17 financial year, will be

carried forward into the next financial year and has therefore been included in the budget for the

2016/2017. The Marketing initiatives in 2016/2017 will include brand mobilisation through the activation

campaigns, media events and print advertising thereby giving traction to the existing equity investment

pipeline.

37 | P a g e

Forecast beyond 2016/2017 is based on an inflationary increase relative to the 2016/2017 year. This is

considered appropriate as we anticipate the momentum to continue as there is increase in deal pipeline

and product enhancements.

The marketing budget for 2015/2016 financial year included costs to be incurred for the branding and

marketing of the new equity investment product. KGFT successfully introduced the equity investment

product in 2015/16 financial year through refinement of the brand messaging and active participation in

private equity networking events and private equity conference attendance.

Overall during the 2016/17 financial year costs were marginally higher than budget with the main driver

being project related costs.

Project Administration Costs

Total costs relative to budget remained fairly flat however it should be noted that employee

compensation did fall below budget mainly due to movement in staff together with positions that

were budgeted to be filled and which were not. These positions are expected to be filled during

2016/2017 and has therefore been budgeted as such.

Origination and Appraisal and Legal

Costs associated with the above sub-programmes is mainly driven by deal activity with the type of

deal i.e. Debt vs Equity contributing significantly to the nature of costs.

The costs relative to debt and equity differ in that in the debt deals most of the costs relating to deal

appraisal, due diligence and legal is born by the promoter versus equity transaction where cost are born

by the equity investors themselves, being KGFT.

To this end given that we were introducing equity deals to the fund during 2015/2016 the cost incurred

were higher than anticipated. Given that we forecast on executing more equity deals going forward the

cost that have been budgeted has increased on this basis.

The expenditure projection for 2016/2017 to 2020/2021 is expected to increase due to the anticipated

increase in projects deal flow arising from the brand re-launch and marketing strategy including the

change in the project pricing model and the establishment of the Equity fund through the en-commandite

partnership.

7.3 Other Financial Reports

Treasury Regulation 29.1 also stipulates that the corporate plan should include a financial plan that

addresses the following, if applicable:

Projection of revenue, expenditure and borrowings (Projected Income Statement)

Assets and liabilities management (Projected Balance Sheet)

Cash flow management (Projected Cash flow Statement)

Capital expenditure programme

Dividend policies (not applicable)

Capital recapitalisation

38 | P a g e

KGFT has developed a 10 year Fund Financial Model which it uses as a tool to manage the financial

sustainability of the Funds. The Model uses the same assumptions as those highlighted in Annexures A to

project the results of the Fund over the 10 year period.

Accordingly, the detailed reports shown above are extracted from the respective Models and are

presented in tables 5.10 to 5.12 below.

7.3.1 Projected Income Statement

The Income Statement provides a summary of Income and Expenses. The figures are based on audited

financial statements of KGFT for the 2014/15 year, revised projected actuals of the 2015/16 financial year

and the forecast projections are for the financial years 2016/2017 to 2020/2021 the amounts are based

on key assumptions used (refer to Annexure A). The resultant income statements over the period are

shown below in Table 5.10.

Table 5.10 Financial Model Income Statement

Actuals/Forecasts Forecasts Forecasts Forecasts Forecasts Forecasts Forecasts

Financial Year 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

Interest Income 38 884 658 63 160 859 99 015 585 122 890 975 135 333 833 138 623 479

Interest income - Debt 38 783 094 55 664 178 65 510 624 75 890 462 79 714 738 73 163 383

Interest income - Shareholders Loans 101 564 7 496 682 33 504 962 47 000 512 55 619 094 65 460 096

Interest Expense - - - - - -

Net Operating Income 38 884 658 63 160 859 99 015 585 122 890 975 135 333 833 138 623 479

Other Income 81 129 199 37 736 652 32 733 643 31 729 434 38 037 866 51 096 351

Income From Capital Providers 42 919 821 - - - - -

Interest received on Current and Investment Accounts 37 967 247 35 041 163 30 037 118 30 379 434 37 037 866 50 158 541

Commitment Fee Income 33 699 - - - - -

Raising Fee 187 368 2 695 488 2 696 525 1 350 000 1 000 000 937 810

Other Miscellaneous Income 21 065 - - - - -

Fund 1 Administration Expenses 34 531 514 44 892 056 46 484 909 49 319 791 52 248 785 55 388 098

Project appraisal costs 785 576 3 210 000 3 981 000 4 379 100 4 817 010 5 298 711

Project origination costs 463 934 331 065 364 171 400 588 440 647 484 712

Staff remuneration 18 392 127 25 548 091 27 057 356 28 582 179 30 193 434 31 896 055

Main Trust board expenditure 1 468 767 1 610 076 1 722 781 1 843 376 1 972 412 2 110 481

Investment Committee expenditure 247 467 695 690 744 388 796 495 852 250 911 908

Audit Committee expenditure 182 252 227 815 243 762 260 825 279 083 298 619

HR Committee expenditure 289 721 157 910 168 964 180 791 193 447 206 988

Depreciation 1 033 692 1 096 791 1 254 822 1 176 293 1 114 947 1 067 769

Rent Paid 971 534 1 079 451 1 520 759 1 604 400 1 692 642 1 785 738

Travel Expenses 945 725 957 935 1 011 579 1 067 216 1 125 913 1 187 838

Consulting Expenses 929 572 1 669 323 1 193 269 1 358 898 1 433 638 1 512 488

Other administration costs 8 821 148 8 307 910 7 222 059 7 669 628 8 133 362 8 626 793

Project impairment costs - - - - - -

Loan Write-Offs - - - - - -

Miscellaneous Costs - - - - - -

Operating Surplus/(Loss) 85 482 343 56 005 455 85 264 320 105 300 618 121 122 914 134 331 733

39 | P a g e

7.3.2 Projected Balance Sheet

The Balance Sheet provides a summary of Assets, Liabilities, Capital and Reserve. The figures are based

on audited financial statements of KGFT for 2014/15 year, revised projected actuals of the 2015/16

financial year and the forecast projections are for the financial years 2016/2017 to 2020/2021, the

amounts are based on key assumptions used (refer to Annexure A) as indicated below in Table 5.11.

Table 5.11 Financial Model Balance Sheet

7.3.3 Cash Flow Statement

The Cash Flow Statement provides a summary of Cash flows from operating activities, Cash flows from

financing activities and Cash flows from investing activities. The figures are based on audited financial

statements of KGFT for the 2014/15 year, revised projected actuals of the 2015/16 financial year and the

forecast projections are for the financial years 2016/2017 to 2020/2021, the amounts are based on key

assumptions used (refer to Annexure A) as indicated in Table 5.12 below:

Actuals/Forecasts Forecasts Forecasts Forecasts Forecasts Forecasts Forecasts

Financial Year 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

ASSETS

Loans and Advances 498 032 971 753 821 343 928 321 327 1 065 492 409 1 138 049 068 1 087 991 208

Fixed Assets 1 863 677 1 856 886 3 652 064 3 425 771 2 780 824 2 163 056

Fixed Assets at Cost 5 289 899 6 379 899 9 429 899 10 379 899 10 849 899 11 299 899

Accumulated Depreciation and Amortisation (3 426 222) (4 523 013) (5 777 835) (6 954 128) (8 069 075) (9 136 843)

Trade and Other Receivables 8 601 065 8 601 065 8 601 065 8 601 065 8 601 065 8 601 065

Cash and Cash Equivalents 599 613 724 494 837 598 498 806 755 562 162 584 706 373 786 986 381 147

Opex Account 42 819 078 56 563 991 59 035 834 61 649 738 65 833 469 69 235 123

Debt and Equity Capital (incl capitalised funds) 531 794 646 388 273 607 364 770 921 400 512 846 540 540 317 817 146 024

Guarantee Fund 25 000 000 50 000 000 75 000 000 100 000 000 100 000 000 100 000 000

Total Assets 1 108 111 437 1 259 116 891 1 439 381 211 1 639 681 829 1 855 804 742 2 085 136 475

CAPITAL AND RESERVES

Trust Capital - Drawn 479 089 664 758 116 744 1 046 219 010 1 181 219 010 1 281 219 010 1 375 000 010

Initial Capital 10 10 10 10 10 10

Fund 1 - Debt Fund 471 513 824 621 062 658 746 219 000 881 219 000 981 219 000 1 075 000 000

Fund 11 - Equity Fund 7 575 829 137 054 076 300 000 000 300 000 000 300 000 000 300 000 000

Trust Capital - Undrawn 520 910 346 336 883 266 143 781 000 103 781 000 98 781 000 100 000 000

Accumulated Surplus/(Deficit) 103 780 193 159 785 648 245 049 968 350 350 585 471 473 499 605 805 232

Total Capital and Reserves 1 103 780 203 1 254 785 658 1 435 049 978 1 635 350 595 1 851 473 509 2 080 805 242

LIABILITIES

Trade and Other Payables 4 331 233 4 331 233 4 331 233 4 331 233 4 331 233 4 331 233

Total Liabilities 4 331 233 4 331 233 4 331 233 4 331 233 4 331 233 4 331 233

Total Capital, Reserves and Liabilities 1 108 111 437 1 259 116 891 1 439 381 211 1 639 681 829 1 855 804 742 2 085 136 475

40 | P a g e

Table 5.12 Financial Model Cash Flow Statement

Actuals/Forecasts Forecasts Forecasts Forecasts Forecasts Forecasts Forecasts

Month 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

CASH FLOWS FROM OPERATING ACTIVITIES

Cash Generated From Operations 29 569 192 (41 099 777) (42 533 562) (46 793 497) (50 133 838) (53 382 519)

Surplus (deficit) before taxation 85 482 343 56 005 455 85 264 320 105 300 618 121 122 914 134 331 733

Adjustments for: - - - - - -

Interest received (53 308 960) (98 202 023) (129 052 703) (153 270 408) (172 371 699) (188 782 021)

Interest expense - - - - - -

Depreciation and Amortisation 1 033 692 1 096 791 1 254 822 1 176 293 1 114 947 1 067 769

Changes in working capital: - - - - - -

Trade and other receivables (5 334 536) - - - - -

Trade and other payables 1 696 652 - - - - -

Interest Received 53 308 960 98 202 023 129 052 703 153 270 408 172 371 699 188 782 021

Interest Paid - - - - - -

Net Cash From Operating Activities 82 878 152 57 102 246 86 519 141 106 476 911 122 237 860 135 399 501

CASH FLOWS FROM FINANCING ACTIVITIES

Capital Contribution Received 177 971 762 279 027 080 288 102 266 135 000 000 100 000 000 93 781 000

Increase/(Decrease) in Capital Fund 520 910 346 (184 027 080) (193 102 266) (40 000 000) (5 000 000) 1 219 000

Non-Income Statement Changes in Retained Earnings (177 396 500) - - - - -

Net Cash From Financing Activities 521 485 608 95 000 000 95 000 000 95 000 000 95 000 000 95 000 000

CASH FLOWS FROM INVESTMENT ACTIVITIES

(Increase)/Decrease In Loans And Advances (134 616 010) (255 788 372) (174 499 984) (137 171 082) (72 556 659) 50 057 860

(Increase)/Decrease In Short Term Investments (477 517 619) - - - - -

(Increase)/Decrease In Fixed Assets (616 137) (1 090 000) (3 050 000) (950 000) (470 000) (450 000)

Net Cash From Investment Activities (612 749 766) (256 878 372) (177 549 984) (138 121 082) (73 026 659) 49 607 860

Total Cash Movement For The Period (8 386 006) (104 776 126) 3 969 157 63 355 829 144 211 201 280 007 361

Cash At The Beginning Of The Period 607 999 730 599 613 724 494 837 598 498 806 755 562 162 584 706 373 786

Total Cash At End Of The Period 599 613 724 494 837 598 498 806 755 562 162 584 706 373 786 986 381 147

Cash & Cash Equivalents As Per Balance Sheet 599 613 724 494 837 598 498 806 755 562 162 584 706 373 786 986 381 147

41 | P a g e

7.4 Projected Capital expenditure

The projected capital spend mainly encompasses replacement of necessary assets over forecasted

period. In 2015/2016 financial year, computer equipment budget relates to the replacement of necessary

assets such as computers and software and licensing upgrades. In the 2016/17 financial year, the printers

under lease will cease and it is anticipated that 2 new printers will be purchased outright rather than

entering into another 5 year lease agreement. Due to the expiry of the lease of the current office premises

in 2017/18, anticipated costs from relocation have been budgeted for. The projected capital expenditure

budget is detailed in table 5.13 below.

Table 5.13 Summary of CAPEX budget

7.5 Borrowing plan

Treasury Regulation 29.1 also stipulates that the corporate plan should include a borrowing plan. In the

2014/15 financial year, the lenders were settled early as part of the evolution strategy thereby

unencumbering the Fund. The Trust was able to unlock Fund II funds that were set aside for Equity

investments. Accordingly, the Trust is fully unencumbered and based on sustainability projections, the

Trust has not budgeted for any further external borrowings as capital injections through EDTEA capital

allocations are considered sufficient to maintain and grow the assets under management.

Based on the cash flows available from projects and government capital allocations, no external

borrowings or facilities is currently anticipated.

ActualApproved

Budget

Revised

Estimate

2014/15 2015/16 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

Loan Management System - 50 000 - - - - - -

Leasehold Improvements 39 381 50 000 16 906 20 000 2 000 000 300 000 50 000 50 000

Computer Equipment 315 788 100 000 173 366 120 000 100 000 300 000 100 000 80 000

Office Furniture 32 678 50 000 20 000 100 000 500 000 50 000 20 000 20 000

Office Equipment 232 428 800 000 286 561 150 000 250 000 100 000 100 000 100 000

Computer Software 30 000 200 000 200 000 700 000 200 000 200 000 200 000 200 000

Total 650 275 1 250 000 696 834 1 090 000 3 050 000 950 000 470 000 450 000

Assets componentMedium-term estimates

42 | P a g e

8 ORGANISATIONAL STRUCTURE

8.1 Organogram

The organogram below was approved by the Board of Trustees in their meeting held on 4 November

2015. It is made up of three functions, namely Investment; Risk; and Finance & Corporate Services. The

organogram is made up of a total of (26) posts. As at 31 January 2016, a total of 9 vacancies exist within

the Trust. Recruitment for the vacant posts is ongoing and is expected to be filled during the first quarter

of the 2016/17 financial year.

Figure 6.1 Current Structure of KGFT

Chief Executive Officer:

Mr Siddiq Adam

Chief Investment Officer:

Mr Aubrey Shabane

Chief Financial Officer:

Mr Ismail Abdoola

Chief Risk Officer:

Vacant

Executive Assistant: Mrs Ayesha Asmal

4 x Investment Officers:

Mr Dieter Kasch

Mrs Nelavani Ranchhod

Mrs Khwezi Mnguni Mr Bruce Ndidi

Investment Monitoring Officer:

Ms Sibulele Ndandani

Finance Manager:

Mr Lwazi Zondi

Management Accountant:

Ms Nerisha Haricharan

Financial Accountant:

Mrs Lulu Ndlovu

Accounts Assistant:

Mrs Portia Gumede

Personal Assistant to Executives:

Ms Megan-Lee Wilson

Compliance / Enterprise

Risk Analyst:

Mrs Kerry Murray

Secretariat and Governance, Stakeholder Communication, Brand Awareness

/Marketing

Finance, Admin, IT

& HR (outsourced)

Receptionist:

Miss Precious Mbambo

General Assistant:

Mrs Hilda Masuku

Enterprise Risk, Credit Risk, ESG,

Compliance

Projects, Legal

Credit Risk Analyst:

Vacant

Acting: Ms S Ndandani

Legal IO: Vacant

Project Administrator:

Vacant

ESG Analyst:

Vacant

Trust Secretary: Vacant

2 x Investment Analysts:

Vacant

Principal Inv

Officer: Vacant

(Reserved for

Senior PE hire)

43 | P a g e

8.1.1 Proposed Structure (post partnership with Limited Liability partners)

KGFT has commenced engaging with Limited partners to enter into a partnership arrangement for equity

investments with KGFT through the formation of an en-commandite partnership model. KGFT’s assets

under management will increase as a result of such partnership and will require additional capacity within

the investments team to assist with the origination, appraisal and monitoring of investments.

The additional capacity required will be influenced by the value of funds attracted from external parties.

It is envisaged that a maximum of two (2) additional investment staff consisting of investment analysts

will be required based on the value of funds requiring disbursement and management. The inclusion of

investment analysts will assist with the development of investment officer skills internally for succession

planning within the function.

Further, the investment team will required to be split between each of the respective funds under

management. The revised investment team is reflected in figure 6.2 below:

Figure 6.2 Investment team in an En-Commandite Partnership Funding Model

LEGEND:

Executive No of Functions No of Employees

CEO 4 3

CFO 4 8

CIO 2 11

CRO 4 4

Total 14 26

Vacant Filled Function

Chief Investment

Officer

Debt & Guarantee Funds Equity Fund

Investment

Officer

4 x Investment

Officers

2 x Investment

Analysts 2x Investment

Analysts

Investment

Monitoring Officer Legal IO

Projects

Administrator

44 | P a g e

8.2 Human Resource Strategy

The Trust’s Human Resources (HR) strategic objective is to attract, retain and develop talented individuals

to reach their full potential by creating an innovative working environment which ultimately leads to the

achievement of the Trust’s strategic goals whilst supporting economic development, as well as social

development.

The HR function of the Trust is currently managed internally under the responsibility of the Chief Financial

Officer. Specialist service providers are utilised as and when required to assist with tasks requiring

specialist HR skills and expertise. The following critical activities within the HR function form the basis on

which activities are focused:

Recruitment and succession planning;

Talent management

Leadership development;

Performance management;

Employee engagement;

Employee value proposition and

Employment equity.

As noted above, the successful implementation and ongoing focus on the above activities is critical to

ensure that employees are managed in order to align with the strategic objectives of the Trust. The HR

strategy was approved by the BoT at the meeting in December 2015. The following represents the HR

strategy at a high level together with their respective objectives.

8.2.1 HR Vision, Mission and Strategic Objectives

The aims of the HR Strategy are to ensure that KGFT’s vision and strategy are delivered through the staff

within a framework of best practice people management. The HR Strategic direction comprising of the

HR vision, mission and strategic objectives as informed by the KGFT strategic drives and the situatinal

analysis report:

8.2.1.1 HR vision

Talented, inspired and an engaged workforce

8.2.1.2 HR Mission

To attract, retain and develop talented individuals to reach their full potential by creating a high

performance working environment which ultimately leads to the achievement of the Trust’s strategic

goals whilst supporting economic development, as well as social development.

8.2.1.3 HR Strategic Objectives

a. Attract and build talent at all levels, with appropriate succession planning; interventions to ensure

continuity and succession of critical roles;

b. Develop and implement a compelling Employee Value Proposition (EVP);

c. Enable HRM infrastructure to support business;

d. Drive a high performance culture;

e. Build a culture that enables diversified workforce.

45 | P a g e

8.2.1.4 Strategic Alignment

The alignment of strategies is critical for the achievement of a common goal:

Strategic Objective Initiatives Strategic Outcomes HR Response

1. Open up and /or manage new funds that can offer competitive financing products to attract private participation

The establishment of KZN Equity

Fund and of Fund Management

service by KGFT

Design and implementation of new HR structure

Development of incumbents in their current roles

Recruiting the right skills at the right time

2. Build long term relationships with other Development Finance Institutions (DFIs) and lending institutions to cross-refer and co-finance projects and build on the PPP model

A strong leadership collective

Best people (employees) in terms of skills and attributes

Maintain an integrated and flexible Succession Plan

Develop a Talent Management Framework / Model

Develop a high performance culture

3. Further implement the comprehensive marketing strategy

Clear direction to increase

strategy awareness, clarity and

branding

HR (internal branding) and Marketing to create synergies

Recruit the right skills to represent the brand and drive marketing

4. Adequately resource and retain the necessary human capital and skills in the Trust by offering market related benefits

Best environment and culture

for employees

Promoting employment equity

in the KGFT environment

Develop an integrated HR Strategy

Develop and implement an improved Employee Value Proposition.

Recruitment of the right people with the rights skills and attitudes

5. Implement and maintain sound policies, procedures, and systems of internal controls to ensure good corporate governance

Best processes and procedures to deliver services

Monitoring and measurement systems in place

Promoting employment equity in the KGFT environment

HR portal or intranet Deliver integrated consistent

and value adding HR services Improve and implement an HR

operating model that supports business effectively

Compliance with the Employment Equity Act, BCEA, etc

Promotion of employment equity through employee development and succession planning

8.3 Achieving the HR objectives

The Trust will achieve its HR strategic objectives through an integrated Talent Management approach. Talent Management is a set of integrated organisational HR processes designed to attract, develop, motivate, and retain productive and engaged employees.

46 | P a g e

Talent management components are comprised of key HR functions necessary to achieve the overall objective of each component.

Figure 6.3 Integrated Talent Management Framework

Integrated Talent Management framework

Based on the HR Strategy, KGFT is currently developing an implementation plan in line with the HR

strategy that will guide management in achieving the vision of KGFT. Strategic HR planning predicts the

future HR management needs of the entity after analysing the Trust’s current human resources, the

external labour market and the future HR environment that the Trust will be operating in. Strategic HR

planning is also important from a budgetary point of view so that the costs of recruitment, training, and

so forth can be factored into the Trust's operating budget. The strategic HR planning process will

incorporate the following four steps:

Assessing the current HR capacity;

Forecasting HR requirements;

Gap analysis; and

Developing HR strategy to support KGFT’s overall vision and mandate.

The ongoing monitoring and adherence to the above, in addition to the various key activities resulting

from the above, is reported to and monitored by the Human Resources and Remuneration Committee.

Strategic Recruitment &

Retention

Learning & Development

Employee Relations and Diversity

HR service

delivery

TALENT MANAGEMENT

Performance and Reward

Employment Equity & Diversity

47 | P a g e

9 RISK MANAGEMENT PLAN

Enterprise Risk Management (ERM) forms a critical part of any institution’s strategic management. It is

the process whereby an institution both methodically and intuitively addresses the risks attached to their

activities with the goal of achieving sustained benefit within each activity and across the portfolio of

activities. ERM is therefore recognised as an integral part of sound organisational management and is

being promoted internationally and in South Africa as good practice applicable to the public and private

sectors. It encompasses an Enterprise Risk management Policy, Enterprise Management Framework as

well as the annual plan of activities to be conducted to achieve the desired level of risk management.

9.1 Enterprise Risk Management Policy

The Enterprise Risk Management Policy provides a framework within which management can operate to

enforce the pro-active ERM process and to inculcate the risk management culture throughout the

organisation and to further ensure that the risk management efforts of the KGFT are optimised (attached

as Annexure B).

9.2 Enterprise Risk Management Framework

The Enterprise Risk Management Framework specifically addresses the structures, processes and

standards implemented to manage risks on an enterprise-wide basis in a consistent manner. It further

addresses the specific responsibilities and accountabilities for the ERM process and the reporting of risks

and incidences at various levels within KGFT (attached as Annexure C).

This framework is based on the Provincial Risk Management Framework issued by the KwaZulu-Natal

Provincial Treasury and is aligned to the principles embodied in the Enterprise Risk Management

Framework published by the Committee of Sponsoring Organisations of the Treadway Commission

(“COSO”) and the King Code on Governance Principles (“King III”).

9.3 Risk Assessment

A strategic risk assessment is performed on an annual basis to identify KGFT’s top ten strategic risk, the

controls in place to mitigate those risks as well as any further actions to be implemented. The strategic

risks are recorded in the Strategic Risk register which is reviewed regularly in line with changes in the

business and the external environment. Departmental risk assessments are undertaken in line with the

risk management plan. These are reviewed and reported on to the Audit and Risk Committee.

9.4 Risk Management Plan

The Risk Management Plan details the planned activities to be undertaken by KGFT in the 2015/2016

financial year in managing the organisation’s risks (Attached as Annexure D).

48 | P a g e

10 FRAUD PREVENTION PLAN

A Fraud prevention plan as per Treasury Regulation 29.1 is required to effectively manage the fraud risk

to which the company is exposed. In this regard, the Trust’s Fraud Prevention Plan is attached as

Annexure E.

11 MATERIALITY/SIGNIFICANT FRAMEWORK

In terms of Treasury Regulations 28.3 and 29.1, the accounting authority (Board of Trustees) must

develop and agree a framework (attached as Annexure F) of acceptable levels of materiality and

significance with the relevant executive authority (KZN MEC for Economic Development, Tourism and

Environmental Affairs).

In this regard, clarity and understanding of the purpose and use of:

material is discussed in section 50(1) and 55(2) of the Public Finance Managements Act;

Significance is discussed in by section 54 (2) of the Public Finance Management Act.

49 | P a g e

ANNEXURE A – Annual Budget Assumptions

KEY ASSUMPTIONS ANNUAL COST ESCALATION

Total Value of Fund 1 000 000 000 2016-17 5.90%

- Fund I - Debt Fund 725 000 000 2017-18 5.60%

- Fund II - Equity Fund 250 000 000 2018-19 5.50%

- Fund III - Guarantee Fund 25 000 000 2019-20 5.50%

Less: Committed Funds 586 219 000 2020-21 5.50%

Total Uncommitted Value of Fund 413 781 000

Average Loan Value (Less 10% Equity) 50 000 000

No. of Deals to Fully Commit the Fund 8

Deal Conversion Ratio (On Pipeline) 40%

Total Deal Pipeline Required 20

Deal Conversion Ratio (On Leads) 25%

Total Deal Leads Required 32

ACTUAL APPROVED DEBT PROJECTS ACTUAL APPROVED EQUITY PROJECTS FUND ALLOCATION AND SPLIT

SA Shipyards 42 777 000 KwaDukuza Hospital 48 000 000 FYE TRANSFER IN DEBT EQUITY GUARANTEE TOTAL

Dark Fibre Africa 45 000 000 Projects Committed as at 31 March 2016 48 000 000 2015/16 Balance C/F 725 000 000 250 000 000 25 000 000 1 000 000 000

Link Africa 65 000 000 2016/17 95 000 000 20 000 000 50 000 000 25 000 000 1 095 000 000

Mpact 200 000 000 2017/18 95 000 000 70 000 000 - 25 000 000 1 190 000 000

Projects Committed as at 31 March 2015 352 777 000 2018/19 95 000 000 70 000 000 - 25 000 000 1 285 000 000

Dark Fibre Africa 100 000 000 2019/20 95 000 000 95 000 000 - - 1 380 000 000

iDube cold storage 63 400 000 2020/21 95 000 000 95 000 000 - - 1 475 000 000

KwaDukuza Hospital 70 042 000 1 075 000 000 300 000 000 100 000 000 1 475 000 000

Projects Committed as at 31 March 2016 586 219 000

FEES

PROPOSED DEBT PROJECTS PROPOSED EQUITY PROJECTS DEBT EQUITY

Project A 40 000 000 Project C 40 000 000 1.00% N/A

Project B 40 000 000 Project D 40 000 000 0.50% N/A

Projects Committed as at 31 March 2017 666 219 000 Project E 40 000 000

Project F 40 000 000 Projects Committed as at 31 March 2017 168 000 000 DRAWDOWN SUMMARY

Project G 40 000 000 Project H 40 000 000 FYE DEBT EQUITY TOAL

Projects Committed as at 31 March 2018 746 219 000 Project I 40 000 000 2016/17 80 000 000 120 000 000 200 000 000

Project K 45 000 000 Project J 52 000 000 2017/18 80 000 000 132 000 000 212 000 000

Project L 45 000 000 Projects Committed as at 31 March 2018 300 000 000 2018/19 135 000 000 - 135 000 000

Project M 45 000 000 Nil - 2019/20 100 000 000 - 100 000 000

Projects Committed as at 31 March 2019 881 219 000 Projects Committed as at 31 March 2019 300 000 000 2020/21 93 781 000 - 93 781 000

Project N 50 000 000 Nil - TOTAL 488 781 000 252 000 000 740 781 000

Project O 50 000 000 Projects Committed as at 31 March 2020 300 000 000

Projects Committed as at 31 March 2020 981 219 000 Nil -

Project P 50 000 000 Projects Committed as at 31 March 2021 300 000 000

Project Q 43 781 000

Projects Committed as at 31 March 2021 1 075 000 000

RetainerAttendance

Fees/day

No of

meeting

days

No of

membersTotal fees

Trust 1 610 076

Chairperson 238 501 24 607 18 1 681 427

Deputy Chairperson 119 251 15 819 14 1 340 717

Member 51 443 9 554 10 4 587 932

Investment Committee 695 690

Chairperson - 21 557 10 1 215 570

Member - 12 003 10 4 480 120

Audit Committee 227 815

Chairperson - 21 557 5 1 107 785

Member - 12 003 5 2 120 030

HR Committee 157 910

Chairperson - 14 698 5 1 73 490

Member - 8 442 5 2 84 420

BOARD AND SUB COMMITTEE FEES

TOTAL

DESCRIPTION

RAISING FEE

COMMITMENT FEE INCOME