2007 / 2008 Annual Report - Eastern Cape Development Corporation

EASTERN CAPE DEVELOPMENT CORPORATION 2007/08DIRECTORS’REPORT3.8 Rental IncomeA lease audit task team was established to verify the existence of lease agreements for ECDC leased properties. Work isstill being done to renew expired leases, but the team was successful in ensuring that lease agreements are on hand fora significant number of leased properties. Rentals billed are in terms of these lease agreements. The settlement policyimplemented during the financial year assisted in recovery of some old debt. Straight lining of leases was performedand adequate provision has been made for doubtful debts. The external debt management company employed duringthe prior financial year is still actively trying to recover the arrears. However, rental collections decreased significantlyover the same period due to the eviction moratorium proposed by the Provincial Cabinet as stated under DevelopmentProperties above. In an attempt to resolve this impasse the Corporation is working with the Department of EconomicDevelopment and the affected communities, to find a workable and lasting solution to the challenge.3.9 Loans AdvancedThe total disbursement of development loans for the current year amounted to R70.4 million. This is 7% more thanthe previous year. The quality of the loan portfolio is however improving despite the fact that the net increase in theloan book for the current year is 6% compared to a net decrease of 3% in the previous year. The Corporation hasmanaged to increase the approvals for micro loans during the current financial year sevenfold as part of its objective toprovide financial assistance in the rural areas of the Province. In addition the Corporation has started to focus more onstructured finance, which includes investing in equity.3.10 Internal ControlsIn line with Section 51 of the PFMA, management under the supervision of the Board continued with its role ofmaintaining effective, efficient and transparent systems of financial and risk management and internal control. In thisregard the Board ensured that the Internal Audit function is under the control of the Audit Committee and has, amongothers, approved a rolling three-year strategic internal audit plan and an operational plan for the first year of the rollingplan. The board adopted a Risk Management Framework and Policy during the year under review.In terms of the Policy a Risk Assessment Process took place whereby known and possible risks and opportunitiesto which the Corporation may be exposed were identified and evaluated. Significant risks are controlled and/ortransferred. The Corporation is in the initial stages of integrating risk management into all management processesand will complete implementation of the Risk Management function during the 2008/09 financial year. The Board hasestablished structures and delegations for the day-to-day management and operations of the organisation and its riskmanagement activities.4 Post balance sheet eventsThe directors are not aware of any material matter or circumstance arising since the end of the financial year.5 Authorised and issued share capitalThe allocated share capital of the Corporation was increased to R1 billion worth of ordinary shares in a General Meetingof the Shareholders held on 21st August 2007. Of this, the Corporation issued R31, 497,349.96 worth of ordinary sharesto the Provincial Government of the Eastern Cape (Department of Economic Development and Environmental Affairs).6 Performance66The results of the Corporation and the group are disclosed in the annual financial statements. In analysing the resultscognisance should be taken of the following factors that have impacted on the overall performance of the Corporation:• A steady stabilisation and turnaround of the corporation is firmly on course as operating losses have beensignificantly reduced from the prior year.• A conservative approach has been adopted in providing for doubtful loans advanced and debtors balances. Due topoor collections on both old and new loan books, the Corporation has prudently increased the provision.• This conservative approach has been applied to rental debtors, where the collection strategy adopted during theyear has failed to achieve the level of collections desired.• A task team that was set up to focus on the poor collections and target quick wins in rental collections is continuingwith its work.• Savings have been achieved in some areas due to better management of expenditure