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OUTLINE

• Introduction

• Khula vision, mision and Values

• Overview of 2011/12 activities

• Khula Direct implementation

• Financial results

• Concluding remarks

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Khula mandate, vision, mission and values

Our VisionTo be the development finance partner of first choice in the field of SME development.Our MissionTo provide finance, mentorship services and small business premises to SMEs through a network of partnerships and to encourage the sustainable development of SMEs whilst ensuring that Khula remains financially viableOur ValuesEntrepreneurial - we understand the challenges faced by SMEs Efficient - we break down all the red tape Innovative - we understand our customers` needs and drive innovation Approachable - we treat fellow staff, clients and other stakeholders with the respect we expect to receive

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Products and Services

Business loans - business loans to Retail Financial Intermediaries (RFIs) who on lend to SMEs

Credit indemnities – Khula assists SMEs to access private sector funding through banks & RFIs by indemnifying their loans

Joint Ventures – Khula partners with the private & public sector to finance SMEs.

Funds –Khula establishes a Fund that will facilitate loans to SMEs. The fund is managed by an experienced Fund Manager who does not contribute their own capital to the fund.

Direct Lending - direct lending from the branches to SMEs

Mentorship Programme - Mentors are used for both pre- and post loan interventions as well as capacity building to the RFIs. Currently Khula has entered into an agreement with Institute of Business Advisors of Southern Africa (IBASA) – to manage the mentors’ database.

Properties - is mostly located in previously disadvantaged areas. It provides operating space for small entrepreneurs at discounted rates. It encourages entrepreneurs to move away from operating in informal set ups to a much more formal environment.

   

Geographic distribution of Khula offices and partners

Khula regional offices Financing partner location

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RFI Portfolio

Financing Partner SME Financing Activity Geographic spread

True Group • Asset based finance • EC

Cape Capital • Asset based finance, trade finance and working capital

• WC

Supplyfin • Bridging finance for government contracts • LP

Mettle • Invoice discounting in the panel beating industry • National footprint

Marang • Group lending to micro and survivalist enterprises • EC, GP, KZN, LP, MP

Retmil • General SME financing • FS, NC

SEF • Group lending to micro and survivalist enterprises • EC, LP, MP

Shoprite • Financing of OK stores • WC

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JVs/Funds PortfolioFund Name Period Fund Size Khula’s

ContributionFinancing Activity

Anglo American-Khula Mining Fund

2003-2013 R200m 50% Junior mining projects

Business Partners-Khula Start-Up Fund

2006-2015 R150m 80% Start-up & early expansion capital

Enablis Khula Loan Fund 2004-2014 R50m 40% Start-up & early expansion capital in ICT sector

Khula Enablis SME Acceleration Fund

2006-2016 R50m 80% Start up and early expansion capital

Identity Development Fund 2009-2016 R51m 94% Start up and early expansion capital primarily for women and youth owned enterprises

Utho Capital SME Infrastructure Fund

2011-2021 R65m 46% Early expansion construction companies

Khula SME Fund (closed) 2007-2012 R25m 100% Start up and early expansion capital

Khula Akwandze Fund 2009-2016 R100m 75% Small scale sugar cane growers and contractors with an off-take agreement with TSB

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Overview of 2011/2012 Activities

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Highlights

• The launch of Khula Direct Pilot

• Khula managed to improve its collection rate during the period under review. An amount of R76.2m (2011: R56.5m) was collected, 34% increase when compared with the previous financial year

• A 79.9% decrease in impairments, bad debt provisions and bad debt write offs compared to the previous financial year, (from R150.7m to R30.3m)

• Level of commitment and High quality outputs from work-streams in preparation for merger

• Formation of Small Enterprise Finance Agency and its future prospects

• Unqualified audit report

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Disbursements to Intermediaries Cumulative disbursements

in the last 5 years of R1,1 bn

1,617 SMEs financed through intermediaries in 2011/12

2,118 job opportunities created in 2011/12

82% of SMEs financed were black owned in 2011/2012

45% of facilities disbursed were in rural provinces in 2011/2012

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Approvals No new approvals were made for RFI’s/Funds due to the prior year approvals still being utilised and stricter criteria applied.

•Level of approvals lower than budgeted largely driven by:

oStricter lending criteria by commercial banks;oPoor economic climate, especially affecting SMEs;oRisk aversion by financing partners and oReduced funding from shareholderoGlobal economy

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Loan book Growth

Loans to RFI’s decreased by 22% in the period under review

Funds decreased by 8%

Credit indemnity decreased by 35%

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Property Portfolio

Property Portfolio• Provide development properties for largely black

entrepreneurs

• Large number of properties located in underdeveloped areas requiring larger maintenance budget

• Estimated employment ± 6,000 jobs

Type of Properties

58%

7%35%

Industrial Light Industrial Retail

Sector No of Business Percentage

Industrial 518 52%

Retail 393 39%

Service 85 9%

Total 996 100%

Community No of Business Percentage

White 100 10%

African 638 64%

Coloured 169 17%

Asian 90 9%

Total 1029 100%

• The industrial parks were earmarked for retention to re-develop /upgrade in order to stimulate & “grow” entrepreneurs (small manufacturers) in these areas.

The returns will be Employment creation & will also serve as an ideal platform for skills exchange.

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Property Portfolio

• Rentals billings R 45.9m (2011: R41.6m)

• Property Portfolio expenditure and overheads R 45.2m (2011: R48.1m)

• R2.2m in 2012 (2011: 15m) provided as doubtful debt for rental arrears

• 2012 carrying value R195.3m (fair valuation increase of 4% since 2011)

Current actions to improve performance:

• A Comprehensive strategy to turnaround the property portfolio has been completed and is in the process of being implemented.

• The strategy has segmented the properties into 3 categories.

• Outright sale

• Redevelopment

• Retain and turnaround

• Strategy to be reviewed by new Board, together with IDC and EDD

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Factors affecting overall performance

• Adverse impact of economic crisis on SMEs

• Reduced allocation of capital by the shareholder

• Reduced lending through Khula’s intermediaries

• Focus by financing partners on distressed SMEs to ease effects of poor economic climate

• Higher than normal bad debt provision across the sector due to poor economic conditions

• Low interest environment affecting revenue streams

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Khula Direct Implementation

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• Business case approved in December 2008

• Between 2008 and April 2010, Khula undertook

extensive research, study visits and

consultations with key stakeholders

• Business plan approved during 2010/11

financial year

• Funding of R55m secured for pilot project in

East London and Tshwane offices

• During the financial year Khula direct managed

a collection rate of 98% and impairments of 0%

• OUTLOOK:

Khula Direct went live in all 9 provinces in 2013

financial year and disbursements has exceeded

11m YTD.

2011/2012 Annual target

Disbursements R12,9m

Approvals R23m R35m

SMEs financed 104 980

Black SMEs 93% 70%

Female owned 29% 40%

Youth owned 29% 30%

Rural/peri urban 51% 45%

Khula Direct Implementation

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Financial PerformanceFor the year ended 31 March 2012

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Group ActualR’m

Company ActualR’m

Revenue 146.8 8.9 %

122.4 6.9%

Operating Expenditure (before provisions and impairments) 145.01.4%

75.2 23.0%

Provision for bad debts and impairments movement (7.7)1079.6%

29.480.3%

Profit before tax (before provision and impairments) -43.833.8%

1.096.4%

Loss before tax (after provisions and impairments) -36.272.0%

-27.478.4%

Non-Current Assets 503.218.7%

576.117.2%

Loans and Advances 265.818.6%

162.223.6%

Non-current: Loans and Advances 69.9 22.3 Current: Loans and Advances 195.9 139.9Investment Property Portfolio 195.3

4.2%195.34.2%

Core business investments 63.444.8%

47.930.1%

Investments in Subsidiaries and Joint Ventures n/a

139.721.3%

Current Assets 862.123.2

679.326.9%

Total Assets 1,365.23.6%

1,255.55.3%

Equity 1,283.35.5%

1,228.25.3%

Total Liabilities 81.919.4%

27.34.7%

Financial Performance

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Company Revenue decreased with 8.9%, the lower volume of disbursements had an adverse impact on the loan related fees and interest earned.

Operating expenditure (excl. impairments, bad debts provisions and bad debt write offs) was contained well during the year, in response to the constrained income-generating activities.

Impairments and provisions stabilised during the year as a result of the provisioning exercise that was undertaken in previous years, showing a decrease in movement of 79.9%.

Total assets increased by 4% when compared to previous year, mainly due to an increase in the value of investment properties.

Loans and advances declined by 18% - correlating to the improved collection rate, as well as the reclassification of NBF (a RFI which was acquired in July 2011), to equity. The acquisition also resulted in an amount of R31.9m impairment, relating to the goodwill on the acquisition of NBF.

Uncommitted cash R403.7m (2011: R110.9) resulting in an increase in investment income.

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Group Company

2012 Actual

R’000

2011 Actual

R’000

2012 Actual

R’000

2012 Budget

R’000

2011 Actual

R’000

Revenue 146,792 161,215 122,353 111,698 131,534

Indemnity fees 5,219 7,946 - - -Interest from lending operations 26,086 46,240 14,014 19,366 33,713

Investment property rental income 45,931 41,591 45,931 42,178 41,591

Other income 8,717 11,097 12,430 16,217 15,456

Grant income 5,000 - 5,000 -

Investment income 47,009 41,439 37,222 20,051 35,825

Net fair value gain on financial assets 8,830 12,902 7,756 13,886 4,949

Revenue

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Group Company2012 Actual

R’000

2011 Actual

R’000

2012 Actual

R’000

2012 Budget

R’000

2011 Actual

R’000 Expenses (182,537) (291,465) (149,757) (136,607) (258,358)

Personnel expenses (36,999) (33,949) (36,999) (46,929) (33,949)Investment property expenses (45,214) (48,109) (45,214) (43,995) (48,109)Movement on impairments and bad debt provisions

7,669 (96,309) (29,353) (15,812) (149,074)

Bad debt written off (37,956) (54,347) (10,413) - -Other operating expenses (70,037) (58,751) (27,786) (29,871) (27,226)

Expenditure and Overheads

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Administration expenses - Group

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Group Company

2012 Actual

R’000

2011 Actual

R’000

2012 Actual

R’000

2012 Budget

R’000

2011 Actual

R’000

(Loss)/profit before tax (36,202) (129,090) (27,404) (24,909) (126,824)

Taxation* (2,983) 45,580 (1,142) - 53,462

(Loss)/profit after tax (39,185) (83,510) (28,546) (24,909) (73,362)* Mainly deferred tax reversal

Bottom line

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Group Company

2012 Actual

R’000

2011 Actual

R’000

2012 Actual

R’000

2011 Actual

R’000

Non Current Assets 503,154 618,720 576,146 695,868Current Assets 862,074 699,501 679,336 496,934Total Assets

1,365,228 1,318,2211,255,482

1,192,802

Equity and shareholder’s loans 1,283,315 1,216,531

1,228,1741,166,72

0Non-controlling interests 4 3

- -

Non-current liabilities 10,535 15,929 - -Current liabilities 71,374 85,758 27,308 26,082

1,365,228 1,318,2211,255,482

1,192,802

Abridged Balance Sheet

Impairment as % of total financing

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Provisions:

2012: 44%

2011: 31%

2010: 14%

2009: 16%

2008: 9%

Assets - Analysis for the last five years

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Concluding Remarks

• As of the 1st of April 2012, Khula was merged with the South African Micro Finance Apex fund (samaf) as well as the business operations of the Industrial Development Corporation’s (IDC) small business funding portfolio.

• The new entity is called the Small Enterpise Finance Agency (sefa).

Thank You

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