INTEGRATED ANNUAL REPORT 2014 /2015. Towards the market of the future 1

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1 Towards the market of the future 1

2 2 Towards the market of the future

3 JOBURG MARKET (SOC) LIMITED Registration No: 2000/023383/07 INTEGRATED ANNUAL REPORT 2014/2015 (In terms of Section 121of the Municipal Finance Management Act, 2003 and Section 46 of the Municipal Systems Act, 2000) Towards the market of the future 3

4 Company Information Country of Incorporation and Domicile: South Africa Registration Number: 2000/023383/07 Registered Address: Market Main Building 4 Fortune Road (Off Heidelberg Road) City Deep 2049 Postal Address: P O Box City Deep 2049 Telephone Number: (011) Fax Number: (011) Website: Bankers: Auditors: Company Secretary: Standard Bank Auditor-General of South Africa T Melk The report is available in PDF/HTML format at Vision To be the preferred world class African Fresh Produce Market (FPM). Mission To build long-term sustainability and promote socio-economic transformation through the provision of world-class facilities and services to the fresh produce industry. Values The following values guided the company s efforts towards achieving the set strategic objectives during the period under review: transparency; integrity; value for money and responsiveness. 4 Towards the market of the future

5 Glossary of Terms ACRONYM AGM ARC BBBEE BEE BPR CAPEX CEO CIPC CFO COBIT CoJ COO CSI DED EPWP FIPC FPM GAP GDS GRAP GRAS GRI HIV/AIDS HR IAC IDP IEC IFRS IIRC ILP IMASA IT ITIL JM JOSHCO JRA KPI MFMA MMC MotF MSA NDP DETAIL Annual General Meeting Audit and Risk Committee Broad-Based Black Economic Empowerment Black Economic Empowerment Business Process Re-engineering Capital Expenditure Chief Executive Officer Companies and Intellectual Commission Chief Financial Officer Control Objectives for Information and Related Technology City of Johannesburg Chief Operations Officer Corporate Social Investment Department of Economic Development Expanded Public Works Programme Finance, Investment and Procurement Committee Fresh Produce Market Good Agricultural Practice Growth and Development Strategy Generally Recognised Accounting Practices Group Risk and Assurance Services Global Reporting Initiative Human Immunodeficiency Virus Infection / Acquired Immunodeficiency Syndrome Human Resources Independent Audit Committee Integrated Development Plan Independent Electoral Commission International Financial Reporting Standards International Integrated Reporting Council Individual Learning Portfolio Institute of Market Agents of South Africa Information Technology Information Technology Infrastructure Library Joburg Market Johannesburg Social Housing Company Johannesburg Road Agency Key Performance Indicator Municipal Finance Management Act Member of the Mayoral Committee Market of the Future Municipal Systems Act National Development Plan Towards the market of the future 5

6 Glossary of Terms (continued) ACRONYM NGO NHBRC OHS OPEX PDA PIP REMCO SADC SANAS SCM SDA SDC SDBIP SEC SETA SHE SMME SoA SOC SPS TCTA DETAIL Non-Governmental Organisation National Home Builders Registration Council Occupational Health and Safety Operational Expenditure Public Development Authority Priority Implementation Plan Remuneration Committee South African Development Community South African National Accreditation System Supply Chain Management Service Delivery Agreement Service Delivery Committee Service Delivery and Budget Implementation Plan Social and Ethics Committee Sector Education Training Authority Safety, Health and Environment Small, Medium and Micro Enterprise Sweating of the Assets State-owned Company Sales Processing System Trans Caledonian Tunnel Authority 6 Towards the market of the future

7 Towards the market market of the of future the future 7

8 Table of Contents 01 Corporate Profile & Leadership Section 1: Corporate Profile / Overview of the Entity Section 2: Strategic Objectives Section 3: High-level Organisational Structure Section 4: Foreword by Member of the Mayoral Committee Section 5: Chairperson s Review Section 6: Chief Executive Officer s Review Section 7: Alignment with CoJ Strategic Programmes Section 8: Chief Financial Officer s Report Section 9: Statement of Responsibility Governance Section 1: Corporate Governance Statement Section 2: Board of Directors Section 3: Board Committees Section 4: Remuneration of Directors Section 5: Company Secretarial Function Section 6: Risk Management and Internal Controls Section 7: Internal Audit Function Section 8: Corporate Ethics and Organisational Integrity Section 9: Sustainability Report Section10: Anti-Corruption and Fraud Section11: ICT Governance Section12: Supply Chain Management and Black Economic Empowerment Towards the market of the future

9 03 Service Delivery Performance Section 1: Core Business Section 2: Day to Day Operations Section 3: Highlights and Achievements Section 4: Performance against scorecard Section 5: Assesment of municipal taxes and service charges Section 6: Statement on amounts owed by government departments and public entities Section 7: Recommendation and plans for next financial year Human Resources & Organisational Management Section 1: Human Resource Management Section 2: Employment Equity Section 3: Skills Development and Training Section 4: Performance Management Section 5: Employee Wellness Section 6: Employee Benefits Financial Performance Section 1: Financial Performance Section 2: Capital Projects Section 3: Audited Financial Statements Auditor-General s Findings Section 1: Auditor-General Report for the current year Section 2: Audit Findings and remedial action Section 3: Commitment by Board of Directors Towards the market of the future 9

10 About this Report Joburg Market (JM) is pleased to publish its integrated annual report for the year ending 30 June The company aims to improve its level of disclosure year-on-year and to provide stakeholders with a balanced and transparent view of its performance. It also endeavours to provide a comprehensive report on its financial performance and position, material issues and opportunities and its relevance towards influencing the JM strategic objectives. Scope of the Report JM s 2014/15 integrated annual report reviews the company s performance and provides information on the company s strategy, objectives, financial performance and corporate governance. The integrated annual report which is JM s primary report to stakeholders, covers the period from 01 July 2014 to 30 June 2015 and is an integrated financial, social and economic report. The information included in this integrated annual report has been prepared in accordance with local and international best reporting practices and is aligned to the: Municipal Finance Management Act (MFMA), Act 56 of 2003; Standards of Generally Recognised Accounting Practice (GRAP), 1994; Section 46(1) on the Municipal Systems Act (MSA), Act 32 of 2000; King Code of Governance Principles and the King Report on Corporate Governance (King III), March 2010; Discussion papers issued by the South African Integrated Reporting Committee and the International Integrated Reporting Council (IIRC), April 2013; International Financial Reporting Standards (IFRS), August 2008; Global Reporting Initiative (GRI) Framework, 2000; Millennium Development Goals, 2013; Joburg 2040 Growth and Development Strategy (GDS), 2013; Integrated Development Plan (IDP), ; and City of Joburg (CoJ) s Priority Implementation Plan (PIP), JM is of the opinion that this report provides a balanced and reasonable view of the company s financial and non-financial performance, which is both accurate and succinct. 10 Towards the market of the future

11 Consignment control Materiality The integrated annual report aims to provide a comprehensive, balanced and accessible assessment of JM s strategy, performance and prospects. The company considers matters to be material if they substantively influence its ability to create value over the short, medium and long term. Assurance The Accounting Officer has assessed the integrated annual report in terms of Section 121 of the MFMA, Section 46 of the MSA and the relevant National Treasury regulations. JM will continue to refine its reporting mechanisms in future annual reports to ensure alignment with international reporting standards and promote consistency, accessibility and accountability with respect to its role of creating and sustaining value to all citizens of Johannesburg. Citrus harvesting season Towards the market of the future 11

12 [ The JM organisational structure was reviewed to ensure that it supports the entity s strategic objectives and a new structure was approved by the Board during the 2014/2015 financial year. [ 12 Towards the market of the future

13 Corporate Profile & Leadership Towards the market of the future 13

14 Chapter One: Corporate Profile & Leadership Section 1: Corporate Profile/Overview of the Company The goldfield that was discovered in Witwatersrand in 1886 caused a gold rush or rapid movement of people to this area that led to the establishment of Johannesburg. Due to the increased economic activity, there was a need for the trading of fresh produce. This inspired the establishment of JM as a Fresh Produce Market (FPM) in 1893 at the Market Square in central Johannesburg which in turn created a platform for three thousand people to congregate and trade in fresh produce. To accommodate growth, new facilities were built around Newtown (Johannesburg) in 1913 and the company achieved an annual turnover of R1.5 million in that year. As trading increased over the years, the Newtown premises became too small to handle large consignments, thus necessitating the relocation of the market to its current 64 hectare site in City Deep. The political transition in South Africa saw JM emerge as a private company wholly owned by the CoJ Metropolitan Municipality in It was later converted into a state-owned company (SOC) in line with the implementation of the Companies Act of South Africa (Act No.71 of 2008). The company is required to comply with various sections of legislature that set out the governance requirements, amongst them being the Companies Act, the Municipal Systems Act (MSA) and the MFMA. The company, which is one of the biggest FPMs in Africa in terms of the volume of fresh produce traded, had a staff compliment of 283 employees, including 182 Expanded Public Works Programme (EPWP) candidates as at the end of the 2014/2015 financial year. JM trading facilities are provided to approximately active farmers whose produce is marketed and exposed daily to an average of buyers from South Africa and the South African Development Community (SADC) region. The market agents and tenants operating within JM s facilities create employment for a total of personnel members. JM plays a critical role in setting the price barometer for the fresh produce industry in South Africa since it represents a market share of approximately 40% of the National Fresh Produce Market in both volume and turnover. The company is the only FPM with a South African National Accreditation System (SANAS) accredited laboratory to ensure maintenance of food safety standards. 14 Towards Towards the market of the future

15 INTEGRATED ANNUAL ANNUAL REPORT REPORT /2015 /2015 Towards market the market of the of future the future 15

16 Trading floor Section 2: Strategic Objectives The JM strategy seeks to respond to various internal and external elements by identifying opportunities for economic growth and job creation. The strategy supports the achievement of Government initiatives and is aligned to the National Development Plan (NDP), the Gauteng GDS 2040, the CoJ Service Delivery and Budget Implementation Plan (SDBIP), Integrated Development Plan (IDP) and the Mayoral Priority Implementation Plans (PIPs), including the implementation road map, as characterised by the following priorities: Financial sustainability and resilience; Agriculture and food security; Small, medium and micro enterprise (SMME) and entrepreneur support; Engaged active citizenry; Smart City; Resource sustainability; Investment attraction and expansion; and Green Economy. The company s strategy seeks to support the achievement of the Department of Economic Development (DED) in addressing the following economic imperatives/objectives: Poverty, inequality and unemployment; Development of an inclusive economy and building global competitiveness; Economic development policy that is crucial for strengthening the City s capacity to give leadership to economic development and driving an economic development agenda across the City; Unequal and imbalanced economic development across regions (A, D, F & G); Leveraging fast growing sectors whilst supporting the declining sectors; Micro-economic and structural fundamentals for SMMEs/Cooperatives and Black Economic Empowerment (BEE) Enterprises - through finance/funding access, market access and penetration, export support, business linkages, capacity building and procurement support; and Cross cutting constraints of poor business confidence, investment support and economic infrastructure. 16 Towards the market of the future

17 Activities at Mandela Peoples Market JM pursued the following strategic objectives during the period under review: Operating a sustainable resilient world-class marketing and trading facility; Creating and sustaining an enabling environment for business partners; Being an agent for socio-economic transformation; Creating a centre of excellence by empowering and developing stakeholders/human resources; Operational excellence; and Competitiveness. Section 3: High-level Organisational Structure The JM organisational structure was reviewed to ensure that it supports the company s strategic objectives and a new structure was approved by the Board during the 2014/2015 financial year. The revised high-level organisational structure is depicted below: Internal Audit Board of Directors Company Secretary Risk CEO Project Management Office Strategy & Transformation Agri-Business Core Operations Shared Services Finance Key: CEO & Board Executive Senior Manager Level Manager Level Towards the market of the future 17

18 Section 4: Foreword by Member of the Mayoral Committee The 2014/2015 fiscal year will be remembered as the period when both international and local communities continued in dealing with the realities of food security and translated plans into practical steps aimed at addressing the challenge. The Medium Term Strategic Framework of National Government pursues ten strategic priority areas. A key outcome number seven of the GDS 2040 supports the vibrant, equitable and sustainability of rural communities by ensuring food security for all. The CoJ focussed on increasing its food security programme with the Mayoral Committee continuing to monitor and direct its food security initiatives as one of ten priorities. As an overseer of the Economic cluster, for the year under review, I wish to report that JM s performance was monitored on deliverables emanating from the business plan and scorecard. This has been subsequently aligned to the CoJ s GDS 2040, the IDP, SDBIP, and the PIP. The results show that JM continued to contribute towards the CoJ s strategic initiatives by supporting the food security and agriculture outcomes. Furthermore the company aligned its deliverables to the CoJ s final push strategy which addresses the Blue/green economy, corridors of freedom and Jozi@work which is a fundamental shift of service delivery approach towards the concept of cooperatives aimed at addressing both delivery and the socio-economic challenges faced by the citizens of Johannesburg. A substantial number of families within the City of Johannesburg benefited on a continuous basis through JM s vegetables and food parcels donation programme aimed at ensuring food security and food availability imperatives. The CoJ in partnership with JM will continue with its well-planned food security strategy which will continue to improve the lives of citizens living under the threat of food insecurity. The trading results produced by JM have once again confirmed the confidence held by the fresh produce industry toward JM as a trustworthy mechanism for facilitating fresh produce trading. This emphasises the relevance and importance of the objective of fast-tracking the delivery of the Market of the Future (MoTF) project that will amongst others also ensure that JM facilities and services effectively cater for the development needs of current and new entrants from targeted groups. In particular, the future establishment of distribution centres in all of the CoJ s regions became a key strategic intervention of taking the market to the people and thus alleviating the challenges of food security. For the year ahead, the CoJ through the JM will establish communication platforms and create new innovative methods to unite the entire industry to achieve true transformation. An important development will be the implementation of the revised MoTF project and a menu of services which it will direct at targeted groups. I once again applaud the Chairperson of the Board, the Board s non-executive directors, the CEO, executive management team and all staff members of JM for their hard work. Councillor Ruby Mathang MMC Economic Development 26 November Towards the market of the future

19 Section 5: Chairperson s review The 2014/2015 financial year was a year of consolidation for JM in reviewing and setting up the building blocks for true transformation and fresh approaches to its food security strategy. In close cooperation with CoJ, JM has a critical responsibility towards food security for the citizens of Johannesburg. JM will continue to support the efforts by the City and indeed the South African Government to improve the lives of our citizens through food security. The effort of the employees and management to sustain JM as the largest fresh produce market in Africa by tonnage is to be commended. Again, this year JM proved its ability to trade exceptionally large volumes during oversupply periods experienced by the industry. On the one hand the latter enabled farmers to continue to utilise JM on a sustainable basis, whilst on the other hand people got access to fresh produce at lower costs. It is notable that JM achieved an overall 63% of the set target which is lower than the 80% achieved in the previous year. The low achievement was primarily due to inadequate spending of CAPEX and delayed implementation of the MoTF project. There are plans in place to ensure that the MoTF implementation process is fast tracked and rigorous interventions are put in place to improve on CAPEX spending. The Board is committed to ensuring that the shareholder targets are met and even exceeded. The Board commits to continuous skills development of our staff in line with the MotF objectives. To maintain our status as the market of choice we must continuously improve our customer service, our trading environment, our stakeholder relations and our social responsibilities. Corporate governance Ensuring the sound governance of JM remains a high priority. During the past year the company adhered to the strict compliance requirements of governance structures and processes as outlined by the King III standards of corporate governance in South Africa. Future prospects The prevailing drought conditions in the country pose a difficult year ahead for the fresh produce industry due to anticipated reduction in production output levels. We at JM expect to bear the negative consequences on our trading floors with possible lower tonnage throughput and subsequently increased prices thus posing serious challenges for food security. Management will continue to seek improvements in efficiency towards providing and administrating a reliable infrastructure facility that enables constant supply of produce at competitive and affordable prices. We look forward to the rollout of the revised MotF which will enhance opportunities for our emerging farmers to join the commercial food chain. Furthermore the company will roll out the implementation of fresh produce distribution centres to the communities of Alexandra, Soweto, Orange Farms, Diepsloot and the remaining regions within the CoJ. This will ensure food security whilst affording the emerging farmers the opportunity to market their produce at the intended distribution centres. Towards the market of the future 19

20 The company will continue to aggressively pursue its transformation agenda. This will require greater support to emerging farmers, market agents and citizens living along the corridors of freedom of CoJ to ensure that the lives of these targeted groups are commercially transformed. Acknowledgement I sincerely appreciate the engaging support we had during the past year from our stakeholders, farmers, Market agents and other business partners throughout the fresh produce sector. I trust that we have reciprocated their support. Furthermore I wish to thank the CoJ and other government departments for the meaningful interaction we had with them. I sincerely thank the employees of JM for their continued hard work and enthusiasm during the extremely challenging year. I also welcome Dr V Dlamini, Bishop S Tsekedi and Mr B Nkosi to our board of directors. We bade farewell to Ms S Childs and Messrs S Makinta and M Morokolo during the year and wish them well in their new endeavours. My fellow non-executive directors contributed meaningfully during the year and strategically guided the direction of the executive team with sound advice. I thank them. Finally I thank the CEO and the executive team for their dedication and business acumen. Ms Nompumelelo Mpofu Chairperson 26 November Towards the market of the future

21 Section 6: Chief Executive Officer s Review During the year under review, the JM experienced phenomenal growth in the tonnage of fresh produce traded; consequently, unparalleled sales were recorded. This was however dampened by a significant reduction in the average price per ton of produce traded due to an oversupply of staples (i.e. potatoes and onions) which negatively impacted the sales targets. A solid and strong foundation was however laid to secure future revenue and long-term organisational sustainability. Financial Performance The company s total revenue grew marginally from R million in FY 2013/2014 to R million in FY 2014/2015. This was mainly due to depressed revenue from the Commission Business. In spite of this, the entity s overall financial performance for the period achieved: Strong liquidity and solvency ratios; Positive net cash position; and Cash generated from operations improved. Due to stringent financial controls, the expenditure in terms of employee costs, debt impairment, depreciation and asset impairment were curtailed down to within a 10% variance range. This enabled the company to achieve a surplus amounting to R million. Organisational Strategy Review During the period under review, a strategic planning session, spearheaded by the Board of Directors was undertaken. The key strategic session outcomes were: A robust business strategy and plan that provided clarity in terms of future strategic direction; Key strategic objectives and priority focus areas aligned with COJ s Final Push Flagship programmes (Jozi@Work and the Blue and Green Economy). Operational Performance Review Operationally, the following highlights were noted: JM sustained the SANAS accreditation for its laboratory, it is the only market in South Africa operating a fully compliant laboratory service on site; Emerging farmers reflected positive growth in both turnover and mass. The high volumes received especially over the last two quarter, pushed prices down, resulting in reduced turnover; Fresh produce volumes received from emerging farmers increased by 2.10% for FY 2014/2015 In the FY 2015/2016 JM will focus on strategies that would increase access to the market; Overall mass performance for most products was relatively good. Total volumes increased by 7.71% year-on-year due to a significant increase in the supply of most fresh produce; Complementary Services had a good performance with the Banana Ripening and Cold Storage plants achieving improved results of 6% above budget revenue and 12% increased utilisation; and Facilities management department exceeded targets of occupancy levels (96%) and debt collection rate (98%). Towards the market of the future 21

22 Key areas of operational under-performance were recorded in the following areas: The MotF project implementation was delayed due to investigations around non-compliance to procurement policies and procedures; Delays experienced in the rollout and implementation of Fresh Hubs in identified regions; and Poor expenditure on CAPEX due to inadequate internal capacity in operations and Supply Chain Management. This was however significantly resolved. Human Resources Management The JM organisational structure was reviewed and approved by the Board of Directors to ensure that it is aligned to and supports the entity s strategic objectives. This was followed by the initiation of a comprehensive organisational design initiative, whose outcomes were amongst others, revised job profiles, reviewed and updated HR policies, development of a new HR strategy, conclusion of competency profiling and detailed skills audit. Looking Ahead Key focus areas for the 2015/2016 financial year will include amongst others the following: Implementation of flagship projects in line with the Final Push Programme; Revitalisation of the MotF project; Development and implementation of an organisational turnaround strategy and plan; Focus in providing support for emerging farmers and BEE Market Agents; Development and implementation of an overall Transformation strategy; Filling of critical positions, implementation and cascading the performance management programme across the organisation. Conclusion The sterling performance of the organisation would not have been possible without the stewardship, leadership and guidance from the MMC for Economic Growth cluster, Cllr Ruby Mathang, colleagues from the Department of Economic Development, the Board of Directors through its chairperson, Ms Mpumi Mpofu, the Executive Management Team and staff members, who jointly ensured that JM achieve positive results, notwithstanding serious challenges encountered during the year. Josiah Mazibuko Chief Executive Officer (Acting) 26 November Towards the market of the future

23 Visitors at Joburg Market exhibition stand Towards the market of the future 23

24 Section 7: Alignment with CoJ Strategic ProgramMES As a municipal company in the CoJ s Economic Growth Cluster, JM will be co-delivering on the quest to achieve the objectives of The Final Push during the 2015/2016 financial year. Communication and Stakeholder Management Game Changer Corridors of Freedom Jozi@work Green/Blue Economy Smart City Flagship Programme Elevation of service delivery to meet new prescribed standards Core Mandate Game Changers JM will focus on game changing elements, and flagship programmes and projects based on its core mandate. These are reflected in the table below: Project Action Comment MotF Road shows: outbound and inbound. Develop an engagement plan as per marketing and communication plan. Raise awareness early. Promote regular MotF meetings. Implement monitoring and evaluation. Distribution centres City awareness and cooperation. Manage expectations. Market Agents Continental Farmers (big/small) Buyers (big/small) Regular meetings with the Institute of Market Agents of South Africa (IMASA). Issue management (positive/negative). Provide feedback promptly. Skills transfer. Encourage exchange of out of season produce. Outreach programmes which encourage in-bound visits to showcase JM s skills base. Encourage quality in produce. Regular contact with top 20 buyers. Collaborate with customer care. Leverage existing IMASA Forum. Explore BBBEE Market Agents funding/ investment opportunities. Operational buy-in. Awareness on Africa agenda. No transformation. No access strategy. Funding for entrant farmer. Source budget allocation. Improve customer care approach. City stakeholder - CoJ Mayor and MMC: Economic Development. Constant appraisal of JM processes/ opportunities. 24 Towards market of the future

25 Flagship Programmes The programmes and projects outlined below are aimed at delivering on the desired outcomes of JM s focus areas: jozi@work (Type of work) JM Focus Area Programmes Construction and Maintenance Services: construction and repair of buildings and facilities. Agriculture and Food Resilience: agriculture and food support. Waste: waste collection and waste separation. Green Services: greening and landscaping, grass-cutting, planting and maintenance of turf. Business and Urban Management: cleaning and management of facilities. Enterprise development: SMMEs and cooperatives (youth and women owned) to construct, repair and maintain buildings and facilities. Enterprise development: attract cooperatives that are owned by women and youth. Socio-economic development: create employment for candidates of the EPWP. Enterprise development: avail business opportunities to SMMEs and women and youth cooperatives. Enterprise development: Promote use of SMMEs (women and youth cooperatives) as service providers. Socio economic development: create employment for EPWP candidates CAPEX/OPEX construction and maintenance projects. Pallet pool runners. Skills and competency development. Preferential procurement (30%). Distribution centres/fresh hubs. Agri-business enterprises. Pack-house establishment. Business opportunities for vendors/ hawkers. BBBEE Market Agents. Marketing support. Waste management. Green waste recycling. Preferential procurement. Jozi flour milling facility: Seed collection. Fruit sorting. Cleaning of distribution centres & JM facilities. Preferential procurement. Logistic services. Sanitation cleaning for cold stores and ripening centres. Establish cooperatives for cleaning, construction and maintenance projects. Green and Blue Economy Initiatives The design of the Distribution Centres will incorporate green economy philosophies aimed at accelerating the deployment of related technologies. JM is also collaborating with Pikitup, City Parks & Zoo and CoJ to harvest waste in support of the Bio-Gas Project being driven by the City. Whilst contributing to promotion of healthy eating through the local production of healthy bread, other socio-economic benefits such as the following are envisaged: Employment creation: o Direct: Collection, sorting and milling. o Indirect: Bakery, transport and logistics. Clearing of market refuse: o Cleaner market. o Lower refuse collection and cleaning costs. Reduction of financial losses and increase in revenue: o Selling of deteriorated produce for processing/value addition. Promotion of food security. Towards market of the future 25

26 Section 8: Chief Financial Officer s Report Overview The company delivered another solid and consistent financial performance in the year and maintained the track record of achieving surplus targets. The diversity of products offered by the company enables it to attract a wide range of buyers across South Africa and the SADC region. Although the growth in revenue is attributed mainly to increased prices of fresh produce, relative to growth in volumes, there has been a significant increase in the number of buyers from the SADC region. The various and value add infrastructure facilities owned by JM continues to attract farmers to send their produce to be sold at the market. A prominent highlight for FY 2014/2015 was the record sales generated at the market in October These trends confirm management s commitment of ensuring that there is sustainable growth of revenue by maintaining infrastructure facilities that are of world class standards. The company attained an unqualified audit opinion with non-compliance findings. This has arisen primarily due to supply chain management transgressions. Financial Performance The company has generated adequate surplus that positively contributed towards the strong growth in the solvency and liquidity position of the company. This enables the company to grow its positive cash and cash equivalent positions. The company maintained healthy bank balances throughout the year and contributed in earnings of interest that was above average. Two long term loans were settled and two reached maturity. The capital expenditure of over R43 million was selffunded for the year 2014/2015. Working capital management is resiliently driven by deliberate and consistent staff efforts to enforce debtor credit policy. The outcome resulted in increased collection levels of debtors albeit it constitutes an insignificant portion of the total income. The levels of provision for doubtful debts are declining and debtor s day is also reduced. The net asset of the company improved immensely due to the progressive growth in surplus and reduced level of borrowings. The total liabilities decreased, compared to the previous year, by R55 million in contrast to an overall increase of total assets by approximately R1.6 million. Our operational expenditure for FY 2014/2015 was within the budgeted amount which demonstrates management s commitment to implement an effective and efficient budgetary system of cost containment. Our most significant operational expenditure relates to employee cost. Though the cost remains within the budgeted amount in the year under review, the capacitation of the new organisational structure, which created additional executive positions and the decision to absorb some of the former EPWP beneficiaries, is envisaged to significantly increase the employee cost in the year ahead. 26 Towards the market of the future

27 Cash Flow The cash flow generated from operations remains positive, thus allowing interest earned to perform above target and contributed to the overall healthy financial performance of the company. Cash and cash equivalents increased by over R25 million compared to the previous financial year. Property Management Revenue earned from investment property contributed about fourteen percent (14%) of the total revenue. Though the state of property facilities is not yet at the desired levels, the occupancy rate is above national averages and there is a high demand for facilities within the market. It is envisaged that the recent refurbishments aimed at moving towards the MotF will increase this revenue stream. Vast improvements were made in the billing and management of the property portfolio resulting in the collection levels exceeding the 95% target. Capital Expenditure Notwithstanding the above achievements, the under spending in the roll out of capital expenditure programme remained a key challenge for the organisation in the year under review. Thirty five precent (35%) was spent on the allocated capital expenditure budget of R124.9 million. The following difficulties were encountered during the year: The MotF project was put on hold, Complimentary projects were affected by the delay in the MotF project, Tenders were non responsive and required re-advertisement, and Lack of Supply Chain Management (SCM) and technical capacity to plan and procure complex infrastructure projects. Management instituted corrective measures to accelerate capital expenditure projects and increase both SCM and technical capacity to execute these projects during the FY2015/2016. Supply Chain Management SCM remains a critical support unit for the company to execute service delivery projects. The company achieved BEE targets in all the quarters of the year under review. However, the number of non-responsive bids remains a concern and delayed the successful execution of projects thus resulting in non-achievements of the CAPEX targets. Procurement training to targeted groups will be intensified during FY2015/2016 to allow an increased participation of Youth, Women and SMME enterprises. People Investment in our people remains an important consideration in the achievement of our strategic financial goals. Other matters Operation clean audit is a key priority for JM and we remain deeply committed in achieving this priority. A significant portion of the audit issues raised in the FY2013/2014 were resolved and corrective measures were taken to ensure that there were no repeat findings. Policies and procedures were also developed and approved in areas needing strengthening to improve internal control measures. Towards the market of the future 27

28 Outlook for FY2015/2016 The focus in the year ahead is to accelerate the business process re-engineering, expand JM s capacity to deliver and accelerate the roll out of capital expenditure projects over the next three years to build the MotF. This affords JM an opportunity to implement the food security and transformation strategies as recommended by the Board. The company s investment of over R815 million represents an enormous increase in the capital expenditure budget in the medium term framework and is a bold commitment to the world class infrastructure upgrade. We are confident that we will continue to meet the expectation of our shareholder and diligently manage our budget to sustainably support the growth and development strategy of the CoJ. Mrs Benvinda Rocha Chief Financial Officer (Acting) 26 November Towards the market of the future

29 Section 9: Statement of Responsibility The directors are responsible for the preparation, integrity and fair presentation of the Annual Financial Statements of the Entity. The financial statements presented on page 89 have been prepared in accordance with Generally Recognised Accounting Practice (GRAP) and include amounts based on judgement and estimates made by the management. The directors are responsible for the preparation of the other information in the annual report and are responsible for both its accuracy and its consistency with the financial statements. The going concern basis has been adopted in preparing the financial statements. The directors have no reason to believe that the entity will not be going concerns in the foreseeable future based on the forecast and available cash resources. Refer to the Directors report on pages with regard to the appropriateness of the going concern assumption for the preparation of the financial statements. The Auditor-General, who was given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the Board of Directors and committees of the Board, has audited the JM Annual Financial Statements. The directors believe that all representations made to the Auditor-General during their audit are valid and appropriate. The Auditor-General s report is presented on [insert page]. The financial statements were approved by the Board of Directors on page 92 and signed on its behalf by the chairperson Ms M Mpofu. Towards the market of the future 29

30 The Board of Directors and Executives are committed to the principles of openness, integrity and accountability advocated by the King III Code on [Corporate Governance. [ 30 Towards the market of the future

31 Governance Towards the market of the future 31

32 Chapter TWO: GOVERNANCE Section 1: Corporate Governance Statement To ensure that accountability and governance arrangements are in place, Section 121(2) (c) of the MFMA supports the requirements of Section 18(1) (d) of the MSA that state that information on matters of governance should be communicated to communities. According to Sections 65(1) (a) of the MFMA and 46 of the MSA, this should be undertaken through the compilation and publication of an annual report. The purpose of this integrated annual report is to promote accountability to the Shareholder, CoJ communities and other stakeholders, for the decisions taken by the Board and matters relating to administrative structures, throughout the 2014/2015 financial year. This section of the report should be read in conjunction with the Directors Report available in the Annual Financial Statemnt section including the Audtor-General s findings report. Application of King III JM applies the governance principles contained in King III and continues to further entrench and strengthen recommended practices in its governance structures, systems, processes and procedures. The Board of Directors and Executives are committed to the principles of openness, integrity and accountability advocated by the King III Code on Corporate Governance. Through this process, our shareholder and other stakeholders may derive assurance that the company is being ethically managed according to prudently determined risk parameters in compliance with generally accepted corporate practices. Monitoring JM s compliance with the King III Code on Corporate Governance forms part of the mandate of the Audit and Risk Committee ARC. The company complied with the Code in all respects during the year under review. The Board of Directors incorporated CoJ s Corporate Governance Protocol in its Board Charter which regulates its relationship with CoJ in the interest of good corporate governance and good ethics. The Protocol is premised on the principles enunciated in the King III Report for Corporate Governance for South Africa JM consolidated its position in respect of adherence to the King III Report on Corporate Governance. Continuous steps were taken to align practices with the report s recommendations and the Board continually reviews its progress to ensure that it enhances corporate governance. During the year under review, JM s risk management reviews, reporting and compliance assessments were conducted in terms of the Companies Act, the MSA and the MFMA. The annual Board assessments and evaluations were conducted and a report for the previous year was effectively completed in accordance with the provisions of section 121 of the MFMA. 32 Towards Towards the market of the future

33 Towards market the market of the of future the future 33

34 Group s Governance Framework JM as a company of the CoJ forms part of the governance structures as prescribed by the Shareholder. Governance oversight meetings were duly conducted with the Group Governance function of the CoJ. The customer centric approach of the CoJ and JM was captured in the service delivery agreement (SDA) that contains measurable service standards. The cluster system enabled JM to consult with knowledgeable colleagues and to replicate service improvements and to peruse economies of scale. In particular, it forms an ideal forum for uniform communication of policies and directives. The company identified the following game changers as part of its efforts to be a world class African market: MotF as a key transformational enabler; Distribution centres in previously disadvantaged areas; Empowering emerging buyers, agents and farmers to obtain greater participation in the fresh produce distribution value chain; Establishment of an export desk to optimise the accruable advantages from the patronage of SADC clients; and Intensive engagement with CoJ and company stakeholders to optimise governance and cross pollination of enhancing concepts. Ethical Leadership JM subscribes to a code of ethical conduct and the Board provides effective leadership in terms of codes, ethics and values. Corporate Citizenship As a corporate citizen, JM recognises its social responsibilities to ensure that the company protects, enhances and invests in the well-being of the economy, society and natural environment. JM pursues its activities within the limits of social, political and environmental responsibilities outlined in international and national conventions on human and environmental rights. Compliance with Laws, Rules, Codes and Standards The Board is responsible for ensuring the company s compliance with applicable laws, rules, codes and standards and this was an important consideration in all its decision-making processes. Section 2: Board of Directors JM has a unitary Board of Directors that consists of executive and non-executive directors. The Board is chaired by the nonexecutive director, Ms Nompumelelo Mpofu. The Board remains accountable to the CoJ Metropolitan Municipality as the company s sole Shareholder. ASDA concluded in accordance with provisions of the MSA governs the Shareholder relationship between the parties. The roles of Chairperson and CEO are separate as the Chairperson of the Board has no executive functions. JM Board Members have unfettered access to the Company Secretary who is responsible for providing advisory services to the Board and its Committees on statutory, compliance, regulatory and other related matters. The Board or any of its members may, in appropriate circumstances and at the expense of the company, obtain the advice of independent professionals. The term of office of the non-executive directors is subject to review at the JM Annual General Meeting (AGM). 34 Towards the market of the future

35 Directors JM s AGM took place on the 3rd of February 2015 during which a new Board was appointed. The table below indicates the Board Members as at 30 June 2015: Ms Mpumi Mpofu Chairperson Qualifications: BA (Hons) Urban and Regional Planning Post Graduate Degree in Town Planning Certificate in Local Government Management Fellow of the South African Advanced Education Programme Other Directorships National Housing Board representing NGOs and Consumer Protection Gauteng Development Tribunal South African Housing Trust Chairperson National Housing Finance Corporation National Home Builders Registration Council (NHBRC) Mvelaphanda Group Board Member and Remuneration Committee (REMCO) Chairperson Chairperson of the United Nations International Civil Aviation Organization (ICAO) Group: International Civil Aviation on Climate Change Ms Nadira Singh Qualifications: CA (SA) CCSA CGAP Certificate in Fraud Examination and Forensic Investigation (Cum laude) Committees Chairperson: Audit and Risk Committee (ARC) Finance, Investment and Procurement Committee (FIPC) Other Directorships Singh Pather Incorporated Metro Trading Company (Pty) Ltd Ms Shelley Childs Dr Dorothy Sekhukhune Qualifications: Doctoral Curationis MSc. (Psych. N.) Fellow of the Graduate School of Arts and Science B.A.(Cur) Advanced Health Services Management Certificate Leadership Development Programme Certificate in Business and Life Coaching Committees Chairperson: REMCO and HR Committee Social and Ethics Committee (SEC) Other Directorships Vidilex Healthcare Solutions Pty Ltd Noko Tswako cc Centre For HIV & AIDS Prevention Studies NPO Mosego Home Based Care NPO Mithasi Investments (Pty) Ltd Nectascan (Pty) Ltd Tsadee Scotts Property Investment (Pty) Ltd Qualifications: BA (Industrial and Organisational Psychology and Economics) Committees ARC REMCO and HR Committee Other Directorships Trans Caledonian Tunnel Authority (TCTA) Towards the market of the future 35

36 Dr Ethel Zulu-Mokwele Qualifications: Doctoral Degree: Nutrition Master s Degree in Nutrition B Consumer Science (Honours) B Consumer Science Committees Chairperson: SDC - 12 November 2014 to 30 June 2015 Chairperson: Service Delivery Committee (SDC) REMCO and HR Committee MotF Committee FIPC Other Directorships Nkanyiso Nutrition HIV & AIDS Women with Purpose Mr Terry Tselane Qualifications: BA (Hons.) Industrial Sociology BA (Arts) Committees Chairperson: MotF Committee SDC Other Directorships Commissioner of the Independent Electoral Commission (IEC) Vice Chairperson of the Electoral Commission of South Africa Mr Matome Morokolo Qualifications: MSc (Agricultural Economics) BSc (Agricultural Economics Honours) BSc (Agricultural Economics) Committees Chairperson: SDC - 1 July 2014 to 11 November 2014 REMCO and HR Committee Other Directorships None Bishop Sophonia Tsekedi Ms Simangele Sekgobela # Mr Bafana Dhlamini # # Qualifications: Dipl.Business Administration Dipl. Theology Committees REMCO and HR Committee SDC Qualifications: MSc (Econ) B Com Honours B Com SSTC Certificate in Corporate Governance Qualifications: CA (SA) B Compt. (Hons/CTA) B Com (Accounting) Advanced Certificate in Auditing International Leadership Development Programme Other Directorships None 36 Committees EXCO (in her capacity as the JM CEO Other Directorships None Committees EXCO (in his capacity as the JM Chief Financial Officer (CFO)) None Other Directorships None # Suspended in November 2014 # # Suspended in February 2015 Towards the market of the future

37 Mr Samuel Mafadza Qualifications: B Com Hons (Economic Development) B Com Economics Policy Management Strategic Leadership and Governance Committees Chairperson: SEC FIPC SDC Other Directorships Non-executive Chairman: AfriTech Solutions (Pty) Ltd Director: Bilimpili Holdings (Pty) Ltd Director: Bilimpili Mining Engineering Services (Pty) Ltd Dr Daniel Vusanani Dlamini Qualifications: PhD in Resource Economics MSc in Resource Economics MSc in Agricultural Economics BSc in Agricultural Economics and Management Committees ARC FIPC MotF Other Directorships Director: EBP Consultants (PTY) Ltd` Mr Bongani Nkosi Qualifications: MBL Honours in Economics Bcom in Accounting & Economics Committees Chairperson: FIPC ARC SDC MotF Committee Other Directorships None Mr R S Hill Qualifications: BSc Honours (Computer Science) Higher Diploma in Computer Auditing BSc (Information processing) Committees ARC Other Directorships None Mr H Raborifi Qualifications: LLB B Jurris Committees ARC Other Directorships None Mr Y Gordhan Qualifications: Master of Science (Bus, Admin) CA (SA) Committees ARC Other Directorships None Towards the market of the future 37

38 Induction New Directors receive a formal and tailored induction on joining the JM Board, including the meeting with senior management. The induction programme assist to build: In-depth understanding of JM and its business activities; A link with JM employees particularly senior management; and A clear appreciation of the company s risks. Confict of interest All the Directors have a service agreement or letters of appointment and the details of their terms are set out in the Directors Remuneration Report. No other contracts with the company in which any Director was materially interested existed during or at the end of the 2014/2015 financial year. Board Meetings The attendance of meetings by Board Members for the period 01 July 2014 to 30 June 2015 was as follows: Members Board Meeting Audit & Risk Committee Social & Ethics Committee REMCO & HR Committee Service Delivery Committee Market of the Future Committee Finance, Investment & Procurement Committee A B A B A B A B A B A B A B Mpofu M Morokolo B*** Zulu Mokwele E Mafadza S Dhlamini B Sekgobela S Tselane T Sekhukhune D Childs S**** Singh N Nkosi B** Dlamini V***** Tsekedi S***** Raborifi H (IM)** Gordhan Y (IM)***** Theunissen R(IM)**** Hill R(IM) Makinta S(IM)* A = Meetings attended B = Number of meetings scheduled IM = Independent Member * Resigned October 2014 ** Appointed October 2014 ***** Appointed February 2015 *** Resigned November 2014 **** Retired February 2015 The Board of Directors adopted a Board Charter that governs matters of ethics, procedure and the conduct of Board and Committee Members. The Company Secretary certified in terms of Section 88(2) (e) of the Companies Act no. 71 of 2008, that all statutory returns were submitted to the Registrar of Companies. 38 Towards the market of the future

39 Section 3: Board Committees The following six commitees, respectively chaired by a non-executive director, are in place to assist the Board in executing its functions: Audit and Risk Committee (ARC); Social and Ethics Committee (SEC); Remuneration and Human Resources Committee (REMCO); Service Delivery Committee (SDC); MotF Committee; and Finance, Investment and Procurement Committee (FIPC). The Board committee meetings are held prior to the Board meeting and at each scheduled Board meeting the chairperson of a respective committee leads a discussion concerning the committee s activitities since the previous Board meeting. Audit and Risk Committee The ARC consists of six members, three of whom are non-executive directors and three independent members. The committee is constituted in accordance with Section 166 of the MFMA and is chaired by Ms N Singh, who is a nonexecutive director. The role of this committee is to assist the Board by performing an objective and independent review of the functioning of the organisation s finance and accounting control mechanisms. The ARC operates in accordance with a written charter approved by the Board and is responsible for: Ensuring compliance with applicable legislation and the requirements of regulatory authorities; Overseeing matters relating to financial accounting, accounting policies, reporting and disclosures; Reviewing internal and external audit policies; Reviewing activities, scope, adequacy and effectiveness of the internal audit function and audit plans; Reviewing and approving external audit plans, findings, problems, reports and fees; and Ensuring compliance with the Code of Ethics. During the year under review, the committee fulfilled its responsibilities in terms of the ARC charter and no changes were adopted. The ARC also reviewed the integrity, accuracy and completeness of the JM Annual Financial Statements. The ARC considers the Annual Financial Statements of the company to be a fair presentation of its financial position as at 30 June 2015 and of the results of its operations, changes in equity and cash flow for the period. Ms N Singh, Mr R Hill, Mr H Raborifi, Mr Y Gordharn and Mr R Theunissen are all, considered independent non-executive Directors and deemed financially literate by virtue of their business expertise. Social and Ethics Committee The committee is chaired by Mr S Mafadza and was constituted in terms of provisions of the Companies Act 2008 and Regulations of Its responsibilities include monitoring company activities in respect of the following: Social and economic development, including the company s standing in terms of the goals and purposes: o Ten principles set out in the United Nations Global Compact Principles; o The Organisation for Economic Co-operation and Development (OECD) recommendations regarding corruption; o Employment Equity Act; and o Broad-Based Black Economic Empowerment Act. Towards the market of the future 39

40 Board and Exco site visit to the areas that will be identified as a Distribution centres project. Promotion of good corporate citizenship, including the company s: o Promotion of equality, prevention of unfair discrimination, and reduction of corruption; o Contribution to development of the communities in which its activities are predominantly conducted or within which its products or services are predominantly marketed; and o Record of sponsorship, donations and charitable giving. Promotion of the environment, health and public safety, including the impact of the company s activities, facilities and services. Remuneration and Human Resources Committee The JM REMCO and HR Committee is chaired by Dr D Sekhukhune. This committee advises the Board on remuneration policies, remuneration packages and other terms of employment for all executive directors and senior executives. Its terms of reference include recommendations to the Board on matters relating to policy, remuneration, bonuses, employment contracts, training, recruitment, and general employee well-being. Service Delivery Committee The committee was chaired by Mr M Morokolo and Dr E Zulu for the periods 1 July 2014 to 11 November 2014 and 12 November 2014 to 30 June 2015 respectively. The role of the committee is to assist the Board with oversight as well as 40 Towards the market of the future

41 monitoring the implementation of the JM mandate outlined in the SDA with the Shareholder. This includes overseeing and directing the development of strategies in view of economic developments affecting the fresh produce industry, increased competition, market requirements and the development of new requirements for food safety, quality and security. The committee is furthermore responsible for reviewing the organisational objectives in line with the company s mission and goals in the areas of marketing and communications, strategy, operations, consignment, information services/technology support to the company, as well as strategic planning and alignment with shareholder objectives. Market of the Future (MotF) Committee The committee was constituted in November 2014 and is chaired by Mr T Tselane. The role of the MotF Committee is to: Oversee and direct the overall MotF project and ancillary projects aligned to the project; Review organisational needs and objectives in line with the MotF project in the following functional areas: o Finance; o Procurement and investment; o Market operations; o Marketing and communications; o Stakeholder engagement; o Information technology (IT); o Transformation; and o Food security and agro-processing. Ensure strategic compliance with the Shareholder s requirements for the MotF project through effective liaison with and quarterly reporting to the Shareholder in respect of progress on project deliverables and milestones progress on capital and operational expenditure; Monitoring progress of existing programmes and activities, as well as monitoring progress in respect of key performance indicators tied to the MotF; Ensure a report on the MotF is provided to the JM Board of Directors at least once a quarter which report shall form the basis of the Board report to the Shareholder in respect of the MotF project by considering appropriate internal reports as required from the relevant JM departments. Finance, Investment and Procurement Committee This committee was constituted in November 2014 and is chaired by Mr B Nkosi. The role of the FIPC is to assist and advise the Board of Directors in the discharge of its duties relating to financial management and SCM. The committee supports the Board by providing advice and, in certain instances, acting on behalf of the Board in addresssing matters relating to JM financing and budgeting activities as provided but not limited to the provisions of the MFMA, Municipal Budget and Reporting Regulations 2008; the MSA and the Companies Act 71 of Towards the market of the future 41

42 Section 4: Remuneration of Directors Remuneration Policy Directors and officers of JM are remunerated in accordance with the company s remuneration policy which is informed by directives issued by the Shareholder. The policy is executed in full compliance with legislative imperatives that regulate remuneration in the Republic of South Africa. Remuneration of non-executive directors and independent audit committee members is determined in terms of the CoJ Group Remuneration Policy. The remuneration of non-executive directors is based on a fee per meeting attended, as well as a retainer. There is no performance bonus element in the remuneration of non-executive directors. The retainer of non-executive directors is intended to cover general preparation in relation to the affairs of the municipal company and the CoJ, interaction and meetings with the CoJ and minor travel, communication and other expenses incurred from time to time. 42 Towards the market of the future

43 The committee reviews the remuneration policy on an annual basis to ensure that the remuneration framework remains effective in supporting the achievement of the company s business objectives, is aligned with best practise and fairly rewards employees for their contribution to the business. A further consideration is the need for the company to attract, motivate and retain employees of the highest calibre. Remuneration of the Board of Directors Remuneration of the Board of Directors for the year that ended 30 June 2015 is reported as follows: No. Name Designation Remuneration of Non-executive Directors Meeting Fee Retainer Other (Data, Travel) Total R R R R 1 Nompumelelo Mpofu Chairperson Nadira Singh Member Ethel Zulu -Mokwele Member Dorothy Sekhukhune Member Shelley Childs Member Samuel Mafadza Member Bongani Nkosi Member Vusanani Dlamini Member Terry Tselane Member Matome Morokolo Member Sophonia Tsekedi Member Sarah Makinta Member Total Remuneration of Independent Audit Committee (IAC) Members No. Name Designation Meeting Fee Retainer Other (Data, Travel) Total R R R R 1 Rob Theunissen IAC Robert Hill IAC Yashwant Gordhan IAC Total Towards the market of the future 43

44 Executive Management The details of the JM leadership team are reflected below: Ms Thulisiwe Nkosi Ms Benvinda Rocha Ms Moronngoe Tladinyane Qualifications: Bachelor of Arts (B.A) Communications Advanced Project Management Masters Certificate in Training Diploma Payroll Management Diploma Company Direction Diploma Events Management International Leadership Development Programme Skills Development Facilitation Area of Responsibility Acting CEO from February 2015 Qualifications: Bachelor of Commerce Degree Associate General Accountant (SAICA) Area of Responsibility Acting CFO from November 2014 Qualifications: Master s in Business Administration Post Graduate Diploma in Business Administration Bachelor s Degree (Chem.) Area of Responsibility Executive Manager: Strategy and Transformation Mr Josiah Mazibuko Qualifications: Master of Science Degree in Engineering Management Senior Managers Programme Information Technology Leadership Programme Management Development Programme National Diploma in Electrical Engineering Artisanship Certificate as an Electrician Area of Responsibility Executive Manager: Core-Operations Mr Tshifhiwa Madima Qualifications: Master s Degree in Agricultural Economics Honours Degree in Agricultural Economics Bachelor of Agricultural Management Degree Area of Responsibility Executive Manager: Agri-business Mr Ashwin Bhoolia Qualifications: Bachelor of Commerce Degree (Economics, Statistics) Programmme in Human Resource Management Database Design Advanced Programme in Taxation Area of Responsibility Acting Human Resources Executive From 13 April Towards the market of the future

45 Mr Ezekiel Kgomo Qualifications: Manager Leadership Development Programme Advanced Labour Law Certificate in Human Resources Management Area of Responsibility Acting Human Resources Executive from February to 12 April 2014 Mr Sello Makhubela Qualifications: Master s in Business Administration (MBA) National Diploma in Electrical Engineering Programme in Project Management Area of Responsibility Acting Chief Operating Officer (COO) Resigned November 2014 Towards the market of the future 45

46 Senior Management Name Designation Salary Pension Medical Aid Cell Phone Travel Subsistence Housing Acting Leave Pay Insurance Bonus Total Simangele Sekgobela CEO Josiah Mazibuko Moronngoe Tladinyane Executive: Cooperations Executive: Strategy & Transformation Bafana Dhlamini CFO Bafana Dhlamini Benvinda Rocha Tshifhiwa Madima Thulisiwe Nkosi Thulisiwe Nkosi Sello Makhubela Ezekiel Kgomo Ashwin Bhoolia Acting CEO Acting CFO Executive : Agri- Business HR Executive Acting CEO Acting COO Acting HR Executive Acting HR Executive Total ( R ) Towards the market of the future

47 Section 5: Company Secretarial Function The Company Secretary is responsible for all statutory compliance and filing of all statutory returns with the Companies and Intellectual Commission (CIPC). The Company Secretary advises the Board and the executives on all governance matters and provides guidance with respect to the efficacy of Board resolutions. This function acts as a link between Board and management, as well as the Board and the Shareholder. Company secretary s day at Joburg Market Towards the market of the future 47

48 Section 6: Risk Management and Internal Controls The ARC oversees the quality, integrity and reliability of the company s risk management function. In terms of its mandate, it reviews and assesses the integrity and the quality of risk control systems and ensures that risk policies and strategies are effectively managed. JM complies with CoJ s Risk Management Framework and its risk policy is aligned to the CoJ Policy and Risk Standards Manual. The risk function is supported by CoJ s Group Risk Assurance Services (GRAS) and the Group Governance Unit. GRAS conducts annual strategic, physical and operational risk assessments whilst JM s ARC conducts oversight of all matters related to risk. JM Board Members provide guidance to the organisation with respect to the Company s risk control standards. The company s strategic risk register is monitored quarterly and emanating reports submitted to GRAS. The following documents are reviewed on an annual basis: Risk Policy; Risk Appetite statement and the Levels of Tolerance; Fraud Prevention Policy; and Code of Ethics. Refinements to JM s Risk Management Programme include: Evaluation of the potential use of a financial maturity capability model similar to the one used by National Treasury; Revising the business continuity plans. Implementation plans on critical areas are also revised. The operational risk registers are continuously monitored and annually aligned with the company s scorecard; Transfers of all insurable risks through purchasing of short term insurance. Motor and non-motor insurance are purchased through CoJ s GRAS; Securing group cover for all departments and entities; and A Risk Assessment, which was conducted by KPMG during the year under review. 48 Towards the market of the future

49 Risk Management In line with the risk standards set by CoJ, JM refined its risk management programme which is executed in terms of Sections 62(c) and 95(c) of the MFMA. Independent risk assessments and valuations were furthermore conducted by GRAS. The JM ARC conducts oversight of all risk matters and provides guidance regarding risk controls. During the period under review, the Board of Directors monitored the execution of the following risk policy documents, which are all aligned to the CoJ Risk Standards Manual: Risk Policy; Fleet Risk Policy; Risk Appetite Assessment; Fraud Prevention Policy; and Code of Ethics and Ethics Framework. The JM strategic risk register was duly updated in the fourth quarter of the 2014/2015 financial year. During the period under review, inherent and residual values of most risks improved. The company however continues to face seven risks, which are related to the following elements: Ageing infrastructure (Need for MotF); Litigation (Commercial); Vacant executive positions; Potential fraud on the trading floors; Alternative markets and marketing mechanisms; Business interruption through potential power failures and delay of power generation commissioning; and Potential interruption of the real time Sales Processing System (SPS) trading system. Towards the market of the future 49

50 Section 7: Internal Audit Function JM s Internal Audit department has a specific mandate from the ARC to independently appraise the adequacy and effectiveness of the company s systems, financial internal controls and accounting records. The findings are reported to management, the ARC and the Auditor-General. The Senior Internal Audit Manager has direct access to the chair of the ARC but reports functionally to the ARC and administratively to the CEO. The internal audit coverage plan is based on risk assessment performed at each operating unit. The coverage plan is updated annually, based on the risk assessment and results of the audit work performed. This ensures that the audit coverage is focused on and identifies areas of high risk. Section 8: Corporate Ethics and Organisational Integrity During the year under review, the Board of Directors reviewed the draft of the Ethics Framework and engaged in a number of sessions to ensure the development of a suitable Code of Ethics. Amongst other, the company produced a framework and an Ethics Risk Register. The company has a current Code of Business Ethics, which is briefly outlined as follows: Ethical conduct and legal compliance are the foundation for the JM position of industry leadership. The company s ability to maintain its leadership position requires that each employee, officer and director exhibit a high level of personal integrity when interacting with JM customers, business partners, the Shareholder, other stakeholders and each other. Directors, officers and employees must allow honesty, common sense and good judgment to govern their conduct; As a condition of employment, each officer, and employee of JM is expected to comply with the Code of Business Ethics and will be held accountable if he or she fails to do so. Any violation of this code, or any conduct that violates any law, rule, regulation or ethical or professional norm, is subject to disciplinary action, up to and including termination of employment. Directors, officers and employees are also expected to cooperate fully with any of the company audits or investigations and to answer all questions fully and truthfully. It is a violation of the company s policy to intimidate or impose any other form of retaliation on any employee who reports any actual or suspected illegal or unethical conduct. However, an employee who knowingly makes a false report may be subject to discipline; It provides standards for conduct which guide all JM s directors, officers, and employees. All JM s directors, officers and employees must conduct themselves appropriately and seek to avoid any event that could lead to the appearance of improper behaviour; During the 2014/2015 financial year, no breaches of the above code were reported or investigated; A copy of the code is available on the company s intranet and anti-fraud and corruption tips with a toll free number appear on the company s notice boards; The 2014/2015 Fraud Awareness Programme was duly conducted by the Internal Audit function; and The Board and directors ensured that a culture of fraud awareness and knowledge is instilled in the company. The Board is of the view that the Ethics Programme is constructively being executed in close consideration with the Risk Management System, providing reassuring controls. 50 Towards the market of the future

51 Section 9: Sustainability Report Through its oversight and guidance, the Board of Directors ensured that the company s strategy, risk, performance and sustainability imperatives are inseparable, as stipulated by the King III Code. The company further applied the Triple Bottom Line principle by taking the impact of its operations on the economy, society and environment into consideration. The sustainability of the company can be summarised as follows: Environmental Issues o CoJ adopted the Green City Programme that seeks to; amongst other, reduce the carbon footprint of the City. Many of CoJ s development decisions are taken with the need for a green planet in mind; from greening and cleaning the environment and reducing the energy load in buildings, to reducing carbon emissions; o JM aligned its programme to that of CoJ. The Green Economy is one of its key drivers and was adopted in terms of the roll-out of all CAPEX projects. As such, green building design elements form an important part of JM s flagship MotF project to ensure the reduction of our carbon footprint; and o There are a number of green building principles which were already applied to the MotF project and the Sweating of the Assets (SoA) development. Eco-Friendly Opportunities o Re-use of land and existing buildings: Recycling of the existing buildings and positioning of the new extensions on an existing site is an important aspect of creating eco-friendly environments; o Reduction of urban heat islands: The SoA development will make extensive use of materials like paved roadways as opposed to tarmac for parking areas, to reduce thermal radiation into the atmosphere; o Extensive landscaped areas with indigenous vegetation are proposed around the site and on underutilised land, also for the sake of reducing thermal radiation; o JM already has effective systems in place for the recycling of boxes and paper; o Recyclable waste will be kept separated from general waste to streamline recycling efforts; o Organic waste will be kept separated from general waste and opportunities for future processing of organic waste are being investigated; and o The company is in a position to proactively ensure that the projects focus on eco-friendliness through reducing usage of critical resources and reusing and recycling where possible. The following is a list of items that may require an initial capital outlay, but should yield a return on investment over the course of one to four years through savings on energy bills. It was proposed that these are incorporated into the design criteria of the MotF: Fit energy saving light bulbs; Install cavity walls; Installing 180mm thick loft insulation; and Recycle all grey water. Corporate Social Responsibility (CSI) Report The company s involvement in CSI is embedded in the Food Security PIP of the CoJ whose objective is to ensure that none of the CoJ citizens go to bed hungry. In partnership with the City, the Social Development Department, Pikitup and 288 NGOs, as well as other identified indigent families, JM donated parcels valued at R to families in crises during the passing of family members and breadwinners. The company achieved and exceeded the target to grow the Foodbank system by five times its original capacity. Towards the market of the future 51

52 Packing of vegetable hampers for the beneficiaries at Joburg Market Food Bank JM s operations enable the organisation to co-invest in the health drives of the CoJ GOJozi Health Programmes. In the financial year under review, JM provided fresh produce to enable 14 healthy eating programmes. In collaboration with lead departments, JM sponsored target group events aimed at youth, women and the disabled. During the 2014/2015 financial year, the company spent R to sponsor events aimed at enabling exposure of targeted groups to opportunities in the fresh produce industry. Stakeholder engagement Stakeholder engagement is a fundamental part of JM s governance and decision making process. The Board and senior management team are committed to establishing a dialogue with all stakeholders of the business. 52 Towards the market of the future

53 Section 10: Anti-corruption and Fraud The Anti-Fraud and Corruption Policy as approved and communicated to the entire staff in the organisation includes procedures related to the process of reporting fraud through a dedicated Hotline. The Hotline is a 24-hour service centrally managed by CoJ with monthly incident reports sent to the Chief Audit Executive for follow up. Every year during the month of November, Internal Audit conducts a company-wide anti-fraud workshop that aims to create awareness around fraud and corruption issues and to encourage staff to make use of the Hotline. A risk based audit plan is utilised by Internal Audit to conduct audits and address strategic and operational risks. Fraud Hotline campaign at Joburg Market Fraud Hotline The company s Fraud Hotline facility is managed by a reputable external service provider, is well publicised and made visible on the company premises and website. An anti-fraud and corruption campaign is held annually to inform JM s stakeholders about the Fraud Hotline and to encourage usage of the facility. During the 2014/2015 financial year, a number of direct calls were made to the facility. Internal Audit also received numerous direct reports from staff, customers and suppliers, especially immediately after the fraud awareness campaign. The reported cases were assessed and where suspicions seemed valid, full investigations were conducted and reported accordingly to senior management. More in-depth assessments indicated that the reported cases were not materially significant and could thus be closed without further escalation beyond JM senior management. The Fraud Hotline is a very useful tool in the fight against theft, bribery, misuse of JM property and other unlawful acts. It can be accessed telephonically on ; via an SMS to 32840; an to anticorruption@joburg.com or by visiting the website: tip-offs.com. Towards the market of the future 53

54 Shareholder signing compact ceremony. Section 11: ICT Governance The JM IT environment is driven by a SPS which is used for trading fresh produce on the market floor. No off-the-shelf system is available for the commission market trading activities as applied in South Africa. The system was thus developed in-house and cannot operate from a location remote to JM. The trading system regulates the trading activities of Market Agents. All stock, cash and sales transactions are recorded and price statistics disseminated to the industry (farmers, agents, buyers and Statistics SA). The table below depicts the main systems operating within JM: System User Application Operating System Database Market trading floor SPS Solaris Oracle Finance JDE Solaris Oracle Paymaster Payday Microsoft N/A Corporate Active Directory Microsoft Microsoft Corporate Exchange Microsoft Microsoft Helpdesk Latitude Microsoft Microsoft PABX Avaya Avaya Microsoft Secretariat Paper trail Microsoft Microsoft ICT Governance Framework JM adopted the ITIL (Information Technology Infrastructure Library) framework in 2006 and is subject to annual audits from the Auditor-General. JM s Internal Audit department has an IT auditing unit in place and conducts quarterly audits with respect to general IT access and internal controls according to the Control Objectives for Information and Related Technology (COBIT) and ITIL frameworks. COBIT is a framework for developing, implementing, monitoring and improving IT governance and management practices while ITIL provides guidance on the use of IT as a tool for facilitating business change, transformation and growth. 54 Towards the market of the future

55 Section 12: Supply Chain Management and Black Economic Empowerment The company adopted SCM systems in compliance with the provisions of the MFMA and the National Treasury: Municipal SCM Regulations of An SCM unit was established in September 2005 to monitor the implementation of the organisation s SCM policies in line with the regulations which seeks to modernise financial governance and improve accountability and transparency of processes. SCM policies provide for the exclusion of awards to persons in the service of the state and this is subject to the exemptions and regulations issued by National Treasury from time to time. The company furthermore implemented the three committee bidding process that involved the establishment of three separate committees for bid specification, bid evaluation and bid adjudication. The Board ensured that the procurement policy embraces the objectives of BBBEE, and the CEO as the Accounting Officer and custodian, ensures its effective implementation. The capital projects implemented during this period served as valuable foundations for ensuring increased participation from SMMEs in the JM BEE programmes. These efforts will be intensified even further and the company will continue to be sensitive to the financial constraints faced by emerging black businesses. JM made 21 procurement awards valued at R52 million during the year under review. All awards positively contributed and complied with BBBEE requirements. This led to the company achieving and exceeding the set target for the 2014/2015 financial year. The company made no unsolicited bids. The 2014/2015 awards were made in terms of competitive bidding process as well as section 32 of the MFMA, which allowed the company to use a contract secured by another organ of the state. Joburg Market Trading Hall Towards the market of the future 55

56 The entity endeavours to provide a comprehensive report on its financial performance and position, [material issues [ 56 Towards the market of the future

57 Service Delivery Performance Towards the market of the future 57

58 Chapter Three: Service Delivery Performance Section 1: Core Business Mandate The company is mandated to manage and operate market facilities by providing world class infrastructure and services conducive for the fresh produce industry. This is executed through: Provision and management of profitable facilities and services that enable the distribution of fresh produce; Ensuring a competitive trading platform for fresh produce trading; Enabling market access, sustainable availability and affordable fresh produce; and Ensuring of food safety and quality standards thus promoting nutrition. Section 2: Day to Day Operations The company s day to day operations during the 2014/2015 financial year enabled it to maintain record surplus levels, finalise key strategies, maintain the JM staff complement, maintain the company s market share ranking, grow turnover, maintain BEE procurement spend and maintain a clean record in respect of legal and legislative compliance findings recorded. Section 3: Highlights and Achievements During the period under review, JM experienced a number of highlights and challenges. Highlights The key achievements during this period include the following: Strong liquidity and solvency ratios; Cash generated from operations improved; Positive net cash position; Overall mass performances for most products were relatively good. Total volumes increased by 4.4 percent year-on-year, due to a significant increase in the supply of most fresh produce; Complementary services had a strong showing with the Banana Ripening and Cold Storage Plants posting 60 percent and 35.9 percent above budgeted revenue respectively and utilisation improving by 12 percent; Apart from various electrical, civil, plumbing, mechanical and building repairs and maintenance executed during the period under review, a service provider was appointed to fix leaking roofs in Halls 3 & 4 and 5 & 6; 58 Towards Towards the market of the future

59 INTEGRATED ANNUAL ANNUAL REPORT REPORT /2015 /2015 Joburg Market Quality Assurance Inspector Towards market the market of the of future the future 59

60 Stakeholder engagements were accelerated to address the following: o Meetings with the IMASA to resolve a number of strategic and operational issues pertaining to operations at the market. o Meetings with the Department of Agriculture, Fisheries and Forestry to finalise issues pertaining to fresh produce compliance to statutory product standard regulations. o Meetings with Eastern Cape Farmers to share information on food security, the MotF and to establish relationships with producers. o Meetings with Meyerton Small Scale Producers to address market access barriers and related challenges. New ablution facilities were commissioned between Hall 8 & 9 to increase the number of public facilities available to the growing customer base; Facilities Management Department exceeded targets for occupancy levels (96 percent) and debt collection rate (98 percent); The detailed designs for the main Pallet Distribution Centre as well as for the smaller distribution centre were completed and placed for public tender to commence in the first quarter of the 2015/2016 financial year; IDP target of 6 percent market share for emerging farmers was exceeded; The company introduced an export desk to enhance services to buyers from the SADC region; and BEE market agents reported a turnover of R298 million with a market share percentage of 5.16 percent. The 2014/2015 turnover was 28 percent higher than the R233 million BEE market agent turnover achieved during the 2013/2014 financial period. Challenges The company experienced the following challenges during the 2014/2015 financial year: Turnover decreased by 8.9 percent in comparison to the adjustment budget for the year and volumes were also below budget by 2.2 percent; BEE Market Agents were under pressure to perform optimally due to constrained ability to sustain efficient stock levels on the trading floor; Delays in the implementation of the MotF project adversely affected the finalisation of six related KPIs, resulting in a significant non-expenditure on CAPEX; and Delays in SCM and long decision-making processes impacted CAPEX expenditure. JM will continue to set new standards for service delivery and the customer relationship programme will serve as a pillar for ongoing success. The company remains firm in its commitment to sound stakeholder relationships and is committed to meeting and exceeding the expectations of its stakeholders. A key challenge faced by JM remains the changing and differing stakeholder and role players expectations. For this reason, the company has to to constantly monitor and adjust its strategies to fulfil the mandate of growing and transforming the business. 60 Towards the market of the future

61 Emerging farmer in Limpopo Towards the market of the future 61

62 Section 4: Performance Against the Scorecard JM uses the scorecard methodology to implement and monitor the strategy; organisational strategic objectives and targets developed and approved by the Board of Directors. During the process of developing the 2014/2015 corporate scorecard, various key performance indicators (KPIs) were set to drive the JM strategic objectives. The unforeseen delays emanating from the implementation process of the MotF project however negated the intent of some of these KPIs and/ or made the measurement thereof impractical. The following KPIs related to the MotF project were not achieved: Number of phases implemented in upgrading existing infrastructure; Percentage phase 1 - change management plan implemented (three phases in three years); Number promotional plans rolled out for the MotF aimed at key stakeholders on business-to-business level i.e. phase 1; Number of re-engineered finance processes implemented; Number of functional pack houses launched to enable emerging agro-processors; and Number of new bylaws promulgated. The JM financial KPIs were also adversely affected by the challenging operational environment resulting in a lower Capex spend of R M for the year that ended 30 June The table below presents a summary of JM s performance against the 2014/2015 annual targets. Item Number Total no. of KPIs on 2014/2015 Scorecard 33 Number Achieved 21 Number Not Achieved 12 % Achievement 64% Number of KPI results exceeded 14 The performance is represented in accordance to KPIs, including the MotF related targets. As the company experienced challenges with the implementation of projects related to the MotF, six of the KPIs could not be achieved. 62 Towards the market of the future

63 Performance Information Key Performance Area 1: Optimisation and Growth of Core Functions Key Performance Indicator Baseline Annual Target Result % Achievement Comments/ Mitigation No. of phases implemented in upgrading existing infrastructure Maintenance plan implemented for year 1 4 Phases of year 2, maintenance plan implemented KPI not achieved: 2 out of 4 plans were implemented 50% Not achieved. The target was not achieved due to SCM procurement processes and technical deficiencies. Mitigation: An automated SCM system will be introduced to improve the requisition approval process. R/M value of operating budget spent on planned maintenance R21.0M R21.0M R16.8M 80% Not achieved. Non-Achievement was due to delays in SCM process and inadequate contractor responses Mitigation: SCM is automating its requisition systems and will train BEE suppliers on the SCM processes. No. of site hygiene management systems implemented Approval of 1 site hygiene management plan Implementation of hygiene management system KPI achieved 100% Achieved. % Increase in market share of JM in relation to other FPMs 38.00% R5.3bn 38.75% R5.5bn 39.25% R 5.8bn 100% Exceeded JM sustained its regional market position and improved customer relations with patronage from Mozambique showing an increase No. of export desks established to accommodate buyers from SADC region New 1 Export desk established 1 Export desk established 100% Achieved. No. of SMME s appointed to conduct waste separation and recovery as green economy activity New 1 SMME in operation 1 SMME in operation 1 SMME in operation Achieved. Towards the market of the future 63

64 Key Performance Area 2 : Transformation/BEE Key Performance Indicator % Of phase 1 - change management plan implemented (3 phases in 3 years) % Achievement of BEE portion targets in total procurement R/M targeted turnover of emerging agents achieved Increase number of emerging agencies No. of access plans to JM implemented for emerging farmers Baseline Annual Target Result % Achievement Comments/ Mitigation New 100% 1 Plan 0 KPI not achieved 0% Not Achieved. Target not achieved due to delayed implementation of the MotF. Mitigation: The Board s MotF Committee was established to re-align MotF project and determine revised implementation timeline. 74% 75% 108% 144% Exceeded. There was an R95.583m R 210,2M R44.8M 21.3% improvement in the value of contracts/ orders awarded to BEE participants. R150M R200M R233M 117% Exceeded. The target was exceeded due to the increased volumes of fresh produce being sold. 2 5 agencies established New 3 Access plans implemented Appointment of 3 new agencies achieved 4 Access plans implemented 60% Not Achieved. The non-achievement was due to delayed -implementation of the MotF construction. There was consequently limited floor space available to accommodate new agents. Mitigation: The allocation of floor space to the targeted groups will be prioritised upon conclusion of MotF construction. 133% Exceeded. Additional 4 access plans were implemented with the programme introduced to 100 beneficiaries in Region A and G. 64 Towards the market of the future

65 Key Performance Area 2 : Transformation/BEE (continued) Key Performance Indicator No. of co-operatives established to conduct approved services at JM No. of informal distributors trained No. of index points achieved from surveys towards improved stakeholder satisfaction No. of fresh hubs (distribution centres) established in Previously Disadvantaged Areas (PDAs) No. of promotional plans rolled out for MotF aimed at key stakeholders on business-to-business level (phase 1) Baseline New Annual Target 3 Access plans implemented Result % Achievement Comments/ Mitigation No co-operatives were established 0% Not Achieved. The non-achievement was due to delays of the implementation of the Jozi@work project. Mitigation: JM embarked on an initiative aimed at appointing cooperatives to render services under the Jozi@work programme during the first quarter of 2015/16. New % Exceeded. Strategic partnerships formed with grower associations yielded positive results % Exceeded The average 1 Surveys 2 Surveys 2 Surveys 100% aggregate score of both surveys was exceeded units established KPI not achieved: construction of distribution centres not executed New 1 promotional plan (phase 1) KPI not achieved: no roll out of phase 1 promotional plan to buyers & producers 0% Not Achieved. The non-achievement was due to establishment of only 1 fresh hub. There is a refocused strategy to rather consider distribution centres. Mitigation: A concept of implementing a phased approach for distribution centres during 2015/16 and 2016/17 was developed. 0% Not Achieved. The non-achievement is due to delayed implementation of the MotF. Mitigation: A new marketing strategy and stakeholder communication strategy aligned to the MotF are being developed. They will be implemented during the 2015/16 fiscal year. Towards the market of the future 65

66 Key Performance Area 2 : Transformation/BEE (continued) Key Performance Indicator % growth in market share of emerging producers at Johannesburg Market (JM) % improvement in the level of customer satisfaction relevant to the customer charter Baseline 6% market share acquired Annual Target 7% market share acquired at JM by emerging producers R316M R405M R335M Result % Achievement Comments/ Mitigation 5.80% market share acquired at JM by emerging producers 50% 67% 78% 116.4% 4.5 out of 9 elements achieved 6 out of 9 elements achieved Key Performance Area 3: Diversification of Revenue 7 out of 9 elements achieved 82.9% Not Achieved The non-achieved is attributable to high volumes of produce received during the last two quarters of the financial year which subsequently pushed prices down thus resulting in reduced turnover. Mitigation: JM developed a booklet aimed at attracting emerging producers. The new marketing strategy was communicated to enhance access for targeted groups. Key Performance Indicator R/M value of improved in surplus generation against budget Maintain a clean Audit % Increase in collection levels for total billing No. of innovation plans developed for a cashless environment R/M value of CAPEX spent Baseline Annual Target Result % Achievement Comments/ Mitigation 0 0 R56,58,246M 100% Achieved. Clean audit Clean audit Yes 100% Achieved. 95% 95% 98% 103% R48.7M R51M R51.5m 1 Plan 1 Plan developed KPI not achieved: Innovation plan not developed R70m R 117, 522M (midyear adjustment) Exceeded The company 71% exceeded the CoJ standards for debtor collection of 97%. This was due to refined efforts towards billing collection. 50% Not Achieved. Non-performance is due to the Transaction Alert Integration project not finalised on time. Mitigation: JM will test and execute the programme during the first and second quarters of 2015/16 R43,488,709M 37.0% Not Achieved. 66 Towards the market of the future

67 Key Performance Area 4: Food Security Key Performance Indicator No. of functional pack houses launched to enable emerging agroprocessors No. of donations granted to NGOs and indigent beneficiaries Increase in no. of tons in product on offer at JM Baseline New Annual Target 1 X central pack house (shared facility) launched Result % Achievement Comments/Mitigation 0 0% Not Achieved. Non-achievement is due to inability to launch pack houses as there was no additional space available. Mitigation: JM will utilise partially available space of the upgraded food bank to create a shared facility. Furthermore Halls 1 & 2 will be upgraded for eventual establishment of pack houses aimed for targeted groups % Exceeded. The CoJ increased focus on food security and its targeted indigent families registration programme resulted in an exponential increase in donations. 1.08M 1.20M 1.284M 107% Exceeded. The target was exceeded due to higher volumes of fresh produce sold. Key Performance Area 5: Skills Development Key Performance Baseline Annual Result % Achievement Comments/Mitigation Indicator Target % Of total number of staff members trained to operate the MotF (planned for phase 1 77 candidates New 100% 233% 170% Exceeded. There were concerted efforts in skills development training and managerial development programmes. 77 candidates 131 candidates No. of HR policies % Achieved. reviewed No. of performance New 1 Performance 1 Performance 100% Achieved. management systems implemented management system implemented management system implemented No. of EPWP jobs created % Exceeded JM utilised EPWP candidates across its operations and trained candidates in a number of fields including artisans Reduce personnel costs as a % of total operating costs 33.2% R89,018M 40% R103,000M 39.2% R101,148M 102% Exceeded JM utilised EPWP candidates across its operations and trained candidates in a number of fields including artisans Towards the market of the future 67

68 Key Performance Area 6: Good Governance (Legal and Regulatory Compliance) Key Performance Indicator No. of SHE legislative compliance checklists completed No. of new bylaws promulgated Reduce number of injuries to improve occupational health and safety Baseline New Annual Target 4 checklists of compliance completed Result % Achievement Comments/ Mitigation 4 100% Achieved. New 1 X Bylaw 0 0% Not Achieved. There were delays in the appointment of a service provided for the identification, review and promulgation of new bylaws. New < % Achieved. Section 5: Assessment of Municipal Taxes and Service Charges GL TYPE OPENING AMOUNT CURRENT OVER 120 RENTAL NO. OF DEBTORS COLD STORE NO. OF DEBTORS GUARANTEES NO. OF DEBTORS DIRECTS NO. OF DEBTORS 5 5 SUNDRIES NO. OF DEBTORS CASHIERS NO. OF DEBTORS AGENTS PC NO. OF DEBTORS FINANCE CHARGES NO. OF DEBTORS TOTAL NO. OF DEBTORS Total debtor s amount: R1, 567 million of which 81 percent relate to the debtors managed by the company. The accumulated provision for bad debts amounts to R936 million or 60 percent of the accumulated debtors. 68 Towards the market of the future

69 Amount Owed by JM for Service Chargess As at 30 June 2015, the entity owed a total sum of R to organs of the state. This amount comprises JM debt relating to utilities, leases, as well as amounts owed to the Johannesburg Road Agency (JRA). Assessment of Directors and Senior Managers Municipal Accounts No amounts other than those emanating from legitimate quiries are owed by directors and officers to any local authority. Section 6: Statement on Amounts Owed by Government Departments and Public Entities At the end of the 2014/2015 financial period an amount of R was owed to JM by the following government departments and CoJ municipal entities: the DED for the EPWP, Department of Social Development for parcels, the Johannesburg Social Housing Company (JOSHCO) and Pikitup. Section 7: Recommendation and Plans for Next Financial Year JM will be focusing on the following strategic objectives and deliverables during the 2015/2016 financial year: Strategic Projects Implementation o Revitalisation of the MotF project with assistance from the Board of Directors following their annual strategic breakaway and the development of a revised implementation schedule; o Implementation of the Energy Strategy recommendations; o Implementation of the Integrated Waste Management Strategy and Plan; and o Implementation of the Hygiene Management Strategy and Plan. Operations o Focusing on core business improvements; o Ensuring growth of BEE market agents turnover and introduce new agents; o Accelerated focus on repairs and maintenance of facilities in the JM; and o Enhanced Stakeholder Engagement Initiatives. Marketing and Communications o Drafting of the Marketing and Communications Strategy; o Roll out of food hubs in previously disadvantaged areas; o Hosting of engendered marketing programmes for women in agriculture; o Focusing on engendered marketing programmes; and o Promotional programme implementation. Finance and Supply Chain Management o Refining SCM processes and compliant payment practises; and o Fast tracking CAPEX related programmes. Priority Programmes o Finalising the implementation of a fresh produce distribution centre in Alexandra; o Intensive stakeholder engagements regarding the Alexandra projects; o Finalising the Mayoral Bread Baking project support concept; o Introducing programmes and projects for Jozi@work and the Final Push ; and o Increasing donations to indigent beneficiaries. Towards the market of the future 69

70 Transformation o Reviewing the JM Transformation Strategy; and o Continuous implementation of the Transformation Plan to enhance empowerment of emerging entrepreneurs and co-operatives; MotF implementation o Appointment of owners engineering team; o Appointment of a property specialist; and o Implementation of the Energy Strategy recommendations. Commercial services o Increase stakeholder visits to promote MotF and BEE expansion plans; and o Roll out of the industry food standard known as local Good Agricultural Pratice (GAP) for emerging farmers. Finance and Supply Chain Management o Conduct projects for SCM business process re-engineering; o Implementation of a transformation plan to enhance empowerment of emerging entrepreneurs and co-operatives; o IT; and o Refinement of continuity plans through implementation of phase 2 network redundancy strategy. Human Resource and Wellness o Appointment of candidates to fill crucial vacant positions; o Introduction of new wellness facilities; and o Sourcing of training providers to enhance the MotF development in relation to human resources. 70 Towards the market of the future

71 Joburg Market facility Towards the market of the future 71

72 [ INTEGRATED ANNUAL REPORT 2014 /2015 JM continuously strives to attract people living with disabilities into its [workforce 72 Towards the market of the future

73 Human Resources & Organisational Management Towards the market of the future 73

74 Chapter Four: Human Resources and Organisational Management Section 1: Human Resource Management The company s overall HR Strategy is aimed at ensuring that JM becomes the employer of choice in the fresh produce sector. This is realised through a continuous process of attracting good talent, nurturing existing talent and growing the company s own talent for the future purposes. The organisation constantly benchmarks its policies and remuneration practices with the broader employment market so as to remain competitive and relevant. JM strives to engage employees in all facets of business planning and strategy implementation, to keep them up to date with business activities to promote ownership and support of key strategic interventions. There was ongoing review of HR policies during the period under review, with extensive consultation taking place between management, employees and organised labour to ensure acceptance and support of all policies and interventions. Section 2: Employment Equity Employment equity remained a strategic thrust that kept JM focused on addressing the imbalances of the past. The employment equity initiatives included diversity management and the elimination of discrimination in policies and practices while reducing barriers to skills and career advancement. JM continuously strives to attract people living with disabilities into its workforce. During the 2014/2015 financial year, the focus was to continuously improve and create an environment that is prepared to receive, train and enhance the skills of potential employment equity candidates.. 74 Towards Towards the market of the future

75 HR Team Towards market the market of the of future the future 75

76 Employment Equity Profile as at 30 June 2015 OCCUPATIONAL LEVELS TARGET AS AT JUNE 2017 STATUS AS AT JUNE 2015 MALE FEMALE MALE FEMALE A C I W A C I W A C I W A C I W Top Management Senior Manager Mid Manager / Professional Skilled Tech / Junior Manager Semi- Skilled Unskilled TOTAL Section 3: Skills Development and Training Training initiatives were aimed at creating the required capacity for the improvement of productivity and to build future talent, while allowing existing employees to develop educational skills via academic institutions, thus fulfilling career aspirations. Training was further designed for implementation of individual and organisational learning plans as identified during the performance management and appraisal processes. During the 2014/2015 financial year, JM spent more than R1.5m on skills development with programmes rolled out across all levels. The key focus was on creating an organisational leadership pipeline and managers were trained on management leadership skills to improve their capacity to operate at a strategic level. The following training programmes were undertaken: Management Leadership Development Programme: 27 candidates; Learnership: 16 employees were enrolled with the Wholesale and Retail SETA, including EPWP beneficiaries who are part of the JM staff complement; Hall Hygiene: 42 employees were trained for compliance in preparation for the MotF; Two executives and two senior managers were registered for an International Leadership Development programme due to be completed in 2015/2016; SHE Compliance training: 84 employees were trained; Internships: 13 interns appointed will complete their internship during the next financial year (2015/2016); Eight executives and senior managers were trained on governance ethics; and Computer training: 34 employees were trained in line with the Individual Learning Portfolio (ILP) skills gap. 76 Towards the market of the future

77 Section 4: Performance Management All employees on supervisory to executive levels are performance managed in terms of the JM Performance Management Policy. The balanced scorecard was the tool used for measuring organisational performance and performance indicators were linked to the company s objectives and the IDP scorecard. Additional objectives were included to inculcate and reinforce a culture of governance and risk management among managers. The company achieved 80 percent for performance in the scorecard for the year 2013/2014 and all managers are undergoing performance assessments as approved by the Board after considering the overall company performance. The company is of the view that the performance management system should consider individual employee performance in relation to the company s performance and this issue will be granted the necessary attention. At the end of the performance assessments, all employees have to develop ILPs that define possible areas of development that will assist with improving their performance in the ensuing year. These ILPs inform the training plans for the year. Due to budget constraints, it is not always possible to have all requested interventions delivered. A dedicated effort is however made to cover the type of training that is requested by the majority of employees. In terms of the Performance Management Policy, it is the company s vision to roll out the system to the lowest levels of employees; but extensive consultation will be required for this process. The development of ILPs aimed at guiding the training of underperforming officials is being introduced to ensure employees are optimally assisted. Section 5: Employee Wellness The wellness initiatives are driven by the company s need to promote healthy living and good health of the employees. Health checks and health education campaigns are conducted with the support of other professional partners. The company s wellness campaign is supplemented by the distribution of informative material like brochures and pamphlets that are produced by health services partners. JM s wellness centre consults and dispenses medicines to patients. On average, the clinic treats 30 patients who consult the centre daily for health advice. Where necessary, referrals are made to external healthcare professionals for further examination. Chronic illness cases are constantly monitored to help patients with their treatment programme. The clinic also serves customers who require emergency attention. The treatment offered by the clinic is at an acceptable level of health standards and is effective. This is measured by the increased number of patients; for both return visits and new cases. The wellness centre is one of the value add benefits that the company offers its employees. It allows employees access to free healthcare for minor ailments and offers basic health screening without employees having to be absent from work. Employee Retention The company recorded a staff turnover figure of 4 percent in the year under review. The turnover is 58 percent in occupational levels three (3) and four (4) due to demand for skills. The approved JM Succession and Retention Policy is being implemented to include retention premiums for occupation areas such as ripening and quality assurance, where the required skills are in short supply. Towards the market of the future 77

78 Employment Terminations Employee terminations for the period ending 30 June 2015 are presented in the table below: Gender and Equity Occupational Level MALE FEMALE MALE FEMALE Total A C I W A C I W Mid Management/ Professionals 3 28 February November July Resigned 3 Skilled Tech/Junior Management February November July April Resigned 1 Contract Expired 4 Semi-Skilled May September August June Dismissed 1 Resigned 4 Unskilled 1 7 June Died 1 TOTAL Leave Management Leave management is well controlled with disciplinary action resulting from abuse. The challenge remains cases of chronic illness where employees continue to exhaust their sick leave allocation. The increased sick leave allocation aligned to the local government sector standard however reduced the number of sick leave without pay cases. The number of chronic cases is at an acceptable level, considering that the average age of the staff complement is 45 years. The wellness unit executes dedicated efforts to the promotion of healthy living to alleviate the impact of chronic diseases on employees. This is among others done through the running of wellness events and physical exercise activities. There is also an in-house gym and a sport club that makes it easier for employees to participate in sporting activities that could promote their physical wellbeing. HIV/AIDS Management JM has a Primary Health Clinic on the premises which amongst other, provides counselling, treatment and care to employees with chronic conditions, including HIV/AIDS. The company has a policy on HIV management which provides additional leave to those employees who have disclosed their status. This was done in an effort to encourage open disclosure. The general status remains a concern though, particularly amongst the elderly employees who seem to suffer symptoms but continue to refuse testing. Health awareness sessions are conducted regularly to encourage voluntary testing and disclosure. All disclosed cases are provided with the necessary care and support. HIV/Aids Structures To ensure that employees have a platform where they can freely engage and discuss their HIV status and related complications; the company established a Peer Educators forum. The forum provides care and support to all disclosed cases. Continued efforts are made to encourage all infected employees to disclose their status so that proper care can be given. The company is unfortunately not permitted to compel testing even where there are visible signs and/or medical evidence that may suggest the presence of HIV. 78 Towards the market of the future

79 HIV Testing Routine HIV testing occurred in March 2015 and 18 percent of the number of employees who participated tested positive. This statistic includes people who previously tested positive. The wellness team at the clinic is monitoring these cases closely. HIV/AIDS awareness campaign Towards the market of the future 79

80 Section 6: Employee Benefits The company has an obligation to assist employees to prepare for their lives beyond employment stage by providing retirement benefits. This is achieved through the utilisation of approved schemes. JM contributes to the following three funds which are in the process of being rationalised to ensure equity in benefits: City of Johannesburg Pension Fund; Momentum Provident Fund and; ejoburg Retirement Fund. All the funds are defined contribution funds and the company contributes between 8 and 18 percent. JM only has representation in the Momentum Provident Fund, which has the highest number of contributing employees. Medical Aid Scheme To help ensure that employees are healthy and enjoy a productive life, the company compels employees to take up membership of a medical aid scheme. The company subsidises the contribution at a rate of 60 percent of the applicable premium to qualifying employees and their primary dependants. Employees may select from the following three medical aid schemes with which JM has formal agreements: Discovery Health; Bonitas; and LA Health. The company sourced the services of a medical aid broker who is tasked with enhancing the JM employees understanding of the complex medical aid scheme rules, monitoring the claims patterns and ensuring that employees enjoy appropriate cover from the schemes. The scheme brokers also serve as an extension of the JM wellness programmes as they assist with the provision of health materials and participate in our health days. The broker is able to educate employees on how to get the maximum benefit from the schemes and how to reduce abuse for the sake of enjoying optimal benefits for a longer period. This service is highly appreciated by employees who previously struggled with medical aid issues such as unpaid claims. 80 Towards the market of the future

81 Towards the market of the future 81

82 The financial statements were prepared on the basis of accounting policies applicable to a going [concern. [ 82 Towards the market of the future

83 Financial Performance Towards the market of the future 83

84 Section 1: Financial Performance This section provides a summary of JM s overall financial performance for the period that ended 30 June Revenue The revenue posted by the company as at 30 June 2015 totalled R million, an increase of 0.78 percent in comparison to the R357 million of the 2013/2014 financial year. Although higher than the 2013/2014 financial year, revenue was 3.9 percent below the budgeted R376.3 million for the year under review. The company recorded a commission income of R288.5 million, representing an 8.9 percent decrease against the revised budget. The commission income contributed 80 percent of the total revenue of JM, reflecting a 2.4 percent increase from the R281.9 million commission income of the previous year. Revenue contributions from rental income: facilities and equipment, cold storage and banana ripening facilities, as well as interest received were 10 percent, three percent and three percent respectively with two percent being grants received from the JM Shareholder and the remaining two percent being revenue from other sources. The diagram below depicts the JM revenue contributions by source: 2% 3% 2% 3,17% 10,66% Other Interest Received Grant from Shareholder Rental: Facilities and Equipment 82,71% Cold Storage & Ripening Facilities Commision Results of Operations The 2014/2015 financial year surplus of R56.5 million was R1.6 million higher than the R55.1 million recorded for the year ending 30 June 2014, representing an increase of 2,6 percent. This increase was mainly attributable to the R7.3 million year-on-year reduction in overall expenditure as well as the R4.3 million 2014/2015 increase in revenue in comparison to 2013/2014. Operating expenditure for the financial year that ended 30 June 2015 was R272.7 million, which translates to a 2.67 percent deviation from the budgeted R280.2 million. The overall JM operational costs reflected a decrease of 2.6 percent from the R280 million reported for the 2013/2014 financial year. The reduction in operating expenditure can mainly be attributed to human resources and repairs and maintenance costs which were lower than the budgeted amounts. Personnel expenses for the year were below budget due to an adjustment 84 Towards the market of the future

85 budget that was granted for critical positions not filled within the adjustment budget time frame. Requests for salary benchmarking, organisational redesign and training programme projects that were not granted during the 2014/2015 budget adjustment process, are expected to materialise in the 2015/2016 financial year. Repairs and maintenance programmes which were in implementation stages as at the end of June 2015 will be concluded in the 2015/2016 financial period. The graphical representation below provides a comparison of the revenue, expenditure and surplus figures for the 2014/2015 and 2013/2014 financial years R Millions Revenue Expenditure Surplus 2014/15 Actual 2014/15 Adj Budget 2013/14 Actual Cash Flow There was a 29.7 percent increase in the company s net cash position from R86.8 million as at 30 June 2014 to R112.6 million by the end of the 2014/2015 financial year, reflecting a R25.8 million net movement in the cash position. During the financial period under review, property, plant and equipment totalling R43.4 million was acquired and this capital expenditure was self-funded due to the company s positive cash position. Internal controls implemented by management strengthened the financial position of the company and resulted in a positive generation of cash flow from operations. Statement of Financial Position Non-current assets increased by R21.1 million to a total of R334 million as at 30 June 2015 in comparison to the R312.9 million of the 2013/2014 financial year. The increase was a net effect of the R43.4 million additions to property, plant and equipment; asset disposals and depreciation charges of R15.9 million. The JM current ratio increased from 1.36: 1 during the 2013/2014 financial period to 1.42: 1 as at the end of the period under review. This reflects an overall improvement in the company s capability to meet its short-term payment obligations. The equity ratio also increased from 49 percent as at the end of 2013/2014 to 59.5 percent. This means that a larger proportion of the JM total assets were funded by the Shareholder during the 2014/2015 financial year than those funded by creditors. Towards the market of the future 85

86 Section 2: Capital Projects The JM capital expenditure for the year under review is reflected below. The company managed to spend R43.4 million of its adjusted budget totaling R124.9 million. This represents an overall Capex spend of 35 percent or the 2014/2015 financial period. Some of the deferred tenders are dependent on the delayed MotF project. JM Capex Spend as at 30 June 2015 Capex Original Approved Budget Adjustment Budget Actual Spend 2015 Variance R R R R Furniture IT Land and Buildings Office Equipment Plant and Equipment Total Percentage Total Capex Spend for the year: 35 percent 250,000, ,000,000 Rands 150,000, ,000,000 50,000,000 Original Budget Adj Budget Actual Spend Variance Capex 208,322,00 124,922,00 43,488,709 81,503, Towards the market of the future

87 Section 3: AUDITED FINANCIAL STATEMENTS Joburg Market SOC Limited Financial statements for the year ending 30 June 2015 The Auditor-General: South Africa Towards the market of the future 87

88 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 General Information COUNTRY OF INCORPORATION AND DOMICILE NATURE OF BUSINESS AND PRINCIPAL ACTIVITIES DIRECTORS REGISTERED OFFICE BUSINESS ADDRESS South Africa Providing of infrastructure to distribute fresh produce mainly in the Gauteng area Ms M Mpofu (Chairman) Dr V Dlamini Mr S Mafadza Mr B Nkosi Dr D Sekhukhune Ms N Singh Bishop S Tsekedi Mr T Tselane Dr E Zulu Ms S Sekgobela (Chief Executive Officer) Mr B Dhlamini (Chief Financial Officer) 1 Heidelberg Road City Deep Johannesburg Fortune Road (Off Heidelberg Road) City Deep Johannesburg 2049 POSTAL ADDRESS P O Box City Deep Johannesburg 2049 CONTROLLING ENTITY BANKERS AUDITORS SECRETARY The City of Johannesburg Metropolitan Municipality incorporated in South Africa Standard Bank Limited The Auditor-General: South Africa Ms T Melk COMPANY REGISTRATION NUMBER 2000/023383/07 88 Towards the market of the future

89 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Directors Responsibilities and Approval The directors are required by the MFMA, to maintain adequate accounting records and are responsible for the content and integrity of the financial statements and related financial information included in this report. It is the responsibility of the directors to ensure that the financial statements fairly present the state of affairs of the company as at the end of the financial year and the results of its operations and cash flow for the period then ended. The external auditors are engaged to express an independent opinion on the financial statements and was given unrestricted access to all financial records and related data. The Financial Statements were prepared in accordance with Standards of Generally Recognised Accounting Practice (GRAP) including any interpretations, guidelines and directives issued by the Accounting Standards Board. The financial statements are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgments and estimates. The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the company and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the directors set standards for internal control aimed at reducing the risk of error or deficit in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the company and all employees are required to maintain the highest ethical standards in ensuring the company s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the company is on identifying, assessing, managing and monitoring all known forms of risk across the company. While operating risk cannot be fully eliminated, the company endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints. The directors are of the opinion, based on the information and explanations given by management that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or deficit. The directors just reviewed the company s cash flow forecast for the year to 30 June 2016 and, in the light of this review and the current financial position, they are satisfied that the company has or has access to adequate resources to continue in operational existence for the foreseeable future. The financial statements are prepared on the basis that the company is a going concern and that The CoJ Metropolitan Municipality has neither the intention nor the need to liquidate or curtail materially the scale of the entity. The external auditors are responsible for independently auditing and reporting on the company s financial statements. The financial statements were examined by the company s external auditors. Approval of annual financial statements: The financial statements set out on pages 8 to 61, which were prepared on the going concern basis, were approved by the directors on 27 August 2015 and were signed on its behalf by: Ms M Mpofu (Chairperson) Director Johannesburg 27 August 2015 CFO Towards the market of the future 89

90 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Audit and Risk Committee Report This Audit and Risk Committee report is presented as recommended by the King III Report on Corporate Governance and Regulation of the Treasury Regulations. The Audit and Risk Committee performs its functions in accordance with section 94(7) of the Companies Act and section 166 of the Municipal Finance Management Act (MFMA). The Audit and Risk Committee also reports that it has adopted appropriate formal terms of reference as its Audit and Risk Committee Charter, has regulated its affairs in compliance with this Charter and has discharged all its responsibilities as contained therein. The Board has assigned oversight of the risk management function to the Committee, which has an oversight role with respect to financial reporting risks arising from internal financial controls, fraud and IT risks. Composition of the Audit Committee and Attendance: Membership: The Audit and Risk Committee consists of two non-executive directors and three independent committee members. The CEO, CFO, Head of Internal Audit, and Risk Compliance Officer are required to attend meetings of the Committee. The external auditors together with other COJ shareholder representative attend the meetings by invitation. Committee Meetings The Committee is required to meet a minimum of four times per annum as per the provisions of the Municipal Finance Management Act (MFMA). Four ordinary and five special meetings were held during the financial year under review. NAME OF MEMBER ROLE APPOINTMENT/ #RESIGNATION DATE Ms N Singh Non -Executive Director; Chairman QUALIFICATIONS 26 January 2009 CA (SA) CCSA CGAP Certificate in Fraud Examination & Forensic investigation (Cum Laude) Mr B Nkosi Non-Executive Director 03 February 2015 B.Comm (Economics) MBL Ms SJ Childs Non-Executive Director 25 February 2014 #03 February 2015 BA ( Industrial & Organisational Psychology) and Economics Dr V Dlamini Non-Executive Director 03 February 2015 PHD Economics (Agricultural, Public) Mr H Raborifi Mr Y Gordhan Mr R Theunissen Independent Committee Member Independent Committee Member Independent Committee Member 03 February 2015 B Jorris LLB 3 February 2015 CA (SA) Master of Science (Bus, Admin) 01 January 2007 # 03 February 2015 CA (SA) B. Accounting Registered Auditor Diploma in Criminal Justice and Forensic Auditing No of Meetings 7/7 2/7 * 6/7 ** 1/7 * 3/7 * 1/7 * 5 /7 ** 90 Towards the market of the future

91 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Audit and Risk Committee Report NAME OF MEMBER ROLE APPOINTMENT/ #RESIGNATION DATE Mr RS Hill Ms SM Makinta Independent Committee Member Independent Committee Member QUALIFICATIONS 25 February 2014 BSc (Information Processing) Higher Diploma in Computer Auditing BSc Honours (Computer Science) 25 February 2014 # 28 October 2014 No of Meetings 3/7 B. Com 0/7 *** * Appointed 03 February 2015 ** Retired 03 February 2015 *** Resigned 28 October 2014 Summary of the main activities undertaken by the Audit and Risk Committee during the year In executing its duties, the Audit and Risk Committee performed the following activities during the year: External audit Reviewed and approved the audit plan with the Auditor-General, with specific reference to the proposed audit scope and approach, as well as recommend the audit fee; Reviewed and discussed Annual Financial Statements to be included in the Annual Report, with the Auditor-General and the Accounting Officer; Internal audit Considered the effectiveness of Internal Audit, which included approving the one-year operational and three-year strategic internal audit plans and monitored Internal Audit s adherence to its annual programme; Received and reviewed reports from internal auditors concerning the effectiveness of the company s internal control environment, systems and processes; Reviewed the adequacy and appropriateness of management s corrective action plan as a consequence of audit findings; and Made appropriate recommendations regarding the corrective actions to be taken as a consequence of the audit findings. Risk management Oversee the adoption of the risk management policy, risk management framework and risk management processes, along with the development of a risk management plan. Monitor the implementation of the risk management policy, framework and processes Oversee the risk assessment are performed on a continuous basis Oversee that management considers and implements appropriate risk control measures Oversee that continuous risk monitoring by management takes place Make recommendations to the Board concerning the risk appetite and risk tolerance matrix in line with City of Joburg Framework Express the committees formal opinion to the Board on the effectiveness of risk mana gement, Review report concerning the risk management that is to be included in the annual report, ensuring that it is timely, comprehensive and relevant. Towards the market of the future 91

92 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Audit and Risk Committee Report General Reviewed the accounting practices adopted by the company and found those to be appropriate Monitored the company s compliance with applicable legislation and regulations including, without limitation, the MFMA, the Treasury Regulations and the Companies Act; and Reported on items of fruitless and wasteful and irregular expenditure in terms of the MFMA. Finalized high risk matters in the year under review Assessment of Internal Audit The Audit and Risk Committee is satisfied that the internal audit function is operating effectively and that it has addressed the risks pertinent to the company in its audit. Internal control environment The internal control environment has been a focus area of management in ensuring operating effectiveness of financial controls. The system of internal control was effective for the year under review. The Audit and Risk Committee is satisfied with the content and quality of quarterly and yearly management reports prepared and issued by the Accounting Officer of the company during the year under review in terms of the MFMA. Going concern The committee reviewed a documented assessment by management of the going concern premise of the company before recommending to the board that the company will be a going concern in the foreseeable future. Auditor-General South Africa The Audit and Risk Committee has met with the Auditor-General South Africa to ensure that there are not unresolved issues Assessment of the financial function and competency of the Chief Financial Officer As required by King III, the Audit and Risk Committee is required to assess the company s financial function as well as the competency of the Chief Financial Officer. The Audit and Risk Committee has performed this assessment and accordingly the Audit and Risk Committee is satisfied with: The expertise and adequacy of the resources within the financial function of the company; The experience of the senior members of management responsible for the financial function; and That the expertise and experience of the Chief Financial Officer is appropriate to meet the responsibilities commensurate with the position. Risk Management The Board has assigned oversight of the company s risk management function to this Committee. The Committee fulfills an oversight role regarding enterprise wide risk management, which includes financial reporting risk, internal financial controls, fraud risk as it relates to financial reporting and information technology risks as it relates to financial reporting. 92 Towards the market of the future

93 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Audit and Risk Committee Report Audit opinion The committee notes with disappointment, the regression in the audit opinion, having attained a clean audit the past three consecutive years to an unqualified opinion with non compliance findings. This has arisen primarily due to supply chain management transgressions. The necessary investigations, disciplinary and other steps have already commenced to address these matters. Annual Financial Statements The Audit and Risk Committee has evaluated the annual financial statements for the year ended 30 June 2015 and considers that it complies, in all material aspects, with the requirements of the MFMA and the Public Audit Act, no 25 of ` The Audit and Risk Committee concurs and accepts the Auditor-General s report on the Annual Financial Statements and is of the opinion that the audited Annual Financial Statements be accepted and read together with the report of the Auditor- General. The Audit and Risk Committee has evaluated the Annual Report for the year ended 30 June 2015 and considers that it complies, in all material respects, with the requirements of the Companies Act, 71 of 2008 and the Municipal Finance Management Act, 56 of The Audit and Risk Committee has therefore recommended the adoption of this Annual Report by the Board of Directors at their meeting on 30 November Ms. N Singh CA (SA) Chairperson of the Audit and Risk Committee 30 November 2015 Johannesburg Towards the market of the future 93

94 Report of the Auditor-General to the Gauteng Provincial Legislature and the Council of the City of Johannesburg Metropolitan Municipality on the Joburg Market (SOC) Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Report on the financial statements Introduction 1. I have audited the financial statements of the Joburg Market (SOC) Limited set out on pages x to x, which comprise the statement of financial position as at 30 June 2015, the statement of financial performance, statement of changes in net assets, cash flow statement and appropriation statement for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information. Accounting officer s responsibility for the financial statements 2. The accounting officer is responsible for the preparation and fair presentation of these financial statements in accordance with South African Standards of Generally Recognised Accounting Practice (SA standards of GRAP) and the requirements of the Municipal Finance Management Act of South Africa, 2003 (Act No. 56 of 2003) (MFMA and the Companies Act of South Africa, 2008 (Act No. 71 of 2008) (Companies Act), and for such internal control as the accounting officer determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor-general s responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of the Joburg Market SOC Limited as at 30 June 2015 and its financial performance and cash flows for the year then ended, in accordance with SA standards of GRAP and the requirements of the MFMA and the Companies Act. Emphasis of matter 7. I draw attention to the matters below. My opinion is not modified in respect of these matters. Significant uncertainties 8. With reference to note 26 to the financial statements, the entity is the defendant in various court cases. The ultimate outcome of these matters cannot presently be determined, and no provision for any liability that may result has been made in the financial statements. Material impairment 9. As disclosed in note 3 to the financial statements, the receivables from exchange transactions balance have been significantly impaired. The impairment of this balance amounted to R ( : R ), which represents 30% ( : 31%) of the total receivables from exchange transactions. Material underspending of the budget 10. As disclosed in the directors report to the financial statements, the entity has spent R ( : R ) of its capital expenditure budget. This represents 35% ( : 45%) actual spending of the final approved capital expenditure budget. 94 Towards the market of the future

95 Report of the Auditor-General to the Gauteng Provincial Legislature and the Council of the City of Johannesburg Metropolitan Municipality on the Joburg Market (SOC) Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Report on the financial statements Additional matters 11. I draw attention to the matters below. My opinion is not modified in respect of these matters. Other reports required by the Companies Act 12. As part of our audit of the financial statements for the year ended 30 June 2015, I have read the Directors Report, the Audit and Risk Committee s Report and the Company Secretary s Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements. I have not audited the reports and accordingly do not express an opinion on them. Unaudited disclosure notes 13. In terms of section 125(2)(e) of the MFMA the municipal entity is required to disclose particulars of non-compliance with the MFMA. This disclosure requirement did not form part of the audit of the financial statements and accordingly I do not express an opinion thereon. Report on other legal and regulatory requirements 14. In accordance with the PAA and the general notice issued in terms thereof, I report the following findings relevant to the reported performance information against predetermined objectives for selected programmes presented in the annual performance report, compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters. Predetermined objectives 15. I performed procedures to obtain evidence about the usefulness and reliability of the reported performance information for the following selected programmes presented in the annual performance report of the entity for the year ended 30 June 2015: Programme 1: Optimisation and Growth of Core Functions on page 65 Programme 3: Diversification of Revenue on page 68 Programme 4: Food Security on page 69 Programme 5: Skills Development on page I evaluated the reported performance information against the overall criteria of usefulness and reliability. 17. I evaluated the usefulness of the reported performance information to determine whether it is presented in accordance with the National Treasury s annual reporting principles and whether the reported performance was consistent with the planned objectives. I further performed tests to determine whether indicators and targets were well defined, verifiable, specific, measurable, time bound and relevant, as required by the National Treasury s Framework for managing programme performance information (FMPPI). 18. I did not identify material findings on the usefulness and reliability of the reported performance information for the following programmes: Programme 1: Optimisation and Growth of Core Functions Programme 3: Diversification of Revenue Programme 4: Food Security Programme 5: Skills Development Additional matters 19. Although I identified no material findings on the usefulness and reliability of the reported performance information for the selected programmes, I draw attention to the following matters: Achievement of planned targets 20. Refer to the annual performance report on pages 64 to 70 for information on the achievement of the planned targets for the year. Towards the market of the future 95

96 Report of the Auditor-General to the Gauteng Provincial Legislature and the Council of the City of Johannesburg Metropolitan Municipality on the Joburg Market (SOC) Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Report on the financial statements Adjustment of material misstatements 21. We identified material misstatements in the annual performance report submitted for auditing on the reported performance information of Programme 1: Optimisation and Growth of Core Functions, Programme 3: Diversification of Revenue, Programme 4: Food Security and Programme 5: Skills Development. As management subsequently corrected the misstatements we did not raise any material findings on the usefulness and reliability of the reported performance information. Compliance with legislation 22. I performed procedures to obtain evidence that the municipality has complied with applicable legislation regarding financial matters, financial management and other related matters. 23. My findings on material non-compliance with specific matters in key applicable laws and regulations as set out in the general notice issued in terms of the PAA are as follows: Procurement and contract management Leadership 28. The accounting officer did not exercise adequate oversight responsibility regarding compliance with applicable laws and regulations. Financial and performance management 29. Senior management did not review and monitor compliance with applicable laws and regulations. Other reports Investigations 30. There are various investigations in progress relating to procurement irregularities, fraud, negligence and disciplinary actions. The investigations were ongoing at reporting date. Johannesburg 30 November Goods and services with a transaction value of more than R were not procured through a competitive bidding process, as required by SCM 19(a). 25. Contracts and quotations were awarded to bidders based on points given for criteria that differed from those stipulated in the original invitation for bidding and quotations, in contravention of Supply Chain Management Regulation (SCM) Regulations 21(b) and 28(1)(a) and the Preferential Procurement Regulations. 26. Contracts were awarded to providers whose tax matters had not been declared by the South African Revenue Service to be in order, as required by SCM regulation 43. Internal control 27. I considered internal control relevant to my audit of the financial statements, annual performance report and compliance with legislation. The matters reported below are limited to the significant internal control deficiencies that resulted in the findings on non-compliance with legislation included in this report. 96 Towards the market of the future

97 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Directors Report The directors submit their report for the year that ended 30 June INCORPORATION The company was incorporated on 08 September 2000 and obtained its certificate to commence business on the same day. 2. REVIEW OF ACTIVITIES Main Business and operations The company is a municipal owned company, engaged in providing of infrastructure to distribute fresh produce mainly in the Gauteng area and operates principally in the City of Johannesburg. During the year there were no major changes in the activities of the business. The operating results and state of affairs of the company are fully set out in the attached annual financial statements. Revenue mainly comprising commission income increased by 1.3%. Tonnage increase of 4.4% marginally above long term projections was largely responsible for the increase in commission revenue. Macro factors prevalent in the production and trading of fresh produce introduced some volatility in price discovery which directly impacts the commission revenue. Net surplus Net surplus of the company was R 56,581,246 (2014: surplus R 55,142,763), after taxation of R 30,496,479 (2014: R 21,663,302). Capacity constraints Market of the Future (MotF) The Market of the Future project which commenced in 2013/14 financial year has not progressed. In the year under review, management went out on tender for the appointment of professional consultants responsible for the architectural drawings. The appointment of the professional consultants was a critical mile stone in moving the project forward. The Board was concerned that the tender process may not have met all the requirements as per section 217 of the Constitution of the country, in particular the requirement for a system of procurement that is fair, equitable, transparent, competitive and cost efficient. The Board instituted a judicial review of the tender process for the appointment of the professional consultants. The judicial review has yet to be finalised. It is anticipated that the outcome will be finalised early in the new year. Management have implemented a number of parallel projects as well as routine critical maintenance initiatives which will continue while the (MotF)project is on hold. Capital Expenditure The allocated capital expenditure budget was underspent during the year under review, resulting in spending of R43.4million approximately 35% of the total allocated R124.9 million. The MotF accounted for 20% of the Capital expenditure budget. Due to the inability to conclude the tender process for the appointment of the professional consultants responsible for the architectural drawings for the project, a significant portion of the capital expenditure attributed to MotF was not spent. This impacted negatively on the overall capital expenditure. The management have moved most of the MotF expenditure to the outer years and will focus on non MotF capital expenditure projects until such time that the judicial review and the award for the appointment of the professional consultants is finalised. The Board approved the executive level structure in November The implementation of the unit level structure has not progressed as rapidly as the company would have required due to budget constraints and natural attrition. This has led to continued capacity challenges particularly in supply chain management (SCM) and the technical environments in the year under review. Technical vacancies in Project Management and SCM particularly, were accelerated and this will see improvements in the New Year. Towards the market of the future 97

98 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Directors Report 3. GOING CONCERN The financial statements were prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. The CoJ Metropolitan Municipality, confirmed its financial support to the company, should it be required. At the end of the financial year, the company s current assets exceeded its liabilities by R56,204,411 (2014: R56,348,117). The net liquidity position of the company has marginally reduced by R143,706 over the last year. Included in current liabilities is an amount of R28,897,354 (2014: R39,249,959) relating to current portion of loans from shareholders which is payable in the coming year. The directors are confident that the company will meet all its obligations in the coming financial year. 4. SUBSEQUENT EVENTS The directors are not aware of any matter or circumstance arising since the end of the financial year to date of this report, not otherwise dealt with in the financial statements and directors report, which significantly affect the financial position of the company or the results of its operations that would require adjustments to or disclosure in the annual financial statements. 7. SHARE CAPITAL There were no changes in the authorised or issued share capital of the company during the year under review. The entire shareholding of the company is held by The CoJ Metropolitan Municipality. Unissued ordinary shares are under the control of The CoJ Metropolitan Municipality. 8. BORROWING LIMITATIONS In terms of the sale of business agreement, The JM SOC Limited does not have the authority to borrow funds on its own behalf. All external funding is managed under the auspices of The CoJ Metropolitan Municipality Asset and Liability Committee. 9. NON-CURRENT ASSETS There were no major changes in the nature of non-current assets of the company during the year. Property plant and equipment to the value of R45,440,344 (2014: R24,791,054) and intangible assets to the value of R1,526,282 (2014: R2,181,769) were acquired during the year under review. 10. DIVIDENDS No dividends were declared or paid to the shareholder during the year. 5. DIRECTORS PERSONAL FINANCIAL INTERESTS None of the directors have declared any personal financial interests in any contracts entered into by the company. 6. ACCOUNTING POLICIES The financial statements were prepared in accordance with the effective Standards of GRAP, including any interpretations, guidelines and directives issued by the Accounting Practices Board, and in accordance with the prescribed Standards of GRAP issued by the Accounting Standards Board as the prescribed framework by National Treasury. There were no changes in accounting policies during the year. 98 Towards the market of the future

99 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Directors Report 11. DIRECTORS The directors of the entity during the year and to the date of this report are as follows: Name Nationality Changes Non-Executive Directors South African Ms M Mpofu (Chairman) South African Dr V Dlamini South African Appointed 03 February 2015 Ms S Childs South African Retired 03 February 2015 Mr S Mafadza South African Mr M Morokolo South African Resigned 11 November 2014 Mr B Nkosi South African Appointed 21 October 2014 Dr D Sekhukhune South African Ms N Singh South African Bishop S Tsekedi South African Appointed 03 February 2015 Mr T Tselane South African Dr E Zulu South African Executive Directors Ms S Sekgobela (Chief Executive Officer) Mr B Dhlamini (Chief Financial Officer) South African 12. SECRETARY Ms T Melk was appointed on 01 July 2013 as secretary of the entity. Business address 4 Fortune Road (Off Heidelberg Road) City Deep Johannesburg 2049 Postal address P O Box City Deep Johannesburg CORPORATE GOVERNANCE General The directors are committed to business integrity, transparency and professionalism in all its activities. As part of this commitment, the directors support the highest standards of corporate governance and the ongoing development of best practice. The Board of directors have endeavoured to comply with the requirements of King III including integrated and sustainability reporting, which has been adopted using the City of Johannesburg Municipality s recommended template. Board of directors The Board of directors: retains full control over the entity, its plans and strategy; acknowledges its responsibilities as to strategy, compliance with internal policies, external laws and regulations, effective risk management and performance measurement, transparency and effective communication both internally and externally by the entity; is of a unitary structure comprising: - 9 non-executive directors, all of whom are independent directors as defined in the King Code of Corporate Governance. - 2 executive directors; Chief Executive Officer and Chief Financial Officer. Towards the market of the future 99

100 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Directors Report Chairperson and Chief Executive Officer The Chairman is a non-executive and independent director (as defined in the King Code of Good Corporate Governance). The roles of Chairman and Chief Executive Officer are separate, so that no individual has unfettered powers of discretion. Remuneration The remuneration of the Chief Executive Officer and senior managers, is determined by the Board of directors in accordance with Section 89 of the MFMA and the upper limits set by the CoJ Metropolitan Municipality. Board and committee meetings The directors have met on 14 separate occasions during the financial year. The directors schedule to meet at least four times per annum. The Board and Board Committees were compelled to meet on an increasing number of occasions to deal with extraordinary challenges facing the company particularly with regard to the purported award of the MotF tender. The Board was particularly concerned that the award may not have met all of the requirements of Section 217 of the Constitution of the Country in respect of the requirements for a procurement system that is equitable, fair, transparent, competitive and cost effective. The Board instituted a judicial review of the purported award of the MotF tender and instituted disciplinary hearings against members of the Bid Evaluation and Bid Adjudication committees responsible for the purported award. The disciplinary enquiries had the concomitant effect of a slowdown in non MotF related procurement. The disciplinary enquiries also saw key executive officials absent from work and with the already stretched capacity constraints, negatively impacted management s ability to deal with critical elements of the business. The resultant increase in Board oversight on a number of activities that would ordinarily would have been handled at executive level is reflected in the increased number of Board and Board Committee meetings. The members indicated below with an asterisk did not serve the full year, refer to page 10 for the relevant term dates. Nonexecutive directors have access to all members of management of the entity. Name Board Audit & Risk Committee Remuneration Committee Service Delivery Committee Finance,Investment & Procurement Committee Market of the Future Committee Total number of meetings held Ms M Mpofu (Chairman) 13 1 Ms S Childs* Dr V Dlamini* 4 1 Mr S Mafadza 9 5 Mr M Morokolo * Mr B Nkosi * Dr D Sekhukhune Ms N Singh Bishop S Tsekedi * Mr T Tselane Dr E Zulu Ms S Sekgobela (Chief Executive Officer) Mr B Dhlamini (Chief Financial Officer) Independent audit committee members: Mr R Hill (appointed 25 Feb 2014) 3 Mr S Makinta (resigned 28 Oct 2014) Nil Mr H Raborifi (appointed 21 Oct 2014) 1 3 Mr Y Gordhan (appointed 3 Feb 2015) 1 Mr R Theunissen (retired 3 Feb 2015) Towards the market of the future

101 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Directors Report Audit and Risk Committee The Audit and Risk Committee (ARC) comprises six members, three of whom are non-executive directors and three independent members. The committee is constituted in accordance with Section 166 of the Municipal Finance Management Act and was chaired by Ms N Singh, who is a non-executive director. The ARC had four ordinary and three special meetings during the 2015 financial year to review matters necessary to fulfil its role. Internal audit The internal audit function was performed internally. 14. CONTROLLING ENTITY The company s shareholder is The CoJ Metropolitan Municipality. 15. SPECIAL RESOLUTIONS There was one special resolution taken for the year under review; the company s memorandum of incorporation (MOI). 16. BANKERS Standard Bank Limited. The management of the treasury function is managed under the auspices of The CoJ Metropolitan Municipality Assets and Liabilities Committee and Treasury Department. 17. AUDITORS The Auditor-General: South Africa will continue in office in accordance with the Public Audit Act No 25, section 90 of the MFMA No 56 of 2003 and section 90 of the Companies Act of CONTINGENCIES JM has in previous financial years reported long outstanding legacy litigation matters. For the year under review the exposure on litigation matters remained the same as reported in the previous year. Refer to note CURRENT INVESTIGATIONS During the year under review the Board became aware of procurement irregularities. This necessitated investigations, which resulted in the appointment of forensic investigators and legal counsel. These matters are being dealt with as expeditiously as possible and appropriate steps will be taken once the investigations have been finalised. Towards the market of the future 101

102 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Company Secretary s Certification Declaration by the company secretary in respect of Section 88(2)(e) of the Companies Act In terms of section 88(2)(e) of the Companies Act 71 of 2008 (as amended), I certify that, to the best of my knowledge and belief, the company has lodged and/or filed, for the financial year that ended 30 June 2015, all such returns and notices as required and that all such returns and notices are true, correct and up to date. Ms T Melk Company Secretary The Joburg Market (SOC) Ltd 26 November Towards the market of the future

103 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Statement of Financial Position as at 30 June 2015 Figures in Rand Note(s) ASSETS Current Assets Loans to shareholders 2 36,883,676 89,615,704 Current tax receivable 2,313,045 2,160,021 Receivables from exchange transactions 3 37,855,760 32,319,290 VAT receivable 34 4,016,008 1,193,010 Cash and cash equivalents 4 112,637,880 86,845, ,706, ,133,323 Non-Current Assets Investment property 5 468, ,355 Property, plant and equipment 6 324,040, ,860,889 Intangible assets 7 3,550,354 2,640,730 Deferred tax 8 5,964,792 10,902, ,024, ,895,369 Total Assets 527,730, ,028,692 LIABILITIES Current Liabilities Loans from shareholders 2 28,897,354 39,249,959 Finance lease obligations 9 1,243,422 44,331 Payables from exchange transactions ,050,499 96,383,481 Provisions 11 2,310,683 20,107, ,501, ,785,202 Non-Current Liabilities Loans from shareholders 2 71,231, ,139,043 Finance lease obligations 9 1,616,158 - Employee benefit obligations 12 2,769,372 3,191,000 Deferred tax 8 1,117, ,734, ,330,545 Total Liabilities 214,236, ,115,747 Net Assets 313,494, ,912,945 NET ASSETS Share capital 13 20,000,000 20,000,000 Accumulated surplus 293,494, ,912,945 Total Net Assets 313,494, ,912,945 Towards the market of the future 103

104 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Statement of Financial Performance Figures in Rand Note(s) Revenue Commission ,520, ,881,635 Storage 14 6,683,360 5,477,476 Rental facilities and equipment 14 37,172,879 33,438,811 Banana ripening 14 5,213,365 5,404,264 Miscellaneous other revenue 14 1,031, ,396 Discount received 14 13,016 51,918 Grants received from shareholder 14 4,811,104 10,773,109 Sundry revenue 14 2,599,908 5,403,914 Cash handling fees 14 2,732,941 2,624,589 Interest received 18 10,961,753 10,969,683 Fair value adjustments 14 73,335 76,594 Total revenue 359,813, ,021,389 Expenditure Personnel 16 (107,323,125) (97,463,551) Depreciation and amortisation 19 (15,919,876) (15,471,026) Impairment losses 36 (4,915,165) - Finance costs 20 (14,620,512) (17,237,967) Bad debts 17 (2,242,201) (1,020,179) Repairs and maintenance (16,809,329) (21,007,144) General expenses 15 (110,840,198) (127,886,545) Total expenditure (272,670,406) (280,086,412) Operating surplus 87,142,599 76,934,977 Losses on disposal of assets and liabilities (64,874) (128,912) Surplus before taxation 87,077,725 76,806,065 Taxation 21 30,496,479 21,663,302 Surplus for the year 56,581,246 55,142, Towards the market of the future

105 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Statement of Changes in Net Assets Figures in Rand Note(s) Share capital Share premium Total share capital Accumulated Surplus Total Equity Balance at 01 July ,999,999 20,000, ,770, ,770,182 Changes in net assets Surplus for the year ,142,763 55,142,763 Total changes - 55,142,763 55,142,763 Balance at 01 July ,999,999 20,000, ,912, ,912,945 Changes in net assets Surplus for the year ,581,246 56,581,246 Total changes - 56,581,246 56,581,246 Balance at 30 June ,999,999 20,000, ,494, ,494,191 Towards the market of the future 105

106 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Cash Flow Statement Figures in Rand Note(s) Cash flow from operating activities Receipts Sale of goods and services 343,228, ,423,521 Interest income 10,961,753 10,969, ,190, ,393,204 Payments Employee costs (106,167,459) (95,110,460) Suppliers (146,607,719) (131,082,575) Finance costs (14,337,674) (17,183,667) Taxes on surpluses 24 (24,595,185) (22,575,116) (291,708,037) (265,951,818) Net cash flows from operating activities 23 62,482,147 85,441,386 Cash flow from investing activities Purchase of property, plant and equipment 6 (42,168,026) (22,872,832) Proceeds from sale of property, plant and equipment 6-382,004 Purchase of other intangible assets 7 (1,526,282) (2,181,769) Net cash flow from investing activities (43,694,308) (24,672,597) Cash flow from financing activities Proceeds from shareholder s loan 3,528,093 20,906,067 Repayment of shareholder s loan 944,239 (72,701,312) Finance lease payments (1,272,834) (704,118) Finance lease receipts 3,805,245 - Net cash flow from financing activities 7,004,743 (52,499,363) Net increase/(decrease) in cash and cash equivalents 25,792,582 8,269,426 Cash and cash equivalents at the beginning of the year 86,845,298 78,575,872 Cash and cash equivalents at the end of the year 4 112,637,880 86,845, Towards the market of the future

107 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Appropriation Statement Figures in Rand 2015 Financial Performance Original budget Budget adjustments (i.t.o. s28 and s31 of the MFMA) Final adjustments budget Shifting of funds (i.t.o. s31 of the MFMA) Virement (i.t.o. council approved policy) Final budget Actual outcome Unauthorised expenditure Variance Actual outcome as % of final budget Investment revenue 2,250,000-2,250,000-2,250,000 10,961,753 8,711, % 487% Transfers recognised operational Actual outcome as % of original budget 5,000,000 1,562,000 6,562,000-6,562,000 4,811,104 (1,750,896) 73% 96% Other own revenue 348,887,351 20,824, ,711, ,711, ,040,148 (25,671,203) 93% 99% Total revenue (excluding capital transfers and contributions) 356,137,351 22,386, ,523, ,523, ,813,005 (18,710,346) 95% 101 % Employee costs (93,231,120) (17,400,000) (110,631,120) - - (110,631,120) (107,323,125) - 3,307,995 97% 115% Debt impairment (2,236,975) - (2,236,975) (2,236,975) (2,242,201) - (5,226) 100% 100% Depreciation and asset impairment (19,483,416) - (19,483,416) (19,483,416) (20,835,041) - (1,351,625) 107% 107% Finance charges (24,892,000) 7,790,000 (17,102,000) - - (17,102,000) (14,620,512) - 2,481,488 85% 59% Transfers and grants (5,000,000) (1,562,000) (6,562,000) - - (6,562,000) (4,184,084) - 2,377,916 64% 84% Other expenditure (132,980,000) (7,517,000) (140,497,000) - - (140,497,000) (123,530,317) - 16,966,683 88% 93% Total expenditure (277,823,511) (18,689,000) (296,512,511) - - (296,512,511) (272,735,280) - 23,777,231 92% 98% Surplus/(Deficit) 78,313,840 3,697,000 82,010,840-82,010,840 87,077,725 5,066, % 111% Taxation 25,988,000 (2,205,000) 23,783,000-23,783,000 30,496,479 6,713, % 117% Surplus/(Deficit) for the year Capital expenditure and funds sources Total capital expenditure 52,325,840 5,902,000 58,227,840-58,227,840 56,581,246 (1,646,594) 97% 108% 208,322,000 (83,400,000) 124,922, ,922,000 43,488,709 (81,433,291) 35% 21% Towards the market of the future 107

108 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Appropriation Statement Figures in Rand Reported unauthorised expenditure Expenditure authorised in terms of section 32 of MFMA Balance to be recovered Restated audited outcome Management considers 10% or more as material. A detailed description of variances is provided below: Revenue Investment revenue - Higher revenue generated additional cash and interest for the company. Good collection levels ensured positive bank balances and additional interest income. Transfer recognised - EPWP grant, additional grant received at the adjustment budget process was not utilised, due to the termination of EPWP contracts at the end of March Other own revenue - no material difference to report. Revenue decreased by 6.8% to adjustment budget mainly as a result of a marginal 2.4% decrease in commission income compared to the previous year. Compared to the previous year, the volume increased marginally by 4.4%. Expenditure Employee costs - within acceptable 10% variance. Debt impairment - within acceptable 10% variance. Depreciation and asset impairment - marginally above budget and within the 10% variance range. Finance charges - below budget due to the interest cost on loans being less than budgeted due to under spend on capital expenditure. Two loans reached their final payment as at 30 June Transfers and grants - EPWP grant, additional grant received at the adjustment budget process was not utilised, due to the termination of EPWP contracts at the end of March Other expenditure - Underspending in repairs and maintenance and IT. Capital Expenditure Under spending in the roll out of capital expenditure programme was a key challenge for the company during the year under review, 35% was spent on the allocated budget. The difficulty encountered during the year was namely due to the delays in the MotF project and complementary projects, which accounted for the bulk of the Capex budget underspend. 108 Towards the market of the future

109 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies 1. Presentation of Financial Statements The financial statements were been prepared in accordance with the Standards of GRAP, issued by the Accounting Standards Board in accordance with Section 122(3) of the MFMA (Act 56 of 2003). These financial statements were been prepared on an accrual basis of accounting and are in accordance with historical cost convention as the basis of measurement, unless specified otherwise. They are presented in South African Rand. A summary of the significant accounting policies, which were consistently applied in the preparation of these financial statements, are disclosed below. 1.1 Presentation currency These financial statements are presented in South African Rand, which is the functional currency of the entity. 1.2 Significant judgments and sources of estimation uncertainty. In preparing the financial statements, management is required to make estimates and assumptions that affect the amounts represented in the financial statements and related disclosures. Use of available information and the application of judgment is inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the financial statements. Significant judgements include: Trade receivables Fair value estimation The fair value of financial instruments traded in active markets (such as trading and available-for-sale securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the company is the current bid price. The fair value of financial instruments that are not traded in an active market (for example, over-the counter derivatives) is determined by using valuation techniques. The company uses a variety of methods and makes assumptions that are based on market conditions existing at the end of each reporting period. Quoted market prices or dealer quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the entity for similar financial instruments. Impairment testing The recoverable (service) amounts of individual assets and cash-generating units were determined based on the higher of value-in-use calculations and fair values less costs to sell. These calculations require the use of estimates and assumptions. It is reasonably possible that the assumption may change which may then impact our estimations and may then require a material adjustment to the carrying value of tangible assets. The company assesses its trade receivables and loans and receivables for impairment at the end of each reporting period. In determining whether an impairment loss should be recorded in surplus or deficit, the surplus makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from a financial asset. The impairment for trade receivables and loans and receivables is calculated on a portfolio basis, based on historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence period. Towards the market of the future 109

110 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies 1.2 Significant judgements and sources of estimation uncertainty (continued) The entity reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of assets. Expected future cash flows used to determine the value in use of tangible assets are inherently uncertain and could materially change over time. Provisions Provisions were raised and management determined an estimate based on the information available. Additional disclosure of these estimates of provisions are included in Note 11 - Provisions. Employee benefit Obligation The present value of the post retirement obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) include the discount rate. Any changes in these assumptions will impact on the carrying amount of post retirement obligations. The entity determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the entity considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Allowance for doubtful debts On debtors an impairment loss is recognised in surplus and deficit when there is objective evidence that it is impaired. The impairment is measured as the difference between the debtors carrying amount and the present value of estimated future cash flows discounted at the effective interest rate, computed at initial recognition. Useful lives and residual value The useful lives of property, plant and equipment are reviewed at each reporting date. Their useful lives are estimated by management based on historical analysis and other available information. The residual values of property, plant and equipment are reviewed at each balance sheet date. Their residual values are estimated by management based on historical analysis and other available information. The carrying amounts of the assets are disclosed in note Investment property Investment property is property (land or a building - or part of a building - or both) held to earn rentals or for capital appreciation or both, rather than for: use in the production or supply of goods or services or for administrative purposes, or sale in the ordinary course of operations. Owner-occupied Owner-occupied property is property held for use in the production or supply of goods or services or for administrative purposes. Other key assumptions for pension obligations are based on current market conditions. Additional information is disclosed in Note 12. Effective interest rate The entity uses an appropriate interest rate taking into account guidance provided in the accounting standards and applying professional judgment, to the specific circumstances, to discount future cash flows. 110 Towards the market of the future

111 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies 1.3 Investment property (continued) Investment property is recognised as an asset when, it is probable that the future economic benefits or service potential that are associated with the investment property will flow to the entity, and the cost or fair value of the investment property can be measured reliably. Investment property is initially recognised at cost. Transaction costs are included in the initial measurement. Where investment property is acquired through a nonexchange transaction, its cost is its fair value as at the date of acquisition. Costs include costs incurred initially and costs incurred subsequently to add to, or to replace a part of, or service a property. If a replacement part is recognised in the carrying amount of the investment property, the carrying amount of the replaced part is derecognised. Investment property is depreciated on the straight line basis over their expected useful lives to their estimated residual value. The useful lives of investment property have been assessed as follows: Item Investment Property Average useful life 30 years Costs include costs incurred initially and costs incurred subsequently to add to, or to replace a part of, or service a property. If a replacement part is recognised in the carrying amount of the investment property, the carrying amount of the replaced part is derecognised. Investment property is derecognised when the asset is disposed of or when there are no further economic benefits or service potential expected from the use of the asset. 1.4 Property, plant and equipment Property, plant and equipment are tangible non-current assets (including infrastructure assets) that are held for use in the production or supply of goods or services, rental to others, or for administrative purposes, and are expected to be used during more than one period. The cost of an item of property, plant and equipment is recognised as an asset when: it is probable that future economic benefits or service potential associated with the item will flow to the entity; and the cost of the item can be measured reliably. Property, plant and equipment is initially measured at cost. The cost of an item of property, plant and equipment is the purchase price and other costs attributable to bring the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Trade discounts and rebates are deducted in arriving at the cost. Where an asset is acquired through a non-exchange transaction, its cost is its fair value as at date of acquisition. Where an item of property, plant and equipment is acquired in exchange for a non-monetary asset or monetary assets, or a combination of monetary and non-monetary assets, the asset acquired is initially measured at fair value (the cost). If the acquired item s fair value was not determinable, it s deemed cost is the carrying amount of the asset(s) given up. When significant components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The gain or loss arising from the derecognition of investment property is included in surplus or deficit when the item is derecognised. The gain or loss arising from the derecognition of investment property is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. Compensation from third parties for investment property that was impaired, lost or given up is recognised in surplus or deficit when the compensation becomes receivable. Towards the market of the future 111

112 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies 1.4 Property, plant and equipment (continued) Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised. Property, plant and equipment are depreciated on the straight line basis over their expected useful lives to their estimated residual value. Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses. The useful lives of items of property, plant and equipment have been assessed as follows: 1.5 Intangible assets An asset is identifiable if it either: is separable, i.e. is capable of being separated or divided from an entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable assets or liability, regardless of whether the entity intends to do so; or arises from binding arrangements (including rights from contracts), regardless of whether those rights are transferable or separable from the entity or from other rights and obligations. An intangible asset is recognised when: it is probable that the expected future economic benefits or service potential that are attributable to the asset will flow to the entity; and the cost or fair value of the asset can be measured reliably. Item Buildings Plant and machinery Furniture and fixtures Motor vehicles Office equipment IT equipment Finance Leased Assets Average useful life 30 years years 7-12 years 8-10 years 7-9 years 5-9 years 3-5 years Where an intangible asset is acquired through a nonexchange transaction, its initial cost at the date of acquisition is measured at its fair value as at that date. Expenditure on research (or on the research phase of an internal project) is recognised as an expense when it is incurred. The residual value, and the useful life and depreciation method of each asset are reviewed at the end of each reporting date. If the expectations differ from previous estimates, the change is accounted for as a change in accounting estimate. The depreciation charge for each period is recognised in surplus or deficit unless it is included in the carrying amount of another asset. Items of property, plant and equipment are derecognised when the asset is disposed of or when there are no further economic benefits or service potential expected from the use of the asset. The gain or loss arising from the derecognition of an item of property, plant and equipment is included in surplus or deficit when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. 112 Towards the market of the future

113 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies 1.5 Intangible assets (continued) An intangible asset arising from development (or from the development phase of an internal project) is recognised when: it is technically feasible to complete the asset so that it will be available for use or sale. there is an intention to complete and use or sell it. there is an ability to use or sell it. it will generate probable future economic benefits or service potential. there are available technical, financial and other resources to complete the development and to use or sell the asset. the expenditure attributable to the asset during its development can be measured reliably. An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows or service potential. Amortisation is not provided for these intangible assets, but they are tested for impairment annually and whenever there is an indication that the asset may be impaired. For all other intangible assets amortisation is provided on a straight line basis over their useful life. The amortisation period and the amortisation method for intangible assets are reviewed at each reporting date. The gain or loss is the difference between the net disposal proceeds, if any, and the carrying amount. It is recognised in surplus or deficit when the asset is derecognised. 1.6 Financial instruments Classification The entity classifies financial assets and financial liabilities into the following categories: Loans and receivables Financial liabilities measured at amortised cost Initial recognition and measurement Financial instruments are recognised initially when the entity becomes a party to the contractual provisions of the instruments. The entity classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are measured initially at fair value, except for equity investments for which a fair value is not determinable, which are measured at cost and are classified as available-for-sale financial assets. Reassessing the useful life of an intangible asset with a finite useful life after it was classified as indefinite is an indicator that the asset may be impaired. As a result the asset is tested for impairment and the remaining carrying amount is amortised over its useful life. Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance are not recognised as intangible assets. Internally generated goodwill is not recognised as an intangible asset. Amortisation is provided to write down the intangible assets, on a straight line basis, to their residual values as follows: Item Computer software Average useful life 3-5 years Intangible assets are derecognised: on disposal; or when no future economic benefits or service potential are expected from its use or disposal. Towards the market of the future 113

114 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies Subsequent measurement 1.6 Financial instruments (continued) Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses. Financial liabilities at amortised cost are subsequently measured at amortised cost, using the effective interest method. Fair value determination The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the entity establishes fair value by using valuation techniques. These include the use of recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs. Impairment of financial assets For amounts due to the entity, significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy and default of payments are all considered indicators of impairment. Where financial assets are impaired through use of an allowance account, the amount of the loss is recognised in surplus or deficit within operating expenses. When such assets are written off, the write off is made against the relevant allowance account. Subsequent recoveries of amounts previously written off are credited against operating expenses. Loans to (from) economic entities Loans to shareholders, directors, managers and employees These financial assets are classified as loans and receivables. Receivables from exchange transactions Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in surplus or deficit when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The allowance recognised is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the deficit is recognised in surplus or deficit within operating expenses. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in surplus or deficit. Trade and other receivables are classified as loans and receivables. Payables from exchange transactions Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. These include loans to and from shareholder, fellow controlled entities, controlled entities, joint ventures and associates and are recognised initially at fair value plus direct transaction costs. Loans to economic entities are classified as loans and receivables. Loans from economic entities are classified as financial liabilities measured at amortised cost. 114 Towards the market of the future

115 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies 1.6 Financial instruments (continued) Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially recorded at fair value and subsequently recorded at amortised cost. Derecognition Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where: the rights to receive cash flows from the asset have expired; the entity retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a passthrough arrangement; or the entity has transferred its rights to receive cash flows from the asset and either - has transferred substantially all the risks and rewards of the asset, or - has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the entity has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the entity s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the entity could be required to repay. Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the entity s continuing involvement is the amount of the transferred asset that the entity may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the entity s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in surplus or deficit. Impairment of financial assets The entity assesses at each statement of financial position date whether a financial asset or group of financial assets is impaired. Assets are carried at amortised cost. 1.7 Tax Current tax assets and liabilities Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset. Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Towards the market of the future 115

116 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies 1.7 Tax (continued) Deferred tax assets and liabilities A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction, affects neither accounting surplus nor taxable profit (tax loss). A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable surplus will be available against which the deductible temporary difference can be utilised. A deferred tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction at the time of the transaction, affects neither accounting surplus nor taxable profit (tax loss). A deferred tax asset is recognised for the carry forward of unused tax losses and unused STC credits to the extent that it is probable that future taxable surplus will be available against which the unused tax losses and unused STC credits can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Tax expenses Current and deferred taxes are recognised as income or an expense and included in surplus or deficit for the period, except to the extent that the tax arises from: a transaction or event which is recognised, in the same or a different period, to net assets; or a business combination. Finance leases - lessee Finance leases are recognised as assets and liabilities in the statement of financial position at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease. Minimum lease payments are apportioned between the finance charge and reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of on the remaining balance of the liability. Any contingent rents are expensed in the period in which they are incurred. Operating leases - lessor Operating lease revenue is recognised as revenue on a straightline basis over the lease term.the difference between the amounts recognised as revenue and the contractual receipts are recognised as an operating lease asset or liability. Initial direct costs incurred in negotiating and arranging operating leases are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the lease revenue. Current tax and deferred taxes are charged or credited to net assets if the tax relates to items that are credited or charged, in the same or a different period, to net assets. 1.8 Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. 116 Towards the market of the future

117 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies 1.8 Leases (continued) The aggregate cost of incentives is recognised as a reduction of rental revenue over the lease term on a straight-line basis. Any contingent rent is recognised separately as revenue when received or receivable and are not straight-lined over the lease term. Income for leases is disclosed under revenue in statement of financial performance. Operating leases - lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease asset or liability. The aggregate benefit of incentives is recognised as a reduction of rental expense over the lease term on a straight-line basis over the lease term. Any contingent rent is recognised separately as expenditure when paid or payable and are not straight-lined over the lease term. Identification When the carrying amount of a cash-generating asset exceeds its recoverable amount, it is impaired. The entity assesses at each reporting date whether there is any indication that a cash-generating asset may be impaired. If any such indication exists, the entity estimates the recoverable amount of the asset. The recoverable amount of a cash generating unit is the higher of its fair value less costs to sell and its value in use. Value in use Value in use of a cash-generating asset is the present value of the estimated future cash flows expected to be derived from the continuing use of an asset and from its disposal at the end of its useful life. When estimating the value in use of an asset, the entity estimates the future cash inflows and outflows to be derived from continuing use of the asset and from its ultimate disposal and the entity applies the appropriate discount rate to those future cash flows. 1.9 Impairment of cash-generating assets Cash-generating assets are those assets held by the entity with the primary objective of generating a commercial return. When an asset is deployed in a manner consistent with that adopted by a profit-orientated entity, it generates a commercial return. A cash-generating unit is the smallest identifiable group of assets held with the primary objective of generating a commercial return that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets. Costs of disposal are incremental costs directly attributable to the disposal of an asset, excluding finance costs and income tax expense. Fair value less costs to sell is the amount obtainable from the sale of an asset in an arm s length transaction between knowledgeable, willing parties, less the costs of disposal. Recoverable amount of an asset or a cash-generating unit is the higher its fair value less costs to sell and its value in use. Towards the market of the future 117

118 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies 1.10 Impairment of non-cash-generating assets Cash-generating assets are those assets held by the entity with the primary objective of generating a commercial return. When an asset is deployed in a manner consistent with that adopted by a profit-orientated entity, it generates a commercial return. Non-cash-generating assets are assets other than cashgenerating assets. A cash-generating unit is the smallest identifiable group of assets held with the primary objective of generating a commercial return that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets. Costs of disposal are incremental costs directly attributable to the disposal of an asset, excluding finance costs and income tax expense. Fair value less costs to sell is the amount obtainable from the sale of an asset in an arm s length transaction between knowledgeable, willing parties, less the costs of disposal. Recoverable service amount is the higher of a non-cashgenerating asset s fair value less costs to sell and its value in use. Useful life is either: (a) the period of time over which an asset is expected to be used by the entity; or (b) the number of production or similar units expected to be obtained from the asset by the entity. Identification When the carrying amount of a non-cash-generating asset exceeds its recoverable service amount, it is impaired. Value in use Value in use of non-cash-generating assets is the present value of the non-cash-generating assets remaining service potential. The present value of the remaining service potential of a noncash-generating assets is determined using the following approach: Depreciated replacement cost approach The present value of the remaining service potential of a non-cash-generating asset is determined as the depreciated replacement cost of the asset. The replacement cost of an asset is the cost to replace the asset s gross service potential. This cost is depreciated to reflect the asset in its used condition. An asset may be replaced either through reproduction (replication) of the existing asset or through replacement of its gross service potential. The depreciated replacement cost is measured as the reproduction or replacement cost of the asset, whichever is lower, less accumulated depreciation calculated on the basis of such cost, to reflect the already consumed or expired service potential of the asset. The replacement cost and reproduction cost of an asset is determined on an optimised basis. The rationale is that the entity would not replace or reproduce the asset with a like asset if the asset to be replaced or reproduced is an overdesigned or overcapacity asset. Overdesigned assets contain features which are unnecessary for the goods or services the asset provides. Overcapacity assets are assets that have a greater capacity than is necessary to meet the demand for goods or services the asset provides. The determination of the replacement cost or reproduction cost of an asset on an optimised basis thus reflects the service potential required of the asset. The entity assesses at each reporting date whether there is any indication that a non-cash-generating asset may be impaired. If any such indication exists, the entity estimates the recoverable service amount of the asset. Recoverable service amount is the higher of a non-cashgenerating asset s fair value less cost to sell and its value in use. 118 Towards the market of the future

119 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies 1.11 Share capital An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the entity are classified according to the substance of the contractual arrangements entered into. Equity instruments issued by the entity are recorded at the proceeds received, net of direct issue costs Employee benefits Short-term employee benefits The cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the service is rendered and are not discounted. The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, in the case of non-accumulating absences, when the absence occurs. The expected cost of surplus sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance. Defined contribution plans Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to industry-managed (or state plans) retirement benefit schemes are dealt with as defined contribution plans where the entity s obligation under the schemes is equivalent to those arising in a defined contribution retirement benefit plan. Defined benefit plans For defined benefit plans the cost of providing the benefits is determined using the projected credit method. Actuarial valuations are conducted on an annual basis by independent actuaries separately for each plan. Consideration is given to any event that could impact the funds up to end of the reporting period where the interim valuation is performed at an earlier date. Past service costs are recognised immediately to the extent that the benefits are already vested, and are otherwise amortised on a straight line basis over the average period until the amended benefits become vested. To the extent that, at the beginning of the financial period, any cumulative unrecognised actuarial gain or loss exceeds ten percent of the greater of the present value of the projected benefit obligation and the fair value of the plan assets (the corridor), that portion is recognised in surplus or deficit over the expected average remaining service lives of participating employees. Actuarial gains or losses within the corridor are not recognised. Gains or losses on the curtailment or settlement of a defined benefit plan are recognised when the entity is demonstrably committed to curtailment or settlement. When it is virtually certain that another party will reimburse some or all of the expenditure required to settle a defined benefit obligation, the right to reimbursement is recognised as a separate asset. The asset is measured at fair value. In all other respects, the asset is treated in the same way as plan assets. In surplus or deficit, the expense relating to a defined benefit plan is presented as the net of the amount recognised for a reimbursement. The amount recognised in the statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service costs, and reduces by the fair value of plan assets. Towards the market of the future 119

120 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies 1.12 Employee benefits (continued) Any asset is limited to unrecognised actuarial losses and past service costs, plus the present value of available refunds and reduction in future contributions to the plan. Other post retirement obligations The entity provides post-retirement health care benefits, housing subsidies and gratuities upon retirement to some retirees. The entitlement to post-retirement health care benefits is based on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment. Independent qualified actuaries carry out valuations of these obligations. The entity also provides a gratuity and housing subsidy on retirement to certain employees. An annual charge to income is made to cover both these liabilities Provisions and contingencies Provisions are recognised when: the entity has a present obligation as a result of a past event; it is probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation; and a reliable estimate can be made of the obligation. The amount of a provision is the best estimate of the expenditure expected to be required to settle the present obligation at the reporting date. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement is recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement is treated as a separate asset. The amount recognised for the reimbursement does not exceed the amount of the provision. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. Provisions are reversed if it is no longer probable that an outflow of resources embodying economic benefits or service potential will be required, to settle the obligation. A provision is used only for expenditures for which the provision was originally recognised. Provisions are not recognised for future operating deficits. If an entity has a contract that is onerous, the present obligation (net of recoveries) under the contract is recognised and measured as a provision. Contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in note Revenue from exchange transactions Measurement Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts and volume rebates. Sale of goods Revenue from the sale of goods is recognised when all the following conditions have been satisfied: the entity has transferred to the purchaser the significant risks and rewards of ownership of the goods; the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits or service potential associated with the transaction will flow to the entity;and the costs incurred or to be incurred in respect of the transaction can be measured reliably. 120 Towards the market of the future

121 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies 1.14 Revenue from exchange transactions (continued) Rendering of services When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the stage of completion of the transaction at the reporting date. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: the amount of revenue can be measured reliably; it is probable that the economic benefits or service potential associated with the transaction will flow to the entity; the stage of completion of the transaction at the reporting date can be measured reliably; and the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable. Service revenue is recognised by reference to the stage of completion of the transaction at the reporting date. Stage of completion is determined by surveys of work performed Revenue from non-exchange transactions Non exchange transactions are transactions that are not exchange transactions. In a non exchange transaction, an entity either receives value from another entity without directly giving approximately equal value in exchange, or gives value to another entity without directly receiving approximately equal value in exchange. An inflow of resources from a non exchange transaction recognised as an asset is recognised as revenue, except to the extent that a liability is also recognised in respect of the same inflow. As the entity satisfies a present obligation recognised as a liability in respect of an inflow of resources from a non exchange transaction recognised as an asset, it reduces the carrying amount of the liability recognised and recognises an amount of revenue equal to that reduction. Revenue from a non exchange transaction is measured at the amount of the increase in net assets recognised by the entity. When, as a result of a non exchange transaction, the entity recognises an asset, it also recognises revenue equivalent to the amount of the asset measured at its fair value as at the date of acquisition, unless it is also required to recognise a liability. Where a liability is required to be recognised it will be measured as the best estimate of the amount required to settle the obligation at the reporting date, and the amount of the increase in net assets, if any, recognised as revenue. When a liability is subsequently reduced, because the taxable event occurs or a condition is satisfied, the amount of the reduction in the liability is recognised as revenue. Revenue from the recovery of unauthorised, irregular, fruitless and wasteful expenditure is based on legislated procedures, including those set out in the Municipal Finance Management Act (Act No. 56 of 2003) and is recognised when the recovery thereof from the responsible board members or officials is virtually certain Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligible for capitalisation is determined as follows: Actual borrowing costs on funds specifically borrowed for the purpose of obtaining a qualifying asset less any investment income on the temporary investment of those borrowings. Weighted average of the borrowing costs applicable to the entity on funds generally borrowed for the purpose of obtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs incurred. The capitalisation of borrowing costs commences when all the following conditions have been met: expenditures for the asset have been incurred; borrowing costs have been incurred; and activities that are necessary to prepare the asset for its intended use or sale are undertaken. When the carrying amount or the expected ultimate cost of the qualifying asset exceeds its recoverable amount or recoverable service amount or net realisable value or replacement cost, the carrying amount is written down or written off in accordance with the accounting policy on Impairment of Assets as per accounting policy number 1.9 and In certain circumstances, the amount of the write-down or write-off is written back in accordance with the same accounting policy. Towards the market of the future 121

122 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies 1.16 Borrowing costs (continued) Capitalisation is suspended during extended periods in which active development is interrupted. Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. When the entity completes the construction of a qualifying asset in parts and each part is capable of being used while construction continues on other parts, the entity ceases capitalising borrowing costs when it completes substantially all the activities necessary to prepare that part for its intended use or sale. All other borrowing costs are recognised as an expense in the period in which they are incurred Comparative figures Where necessary, comparative figures have been reclassified to conform to changes in presentation in the current year Unauthorised expenditure Unauthorised expenditure means: overspending of a vote or a main division within a vote; and expenditure not in accordance with the purpose of a vote or, in the case of a main division, not in accordance with the purpose of the main division. All expenditure relating to unauthorised expenditure is recognised as an expense in the statement of financial performance in the year that the expenditure was incurred. The expenditure is classified in accordance with the nature of the expense, and where recovered, it is subsequently accounted for as revenue in the statement of financial performance Fruitless and wasteful expenditure All expenditure relating to fruitless and wasteful expenditure is recognised as an expense in the statement of financial performance in the year that the expenditure was incurred. The expenditure is classified in accordance with the nature of the expense, and where recovered, it is subsequently accounted for as revenue in the statement of financial performance Irregular expenditure Irregular expenditure as defined in section 1 of the MFMA is expenditure other than unauthorised expenditure, incurred in contravention of or that is not in accordance with a requirement of any applicable legislation, including - (a) this Act; or (b) the State Tender Board Act, 1968 (Act No. 86 of 1968), or any regulations made in terms of the Act; or (c) any provincial legislation providing for procurement procedures in that provincial government. National Treasury practice note no. 4 of 2008/2009 which was issued in terms of sections 76(1) to 76(4) of the PFMA requires the following (effective from 1 April 2008): Irregular expenditure that was incurred and identified during the current financial and which was condoned before year end and/or before finalisation of the financial statements must also be recorded appropriately in the irregular expenditure register. In such an instance, no further action is also required with the exception of updating the note to the financial statements. Irregular expenditure that was incurred and identified during the current financial year and for which condonement is being awaited at year end must be recorded in the irregular expenditure register. No further action is required with the exception of updating the note to the financial statements. Where irregular expenditure was incurred in the previous financial year and is only condoned in the following financial year, the register and the disclosure note to the financial statements must be updated with the amount condoned. Fruitless expenditure means expenditure which was made in vain and would have been avoided had reasonable care been exercised. 122 Towards the market of the future

123 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Accounting Policies 1.20 Irregular expenditure (continued) Irregular expenditure that was incurred and identified during the current financial year and which was not condoned by the National Treasury or the relevant authority must be recorded appropriately in the irregular expenditure register. If liability for the irregular expenditure can be attributed to a person, a debt account must be created if such a person is liable in law. Immediate steps must thereafter be taken to recover the amount from the person concerned. If recovery is not possible, the accounting officer or accounting authority may write off the amount as debt impairment and disclose such in the relevant note to the financial statements. The irregular expenditure register must also be updated accordingly. If the irregular expenditure has not been condoned and no person is liable in law, the expenditure related thereto must remain against the relevant programme/expenditure item, be disclosed as such in the note to the financial statements and updated accordingly in the irregular expenditure register Statements on GRAP not yet effective At the date of authorisation of these Annual Financial Statements, the following standards of GRAP were in issue but not yet effective or adopted during the period under review: GRAP 20 - Related Parties. GRAP 32 - Service concession arrangements: Grantor. GRAP Statutory Receivables. GRAP Accounting by Principles and Agents. The effect as a result of the adoption of the above GRAP standards will have no material impact on the financial statements. All expenditure relating to irregular expenditure is recognised as an expense in the statement of financial performance in the period that the expenditure was incurred. The expenditure is classified in accordance with the nature of expense and when recovered, it is subsequently accounted for as revenue in the statement of financial performance Use of estimates The preparation of financial statements in conformity with Standards of GRAP requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the entity s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in the relevant sections of the financial statements. Although these estimates are based on management s best knowledge of current events and actions they may undertake in the future, actual results ultimately may differ from those estimates Budget information The Statement of comparative and actual information has been included in the financial statements as the recommended disclosure when the financial statements and the budget are on the same basis of accounting as determined by National Treasury. Refer to the Appropriation Statement. Towards the market of the future 123

124 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand LOANS TO/(FROM) SHAREHOLDER City of Johannesburg Metropolitan Municipality - Capital expenditure claim - 3,528,093 City of Johannesburg Metropolitan Municipality - Current account - (3,528,093) City of Johannesburg Metropolitan Municipality - Capital expenditure loans (100,129,306) (144,860,909) Sweeping account 36,883,676 86,087,611 (63,245,630) (58,773,298) Current assets 36,883,676 89,615,704 Non-current liabilities (71,231,952) (109,139,043) Current liabilities (28,897,354) (39,249,959) (63,245,630) (58,773,298) Credit quality of loans to shareholder The credit quality of loans to shareholder that are neither past due nor impaired can be assessed by reference to external credit ratings and to historical information about counterparty default rates. Fair value of loans to and from shareholder Loans to shareholder 36,883,676 89,615,704 Loans from shareholders 100,129, ,389,002 Loans to shareholder past due but not impaired Loans to shareholder which are less than 3 months past due are not considered to be impaired. At 30 June 2015, (2014: R89,615,704) were past due but not impaired. The ageing of amounts past due but not impaired is as follows: 1 month past due 36,883,676 89,615,704 Capital expenditure claim Loans at beginning of the year 3,528,093 16,834,765 Payments received (3,528,093) (20,906,067) Capex claimed - 7,599,395-3,528,093 Capital expenditure (Capex) amount due from City of Johannesburg Metropolitan Municipality. This loan is unsecured, interest free and payable within 3 months. Current account Loans at beginning of the year (3,528,093) (16,834,765) Converted to long term loan 3,528,093 20,906,067 Capex claimed - (7,599,395) - (3,528,093) This loan is unsecured and interest free.this amount was converted into a long term loan within 3 months. 124 Towards the market of the future

125 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand LOANS TO/(FROM) SHAREHOLDER Capital expenditure loans Loans at beginning of the year (144,860,909) (159,100,591) Receipts (3,528,093) (20,906,067) Repayments 61,729,288 51,610,990 Interest (13,469,592) (16,465,241) (100,129,306) (144,860,909) The Capex loans bear interest between 9% and 10,9%, compounded monthly. The capital repayments are not fixed and the loans are repayable in forty quarterly installments over the duration of the contracts. Sweeping account Loan at beginning of the year 86,087,611 48,532,048 Receipts 4,250,317 78,943,567 Repayments (61,729,288) (51,610,990) Interest 8,275,036 10,222,986 36,883,676 86,087,611 The sweeping account loan is unsecured and bears interest at an average rate of 6.0% per annum. The bank balance for the business account is rolled over on a daily basis into the sweeping account. The loan is repayable on demand. Towards the market of the future 125

126 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand RECEIVABLES FROM EXCHANGE TRANSACTIONS Trade debtors 36,542,399 29,062,216 Prepayments 251, ,219 Operating lease receivables 591, ,074 Less : Provision for impairment (10,954,258) (8,875,668) Sundry debtors 7,616,962 6,549,600 Related party debtors 3,890,407 4,899,423 Adjustment for fair value at amortised cost (83,049) (9,574) 37,855,760 32,319,290 Trade and other receivables past due but not impaired Trade and other receivables which are less than 3 months past due are not considered to be impaired. At 30 June 2015, R 24,839,167 (2014: R 24,141,408) were past due but not impaired. The ageing of amounts past due but not impaired is as follows: 1 month past due 21,285,972 21,566,602 2 months past due 1,818,159 1,929,345 3 months past due 1,735, ,460 Trade and other receivables impaired As of 30 June 2015, trade and other receivables of R 10,954,258 (2014: R 8,875,668) were impaired and provided for. The ageing of these loans is as follows: 3 to 6 months 742, ,581 Over 6 months 10,211,944 8,613,087 Reconciliation of provision for impairment of trade and other receivables Opening balance (8,875,668) (7,855,618) Provision for impairment (2,398,130) (1,207,828) Amounts written off as uncollectible 147,969 - Unused amounts reversed 171, ,778 (10,954,258) (8,875,668) The creation and release of provision for impaired receivables have been included in operating expenses in surplus or deficit (note17). Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. The maximum exposure to credit risk at the reporting date is the fair value of each class of trade and other receivables mentioned above. The entity does not hold any collateral as security. 126 Towards the market of the future

127 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of: Cash on hand 12,000 12,000 Bank balances 112,625,880 86,833, ,637,880 86,845,298 The entity had the following bank accounts Account number / description Bank statement balances Cash book balances 30 June June June June June June 2013 ABSA Bank - Deposit account ,733,858 6,118, ,358 (793,356) 2,590, ,447 ABSA Bank - Business account ,375,181 1,072,633-1,375,181 1,072,633 - ABSA Bank - RD cheque account (1,938) (793) 4,959 (1,938) (793) 4,959 ABSA Bank - Trust (2,704) (1,444) (525) (2,704) (1,444) (525) ABSA Bank - Salary account (295) (1,466) (584) (295) (1,466) (584) ABSA Bank - charges account (26,405) (15,484) - (26,405) (15,484) - First National Bank Business account ,722,868 2,188,651 1,531,120 2,722,868 2,188,651 1,531,120 First National BankDeposit account (447,748) (364,774) Standard Bank - Deposit account ,361,783 77,809,350 72,583, ,582,621 80,503,390 75,444,893 Standard Bank - RD cheque account , ,740 1,249, , ,740 1,249,061 Standard Bank - Business account (67,912) Standard Bank - Salary account , ,275 Total 115,000,168 88,113,329 75,930, ,625,880 86,833,298 78,563,872 Standard Bank is the entity s official banker. ABSA accounts remain open, however only the ABSA deposit account is active for deposits only. ABSA deposit account is swept periodically to the Standard Bank deposit account. First National Bank deposit account has remained open and active to accommodate buyers in areas where Standard Bank is not available. Towards the market of the future 127

128 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand INVESTMENT PROPERTY Cost Carrying Cost value Accumulated depreciation and accumulated impairment Accumulated depreciation and accumulated impairment Carrying value Investment property 811,061 (342,525) 468, ,061 (319,706) 491,355 Reconciliation of investment property Opening Balance Impairments Total Investment property 491,355 (22,819) 468,536 Reconciliation of investment property Opening Balance Impairments Total Investment property 514,174 (22,819) 491,355 Details of property Investment property that was purchased from The City of Johannesburg Metropolitan Municipality, in terms of the sale of business agreement, dated 03 July 2000, has not yet been transferred into the name of the entity due to the absence of a framework provided by Section 14(6) of the Municipal Finance Management Act National Treasury has been engaged by The City of Johannesburg Metropolitan Municipality with the aim of resolving the matter. Investment Property consists of the following: Stand 118 City Deep Extension 2, Johannesburg, Gauteng - comprising of retail shops. The market value of the property as determined by an independent valuator as at 9 June 2014 is R14,357,951. An external, independent valuation entity, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the entity s investment property portfolio annually. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property. A yield that reflects the specific risks inherent in the net cash flows then is applied to the net annual cash flows to arrive at the property valuation. Valuations reflect, when appropriate: the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting vacant accommodation, and the market s general perception of their creditworthiness; the allocation of maintenance and insurance responsibilities between the entity and the lessee; and the remaining economic life of the property. When rent reviews or lease renewals are pending with anticipated reversionary increases, it is assumed that all notices, and when appropriate counter-notices, have been served validly and within the appropriate time. The gross property rental income earned by the entity from its investment property, all of which are leased out under gross operating leases, amounted to R1,303,197 (2014: R1,208,451). Expenditure incurred during the year on investment property amounted to RNil (2014:RNil). 128 Towards the market of the future

129 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand 6. PROPERTY, PLANT AND EQUIPMENT Cost Carrying Cost value Accumulated depreciation and accumulated impairment Accumulated depreciation and accumulated impairment Carrying value Land 17,639,000-17,639,000 17,639,000-17,639,000 Buildings 312,129,838 (87,002,575) 225,127, ,144,273 (77,218,275) 210,925,998 Plant and machinery 36,896,772 (8,998,718) 27,898,054 16,743,949 (7,737,739) 9,006,210 Furniture and fixtures 3,867,971 (2,196,208) 1,671,763 3,518,744 (1,871,152) 1,647,592 Motor vehicles 1,469,128 (887,052) 582,076 1,469,127 (740,167) 728,960 Office equipment 1,246,572 (585,090) 661,482 1,047,795 (468,586) 579,209 IT equipment 21,583,004 (10,140,258) 11,442,746 19,347,835 (7,787,012) 11,560,823 Capital work in progress 41,518,452 (4,915,166) 36,603,286 46,731,684-46,731,684 Finance lease assets 3,337,934 (922,806) 2,415, ,444 (913,031) 41,413 Total 439,688,671 (115,647,873) 324,040, ,596,851 (96,735,962) 298,860,889 Towards the market of the future 129

130 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand 6. PROPERTY, PLANT AND EQUIPMENT (continued) Reconciliation of property, plant and equipment Opening balance Additions Disposals Transfers Depreciation Impairment loss Land 17,639, ,639,000 Buildings 210,925, ,618-23,064,947 (9,784,300) - 210,925,998 Plant and machinery 9,006,210 2,312,533-17,931,054 (1,351,743) - 27,898,054 Furniture and fixtures 1,647, , (336,454) - 1,671,763 Motor vehicles 728, (146,884) - 582,076 Office equipment 579, , (124,001) - 661,482 IT equipment 11,560,823 2,519,591 (64,874) - (2,572,794) - 11,442,746 Capital work in progress 46,731,684 35,782,769 - (40,996,001) - (4,915,166) 36,603,286 Finance lease assets 41,413 3,337, (964,219) - 2,415,128 Total 298,860,889 45,440,344 (64,874) - (15,280,395) (4,915,166) 324,040,798 Total Reconciliation of property, plant and equipment Opening balance Additions Disposals Transfers Depreciation Total Land 17,639, ,639,000 Buildings 202,741, , (9,563,608) 210,925,998 Plant and machinery 8,697,254 1,603,129 (8,948) 17,456,632 (1,285,225) 9,006,210 Furniture and fixtures 1,371, ,807 (71) - (313,200) 1,647,592 Motor vehicles 1,388,721 - (469,697) - (190,064) 728,960 Office equipment 491, ,588 (10,320) - (109,942) 579,209 IT equipment 9,235,707 4,718,294 (21,880) - (2,389,348) 11,560,823 Capital work in progress 46,825,291 17,381,075-18,050-46,731,684 Finance lease assets 970, (17,474,682) (929,226) 41,413 Total 289,361,364 24,791,054 (510,916) - (14,780,613) 298,860,889 The following leased assets are included in Property, Plant and Equipment listed above. 130 Towards the market of the future

131 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand PROPERTY, PLANT AND EQUIPMENT (continued) Assets subject to finance lease (Net carrying amount) Finance lease assets 2,415,128 41,413 Details of properties Freehold land and buildings to the value of R 77,582,957 were purchased from The City of Johannesburg Metropolitan Municipality in terms of the sale of business agreement dated 03 July 2000, but/and has not yet been transferred into the name of the entity due to the absence of a framework provided by Section 14(6) of the Municipal Finance Management Act National Treasury has been engaged by The City of Johannesburg Metropolitan Municipality with the aim of resolving the matter. Land and buildings comprise of the following properties: Stand 117 City Deep Extension 2, Johannesburg, Gauteng - Market floors, retail outlets and an office block. 7.INTANGIBLE ASSETS Cost Accumulated depreciation and accumulated impairment Carrying value Cost Accumulated depreciation and accumulated impairment Carrying value Computer software 4,426,717 (876,363) 3,550,354 2,900,435 (259,705) 2,640,730 Reconciliation of intangible assets Opening balance Additions Amortisation Total Computer software 2,640,730 1,526,282 (616,658) 3,550,354 Reconciliation of intangible assets Opening balance Additions Amortisation Total Computer software 1,126,557 2,181,769 (667,596) 2,640,730 Towards the market of the future 131

132 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand DEFERRED TAX Deferred tax liability Other deferred tax liability - Leases (829,896) (502) Deferred tax asset Trade and other receivables (287,322) 1,823,802 Liabilities for health care accrued 772, ,480 Trade and other payables and provisions 5,192,500 8,185,113 Total deferred tax asset 5,677,470 10,902,395 Deferred tax liability (829,896) (502) Deferred tax asset 5,677,470 10,902,395 Total net deferred tax asset 4,847,574 10,901,893 Reconciliation of deferred tax asset \ (liability) At beginning of year 10,901,893 6,131,336 Movement in temporary timing differences (6,054,319) 5,922,759 Prior period adjustment - (1,152,202) 4,847,574 10,901, FINANCE LEASE OBLIGATION Minimum lease payments due - within one year (1,473,415) (44,331) - in second to fifth year inclusive (1,718,984) - (3,192,399) (44,331) less: future finance charges 332,818 - Present value of minimum lease payments (2,859,581) (44,331) Present value of minimum lease payments due - within one year (1,243,422) (44,331) - in second to fifth year inclusive (1,616,158) - (2,859,580) (44,331) Non-current liabilities 1,616,158 - Current liabilities 1,243,422 44,331 2,859,580 44,331 It is entity policy to lease certain motor vehicles and equipment under finance leases. The average lease term was 3-5 years and the average effective borrowing rate was 11% (2014: 13%). Interest rates are linked to prime at the contract date. All leases have fixed repayments and no arrangements have been entered into for contingent rent. The entity has not defaulted on any of its interest or capital repayments during the year, and none of the terms and conditions of the finance leases were re-negotiated. The entity s obligations under finance leases are secured by the lessor s charge over the leased assets. Refer note Towards the market of the future

133 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand PAYABLES FROM EXCHANGE TRANSACTIONS Trade payables 70,130,656 65,464,704 Accrued leave pay 5,247,206 6,296,088 Accrued staff 13th cheques 2,771,059 2,571,366 Creditors accruals 1,875,929 1,552,851 Payroll and sundry accruals 18,640,918 14,286,079 Retentions - 556,736 Related party creditor 6,384,731 5,655, ,050,499 96,383,481 The entity has not defaulted on any of its payments. The terms and conditions of trade and other payables were not re-negotiated. The carrying amount of the financial liabilities approximates their fair value due. The accounting policies for financial instruments have been applied to the line items below: Fair value of trade and other payables Trade payables 105,022,540 96,383, PROVISIONS Reconciliation of provisions Opening Balance Additions Utilised during the year Reversed during the year Legal proceedings 18,500,000 - (18,500,000) - Performance Bonus 1,607,431 2,100,698 (771,695) (625,751) 2,310,683 20,107,431 2,100,698 (19,271,695) (625,751) 2,310,683 Total Reconciliation of provisions Opening Balance Additions Utilised during the year Reversed during the year Legal proceedings - 18,500, ,500,000 Performance Bonus 1,827,599 1,607,431 (1,723,650) (103,949) 1,607,431 1,827,599 20,107,431 (1,723,650) (103,949) 20,107,431 Total Performance evaluation for bonuses is only performed after year end and the provision is based on management s best estimate of the expected outflow of economic benefits based on past experience Provision for legal proceedings relates to the settlement of a legacy litigation matter. The outflow of economic benefits was probable and reliably measurable at year end. In terms of GRAP 19 principles a provision was raised. Towards the market of the future 133

134 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand EMPLOYEE BENEFIT OBLIGATIONS 12.1 Defined benefit plan The actuarial valuations were done by Arch Actuarial Consulting CC, an independent post retirement plan administrator, and they determined that the retirement plans were in a sound financial position, taking into account the notional loan account receivable from The City of Johannesburg Metropolitan Municipality. Post-retirement liability Post-Retirement Medical Aid Plan (298,761) (594,000) Retirement Gratuity Plan (2,470,611) (2,597,000) (2,769,372) (3,191,000) Post retirement medical aid plan The Joburg Market SOC Limited has obligations to subsidise medical aid contributions in respect of certain qualifying staff and pensioners and their surviving spouses. There is currently 1 qualifying staff member. Movements for the year Opening balance 594, ,000 Net expense recognised in the statement of financial performance (295,239) 69, , ,000 Net expense recognised in the statement of financial perfomance Current service cost 22,000 20,000 Interest cost 54,000 42,000 Actuarial (gains) losses (371,239) 7,000 (295,239) 69,000 Key assumptions used Assumptions used on last valuation on 30 June Discount rates used 8.20% 8.94% Expected increase in salaries 6.99% 8.05% The liability is sensitive to the real rate of return earned (i.e. the difference between the rate of discount and the rate at which medical aid contributions increase) as illustrated below : - 1% decrease in discount rate will decrease the liability to R203,781-1% increase in discount rate will decrease the liability to R229, Towards the market of the future

135 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand EMPLOYEE BENEFIT OBLIGATIONS (continued) Post retirement gratuity plan The Joburg Market SOC Limited provides gratuities on retirement or prior death in respect of certain qualifying staff members who have service with The City of Johannesburg Metropolitan Municipality or The Joburg Market SOC Limited when they were not members of one of the retirement funds and who meet certain service requirements in terms of The City of Johannesburg Metropolitan Municipality s conditions of employment. The gratuity amount is based on 1 month s salary per year of non-retirement funding service.there are currently 14 qualifying staff members. The above liability is unfunded. However, The City of Johannesburg Metropolitan Municipality has undertaken to cover such portion of the liability for the staff of The Joburg Market SOC Limited who are entitled to benefits that relate to their service with The City of Johannesburg Metropolitan Municipality from the time that the entity was established. This amount was determined at 1 July 2003 and has been crystallised in the form of a notional loan account and against which the entity may claim benefit payments, made. This loan does not constitute a plan asset and in terms of IAS 19 cannot be offset against the liability. It has however been included in the assets of The Joburg Market SOC Limited. The plan is a post-employment gratuity benefit plan. Movements for the year Opening balance 2,597,000 2,554,000 Net expense recognised in the statement of financial performance (126,389) 43,000 2,470,611 2,597,000 Net expense recognised in the statement of financial performance Interest cost 223, ,000 Actuarial (gains) losses (349,389) (159,000) (126,389) 43,000 Key assumptions used Assumptions used on last valuation on 30 June Discount rates used 8.20% 8.94% Expected increase in salaries 6.99% 8.05% The liability is sensitive to the real rate of return earned (i.e. the difference between the rate of discount and the rate at which medical aid contributions increase) as illustrated below : - 1% increase in discount rate will increase the liability to R2,625,455-1% decrease in discount rate will increase the liability to R2,931,599. Towards the market of the future 135

136 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand EMPLOYEE BENEFIT OBLIGATIONS (continued) 12.2 Defined contribution plan All employees transferred from The City of Johannesburg Metropolitan Municipality belong to various defined benefit plans established by The City of Johannesburg Metropolitan Municipality. New employees belong to the entity s retirement fund, a defined contribution plan established subsequent to the date of acquisition. The total amount recognised as an expense for defined contribution plans for the year amounts to R7,315,009 (2014: R5,976,875). During 2005 the City entered into an agreement with the Johannesburg Municipal Pension Fund and the City of Johannesburg Pension Fund to the effect that, in return for payment of an amount of R400 million plus interest from 1 January 2006: - Except as set out below, the assets and liabilities of the City of Johannesburg Pension Fund will be merged into the Johannesburg Municipal Pension Fund and the City will sever all financial ties with the latter Fund. - The City of Johannesburg Pension Fund will be converted into a defined contribution fund. Members will be given the option of remaining as members of the Fund and accruing future benefits on a defined contribution basis or of joining the The Joburg Market Retirement Fund in respect of the accrual of future service benefits. Pensioners will be given the opportunity to transfer to an insurer instead of remaining pensioners of the Johannesburg Municipal Pension Fund. - The settlement amount is to be adjusted to allow for any excess contributions paid until the effective date and for the cost of bonus service in respect of exited members. The necessary provisions have been made in The City of Johannesburg Metropolitan Municipality financial statements. 13. SHARE CAPITAL The Joburg Market SOC Limited has obligations to subsidise medical aid contributions in respect of certain qualifying staff and pensioners and their surviving spouses. There is currently 1 qualifying staff member. Authorised Ordinary shares of R ,000 10,000 Unissued ordinary shares are under the control of the directors in terms of a resolution of members passed at the last annual general meeting. This authority remains in force until the next annual general meeting. Issued 1 Ordinary share rounded up to R1 1 1 Share premium 19,999,999 19,999,999 20,000,000 20,000, Towards the market of the future

137 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand REVENUE Commission 288,520, ,881,635 Storage 6,683,360 5,477,476 Rental facilities and equipment 37,172,879 33,438,811 Banana ripening fees 5,213,365 5,404,264 Miscellaneous other revenue 1,031, ,396 Discount received 13,016 51,918 Grant received from shareholder 4,811,104 10,773,109 Sundry revenue 2,599,908 5,403,914 Cash handling fees 2,732,941 2,624,589 Interest received 10,961,753 10,969,683 Fair value adjustments 73,335 76, ,813, ,021,389 The amount included in revenue arising from exchanges of goods or services are as follows: Commission 288,520, ,881,635 Storage 6,683,360 5,477,476 Rental facilities and equipment 37,172,879 33,438,811 Banana ripening fees 5,213,365 5,404,264 Miscellaneous other revenue 1,031, ,396 Discount received 13,016 51,918 Grant received from shareholder 4,811,104 10,773,109 Sundry revenue 2,599,908 5,403,914 Cash handling fees 2,732,941 2,624,589 Interest received 10,961,753 10,969, ,739, ,944,795 The amount included in revenue arising from non-exchange transactions is as follows: Taxation revenue Transfer revenue Fair value adjustments 73,335 76,594 Towards the market of the future 137

138 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand GENERAL EXPENSES Advertising 5,122,668 5,478,664 Assessment rates & municipal charges - (132,380) Assets expensed 270, ,637 Auditors remuneration 1,753,173 1,925,457 Bank charges 4,992,749 4,851,342 Cleaning 6,121,508 4,881,665 Conferences and seminars 1,266, ,504 Consulting and professional fees 9,262,298 2,433,530 Consumables 1,056, ,314 Donations 706, ,340 Electricity 26,033,692 28,174,118 Entertainment 9,951 7,667 Gifts 84,060 56,434 Hostel charges 97,038 90,313 IT expenses 3,958,648 3,745,223 Insurance 1,282, ,454 Irregular, fruitless and wasteful expenditure Laboratory charges - (2,876) Legal settlement - 36,113,934 Lease rentals on operating lease 423,676 (202,730) Marketing 465, ,539 Motor vehicle expenses 1,747,738 1,319,754 Placement fees 745,413 42,320 Postage and courier 4,694 2,132 Printing and stationery 2,271,748 1,795,289 Protective clothing 670, ,158 Refuse 9,493,919 4,219,237 Security (Guarding of municipal property) 15,695,878 14,808,851 Sewerage and waste disposal 4,018,915 2,606,816 Staff welfare 1,172,412 1,200,402 Subscriptions and membership fees 289, ,110 Telephone and fax 935, ,691 Training 1,882,776 2,454,485 Travel - local 381, ,095 Travel - overseas 2,382,860 1,910,684 Water 6,239,189 4,907, ,840, ,886, Towards the market of the future

139 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand EMPLOYEE RELATED COSTS Employee related costs : Salaries and wages 83,681,568 76,487,179 Overtime payments 779, ,277 Bonus - 13th cheque and performance 6,435,830 6,099,984 UIF 489, ,555 WCA 699, ,870 SDL 929, ,082 Other payroll costs 4,699,815 4,187,737 Leave pay provision charge 1,461,743 1,392,528 Pension costs 769, ,464 Gratuities 61,417 - Provident fund 12 7,315,009 5,976, ,323,125 97,463,551 Towards the market of the future 139

140 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand DEBT IMPAIRMENT Debt impairment 15, Contributions to debt impairment provision 2,226,559 1,020,051 2,242,201 1,020, INTEREST RECEIVED Interest revenue Bank 2,434, ,771 Interest earned - outstanding debtors 251, ,926 Interest earned - sweeping account 8,275,036 10,222,986 10,961,753 10,969, DEPRECIATION AND AMORTISATION Property, plant and equipment 15,280,399 14,780,611 Investment property 22,819 22,819 Intangible assets 616, ,596 15,919,876 15,471, FINANCE COSTS Interest paid on shareholder loans 13,469,592 16,465,241 Finance leases 282,838 54,300 Bank 3, Fair value adjustments: Notional interest 558, ,281 Other interest paid 306, ,561 14,620,512 17,237, Towards the market of the future

141 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand TAXATION Major components of the tax expense Current Local income tax - current period 24,472,447 27,625,550 Local income tax - recognised in current tax for prior periods (30,286) (1,191,691) 24,442,161 26,433,859 Deferred Originating and reversing temporary differences 6,054,318 (5,922,759) Arising from prior period adjustments - 1,152,202 6,054,318 (4,770,557) 30,496,479 21,663,302 Reconciliation of the tax expense Reconciliation between applicable tax rate and average effective tax rate. Applicable tax rate 28.00% 28.00% Disallowable charges (0.20) % 0.26% Current tax - prior period adjustment (0.03) % (1.55) % Deferred tax - prior year adjustment - % 1.50% 27.77% % 22. AUDITOR S REMUNERATION Fees 1,753,173 1,925, CASH GENERATED FROM OPERATIONS Surplus 56,581,246 55,142,763 Adjustments for: Depreciation and amortisation 15,919,876 15,471,026 (Gain) loss on sale of assets and liabilities 64, ,912 Finance costs - Finance leases 282,838 54,300 Impairment deficit 4,915,165 - Debt impairment 2,242,201 1,020,179 Movements in retirement benefit assets and liabilities (421,628) 112,000 Movements in provisions (17,796,748) 18,279,832 Movement in tax receivable and payable (153,024) 3,858,746 Annual charge for deferred tax 6,054,318 (5,922,759) Other non-cash items - deferred tax prior period - 1,152,202 Other non-cash items - payables capital expenditure accrued (3,272,318) - Other non-cash items 8 - Changes in working capital: Receivables from exchange transactions (7,778,670) (6,519,852) Payables from exchange transactions 8,667,007 3,275,470 VAT (2,822,998) (611,433) 62,482,147 85,441,386 Towards the market of the future 141

142 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand TAX PAID Balance at beginning of the year 2,160,021 6,018,764 Current tax for the year recognised in surplus or deficit (24,442,161) (2,160,021) (24,595,185) (22,575,116) 25. COMMITMENTS Commitments in respect of capital expenditure: Authorised and contracted for Property, plant and equipment 17,863,390 7,645,520 This expenditure will be financed from: Internal cash 17,863,390 7,645,520 Operating leases - as lessee (Fleet) Minimum lease payments due - within one year 414, ,126 - in second to fifth year inclusive 310, , ,721 1,138,847 Operating leases as lessor (income) Minimum lease payments due - within one year 6,943,907 2,870,412 - in second to fifth year inclusive 6,474, ,455 13,418,382 3,459, CONTINGENCIES Economic entity Other contingencies The total estimated claims amount to R7,917,732 which is in respect of disputes with suppliers, the company is of the view that this represents the maximum exposure. The company in consultation with its legal counsel has assessed the outcome of these proceedings and the likelihood that these cases will be successfully defended, no further provision is required. Disputes with employees The entity is involved in three (3) litigation matters and disputes relating to former employees. The directors are of the opinion that the claims can be successfully defended by the company. 142 Towards the market of the future

143 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand RELATED PARTIES Relationships Shareholder Other members of the group The City of Johannesburg Metropolitan Municipality Johannesburg Social Housing Company SOC Ltd Pikitup Johannesburg (SOC) Ltd Johannesburg Roads Agency (SOC) Ltd Johannesburg City Parks (SOC) Ltd Related party balances Amounts included in Loans, Trade and other receivables regarding related parties City of Johannesburg Metropolitan Municipality 40,545,846 94,463,110 Pikitup Johannesburg (SOC) Ltd 228,236 17,131 Johannesburg City Parks (SOC) Ltd - 34,886 40,774,082 94,515,127 Amounts included in Loans, Trade and other payables regarding related parties City of Johannesburg Metropolitan Municipality 111,030, ,967,750 Johannesburg City Parks (SOC) Ltd - 56,824 Johannesburg Roads Agency (SOC) Ltd 149,937 - Johannesburg Social Housing Company SOC Ltd 12,019 20, ,192, ,044,658 Related party transactions Sales to related parties City of Johannesburg Metropolitan Municipality 11,894,904 29,045 City of Johannesburg Metropolitan Municipality - Grant received 4,834,877 8,584,596 Pikitup Johannesburg (SOC) Ltd 482,598 - Johannesburg City Parks (SOC) Ltd 126,713 29,664 17,339,092 8,643,305 Purchases from related parties Revenue and Customer Relations 50,083,027 34,949,005 Johannesburg Roads Agency (SOC) Ltd 131,524-50,214,551 34,949,005 Interest paid to related parties City of Johannesburg Metropolitan Municipality 13,469,593 16,465,241 Insurance paid to related party City of Johannesburg Metropolitan Municipality 1,222, ,031 WCA occupational health and safety paid to related party City of Johannesburg Metropolitan Municipality 699, ,870 Towards the market of the future 143

144 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements 28. DIRECTORS' EMOLUMENTS Executive 2015 Emoluments Other benefits Total For services as Chief Executive Officer 2,811,754 6,378 2,818,132 For services as Chief Financial Officer 1,845, ,328 1,992,897 For services as Senior Management 4,907,561 49,816 4,957,377 9,564, ,522 9,768, Emoluments Other benefits Total For services as Chief Executive Officer (4.5 months) 1,789,867-1,789,867 For services as Chief Financial Officer 1,223,049-1,223,049 For services as Senior Management 2,428, ,999 2,969,784 5,441, ,999 5,982, Towards the market of the future

145 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements 28. DIRECTORS' EMOLUMENTS (continued) Non-executive Executive 2015 Directors' fees Retainer Other fees Total Ms M Mpofu (Chairman) 296,824 45,626 3, ,050 Ms S Childs 178,600 13,309 2, ,609 Dr V Dlamini 50,798 9,507 43, ,559 Bishop S Tsekedi 49,020 9,507-58,527 Mr S Mafadza 120,412 22,816 3, ,828 Mr M Morokolo 57,548-12,253 69,801 Mr B Nkosi 99,307 15, ,518 Dr D Sekhukhune 250,307 22,816 3, ,723 Ms N Singh 311,173 22,816 3, ,589 Mr T Tselane 77,486-3,600 81,086 Dr E Zulu 295,296 22,816 3, ,712 1,786, ,424 79,807 2,051, Directors' fees Retainer Total Ms M Mpofu (Chairman) 289,688 79, ,038 Ms S Childs 42,660-42,660 Dr P Maesela 134,950 19, ,790 Mr S Mafadza 44,642-44,642 Ms R Manning - 14,880 14,880 Mr S Mbedzi 185,524 39, ,204 Mr M Morokolo 144,860 39, ,540 Dr S Ngqangweni - 19,840 19,840 Dr D Sekhukhune 44,642-44,642 Ms N Singh 174,604 39, ,284 Mr T Tselane 71,442 39, ,122 Dr E Zulu 134,942 39, ,622 1,267, ,310 1,600,264 Towards the market of the future 145

146 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements 29. RISK MANAGEMENT Financial risk management The entity s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The entity is exposed to a number of risks which include finance and operation risks. All risks are captured in a series of registers. The entity manages its risks in terms of the risk management framework adopted by the City of Johannesburg Metropolitan Municipality. The Board is empowered to ensure the execution of the risk management policy and guiding intervention. Management reports risk status and interventions to the Board. Finance management and the lodging of risks are exercised against the backdrop of the principles embedded in the King III Report on Corporate Governance. Risk registers are regularly updated and independently evaluated by the Audit and Risk Committee of the entity. As the entity is largely self-insured loss control remains an integral part of risk management. The entity reports comprehensively on risks to the City of Johannesburg Metropolitan Municipality on a monthly, quarterly and annual basis. Liquidity risk Liquidity risk arises as a result of operations that cannot be funded and financial commitments that cannot be met timeously and cost effectively due to cash shortages. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, treasury maintains flexibility in funding by maintaining availability under committed credit lines. The entity s risk to liquidity is a result of the funds available to cover future commitments. The entity manages liquidity risk through an ongoing review of future commitments and credit facilities. Cash flow forecasts are prepared and adequate utilised borrowing facilities are monitored. The table below analyses the entity s financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant. At 30 June 2015 Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Borrowings 28,897,354 37,423,775 31,561,940 2,246,337 Trade and other payables 105,050, Finance lease 2,859, At 30 June 2014 Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Borrowings 39,249,959 58,399,704 31,906,283 18,833,056 Trade and other payables 96,383, Finance Lease 44, Towards the market of the future

147 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements 29. RISK MANAGEMENT (continued) Interest rate risk This refers to the potential variability in the entity s financial condition owing to changes in interest rate levels. The entity s borrowings in interest bearing loans give rise to exposure to this risk. As the has no significant interest-bearing assets, the entity s income and operating cash flows are substantially independent of changes in market interest rates. The entity s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the group to cash flow interest rate risk. Borrowings issued at fixed rates expose the fair value interest rate risk. All group borrowings are at fixed interest rates over the period of the loan agreements and the company is not exposed to any changes in interest rates. At year end other financial instruments exposed to interest rate risk were balances with banks. Credit risk Credit risk is the risk of an economic loss arising from the failure of the counter party to fulfill it s contractual obligations. Credit risk consists mainly of cash deposits, cash equivalents, loans to shareholder and trade and other receivables. The only deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party. Loans to shareholders are managed on a monthly basis and the entity is currently not exposed to any risk regarding recoverability of this amount. Trade receivables comprise a widespread customer base. Management evaluates credit risk relating to customers on an ongoing basis. If customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings. The utilization of credit limits is regularly monitored. Some credit limits were exceeded during the reporting period, these are closely monitored and management does not expect any losses from non-performance by these counterparties. Financial assets exposed to credit risk at year end were as follows: Financial instrument Cash and cash equivalents 112,637,880 86,845,298 Trade and other receivables 37,855,760 32,319,290 Loans to shareholders 36,883,676 89,615, GOING CONCERN The financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. The ability of the entity to continue as a going concern is dependent on financial support of the entity s only shareholder, The City of Johannesburg Metropolitan Municipality, which The City of Johannesburg Metropolitan Municipality confirmed. Towards the market of the future 147

148 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand FRUITLESS AND WASTEFUL EXPENDITURE Reconciliation of fruitless and wasteful expenditure Identified in current year but incurred in the prior year 18,519,315 - Identified and incurred in the current year 452,218-18,971,533 - Settlement of a protracted contractual dispute dating back to IRREGULAR EXPENDITURE Reconciliation of irregular expenditure Opening balance 8,416,854 8,416,854 Irregular Expenditure identified in current year relating to prior year 1,761,415 - Irregular Expenditure identified in current year 15,512,212-25,690,481 8,416,854 Details of irregular expenditure current year Disciplinary steps taken: Investigations, disciplinary action and other steps are underway to 120 year celebration address this matter Investigations, disciplinary action and other steps are underway to Mobile standby generators address this matter 2,788,679 14,484,948 17,273, The contract entered into does not comply with SCM regulation 28(1)(a)(ii) and PPR4, as the bids were not adequately evaluated for functionality. The irregularity was found in the current year but the bids were awarded in the prior year. The contract for mobile generators does not comply with SCM regulation 19(a), as the mobile generators do not fall within the definition of a category B specialised vehicle in terms of the definition within the Section 32 contract selected from the parent municipality. 148 Towards the market of the future

149 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand ADDITIONAL DISCLOSURE IN TERMS OF MUNICIPAL FINANCE MANAGEMENT ACT Audit fees Current year audit fee 1,753,173 1,925,457 Amount paid - previous years (1,753,173) (1,925,457) PAYE and UIF - - Current year expense 17,619,424 14,953,804 Amount paid - current year (15,979,221) (14,953,804) Pension and Medical Aid Deductions 1,640,203 - Current year expense 7,524,173 6,593,937 Amount paid - current year (7,524,173) (6,165,598) - 428,339 VAT VAT receivable 4,016,008 1,193,010 VAT output payables and VAT input receivables are shown in note 35. All VAT returns have been submitted by the due date throughout the year. 34. DEVIATION FROM SUPPLY CHAIN MANAGEMENT REGULATIONS Paragraph 12(1)(d)(i) of Government gazette No issued on 30 May 2005 states that a supply chain management policy must provide for the procurement of goods and services by way of a competitive bidding process. Paragraph 36 of the same gazette states that the accounting officer may dispense with the official procurement process in certain circumstances, provided that he records the reasons for any deviations and reports them to the next meeting of the directors and includes a note to the financial statements. Deviations authorised by the Accounting Officer Sole supplier 34, ,278 Single source - 28,000 Extension of contracts 1,632,965 1,196,725 Emergency 6,548,224 - Avoidable deviations 600, ,300 8,816,207 1,797,303 Towards the market of the future 149

150 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand During the year under review the Board became aware of procurement irregularities. This necessitated investigations, which resulted in the appointment of forensic investigators and legal counsel. These deviations are listed as Emergency in the above table for R6,5 million. Refer to item 19 in the Director s report. 35. VAT RECEIVABLE VAT 4,016,008 1,193, FINANCIAL INSTRUMENTS DISCLOSURE Categories of financial instruments 2015 Financial assets At Fair Value Total Loans to shareholders 36,883,676 36,883,676 Trade and other receivables from exchange transactions 37,855,760 37,855,760 Cash and cash equivalents 112,637, ,637, ,377, ,377,316 Financial liabilities At amortised Total Loans to shareholders 100,129, ,129,306 Other financial liabilities 2,859,580 2,859,580 Trade and other payables from exchange transactions 105,050, ,050, ,039, ,039, Financial assets At amortised Total Loans to shareholders 89,615,704 89,615,704 Trade and other receivables from exchange transactions 32,319,290 32,319,290 Cash and cash equivalents 86,845,298 86,845, ,780, ,780,292 Financial liabilities At amortised Total Loans from shareholders 148,292, ,292,695 Other financial liabilities 44,331 44,331 Trade and other payables from exchange transactions 96,383,485 96,383, ,720, ,720, Towards the market of the future

151 Joburg Market SOC Limited (Registration number 2000/023383/07) Financial Statements for the year ending 30 June 2015 Notes to the Financial Statements Figures in Rand IMPAIRMENT OF ASSETS Impairments Property, plant and equipment The cost above is as a result of impairment testing of the generator system. The generator has remained in work in progress since 2008 at cost less impairment made in It has been tested in the open market for the value of a similar system in current condition, in so doing it has been further impaired in the year under review. 4,915, CHANGE IN ESTIMATE Property, plant and equipment The useful life of Furniture and Fittings, Computer Equipment and Plant and machinery was estimated in 2014 to be 11, 8 and 13 years respectively. In the current period management have revised their estimate to 12, 9 and 14 years. The effect of this revision has decreased the depreciation charges for the current and future periods by R 191,069. Towards the market of the future 151

152 Matters should be addressed to prevent them from leading to material misstatements of the financial statements or material findings on the perfromance report and non compliance with [legislation in future. [ 152 Towards the market of the future

153 Auditor-General s General s Findings Report and Findings Towards the market of the future 153

154 Section 1: Auditor-General Report for the Current Year The Constitution S18 (1) states that the functions of the Audio-General include the auditing and reporting on the accounts, financial statements and financial management of all municipalities. MSA section 45 states that the results of performance measurement must be audited annually by the Auditor-General. Please refer to the Annual Financial Statements set out in Chapter 6 and the timescale for the audit of these accounts and the audit of performance and the production of reports on these matters by the Auditor General as set out in this Chapter. Audit opinion 2011/ / / /15 Unqualified (clean Unqualified (clean Unqualified (clean Unqualified audit) audit) audit) The external audit is conducted once a year by the Auditor General. The JM received an unqualified audit report with emphasis of matters and non-compliance findings. Section 2: Audit Findings and Remedial Action For the 2013/2014 financial year, the AG raised seven (7) audit findings for JM as reflected in the table below: Classification Rating Findings Misstatements in financial statements Misstatements in annual performance report Non-compliance with legislation Internal control deficiency Service delivery Matters affecting the auditor s report Other important matters Administrative matters Number of times reported in previous three years Status of implementation of previous years(s) recommendation Change in estimate note not disclosed Resolved Cleaning of suspense account Resolved Leave balance exceeding the maximum allowed Resolved Leave approved after the employee has gone on leave Resolved Awards to persons in service of other state institution Resolved Supplier not paid within 30 days Not resolved Non-compliance with terms of reference Not resolved All seven findings were raised during the 2013/2014 financial year 154 Towards the market of the future

155 Section 3: Commitment by the Board of Directors The Board is committed to the highest standards of ethical behaviour from our Directors, Management and Employees. In line with this commitment the Board continues to enhance and align its policies, systems and processes to embed sound corporate governance principles and ethical standards. Guided by these principles and standards, directors and management are required to exercise ethical judgement in leading the entity and acting in the best interest of all stakeholders. As reflected on pages 89 to 154 of the attached JM Annual Financial Statements, the Board of Directors and the Audit and Risk Committee is satisfied that the internal controls are effective, although there is always room for improvement. Additionally, the Board is satisfied by the remedial action taken by management in addressing the Auditor General s audit findings. Towards the market of the future 155

156 156 Towards the market of the future

157 NOTES Towards the market of the future 157

158 NOTES 158 Towards the market of the future

159

160 160 Towards the market of the future