ANNUAL REPORT 2011 - Iemas Financial Services · 2016-01-14 · The knock-on effect from the global financial crisis was felt here to some extent. In addition to this, the effect

ANNUAL REPORT

2011

CONTENTS

CORPORATE PROFILE

CHAIRMAN'S MESSAGE

CHIEF EXECUTIVE OFFICER’S REPORT

BOARD OF DIRECTORS

EXECUTIVE MANAGEMENT

CORPORATE GOVERNANCE

RISK MANAGEMENT REPORT

COMPLIANCE REPORT

SUSTAINABILITY REPORT

STATEMENT OF DIRECTORS' RESPONSIBILITY

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF IEMAS

FINANCIAL SERVICES (CO-OPERATIVE) LIMITED

DIRECTORS' REPORT

STATEMENT OF FINANCIAL POSITION

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF CHANGES IN EQUITY

STATEMENT OF CASH FLOWS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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IEMAS FINANCIAL SERVICES ANNUAL REPORT - 2011

CORPORATE PROFILE

The demands and pressures associated with modern business leave little time to pause and reconsider important values, but it pays to remember that the basics touch people’s lives.

The basis of the philosophy underpinning Iemas Financial Services (Co-operative) Limited is that, when we work together as people, companies and organisations, we contribute to each other’s success in a mutually empowering environment facilitated by a co-operative culture. It is because of this philosophy that, after 74 years, Iemas continues to set trends and standards as the most entrenched co-operative partner to diverse South African organisations.

Iemas renders financial services to the people of more than 550 South African organisations spanning the full spectrum of industries, including Sasol, ArcelorMittal, Kumba Iron Ore, Exxaro, AngloAmerican Thermal Coal, Xstrata Coal, Assmang Manganese Mines, Cape Gate, PetroSA, Mediclinic and the University of the Witwatersrand. Iemas is the employer’s caring partner in ensuring the financial wellbeing of its people.

Iemas’s business model is designed to add value for both employers and their people. When Iemas becomes an employer’s financing and insurance partner of choice, the employer is freed to focus on its core business. This is made possible because employees have access to competitive products, responsible credit granting, expertise, professional training in financial skills as well as transparency and mutual trust.

An uncomplicated and transparent business model is key to Iemas’s success. Anyone who uses Iemas’s range of products and services becomes a member of the Co-operative and therefore a co-owner of the Co-operative. This is similar to being a shareholder of a listed company. Members share in the prosperity of the Co-operative and nearly half of our profits are allocated to members in the form of annual bonuses totalling several million rand a year.

Iemas is a registered financial services and credit provider and is Financial Advisory and Intermediary Services Act compliant. We also adhere to the requirements of all the relevant regulators and take our legal responsibilities to heart.

In addition to our head office in Centurion, Tshwane, we have a national footprint, including branch and regional offices. We also allocate some of our people to operate on site, where employers have a need for this. Our physical footprint is augmented by electronic platforms, a contact centre and e-sales to give members convenient access to products and services.

Iemas aims to provide an all-encompassing service to more than 150,000 members in even the most remote areas.

Offering

The Iemas range of products and services includes: • vehicle financing; • secured and unsecured loan products; • pension-backed lending; • the Iemas purchase card; • short-term insurance; • financial advisory services; and • the Iemas financial skills training programme.

1 IEMAS FINANCIAL SERVICES (CO-OPERATIVE) LIMITED AND ITS SUBSIDIARIES

CHAIRMAN'S MESSAGE

Times were tough worldwide this past year. Portugal, Ireland, Spain and particularly Greece are faced with serious challenges and the US is still struggling with a housing crisis and unsustainable national debt.

Fortunately, the developing countries have been doing better and South Africa, the “S” in BRICS, largely escaped the impact of the credit crunch because of its sound and well regulated banking environment.

Nonetheless, South Africa had its own economic woes. The knock-on effect from the global financial crisis was felt here to some extent. In addition to this, the effect of the lowest interest rates in 30 years was countered by high electricity, municipal services and fuel prices.

The tax relief offered to the lower end of the market was also largely neutralised by high food and fuel price inflation. The consumer price index (CPI) for the lower end of the market rose more steeply than that for the upper end of the market.

However, Iemas succeeded in benefiting from South Africa’s economic recovery, even though this recovery was slow. Household spending slowed to 3,8% in the second quarter, from 5,2% in the first which was the slowest since the third quarter of 2009 when the economy was in recession. Economic growth also slowed to 1,3% from 4,5% in the first quarter.

Iemas’s prudent approach to lending resulted in a 19,2% growth in unsecured lending and a 29,8% growth in secured lending while maintaining the excellent quality of both lending books.

Achievements

I must compliment our CEO, Johan Nel, on the soundness of the strategic review process under his leadership. Just one year after our Board signed off this strategy, it is showing positive results. I appreciate the progress that has been made in such a short time. It bodes well for the success of the strategy.

I am also gratified that the market research conducted as part of the strategic review confirmed that Iemas has a unique business model and reconfirmed its value proposition. Iemas will remain a co-operative for the foreseeable future.

Iemas is justly proud of its achievements in making finance more accessible to South Africa’s workers. These achievements are even more praiseworthy than they might seem at first glance, as consumers remained bowed down under the burden of over-indebtedness and continued to show reluctance to take on new debt. Iemas’s personal touch and sound advice provided many of them with the confidence to do so prudently, with the assistance of their caring partner.

Pride is also engendered by Iemas’s socio-economic impact. During the past financial year, sustainable good relations with various stakeholders were enhanced by consumer education efforts (which reached 1,556 members), extending loans to the value of R246,2 million to people to improve or buy houses and carefully considered corporate social investment.

The bonuses Iemas pays to its members are probably one of the most telling ways in which it promotes the economic wellbeing of South Africans. During November 2011, R95,9 million in bonuses will be allocated to members. This is a record bonus year for Iemas members.

Iemas’s financial and operational performance is covered in more detail in the CEO’s review.

Growth in advances

3 500

4 000

3 000

R’m

illio

n

Financial year

2 500

2 000

2007 2008 2009 2010 2011

1 500

1 000

500

-

215

1 600

3 497

370

347

371

594

Total benefitsR

’millio

n100

90

80

70

60

50

40

30

20

10

-

2006 2007 2008 2009 2010 2011

Financial year

59

77

88

8278

95

2IEMAS FINANCIAL SERVICES ANNUAL REPORT - 2011

Iemas takes the view that ethics, governance, transparency, business relationships,

financial return, community involvement, value of products and services, employment

practices and protection of the environment are important principles of sustainability.

CHAIRMAN'S MESSAGE (Continued)

Regulatory environment

Iemas continues to meet the requirements of an increasingly regulated South African financial services industry through well considered strategies and interventions.

Although the Basel III capital requirements for banks and the state of the economy have made it difficult to acquire capital, Iemas secured adequate funding.

The Financial Services Board (FSB) brought out several new regulations during the past year, placing increased demands on the administration of financial services providers. Two visits to the FSB have shown that Iemas is shouldering these demands well.

Through its accessibility, Iemas provides valuable advice to members contemplating undertaking debt review and is often able to enlighten them as to its implications and find ways to assist them so that they can avoid resorting to this process.

Iemas also provides a complete insurance product and advice service. This will become more costly with the final implementation of the Financial Advisory and Intermediary Services (FAIS) Act, which requires relevant sales persons to write regulatory examinations to aquire credits.

Governance

The Iemas Board considers sound governance to be fundamental to earning the trust of stakeholders, which is crucial to sustaining business performance.

There is a strong compliance culture in Iemas, which extends to sound awareness of and adherence to the relevant legislation, regulations, standards and codes.

Several changes are being made to Board committees and subcommittees to bring Iemas’s governance in line with King III. Aspects of governance are being delegated without in any way diluting the Board’s oversight of these matters. In addition to reviewing the charters of the Board and its subcommittees, the Board is doing away with the previous Executive Committee of the Board and approved the establishment of an Information Technology Advisory Committee.

Further details of Iemas’s governance structures are contained in the governance report in this annual report.

Sustainable development

Iemas takes the view that ethics, governance, transparency, business relationships, financial return, community involvement, value of products and services, employment practices and protection of the environment are important principles of sustainability. It remains convinced that an important contribution the Co-operative can make to society and the environment is to operate a successful co-operative that is growing in a sustainable and responsible way for the benefit of its stakeholders.

A commitment to growing responsibly and sustainably underpins Iemas’s strategy.

In support of this commitment, Iemas engages in responsible lending, employee engagement, transformation, employee wellness programmes, continued education initiatives, skills development, HIV/Aids programmes, the provision of member bonuses, the preservation and creation of jobs, the provision of upskilling opportunities and a host of other activities.

Sustainability is addressed in more detail in the sustainability report.


CHAIRMAN'S MESSAGE (Continued)

Conclusion

Iemas continued to benefit from the invaluable leadership and oversight of its highly committed Board of Directors. I thank them for always being willing to share their expertise and for taking their duty of oversight seriously for yet another year. I thank Dries van Rooyen, who resigned as an Iemas director to fulfil other commitments, for his legacy, from which Iemas will continue to benefit, and wish him well in his future endeavours. I also welcome Fergus Marupen and Dirk van Staden, who effectively joined the Board at the 2010 Annual General Meeting.

The business forged ahead under the capable leadership of its CEO, Johan Nel, officially appointed on 1 April 2010, and his executive team. I thank them for their commitment, expertise and strategic focus. It is reflected in the hardworking and increasingly high-performing culture of Iemas’s people, who are owed a debt of gratitude for their sterling efforts in the past financial year.

Iemas will celebrate its 74th birthday on 15 September 2011. As it goes into the future, continuing to use its unique co-operative business model as the foundation for building a reputation based on trust and mutual benefit under the aegis of its rejuvenated brand, I am confident that it will progress steadily towards its long-term vision of being the preferred financial services co-operative for its stakeholders.

WF van HeerdenChairman


CHIEF EXECUTIVE OFFICER'S REPORT

Overview

I could not have asked for a more challenging and exciting time than I have experienced during my first full year as CEO of Iemas. I am pleased that Iemas was able to deliver such excellent performance, despite many economic and regulatory challenges.

Over the years Iemas has developed - and continues to innovate - a wide range of financial products and services that offer solutions to stakeholders in our targeted market segments, ranging from developing markets to high net-worth clients, from mining corporations to healthcare institutions. We are proud of the lasting relationships we have developed with our contracted employers and members (their employees) based on loyalty and trust.

Iemas’s brand promise is to be a caring partner and we take this promise seriously. We have focused on both our internal and external stakeholders during the year. We have been involved in wellness days hosted by our employers, corporate social initiatives and we have also provided our financial skills training to 1,556 employees of these participating groups.

This year, our members will also experience a record year in terms of member bonuses. We were able to sustain the bonus percentages of last year and allocated an additional R10 million to members this year. Total member bonuses for the year amount to R95,9 million. Members share in more than half of Iemas's profits after tax.

Our employees have benefitted from skills development, diversity training and a comprehensive wellness programme.

The support and commitment from these stakeholders is the main reason for Iemas being able to perform well in challenging times.

Income from financing activities represents 89,5% (2010: 89,6%) of our total income, the balance is from the brokerage divisions.

Income from operations increased by 18,8%, whereas operating expenses increased by 11,7%. As a result, our cost-to-income ratio improved from 55,5% to 52,2% for the 2011 financial year.

Initiation and monthly administration fee income grew by 154.6% to R32,7 million, mainly because of the increase in the number of loans advanced.

Profit after tax and provision for bonus allocations to members increased to R86,8 million from R68,1 million in 2010, an increase of 27,4%. Net interest income before impairment of advances was 14,6% higher than the previous year.

Capital and reserves increased to R685 million, strengthening the Group's balance sheet by R86,8 million for the year. Members’ funds increased by R47,6 million for the year.

Growth in the number and value of loans advanced resulted in an increase of 9,2% in interest income. The impact of increased loan advances on interest income was tempered by the 0,5% decrease in the repo rate (the price at which the South African Reserve Bank lends cash to the banking system). Fortunately, Iemas’s margins are not being eroded.

The asset-based loan book grew by R411 million (25,8%) compared with August 2010. In contrast, the capital amount (before any security) of the arrears grew by R9,7 million (18,5%) and bad debts written off amounted to R17,4 million, a growth of R5,8 million. The increase in the amount written off is a function of loan book growth and not the result of any deterioration in its quality.

Loans advanced are priced in compliance with the National Credit Act (NCA) which prescribes ceiling rates. A decrease in the repo rate resulted in a decrease in the ceiling rates allowed on new unsecured loans.

Statement of comprehensive income for 2011 - Group

400

450

500

350

R’m

illio

n

300

250

200

Interestincome

Interestexpenditure

Impairmentof advances

Income fromoperations

Operatingexpenditure

Income tax Profit afterincome tax

Benefits tomembers

150

100

50

-

429

190

48

210 209

68

37

87

Funding sources

2 000

2 250

2 500

1 750

R’m

illio

n

1 500

1 250

1 000

750

500

250

-

Capital and reserves BorrowingsMembers’ funds

201120102009200820072006


CHIEF EXECUTIVE OFFICER'S REPORT (Continued)

Information Technology

Our main investments during the year were in training and information technology (IT), the cost of which increased by 0,2% and 49,5% respectively compared with 2010.

Our significant investment in IT and the related infrastructure is expected to start paying dividends in the financial year to come. Good progress has been made towards closing the gaps in the IT environment identified during the strategic review that informed Iemas’s current business strategy. The significant capital investment to date has addressed the risks identified during that review and Iemas is poised to embark on its IT infrastructure modernisation journey in line with its strategy.

Modernisation will take place in four stages over three years. The first year’s focus is on laying the necessary business foundation by setting business process management standards and policies governing business processes, then assessing current processes in the light of these and making the necessary adjustments over time. Stage one will create an agile and robust IT foundation infrastructure on which to build. Stage two will also commence in the first year. It will focus on creating customer-centric tools such as a customer relationship management (CRM) system and an enterprise resource planning (ERP) system. The implementation of the CRM system will contribute greatly towards obtaining a single view of the customer. Stage three and four will entail defining suitable support systems for short-term insurance, financial advisory services and loans to enhance these product offerings.

Impact of debt review process

The debt review process had a fair effect on Iemas’s business, as 743 members (2010: 871 members) with an outstanding balance of R31,3 million applied for debt review during the past year.

The National Credit Regulator (NCR) has reviewed the process and a committee has been instructed to implement a code of conduct for the debt review process. Iemas endorses this new Code of Conduct for the Combating of Overindebtedness and its implementation as we want to be part of the solution to this problem. Conservative approach

Iemas strives to enhance growth and profitability while protecting its own and members’ interest through a balanced, but conservative credit granting and credit control environment.

We achieved quality book growth and continued to apply cautious debt management. Our lending criteria were revised to enable us to protect members, but also to fulfil their needs.

Iemas remains conservative in its credit granting. We are very careful to maintain affordability and to be a responsible lender. We are well aware that any person needs to have take-home money after paying off debts, so we carefully balance the needs of members with the relationship of trust that we maintain with their employers.

Bad debt

Bad debt written off for the year under review was 1% of the total loan book (2010: 1,2%).

The bad debts on the asset-based loan book increased from R11,6 million to R17,4 million in 2011. The increase in the amount written off is a function of loan book growth and not the result of a deterioration in its quality. This amount arose mostly from the balances still owing on vehicles that were repossessed. However, Iemas is benefiting from an improvement in vehicle prices in the pre-owned vehicle market.

The increase in the provision for doubtful debts on the asset-based loan book from R18,5 million to R22,6 million can be attributed to the increase in the book. The provision on the unsecured loan book decreased to 3,8% (2010: 4,9%) of the loan book.

Loans in arrears comprise the capital outstanding of any amount for which payments should have been received but were not. Loans in arrears increased by 18,5% on the asset-based loan book and remained unchanged on the unsecured loan book.

In November 2008, we tightened our lending criteria on the maxi loan, our unsecured lending product. The maxi loan book declined thereafter, but increased again during this year. Our bad debt rate has declined from 7,3% in 2008 to 3,5%.

Collections become a particular challenge when members leave their employers. Member employment turnover did not improve during the year, although there were fewer retrenchments than in the previous year. We have formulated and implemented a retention strategy aimed at retaining members, even when they are no longer employed by a contracted employer. We also maintain good relationships with employers’ human resources functions to aid in collecting from or retaining members who change employers.



Bad debt (continued)

The code of conduct for debt review was implemented on 1 June 2011. It has implications for Iemas despite our policy of helping

members to avoid entering into debt review. Many unsecured loans had to be restructured, salary deductions had to be stopped

and payments had to come via payment distribution agents (PDAs). The evolution of the code will determine the extent of future

actions required.

Strategy

Last year, I set out our strategy for achieving our vision of being the preferred financial services co-operative for members and

employers.

In formulating this strategy, we made external and internal assumptions, some of which had to be tested in implementation. I am

gratified that all of our assumptions were confirmed, and that the area that stood out in importance was IT. Its prominence as a

success factor justifies the significant investment we are making in this sphere.

I am pleased to report that we are on track with executing our strategy and we believe it will contribute significantly to our

performance in future as well as enhancing the sustainability of the Co-operative.

Our key priority areas include the modernisation of our business to make us more resilient; our people; protecting and growing our

brand equity; growing our market share and ensuring sufficient funding at reasonable prices to finance our strategy. We aim to

achieve sustainable growth in targeted markets, foster a high-performance culture and keep strengthening our already sound

relationships with our major stakeholders.

Please grant me the opportunity to discuss our performance in our main strategic focus areas.

1. Business modernisation and streamlining of processes and procedures

The compliance and transactional ability of any financial services organisation depends heavily on its IT systems and infrastructure.

That is why we approved and spent R10 million on mitigating Iemas’s hardware and software risks.

We also engaged experts to map our IT capability against best practice and to assist us in formulating an IT roadmap based on our

business strategy. This resulted in the Iemas business modernisation project. We are moving away from our former highly

integrated home-grown systems to provide better support for financing activities – our biggest business. Over time, we are

untangling these systems to be more agile and robust and to equip us better to gain a single view of the customer.

During the next phases of our business modernisation project, we plan to spend between R18 million and R25 million on introducing

best practices in IT. In the coming year we will implement IT governance processes such as the control objective for information

technology (COBIT), IT infrastructure library (ITIL) and ISO 20000.

We are avoiding the trap of automating bad practices by reviewing our current processes and forms, including our manual

processes.

During the year under review, the institution of an Information Technology Advisory Committee was approved. This will include a

minimum of two non-executive directors, the Executive Director, Finance, two independent IT experts able to act in an advisory

capacity to the Board and myself, as CEO (ex officio). The Group Manager, Information Technology, will also attend the committee’s

meetings in an advisory capacity.

The purpose of this committee is to review and monitor our Co-operative’s technology strategy and significant technology

investments in support of its evolving business. Areas of review include information technology strategy, significant new technology

investments and our response to external technology-based threats and opportunities. In addition, the committee will oversee

Iemas’s mitigation of any identified enterprise-wide risks in these areas.

2. Funding

Access to funding is a challenge in the current tight economic climate and the significant growth in our loan book required additional

funding facilities. We were able to secure additional facilities to the value of R700 million and the consortium that supports Iemas

now includes all four major South African banks.



Owing to the continuous growth in Iemas’s loan book, especially in the previously disadvantaged population groups, a R200 million financing facility was secured and earmarked specifically for these members.

The term mismatch of funding remains a challenge, as our funding is renewable annually, yet the lending period for most of our products, for example vehicle loans, can extend to terms of up to six years. Iemas has investigated securitisation as a diversified funding mechanism and we intend to pursue this matter further early in the new financial year.

3. Growth

Iemas’s membership base grew by 4,3% in the past year, despite the market being stable and competition being robust. I am proud of this achievement.

Our financial advisory premiums increased by 30,4% to R26 million per year. Iemas also grew its policyholder numbers.

Our group funeral scheme has been completely rolled out and is attracting a high level of interest and showing good growth prospects.

The direct players in the insurance market have been very aggressive and have been taking market share from intermediaries. At Iemas, we see the value of the role of the intermediary in offering advice. Short-term insurance premiums increased by 5,7% to R170 million for the year, even though short-term insurance is a very competitive market. Short-term insurance is also a discretionary purchase and people tend to cancel their policies in situations where they feel financially constrained, or to have their policies cancelled owing to non-performance.

Iemas’s claims history is sound, which reflects the quality of our risk management. We do our underwriting on an individual basis. We have improved our short-term insurance product offering to members by offering them an additional quotation facility that enables them to choose between a larger range of insurance quotations.

Our lending business has also fared well as a result of our member-focused approach. During the year, the value of loans advanced increased from R1 465,4 million in 2010 to R1 864 million in 2011, an increase of 27,2%.

Vehicle loans remain our flagship product and contributed 63,9% of the total sales, leading to an increase of 25,8% in the loan book. To keep our competitive edge in this area, we have embarked on a relationship programme with approved motor dealers and a national agreement has been signed with the second largest motor group in South Africa.

The middle and lower income unsecured lending market is attracting a lot of attention from banks and retailers. As a result, we reviewed our unsecured loan product offering to ensure that we remain competitive and protect our share of this highly competitive market but also remain a responsible lender. We augmented our unsecured lending offering by introducing an emergency loan product during the year, in response to member needs. It enables us to assist members who have emergency needs and has been well received by our market.

4. People

Iemas’s people are one of our most important stakeholders. Employment costs, excluding training, comprise 60,1% of operating expenses.

A formal remuneration policy and strategy was approved by the Human Resources subcommittee of the Board. A process in which we benchmarked our remuneration against the market, revealed certain gaps, especially on lower levels. The Board approved an additional R3 million over and above normal salary adjustments to address these shortcomings.

One of our strategic focus areas is to improve our processes, which naturally has an effect on our people. Iemas addressed this by re-allocating or retraining the current employees or not filling vacancies. No people were retrenched.

I went on a roadshow during the year to ensure that I personally communicated our strategy to our people and discussed their vital role in the success of the strategy. This also provided them with an opportunity to raise any questions or uncertainties.

We continued rolling out our comprehensive wellness programme and our statistics show that our people use the wellness helpline, which offers one-on-one consulting and referrals to professional support services, to their benefit.

In pursuit of our high-performance culture, we ensured that performance management was implemented throughout Iemas and our training portfolio was streamlined in alignment with our strategy.



4. People (Continued)

Leadership development is being rolled out to Iemas management and has already been implemented at executive and senior

management level. Middle management will be developed during the 2012 financial year.

For more detail about Iemas’s people, see the sustainability report.

5. Brand rejuvenation

The successful rejuvenation of Iemas’s brand was achieved during the year. We changed our name to Iemas Financial Services to

reflect our core business. We also changed our logo and corporate identity. The brand of this Co-operative - the largest of its kind

in South Africa - now resonates with potential and younger members, yet is still recognisable to existing members.

The rejuvenated brand positions us better among our competitors, strengthens our image, reflects our strong legacy and

incorporates our new name and brand promise into our logo.

This rejuvenation exercise also provided us with the opportunity to cement our identity and purpose as an organisation. We

therefore restated our vision, mission and values. These are the cornerstone of our strategy.

We analysed our market and focused on segments, with the result that stakeholder management now underpins our marketing

philosophy. Employers have been divided into segments and a segmented service offering has been designed based on the

potential number of members likely to join because they work for a certain employer. This is enabling us to focus on our

relationships with employers more effectively.

Prospects

I look forward to another successful year of implementing Iemas’s strategy within the framework of its unique business model. We

have confirmed our value proposition and we continuously strengthen our relationships with our employers. We welcomed several

new employers during the year and we are looking forward to implementing our growth strategy by introducing our value

proposition to more employers in all spheres of business including local government, educational institutions, listed companies and

the private sector.

I expect our investment in IT to realise returns for both our people and our members and these projects will receive a lot of our

attention during the coming year.

Future endeavours in the branding sphere will focus on enhancing the Iemas experience for stakeholders. We will strengthen and

enhance our brand at all our branches, ensuring that members receive a level of service true to our promise to be “your caring

partner”.

Our asset-based finance offering is valued by our members and we plan to grow more in this area and also to increase our focus

on non-interest income. Market research into the Iemas card undertaken during the financial year will form the basis for product

design decisions to rejuvenate the card and make it a more attractive offering for members.

In this way, we will nurture and develop our unique value proposition, which adds value for our stakeholders.

As the business environment continues to improve, despite the inflationary effects of rising administered prices, we hope to

continue to be the caring partner of choice of South African organisations and their people. Although consumer debt levels are

expected to remain high and the economic recovery is moderate, I believe that Iemas will grow.

Future endeavours in the branding sphere will focus on enhancing the Iemas

experience for stakeholders.



Prospects (continued)

However, I foresee that it will be difficult for Iemas and other financial services providers to obtain and retain skills in future. We will soon feel the impact of the necessity for intermediaries to pass the Financial Advisory and Intermediary Services (FAIS) regulatory examinations. At present there is a low pass rate, so the industry has the potential to lose many of the current intermedi-aries.

We have invested in our training capability to combat this challenge and mitigate the risk of finding ourselves at a disadvantage to larger organisations. We have spent R2,3 million on training in the past year and plan to spend a further R4,4 million in the year to come.

The FAIS Act and other legislation such as the Consumer Protection Act and the Short-term Insurance Amendment Bill are major issues in the financial services industry at present, and I expect this to remain so in the year to come. We are also awaiting the final implementation of the Co-operatives Amendment Bill.

We will have to adapt our processes to meet the changing regulatory requirements and this will mean that we have to incur costs. However, despite the need to adapt that this legislation brings about, Iemas supports it to the full, because it matches our value proposition and co-operative principles.

Appreciation

In today’s connection economy, our relationships with our stakeholders are vital. The customer intimacy that we are able to provide is a major success factor for Iemas.

My heartfelt thanks go to our loyal members and employers. They are the foundation on which we built our success this year and will build our business in future.

A big thank-you to our Iemas people, too. They have been under pressure as a result of the strategy review and the extensive changes it is bringing about. I appreciate all they have done, their continued loyalty and their rising performance.

Finally, none of the achievements Iemas can be so proud of would have been possible without effective leadership. I thank my executive team and the Iemas Board for their commitment and teamwork and for giving me direction.

JSJ NelChief Executive Officer


BOARD OF DIRECTORS

Dr Hannes Liebenberg (50)BA Hons (US), M.A (US), D Phil (NWU), DPLR (UNISA)

Dr. Hannes Liebenberg is currently Manager of the Employee Relations at ArcelorMittal. Previously, he served in the position of

Manager, Human Resources, responsible for Newcastle, Vereeniging and Maputo also in ArcelorMittal South Africa. He served on

the Iemas Board for several years, with specific portfolio, Human Resources. His term will come to an end in October 2012.

Fergus Marupen (46)BA (Hons: Psychology) and B.Ed (Education Management), Masters Diploma in Human Resources Management,

Masters in Business Administration.

Fergus started his career in teaching before he joined the then Iscor as a Personnel Officer in Training in 1994. During his fourteen-

year tenure at Iscor and subsequently Kumba Resources Limited (formerly the mining division of Iscor), he served in a number of

human resources management positions at various mining operations in South Africa. In 2004, he was promoted to General

Manager, Human Resources. Fergus was also a member of the team responsible for the successful split of Kumba Resources into

Exxaro as a fully empowered mining company and Kumba Iron Ore Limited, a subsidiary of Anglo American. He was appointed as

Vice-President, Human Resources, for the Energy Coal business at BHP Billiton in 2008. He joined Absa in April 2010 as the Chief

Human Resources Executive.

Japie Streuders (51)BCom (Hons), CTA, CA(SA), Member of South African Institute of Chartered Accountants (SAICA).

Japie joined Sasol twenty one years ago and has worked in various divisions of finance at Sasol. He is currently the Chief Financial

Officer of Sasol Synfuels International (Pty) Limited.

Willem van Heerden (62)BCom (Hons), CTA, CA(SA), Advanced Management Programme at Darden Business School (University of Virginia).

Willem served as a partner at PricewaterhouseCoopers for eighteen years before joining Iscor in 1996 as General Manager, Internal

Audit. He held various positions in the group, inter alia General Manager, Finance, Iscor Mining up to 2001. Willem was involved

in the unbundling of both the Iscor Group in 2001 and of Kumba Resources Limited in 2006. He is currently the Head of Corporate

and International Finance at Kumba Iron Ore Limited. Willem serves on a number of boards, trusts and pension funds.

Dirk van Staden (62)B-Iuris, LL.B, Advanced Management Programme at the Institute of Business Administration (Insead).

Shortly after qualifying as an attorney, Dirk joined the Industrial Development Corporation (IDC) where he branched out into the

financial and treasury fields and progressed to General Manager responsible for foreign and domestic treasury operations, group

funding and project and corporate finance. In 1997 Dirk joined the former Iscor as General Manager, Group Treasury where he was

tasked as the team leader for the unbundling of the mining division of Iscor which culminated in the separate listing in 2001 of

Kumba Resources Limited of which he became the Financial Director. Upon the subsequent unbundling of Kumba Iron Ore Limited

from Kumba Resources and the contemporaneous revised listing in 2006 of Kumba Resources as a fully empowered mining

company under the name Exxaro Resources Limited, Dirk continued as the Financial Director of Exxaro until his retirement from

full time corporate life in March 2009. Currently Dirk serves on a number of boards as an independent non-executive director.

Sibusiso Vil-Nkomo (56)B.A., M.A., Ph.D.

Sibusiso was appointed as Public Service Commissioner by former President Nelson Mandela in 1994. Former Dean of the Faculty

of Economic and Management Sciences at the University of Pretoria, he was appointed as Executive Director in the Executive of the

University of Pretoria from October 2003 to December 2011.Sibusiso is to be awarded the Fulbright Distinguished Research

Professorship grant by the United States government on 20 September 2011. He has extensive knowledge on governance and

fiduciary responsibility and has served on private and public sector boards.


EXECUTIVE MANAGEMENT

Johan Nel (53)Chief Executive OfficerBCom(Hons), CTA, CA(SA). Member of the South African Institute of Chartered Accountants (SAICA).

Prior to his appointment as CEO at Iemas on 1 April 2010, Johan served on the executive management of the University of Pretoria. Apart from his responsibilities as CFO, he was instrumental in establishing a very successful private company structure through which the university conducted its continuing education and other business activities. Prior to that, he was a partner in one of the large auditing firms for 12 years. He has vast business experience as well as experience in the fields of financial, risk and investment management and has served on various boards.

Herman Kriel (47)Executive Director, OperationsBCom Hons (CIS)

Herman started at Iemas on 1 March 1998. He managed the South Gauteng region before his current appointment. Herman is responsible for the credit control, credit screening and administration functions in Iemas. Prior to that, he was employed at a listed company where he was responsible for Internal Audit and later became the company secretary.

Tom O’Connell (40)Executive Director, FinanceBCom (Hons), CTA, CA(SA), MDP, International Executive Programme (Insead). Member of the South African Institute of Chartered Accountants (SAICA).

Prior to starting his career at Iemas in October 1995, Tom was with an auditing firm. He was appointed as head of the finance division at Iemas in October 1998 and as Executive Director, Finance in July 2006. Tom has 19 years’ experience in finance and audit and is responsible for the finance and funding function at Iemas.

Peter Wolmarans (47)Executive Director, SalesBCom (Hons), MBA

Peter started his career at Iemas in 1988 and has broad experience in Iemas’s business units, including Short-term insurance, Financial Advisory Services and Financing. Peter managed the Mpumalanga region for several years.

Madelein Barkhuizen (37)Group Manager, Business Development and Corporate CommunicationBCom Cum Laude (Hons). Member of the International Association of Business Communicators (IABC).

Madelein started at Iemas in October 1998 and has 17 years’ experience in marketing and communication. She is responsible for two functions: business development and corporate communication.

Chris Bornman (52)Group Manager, ITBCom (Hons)

Having started at Iemas in November 1994, following a career in banking and the steel industry, Chris is now responsible for Iemas’s IT infrastructure, systems and enterprise architecture. He has been responsible for the IT function at Iemas since its inception.

Leonie Louw (40)Group Manager, Human ResourcesBA Communication with Honours Status, International Diploma in Advanced Training and Education.

Leonie started her career in the public sector in a communication role and moved to Iemas in 2000. Her first role was in relationship management on regional level. From there she moved into skills development. She assumed responsibility for the entire human resources function a year ago.


EXECUTIVE MANAGEMENT (Continued)

Sydney Maluleka (44)Group Manager, Internal AuditBCom Accountancy, HDip Computer Auditing. Member of and signed up as a mentor with the Institute of Internal Auditors (IIA).

Sydney started working for Iemas in February 2008, having started his audit career in 1994. He has extensive experience in the risk control and governance environment.

Francois van Dyk (44)Group Manager, Projects and ComplianceBCompt (Hons), CTA, MDP, Advanced Project Management certificate (APM). Member of the Compliance Institute.

Francois started at Iemas in 1992 and established its Internal Audit division. Prior to that, he did his articles at an auditing firm. He has broad experience in all aspects of Iemas’s business.


CORPORATE GOVERNANCE

The Iemas Board is committed to the highest standards of corporate governance which, it believes, create the foundation for the

business integrity that is required to ensure the success and long-term sustainability of the Co-operative.

The Board has taken cognisance of the recommendations of the King III report and it is Iemas’s policy to comply as far as practically

possible with the recommended practices and conduct to the extent specifically agreed to by the Board.

Role and function of the Board

The Board of directors remains responsible for the Co-operative in its entirety. Functioning within the ambit of an annually reviewed

charter and supported by a delegation of authority, the Iemas Board provides guidance to management in formulating Iemas’s

strategic direction, objectives and values. This is achieved by exercising leadership, integrity and judgement in directing the

Co-operative to ensure a sustainable business model.

The Board of directors is the highest decision-making body and is ultimately responsible for governance.

Changes to the Board

The Co-operatives’ constitution was amended at the 2010 Annual General Meeting, increasing the total number of non-executive

directors from seven to eight. Following the registration of a special resolution and the amendment of the constitution, there is a

casual vacancy on the Board. The Board has decided to fill the vacancy during the next financial year, at the October 2011 Annual

General Meeting.

A change to the constitution, which was approved at the 2010 Annual General Meeting, relates to the postponement of the planned

retirement of three long-standing directors. The implication of this amendment is that, to ensure continuity on the Board, three

directors, Dr H Liebenberg, Mr J Streuders and Mr W van Heerden, will be retiring at the 2012 Annual General Meeting and not at

the Annual General Meeting scheduled for October 2011.

The amendment to the constitution will enable the Board to ensure continuity and the retention of the required skills and experience

at Board level through an effective rotation methodology.

Board composition

In determining the optimum composition of the Board, the Board seeks to ensure that it collectively contains the diversity, skills and

mix of personalities, knowledge and experiences appropriate to Iemas’s strategic direction and necessary to secure its sound

performance.

The Board comprises a majority of member-elected non-executive directors and consists of four executive directors and eight

non-executive directors. Among them, these directors have the necessary skills, knowledge and experience to guide decision-

making and strategy formulation.

The composition of the Board ensures that there is a clear division of responsibilities to ensure a balance of power and authority.

No one individual has unfettered powers of decision-making.

The Chairperson and the Vice-Chairperson of the Board are non-executive directors, elected by the majority of the Board members

at the first Board meeting after the Annual General Meeting.

The roles of Chairperson and Chief Executive Officer are separate and distinct. The majority of directors on the Board are

member-elected non-executive directors. The number and calibre of non-executive directors on the Board ensures that Board

decision-making is sufficiently informed by independent perspectives.

Appointment and induction of directors

The appointment of members of the Board is governed by a formal, structured and transparent nominations and appointment policy.

The policy is aligned with all the relevant legislation and regulations, including, but not limited to, the requirements of the

Co-operatives Act and the requirements of the Iemas Constitution.

Newly appointed Board members are formally inducted through a programme comprising reading, interviews and exposure to

Iemas’s operations.


CORPORATE GOVERNANCE (Continued)

Secretary of the Co-operative

Even though the Co-operatives Act does not require the Board to appoint a secretary, the Board has elected to allocate the responsibilities associated with a company secretary to one of the executive managers. The secretary acts as a conduit between the Board and the Co-operative.

Board administration as well as liaison with the Registrar of Co-Operatives and the Companies and Intellectual Property Commission (CIPC) takes place in this environment. Board members also have access to legal and other expertise through the secretary, when required and at the cost of the Co-operative.

Board committees

The Board has the power to appoint Board committees and to delegate powers to such committees at the discretion of the Board. The Board recognises and accepts the legal principle that, while certain powers are capable of delegation to individuals and/or committees, the ultimate accountability for the matter delegated remains with the Board. Authorities delegated by the Board accordingly always entail a simultaneous requirement of reporting to the Board and an obligation on the part of the Board to monitor and evaluate the activities of committees and individuals with delegated authority.

The Board oversees a structure of committees comprising the following:


Committee Purpose Quorum Frequency of meetings

Board of Directors

Human Resources Committee

Audit and Risk Committee

Information Technology Advisory Committee

The Board of Directors is responsible for Iemas’s strategy and fulfils an oversight and guidance role.

The main functions of the Human Resources Committee are to determine Iemas’s remuneration policies and strategies, conditions of employment, oversight of its EE plan as well as to act as an appointment committee at executive management level. The committee is specifically mandated to determine the CEO’s, executive directors’ and executive management’s remuneration, bonuses and incentives.

The Audit and Risk Committee assists the Board in fulfilling its responsibility to oversee the quality and integrity of Iemas’s accounting, auditing, control, risk management, and financial reporting practices.

This committee consists of members of the Audit and Risk Committee and two additional members with industry specific expertise. Its purpose is to review and monitor Iemas’s technology strategy and significant technology investments in support of its evolving business. Areas of review include information technology strategy, significant new technology invest-ments and Iemas’s response to external technology-based threats and opportunities.

The majority of members of the committee shall constitute a quorum for a meeting of the committee.


Not less than four times a year.

Not less than twice per year.

The majority of directors shall constitute a quorum for a meeting of the directors provided that the majority of directors attending the meeting shall be non-executive directors.


Not less than four times a year.

Not less than twice per year.


Board meetings

The Board meets regularly and meetings are scheduled a year in advance according to a meeting schedule agreed upon. Additional Board meetings are convened as circumstances dictate. The number of meetings held during the financial year (including meetings of sub-committees of the Board) and the attendance of each director, are as indicated below. Reasons for non-attendance are submitted to the Chairperson.

Secretariat

Mr PDF van DykPrivate Bag X924, Pretoria, 00011249 Embankment Road, Iemas Park South, Zwartkop x7, CenturionTel: 012 6747074Fax: 012 6747043E-mail: [email protected]

Remuneration of the Board and executive management

The remuneration of directors, executive management and all other employees is dealt with by the Human Resources Committee. This committee is chaired by a non-executive director.

The role of the committee is to assist and advise the Board to ensure that directors, executives and other employees receive fair, responsible and market-related remuneration.

The Human Resources committee is responsible for determining, reviewing and approving Iemas’s remuneration, which specifically includes the following: • Iemas’s general policy on remuneration; • The general annual increase; and • The policy for determining directors’ and executive management’s remuneration.

The Human Resources Committee is also responsible for the remuneration policy for non-executive directors of the Board, including their service on any of the Board’s committees. Non-executive Board remuneration is based on a fixed fee structure, and related to meeting attendance.

Directors’ remuneration during the financial year is detailed in note 22 in the financial statements.


Initials and surname Board Executive Committee

of the Board

Audit and Risk

Committee

Human Resources Committee

Information Technology

Advisory Committee

Non-executive directors

Executive directors

WF van Heerden (Chairperson) 4/4

4/4

3/4

4/4

4/4

4/4

4/4

4/4

2/3

4/4

3/4

1/1

1/1

1/1

1/1

1/1

1/1

1/1

3/3

3/3

3/3

3/3

3/3

3/3

3/3

1/1

3/3

2/2

1/1

1/1

1/1

1/1

1/1

J Liebenberg

FCS Marupen

DJ van Staden

S Vil-Nkomo

JD Streuders

JSJ Nel (CEO)

HJ Kriel

TD O’Connell

PD Wolmarans

AJ van Rooyen (Resigned during the year)

Iemas’s Code of Conduct is based on principles of integrity, client-centricity, leadership

and positive results while endeavouring to stimulate excellence, teamwork, effective

communication and diversity.


Conflicts of interest

A director has a duty to disclose every personal conflict of interest to the Co-operative at every meeting of the Board. A director is required to make a prompt and full disclosure in writing of any material interest, either direct or indirect, that he or she may have in a transaction to which Iemas is a party. The disclosure must include the nature and extent of such an interest and any material change to such an interest. No matters of conflict have been declared in the period under review.

Iemas’s management is also required to disclose every personal conflict of interest to the Co-operative annually. Declarations are presented to the Chief Executive Officer, who refers any potential areas of conflict to the Board of Directors.

Audit and Risk Committee

The Audit and Risk Committee comprises three member-elected non-executive directors. The chairperson of the Board is also a full time member of the Audit and Risk Committee.

The committee’s responsibilities, as derived from a Board-approved charter, concern all financial disclosure as well as all controls affecting the integrity of such disclosure. In this regard, the committee members are the custodians of corporate reporting and oversee its extent, format, frequency, content, quality and integrity.

The appointment of external auditors also occurs upon the recommendation of the Audit and Risk Committee. The committee oversees the results of the external audit process.

The Audit and Risk Committee is responsible for the management of risk in Iemas. The Board has approved a risk management policy and framework that clearly reflects the processes followed to identify, evaluate and manage risks.

The Audit and Risk Committee is annually elected by the Board to assist in carrying out its responsibilities in relation to risk management and is responsible for the following: • Reviewing the risk management process and the significant risks recorded; • Continuously monitoring the risk management process; • Considering and evaluating, among other things, the Risk Register with recorded significant risks, the estimated cost of significant losses, whether risk management costs are consistent with the risk profile of the business, material changes to the risk profile and information technology risks. • Overseeing insurance arrangements, including the acceptance of risks that will not be insured; and • Facilitating and co-ordinating the development and implementation of risk management in the Co-operative.

The Audit and Risk Committee is also responsible for overseeing the Co-operative’s internal audit function. It approves the internal audit plan annually and is responsible for monitoring the performance of the Group Manager, Internal Audit, who reports to the Committee.

Ethics and organisational integrity

The Board, its committees, individual directors, executive management and employees of the Co-operative acknowledge their collective responsibility to ensure that the principles set out in Iemas’s Code of Conduct are observed. Ethical conduct is fundamental to good business and all concerned have accepted these norms voluntarily and unconditionally. Iemas’s Code of Conduct is based on principles of integrity, client-centricity, leadership and positive results while endeavouring to stimulate excellence, teamwork, effective communication and diversity.

An externally operated Ethics and Fraud Hotline is available to both internal and external stakeholders to enable them to report any violations anonymously.



Independent assurance

External audit

PricewaterhouseCoopers Incorporated acts as the external auditor of the Co-operative and expresses an independent opinion on the annual financial statements.

There is close co-operation between Iemas’s Internal Audit division and the appointed external auditors, with the aim of ensuring appropriate combined assurance and minimising duplicated effort.

The external auditors’ plan is reviewed by the Audit and Risk Committee to ensure that significant areas of concern are covered, without infringing on the external auditors’ independence and right to audit. The Audit and Risk Committee also constantly monitors the ratio between fees paid to the external auditors for audit purposes versus those paid for other professional services rendered by the external auditors.

The appointment of external auditors is confirmed annually at the Annual General Meeting.

Internal audit

Iemas Group Internal Audit operates in terms of the Audit and Risk Committee’s approved charter to provide management with an independent, objective consulting and assurance service that reviews matters relating to control, risk management, corporate governance and operational efficiency.

The function’s responsibility is to provide an independent assessment and appraisal of Iemas’s systems of internal controls and policies and procedures to monitor how adequate and effective they are in ensuring the achievement of the Co-operative’s objectives as well as the relevance, reliability and integrity of management and financial information.

Internal Audit functionally reports to the Audit and Risk Committee and operational matters are reported to the Chief Executive Officer. This reporting structure does not impair the function’s independence or objectivity.

There is regular communication between the Chief Executive Officer, executive management, the external auditors and the Group Manager, Internal Audit.

The Group Manager, Internal Audit, is required to attend all Audit and Risk Committee meetings and submit reports on the progress of audits conducted and the status of the approved internal audit plan.

All Iemas’s business operations and support functions are subject to internal audit. The Audit and Risk Committee approves the internal audit plan, which is based on an annually conducted companywide risk assessment. Internal audits are conducted in accordance with the Institute of Internal Auditors’ professional standards.

In addition to the above, Group Internal Audit participates in the risk management process in an advisory capacity without assuming responsibility for risk management. The latter remains the responsibility of the relevant line management.

Group Internal Audit also conducts independent reviews into fraud and other similar acts of dishonesty, including matters reported on the externally operated Ethics and Fraud hotline. Increasing emphasis is being placed on continuous awareness of the utilisation of Iemas’s externally operated Ethics and Fraud Hotline, which allows internal and external callers confidentiality and anonymity with regard to matters they wish to report.

All non-compliance results from planned audits, special project and/or forensic investigations are referred to management at all levels for corrective action. Corrective action is monitored at regular intervals.


RISK MANAGEMENT REPORT

Risk management philosophy and objectives

Risk management is embedded in Iemas’s philosophy, practices, strategic planning, line management responsibilities and

operations. The objectives of risk management are achieved by managing risk in terms of an integrated, structured approach based

on recognised risk standards and best practices. This includes the following risk management principles and objectives:

• Risk management contributes to the achievement of objectives and performance in identified risk areas;

• Risk management is an integral part of all organisational processes;

• Risk management is part of decision-making;

• Risk management explicitly addresses uncertainty;

• Risk management is systematic, structured and timely;

• Risk management is based on the most accurate available information;

• Risk management facilitates continual improvement of the organisation;

• Risk management creates a culture of all Iemas’s people taking responsibility for the risk management in their respective area

of the entity;

• Risk management ensures the identification of threats and their management in a structured way;

• We need to be more pro-active in our management approach; and

• We need to optimise the allocation and utilisation of resources.

Risk management is focused not only on threats, but also on the opportunities created by proper risk management principles and

procedures.

Risk management and reporting

Although Iemas has adopted the philosophy that risk management is the responsibility of all line managers, there are structures in

place to exercise control and oversee the risk management process. The Board is ultimately responsible for ensuring that Iemas

has an effective risk management policy and process in place. This responsibility is delegated to the Audit and Risk Committee.

It is the responsibility of the Risk Management Committee, which comprises the CEO and executive directors, to identify, analyse,

evaluate and consider risk treatment plans and reduce these into responsibility areas where the risks are managed on a smaller

scale within the parameters of the relevant areas.

Monitoring and review includes the following actions:

• Measuring risk management performance against indicators;

• Measuring progress against the risk treatment plan and reporting progress; and

• Reviewing whether the risk management framework, policy and plans are still effective.

Reporting of risk management results forms an essential part of monitoring. Risk management sub-committees at all levels in

Iemas regularly report to their respective executive management team members on progress made with the risk treatment plans

within their ambit of responsibility.

The chairperson of the Risk Management Committee regularly reports to the Audit and Risk Committee.

Information technology

Information technology (IT) is crucial to remaining competitive, ensuring sustainability and continuously improving service delivery

to members. Following the revision of Iemas’s strategy, it became evident that IT would play an important role in implementing

the strategy and achieving its goals. Iemas embarked on a project to define an IT strategy and roadmap that would ensure efficient,

effective and agile IT systems and streamlined procedures to ensure business continuity and competitiveness.

Relationships

Iemas’s business model is based on strong relationships. We acknowledge that it is important to maintain sound relationships with

the employers to which Iemas is contracted and whose employees form Iemas’s member base. Continuous involvement with these

employers and a thorough understanding of Iemas’s value offering is important to ensure that employers support Iemas’s

initiatives to grow its member base.


Our commitment to diversity is demonstrated through strategic initiatives aimed at

providing training to employees and raising their awareness of diversity and its

advantages, as well as appointing people of diverse backgrounds at all levels in the

Co-operative.

RISK MANAGEMENT REPORT (Continued)

Debt collection

Dual collection systems enable the collection of amounts payable by members. In certain areas of the business, members have the

choice of paying either by means of a salary deduction or by means of a regulated non-authenticated early debit order (NAEDO)

system.

The majority of collections for credit agreements are made by way of a salary deduction from members. Such collections are made

in accordance with agreements concluded with the employers and members. Effective collection systems ensure the prompt

payment of outstanding premiums and instalments and also strengthen relationships with employers, who depend on Iemas to

provide them with accurate information.

Business continuity

Business continuity and disaster recovery procedures to be followed should an extreme event occur are of the utmost importance

to ensure that Iemas renders an uninterrupted and professional service to members and other stakeholders.

The IT division conducts regular evaluations of Iemas’s ability to recover data within an acceptable time limit. Critical matters are

identified and addressed by IT and the relevant business units to ensure that the time required to recover is acceptable to ensure

minimal impact on the business in the event of a disaster.

Disaster recovery and evacuation plans have been developed by management. Rates of injury, occupational diseases, lost days and

absenteeism resulting from occupational injuries and the number of work-related fatalities are insignificant because Iemas’s

business activities are mainly office based.

Transformation

Transformation should be viewed in its full context.

Employment equity (EE) is an important contributor to transformation, therefore Iemas has adopted a formal EE plan and monitors

its progress against the plan.

However, we also embrace a wider view of transformation and diversity. Diversity at Iemas includes ethnic background; gender;

age; and work and life experience. Our commitment to diversity is demonstrated through strategic initiatives aimed at providing

training to employees and raising their awareness of diversity and its advantages, as well as appointing people of diverse

backgrounds at all levels in the Co-operative.

Good progress has been made in terms of EE transformation and 59% of the Co-operative’s people were from designated groups

at year-end. Iemas still faces transformation challenges at the middle and senior management levels.


COMPLIANCE REPORT

Iemas has implemented a dual compliance strategy. Monitoring and reporting in the Financial Advisory and Intermediary Services (FAIS) Act and Financial Intelligence Centre Act (FICA) spheres is outsourced to an independent compliance firm that also acts as the primary compliance officer. Iemas’s dedicated Compliance division is responsible for monitoring compliance in all other disciplines of the Co-operative. The Compliance division manages compliance risk, which is defined as “the risk that the controls implemented to facilitate compliance with the relevant statutory and regulatory requirements are inadequate or inefficient”.

Owing to its diverse operating environment, Iemas has to fulfil a vast number of statutory and regulatory requirements in terms of the applicable legislation, regulations and industry codes. The head of compliance reports directly to the executive management of Iemas.

A compliance management framework is in place and functioning. A compliance champion model is implemented whereby senior product managers, who report to the executives of the various business units, are responsible for compliance within their respective environments.

Impact analysis is done to assist with the identification of compliance objectives and the assessment of compliance risks as well as the documentation of key controls and monitoring activities. The compliance function continuously performs independent compli-ance monitoring through an independent compliance monitoring officer, in accordance with a compliance monitoring plan.

All material incidences of non-compliance are reported to executive management. These are also reported to the Audit and Risk Committee, where necessary.

For the period under review the compliance officer submitted a report that indicated compliance by Iemas to statutory and regulatory requirements in all material respects, and none of the incidences of non-compliance listed were material. These were either rectified or are in the process of being addressed. No material regulatory sanctions or penalties were issued against Iemas as a result of non-compliance during the period under review.

Changes to the Co-Operatives Act have been proposed by the Department of Trade and Industry. It is anticipated that the Bill will be promulgated during the 2012 financial year and early indications are that Iemas’s strategies and operating activities are in line with the likely requirements of the amended act.

A compliance management framework is in place and functioning. A compliance

champion model is implemented whereby senior product managers, who report to the

executives of the various business units, are responsible for compliance within their

respective environments.


SUSTAINABILITY REPORT

Sustainable financial performance, governance, regulation and stakeholder relationships, responsible financial services provision, socio-economic development, our impact on the environment and a positive and consistent employee base are at the heart of Iemas’s approach to sustainable development.

King III advocates that a sustainable company’s strategy should align to its economic, social and environmental performance. Iemas’s core business is delivering financial products and services to individual members. Iemas does not own production facilities and this limits our environmental impact, but we still consider the triple-bottom-line approach to be integral to our success.

We are aware that not all aspects of our strategy are refined as yet, but we are in the process of formulating practical ways in which Iemas can respond to the challenges and opportunities presented to reinforce our sustainability and that of the communities in which we operate.

Stakeholders

We developed new corporate vision and mission statements in the course of Iemas’s brand rejuvenation. These have an impact on how we relate with stakeholders throughout our business.

The communication strategy and relationship strategies were redefined and certain areas reconfirmed to ensure that communication and relationships across all functions reflect our values, our corporate image and our brand.

Iemas’s co-operative business model requires that we communicate with various stakeholders through various mediums to strengthen relationships and to ensure that important information is conveyed to and from different stakeholder groups. Relationship management responsibilities are delegated to operational areas.

A co-operative culture entails a network of interactions. Iemas’s relevance to the market in which we operate depends on continued and meaningful engagement with our stakeholders. Stakeholder management involves the optimal employment of Iemas’s resources to build and maintain good relationships with our stakeholders. These relationships underpin business sustainability.

Iemas caters for the needs of its six major stakeholders as outlined in this report.

1. Members

As a Co-operative, Iemas has its members’ financial wellbeing at heart and considers them to be a major stakeholder in its success.

Our members value competitive prices, regular communication, professional service, annual bonuses and accessible products and services.

Bonuses

One of the major ways in which Iemas promotes the interests of its members is by allocating a significant portion of its profits to members in the form of bonuses.

In November 2010, members received bonuses amounting to R78,4 million. Bonus payments are inherent in co-operative principles and an important differentiator for Iemas. Recent research has shown that members value the annual bonus payments highly and the bonuses increase member loyalty.

In addition to this, member bonuses are paid and consist of a portion that is paid to the member in cash and a portion that is allocated to the member’s reserve fund or Deferred Bonus Payment Fund (DBPF). This fund acts as a savings fund for each member, on which they received 7% interest during November 2010. Bonuses proposed for 2011, amount to R95,9 million, a record bonus year for Iemas members.

Indebtedness

Iemas serves a highly indebted South African market and is committed to providing its members with sound advice, caring service and prudent products.

The approach that Iemas takes is to be approachable and to do everything in its power to help members to take a healthy approach to debt. Iemas goes to great lengths to ensure that members understand the implications of entering into debt review and does as much as possible to help members to avoid taking this drastic and option-limiting step.


SUSTAINABILITY REPORT (Continued)

Indebtedness (Continued)

Members are assured that Iemas will listen and endeavour to adjust terms and interest rates within its policy and the set boundaries. Iemas is also prepared to counsel members about the full scope of their debt, even if a major part of that debt is owed to organisations other than Iemas.

To help members to avoid becoming overindebted, Iemas provides consumer training to empower them to handle their finances sensibly. Iemas is also careful to remain a prudent lender, not sacrificing loan book quality for the sake of growth.

Accessibility

One of Iemas’s strengths is the lengths to which it goes to make its services and products accessible to members and to provide members with access to finance to improve their wellbeing.

One of the ways in which Iemas helps low-income members to build wealth is to enable them to access the equity built up in their retirement funds by providing pension-backed housing finance. Members who belong to a pension or provident fund can enter into an agreement with Iemas to access finance to buy, build or renovate a home.

We maintain an extensive physical footprint, including the Iemas head office in Centurion, Tshwane, regional offices in Centurion, Vanderbijlpark, Secunda, Bellville and Newcastle and 30 branch offices. We try to position our offices as close to our employer groups as possible. In the 2012 financial year, we will relocate our Bellville office to new premises in Bellville to make it more accessible for our members and we plan to open a new branch office in Rustenburg.

Our branch network is augmented by Iemas representatives placed permanently at members’ places of work where this is required. Travelling advisors are available where employers have need of them. These advisors visit the workplace, providing members with access to products and services on site.

In addition to this physical network, Iemas has enhanced its e-sales offering to offer members more contact channels. This will be a major focus area in the 2012 financial year as we receive a growing number of enquiries from members wanting to use e-sales. This channel offers the advantages of quicker turnaround times, accessibility for members who are not close to a branch and interaction without having to see a consultant. It also provides a cost saving for Iemas.

Iemas also continuously assesses and modernises its back office functions to improve service to members.

For more information about the business modernisation project and the products and services Iemas offers its members, see the CEO’s report in this annual report.

Communication

During the past year, we reviewed and improved all the communication channels and mediums we use to ensure effective communication with our members.

Iemas members receive monthly statements of their commitments to Iemas, although the National Credit Act only requires that financiers provide consumers with quarterly statements.

Members who wish to compliment Iemas or complain have access to the Iemas website, our contact centre, our branch network, our Fraud and Ethics Hotline or Hellopeter.com to do so. We also introduced an escalated complaints procedure to enable members to escalate their complaints if they feel the need to do so. This procedure is communicated to members via the Iemas website and at our offices.

We conducted extensive market research during 2010 to reconfirm member needs and the feedback from members has been included in our various product and communication strategies.


During the past year, we reviewed and improved all the communication channels and

mediums we use to ensure effective communication with our members.


2. Employers

Iemas renders services to the employees of more than 550 employers. Relationships are built on mutual trust. These employers trust Iemas to provide competitive products to their employees, to do responsible credit screening and to value the overall wellness of their employees. Employers also require a seamless administration process.

Operating divisions are empowered to manage employer interfaces in accordance with the particular needs of their regions and the needs of the relevant employers. Group oversight ensures that their approaches are appropriately aligned.

During the year, we refined our employer management system, which allows us to capture complete contact and relationship details to ensure that we have oversight of all our employers.

We believe that people who are financially informed, educated and responsible will ensure a sustainable future. Therefore Iemas has provided financial skills training to the employees of our contracted employers, free of charge, for more than ten years. This significantly contributes to the financial wellness of our members and is valued by their employers because financial concerns have a major impact on productivity levels.

The Iemas Money Matters training programme is provided in a number of languages and consists of seven modules ranging from escaping from the debt spiral and budgeting to buying a house. During the past year, 1,556 members completed Iemas’s financial skills training course.

Iemas also supports employers in their initiatives to improve the overall wellness of their employees and is a regular participant in their wellness days. At these events, we offer potential and existing members advice and material on financial matters such as funeral planning and insuring valuables.

3. Our people

Employee profile

The effect of Iemas’s employment equity and transformation policy is revealed in its employee profile, which is currently as follows:

Diversity and disability integration

One of our corporate strategic priorities is to embrace and value diversity. Therefore, to promote good teamwork among our diverse employee corps, we run a diversity integration programme. In total, 131 people have completed the programme, of whom 88.5% (116) are currently in our employ.

During this financial year, 42 of our people completed the programme and another group will be enrolled for this course in the coming financial year.

To further support our commitment to diversity, an official English language policy was developed and implemented this past year.


41%62% Female

38% Male48%

5%

4%

25%

17%

49%

5%

6%

Black AfricanBlack ColouredBlack IndianWhite

Below MatricMatricCertificate / DiplomaFirst Degree / Higher DiplomaHonours / Masters Degree

Race Gender Educational profile

We developed and launched six new in-house training programmes this year in support

of our strategic priorities, to entrench our corporate value of professionalism and to

develop a high performance culture.


Diversity and disability integration (Continued)

This financial year also saw a great investment being made in renovations at our head office and contact centre buildings in Centurion, Tshwane, to make these buildings more friendly to people with disabilities. A R250,000 project produced a series of ramps, special parking allocations and adjustments to access control doors to make our offices more accessible, specifically to people in wheelchairs.

Employee wellness

We conducted our first official wellness measurement in Iemas during this financial year and achieved a 62% wellness score.

We continued with our four wellness workshops for our people to proactively provide them with general life tools and to help them to deal with stress and trauma. 57% of our people attended these workshops. In addition to this, 12% of our people benefited from an eight-week trauma release exercise programme that was presented specifically for contact centre employees, who operate in a high-stress environment.

The number of employees accessing the Iemas Wellness Helpline for individual support or reference to individual life coaching consultation sessions has steadily increased since the previous financial year, when the service was first launched. To us, this indicates improved awareness among our people of the channels available and trust in the counselling that they receive.

Skills development and training

A budget of R3,1 million was approved for training and skills development activities during the year under review.

These funds were mostly applied for compliance purposes (Financial Advisory and Intermediary Services (FAIS) credits) and regulatory examinations for our more than 200 salespeople, who have to comply with FAIS legislation and Financial Services Board (FSB) regulations.

We also invested significantly in upskilling our IT people. All technical staff received IT infrastructure library (ITIL) foundation training. Other IT skills were also developed and improved by training.

Our other focus areas included leadership and management development; customer interfacing; learnerships; and in-house training, such as the induction course, diversity integration programme, performance management training and operational training in products, systems and procedures.

We developed and launched six new in-house training programmes this year in support of our strategic priorities, to entrench our corporate value of professionalism and to develop a high performance culture.

Nearly R50 000 was directed towards study bursaries for 15 employees, to enable them to obtain their MBA degrees. Two of these people are further supported with Bankseta funding.

Leadership development

To develop our leadership capacity as one of our strategic priorities, 25 of Iemas’s executive and senior management team members are enrolled in an extensive executive leadership development programme, stretching over eight months and into the next financial year.

The second of our three executive directors has enrolled in an international postgraduate leadership programme offered by Harvard University in the United States, which will commence early in the next financial year.

Next year, the next level of management will also enrol for leadership training.



Learnerships

Two previously unemployed learners participated in the internal audit learnership this year, one of whom completed the programme successfully.

Five previously unemployed and four Iemas-employed (internal) learners successfully graduated from the contact centre support learnership and seven internal learners completed the contact centre operations learnership.

Five external learners are currently being recruited for a combined contact centre and short-term insurance learnership that will be launched early in the new financial year. One internal learner will be registered for a human resources learnership.

Establishing a high-performance culture

We have made good progress with the implementation of our formal performance management programme and it will be refined further in the new financial year.

From this financial year, executive management’s rewards and remuneration are linked to their performance reviews. This principle will apply to the next level of management in the next financial year.

Official performance reviews, together with identified competencies and skills sets, will lay the foundation for further development, succession planning and career pathing in support of a high-performance organisational culture.

Change management

A professionally outsourced change management programme provided support for the IT division through its structural changes as a result of the business modernisation project. Emphasis was placed on communication, teamwork and motivation. Emotional support, resilience and agility for change were also addressed and established among our IT people.

Communication

Employee engagement is vital to establishing the performance-driven culture that Iemas desires and communication is essential to achieving this.

Communicating our new strategy and making it tangible required innovative thinking and a creative approach to ensure that our people could relate to the strategy and make it their own. Communication initiatives over a four-month period strongly embedded the new strategy. Apart from the normal channels such as the intranet and mass e-mail, this campaign included online discussion forums, PowerPoint presentations, screensaver images, road shows, competitions and surveys.

The initiative achieved an impressive 97% success rate and the return on investment was 26,1%.

There is clearly a vibrant shift in the engagement levels of our people, who relate well to the strategy and are living our corporate values more each day.

We encourage feedback from our people and respond to it.

The Iemas fraud and ethics line is available to our people and enables them to report suspicious actions by fellow employees anonymously.

4. Government and regulators

Iemas is subject to the oversight of the FSB. We regard our compliance with the relevant regulations affecting financial services as of the utmost importance. Iemas works closely with regulators to protect its stakeholders’ interests, avoid reputational damage and prevent or mitigate the potential negative impact of new legislation or regulations as well as changes to existing legislation or regulations.

We maintain a good relationship with the FSB. During the year under review, we held discussions with the FSB, informing it of our business model. We also discussed the new FAIS regulatory examinations (REs) and our capital adequacy requirements.

We have submitted comments on the Co-operatives Bill and also met with the Registrar of Co-operatives to discuss the intentions of the bill.

Our escalated complaints procedure was implemented to meet the new conflict and complaints resolution requirements of the credit and financial ombudsman.



4. Government and regulators (Continued)

Discussions with Microfinance South Africa, of which Iemas is a member, addressed the formulation of a new code of conduct

to combat the overindebtedness of members. We also held discussions with the National Credit Regulator about implementing

this code, which we have adopted.

The new Financial Services Charter (FSC) has been drafted and we will switch from complying with the general Codes of Good

Practice issued under the Broad-Based Black Economic Empowerment (BBBEE) Act to complying with the FSC when it is

adopted.

Our BBBEE scorecard was verified by Emex Trust and it confirmed Iemas as a level 5 contributor. The Co-operative is striving

to become a level 3 contributor by 2013.

5. Society at large

Corporate social investment

Through our involvement in days such as International Mandela Day and CANSA’s Shavathon, our employees show they care

about people who are disadvantaged and people who are affected by cancer. In support of CANSA, employees not only raise

funds but also show solidarity with the rest of the country by either shaving or colour-spraying their hair.

Iemas is directly affected by the National Casual Day initiative as we employ a number of people with disabilities. Our

participation in Casual Day 2010 was monetary as well as symbolic.

In a bid to educate and empower the youth, we hosted a youth conference at the Embalenhle Sasol Club in Mpumalanga. The

youth of the community was given an opportunity to attend a motivational talk by influential people from the community,

encouraging them to pursue their career dreams. This function was co-ordinated in conjunction with churches in the community,

Osizweni and Sasol.

In order to give back to the communities in which we operate, our Mpumalanga region has adopted Vukuzithathe Primary

School, one of the poorest schools in the area. We support the school in various ways, including cash donations, clothing for

the learners and equipment. In November 2010, we donated prizes for the top scholars.

The school also takes care of orphaned children, who are usually members of child-headed homes. Iemas sponsored clothing

for 13 children in June 2011. This donation rotates every year to ensure that most of the children benefit.

Funds were collected at a golf day and the money used to fund a roof for the Thutong pre-school’s recently built bathroom

facility. This will be the first time that these children will have decent bathroom facilities. Iemas will be present when the final

product is handed over and will distribute much needed stationery to the school on this occasion.

Other beneficiaries of donations include the Isiphephelo Aids Clinic, where most of the patients are in the advanced stage of

the disease, and the Newcastle Pregnancy Crisis Centre.

Our involvement with the South African National Blood Service (SANBS) is ongoing. We donate blood quarterly. In this financial

year, our people donated 70 units of blood.

The environment

All companies have an impact on the environment, however limited it may be. Iemas’s impact on the environment is limited

because it provides financial products and services to individuals only.

Nonetheless, Iemas is environmentally aware and takes steps to limit its environmental impact as far as possible.

The use of voice recording in the e-sales area, which is becoming a popular channel for member interaction, saves on paper.

During the year, Iemas was appointed as the preferred provider for finance as part of a well-known employer’s green initiative

to provide their people with solar water heating systems. Iemas will provide finance to employees who want to install solar

water heating.



The environment (Continued)

Iemas’s fuel expenses for the year amounted to R1,1 million. Our monthly departmental meetings are a large contributor to these expenses. During the next financial year, travel will be limited and meetings will be held every two months.

During the year, the Iemas brand was rejuvenated. As a result, all stakeholder communication mediums were revised. A decision was made to use LumiSilk paper in future for all Corporate Communication printing. LumiSilk is a wood free quality paper offering a smooth, multi-coated silk surface. It contains a combination of certified virgin fibre and mill broke and the fibre is sourced from sustainable forests.

Iemas also purchased eco-friendly gifts for its brand launch during the year.

Members are constantly reminded that they can receive their monthly account statements by e-mail. During the year, the number of e-mail statements increased by 21,1%.

In January, Iemas’s virtualisation of its servers progressed to the point where three cabinets could be reduced to one, resulting in electricity savings and a reduction in hosting costs.

We recycle obsolete IT equipment by donating it to worthy causes.

6. Suppliers

Iemas’s suppliers include the four large banks, various short-term insurance companies, life insurance companies, vehicle dealers and retailers who accept the Iemas card.

During the year, Iemas focused strongly on relationships with the major banks that provide Iemas with funding and we are proud to report that we have now entered into agreements with all four of the major banks.

Iemas has a network of approved vehicle dealers. During the year, relationships with these dealers were strengthened and a database of approved dealers was established. Iemas has also signed a service offering agreement with the second largest motor group in South Africa. We believe that this will contribute towards the overall product and services offering we can provide to our members, and look forward to a long and successful partnership.

During the year, we also revised our dealer payment method to make payments safer and more convenient for dealers. The new payment method also limits the risk of fraudulent transactions.

Socio-economic development

Financial institutions play an important role in socioeconomic development by providing finance to customers through lending. This enhances individual welfare and drives growth in the broader economy.

Iemas manages and regulates its credit risk carefully to ensure that the needs of members, many of whom are in low-income groups, are addressed while ensuring peace of mind for employers. The majority of our transactions include finance to the lower income groups and it is important for us to maintain our strong reputation for responsible lending.

As is evident in the section of this sustainability report devoted to our members and employers as two of our most important stakeholders, we take our responsibility towards members very seriously, doing our best to protect members from overindebtedness, providing them with accessible, competitively priced products and services, and developing their financial skills.


Iemas manages and regulates its credit risk carefully to ensure that the needs of

members, many of whom are in low-income groups, are addressed while ensuring

peace of mind for employers.

STATEMENT OF DIRECTORS' RESPONSIBILITY

The directors are responsible for the preparation, integrity and fair presentation of the financial statements of Iemas Financial Services (Co-operative) Limited. The financial statements presented on page 31 to 66 have been prepared in accordance with International Financial Reporting Standards (IFRS), and include amounts based on judgements and estimates made by management.

The directors consider that in preparing the financial statements they have used the most appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates and that all statements of IFRS that they consider to be applicable have been followed. The directors are satisfied that the information contained in the financial statements fairly presents the results of operations for the year and the financial position of the group at year-end. The directors also prepared the other information included in the annual report and are responsible for both its accuracy and consistency with the financial statements. The directors have the responsibility of ensuring that accounting records are kept. The accounting records should disclose, with reasonable accuracy, the financial position of the companies to enable the directors to ensure that the financial statements comply with relevant legislation.

Iemas Financial Services (Co-operative) Limited operated in a well-established control environment. Risk management and internal control procedures are designed to provide reasonable, but not absolute, assurance that assets are safeguarded and that the risks facing the business are being controlled.

The going concern basis has been adopted in preparing the financial statements. The directors have no reason to believe that the Group will not be a going concern in the foreseeable future, based on forecasts and available cash resources. These financial statements support the viability of the Group.

The Group's external auditors, PricewaterhouseCoopers Incorporated, audited the financial statements and their report is presented on page 30.

The financial statements, set out on pages 31 to 66, were approved by the Board of directors on 13 October 2011 and are signed on its behalf by:

JSJ Nel WF van HeerdenChief Executive Officer Chairman

CERTIFICATE BY THE CO-OPERATIVE SECRETARY

I declare that, to the best of my knowledge and belief, the Co-operative has lodged with the Registrar of Co-operatives all such returns as are required by the Co-operatives Act, 14 of 2005, and that such returns are true, correct and up to date.

PDF van DykGroup Secretary


INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF IEMAS FINANCIAL SERVICES (CO-OPERATIVE) LIMITED

We have audited the consolidated annual financial statements and financial statements of Iemas Financial Services (Co-operative)

Limited, which comprise the consolidated and separate statements of financial position as at 31 August 2011, and the consolidated

and separate statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of

significant accounting policies, and other explanatory notes and the directors report, as set out on pages 31 to 66.

Directors’ responsibility for the financial statements

The Co-operative's directors are responsible for the preparation and fair presentation of these financial statements in accordance

with International Financial Reporting Standards and the requirements of the Co-operatives Act, No. 14 of 2005, and for such

internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material

misstatements, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance

with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform

the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

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.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the consolidated and separate financial position of

Iemas Financial Services (Co-operative) Limited as at 31 August 2011, and its consolidated and separate financial performance and

its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards

and in the manner required by the Co-operatives Act, No. 14 of 2005.

PricewaterhouseCoopers Inc

Director: P Wilson

Registered Auditor

Sunninghill

13 October 2011


DIRECTORS' REPORT

Nature of business

Iemas Financial Services (Co-operative) Limited is a trade co-operative, registered in terms of the Co-operatives Act, 14 of 2005.

The Co-operative provides finance and insurance products to its members.

Financial results

The directors have pleasure in presenting their annual report, which forms part of the audited consolidated financial statements of

the Co-operative for the year ended 31 August 2011 as set out on pages 32 to 66.

Interest of directors

The directors declare their conflict of interest and involvement in other businesses annually in writing.

Directors and secretariat

The composition of the Board of directors and the Secretary’s postal and business addresses are provided on pages 11 and 16.

In terms of the statute of the Co-operative, elected member directors of the Co-operative retire annually by rotation. Member

directors serve for two years and may be re-elected. Member directors may also appoint expert persons as appointed directors

annually. Appointed directors always form the minority of the Board.

Investments in subsidiaries

Information relating to the company's financial interest in its subsidiaries is set out in Note 4 to the financial statements.

Material events after year-end

No event, which is material to the financial affairs of the group, has occurred between the reporting date and the date of approval

of the financial statements.


STATEMENT OF FINANCIAL POSITION AS AT 31 AUGUST 2011


Group Co-operative

ASSETS

Non-current assets

Property and equipmentIntangible assetsInvestments in subsidiariesDeferred income taxNon-current advances receivable

Current assets

Current advances receivableAvailable-for-sale financial assetsRestricted cashCashTrade and other assetsInventoriesIncome tax receivable

TOTAL ASSETS

EQUITY AND LIABILITIES

Equity attributable to members of the Co-operative

Share capitalOther reservesRetained reserves

Non-current liabilities

Members' fundsNon-current portion of borrowingsOther provisions

Current liabilities

Current portion of borrowingsTrade and other liabilitiesCash bonuses payableIncome tax payableBank Overdraft

TOTAL EQUITY AND LIABILITIES

2010R'000

18,783 1,281

1 11,241

2,163,089

2,194,395

745,293 - -

4,624 6,290

216 92

756,515

2,950,910

- 241,366 249,782

491,148

443,982 1,301,065

-

1,745,047

587,026 103,014 20,809

- 3,866

714,715

2,950,910

2011R'000

25,015 825

1 14,097

2,612,034

2,651,972

891,393 - -

2,672 7,870

263 4,701

906,899

3,558,871

- 241,366 332,479

573,845

491,630 1,651,027

4,016

2,146,673

682,973 126,266 27,035

- 2,079

838,353

3,558,871

2010R'000

36,921 1,281

- 10,162

2,163,089

2,211,453

739,581 75,244 17,186 4,955 6,459

216 92

843,733

3,055,186

- 249,091 349,144

598,235

443,982 1,301,065

-

1,745,047

577,527 100,039 20,809 9,664 3,866

711,904

3,055,186

2011R'000

43,026 825

- 13,018

2,612,034

2,668,903

884,926 78,750 13,560 3,054 8,176

263 4,706

993,435

3,662,338

- 250,098 434,916

685,014

491,630 1,651,027

4,016

2,146,673

672,473 122,394 27,035 6,670 2,079

830,651

3,662,338

Note

23456

678891018

1112

131415

141617188

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 AUGUST 2011


Group Co-operative

Interest incomeInterest expenditureInterest credited to members' funds

Net interest income before impairment of advancesImpairment of advances receivable

Net interest income after impairment of advancesFee and commission incomeOther operating income

Income from operationsOperating expenditure

Profit before benefits to membersBenefits to members

Profit before income taxIncome tax

Profit after income taxOther comprehensive income

Total comprehensive income for the period

Total comprehensive income attributable to: - Members of the Co-operative

2010R'000

390,686 (158,230) (26,755)

205,701 (35,343)

170,358 101,392 41,358

313,108

(186,063)

127,045 (51,692)

75,353

(13,485)

61,868 -

61,868

61,868

2010R'000

392,658 (157,646) (26,755)

208,257 (44,992)

163,265 88,638 85,717

337,620 (187,337)

150,283 (51,692)

98,591

(30,494)

68,097 -

68,097

68,097

Note

13

19

2021

22

34

24

2011R'000

428,757(162,838)(27,260)

238,659 (48,091)

190,568 116,803 93,642

401,013 (209,235)

191,778 (67,983)

123,795 (37,016)

86,779

-

86,779

86,779

2011R'000

427,819 (163,426) (27,260)

237,133 (36,279)

200,854 133,244 41,470

375,568

(204,065)

171,503 (67,983)

103,520 (20,823)

82,697

-

82,697

82,697

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 AUGUST 2011


5%

GROUP

Balance at 1 September 2009Total comprehensive incomeTransfer from retained reserves

Balance at 31 August 2010

Balance at 1 September 2010Total comprehensive incomeTransfer from retained reserves


CO-OPERATIVE

Balance at 1 September 2009Total comprehensive income


Balance at 1 September 2010Total comprehensive income


Capital and reserves

R'000

530,138 68,097

-

598,235

598,235 86,779

-

685,014

429,280 61,868

491,148

491,148 82,697

573,845

Other reserves

R'000

248,843 -

248

249,091

249,091 -

1,007

250,098

241,366 -

241,366

241,366 -

241,366

Share capitalR'000

- - -

-

- - -

-

- -

-

- -

-

Note

12

12

Retained reserves

R'000

281,295 68,097

(248)

349,144

349,144 86,779 (1,007)

434,916

187,914 61,868

249,782

249,782 82,697

332,479

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 AUGUST 2011


Group Co-operative

CASH FLOW UTILISED IN OPERATING ACTIVITIES

Interest incomeOther operating incomeInterest expenditureNet cash payments to suppliers and employees

Cash generated from operating activities before changes in operating assets and liabilities

Increase in advances receivableIncrease in non-current advances receivableIncrease in inventories(Increase) / decrease in trade and other assetsIncrease in trade and other liabilitiesBonuses paidRefunds to membersIncome tax paid

Net cash flow utilised in operating activities

CASH FLOW FROM INVESTING ACTIVITIES

Additions to property and equipmentDisposals of property and equipmentAdditions to intangible assets(Increase) / decrease in available-for-sale financial assetsDividend received

Net cash flow used in investing activities

CASH FLOW FROM FINANCING ACTIVITIES

Increase / (decrease) in current portion of borrowingsIncrease in non-current borrowings

Net cash flow from financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of the year

Cash and cash equivalents at end of the year

2010R'000

390,686 112,750

(158,230) (188,236)

156,970

(138,549) (267,581)

(6) 23,875 11,445

(17,406) (20,740) (14,215)

(266,207)

(4,171) 110

(1,369) -

30,000

24,570

(661,303) 900,091

238,788

(2,849)

3,607

758

2011R'000

427,819 144,714

(163,426) (203,118)

205,989

(182,379) (448,945)

(47) (1,580) 23,252

(17,404) (15,552) (28,288)

(464,954)

(11,120) - - -

30,000

18,880

95,947 349,962

445,909

(165)

758

593

2010R'000

392,658 170,705

(157,646) (189,393)

216,324

(148,014) (267,581)

(6) (3,342) 8,602

(17,406) (20,740) (38,320)

(270,483)

(4,171) 110

(1,369) 26,314 3,650

24,534

(663,303) 900,091

236,788

(9,161)

27,436

18,275

2011R'000

428,757 207,026

(162,838) (208,161)

264,784

(193,436) (448,945)

(47) (1,717) 22,355

(17,404) (15,552) (47,480)

(437,442)

(11,120) - -

(3,506) 3,419

(11,207)

94,947 349,962

444,909

(3,740)

18,275

14,535

Note

25

261318

223

21

8

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2011

1. ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the annual financial statements and consolidated annual financial

statements of Iemas Financial Services (Co-operative) Limited are set out below. These policies have been consistently applied to

all the years presented, unless otherwise stated.

Basis of preparation

The consolidated financial statements of Iemas Financial Services (Co-operative) Limited for the year 2011 have been prepared in

accordance with International Financial Reporting Standards (IFRS) as applicable in South Africa. These financial statements have

been prepared under the historical cost convention, as modified by revaluation of financial assets and liabilities.

The consolidated financial statements are prepared on the going concern basis.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also

requires management to exercise its judgement in the process of applying the Co-operative's accounting policies. Management

believes that the underlying assumptions are appropriate and the Co-operative's financial statements therefore present the

financial position and results fairly. The areas involving a higher degree of judgement or complexity, or areas where assumptions

and estimates are significant to the consolidated financial statements, are disclosed (refer to notes 6,13 & 15).

Standards, amendments and interpretations which became effective in the 2011 financial year

The following standards, amendments and interpretations which became effective in the 2011 financial year are mandatory for the

Group's accounting periods beginning on or after 1 September 2010. Although these standards, amendments and interpretations

are mandatory, they are not necessarily relevant for the current and prior financial year.

• IAS 7, 'Statement of cash flows' (effective from 1 January 2010). The amendment to IAS 7 specifies that only expenditures

that result in a recognised asset in the statement of financial position can be classified as 'investing activities'.

• IAS 27 (Amendment), 'Consolidated and Separate Financial Statements' (effective from 1 July 2010). The amendment

includes transition requirements for amendments to IAS 27.

• IFRS 2 (Amendment), ‘Share based payments’ on ‘Group cash-settled share-based payment transactions’ (effective from 1

January 2010). The amendment clarifies the accounting for group cash-settled share-based payment transactions. The entity

receiving the goods or services shall measure the share-based payment transaction as equity-settled only when the awards

granted are its own equity instruments, or the entity has no obligation to settle the share-based payment transaction. The

entity settling a share-based payment transaction when another entity in the group receives the goods or services recognises

the transaction as equity-settled only if it is settled in its own equity instruments. In all other cases, the transaction is

accounted for as cash-settled.

• IFRS 3 (Amendment), 'Business Combinations' (effective from 1 July 2010). The amendment relates to transition

requirements for contingent consideration from a business combination that occurred before the effective date of the revised

IFRS, as well as un-replaced and voluntarily replaced share-based payment awards and the measurement of non-controlling

interests.

• IFRS 5 (Amendment), 'Non-current Assets Held for Sale and Discontinued Operations' (effective from 1 January 2010). The

amendment is part of the IASB’s annual improvements project published in April 2009. This amendment specifies that

disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations

in other IFRS's do not apply to such assets (or disposal groups) unless those IFRS's require specific disclosures in respect of

non-current assets (or disposal groups) classified as held for sale or discontinued operations; or disclosures about

measurement of assets and liabilities within a disposal group that are not within the scope of the measurement requirement

of IFRS 5 and such disclosures are not already provided in the other notes to the financial statements.

• IFRIC 19, 'Extinguishing Financial Liabilities with Equity Instruments' (effective from 1 July 2010). This standard clarifies the

accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished through the

debtor issuing its own equity instruments to the creditor. A gain or loss is recognised in the profit and loss account based on

the fair value of the equity instruments compared to the carrying amount of the debt.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST 2011 (Continued)

Basis of preparation (Continued)

There are a number of minor amendments and improvements which are part of the IASB’s annual improvements project

published in April 2009 (effective from 1 January 2010) (not addressed above). These amendments are listed below and are

unlikely to have an impact on the Group’s accounts and have therefore not been analysed in detail.

• IAS 1 (Amendment), 'Presentation of Financial Statements' (effective from 1 January 2010). The amendment relates to

current and non-current classification of convertible instruments.

• IAS 7 (Amendment), 'Statement of Cash Flows' (effective from 1 January 2010). The amendment relates to the classification

of expenditures on unrecognised assets.

• IAS 17 (Amendment), 'Leases' (effective from 1 January 2010). The amendment relates to the classification of leases of

land and buildings.

• IAS 18 (Amendment), 'Revenue' (effective from 1 January 2010). The amendment relates to the determining whether an

entity is acting as a principal or as an agent.

• IAS 36 (Amendment), 'Impairment of Assets' (effective from 1 January 2010). The amendment relates to the unit of

accounting for the goodwill impairment test.

• IAS 38 (Amendment), 'Intangible Assets' (effective from 1 January 2010). The amendment relates to the measuring of

the fair value of intangible assets acquired in a business combination.

• IAS 39 (Amendment), 'Financial Instruments: Recognition and Measurement' (effective from 1 January 2010). The

amendments include scope exemption for business combination contracts and also relates to the treatment of loan

pre-payment penalties and cash flow hedge accounting.

• IFRS 8 (Amendment), 'Operating segments' (effective from 1 January 2010). Disclosure of information about segment

assets. The amendment relates to the disclosure of information about segment assets.

• IFRIC 9 (Amendment), 'Reassessment of Embedded Derivatives' (effective from 1 January 2010). The amendment relates

to the scope of IFRIC 9.

• IFRIC 16 (Amendment), 'Hedges of a Net Investment in a Foreign Operation' (effective from 1 January 2010). The

amendment relates to the restriction on the entity that can hold hedging instruments.

Standards, interpretations and amendments to published standards that are not yet effective and possibly relevant for the Group's

operations

New standards, amendments and interpretations to existing standards have been published that are mandatory for the Group’s

accounting periods beginning on or after 1 September 2011 or later periods. Of those identified as possibly being relevant to the

Group’s operations, none have been early adopted. The following have been identified as possibly being relevant for the Group’s

operations but has not been early adopted by the Group:

• IAS 1 (Amendment), Presentation of Financial Statements' (effective from 1 July 2012). The amendment changes the

disclosure of items presented in other comprehensive income (OCI) in the statement of comprehensive income. The IASB

originally proposed that all entities should present profit or loss and OCI together in a single statement of comprehensive

income. The proposal has been withdrawn and IAS 1 will still permit profit or loss and OCI to be presented in either a single

statement or in two consecutive statements. The amendment does not address which items should be presented in OCI and

the option to present items of OCI either before tax or net of tax has been retained.

• IAS 12, 'Income Taxes' (effective from 1 January 2012). Currently IAS 12, 'Income Taxes', requires an entity to measure the

deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through

use or sale. It can be difficult and subjective to assess whether recovery will be through use or through sale when the asset

is measured using the fair value model in IAS 40 Investment Property. Hence this amendment introduces an exception to the

existing principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair

value. As a result of the amendments, SIC 21, 'Income taxes- recovery of revalued non-depreciable assets', would no longer

apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance

previously contained in SIC 21, which is accordingly withdrawn.

• IAS 19 (Amendment), ' Employee benefits ' (effective from 1 January 2013). The IASB has issued an amendment to IAS 19,

‘Employee benefits’, which makes significant changes to the recognition and measurement of defined benefit pension expense

and termination benefits, and to the disclosures for all employee benefits.

• IAS 24, 'Related Party Disclosures' (effective from 1 January 2011). This amendment provides partial relief from the

requirement for government related entities to disclose details of all transactions with the government and other government-

related entities. It also clarifies and simplifies the definition of a related party.



• IAS 27 (revised 2011), 'Separate financial statements' (effective from 1 January 2013). This standard includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. • IFRS 9, 'Financial Instruments' (2009) (effective from 1 January 2013). This standard is part of the IASB's project to replace IAS 39. The standard addresses classification and measurement of financial assets and replaces the multiple classification and measurement models in IAS39 with a single model that has only two classification categories, amortised cost and fair value. The Group will apply IFRS 9 from 1 March 2013. • IFRS 9, 'Financial Instruments' (2010) (effective from 1 January 2013). The IASB has updated IFRS 9, ‘Financial instruments’ to include guidance on financial liabilities and derecognition of financial instruments. The accounting and presentation for financial liabilities and for derecognising financial instruments has been relocated from IAS 39, ‘Financial instruments: Recognition and measurement’, without change, except for financial liabilities that are designated at fair value through profit or loss. The Group will apply IFRS 9 from 1 March 2013. • IFRS 10, 'Consolidated financial statements' (effective from 1 January 2013). This standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements. The standard provides additional guidance to assist in determining control where this is difficult to assess. This new standard might impact the entities that the Group consolidates as its subsidiaries and will be applied from 1 March 2013. • IFRS 12, 'Disclosures of interests in other entities' (effective from 1 January 2013). This standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. • There are a number of minor amendments and improvements which are part of the IASB’s annual improvements project published in May 2010 (effective from 1 January 2011) (not addressed above). These amendments are listed below and are unlikely to have an impact on the Group’s accounts and have therefore not been analysed in detail:

- IAS 1 (Amendment), 'Presentation of Financial Statements' (effective from 1 January 2011). The amendment relates to the clarification of the statement of changes in equity. - IFRS 7 (Amendment), 'Financial Instruments: Disclosures' (effective from 1 January 2011). The amendment relates to the clarification of certain disclosure aspects.

Standards, interpretations and amendments to published standards that are not yet effective and not relevant for the Group’s operations

The following new standards, amendments and interpretations to standards are mandatory for accounting periods beginning on or after 1 September 2011 or later periods, but are not relevant to the Group’s operations:

• IAS 28 (revised 2011), 'Associates and joint ventures' (effective from 1 January 2013). This standard includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11. • IAS 34, 'Interim Financial Reporting' (effective from 1 January 2011). This amendment relates to significant events and transactions and is part of the IASB’s annual improvements project published in May 2010. • IFRS 1, 'First time adoption' (effective from 1 July 2011). The first amendment replaces references to a fixed date of '1 January 2004' with 'the date of transition to IFRSs', thus eliminating the need for companies adopting IFRSs for the first time to restate derecognition transactions that occurred before the date of transition to IFRSs. The second amendment provides guidance on how an entity should resume presenting financial statements in accordance with IFRSs after a period when the entity was unable to comply with IFRSs because its functional currency was subject to severe hyperinflation. • IFRS 7, 'Financial Instruments: Disclosures' (effective from 1 July 2011). This amendment relates to the transfer of financial assets and is intended to address concerns raised during the financial crisis by the G20, among others, that financial statements did not allow users to understand the on-going risks the entity faced due to derecognised receivables and other financial assets. • IFRS 11, 'Joint arrangements' (effective from 1 January 2013). This standard provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed. • IFRS 13, 'Fair value measurement' (effective from 1 January 2013). This standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP.



Basis of preparation (Continued)

• IFRIC 13, 'Customer Loyalty Programmes' (effective from 1 January 2011). This amendment relates to the measurement of the fair value of award credits and is part of the IASB’s annual improvements project published in May 2010. • IFRIC 14, 'Pre-payments of a Minimum Funding Requirement' (effective from 1 January 2011). This amendment will have a limited impact as it applies only to companies that are required to make minimum funding contributions to a defined benefit pension plan. It removes an unintended consequence of IFRIC 14 related to voluntary pension prepayments when there is a minimum funding requirement.

Consolidation

SubsidiariesSubsidiaries are all entities (including special purposes entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date on which control ceases. Investments in subsidiaries are accounted for at cost in terms of IAS 27 in the Co-operative stand-alone financial statements.

Inter-company transactions, balances and intragroup gains on transactions between Group companies are eliminated. Intragroup losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed, where necessary, to ensure consistency with the policies adopted by the Group.

The cell captive is a "special purpose vehicle" established to serve the insurance needs of individual members of the Co-operative. The cell effectively represents a separate class of shares that offers the Co-operative participation which is restricted to the results of the insurance business which it places in the licensed short-term insurer.

It provides the Co-operative with the ability to underwrite the credit life risks, via the short-term insurer, of the members relating to their maxi loans. The member is responsible for paying the premium and cedes the policy underwritten by the short-term insurer as security on the maxi loan. The results of the insurance business is determined in accordance with the shareholders agreement.

The cell captive is consolidated and from a Group perspective it represents a vehicle through which the Co-operative saves money in the form of cash, assets and other investments with the purpose of covering any credit life claims on vehicle, personal and maxi loan advances within the Co-operative. As additional security (apart from the investments set aside), the cell captive has also reinsured the catastrophe risk with Swiss Re South Africa Limited.

The main purpose of the Group's investment in the cell captive is to mitigate credit life risk of the vehicle, personal and maxi loan advances. This investment is not considered to be insurance for Group purposes.

Property and equipment

Property and equipment, excluding land, is stated at historical cost less accumulated depreciation and impairment. Land is stated at cost less impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the assets.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the assets will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are recognised in the statement of comprehensive income as incurred.

Depreciation on assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

Owner-occupied buildings 20 yearsOffice furniture and equipment 10 yearsComputer equipment 3 yearsMotor vehicles 5 yearsCapitalised vehicles 4 years

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.



An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. For the determination of the recoverable amount refer to the accounting policy note 'impairment of non-financial assets'.

Gains and losses on disposal of property and equipment are determined by comparing the proceeds with the carrying amounts and are included in the statement of comprehensive income as part of operating profit.

Intangible assets

Intangible assets are stated at cost less accumulated amortisation and impairment.

Computer softwareCosts associated with developing or maintaining computer software programs are recognised in the statement of comprehensive income as incurred. However, costs that are clearly associated with an identifiable and unique product, which will be controlled by the Group and has a profitable benefit exceeding the cost beyond one year, are capitalised as an intangible asset.

Expenditure that enhances and extends the benefits of the computer software programs beyond their original specifications and lives is capitalised as a capital improvement and is added to the original cost of the software. Computer software development costs which are recognised as assets, are amortised using the straight-line method over the useful lives, but not exceeding three years. Direct costs include the software development employee costs and an appropriate portion of relevant overheads in related parties.

Computer software comprises of the Iemas computer systems which have been developed in-house as well as off the shelf software, some of which has undergone customisation.

Impairment of non-financial assets

Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs-to-sell and value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. An impairment is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined had no impairment been recognised.

Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive income.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends.

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising from investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.



Originated advances and provisions for advance impairment

Loans originated by the Group by providing money directly to the borrower or to a sub-participation agent at draw down, are categorised as advances originated by the Group. These are measured at amortised cost, which is defined as the fair value at which the financial asset is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest rate method. Third party expenses, such as legal fees, incurred in securing a loan are treated as part of the cost of the transaction. They are included in current assets, except for maturities greater than 12 months after the statement of financial position date. These are classified as non-current assets.

All loans and advances are recognised when the entity becomes a party to the contract. A provision for loan impairment is established if there is objective evidence that the Group will not be able to collect all amounts due according to the original contractual terms of loans. This is firstly considered to be when the loan or advance is in arrears for longer than two months. Secondly, the recoverability of loans and advances in arrears for more than thirty days, but less than sixty days is also considered. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, including amounts recoverable from guarantees and collateral, discounted at the original effective interest rate of loans.

For loans and advances where no objective evidence in the form of default has been identified, the impairment provision also covers an estimation of losses incurred in the loan portfolio but not yet reported at year end. These have been estimated based upon historical patterns of losses in each component, the credit ratings allocated to the borrowers and reflect the current economic climate in which the borrowers operate. When a loan is uncollectible, it is written off against the respective advance. Subsequent recoveries are credited to the statement of comprehensive income.

If the amount of the impairment subsequently decreases due to an event occurring after the write-down, the release of the provision is recognised in profit and loss in the statement of comprehensive income.

Loans and advances are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined by the first-in-first-out (FIFO) method. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses.

Provisions

Provisions are recognised when there is a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate of the amount of the obligation can be made.

Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the statement of financial position date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risk specific to the liability. The increase of the provision due to the passage of time is recognised as an interest expense.

Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the statement of comprehensive income.

Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents constitute cash on hand and deposits held at call with original maturities of three months or less. Bank overdrafts are included under current liabilities in the statement of financial position.



Restricted cash

Cash which is subject to restrictions for its utilisation is stated separately at carrying value.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the reporting period.

Regular purchases and sales of the financial assets are recognised on the trade date - the date on which the Group commits to purchase or sell the assets. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit and loss.

Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value.

Interest on available-for-sale securities calculated using the effective interest method is recognised in the statement of comprehensive income as part of other income. Dividends on available-for-sale equity instruments are recognised in the statement of comprehensive income as part of other income when the Group’s right to receive payments has been established.

Share capital

The new Co-operatives Act, No 14 of 2005 resulted in changes in Iemas’s constitution with regard to members’ shares. Membership of the Co-operative does not require members to take up shares in the Co-operative.

Financial liabilities

Financial liabilities consist of borrowings and trade and other payables.

Financial liabilities are recognised initially at fair value, net of transaction costs incurred, when they become party to the contractual provisions. Financial liabilities are subsequently stated at amortised cost using the effective interest rate method. Any difference between proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings as interest. Financial liabilities are classified as current liabilities, unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the statement of financial position date.

The Group derecognises a financial liability (or part of the liability) from its statement of financial position, when and only when, it is extinguished, i.e. when the obligation specified in the contract is discharged, cancelled or expires.

Bonuses to members

Bonuses to members are calculated on the aggregate value of discount-bearing turnover per product relevant to each individual member and are recognised once it has been approved by the Board of directors. Cash bonuses are paid out during November of each year and are accrued at year end.

Interest on the Members' Funds (Deferred Bonus Payment Fund) is calculated on the closing balance as at 31 August each year, before the current year's distribution of bonuses is taken into account. Where funds were withdrawn by members, or appropriated by Iemas during the course of the financial year, no interest is calculated or declared.

The Group adjusts the amount recognised for minor rule applications after the statement of financial position date. These adjustments are disclosed as underprovisions or overprovisions in the statement of comprehensive income.



Leases

The Group is the lessee

Leases of assets in which a significant portion of the risks and rewards of ownership are retained by the lessors, are classified as

operating leases. Payments made under operating leases are recognised in the statement of comprehensive income on a straight-line

method over the period of the lease.

When an operating lease is terminated before the lease period has expired, any payments made to the lessor by way of a penalty,

is recognised in the statement of comprehensive income during the period in which such termination takes place.

Leases of property, vehicles and equipment where the Group has substantially all the risks and rewards of ownership are classified

as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property

and the present value of the minimum lease payments.

Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance

charges, are included in other short-term and other long-term payables. The interest element of the finance cost is charged to the

statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining

balance of the liability for each period. The property and equipment acquired under finance leases are depreciated over the shorter

of the useful life of the asset and the lease term.

Employee benefits

Pension obligations

The Iemas companies have various pension schemes in accordance with the local conditions and practices. All these schemes are

classified as defined contribution plans and are generally funded through payments to the insurance companies or trustee-

administered funds as determined by the periodic actuarial calculations. A defined contribution plan is a pension plan under which the

Group pays fixed contributions into a separate entity (a fund). The group has no legal or constructive obligations to pay further

contributions if the fund does not hold sufficient assets to pay all employees' benefits relating to employee service in the current and

prior periods. Contributions are recognised on a monthly basis in the statement of comprehensive income as part of staff costs.

Leave benefits

Employee entitlements to annual leave are recognised when they accrue to employees. An acrual is raised for the estimated liability

for annual leave as a result of services rendered by employees up to the reporting date.

Revenue recognition

Group revenue earned is recognised on the following basis, unless collectability is in doubt:

(1) Interest income - on the time proportion basis using the effective interest rate method.

(2) Fee and commission income

- Commission from contractors - as collected amounts are paid over.

- Commission from insurers - on percentage of completion of the service rendered which is determined as premiums are paid over.

- Life insurance commission - as policies are issued to members by life insurers.

- Initiation fees - over the term of the loan.

- Administration fees - on a accrual basis when the service is rendered.

(3) Investment income - on the accrual basis.

(4) Premium income - when it becomes due and payable.

(5) Petrol, diesel and oil - on the accrual basis.

(6) Dividend income - when the right to receive payment is established.

Dividend distribution

Dividend distribution to the subsidiaries' shareholders is recognised as a liability in the Group's financial statements in the period in

which the dividends are approved by the subsidiaries' shareholders.



Critical accounting estimates and assumptions

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

- Bonuses to members

Bonuses are calculated, based on the turnover of each individual member of the Co-operative on specific product lines. The figure in the financial statements is an estimation of what is due and payable. The detailed calculations are done after the annual general meeting where the members approve the apportionment of benefits between cash and reserves. Adjustments to these estimations are made via the statement of comprehensive income.

- Impairment of advances

A provision is raised based on the average net bad debt write offs in the last year as a percentage of the average outstanding advances for the same period. No provision is raised on housing loans since history has indicated that in most cases the debt is recoverable. On the same principle only 40% of vehicle loans outstanding for longer than three months are provided for. Except for housing loans, specific provisions are also raised for amounts in arrears for more than 60 days. For more detail on the provisioning policy please refer to note 6.

- Leases

Leases are evaluated on the recognition criteria as provided in IAS 17. A lease is classified as a finance lease when, based on management's assessment, substantially all the risks and rewards incidental to ownership have transferred to the lessee.

- Staff bonus and incentive provision

The fair value of the amount payable to employees in terms of the staff bonus and incentive scheme is recognised as an expense, with a corresponding increase in liabilities, over the vesting period. The liability is remeasure at each reporting date and at settlement date. Any changes in the fair value of the liability are recognised as staff cost in the profit and loss component of the statement of comprehensive income.


5%



2. PROPERTY AND EQUIPMENT

GROUP

At 1 September 2009

Cost or valuationAccumulated depreciation

Net book amount

Year ended 31 August 2010

Opening net book amountAdditionsDisposalsDepreciation charge (note 22)

Closing net book amount

At 31 August 2010


Net book amount




At 31 August 2011


Net book amount

Land and buildings comprise of the following:

An office block complex, Fundu Park, was purchased in December 2006 at a cost of R4,4 million on portion 3, site 8464, Secunda, Extension 13.

An office block complex, Embankment Park, was purchased in August 2004 at a cost of R8,5 million on portion 2, site 1350, Zwartkop, Extension 7.

An office block complex, Iemas Park North, was erected during 1998 at a cost of R5,5 million on site 1350, Zwartkop, Extension 7. The land was purchased on 8 July 1998.

An office block complex, Iemas Park South, was erected during 1999 at a cost of R3,8 million on the remainder of portion 4, site 1350, Zwartkop, Extension 7. The land was purchased on 8 December 1998.

Lease rentals amounting to R8,3 million (2010: R7,8 million), R0,3 million (2010: R0,3 million) and R1,0 million (2010: R1,0 million) relating to property, equipment and vehicles respectively, are included in the income statement.

Motor vehicles include the following amounts where the Group is a lessee under a finance lease:

Opening net book amountAdditionsDepreciation for the year


Officefurniture &equipment

R'000

7,452 (2,379)

5,073

5,073 486

- (726)

4,833

7,938

(3,105)

4,833

4,833 1,058

- (767)

5,124

8,996 (3,872)

5,124

Computerequipment

R'000

9,018 (7,231)

1,787

1,787 2,174

(11) (1,326)

2,624

11,065 (8,441)

2,624

2,624 9,069

- (3,017)

8,676

20,134 (11,458)

8,676

Motorvehicles

R'000

4,144 (1,747)

2,397

2,397 1,511

(99) (1,133)

2,676

5,256 (2,580)

2,676

2,676 789

- (1,091)

2,374

6,045 (3,671)

2,374

Land andbuildings

R'000

27,098 (181)

26,917

26,917

- -

(129)

26,788

27,098 (310)

26,788

26,788 204

- (140)

26,852

27,302 (450)

26,852

TotalR'000

47,712 (11,538)

36,174

36,174 4,171 (110)

(3,314)

36,921

51,357

(14,436)

36,921

36,921 11,120

- (5,015)

43,026

62,477 (19,451)

43,026

2011R'000

1,570 761

(801)

1,530

2010R'000

2,370 -

(800)

1,570



2. PROPERTY AND EQUIPMENT (Continued)

CO-OPERATIVE

At 1 September 2009


Net book amount




At 31 August 2010


Net book amount




At 31 August 2011

CostAccumulated depreciation

Net book amount

Land and buildings comprise of the following:

An office block complex, Iemas Park North, was erected during 1998 at a cost of R5,5 million on site 1350, Zwartkop, Extension 7. The land was purchased on 8 July 1998.

An office block complex, Iemas Park South, was erected during 1999 at a cost of R3,8 million on the remainder of portion 4, site 1350, Zwartkop, Extension 7. The land was purchased on 8 December 1998.

Lease rentals amounting to R8,3 million (2010: R7,8 million), R0,3 million (2010: R0,3 million) and R1,0 million (2010: R1,0 million) relating to property, equipment and vehicles respectively, are included in the income statement.

Motor vehicles include the following amounts where the Group is a lessee under a finance lease:

Opening net book amountAdditionsDepreciation for the year


Officefurniture &equipment

R'000

7,452 (2,379)

5,073

5,073 486

- (726)

4,833

7,938 (3,105)

4,833

4,833 1,058

- (767)

5,124

8,996 (3,872)

5,124

Computerequipment

R'000

8,479 (6,692)

1,787

1,787 2,174

(11) (1,326)

2,624

10,526 (7,902)

2,624

2,624 9,069

- (3,017)

8,676

19,412 (10,736)

8,676

Motorvehicles

R'000

4,144 (1,747)

2,397

2,397 1,511

(99) (1,133)

2,676

5,256 (2,580)

2,676

2,676

789 -

(1,091)

2,374

6,045 (3,671)

2,374

Land andbuildings

R'000

8,724 (62)

8,662

8,662

- -

(12)

8,650

8,724 (74)

8,650

8,650 204

- (13)

8,841

8,928 (87)

8,841

TotalR'000

28,799 (10,880)

17,919

17,919

4,171 (110)

(3,197)

18,783

32,444 (13,661)

18,783

18,783 11,120

- (4,888)

25,015

43,381 (18,366)

25,015

2011R'000

1,570 761

(801)

1,530

2010R'000

2,370 -

(800)

1,570



3. INTANGIBLE ASSETS

At 1 September 2009

CostAccumulated ammortisation

Net book amount


Opening net book amountAdditionsAmortisation charge (note 22)


At 31 August 2010


Net book amount


Opening net book amountAdditionsDisposalsAmortisation charge (note 22)


At 31 August 2011


Net book amount

Intangible assets comprise of two systems. The first is the re-engineering project related to the Iemas computer system which amounted to a total cost of R1,4 million. This system was fully amortised during the 2009 financial year. The second system is the Inovo Telecommunication system which was acquired at a total cost of R 1,369 million during the 2010 financial year.

4. INVESTMENTS IN SUBSIDIARIES

GroupR'000

6,615 (6,615)

-

- 1,369

(88)

1,281

7,984 (6,703)

1,281

1,281 - -

(456)

825

7,984 (7,159)

825

Co-operative

R'000

6,287 (6,287)

-

- 1,369

(88)

1,281

7,656 (6,375)

1,281

1,281 - -

(456)

825

7,656 (6,831)

825

Group Co-operative

Shares at cost

CO-OPERATIVE

31 August 2010

Iemtech (Proprietary) LimitedIemas (Co-operative) Limited Cell "A12"Iemark Marketing (Proprietary) Limited (Dormant)

31 August 2011

Iemtech (Proprietary) LimitedIemas (Co-operative) Limited Cell "A12"Iemark Marketing (Proprietary) Limited (Dormant)

2010R'000

1

Investment

Rand

1,000 25

120

1,145

1,000 25

120

1,145

2011R'000

1

Effective holding

%

100 100 100

100 100 100

2010R'000

-

Issued capital Rand

1,000

25 120

1,000 25

120

2011R'000

-



5. DEFERRED INCOME TAX Group Co-operative

Deferred tax assetsDeferred tax liabilities

Deferred tax assets (net)

The gross movement on the deferred income tax account is as follows:

At 1 SeptemberCharge per statement of comprehensive income (note 24)

At 31 August

The movement in the deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

2010R'000

15,401 (4,160)

11,241

9,332 1,909

11,241

2011R'000

19,384 (5,287)

14,097

11,241 2,856

14,097

2010R'000

15,401 (5,239)

10,162

8,733 1,429

10,162

2011R'000

19,384 (6,366)

13,018

10,162 2,856

13,018

Group Co-operative

Deferred tax (liabilities) / assets

At 31 August 2009(Credit) / Debit to the statement of comprehensive income

At 31 August 2010Debit / (Credit) to the statement of comprehensive income

At 31 August 2011

Other comprises of deferred tax on assets, prepayments, income received in advance and doubtful debt allowance.

ProvisionsR'000

13,060 81

13,141 1,538

14,679

OtherR'000

(3,728) 1,828

(1,900) 1,318

(582)

ProvisionsR'000

12,604 (399)

12,205 1,538

13,743

OtherR'000

(3,871) 1,828

(2,043) 1,318

(725)



6. ADVANCES RECEIVABLE Group Co-operative

Gross advancesUnearned finance charges

Net advances Current members Former members Less: Provision for impairment of advances receivable (see note 19)

Non-current portion of advancesCurrent portion of advances

Approximately sixty nine percent of the non-current advances receivable are due within five years after the reporting period. All current advances receivable are due within one year from the balance sheet date. The total advances receivable (current and non-current) before impairments amount to R3,547,4 million (2010: R2,951,5 million).

The advances receivable have been pledged as security for bank borrowing facilities (see note 14) and ceded as security for a guarantee (see note 28).

The fair value of advances receivable approximates the carrying value in the statement of financial position. The net advances as disclosed above, represent the Group's maximum exposure to credit risk. The following collateral is held for the different advances:

- Housing loans: The member's retirement benefit is ceded to recover any bad debts on these loans. - Vehicle loans: The member's actual vehicle is held as security for these loans.

All advances receivable that meet the following criteria are considered impaired:

Advances that are past due:

- Older than 90 days: 52,3% (vehicle loans), 67,7% (maxi loans) and 6,7% (other unsecured loans) of the outstanding balance was impaired. - Between 61 - 90 days past due: 26,0% (vehicle loans), 69,7% (maxi loans) and 1,1% (other unsecured loans) of the outstanding balance was impaired. - Between 31 - 60 days past due: 20,9% (vehicle loans), 72,3% (maxi loans) and 6,1% (other unsecured loans) of the outstanding balance was impaired. - Between 0 - 30 days past due: 10,0% (vehicle loans), 42,1% (maxi loans) and 9,2% (other unsecured loans) of the outstanding balance was impaired.

On all advances which are not past due and incurred but not yet reported, provision was raised on the outstanding balances for the following products, 0,56% (vehicle loans), 3,49% (maxi loans) and 0,64% (other unsecured loans).

As of 31 August 2011, the following advances receivable were past due but not impaired. The age analysis of these advances is as follows:

2010R'000

3,964,710 (1,013,228)

2,951,482 2,815,652

135,830

(43,100)

2,908,382

2,163,089 745,293

2,908,382

2011R'000

4,633,170 (1,085,743)

3,547,427 3,398,698

148,729

(44,000)

3,503,427

2,612,034 891,393

3,503,427

2010R'000

3,964,710 (1,013,228)

2,951,482 2,815,652

135,830

(48,812)

2,902,670

2,163,089 739,581

2,902,670

2011R'000

4,633,170 (1,085,743)

3,547,427 3,398,698

148,729

(50,467)

3,496,960

2,612,034 884,926

3,496,960

Group Co-operative

Up to 30 days31 - 60 days61 - 90 daysOlder than 90 days

2010R'000

2,694 877 579

1,995

6,145

2011R'000

1,617 388 384

1,898

4,287

2010R'000

2,694 877 579

1,995

6,145

2011R'000

1,617 388 384

1,898

4,287



7. AVAILABLE-FOR-SALE FINANCIAL ASSETS Group Co-operative

Restricted assets

At 1 September Capitalised interest Capitalised dividends (note 21) Capital withdrawals

At 31 August

Restricted assets represent R78,7 million (2010: R75,2 million) which is invested in dividend income funds with ABSA Bank Limited and with Standard Bank of South Africa Limited. Based on the fact that these investments can be converted into cash on demand, these investments will be classified as part of current assets and the carrying value will approximate the fair value of these investments.

Interest income received from these financial assets are recorded as part of 'Interest income' in the statement of comprehensive income. Dividends received from these financial assets are recorded as part of 'Other operating income' in the statement of comprehensive income and disclosed in note 21.

Interest income received from these financial assets are recorded as part of 'Cash flow used in operating activities' in the cash flow statement. Dividends received from these financial assets are recorded as part of 'Cash flow used in investing activities' in the cash flow statement.

The maximum exposure to credit risk at the reporting date is the carrying value of the debt securities classified as available for sale.

These financial assets are not past due or impaired as at 31 August 2011.

2010R'000

- - - -

-

2011R'000

- - - -

-

2010R'000

101,558 36

3,650 (30,000)

75,244

2011R'000

75,244 87

3,419 -

78,750

8. CASH AND CASH EQUIVALENTS Group Co-operative

Cash on handCash at bank

Total cash and bankBank overdraftRestricted cash

Cash and cash equivalents

The carrying value of cash and cash equivalents approximates their fair value due to the short-term maturities of these assets. Restricted cash represents the cell captive's share of a pool of funds in various call accounts, short-term fixed deposits and a segregated money market fund managed by Zurich Risk Financing SA Limited.

The long-term credit ratings for the bank balances held: Fitch ratings 2011 Fitch ratings 2010

ABSA Bank Limited AAA (Jan '11) AAA (Sep '10)Standard Bank of South Africa Limited AA (Aug '11) AA (Sep '10)FirstRand Bank Limited AA (Jul '11) AA (Sep '10)Nedbank Group Limited AA (Jul '11) n/a

2010R'000

442 4,182

4,624 (3,866)

-

758

2011R'000

465 2,207

2,672 (2,079)

-

593

2010R'000

442 4,513

4,955 (3,866) 17,186

18,275

2011R'000

465 2,589

3,054 (2,079) 13,560

14,535

12. OTHER RESERVES

GROUP

At 1 September 2009Transfer from retained reserves

At 31 August 2010

At 1 September 2010Transfer from retained reservesTransfer from general reserve

At 31 August 2011

CO-OPERATIVE

At 1 September 2009Transfer from general reserve

At 31 August 2010

At 1 September 2010Transfer from general reserve

At 31 August 2011

The Cell "A12" statutory contingency reserve represents a non-distributable reserve required in Iemas (Co-operative) Limited Cell "A12".

The special reserve represents a non-distributable reserve that is set aside as required by Section 46 of the Co-operatives Act, 14 of 2005. The Act requires that a percentage of the Co-operative's reserves is allocated to a separate "reserve fund" which is indivisible among it's members during the financial year in which the funds have been allocated to the said "reserve fund".

The annual transfers have been approved by the Board of directors and are based on the funding requirements of the business.

TotalR'000

248,843

248

249,091

249,091 1,007

-

250,098

241,366 -

241,366

241,366 -

241,366

Generalreserve

R'000

241,475 -

241,475

241,475 -

(39,936)

201,539

241,366 -

241,366

241,366 (39,936)

201,430

Specialreserve

R'000

- -

-

- -

39,936

39,936

- -

-

- 39,936

39,936

Cell"A12"statutory

contingency reserve

R'000

7,368 248

7,616

7,616 1,007

-

8,623

- -

-

- -

-

2010R'000

1,699 55

- 3,636

423 477

6,290

2011R'000

1,698 111

- 750

4,707 604

7,870

2010R'000

1,699 -

274 3,636

423 427

6,459

2011R'000

1,698 -

399 750

4,707 622

8,176



9. TRADE AND OTHER ASSETS Group Co-operative

Repossessions at valuationReceivables from related parties (note 31)Trade receivablesEmployee benefitsPrepaid expensesOther

The carrying value of trade and other assets approximates their fair value due to the short-term maturities of these assets.

10. INVENTORIES

At cost:

Petrol, diesel and oil 263 216 263 216

11. SHARE CAPITAL

The new Co-operatives Act, No 14 of 2005 resulted in changes in Iemas’s constitution with regard to members’ shares. Membership of the Co-operative does not require members to take up shares in the Co-operative.



13. MEMBERS' FUNDS

At 1 September 2009

Interest credited to members' funds (note 34)Bonuses credited to members' funds (note 34)Appropriations of members' funds Overprovision of prior year bonuses (note 34)Refunds to members

At 31 August 2010

At 1 September 2010

Interest credited to members' funds (note 34)Bonuses credited to members' funds (note 34)Appropriations of members' funds Overprovision of prior year bonuses (note 34)Refunds to members

At 31 August 2011

This liability is repayable to members in cash or is set off against any amounts owing to the Co-operative at the date of termination of membership or death. Interest is allocated to members' funds on an annual basis, at a market-related rate approved by the Board of directors.

Co-operative

R'000

409,773

26,755 35,010 (5,458) (1,358)

(20,740)

443,982

443,982

27,260 44,982 (8,413)

(629) (15,552)

491,630

GroupR'000

409,773

26,755 35,010 (5,458) (1,358)

(20,740)

443,982

443,982

27,260 44,982 (8,413)

(629) (15,552)

491,630

2010R'000

1,301,065

800,000 500,000

1,009 56

587,026

135,231 9,500 3,609

438,000 - -

686

1,888,091

2011R'000

1,651,027

1,000,000 650,000

1,027 -

682,973

778 10,500

- 521,000 150,000

56 639

2,334,000

2010R'000

1,301,065

800,000 500,000

1,009 56

577,526

135,231 -

3,609 438,000

- -

686

1,878,591

2011R'000

1,651,027

1,000,000 650,000

1,027 -

672,473

778 - -

521,000 150,000

56 639

2,323,500

14. BORROWINGS Group Co-operative

Non-current

Standard Bank of South Africa LimitedABSA Bank LimitedFinance leasesSasol Oil (Proprietary) Limited

Current

Standard Bank of South Africa LimitedIemtech (Proprietary) LimitedABSA Bank LimitedFirst National Bank (Division of FirstRand Bank Limited)Nedbank Group LimitedSasol Oil (Proprietary) LimitedFinance leases

Total borrowings

The facilities consist of: Review date Expiry date Facility

Standard Bank of South Africa Limited n/a September 2012 800 000Standard Bank of South Africa Limited n/a March 2013 200 000ABSA Bank Limited May 2012 364 day notice period 650 000First National Bank (Division of FirstRand Bank Limited) March 2012 n/a 800 000Nedbank Group Limited July 2012 n/a 150 000

Regarding the R800 million one-year facility with First National Bank, a division of FirstRand Bank Limited, interest is calculated on a daily basis on the ruling day money rates of the money and capital markets. The interest rate on the remaining facilities of R1 800 million is linked to prime. Refer to note 6 for total advances receivable ceded as security. These facilities are applicable provided that certain ratios are met. All the required ratios were met during the year.



Group Co-operative

No later than 1 yearLater than 1 year and less than 5 years

Future finance charges on finance leases

Present value of finance lease liabilities

2010R'000

870 1,172

2,042 (347)

1,695

2011R'000

830 1,162

1,992 (326)

1,666

2010R'000

870 1,172

2,042 (347)

1,695

2011R'000

830 1,162

1,992 (326)

1,666

14. BORROWINGS (Continued)

The loan from Sasol Oil (Proprietary) Limited is unsecured, interest free and has no fixed terms of repayment. The fair value of borrowings is based on the quoted market price for the same or similar instruments or on the current rates available or borrowings with the same maturity profile and effective interest rate with similar cash flows. The fair valued borrowings with variable interest rates approximates their carrying amounts.

Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. Refer to note 2 for vehicles held under finance leases.

The present value of finance lease liabilities is as follows:

- -

-

- 4,016

4,016

- -

-

- 4,016

4,016

15. OTHER PROVISIONS

Staff bonus and incentive provision

At 1 September 2010Additions

At 31 August 2011

45,265 -

10,602 4,245

16,567 3,840 2,856 4,369 8,070 7,200

103,014

50,549

- 11,475

81

19,192 4,398 2,116 4,984

16,803 16,668

126,266

45,265 504

10,602 -

16,567 3,840 2,856

- 8,070

12,335

100,039

50,549

- 11,475

-

19,192 4,398 2,116

- 16,803 17,861

122,394

16. TRADE AND OTHER LIABILITIES

SuppliersDeferred premiumsUnclaimed balances owed to current and former membersSubsidiariesAccrued expenses- Bonuses- Leave payBrokers' commissionNet of credit life premiumsDeferred initiation feesTrade creditors

The carrying amount approximates fair value because of the short period to settlement of these obligations.



5%

17. CASH BONUSES PAYABLE

At 1 September 2009Bonuses and interest accrued for the year

Transfer to members' fundsCash bonuses paid

At 31 August 2010 (note 26)

At 1 September 2010Bonuses and interest accrued for the year

Transfer to members' fundsCash bonuses paid

At 31 August 2011 (note 26)

Co-operative

R'000

20,175 79,805

99,980 (61,765) (17,406)

20,809

20,809 95,872

116,681 (72,242) (17,404)

27,035

GroupR'000

20,175 79,805

99,980 (61,765) (17,406)

20,809

20,809 95,872

116,681 (72,242) (17,404)

27,035

18. INCOME TAX PAID Group Co-operative

Payable at the beginning of the yearReceivable at the beginning of the yearNormal tax and Secondary tax on companies (note 24)Receivable at the end of the yearPayable at the end of the year

2010R'000

1,271 -

(15,394) (92)

-

(14,215)

2011R'000

- 92

(23,679) (4,701)

-

(28,288)

2010R'000

(17,283) 1,314

(31,923) (92)

9,664

(38,320)

2011R'000

(9,664) 92

(39,872) (4,706) 6,670

(47,480)

19. IMPAIRMENT OF ADVANCES RECEIVABLE

Advances written offMovement in provision

The gross movement in the provision is as follows:

At 1 SeptemberMovement in provision

At 31 August

35,343 -

35,343

43,100 -

43,100

35,379 900

36,279

43,100 900

44,000

44,806 186

44,992

48,626 186

48,812

46,436 1,655

48,091

48,812 1,655

50,467

20. FEE AND COMMISSION INCOME

Administration feesCommission

29,916 71,476

101,392

51,134 82,110

133,244

28,607 60,031

88,638

48,569 68,234

116,803

21. OTHER OPERATING INCOME

Credit life premiumsDividends received (note 32)Investment incomeOther income

- 30,000

- 11,358

41,358

- 30,000

- 11,470

41,470

79,975 3,650 1,126

966

85,717

86,759 3,419 1,377 2,087

93,642



24. INCOME TAX

Current

South African current taxSecondary tax on companies

Normal tax and Secondary tax on companies (note 18)

Deferred

Deferred income tax (note 5)

Income tax expense

Tax rate reconciliation

Effective rate of tax

Total tax has been affected by:

Dividend receivedSecondary tax on companiesOther net exempt income and disallowed expenditure

Standard rate of South African tax

15,394 -

15,394

(1,909)

13,485

%

17.9

11.1 -

(1.0)

28.0

23,679 -

23,679

(2,856)

20,823

%

20.1

8.1 -

(0.2)

28.0

29,290 2,633

31,923

(1,429)

30,494

%

30.9

1.0 (2.7) (1.2)

28.0

37,081 2,791

39,872

(2,856)

37,016

%

29.9

0.8 (2.2) (0.5)

28.0

23. STAFF COSTS

Wages and salaries (including performance bonuses)Pension costs - defined contribution plans (note 30)

81,304 7,618

88,922

94,866 7,744

102,610

81,304 7,618

88,922

94,866 7,744

102,610

22. OPERATING EXPENDITURE Group Co-operative

The following items have been charged against other operating expenditure:

Service provider feeAuditor's remuneration Audit fees Underprovision prior yearBank chargesBroker commissionsComputer servicesDepreciation of property and equipment (note 2)Amortisation of intangible assets (note 3)Directors' emoluments Salaries and meeting allowances Bonuses Staff bonus and incentive provision Retirement and retention benefitsInsuranceManagement feesCredit Bureau chargesMarketing costsMunicipal servicesOther professional servicesRentals in respect of operating leasesRepairs and maintenanceStaff costs (note 23)StationeryTelephone and postagesTravel expensesVehicle running costsOther

2010R'000

2,016 1,098 1,014

84 1,867 3,495

12,405 3,197

88 31,079 10,966 8,421

- 11,692

876 -

1,120 1,455 1,344 6,433 8,205

529 88,922 4,690 4,453 1,318 1,126

10,347

186,063

2011R'000

2,024 1,171 1,138

33 2,314 4,219

14,776 4,888

456 24,597 10,500 8,924 2,926 2,247

930 -

1,190 2,761 1,658 4,535 8,652 1,100

102,610 5,079 4,585 1,505 1,300

13,715

204,065

2010R'000

2,016 1,138 1,054

84 1,868 3,495

12,469 3,314

88 31,079 10,966 8,421

- 11,692

876 2,154 1,120 1,455 1,344 6,433 8,205

529 88,922 4,690 4,453 1,318 1,126 9,246

187,337

2011R'000

2,024 1,225 1,192

33 2,315 4,219

14,776 5,015

456 24,597 10,500 8,924 2,926 2,247

983 2,681 1,190 2,761 2,528 4,535 8,652 1,100

102,610 5,079 4,585 1,505 1,300

15,099

209,235



25. CASH GENERATED FROM OPERATIONS Group Co-operative

Profit before income tax

Adjusted for:

Depreciation of property and equipment (note 2)Amortisation of intangible assets (note 3)Interest credited to members' funds (note 13)Appropriations of members' funds (note 13)Dividends received (note 21)Benefits to members (note 34)Impairment charge of advances receivable (note 19)Staff and incentive provision (note 15)

2010R'000

75,353

3,197 88

26,755 (5,458)

(30,000) 51,692 35,343

-

156,970

2011R'000

103,520

4,888 456

27,260 (8,413)

(30,000) 67,983 36,279 4,016

205,989

2010R'000

98,591

3,314 88

26,755 (5,458) (3,650) 51,692 44,992

-

216,324

2011R'000

123,795

5,015 456

27,260 (8,413) (3,419) 67,983 48,091 4,016

264,784

26. BONUSES PAID

Cash bonuses payable at the beginning of the yearCash portion of total bonuses (note 34)Cash bonuses payable at the end of the year (note 17)

(20,175) (18,040) 20,809

(17,406)

(20,809) (23,630) 27,035

(17,404)

(20,175) (18,040) 20,809

(17,406)

(20,809) (23,630) 27,035

(17,404)

27. COMMITMENTS

Operating lease commitments - where the Group is the lessor.

The future minimum operating lease payments which can be terminated are as follows:

Less than 1 yearMore than 1 year but less than 5 yearsMore than 5 years

There were no renewal options or escalation clauses on the equipment and vehicles. The effect of the escalation clauses for rentals on properties is detailed above.

28. GUARANTEE

First National Bank, a division of FirstRand Bank Limited, on behalf of Iemas Financial Services (Co-operative) Limited, has issued a guarantee of R35,6 million in favour of the Financial Services Board for payments due for net premiums collected and not paid over to the different insurers.

This guarantee is secured by a cession of advances receivable (refer to note 6).

5,337 14,314 7,135

26,786

5,392 13,344 4,882

23,618

5,337 14,314 7,135

26,786

5,392 13,344 4,882

23,618



29. FINANCIAL RISK MANAGEMENT

Financial risk factors

Treasury risk management The Group has no formal treasury department. The Executive Director Finance is responsible for analysing interest rate exposure and for re-evaluating strategies against economic forecasts. The Board approves the overall risk plan. Interest rate risk management The Group is exposed to the effects of fluctuations in the prevailing levels of market interest rates, its financial position and cash flows. Interest margins may increase as a result of such changes, but may also reduce in the event that unexpected movements in interest rates occur. These assumptions are based on management's judgement. Eighty seven percent (2010: 86%) of all the advances are prime linked, only maxi loans (13%) are not prime linked. Maxi loans are granted at a rate that is variable in accordance with management's discretion. Funding for the administered rate products consists of an appropriate mix of prime-linked funding (78%) and overnight call funding (22%) from four major South African commercial banks.

The exposure of the Group's advances receivable to an interest rate change of 50 basis points at the reporting date will have the following pre-tax impact on 'net interest income before impairment of advances' in the statement of comprehensive income:

The above table is based on advances with a total carrying value of R3 055,0 million (2010: R2 512,5 million).

The exposure of the cash and cash equivalents to an interest rate change of 50 basis points at the reporting date are as follows:

The above table is based on cash and cash equivalents of the Group with a total value of R14,5 million (2010: R18,3 million) and a total value of R0,6 million (2010: R0,8 million) for Iemas.

The exposure of the Group's borrowings to an interest rate change of 30 basis points (at official review date), at the reporting date is as follows:

The above table is based on borrowings with a total value of R2 321 million (2010: R1 873 million).

Group Co-operative

0 - 12 months13 - 24 months25 - 36 months

2010R'000

12,563 12,563 12,563

37,689

2011R'000

15,275 15,275 15,275

45,825

2010R'000

12,563 12,563 12,563

37,689

2011R'000

15,275 15,275 15,275

45,825

0 - 12 months13 - 24 months

4 4

8

3 3

6

91 91

182

73 73

146

0 - 12 months13 - 24 months25 - 36 months

1,191 3,219 5,619

10,029

2,576 6,438 6,963

15,976

1,191 3,219 5,619

10,029

2,576 6,438 6,963

15,976



29. FINANCIAL RISK MANAGEMENT (Continued)

Liquidity risk management

Liquidity risk is the ability to meet financial obligations as they fall due while managing the mismatch in the maturity of assets and liabilities. Management is responsible for the establishment and monitoring of lending and funding policies. It ensures that the statement of financial position is flexible enough to adapt to changing economic conditions and that quality assets are taken on. Due to the dynamic nature of the underlying business, the Co-operative aims to maintain flexibility in funding by keeping committed credit lines available.

The table below presents the cash flows payable by the Group under non-derivative financial liabilities in terms of the remaining contractual maturities at the reporting date. The amounts disclosed in the table are the contractual undiscounted cash flows, whereas the Group manages the inherent liquidity risk based on expected undiscounted cash inflows.

GROUP

As at 31 August 2010Due to banks (principal and interest)Due to membersCash bonuses to membersOther liabilities

Total financial liabilities

Advances receivableAvailable-for-sale financial assetsRestricted cashCash and cash equivalentsTrade and other assets

Total financial assets



Advances receivableAvailable-for-sale financial assetsRestricted cashCash and cash equivalentsTrade and other assets


Over 1 yearR'000

1,400,000

443,982 -

32,166

1,876,148

2,163,089 - - - -

2,163,089

1,650,000 491,630

- 38,400

2,180,030

3,299,963 - - - -

3,299,963

6-12 months

R'000

544,476

- -

3,393

547,869

841,414 - - - -

841,414

769,879 - -

3,439

773,318

745,710 - - - -

745,710

2-5 months

R'000

48,952

- 20,809 32,509

102,270

471,144 75,244

- - -

546,388

56,502 -

27,035 27,921

111,458

426,120 78,750

- -

4,706

509,576

Up to 1 month

R'000

16,158

- -

97,895

114,053

120,202 -

17,186 4,955 6,459

148,802

4,600 - -

79,561

84,161

135,289 -

13,560 3,054 2,982

154,885




The table below presents the cash flows payable by Iemas under non-derivative financial liabilities in terms of the remaining contractual maturities at the reporting date. The amounts disclosed in the table are the contractual undiscounted cash flows, whereas Iemas manages the inherent liquidity risk based on expected undiscounted cash inflows.

Credit risk management Potential credit risk is primarily attributable to advances receivable. There is limited concentration of credit risk as the advances receivable consist of members from a number of employers. The Group is exposed to credit risk when there is a risk that a counterparty will be unable to pay amounts in full when due. The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. The Co-operative performs ongoing credit evaluations of the financial conditions of its members and employers, and where appropriate, purchases credit life insurance. Salary deductions are contractually negotiated with the employers before credit is granted to a member of the Co-operative. At 31 August 2011 the Co-operative was of the opinion that there was no significant concentration of credit risk that had not been adequately provided for. The credit risk on maxi loan advances is managed as indicated in the accounting policies. The effective recovery of assets constitutes an important part of Iemas’s risk management programme, and a specialist asset recovery section was therefore established.

In order for Iemas’s credit granting policy to remain consistent with market practice, the policy is continuously reviewed and adapted to meet members’ needs as well as to be in line with market trends, current economic circumstances, the requirements of participating employers and the requirements of the National Credit Act, as all these requirements manifest themselves over time. This approach has had the positive result that Iemas’s credit-granting policy remains dynamic while emphasising the inter-ests of members, either as individuals or collectively, as the first and foremost requirement.

The capital outstanding on the non-performing loans as a percentage of the total advances receivable in the respective asset classes, is as follows:

• Motor vehicle loans decreased from 3,3% (2010) to 3,1% (2011) • Maxi loans decreased from 2,4% (2010) to 2,2% (2011) • Personal loans decreased from 1,6% (2010) to 1,5% (2011) • All asset classes decreased from 2,7% (2010) to 2,5% (2011)

CO-OPERATIVE



Advances receivableCash and cash equivalentsTrade and other assets




Advances receivableCash and cash equivalentsTrade and other assets


Over 1 yearR'000

1,400,000

443,982 -

32,166

1,876,148

2,163,089 - -

2,163,089

1,650,000 491,630

- 48,900

2,190,530

3,299,963 - -

3,299,963

6-12 months

R'000

544,476

- -

3,393

547,869

841,414 - -

841,414

769,879 - -

3,806

773,685

745,710 4,701

-

750,411

2-5 months

R'000

48,952

- 20,809 2,036

71,797

480,808 - -

480,808

56,502 -

27,035 21,461

104,998

426,120 - -

426,120

Up to 1 month

R'000

16,158

- -

107,653

123,811

120,202 4,624 6,290

131,116

4,600 - -

83,486

88,086

135,289 2,672 2,676

140,637



Group Co-operative

Total borrowings (note 14)Less: Cash and cash equivalents (excl. restricted cash) (note 8)

Net debt

Total

Capital and reservesMembers' funds (note 13)

Gearing ratio

Change in the write off % Sensitivity

Performing loansVehicle loansMaxi loansOther

Non-performing loansVehicle loansMaxi loansOther


In preparing the financial statements, estimates and assumptions are made that could affect the reported amounts of advances receivable. In order to account for the impairment of advances receivable, a provision is raised based on the average net bad debt write offs in the last year as a percentage of the average outstanding advances for the same period. No provision is raised on pension-backed loans since history has indicated that in almost all cases the debt is recoverable. For more detail on the provisioning policy please refer to the accounting policies as well as note 6.

In order to assess the sensitivity of the estimates and assumptions used in the calculation of the amount recognised for the impairment of advances receivable, the following sensitivity analysis has been performed in respect of both performing and non-performing loans. As the calculation of the impairment of advances receivable was based on the average net bad debt write offs in the last year as a percentage of the average outstanding advances for the same period, the sensitivity of the amounts provided for the impairment of advances receivable were tested based on changes in these percentages.

Capital risk management The Group's objective when managing capital is to safeguard its ability to continue as a going concern in order to provide returns for stakeholders and benefits for other stakeholders, as well as to maintain an optimal capital structure in order to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends or benefits paid or allocated to members. Gearing ratios at 31 August 2011 and 2010 were as follows:

30. RETIREMENT BENEFIT INFORMATION

Retirement funds Independent funds provide pension and other benefits for permanent employees and their dependants. At the end of the financial year the following funds were in existence: From 1 September 2008 actuarial fund values were transferred and contributions are paid to the Sanlam Umbrella Pension and Provident Funds. These funds operate as defined contribution funds and are governed by the Pension Funds Act of 1956. Newly appointed employees are all required to contribute 7,5% to the Sanlam Umbrella Pension Fund to support the investment strategy. Members pay a maximum contribution of 7,5%. Iemas's contribution charged against the statement of comprehensive income amounted to R9,1 million (2010: R9,1 million). The Group is under no contractual obligation to guarantee retirement benefits, as all employees are part of the defined contribution scheme. No liability is provided for.

2010%

0.20.50.3

3.03.03.0

2011%

0.20.50.3

3.03.03.0

2010R'000

3,115 2,031

214

5,360

1,121 345 410

1,876

2011R'000

3,926 2,252

309

6,487

1,299 249 114

1,662

2010R'000

1,878,591

(1,089)

1,877,502

1,042,217

598,235 443,982

55.5%

2011R'000

2,323,500

(975)

2,322,525

1,176,643

685,014 491,630

50.7%

2010R'000

1,888,091 (758)

1,887,333

935,130

491,148 443,982

49.5%

2011R'000

2,334,000 (593)

2,333,407

1,065,474

573,845 491,630

45.7%

31. RELATED PARTIES

All the related parties are incorporated in South Africa. For a list and the nature of the relationship of the related parties refer to note 4.

Income and expenses Gross insurance premiums paid to: Iemas (Co-operative) Limited Cell "A12" Administration fees received from: Iemtech (Proprietary) Limited Commission and administration fees received from: Iemas (Co-operative) Limited Cell "A12" Interest received from: Iemtech (Proprietary) Limited Interest paid to: Iemtech (Proprietary) Limited Rent paid to: Iemas (Co-operative) Limited Cell "A12" Key management personnel: Salaries Pension costs - defined contribution plans Bonuses Staff bonus and incentive provision Retirement and retention benefits

Outstanding balances Receivable from related parties: Iemtech (Proprietary) Limited Iemas (Co-operative) Limited Cell "A12" Payable to related parties: Iemas (Co-operative) Limited Cell "A12" Iemtech (Proprietary) Limited Key management personnel: Advances during the year Leave pay accrued Outstanding balance at the end of the year

32. DIVIDENDS DECLARED AND PAID

Iemas (Co-operative) Limited Cell "A12" paid a dividend of R30 million (2010: R30 million) for the year. The Group figures do not reflect the dividend declared and paid.

33. EVENTS AFTER THE REPORTING PERIOD

No events occurred after the reporting period that would require adjusting the financial results as presented.

2010R'000

75,985

1,340

24,341

1

582

1,331

8,833 1,509 8,421

- 11,692

55 -

4,245 9,500

1,295 565

1,933

2011R'000

86,255

2,400

26,919

4

588

1,417

7,823 1,377 8,924 2,926 2,247

111 -

5,065 10,500

1,133 578

1,901

2010R'000

18,040 35,010 (1,358)

51,692 26,755

78,447

2011R'000

23,630 44,982

(629)

67,983 27,260

95,243

2010R'000

18,040 35,010 (1,358)

51,692 26,755

78,447

2011R'000

23,630 44,982

(629)

67,983 27,260

95,243

34. BENEFITS DECLARED Group Co-operative

Cash portion of total bonuses (note 26) Bonuses credited to members' funds (note 13) Overprovision of prior year bonuses (note 13) Benefits to members Interest credited to members' funds (note 13) Bonuses and interest accrued for the year



NOTES


NOTES


IEMAS FINANCIAL SERVICES (CO-OPERATIVE) LIMITED IS AN AUTHORISED FINANCIAL SERVICES AND CREDIT PROVIDER

NCRCP 1332 | FSP 15815

Documents

ANNUAL REPORT 2011 - Iemas Financial Services · 2016-01-14 · The knock-on effect from the global financial crisis was felt here to some extent. In addition to this, the effect