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1 V A L U E G R O U P L I M I T E D A N N U A L R E P O R T w w w. v a l u e. c o. z a a n n u a l r e p o r t Designed and produced by OgilvyPR

2 CONTENTS Vision and mission 1 Financial overview and financial ratios 2 Value added statement 3 Operational divisions 4 9 Group directors Chairman s statement Chief executive officer s report Corporate governance Corporate social investment Corporate information 28 Directors responsibilities and approval 29 Report of the independent auditors 30 Certificate by company secretary 31 Directors report Annual financial statements Shareholders information 80 Notice of annual general meeting Form of proxy 85 87

3 VISION AND MISSION sustainable and focused In today s volatile market, companies successes are dependent on a robust distribution channel that is able to provide a framework to deliver their goods effectively. Value, with over 25 years experience in supply chain solutions, stepped up to the mark and has become the supply chain partner of choice for many of South Africa s leading brands. Va l u e g r o u p

4 FINANCIAL OVERVIEW AND FINANCIAL RATIOS % 2010 R R R R R 000 FINANCIAL OVERVIEW Revenue (1) Operating profit Net profit after taxation Equity Total assets Basic earnings per share (cents) 10 50,8 46,3 24,3 7,1 32,7 Headline earnings per share (cents) 7 52,4 48,8 25,8 9,6 34,3 Net asset value per share (cents) ,8 240,2 203,3 179,8 184,3 Cash flows from operating activities (2) The above results have been extracted from the financial statements as presented in each year and are in accordance with the relevant International Financial Reporting Standards applicable at the time. FINANCIAL RATIOS After tax return on average equity 20% 21% 13% 4% 19% Debt:equity 35% 49% 53% 50% 32% Current ratio 0,88 0,99 0,99 0,90 0,90 Debtors days 38* 42* 44* 44* 48* *Adjusted for the effects of clearing and forwarding. Revenue (R million) Cash flows from operating activities (R million) Va l u e g r o u p

5 VALUE ADDED statement 2010 R R 000 WEALTH CREATED Revenue Paid to suppliers for materials and services ( ) ( ) Investment income WEALTH DISTRIBUTED Employee remuneration and benefits Providers of capital finance costs Taxes Dividends paid Capital reduction and treasury shares (4 423) Reinvestment in the Group Depreciation, amortisation and impairment Retention of profits Wealth distributed for the year ended February 2010 Wealth distributed for the year ended February % Employee remuneration and benefits 55% 20% Reinvestment in the Group 23% 5% Providers of capital 8% 6% Taxes 6% 0% Capital reduction and treasury shares 6% 6% Dividends paid 2% 100% 100% Va l u e g r o u p

6 OPERATIONAL DIVISIONS sustainable margin improvement VALUE LOGISTICS Value Logistics, a division of Value Group with over 20 years experience in supply chain solutions has become the supply chain partner of choice for many of South Africa s leading brands. Value Logistics has positioned itself as a leader in its field through expanding its services from basic truck rentals to fully outsourced supply chain solutions that include customised door-to-door offerings via road, air and sea. Customers benefit from the advantage of Value s vast size and infrastructure, offering in excess of m 2 of warehousing nationally. Value also offers an integrated IT network, labelling and bar-coding facilities, sophisticated routing and scheduling, as well as 24-hour vehicle and parcel tracking and management. FREIGHTPAK The Freightpak division is an integrated supply chain solution provider, offering safe and responsible warehousing, distribution and related solutions to a core group of customers in the Chemical and Industrial Sector. Established in 1974, Freightpak has warehouses in Durban, Johannesburg, Cape Town and Port Elizabeth, and is fully compliant with the transportation of dangerous goods legislation. VALUE EXPRESS The Value Express division specialises in time-sensitive movement of freight through door-to-door, on demand delivery and collections. Services offered include early delivery, late collections, same-day collections and deliveries to all major centres as well as Saturday and Public holiday services. Value Express offers prompt on time services for both national and international shipments. Collections and deliveries are executed predominantly within southern Africa. The division also services urgent parcel movements within the global environment. 4 Va l u e g r o u p

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8 OPERATIONAL DIVISIONS continued WEATHERING THE STORM VALUE TRUCK RENTAL Flexibility is key to the success of the Value Truck Rental division with its national footprint to cater for all rental options anywhere in South Africa. Customers have a choice from more than vehicles in the 1 8 ton range of LDVs, dropsides, panelvans, curtainsides and demounts, or ton truck tractors with pantech, flatdecks and curtainside trailers. Specialised units are also available, including 1 12 ton refrigerated vehicles on an ad hoc or contract basis, vehicle-mounted cranes, hazardous material transport and specialised fixtures for the film production market, all manned by a pool of carefully selected and highly skilled drivers and crew, and customer service of the highest levels, which results in constant repeat customer orders. CLEARING AND FORWARDING The Value Clearing and Forwarding division is part of a worldwide network of forwarding agents able to meet its clients needs in all areas of ocean freight, air freight, road freight, customs services and warehousing and distribution by supplying a full door-to-door service. The service offering includes integrated customs clearing, landed costings, bonded warehousing, marine insurance and status reporting. 6 Va l u e g r o u p

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10 OPERATIONAL DIVISIONS continued resilient cash flows VALUE MATERIALS HANDLING The Materials Handling division is the sole distributor for Komatsu forklifts, Bendi articulated forklifts, Lancer side loaders and Ranger rough terrain forklifts in South Africa and also supplies and supports many leading brands in the 1,8 48 ton range of forklifts and warehousing equipment. Other products include electric pallet trucks, stock pickers, stackers and very narrow aisle forklifts. The services offered range from retail, sales, parts, maintenance, short and long-term rentals. VALUE CONTAINER STORAGE The Container Storage division depot, recently opened in Port Elizabeth, is ideally positioned close to the new deep water Port of Ngqura commonly known as Coega. The container depot is well equipped with two new 45 ton reach stackers and two empty container handlers which have been registered at the port to uplift containers. Services offered includes storage and cartage of containers from the port to the container depot. 8 Va l u e g r o u p

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12 GROUP DIRECTORS Carl Stein (56) Chairman (Independent), LLB, HDip Tax Law Carl is a senior director in the corporate/commercial department of Bowman Gilfillan Inc., one of the three largest law firms in South Africa. He has been a practising attorney throughout his business career, and is today regarded as one of South Africa s leading corporate lawyers. He is also a non-executive director of other listed companies. Carl became chairman of Value Group in Steven Gottschalk (52) Chief Executive Officer Steven founded the business of Value Group in From its initial focus on truck rental and transport, Steven initiated the change in the Group s focus to that of a fully integrated logistics provider. Mano Padiyachy (45) Executive Director Mano started his working career in the warehousing and distribution industry at Royal Beechnut (Nabisco). He joined Value Group in February 2000 as contracts manager. He was then appointed as the divisional director of Key Accounts in August 2004 and finally to the board in July Va l u e g r o u p

13 Clive Sack (40) Group Financial Director, CA(SA) Clive completed his articles at Mazars Moores Rowland in He remained on as an audit manager until 1998, whereafter he joined Value Group as Group financial manager. In May 2002, he was appointed to the board as Group financial director. Mike Groves (65) Non-Executive Director (Independent), CA(SA) Mike was the managing director of Grindrod Limited until He has 35 years experience in the shipping and transport industry. He acts as an independent non-executive director of SA Corporate Real Estate Fund Managers Limited, Grindrod Bank Limited, as well as Grindrod Limited. Mike is a past president of SA Ship Owners Association. He was appointed as a non executive director of Value Group in August Mathews Phosa (58) Non-Executive Director (Independent), LLB, Honorary PhD in law Mathews opened the first black empowerment law practice in Nelspruit in He was elected as the first Premier of Mpumalanga province in Following the elections in 1999, Mathews resigned his seat in parliament in favour of focusing his attention for a career in business. Mathews re-entered the political arena in 2007 when he was appointed Treasurer-General of the National Executive Committee of the ANC. He is chairperson of Special Olympics South Africa and serves on the World Board of Special Olympics International. He holds numerous chairperson positions, among them being the non-executive chairman of EOH (Enterprise Outsourcing Holdings Limited), executive chairman of Vuka Forestry Holding (Proprietary) Limited and Eveni Investments (Proprietary) Limited. He is also a director of Hans Merensky Holdings (Proprietary) Limited. He joined Value Group in October 2002 as an executive director. Va l u e g r o u p

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15 CHAIRMAN S STATEMENT headline earnings up 7% The 2010 financial year will be remembered as the only year in the Group s history in which revenue reduced albeit by a marginal 1%. This was fuelled by the global credit crisis a year earlier which permeated into a lack of investor confidence over a protracted period and consequently diminished consumer demand. Nevertheless, the Group s reactive nature and financial planning in the event of a slowdown stood it in good stead. Net profit after tax increased by 8% to R91,4 million and headline earnings improved by 7% to 52,4 cents per share. This is testament to not only the resilient nature of the business, but also to the success achieved by the Group in managing costs and driving operational efficiencies. The positive results and adaptability of the Group bodes well for the sustainability and future growth of business. This will be complemented by the Group s focus on growing the customer base across all divisions whilst simultaneously cross-selling services to its existing and new client base. The Group subscribes to the principles of sound corporate governance. The King III Report on Corporate Governance became effective on 1 March 2010 and revolves around the key aspects of effective leaderships, sustainability and corporate citizenship. The Group is committed to implementing these new principles and thereby enhancing governance for the benefit of all stakeholders. The Group is also committed to the principle of broad-based black economic empowerment (BBBEE). During the year, the Group was awarded a level 5 BBBEE accreditation. Subsequent to year end, and as announced in the press during May 2010, the Group facilitated the transfer of ownership of up to a 15% equity interest to BBBEE partners. I am extremely pleased with the progress and transformation achieved by the Group over a short three year period. I am confident that this BBBEE ownership transaction will be mutually beneficial to all concerned. I would, once again, like to extend my sincere appreciation and gratitude to all staff, management, co-directors and in particular the CEO, Mr Steven Gottschalk, for their immense effort in an extremely challenging year. The results achieved are evidence of your efforts and what can be achieved in an adverse economic environment. CD Stein Chairman Johannesburg 30 July 2010 Va l u e g r o u p

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17 CHIEF EXECUTIVE OFFICER S REPORT GROSS PROFIT MARGIN INCREASED TO 44% FINANCIAL RESULTS I am pleased to report an improvement in the 2010 year end results, despite the effect of the recessionary environment on the global and South African economies. Although turnover in the first six months was down on the prior period, the growth of the customer base in the second six months had a marked effect on volume and turnover recovery. This contributed to turnover being only marginally down from R1,368 billion in 2009 to R1,352 billion in Of particular importance was the continued focus on resource allocation and cost control which contributed positively to increasing sustainable gross profit margins from 40% to 44% and operating margins from 10,1% to 10,5%. The culmination of the above contributed to net profit before tax increasing by 6% from R121,2 million to R128,6 million. The reduction in interest bearing debt from R211,3 million to R171,6 million contributed to reducing net finance costs to R13,8 million and increasing headline earnings by 7% from 48,8 cents to 52,4 cents per share. Headline earnings growth was partially negated by increased STC costs arising from the declaration of a final and maiden interim dividend. Substantial focus on working capital management contributed significantly to the Group s generation of cash from operating activities. These cash flows funded the Group s dividend outflows of R37,7 million, net capital expenditure of R134 million and the reduction of interest bearing debt amounting to R39,6 million. The Group s balance sheet remains financially sound with net asset value increasing by 11,5% from 240,2 cents to 267,8 cents per share. The debt equity ratio improved from 49% to 35%. This is below the target range of 40% to 60%. It is expected that interest bearing debt will increase due to the debt funding of capital expenditure in the 2011 financial year. Although debtor collections were hampered due to the last day of the financial year falling on a Sunday, cash flows remained strong. Debtor s days (excluding the effects of clearing and forwarding) have improved from 42 days to 38 days. The Group declared its maiden interim dividend amounting to six cents per ordinary share which was paid in December A final dividend of 10 cents per ordinary share was declared and paid on 28 June SEGMENTAL PERFORMANCE General distribution segment The segment performed well despite the decline in volumes in the first half. Revenue was marginally down from R1,079 billion to R1,070 billion. Operating margins of 9,7% were consistent with that of the previous year, which resulted in flat operating profit of R103,7 million. The effects of the recession was largely hedged in that volume growth emanating from new customers replaced volume decline from the existing customer base. The consolidation of similar product to the same delivery points has made this business not only competitive, but also cost effective. Freightpak, the chemical warehousing and distribution division of the Group, also reported a marginal reduction in profitability in line with the reduction in volumes and consequently, turnover. This business unit has been targeted as a growth area over the short to medium term. Plans are in progress to upgrade and expand the facilities in Durban and Johannesburg. Truck rental and other segment The economic downturn had a profound effect on vehicle utilisation and activity levels, particularly in the first half of the Va l u e g r o u p

18 CHIEF EXECUTIVE OFFICER S REPORT continued financial year. Turnover reduced marginally from R289.2 million in 2009 to R281.7 million. Management focused on improving this segment s profitability by defleeting excess older vehicles, and on selling the services. Operating profit increased by R3 million over the previous year with operating margins improving from 14,7% to 16,1%. Reduced demand amongst the existing client base has been offset by growth in the Linehaul customer base. This has enabled the Group to reduce the number of Linehaul subcontractors providing services to the logistics division. Additional opportunities have arisen to further replace subcontractors. The global financial crisis had a material impact on the provision of credit facilities. Consequently the South African banking industry has tightened up the granting of credit the result of which obtaining finance has become both onerous and costly. This crisis had a negative impact on both global and local sales of materials handling equipment. Although the material handling division s turnover was reduced, the business unit still remained marginally profitable. The clearing and forwarding business reported flat profitability for the 2010 financial year. As the global economy recovers from the effects of the recession, freight shipping rates are increasing. This bodes well for the future profitability of the business. The strong Rand and lower interest rates however reduces profitability. The division is aligned to synergize with the various other business units in providing additional supply chain services to its customer base. The global partnerships with Militzer & Muench Air Sea Cargo (M & M) remains strong and mutually beneficial to both parties. BBBEE TRANSACTION AND SHARE REPURCHASE The Group is committed to the growth and development of the South African economy and its people through Black Economic Empowerment (BEE). Various initiatives have been implemented to address inequalities of the past while simultaneously ensuring sustainability into the future. Over the last two years major emphasis has been placed on improving the company s BEE score card through learnerships, staff training and other initiatives. The Group has concluded a R73 million BEE ownership transaction in terms of which the Group has facilitated equity ownerships by Dr Nakedi Mathews Phosa and Mr Mano Padiyachy, both directors of the company, as well as selected black employees in terms of an employment empowerment scheme. The transaction will facilitate up to a 15% BEE equity stake in the Group and will be funded by a preference share issue to a subsidiary of the Group. It is anticipated that these BEE transactions will add long term value to the business as the BEE partners have a long standing relationship with the Group and are committed to the further growth and development of the company. In order to hedge against current and future dilution, the Group will effect a voluntary repurchase of the qualifying ordinary shares at a price of R3,60 per share. A maximum of Value Group ordinary shares will be acquired. NEW DEVELOPMENTS In order to enhance the company s Linehaul business, new operations have opened in Durban, Cape Town and Port Elizabeth. All the new operations have been opened in existing premises of other divisions. In the future, Linehaul will be split into two businesses, the one being the long distance transport division and the other, intermodal, which is the handling of containers from start to finish. Value has spent substantial amounts on improving its Information Technology (IT). This expenditure will be ongoing in order to position the Group as a world class logistics service provider with cutting edge IT. New IT software has been procured and successfully implemented in the warehousing division and the finance department. Both systems are robust and have created a platform for managing future growth. The Group is currently engaged in the implementation of a vehicle maintenance module which integrates into the financial package. The new vehicle maintenance module is expected to not only enhance but also improve maintenance scheduling and visibility of the large costs associated with operating the fleet. It is expected that this visibility will result in future savings to the Group. MARKET FACTORS The challenging economic environment together with the supply chain pricing complexities has seen a number of logistics 1 6 Va l u e g r o u p

19 companies and competitors placed in financial difficulties. This has resulted in liquidations, down scaling and closure of non performing divisions within various logistics competitors. Value was fortunate however, in that its business has continued to grow from strength to strength. New customers have come on board contributing to the organic growth. Purchasing has been re-engineered and has resulted in sustainable savings. Management has been restructured resulting in more effective control of the various divisions. These measures have enabled the Group to emerge from this environment leaner and more competitive. PROSPECTS The Group continues to leverage off the Value brand which is synonymous with the ability to provide an efficient and cost effective supply chain solution. Value has the credibility of a dependable company that not only designs a logistics solution, but also implements it utilising its own infrastructure. Management is focused on growing the Group organically and through acquisitions. Subsequent to year end, the Group procured new accounts which will contribute to increased volumes and activity while leveraging off the upgraded infrastructure base. In addition, increased collaboration between business divisions has yielded supply chain opportunities which have generated new revenue streams. Various potential acquisitions have been evaluated but did not meet the Group s criteria. Management continues to explore acquisition opportunities which best fits the Group s strategy and operational activities. Lastly, realignment of costs to operational activity undertaken over the last year has and will continue to yield margin improvements. Accordingly, the Group is very well positioned to benefit from improved consumer demand and associated volume growth from the existing and new customer base. Volumes in the current year have increased over the comparative period. Operational performance over the last two months has been in line with management s expectations. Excluding the costs associated with the BEE transaction, management is cautiously optimistic that headline earnings will increase in the 2011 financial year. This statement has not been reviewed nor reported on by the Group s auditors. ACKNOWLEDGEMENTS A big thank you is extended to our customers for their ongoing support over the past years. We have built up many longstanding relationships which are important to us. I extend my gratitude and congratulations to all of the staff members at Value that have contributed to the exceptionally good results that have been achieved in a very difficult and challenging trading environment. Over the past three years, Value has laid strong foundations which will provide a platform for the continued profitability of the Group into the future. I would like to thank the Board of directors for their wise, continued guidance and support and for always being available whenever required. Thank you to all our suppliers. We value the working relationships and partnerships we have established. SD Gottschalk Chief Executive Officer 30 July 2010 Va l u e g r o u p

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21 CORPORATE GOVERNANCE WORLD CLASS LOGISTICS SERVICE PROVIDER INTRODUCTION Value Group and its subsidiaries ( the Group ) are fully committed to the principles of openness, fairness, integrity, accountability, transparency and social responsibility to safeguard the interest of the company and all its shareholders and investors. The Group is committed to conduct its business in accordance with sound corporate governance practices and to balance this with the need to achieve sustainable return on shareholders investments. The board is of the opinion that the Group complies, in all material respects, with the principles contained in the King Code of Corporate Practices and Conduct ( King II ) and the JSE Limited Listings Requirements. The board has noted the new recommendations contained in the King III report, and will ensure that appropriate reporting principles and guidelines are applied at the relevant time. BOARD OF DIRECTORS The board is the focal point for corporate governance. It is responsible to shareholders and stakeholders for sustainable performance of the company. The board takes overall responsibility for the success and prosperity of the company. The board s role is to exercise sound leadership and judgment in directing the company to achieve sustainable growth, having due consideration to a balanced financial, social and environmental performance, and taking into account the legitimate expectations of its stakeholders in making decisions in the best interest of the company. Value Group Limited has a board which comprises six directors. Of these, three are non-executive directors, of which two are independent of management and free from any business or other relationships which could materially interfere with the exercise of their independent judgement. The roles of chairman and chief executive are separate, each with clearly defined roles and responsibilities. The board recognises the need for more independent directors and will continue to seek further nonexecutive directors with the aim of obtaining a majority of nonexecutive directors. To avoid conflict of interest, board members must disclose their interest in material contracts involving the Group. Board members must recuse themselves when participating in deliberations or decision-making process that could in any way be affected by vested interests. All directors performances are evaluated on an annual basis. To facilitate continuity of the board, one half of directors retire by rotation at each annual general meeting and their re-appointment is subject to shareholders approval. The directors retiring by rotation are Messrs CL Sack and IM Groves. All directors, excluding the CEO, are subject to retirement and re-election by shareholders every second year. All directors are subject to election by shareholders at the first opportunity after their initial appointments. Details of the directors in office as at 28 February 2010, appear on pages 10 and 11 of this report. BOARD MEETINGS: Board meetings are held at least quarterly, with additional meetings called where circumstances necessitate. The attendance of directors at board meetings is disclosed below: Number of meetings held: 5 Directors Meetings attended CD Stein 4 IM Groves 3 SD Gottschalk 5 NM Phosa 2 CL Sack 5 M Padiyachy 5 Va l u e g r o u p

22 CORPORATE GOVERNANCE continued R BEE ownership transaction GROUP COMPANY SECRETARY All directors have access to the advice and services of the Group company secretary who is responsible to the board for ensuring compliance with procedures and applicable statutes and regulations. The Group company secretary administers corporate governance within the company and provides counsel and guidance to the board on the proper discharging of their powers, duties and responsibilities. All directors, executive and non-executive, may liaise with the Group company secretary on agenda items for board meetings. Ms JC Nel held office as Group company secretary throughout the 2010 financial year and subsequently resigned on 31 March Mr CL Sack was appointed as Group company secretary upon Ms Nel s resignation. The address of the secretary is disclosed on page 28. BOARD COMMITTEES To assist the board to properly discharge its duties and responsibilities, and to ensure good corporate governance, the board has established several committees to which certain of the board s duties have been delegated. The board has audit, remuneration and nomination committees. All these committees operate under board approved terms of reference, which are reviewed and updated on a regular basis to align them further with best practice. The board appoints the chairman and the members of these committees. Although the board delegates certain functions to these committees, it retains ultimate responsibility for their activities. THE AUDIT COMMITTEE The audit committee is critical to ensuring the integrity of integrated reporting and practices, financial reporting, risk management and internal controls. The members of the audit committee are Mr IM Groves (chairman) and Mr CD Stein. The audit committee members are suitably skilled and experienced independent non-executive directors. The audit committee has noted the recommendation in the King III report that the chairman of the board should not be eligible for appointment as an audit committee member, but may attend the audit committee meetings by invitation. Meetings are attended by invitees, including the chief executive officer, financial director, executive directors, external auditor, internal auditor and company secretary. The audit committee recognises the need to align the interest of the company with those of all of its stakeholders. The functions and responsibilities of the committee are varied and include: c considering and nominating to the board, the appointments and/or termination of the external auditors, including an assessment of their performance, independence and objectivity; c determining the audit fee of the external auditors; 2 0 Va l u e g r o u p

23 c considering and setting mandatory term limits on the period that the lead audit partner of the external auditors may serve the company; c determining the nature, scope and extent of audit and any non-audit services which the external auditors may provide to the company; c viewing and ensuring that adequate risk management strategy and internal controls are in place, through consultation with internal and external auditors; c reviewing half-year interim results and annual financial statements before submission to the board; c satisfying itself regarding the experience and expertise of the company s financial director; c receiving and dealing appropriately with any complaints relating to the accounting practices and internal audit of the company, or to the content or auditing of its financial statements, or to any related matter; c considering and recommending to the board the need to engage external assurance providers to provide assurance on the accuracy and completeness of integrated sustainability reporting; c performing any other functions as may be determined by the board; c undertaking the prescribed functions (in terms of Section 270A(1)) of the Companies Act of South Africa on behalf of subsidiary companies; c overseeing internal audit; c assisting the board on the going concern statement; c considering information technology risks and controls, business continuity and data recovery related to IT, and information security and privacy; c reviewing fraud risk and whistle-blower arrangements and consider any complaints; and c establishing that management is adhering to, and continually improving, internal controls. Committee members have unlimited access to all information, documents and explanations required in the discharge of their duties. This authority has been extended to internal and external auditors. The audit committee is satisfied that both the external auditors, the respective audit partner and the internal audit department observed the highest level of business and professional ethics and independence. Rotation of the engagement partner responsible for the external audit happens every five years. The audit committee also considered and satisfied itself that the Group s external auditors are registered on the JSE register of auditors as contemplated in paragraph 3.86 of the JSE Listings Requirements. Pre-approved non-audit related services do not exceed 10% of the total Value Group audit fee agreed by the audit committee for the financial year in question. The chairman of the audit committee is present at the annual general meeting of the shareholders, to answer questions on the audit committee s activities and matters within the scope of the audit committee s responsibilities. The external auditors also attend the annual general meeting of shareholders. Audit committee meetings are held at least quarterly, with additional meetings called where circumstances necessitate. The attendance of the audit committee members is disclosed below: Number of meetings held: 4 Members Meetings attended IM Groves 4 CD Stein 3 THE REMUNERATION COMMITTEE The remuneration committee is comprised mainly of independent non-executive directors, Messrs CD Stein and IM Groves, in addition to the chief executive officer, Mr SD Gottschalk. The remuneration committee determines, reviews and develops the general policy for executive directors and senior management remuneration for approval by the board. The objective is to ensure that remuneration is fair and appropriate to attract, retain and motivate individuals of high caliber to run the Group successfully and to ensure that executive directors are fairly rewarded for their individual contribution to the Group s operating and financial performance in line with its corporate objectives and business strategy. The committee regularly consults with a range of external independent advisers on market information and remuneration trends to ensure that the remuneration is aligned with the industry and market benchmarks. Non-executive directors remuneration is determined by the executive directors, with reference to external, independent benchmarks. Va l u e g r o u p

24 CORPORATE GOVERNANCE continued The attendance of the remuneration committee members is disclosed below: Number of meetings held: 2 Members Meetings attended IM Groves 2 CD Stein 2 SD Gottschalk 2 The directors emoluments approved by the remuneration committee are fully disclosed in note 14 to the financial statements. THE NOMINATION COMMITTEE The nomination committee, which comprises only non-executive directors, meets on an ad hoc basis as required. Its members are Mr CD Stein (chairman) and Mr IM Groves. Mr SD Gottschalk attends by invitation. The nomination committee nominates, evaluates and recommends possible new appointments to the board. The committee s terms of reference ensure that, for board appointments, a rigorous, fair, and open nomination and appointment process is established which will promote meritocracy in the boardroom and support strong corporate performance. The committee leads that process and makes recommendations to the board. ACCOUNTABILITY AND AUDIT Internal control The board recognises its responsibility for ensuring that appropriate internal control systems are implemented and maintained to achieve the objectives of safeguarding the Group s assets, preventing and detecting error and fraud, ensuring the accuracy and completeness of accounting records, and preparing reliable financial statements. The board is committed to comply with all relevant statutes, the JSE Limited s Listings Requirements and International Financial Reporting Standards. The directors are responsible for providing and maintaining adequate accounting records in order to report accurately on the financial position of the Group. Financial systems and controls are implemented across the Group to meet this responsibility. The external auditors, Charles Orbach & Company, express an independent opinion on the fair presentation of these financial statements. The external auditors were given full access to all accounting records, minutes of all meetings, directorate and management in order to express their opinion. The Group s internal accounting controls and systems are designed to provide reasonable but not absolute assurance as to the integrity of the Group s financial statements and to safeguard, verify and maintain accountability for all its assets. Internal auditors monitor the operation of the internal controls and systems and report their findings and recommendations to management, the audit committee and the board. Corrective actions are taken to address control deficiencies and where other opportunities present themselves for improving the systems as they are identified. The board, operating through its audit committee, provides supervision of the financial reporting process and internal control systems. In respect of internal control and an internal audit, the audit committee reviews and approves the terms of reference for internal audit, the audit plans, and evaluates the independence, effectiveness and performance of the internal audit function, and compliance with its mandate. The Group and management encourage regular co-ordination and consultation between external and internal auditors to ensure an efficient audit process. Internal audit The Group has an independent audit department. The Group s internal audit manager has direct unlimited access to the chairman of the audit committee and the CEO and reports directly to the Group s financial director for day to day matters. The internal audit manager attends all audit committee meetings, and submits a report to each audit committee meeting. The internal audit department focuses on adding value to the Group. It emphasises on adherence to Group policies and procedures, prevention of theft and fraud, and production of quality management information and risk management. Internal audit department performs independent evaluations of the adequacy and effectiveness of the Group s controls, financial reporting mechanisms and records, information systems and operation and provides additional assurance on safeguarding Group assets and financial information. Risk management The board is committed to efficient and effective risk management, and remains ultimately responsible for risk management. The board acknowledges that risk management is inseparable from 2 2 Va l u e g r o u p

25 the Group s strategic and business processes, and has recognised the increased importance of efficient risk management as envisaged by the King III report. The audit committee is an integral component of the risk management process focusing on financial reporting and risk, review of internal financial controls, fraud risks, information technology risks, reviews significant issues raised by the internal audit process and reviews policies and procedures for preventing and detecting fraud. Internal audit provides independent assurance on the risk management process. The board is of the opinion that the effectiveness of the risk management process to date has been efficient and effective. The Group has, and maintains, an efficient and effective process of risk management to manage, identify, assess, and monitor all significant risks to which the business of the Group is exposed. This includes identifying the strategic risks, reviewing their impact, assessing the probability of occurrence, and monitoring the perceived effectiveness of existing controls. The risk management process further includes an evaluation of the mitigating controls and other assurances in identifying and assessing the risk. The board is not aware of any key risk current, imminent or forecast that may threaten the sustainability of the Group. The internal audit department assists the board in its responsibility to review and assess the integrity and quality of risk control systems, and ensure that risk policies and strategies are effectively managed, for which a Group risk management matrix has been compiled and is regularly updated. The internal audit department also assists the board in ensuring that risk assessment is an ongoing process, and that a formal risk assessment is undertaken at least bi-annually. The Group s annual internal audit plan incorporates the outcomes of the risk management process and what has been done to mitigate the risk. The internal audit plan is based on a risk based audit approach. Risks are monitored, reported upon and discussed on a regular basis in the audit committee meetings. The Group is managed through a system of controls functioning throughout the Group so that awareness of risk is seen as the responsibility of each and every employee of the Group. Risk is assessed on an ongoing basis. Management is responsible for implementing the risk management process. Risk management is embedded in the Group and practised daily by staff. GOING CONCERN The directors are of the opinion that the business of the Group will be a going concern in the year ahead. The board s statement regarding this is contained in the directors responsibility statement on page 29. CORPORATE CODE OF CONDUCT The Group has a formal code of conduct that has been adopted by the board of directors. The code is consistent with the principles of integrity, honesty, ethical behavior and compliance with all laws and regulations. All employees are required to maintain the highest ethical standards in ensuring that the Group s business practices are conducted in a manner which is beyond reproach. The code is also aligned with a corporate gifts policy. The policy embraces the Prevention and Combating of Corrupt Activities Act of 2004, defines categories of gifts and prescribes the approvals required. Over the past few years there has been an aggressive and active drive by the internal audit department to reinforce the Group s code of conduct and the ethics of the Group with the introduction of a zero tolerance policy towards fraud and theft. PRICE SENSITIVE INFORMATION AND CLOSED PERIOD The Group has approved written policies on directors dealing in securities. These require all directors who wish to deal in Value s shares to obtain prior written clearance from either the chairman or the chief executive officer. The same restriction applies to the Group company secretary. The Group adheres to the closed periods as defined in the JSE s Listings Requirements. All dealings in Value Group Limited shares by company directors and the Group company secretary are reported to the JSE news service (SENS) within 48 hours of the trade having been made. The Group company secretary retains a record of all such share dealings and approvals. Va l u e g r o u p

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27 CORPORATE SOCIAL INVESTMENT LIFTING UP OUR COMMUNITY EMPLOYMENT EQUITY AND SKILLS DEVELOPMENT Value Group continues to implement a clearly defined transformation strategy that adheres to the overall goals as set out in the Employment Equity Act: c Assist in the elimination of unfair discrimination in the workplace; c Achieve equitable representation of employees from designated groups by means of affirmative action measures; c Achieve reasonable progress towards employment equity. The Employment Equity plan continues to be monitored and implemented in line with the Department of Labour s Code of Good Practice on the Preparation, Implementation and Monitoring of Employment Equity Plans. The Employment Equity and Skills Development Committee continue to meet on a quarterly basis to discuss all matters relating to Skills Development and Employment Equity. This committee is representative of the entire workforce. Designated management is responsible for the monitoring and implementation of Employment Equity and Affirmative Action measures within the Group. A formal employment equity committee comprising suitably trained members has been established with smaller regional committees being fully operational. Furthermore an Employment Equity education programme continues to be rolled out across the organisation, ensuring that all employees of the Group understand the provisions contained within the Employment Equity Act. The education programme is further enhanced by the provision of Employment Equity and Basic Conditions of Employment notices placed at all branches in strategic and accessible areas to aid the information and education process. The Value learnership programme, which is now in its third consecutive year, provides opportunity for the overall up-skilling, training and development of staff, particularly those from designated groups. The 2009/2010 learnership programme concluded in March 2010 with 117 learners participating in the programme. External moderation and certification is currently taking place and it is envisaged that all 117 learners will be found competent in the various learnership programmes. Employees have embraced the learning opportunities offered by the learnership programme which is evident in the enrollment of a total of 158 learners in the 2010/2011 programme which commenced in March 2010 and will be concluding in February As part of the Group s corporate social responsibility programme the recruitment of 25 unemployed learners is scheduled to commence in August 2010, this programme is aimed at affording up-skilling opportunities to unemployed youth within the immediate community. The selected learners will be afforded the opportunity to attend formal class room training coupled with hands on experiential training with the Value Group environment. OCCUPATIONAL HEALTH AND SAFETY The Group is in process to develop and implement a Health and Safety Management system to improve its occupational health and safety management and, ultimately, to reduce the risk of its operations and services. This manual can be presented to our customers and other interested parties, and to inform them what specific controls are implemented to assure responsible occupational health and safety management. This Occupational Health and Safety Management System will comply with the international standard OHSAS 1800:2007. Due to regular Safety, Health and Environment committee meetings, and inspections of Safety and Health representatives, management is satisfied that all non-conformances and risks is Va l u e g r o u p

28 CORPORATE SOCIAL INVESTMENT continued THE TH CHILD RECEIVES THEIR SCHOOL STATIONERY PACK addressed and managed as required by the safety standards and Occupational Health and Safety legislation. The Group has a HIV/AIDS wellness policy to address and manage the potential impact of HIV/Aids on the Group s activities. The health clinic situated at Value City provides for the basic driver wellness and primary health care, health education and also presents HIV/Aids awareness lectures and education programs on an ongoing basis to employees. The Group is committed reducing risks and unsafe behavioural acts relating to workplace accidents, damage to property and lost time injuries. Annual Health and Safety audits are conducted at all branches to ensure compliance to Occupational Health and Safety Act provisions, which will be enhanced once the OHSAS 18001:2007 Management system has been implemented nationally. A national health and safety training program is provided to ensure the competence of staff to carry out their duties as first aiders, fire fighters, evacuation marshals and as Health and Safety representatives. SOCIAL INVESTMENT Value Group acknowledges corporate social responsibility and has a balanced approach to address economic, social and environmental issues in a way that aims to benefit people, communities and society. The world is a sad place when orphans and little children s Christmas wish is not for an expensive toy or the latest gadget but some pencils, a ruler and school stationery. Motivated by this and Value s belief that education is the key to the elevation of poverty, Value once again embarked on its national school supplies project. This project is aligned to our continual efforts to support and promote the upliftment of the poorest communities and alleviate the plight of the poor. This school supplies project gives underprivileged school starters their individually packed stationery required to successfully partake in activities at school and in the classroom. January 2010 saw the th child receive their pack. Value will continue to support this project and believes every child has a right to the tools, like a pen and pencil to reward their enthusiasm and interest in being educated. Value staff were once again uplifted by the gratefulness of the recipients and teachers who applauded our efforts. In underprivileged communities children traditionally share limited supplies in the classroom. Due to the normal lack of supplies and basics like paper, children are unable to do homework and teachers reported that this gift of stationery would allow them to speed up lessons, increasing the knowledge they are able to impart on the children. Arbor Day saw Value embark on an education programme teaching underprivileged children in Soweto the 2 6 Va l u e g r o u p

29 importance and financial benefits of growing trees and plants. Each child was given seeds and taught how to start a vegetable patch at home. BROAD-BASED BLACK ECONOMIC EMPOWERMENT The Group is committed to the transformation process and embraces the spirit of addressing these changes while ensuring the sustainability of this ongoing development. This year, the Group achieved a 60,11 score, or Level 5 Recognition, compared with the last year s score of 56,25. The Group s BEE committee has and continues to address the transformation challenges by focusing on each element separately which are presented below: Ownership Ownership, which represents the greatest challenge to the Group, has been addressed in the new financial year through an empowerment transaction which places up to 15% of its shares in the hands of its BEE partners comprising the directors Dr Nakedi Matthews Phosa and Mr Mano Padiyachy and its key black qualifying managers. It is expected that the transaction will increase the Group s future rating and will give key employees and stakeholders a direct financial incentive to drive future growth and transformation. Management control The board is in the process of indentifying candidates who will add value to the board and increase the black representation of the board. Employment Equity The Group is fully committed to the employment equity process, not only in the recruitment of suitably qualified candidates from designated groups, but also the upliftment of such employees to junior, middle and senior management categories through an extensive learnership and development programme. Skills Development Skills development has been a critical component of the Value Group s success and we will continue with the current training programmes as well as identifying new opportunities. Learnerships for previously disadvantaged people are ongoing which is used to full effect. A graduate development programme has also been rolled out whereby graduates from local tertiary institutions have the opportunity to visit the organisation and apply for places on the programme. The Group is also partnering with the institutions to provide real world knowledge within lectures. As a result of our early success with employing disabled people, the drive to recruit further disabled staff will continue. The challenge of further developing disabled staff will be addressed by identifying providers experienced in the facilitation of disabled training. Preferential procurement The Group s procurement department has actively pursued preferential procurement as a further method to hasten economic empowerment of the previously disadvantaged and going forward will continue to pursue this process. Enterprise development Value Group has participated successfully in enterprise development and we will continue to identify new opportunities in this regard. Socio-economic development Value has contributed in excess of 1% of net profit after tax towards socio-economic development, elements of which are included in the corporate social investment review. ENVIRONMENT The Group acknowledges the importance of the communities who may be affected by its operations and the safe guarding of the environment which is considered in the normal business decision making processes. The Group is signatory to Responsible Care which is a global initiative whereby the objective is to go beyond legislative and regulatory compliance. The Freightpak division submits annually their Quantitative Indicators of Performance (QIP) to the Chemical and Allied Industries Association of South Africa (CAIA). The Group s Freightpak Division is embarking on a project to have all its branches accredited on the ISO 9001:2008 Quality Management Standard. The Durban branch has already received this accreditation. The Group acknowledges that it is the duty of the organisation to act responsibly in limiting the impact of the operational units by active commitment to the guiding principles of Responsible Care. Va l u e g r o u p