CONTENTS. group overview

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2 CONTENTS group overview 3 Vision and Mission 4 Group at a glance 5 Risk management 6 Group directors 7 Board structure 8 Geographic footprint 9 Group structure, operational divisions and business segments 14 Financial overview 18 Shareholders information 20 Value added statement 21 Chairman s statement 23 Chief executive officer s report 27 Group financial director s report

3 1 sustainability report 32 Introduction 33 Stakeholder engagement 35 Environment 41 Transformation 42 Employees 56 Social investment 57 Corruption 57 Product responsibility 58 Compliance governance 61 Corporate governance report financial statements 70 Directors responsibilities and approval 71 Company secretary s certificate 72 Audit and risk committee report 74 Independent auditor s report 75 Consolidated financial statements 124 Company financial statements OTHER 130 Notice of annual general meeting and explanatory notes 139 Form of proxy 141 GRI content index 143 King III application summary IBC Corporate information

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5 13th PROOF 6 August 2013 VISION To be recognised as the leading, innovative logistics service provider and the employer of choice in southern Africa. MISSION Value Logistics is dedicated to building mutually beneficial long-term relationships by understanding the unique requirements and expectations of our customers, designing and implementing cost effective logistics solutions, uplifting the communities we operate in by creating employment, investing in skills development initiatives and thereby creating sustainability for all stakeholders.

6 4 Group at a glance Revenue 8% Headline earnings per share 7% Final dividend 7% to 15 cents per share Net asset value 11% Interest-bearing debt reduced by R39,8 million 42% debt: equity 36% increase in cash flows from operating activities to R252,6 million Social and ethics committee completed first full year BEE level 4 status Formalisation of Corporate Citizenship Policy 21st in Sunday Times top 100 companies What started out as a basic truck rental company, is now one of South Africa s largest logistics and transport companies, as well as a leading supplier of supply chain solutions, nationally and in neighbouring countries. The Group s national, integrated branch network is strategically located throughout southern Africa. The Group s customers and employees are key to its success. The Group is committed to keep this success balanced through well-researched business practices, procedures and technologies in the logistics and transport industry. The Value proposition 32 years experience Training and development of staff Stable management team The Group s five year average revenue growth = 12,8% South African economy growth in the same period 2,5% Complete service offering with one contact, one bill (1C1B) Investment in world class facilities and new fleet IT innovations

7 5 Risk management Enterprise risk management ( ERM ) The board of directors is committed to effective risk management as a basis for safeguarding the interests of the Group s key stakeholders, its reputation and value creating activities. This allows for increased confidence and sustainability for shareholders, customers, suppliers and communities in which the Group operates. The board is responsible for the implementation and maintenance of an effective risk management process throughout the Group. Together with the audit and risk committee, the board of directors continue to provide oversight over the risk management activities undertaken by the Group. The Group employs a risk management methodology based on the COSO framework (The Committee of Sponsoring Organisations of the Treadway Commission). This methodology places the identification, assessment and management of risk as an integral part of day to day activities and as an extension of the management process. The effectiveness of risk management processes to date have been assessed as being adequate. The Group s internal audit function follows a risk-based approach so as to ensure high risk items are promptly identified and prioritised in the provision of corrective or remedial action. Further support is provided by internal audit in the form of assurance on the efficacy of control procedures and risk treatment plans in place to reduce the possibility and outcome of known risks. Identify risk Looking back on the past year... During the year under review the following key developments were made in the risk management endeavours of the Group c Formation of risk management steering committee and the holding of its initial meetings. c The board approval of a revised Risk Management Framework and Methodology. c The board approval of a revised Risk Management Plan for the Group. c The provision of risk management related training to the senior management team. c The provision of on-going risk awareness to staff. c The selection and scoping of an ERM software tool to support the ERM platform. c Ongoing legal compliance programmes. ERM at Value going forward... Going forward the Group will focus on the following c Continued risk management awareness and training to ensure that all staff are aware of their responsibilities in terms of risk management. c Roll out the Group s new risk management software for effective reporting and tracking of risk management activities. c Integrate internal audit findings into the risk management process. c Enhance legal compliance programmes. Monitor and report on risk Risk Management process Measure risk Manage or mitigate risk Respond to risk

8 6 Group directors Carl Stein (59) 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 (55) 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. Mike Groves (68) Non-executive director (Independent), CA(SA) Mike was the managing director of Grindrod Limited until He has 36 years experience in the shipping and transport industry. He acts as an independent non-executive director of 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 (61) Non-executive director, 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.

9 7 Clive Sack (43) 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. Mano Padiyachy (48) 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 a divisional director in August 2004 and finally to the board in July BOARD STRUCTURE BOARD MEMBERS Carl Stein (Chairman), Steven Gottschalk, Clive Sack, Mano Padiyachy, Mike Groves, Mathews Phosa, Velile Mcobothi Social and Ethics committee Velile Mcobothi (Chairman), Steven Gottschalk, Clive Sack, Mano Padiyachy, Mike Groves, *Vanessa Morais Remuneration and nominations committee Mike Groves (Chairman), Carl Stein Audit and Risk Committee Mike Groves (Chairman), Carl Stein, Velile Mcobothi *Commercial and human resources divisional director Velile Mcobothi (38) Non-executive director (Independent), CA(SA) Velile has 13 years investment banking experience in listed securities and private equity industries mainly with Investec Bank limited. He currently runs Cinga Holdings (Pty) Limited, an advisory and investment holdings business within the mid-cap sector. He acts as an independent non-executive director of Litha Healthcare Group Limited and is chairman of that audit committee. He was appointed as a non executive director of Value Group Limited in November 2011 and an independent non-executive director in February 2012.

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12 GROUP STRUCTURE SEGMENT PROFILE VALUE GROUP LIMITED 100% 30% Value Logistics Limited Value Logistics Namibia (Pty) Ltd Value Logistics (Botswana) (Pty) Ltd Value Logistics Personnel Services (Pty) Ltd Value Specialised Logistics (Pty) Ltd Value SA (Pty) Ltd OPERATING DIVISIONS GENERAL DISTRIBUTION TRUCK RENTAL AND OTHER The General distribution activities include break-bulk and single party distribution and warehousing services to a wide range of customers in the automotive, fast moving consumer goods (FMCG), electronics, chemical, textile, packaging, mining, construction, telecommunications and pharmaceutical industries. Truck rental and other activities include fleet management, forklift and commercial vehicle rental and leasing, clearing and forwarding and container handling.

13 SEGMENT RESULTS EXTERNAL SEGMENT REVENUES OPERATING SEGMENT RESULTS 6,6% 8,7% Up 6,6% to R1,561 billion Feb 13: R1,561 billion Feb 12: R1,464 billion Down 8,7% to R126 million Feb 13: R126 million Feb 12: R138 million EXTERNAL SEGMENT REVENUES OPERATING SEGMENT RESULTS 15,3% 2,2% Up 15,3% to R384 million Feb 13: R384 million Feb 12: R333 million Up 2,2% to R47,5 million Feb 13: R47,5 million Feb 12: R46,5 million

14 SEGMENT REVIEW DIVISION Organic growth, annual price adjustments and fuel recoveries contributed to revenue increasing by 6,6% to R1,561 billion. This increase was muted by the expiry of large contracted business which together with the declining volumes throughout the period and the sector strike, had an effect on margins and profitability in the second half of the financial year. Consequently, operating margins declined from 9,4% to 8,1% and operating profit reduced from R138 million to R126 million. Despite the expiry of ad hoc project business and the competitive market conditions, operating profits increased from R46,5 million to R47,5 million. Margins, however, reduced from 14% to 12,4%, a direct result of poor trading in January and February 2013, rate pressures and additional sales staff costs.

15 SERVICE OFFERING 20 years experience in supply chain solutions, In excess of m 2 warehousing, Centralised national distribution centre designed to process significant volumes of goods, Integrated IT network, labelling and bar-coding facilities, Sophisticated routing and scheduling,24 hour vehicle and parcel tracking and management Integrated logistics and supply chain service provider for dangerous goods, Primarily services the chemical services industry, Fully compliant with transportation of dangerous goods legislation, Countrywide distribution facilities, CAIA Responsible Care signatory, SABS ISO 9001: 2000 (KZN) accredited ACTION UNDERTAKEN TO IMPROVE PROFITABILITY c Procuring new warehouse and distribution customers c Rosslyn warehouse operations consolidated into Tunney facility c Warehouse and Logistics resources centralised c Optimisation of Logistics fleet and diversification into other markets c Logistics fleet target reduction of 5% 10% by 28 February 2014 Abnormal load transportation, Contract work and tailored solutions. Fleet consists of: c Abnormal escort vehicles c Trailers ranging from ton capacity Same day delivery, Overnight delivery, Express delivery, International courier, Cross border delivery, Specialised brokerage National footprint, Tailored rental options, Skilled drivers and crew Over 3000 vehicles available: c 1 8 ton range: LDV s, dropsides, panelvans, curtainsides demounts c Specialised vehicles include: 1 12 ton refrigerated vehicles, vehicle mounted cranes, hazardous material transport and specialised fixtures for the film production market c ton range: truck tractors with pantech, flatdeck and curtainside trailers Customs clearing, Consulting, Inbound forwarding, Status reporting, Landed costing, Bonded warehousing, Marine insurance, Outbound forwarding c Defleeting of older vehicles c New, fuel efficient vehicles c Improved utilisation of existing fleet c Improved workshop efficiencies c Simplification of service offerings and repricing c National fuel measurement system introduced c Moving of Durban facilities into Cato Ridge c Inventory turnover days of material handling equipment improving Sole distributor of Komatsu and Still forklifts in southern Africa, with over units in fleet Storage of full and empty containers Collection of containers to and from port and terminal Equipped with 45 ton reach stackers

16 14 Financial overview SEVEN-YEAR REVIEW R Consolidated statement of comprehensive income Revenue Operating profit before once-off BEE equity transaction costs Once-off BEE equity transaction costs (12 192) Operating profit after once-off BEE equity transaction costs Share of profit/(loss) of associate net of taxation (13) Investment income Finance costs (35 418) (38 224) (34 370) (31 167) Net profit before taxation Taxation (41 090) (44 517) (43 468) (37 234) Net profit for the year Annual growth (%) Total sales 8% 13% 18% (1%) Operating profit after once-off BEE equity transaction costs (6%) 15% 8% 3% Net profit before taxation (7%) 12% 7% 6% Consolidated statement of financial position Property, vehicles, plant and equipment Intangible assets Investments and loans Deferred tax Current assets Non-current assets held-for-sale Equity Interest-bearing borrowings Deferred tax Current portion of interest-bearing borrowings Other current liabilities Total equity and liabilities 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.

17 Revenue (R million) (46 648) (41 075) (26 039) (36 261) (17 364) (7 428) Operating profit (R million) and operating profit margin (%) % 13% 18% % 144% (66%) 83% 205% 83% Operating profit Operating profit margin Total assets (R million)

18 16 Financial overview (continued) FINANCIAL STATISTICS AND RATIOS Earnings Basic earnings per share (cents) 61,5 66,4 54,5 50,8 Headline earnings per share (cents) 63,5 68,0 56,2 52,4 Adjusted headline earnings per share excluding BEE costs (cents) 63,5 68,0 63,3 52,4 Dividends per share (cents): 23,0 21,0 18,0 16,0 Interim 8,0 7,0 6,0 6,0 Final 15,0 14,0 12,0 10,0 Number of ordinary shares of R0,001 each in issue: Actual Weighted average Profitability Operating profit margin 9% 10% 10% 11% Return on average shareholder s equity excluding BEE costs 17% 20% 22% 20% Financial Cash generated by operations before movements in working capital (R 000) Debt: equity % 42% 54% 55% 35% Interest cover Current ratio 1,03 0,91 0,89 0,89 Debtors days* Net asset value per share (cents) 393,3 353,0 304,8 267,8 *Adjusted for the effects of clearing and forwarding.

19 Cash generated by operations before movements in working capital (R 000) 46,3 24,3 7,1 48,8 25,8 9, ,8 25,8 9,6 15,0 7, ,0 7, Headline earnings per share and dividends per share (cents) 68,0 56,2 52,4 48,8 63,5 10% 7% 3% 21% 13% 4% 9,6 25,8 15,0 7,0 16,0 18,0 21,0 23, % 53% 50% ,99 1,00 0, ,2 203,3 179,8 Headline earnings per share Dividends per share

20 18 Shareholders information ORDINARY SHARES LISTED Number of shareholders % Number of shares % Non-public shareholders Directors 5 0, ,21 The Value Group Share Incentive Scheme 1 0, ,70 Diplobuzz Investments (Pty) Limited 1 0, ,15 The Kacilo Trust 1 0, ,54 Value Logistics Limited 1 0, ,57 Opsiweb Investments (Pty) Limited 1 0, ,35 Delfan Family Trust 1 0, , , ,40 Public shareholders Individuals and other , ,60 Total shareholders , ,00 Residency South African , ,85 Foreign 37 1, , , ,00 Holdings 1 to , , to , , to , , to , , to , ,15 over shares 67 3, , , ,00 A ORDINARY SHARES UNLISTED Number of shareholders % Number of shares % The Value Group Empowerment Trust 1 100, ,00 Current or future black employees of the Group nominated by the board who fall within the C and D Peromness bands and who satisfy a set objective criteria set by the board will qualify as participants in the employee empowerment scheme. SHARE INFORMATION Market price per share (cents) highest lowest closing

21 19 Feb-13 Feb-12 Aug-12 Feb-11 Aug-11 Feb-10 Aug-10 Feb-09 Aug-09 Feb-08 Aug-08 Feb-07 Aug-07 Feb-06 Aug-06 Feb-05 0 Aug-05 Value share price and JSE Industrial transport index (cents) 100 Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug-99 Value traded (R million) Value of shares traded on the Johannesburg Stock Exchange and share price since listing 0 Value traded Value closing price JSE Industrial transport index High, low and closing share price (cents) Highest Lowest Closing

22 20 Value added statement R 000 % 2013 % 2012 Revenue Less: purchased cost of goods and services ( ) ( ) Value added Investment income Wealth created Employees Reinvestment in the Group Providers of equity Government taxes Providers of funding Wealth distributed Number of permanent employees Wealth created per employee R' Weighted average number of shares Wealth created per share in Rands R5,60 R5,30 Wealth created (R million) Distribution of wealth created 2013 Distribution of wealth created % 4% 4% 4% 5% 4% Employees 18% Reinvestment in the Group Providers of equity Government taxes 19% 70% Providers of funding 68%

23 21 CARL STEIN Chairman s statement As expected, 2013 proved to be another challenging year for the Group. It was characterised by the South African economy s subdued performance and violent industrial action which negatively impacted consumer disposable income and associated volumes. Despite this demanding environment, revenue increased by 8% to R1,9 billion. Notwithstanding the Group s marginal reduction in headline earnings from 68,0 cents to 63,5 cents, a final dividend of 15 cents was paid which represents a 7% increase when compared to the prior year. The increase in the dividend was spearheaded by the Group s strong cash flows which improved by 36% to R253 million. In the short-term, the Group does not anticipate an about-turn in the current economic climate. However, I am confident that the Group s robust business model and proactive strategies will steer the Group in the right direction. The decision to bolster the sales and marketing team is expected to bear fruit in the current and forthcoming financial years. The Group s infrastructure is geared for higher volumes and its modern fleet is operating efficiently. Further cost saving initiatives have been implemented and are coming into fruition. The Group is thus placed in an advantageous position for growth, which will be driven both organically and acquisitively. The Group subscribes to the principles of King III without reservation and strives to improve corporate governance within the Group by further refining its practices and policies. Further advances in compliances during the year was the establishment of the risk management steering committee. The purpose of this sub-committee is to formally roll-out the Board s risk management plan to staff and monitor compliance. Its existence improves the

24 22 Chairman s statement The Group is placed in an advantageous position for growth, which will be driven both organically and acquisitively. (continued) communication channels from board level to senior management and employees and, in my opinion, is vital to the Group to ensure a sustainable business that proactively identifies, manages and communicates risk. The success of the Group is built on employee commitment and output. Accordingly, I wish to extend my sincere gratitude to the employees, the CEO, Mr Steven Gottschalk, and my fellow directors for their diligent services. To our customers and suppliers, thank you for your ongoing support. I look forward to your continued support and valuable contributions in the future. Carl Stein Chairman 25 July 2013

25 23 STEVEN GOTTSCHALK Chief executive officer s report The Group was born from Value Truck Rental, founded in 1981 and listed on the JSE (Transport Sector) in The Group operates throughout the Republic of South Africa and sub-saharan Africa and has become a leading supplier of transport, warehousing, distribution and logistics solutions. The Group s success has been founded on high operational standards, advanced and proficient systems, loyal and empowered staff and excellent customer relations and satisfaction. In today s volatile market, a company s success is hugely dependent on a supply chain that provides a framework for the effective and efficient delivery of goods. The Group, with in excess of 32 years experience and a proven track record in the provision of exceptional supply chain solutions, has become the supply chain partner of choice for many of South Africa s leading brands. SEGMENTAL PERFORMANCE General distribution segment Organic growth, annual price adjustments and fuel recoveries contributed to revenue increasing by 6,6% to R1,56 billion. This increase was muted by the expiry of contracted business which together with the declining volumes throughout the period, and the sector strike had an effect on margins and profitability in the second half of the financial year. Consequently, operating margins declined from 9,4% to 8,1% and operating profit reduced from R138 million to R126 million. Corrective action has been undertaken to restore profitability levels including diversification into the FMCG market; our fleet is going through an optimisation exercise with the purpose of reducing the fleet by 5% to 10% in the Logistics business. Staff are being reorganised across the Group. Vacancies are being filled by internal candidates before considering external

26 24 Chief executive officer s report A national infrastructure is in place and the Group is geared for the extra business and additional volumes. (continued) placements. A mechanised fuel system has been installed across the divisions which will result in fuel savings. The realignment of the sales team at the beginning of 2012 is producing results with the procurement of new accounts at improved rates in the Logistics division. We have also secured smaller customers since January Our strategy is to build up our customer base with smaller customers, thus reducing our reliance on any single large customer. The Durban operation previously situated in Prospecton has relocated to our new facility in Cato Ridge, Durban, KwaZulu-Natal. The new facility has enhanced operations in the distribution business as well as affording us the opportunity of pursuing additional customers due to the increased space. Turnover increased in the Freightpak division, however, overheads and direct fixed costs also increased due to investment in additional warehousing capacity, vehicles, material handling equipment and hazchem compliance. Due to these increased costs, profit declined to marginal levels. There has been a good take-on of new customers and together with the reduction of previously outsourced linehaul services, profitability is expected to improve. The Johannesburg operation which was operating from three separate sites has been consolidated into one facility. This facility is fully hazchem compliant. The consolidation of the three sites brings about cost savings and the additional space affords us the opportunity to expand our business. The tipper division was closed in August The low demand for chrome from China has placed pressure on the tipper-based rates. The tipper trailers are in the process of being disposed of. Good truck tractors are being transferred to other divisions where new contracts have commenced. The abnormal load division made a loss for the year. This business is highly specialised and operates in an extremely competitive environment at low margins. Various options are being considered to make this division profitable. Truck rental and other segment Revenue increased from R333 million to R384 million. The growth was mainly due to project work undertaken for the Mad Max movie production. Despite the expiry of this ad hoc project business and the competitive market conditions, operating profits increased from R46,5 million to R47,5 million. Margins, however, reduced from 14% to 12,4%, a direct result of poor trading conditions in January and February 2013, rate pressures and additional staff. Every effort is being made to increase revenue; our successful call centre is proving to be a profitable revenue stream for the Group. New fuel efficient vehicles have been procured and together with the defleeting of

27 25 older vehicles, will contribute positively to future results. The Materials Handling division has had a remarkable turnaround from a loss in the previous period to a profit in the current period. The turnaround has been achieved due to increased forklift cash business as well as defleeting of high hour units, resulting in reduced repair and maintenance costs. Our strategy is to grow this business, creating longer-term annuity income whilst at the same time, focusing on cash sale business thereby alleviating working capital pressure. STRATEGIC OVERVIEW A national infrastructure is in place and the Group is geared for the extra business and additional volumes. We have an excellent asset base of late model vehicles which will improve further with the introduction of new vehicles and the simultaneous defleeting of older model vehicles. The business is well organised and stable, giving us the opportunity to seriously select potential acquisitions. Board approval has been received for the development of our new Cape Town facility in Joostenbergvlakte. This facility will cater for both our General Distribution as well as our Chemical Distribution divisions. The Freightpak facility will be hazchem compliant. Currently we are operating in multiple sites in and around Cape Town. This consolidated facility will bring about additional space as well as cost saving opportunities.the move will take place in December The Group continues to pursue its strategy of investing a majority interest in established businesses in Zambia, Mozambique and Namibia. The purpose is to establish a presence in these targeted regions thus growing our customer base and allowing our existing customers an opportunity to move their products over borders and extending their network. The Group will supply a wealth of supply chain knowledge and information technology enablement to support the identified business opportunities. The restructuring of the sales force which concluded in February 2012 has begun to bear results in our Logistics business. New business prospects are very positive for our Logistics division, however the truck rental market still remains very volatile and price sensitive. SOCIAL RESPONSIBILITY Since 2008, we have seen 562 learners as well as 141 unemployed learners successfully complete learnerships. In the new financial year, 25 employed and 185 unemployed learners were enrolled nationally. In 2013/2014 we have also initiated a disabled unemployed learnership programme. The Group acknowledges its role regarding corporate social responsibility and has a balanced approach to address economic, environmental and social issues in ways that aims to benefit people, communities and society. Various projects have been implemented to address the following socioeconomic concerns education, unemployment, poverty and HIV/Aids. Our BEE scorecard remains consistent at a Level 4 status. CHALLENGES AHEAD Over the last four years, the Group converted a portion of labour broker staff to permanent employment. The Group utilises staff through

28 26 Chief executive officer s report (continued) labour brokers due to fluctuations in monthly volumes. The proposed new labour legislation will be onerous on the Group in that any labour broker staff member working a minimum of six months will have bargaining rights. Accountability for such labour broker staff members will additionally be with both the Group and the labour broker. Accordingly this will lead to increased human resource activity and union activity pushing up human resource costs. The Group has the option to convert a portion of the labour broker staff into permanent staff, which will reduce the labour broker fees. We await the outcome of this proposed legislation. A recent court outcome has ruled that the proposed tolling of the Gauteng Freeway Improvement Project is legal and may proceed. The Group will be geared to accommodate the new system. It is expected that the tolling rates will be reduced from the last proposed rates. All tolling costs are going to be passed onto our customers which will have an impact on their distribution costs. ACKNOWLEDGEMENTS A big thank you to all of our customers for your continued support. We have built strong standing relationships which are of paramount importance to us. Thank you to all the staff members who have contributed to the well-being of the Group in a very challenging trading environment. Lastly thank you to the board of directors for your ongoing guidance, wisdom and support. Steven Gottschalk Chief executive officer 25 July 2013

29 27 CLIVE SACK Group financial director s report OVERVIEW The lingering effects of the global recession and the European debt crisis coupled with widespread industrial action negatively influenced consumer confidence and associated demand. Consequently 2013 proved to be another challenging year for the Group. Notwithstanding these difficulties, the Group s cash flow performance exceeded expectations and contributed to the Group declaring and paying a 7% increase in the final dividend to 15 cents per share. FINANCIAL PERFORMANCE Despite adverse trading conditions which resulted in pricing pressures and customer volume decline, revenue increased by an inflationary 8% from R1,8 billion to R1,95 billion. This increase was attributable to annual escalations in conjunction with fuel recoveries and an extended customer base. Revenue growth was tempered by reduced volumes associated with weak consumer demand and the expiry of key contracts towards the end of the second half of the financial year. Gross profit increased by 3% to R783,8 million. Gross profit margins, however, were negatively affected by increased operating costs particularly during the violent transport sector strike in September and October Although disruptive, most services continued during this peak period. In addition, with the completion of contracted project business, the months of January and February 2013 proved to be very quiet resulting in gross profit margins reducing from 42,4% to 40,3%. Increased employment costs contributed to overheads increasing by 5% to R625,9 million. Net profit after tax and headline earnings reduced by 7% to R101,7 million and 63,5 cents per share respectively. Notwithstanding the small reduction in headline earnings, the substantial non-cash flow items comprising mainly depreciation and amortisation enable the Group to generate cash flows which materially exceed net profit. In addition, on-going focus on stringent working capital management contributed positively to cash flows from operating activities improving by 36% to R252,6 million. This was aided by the Group s

30 28 Group financial director s report On-going focus on stringent working capital management contributed positively to cash flows from operating activities improving by 36%. (continued) negative working capital cycle and improved debtors collection period. Total capital expenditure amounted to R148,8 million and comprised R77,4 million for vehicles, R31,4 million for IT hardware and software, R21,9 million for materials handling equipment and the balance of R18,1 million for plant, equipment and accessories. The Group s resilient cash flow generation funded this expenditure in addition to the R39,8 million reduction in interestbearing debt. In addition, cash balances improved by R67,9 million to R131,9 million. Capital expenditure over the last five years has been as follows: R millions Vehicles 77,4 129,6 150,1 98,1 116,8 IT hardware and software 31,4 37,8 9,8 22,9 23,5 Materials handling equipment 21,9 42,7 68,2 39,5 13,5 Plant, equipment and accessories 18,1 11,6 6,9 9,2 7,6 Property expansion 17,3 0,4 148,8 239,0 235,0 170,1 161,4 The extent of capital expenditure incurred over the last five years particularly in respect of vehicles and IT infrastructure has enabled the Group to operate a modern fleet and created capacity for future growth, in volumes and associated transactions. Net asset value increased by 11% to 393,3 cents per share. The Group remains adequately capitalised with a low debt:equity level of 42,2% which is well within the 40% to 60% target range. Debt levels are expected to remain within the target range.

31 29 Key financial ratios The Group sets targets based on a combination of key performance ratios to assess financial performance, funding levels and returns, shown as follows: Target Gross profit (%) Operating margin (%) After tax return on average equity (%) Debt: equity (%) Debtors days (excluding effects of clearing and forwarding) DIVIDENDS The generation of positive cash flows is expected to remain strong. Reduced capital expenditure and the associated reduction in debt enabled the board to reduce the dividend cover ratio and declare and pay a 7% increase in the gross final dividend to 15 cents per ordinary share which was paid out of distributable reserves. The total STC credits utilised as part of this declaration amounted to R71 835,22. The number of ordinary shares in issue at the date of this declaration was and consequently the STC credits utilised per share amounted to 0,03617 cents per share. The dividend was subject to a dividend withholding tax of 15% which amounted to 2,24458 cents per share. This resulted in a net dividend of 12,75542 cents per share to those shareholders who were not exempt from paying dividend withholding tax. This dividend was covered 2,7 times by second half headline earnings. INFORMATION TECHNOLOGY Value s IT capabilities are key to the Group s successful partnerships with its customers. The Group s major infrastructure upgrade is complete and has been bedded down. Future investment will continue to be made as appropriate to ensure that the environment is maintained and scaled up as required to meet the demands of the business. Major focus over the last financial year has been on custom-built applications environment, which the Group considers to be a core competitive advantage. The Group has built an in-house middleware platform that allows thousands of real-time transactions to be processed every minute. This provides our customers with real time information on all aspects of the supply chain that are outsourced to Value Group. In addition, the Group s in-house built web-based E-Waybill application ( Value Remote ) enables any registered customer

32 30 Group financial director s report (continued) to logon via the internet, capture their delivery requests and print immediate parcel labels. This triggers collection, delivery and tracking of the associated freight by the logistics division. Lastly, best-in-breed software packages have been procured for key areas of the business and are currently being rolled out. Diluted earnings per share Diluted earnings per share calculated in accordance with IFRS are disclosed in note 19 of the financial statements. The directors do not believe that these figures accurately reflect the impact on earnings after July 2017 when the participants in the BEE transaction take delivery of the ordinary shares and potentially A ordinary shares which were issued to them. Had the BEE participants taken delivery of these shares, diluted earnings per share would have been 5,3% lower. This figure has been arrived at using the current year earnings as a base and making adjustments for the current IFRS 2 expense relating to the BEE transaction and a reduction in interest paid on the assumption that the proceeds received from the BEE participants on settlement of their loans for these shares are used to repay debt. LOOKING AHEAD Reduced debt levels and positive cash flows will facilitate the future growth of the Group both organically and by acquisition. Various opportunities are being evaluated in South Africa and Sub-Saharan Africa. The move into the continent will enable the Group to service the growth requirements of its customers, penetrate new markets and increase its overall volume base. Growth rates in the South African economy are expected to be subdued. The associated challenges within the corporate and consumer environment have forced the Group to contend not only with reducing volumes in a highly competitive market, but also escalating costs annually exceeding inflation. Accordingly, various sustainable cost saving initiatives have been undertaken to restore margins by streamlining the Group s processes and thereby facilitating a leaner operating cost base. In addition, since the 2013 year end, a number of new accounts have been procured which will replace lost contracted business. Accordingly, subsequent to year end, there has been an encouraging increase in revenue. Clive Sack Group financial director 25 July 2013