Integrated annual report

Transcription

1 Integrated annual report 2012

2 Contents 1 Financial highlights 2 Group at a glance 4 Board of directors 6 Joint report of the Chairman and Chief Executive Officer 9 Corporate structure 10 Humulani Investments Board 11 Humulani Investments Structure 12 Map of BMG distribution network 13 Map of CEG distribution network 14 Review of operations 26 Corporate governance 41 Integrated report 45 Share information 46 Value added statement 47 Shareholders diary 49 Approval of the annual financial statements 49 Certification by the company secretary 50 Report of the independent auditors 51 Report of the directors 54 Audit Committee report 56 Statements of comprehensive income 57 Statements of financial position 58 Statements of changes in equity 59 Statements of cash flows 60 Notes to the annual financial statements 100 Notice of annual general meeting of shareholders Form of proxy (Attached) ibc Corporate information Profile Invicta Holdings Limited is an investment holding and management company, controlling and managing assets of R8 359 million (2011: R6 889 million). Its operations comprise: >> BMG (Bearing Man Group) Southern Africa s leading distributor of bearings, seals, power transmission components, drives, belting, fasteners, filtration and hydraulics. >> CEG (Capital Equipment Group) Northmec Distributor of a full range of leading agricultural machinery, implements and related spares. CSE Wholesale and retail distributor of light earthmoving machinery, turf-grooming machinery, golf cars, utility vehicles and related spares. New Holland Wholesale distributor of leading brand agricultural machinery, implements and related spares. Doosan SA Doosan SA supplies predominantely heavy earthmoving machinery for construction and mining applications. Criterion Importer and distributor of leading materials handling equipment and related spares. ESP After-market replacement parts, ground engaging tools and undercarriage parts for earthmoving equipment. >> Tiletoria A leading importer and distributor of tiles and related sanitary ware in the Western Cape, Gauteng and KwaZulu-Natal.

3 1 Financial highlights for the year ended 31 March R 000 R 000 R 000 R 000 R 000 R 000 R 000 R 000 R 000 R 000 R 000 Revenue Operating profit before finance costs, interest and dividends received Profit for the year Equity attributable to the equity holders Dividends per share (cents) Earnings per share (cents) Diluted earnings per share (cents) Share price at the year-end (cents) EPS/DPS (cents) Share price (cents) Earnings per share (cents) Dividends per share (cents) Share price at year-end (cents)

4 2 Group at a glance BMG (BEARING MAN GROUP) PROFILE Southern Africa s leading distributor of bearings, seals, power transmission components, drives, belting, fasteners, filtration and hydraulics. BMG BEARINGS BMG SEALS BMG POWER TRANSMISSION BMG DRIVES BMG BELTING AUTOBAX BMG FASTENERS BMG FILTRATION BMG HYDRAULICS BMG TECHNICAL RESOURCES BMG SUBSIDIARIES

5 3 Group at a glance continued CAPITAL EQUIPMENT GROUP (CEG) TILETORIA NORTHMEC CSE DOOSAN SA NEW HOLLAND SA CRITERION Distributor of leading agricultural machinery, implements and related spare parts. Distributor of construction and earthmoving machinery, turf grooming machinery, golf cars, utility vehicles and related spare parts. Distributor of excavators, wheel loaders, skid steer loaders and hydraulic hammers. Importers and wholesaler of New Holland agricultural equipment and specialised Braud grape harvesters. Importer and distributor of leading materials handling equipment and related spare parts. A leading importer and distributor of wall and floor tiles and sanitary ware in the Western Cape, KwaZulu-Natal and Johannesburg. LANDBOU PART ESP Replacement spare parts for agricultural equipment. After-market replacement parts, ground engaging tools and undercarriage parts for earthmoving equipment.

6 4 Board of directors 1. Dr CH Wiese, 2. A Goldstone, 3. C Barnard, 4. JS Mthimunye, 5. DI Samuels, 6. AM Sinclair, 7. CE Walters, 8. Adv JD Wiese AK Masuku LR Sherrell

7 5 Board of directors continued Dr CH Wiese (70) Non-executive chairman BA, LLB, DCom(h.c.) Non-executive chairman of Invicta Holdings Limited from October 1997 to April 2000 and a non-executive director since April 2000, re-appointed non-executive chairman in January Chairman of Tradehold Limited, Shoprite Holdings Limited, and Pepkor Holdings Limited. Non-executive director of KWV Holdings Limited. A Goldstone (51) Chief executive officer BSc (Mech Eng), BCom (Hons), CA(SA) Worked as a management consultant at KPMG prior to joining the Invicta Group in January 1990 as financial manager. Appointed financial director in August Appointed chief executive officer of Invicta Holdings Limited in April C Barnard (48) Financial director CA(SA), MBA, ACIS Joined Sappi as management accountant in 1993, joined Group Five in their commercial development subsidiary in 1996 and was appointed commercial manager in In 1998 joined the Invicta Group as financial manager, appointed director of CSE Equipment Company (Pty) Limited in 1999 and company secretary of Invicta Holdings Limited in Appointed executive director of Invicta Holdings Limited on 7 June AK Masuku (42) Alternate non-executive independent director to JS Mthimunye MCom, MDP (University of New York) Mr Masuku has ten years experience with both local and international banks (SCMB, JP Morgan and Real Africa Durolink) structuring and concluding transactions with some of South Africa s top 200 corporates, parastatals and BEE players. Appointed managing director of aloecap (Pty) Limited in May Appointed nonexecutive director of Invicta Holdings Limited on 7 June 2007 and appointed alternate director to J Mthimunye on 31 July JS Mthimunye (47) Non-executive independent director CA(SA) Appointed financial accountant Department of Finance in A founding partner of Gobodo Inc and established the corporate advisory service in Appointed financial manager at Nampak Tissue in Appointed managing director of aloecap (Pty) Limited and appointed executive chairman in May Appointed alternate director to AK Masuku on the Invicta Holdings Limited board on 7 June 2007 and appointed as non-executive director on 31 July Ages as at year-end DI Samuels (72) Independent non-executive director CA(SA) Joined Trade and Industry Acceptance Corporation Limited in 1971 and was appointed director from 1980 to From 1989 to 2000 was managing director of Stenham (Pty) Limited. In 1996 was appointed non-executive director of Invicta Holdings Limited. Appointed nonexecutive director of Bearing Man Limited in 2001 and chairman in LR Sherrell (46) Non-executive director Appointed as alternate director to Mr RE Sherrell on 27 May 2009 and has been nominated as director of Invicta Holdings Limited with effect from 29 July 2010, upon the retirement of Mr RE Sherrell. Mr LR Sherrell studied commerce at UCT and has been involved in the hospitality and motor trade industries with interests in franchise dealerships. Mr LR Sherrell represented South Africa as a rugby player in AM Sinclair (57) Executive director Joined JI Case in 1982 and was appointed branch manager in Joined CSE in 1989 and was appointed a divisional managing director in In 1998 appointed managing director of CSE and in September 2006 appointed as an alternate director of Invicta Holdings Limited. Appointed executive director of Invicta Holdings Limited on 7 June CE Walters (44) Executive director BSC (Mech Eng), BCom, MDP (Harvard) Joined Anglo American Corporation in 1986 as corporate graduate engineering trainee where he held numerous positions in both the Anglo group and De Beers. Appointed marketing and sales manager Pulp for Mondi SA in 1996 and appointed managing director of Mondi Sales International in Appointed managing director of Bearing Man (Pty) Limited in September Appointed alternate director to DI Samuels on the Invicta Holdings Limited board on 7 June 2007 and appointed as executive director on 31 July Adv JD Wiese (31) Non-executive director BA(Value and Policy Studies), LLB, MIEM (Bocconi, Italy) Adv JD Wiese has been appointed as director of Invicta Holdings Limited with effect from 29 July Adv JD Wiese obtained his BA degree after which he worked at Lourensford Wine Estate, helping to initiate events partnerships. Adv JD Wiese subsequently obtained his Master s Degree in International Economics and Management and completed this degree as a participant in the MBA program. After returning to Lourensford for a brief period, Adv JD Wiese graduated as a Bachelor of Law student in In 2009 Adv JD Wiese completed his pupilage at the Cape Bar and was admitted as an Advocate of the High Court on 8 May 2009.

8 6 Joint report of Chairman and Chief Executive Officer REVENUE grew by 24% HEADLINE EARNINGS PER SHARE grew by 39% FINAL DIVIDEND increased by 40% to 687 cents per share The only JSE Company ever to achieve TOP 100 STATUS 17 years in a row Dr CH Wiese Non-Executive Chairman >> The Group has once again produced excellent results A Goldstone Chief Executive Officer >> The Group continued to take advantage of growth opportunities

9 7 Joint report of Chairman and Chief Executive Officer continued FINANCIAL OVERVIEW The Group has once again produced excellent results. Trading conditions were generally favourable during the year and demand for Group products, on the whole, was better than the prior year. In CEG, agricultural machinery sales remained strong due largely to good grain prices and high farming yields, construction machinery sales have continued to recover and the materials handling operation has settled down and is beginning to contribute to profits. In BMG, the Group s industrial consumables business, global demand for resources was steady, which underpinned demand for BMG s products, although trading in certain sectors was challenging. Historic bolt-on acquisitions in this division also contributed to earnings for the full year. Group revenue grew by 24% to R5,599 billion. An improvement in the mix of products sold and control of costs resulted in operating profit increasing by 26% to R635 million. Profit before taxation increased by 29% to R584 million, while a higher taxation charge resulted in the after taxation profit for the year increasing by 21% to R515 million. The consolidation of the 25% (2011: 5%) BEE stake in Humulani Investments (Pty) Ltd in terms of IFRS SIC12 (Consolidation Special Purpose Entities) assisted in lifting headline earnings by 39% to R484 million. A circular to shareholders dated 1 August 2011 sets out the background to this. Headline earnings per share grew by 39% to 687 cents per share, whilst earnings per share grew by 38% to 698 cents per share. Working capital management was very good, however the Group consciously increased its investment in inventory by 51% (R703 million) but still managed to generate cash from operations of R534 million. The Group continued to take advantage of growth opportunities and made a number of strategic acquisitions which totalled R139 million. The most significant of these was the acquisition by CEG of Equipment Spare Parts (Africa) (Pty) Limited ( ESP ). Bearing Man Group (BMG) BMG continues to be the core profit base of the Invicta Group, contributing 59% of operating income for the year. Market demand for BMG s products and services improved in the year. A combination of a modest improvement in volumes sold, supplier price increases passed on to customers and gains in market share in certain sectors led to a satisfactory growth in revenue. Revenue increased by 15% from R2,387 billion to R2,742 billion, mainly attributable to organic growth. This represents a doubling of revenue over the past five years. Good margin and cost management helped to increase operating profit by 16% to R371 million. During the year, a strategic decision was taken to increase inventory which has resulted in inventory in BMG increasing by 21%. During the year BMG was accredited as a level 3 contributor in terms of the government s Black Economic Empowerment (BEE) codes which strengthened BMG s position with its customers. Capital Equipment Group ( CEG ) CEG performed beyond expectation. The year started off with good prospects in all parts of the division and with a continuous focus on after-sales support, customer communication and cost control, the margins improved, resulting in the best ever operating profits being achieved. The acquisition of ESP in the last quarter of the financial year will strengthen the Group s future income from spare parts. Total revenue of CEG increased by 36% to R2,549 billion, of which R69 million was from acquisitions. Revenue has doubled over the past five years, whilst operating profit trebled over the same period. A greater contribution from spares and service revenue resulted in operating profit increasing by 57% to R247 million. The segment s annualised operating profit return on capital employed was 95%, up from 43% last year, an exceptional result. Overall, an excellent performance by CEG. OTHER OPERATIONS The Group has now bedded down its outlet distribution network for Tiletoria, and although it did not make a material contribution to the Group during the period, it is profitable and is projected to continue growing steadily.

10 8 Joint report of Chairman and Chief Executive Officer continued PROSPECTS Trading conditions in the sectors in which the Group operates appear to be levelling off. The Group is concerned about the lack of investment in mining infrastructure in South Africa and the apparent gradual de-industrialisation of the country, which factors, inter alia, are prompting Invicta to look beyond the borders of South Africa for growth in its core businesses. BMG acquired Operational Marketing (Pty) Ltd and OMSA Valves and Instrumentation (Pty) Ltd (OMSA Group) with effect from 1 April OMSA adds a leading position in lubrication equipment, systems and field service to BMG. In addition it brings significant potential for BMG to expand in filtration, valves and instrumentation. BMG expects trading conditions for the coming year to be more challenging than the past year. In CEG, grain prices (a big driver of demand for agricultural machinery in South Africa) have softened since the end of the financial year. This may lead to a decline in demand for agricultural machinery. Currently demand in the construction equipment market is showing some improvement on last year. If government s commitment to infrastructure expenditure becomes a reality, then demand should improve further. In keeping with its stated dividend cover policy of 2,75 times cover for the full year, the Board has declared a final dividend of 177 cents per share, an increase of 40% over last year s 126 cents per share. The Board remains confident of the continued success of the Group. Thank you to all our staff for their hard work, sacrifice and dedication. Without you, none of this would have been possible. Dr CH Wiese Chairman A Goldstone Chief Executive Officer 5 June 2012

11 9 Corporate structure Humulani Empowerment Trust 100% 100% 75% 20% Theramanzi Investments (Pty) Ltd Investments Humulani Investments (Pty) Ltd Humulani 5% Employee Investment Trust 100% 100% 60% Humulani Marketing (Pty) Ltd Goldquest International Hydraulics SA (Pty) Ltd Tiletoria (Pty) Ltd Divisions Disa Equipment (Pty) Ltd (Doosan SA) Criterion Equipment (Pty) Ltd Equipment Spart Parts (Africa) (Pty) Ltd Invicta Properties (Pty) Ltd

12 10 Humulani Investments Board A Goldstone AK Masuku C Barnard JS Mthimunye Trading conditions were generally favourable during the year and demand for Group products, on the whole, was better than the prior year. DEL Zondo

13 11 Humulani Investments Structure Humulani Investments Humulani Marketing Tiletoria Charles Walters BMG Anthony Sinclair CEG Patrick Thonissen Tiletoria BMG DIVISIONAL DIRECTORS Abe Bekker Chief Operating Officer Wayne Taylor Chief Financial Officer Paul McKinlay Director: Bearings, Seals and Power Transmission Gavin Pelser Director: Drives, Belting and OST Dave Russell Group Technical Director Ian King Group Sales and Marketing Director CEG DIVISIONAL DIRECTORS Geoff Balshaw Financial Director Ben Grobler National Parts Director and Managing Director: Landbou Parts Johan van der Merwe Managing Director: Northmec Peter Askew Managing Director: New Holland SA Rod Watson Managing Director: Doosan SA Alex Ackron Managing Director: CSE Allan Duckworth Financial Director Mohammud Mohuideen Operations Director Brenton Kemp Managing Director: Criterion Equipment Andrew Grobler Managing Director: ESP Steve Kite National Service Manager

14 12 Map of BMG distribution network GAUTENG Alpha Bearings BMG BMG Automotive BMG Engineering Hubs BMG Springset BMG Belting BMG Fasteners BMG Hydraulics BMG Sealco BMG Trade Invicta Bearings Autobax/Motosport branches

15 13 Map of CEG distribution network GAUTENG CSE branches Northmec branches Northmec dealers New Holland SA branches Doosan SA branches Doosan SA dealers Cartcom branches Criterion branches New Holland SA dealers

16 14 Review of operations BMG BMG Bearing Man Group BMG Bearing Man Group strengthens its leading position BMG BMG CE Walters Chief executive officer W Taylor Chief financial officer BMG BMG BMG has made good progress in challenging market conditions to strengthen its position as Africa s largest specialist distributor of engineering components and value-added services. The economic environment continued to prove challenging during the year with areas of improvement in some sectors offset by weakness in others. Despite these tough trading conditions BMG has produced a satisfactory set of results. By understanding the customer s requirements and offering a tailored solution for any engineering application, BMG has continued to nurture its customer relationships by adding value to the wide range of products it supplies. Strategies to maintain the company s leading position include continuous staff development, ongoing procurement of quality products and continuous improvement of customer service.

17 15 Review of operations continued FINANCIAL REVIEW Market demand for BMG s products and services improved in the year. A combination of a modest improvement in volumes sold, supplier price increases passed on to customers and gains in market share in certain sectors led to a satisfactory growth in revenue. BMG Turnover increased by 15% to R2,742 billion (2011: R2,387 billion). Gross margins were retained at similar levels to the prior year. Expenses grew 15% during the period as investments in capabilities in growth segments of the business were offset by operating efficiencies in the established businesses. Operating profit of R371 million (2011: R320 million) was achieved, a growth of 16% on the previous period. The operating margin remained constant at 13,5% (2011: 13,4%). BMG Inventory increased by 21% during the period, reflecting growth to support sales and a strategic investment in inventory in the Fluid Power business. Debtors increased in line with sales and day turns remained well managed Net operational assets increased to R1,214 billion and return on capital employed remained consistent at 31%. STRATEGIC DEVELOPMENTS BMG A positive development in the year was BMG s accreditation as a level 3 contributor in terms of the government s Black Economic Empowerment ( BEE ) codes which strengthened BMG s position with its customers. No significant acquisitions were made during the period. However, growth in businesses acquired in the previous period did provide a boost to the results. Two major acquisitions were negotiated during the period which will take effect in the forthcoming period. BMG acquired 100% of the shares in Operational Marketing (Pty) Ltd and OMSA Valves and Instrumentation (Pty) Ltd (OMSA Group) with effect from 1 April OMSA adds a leading position in lubrication equipment, systems and field service to BMG. In addition it brings significant potential for BMG to expand in filtration, valves and instrumentation. BMG has also reached agreement, in principle, to purchase 100% of the shares in the Man-Dirk Group of Companies, a leading distributor of tools and equipment to the mining and industrial sectors. It is anticipated that this transaction will become effective on or after 1 July There are expected to be significant cross-selling opportunities and synergies for BMG with this significant transaction. CONSUMABLE PRODUCTS DIVISION BEARINGS, SEALS, POWER TRANSMISSION PRODUCTS & FASTENERS BMG s Bearings division had a good year with all product lines performing well. The Bearings division remains the largest contributor to both sales and operating profit. Rand weakness against the Yen and US Dollar meant that price increases had to be passed on to customers. BMG s Power Transmission division, made up of Drive belts, Ironware and Chain had a commendable year BMG BMG BMG

18 16 Review of operations BMG BMG BMG BMG BMG BMG with pleasing year-on-year sales and operating profit growth. Ironware and Drive belts grew volumes and the Chain business managed to keep volume sales stable. Growth areas for the Chain business were the cement and sugar market segments. Tough trading conditions were experienced in food and processing sectors and the mineral processing sector. A highlight of the year included the formalisation of a distribution agreement with Kabelschlepp Cable Carrier Systems. Kabelschlepp is a leading global player in the field of cable carrier systems. Performance from BMG s Seals division was ahead of expectations, with sales, volume and gross margin all showing pleasing growth. Contributing factors were the focus on niche markets, strategic stock procurement and continued focus on the hydraulic seal range. BMG Seals division also secured the sole distribution agency for Garlock, a leading global player in the sealing industry. BMG s Fasteners division recovered well from a slow start to end the year well ahead of the previous period. Difficult trading conditions in the wholesale industry put margins under pressure. Marketing initiatives assisted with the growth of the tools and equipment business, which included a number of key brands coming on board. Prospects for the coming year look very good on tools, abrasives and engineering supplies with the opening of the first BMG concept store for Tools, Equipment and Fasteners in New Germany, KwaZulu-Natal. Impending implementation of dumping duties on certain fastener product lines is being monitored closely. ENGINEERED PRODUCTS DIVISION DRIVES, BELTING, ELECTRONICS AND TECHNICAL RESOURCES With difficult trading conditions persisting, the Engineering businesses put in a credible performance by growing market share in a static market. However, this was achieved at the expense of margin sacrifice under intensively competitive conditions. After a hesitant start to the year, BMG s Geared Motors division saw strong sales growth in the second half, with the delivery of several orders in the mining-related project business. An increased focus on OEM s, infrastructure and targeted industry sectors resulted in good growth in daily geared motor sales continued but economic constraints on fixed capital investment negatively affected conversion rates of customised, high value large gear units, where several projects were deferred or shelved. BMG s Electric Motor division gained market share and achieved significant volume and sales growth during the year. Competition was very price intensive and as a result, margins were under pressure. Good headway was made in project and OEM sectors and new products were introduced. A concentrated focus on quality in prior years bore fruit as market perceptions positioned BMG motors at the higher end of the scale, whilst a greatly improved stock profile also had a positive contribution. BMG s Belting division achieved modest sales growth across its product range. In addition to the introduction of new niche products, solid focus was placed on operating cost efficiencies and skills training for both customers and staff. Initiatives to enhance the ability of the BMG branch network to penetrate market sectors were stepped up and the successes achieved bode well for future potential. A platform for success has been built through sales growth in Africa and this will see a further concentration of effort in the new financial year. Major project orders were won by the Electronics division for high technology, variable speed drives which boosted performance of this division. A campaign to intensify sales of general purpose drives through the BMG network was initiated to augment the niche, high unit value business upon which this division has been built. The Field Service and Predictive Maintenance departments of Technical Resources gained momentum throughout the year and handled several major installations as well as routine maintenance and repair work at customer s sites. This extension of the company s activities is entrenching BMG as a valuable partner to its customers and a reliable source of technical solutions. Collectively, the products and services of the Engineering divisions remain positioned at high quality, superior reliability solutions and are well placed to support the growing escalation of production efficiency demands from South African industry and mining.

19 17 Review of operations FLUID POWER DIVISION HYDRAULICS, PNEUMATICS, FILTRATION BMG Hydraulics had a stellar year with a significant overall sales growth. This growth was attributable to growth in new product lines introduced, and the acquisitions of Edmik and Hi-Quip (BMG Hydraulics Mpumalanga) whose trading results were included for a full twelve months of this financial year. BMG Hydraulics secured distribution agreements for new product lines during the year covering hydraulic hose, fittings and pneumatics. The division has invested in additional capital equipment for machining of hydraulic components and now offers a full hydraulics cylinder repair facility. Stock holding, customer focus, disciplined contract management and project work have also contributed to the growth of this last year. BMG Hydraulics continues to develop its personnel, qualifying them with intense application and product training, both locally and internationally. It also successfully achieved and was awarded ISO 9001: 2008 accreditation from an internationally recognised accrediting body, DQS. continued base is a concern following several years of large increases in input costs (labour, electricity, transport) without the ability to recover these in their domestic or export selling prices. The apparent gradual de-industrialisation of South Africa is a concern and needs to be addressed. BMG continues to expand its significant branch network and is placing more emphasis on expansion into neighbouring African states. Further organic growth is expected in the year ahead as BMG gains market share with new products and the addition of two sizable entities in OMSA and Mandirk will add significant capability and growth opportunities. BMG is proud to represent many of the world s leading brands of engineering components, continues to invest in its people and its distribution network. It will continue to provide quality components, technical expertise and superior service to its customers, saving them money, improving their reliability and embedding itself as part of their process. BMG BMG BMG SUBSIDIARIES Wegezi Power Holdings experienced a difficult trading period with margin pressure on the rewind and repair business as well as on the transformer range of products. Onsite services, strong customer relations and continuous development of technical personnel have been key focus areas for Wegezi to support the growing demand for high and medium voltage equipment. Oscillating Systems Technology had a very strong trading period with strategic stock holding and improved project activity resulting in growing volume sales. Original equipment manufacturers are a key customer target market for OST. Screen Doctor grew exports into Africa with new product design and development to meet demanding customer requirements for material handling applications. BMG BMG OUTLOOK The outlook for the coming year remains challenging and BMG s management will continue to run the business conservatively, whilst always looking for ways to grow and improve the efficiency of the business. The health and competitiveness of BMG s customer BMG

20 18 Review of operations CEG CEG CEG CEG CEG CEG A Sinclair Chief Executive Officer continued CEG Capital Equipment Group CEG performed beyond expectation during the year under review, which has resulted in increased profit and cash flow contributions to the Group. G Balshaw Financial Director CEG will continue to remain focussed on the core fundamentals of its business generating cash flow and profitability.

21 19 Review of operations continued The Capital Equipment Group comprises: CEG Northmec: CaseIH Agricultural Equipment and other related implement brands New Holland SA: New Holland Agricultural Equipment and other related implement brands CSE: Construction Equipment, Club Car golf cars and Jacobsen/Ransomes Turf Equipment Doosan SA: Doosan Construction Equipment and Hammers Criterion Equipment: TCM Forklifts CEG CARTCOM: Golf car rental LANDBOU PART: Replacement spare parts for agricultural equipment ESP: After-market replacement parts, ground engaging tools and undercarriage parts for earthmoving equipment. ESP should make a meaningful contribution over a full year, helping to build on the focus of increasing spare parts sales of CEG. CEG CEG has doubled its turnover over the last five years and trebled operating profit, which has resulted in increased profit and cash flow contributions to the Invicta Group over this period. FINANCIAL REVIEW Overview The Capital Equipment Group ( CEG ) performed beyond expectation during the year under review. The year started off with good prospects in all companies in CEG. With continuous focus on after-sales support, customer communication and cost control, margins improved and the best ever operating profits were achieved. Various strategies were implemented during the year which enabled CEG to take advantage of the recovering markets. All divisions rose to the challenge and delivered improved profits and cash flow. By the end of the financial year, virtually every market segment serviced by CEG had shown an improvement over the prior year, with particularly outstanding results being achieved in the Construction Equipment and Agricultural Equipment divisions. In the last quarter of the trading year Equipment Spare Parts ( ESP ) joined the Group, contributing a small operating profit in the last three months. Financial Overview of CEG Revenue of CEG increased by 35,8% to R2,549 billion. Of the growth, R69 million came from the acquisition of ESP. Currencies were stable for the first six months of trading and steadily depreciated over the second six months, which did not have any major impact on selling prices as most inventory was covered by forward exchange contracts. CEG aims to cover most of its overheads from gross profits made on spare parts and service. With the introduction of ESP, this coverage is expected to increase further in the new financial year. CEG CEG CEG

22 20 Review of operations CEG CEG CEG CEG CEG CEG Good operational management and control of gross margins, as well as continuous focus on containing operating costs, have resulted in operating profit increasing by 56,7% to R247 million. The operating profit return on sales of 9,7% was particularly pleasing. Equally pleasing was the operating profit return on working capital which makes CEG an important contributor to the Invicta Group. The year ended with equipment inventory levels well above last year. During the year, management had anticipated increases in lead times from major suppliers and weakening of the Rand and increased orders on suppliers accordingly, resulting in good levels of well-priced inventory on hand at year-end. QUALITY MANAGEMENT AND SOCIAL RESPONSIBILITY CEG has maintained its standard of quality service, after sales support and internal controls, by complying with ISO9001 certification which is audited annually to ensure continuous compliance. The division is currently working toward ISO14001 environmental certification. To ensure stability and succession as well as up-skilling staff in the divisions, e-learning has been introduced, which enables staff in remote locations to be trained and educated by means of computerised continued distance learning. CEG also trains artisans and has a university bursary scheme for tertiary education. CEG has various social responsibility initiatives, including, inter alia, contributing through the COP Trust to a weekly feeding scheme which reaches more than 200 children under the age of eight years old. The COP Trust is building a crèche for 300 children and has also invested in a continuous chess education scheme Moves for Life for school children. CEG OPERATIONAL REVIEW There was a gradual recovery in volumes in the capital equipment markets throughout the year, although the construction machinery sector lagged the agricultural and material handling markets. Equipment volumes in the construction markets in which CEG trades have increased in year under review by 28,8%, agricultural tractors increased by 46,9%, combine harvester volumes increased by 45,1% and forklift trucks increased by 32,1%. All divisions performed well. The Case construction equipment and turf division ( CSE ), which trades predominately in the plant hire market and with golf courses, is beginning to make a better profit contribution to CEG. Doosan SA has had another exceptional year. Criterion performed well following its restructuring after being acquired by the

23 21 Review of operations Group three years ago. All the agricultural machinery operations performed exceptionally well. continued Northmec CaseIH Agricultural Equipment and other related AGRICULTURAL MACHINERY DIVISION implement brands CEG Overview The demand for agricultural equipment in the year under review was well above average. Total national tractor market volumes in South Africa increased by 46,9% (excluding exports) from units to units. Combine harvesters increased by 37,1% from 210 units to 288 units and the baler market has remained constant with a small growth of 8,2%, increasing from 327 units to 354 units. Demand for implements was also good. Soft commodity prices, especially maize, a big driver of tractor sales in South Africa, began increasing in July 2010 reaching a peak in January 2012, then declining rapidly over the following two months, coming back to September 2010 prices. The higher maize prices during most of the year under review resulted in improved farmer confidence, but the decline towards the end of the financial year together with fuel and fertilizer increases, has created some concern for the second half of calendar Northmec, predominantly a retail distributor of agricultural equipment and implements, performed above expectations with 44,2% growth in turnover. It had good market shares in all sectors in which it trades and retained its market share leadership in Combine Harvesters. At year-end, inventory was at an acceptable level and was well priced. Northmec is steadily increasing its market share in the small tractor sector, which is 61% of the total tractor market in South Africa. Case IH is very strong in the large tractor market and is well supported by the farmers due to the reliability, quality and continuous upgrading of technology in the Case IH range. An additional 2 branches were opened during the year, increasing the number to 14. Northmec secured the biggest ever private agricultural equipment deal in South Africa during the year for R153 million, which boosted the brand awareness in the farming community and strengthened the demand for the Case IH product. CEG CEG CEG CEG CEG

24 22 Review of operations CEG CEG CEG CEG CEG CEG New Holland SA continued CONSTRUCTION AND TURF DIVISION New Holland Agricultural Equipment and other Overview related brands The construction industry in South Africa fell sharply New Holland is predominantly a wholesale distributor after the FIFA World Cup in South Africa in 2010, but of agricultural equipment. During the year it has started to recover. The lack of government concentrated on strengthening its distribution spending on infrastructure (with only a few major network to improve market penetration. This initiative contracts filling some of the gap) has resulted in has resulted in excellent performance, with revenue construction companies sourcing work outside the country. Industry volumes have increased over last increasing by 38,1%. year s low base by 36,8% (from units to units) in the markets in which CSE and Doosan trade. The turf equipment market was flat, with very little demand for new equipment, but golf courses continued maintaining their existing fleets, which resulted in an increase in the demand for spare parts. New Holland s market share in tractors dropped slightly as a result of delayed supplies and increased lead times from suppliers, but it is expected that this will be made up in the coming year. New Holland recently acquired a number of implement franchises, which have made a meaningful contribution to the division s profits during the year. Implement franchises have also helped New Holland to offer a broader range of products to its customers. During the year, New Holland increased its spare parts joint venture outlets from 3 to 6. LANDBOU PART Landbou Part is a wholesaler of spare parts and sources and sells replacement spare parts for agricultural equipment. This small business has achieved a phenomenal growth during the year, with great potential to do even better in the years to come. Although the profit contribution was not meaningful this year, expectations are to grow the business to be one of the biggest in this sector in South Africa. The Group has purchased a share in an offshore parts buying house, which will help with future competitive sourcing. CSE Case Construction Equipment, Club Car and Jacobsen/Ransomes Turf Equipment The CSE construction equipment division trades predominantly in the plant hire and construction sectors of the markets. Revenue was flat compared with last year and, although demand has increased in some sectors of the market, market volumes are still well below the record volumes of A lack of bank financing has been a major obstacle for financing of sales of equipment, which necessitated CSE providing short-term financing to customers in some instances. Despite the slowdown in golf course development in SA, there is still a need for upgrading of golf car fleets and turf equipment. The golf course market in thus a replacement market, with very few, if any, new golf course developments in progress. There are positive signs of a continued recovery in the market and CSE should continue to make a contribution to the profits of CEG.

25 23 Review of operations Doosan SA continued MATERIALS HANDLING CEG Doosan excavators and loaders, Everdigm hammers Doosan SA, which was acquired four years ago, has performed well above expectation during the year under review. Revenue rose significantly and operating profit grew commensurately. Cash generation was good, as was the return on working capital. Doosan SA has historically focussed on the bulk earthworks market, but the company is spreading its base beyond this. All Doosan SA s products are sourced from South Korea and new products are on offer from suppliers, which will increase Doosan SA s ability to offer a broader range to its customers. Prospects for the coming year look good. The influence of Chinese equipment in the local construction market has reappeared, making a small impact on the current established suppliers in the market. Criterion TCM forklifts Criterion is the distributor of TCM forklift trucks which are imported from Japan is its second full trading year since acquisition and after many challenges to restore the company and brand confidence in the marketplace, the TCM brand is rapidly regaining its position as one of the leading forklift brands in the South African market. Each year since acquisition the company has grown steadily, with both revenue and operating profit increasing over the prior year. The major investment in restructuring the business is now over and the company is well positioned to improve performance. All outlets around the country are profitable and with the current management, the company is starting to achieve the required returns. An internal rental finance facility has been put in place to finance sales of equipment by using the Group s operating cash. The strength of the Yen is a major concern regarding the competitiveness of the product especially against European and Chinese sourced product. CEG CEG CEG PROSPECTS FOR CEG CEG The performance during the year under review year is as a direct result of good market conditions and focused attention on all elements of the business. The markets in which CEG trades have a tendency to be unpredictable but there are certain trends which shape the thinking of management. There is expected to be a slowdown in the growth of agricultural machinery sales in South Africa as a consequence of lower soft commodity price and increased input costs, but construction equipment sales are expected to continue their recovery. Management is cautious going into the new financial year but is confident that any market changes can be addressed with minimum impact on the performance of the Group. CEG CEG will continue to remain focussed on the core fundamentals of its business-generating cash flow and profitability. CEG will also continue seeking out acquisition opportunities. Management would like to thank all staff whose hard work and sacrifice contributed to these excellent results.

26 24 Review of operations Tiletoria continued Tiletoria Tiletoria Tiletoria Tiletoria P Thonissen Managing Director Tiletoria Tiletoria A Duckworth Financial Director The Group is considering various means of enhancing Tiletoria s profit contribution to the Group.

27 25 Review of operations continued Tiletoria is a specialist tile and sanitaryware company which has been operating in the building industry in South Africa since It covers retail, wholesale and distribution, corporate customers (eg. national chains) Tiletoria and property developers (eg. hotels, housing estates etc). The head office is in Cape Town, with branches in Johannesburg and Durban. The financial year started extremely slowly, but since August 2011, Tiletoria has had a number of record sales months. The year finished strongly with good full year revenue. Johannesburg and Durban, both relatively new branches, have taken time to gain momentum and look set make good contributions to profit in the upcoming year. Tiletoria s operating profit for the year was up significantly on last year, but is still not a major contributor to the Group s operating profits. Tiletoria has steadily been increasing its product base to offer a greater basket of goods to customers. There is enormous focus on sourcing of products from around the world to ensure that Tiletoria is on the forefront of technology and design of floor and wall coverings. Staff training has been priority, as has aggressive advertising. We lead & others follow is still a motto that Tiletoria proudly adheres to. The Group is considering various means of enhancing Tiletoria s profit contribution to Invicta, including bulking up by acquisition. Tiletoria Tiletoria Tiletoria Tiletoria Tiletoria

28 26 Corporate governance INTRODUCTION The Group s policy is to conduct its business with honesty and integrity and with the highest standard of personal and corporate ethics. This includes the promotion, enhancement, development and protection of the business interests, reputation and goodwill of the Group. The Board remains responsible for corporate citizenship and accountability for the stewardship of Group assets, which have ensured sustainable returns. The Board continues to provide stakeholders with the assurance that the Group s business is managed responsibly. Invicta endorses the Code of Corporate Practices and Conduct, as well as the King Code of Governance for South Africa 2009 (King III) and its Code of Governance Principles, which were published in September 2009 (effective from 1 March 2010) and replacing King II. The South African Companies Act (Act 71 of 2008) ( Companies Act ) also contains governance requirements. King III has been adopted an apply or explain approach. The Audit Committee continuously reviews and amends its corporate governance practices with a view to complying with the requirements of the Companies Act and the King III recommendations. Invicta will continue to adopt, as appropriate, existing and new principles, which advance good practical corporate governance and add value to the Group s business activities. KING III GAP ANALYSIS As required by the JSE Listings Requirements, the following table discloses the status of the Group s compliance with King III and reasons for non-compliance, if applicable. King III index Comply Ethical leadership and corporate citizenship Effective leadership based on an effective ethical foundation Responsible corporate citizen Effective management of ethics Assurance statement on ethics in the integrated report Board and directors The Board is the focal point for and custodian of corporate governance Strategy, risk, performance and sustainability are inseparable Directors act in the best interest of the company The chairman of the board is an independent non-executive director (1) A framework for the delegation of authority has been established The board comprises a balance of power, with a majority of non-executive directors who are independent (2) Directors are appointed through a formal process Formal induction and ongoing training of directors is conducted The board is assisted by a competent, suitably qualified and experienced company secretary Annual performance evaluations of the board, its committees and individual members Appointment of well-structured committees An agreed governance framework between the group and its subsidiary boards is in place Directors and executives are fairly and responsibly remunerated (3) Remuneration of directors and three most highly paid employees is disclosed (4) The company s remuneration policy is approved by the shareholders

29 27 Corporate CORPORATE governance GOVERNANCE continued King III index Comply Audit committee Effective and independent Suitably skilled and experienced independent non-executive directors Chaired by an independent non-executive director Oversees integrated reporting A combined assurance model is applied to improve efficiency in assurance activities Satisfies itself of the expertise, resources and experience of the company s finance function Oversees internal audit Integral to the risk management process Oversees the external audit process Reports to the board and shareholders on how it has discharged its duties Governance of risk The board is responsible for the governance of risk The board determines the levels of risk tolerance The Audit and Risk Committee assists the board in carrying out its risk responsibilities The board has delegated the process of risk management to management The board ensures that risk assessments are performed on a continual basis Frameworks and methodologies are implemented to increase the probability of anticipating unpredictable risks The board ensures that management implements appropriate risk responses The board receives assurance regarding the effectiveness of the risk management process Sufficient risk disclosure to stakeholders Governance of information technology The board is responsible for the governance of Information Technology (IT) IT is aligned with the performance and sustainability objectives of the company Management is responsible for the implementation of an IT governance framework The board monitors and evaluates significant IT investments and expenditure IT is an integral part of the company s risk management IT assets are managed effectively The Audit and Risk Committee assists the board in carrying out its IT responsibilities Compliance with laws, rules, codes and standards The board ensures that the company complies with applicable laws and considers adherence to non-binding rules, codes and standards The board and each individual director and senior manager has a working understanding of the effect of laws, rules, codes and standards applicable to the company and its business Compliance risk forms an integral part of the company s risk management process The implementation of an effective compliance framework and process has been delegated to management

30 28 Corporate governance continued King III index Comply Internal audit The board ensures that there is an effective risk-based internal audit Internal audit follows a risk-based approach to its plan Internal audit provides a written assessment of the effectiveness of the company s system of internal controls and risk management The audit committee is responsible for overseeing internal audit Internal audit should be strategically positioned to achieve its directives Governing stakeholder relationships The board appreciates that stakeholders perceptions affect the company s reputation Management proactively deals with stakeholder relationships There is an appropriate balance between its various stakeholder groupings Equitable treatment of shareholders Transparent and effective communication with stakeholders Disputes are resolved effectively, efficiently and as expeditiously as possible Integrated reporting and disclosure The board ensures the integrity of the company s integrated report Sustainability reporting and disclosure should be integrated with the company s financial reporting Sustainability reporting and disclosure should be independently assured (5)

31 29 Corporate CORPORATE governance GOVERNANCE continued The Board is of the opinion that the Group has, in all material respects and where relevant, complied with King III during the year under review, and wishes to highlight the following: (1) The King III Report states that the chairman of the Board should be an independent non-executive director. Dr CH Wiese, who is a non-executive director, is the Chairman of the Board, but he is not independent. It is the view of the Board that the non-independence of the Chairman is a positive factor in ensuring the decisions taken by the Board are guided by a Chairman whose perspective is aligned with long-term interests of shareholders. Mr DI Samuels maintains his role as the Group s Lead Independent Director. In addition, to ensure good governance, and as recommended by King III, the chairmanship of two of the three Board Committees is held by Mr DI Samuels. (2) The Board does not have a majority of independent non-executives directors as required by King III. The majority of the non-executive directors are also shareholders, which, from a Group point of view, is beneficial to all stakeholders, as it aligns its interest with that of other shareholders. (3) The Board believes that the directors individually add significant value to the Group outside of the formal Board and Committee meetings, and interact with management as they think appropriate. The directors have a record of high attendance at Board and Committee meetings. (4) The King III Report requires that the salaries of the three most highly paid employees, who are not executive directors, should be disclosed. Due to their specialised skills, the highly competitive South African engineering and capital equipment environment and the employees value to the Company, the Board does not wish to disclose this information for each of the individuals but has instead disclosed the total salaries of the employees concerned on page 97. The Chairman of the Remuneration Committee is also Chairman of the Board. (5) The King III Report requires that the Company s sustainability report be audited by an independent external professional. The entire integrated report is reviewed by the Audit and Risk Committee and recommended to the Board. The Board has not found it necessary to obtain independent assurance for sustainability reporting as it is comfortable with the accuracy of the sustainability reporting. Environmental issues are not material in the Group or its operations, so no empirical data is considered necessary to be provided at this stage. BOARD OF DIRECTORS Composition The names and brief résumés of the directors appear on pages 4 and 5 of this 2012 Integrated Annual Report. The Board currently comprises four executive directors, three non-executive directors, two independent non-executive directors and one alternate independent non-executive director. Board effectiveness reviews were conducted during the year under review, and further reviews will be conducted at appropriate intervals. The Board is satisfied that no one individual director or block of directors has undue power of decision-making and there is a clear division of responsibilities at board level to ensure an appropriate balance of power and authority.

32 30 Corporate governance continued Annually, the Board considers each director s independence. The Committee feels that the following aspects are important in assessing a non-executive director s independence: the director had been employed in an executive capacity in the Group in the previous three years; the directors had served on the Board for longer than nine years. In this case, the Committee considers whether that director s independence, judgement and contribution to the Board s deliberation could be compromised, or may appear to be compromised, by this length of service; the director is a representative of a major shareholder; and the proportion of that director s shareholding in the Company or director s fees represented a material part (10% or more) of their wealth or income. The Company Secretary, Mr C Barnard, who is also the Financial Director, assists the Board in fulfilling its functions and is empowered by the Board to perform his duties. The Company Secretary, directly or indirectly: assists the Chairman and CEO with induction of new directors; assists the Board with director orientation, development and education; ensures that the Group complies with all legislation applicable/ relevant to the Group; monitors the legal and regulatory environment and communicates new legislation and any changes to existing legislation relevant to the Board and divisions; and provides the Board with a central source of guidance and assistance. Chairman and CEO The roles of Chairman and Group CEO are separate. The Managing Directors and CEOs of the operating subsidiaries and divisions report to the Group CEO of Invicta, who in turn reports to the Board. Professional advice and access to information All directors have access to the Company Secretary and management and are entitled to obtain independent professional advice at the Company s expense, if required. The Board has unrestricted access to the Group s information, records, documents and resources to enable them to properly discharge their responsibilities. The Company and all its subsidiaries are compliant with the provisions of the Promotion of Access to Information Act. The manual in terms of this legislation is available from the registered office of the Company and on the Company s website. Board The Board meets regularly on a scheduled basis and at such other times as circumstances may require. The table of meetings and attendance is as follows: 31 May 28 July 14 Sep 4 Nov 10 Feb 29 Mar C Barnard^ A Goldstone^ AK Masuku* # x x x x x x JS Mthimunye # x DI Samuels # LR Sherrell x x AM Sinclair^ x CE Walters^ CH Wiese (Chairman) JD Wiese * Alternate Non-executive # Independent ^Executive

33 31 Corporate CORPORATE governance GOVERNANCE continued Board papers are issued to all directors prior to each meeting and contain relevant detail to inform members of the financial and trading position of the Company and each of its operating subsidiaries, as well as covering material issues pertaining to the Group. Non-executive directors also maintain regular contact with executive directors to ensure that they are kept abreast of material matters that may require their input and guidance. Board appointments A third of the directors retire by rotation annually based on longest service. If eligible, available and recommended for re-election by the Remuneration Committee, their names are submitted for re-election at the annual general meeting. This year Mr A Goldstone, Mr C Barnard, Mr AM Sinclair and Mr LR Sherrell retire in terms thereof. Messrs Goldstone, Barnard, Sinclair and Sherrell, being eligible and available, are recommended for re-election by the Remuneration Committee. The directors have considerable business experience and an excellent understanding of the Group s business. The Board selects and appoints directors, including the Chief Executive Officer and Executive Directors. Prior to appointment, potential Board appointees are subject to a fit and proper test as required by the JSE Listings Requirements. INTERNAL CONTROL The directors have responsibility for the Group s systems of internal controls. These are designed to provide reasonable assurance of effective and efficient operations, internal financial control and compliance with laws and regulations. Operational and financial responsibilities are delegated to CEOs, CFOs and executives of the principal operating divisions. The Group s system of internal controls is designed to provide reasonable, but not absolute, assurance against the risk of material errors, fraud or losses occurring. Furthermore, because of changing internal and external factors, the effectiveness of an internal control system may vary over time and must be continually reviewed and adapted. The system of internal controls is monitored throughout the Group by the Audit Committee, the Group internal audit department, management and employees as an integrated approach. The Board reports that: to the best of its knowledge and belief, no material malfunction of the Group s internal control system occurred during the period under review; it is satisfied with the effectiveness of the Group s internal controls and risk management; it has no reason to believe that the Group s code of ethics has been transgressed in any material respect; and to the best of its knowledge and belief, no material breaches have occurred during the period under review, of compliance with any laws and regulations applicable to the Group. INFORMATION TECHNOLOGY Compliance with legislative requirements contributes towards the protection of corporate information, but in itself only addresses a small part of the total number of threats posed to the business arising from its dependencies on information technology and the internet. Security policies and procedures for employees and the use of technologies such as enterprise and personal firewalls, antivirus systems, intrusion monitoring and detection are applied, as well as frequent application of software security patches issued by vendors as and when vulnerabilities are discovered. Ensuring proper system security, data integrity and business continuity are the responsibility of the Board, but are given effect by the Audit and Risk Committee. STAKEHOLDER COMMUNICATION Members of the Board meet on an ad hoc basis with institutional and other investors, investment analysts and members of the financial media. Discussions at such meetings are restricted to matters that are in the public domain.

34 32 Corporate governance continued Shareholders are informed, by means of press announcements and releases in South Africa and/or printed matter sent to such shareholders, and/or announcements on SENS, of all relevant corporate matters and financial reporting as required in terms of prevailing legislation. In addition, such announcements are communicated via a broad range of channels in both the electronic and print media. The Group has also embarked on a more formal approach to providing feedback in respect of the year-end results with interviews scheduled for both radio and television after the relevant media and SENS announcements have been made. The Company maintains a corporate website containing financial and other information, including interim and annual results. The site has links to the websites of each major operating subsidiary company. The Group will look at ways of allowing electronic shareholder participation with its transfer secretaries in the upcoming year as provided for in the new Companies Act. EMPLOYMENT EQUITY Invicta Holdings is committed to providing a working culture that is inclusive to all. It is Group policy to acknowledge and support South Africa s employment equity drive in ensuring that equal opportunities are directed at our staff, regardless of race, colour, sexual orientation, sex, religion, creed or national origin. The Group remains compliant with all aspects of the Employment Equity Act (Act 55 of 1998) by adhering to the requirements of the timeous submission of an online report and plan, consultation with employees and communication of the report and progress is monitored on an ongoing basis. Areas of strategic focus include the promotion of constitutional right of equality for all in the workplace, elimination of unfair discrimination where it may exist, redressing of the effects of past discrimination of employment practice, achieving equitable representation in occupational categories and levels, where possible, promoting the acquisition of skills by employees that will reflect qualifications and standards that is part of a national qualification framework and developing a culture in the Company of high quality lifelong learning. HR implements processes to address recruitment as well as the development of in-house talent through coaching, mentoring and succession planning. Included in this drive is a bursary programme directed at young black students who could potentially be groomed for future senior positions should they join the Group after graduation. The Group remains fully committed to providing equal opportunities to its employees (2011: employees).

35 33 Corporate CORPORATE governance GOVERNANCE continued SUSTAINABILITY REPORT The Board is committed to creating long-term value for all its stakeholders by providing sustainable businesses in an integrated approach to the communities in which it operates. The role of the Social and Ethics Committee is to assist the Group with its responsibility towards sustainability with respect to practices that are consistent with good corporate citizenship. The Companies Act includes specific responsibilities including the Company s standing in terms of the United Nations Global Compact Principles, the OECD recommendations concerning corruption, the contribution to development within our communities, labour and employment and the environment and health and public safety. The Committee has the objective of reviewing the Group s Socially Responsible Investment Index, broad-based economic empowerment, and sustainability reporting performance. The Group continues to measure its expenditure on non-renewable resources and to eliminate any unnecessary or inefficient processes. The primary areas of consumption in the Group continue to be transport, fuel and electricity. The Group continually looks at optimising its warehouse locations and inventory holdings in a bid to minimise transport cost and fuel consumption, with further strategic consolidation and expansion of certain locations planned for the new year. As customers continue to search for more efficient and productive products, the Group, through its various operations, continues to develop these with its various principals around the world and to offer solutions to the market. Performance in each of these areas is measured with reference to the JSE s Socially Responsible Investment Index criteria, the DTI s Broad-Based Black Economic Empowerment ( B-BBEE ) scorecard and the Global Reporting Initiatives III guidelines. Invicta has appointed Mpowered Business Solutions to act as its consultants in terms of B-BBEE as well as the BEESCORE to re-certify the BEE status of its various operations. The Group improved its BEE status from a Level Five to a Level Four contributor in terms of the Broad-Based Rating Scorecard. The sustainability objectives of the Group are: Acting in the best interests of Group shareholders and Group principals, by representing them in a manner which brings credit to their products and brands. Ensuring that customers receive an integrated and environmentally sound solution that meets their specific needs. Providing employees with a working environment and encouraging a culture which allows them to achieve as much as possible and to have a fulfilled working career. Delivering sustainable returns to shareholders which are not at the expense of the Group s ethical standards. The Board wishes to take this opportunity to thank all the stakeholders in the Group for their ongoing commitment and loyalty to the development of a sustainable business and relationships. Suitability of the Financial Director As required by the JSE, the Audit Committee and Board have considered the skills, qualifications and performance of the Financial Director, Craig Barnard, and are unanimously satisfied of the continuing suitability for the position. His résumé is detailed on page 5. TRAINING EDUCATION AND DEVELOPMENT OF STAFF In-house training and development: The Group s philosophy on training the right employee, at the right time provides returns not only for the employee, but also for the employer in increased productivity, knowledge, loyalty and

36 34 Corporate governance continued contribution to the Group. Ongoing training and skills development also form the basis of transformation; therefore it is imperative for any company aiming to develop a competitive edge. In order to create this passion within the Group s staff, Invicta needs to help its people reach their full potential through ongoing training and development. After the successful external re-branding by BMG, it has embarked on a Brand Ambassador training initiative that essentially transforms BMG employees to BMG Brand Ambassadors with a renewed heart and mind. The Group provides a broad range of initiatives, including technical, management and sales training, as well as softer skills programmes, with technical courses being delivered via e-learning. E-learning provides the major benefits of being practical and flexible. Staff can log in when practical whilst learning can be applied immediately and shared with colleagues. Training via e-learning also enhances the much needed computer skills. All theoretical training is finished off with practical training sessions delivered by the Group s various technical and other divisional resources available. Education and career development As part of the Group s holistic approach to employee development, it also offers educational assistance to employees who are keen to further their own qualifications on a part-time basis by completing work-related courses. Student bursaries The Group currently has four university bursars participating in a bursary scheme as well as seven scholars in total from various institutions such as Jeppe, SACS, Kearsney College, Cornwall Hill and King Edward VII school. The Group is committed to partnering projects that are focused on developing its technical skills base as a requirement for its business, as well as for the country and the economy as a whole. Over the past years BMG has funded CASME Centre for the Advancement for Science and Maths Education. This project is training 50 educators from 25 rural, under-resourced schools in and around Umgungundlovu in KwaZulu-Natal, and providing learning and teaching resources through a Teachers Resource Centre based at the FET (Further Education and Training) College. The project includes ongoing school-based support for teachers, as well as a learner support programme, which addresses further education opportunities, with a focus on technical and engineering programmes offered by the FET College. BMG also has a long-standing relationship with the Protec branches in Tongaat and Inanda/ Kwa Mashu in KwaZulu-Natal. Protec s aim is to increase the country s technologically skilled human resource base through the provision of educator-based training and a Learner Excellence Programme (learner-based education) to under-resourced schools in South Africa. This holistic programme is aimed at Grade 10 learners who participate until they reach Grade 12 and they are supported through their tertiary education studies and beyond. Research results clearly indicate that the Protec branches are having a positive impact on the academic performance of beneficiaries from historically disadvantaged communities. At least 50% of learners from Protec passed with University passes between 2002 and 2010, significantly more than the provincial averages. Protec has a long and consistent track record of helping learners improve their results and go on to successful technological careers. The expert staff and experienced leadership at Protec have shown great passion in implementing every project. BMG will be extending the Group s commitment to Protec by partnering them in the development of two new branches in key trading areas of Steelpoort and Carletonville in the year ahead.

37 35 Corporate CORPORATE governance GOVERNANCE continued CORPORATE SOCIAL INVESTMENT ( CSI ) As a responsible South African citizen, the Group has focused on aligning its CSI spend with its core business objectives, thus allowing for true partnerships with its beneficiaries, the government and NGOs, in order to bring about long-term, sustainable change and development for the benefit of all. The Group carefully selects initiatives that will have the maximum impact on basic needs of South Africans and, where an immediate need arises, it also undertakes more ad hoc projects to address specific issues. Some examples of initiatives the Group undertook are as follows: The COP Trust (Community Outreach Programme) is a non-profit organisation that provides an opportunity for schools, businesses and ordinary South Africans to make a lasting and meaningful difference to the lives of their fellow citizens. The COP Trust has undertaken a wide range of development projects, which are all aimed at uplifting our society and empowering historically disadvantaged individuals and communities. The Group has selected a house of safety (foster home), a crèche, a pre-school, as well as a primary and high school to support through and with the help of the COP Trust. Support for various safe houses and orphanages, with the main focus being abused and abandoned women and children, homes for pregnant young girls, as well as various other crèches that are not supported by the COP Trust. These include The Ark in Khayelitsha, St Francis, The New Life Centre, Solomon s Haven and The Homestead. The Group also supports the SA Medical and Educational Foundation. Their mission is to create an environment where quality health care and education can be available to everyone. They do this by supplying various medical services with the vital equipment that is needed to enhance the treatment that is offered to state patients. The SA Medical and Education Foundation supports mainly hospitals and clinics that rely solely on a state budget. A donation was also made towards The Sunflower Fund, to assist with getting donors on the registry from non-white ethnic race groups, as well as providing a home for a 4-year old leukaemia patient and her family. Education and career development As well as the extensive staff training which is dealt with elsewhere in this report, the Group sees education as a primary area of focus for the future growth of the country. Funding is provided to centres providing education to educators, which are based in 25 rural under-resourced schools. A further major funding project is in respect of a non-profit technological career development programme, focusing on quality of mathematics and science. The Group acknowledges that a holistic approach is necessary, of which academic support is but one element. Sport development Within the Group, sponsorship as well as dedicated time is allocated to form a local soccer championship league consisting of players from the community as well as from the Company. By investing time and energy into this initiative, the Group strongly believes that people prefer to rather invest their energy in community-related events where they can create a sense of belonging rather than spending time on the streets. General All the Group operations, no matter how small, have contributed to supporting the destitute and underprivileged in the communities in which they exist and function.

38 36 Corporate governance continued QUALITY MANAGEMENT AND OCCUPATIONAL HEALTH AND SAFETY The consistent supply of both quality products and service to customers is key to the Group s successes. To this end, the Group continues to focus on the ISO quality system to assist in achieving this. CEG has maintained their ISO certification with TUV Rheinland in all its divisions, including the Criterion Equipment Division and with the acquisition of ESP will endeavour to implement the system in that operation as well. The Autobax Division has maintained its ISO certification with Lloyds. BMG s Quality Management Systems (QMS) certified in 2003, is now well established, with their current ISO 9001:2008 standard only due for re-certification in December BMG s commitment to a safe and healthy working environment for customers and employees is demonstrated by the implementation of the OHSAS 18001:2007 standard. The Group continues to progress the development and implementation of the OHSAS Occupational Health and Safety Management System in its major operations. COMPLIANCE, TRANSPARENCY AND ACCOUNTABILITY Annual General Meeting The directors are encouraged to attend the annual general meeting, chaired by the Board Committee Chairperson. The notice for any general meeting of shareholders includes an explanation of the reason for, and the effects of, any proposed special resolutions. The Company Secretary attends every general meeting of shareholders to assist with the recording of shareholders attendance and to tally the votes. The Chairman confirms with the meeting that votes will be counted by way of poll, ie all votes are counted, rather than by way of a show of hands, if required. Restriction on trading in securities In addition, no dealing in the Company s securities is permitted by any director, officer or employee whilst in possession of information which could affect the price of the Company s securities and which is not in the public domain. Directors of the Company and of its subsidiaries are required to obtain clearance from Invicta s chairman (and in the case of the chairman, or in the absence of the chairman, from the chairman of the Audit Committee), or his nominee, prior to dealing in the Company s securities, and to timeously disclose to the Company full details of any transaction for notification to and publication by the JSE. Where relevant, participants in the long-term equity-settled bonus share incentive scheme may not exercise these rights during a closed period. Corporate ethics The Group is committed to achieving high standards of ethical behaviour. The Ethics Hotline is independently run by Deloitte Tip-Offs Anonymous. Deloitte Tip-Offs Anonymous has been certified by the External Whistle-Blowing Hotline Services Provider Standard E This Hotline can be used by all employees and suppliers to report any suspected unethical behaviour. Calls are investigated by the Internal Audit Division. The Board adopted a formal code of ethics during 2004 and a Social and Ethics Committee was established in the financial year, which seeks to ensure that a relationship of trust and shared values is built up with both employees and external stakeholders. The key pillars of the code include adherence to the legal framework of the country and ensuring that the Group is not brought into disrepute, against the overriding background of transparency in all transactions. Arnold Goldstone Chief Executive Officer Invicta Holdings Limited A formal policy, implemented some years ago, prohibits directors, officers and employees with access to financial information from dealing in the Company s securities, from the end of an interim reporting period until after the interim results have been published and similarly from the end of the financial year until after the audited annual results have been published. Directors and employees are reminded of this policy prior to the commencement of any closed period.

39 37 Corporate CORPORATE governance GOVERNANCE continued REMUNERATION REPORT Members of the Remuneration Committee during 2012 CH Wiese (Chairman) DI Samuels A Goldstone Attendance ex Officio All members of the Committee are non-executive directors. Role of the Remuneration Committee and terms of reference The Remuneration Committee is a committee of the Board of Directors and is responsible for: making recommendations to the Board on the general policy on executive remuneration, benefits, conditions of service and staff retention; determining the specific remuneration packages of executive directors and senior management of the Group including, but not limited to, basic salary, performance-based short- and long-term incentives, pensions and other benefits; and the design and operation of the Group s share incentive schemes. The Board has approved the mandate and terms of reference of the Committee, which is in compliance with the King III obligations. The Committee met twice during the 2012 financial year. The Chief Executive Officer attends the Committee meetings by invitation and assists the Committee in its deliberations, except when issues relating to his own compensation are discussed. No director is involved in deciding his or her own remuneration. In 2012 the Committee was advised by the Group s finance and human resources divisions on the loans to directors to acquire Invicta shares, as set out in the circular to shareholders dated 1 August The Company s auditors, Deloitte & Touche, have not provided advice to the Committee. However, in their capacity as Group auditors, they perform normal audit procedures on the remuneration of directors. The Remuneration Committee meets at least annually and the attendance at meetings held was as follows: 25 May 11 June 24 Aug 22 Oct 3 Mar 26 May 28 Mar CH Wiese DI Samuels A Goldstone Remuneration policy and executive remuneration Principles of executive remuneration The Group s remuneration policy aims to attract and retain high-calibre executives and to motivate them to develop and implement the Group s business strategy in order to optimise long-term shareholder value creation. The policy conforms with King III and is based on the following principles: Total rewards are set at levels that are competitive within the relevant market. Incentive-based rewards are earned through the achievement of demanding performance conditions consistent with shareholder interests over the short-, medium- and long-term. Incentive plans, performance measures and targets are structured to operate effectively throughout the business cycle. The design of long-term incentives is prudent and does not expose shareholders to unreasonable financial risk. In line with the principles stated above, the Remuneration Committee has authorised the implementation of a bonus bank scheme at senior and middle management level which entails management earning a performance-based bonus which is effectively paid out over the subsequent three years.

40 38 Corporate governance continued Elements of executive remuneration The four elements of executive remuneration consist of a base salary, benefits, an annual incentive and long-term incentives. The Committee seeks to ensure an appropriate balance between the fixed and performance-related elements of executive remuneration and between those aspects of the package linked to short-term financial performance and those aspects linked to longer-term shareholder value creation. A further consideration has been the need to retain critical skills in the Group. The Committee considers each element of remuneration relative to the market and takes into account the performance of the Group and the individual executive in determining both quantum and design. The policy relating to each component of remuneration is summarised below: Base salary The base salary of the executives is subject to annual review. It is set to be competitive at the median level, with reference to market practice in companies comparable in terms of size, market sector and business complexity. Group and Company performance, individual performance and changes in responsibilities are also taken into consideration when determining annual base salaries. Benefits Benefits for executives include membership of a retirement fund and a medical aid, to which contributions are made by the executives and the Group. Short-term incentive All executives are eligible to participate in a short-term incentive with payment levels based on either corporate or individual performance or both. Key performance indicators are set on an individual basis each year. The incentive plan is contractual but not pensionable. The Committee retains the discretion to make positive adjustments to bonuses earned at the end of the year on an exceptional basis, taking into account both Group performance and the overall and specific contribution of individual executives to meeting the Group s objectives. The Committee reviews measures annually, to ensure that the targets set are appropriate, given the economic context and the performance expectations for the Group. Details of the Executive directors remuneration are detailed on pages 92 and 93. Long-term incentive Invicta Holdings long-term bonus and share incentive scheme In order to attract and retain key staff, the Group requires appropriate long-term incentive schemes. Many of the Group s operations require key technical skills which are often difficult to replace. In trying to address the critical factor, the Committee, in consultation with industry professionals, has designed a long-term bonus incentive scheme for key executives. In terms of the scheme, executives will be rewarded on their performance, with reference to the growth in the Invicta share price over a period of three to five years. The bonus, as determined by the formula, will be settled with equity in Invicta by the relevant operational entity or on terms of the existing Invicta Holdings Limited Share Trust. The bonus scheme will constantly be reviewed by the Committee for its effectiveness and will be amended from time to time, if necessary. Divisional senior executives and management are on a cash-based bonus system, which ensures they are rewarded for performance in those areas over which they have direct influence. Equity-settled bonus share incentive right scheme The Group employed a long-term bonus equity-settled share incentive right scheme ( LBSIR scheme ) for key executives in In terms of the LBSIR scheme executives are granted a bonus share incentive right ( the bonus right ) calculated with reference to a specified number of shares at a price equal to the weighted average five-day closing market price on the date of grant. The bonus right vests after a period of one year, (subject to the achievement of the performance conditions set for the executive), and the bonus right becomes exercisable after a further two-year period, after which the executive has a further two-year period in which to take up the bonus right before it lapses. The bonus right is determined based on the difference between the grant price and the weighted average five-day closing share price on the exercise date. The bonus, as determined by the formula, will be settled with Invicta shares.

41 39 Corporate CORPORATE governance GOVERNANCE continued The bonus right expense has been calculated using a Black Scholes valuation model and is expensed over a three-year period from the grant date and is recorded in the Share Appreciation Reserve Weighted Weighted average average incentive incentive rights cost rights cost Number (Black Number (Black of Scholes) of Scholes) incentives Rand incentives Rand Outstanding at the beginning of the year Awarded during the year , ,87 Exercised during the year ( ) ( ) Cancelled ( ) Outstanding at the end of the year Tranche 1 Tranche 2 Tranche 3 Tranche 4 Tranche 5 Tranche 6 Tranche 7 Tranche 8 Number of grants Cancelled ( ) Grant date 13 Mar 06 1 Sep Mar Mar Sep Mar 09 2 Mar 10 1 Mar 11 Grant price R17,20 R20,00 R27,97 R24,84 R26,87 R18,48 R24,37 R42,55 3 years 3 years 3 years 3 years 3 years 3 years 3 years 3 years % % % % % % % % Expected volatility (daily) 2,1 2,0 2,1 2,2 2,2 2,1 2,1 2,2 Dividend yield 5,6 5,3 6,4 3,5 3,8 4,2 4,9 5,3 Risk-free rate 7,2 8,17 8,17 9,4 8,7 6,43 8,68 7,39 Executive directors interests in the LBSIR scheme are set out in note 36 on page 93 of the 2012 Integrated Annual Report. A long-term loan scheme for executives on the Board of Directors of Invicta Holdings Limited ( Invicta ) The purpose of the loan is to incentivise Invicta executives over the long-term by providing them with a mechanism to acquire a meaningful stake in Invicta, thereby aligning them with the interests of Invicta shareholders. In line with the principles stated above, the Remuneration Committee has authorised the implementation of a bonus bank scheme at senior and middle-management level which entails management earning a performance-based bonus, which is effectively paid out over the subsequent three years. External appointments Executive directors are not permitted to hold external directorships or offices without the approval of the Board. If such approval is granted, directors may retain the fees payable from such appointments. Directors fees Directors payments for services as directors and other emoluments are set out in note 36 on pages 92 and 93 of the 2012 Integrated Annual Report. Members will be requested to consider an ordinary resolution approving these emoluments at the annual general meeting.

42 40 Corporate governance continued Non-executive directors fees The annual fees payable to non-executive directors of the Company are based on a fee for attendance per meeting of the Board and, where applicable, per meeting of sub-committees. An additional fee is paid to the Chairman of both the Board and the Audit Committee. Approval This remuneration report has been approved by the Board of Directors of Invicta. Signed on behalf of the Remuneration Committee Non-executive directors do not participate in the Company s annual bonus plan, or in any of its share incentive schemes. Details of the non-executive directors fees are detailed on page 92. Directors and executive management s service contracts Dr CH Wiese Chairman of the Remuneration Committee None of the directors are bound by service contracts. All executive directors, who are also directors of subsidiary companies, have an engagement letter which provides for a notice period of between one and three months to be given by either party. The Group Chief Executive Officer has no service contract. None of the non-executive directors have a contract of employment with the Group. A third of the directors retire by rotation annually based on longest service. If eligible, available and recommended for re-election by the Remuneration Committee, their names are submitted for re-election at the annual general meeting. The appointment of new directors during the year is required to be confirmed at the next annual general meeting and such new directors are required to retire at such annual general meeting, but may offer themselves for re-election.

43 41 Integrated CORPORATE GOVERNANCE report The Board of Directors acknowledges its responsibility to ensure the integrity of the Integrated Report. The Board has accordingly applied its mind to the Integrated Report and, in the opinion of the Board, the Integrated Report addresses all material issues, and presents fairly the integrated performance of the organisation and its impacts. The Integrated Report has been prepared in line with appropriate best practices pursuant to the recommendations of the King III Code. REPORT SCOPE AND BOUNDARY The Integrated Report ( the Report ) covers in its scope both the legal entities and physically located branches making up the distribution, sales and administrative infrastructure of the Invicta Group. The Report covers the financial year ended on 31 March 2012, but due to the contiguous nature of business and reporting, the Report implicitly takes into cognisance the end of the previous and the first quarter of the subsequent financial year. The Group has always been run on an operationally decentralised basis due to the complementary, but often different nature of the main operational pillars making up the Group. Based on this principle of decentralised operations, the Group s role is that of providing a strategic, financial and strong directional role for operations, with the Managing Directors and the CEOs of the main operational pillars having direct reporting and executive responsibility on the Board. ORGANISATIONAL OVERVIEW, BUSINESS MODEL AND GOVERNANCE STRUCTURES The Group has always seen its distribution sales and support network as a key strategic asset, enabling it to create value on a sustainable basis, while also constituting barriers of entry to competitors on a national basis. The extent and number of the Group operational outlets are highlighted on pages 2 and 3 of the Integrated Annual Report. Further to the above, the Group sees its management and staff as a key factor in a business which is effectively selling, supporting and advising on a wide range of industrial consumable products. The Group, besides having a Remuneration Committee and an Audit and Risk Committee at the Group level, has maintained these same management and governance disciplines at the main operational pillars to ensure policies and direction are effectively cascaded down, at the same time allowing for effective reporting up. Details of Group management and governance committees, are provided in more detail in the Corporate Governance Report (page 30), the Remuneration Report (page 37) and Audit and Risk Committee Report (page 54). OPERATIONAL CONTEXT The Group can be seen as an efficient proxy for the South African economy, with a clear delayed correlation between commodity and resources performance and the Group s outperformance. The Group imports almost all of the products it supplies and thus the effects of exchange rate fluctuations need to be effectively managed through operational buying departments, under the Group s policy of hedging all material exchange rate exposures through the use of Forward Exchange Contracts. Employment and logistic costs are the main domestic cost elements that make up a significant element of the overhead base of the Group. STAKEHOLDER RELATIONSHIPS The Group continues to view its employees as a key stakeholder group, and endeavours to, on an ongoing basis, develop not only training, but improved communication processes within the operations. The Group has made a conscious effort to address its community and social responsibility spending by developing a more clearly focused programme of initiatives, which it supports. With the Group holding key agency and distribution agreements for world-class brands with international principals, ongoing relationship building with these suppliers is seen as a key element of the current and future success of the Group, as the network and range of suppliers increase. Shareholders, through their actions, continue to give the Board and management a mandate to run the Group, whose ongoing support and beneficiation is seen as the litmus test of the superior performance by the Group.

44 42 Integrated report continued Stakeholders material issues The following table sets out the stakeholders identified, together with the material issues and communication to stakeholders: Stakeholders Relationship Material issues Communication forum Private shareholders and institutional investors Shareholders Share price, dividend policy, return on investment, profitability Management competence Growth strategy Acquisitions Management remuneration Integrated and interim reports Results presentations Website Annual general meeting Press interviews Bankers Financiers Statements of financial position, comprehensive income and cash flows End users of products Customers BEE credentials Brand Product quality Technical support Service turnaround Pricing Reputation Management of business Management Brands, association with quality products Synergies within Group Management and resource support from centre for growth Leadership succession planning, careers, knowledge management systems Remuneration Principals Suppliers Market shares Sales forecasts Stockholding and ordering processes Distribution strengths Customer base Credit-worthiness Intergrated and interim reports Annual credit reviews Personal contact Product marketing Product technical specifications Service information bulletins BEE scorecard Operational websites Technical training forums Integrated report Management conferences Personal contact Internal news/information communication and divisional broadcasts and s Regular meetings Integrated report Operational websites Interactive electronic ordering and communication Employees at operational level Staff Career development Leadership succession planning Remuneration Skills retention and development BEE Integrated report Personal contact Retirement fund reports Wellness communication and interventions Internal news/information communication and divisional broadcasts and s

45 43 Integrated CORPORATE GOVERNANCE report continued STRATEGIC DIRECTION The Group continues to look for acquisitions which fit the distribution and sales model that it has successfully developed over the last decade. Further consideration will also be given to opportunities that are based outside South Africa, which not only fit with the Group s expertise, but which also provide a natural hedge against some of the currency exposures the Group faces. PERFORMANCE The Group continues to outperform its own return benchmarks and has, at a trading level, grown by more than 20% per annum cumulatively for more than seven years Rm Rm Rm Rm Rm Rm Rm STATEMENTS OF COMPREHENSIVE INCOME Revenue Operating profit Net finance costs less dividends received and income from associate (57) (54) (24) (22) 3 (25) (19) Profit before taxation Taxation (69) (25) (64) (112) (63) (38) (54) Profit after taxation Non-controlling interest (23) (72) (44) (50) (37) (2) Attributable earnings Items not included in headline earnings (8) (6) (9) (2) (8) (24) 1 Headline earnings Weighted average number of ordinary shares ( 000) Earnings per share (cents) Headline earnings per share (cents) Dividend per share (cents) STATEMENTS OF FINANCIAL POSITION Property, plant and equipment Goodwill Other intangible assets Financial instruments, finance lease and long-term receivables including current portion Guaranteed purchase liabilities including current portion (11) (13) Defered taxation Inventories Trade and other receivables Trade and other payables (1 802) (1 205) (1 020) (1 295) (1 267) (829) (450) Taxation (25) 1 (13) 35 (26) (13) 2 Shareholders for dividends (2) (7) (3) Net operating assets Investment in associate Financial investments including current portion Net financial liabilities (2) (3) (3) (4) 2 Net cash (131) (79) Employment of capital Non-controlling interest Equity Long-term payables including current portion Total capital employed

46 44 Integrated report continued R 000 R 000 R 000 R 000 R 000 R 000 R 000 STATEMENTS OF CASH FLOWS Cash generated from trading (Increase)/ decrease in working capital (191) (455) (96) 85 (123) Cash generated from operations Finance costs (598) (545) (433) (383) (209) (163) (40) Dividends paid (156) (115) (96) (113) (94) (55) (46) Taxation paid (62) (48) (25) (194) (58) (25) (59) Interest and dividends received Treasury share transactions (62) (71) Net cash from operating activities (242) (26) Investment in property, plant and equipment (59) (62) (47) (48) (17) 5 5 Investment in operations (675) (627) (228) (346) (1450) 16 (1559) Net cash from investing activities (734) (689) (275) (394) (1467) 21 (1554) Increase in long-term borrowings including guaranteed repurchase liabilities (9) 1204 Shares issued Net cash from financing activities (5) 1475 Net increase (decrease) in cash and cash equivalents (341) (105) Key and carefully selected acquisitions as well as excellent management are the primary drivers of the Group s success. The Group continues to benchmark return on working capital as a key factor.

47 45 Share information as at 31 March 2012 SHAREHOLDER SPREAD Number of Number shareholding % of shares % shares , , shares , , shares 155 5, , shares 66 2, , shares and over 13 0, , , ,00 DISTRIBUTION OF SHAREHOLDERS Banks 14 0, ,58 Close corporations 58 2, ,21 Endowment funds 9 0, ,49 Individuals , ,71 Insurance companies 9 0, ,13 Investment companies 13 0, ,72 Medical aid scheme 1 0, ,01 Mutual funds 68 2, ,22 Nominees and trusts , ,84 Other corporations 24 0, ,73 Own holdings 2 0, ,69 Private companies 73 2, ,90 Public companies 5 0, ,81 Retirement funds 23 0, , , ,00 PUBLIC AND NON-PUBLIC SHAREHOLDERS Public shareholders , ,41 Non-public shareholders 31 1, ,59 Directors and associates of the Company 29 1, ,90 Treasury stock 2 0, , , ,00 Beneficial shareholders holding 5% or more Titan Shareholders ,82 Dorsland Diamante (Pty) Limited ,53 The Sherrell Family Trust , ,79 JSE LIMITED STATISTICS Ordinary shares Traded High (cents) Low (cents) Market price at year-end (cents)

48 46 Value added statement for the year ended 31 March 2012 Group R 000 % R 000 % Income from goods and services Less: Cost of goods and services ( ) ( ) Value added from trading operations Add: Dividends received on investments Add: Interest received from investments Total value added , ,00 Utilised as follows: Employees Salaries and benefits , ,0 Providers of capital , ,6 Interest on borrowings Dividends to shareholders Government company tax , ,5 Current Foreign Deferred (17 331) (7 817) Secondary tax on companies , ,1 Retained for reinvestment Depreciation and amortisation , ,0 Income retained in the business , , , ,9 Total utilisation of value added , , % 32% 24% 34% 2% 4% 37% 40% Employees Providers of capital Government Retained for reinvestment

49 47 Shareholders diary Financial year-end 31 March 2012 Declaration of final dividend 5 June 2012 Publication of financial results for the year 5 June 2012 Last day to trade CUM dividend 29 June 2012 Trading EX dividend commences 2 July 2012 Record date 6 July 2012 Dividends payable 9 July 2012 Integrated Annual Report posted to shareholders 30 June 2012 Annual general meeting 14 August 2012 Publication of interim results November 2012

50 48 Contents to the annual financial statements 49 Approval of the annual financial statements 49 Certification by the company secretary 50 Report of the independent auditors 51 Report of the directors 54 Audit Committee report 56 Statements of comprehensive income 57 Statements of financial position 58 Statements of changes in equity 59 Statements of cash flows 60 Notes to the annual financial statements