Integrated annual report. for the year ended 31 December

Transcription

1 Integrated annual report for the year ended 31 December

2 Welcome to our integrated annual report Contents 1 Overview 1 Our vision 1 Financial indicators 1 Subsidiary performance 2 Andulela at a glance 4 Our values and Group structure 5 Stakeholder engagement 6 Chairman and Chief Executive Officer s joint review 8 Operational overview 12 Board of Directors and Company Secretary 14 Corporate governance review 25 Social performance 30 Annual financial statements 83 Shareholder information 84 Notice of annual general meeting 91 Form of proxy 93 Notes to the form of proxy IBC Corporate directory Discover more about Andulela on our website About this report Limited ( Andulela or the Company or the Group ) is proud to present its sixth integrated annual report on its activities. This integrated annual report focuses increasingly on the aspects of the Group s business which are central to its sustained social, economic and environmental activities, together with a close examination of its business performance in relation to the risks that face the Company and the strategy it adopts to survive and grow.

3 Our vision Andulela seeks to enhance shareholder value by investing in diverse, complementary businesses in which it will have the ability to exert control or have significant influence. Operating profit/(loss)* : Loss 1,9 million 25,7 million p39 For more information (6,9) million p39 Loss before taxation* : Loss 29,1 million For more information Headline loss and diluted headline loss per ordinary share : Loss 17,63 cents Financial indicators (4,02) cents p71 For more information * Excluding impairment of goodwill. Subsidiary performance evenue million 1 068, , ,8 EBITDA million 28,9 27,1 59,5 Profit/(loss) before taxation million 18,6 Profit/(loss) after taxation million 13,4 26,7 47, (1,8) (0,8) 38,7 (11,9) 2014 (3,1) (8,4) (8,1) (10,5) 2014 (21,5) (6,8) (5,8) (13,8) (14,3) 2014 (15,4) Kilken Platinum Proprietary Limited. Pro oof Steel Merchants Proprietary Limited. Framework Framework, codes, guides Framework for the following sections Assurance providers IFS Companies Act of 2008 King Code on Corporate Governance Global reporting initiative JSE Listings equirements Annual financial statements Annual financial statements Social and ethics requirements Corporate governance Sustainable development information Full suite of reports and index BDO South Africa Incorporated BDO South Africa Incorporated Essentialia Advisory Services Mazars Advisory Services Java Capital 1

4 Andulela at a glance Company profile Andulela is a holding company listed in the Equity Investment Instruments sector of the Main Board of the JSE Limited ( JSE ). It has two trading subsidiaries: Kilken Platinum Proprietary Limited ( Kilken ), a low-cost producer and seller of platinum group metals ( PGMs ), mainly platinum, palladium, rhodium and gold, in which Andulela has an effective 83,59% interest; and Pro oof Steel Merchants Proprietary Limited ( PSM ) and its subsidiaries, a steel processor and merchant in South Africa, and a wholly owned subsidiary of the Company. Andulela s major shareholder is Newshelf 1005 Proprietary Limited ( Newshelf 1005 ) which has an 88,75% shareholding in the Company. Strategy Management s long-term strategy is to expand and diversify the Group s investment base while continuing to concentrate on cashgenerating companies with strong management and a high capacity for growth. Investing in diverse, though complementary, economic sectors is an important element in managing risk as well as in achieving consistent rates of return and growth over time. Andulela screens potential investment opportunities in order to select businesses that are primarily cash generative, with critical mass in terms of human capital and financial resources. These businesses generally have well-established track records in management and technical expertise, and are identified by their need for expansion, consolidation or growth capital. The Company will target investing in businesses where it will have the ability to exert control and strategic direction. The Company seeks to improve efficiencies through business rationalisation, reorganisation and focused capital expenditure. Directors and management Andulela benefits from a highly experienced management team and a Board of Directors comprising industry and business leaders as well as finance and legal professionals. The activities of the Board are conducted within a well-defined framework of ethical and effective corporate governance formulated around the principles enunciated in the King Code of Corporate Governance as well as relevant legislative enactments, as is more fully described below. The Board currently consists of six directors, of which four are independent, non-executive directors. Details of the directors are set out on pages 12 and 13 of the integrated annual report. 2

5 Financial performance Key financial indicators for the year under review are summarised below: evenue Operating profit/(loss)* (1 944) Profit/(loss) before tax* (6 881) (29 115) Profit/(loss) after tax* (6 032) (22 241) Other comprehensive income/(loss) Total comprehensive income/(loss) Profit/(loss) per share (cents) (63,12) (24,28) Headline profit/(loss) per share (cents) (4,02) (17,63) Capital expenditure Interest-bearing debt Net asset value Tangible net asset value Net asset value per share (cents) 389,13 431,66 Tangible net asset value per share (cents) 48,95 32,35 * Excluding the impairment of goodwill of 62,0 million in. The improved operating results are mainly due to the PSM group increasing revenue and improving profitability from to. PSM reported an after-tax profit of 13,4 million for compared to an after-tax loss of 14,3 million for. Kilken, however, struggled and increased its loss from 5,8 million in to 15,4 million in. Capital expenditure of 32,9 million during the current financial year at PSM contributed to the increase in interest-bearing debt. PSM s debt increased to 229,1 million in from 136,6 million in, while Kilken reduced its exposure to Absa from 139,8 million in to 94,9 million in. Cash flow has been tight at Kilken during the year under review due to the production problems experienced at the plant, which were addressed during the last quarter of the year and production levels are now back to previous levels. 3

6 Our values and Group structure As we pursue long-term value for our stakeholders, we look for ways to enhance the resources and relationships that contribute to our competitive strengths, we monitor conditions that might affect our performance and we ensure that our choices align with our core values. Business focus Competitive strengths Newshelf 1005 Controlling shareholder Core values Governance and compliance 88,75% Increased shareholder value Andulela Investment Holdings Listed investment holding company 83,59% 100% Kilken Platinum* PSM 70% Key relationships Kilken Imbani JV Customer satisfaction Performance Profitable growth opportunities * Through Andulela s wholly owned subsidiaries, Abalengani Mining Investment Proprietary Limited and JB Platinum Holdings Proprietary Limited. Competitive strengths Governance and compliance Profitable growth opportunities Key relationships Ability to improve efficiencies in Group companies to enhance revenues and profitability. Continued compliance with the regulatory and governance framework within which the Group operates. Industry-focused acquisition opportunities where the Group can unlock value for all stakeholders. Suppliers Customers Workforce Local communities Government egulators 4

7 Stakeholder engagement Stakeholder Expectations Actions Suppliers Customers Workforce Media Shareholders and investors Decision-makers Quality of products and services sourced from suppliers On-time delivery egular communications and response redevelopments in their markets High-quality, reliable and responsible products and services Understanding customer needs, customer service relations management Good leadership, management and supervision Motivating remuneration; opportunities for training and personal development Equality and openness within the organisation Occupational safety, well-being and a good working environment eliable and up-to-date information about the Company s operations An open communications culture Sufficient return on investment An appropriate analysis of the Company s risk management Open and timely information about the Company s financial position and outlook Compliance with laws and regulations Transparency and minimising hazardous impacts egular reporting Payment of taxes Current information about developments within the industry egular meetings and interactions with the key suppliers eview of industry publications and reports egular interactions with key customers eview and audit of working conditions Implementation of policies and procedures where required Bi-annual publication of financial results and comments Bi-annual publication of financial results egular engagement with key shareholders egular review of regulatory requirements and compliance Annual reporting to stakeholders 5

8 A Kaka Chief Executive Officer MJ Husain Chairman & Chairman Chief Executive Officer s joint review Trading conditions continued to be tough during the past financial year, with political and other events contributing to increased uncertainty about the future direction of the country. The net result of the above was continued volatility in currency and commodity prices, affecting the trading results of the Group negatively. 6

9 Business overview The South African economy experienced various political and economic challenges during the year, with high volatility in commodity prices and currencies, cheap imports and dumping of products by major international players negatively affecting the operations of local businesses. Various requests have been made to the South African Government to implement tariff protections and import duties on cheap imports to support local operations and minimise job losses, and some relief came through during the last quarter of for the steel industry. South Africa managed to avert a downgrading of its credit rating to junk status during the year, but the risks in the system still remain high and may lead to a downgrade in 2017, with a resultant negative impact on the local economy. The current uncertain political climate in South Africa also contributed to negative sentiment towards the country with foreign investors withdrawing funds at an increasing rate, as evidenced by the sale of shares on the JSE by these investors. PSM produced good results during the year with increased revenue and a profit after tax of 13,4 million, compared to a loss after tax of 14,3 million in. These results were achieved through increased customer growth and better margins. Kilken, however, reported its worst results with revenue down by 9,0 million and the loss after tax increasing by 10,0 million from to as the company struggled with production problems, increased chrome penalties and increased cash flow hedge payments. Management at the plant was changed in August and improved production results have been achieved since then, which bodes well for improved results in The Group increased revenue from 1,1 billion in to 1,3 billion in. PSM experienced a solid performance for the first six months of with revenue increasing by 23% over the comparable period in, but the second six months saw a contraction of the market as prices came under pressure again. Sales to customers in southern Africa (excluding South Africa) now contribute 11% of the revenue of PSM (: 15%). Andulela posted a consolidated total comprehensive profit for the year ended 31 December of 15,6 million (excluding the impairment of goodwill) compared to 6,1 million reported for the year ended 31 December, after taking the revaluation of the cash flow hedge through other comprehensive income into account. Excluding the effect of the revaluation of the cash flow hedge from the results, the loss after tax improved from 22,2 million in to 6,0 million for. Cash flow from operating activities reflected an outflow of 12,3 million for compared to 4,0 million in. Further capital expenditure of 32,9 million was incurred during the year to replace assets at the respective Group companies as part of the Group s continued strategy to improve efficiencies, lower the costs of production and to improve profitability in the tough market environment. Banking and debt facilities were restructured during the year with the Group s financiers and the preference shareholders in Andulela. The 2017 financial year is once again expected to be a challenging year for business in South Africa, and the operations of the Group will continue to focus on improving efficiencies and reducing costs where possible. We expect improved results from Kilken as the production issues have been addressed and plans are being implemented to deal with the high chrome penalties, while PSM continues with its efforts to grow its revenue and profitability through the introduction of new customers and the upgrade of its plant to replace old, inefficient machinery. Corporate governance The Group continued to improve on its corporate governance compliance during the year under review, with the information technology environment at Andulela and Kilken having been upgraded to a cloud-based platform. The focus for 2017 will be to upgrade and improve the information technology environment at PSM. Corporate governance compliance of the Group is reviewed by the internal auditors on an annual basis and a summary of the Group s compliance is contained in the relevant sections of the integrated annual report. Board We thank our colleagues on the Board as well as executive and senior managers for their hard work and positive contributions to the overall sustainability of the Group. Mohamed J Husain Independent Non-executive Chairman Ashruf Kaka Chief Executive Officer 24 March

10 Operational overview Kilken Platinum Shareholding structure 100% 100% AMI JBPH Management 49,63% 33,96% 16,41% Kilken Imbani AMI Abalengani Mining Investment Proprietary Limited JBPH JB Platinum Holdings Proprietary Limited 70% 30% Imbani Imbani Minerals Proprietary Limited Kinlela 100% Kilken Imbani JV Kinlela Kinlela Proprietary Limited Operations Kilken Imbani JV is a joint operation between Kilken Platinum ( Kilken ) and Imbani Minerals, in terms of which the parties have joint management control which requires unanimous consent from both parties, even though Kilken has a 70% equity interest and Imbani Minerals a 30% equity interest. Kilken accounts for its interest in Kilken Imbani JV as a joint operation and therefore recognising its share of the assets, liabilities, revenue, income and expenses. Kilken Imbani JV is a low-cost producer and seller of platinum group metals ( PGMs ), mainly platinum, palladium, rhodium and gold, which are recovered by reprocessing tailings concentrate from ustenburg Platinum Mines Limited ( PM ) at its Amandelbult plant in Limpopo. Platinum, palladium and rhodium contribute about 98% to the PGMs extracted from the tailings. Kilken Imbani JV conducts the metallurgical processing business in terms of a Sale of Tailings and Concentrate ( STC ) agreement with PM. This agreement provides for Kilken Imbani JV to purchase tailings from PM, reprocess the tailings on premises leased from PM, and to sell the recovered PGMs back to PM at market-related prices. The STC agreement will continue for as long as PM produces tailings from the Amandelbult mine. Key risks (Kilken and Kilken Imbani JV) The key risks can be summarised as follows: Single supplier of tailings for the re-treatment plant; Single customer for the PGMs recovered from the tailings; Exposure to commodity price fluctuations of the PGMs; Exposure to currency fluctuations of the and against the US Dollar; Inefficiencies in the extraction process of the PGMs; Poor quality of the tailings received from the supplier; Dependence on key personnel; Unplanned downtime due to, inter alia, industry labour actions, power outages and interruptions in the tailings feed; and Interest rate exposure through its funding facilities with Absa Bank. Market overview Kilken Imbani JV sells all the PGMs it extracts from the retreated tailings back to PM at market-related and prices. The price is based on the publicly quoted US Dollar commodity prices for the four components of the PGMs, and the and/ Dollar exchange rate. 8

11 The average movements in the major commodity prices and the exchange rate with their relative contributions to the PGM basket of elements, produced over the 12 months to December, were as follows: % increase/(decrease) % of PGM production Commodity pricing Platinum (9,5) (29,3) 59,3 56,0 Palladium (15,9) (31,5) 28,6 30,6 hodium (32,4) (43,1) 10,9 12,1 Gold 6,0 (11,0) 1,2 1,3 ZA/USD exchange rate (18,7)* (30,4)* * Average currency realised over the year weakened against the US Dollar, although the and strengthened against the US Dollar towards the end of the current financial year. The statistics in the table above highlight the continued tough environment within which the platinum industry operated during the past year, with significant decreases in commodity prices from due to weak international economic activities. The movements in commodity prices and currency do, however, provide a partial natural hedge for local producers through the inverse relationship between these elements resulting in a fairly stable and value per ounce of PGMs compared to the US Dollar value per ounce. The and continued to strengthen against the US Dollar as international markets continued to assess the potential impact of the newly elected president of the United States of America, but current negative sentiment towards South Africa and uncertainty around the country s political environment and investment rating being under threat of a downgrade, could have a significant negative effect on the value of the and in the near future. Operational performance The financial year s results were affected by, inter alia, production problems at the plant, higher chrome content in the tailings and increased costs. Production levels were significantly lower than normal in the first eight months of the year as management struggled with production problems. Significant improvements in production levels were achieved from September onwards, with PGM output back to or exceeding previous normal output levels, following the change in management at the plant in August. Kilken s revenue (after the effects of the cash flow hedge) decreased from 47,7 million in to 38,7 million in, with the cash flow hedge reducing revenue by 16,9 million (: 12,1 million). The loss before interest worsened from 4,2 million in to 15,4 million in, mainly due to the decrease in revenue and an increase in cost of sales from, inter alia, the higher chrome content and increased penalties as a result thereof. Operating costs decreased from 18,2 million in to 16,4 million. The net loss after tax increased from 5,8 million in to 15,4 million in as a result of the abovementioned factors. The cash flow hedge the company entered into in 2012 to provide security to Absa for the loan extended to the company, has another 21 months to run until September During the current financial year revenue was reduced by 16,9 million (: 12,1 million) and a liability of 20,9 million (:50,9 million) is reflected on the statement of financial position of the Group. The cash flow hedge reserve was reduced by 21,6 million (: 28,3 million) after tax as a result of the decrease in the and value of the commodities and the reduced quantities that are still subject to the cash flow hedge. The company reduced its exposure to Absa from 139,7 million in to 94,9 million by 31 December. The loan facilities with Absa have furthermore been restructured as term loans with final settlement dates of December 2017 and June 2018, details of which are set out in the annual financial statements of the Group. Prospects The operations of Kilken are directly linked to the operations of PM and its Amandelbult plant and are therefore dependent on the rate of mining and processing by the mine. Commodity prices, especially platinum and gold, improved after year-end, while the and remains volatile against major currencies, which impacts the results of the company but management monitors this constantly. The company improved production levels during the last quarter of the year, and this trend continued into the 2017 financial year. The company continues to manage its costs and cash flows tightly and expects improved results for the 2017 financial year. The financial information on which the prospects are based has not been reviewed or reported on by the Company s auditors. 9

12 Operational overview continued Pro oof Steel Merchants Shareholding and operational structure 100% PSM Pretoria Cape Town Vereeniging Steel Structures eflects the main divisional operating units and locations. Operations Pro oof Steel Merchants ( PSM ) processes and distributes steel products in southern Africa. Its main processing plant is in Vereeniging, with further processing plants in Cape Town and Pretoria. PSM s product range consists of the most commonly used steel products, including welded universal columns or beams and T-beams; a range of roofing solutions (corrugated, inverted box rib, and wide-span); fencing and wire products; tubing and cold formed flat and long products; and valueadded services (slitting, cut-to-length, blanking, de- and recoiling, guillotining and tube sawing). Its customer base is predominantly wholesale, which contributes about 50% to its annual revenue, with retail contributing around 36%, and finally the construction and manufacturing customers contributing the balance of its annual revenue. PSM exports around 11% of its annual sales to southern African countries, but all sales are anddenominated with the customer carrying the currency risk. Key risks PSM s key risks can be summarised as follows: Exposure to steel price fluctuations; Exposure to currency fluctuations when raw materials and plant and machinery are imported; Thin margins on product range; Highly competitive market; Limited suppliers of raw materials in South Africa; Ageing plant and machinery; High capital investment requirements; and Interest rate exposure. Market overview Continued overcapacity in the Chinese steel market and low steel prices continued to affect the global steel market negatively during the year, and expectations are that this will not improve in the 2017 year. 10

13 PSM tube line. The local market remained under pressure during the year under review with an oversupply of steel products, especially from China. Import levies and other protection mechanisms have been implemented by the Government in South Africa in an effort to protect the local market against the dumping of these cheaper products. The main local producer implemented regular price increases during the first half of the year. These price increases, however, resulted in overstocking of raw materials as customers bought bulk in anticipation of further price increases. The second half of the year saw a marked decrease in sales due to the overstocking referred to above and the fact that no further price increases materialised during this period. Operational performance The financial year was a year of two halves for PSM, with revenue increasing by 22,6% during the first six months over the comparable period in, while revenue for the second six-month period showed no increase over revenue of the same period in. Total revenue growth for the year under review amounted to 14,2% year on year, from 1,1 billion in to 1,2 billion in, with volume sales marginally up from the year. The company furthermore managed to improve its gross profit margin from 14,5% in to 16,5% and together with the continued focus on cost management, produced a profit after tax for the year. Earnings before interest for the year improved to 43,2 million compared to 11,1 million in. The improvement in earnings before interest is attributable to, inter alia, increased revenue and improved gross profit margins, as well as continued improvements in production efficiencies following the acquisition of plant and machinery as part of the programme to replace older plants. The net profit after tax improved from a loss of 14,3 million in to a profit of 13,4 million in. The PSM group s interest expense for increased to 25,6 million compared to 22,3 million for due to increased interest-bearing debt levels during the year. Capital expenditure of 32,9 million was incurred during to replace old plant and equipment with newer technology, which contributed to reduced production costs and improved profitability. Prospects Trading conditions are expected to remain tough in The continued focus on cost management, plant upgrade and new customers and product ranges drives management s strategy to increase revenue and profitability. The financial information on which the prospects are based has not been reviewed or reported on by the Company s auditors. 11

14 Board of Directors and Company Secretary Henk Engelbrecht (52) CA(SA) Chief Financial Officer Appointed on 1 October Mohamed J Husain (56) BProc Independent Non-executive Chairman of the Board Appointed on 26 February 2010 Brian W Smith (67) CA(SA) Independent Non-executive Director (Chairman of the Audit, isk and Compliance Committee, and emuneration Committee) Appointed on 1 October 2014 Gillian H Miller (39) CIS (Associate), CIBM Member of IoDSA, CIBM, IIA, CISA and Company Secretary Appointed on 8 March Pieter E du Preez (59) BComm Accounting; MBL Independent Non-executive Director (Chairman of the Social and Ethics Committee) Appointed on 1 October 2011 Ashruf Kaka (55) BA; LLB Chief Executive Officer Appointed on 26 February 2010 Naeem MS Hadjee (43) CA(SA) Independent Non-executive Director Appointed on 1 July

15 Mohamed J Husain Chairman of the Board Mohamed has been an attorney for approximately 31 years. During this time he has represented a diverse range of clients in commercial and corporate litigation, insolvency law and administrative law. He is a former president and current member of the executive committee of the Commonwealth Lawyers Association. Mohamed was an adviser to the Constitutional Assembly on the drafting of the final new constitution of South Africa and has also acted as a judge of the High Court. He is also a past president of the Law Society of the Northern Provinces, previous chairman of the Attorneys Indemnity Insurance Fund and past president of the International Commonwealth Lawyers Association. Mohamed is a non-executive director on the boards of the Barclays Africa Group and Absa Bank, and serves on a number of Barclays Africa Group board committees. Ashruf Kaka Chief Executive Officer Ashruf has been an attorney for approximately 26 years with BA and LLB degrees from the University of the Witwatersrand, having specialised in commercial transactions and, in part, mergers and acquisitions. Ashruf has held executive management positions since 2006, particularly in the platinum and chrome beneficiation operations with concentration in mining technologies related to beneficiation. Following the acquisition by Newshelf 1005 Proprietary Limited of the majority shareholding in Andulela, he was appointed as Chief Executive Officer in February Henk Engelbrecht Chief Financial Officer Henk qualified as a chartered accountant in 1988 and completed his articles with KPMG where he rose to group manager before he left in 1991 to pursue a career in corporate finance and investment banking over the next 20 years with Absa Merchant Bank, Grindrod Bank and Vunani Limited. Henk gained valuable experience during this time through his interactions with the executive management and boards of directors of clients, most of which were listed on the JSE. Since 2011 Henk held positions as Chief Financial Officer of a number of listed companies before he joined Andulela in October. Henk is a member of the Institute of Directors. Pieter E du Preez Independent Non-executive Director Chairman of the Social and Ethics Committee Pieter has been employed in the mining industry since 1984 and has held various senior management positions with JCI Limited and Anglo Platinum. Naeem MS Hadjee Independent Non-executive Director Naeem served his articles at Karolia Jeena Inc. between 1997 and 2000 whereafter he qualified as a chartered accountant. He then moved on to Transnet Group Audit Services where he was assigned to the internal audit team, and thereafter he was appointed as the Financial Manager of Africa Cash and Carry Proprietary Limited. Prior to rejoining Karolia Jeena Inc. in 2006 as a director and partner, Naeem also worked as a specialist tax auditor for SAS s National Enforcement Unit. Currently Naeem specialises in tax matters as well as in external auditing. Brian W Smith Independent Non-executive Director Chairman of the Audit, isk and Compliance Committee as well as the emuneration Committee Brian has 44 years auditing experience and was lead client service partner with Deloitte on major listed local and international clients where he reported to the group audit committees before his retirement in Among his larger clients were CG Smith, Samancor, Invicta Holdings, Imperial Holdings, Kumba esources, Exxaro esources, Kumba Iron Ore and Coal of Africa. Brian has considerable experience in corporate actions such as unbundlings and take-overs. Brian is presently on the board of a bank as chairman of its Audit Committee and a member of its isk Committee. Furthermore he serves as a member of the Audit Committee of the Chartered Accountants Medical Aid Fund and is a member of the Group Audit Committee of the City of Johannesburg. He is a past chairman of the Investigation Committee of the Independent egulatory Board for Auditors. Gillian H Miller Company Secretary Gillian worked for KPMG as a Senior Governance Consultant completing reviews on private and public sector companies. She was responsible for the successful publication of KPMG s Third Edition of the Toolkit for the Company Director. She is an associate member of the South African Institute of Chartered Secretaries and Administrators, a full member of the Institute of Internal Auditors and a member of the Institute of Directors. Gillian currently serves as the interim Chief Executive Officer of Buildmax Limited. Pieter was involved in the gold, coal and corporate divisions of JCI until 1997 and thereafter in strategy, planning, corporate finance and business development with Anglo Platinum until Pieter s responsibilities included, inter alia, the assessment of business opportunities, the structure, negotiation and implementation of various transactions, including the management of numerous local and international joint ventures. 13

16 Corporate governance review The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society. (Sir Adrian Cadbury, UK, Commission eport: Corporate Governance 1992) Board of Directors Company Secretary Audit, isk and Compliance Social and Ethics emuneration and Nomination Companies Act Meeting management and minutes JSE Listings equirements Annual returns Corporate governance monitoring Liaison with CIPC External audit Internal audit isk management Corporate governance Financial statements Integrated annual report Finance function Social and economic development Corporate citizenship Environment, health and safety Consumer relationships Labour and employment Appointment policy emuneration policy Company Secretary Sponsors Chief Financial Officer Audit, isk and Compliance Committee External auditors Internal auditors Chief Financial Officer SEC Committee External assurance providers Compliance officers emuneration and Nomination Committee IoD Guidelines emuneration surveys Industry benchmarking 14

17 Strategy and profile Andulela s annual corporate governance review forms part of the integrated annual report, this is in line with the King Code and eport on Corporate Governance for South Africa ( Code ), which calls for greater integration of environmental, social and governance considerations into financial management and reporting. The corporate governance review covers Andulela s policies, practices and performances relating to its activities in those areas for the financial year ended 31 December. The information in the review covers topics and indicators that reflect Andulela s significant economic, environmental and social impacts or that may substantively influence the assessment and decisions of stakeholders. The review is focused on the Company s major stakeholders, being shareholders, employees, agents, suppliers, financiers and clients. Corporate governance review The Board is committed to the continued application and implementation of good corporate governance within the Group and endorses the principles of openness, integrity, accountability and transparency. The Board has adopted and applied the Code of Corporate Practices and Conduct as set out in the Code. The Board is of the opinion that the Group currently complies with the specific requirements set out in the JSE Limited Listings equirements and, except where indicated otherwise in the sections below, the principles as set out in the Code. In doing so, the Board recognises the need to manage the business with integrity in accordance with generally acceptable corporate policies. This includes timely, relevant and meaningful reporting to its shareholders and other stakeholders, and providing a proper and objective perspective of Andulela. The Board has accordingly established mechanisms and policies appropriate to the Group s business in keeping with its commitment to the best practices in corporate governance in order to ensure compliance with the Code. The Board reviews these from time to time. The Board is supported by the following committees, each in terms of their respective terms of reference approved by the Board: The Social and Ethics Committee; The Audit, isk and Compliance Committee; and The emuneration and Nomination Committee. The Code checklist The Company summarised the status of the principles of the Code as follows: Description Application rating 1. Board composition 2. emuneration 3. Governance office bearers 3.1 Chairman 3.2 CEO 3.3 Company Secretary 4. Board role and duties 4.1 Focal point of corporate governance Fiduciary duties Strategy Ethical leadership 4.2 Corporate citizenship and leadership isk Information technology governance Compliance Internal audit Business rescue 5. Accountability 5.1 Stakeholder relations 5.2 Integrated reporting and disclosure 6. Performance assessment 7. Board committees 7.1 Audit, isk and Compliance Committee 7.2 emuneration and Nomination Committee 7.3 Social and Ethics Committee 8. Group boards atings key x Applied Partially applied Not applied eference Par

18 Corporate governance review continued Additional information is provided on all scores indicated as Partially applied in the table on page 15. The details of the checklist are available on the Company s website at 1. Board role and duties 1.1 Information technology governance The Code requires the following assurances from the Board: That an Information Security Management System is developed, recorded and implemented; and That the Information Security Management System ensures security, confidentiality, integrity and availability of information. During the year under review the Group upgraded its information technology ( IT ) systems and structures at its Andulela and Kilken offices. The servers were upgraded, data was moved onto a cloud-based system, and policies and procedures were finalised to manage the access to and usage of information by authorised staff only. An updated IT policy was also approved by the Board during the year. Group management will focus on the IT systems of PSM in 2017 to implement its policies and procedures to the extent that they are not adequate, and to upgrade the systems of the PSM group. The Board of Directors The Board Charter has been drafted subject to the provisions of the Companies Act, the Company s Memorandum of Incorporation and the JSE Listings equirements. The Board comprises six directors, of which four are independent non-executive directors. The Chairman of the Board is an independent non-executive director. The Chief Executive Officer and the Chief Financial Officer are the executive members of the Board. Details of the directors are set out on pages 12 and 13 of the integrated annual report. The role and responsibilities of the Board are regulated in a formal Board Charter which defines matters reserved for Board approval. The Board is required to review its operations annually against this framework and to ensure that there is a clear balance of power so that no one director has unfettered power of decision-making. Board resolutions require a clear majority of directors voting in favour of the resolutions and the Chairman does not have a casting vote in the event of a tied vote. The quorum for Board meetings is a majority of the directors, which is four, but full attendance is expected because the meetings have been planned well in advance. The Board meets at least four times a year and additional meetings are held when necessary. In assuming ultimate responsibility for effective control and leadership of the Group, the Board takes responsibility for the following: Ensuring that the Board s composition incorporates the necessary skills and experience; Appointment of directors; Electing the Chairman on an annual basis; Annual assessment of the performance of the nonexecutive directors; Annual assessment of the performance of the executive directors; Giving direction on all strategic matters and annually approving the Group business plan and budgets; Monitoring the implementation of the business plan by management; Compliance with all relevant laws, regulations and codes of business practice; Definitions of levels of materiality, reserving specific powers to itself and delegating other matters to executive management in terms of an approved authority framework; eviewing performance of the various Board committees established to assist the Board in the discharge of its duties on an annual basis; Monitoring key risk and performance areas of the Group and identifying non-financial issues relevant to the Group; Determining the policies applied to ensure the integrity of: risk management and internal controls; director selection, appointment, orientation and evaluation; executive management and prescribed officers remuneration; external and internal communications; and ensuring there is appropriate succession planning at senior management level; and At least twice a year, considering the going-concern status of the Group. 16

19 Directors are appointed through a formal process in which the emuneration and Nomination Committee assists by identifying suitable candidates to be proposed to the Board. The professional development programme includes membership of the Institute of Directors of South Africa to ensure that directors are regularly briefed on changes in risks, laws and the environment. The Board ensures that the Company has an effective and independent Audit, isk and Compliance Committee but still bears the ultimate responsibility for managing risk. It is also responsible for the management and governance of information technology within the Group. Directors are required to disclose all their directorships held to the Board as well as real or perceived conflicts of interest and to deal with them accordingly. They are also required to deal in the Company s securities only in accordance with the policy adopted by the Board. Accordingly directors and prescribed officers are prohibited and employees are discouraged from dealing in the Company s securities during closed periods in terms of the JSE Listings equirements. The Board is supplied with all relevant information and has unrestricted access to all Group information, records, documents and property, which enables directors to adequately discharge their responsibilities. Information needs are well defined and directors have full access to management and the Company Secretary. At each annual general meeting at least one-third of the non-executive directors retire by rotation from the Board. These retiring directors may make themselves available for re-election, if eligible. Individual directors may take independent advice in connection with their duties following an agreed procedure. The Board as a whole appoints a Chief Executive Officer and annually evaluates his performance. The Board Charter, which was adopted and approved by the Board, also covers the exercise of the rights of the Board to delegate certain of its responsibilities to formally established committees and deals with procedural details relating to meetings. The Group supports the principles and aims of gender diversity at Board level and has approved a gender diversity policy in line with the JSE Listings equirements. Directors attendance at Board and committee meetings for the year under review was as follows: Director Board Audit, isk and Compliance emuneration and Nomination Social and Ethics Number of meetings held during the period under review Mohamed Husain (Independent Non-executive Chairman) 5 4 # 2 NA Ashruf Kaka (Chief Executive Officer) 5 4 # 2 # 4 Henk Engelbrecht (Chief Financial Officer) 5 4 # 2 # 4 Brian Smith (Independent Non-executive Director) NA Pieter du Preez (Independent Non-executive Director) Naeem Hadjee (Independent Non-executive Director) 5 4 NA NA # As invitee. 17

20 Corporate governance review continued Our risk assessment structure Communication and consultation Establishing the context isk assessment isk identification isk analysis isk evaluation isk treatment Monitoring and review 18

21 Company Secretary The Company Secretary is appointed by the Board based on a review of qualifications and experience. The Company Secretary is required to be a member of the Institute of Chartered Secretaries of Southern Africa. The Company Secretary, Ms Gillian Miller, is not a director of Andulela or any of its subsidiaries; The Company Secretary is an independent consultant that is in the business of providing company secretarial services on an outsourced basis to several entities; and There are no interests or relationships present between Andulela and the Company Secretary (including its directors, shareholders and staff members) that may affect the arm s-length nature of the relationship between the Company and the Company Secretary. The Company Secretary is required to inter alia: Provide the directors of the Company, collectively and individually, with detailed guidance as to their duties, responsibilities and powers; Ensure that the directors are aware of all laws, legislation, regulations and matters of ethics and good governance relevant to or affecting the Company; Ensure that minutes of all shareholders meetings, directors meetings and meetings of the various subcommittees of the Board of Directors are properly recorded in accordance with the Companies Act; and These minutes are circulated to all members of the Board. The Board of Directors has considered and satisfied itself with regard to the competence, qualifications and experience of the Company Secretary. Audit, isk and Compliance Committee The Audit, isk and Compliance Committee and its Chairman are appointed by the shareholders at the annual general meeting from amongst the independent non-executive directors. The committee consists of three members. This committee assists the Board in discharging its fiduciary duties relating to: Ensuring compliance with applicable legislation and the requirements of regulatory authorities; Matters relating to financial and internal control, accounting policies, financial and integrated reporting and disclosure; External audit, including: recommending the appointment of the external auditors to the shareholders for their approval; review and approval of external audit plans, findings, reports and fees; and the setting of principles for the use of external auditors for non-audit services; and Internal audit, including: appointment and remuneration of the internal audit service provider; approval of the internal audit charter; review and approval of internal audit plans, findings, reports and fees; compliance with the Code of Corporate Practices and Conduct; compliance with the Group s Code of Ethics; and review of the risk profile and risk management of the Group. The committee reviews the work of the external auditors with regard to the adequacy and effectiveness of the Group s financial, operating, compliance and risk management controls in conjunction with the review of the scope of work and feedback reports of the internal audit service provider. It makes recommendations to the Board, and ultimately the shareholders, on the appointment, reappointment or removal of the external auditors by the shareholders at the annual general meeting of the Company, ensuring that their recommendation complies with the Companies Act, the Auditing Professions Act of 2005 and the JSE Listings equirements. It is required to review and monitor the independence and objectivity of the external auditors, together with the effectiveness of the audit process in relation to relevant professional and regulatory requirements. The committee deals with the appointment of the internal auditors and has appointed an internal audit service provider for the internal audit function. The internal audit service provider reports administratively to the Chief Executive Officer or his nominee and reports functionally to the Audit, isk and Compliance Committee. The committee monitors and reviews the annual internal audit plan, ensuring that material risk areas are included and that the coverage of business processes is acceptable, and to ensure co-ordination and co-operation between Internal Audit and the risk management and compliance functions. The independent internal audit service provider is subject to an annual performance appraisal to monitor the effectiveness of the function. The internal audit service provider has unlimited access to all officers of the Company, including the Chairmen of the Board, the Audit, isk and Compliance Committee, and the Chief Executive Officers of the respective Group companies. 19

22 Corporate governance review continued The internal audit service provider may request the Chief Executive Officers of the Group companies to attend meetings of the Executive Committee or other committees made up of a majority of senior executives, but is not a member of these committees in order to protect independence. Mazars Advisory Services Proprietary Limited was appointed as internal audit service provider with effect from 1 December 2013 and their internal audit division brings with it a wealth of experience and technical know-how that will augment the Company s commitment to efficient, risk-based internal control and risk management. The following persons served as members of the Audit, isk and Compliance Committee during the year under review: Audit, isk and Compliance Committee Name Date appointed Brian Smith (Chairman) 1 October 2014 Pieter du Preez 15 November 2011 Naeem Hadjee 1 July 2014 The duties and responsibilities of the committee in relation to the exercise of its functions in the risk management function have been detailed in the section of this report relating to risk. The committee has considered and satisfied itself of the appropriateness of the expertise and experience of the Chief Financial Officer and the finance function of the Group. isk management isk management is fundamental to the continued success of the business and plays a crucial role in enabling management to operate more effectively in a constantly changing environment. It has become one of the Group s core capabilities and is integral to evaluating strategic alternatives and setting objectives, all within a risk management framework that ensures alignment with the Group s risk appetite and overall strategy. The approach followed by the Group is to ensure that all significant risks are identified and managed. The Board has oversight of the key risks within the Group at a strategic level and, through the Audit, isk and Compliance Committee, performs a regular review of the risk process. Through this process, the Board sets the levels of risk tolerance, which is reviewed annually. The risk management framework of the Group is shown on page 18. The Audit, isk and Compliance Committee is charged with the responsibility to review and debate Group risk management and compliance initiatives planned for the year, and to monitor the manner in which management identifies and monitors the risk and control infrastructure of the Group, with particular reference to its adequacy, intent and effectiveness. The Audit, isk and Compliance Committee s terms of reference require regular review of the Company s risk management systems and internal financial controls. It requires and receives regular assurance reports from management, the internal and external auditors and others concerning the operational effectiveness of matters related to risk and control. Internal Audit reviews and reports to the Board on the effectiveness of any corrective action that may have been taken by management and generally ensures that the principles of the Code in respect of risk management are being embedded within the Group in principle and in practice. The committee also requires periodic reports on the prevention, detection and investigation of fraudulent activity or misconduct within the Group. This area includes appropriate measures to facilitate whistle-blowing by staff, or other appropriate alternatives, and checks on follow-up action. The Audit, isk and Compliance Committee has satisfied itself of the effectiveness of the Company s risk management processes. The key risks of the subsidiaries of Andulela have been dealt with in the operational overview section of this integrated annual report. emuneration and Nomination Committee The role of the committee is to assist the Board to ensure that the Group remunerates directors, executives and prescribed officers fairly and responsibly and that the Board has the appropriate composition for it to execute its duties effectively. It ensures that directors are appointed through a formal process and that they receive regular updates on regulatory and other matters pertaining to the Group. The terms of reference provide that the independent nonexecutive Chairman of the Board will be a member of the emuneration and Nomination Committee but not the Chairman of the remuneration function of the committee. It comprises two additional independent non-executive directors. Since the emuneration and Nomination Committee is combined, the individual components are deliberated on separately and under the guidance of the appropriate Chairman. 20

23 emuneration and Nomination Committee Name Brian Smith (Chairman emuneration) Mohamed Husain (Chairman Nomination) Date appointed 1 October December 2011 Pieter du Preez 18 March 2013 In carrying out its mandate, the committee oversees the establishment of a remuneration policy that will promote the achievement of Group strategic objectives and encourage individual performance whilst ensuring that all benefits and other financial arrangements are justified and correctly valued. In exercising its nomination mandate, the committee oversees a formal process for the appointment of directors, including the identification of potential suitable members of the Board and the performance of reference and background checks on candidates before they are nominated. Where necessary, the committee oversees the development of a formal induction programme for new directors, sees that inexperienced directors are developed through a mentorship programme and oversees the implementation of continuing professional development programmes for directors, ensuring that they receive regular briefings on changes in risks, laws and the environment in which the Group operates. emuneration report The role of the emuneration Committee is to ensure that directors and executives are remunerated fairly and responsibly and that the disclosure of directors and prescribed officers remuneration is accurate, complete and transparent. The terms of reference for the emuneration Committee include the following: Overseeing the setting and administering of remuneration of all directors, senior management and prescribed officers; Overseeing the establishment of a remuneration policy; Setting the remuneration of non-executive directors; Ensuring that the mix of fixed and variable pay, in cash, shares or other elements of the executive directors and prescribed officers, meets the Group s needs and strategic objectives; and Overseeing the preparation of and recommending the remuneration report included in the integrated annual report, to the Board. emuneration policy In remunerating executive directors, senior management and prescribed officers, the Group aims to attract, motivate and retain competent and committed leaders in its drive to create sustainable shareholder value. The remuneration policy strives to meet this objective. Accordingly, the focus is not primarily on guaranteed annual remuneration, but on individual incentive plans linked to creating shareholder value as well as the level of achievement of personal objectives. Andulela usually structures packages on a total cost-tocompany basis. In addition, most executives qualify for individual and/or team short-term performance incentives. emuneration packages are reviewed annually and are monitored and compared with reported figures for similar positions in the latest available published industry remuneration surveys from reputable sources to ensure they are fair and market-related. In some cases independent consultants provide benchmarks. Any proposed directors fees and remuneration above the median of the benchmark studies used for setting the remuneration levels are carefully considered and justified per individual director, taking account of the individual s experience, portfolio and workload, as well as their anticipated contributions to the Group and the Board. The committee sets clear guidelines, measurable performance criteria and details of limits for participation in the future short-term and long-term incentive schemes which are being considered. The Group currently does not have a long-term share-based incentive bonus scheme in place, but will consider such a scheme in the future. The Board proposed to shareholders, and received a nonbinding approval of the Company s remuneration policy at the annual general meeting on 13 May. The payment of non-executive directors fees will be made monthly in arrears, calculated as an average monthly equivalent of the total annual fees the respective directors will receive during the course of the financial year; and Should the Chairman or committee Chairpersons deem it appropriate to adjust any non-executive director s fees due to non-attendance of meetings or for attendance of adhoc meetings, such adjustment will be made in December of every year to the particular director s remuneration. The committee is satisfied that it has carried out its responsibilities for the period in compliance with its terms of reference. 21

24 Corporate governance review continued Executive directors, senior management and prescribed officers These employees are rewarded by means of a two-tier approach, which entails: Fixed pay This element, consisting of components such as remuneration and other benefits such as a car allowance, is the total guaranteed package of these employees. As part of the annual review process by the emuneration Committee, guaranteed packages are benchmarked against the middle to upper quartile of the market for comparable companies as indicated in independent surveys. The services of independent remuneration consultants may be contracted from time to time for this purpose. The annual review is based on the executive s level of responsibility, overall performance and the achievement of specific agreed objectives. The average salary increase for executive directors and general staff was 7% (: 0%) with effect from 1 January Variable pay The executive directors and prescribed officers remuneration is structured to ensure that a portion of their package is linked to performance and achievement of sustainable targets through short-term incentives. Senior management are also remunerated for performance of the respective subsidiaries for which they are responsible. This remuneration is in the form of a performance bonus linked to the achievement of predetermined performance measures, which include achieving and exceeding agreed-on budgets for the financial year, in terms of profit growth. In terms of the performance scheme, senior management will qualify for bonuses once they have achieved the minimum increase in audited net profit before tax over the net profit before tax of the prior financial period. The bonus amount for which senior management may qualify is based on a percentage of their respective costs to company and cannot exceed 100% of the cost to company. The Company does not currently have a share incentive scheme in place. The remuneration paid to the executive directors and prescribed officers of the Company and its subsidiaries, while in office, during the year ended 31 December, is disclosed in note 23 of the annual financial statements which form part of this report. Contracts of employment The executive directors and prescribed officers of the Group do not have fixed-term contracts, but are employed in terms of the Group s standard contracts of employment. The notice period for termination of service is two calendar months for executive directors and one calendar month for senior management and lower-level employees. None of these employees have any benefits associated with the termination of their services. In relation to service agreements with executive directors, the committee, subject to circumstances, will maintain the following policy: Fixed-term contracts, if any, should not exceed three years but may provide for extension; Agreements with identified executives, if any, who are considered to be specialists in any one specific industry or market sector should contain a restraint of trade clause with a term of not less than a year; Contracts do not commit the Group to pay on termination arising from the director or prescribed officer s failure or neglect; Balloon payments or golden parachutes on termination are not seen as fair remuneration policy and no exceptional benefits are associated with the termination of their services; Contracts do not compensate directors for severance because of change of control; The service agreements of executive directors should have a minimum of two months notice period for termination; and If it is deemed appropriate and necessary, executive directors service agreements will contain a restraint of trade clause, the details of which will be reported to shareholders where appropriate. Currently none of the executive directors have restraint clauses in their service agreements. Save for related party transactions in note 26 of the annual financial statements, no other management, consulting, technical or other fees, directly or indirectly, including payments to management companies, have been paid to any directors of the Company. No other material benefits or expense allowances were received by the directors. There is no commission, gain or profit sharing arrangement payable to any of the directors. 22

25 Non-executive directors Non-executive directors have letters of appointment stipulating their duties and do not receive any benefits associated with permanent employment. They do not participate in any incentive plans. The emuneration Committee, with reference to the Code guidelines, and taking into account the current position of the Group and its requirements, applies the following remuneration structure for non-executive directors: The Chairman of the Board is paid a fixed fee per annum, payable monthly in arrears, irrespective of the number of committees which he may attend or serve on; Non-executive directors are remunerated by way of a base fee per annum, plus a meeting attendance fee; Non-executive directors are compensated for their memberships of the various committees of the Company, by way of a committee meeting attendance fee; The respective meeting attendance fees are subject to the director attending the scheduled meetings, and failure to do so without good cause may result in non-payment or reduced payment of the attendance fee; and Ad-hoc meetings, in addition to the scheduled meetings, will bear fees of 50% of the respective Board or committee fees. Non-executive directors fees are reviewed annually and benchmarked against companies of approximate similar size, complexity and within similar industry sector groupings, with reference to readily available published surveys from reputable sources. Independent advice may be acquired to review directors remuneration from time to time. The fees are market-related and take into account the nature of the Company s operations. The annual remuneration paid to non-executive directors for the financial year, as well as the proposed increase for 2017, limited to a maximum of 10%, was approved by shareholders on 13 May. The remuneration paid to non-executive directors of the Company during the year ended 31 December is disclosed in note 23 of the annual financial statements which form part of this report. An increase of 7% in non-executive director fees was approved by the Board for the 2017 financial year. Social and Ethics Committee report The Social and Ethics Committee is constituted as a committee in respect of its statutory duties in terms of section 72(4) of the Companies Act, 2008 ( the Act ). The following persons served as members of the committee during the year under review: Social and Ethics Committee Name Date appointed Pieter du Preez (Chairman) 24 April 2012 Ashruf Kaka 24 April 2012 Henk Engelbrecht 1 October An independent third-party assurance provider, Essentialia Advisory Services, was appointed during to assist the committee in the execution of its role and responsibilities. They were invited to attend all committee meetings during the year. The responsibilities and functioning of the committee are governed by its terms of reference as approved by the Board. The purpose of the committee is to regularly monitor the Group s activities, having regard to any relevant legislation, other legal requirements, prevailing codes of best practice and applicable voluntary adherence to applicable non-binding rules, codes and standards in respect of the items listed below: Social and economic development, including the Company s standing in terms of the goals and purposes of the: 10 principles set out in the United Nations Global Compact Principles; OECD recommendations regarding corruption; Employment Equity Act; and Broad-Based Black Economic Empowerment Act; Good corporate citizenship as shown by: the promotion of equality, prevention of unfair discrimination and corruption; the Group s contribution to development of the communities in which its activities are predominantly conducted or within which its products or services are predominantly marketed; its record of sponsorship, donations and charitable giving; overseeing the implementation of the ethics management programme, focusing on the values of the Group, ethical risks and opportunities and codes of conduct with all stakeholders; and overall the positive and negative effects of the Group s operations on the environment and society are assessed and, where applicable, the committee oversees initiatives to improve on the positive effects and curb any negative effects; 23

26 Corporate governance review continued The impact of the Group s activities and of its products or services on the environment, health and public safety; The Group s relationships with suppliers and consumers, covering advertising, public relations and compliance with consumer protection laws; and Labour and employment, including: the Company s standing in terms of the International Labour Organisation Protocol on decent work and working conditions; and the Company s employment relations and its contribution toward the educational development of its employees. The committee is satisfied that it is successfully fulfilling the roles and functions which it has been assigned. Activities of the committee during the financial year The committee held four meetings during the financial year. The following activities were undertaken by the committee in the reporting period and up to the date of this report, in order to achieve the objectives as set out in the Social and Ethics Implementation Framework: Legal compliance audit The assurance providers reviewed the legal compliance of the respective operating companies in the Group during the year under review and recommended several improvements at the companies to ensure full legal compliance. Corrective action was taken where necessary to address the areas of non-compliance. Group policies Policies are reviewed on a two-yearly basis with the last review done in November. To date no policies have required any amendments. Annual work plan The work plan for the 2017 year includes, among others, the following aspects: Implementation of any corrective action that may be required to ensure that the companies comply with the relevant regulatory requirements emanating from the ongoing legal compliance audit; Quarterly review of the application of the policies and procedures by the respective companies within the Group; Quarterly review of relevant legislation to monitor any amendments thereto and the application thereof in the respective companies; and Ongoing review of all items dealt with in more detail in the social performance report which is contained in this annual report. The compliance officers are responsible for implementation of the policies throughout the Group, and the committee will monitor this with regular reviews and audits. The assurance providers scheduled quarterly visits to the respective companies to monitor the ongoing compliance with all the relevant legal requirements applicable to the Group and its subsidiaries. 24

27 Social performance Stakeholders The Group continues to engage with all its key stakeholders on a regular basis. In addition, as stakeholders interests in the Group are dynamic and subject to change, the Company will ensure the continuous identification of all stakeholders as well as their legitimate interests in and expectations of the Group. Community development The Group acknowledges the importance of making a contribution to the development of communities in which its activities are predominantly conducted. All employees of Kilken are from the local community, and Kilken provides transport to and from the plant for them. Empowerment and social responsibility Andulela is committed to the establishment of a social upliftment programme whereby the Company, through its subsidiaries, is actively involved in providing management skills, education, training and systems which will facilitate the upliftment of people within the previously disadvantaged communities. Safety, health and the environment The Andulela Group is committed to a clean, safe and healthy environment for its employees, contractors, consumers and surrounding communities. The Social and Ethics Committee is responsible for the regular review of the Group Health and Safety, and Environmental Policies, for the guidance of Group companies in their implementation, and for monitoring performance in terms of these policies. HIV/AIDS The Group is committed to reducing the spread and minimising the impact of HIV/AIDS on its employees and stakeholders. Across the Group companies, they promote non-discriminatory behaviour through our shared Code of Ethics and provide education to support safe and responsible decisions. Ethics The Andulela Group does not in any way tolerate unethical, fraudulent or illegal behaviour and has adopted measures for the prevention, detection, management and fair dealing in the investigation of this type of conduct. The promotion of an ethical and fraud-free culture within the Group, in addition to implementing procedures and controls, involves changing organisational culture that may allow these events to occur and possibly go unnoticed or unreported. Any investigative activity which is required will be conducted without regard to the suspected wrongdoer s length of service, position/title or relationship to the Group. Broad-Based Black Economic Empowerment ( B-BBEE ) The Company aims to create an organisational culture with the necessary structures and processes that encourage transformation to ensure compliance with relevant legislation and charters. This will assist in the development of a corporate structure that reflects the demographics of South Africa through the full spectrum of the Group s activities and programmes. B-BBEE is an integral component of South African business and the Group is committed to aligning its businesses with the national legislation in the area of sustainable business transformation and with the creation and development of an enabling environment. The Group ensures that each business maintains business focus, values, performance, customer satisfaction and increased shareholder value. 25

28 Social performance continued Good corporate citizenship The Group aims to be acknowledged as a responsible corporate citizen and strives to operate in a manner that is sustainable: economically, socially, and environmentally in the best interest of long-term success for the Group. Led by an effective Board of Directors and experienced executives, the Group operates on an established foundation of strong corporate governance. Labour relations The Group follows the principle of consultation for the benefit of management and employees. Freedom of association and dissociation is acknowledged. Disciplinary and grievance procedures Behavioural standards are documented as conduct, performance or disciplinary codes and these are communicated to all employees. The Group prefers measures that are progressive in correction rather than punitive. To this end, in minor cases of misconduct, a written warning is given, subject to an investigation of the facts, and the outcome is based on a balance of probabilities. For more serious offences which may warrant dismissal, a fair and unbiased disciplinary hearing is conducted. All employees involved in a disciplinary procedure are permitted representation by another employee of their choice. There is an appeal procedure for all forms of disciplinary action. A formal grievance procedure exists to enable employees to communicate grievances to management and to obtain the earliest possible resolution. Human rights Andulela continues to uphold and respect employee human rights throughout its operations. Basic human rights are enshrined in Company policy and in employment contracts. There is no child or forced labour within the Group. There were no incidents of human rights violations during the year under review. Talent management Talent management, specifically the processes for attracting, developing, retaining and performance managing our people, remains a primary area of focus. The Group promotes an environment in which all employees are afforded equal developmental and promotional opportunities and to this end has supported initiatives aimed at promoting training, education and development. The principle of learning through experience, as well as formal training, is adhered to throughout the Group. In addition, employees with professional qualifications are encouraged to keep abreast of developments in particular fields by attending seminars, conferences and training courses. Financial assistance is also given to employees to encourage further tertiary education and to update the professional skills quotient in the organisation. The Group is committed to ensuring equal opportunities for people from historically disadvantaged groups. Employment equity reports are submitted in accordance with the Employment Equity Act (Act No 55 of 1998). Goals will be established for business transformation and will be incorporated into various talent processes such as acquisition, development and progression. Succession and progression processes will be improved to build a sustainable pipeline of leadership talent from the frontline to directors. Human capital initiatives Andulela is launching projects informed by good industry practice to support its growth and expansion plans. Performance management is a critical business requirement as this helps align, manage and calibrate the contributions of each person in the organisation in line with the strategic goals. 26

29 PSM cut-to-length line. The workforce complement decreased from 474 at 31 December to 472 at 31 December. The Group s current demographic profile of permanent employees in South African companies per occupational level is tabled below: Male Female Total Occupational levels A C I W A C I W Top management Senior management 7 7 Professionally qualified and experienced specialists and mid-management Skilled technical and academically qualified workers, junior management, supervisors, foremen and superintendents Semi-skilled and discretionary decision-making Unskilled and defined decisionmaking Total permanent Percentage (%) Total permanent Percentage (%) A = African C = Coloured I = Indian W = White 27

30 Social performance continued Workforce profile The resilience and success of Andulela and its subsidiaries is underpinned by committed, competent and value-orientated people that drive businesses from the frontline to the boardroom. Living the following values and core beliefs are the key ingredients for the culture that supports achievement of the Group s strategy: Working together to add value to clients and stakeholders espect for one another, all stakeholders and the environment Integrity and honesty in managing relationships and partnerships Establishment and promotion of a non-discriminatory environment that supports people s rights and obligations Accountability for complying with laws, regulations, policies and Andulela s Code of Ethics Commitment to add value to and support the development of South Africa 28

31 ecruitment The Group recruits its employees primarily by way of advertising in national print or on online media. Interviews are conducted with input from appropriate directors and senior management. In certain instances, the Group may headhunt predetermined and appropriate personnel, and in instances where appropriate senior personnel cannot be sourced, the Group might utilise the services of employment agencies. Interview procedures are conducted in line with the guidelines of the Labour elations Act (Act No 127 of 1998). Training and skills development In addition to the requirements of the relevant legislation, appropriate training of all personnel, including in-house training, external training and planned training, is done on an ongoing basis. The Board of Directors recognises and is committed to the principles of openness, integrity and accountability applicable for appropriate grants in terms of the Skills Development Levies Act (Act No 9 of 1999) and ensures that training reflects the adopted policy of continuous improvement to enhance employee skills and efficiency. The Group is committed to the development of all its employees and to this end supports initiatives aimed at promoting training, education and development. The Group, through its subsidiaries, also provides independent contractors with regular training in all aspects required to enable them to own and manage successful businesses. The principle of learning through experience, as well as formal training, is promoted throughout the Group. Employment equity The Group continually considers governmental policies and informs itself about proposed legislation and regulations, the most significant being the Employment Equity Act. As such, it is essential that the cornerstones of the Group continue to encompass integrity, exemplary business practice and respect for the individual, irrespective of colour, race or creed. The Group provides an opportunity to increase previously disadvantaged equity participation. The official policy of the Group is to approach affirmative action from the perspective of making a substantive difference to people s lives, balanced with good business practice. This includes implementing affirmative action policies at all levels in the organisation. All Group companies have adopted an employment equity policy promoting equal opportunity and fair treatment in employment through the elimination of any discriminatory practices and prejudices. An environment has been created in which every employee has the opportunity for advancement. A developmental approach is being taken to affirmative action with the focus on promoting education and training to assist persons from designated groups to occupy more skilled and responsible positions within the Group. Employment equity reports have been submitted in accordance with the Employment Equity Act. Goals will be established for business transformation and will be incorporated into various talent processes such as attraction, development and progression. Succession and progression processes will be improved to build a sustainable pipeline of leadership talent from the frontline to directors. Kilken processing plant. 29

32 (egistration number 1950/037061/06) Annual financial statements for the year ended 31 December The reports and statements set out below comprise the consolidated annual financial statements presented to the shareholders: Contents 31 Directors responsibilities and approval 32 eport of the Audit, isk and Compliance Committee 32 Declaration by the Company Secretary 33 Directors report 35 Independent auditor s report 38 Statements of financial position 39 Statements of comprehensive income 40 Statements of changes in equity 42 Statements of cash flows 43 Accounting policies 53 Notes to the annual financial statements Prepared by Henk Engelbrecht CA(SA) Chief Financial Officer Level of assurance: These annual financial statements have been audited in terms of section 30(2)(a) of the Companies Act, of South Africa. Published on 24 March Kilken PGM concentrate froth flotation process.