Distribution & Warehousing Network

Transcription

1 D A W N Distribution & Warehousing Network INTEGRATED REPORT

2 TABLE OF CONTENTS DAWN S PROFILE INTEGRATED REPORTING APPROACH 2 About this report 4 Integrated value creation process GROUP AT A GLANCE 5 Group structure at the date of publication 6 Geographic footprint 7 10-year financial review and definitions EXECUTIVE REPORTS 12 Chairman s report 15 Chief executive officers reviews 20 Chief financial officer s report SOCIAL AND RELATIONSHIP CAPITAL 26 Stakeholder engagement GOVERNANCE 30 Governance and compliance framework 31 Leadership 31 Board of directors 34 Executive committee 36 Corporate governance at DAWN 45 The governance of risk 49 Combined assurance 52 Report of the remuneration committee 76 Report of the social, ethics and transformation committee ANNUAL FINANCIAL STATEMENTS 90 Certification by company secretary 91 Statement of responsibility and approval by the board of directors 93 Report of the audit committee 97 Directors report 103 Independent auditor s report 109 Consolidated and separate income statements 110 Consolidated and separate statements of comprehensive income 111 Consolidated and separate statements of financial position 112 Consolidated statement of changes in equity group 113 Consolidated statement of changes in equity company 114 Consolidated and separate statements of cash flows 115 Accounting policies 129 Notes to the annual financial statements 213 Interest in subsidiaries, associate companies and joint ventures SHAREHOLDERS INFORMATION 216 Analysis of shareholding at 31 March 217 Analysis of shareholding after the rights offer 218 JSE performance 218 Shareholders diary ANNUAL GENERAL MEETING 219 Notice of annual general meeting Form of proxy (Attached) Corporate information (Inside back cover) SUSTAINABILITY 79 Financial capital 80 Human capital 87 Natural capital

3 Distribution & Warehousing Network Limited Integrated report DAWN S PROFILE SOUTH AFRICA A SOUT H A FRICAN ICO N Distribution and Warehousing Network Limited (DAWN) is listed in the Construction and Materials Building Materials and Fixtures sector of the JSE Limited and its head office is based in Germiston, Gauteng. The group manufactures and distributes quality branded hardware, sanitaryware, plumbing, kitchen, engineering and civil products through an international, strategically positioned footprint in southern Africa. DAWN has significant proprietary brands and agency agreements with prominent suppliers and also sources branded products from a well-established supplier network, both locally and internationally. DAWN distributes approximately product lines sourced through more than suppliers to over customers in the building and infrastructure sectors. DAWN Logistics offers just-in-time break-bulk distribution through its fleet of more than 190 vehicles on a national basis with over-border deliveries to Botswana, Swaziland, Lesotho and Namibia. We are changing the culture, holding people accountable. 1

4 ABOUT THIS REPORT The board of directors of Distribution and Warehousing Network Limited (DAWN) is pleased to present the integrated report for the year ended 31 March to stakeholders, which has been prepared in accordance with the principles and practices contained in the King Code of Governance Principles for South Africa 2009 (King III). The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), the JSE Listings Requirements, the Companies Act of South Africa, as well as the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee. Sustainability information has been prepared referencing Global Reporting Initiatives (GRI) Guidelines 4. APPROACH The primary objective of this integrated report is to provide a greater understanding of the group s strategy, its business model and its major impacts across economic, social and environmental aspects as well as insight into how the group is managed. The integrated report addresses all businesses, which comprise the South African operations and the sub-saharan African and Indian Ocean islands operations, in the form of subsidiaries, joint ventures and associates, unless specifically indicated otherwise. Sustainability information focuses on DAWN s subsidiaries as at 31 March (joint ventures and associates have been excluded) and the sustainability data was collated from all the subsidiaries with final consolidation into the DAWN group. A complete sustainability report has not been prepared for the financial year and a synopsis of financial, social and environmental indicators is presented on pages 79 to 89. The adoption of integrated reporting principles is a developmental and evolutionary process and it may take several years to fully implement these principles and achieve the desired level of reporting. This report, nevertheless, offers stakeholders a more holistic view of DAWN s operations and provides insight on both financial and non-financial matters for the year ended 31 March. As the concepts and practices of integrated reporting develop, management will aim to improve disclosures and application as deemed appropriate. The integrated report is also available online at together with additional sustainability data and information and the King III Register. ASSURANCE, COMPARABILITY AND RESTATEMENTS A combined assurance model is applied to provide a coordinated approach to all assurance activities. An internal assurance process, which included management review and risk-based assurance from internal audit, was followed in respect of the data disclosed in the sustainability synopsis and information and data disclosed on the web. The carbon footprint data is based on Scope 1, Scope 2 and Scope 3 (business travel) emissions. Most of the performance measures included in this report have comparative figures and, unless specifically stated otherwise, cover the financial year of the group. FEEDBACK REQUEST The board welcomes feedback on DAWN s integrated report from stakeholders. Please contact the chief of staff, René Roos, on rroos@dawnltd.co.za with any questions or queries on this report. 2

5 Distribution & Warehousing Network Limited Integrated report ABOUT THIS REPORT continued FORWARD-LOOKING STATEMENTS Certain statements in this report are forward-looking statements which DAWN believes are reasonable and consider information available up to the date of the report. Results could, however, differ materially from those set out in the forward-looking statements as a result of, amongst other factors, changes in economic and market conditions, changes in the regulatory environment and fluctuations in commodity prices and exchange rates. As a result, these forward-looking statements are not guarantees of future performance and are based on numerous assumptions regarding DAWN s present and future business models, strategy and the environments in which it operates. All subsequent oral or written forward-looking statements attributable to the group or any member thereof or any persons acting on their behalf are expressly qualified in their entirety by the cautionary statements above and below. DAWN expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein or to reflect any change in their expectations with regard thereto or any change in events, conditions or circumstances on which any such forward-looking statement is based. The forward-looking statements have neither been reviewed nor audited by the group s external auditors, PricewaterhouseCoopers Inc. APPROVAL OF THE INTEGRATED 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 best practice to the extent possible for the year under review. The board approved the integrated report on 23 August. For and on behalf of the board Diederik Fouché Independent non-executive chairman Edwin Hewitt Chief executive officer 3

6 INTEGRATED VALUE CREATION PROCESS DAWN believes that the value of its business is a reflection of the quality of the capital underpinning it, which yields a model that is sustainable in the long-term. The group invests in its capitals to ensure its future, leadership and accountability and to generate value for its stakeholders. CAPITALS F Financial External environment Vision and Mission M Manufactured Risks and opportunities I Intellectual Inputs Governance Business model Business activities H Human SR Social and relationship Performance N Natural Value creation 4

7 Distribution & Warehousing Network Limited Integrated report INTEGRATED VALUE CREATION PROCESS continued CAPITALS Financial F Strategy and resource allocation Manufactured M Intellectual I Outputs Outcomes Business model Governance Human H Outlook Social and relationship SR Vision and Mission External environment Natural N Value creation The icon pertaining to the specific capital has been applied throughout the content as an indicator of where the specific capital is discussed. 5

8 GROUP STRUCTURE The group had two main operating segments, namely building and infrastructure, supported by the solutions segment. This reflected the main markets it served. The group amended its reporting structure at 31 March from the previous three segments of building, infrastructure and solutions to trading and manufacturing to better reflect the activities of the group, as opposed to the markets in which it operates. The structure below depicts the group as at the publication date, being 23 August. BUILDING INFRASTRUCTURE MANUFACTURING TRADING SOUTH AFRICA # 6 * Associates # Joint ventures

9 Distribution & Warehousing Network Limited Integrated report GEOGRAPHIC FOOTPRINT Products are distributed through a strategically positioned national distribution network. Various African countries are serviced through the export divisions of the various DAWN subsidiaries. DAWN s reach extends way beyond South African borders through its products that are exported to about 50 countries in sub- Saharan Africa, Asia, Australia, Europe, the Middle East, New Zealand and South America. DAWN imports from Australia, Belgium, China, Denmark, Egypt, France, Germany, Hong Kong, Hungary, India, Israel, Italy, Korea, Malaysia, New Zealand, Portugal, Sicily, Spain, Taiwan, Turkey, the United Kingdom and the United States of America. Zambia Tanzania Angola Namibia Botswana Mozambique Mauritius South Africa Swaziland DAWN s presence DAWN is in the process of exiting from these 7

10 8 F GROUP 10-YEAR REVIEW INCOME STATEMENTS 12 months ended 31 March 12 months ended 31 March Restated 9 months ended 31 March 2015 Revenue Operating (loss)/profit ( ) ( ) Operating (loss)/profit before depreciation, amortisation, impairments and derecognitions of previous held interests ( ) (50 283) Depreciation, amortisation, impairments and derecognitions (98 468) ( ) Net finance charges (58 588) (71 070) (36 484) Share of (loss)/profit in investments accounted for using the equity method (41 042) (5 891) (Loss)/profit before income tax ( ) ( ) Attributable (loss)/earnings ( ) ( ) Headline (loss)/earnings ( ) ( ) (66 508) Dividends paid Repayment of share premium STATEMENTS OF FINANCIAL POSITION Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Trade and other receivables Investments in associates and joint ventures Derivative financial instruments Current assets Assets classified as held-for-sale Total assets Share capital and reserves Non-controlling interests Total equity Non-current liabilities Interest-bearing borrowings Non-interest-bearing borrowings Deferred profit Derivative financial instruments Retirement benefit obligation Deferred tax liabilities Share-based payment liabilities Operating lease liabilites Trade and other payables Current liabilities Borrowings Other Liabilities directly associated with assets classified as held-for-sale Total equity and liabilities OTHER DATA Number of employees employed by the group (company and its subsidiaries)

11 Distribution & Warehousing Network Limited Integrated report 12 months ended 30 June 2014 Restated 12 months ended 30 June 2013 Restated 12 months ended 30 June months ended 30 June months ended 30 June months ended 30 June months ended 30 June (54 380) (75 993) (69 287) ( ) (59 296) (57 337) (38 538) (58 278) (52 451) (51 966) (46 531) (56 511) ( ) (94 357) (18 763) (706) (14 167) (30 325)

12 F GROUP 10-YEAR REVIEW continued Ordinary share statistics Weighted average shares ( 000) Definitions 12 months ended 31 March 12 months ended 31 March Restated 9 months ended 31 March 2015 For earnings per share For fully diluted earnings per share Shares in issue ( 000) Shares held in treasury ( 000) Share Incentive Trust ( 000) Deferred ordinary shares ( 000) Market capitalisation () Market price (cents) Headline (loss)/earnings per share (cents) 1 (240,49) (65,55) (28,06) Attributable (loss)/earnings per share (cents) 2 (269,22) (318,31) 202,11 Fully diluted (loss)/earnings per share (cents) 3 (269,22) (317,34) 200,25 Net asset value per share (cents) 4 158,46 440,66 794,87 Net tangible asset value per share (cents) 5 130,95 412,95 788,68 Dividend per share (cents) 16,5 Capital repayment per share (cents) Returns on productivity Return on ordinary shareholders funds (%) 6 (62,1) (41,6) 32,0 Return on total assets (%) 7 (23,7) (24,6) 12,1 Asset turnover ratio 8 6,3 3,7 1,7 Operating profit margin 9 (9,2) (0,3) (2,2) Turnover per employee () Solvability and liquidity Financing cost cover (times) 10 (6,75) (0,20) (2,19) Debt:equity ratio 11 86,84 29,53 8,43 Current asset ratio 12 1,04 1,40 1,46 Acid-test ratio 13 0,62 0,78 0, Headline earnings per share Profit attributable to ordinary shareholders adjusted for any losses or gains of a capital nature and other items as set out in the headline earnings per share accounting circular (SAICA circular 3/2012) divided by the weighted number of shares in issue during the year. 2. Attributable earnings per share Profit attributable to ordinary shareholders divided by the weighted number of shares in issue during the year. 3. Fully diluted earnings per share Profit attributable to ordinary shareholders divided by the weighted number of shares in issue during the year, inclusive of incentive shares to be issued. 4. Net asset value per share Ordinary shareholders interest (excluding non-controlling interests) divided by the number of ordinary shares in issue at year-end and including deferred ordinary shares, net of treasury and incentive shares. 5. Net tangible asset value per share Net asset value per share excluding intangible assets. 6. Return on ordinary shareholders funds Net comprehensive income attributable to ordinary shareholders as a percentage of ordinary shareholders funds at beginning of the year.

13 Distribution & Warehousing Network Limited Integrated report 12 months ended 30 June 2014 Restated 12 months ended 30 June 2013 Restated 12 months ended 30 June months ended 30 June months ended 30 June months ended 30 June months ended 30 June ,51 66,10 38,03 16,30 48,91 81,66 149,31 31,62 66,65 35,47 (12,98) 53,99 63,90 152,89 30,90 65,71 34,80 (12,98) 50,39 59,52 142,33 647,25 620,76 541,53 488,53 511,64 456,89 427,63 572,49 501,38 435,88 397,75 395,71 302,69 284,19 16,0 35,00 25,00 5,5 12,3 7,1 (2,5) 13,3 15,1 51,8 2,2 8,2 6,1 1,3 8,3 10,3 15,4 2,2 2,6 2,8 2,9 2,3 3,8 4,1 2,4 5,5 3,9 0,9 5,7 7,1 10, ,84 4,82 3,14 0,71 3,68 2,20 4,36 32,46 10,30 15,80 30,30 21,10 71,40 68,20 1,41 1,65 1,61 1,40 1,89 1,20 1,13 0,90 0,92 0,91 0,76 1,05 0,62 0,67 7. Return on total assets Operating profit before finance charges, the results of associates and income tax as a percentage of total assets. 8. Asset turnover ratio Ratio of revenue to total assets less current liabilities and noncontrolling interest in equity. 9. Operating profit margin Operating profit on ordinary activities as a percentage of revenue. 11. Debt:equity ratio Ratio of net interest-bearing debt to total shareholders interest, including non-controlling interests and cash and cash equivalents. 12. Current ratio The ratio of current assets to current liabilities. 13. Acid-test ratio The ratio of current assets less inventory to current liabilities. 10. Financing cost cover Operating profit divided by net financing cost. 11

14 CHAIRMAN S REPORT This year DAWN faced the harshest trading conditions yet since the market crash of The company commenced its turnaround programme in F and progressed it in F with the down-sizing, closure and consolidation of businesses to match the revenue generation reality of a very challenging economic environment. Diederik Fouché Looking forward, it is important to look past the challenging economic conditions to focus on regaining market share and improving efficiencies for the DAWN business models to work optimally. DAWN AND SOUTH AFRICA S ECONOMIC LANDSCAPE The South African economy has officially moved into a recession. Data from Statistics South Africa indicated that the first quarter contraction was led by weak manufacturing and trade, with manufacturing falling by 3,7% and trade falling by 5,9%. This suggests that high unemployment and stagnant wages are dragging down South Africa s long-suffering consumer sector. Political instability, high unemployment and credit rating downgrades have also damaged business and consumer confidence in South Africa. The rand extended its losses against the dollar, while government bonds also weakened. DAWN S KEY ACTIONS DURING THE YEAR Against this background, the operational losses incurred in F worsened in F. The board and management, therefore, focused diligently in the year under review on aspects which would ensure DAWN s sustainability. These include continued focus on the following areas: identifying the key areas which must be addressed to facilitate a turnaround; implementing the first phase of the turnaround plan, which comprised the down-sizing, closure and consolidation of businesses, thereby reducing the permanent cost base by R125 million, excluding inflation; finding a best-fit chief executive officer and chief financial officer to replace interim chief executive officer, Stephen Connelly, who has been appointed executive deputy chairman; and outgoing chief financial officer, David Austin, who resigned effective 30 June ; and recapitalising the group through a rights offer. During the year the board focused on building the executive management team for the future through making the following appointments: Edwin Hewitt was appointed chief executive officer with effect from 1 April. Edwin brings a proven, successful turnaround track record. Prior to his appointment as chief executive officer of DAWN, Edwin was appointed as the chief restructuring officer to the group in February. The momentum of the turnaround plan, which was started in the previous year, was accelerated by Edwin in his role as chief restructuring officer and will, in the year ahead, be further galvanised by his appointment as chief executive officer and his enhanced executive team. Following Edwin s appointment, Stephen Connelly, who has been the interim chief executive officer during the restructuring and down-sizing, became executive deputy chairman, and will support the executive in this role until December. Stephen s impact on the group has been substantial during the initial turnaround phase. He played a significant role in the finalisation of the group s recapitalisation programme and his efforts are much appreciated. 12 Chris Booyens was appointed as financial director and chief financial officer with effect from 1 May. Chris is a CA (SA) with more than 40 years' experience of which five years have been in the building and materials supply industry. He was group financial director of Iliad Africa and, prior to that, financial executive and executive director at various Tiger Brands subsidiaries.

15 Distribution & Warehousing Network Limited Integrated report CHAIRMAN S REPORT continued The board is confident that this new executive management team has the skills and expertise to deal assertively with the challenges DAWN continues to face. A new board member was also appointed in F. Akhter Moosa was appointed as an independent non-executive director and chairman of the audit and risk committee with effect from 28 March. Akhter s background adds further value to the board, as he is an audit and risk committee member of the Competition Tribunal, a disciplinary committee member of the Independent Regulatory Board of Auditors, an advisor to SANRAL s audit committee and has recently been appointed as a board member at SAA. Post year-end, two non-executive directors were appointed to the board, namely Charles Boles (independent) and Theunis de Bruyn. Charles has experience in corporate finance and has had significant exposure to the industries and markets where DAWN is positioned. Theunis is a shareholder and non-executive director of RECM and Calibre Limited who, through its subsidiary RAC Investment Holdings (Pty) Ltd, acquired 16,76% of DAWN during April on the conclusion of the rights issue. We welcome these directors to the board and look forward to their contributions. CORPORATE GOVERNANCE The board of DAWN is responsible for ensuring that the activities of the group take place according to sound governance processes and structures that ensure ethical behaviour while supporting the group s recovery strategy. Group executive management is accountable to the board for the group s performance and progress against stated targets. Sub-committees of the board have clear mandates for the governance of the board s major areas of responsibility, including audit and financial controls, risk, strategy development, remuneration, transformation and safety. Details of the activities are set out in the integrated report. SUPPORT TO EXECUTIVES ON STAKEHOLDER ENGAGEMENT The board continued to work closely with the management team in F to ensure appropriate engagement with stakeholders. Engagement is an integral part of developing an understanding of DAWN s stakeholders needs, interests and expectations and assists the group with strategic, sustainable decision-making. Collaboration and regular interaction with all stakeholder groups are essential to DAWN s long-term resilience and to the effectiveness of its integrated sustainability approach. DAWN considers its various stakeholders as partners in its endeavours and has adopted a stakeholder-inclusive approach in determining material challenges and opportunities within the group. ECONOMIC OUTLOOK AND HOW IT IMPACTS DAWN Inflation decreased for the fourth month in a row in July, remaining within the South African Reserve Bank s target range of 3% to 6%. The annual consumer price index (CPI) eased to 4,6% in July, the lowest level recorded since September In July, the South African Reserve Bank revised its economic growth outlook for the country downwards, from 1% to 0,5% for this year. Following on the improved inflation outlook and the deteriorated growth outlook, the repurchase rate was reduced by 25 basis points to 6,75% per annum from 21 July. In the first week of April, Standard & Poor s Global Ratings and Fitch Ratings both downgraded South Africa to subinvestment grade. In June, Moody s Investors Service downgraded South Africa to Baa3, one notch above sub-investment grade. Against this background of a slowing economy and with limited prospects of any significant improvement in domestic economic conditions to stimulate consumer disposable income, the trading environment is likely to remain constrained for the foreseeable future. South Africa is also experiencing the lowest business confidence levels seen in the last eight years. The Building Confidence Index, after reaching its highest level in more than a year of 43 points in Q1 (which is still 7 points below equilibrium), fell sharply to 32 points in Q2. Moreover, all of the sub-subsectors measured registered a decline in confidence. This has only happened in five other instances since the index was first compiled in Underpinning the fall in confidence was a deterioration in building activity as well as a sharp drop in overall profitability. Continued low sales, coupled with rising input costs, weighed significantly on industry profitability in Q2. The fall in construction activity is consistent with an environment of constrained public sector capital expenditure. 13

16 CHAIRMAN S REPORT continued Unless the economy deteriorates markedly in F2018 from current levels, it is important for DAWN to look past the challenging market conditions and to focus on regaining market share for the business model, in particular, to work optimally. In the trading segment, this will be achieved by strongly positioning the group as the master distributor of its product lines to target industries. By refocusing the organisation on the basic principles and success factors upon which DAWN was built, the group has the opportunity to claw back market share and grow the bottom line. Similarly, in the manufacturing segment, the group is focusing on substantially increasing volume throughput and eliminating inefficiencies. Refer to pages 17 and 18 of the chief executive officers' reviews. The turnaround plan has been cemented in strategies and converted into business plans. In line with the group s new approach of decentralised management, authority has been devolved to individual business units to ensure they can account for their profit performance to the executive committee on a monthly basis. It is the board s intention that the implemented strategies, discussed above, be instrumental in bringing DAWN back to profitability. The turnaround process is gaining traction, including a renewed focus on DAWN s core business through a back-tobasics approach. The board, however, felt it prudent to draw attention to the timing risks of DAWN s turnaround, as certain potential events and conditions could give rise to uncertainty that may cast doubt on the group s ability to continue as a going concern. These potential events and conditions are set out in the chief financial officer s report on page 20. As announced on SENS on 2 August, DAWN breached one of the financial covenants contained in the term sheet governing the group's banking facilities with Absa Bank Limited. Based on engagements by the group to date, Absa Bank Limited has formally condoned the breach. Refer to page 25 of the chief financial officer's report for further information. APPRECIATION I extend my deepest gratitude to my fellow board members for their unwavering support and guidance, particularly through the restructuring, re-engineering and turnaround process. Their participation in a large number of additional meetings over and above the usual participation requirements of a board, and their guidance and monitoring of the progress of the group during the year, are very much appreciated. I look forward to their continued strategic input as we steer DAWN towards a new future. Many thanks and appreciation to our executive management team and all personnel who have done a great job in very tough conditions. Finally, my appreciation goes out to all our stakeholders for their support in exceptionally trying circumstances. Diederik Fouché Independent non-executive chairman 23 August 14

17 Distribution & Warehousing Network Limited Integrated report CHIEF EXECUTIVE OFFICERS REVIEWS The chief executive officer's review this year is split into a review from Stephen Connelly, who managed the group from 1 June to 31 March, as well as a forward-looking review from Edwin Hewitt, the new chief executive officer who was appointed on 1 April. To better reflect the group s operations, instead of reporting on the contribution of the building, infrastructure and solutions segments to group results, DAWN now reports on the contributions of the trading and manufacturing segments. The solutions segment has been integrated into the rest of the business. Stephen Connelly REVIEW FROM THE OUTGOING INTERIM CEO, STEPHEN CONNELLY I became the interim chief executive officer on 1 June after Derek Tod s retirement from the group, at a point when the economy was in a downward trajectory, which worsened as the year progressed. DAWN was losing money in many areas, notably in Sangio Pipe, Incledon, its associate Grohe DAWN Watertech (GDW) and most of the African operations. WHS, DPI Plastics and Swan Plastics were profitable, but sales in these businesses started to reflect the pressure from the declining economy and losses soon followed. The first priority, therefore, was to stop the losses. It became clear that the tactic of chasing sales based on price, particularly in DAWN s largest business, WHS, was not working sales volumes did not improve and margins weakened. The executive team did its best to reverse this, but with limited success, given the culture of the business to sell mainly on price. Establishing a culture of accountability has also taken longer than envisaged. Spending by DAWN s various customers continued to decline as the economy weakened during the financial year. This, in turn, impacted DAWN s turnaround programme, resulting in a longer implementation time and more drastic action than previously anticipated. Furthermore, there had been an exodus of skills in the businesses, particularly in Incledon. There were additional skills losses during the year and, in particular, the loss of two of the three remaining executive directors shortly after the F year-end as a consequence of two reportable irregularities. Valuable institutional knowledge was thus lost to the business and needed to be rebuilt in a very difficult trading environment. In addition, new managing directors were appointed at WHS and Incledon. SNAPSHOT OF F First half of the year April to September The group incurred a R52 million operational loss. In addition, there was R286 million (pre-tax) in down-sizing costs and impairments due to the actions taken to right-size the business and stop the losses. Second half of the year From October to March In the months of October and November the group posted operational profits, but a further drop in sales pushed the group back into losses for the remainder of the financial year and necessitated further remedial action. The group incurred a R65 million (pre-tax) operational loss. In addition, there was R63 million in further down-sizing costs and impairments. DAWN s permanent cost base has been reduced by R125 million per annum (excluding inflation) over the past two years. Impairments included those in Heunis Steel, GDW and an onerous lease provision. DAWN also experienced cash constraints due to the losses and the cash costs of the remedial action. It became clear that a rights offer was required in order to ensure the group s survival. 15

18 CHIEF EXECUTIVE OFFICERS REVIEWS continued Post year-end events Proceeds of a R358 million rights issue were received which, crucially, gives management time to complete the turnaround and gives suppliers and customers confidence in the survival of the group. New management appointed: Permanent chief executive officer Edwin Hewitt; New chief financial officer Chris Booyens; and New managing director at DPI Plastics. In April, always a slow month due to the number of public holidays, the group posted a loss, but in May and June it posted profits once more. GDW postponed reporting, which delayed DAWN s results by two weeks to the middle of July. As advised in the cautionary announcement disseminated on SENS on 11 July, which cautionary announcement was renewed on 23 August, the terms of the proposed transaction are still being negotiated regarding the potential disposal of DAWN s 49% holding in GDW. It is the view of the DAWN board that the transaction, if successfully concluded, will be a positive step in the turnaround process of the group. APPRECIATION I thank those employees who remained loyal to the group and continued to work hard despite the adverse circumstances. We continued to implement difficult changes this year. I realise these were hard, with many of you seeing your colleagues leave. Thank you for your continued belief and commitment to the group. To the executive management team, I thank you for the long hours and huge effort you have put into working with me to turn DAWN around. To our customers and suppliers, thank you for your support in difficult conditions. Please be assured that F2018 will be a year where you see DAWN revert to its previous high standards of service. With Edwin Hewitt s appointment as chief executive officer in April, I became executive deputy chairman of the group. My new (temporary) role is to act as support and a soundboard for the executive team until December. The board and I welcome Edwin s clear-sighted, focused, no-nonsense approach to turning DAWN around. He has already made a clear impact on the business and I wish him and his team every success with phase two of the turnaround programme in F2018. Stephen Connelly Executive deputy chairman (interim chief executive officer for F) 23 August 16

19 Distribution & Warehousing Network Limited Integrated report CHIEF EXECUTIVE OFFICERS REVIEWS continued The group has been through a very difficult period, with a severe decline in its markets and numerous internal issues to address. However, I believe the DAWN business model is sound and, as a new management team, we are committed to doing everything possible to secure the group s turnaround. Edwin Hewitt REVIEW FROM THE INCOMING CEO, EDWIN HEWITT INTRODUCTION I was appointed as the group s new chief executive officer after the F year-end, so my review focuses on what is currently being implemented in the group, as well as the outlook. TURNAROUND UPDATE As outlined in Stephen s review, phase one of the turnaround focused on the down-sizing, closure and consolidation of businesses to match the new sales reality. This process is being continued in phase two, together with restoring the business fundamentals through a number of strategic interventions: 1. Decentralisation of the business and the appointment of new management After my appointment, it quickly became apparent that a number of basic business premises were not in place. Most importantly, the group lacked a culture of accountability. This is being firmly addressing through the creation of defined business plans and budgets, supported by focused weekly meetings tracking progress thereon and identifying whether corrective action is required to remain on track. New managing directors have been appointed at WHS, Incledon and DPI Plastics. These senior managers are highly capable individuals with significant experience and are able to take responsibility for the performance of their respective businesses. 2. Stabilising the balance sheet A core part of DAWN s turnaround strategy involves an aggressive focus on managing working capital, including monitoring daily sales, cash, margins and stock. The management team is mindful that DAWN is obliged to meet the new bank covenants on EBITDA and working capital outlined in the chief financial officer s report. The immediate focus remains on returning the group to sustainable profitability and progress has been made in this regard post F year-end, with most group businesses currently operating at breakeven or slightly better. It is important to note that any further deterioration in the economy could result in a return to losses. 3. Increase efficiencies Trading The key to greater efficiencies and a recovery in the trading segment is to recoup lost market share through regaining master distributor status. Increased efficiencies have to be implemented throughout the supply-chain, including the active management of volume-related term agreements. 17

20 CHIEF EXECUTIVE OFFICERS REVIEWS continued Being a master distributor is fundamental to DAWN s business model. In DAWN s largest segment, trading, a number of issues led to the group losing this status over the past few years. During the economic boom years leading up to the crash of 2008/2009, WHS, the single largest business in the group, took a decision to wholesale multiple brands when their preferred local manufacturers could not keep up with WHS customer demand. As normality returned to the market, WHS continued with this practice, competing with their traditional suppliers. As a result, traditional suppliers were forced to try and establish alternative routes to market resulting in the loss of DAWN s master distributor status. As the trading segment s business model operates optimally on high sales volumes, the effects of volume and related revenue declines, as seen throughout F, exacerbated by the loss of master distributor status, had a significantly negative effect on the business. This reached breaking point when revenue turned sharply negative in the second half of F as a result of the further decline in the economy. The competition for a slice of the pie in a smaller market became extremely harsh and the group saw its volume-driven trade benefits decline. This, in turn, impacted cash flows and put pressure on the group s ability to pay its creditors timeously. At the same time, the group s stock levels became bloated and imbalanced. The restricted cash flows inhibited the ability to buy new stock, which led to suppliers increasingly going around DAWN, direct to the customers, further worsening revenue. In addition, the group s service efficiency slipped in F. However, there is already a significant drive underway to improve levels of service, including the restoration of supplier and customer relationships. DAWN s distribution capability, geographic reach, storage capacity, route-to-market development and ability to break bulk providing the customer with ontime-in-full delivery (OTIF) is a key differentiator as a master distributor. Restoring a world class OTIF and credit funding, executed efficiently, will bring market share back to the group. Furthermore, there is opportunity for a significant rationalisation of product across the group to decrease duplicated products and to ensure focus on specific partner brands. Reducing the turnover of employees to less than 10% is a key element of the turnaround strategy. Staff turnover reached an unacceptable level of 30% during F and, with specific interventions, has already improved to 21% post year-end. The sales team is being re-energised through a revised reward and incentive plan, clarified operating model, updated product training and a strategic focus on customers and customer service. As part of DAWN's marketing strategy, the fleet of sales representative vehicles have been branded to increase DAWN's exposure and create awareness of the refreshed DAWN brand. Manufacturing The group s manufacturing businesses are largely cost-inefficient (with the exception of Swan Plastics). There is more scope for cost reduction. The focus on establishing world-class manufacturing and production efficiencies is being promoted by the appointment of a technically-accomplished new managing director at DPI Plastics. One of his first priorities is to re-engineer the factories to ensure lower factory breakeven points, including reducing the PVC factory s breakeven point by at least 18%. It is important to make further inroads into the higher-margin building fittings market to replace reduced government spend and to also increase the group s share of the HDPE market. Swan Plastics is a low-cost, very efficient PVC product manufacturer, delivering good returns in a tough market. 4. Understanding the issues through the eyes of our customers and suppliers As mentioned above, the restoration of supplier and customer relationships will be key to regaining the master distributor role. Since my appointment, I have visited a large number of customers and suppliers to understand their issues and address their concerns. Based on the results of the August customer survey, which were reconfirmed during a customer store tour in May, customers and suppliers really need and want DAWN to fulfil the master distributor role. This has reconfirmed that DAWN s business model is sound and the group has made good headway with restoring its master distributor status in the months post-year-end. 18

21 Distribution & Warehousing Network Limited Integrated report CHIEF EXECUTIVE OFFICERS REVIEWS continued Customers DAWN provides access to quality brands and product ranges for its customers, as well as optimal load delivery, assisting customers with working capital efficiencies through providing credit, OTIF, just in-time delivery and providing product and market insight and expertise. Management has re-negotiated all major supply agreements to ensure the group works closely with its customers to achieve synergies, which will promote market and sales growth for the customer and DAWN. This will allow DAWN to once again add value to the customers business proposition and ultimately create a single point of procurement for its brands. Suppliers DAWN provides its suppliers with access to the market through a single channel. By regaining master distributor status, the group will provide suppliers with pull-through demand from DAWN s customers. DAWN also provides efficiencies on the route to market, a wide geographic footprint, break-bulk services and the provision of credit to the smaller retailers. DAWN has developed an expertise in credit provision, which is a valuable advantage as most suppliers cannot carry this risk. The provision of all these services allows the group s suppliers to focus on their core businesses of manufacturing. CONCLUSION The restructuring and improvements already made, together with the key strategic and operating initiatives implemented in the last few months and those currently underway, have ensured that the group is doing all it can to return to sustainable profitability. Care has been taken to retain the group s geographic reach to ensure that, when growth returns to the group s markets, it is well positioned to capitalise on the opportunities which will arise. As a management team, the focus is firmly on delivering on the short-term action plan, to complete the turnaround and to achieve at least a breakeven position in F2018, provided there is no further significant weakening of the economy. It should be noted that the second half of the financial year is traditionally weaker as a result of seasonality and strikes are a risk if labour negotiations cannot be concluded successfully. Over the medium-term, the group will focus on achieving profitability in F2019 and meeting profit before interest and taxation (PBIT) margins in F2020 of 5% in the trading segment and 12% in the manufacturing segment. APPRECIATION On behalf of my management team, I would like to thank all our employees. In an extremely challenging working environment, your hard work on the turnaround and resilience are greatly appreciated. I am receiving exceptional support from the board and the management team, above and beyond the call of duty, and I thank them. To our customers, suppliers, bankers and shareholders, your continued support in difficult conditions is truly appreciated and we look forward to a close working relationship with you going forward. As the new chief executive officer, I reaffirm my and the management team s commitment to doing all we can to move DAWN along the road to sustainable recovery. Edwin Hewitt Chief executive officer 23 August 19

22 F CHIEF FINANCIAL OFFICER S REPORT The results were significantly affected by the right-sizing costs, associated with phase one of DAWN's turnaround plan, as well as the continued challenging market conditions, the impact of the widespread drought in South Africa and poor operating performance of the group. Chris Booyens INTRODUCTION As described in the reviews of the chairman and chief executive officers, growth in the economy remained subdued and then became significantly worse in the second half of F against the broader setting of a difficult global economic environment. DAWN s performance was particularly badly hit from December due to the festive season period of subdued trading and the shrinking of the economy in the first quarter of by 0,7%. Against these conditions, DAWN posted a loss per share and headline loss per share for F of 269,2 (F: 318,3) cents per share and 240,5 (F: 65,6) cents per share, respectively. After-tax write-downs and impairments of R352,2 million were recorded in F, following impairments of R642,4 million in F. The sustained adverse performance resulted in DAWN having to approach shareholders for a rights issue of R358 million this year, of which a R200 million portion was required to repay bridging finance and the balance to fund future operations. In December, DAWN received R50 million bridging finance from Absa Bank Limited (Absa). This was repaid in January after obtaining the proceeds from the sale of Heunis Steel. A further repayment of R75 million was made to Absa in April to reduce the revolving credit facility to R100 million. The facility extends until 31 March The overall focus remains on returning the group to sustainable profitability. GOING CONCERN ASSESSMENT IN CONTEXT The board believes that the group is solvent and liquid for the 12 months following 14 July, based on cash flow forecasts prepared and available facilities, and therefore deemed the going concern basis of preparation appropriate. The auditors, PricewaterhouseCoopers Inc, concurred with this view and issued an unmodified audit opinion on the annual financial statements for the year ended 31 March. The board, however, felt it prudent to draw attention to the timing risks of DAWN s turnaround as certain potential events and conditions could give rise to a material uncertainty that may cast significant doubt on the group s ability to continue as a going concern. These potential events and conditions include: no further material deterioration in the economy; the achievement of the forecast cash flow in an uncertain economy; and maintaining the group s ability to fund short-term liquidity requirements, which is dependent on adequate funding facilities. The auditor s report, therefore, included a Material Uncertainty Related to Going Concern thereby highlighting a matter in the annual financial statements fundamental to users understanding. Management is actively addressing the group s short-term challenges, with actions including corporate restructuring activities and alternative funding options. 20 For further information regarding the going concern assessment, please refer to note 44 on page 212 of the annual financial statements.

23 Distribution & Warehousing Network Limited Integrated report CHIEF FINANCIAL OFFICER S REPORT continued F RESULTS SUMMARY DAWN produced an operating loss (EBIT) of R468,8 million for F. Adding back impairments and restructuring costs of R349,1 million, the operating loss reduced to R119,8 million. A R52 million loss was incurred in the first half. The adjustment for impairments and write-downs before tax increased from R286,0 million in the first half to R349,1 million for the full year. The R286 million incurred in the first half comprised mainly closure costs at WHS, Incledon and Sangio Pipe, as well as the costs of reducing the scale of the African businesses. Further costs recognised in the second half include impairments on Heunis Steel, sold in January, Grohe DAWN Watertech (GDW) impairments and additional onerous lease obligations. INCOME STATEMENT Sales and gross margin Revenue for the full year declined by 13,9%, comprising a 9,9% and 18,4% decrease in the first and second half of the year, respectively. Revenue at R4,3 billion for F was down from around R5,0 billion (rounded up) in the previous financial year. Cost of goods sold of R3,5 billion was down from R3,9 billion in F and reflects the reduction in volumes offset by the increase in unit costs. The gross margin percentage declined by four percentage points to 18,0%. Volumes declined by 19%. The lower margin, together with the lower revenue, resulted in gross profit decreasing from R1,1 billion in F to R777,5 million in F, a decrease of 29,0%. The trading segment, mainly comprising WHS and Incledon, experienced a 19% decline in revenue to R3,1 billion (F: R3,9 billion). WHS and Incledon revenues declined by 10% and 38%, respectively, due to the depressed economy, as well as lower government spend on infrastructure and service levels. Revenue from the manufacturing segment, mainly comprising DPI Plastics and Swan Plastics, declined by 10% to R1,5 million (F: R1,6 billion), with DPI Plastics contributing a double-digit decline following a decline in water infrastructure spend. Margin deterioration in a very competitive market, together with lower volumes, remains a concern. Expenses Expenses, before restructuring costs, decreased by 5% in a 5%-to-6% inflation environment and reflect the group s focus on cost reduction. The main expense drivers remain employment costs, vehicle transportation expenditure and building occupancy costs, which account for 66% of total expenses. Total depreciation amounted to R41,1 million, considerably less than the R55,4 million charged in F. Amortisation of intangible assets amounted to R13,9 million and is in line with that of the previous year. Restructuring costs Once-off restructuring costs amounted to R349 million before tax and comprise closure costs, retrenchment costs and the impairment of investments. Operating loss The operating loss for the year to 31 March was R468,8 million compared to R661,4 million for F, an improvement of 29,1%. 21

24 CHIEF FINANCIAL OFFICER S REPORT continued Finance charges Net finance charges amounted to R58,6 million, compared to R71,1 million in F, mainly due to the R34,0 million raised on the Swan Plastics put option last year not repeating to the same extent. Transaction costs relating to bridging finance and deal costs amounted to R11,4 million, classified as finance expenses. Interest paid to financiers at R46,0 million increased by 24%. This was attributable both to increased borrowings and an increase in interest rates. Associates Losses from associates amounted to R41,0 million and compare to a loss of R5,9 million in F. GDW reported sharply down revenue. This, together with cost and margin pressure, resulted in a loss after tax of R111,5 million. DAWN s 49% share of this loss was R54,6 million. Although Heunis Steel continued to perform strongly, the need for liquidity necessitated a decision to sell the business. DAWN's 49% was sold for R50 million in January. Loss before taxation Loss before taxation amounted to R568,4 million compared to last year s loss of R738,3 million. Taxation The effective tax rate was 9,8%. The difference to the statutory rate was mainly attributable to losses incurred in separate statutory entities for which there was no tax relief in the form of set-off against future profits, impairment expenses not deductible and tax losses for which no deferred tax assets were raised. Attributable loss The loss at attributable level was R637,4 million and compares to a loss in the previous year of R762,9 million. STATEMENT OF FINANCIAL POSITION The statement of financial position at 31 March reflected that the group was solvent and was strengthened by the rights issue after the end of the financial year. This also addressed the liquidity constraint at that time. It is essential that the group returns to sustainable profitability to remain both solvent and liquid. The group's going concern assessment is outlined in note 44 on page 212. Property, plant and equipment Property, plant and equipment decreased from R236,3 million in F to R225,8 million at year-end. Additions to enterprise resource planning (ERP) software, generators, the vehicle fleet and plant and equipment amounted to R56,9 million, offset by disposals of R14,4 million. Depreciation charged was R41,1 million. During the comparable period in the previous year, additions amounted to R95,9 million and the depreciation charge was R55,4 million. Intangible assets Intangible assets comprised software (R55,7 million), goodwill (R1,2 million), trademarks (R3,2 million) and customer relationships (R5,0 million), totalling R65,1 million. Amortisation for the year of R13,9 million was marginally lower than that of the previous financial year. A considerable portion of the impairments made over the last few financial years related to intangible assets. 22

25 Distribution & Warehousing Network Limited Integrated report CHIEF FINANCIAL OFFICER S REPORT continued STATEMENT OF CASH FLOWS Working capital Net working capital days at 31 March were 47 days, which comprised debtor days at 38 days and inventory days at 54 days, offset by creditor days at 45 days. Inventory in days showed a significant reduction compared to the previous year, in part attributable to the closure of some operations. The accounts receivable collection period also showed a pleasing reduction of seven days over that of the previous year. Creditor funding in monetary terms and days outstanding decreased as a result of creditors now being paid on terms. Working capital analysis R billion % 5,5 24 5,0 5,1 5,0 22 4,8 4, % 4,5 4,5 4,3 17% 4, % 16% 16% 3,9 15% 4,0 16 3,5 12% 13% Rolling 12-month revenue (left-hand side) Working capital as a % of turnover Target mean of 15% (right-hand side) 3,0 10 Working capital after down-sizing costs R247 million over the last two years Cash flow As a result of trading losses, cash invested in operations was R371,6 million, offset by a reduction in working capital of R416,1 million. Net finance charges and taxation paid amounted to outflows of R51,4 million and R22,3 million, respectively. Investing and net finance activities resulted in an inflow of R68,0 million, comprising inflows in investing activities of R29,7 million and financing activities of R38,3 million. Cash flow is managed on a daily basis. An executive committee task team meets at least weekly to review the cash flow projections and to debate actions to manage cash flow and profitability. 23

26 CHIEF FINANCIAL OFFICER S REPORT continued Cash flow analysis Cash flow F R'million F R'million Opening cash balance 69,9 1,4 Cash generated from operations (371,6) 49,0 Explanation (R'million) F R'million F R'million Working capital changes 416,1 25,3 Net finance charges (51,4) (37,9) Tax paid (22,3) (20,9) Investing and net financing activities 68,0 53,0 Closing cash balance 108,7 69,9 Investing activities 29,7 (29,6) Disposals/acquisitions 59,3 (7,0) Proceeds from disposal 21,9 22,8 Capital expenditure (ERP software, generators, fleet, property and equipment) (51,5) (45,4) Net financing activities 38,3 82,6 Net debt inflow (including R200 million new bridging facility and R25 million in Absa repayment) 175,0 206,7 Net debt outflows (114,7) (85,9) Treasury shares Nil (30,9) Dividend (22,0) (7,3) SEGMENTAL RESULTS Summary of results based on the historic reporting structure (as at 31 March ) Building segment Revenue from the building segment declined by 10,9% from R2,5 billion to R2,3 billion, mainly attributable to significantly lower volumes in WHS. The building segment delivered an operational loss of R54,5 million compared to an operational profit of R16,0 million in F and a loss before interest and taxation of R244,0 million, with an operating margin of -10,8%. This was substantially worse than the loss of R464,5 million and margin of -18,4% in F. Infrastructure segment Revenue from the infrastructure segment declined by 18,5% from R2,4 billion to R2,0 billion, mainly attributable to lower income streams in Incledon and Sangio Pipe. The infrastructure segment delivered an operational loss of R60,4 million compared to an operational profit of R33,7 million in F, a loss before interest and taxation of R124,5 million, with an operating margin of -6,3% as a result of losses incurred in Sangio Pipe and DPI Plastics, slightly offset by Swan Plastics profit. Although this was an improvement from the loss of R158,5 million and the margin of -6,5% in F, it was still too far below budget. Solutions segment The solutions segment s revenue declined by 3,1% from R571,4 million to R553,7 million. A loss before interest and taxation of R42,7 million (F: R61,2 million) was incurred. Summary of results based on the new reporting structure (as from 1 April ) Trading segment 24 This segment comprises WHS and Incledon, as well as a number of smaller businesses, DAWN Kitchen Fittings, Hamilton s Brushware SA and DAWN Africa Trading. Revenue decreased by 19% to R3,1 billion against the comparative period in F. Margins reduced by 1,8%. The loss position worsened, with the loss before interest and taxation increasing by R116,1 million to R325,6 million.

27 Distribution & Warehousing Network Limited Integrated report Manufacturing segment This segment comprises DPI Plastics and Swan Plastics, as well as a few smaller businesses, Ubuntu Plastics, NPC in Namibia and associate Grohe DAWN Watertech. Revenue decreased by 10% to R1,5 billion as a direct result of the decrease in DPI Plastics. The segment reported a loss of R89,6 million compared to a loss of R436,2 million last year. OTHER MATTERS During the year reportable irregularities were reported by the external auditors to the Independent Regulatory Board of Auditors with respect to the transactions relating to an operating lease liability and the Swan Plastics written put. The external auditors have confirmed to the Independent Regulatory Board of Auditors that these irregularities are not continuing. Full disclosure on the matter was made in the annual financial statements. FINANCIAL FOCUS AREAS FOR F2018 Funding future growth: The cyclicality of funding requirements and the planned return of operations to profitable growth necessitate access to appropriate and adequate funding facilities. Various funding options are being explored and facilities will be structured to ensure future growth requirements are met. Working capital management: Net working capital in the group comprises mainly accounts receivable, as creditors are expected to fund inventory. As a result, and despite the improvements in inventory and receivables achieved in F, the working capital position is expected to remain tight. Working capital management continues to receive high focus and recent improvements have resulted in a pleasing improvement to the group s borrowings. Standardisation of business practices: Numerous legacy systems and disparate business practices resulted in a lack of consistency throughout the group. The ERP implementation creates the opportunity to standardise on best practice and ensure it is used to best advantage. Taxation: The complexity of the various types of taxation, as well as a more aggressive stance by SARS, has elevated tax compliance to a significant financial risk. A structured approach will be followed to ensure compliance to all forms of taxation. Covenants: As announced on SENS on 2 August, DAWN, as at the June measurement date, breached one of the financial covenants contained in the term sheet governing the group s banking facilities with Absa Bank Limited. This is as a result of the group lagging behind its budgeted profitability. Based on engagements by the group to date, Absa Bank Limited has formally condoned the breach. The group continues to work closely with its bank to maintain adequate funding facilities whilst the turnaround plan is being executed. APPRECIATION The financial year brought with it many challenges. I would like to acknowledge the invaluable contribution of all the staff in the finance function and extend my appreciation for their hard work and commitment to maintaining high standards of reporting and disclosure to stakeholders. I would like to express my thanks to the audit and risk committee as well as the group s internal audit, governance, risk and compliance team. Their diligence and professional oversight of the group s finances, internal controls and related matters is appreciated by me, the executive committee, colleagues and the board. Chris Booyens Chief financial officer 23 August 25

28 SR STAKEHOLDER ENGAGEMENT Stakeholder Who are our stakeholders What matters to them? Shareholders and the investment community Providers of share capital and the primary risk takers within the business. The generation of sustainable, market-related returns on their investment by DAWN, together with timely, relevant, open and ongoing communication on DAWN s activities and performance as well as the creation of an informed perception of the DAWN group, whereby more accurate expectations are ensured and a positive investment environment is created. Banks, funders and insurance companies Primary bankers who provide working capital, foreign exchange services and general transactional banking facilities; and credit underwriters who provide insurance on trade and other receivables to manage credit risk in accordance with group policy. Stable and sound financial management of the business and the management of funding within the parameters set by the agreements entered into between DAWN and its funders, supported by regular updates and communication on developments in DAWN s financial sphere. Regulators Industry associations and various regulatory bodies who ensure that the group adheres to all applicable laws, regulations, codes and corporate governance, specifically the JSE, Department of Trade and Industry, Department of Water Affairs and Forestry, South African Revenue Service, South African Reserve Bank, the Competition Commission and the Department of Labour. Compliance with laws and regulations that are designed to protect stakeholders, primarily through the submission of regular statutory returns and the timely collection and payment of duties and taxes. Customers Retailers and contractors in the hardware, sanitaryware, plumbing, kitchen, engineering and civil industries. To gain access to DAWN s quality product and service offerings and obtain solutions that will achieve the desired outcomes for customers respective businesses through the group s 100% coverage of the southern African market facilitated by its milk-run distribution model combined with its break-bulk and just-in-time service. 26 Suppliers External and partly or wholly-owned local and international manufacturers who supply the ranges which DAWN trades in, being hardware, sanitaryware, plumbing, kitchen, engineering and civil products, in accordance with the group s procurement policy. To render an ongoing and commercially viable supply of the products and services DAWN requires, aligned to DAWN s break-bulk, just-in-time distribution model, with reciprocal benefits to both the supplier and the group, thereby ensuring long-term relationships.

29 Distribution & Warehousing Network Limited Integrated report STAKEHOLDER ENGAGEMENT continued How we engage with them? Formal engagement through SENS, results presentations, investor updates, workshops and specific meetings in accordance with the JSE Listings Requirements and as required by DAWN and its investors. The group, through various mechanisms, seeks feedback from analysts and the financial press on information they require at both the half-year and year-end. DAWN s executive committee ensures that investor presentations provide the information required by analysts and the financial press and that key sentiments are addressed. This also applies to all statutory and supporting documentation presented at the half-year and year-end. Shareholders are given the opportunity to put questions to the board at the annual general meeting and all other shareholder meetings and presentations. Activities during F and feedback we received The group concluded a renounceable rights offer on 12 April, raising R358 million and increasing the company s issued share capital to shares. The board presented both the interim and year-end results formally to the Investment Analyst Society. Board members embarked on a roadshow as well as scheduled meetings with major shareholders and institutional investors, after the required SENS announcements, to keep them abreast of developments at DAWN. The chairman of the board met with major shareholders to clarify the group s remuneration policies and to seek their input into remuneration-related benchmarks and other matters. DAWN s integrated report, sustainability information and annual financial statements are published annually within an acceptable timeframe after each year-end. These reports seek to provide shareholders, and other stakeholders, with an in-depth understanding of the group s strategy, value drivers, governance, reward systems as well as actual performance on various aspects, including both financial and non-financial performance. Banks and funders regular detailed formal and informal engagement, primarily through audits, annual facility reviews, exchange control applications and ad hoc funding requirements, in a transparent manner, to ensure high levels of trust. Insurance regular structured engagements including upfront credit assessments of customers and facility limits being agreed, followed by ongoing reporting on customers trading levels and payment history. Highly regulated formal communication and submission of returns at specified dates as well as limited informal communication. Regular site visits by all levels of management to maintain healthy relationships, supply information around products and services and obtain feedback from customers. DAWN received bridging finance of R200 million from Investec through an unsecured facility while awaiting the proceeds of the rights offer. The full R200 million was repaid on 18 April. As at the June measurement date, DAWN breached one of the financial covenants contained in the term sheet governing the group s banking facilities with Absa Bank Limited. Based on engagements by the group to date, Absa Bank Limited has formally condoned the breach. Relationships and communication with banks and funders are maintained on an ongoing basis to ensure facilities remain in place for DAWN's liquidity requirements. Management interacted with the JSE s Proactive Monitoring Panel to ensure that the financial statements are aligned to requirements and best practice, with specific reference to IFRS applications. The Competition Tribunal handed down a decision pertaining to a market allocation arrangement between DPI Plastics and Sangio Pipe. The legal process to determine the penalty quantum is currently underway, however, the group believes, supported by legal advice, that an appeal will be successful. Numerous surveys were conducted with customers to determine their needs, perceptions and expectations. Executive management embarked on a roadshow to address the needs and issues raised by customers and to establish actions going forward. This process will continue on an ongoing basis. Formal service level agreements are entered into with suppliers. Regular meetings are scheduled between suppliers and varying levels of management, with supplier conferences being facilitated by the national team annually. Top management visited all significant suppliers to reinforce relationships. Terms of trade have been renegotiated with suppliers. 27

30 STAKEHOLDER ENGAGEMENT continued Stakeholder Who are our stakeholders What matters to them? Employees A diverse range of individuals of varying skills, expertise, qualifications, experience and nationalities (including race and gender diversity) employed across the group to add value to all stakeholders. Career and personal development in a work environment that ensures job security and appropriate rewards for performance. Trade unions Organisations of workers in the same skilled occupations or related skilled occupations who act together to secure favourable working conditions for all their respective members. Maintaining good working relationships and obtaining consensus on any decisions or projects that may result in changes in working conditions or in DAWN s operational requirements through engaging on collective employment issues and communicating potential changes affecting labour. Communities The areas in which DAWN s operations are located and the people participating in and related to the group s activities. The creation of partnerships to best facilitate integrated sustainability initiatives and to collaborate in a way that furthers social and environmental agendas for the greater good of the community. Media Media includes every broadcasting and narrowcasting medium such as newspapers, magazines, TV, radio, billboards (including signage on trucks), direct mail, telephone, fax and internet. To educate and inform the respective audiences of developments in the building and infrastructure sectors, adding DAWN s voice to the public debate, as well as to communicate the group s performance and contribution to the economy, including its product and service offerings. Government national, provincial and local Members of local, provincial and national government with particular emphasis on those involved in infrastructure development. DAWN is, and is seen to be, an active participant in driving the economic, social and environmental upliftment of the country. 28

31 Distribution & Warehousing Network Limited Integrated report STAKEHOLDER ENGAGEMENT continued How we engage with them? Daily formal and informal engagement to ensure staff receives the necessary guidance, motivation, feedback and recognition. Union representatives are elected to liaise with management on matters affecting union members. Human resources managers are responsible for managing the relationship with the employee unions and relevant industrial labour organisations. Meetings are held with the bargaining councils, as required. Engagement occurs on strategic level as well as on operational and tactical levels, thereby improving both management and the unions commitment to common values and objectives. A consistent approach to community development is adopted and engagement is ongoing as partnerships dictate or stakeholder needs require. Marketing activities A central marketing function consults with companies in the DAWN group on the development of their respective marketing plans and ensures that the plans are executed within an approved marketing budget and within specified timelines, included in the respective marketing plans. Activities during F and feedback we received An electronic newsletter DAWN In Touch was created during the year and is distributed to employees monthly to keep them abreast of developments in the group. The remuneration structure of sales representatives has been adjusted favourably and branded vehicles were supplied to them to enhance their marketing efforts. A retention bonus was paid to key staff and share options were awarded under the long-term incentive plan (LTIP) and share appreciation rights (SAR) schemes. No salary increases were awarded in July, but the remuneration committee recommended increases to take effect in July, which the board has approved and which increases have been implemented. The owner-driver scheme continued and around 40% of vehicles are now owned by the drivers. Retrenchment of 377 employees, as a consequence of the group restructure and turnaround plan, were completed during the year. DAWN assisted with the finding of alternative employment (50% success rate) and provident and financial advisors met with employees to assist with their financial planning. Plant level union relations are generally healthy and regular in-depth consultations and negotiations take place. The unions were involved, as prescribed, in all restructuring consultations over the period. DAWN companies contributed to an orphanage, home for disabled people and a safe house in communities. The group provided an administration learnership and a production technology learnership for unemployed individuals in the communities where its employees reside. The company and staff donated and participated in Slipper Day where funds were donated to Reach for a Dream. Donations of bottles of water, to assist with the drought relief in affected communities, were made by the Free State branches. During the last year, the group engaged with the media, as and when requested. Going forward a proactive communications approach will be implemented. Interactions with the press interviews and press briefings are given to members of the media. These take the form of one-onone time with DAWN executives and key spokespeople across the group as well as updates relevant to the group s performance and business activities. DAWN, through its participation in infrastructure development, engages with both local and provincial government on these projects, either directly or indirectly. Relationships with government departments are maintained at good levels. This applies across the three spheres of government, with particular reference to the infrastructure development activities of local government, and respect and support for the democratic process at this level. The primary methods of engagement with government are through formal meetings and tender processes. Meetings are held with government, as required. Government and municipal spending on water infrastructure plunged from H1 F, with a severe lag in tenders being awarded. DAWN s liquidity deteriorated further due to acute delays in payments from government on work completed. 29

32 GOVERNANCE Distribution and Warehousing Network Limited and its subsidiaries fully support the King Report on Governance for South Africa 2009 and the King Code of Governance for South Africa 2009 (King III). The board and individual directors are committed to the principles of transparency, integrity and accountability and accept their duty and responsibility to ensure that the principles set out in the Code of Corporate Practices and Conduct, as defined in the King III Report, are observed. The board is satisfied that the group complies with the JSE Listings Requirements as well as with all material provisions of King III, as has been reported in the corporate governance register which is available on DAWN s website at The board will review the application of King IV during the year ahead and will report thereon in the 2018 integrated report. GOVERNANCE AND COMPLIANCE FRAMEWORK A governance and compliance framework has been agreed between the group and its subsidiary boards. The policies, procedures and processes of the group are adopted and implemented at subsidiary companies. Risk tolerance/appetite DAWN BOARD Reporting Combined assurance framework Company secretary AUDIT AND RISK COMMITTEE REMUNERATION COMMITTEE NOMINATION COMMITTEE SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE IT STEERING COMMITTEE AUDIT RISK CEO EXECUTIVE COMMITTEE Functional Administrative IT Governance DAWN business systems Risks Standards Disaster recovery Internal audit Risk-based Risks Performance Cycle Effectiveness Risk management and governance Ethics Fraud and irregularities Ethics hotline Control environment IT general controls Risk management Sustainability Internal financial control review Operational risk/opportunity Tactical risk/opportunity Strategic risk/opportunity Project risk/opportunity Reporting GRI/SRI Combined assurance plan Projects Carbon reduction BBBEE Energy saving/renewable energy Waste reduction Compliance 30 Environmental/ health and safety Third party assurance Group safety, health and environment function Competition Act Companies Act Consumer Protection Act Occupational Health and Safety Act National Credit Act JSE King III Income Tax Act BBBEE Compliance framework Legal Policies and procedures Ethics Delegation of authority Declaration of interest

33 Distribution & Warehousing Network Limited Integrated report H LEADERSHIP BOARD OF DIRECTORS Independent non-executive directors Diederik Fouché (63) Lou Alberts (76) Charles Boles (48) Akhter Moosa (65) Independent non-executive chairman CA(SA); MCom; Higher Diploma Tax Law (WITS); Higher Diploma Business Processing (WITS) Date appointed: 1 November 2015 Chairman of the nomination committee and member of the remuneration committee Diederik was a PwC partner for 34 years and head of PwC Southern Africa Consumer, Industrial Products and Services industry practice ( CIPS ) for 17 years. He served as member of the PwC Southern Africa and Africa board and was chairman of the finance and risk committee. He also represented the firm on the PwC Europe, Middle East and Africa CIPS committee. He has extensive experience in the consumer industrial products and services industry and has engaged with clients, global experts and industry on various surveys, trends and strategic issues. He has provided clients with merger and acquisition transaction structuring and support. Lead independent director BSc Eng; MBL Date appointed: 30 August 2001 Chairman of the remuneration committee and member of the audit and risk committee and the nomination committee Lou has more than 40 years experience in technical management as well as in the business field, where he has held various executive directorships. He participated in the unbundling of the Boumat group in 1999, where he was the CEO, and has also served on the board and council of SEIFSA. He consults to the building industry, both locally and internationally. Lou retired as chairman of DAWN on 30 June 2011 and is the lead independent director. External appointments: None. Independent non-executive director CA(SA); HDip Tax; HDip Company Law; MBA (cum laude) Date appointed: 20 July Charles was a partner in the corporate finance division of PricewaterhouseCoopers, where after he joined Investec Bank s corporate finance and private equity division. At Investec he was instrumental in the establishment and subsequent listing on the JSE of First SA Food Holdings Ltd. He served as a non-executive director on First SA Food Holdings Ltd s board until its delisting, following a management buy-out led by Ethos Private Equity. Charles founded and is the owner of Titanium Capital, a financial services firm. External appointments: Currently serves as a non-executive director on the boards of Hulamin Ltd and Interwaste Ltd. Independent non-executive director CA(SA) Date appointed: 28 March Chairman of the audit and risk committee from 28 March and member of the remuneration committee and the nomination committee from 14 July Akhter completed his BCom at the University of Durban-Westville, his BCom Hons at Unisa and qualified as a chartered accountant in He has extensive experience at board level. External appointments: Currently serves as a member of the disciplinary committee of the Independent Regulatory Board of Auditors; advisor to the audit committee of SANRAL Ltd; member of the audit and risk committee of the Competition Tribunal; and non-executive director of SAA. External appointments: Currently serves as the lead independent nonexecutive director on the board of Astral Foods Ltd, as well as a member of the audit committee of Thebe Investment Corporation (Pty) Ltd. Ages at publication date, being 23 August. 31

34 LEADERSHIP continued BOARD OF DIRECTORS continued Independent non-executive directors continued Dinga Mncube (57) Independent non-executive director MCom Business Management; MSc Forest Products Date appointed: 1 May 2014 Member of the audit and risk committee Dinga has over 20 years executive experience in forestry, timber processing and the paper and pulp industry, has chaired various forestry bodies and has been a board member of Sappi Southern Africa. He played a leading role in the revival of Project Grow, an award-winning enterprise development programme at Sappi, and drove Sappi s R814 million BBBEE deal in External appointments: Currently serves as non-executive director of York Timber Holdings Ltd, Rolfes Holdings Ltd and Siyaqhubeka Forests (Pty) Ltd. Non-executive directors Theunis de Bruyn (49) Non-executive director CA(SA) Date appointed: 20 July After serving articles at Ernst & Young, Theunis joined Ford SA as assistant treasurer. From there he joined Huysamer Stals stockbroking firm (thereafter sold to ABN AMRO) where he later headed up research. Theunis is the founder and managing director of Calibre Capital (Pty) Ltd and a founding shareholder of RECM & Calibre Ltd, a major shareholder of DAWN. External appointments: Currently serves as non-executive director of RECM & Calibre Ltd, ELB Group Ltd and Sentula Mining Ltd. Veli Mokoena (57) Non-executive director BA (UJ); Post-Graduate Diploma in Management (Wits); Executive Development Programme (New York) Date appointed: 22 June 2011 Chairman of the social, ethics and transformation committee Veli was appointed to the Imperial board on 2004 and, with the unbundling of Eqstra from the Imperial Group in 2008, joined the Eqstra board. He was the CEO of Ukhamba Holdings, the Imperial Group s BBBEE partner, until his resignation in External appointments: Founder of Ninathi Investment (Pty) Ltd and non-executive chairman of Ukhamba Holdings (Pty) Ltd, a major BBBEE shareholder of DAWN. George Nakos (40) Non-executive director BCom (cum laude); CA(SA); CFA; PLD (Harvard) Date appointed: 12 November 2015 George is currently employed as group corporate finance executive of Imperial Holdings Ltd. From 2000 to 2015, George was employed in various senior corporate finance positions by Investec Bank and global coordinator of the natural resources corporate finance team. External appointments: Member of the executive committee of Imperial Holdings Ltd. 32

35 Distribution & Warehousing Network Limited Integrated report LEADERSHIP continued BOARD OF DIRECTORS continued Executive directors Stephen Connelly (65) Executive deputy chairman Date appointed: 1 April Member of the executive committee and audit and risk committee from a risk perspective from 1 April Stephen joined Hudaco Industries Ltd in 1992 as CEO and retired in On 1 April, he was appointed to the DAWN board as independent non-executive director. As from 1 June Stephen assumed the role of interim CEO. With effect from 1 April, on the appointment of Edwin Hewitt as CEO, Stephen was appointed as executive deputy chairman of DAWN. External appointments: Non-executive director of Hudaco Industries Ltd. Edwin Hewitt (51) MDip Tech; NH Dip (Metallurgical Engineering); N Dip (Metallurgical Engineering); International Executive Program (IMP), USA; Management Development Programme Chief executive officer Date appointed: 1 April Member of the executive committee; member of the audit and risk committee from a risk perspective from 1 April ; member of the social, ethics and transformation committee from 14 July Edwin was appointed chief restructuring officer at DAWN in February, working with a major bank, where he played a significant role in finalising a recapitalisation programme. Prior to working at DAWN, Edwin was the chief restructuring officer at cement producer PPC, working with four major banks to restructure the debt and major risks. He also previously served as group chief executive officer of Capital Africa Steel and fabrication and manufacturing division head as well as group executive director at Murray & Robert. With effect from 1 April, Edwin has been appointed chief executive officer of DAWN. External appointments: None. Chris Booyens (60) Chief financial officer and financial director BCompt (Hons); CA(SA) Date appointed: 1 May Member of the executive committee and audit and risk committee from a risk perspective from 1 May Chris held numerous positions in financial management, in a number of sectors which included engineering, transport and logistics, mining, food, pharmaceuticals, industrial gasses and several years in the building materials industry as Iliad Africa s group financial director. He also previously served as financial executive and executive director at various Tiger Brands subsidiaries. He was previously a director at Harmony Gold Mining, The Cold Chain, Enterprise Foods and Adcock Ingram Pharmaceuticals. He has significant experience in listed environments and in turnaround situations. External appointments: None. René Roos (50) Chief of staff BCom (Hons); MBA Date appointed: 14 December 2009 Member of the the executive committee, the social, ethics and transformation committee and chairman of the IT steering committee René completed her BCom (Hons) degree at UJ in 1989 and her MBA at Wits Business School in She joined the group in 1997 as HR executive and has been a member of the executive committee since She was appointed as chairperson of the shared services unit in 2004 and became CEO thereof when it was set up as a group division in René served on various subsidiary boards of directors over the duration of her employment with DAWN, including Wholesale Housing Supplies, Springset, United Express and recently, Hamilton s. She is currently group chief of staff and serves as strategic business partner for Incledon and Roco. External appointments: None. 33

36 LEADERSHIP continued EXECUTIVE COMMITTEE Stephen Connelly (65) Edwin Hewitt (51) Chris Booyens (60) René Roos (50) Executive deputy chairman Date appointed: 1 April Member of the executive committee and audit and risk committee from a risk perspective from 1 April As Stephen is an executive director, his brief curriculum vitae is disclosed on page 33. Chief executive officer Date appointed: 1 April Member of the executive committee and member of the audit and risk committee from a risk perspective from 1 April ; member of the social, ethics and transformation committee from 14 July As Edwin is an executive director, his brief curriculum vitae is disclosed on page 33. Chief financial officer and financial director BCompt (Hons); CA(SA) Date appointed: 1 May Member of the executive committee and member of the audit and risk committee from a risk perspective from 1 May As Chris is an executive director, his brief curriculum vitae is disclosed on page 33. Chief of staff BCom (Hons); MBA Date appointed: 14 December 2009 Member of the executive committee, social ethics and transformation committee and the IT steering committee As René is an executive director, her brief curriculum vitae is disclosed on page 33. Hanré Bester (38) Group financial manager CA(SA); Mcom (Tax) Date appointed: 5 July 2010 Hanré has been with group for seven years as group financial manager and served as interim financial director during the first half of F. Hanré qualified as CA(SA) at PricewaterhouseCoopers Inc and spent six years in tax consulting before joining the DAWN group. Member of the executive committee from 1 April Sandy Visser (44) Group HR executive BCom Industrial Psychology Date appointed: 1 October 2015 Member of the executive committee from 1 April Sandy has extensive experience in the corporate human resources arena having managed the human resources integration and due diligence on mergers and acquisitions, change and culture change management programmes and the full human resources executive function. She developed various human resources measurement systems, including a human capital measurement tool that can measure financial calculations of people as an asset on the statement of financial position. Her experience includes management positions at Coricraft (Pty) Ltd, The Standard Bank of South Africa, Ellerines and the Mathobo Group. 34 Vanessa White (38) Group governance, risk and compliance executive MPhil Internal Auditing; BCom Hons Internal Auditing (cum laude); BCom Financial Accounting (cum laude); CIA; CISA; CCSA Date appointed: 1 August 2015 Member of the executive committee from 1 September Vanessa joined the group as group internal audit executive and was subsequently promoted to the position of group governance, risk and compliance executive. She performed her articles at KPMG and continued in the consulting field, firstly as co-owner of a small independent consulting practice, and thereafter at Deloitte, specialising in enterprise risk management and internal audit. Vanessa s experience in governance, risk and compliance across a range of industries allows her to contribute to strengthening the group s governance, risk management, compliance and control processes.

37 Distribution & Warehousing Network Limited Integrated report LEADERSHIP continued EXECUTIVE COMMITTEE continued Nic de Waal (53) Managing director of DPI Plastics Steve du Toit (52) Chief executive officer of WHS Craig Rankin (36) Managing director of Incledon NDip Electrical Engineering: Heavy Current Date appointed: 1 April Member of the executive committee from 1 April BSc; MBA Date appointed: 1 April Member of the executive committee from 1 April BCom (Hons); CA (SA) Date appointed: 1 June Member of the executive committee from 1 April Nic has about 38 years experience in the manufacturing environment in southern Africa. He has been instrumental in the implementation of significant costreductions at companies in the automotive, mining and electrical sectors, through the improvement of efficiencies, consolidation of plants, centralisation of manufacturing facilities and the automisation of manufacturing lines. Steve has more than 20 years executive experience directing substantial southern African businesses as well as being the delegate carrying responsibilities for all business activities for a large multinational listed company. His skills focus on safety, people development, innovation, customer service, operational efficiencies, working capital management, employee engagement and a strategic sustainable agenda encompassing people, planet and profit. Craig has a demonstrated history of success in working in the construction industry. As a chartered accountant, he is financially astute, but has an entrepreneurial bias with skills in strategic planning, general management and negotiation. He has the ability and desire to build, lead and work with strong teams. Previous positions include being the chief financial officer of Incledon, financial manager of Saint-Gobain Gyproc and corporate financial manager at AfriSam. 35

38 CORPORATE GOVERNANCE AT DAWN A summary of DAWN s compliance with the principles contained in chapter 2 of King III is outlined below: BOARD COMPOSITION The unitary board of directors of DAWN is chaired by Diederik Fouché, an independent non-executive director. Lou Alberts, the lead independent director, re-appointed with effect from 14 July, fulfils an underpinning role to the chairman. The board composition reflects an appropriate mix of executive and non-executive directors. Specifically, on 31 March it comprised six non-executive directors, with four being independent, and three executive directors. The board included three black directors, translating into one-third black representation, with gender diversity translating into 11% through one of the directors being a female. On 29 June, the board adopted a gender equality policy with the overall objective of the policy being to provide a guideline for enhancing gender equality in the workplace and to integrate gender into group practices. The policy recommends the development of specific interventions to meet the developmental needs of women to ensure and drive empowerment with the overall aim of achieving gender equality in the workplace. The scope of the policy extends equally to all employees of the group and its subsidiaries. On 1 April, Stephen Connelly was appointed as executive deputy chairman, following the appointment of Edwin Hewitt as chief executive officer on the same date. David Austin resigned as chief financial officer and financial director on 17 March, effective 30 June. Chris Booyens was appointed as chief financial officer and financial director on 1 May. With effect from 20 July, Charles Boles has been appointed as independent non-executive director and Theunis de Bruyn as non-executive director. The board will therefore, for F2018, comprise twelve directors, of whom eight are non-executive with five being independent, and four executive directors. The board structure allows the non-executive directors to provide independent judgement on issues of strategy, performance, resources, transformation, diversity, employment equity and evaluation of performance and standards of conduct. While executive directors have service contracts and restraint agreements, they are also shareholders. MEETING ATTENDANCE Attendance at board meetings by the directors during the period 1 April to 31 March follows. Special Special Special Special Special Special 1 Apr 26 Apr 10 Jun 29 Jun 14 Jul 31 Aug 14 Nov 15 Dec 26 Jan 21 Feb 22 Mar Diederik Fouché (Chairman) Lou Alberts Telecon Apology Telecon Telecon David Austin ¹ n/a n/a n/a n/a n/a n/a Hanré Bester ² n/a n/a n/a n/a n/a n/a n/a n/a n/a Jan Beukes ³ Apology n/a n/a n/a n/a n/a n/a Stephen Connelly n/a Dries Ferreira ³ n/a n/a n/a n/a n/a n/a Saleh Mayet 4 Apology Telecon Telecon n/a n/a Dinga Mncube Apology Veli Mokoena Apology Telecon George Nakos Telecon Telecon Apology Apology Telecon Apology Telecon Apology René Roos Derek Tod 5 n/a n/a n/a n/a n/a n/a n/a n/a n/a 36 ¹ Appointed on 18 November ; resigned on 17 March, effective 30 June. ² Appointed on 14 July. ³ Resigned on 14 July. 4 Resigned on 20 February. 5 Retired on 31 May.

39 Distribution & Warehousing Network Limited Integrated report CORPORATE GOVERNANCE AT DAWN continued CHAIRMAN, CHIEF EXECUTIVE OFFICER AND EXECUTIVE COMMITTEE The roles of the chairman and chief executive officer are separate. The role of the chairman is formalised and the chairman s ability to add value, and his performance against what is expected of his role and function, are assessed annually by the board. The board elects a chairman on an annual basis. The chairman is responsible for the effective leadership of the board as contemplated in King III. The board considers the number of outside chairmanships held and ensures a proper succession plan for the position of chairman. The daily management of the group s affairs is delegated to the chief executive officer, who co-ordinates the implementation of board policy through the executive committee. The executive committee comprises: Designation David Austin Chief financial officer (until 30 June ) Hanré Bester Group financial manager (interim chief financial officer from 14 July to 18 November ) Chris Booyens Chief financial officer (from 1 May ) Stephen Connelly Chief executive officer (until 31 March ) Executive deputy chairman (from 1 April ) Nic de Waal Managing director DPI Plastics Steve du Toit Chief executive officer WHS Edwin Hewitt Chief executive officer (from 1 April ) Graeme Johnston WHS supply-chain management director (until 31 May ) Craig Rankin Managing director Incledon René Roos Chief of staff Sandy Visser Group human resources executive Vanessa White Group governance, risk and compliance executive DAWN has identified its prescribed officers as the members of the executive committee who are not executive directors. APPOINTMENT OF DIRECTORS Directors, both executive and non-executive, are appointed for their skill and experience. The appointment of new directors requires the unanimous approval of the board. The board established a formal orientation programme to familiarise incoming directors with the group s operations, senior management and its business environment and to induct them in their fiduciary duties and responsibilities. The board also provides input regarding senior management appointments. The company secretary assists with the director induction and continuing professional development training programmes. The induction and ongoing training programmes of the board incorporate risk governance as well as an overview of and any changes to laws, rules, codes and standards applicable on the company to enable directors to sufficiently familiarise themselves with the general content thereof to discharge their legal duties. The board has the authority to remove any director without shareholder approval. The rotation of all directors is every three years, as outlined in the company's memorandum of incorporation. The chairman rotates in his capacity as a director. ROLE AND RESPONSIBILITIES The board provides effective leadership based on an ethical foundation and ensures that the company is seen to be a responsible corporate citizen. The board ensures that the company s ethics are managed effectively and ensures that all deliberations are based on the four values underpinning good governance responsibility, accountability, fairness and transparency. 37

40 CORPORATE GOVERNANCE AT DAWN continued The board meets at least quarterly to initiate, evaluate and monitor business matters which have an impact on the wellbeing of the group and its stakeholders. These include setting group strategy, determining policy and instituting control measures. The board appreciates that strategy, risk, performance and sustainability are inseparable and gives effect to this by contributing to and approving the strategy; identifying key performance and risk areas; ensuring that the strategy will result in sustainable outcomes; and, considering sustainability as a business opportunity that guides strategy formulation. DAWN s strategy is summarised on pages 17 to 19. The board takes final responsibility for acquisitions and disposals, approves capital expenditure and appraises proposals from the executive and other board committees. The board gives strategic direction to the group, appoints the chief executive officer and ensures that succession is planned. A formal succession planning policy was adopted by the remuneration committee. The non-executive directors take responsibility for ensuring that the chairman encourages proper deliberation of all matters requiring the board s attention. The board ensures that there is an appropriate balance of power and authority on the board so that no one individual or block of individuals can dominate the board s decision-making process. The board ensures that the group complies with all relevant laws, regulations and codes of business practice and that it communicates with its shareholders and relevant internal and external stakeholders openly, promptly and with substance prevailing over form. The board and its committees are supplied with full and timely information which enables them to discharge their responsibilities and have unrestricted access to all group information, records, documents and property. Non-executive directors have access to management and may even meet separately with them, without the attendance of executive directors. RISK MANAGEMENT AND MATERIALITY The board has a comprehensive system of control ensuring that risks are mitigated and the group s objectives are attained. This control environment sets the tone of the group and covers ethical values, management s philosophy and the competence of employees. The board identifies the key risk areas and key performance indicators for the group. These are regularly updated and particular attention is given to technology and systems as the board is ultimately responsible for the governance of information technology. The board defines levels of materiality, reserving specific power to itself and delegating other matters with the necessary written authority to management. These matters are monitored and evaluated on a regular basis. SUSTAINABILITY The board regards sustainability as a business opportunity to create value on social, economic and environmental levels. The objective of the group s sustainability programme is to eliminate or minimise adverse consequences for the group on the community and the environment and to improve the impact of the group s operations on the economic life of the community. INDEPENDENCE ASSESSMENT The board has adopted a policy on the independence of directors. The test of independence is defined as Independent of management and any business or other relationship that could materially interfere with the exercise of objective, unfettered or independent judgement by the director or the director s ability to act in the best interests of the DAWN group. The board evaluated and concluded that as at 31 March four of the six non-executive directors were independent according to the Companies Act definition. George Nakos and Veli Mokoena are not considered independent in terms of the definition due to their representation of a significant shareholder of the company. 38 One of the non-executive directors on the board has served a term exceeding nine years. The board reviewed the independence of Lou Alberts and, after due consideration, concluded that his long association with the group has not impaired his integrity, impartiality and objectivity and that he has retained his ability to act independently.

41 Distribution & Warehousing Network Limited Integrated report CORPORATE GOVERNANCE AT DAWN continued ROTATION OF DIRECTORS In terms of the company s memorandum of incorporation, Diederik Fouché and Dinga Mncube retire by rotation at the forthcoming annual general meeting. The retiring directors are eligible and available for re-election. Shareholders will be requested to pass resolutions to ratify the appointments of Edwin Hewitt, Akhter Moosa, Chris Booyens, Charles Boles and Theunis de Bruyn at the annual general meeting to be held on Friday, 24 November. ANNUAL BOARD EVALUATION An annual evaluation of the board was conducted in and consisted of a questionnaire being completed by all board members. The results were collated by the company secretary and passed on to the board who assessed the results. The board concluded that the organisation s performance versus that of its peers and comparisons of industry are to be aggressively considered in a manner that enhances comprehensive risk oversight. This annual evaluation is comprehensive, encompassing all aspects of the board s responsibilities. It covers the effectiveness of the board as a whole. Nomination for re-appointment of a director only occurs after evaluation of performance and attendance at meetings by the director. The chairman annually appraises the chief executive officer and the results of this appraisal are considered by the remuneration committee to guide it in its evaluation of the performance and remuneration of the chief executive officer. BOARD CHARTER The purpose of the charter is to regulate the parameters within which the board will operate and to ensure the application of the principles of good corporate governance in all dealings by, in respect and on behalf of, the company and furthermore to set out the roles and responsibilities of the board and individual directors, including the composition and relevant procedures of the board as well as the various legislation and regulations affecting their conduct. The board charter was reviewed and approved by the board on 22 March and is available for inspection at the company s registered office. BOARD COMMITTEES Specific responsibilities have been formally delegated to board committees with defined terms of reference, life span and function, clearly agreed upon reporting procedures and a written scope of authority. The committees are appropriately constituted with due regard to the skills required by each committee and the committees terms of reference are reviewed once a year. There is transparency and full disclosure from the board committees to the board. Board committees are free to take independent outside professional advice as and when necessary and are subject to regular evaluation by the board to ascertain their performance and effectiveness. The board committees are the: Audit and risk committee; Remuneration committee; Nomination committee; Social, ethics and transformation committee; and IT steering committee. 39

42 CORPORATE GOVERNANCE AT DAWN continued AUDIT AND RISK COMMITTEE During the year under review the audit committee and the risk committee were combined into one committee, the audit and risk committee. The audit and risk committee s membership constitutes the following: Designation Area of responsibility Date appointed Date resigned Saleh Mayet Independent non-executive director Audit and risk 29 May February and chairman of the committee Akhter Moosa Independent non-executive director Audit and risk 28 March and chairman of the committee Lou Alberts Independent non-executive director Audit and risk 30 June 1998 Dinga Mncube Independent non-executive director Audit and risk 23 May 2014 David Austin Chief financial officer and financial Risk 18 November 30 June director Hanré Bester Chief financial officer and financial Risk 14 July 18 November director Dries Ferreira Chief financial officer and financial Risk 23 May July director Stephen Connelly Chief executive officer/ executive Risk 1 April deputy chairman Steve du Toit Chief executive officer WHS Risk 29 August Edwin Hewitt and Chris Booyens were appointed as members of the audit and risk committee, from a risk perspective, with effect from 1 April and 1 May, respectively. The group governance, risk and compliance executive, Vanessa White, has a standing invitation to meetings. Attendance at meetings by members of the audit and risk committee during the period 1 April to 31 March is outlined below. Audit only Audit only Special 20 Apr 22 Jun 29 Jun 29 Aug 9 Nov 16 Mar Saleh Mayet (chairman) ¹ n/a Lou Alberts David Austin ² n/a n/a n/a n/a n/a Hanré Bester ³ n/a n/a n/a n/a Dinga Mncube Akhter Moosa (chairman) 4 n/a n/a n/a n/a n/a n/a Dries Ferreira 5 n/a n/a n/a n/a n/a Stephen Connelly n/a n/a Steve du Toit n/a n/a ¹ Resigned with effect from 20 February. ² Appointed on 18 November ; resigned on 17 March, effective 30 June. ³ Appointed on 14 July ; resigned on 18 November. 4 Appointed with effect from 28 March. 5 Resigned 14 July. 40 The chairman of the board attended all the above meetings as an invitee.

43 Distribution & Warehousing Network Limited Integrated report CORPORATE GOVERNANCE AT DAWN continued Audit The report on the audit functions of the audit and risk committee is outlined on pages 93 to 96 of the annual financial statements, in accordance with the Companies Act and the JSE Listings Requirements. Risk The overall objective of the committee is to effectively communicate and oversee the process, models and frameworks for managing risk across the group to: safeguard the group s assets and investments; support business objectives and sustainability under normal as well as under adverse operating conditions; and behave responsibly towards all stakeholders having a legitimate interest in the group. Whilst the board is ultimately responsible for the maintenance of an effective risk management process, the committee assists the board in assessing the adequacy of the risk management process to ensure that: the group has implemented an effective policy and plan for risk management that will enhance the group s ability to achieve its strategic objectives; and the disclosure regarding risk is comprehensive, timely and relevant. The committee utilises a heat risk-mapping process aimed at identifying key risk areas and related mitigations. It assesses and addresses, inter alia, physical and operational risk, HR risk, technology risk, business continuity and disaster recovery, credit and market risk and governance and compliance risk. This assists the board in its assessment and management of risk. The audit and risk committee ensures that IT risks are adequately addressed and obtains appropriate assurance that controls are in place and effective in addressing IT risks in line with group risk appetite and external governance requirements. An evaluation has been performed of the group governance, risk and compliance executive as well as the risk committee. The board considers the process of risk management to be effective in meeting its intended objectives. The terms of reference of the audit committee and risk committee were reviewed, updated and approved by the board on 22 March and is available at the company s registered office for inspection. REMUNERATION COMMITTEE The report of the remuneration committee is set out on pages 52 to 75. NOMINATION COMMITTEE During the year, the nomination committee comprised Diederik Fouché (chairman), Saleh Mayet and Lou Alberts. On 20 February, Saleh resigned as independent non-executive director and member of the committee. The chief executive officer, financial director, head of human resources, other members of senior management (as may be required), assurance providers, professional advisors and board members may attend nomination committee meetings, but by invitation only and may not vote. The company secretary is the secretary of this committee and assists the committee with the appointment of directors. Attendance of meetings by members of the nomination committee during the period 1 April to 31 March is outlined below. Telecon 18 Apr 10 May 22 Jun 1 Nov 15 Dec 8 Mar Diederik Fouché (Chairman) Lou Alberts Saleh Mayet ¹ n/a ¹ Resigned with effect from 20 February. Effective 14 July, Akhter Moosa was appointed as a member of the nomination committee. 41

44 CORPORATE GOVERNANCE AT DAWN continued A formal policy details procedures for appointment to the board. The role of the committee is to assist the board to ensure that the board has the appropriate composition for it to execute its duties effectively. The committee annually reviews the board s required mix of skills, experience and other qualities to assess the effectiveness of the board, its committees and the contribution of each director. Should any vacancies arise on the audit functions of the audit and risk committee, the board will, on recommendation of the nomination committee, fill such vacancy within 40 business days, as stipulated in the Companies Act, no 71 of 2008, as amended. Formal agreements exist between non-executive directors and the company. Executive directors have service contracts and restraint agreements and are appointed on the basis of their skills, experience and level of contribution to and impact on the group s activities. Non-executive directors are selected on the basis of industry knowledge and their professional skills and experience to enhance organisational decision-making. All directors are subject to election by shareholders, retire by staggered rotation and stand for re-election in accordance with the company s memorandum of incorporation. At least one-third of the directors of the company retire by annual rotation at the company s annual general meeting. The names of directors submitted for election or re-election are accompanied by sufficient biographical information to enable shareholders to make an informed decision in respect of their election. The board performs an evaluation of the effectiveness of the nomination committee annually. The terms of reference of the nomination committee was reviewed and ratified by the board on 22 March and is available at the company s registered office for inspection. SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE The board is committed to the spirit and principles of broad-based black economic empowerment (BBBEE), including socioeconomic development objectives, and to this end a social, ethics and transformation committee was established. The committee assists the board in ensuring that there are appropriate strategies and policies in place to progress transformation. The committee seeks to address any and all issues pertaining to the transformation of the group into an organisation that is not only relevant in the context of a democratic South Africa, but also to ensure that the composition of the group is fully representative of the cultural landscape that is prevalent in the country and to ensure that DAWN is a leader in the implementation of HR and IR practices that recognise the equality of all individuals. DAWN seeks to implement, through careful and considered processes, measures that support the group s long-term goal of delivering sustainable returns to all shareholders and stakeholders alike. The social, ethics and transformation committee s statutory-specific functions include the monitoring of the company s activities, having regard to any relevant legislation, other legal requirements or prevailing codes of best practice, with regard to matters outlined in the Companies Act, no 71 of 2008, as amended. In addition, and complementary to its statutory duties in terms of the Companies Act, the committee assists DAWN to discharge its business sustainability with respect to the implementation of practices that are consistent with good corporate citizenship. The terms of reference of the social, ethics and transformation committee is reviewed annually, was ratified by the board on 22 March and is available at the company s registered office for inspection. The committee prioritises objectives identified by the board and targets are set for attaining results on matters pertaining to social aspects, ethics, sustainability and transformation. The social, ethics and transformation report appears on pages 76 to 78 of the integrated report. 42

45 Distribution & Warehousing Network Limited Integrated report CORPORATE GOVERNANCE AT DAWN continued IT STEERING COMMITTEE The use of technology is a continuing focus area in the DAWN group. The board assumes the responsibility for the governance of information technology (IT) and places it on the board agenda. The board recognises the important role that IT governance plays in the management of risks and the achievement of group objectives and has approved a long-term investment for the implementation of warehousing and distribution management systems as well as an Enterprise Resource Planning (ERP) system across the group to add value to the business and mitigate risks. Aligned to the implementation of the ERP system and maturing IT environment, management is making progress towards alignment to leading IT Control Frameworks, such as ITIL, and Control Objectives for Information and Related Technology Control Framework (COBIT) to ensure an appropriate IT governance model that helps in delivering value from IT and understanding and managing the risks associated with IT. The framework also aims to bridge the gap between business requirements, control needs and technical issues and ensures the integrity of information and information systems. Included is a key focus on information availability, information security, information technology operations, asset management and compliance to laws and regulations. Brendan Clark is the appointed chief information officer (CIO) and has twenty years experience in the IT industry. His qualifications include a National Diploma in Electrical Engineering: Light Current and Electronic Communication as well as ITrelated certifications and certificates. The IT steering committee assists the board in its responsibility for IT governance and facilitates the integration of the IT strategy into group companies strategic and business processes. A robust process has been implemented to identify, and exploit, where appropriate, opportunities to improve the performance and sustainability of the group, in line with triple bottom line objectives, through the use of IT. The committee s members were Dries Ferreira (chairman), Jan Beukes, René Roos and Brendan Clark. Dries and Jan resigned as executive directors and members of the committee on 14 June. Hanré Bester was appointed to the committee on 14 July. Following Dries' resignation, René was appointed interim chairman of the committee. The group governance, risk and compliance executive has a standing invitation to meetings and executives from business units attend meetings by invitation. Attendance of meetings by members of the IT steering committee during the period 1 April to 31 March is outlined below. 23 Jun 21 Oct Dries Ferreira (chairman) ¹ n/a René Roos (chairman) Hanré Bester Jan Beukes ¹ n/a Brendan Clark ¹ Resigned 14 July. The board receives assurance from management and independent assurance on the effectiveness of IT internal controls from internal audit and/or independent parties, when required. The implementation of the group s new ERP system has allowed further improvements in the effective use of technology throughout the audit process. The audit and risk committee fulfils an oversight role of the risk management process and specifically oversees financial reporting risks, internal financial controls, fraud risks and IT risks as it relates to financial reporting and the going concern of the group. The terms of reference of the IT steering committee was reviewed, updated and approved by the committee on 31 March and is available at the company s registered office for inspection. 43

46 CORPORATE GOVERNANCE AT DAWN continued INSIDER TRADING The group has a formal policy, established by the board and implemented by the company secretary, prohibiting dealing in securities by directors, officers and other selected employees from the end of the respective reporting period to the date of the announcement of the financial results or in any other period considered price sensitive. COMPANY SECRETARY All directors have access to the advice and services of the company secretary and there is an agreed procedure by which directors as well as the board committees may obtain independent professional advice at the company s expense, should they deem this necessary. The company secretary provides guidance to the board as a whole and to individual directors with regard to how their responsibilities should properly be discharged in the best interests of the group. The company secretary also oversees the induction of new directors and assists the chairman and the chief executive officer in determining the annual board plan, board agendas and formulating governance and board-related issues. The company secretary assists with the evaluation of the board and its committees as well as of the directors. The company secretary ensures that the board charter and the terms of reference of board committees are reviewed and updated annually. The board appointed ithemba Governance and Statutory Solutions (Pty) Ltd as company secretary and is represented by Ms Claire Lindsay (FCIS), who has fifteen years experience as company secretary in the listed environment, and the board is satisfied that the ithemba team has the necessary skills and experience to fulfil this function with the required empowerment from the board. The board confirms that an arm's length relationship with the company secretary is maintained. The board has during the year under review considered and satisfied itself of the competence, qualifications and experience of the company secretary. 44

47 Distribution & Warehousing Network Limited Integrated report THE GOVERNANCE OF RISK RISK MANAGEMENT The group s risk management framework aims to: align strategy with risk appetite and tolerance; improve decision-making which improves the group s risk profile; promote the strategic and coordinated procurement of a quality order book; ensure equitable commercial terms and conditions are contracted; promote continuous improvement through the application of key lessons learnt; improve predictability and build shareholder confidence; build robust organisational risk structures and facilitate timeous interventions to promote long-term sustainability; and promote the efficient and proactive utilisation of opportunities. Ranking [] Top strategic risks threatening the achievement of the business plan Current mitigation strategies Residual risk rating Impact on business plan 1 [1] Group performance in current market conditions The weakened economy and current marketing conditions have resulted in sales volumes consistently not meeting forecasted targets. The inability to respond quickly to adjust the DAWN group business model to the new market and economic reality, whilst simultaneously providing shareholders with an adequate return, could render the group irrelevant if not managed at a critical level. Substantial board and executive level effort has been invested in evaluating and adjusting the DAWN group business model to restore it in terms of profitability and shareholder return in the face of a difficult economy. Mitigation measures include the streamlining of core operations and closure of non-core operations to save further costs; the appointment and refocus of executive specialist skills to align the business model to market demands; the engagement of restructuring and performance optimisation advisors; and systems capability enhancement initiatives, all whilst maintaining focus on the group s traditional competitive advantages in its chosen market. Extreme Extreme 2 [2] Liquidity management Continued pressure on group banking facilities and cash flow due to overinvestment in stock, loss-making operations, slowed collections (government), in-country currency risk exposure (Africa) as well as disrupted business cash flows with Enterprise Resource Planning (ERP) cost outflows. Negative impact of higher funding cost on earnings achievement. The rights offer has alleviated the immediate risk, but the group remains focused on restoring the necessary disciplines relating to accurate cash flow forecasting and intelligent working capital management. Each DAWN group entity s performance is monitored on a weekly basis to ensure that its performance meets expected levels and any performance gaps are addressed as a matter of urgency. Initiatives are further underway to reduce unplanned outflow potential through a formal review/elimination of loss-making entities and relationships. Extreme High 45

48 THE GOVERNANCE OF RISK continued Ranking [] Top strategic risks threatening the achievement of the business plan Current mitigation strategies Residual risk rating Impact on business plan 3 [3 new] GDW group performance Inability of Grohe DAWN Watertech (GDW) to recover and perform according to expected levels, impacting negatively on the DAWN group s investment portfolio and performance. GDW has focused its efforts on identifying/reducing losses and optimising its production, facilities and supply-chain through investment by way of funds, technical knowhow and through the employment of additional skills and competencies. High High 4 [4] Exposure to slowed government infrastructure spend High dependence on government spending and civil contracts and mines specifically impacting Incledon and the pipe manufacturing entities DPI, Sangio and Swan. Further impact of delayed projects and cancellations, influencing stock ordering and cash flow. The infrastructure segment has been critically evaluated to determine measures to further reduce costs and optimise production in line with market demands. Mitigation measures include the engagement of new specialist skills and streamlining of operations as well as a continued refocus of market strategies towards a more sustainable product mix and sales model. High High 5 [6] Meeting expectations as master distributor Customer service levels are difficult to maintain due to the impact of erratic demand patterns as well as the unpredictability of market requirements. Forecasting remains a challenge. Dichotomy exists between customer expectations for high service levels and low cost. Managing fixed costs versus variable volumes is a challenge in the current low-volume economic climate. As a part of the turnaround strategy there is a key focus on achieving the DAWN Master Distributor Vision across group entities. There has been continuous engagement with customers and principals by senior executives and a revision of the group's value offering in light of changing customer demands. DAWN has further invested in its sales force to ensure that its levels of service are improved. Various cost-saving initiatives have been rolled out as part of the turnaround project with a view to providing a cost effective service to the market. High Medium 46

49 Distribution & Warehousing Network Limited Integrated report THE GOVERNANCE OF RISK continued Ranking [] Top strategic risks threatening the achievement of the business plan Current mitigation strategies Residual risk rating Impact on business plan 6 [7&8] Working capital inefficiencies The group is still in the process of optimising working capital to gain the necessary efficiencies to perform at optimal levels. Although improvement has already been made, there are still legacy issues which are being addressed: Stock: Over-investment in stock due to the negative impact on accuracy of demand planning as a result of change in customer buying patterns towards cheaper products and commodity items, combined with erratic demand patterns. Debtors: More than 90% of sales are on credit a deterioration in the percentage of collections could lead to an increase in bad debts and funding required to fund debtors. This is especially a risk for Incledon. The increased deterioration in the percentage of collections, which could lead to possible bad debts, is a reflection of the current economic climate. In terms of stock, work has continued in the areas of demand planning, product range, as well as stock movement and storage optimisation. The focus on stock models has continued with the reduction of investment in slow-moving stock versus fast-moving commodity items. Stock level targets are being monitored by all entities and the chief executives of the respective subsidiary companies. In terms of debtors, a high focus on credit policies and strict application of credit terms is maintained. The group continues to follow a strict policy of credit insurance which assures that the bulk (approximately 85%) of credit is insured across the group. Approximately 60% of Incledon s credit is insured due to the nature of the insurable book. There is a continuous focus on collaboration between the credit insurance providers, independent credit specialists and the legal collection team with a heightened monitoring by DAWN executives to mitigate the higher risk. High Medium 7 [5] IT systems Latent ERP implementation issues Although implementation of the ERP systems across the group has largely been finalised, the group is still in a post-implementation settlement phase where a few issues are still being addressed and optimisation initiatives are underway. This impacts on work processes and productivity and places an additional burden on key resources. There is an experienced project and ERP management team dealing with issues identified. Collaboration with service providers is ongoing to resolve latent product issues. The board and executive team have appointed additional specialists to evaluate the ERP and supporting IT environment with a view to further identifying any gaps and areas which can be enhanced to promote the optimal running of the system and IT platform. High Medium 47

50 THE GOVERNANCE OF RISK continued Ranking [] Top strategic risks threatening the achievement of the business plan Current mitigation strategies Residual risk rating Impact on business plan 8 [9 new] Transformation Inability to comply with the new BBBEE codes effectively in order to ensure continued optimal economic performance and take advantage of related economic opportunities. Transformation remains a key focus area and high group priority. In addition to approved and implemented policies to address transformation and regular monitoring and reporting at entity level, the DAWN social, ethics and transformation committee has implemented additional meetings aimed solely at monitoring progress of each entity in terms of key BBBEE objectives. High Medium 9 [10 new] Skills attraction and retention The group has experienced a high staff turnover at all levels. Ensuring continuous attraction, succession planning and skills retention remain a challenge in the group s current financial situation. DAWN s people strategy is a high priority in the turnaround plan. The group has continued with programmes aimed at improving the culture and leadership of the group and initiatives to assist with attracting, developing and retaining core talent, including surveys, training, mentorship/ leadership programmes, performance incentives and benchmarking initiatives. Medium Medium 10 (new) Compliance risk management The group has highlighted a need to foster a culture of enhanced proactive management of actual or potential non-compliance to laws, regulations and contracts. The board and executive team have invested in further enhancing compliance risk management awareness across the group through additional training and workshops as well as enhanced monitoring by the board and executive on compliance matters. Medium Medium 48

51 Distribution & Warehousing Network Limited Integrated report COMBINED ASSURANCE A combined assurance model is applied to provide a coordinated approach to all assurance activities. The combined assurance model aims to optimise the assurance coverage obtained from management, internal assurance providers and external assurance providers on the risk areas affecting the group. Within DAWN there are a number of assurance providers that either directly or indirectly provide certain assurances over the adequacy and effectiveness of those controls that mitigate the risks as identified during the risk assessment process described on pages 45 to 48. Collectively, the activities of these assurance providers, each representing a line of defence for the group, are referred to as the combined assurance model. 4 th line of defence OVERSIGHT Board of directors Board committees 3 rd line of defence 2 nd line of defence 1 st line of defence INDEPENDENT ASSURANCE INTERNAL ASSURANCE MANAGEMENT- BASED ASSURANCE Internal audit External audit Other Risk management Compliance Health and safety Other Risk management Compliance Health and safety Other The DAWN group has taken an approach designed to meet the objectives of combined assurance in a pragmatic and costeffective manner. PROCESS The development of DAWN s combined assurance model entailed the following: risk identification; identification of controls; identification of assurance providers; assessment of assurance activities against controls; and conclusion and development of action plans. ASSURANCE PROVIDERS Management-based assurance Management oversight, including strategy implementation, key performance indicators and performance measurement, control self-assessments and continuous monitoring mechanisms and systems are included in the first line of defence. 49

52 COMBINED ASSURANCE continued Internal assurance Risk management, compliance, health and safety and quality assurance processes are included in this second line of defence. These functions are responsible for maintaining policies, minimum standards, risk management performance, monitoring and reporting. Independent assurance Internal audit Internal audit is an independent appraisal function, which examines and evaluates the activities and the appropriateness of the systems of internal control, risk management and governance processes. The audit and risk committee is satisfied that internal audit s functions align with the group s internal audit charter. External audit The audit and risk committee is responsible for recommending the external auditor for appointment by shareholders and for ensuring that the external auditor carries out an annual audit of all the group s subsidiaries in accordance with international auditing standards and reports in detail on the results of the audit both to the management of the group s divisions and to the audit and risk committee. The external auditor is the main external assurance provider for the board in relation to the group s financial results for each financial year. Board and oversight committees In addition to the board of directors, the following board committees provide assurance as stated below: Audit and risk committee with regard to financial and internal controls outlined in its terms of reference and the enterprisewide risk management framework. Remuneration committee with regard to controls in the remuneration sphere. Nomination committee in relation to board diversity, succession planning and corporate governance structures. Social, ethics and transformation committee with regard to oversight of the group s controls in the sphere of ethics, corporate social responsibility, sustainability and transformation. IT steering committee with regard to oversight of the group's information technology systems. The audit and risk committee has reviewed the combined assurance results for the group to satisfy itself that appropriate assurance activities are in place in relation to the controls operating over key risks and controls identified in the risk management. BOARD ASSESSMENT OF THE GROUP S SYSTEMS OF INTERNAL CONTROLS AND RISK MANAGEMENT At the board meeting held on 12 July, the board of directors has confirmed that nothing has come to their attention or arose out of the internal control self-assessment process, internal audit or year-end external audits that causes the board to believe that the group s systems of internal controls and risk management are not effective or that the internal financial controls do not form a sound basis for the preparation of reliable financial statements. The board s opinion is based on the combined assurances of external and internal auditors, management and the audit committee as well as central business systems and HR functions. 50

53 Distribution & Warehousing Network Limited Integrated report COMBINED ASSURANCE continued ASSURANCE The data in this report has been assured to the extent set out below. The annual financial statements appearing on DAWN s website have been audited by the independent auditors, PricewaterhouseCoopers Inc, and their audit report appears on pages 103 to 108 of the annual financial statements. DAWN s management and directors are responsible for the preparation and presentation of the identified sustainability information, as incorporated in the sustainability data and information, and for the information contained in the integrated report, in accordance with their internally defined procedures. DAWN s management and directors are also responsible for maintaining adequate records and internal controls that are designed to support the reporting process. The audit committee has reviewed the sustainability issues in the sustainability data and in the integrated report to ensure that they are reliable and that there is no conflict with the financial information. Information contained within the sustainability data and content and disclosures from certain external sources have been independently verified, such as the broad-based black economic empowerment rating (Empowerdex). The group internal audit department independently provided risk-based assurance on the sustainability data. External independent assurance may in the future be sought for the sustainability report. COMPLIANCE DAWN complies with all relevant legislation. 51

54 REPORT OF THE REMUNERATION COMMITTEE The remuneration report is intended to provide an overview and understanding of the group s remuneration philosophy and practices with specific emphasis on executive and non-executive remuneration. The remuneration committee assists the board in ensuring that the company remunerates directors and executives fairly and responsibly and that the disclosure of director and executive remuneration is accurate, complete and transparent. TERMS OF REFERENCE The remuneration committee serves as a sub-committee of the board to monitor and strengthen the objectivity and credibility of the remuneration and bonus system for the executive directors. The duties of the remuneration committee further include, amongst others: scrutinising all employee benefits, benefits in kind, retirement benefits and other financial arrangements to ensure these are justified, correctly valued and suitably disclosed; reviewing the provisions of executive employment contracts with a particular focus on severance payments; ensuring alignment of the remuneration and human resources strategies and policies with the group s business strategy, needs and the desired culture; determining the group s general policy on executive directors and senior management remuneration to ensure fair and responsible remuneration practices, including bonus and incentive schemes; reviewing and measuring annual bonuses for the executives and senior management team against individual and corporate performance targets, both financial and sustainability related, which targets must be reviewed annually to remain appropriate; considering and recommending for approval by the board all elements of the remuneration of the chief executive officer and executive directors; regularly reviewing incentive schemes to ensure their continued contribution to shareholder value, guarding against unjustified windfalls and inappropriate gains from the operation of share-based incentives; determining any grants to executive directors and senior management made pursuant to the group s management sharebased scheme; approving or recommending general salary increases for non-bargaining employees and mandates for negotiations with trade unions, where appropriate; ensuring the adequacy of retirement and healthcare funding for executives and senior management; ensuring that the structures, policies and procedures facilitate good management and utilisation of human resources; endeavouring to ensure adequate succession plans for the executive and senior management; ensuring adequate consideration of policies for the group in respect of HIV/Aids management, skills development and employment equity; ensuring compliance to all statutory and best practice requirements regarding labour and industrial relations management; and considering and fulfilling such other duties as defined by the board, from time to time. The remuneration committee serves as a party to monitor and strengthen the objectivity and credibility of the remuneration and bonus system for the executive directors. Ex gratia payments and bonuses payable to executive directors are to be reviewed and recommended to the board for review and presented to shareholders at the annual general meeting or a general meeting of shareholders, for approval. The secretary shall incorporate the approved minutes of meetings of the remuneration committee in the meeting files prepared for meetings of the board for noting purposes. The committee has reviewed group remuneration policies to ensure that these are aligned with the company s strategy and linked to company and individual performance. 52 During the year under review, the terms of reference of the remuneration committee was reviewed and updated by the committee on 1 November, approved by the board on 14 November, and is available for inspection at the company s registered office.

55 Distribution & Warehousing Network Limited Integrated report REPORT OF THE REMUNERATION COMMITTEE continued MEMBERSHIP The remuneration committee comprised independent non-executive directors Lou Alberts (chairman), Diederik Fouché and Saleh Mayet until Saleh s resignation on 20 February. The committee approved the appointment of Akhter Moosa to replace Saleh as a member of the committee. The remuneration committee meets at least four times annually and the attendance at meetings held during the period 1 April to 31 March was as follows: Telecon 18 Apr 10 May 22 Jun 1 Nov 15 Dec 8 Mar Lou Alberts (chairman) Diederik Fouché Saleh Mayet ¹ n/a ¹ Resigned with effect from 20 February. Effective 14 July, Akhter Moosa was appointed as a member of the remuneration committee. The chief executive officer, the financial director and the chief of staff attend meetings by invitation. Directors that are members of the remuneration committee are excluded from the review of their own remuneration. The general objective of the group s remuneration policy is to ensure that DAWN can attract, motivate and retain appropriately skilled, qualified and experienced employees. Remuneration is aimed at matching individual contribution to group performance, within the framework of market forces, ensuring DAWN s ability to retain top talent while protecting shareholders interests and the group s financial health. In terms of the remuneration policy, short-term (annual) incentives are based on financial performance and individual key performance indicators (KPIs), with the weighting of earnings favouring financial performance. The main objective of the individual KPIs is to drive strategic business goals and to recognise individuals for retention purposes. Long-term incentives are based on group financial performance headline earnings per share (HEPS) and return on invested capital (ROIC) and take the form of share incentives. The company s remuneration policy, summarised below, will be presented to shareholders at the annual general meeting to be held on Friday, 24 November and shareholders will be requested to cast a non-binding advisory vote thereon. As a result of the losses incurred by DAWN for the financial period ended 31 March, no bonuses will be paid for financial performance and limited bonuses for individual KPI results, driven by the imperative to retain key skills. This principle has been agreed with shareholders during the course of the year. SUMMARY OF THE REMUNERATION POLICY Principles of remuneration The group s remuneration policy provides a flexible and competitive remuneration structure, which is referenced to appropriate benchmarks, reflects market practice and is tailored to the specific circumstances of the group. The policy aims to attract and retain high-calibre employees and to motivate them to develop and implement the group s business strategy to optimise longterm shareholder value creation. 53

56 REPORT OF THE REMUNERATION COMMITTEE continued 12 months ended 31 March 12 months ended 31 March 9 months ended 31 March months ended 30 June months ended 30 June months ended 30 June 2012 Total number of employees Total compensation paid to employees () Increase in cost as a % of net wealth created (%) * Negative Negative Negative (45) Total compensation as a % of revenue (%) * Compensation for 2015 has been annualised. Short-term (annual) bonus entitlements may or may not be guaranteed depending on seniority levels of employees and on regulatory requirements, such as bargaining council agreements and collective agreements with trade unions. The structure applied is as follows: Executive bonuses (not guaranteed) Non-guaranteed 13 th cheque based on affordability Guaranteed 13 th cheques based on collective agreements The remuneration committee will, based on the policy, consider the affordability of the overall short-term incentive (STI) payable, considering a guideline maximum of 15% of profit before interest and tax. When the 15% cap is breached, STI will only be paid to employees with critical skills and key talent, with due regard to the impact on the group if their skills are not retained, and the liquidity and solvency of the group after the payment of the STI. Employees Remuneration of employees may be subject to regulatory requirements, such as bargaining council agreements and collective agreements with trade unions. In the absence thereof, remuneration is based on individual and company performance as well as market trends. 54 Remuneration may typically comprise elements of fixed remuneration and performance-based (at-risk) remuneration. Certain employees have an element of their remuneration at-risk. The proportion of an employee s total remuneration that is at-risk, increases with seniority and with the individual s ability to impact the performance of the company.

57 Distribution & Warehousing Network Limited Integrated report REPORT OF THE REMUNERATION COMMITTEE continued A bi-annual performance review process assesses the degree to which each qualifying employee is satisfying the requirements of his/her role and the degree to which established performance objectives have been achieved. Executive directors and prescribed officers remuneration A prescribed officer, in terms of the Companies Act, no 71 of 2008, as amended, means the holder of an office, within a company. DAWN has identified its prescribed officers as the members of the executive committee. Prescribed officers are designated to be key management personnel in terms of IAS 24. DAWN benchmarks the remuneration of its executives annually against the market in general, as well as against a carefully selected comparator group, to ensure effective alignment. DAWN uses the services of expert third parties in its annual benchmarking process. Fixed salary The executives fixed salary is structured on a cost-to-company basis with a limited range of prescribed and elective fringe benefits, such as retirement fund (prescribed), medical aid and travel allowance. Variable income short-term incentive scheme The short-term incentive programme consists of an annual cash bonus that is linked to the achievement of firstly, predefined company and secondly, personal performance measures for each executive. The ratio of company versus personal performance measures is 70%:30% for executive directors and prescribed officers and 60%:40% for all other employees who participate in the STI scheme. On-target-earnings (OTE) or target bonuses are based on seniority levels and is a percentage of annual guaranteed pay. The following policy will be applied: TABLE 1 Management level On-target-earnings Chief executive officer 100% Executive directors 75% Prescribed officers 70% Subsidiary executives 60% Senior employees reporting to group or subsidiary executive committee members 50% Other managers who qualify for variable pay 40% Company performance is measured through two parameters: PBIT (profit before interest and tax) and ROIC or specific working capital parameters, as appropriate. The ratio is 50%:50%, but may be varied by the board, based on group priorities. For example, an executive director s short-term incentive (STI) may consist of 70% company performance parameters, of which 35% will be earned based on PBIT and 35% based on ROIC or working capital. A system of three-tier targets is used to determine bonuses earned for company performance (see Table 2). The bonus payable to an executive will be equal to the target bonus, if the specified target was met. Should the target be missed, but the minimum threshold still be achieved, a lower percentage of the target bonus will be payable. Should the target be exceeded and the stretch target be achieved, then a higher percentage than the target bonus will be payable. 55

58 REPORT OF THE REMUNERATION COMMITTEE continued DAWN applies the following three-tier target model to calculate bonuses earned for company performance, using a linear sliding scale from threshold to stretch: TABLE 2 Weighting for executives Performance parameter and prescribed officers Weighting for all other participants Measure Threshold (50% of OTE) Target (100% of OTE) Stretch (150% of OTE) PBIT ROIC or working capital As determined by the remuneration committee and approved by the board As determined by the remuneration committee and approved by the board Target set by the board WACC or target set by the board Annual targets as set by the board, based on group and shareholder requirements Annual targets as set by the board, based on group and shareholder requirements Bonus earnings are determined by the level of actual performance against the three-tier target table below. Bonus calculations are based on a linear sliding scale from 50% to 150% of OTE. TABLE 3 Performance level achieved % of target bonus earned Below threshold 0% Threshold 50% Target 100% Stretch 150% Personal performance is measured, based on an individual scorecard. Each participant will have an annual personal KPI scorecard. A standard template, as depicted below, is used and then customised for each executive role. Commercial measures Continuous improvement measures Margin and working capital Customer Development and innovation Process optimisation and data integrity Sales/turnover Cost containment Service integrity Team development People and infrastructure management Behaviour integrity Governance Collaboration 56 Corporate risk measures Culture and behaviour measures

59 Distribution & Warehousing Network Limited Integrated report REPORT OF THE REMUNERATION COMMITTEE continued Targets for the different management levels will be set as follows: TABLE 4 Position PBIT ROIC /WC Personal Chief executive officer Group level Group level Personal scorecard Financial director/chief financial officer Group level Group level Personal scorecard Group governance, risk and compliance executive Group level Group level Personal scorecard Chief of staff Group level Group level Personal scorecard Group HR executive Group level Group level Personal scorecard Subsidiary CEOs/managing directors and executive committee members Subsidiary level Subsidiary level Personal scorecard In order to protect the group against bonus payments that are not affordable, the following rules will apply with respect to calculated bonuses for company performance (ie for PBIT and ROIC/working capital (WC): TABLE 5 Group PBIT achieved (actual as % of budget) % payable of calculated bonus pertaining to company performance 51%+ Full calculated bonus 25% to 50% 25% to 50% of calculated bonus <25% 0% payable The above provisions will not apply to calculated KPI bonuses. DAWN executive committee and selected subsidiary executive committee members who earned short-term incentives may choose to be rewarded in DAWN shares, subject to the rules of the deferred bonus plan rules. Variable income long-term incentives (LTI) The company s LTI plan is designed to link senior executives reward with performance targets that drive sustainable growth in shareholder value over the long-term. The DAWN group s LTI plan takes the form of a share incentive scheme in terms of which senior executives may, at the board s discretion and in accordance with the scheme rules, be granted share rights which will vest only on the achievement of certain performance thresholds and service conditions. LTI awards may be made annually to qualifying employees, based on the following allocation framework: TABLE 6 Management level DAWN executive committee Steering committee (managing directors of business units) Share scheme Combination of deferred bonus plan (DBP) and long-term incentive plan (LTIP) Combination of DBP and LTIP Annual value of unvested shares at grant date = below ratio x guaranteed annual pay Up to 100% combined DBP and LTIP Up to 90% combined DBP and LTIP Head office critical staff LTIP Up to 60% Company executive committee members LTIP Up to 45% Business unit heads and heads of department Share appreciation Up to 25% reporting to company executive committee members rights (SAR) 57

60 REPORT OF THE REMUNERATION COMMITTEE continued LTIP awards will always have a three-year vesting period, with all rights being forfeited should the employee leave the company s employ before the vesting date. Vesting criteria will be company performance-based, with headline earnings per share (HEPS) contributing 70% of the vesting condition and ROIC 30% on the LTIP and SAR awards only. DBP participation has no vesting conditions other than remaining in the employment of the DAWN group. The remuneration committee recommends to the board the vesting targets for each tranche of share incentives. The recommended vesting targets will set a threshold, a target and a stretch level for both HEPS and ROIC as outlined in the table below: TABLE 7 Performance parameter Target Threshold Target Stretch HEPS ROIC Required cents per share as set by the remuneration committee and the board DAWN weighted average cost of capital rate 80% 100% 120% Weighted average Weighted average Weighted average cost of capital +4% cost of capital +8% cost of capital A graduated vesting scale will be applied, based on the above set targets. Share award calculations will be based on a linear sliding scale from 50% to 150%. TABLE 8 Performance level achieved % of target bonus earned Below threshold 0% Threshold 50% Target 100% Stretch 150% The board, in terms of the DAWN share incentive schemes approved by the shareholders, approves the award of share rights to directors and selected senior level employees to increase proprietary interest of employees in the success of the group, to encourage employees to promote the interest and the continued growth of the group and to encourage employees to continue to render their best service to the group. Three share schemes, based on equity-settled share appreciation rights, conditional long-term incentive awards and a deferred bonus plan, with vesting conditional on the achievement of set performance requirements, carry a vesting period of three years after which the vested incentives become exercisable, were approved by shareholders in a general meeting on 6 December Share incentive scheme (equity-settled) The grant price of these rights and awards are equal to the five-day volume weighted average traded market price of the shares preceding the date of the grant. Rights and awards are conditional on performance conditions being met. The conditions focus on the group s earnings growth. The vesting price of these rights and awards is the five-day weighted average traded market price of the shares preceding the date of vesting. The values accruing to participants are as follows: SAR: Appreciation between the strike price and the vesting price; LTIP: Difference between zero strike price and vesting price; and 58 DBP: Value of each matching share at a zero-strike price.

61 Distribution & Warehousing Network Limited Integrated report REPORT OF THE REMUNERATION COMMITTEE continued Conditions of employment The company complies with relevant legislation in determining minimum terms and conditions for the appointment of executive directors. A notice period of between one month and three months generally applies. 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, unless related to companies which are part of the DAWN group. In any event, it may not be more than two directorships and full disclosure must be made to the group ethics officer. Policy on employment contracts In relation to contracts with executive directors, the committee, subject to circumstances, will maintain the following policy: Fixed term contracts should not exceed three years but may provide for an extension; All agreements should contain a restraint of trade clause with a term of not less than a year, clearly defining the company s protectable interest; Contracts should not commit the company to pay on termination arising from the director s failure; Balloon payments on termination are not seen as fair remuneration policy; and If a director is dismissed because of a disciplinary procedure, a shorter notice period should apply without entitlement for compensation for the shorter notice period. If a dismissal takes place because of a gross misconduct, no notice period should apply. Non-executive directors remuneration Terms of service While shareholders appoint non-executive directors at annual general meetings, interim board appointments may be made between annual general meetings in terms of group policy. Such interim appointees may not serve beyond the following annual general meeting, though they may make themselves available for re-election by shareholders, with such appointments being ratified by shareholders at the annual general meeting. Non-executive directors serve until such time as, in accordance with the company s memorandum of incorporation, they are required to retire by rotation, at which point they may seek re-election. Fees The non-executive directors compensation consists of a base fee, payable quarterly, with additional fees for serving on subcommittees of the board and for attending special board meetings. The board has the discretion to apply penalties for nonattendance of meetings. Fees are exclusive of VAT payments. Individual board members may take on specific ad hoc tasks outside the normal duties assigned by the board. In such cases the board determines a fixed fee for the work. Non-executive directors may from time to time be members of DAWN s advisory committee, for which a fixed hourly fee will apply. Expenses such as travel and accommodation in relation to board-approved activities, as well as relevant training, are reimbursed. Non-executive directors fees are reviewed annually and are determined by the board (following consultation with the remuneration committee) having regard to fees paid to non-executive directors of comparable companies and, where considered necessary, the board may seek external advice on this subject. Non-executive directors fees are approved by shareholders at the annual general meeting. Based on external review of the group s non-executive directors fees and remuneration practices, the shareholders will be requested to approve to the policy as outlined on pages 53 to

62 REPORT OF THE REMUNERATION COMMITTEE continued Setting remuneration and review procedures DAWN and its subsidiaries review remuneration packages once per annum during July. The board is responsible for making decisions in respect of the remuneration of directors and, in particular, the group chief executive officer. It does so with the assistance and advice of the remuneration committee. In determining the level and make-up of the group chief executive officer s and senior executives remuneration, the remuneration committee may obtain independent advice on the appropriateness of remuneration packages, given remuneration trends of other companies, from which the recommendations are made to the board. Each year the remuneration committee will review the remuneration of senior executives and make recommendations to the board for any changes to those remuneration packages; recommend proposed short-term incentive and/or long-term incentive performance awards after performance evaluation procedures and on the recommendation of the group chief executive officer. The group chief executive officer is ultimately responsible for: recommendations to the board relating to the remuneration of executive directors of all group entities; and delegating responsibility for decisions relating to remuneration of staff to line managers within the different subsidiaries or business units. Ex gratia payments and bonuses payable to executive directors are to be reviewed and recommended to the board for review and presented to shareholders at the annual general meeting or a general meeting of shareholders, for approval. The responsibilities of managers or supervisors in respect to remuneration for employees are: ensuring that accurate role descriptions are in place, with sufficient detail on elements required to allow consistent assessment and comparison to be undertaken; conducting effective assessments of employee performance; and optimising the alignment with the company s remuneration practices and other employment matters. Disclosure of remuneration Unless an applicable law, regulation or the JSE Listings Requirements require otherwise, all information about an individual staff member s remuneration will be confidential. Disclosure of or discussions about remuneration with staff members, other than between the direct manager and staff member, are strictly forbidden and, where this policy is breached, management may take corrective action. Where remuneration must be disclosed in terms of regulatory requirements, total remuneration reported will include appropriate values for all elements of remuneration, incorporating fixed remuneration, performance-based remuneration comprising payments made or value provided for at-risk components. Re-election of directors Both executive and non-executive directors are subject to election by shareholders at the first annual general meeting following their appointment and are then required to retire in accordance with the board retirement plan. The appointment of a non-executive director may be terminated without compensation if that director is not re-elected by shareholders or otherwise in accordance with the company s memorandum of incorporation. EXECUTIVE REMUNERATION Details of executive directors and prescribed officers full remuneration are disclosed on pages 207 to 210 of the annual financial statements. A calculation is done on the maximum expected potential dilution as a result of incentive awards and is disclosed in diluted earnings per share in note 10 on page 139 of the integrated report. 60

63 Distribution & Warehousing Network Limited Integrated report REPORT OF THE REMUNERATION COMMITTEE continued Salary Company contribution medical aid and provident fund Leave pay Other R'000 Total Unrestricted share scheme* R'000 Directors David Austin Hanré Bester Jan Beukes Stephen Connelly Dries Ferreira René Roos Derek Tod Prescribed officers Luis Baeta Steve du Toit Dave Ferguson Graeme Johnston Vanessa White Directors Jan Beukes Dries Ferreira Gerhard Kotzee René Roos Derek Tod Prescribed officers Colin Bishop Dave Ferguson Graeme Johnston ¹ Appointed on 18 November ; resigned on 17 March, effective 30 June. ² Appointed on 14 July, resigned on 18 November. ³ Resigned with effect from 14 July. 4 Retired on 31 May. 5 Resigned with effect from 31 January. 6 Appointed with effect from 1 April. 7 Resigned with effect from 30 March. 8 Appointed on 1 September. 9 Resigned with effect from 29 February. * Refer to note 42 loans to other related parties. 61

64 REPORT OF THE REMUNERATION COMMITTEE continued STEPHEN CONNELLY CHIEF EXECUTIVE OFFICER (EXECUTIVE DIRECTOR) Stephen was appointed as independent non-executive director of DAWN on 1 April and as interim chief executive officer on 1 June. With effect from 1 April, Stephen assumed the role of executive deputy chairman. 12 months ended 31 March R'000 Fixed salary Variable salary short-term Other benefits retirement and medical aid contributions Total remuneration realised Variable salary long-term On 6 September, Stephen was awarded the equivalent of share options as part of a cash-settled scheme linked to the LTIP scheme, with a vesting date of 30 June DEREK TOD CHIEF EXECUTIVE OFFICER (EXECUTIVE DIRECTOR) Derek retired as chief executive officer effective 31 May. 12 months ended 31 March 12 months ended 31 March 12 months indicative annualised 2015 R'000 9 months ended 31 March months ended 30 June months ended 30 June 2013 Fixed salary Variable salary short-term Leave pay Other benefits retirement and medical aid contributions Total remuneration realised Variable salary long-term On 24 June 2011, Derek was awarded share options as part of the SAR scheme with a vesting date of 30 June On 12 April 2012, Derek was awarded share options as part of the LTIP with a vesting date of 30 June As a result of poor earnings, management and the remuneration committee have decided that these open tranches will not vest. During 2015, Derek was awarded and share options as part of the LTIP and DBP schemes, respectively, with a vesting date of 30 June. Due to Derek s retirement, these options have lapsed. DAVID AUSTIN FINANCIAL DIRECTOR (EXECUTIVE DIRECTOR) David was appointed as financial director on 18 November. On 17 March, he resigned as financial director, effective 30 June. 12 months ended 31 March R'000 Fixed salary Variable salary short-term Other benefits retirement and medical aid contributions 264 Total remuneration realised 1 678

65 Distribution & Warehousing Network Limited Integrated report REPORT OF THE REMUNERATION COMMITTEE continued Variable salary long-term On 6 September, David was awarded share options as part of the LTIP scheme with a vesting date of 30 June Due to David s resignation on 12 March, these options have lapsed. HANRÉ BESTER INTERIM FINANCIAL DIRECTOR (EXECUTIVE DIRECTOR) On 14 July Hanré was appointed interim financial director and resigned on 18 November, following David Austin s appointment. 12 months ended 31 March R'000 Fixed salary 655 Variable salary short-term Other benefits retirement and medical aid contributions 49 Total remuneration realised 704 Variable salary long-term On 1 December 2013, share options were awarded to Hanré as part of the LTIP with a vesting date of 1 December. A further share options were awarded to Hanré with a vesting date of 1 December. As a result of poor earnings, management and the remuneration committee have decided that these two open tranches will not vest. During, Hanré was awarded share options as part of the LTIP, with a vesting date of 30 June DRIES FERREIRA FINANCIAL DIRECTOR (EXECUTIVE DIRECTOR) Dries resigned as an executive director of DAWN on 14 July. 12 months ended 31 March 12 months ended 31 March 12 months indicative annualised 2015 R'000 9 months ended 31 March months ended 30 June months ended 30 June 2013 Fixed salary Variable salary short-term Leave pay 151 Other benefits retirement and medical aid contributions Total remuneration realised Variable salary long-term On 24 June 2011, Dries was awarded share options as part of the LTIP, subject to remuneration committee approval. Cumulative gains realised over a three-year period amounted to R7,4 million. On 12 April 2012, Dries was awarded share options as part of the LTIP with a vesting date of 30 June On 1 December 2013, a further share options were awarded as part of the LTIP with a vesting date of 1 December. As a result of poor earnings, management and the remuneration committee have decided that these two open tranches will not vest. During 2015, Dries was awarded share options and share options as part of the LTIP and DBP schemes, respectively, with a vesting date of 30 June. Due to Dries resignation, these options lapsed on 14 July. 63

66 REPORT OF THE REMUNERATION COMMITTEE continued JAN BEUKES RISK AND COMPLIANCE OFFICER (EXECUTIVE DIRECTOR) Jan resigned as executive director of DAWN on 14 July. 12 months ended 31 March 12 months ended 31 March 12 months indicative annualised 2015 R'000 9 months ended 31 March months ended 30 June months ended 30 June 2013 Fixed salary Variable salary short-term Leave pay 255 Other benefits retirement and medical aid contributions Other * Total remuneration realised * A provision has been made for a potential liability. Variable salary long-term On 24 June 2011, Jan was awarded share options as part of the LTIP and share options as part of the SAR with a vesting date of 30 June 2014, subject to remuneration committee approval. Cumulative gains realised over a three-year period amounted to R1,9 million. On 12 April 2012, Jan was awarded share options as part of the LTIP with a vesting date of 30 June As a result of poor earnings, management and the remuneration committee have decided that this open tranche will not vest. During 2015, Jan was awarded share options and share options as part of the LTIP and DBP schemes, respectively, with a vesting date of 30 June. Due to Jan s resignation, these options lapsed on 14 July. RENÉ ROOS CHIEF OF STAFF (EXECUTIVE DIRECTOR) 12 months ended 31 March 12 months ended 31 March 12 months indicative annualised 2015 R'000 9 months ended 31 March months ended 30 June months ended 30 June 2013 Fixed salary Variable salary short-term Other benefits retirement and medical aid contributions Total remuneration realised Rene s fixed salary increased by 21%* from F to F (F2015 (annualised) to F: 5%; F2014 to F2015 (annualised): 3%; F2013 to F2014: 15%*; F2012 to F2013: 32,1%*). * Increases in fixed salary exceeding CPI were awarded to close the gap between current pay and the desired market percentile, based on her role and responsibilities. Based on the achievement of F2013 KPIs, René received a short-term variable salary of R in F2014 (F2013: R ; F2012: R53 000). The achievement of the F2014 KPIs resulted in a short-term variable salary of R , payable in F

67 Distribution & Warehousing Network Limited Integrated report REPORT OF THE REMUNERATION COMMITTEE continued Variable salary long-term On 24 June 2011, René was awarded share options as part of the LTIP and share options as part of the SAR with a vesting date of 30 June 2014, subject to remuneration committee approval. Cumulative gains realised over a three-year period amounted to R6,8 million. On 12 April 2012, Rene was awarded share options as part of the LTIP with a vesting date of 30 June As a result of poor earnings, management and the remuneration committee have decided that this open tranche will not vest. During 2015, Rene was awarded share options and share options as part of the LTIP and DBP schemes, respectively, with a vesting date of 30 June. During, René was awarded share options as part of the LTIP scheme, with a vesting date of 30 June LUIS BAETA MANAGING DIRECTOR: WHS (PRESCRIBED OFFICER) Luis resigned from DAWN with effect from 31 January. 12 months ended 31 March R'000 Fixed salary Variable salary short-term Other benefits retirement and medical aid contributions 372 Other * Total remuneration realised * Luis employment was terminated by mutual agreement and a settlement amount was paid in terms of the separation agreement. Variable salary long-term During 2014, Luis was awarded share options as part of the LTIP scheme, with a vesting date of 31 December. During 2015, Luis was awarded share options and share options as part of the LTIP and DBP schemes, respectively, with a vesting date of 31 December. During, Luis was awarded share options as part of the LTIP scheme, with a vesting date of 31 March As a result of poor earnings, management and the remuneration committee have decided that these open tranches will not vest. During, Luis was awarded share options as part of the LTIP scheme, with a vesting date of 30 June Due to Luis resignation, these options lapsed on 31 January. STEVE DU TOIT CHIEF EXECUTIVE OFFICER: WHS (PRESCRIBED OFFICER) Steve was appointed as chief executive officer of DAWN infrastructure segment and member of the executive committee on 1 April. He was transferred to the role of chief executive officer of WHS on 1 January. 12 months ended 31 March R'000 Fixed salary Variable salary short-term Other benefits retirement and medical aid contributions 485 Total remuneration realised Variable salary long-term On 6 September, Steve was awarded share options as part of the LTIP scheme with a vesting date of 30 June

68 REPORT OF THE REMUNERATION COMMITTEE continued DAVE FERGUSON CHIEF PROCUREMENT OFFICER (PRESCRIBED OFFICER) Effective 31 July, Dave was no longer a member of the executive committee and therefore not a prescribed officer. He resigned from DAWN with effect from 30 March. 12 months ended 31 March 12 months ended 31 March 12 months indicative annualised 2015 R'000 9 months ended 31 March 2015 Fixed salary Variable salary short-term Other benefits retirement and medical aid contributions Total remuneration realised Variable salary long-term On 12 April 2012, Dave was awarded share options as part of the LTIP and share options as part of the SAR with a vesting date of 30 June 2014, subject to remuneration committee approval. Cumulative gains realised over a three-year period amounted to R2,8 million. On 12 April 2012, Dave was awarded share options as part of the LTIP with a vesting date of 30 June On 1 December 2013, Dave was awarded share options as part of the LTIP with a vesting date of 31 December. As a result of poor earnings, management and the remuneration committee have decided that these open tranches will not vest. During 2015, Dave was awarded share options and share options as part of the LTIP and DBP schemes, respectively, with a vesting date of 30 June. These awards have lapsed as a result of his termination of employment on 30 March. GRAEME JOHNSTON SUPPLY-CHAIN MANAGEMENT DIRECTOR: WHS (PRESCRIBED OFFICER) 12 months ended 31 March 12 months ended 31 March 12 months indicative annualised 2015 R'000 9 months ended 31 March 2015 Fixed salary Variable salary short-term Other benefits retirement and medical aid contributions Total remuneration realised Graeme s fixed salary increased by 11% from F to F (F2015 (annualised) to F: 12,1%). The achievement of the F2014 KPIs resulted in a short-term variable salary of R , payable in F2015. Variable salary long-term On 12 April 2012, Graeme was awarded share options as part of the LTIP with a vesting date of 30 June On 1 December 2013, Graeme was awarded share options as part of the LTIP with a vesting date of 31 December. As a result of poor earnings, management and the remuneration committee have decided that these tranches will not vest. During 2015, Graeme was awarded share options and share options as part of the LTIP and DBP schemes, respectively, with a vesting date of 30 June. On 1 December 2015, Graeme was awarded share options as part of the DBP scheme, with a vesting date of 31 March As a result of poor earnings, management and the remuneration committee have decided that these open tranches will not vest. During, Graeme was awarded share options as part of the LTIP scheme, with a vesting date of 30 June

69 Distribution & Warehousing Network Limited Integrated report REPORT OF THE REMUNERATION COMMITTEE continued VANESSA WHITE GROUP GOVERNANCE, RISK AND COMPLIANCE EXECUTIVE (PRESCRIBED OFFICER) Vanessa was appointed as group governance, risk and compliance executive and member of the executive committee on 1 September. 12 months ended 31 March R'000 Fixed salary 588 Variable salary short-term Other benefits retirement and medical aid contributions 70 Total remuneration realised 658 Variable salary long-term On 6 September, Vanessa was awarded share options as part of the LTIP scheme with a vesting date of 30 June NON-EXECUTIVE REMUNERATION There are no short- or long-term incentive schemes for non-executive directors. Exceptions apply only where non-executive directors previously held executive office and qualify for unvested benefits resulting from their period of employment with the company. There are no pension benefits for non-executive directors. Shareholders will be requested to approve the nonexecutive directors remuneration for the 2018 financial year at the annual general meeting to be held on Friday, 24 November. 67

70 REPORT OF THE REMUNERATION COMMITTEE continued FEES FOR The table below provides an analysis of the emoluments paid to non-executive directors for the 12 months ended 31 March. COMMITTEES Remune- Board member fees R'000 Advisory Audit and risk Other ration and nomination Social, ethics and transformation R'000 Subsidiary board fees R'000 Total Non-executive directors Lou Alberts Diederik Fouché Saleh Mayet ¹ Dinga Mncube Veli Mokoena Akhter Moosa ² George Nakos March Mohammed Akoojee ³ Lou Alberts Diederik Fouché Tak Hiemstra Saleh Mayet Dinga Mncube Veli Mokoena George Nakos March ¹ Resigned on 20 February. ² Appointed on 28 March. ³ Resigned on 11 November Retired on 31 October Appointed on 12 November

71 Distribution & Warehousing Network Limited Integrated report REPORT OF THE REMUNERATION COMMITTEE continued FEES FOR 2018 At the annual general meeting to be held on Friday, 24 November, shareholders will be requested to approve the nonexecutive directors remuneration by special resolution in terms of section 66(9) of the Companies Act, granting authority to pay fees for services as directors, which will be valid with effect from 1 April until the conclusion of the annual general meeting pertaining to the 2018 financial year, as follows: p PROPOSED 2018 Base fee R Penalty for nonattendance R Base fee R Penalty for nonattendance R BOARD Chairman of the board (all-inclusive fee) Board member AUDIT AND RISK COMMITTEE Chairman of the committee Committee member REMUNERATION COMMITTEE; NOMINATION COMMITTEE Chairman of the committee Committee member SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE Chairman of the committee Committee member LEAD INDEPENDENT Member Fees payable to non-executive directors are exclusive of value added tax. The penalty for non-attendance as chairman of a meeting would be paid to the member who stood in as chairman of that meeting. The fee for additional meetings would be: chairman R25 000; member R Lou Alberts has again been appointed as lead independent director and, therefore, the fee of R will be presented to shareholders for approval at the annual general meeting. Executive directors receive no director or committee fees for their services as directors in addition to their normal remuneration. 69

72 REPORT OF THE REMUNERATION COMMITTEE continued DIRECTORS AND PRESCRIBED OFFICERS' SHAREHOLDING The directors and prescribed officers held aggregate direct and indirect beneficial interests of 1,2% (: 8%) in the issued share capital of the company, being shares, at the end of the reporting period, as follows: Number of ordinary shares Beneficial Direct Indirect Total At 31 March Directors Executive directors René Roos Non-executive directors Lou Alberts Diederik Fouché Veli Mokoena Prescribed officers Graeme Johnston At 31 March Directors Executive directors Jan Beukes ¹ Dries Ferreira ¹ René Roos Derek Tod ² Non-executive directors Lou Alberts Diederik Fouché Veli Mokoena Prescribed officers Dave Ferguson Graeme Johnston ¹ Resigned with effect from 14 July. ² Retired on 31 May. 3 Effective 31 July, no longer a prescribed officer; resigned with effect from 30 March. 70

73 Distribution & Warehousing Network Limited Integrated report REPORT OF THE REMUNERATION COMMITTEE continued Changes in shareholding subsequent to the reporting date The following changes in the shareholding of directors and prescribed officers occurred after the year-end and are disclosed as at 23 August : Number of ordinary shares Beneficial Direct Indirect Total Directors Non-executive directors Lou Alberts Charles Boles * Theunis de Bruyn * Diederik Fouché Prescribed officers Hanré Bester * Appointed with effect from 20 July. As at 23 August, the directors and prescribed officers therefore held aggregate direct and indirect beneficial interests of 19,8% in the issued share capital of the company, being shares. The company has not been notified of any material change in directors and prescribed officers' interests during the period 31 March to the date of this report, other than as disclosed above. INTEREST OF DIRECTORS IN CONTRACTS The directors have certified that they had no material interest in any transaction of any significance with the company or any of its subsidiaries. SHARE INCENTIVE SCHEME Derek Tod retired on 31 May and Dries Ferreira and Jan Beukes resigned as executive directors on 14 July, therefore their share options lapsed. 71

74 REPORT OF THE REMUNERATION COMMITTEE continued Movements in the number of share options outstanding and their related weighted average grant prices are as follows: Grant date Vesting date Note Type of share incentive scheme^ Grant date strike price cents Grant date valuation price cents Opening number of share options 000 Number of share options awarded during the year 000 Number of share options forfeited during the year 000 Closing number of share options 000 At 31 March Executive directors David Austin (1 681) 6 Sep 30 Jun 2019 LTIP (1 681) Jan Beukes (462 4 Dec Jun 1 LTIP (399) 4 Dec Jun 1 DBP (63) Dries Ferreira (771) 1 Dec Dec 1 LTIP (400) 4 Dec Jun 1 LTIP (312) 4 Dec Jun 1 DBP (59) René Roos Jun Jun SAR Apr Jun LTIP Dec Jun 1 LTIP Dec Jun 1 DBP Sep 30 Jun 2019 LTIP Derek Tod (849) 4 Dec Jun 1 LTIP (680) 4 Dec Jun 1 DBP (169) Note 1: As a result of poor earnings, management and the remuneration committee have decided that these tranches will not vest. 1 Appointed on 18 November ; resigned on 17 March, effective 30 June. 2 Resigned effective 14 July. 3 Retired on 31 May. 1 As a result of poor earnings, management and the remuneration committee have decided that these tranches will not vest. ^ LTIP: Long-term Incentive Plans, SAR: Share Appreciation Rights; DBP: Deferred Bonus Plan 72

75 Distribution & Warehousing Network Limited Integrated report REPORT OF THE REMUNERATION COMMITTEE continued Grant date Vesting date Note Type of share incentive scheme^ Grant date strike price cents Grant date valuation price cents Opening number of share options 000 Number of share options awarded during the year 000 Number of share options forfeited during the year 000 Closing number of share options 000 Prescribed officers Luis Baeta (1 994) 1 Dec Dec 1 LTIP (15) 4 Dec Jun 1 LTIP (182) 4 Dec Jun 1 DBP (4) 1 Dec Jun LTIP (818) 6 Sep 30 Jun 2019 LTIP (975) Hanré Bester (150) Dec Dec 1 LTIP (150) - 4 Dec Jun 1 LTIP Sep 30 Jun 2019 LTIP Steve du Toit Sep 30 Jun 2019 LTIP Dave Ferguson (579) 12 Apr Jun LTIP (250) 1 Dec Dec 1 LTIP (20) 4 Dec Jun 1 LTIP (299) 4 Dec Jun 1 DBP (10) Graeme Johnston (20) Dec Dec 1 LTIP (20) 4 Dec Jun 1 LTIP Dec Jun 1 DPB Dec Jun LTIP Sep 30 Jun 2019 LTIP Vanessa White Sep 30 Jun 2019 LTIP Resigned with effect from 31 January. ² Appointed on 14 July ; resigned on 18 November. 3 Appointed with effect from 1 April. 4 Resigned with effect from 30 March. 5 Appointed on 1 September. 1 As a result of poor earnings, management and the remuneration committee have decided that these tranches will not vest. ^ LTIP: Long-term Incentive Plans, SAR: Share Appreciation Rights; DBP: Deferred Bonus Plan Participation in a cash-settled scheme during the year under review was as follows: Grant date Vesting date Type of share incentive scheme^ Grant date strike price cents Grant date valuation price cents Opening number of share options 000 Number of share options awarded during the year 000 Number of share options forfeited during the year 000 Closing number of share options 000 Cash-settled scheme Stephen Connelly Sep 30 Jun 2019 LTIP

76 REPORT OF THE REMUNERATION COMMITTEE continued Subsequent to year-end, the following share options were awarded: Grant date Vesting date Type of share incentive scheme^ Grant date strike price cents Grant date valuation price cents Number of share options awarded 000 Closing number of share options as at 23 August 000 Executive directors Edwin Hewitt Apr 30 Jun 2019 LTIP Appointed as chief executive officer with effect from 1 April. ^ LTIP: Long-term Incentive Plans. Movements in the number of share options outstanding and their related weighted average grant prices are as follows: Market Riskfree interest Vola- Dividend price per right and award per share 2 Allocation Valuation (strike) per right price at per vesting 3 share 4 Total number of rights granted rate tility yield cents cents cents 000 Share Appreciation Rights (SARs) rights granted 8,5 42,7 1, Total SARs 741 Long-Term Incentive Plans (LTIPs) 2015 rights granted 1 7,0 n/a 1, rights granted 1 7,0 n/a 1, rights granted 7,0 n/a 1, Total LTIPs Deferred Bonus Plan (DBPs) 2015 rights granted 1 7,0 n/a 1, Total DBPs 83 Total number of share options granted Share grants are not expected to vest. 2 Market price at date of grant. 3 Valuation for IFRS 2 Share-based payment charges to profit and loss. 4 LTIPs have a nil strike price. 74

77 Distribution & Warehousing Network Limited Integrated report REPORT OF THE REMUNERATION COMMITTEE continued DAWN s share price at 31 March was 101 cents (31 March : 400 cents). The volatility input to the pricing model is a measure of the expected price fluctuations of the DAWN share price over the life option structure. Volatility is measured as the annualised standard deviation of the daily price changes in the underlying shares. The weighted average fair value of the rights and awards granted was determined using a modified binomial tree model to value the SARs and the Monte Carlo valuation model for the valuation of the LTIPs. The following table sets out the reconciliation of the share-based payment reserve: SAR LTIP DBP Other Total 31 March Share-based payment reserve reconciliation Opening balance Income statement charge Closing balance GR GROUP OUP 31 March R' March Aggregate number of shares available to the new schemes Share rights and awards granted (new schemes) (7 567) (7 423) Number of share rights and awards available, but not engaged APPROVAL The report of the remuneration committee has been approved by the board of directors of DAWN. Signed for and on behalf of the remuneration committee Lou Alberts Chairman of the remuneration committee 23 August 75

78 REPORT OF THE SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE The social, ethics and transformation committee assists the board in monitoring the group s corporate citizenship. The committee is governed by a formal charter and has an independent role. This report of the social, ethics and transformation committee is presented in accordance with the requirements of the Companies Act MEMBERSHIP Membership of the social, ethics and transformation committee comprised Veli Mokoena (non-executive chairman), René Roos (executive director) and Jan Beukes (executive director) as well as a member of executive management, Alison Grobbelaar. On 14 June, Jan resigned as executive director of the company and member of the committee. On 8 March, Alison resigned as member of the committee. The group ethics officer and the group governance, risk and compliance executive have standing invitations to meetings and other members of management attend by invitation. Attendance at meetings by members of the social, ethics and transformation committee during the period 1 April to 31 March is outlined below. 15 Jun 27 Sep 3 Nov 8 Mar Veli Mokoena (chairman) Jan Beukes ¹ n/a n/a René Roos Alison Grobbelaar ² n/a ¹ Resigned on 14 July. ² Resigned with effect from 8 March. Effective 14 July, Edwin Hewitt was appointed as a member of the social, ethics and transformation committee. ROLE OF THE COMMITTEE The social, ethics and transformation committee has, apart from its statutory duties, as primary focus areas: defining of social and ethics mechanisms; transformation objectives; and sustainability issues. Social, ethics and transformation Social The social, ethics and transformation committee receives reports on labour and employment, with reference to decent work and working conditions. A high-level review of the company s standing in terms of the International Labour Organisation Protocol and the implementation of the ten principles as set out in the United Nations Global Compact Principles is performed. Related employment practices include the company s employment relationships, and its contribution toward the educational development of its employees, as well as the management of associated risks. 76

79 Distribution & Warehousing Network Limited Integrated report REPORT OF THE SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE continued Ethics The committee reviews the ethics activities and evaluates the adequacy and effectiveness of these actions, including: the ethics hotline feedback and action taken; the implementation of the ethics management programme in the company; the values of the company; ethical risks and opportunities; the code of ethical conduct; and the group ethics officer s feedback on ethics training, awareness and other actions. Transformation The DAWN group acknowledges that for black economic empowerment to be sustainable, it must be broad-based. The group adopts a holistic approach to empowerment, addressing skills development, employment equity, promotion in the workplace, procurement practices which support developing businesses and suppliers, enterprise creation and equity ownership in the group. In order for the group to remain competitive, improve market position and leverage new business opportunities, thereby enhancing profitability, it is imperative that it not only complies with the requirements of the Broad-Based Black Economic Empowerment Act and related Codes of Good Practice, but that transformation is accelerated to bring the majority of historically disadvantaged individuals into the mainstream economy by also providing meaningful economic participation and to share in wealth creation resulting from economic activities. The group is driving an increased focus on transformation across the group and, to this end, a transformation policy has been approved. Transformation goals and objectives pertain to equal opportunity employment, diversity management, recruitment and selection, remuneration reward and benefits, leadership development, culture, employee wellbeing, training and development and internal communication. Each subsidiary s executive team is accountable for the transformation strategy and plan of their business and is required to supply feedback to the committee on regular intervals. The group is affected by the changes in the BBBEE codes, but has done considerable work to minimise any deterioration in its scorecards. SR CORPORATE SOCIAL INITIATIVES The corporate social initiatives are managed centrally by the social, ethics and transformation committee. The group provided an administration learnership for unemployed disabled individuals in the communities where DAWN s employees reside. DAWN also provided a production technology learnership for unemployed individuals. Household items and cash donations were made to Tsholofelo Baby Sanctuary, a non-profit organisation who cares for abandoned babies. A vehicle was also donated for the transportation of the children. Financial assistance was furthermore provided to: Action for Blind and Disabled Children, a non-profit organisation which specialises in training these children on how to become productive, by way of computer training through voice-activated systems; Community Provision and Social Services (Compass), a non-profit organisation caring for homeless women and children; Oliver s House, a non-profit organisation focusing on early childhood, education, skills and community development for the disadvantaged; and a programme, which the group embarked on, to invest in the tertiary education and employment skills of young unemployed individuals. DAWN and its employees participated in Slipper Day, where funds raised were donated to Reach for a Dream. The Free State branches coordinated for staff to donate bottles of water to assist with the drought relief in affected communities. Various donations of stock were made to black-owned businesses as part of DAWN s contribution to enterprise and supplier development. 77

80 REPORT OF THE SOCIAL, ETHICS AND TRANSFORMATION COMMITTEE continued SUSTAINABILITY The committee evaluated DAWN s sustainable management practices in terms of four criteria. These are the suitability of: objectives associated with each sustainability initiative; structure to achieve objectives; systems and controls to track achievement of objectives; and incentives to promote executive commitment to the objectives. The group embarked on its seventh formalised sustainability data gathering process, but did not publish a comprehensive sustainability report in. A synopsis of sustainability matters is outlined on pages 79 to 89 with additional information published on the group s website ANNUAL WORK PLAN The annual work plan for was prepared, taking cognisance of gaps identified in the sustainable development data gathering process. Implementation processes take into account the medium- to long-term sustainability goals and the evolving nature thereof. Therefore, strategies, policies and procedures continue to be updated and mechanisms implemented. These processes and initiatives form part of the scope of the social, ethics and transformation committee s annual work plan. A corporate citizenship policy was reviewed and adopted by the board on 22 March and will be implemented across the DAWN group. Signed for and on behalf of the social, ethics and transformation committee Veli Mokoena Chairman of the social, ethics and transformation committee 23 August 78

81 Distribution & Warehousing Network Limited Integrated report SUSTAINABILITY AT A GLANCE DAWN produces a sustainability report annually, with the date of the most recent previous report being 31 March A comprehensive sustainability report was not prepared for the and financial years, but information was gathered and data collated for publication in the integrated report and on DAWN s website. Every effort has been made to ensure data accuracy and completeness. There is, however, the possibility of small inconsistencies due to human error in recording and collating, and differences in interpretation of definitions. Data have mainly been collated for DAWN s subsidiary companies, unless specifically indicated otherwise, for the economic, environmental and social indicators for the year 1 April to 31 March, and sustainability data collation coincides with DAWN s financial reporting cycle. Financial data have been extracted from the consolidated annual financial statements and include all businesses (subsidiaries, associates, joint ventures and cross-border operations). Intergroup transactions have been eliminated. The basis for reporting on the financial elements is in accordance with the group s accounting policies which are available on the group s website on Data are only reported where considered to be of sufficient accuracy and are reported according to the G4 GRI guidelines. Ongoing efforts are being made to improve the data quality and to broaden the content in the range of indicators. F FINANCIAL CAPITAL Value added statement Value added is the measure of wealth created by the group in its operations by adding value to the cost of raw materials, products and services purchased. The statement below summarises the total wealth created and shows how it was shared by employees and other stakeholders that contributed to its creation. Also set out below is the amount retained and reinvested in the group for the replacement of assets and the further development of operations. R'000 R'000 Revenue from goods and services Less: Cost of goods and services ( ) ( ) Value added from trading operations Add: Interest received on investments Total value added Utilised as follows: Employees Salaries and benefits Providers of capital Interest on borrowings Government company tax Current Deferred Retained for reinvestment Depreciation and amortisation Income retained in the business ( ) ( ) ( ) ( ) Total utilisation of value added

82 SUSTAINABILITY AT A GLANCE continued Exchanges with government, including amounts collected on their behalf R'000 R'000 Employee taxes Company taxes Value added tax and sales tax Customs and excise duty HUMAN CAPITAL Employment DAWN s employment strategy focuses on employee initiatives, social conditions and sustaining jobs in the supply base as well as occupational health and safety. DAWN s employees are the foundation of the business that enable the execution of the group s business strategy to deliver sustainable profit growth. The group s focus is on attracting, engaging and retaining the best talent to deliver on its strategic plan. DAWN s employment brand is built on a combination of its culture, its leadership, its product brands and its reputation. DAWN s vision of transformation is translated into strategies and specific targets and plans which are monitored and governed by the board. Transformation plans and targets are reflected in the leadership and other relevant employees performance goals. The group s subsidiaries employ (F: 2 984) people and the segmental breakdown of employees as well as the employment by race, gender, age group and region are graphically depicted below: Employment by gender profile Female Male

83 Distribution & Warehousing Network Limited Integrated report SUSTAINABILITY AT A GLANCE continued Levels of female employment Directors Management Other Employment (full-time and fixed term) Fixed term Full-time Employment by race and gender Black male White male Indian male Black female White female Indian female Coloured male Coloured female Male (foreign nationals) Female (foreign nationals) 81

84 SUSTAINABILITY AT A GLANCE continued Employment by age group Over Between 30 and 50 Under Employment by region Zambia (37/27) KwaZulu- Natal (556/386) Western Cape (450/386) Gauteng (1 264/1 166) North West (19/0) Free State (114/30) Northern Cape (13/0) Namibia (61/66) Eastern Cape (166/122) Democratic Republic of Congo (10/0) 500 Mpumalanga (131/80) Botswana (20/0) 0 Mozambique (22/22) Angola (12/0) Limpopo (109/56) Staff turnover The internationally recognised way of calculating labour turnover is as follows: employees who resign, are retrenched, retire, leave due to mutually agreed settlements and long-term contracts that are ended. Number of employees leaving during period Average number employed during period x The absenteeism issues are most prevalent in the manufacturing businesses, due to the nature of the industry and operating environment. The HR strategies approved for the manufacturing businesses have elements aimed at improving the causes of absenteeism. The staff turnover rate for DAWN and its subsidiaries, based on the above calculations, has been 31% (F: 30,56%) for the financial year with an absenteeism rate of 2,87% (F: 1,36%).

85 Distribution & Warehousing Network Limited Integrated report SUSTAINABILITY AT A GLANCE continued Labour/Management relations The number of unionised employees is listed below and constitutes 39,8% (F: 33,5%) of the group s workforce. Trade unionisation DAWN Kitchen Fittings Pro-Max Welding Consumables Hamilton's Brushware SA Incledon DPI Plastics Swan Plastics Ubuntu Plastics DAWN logistics TOTAL SATAWU SACCAWU NUM 1 1 BCAWU 1 1 NUMSA CEPPAWU GIWUSA SACWU SOLIDARITY 1 1 UCIMESHAWU 2 2 Number of unionised employees Definitions: SATAWU South African Transport and Allied Workers Union SACCAWU South African Commercial, Catering and Allied Workers Union NUM National Union of Mine Workers BCAWU Building, Construction and Allied Workers Union NUMSA National Union of Metalworkers of South Africa CEPPAWU Chemical, Energy, Paper, Printing, Wood and Allied Workers Union GIWUSA General Industries Workers Union of South Africa UCIMESHAWU United Chemical Industries Mining Electrical State Health and Aligned Workers Union Occupational health and safety Workplace injuries Lost time injury reporting has improved overall throughout the group, hence the slight rise in the Disabling Injury Frequency Rate (DIFR) for the period 1 April to 31 March. The group is working towards zero incidents through training and awareness programmes, improved housekeeping practices and manager-employee relationships. A calculation was done of DAWN s subsidiaries DIFR, which resulted in a rate of 1,10% (F: 1,19%) calculated on hours worked with 24 (F: 25) disabling injuries. 83

86 SUSTAINABILITY AT A GLANCE continued Disabling injury frequency rate % 2,0 1,5 1,0 0,5 Group DIFR Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar 1,20 1,08 1,16 1,13 1,14 1,02 1,16 1,05 1,06 0,93 1,65 0,62 Occupational and healthcare clinics and initiatives On-site occupational clinics are operational at the following manufacturing plants: DPI Plastics, Roodekop and Bellville Where no on-site clinic is available, such as warehousing and distribution outlets, employees are referred to outsourced occupational health services, for matters such as lifting equipment operator medical examinations, vision screening, injury on duty cases and other occupational work-related cases such as noise-induced hearing loss. Focus has also given to occupational hygiene risk assessments in terms of health-related recommendations. A Wellness Day was held on the 30 November, where staff were offered the following assistance and services: HIV testing, counselling and long-term assistance; General health testing eg blood pressure, cholesterol, weight management; and General health improvement eg eating and exercise advice. More than 25% of the group's staff took part in all the above activities voluntarily and enjoyed the day and found it most useful. Statistics were received of where staff health issues are to enable DAWN to focus on providing solutions to assist them. Training and education One of DAWN s key strategic elements is to Re-energise and focus learning and development. During the year the focus has been on sales and product training and leadership development. DAWN Academy The DAWN Academy was relaunched in with the philosophy that was coined by Nelson Mandela Education is the powerful tool that can change the world. DAWN focused on two accredited learnerships for purposes of succession and leadership development. 84

87 Distribution & Warehousing Network Limited Integrated report SUSTAINABILITY AT A GLANCE continued The IMPI ( young warrior ) programme is focused on up and coming talent who are new to the business or entering business but with potential for growth. The learnerships aim at teaching business skills, industry specific skills and fundamental leadership skills. This programme also fulfils the group s aims stated in last year s report of training in Africa, as DAWN also has delegates from other African countries. The ASSEGAI ( the spear ) programme is a LDP programme that is accredited and competes very favourably with leadership programmes run by many tertiary institutions. DAWN has selected current junior and middle managers which have been identified as future leaders of the group. The THENGISA ( to sell ) programme is aimed at sales leadership aimed at all the group s levels of sales management to teach them the key skills and dynamics of leading sales staff. The programme was developed and tested, but will only be fully launched in F2018. Skills development The employment equity and skills development forums are in place to provide quality assurance in terms of training and development as well as transformation across all companies. The workplace skills plans, derived from the training plans and annual training reports, have been submitted as per the Skills Development Act requirements. A number of learnerships have been implemented across the group namely: Wholesale and retail supervision learnership; Production technology learnership; and Plastics manufacturing learnership. These learnerships include permanent employees and unemployed learners recruited as fixed term employees. These interventions form part of the transformation strategy. Apprenticeships are also underway at DPI Plastics in order to create a pool of competent trades within manufacturing. This includes trades such as tool, jig- and die-makers, ATRAMI Setters and Millwrights. These are some of the trades considered as scarce skills within the industry. Training hours During F a total of hours (F: hours) were spent on internal and external training of employees. The number of employees trained was 866 (F: 414). Statistics Data has been collated by employee category as well as by gender and race and are depicted below. Number of employees trained by employment category Fixed term employment Unskilled and defined decision-making Semi-skilled and discretionary decision-making Skilled technical and academically qualified workers, junior management, supervisors, foremen and superintendents Professionally qualified and experienced specialists and middle-management Senior management Top management 85

88 SUSTAINABILITY AT A GLANCE continued Number of hours trained by employment category Fixed term employment Unskilled and defined decision-making Semi-skilled and discretionary decision-making Skilled technical and academically qualified workers, junior management, supervisors, foremen and superintendents Professionally qualified and experienced specialists and middle-management Senior management Top management Number of employees trained by race Foreign nationals Coloured Indian White Black Number of employees trained by gender Female Male

89 Distribution & Warehousing Network Limited Integrated report SUSTAINABILITY AT A GLANCE continued Going forward Leadership and the implementation of a culture of a High Performance Organisation is the focus for human capital in the year ahead. Some of these elements cover the following: Ensuring DAWN is an organisation that is well led through development and coaching of its leaders; retention and recruitment of top leadership talent; and ensuring that all leaders have line of sight of the DAWN strategy. Building the organisation on clear behaviours that all staff believe in and align to. Ensuring that these behaviours are imbedded in the organisation and are not just spoken about. Creating a culture of passion for customers among all DAWN s people from sales to administrative staff. Embedding a sense of ownership and accountability amongst all staff by giving them line of sight of the DAWN strategy and assisting them to see and be proud of their role in achieving that strategy. Having an engaged workforce by implementing the following: Management systems which reward and recognise high performance. Management systems that address unsatisfactory performance. The organisation is considered an employer of choice. Employee capabilities are aligned with strategic priorities. N NATURAL CAPITAL Carbon footprint For the year ended 31 March, activities of DAWN s subsidiaries generated a carbon footprint of CO 2 e tonnes (F: CO 2 e tonnes). This includes all activities under Scope 1 and Scope 2 as well as business travel under Scope 3. Scope 1 Diesel and petrol jointly are the second most important energy carriers in the DAWN group with 2,92 million litres of diesel (F: 3,93 million litres) and 1,51 million litres of petrol (F: 1,38 million litres) being used resulting in CO 2 e tonnes from transport and distribution (F: CO 2 e tonnes). Diesel is primarily used in the transportation component of the distribution model to get manufactured goods to wholesale locations as well as to deliver wholesale goods to retail customers. Petrol is primarily used by sales personnel to promote and sell products. A small amount of diesel is being used in factories and warehouses by forklifts. Based on low materiality (<1%) and insignificant changes in the installed equipment that cause fugitive emissions from previous periods (refrigeration and air-conditioning) a weighted average from the last three periods results in an estimate of 604 CO 2 e tonnes for F. Historically, the third most significant individual contributor to the carbon footprint was in the form of natural gas consumption, however, in F no reporting companies used any natural gas. Scope 2 The primary contributor to the carbon footprint emanated from Scope 2 emissions in the form of electricity consumption of MWh (F: MWh). The solar PV plant has been excluded in this reporting period. Electricity is used at all of the 35 locations across the group with large consumption being recorded at particularly the pipe manufacturing locations. Reporting is based on the 17 subsidiary businesses. 87

90 SUSTAINABILITY AT A GLANCE continued The top three subsidiaries, in order of magnitude, are DPI Plastics ( MWh), Swan Plastics (9 536 MWh) and DDC (3 263 MWh). During the year back-up power generators have been installed at the PVC pipe manufacturing businesses in the manufacturing segment. Scope 3 A selected category under scope 3 has been taken under review, with the support of a third-party. This process assured the gathering of reliable data and verification of data provided. Business travel on a flight and car rental basis accounted for 440 CO 2 e tonnes (F: 1 829,7 CO 2 e tonnes). Summary In summary during F, energy in the form of electricity, diesel, petrol and LPG gas accounted for CO 2 e tonnes (F: CO 2 e tonnes) of carbon emissions which amounted to 99,1% (F: 96,2%) of the total carbon footprint of the group. Fugitive emissions from the refill of air-conditioners and refrigeration plants, together with business travel, made up the remainder of the emissions. Verification The carbon footprint data is based on Scope1 and Scope 2 emissions as well as business travel which is a Scope 3 emission. Risk-based assurance was provided by internal audit in this regard. Graphical representation of DAWN s carbon footprint Electricity (CO 2 e tonnes) Fuel (diesel and petrol) (CO 2 e tonnes) Business travel (CO 2 e tonnes) Fugitives (CO 2 e tonnes) LPG (litres) Materials The Material Safety Data Sheets specifications govern the purchase of all materials and the operational practices applied utilising them. Environmentally safe purchases and practices are enforced by extensive data audit and training. Materials used by DAWN s subsidiaries consisted of polymer and HDPE totalling tonnes of which tonnes were recycled input materials, translating into 1,08% recycled input materials. 88

91 Distribution & Warehousing Network Limited Integrated report SUSTAINABILITY AT A GLANCE continued Water In F, water sources (large roofed areas and a borehole) have been identified at the DDC in Germiston for the supply of potable water produced on site. A balance between production and use was established. During the year piping routes from roof catchment to a reservoir were determined and a borehole was drilled. Water quality proved a challenge, due to high levels of iron and other heavy metals. The borehole delivered a yield of 18 kilolitre per day. In mitigation, filtration treatment and pumping solutions were specified and sourced. Additionally, a major water leak was identified on site. The fixing of this leak resulted in a significant portion of the water usage reduction on site, which will be visible in future periods. The filtration plant came into effect in May. Prior to this plant being operational and the unknown leak on site being fixed, Germiston site was consuming approximately litres of water per day. Upon rectification of the water leak, consumption dropped to approximately litres per day. The borehole/watershed supply is current producing approximately litres of potable water per day, meaning the balance of the consumption is being drawn from the municipality supply. The aim over the next year is to reduce this even further, resulting in an off-grid water supply to the Germiston site. ADDITIONAL INFORMATION The following additional information is available on DAWN s website Sustainability performance data; Supply-chain; and Accreditations. 89

92 F ANNUAL FINANCIAL STATEMENTS LEVEL OF ASSURANCE These annual financial statements have been audited in compliance with the applicable requirements of the Companies Act of South Africa. AUDITORS PricewaterhouseCoopers Inc. Registered Auditors PREPARER Prepared by Yolandi van den Berg (CA(SA)), senior group financial accountant, under the supervision of Hanré Bester (CA(SA)), group financial manager and Chris Booyens (CA(SA)), chief financial officer and financial director. PUBLISHED 14 July CERTIFICATION BY COMPANY SECRETARY In terms of Section 88(2)(e) of the Companies Act 71 of 2008, as amended, I certify that, to the best of my knowledge and belief, the company has, in respect of the financial year reported upon, lodged with the Companies and Intellectual Property Commission all returns required of a public company in terms of the Act and that all such returns are true, correct and up to date. Claire Lindsay On behalf of: ithemba Governance and Statutory Solutions Proprietary Ltd Company secretary 14 July 90

93 Distribution & Warehousing Network Limited Integrated report STATEMENT OF RESPONSIBILITY AND APPROVAL BY THE BOARD OF DIRECTORS for the year ended 31 March The directors are required in terms of the Companies Act, No 71 of 2008 to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements and related financial information included in this report. It is their responsibility to ensure that the annual financial statements fairly present the state of affairs of the group as at the end of the financial year and the results of its operations and cash flows for the period then ended, in conformity with International Financial Reporting Standards. The external auditors are engaged to express an independent opinion on the annual financial statements. The annual financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and are presented in terms of the disclosure requirements as set out in the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the JSE Listings Requirements and the requirements of the Companies Act, The annual financial statements are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates. The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the group and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board of directors sets standards for internal control aimed at reducing the risk of error or loss in a costeffective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the group and all employees are required to maintain the highest ethical standards in ensuring the group s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the group is on identifying, assessing, managing and monitoring all known forms of risk across the group. While operating risk cannot be fully eliminated, the group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints. The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the annual financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss. GOING CONCERN ASSESSMENT DAWN posted losses for both the years ended 31 March and of R762,9 million and R637,4 million, respectively. In determining the appropriate basis of preparation of the annual financial statements, the directors are required to consider whether the group can continue to operate as a going concern for the foreseeable future, to 14 July After the rights issue in April, DAWN had banking facilities available of R200 million, comprising a R100 million revolving credit and a R100 million general banking facility. To determine if the group will be a going concern for the next financial year and up to 14 July 2018, management prepared cash flow forecasts for each of the material subsidiaries. These forecasts were subjected to further sensitivity tests and included the estimated intra-month peak funding requirements. Management also considered the businesses ability to meet its financial obligations for the 12 months following approval of the annual financial statements. The analysis considered the current challenging market conditions, which negatively affects the performance of the group and management s turnaround plan being executed including a return to sustainable profitability, further cost reductions and optimisation of working capital. The resulting cash flow projections were compared to available funding facilities. The forecast profitability and the ability of the underlying business to meet the forecasts is an area of uncertainty. The effect of a further deterioration in the economic outlook and its potential impact on the group s cash flow and funding facilities were also considered as an uncertainty. The group s ability to fund its short-term liquidity requirements is dependent on adequate funding facilities. The forecasts indicate that the covenants on the facilities are expected to be breached. Management is seeking clarification from their bankers in this regard. Breaching covenants creates a risk for the group of losing its facilities. 91

94 STATEMENT OF RESPONSIBILITY AND APPROVAL BY THE BOARD OF DIRECTORS continued for the year ended 31 March Part of management s plans to address this include the corporate restructuring activities and alternative funding options, which are being considered. These events and conditions give rise to a material uncertainty that may cast significant doubt about the group s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. The external auditors are responsible for independently auditing and reporting on the group s annual financial statements. The annual financial statements have been examined by the group s external auditors and their report is presented on pages 103 to 108. The annual financial statements set out on pages 109 to 215, which have been prepared on the going concern basis, were approved by the board of directors on 12 July and were signed on its behalf by: Diederik Fouché Edwin Hewitt Chris Booyens Chairman Chief executive officer Financial director 92

95 Distribution & Warehousing Network Limited Integrated report REPORT OF THE AUDIT AND RISK COMMITTEE for the year ended 31 March During the year under review, the audit committee and the risk committee were merged into one committee, the audit and risk committee. The committee currently operates with separate terms of reference, one for audit and one for risk, but during the year ahead the terms of reference will be combined, thereby rendering an audit and risk committee charter. The terms of reference of the audit committee and the risk committee were reviewed and ratified by the board on 22 March and are available at the company s registered office for inspection. PURPOSE The audit and risk committee meets three times during the financial year to discuss issues of accounting, auditing, internal controls and financial reporting. The audit committee s terms of reference deals adequately with its membership, authority and duties. The committee has an independent role with accountability to both the board and shareholders. The committee does not assume the functions of management, which remain the responsibility of the executive directors, officers and other members of senior management. The audit and risk committee fulfils an oversight role regarding financial reporting risks, internal financial controls, fraud risk as it relates to financial reporting and information technology risks as it relates to financial reporting. The committee considers whether or not the interim report should be subject to an independent review by the auditors. Further information on risk policies, strategies, management and indicators appear in the corporate governance report of the integrated report. MEMBERSHIP On 18 November shareholders approved the appointment of Saleh Mayet (chairman), Lou Alberts and Dinga Mncube as members of the audit and risk committee. Saleh resigned as independent non-executive director and chairman of the audit and risk committee on 20 February. With effect from 28 March, Akhter Moosa was appointed to the board of DAWN as an independent non-executive director and as chairman of the audit and risk committee. Akhter Moosa (chairman), Lou Alberts and Dinga Mncube are proposed as members of the audit and risk committee, responsible for audit matters, for the 2018 financial year. These directors brief curriculum vitae can be found on pages 31 and 32 in the integrated report. A resolution to this effect will be presented to shareholders at the annual general meeting to be held on Friday, 24 November. The board is satisfied that the directors integrity, impartiality and objectivity are not in any way compromised and as such satisfies the requirements of section 94(4) of the Companies Act,

96 REPORT OF THE AUDIT AND RISK COMMITTEE continued for the year ended 31 March Attendance at meetings held during the period 1 April to 31 March was as follows: Audit only Audit only Special AUDIT AND RISK COMMITTEE 20 Apr 22 Jun 29 Jun 29 Aug 9 Nov 16 Mar Saleh Mayet (chairman) (audit and risk) ¹ n/a Lou Alberts (audit and risk) Hanré Bester (risk) ² n/a n/a n/a n/a Dinga Mncube (audit and risk) Dries Ferreira (risk) ³ n/a n/a n/a n/a n/a Stephen Connelly (risk) 4 n/a n/a Steve du Toit (risk) 5 n/a n/a David Austin (risk) 6 n/a n/a n/a n/a n/a ¹ Resigned with effect from 20 February. ² Appointed on 14 July ; resigned on 18 November. ³ Resigned with effect from 14 July. 4 Appointed with effect from 1 April. 5 Appointed with effect from 1 April. 6 Appointed with effect from 18 November. The chairman of the board attended all the above meetings as an invitee. The external auditors and appropriate members of executive management attend the meetings by invitation. Internal audit attends audit and risk committee meetings and provides reports to the committee. YEAR UNDER REVIEW The audit and risk committee has met periodically to consider and to act upon its statutory duties and functions and the board confirms that the committee has during the review year performed the duties mandated to it by the board. The committee oversaw the integrated reporting process in accordance with its terms of reference and, in particular, the committee: regarded all factors and risks that may impact on the integrity of the integrated report, including factors that may predispose management to present a misleading picture, significant judgements and reporting decisions made, as well as any evidence that brings into question previously published information and forward-looking statements or information; reviewed the annual financial statements; reviewed the disclosure of sustainability issues in the sustainability report and in the integrated report to ensure that it is reliable and does not conflict with the financial information; recommended the integrated report for approval by the board; and reviewed the content of the summarised financial information to determine if it provides a balanced view. The board has assigned oversight of the group s risk management function to the audit and risk committee. EXTERNAL AUDIT 94 In terms of the Companies Act, the Committee had nominated PricewaterhouseCoopers Inc. as the independent auditor and Isak Buys as the designated partner, for appointment for the audit. This appointment was approved by shareholders at the annual general meeting on 18 November. The committee has satisfied itself through enquiry that the auditor of DAWN is independent as defined by the Companies Act 2008, as amended, and as per the standards stipulated by the auditing profession.

97 Distribution & Warehousing Network Limited Integrated report REPORT OF THE AUDIT AND RISK COMMITTEE continued for the year ended 31 March Requisite assurance was sought and provided by the auditor that internal governance processes within the audit firm support and demonstrate the claim to independence. The committee, in consultation with executive management, agreed to the engagement letter, terms, nature and scope of the audit function and audit plan for the financial year. The budgeted fee is considered appropriate for the work that could reasonably have been foreseen at that time. The final adjusted fee will be agreed on completion of the audit. Audit fees are disclosed in note 4 on page 133 of the annual financial statements. There is a formal procedure that governs the process whereby the auditor is considered for non-audit services and each engagement letter for such work is reviewed and approved by the committee. Non-audit services rendered during the year under review included tax accounting and compliance services; providing assurance on information included in the preparation of the certificate for conveyancing purposes for Wholesale Housing Supplies Proprietary Limited; rendering expatriate administration services; and assisting with the renewal of employment permits for the secondment of two employees to Zambia. PricewaterhouseCoopers Advisory conducted an independent review of DAWN's cash flow model, which review was independent of the audit. Meetings are held with the auditor where management is not present and no matters of concern were raised. The external auditors have unrestricted access to the chairman of the audit and risk committee. The committee has again nominated, for approval at the annual general meeting to be held on Friday, 24 November, PricewaterhouseCoopers Inc. as the external auditor, and Isak Buys as the designated auditor, for the 2018 financial year. The committee confirms that the auditor and designated auditor are accredited by the JSE Limited. INTERNAL AUDIT The group internal audit function operates within defined terms of reference in accordance with the internal audit charter and the group internal audit executive reports to the group risk and compliance officer on day-to-day activities and functionally to the chairman of the audit and risk committee. The internal audit function is regarded as being sufficiently independent of activities audited. The internal audit plan is reviewed and adjusted on a continuous basis to ensure effectiveness and is based on the relevant degree of inherent risk. The internal audit plan for the financial year was reviewed and approved by the audit and risk committee. In compliance with internal auditing standards, the board, through its audit and risk committee, ensures that the Internal audit function is subject to independent quality review at periods of at least once every five years, with the first review conducted in October 2013 and the next one scheduled for March INTERNAL CONTROL The group maintains systems of internal control, which include financial, operational and compliance controls. The committee is responsible for reviewing the functioning of the internal control system, the reliability and accuracy of the financial information provided by management as well as that provided for dissemination to other users of financial information, whether the group should continue to use the services of the current external auditors, any accounting or auditing concerns identified as a result of the external audit, the group s compliance with legal and regulatory provisions, its memorandum of incorporation, code of ethical conduct and by-laws. The board of directors is accountable for establishing appropriate risk and control policies. Executive management is responsible for monitoring, reviewing and communicating these controls and policies through the organisation. Corrective actions are taken to address control deficiencies and other opportunities for improving the systems, as they are identified. All processes have been in place for the year under review and up to the date of the approval of the annual financial statements and the directors are not aware of and there is no known material breakdown in the functioning of the internal financial controls that has occurred during the year under review to render the control environment ineffective. 95

98 REPORT OF THE AUDIT AND RISK COMMITTEE continued for the year ended 31 March ANNUAL FINANCIAL STATEMENTS AND ACCOUNTING POLICIES The audit and risk committee has reviewed the accounting policies and the financial statements of the group and the company and is satisfied that they are appropriate and comply with International Financial Reporting Standards. The audit and risk committee and the board are confident that it has taken and continues to take all the necessary steps to execute its responsibilities in terms of the Companies Act of South Africa and the principles of good governance as contemplated by the King Code on Corporate Governance. The audit and risk committee has considered the JSE Report on Proactive Monitoring and has taken the appropriate action to apply the findings. The audit and risk committee fulfilled its mandate and recommended the annual financial statements for the year ended 31 March for approval to the board. The board approved the annual financial statements on 12 July and the financial statements will be open for discussion at the annual general meeting. EVALUATION OF THE FINANCIAL DIRECTOR AND THE FINANCE FUNCTION The audit and committee confirms that it has satisfied itself of the expertise and experience of: Hanré Bester, the acting financial director for the period 14 July to 18 November ; David Austin, financial director from 18 November until his resignation on 17 March, effective 30 June ; and Chris Booyens, appointed with effect from 1 May, and being the financial director assuming responsibility for the annual financial statements for the year ended 31 March. The audit and risk committee has considered, and has satisfied itself of, the appropriateness of the expertise and adequacy of resources of the finance function and experience of the senior members of management responsible for the finance function. WHISTLE-BLOWING The code of ethical conduct and whistle-blowing policy are intended to assist individuals who believe they have discovered serious malpractice or impropriety to take the appropriate action. The committee is assured that these arrangements provide for proportionate and independent investigation of matters reported and for suitable follow-up action. The committee is satisfied that instances of whistle-blowing were appropriately dealt with during the year under review. Copies of the code of ethical conduct and fraud policy are available on the company s website ASSURANCE The audit and risk committee is satisfied that DAWN has optimised the assurance coverage obtained from management and internal and external assurance providers in accordance with an appropriate combined assurance model. APPROVAL The report of the audit and risk committee has been approved by the board of directors of DAWN. Signed for and on behalf of the audit and risk committee 96 Akhter Moosa Chairman of the audit and risk committee 14 July

99 Distribution & Warehousing Network Limited Integrated report DIRECTORS REPORT for the year ended 31 March The directors take pleasure in presenting their report, which forms part of the consolidated financial statements for the year ended 31 March. The consolidated financial statements presented on pages 109 to 215 set out fully the financial position, results of operations and cash flows of the group and the company for the year ended 31 March. NATURE OF BUSINESS DAWN manufactures and distributes quality branded hardware, sanitaryware, plumbing, kitchen, engineering and civil products through an international, strategically positioned branch network in South Africa and selected countries in the rest of Africa and Mauritius. LISTING INFORMATION Distribution and Warehousing Network Limited is listed in the Construction and Materials Building Materials and Fixtures sector of the JSE Limited under the share code: DAW. The company s ISIN number is ZAE REGISTERED ADDRESS The holding company s registered address is: Cnr Barlow Road and Caveleros Drive, Jupiter Ext 3, Germiston, PostNet Suite number 100, Private Bag X1037, Germiston, YEAR UNDER REVIEW Group results summary % change Statement of financial position Total assets (26) Total liabilities (5) Financial gearing ratio (%) 86,8 29,5 >100 Net asset value per share (cents) 158,46 440,66 >(100) Net tangible asset value per share (cents) 130,95 412,95 (68) Income statement Revenue (14) Operating loss before impairments and derecognitions ( ) (14 351) >100 Impairments and derecognitions (73 194) ( ) 89 Operating loss ( ) ( ) 29 Net finance charges (58 588) (71 070) 18 Share of loss in investments accounted for using the equity method (41 042) (5 891) >(100) Income tax expense (51 608) (19 613) >(100) Attributable loss ( ) ( ) 16 Headline loss ( ) ( ) >(100) Loss per share (cents) (269,22) (318,31) 15 Headline loss per share (cents) (240,49) (65,55) >(100) An analysis of the group s results is disclosed in the report of the chief financial officer on pages 21 to

100 DIRECTORS REPORT continued for the year ended 31 March Disposal Associate Heunis Steel Proprietary Limited was disposed of on 31 January. DAWN sold its 49% share in the entity for R50 million. R27 million was received as the consideration amount for disposal and R23 million was received in the form of a dividend. The value of the investment was R91,7 million, resulting in an impairment of R41,7 million. SPECIAL RESOLUTIONS At the annual general meeting of the company held on 18 November, shareholders approved two of the three special resolutions. Special resolution number 1: Granting the company a general authority for the repurchase of its own shares. Special resolution number 2: Approving the non-executive directors fees for the financial year. Special resolution number 3: Granting the company the authority to provide financial assistance to any company or corporation which is related or inter-related to the company in terms of the requirements of section 45 of the Companies Act, No 71 of Special resolution number 1 was not adopted by shareholders. At the forthcoming annual general meeting of the company to be held on Friday, 24 November, the special resolutions approved on 18 November will again be presented to shareholders for approval. DIVIDEND No dividend has been proposed or declared for the year under review. Resumption of dividend payments is dependent on the board s views of when the majority of DAWN s underlying businesses will be firmly in profit. SHARE CAPITAL Further details of the authorised and issued share capital of the company are provided in note 19 to the consolidated annual financial statements. During the year under review there was no repurchase of shares and no shares were issued for cash. REPURCHASE OF SECURITIES During the year under review no securities were repurchased by the Company. DAWN SHARE SCHEME The aggregate number of shares available to the scheme at year-end, but not issued, is outlined below. All the shares have been taken up. 31 March 31 March Aggregate number of shares available to the new scheme Share rights and awards granted (new schemes) (7 567) (7 423) 98 Number of share rights and awards available, but not engaged

101 Distribution & Warehousing Network Limited Integrated report DIRECTORS REPORT continued for the year ended 31 March DIRECTORS Director Designation Date appointed Date resigned Diederik Fouché Independent non-executive chairman 1 November 2015 Lou Alberts Lead independent director 10 August 2001 Stephen Connelly Interim chief executive officer 1 April Executive deputy chairman 1 April Edwin Hewitt Chief executive officer 1 April Derek Tod Chief executive officer 30 June May Chris Booyens Financial director 1 May David Austin Financial director 18 November Resigned on 17 March, effective 30 June Hanré Bester Financial director 14 July 18 November Dries Ferreira Financial director 30 November July Jan Beukes Executive director 20 August July Saleh Mayet Independent non-executive director 20 May February Dinga Mncube Independent non-executive director 1 May 2014 Veli Mokoena Non-executive director 22 June 2011 Akhter Moosa Independent non-executive director 28 March George Nakos Non-executive director 12 November 2015 René Roos Executive director 14 December 2009 Akhter Moosa was appointed to the board on 28 March as an independent non-executive director and chairman of the audit and risk committee. Edwin Hewitt was appointed as chief executive officer with effect from 1 April and Chris Booyens was appointed as chief financial officer and financial director with effect from 1 May. Resolutions for ratification by shareholders of Akhter Moosa, Edwin Hewitt and Chris Booyens' appointments are included in the notice of annual general meeting in the integrated report. In terms of the company s memorandum of incorporation, Diederik Fouché and Dinga Mncube retire by rotation at the forthcoming annual general meeting. The retiring directors are eligible and available for re-election. SECRETARY The secretary of the company is ithemba Governance and Statutory Solutions Proprietary Limited. DIRECTORS SHAREHOLDING The directors held in aggregate direct and indirect beneficial interests of 1,2% (: 8,0%) in the issued share capital of the company at the reporting date, the details whereof appear on page 70 of the report of the remuneration committee. The company has not been notified of any material change in directors interests during the period 31 March to the date of this report, other than as disclosed on page 71 of the report of the remuneration committee. DIRECTORS EMOLUMENTS Details of the directors emoluments are set out on page 61 of the report of the remuneration committee. 99

102 DIRECTORS REPORT continued for the year ended 31 March DIRECTORS INTEREST IN CONTRACTS No material contracts involving directors interest were entered into during the year under review. LITIGATION On 23 March, the Competition Tribunal (the Tribunal) handed down a decision in which it determined that DAWN Consolidated Holdings (Pty) Ltd (DCH), a subsidiary of DAWN, through the wholly-owned subsidiary DPI Plastics (Pty) Ltd of DCH, engaged in a market allocation arrangement with Sangio Pipe (Pty) Ltd (Sangio), in which DCH had a 49% interest at the time. In such cases penalties are usually determined as a percentage of affected turnover and affected turnover is usually that related to the market allocation arrangement in question. The ultimate penalty will be judged across a number of variables and parameters that are in the judgment of the Tribunal. The legal process to determine the penalty quantum is currently underway, however the group believes, supported by legal advice that an appeal will be successful. SHAREHOLDING ANALYSIS A presentation of the company s shareholding is set out on pages 216 and 217. BORROWING POWERS The group has unlimited borrowing powers permitted in terms of the company s memorandum of incorporation. SUBSIDIARIES, ASSOCIATE COMPANIES AND JOINT VENTURES Details of the holding company s interest in subsidiaries, associate companies and joint ventures are set out on pages 213 to 215 of the annual financial statements. Details of indebtedness to the holding company are set out on page 205 of the annual financial statements. As outlined in the trading update published on SENS on 12 July, although the board believes the group is solvent and liquid for the 12 months following the date of the auditors signing of this year s results on 14 July, certain potential events and conditions give rise to a material uncertainty that may cast significant doubt on the group s ability to continue as a going concern based on cash flow forecasts prepared against the backdrop of available facilities. For further information refer to note 44 on page 212. Management is actively addressing the group s short-term challenges, with actions including corporate restructuring activities and alternative funding options. EVENTS AFTER THE REPORTING DATE Changes to the board of directors Chief executive officer Edwin Hewitt was appointed chief restructuring officer at DAWN in February, working with a major bank, where he played a significant role in finalising a recapitalisation programme for the group. With effect from 1 April, Edwin has been appointed chief executive officer of DAWN. 100 With effect from 1 April, on the appointment of Edwin Hewitt as CEO, Stephen Connelly who has been the interim CEO of DAWN since 1 June, was appointed as executive deputy chairman of DAWN.

103 Distribution & Warehousing Network Limited Integrated report DIRECTORS REPORT continued for the year ended 31 March Chief financial officer On 17 March, David Austin resigned as financial director and chief financial officer. David resigned as a director with effect from 30 June. Chris Booyens was appointed financial director and chief financial officer of DAWN with effect from 1 May. Rights offer DAWN shareholders are referred to the circular dated Monday, 20 March regarding the renounceable rights offer for up to R358 million, which concluded on 12 April. The rights offer consisted of an offer of million ordinary shares in the ratio of 147,83904 rights offer shares for every 100 ordinary shares held by shareholders on the record date of the rights offer, at a subscription price of R1,00 per rights offer share. Following the conclusion of the rights offer, the total issued share capital of the company increased to shares. Borrowings Revolving credit facility On 15 October 2015, Absa Bank Limited granted the group a revolving credit facility of R200 million. This facility ended on 7 October and was re-negotiated to 7 October. The new facility had similar characteristics, but had a quarterly step-down of R25 million per quarter in respect of the revolving credit facility, which started on 7 October and would have concluded on 7 July. This agreement was re-negotiated and signed in December for a reduced facility of R175 million after a R25 million repayment was made in October. A further repayment of R75 million was made on 12 April to reduce the facility to R100 million. The facility extends until 31 March Accounts receivable have been ceded and a general notarial bond has been registered over inventory. Bridging finance facility On 23 December, DAWN received R50 million bridging finance from Absa Bank Limited, which amount was repaid on 31 January, after obtaining the proceeds from the sale of Heunis Steel Proprietary Limited. DAWN received R200 million funding from Investec as bridging finance through an unsecured facility. Two R100 million tranches were received on 24 February and 6 March, respectively. The full R200 million was repaid on 18 April from the proceeds of the rights offer. Further details on borrowings are disclosed in note 23 on page 169. Disposals Boutique Baths Proprietary Limited DAWN entered into an agreement to dispose of its 76% shareholding in Boutique Baths Proprietary Limited for a consideration of R3 million, effective 28 April. As a result, Boutique Baths Proprietary Limited has been derecognised and classified as held-for-sale and a loss on derecognition of R0,34 million was realised at year-end. Aqualia DPI Proprietary Limited DAWN entered into an agreement to dispose of its 50% interest in the joint venture with Aqualia DPI Proprietary Limited, incorporating Aqua Science Proprietary Limited, for a consideration of 1 Mauritian Rupee, effective 30 June. Fibrex Fabrica deart.de.f.b. Sinteticas, S.A.R.L. (Fibrex) On 1 April, the group entered into an agreement for the acquisition of the remaining 51% shareholding from the majority shareholder in Plastic Investments International Limited, of which Fibrex is a wholly-owned subsidiary, under obligation. Defalcation on the part of the majority shareholder enabled DAWN to acquire the shareholding for a consideration of Rnil, as the shareholder surrendered his shares to DAWN. The provisional amount of net assets acquired amounted to R10,0 million. On 15 June, the board of directors of DAWN resolved to dispose of Fibrex in its entirety during F2018 in an effort to recover the losses incurred by the business. 101

104 DIRECTORS REPORT continued for the year ended 31 March Grohe DAWN Watertech (GDW) As announced on SENS on 11 July, the group has concluded a non-binding memorandum of understanding with the controlling shareholders of GDW for the potential disposal of DAWN s 49% holding in the company to that shareholder. No price has been agreed for the transaction as yet. There is no certainty that the negotiations will lead to definitive and binding agreements and therefore no certainty that the transaction will ultimately be concluded and implemented. The intention of both parties is that DAWN remains the long-term master distributor for the GDW product range in southern Africa. It is the view of the DAWN board that this transaction would be a positive step in the turnaround process of the group. Going concern assessment DAWN posted losses for both the years ended 31 March and of R762,9 million and R637,4 million, respectively. In determining the appropriate basis of preparation of the annual financial statements, the directors are required to consider whether the group can continue to operate as a going concern for the foreseeable future, to 14 July After the rights issue in April, DAWN had banking facilities available of R200 million, comprising a R100 million revolving credit and a R100 million general banking facility. To determine if the group will be a going concern for the next financial year and up to 14 July 2018, management prepared cash flow forecasts for each of the material subsidiaries. These forecasts were subjected to further sensitivity tests and included the estimated intra-month peak funding requirements. Management also considered the businesses ability to meet its financial obligations for the 12 months following approval of the annual financial statements. The analysis considered the current challenging market conditions, which negatively affects the performance of the group and management s turnaround plan being executed including a return to sustainable profitability, further cost reductions and optimisation of working capital. The resulting cash flow projections were compared to available funding facilities. The forecast profitability and the ability of the underlying business to meet the forecasts is an area of uncertainty. The effect of a further deterioration in the economic outlook and its potential impact on the group s cash flow and funding facilities were also considered as an uncertainty. The group s ability to fund its short-term liquidity requirements is dependent on adequate funding facilities. The forecasts indicate that the covenants on the facilities are expected to be breached. Management is seeking clarification from their bankers in this regard. Breaching covenants creates a risk for the group of losing its facilities. Part of management s plans to address this include the corporate restructuring activities and alternative funding options, which are being considered. These events and conditions give rise to a material uncertainty that may cast significant doubt about the group s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. DATE OF AUTHORISATION FOR ISSUE OF ANNUAL FINANCIAL STATEMENTS The annual financial statements have been authorised for issue by the board of directors on 12 July. No authority was given to anyone to amend the annual financial statements after the date of issue. AUDITORS The auditors, PricewaterhouseCoopers Inc., and the designated auditor, Isak Buys, have indicated their willingness to continue in office for the ensuing year. The audit and risk committee has satisfied itself of the independence of the auditors and the designated auditor. A resolution to reappoint them as auditors will be proposed at the next annual general meeting scheduled to take place on Friday, 24 November. 102

105 Distribution & Warehousing Network Limited Integrated report INDEPENDENT AUDITOR S REPORT To the Shareholders of Distribution and Warehousing Network Limited REPORT ON THE AUDIT OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS Our opinion In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of Distribution and Warehousing Network Limited (the Company) and its subsidiaries (together the Group) as at 31 March, and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. What we have audited Distribution and Warehousing Network Limited s consolidated and separate financial statements set out on pages 109 to 215 comprise: the consolidated and separate statements of financial position as at 31 March ; the consolidated and separate income statements for the year then ended; the consolidated and separate statements of comprehensive income for the year then ended; the consolidated and separate statements of changes in equity for the year then ended; the consolidated and separate statements of cash flows for the year then ended; and the notes to the financial statements, which include a summary of significant accounting policies. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor s responsibilities for the audit of the consolidated and separate financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Parts A and B). Material uncertainty relating to going concern We draw attention to Note 44 in the financial statements, which indicates that the Group incurred a net loss of R637.4m during the year ended 31 March. As stated in Note 44, these events or conditions, along with other matters as set forth in Note 44, indicate that a material uncertainty exists that may cast significant doubt on the Group s ability to continue as a going concern. Our opinion is not modified in respect of this matter. 103

106 INDEPENDENT AUDITOR S REPORT continued Our audit approach Overview Overall group materiality Materiality Overall group materiality: R21m, which represents 0.5% of consolidated revenue. Group audit scope Group scoping Key audit matters We have performed full scope audits over 18 components which include financially significant and financially inconsequential components. The aggregate of all audited components account for more than 98% of the consolidated revenue, consolidated profit before tax and consolidated total assets of the Group. Key Audit Matters Material uncertainty relating to going concern; and Impairment assessment of business units and cash generating units (CGUs) As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated and separate financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Overall group materiality How we determined it Rationale for the materiality benchmark applied R21m 0.5% of consolidated revenue We chose revenue as the benchmark because, in our view, it is currently the most relevant benchmark in the Dawn Group and against which the performance of the Group s trading can be measured by users given the volatility in the profit before tax number in the current & recent years. Under current economic conditions the Revenue line is considered the driver of the trading business. We chose 0.5% which is lower than the normal quantitative materiality rule of thumb used for profit-oriented companies in this sector (1%) given qualitative factors such as external debt levels, investor profiles and group aggregation risk. 104