Integrated Annual Report 2017

Transcription

1 Integrated Annual Report 2017

2 Contents 1 Scope of report 1 Board responsibility statement Group overview Operating context Corporate governance Shareholders Annual financial report 32 Audit and Risk Committee report 34 Directors responsibility statement 34 Certification by Company Secretary 35 Directors report 37 Report of the independent auditors 39 Consolidated statement of comprehensive income 40 Consolidated statement of financial position 3 Value added statement 42 Statement of changes in equity Company structure 44 Consolidated statement of cash flows 4 Group structure and operations 46 Accounting policies 6 Vision, mission and goals 52 Notes to the annual financial statements 7 Challenges faced by PSV 28 Analysis of shareholders 94 Notice of Annual General Meeting 8 Group directorate 30 JSE share information 99 Form of proxy 10 Chairman s report 15 Stakeholders 20 Board of Directors and committees 30 Interaction with shareholders 101 Administration 12 CEO s report 17 Sustainability report 21 Corporate governance report 30 Shareholders diary 102 Glossary of terms

3 Scope of report PSV Holdings Limited ( PSV ) is an industrial engineering holding company comprising two operating business segments: Industrial Supplies (including steel, piping, industrial tools and consumable supplies, and a tools agency business in Botswana). Specialised Services (including comprehensive cryogenic and gas systems and the supply and installation of geosynthetic linings). A detailed Company structure can be found on page 3 of this Integrated Annual Report. Additional information requirements: Any queries regarding this Integrated Annual Report or its contents should be directed to: Tony Dreisenstock Chief Financial Officer Tel: +27 (11) Fax: +27 (11) tony@psvholdings.com Stoneridge Office Park 8 Greenstone Place Building C, 2nd Floor Greenstone Hill This document contains the annual financial reports of PSV* and its divisions and covers the financial year from 1 March 2016 to 28 February The previous year s report was published in August The directors of PSV present to the shareholders information pertaining to the Company s operations and financial performance. This is the 12th annual report since listing. The report contains feedback from the Chairman and Chief Executive Officer as well as feedback on corporate governance and the undertakings of the committees in place. Assurance for the annual financial statements has been provided by our external auditor, Certified Master Auditors Inc, whose unmodified audit opinion is available for inspection at the registered office of PSV. No accounting policies have been changed. The financial statements were prepared according to International Financial Reporting Standards ( IFRS ), the requirements of the Companies Act, Act No. 71 of 2008, as amended ( Companies Act ), the Listings Requirements of the JSE Limited ( the JSE Listings Requirements ) and wherever possible recommendations of King III. PSV is committed to sustainable practices affecting the environment, the economy, our people and the society in which we operate. We are also committed to the production of quality products which meet various accreditation standards. See further details in the Sustainability Report on page 17 of this Integrated Annual Report. Board responsibility statement The PSV board of directors ( the Board ) confirms its responsibility for the integrity of the Integrated Annual Report, the content of which has been collectively assessed by the Directors who believe that all material issues have been addressed and fairly presented. Eric Ratshikhopha Chairman 25 July 2017 * PSV, the Group, and the Company should be read as interchangeable terms. PSV Integrated Annual Report

4 Group overview Effective measures to restore liquidity have been implemented and we expect our cash flow to stabilise in the near future. 3 Value added statement Company structure 4 Group structure and operations 6 Vision, mission and goals 7 Challenges faced by PSV 8 Group directorate 10 Chairman s report 12 CEO s report

5 Value added statement % Employees % Retained loss 5.2% Depreciation and amortisation 9.9% Providers of capital 4.1% Government * Includes deferred tax asset. 67.1% Employees 30.0% Retained income 9.6% Depreciation and amortisation 8.7% Providers of capital (15.3)% Government * Includes deferred tax asset Company structure 100% PSV Asset Co 100% PSV Holdings PSV Treasury 100% Turbo Agencies Botswana 100% PSV Industrial 100% 100% 100% 100% 100% Omnirapid African Cryogenics Engineered Linings Shared Service Centre This structure graphically represents the trading operations only. PSV Integrated Annual Report

6 Group overview Group structure and operations Divisional overview Geography Management Industrial Supplies Strong agency agreements and suppliers of steel, piping, industrial tools and consumable supplies and automotive capital equipment. % of contribution to total revenue: % 53% turbo agencies Manufacturers Representatives and Distributors Based in Elandsfontein. It services clients throughout Africa as well as local buying offices of African-based companies Turbo Agencies based in Gaborone, Botswana Managing Director Joanne da Silva Area Manager Botswana Operations Hannes Grobler Industrial Supplies Specialised Services % of contribution to total revenue: Based in Elandsfontein, Johannesburg Managing Director John Winterton* Manufacture, support and supply of comprehensive cryogenic and gas systems and installation of geosynthetic linings. 53% 47% Based in Cape Town. Work is carried out across South Africa as well as in many African countries General Manager Herman Pretorius Specialised Services * Managing Director effective 1 May PSV Integrated Annual Report 2017

7 Operation Staff Achievements during the year OMNIRAPID is an industrial supplier specialising in quick turnaround times, competitive pricing and service excellence. Omnirapid is a supplier of, inter alia, steel, piping, industrial tools and consumable supplies. These products are provided to mining and industrial clients locally in South Africa as well as being exported to various African countries. 6 6 Shows remarkable resilience and the ability to generate sustained levels of profitability and cash flow. TURBO AGENCIES was established in 1986 and offers bespoke and turnkey solutions to companies in need of computerised vehicle testing stations and general workshop equipment. Turbo Agencies also provides consultancy services on workshop requirements and is a one-stop solution for mining projects. The company carries blue chip agencies such as Milwaukee and Metabo, Mining Equipment and Fasteners, Ravaglioli Automotive Equipment, Ridgid Tooling, Kito Lifting, Lincoln Electric Welding amongst others Substantial turnaround in the business. AFRICAN CRYOGENICS manufactures and supplies gas and cryogenic equipment including road tankers and cryogenic storage vessels. The division services primarily the gas and chemical industries. It also offers a full repair and complete refurbishment service. The manufacturing facility now has international accreditation in place Restructuring complete and the business is profitable. ENGINEERED LININGS supplies and installs a range of geosynthetic lining materials sourced from international manufacturers. All materials comply with the highest international standards. The lining solutions are used for the purpose of environmental protection and containment of fluids, hazardous fluids and solids in mining, municipal and farming applications The division is profitable despite tough trading conditions. A shared service centre supports the operating businesses 6 5 PSV Integrated Annual Report

8 Group overview Vision, mission and goals VISION To be a recognised provider of industrial engineering products and services throughout Africa. GOALS To deliver a high-quality service and products in each area of the business through the provision of superior customer service throughout Africa. MISSION To continue developing as an industrial engineering group focused on engineered linings, cryogenics-based products and industrial solutions. 6 PSV Integrated Annual Report 2017

9 Challenges faced by PSV Despite the Group generating a pre-tax profit during the period under review, it s been a strenuous year underpinned by various challenges. Stringent economic trading conditions were experienced and the Group s working capital came under pressure primarily attributable to defaulting payments from customers. An increasing problem is the absence of a recognised B-BBEE level in terms of the new codes and the Group s inability to source a suitable funded B-BBEE equity partner. The effects on the PSV businesses can be explained as follows: Positive effects Negative effects Management Exchange rates Resilience and adaptability Working capital SA and African economies B-BBEE Omnirapid Mining and Industrial Supplies Turbo Agencies (Botswana) African Cryogenics * Engineered Linings * Post year-end. PSV Integrated Annual Report

10 Group overview Group directorate Audit and Risk Committee Remuneration Committee Social and Ethics Committee Executive Directors Abilio (Abie) JD da Silva (55) Chief Executive Officer Abie is the co-founder of PSV and was appointed as the Chief Executive Officer upon listing. He obtained a National Technical Certificate 5 from the Johannesburg Technical College and a Business Management Diploma from Damelin College. Abie da Silva Chief Executive Officer Tony Dreisenstock Chief Financial Officer Anthony (Tony) R Dreisenstock (57) Chief Financial Officer Tony holds BCom and BAcc degrees obtained from the University of the Witwatersrand as well as an HDip Tax Law obtained at the University of Johannesburg. Tony is a qualified chartered accountant. He successfully operated a strategic management consultancy practice until March 2005, when he was recruited by PSV to assist in listing the Company and to assume the role of Chief Financial Officer. 8 PSV Integrated Annual Report 2017

11 Independent Non-Executive Directors Eric Ratshikhopha (66) During the period under review, Ralph Patmore resigned as Chairman and was replaced by Eric Ratshikhopha, our previous Social and Ethics Committee Chairperson. Eric currently holds a number of directorships on foundations and serves as a trustee on a number of trusts. His background includes vast work experience in the mining sector, having been involved in industrial relations, health and safety, strategic management and corporate social investment. Eric Ratshikhopha Anthony de la Rue Lerato Mosiah Eric holds the following qualifications: BA (Hons) Sociology, University of the North, Developmental Programme in Labour Relations, University of South Africa Advanced Programme in Labour Relations, University of South Africa Master of Management, University of the Witwatersrand Senior Executive Programme and Harvard School of Business. Anthony de la Rue (70) Anthony is a chartered accountant who was previously the Chief Executive Officer for Ernst & Young Zimbabwe and served on their Global Practice Council prior to his retirement in He is currently a Non-Executive Director on the boards of various companies. Lerato Mosiah (51) Lerato was appointed as an Independent Non-Executive director effective from 1 October Lerato Mosiah has vast experience in general management and business leadership. She holds inter alia a BSc with Honours in General Physiology (Wits), a B-Pharm degree and an MBA. Lerato also participated in the executive global leadership development programme at Oxford University School of Business. She is currently an executive director at the Leato Group. PSV Integrated Annual Report

12 Group overview Chairman s report Review of the year Whilst the domestic trading operations showed a resurgence of sustained levels of profitability, working capital came under severe strain. However, effective measures to restore liquidity have been implemented and we expect our cash flow to stabilise in the near future. In fact, the Company generated a consolidated pre-tax profit from operations of R0.53 million but incurred a non-cash flow deferred tax charge resulting in the after tax loss. The disproportionate tax charge was caused by the Group s inability to claim tax relief on expenses incurred in the holding company. To mitigate this problem, many costs previously incurred by the holding company were migrated to the shared service centre which forms part of PSV Industrial Proprietary Limited. Eric Ratshikhopha Chairman The implementation of several effective strategies reflected a remarkable reversal of fortunes as the Company moved from a R40 million plus comprehensive loss from operations to a R1.1 million loss. The only remaining operation outside of the borders is Turbo Botswana which made an operating loss. Whilst the capital structure of this business has been improved, the Company continues to struggle to make inroads in a contracting economy. A major milestone was the establishment of an Enterprise Development structure with a previous employee of PSV. This initiative will catapult the Group s B-BBEE scorecard to a more favourable rating. Until now, the ability of the Group to achieve a suitable rating has been hampered by the scarcity of cash resources required for investment into the various elements of the B-BBEE scorecard. In addition, despite many attempts, we have been unable to obtain a B-BBEE equity partner. Whilst the turnaround in the Company s fortunes has mitigated the need for an extensive going concern evaluation, the marginal after tax loss incurred in the current year necessitates the need for continual assessment of the Group s economic viability. In assessing the solvency and liquidity of PSV, cognisance of the deficit between current liabilities and assets has been considered. The Company is engaging in continual 10 PSV Integrated Annual Report 2017

13 dialogue with its customers, suppliers and bankers and is confident that the deficit will be addressed in the coming months. Based on the approved budgets, the Board is satisfied that PSV will remain a viable going concern. The Company s major bankers have also recently renewed its existing overdraft facilities. Due to the improved operating performance by the Company, no impairments were considered necessary. Operational performance We continue to operate two divisions in two primary segments, namely Industrial Supplies and Specialised Services. Despite producing sustainable earnings and good cash flow generation, Omnirapid suffered from the loss of two major clients. Notwithstanding, both these customers are once again starting to place orders. Combined with the aggressive diversification of the customer base, we are confident of a resurgence in this division s volume of business activity. Turbo Botswana continues to struggle and made a loss in the current year. Nonetheless, a comprehensive analysis of its trading operations reveals a 20% increase in local market penetration, albeit by lower margins year on year which augurs well for the future. Despite intense cash flow pressures suffered in both African Cryogenics and Engineered Linings, both divisions generated good profitability on the back of strong order books and tighter manufacturing controls. These divisions have restructured their management teams who bring fresh ideas and a new business approach. management is of the view that cash flow is required to run the day-today operations of the Company. Appreciation I would like to acknowledge my fellow Board members, both nonexecutive and executive, management and staff for their support, effort and for placing your trust and confidence in my abilities to assume the position of the Chairman of the PSV Board. I also would like to extend my gratitude to my predecessor, Ralph Patmore, for his commitment and the exemplary manner in which he fulfilled his position as Chairman. I am excited about the prospects for the Group and look forward to working with all stakeholders in the year ahead. Eric Ratshikhopha Chairman 25 July 2017 Shareholder changes During the financial year, there were no material changes to the shareholders of PSV. Dividend policy The Board reviews the dividend policy annually. No dividends were declared or proposed for the financial year under review as the PSV Integrated Annual Report

14 Group overview CEO s report Abie da Silva CEO As a result of ongoing restructuring and rightsizing at PSV, the Group has been able to generate a consolidated pre-tax profit. Introduction As a result of ongoing restructuring and rightsizing at PSV, the Group has been able to generate a consolidated pre-tax profit. This significant achievement has been underpinned by the successful implementation of various strategies and the favourable conclusion of certain events, including inter alia: Cost containment. Trading operating costs have decreased by 18% in the current year. After including impairments and other non-trading costs incurred in the previous year, total operating costs have decreased by 45%. Succession plan implementation. The Group has been successful in recruiting experienced and dynamic management for its operating divisions. The creation of an enterprise development structure with a former B-BBEE employee. The favourable impact flowing from the disposal of unprofitable investments in the previous financial year. The successful litigation with our ex-landlord resulting in the recovery of material legal costs. Notwithstanding the above, the Group s working capital came under pressure as we struggled to collect outstanding debt timeously as the economy took strain. This has resulted in the Group s cash flow worsening by approximately R6 million in the current year. Various stringent new policies have been employed to combat this situation, including, inter alia, restructuring the finance department, refocusing on effective treasury management, implementing just-in-time procurement policies and adopting a zero tolerance policy towards delinquent debt. The 2017 financial results Notwithstanding the 14% contraction in consolidated revenue, the Group managed to secure improved gross margins of 17.7% compared to 14.9% in the previous financial year. Combined with the reduction in operating costs (amounting to R8.4 million), the Group has achieved a pre-tax consolidated profit of R0.53 million compared to a R25.6 million 12 PSV Integrated Annual Report 2017

15 consolidated loss from continuing operations in the previous year. The Group incurred an after tax loss of R1.1 million in the current year. The after tax loss was attributable to the disproportionate non-cash flow deferred tax charge caused by our inability to claim any tax relief on operating expenses incurred in our holding company. Total comprehensive loss for this year must be seen in context against the R40.57 million loss sustained in the previous year. Headline loss per share strengthened from a headline loss per share of 8.2 cents per share ( cps ) to a headline loss of 1.34 cps. Due to the cash flow pressure the Group operated under the current financial year, the net overdraft position deteriorated by approximately R6 million albeit the positive generation of cash flow from operating activities. The Company s statement of financial position slightly weakened as a result of the losses incurred in the year. The Company s net tangible asset value per share decreased marginally to 4.9 cps from 5.1 cps in Operational review Industrial Supplies This segment contributed 47% (2016: 53%) to the Group s consolidated reportable segment revenue at an average gross profit margin of 19.40% (2016: 18%). Omnirapid continues to generate good profitability underpinned by improved margins despite a contraction in turnover. The business continues to show resilience. Turbo Botswana made a small operating loss for the year. During the course of the year, the Company s capital structure was improved by the conversion of approximately R5 million overdraft debt into a four-year non-revolving structured loan. Botswana s economy has contracted, exacerbated by the liquidation of a major state-owned mining company and many other mines going on care and maintenance. Specialised Services Specialised Services contributed 53% (2016: 47%) to the Group s consolidated reportable segment revenue at an average gross profit margin of 16.40% (2016: 11%). Despite many trading obstacles, African Cryogenics achieved profitability, underpinned by the profitable disposal of its calibration business to our enterprise development partner and the restructuring of the operating lease on its premises. New management has been appointed with the expertise of former management retained on a consulting basis. Although Engineered Linings generated good levels of profitability, its cash flow came under severe pressure in the latter part of the financial year due to delayed payments from customers. Notwithstanding, Engineered Linings has a strong order book in place and financial stability is gradually being restored. Broad-Based Black Economic Empowerment The biggest problem the Group has faced in the current year is that it has no B-BBEE rating in place. The new B-BBEE scorecard is extremely harsh and financially onerous. Simply stated, PSV does not currently possess sufficient cash resources required to fulfil the various elements of the new B-BBEE scorecard. The problem is compounded by our inability to source an appropriate B-BBEE equity partner. The process thus far has proven to be extremely challenging and frustrating despite numerous ongoing attempts. The recent enterprise development transaction concluded will partially mitigate the detrimental impact caused by the B-BBEE non-compliance. We are hoping to build a long-term mutually beneficial relationship through the enterprise development partnership, creating sustainable job and new business opportunities. The birth of this partnership has paved the way for an exciting two-year intensive capacity building process for both parties. Prospects Notwithstanding ongoing tough market operating conditions, PSV expects that growth will gain traction and that its various operating divisions will weather the current economy climate. We remain confident that we will secure a successful funded B-BBEE equity partner which will contribute favourably to the Group s profitability. Appreciation Support by the PSV Board is invaluable to the executive management, especially in these difficult times. I also appreciate the dedication of all our staff, customers, suppliers, shareholders and all other stakeholders in our business. Abie da Silva CEO 25 July 2017 PSV Integrated Annual Report

16 Operating context PSV acknowledges and recognises the importance of long-term relationships with all stakeholders in order to support sustainability. Stakeholder evaluation is undertaken at Group as well as at divisional level and has evolved over the past three years. 15 Stakeholders 17 Sustainability report

17 Stakeholders Operating context PSV acknowledges and recognises the importance of longterm relationships with all stakeholders in order to support sustainability. Stakeholder evaluation is undertaken at Group as well as at divisional level and has evolved over the past three years. Interaction, feedback, review and communication with all stakeholders is ongoing and PSV management is cognisant that the level of interaction needs to be sustained. Engagement with stakeholders takes various forms including informal calls, customer meetings, staff meetings and newsletters to formal meetings with regulators. Stakeholders Details of PSV s key stakeholders, the type of engagement, material issues and action are provided in the diagram: Financiers/ regulators PSV s key stakeholders Shareholders Government Staff Suppliers Customers PSV Integrated Annual Report

18 Operating context Stakeholders (continued) What is important? How do we interact? What are our actions? Shareholders Delivering sustainable returns and growth on investment Results presentations and roadshows One-on-one meetings Create and sustain a safe work environment for employees Open communication channels between employee and employer Career development Awareness of rules and regulations within the workplace Regulate discipline in the workplace through progressive disciplinary methods Staff Weekly toolbox discussions Internal communications through management and HR Evaluating employees and identifying training and education opportunities Abridged employee handbook Newsletters/notice boards Induction programme for new employees To ensure strategic growth opportunities, good corporate governance practices and good risk management Emphasise health and safety awareness and regulatory requirements Promote the relationship and engagement between employee and employer Promote internal training to employees which will allow them opportunities to further develop themselves Ensure circulation of updated legislation Maintain updated company policies and processes To limit disciplinary processes in the workplace by increasing general communication with employees on the Company s disciplinary code LabourNet is used to chair disciplinary hearings To provide the best quality products at the best competitive pricing Reliable supply/service delivery and pricing of quality products Transformation of our existing suppliers in alignment with B-BBEE codes Industry regulatory compliance Transformation and adherence to the revised B-BBEE codes Customers Regular site visits and customer meetings Promote and market product offerings to customers Suppliers Engage with suppliers to provide valued product/ services Communicate our B-BBEE strategy with suppliers and the importance thereof Government Meetings with relevant bodies regarding their requirements Business association meetings Conscious effort to meet expectations where possible Maintain our ISO 9001:2008 accreditation Source best competitive pricing Research the market to ensure we use reliable suppliers and compare pricing Promote our B-BBEE policy and if necessary source alternative suppliers who meet the requirements Ensure we continue to comply with the required legislation in order to secure orders/tenders PSV adheres to the JSE, Companies Act and all other requirements To align our B-BBEE strategy and implement a plan for the next five years Financiers/regulators Loan agreements and overdrafts to PSV Formal meetings, updated status meetings and feedback sessions PSV has kept its providers of finance informed of all developments within the Company pertaining to overdraft requirements and the process for settling debt 16 PSV Integrated Annual Report 2017

19 Sustainability report Health, safety and quality Occupational safety The health and safety of our employees is our primary concern. Our objective is to eliminate all workplace accidents, injuries and illnesses. We accordingly place the highest priority on safe and healthy practices, and systems of work. Health and Safety Committee The Health and Safety Committee comprises representatives from each division. The committee meets on a regular basis, addressing the requirements of the Occupational Health and Safety Act 85 of 1993 ("OHSAS"). Work accidents and injuries We are continuously creating a heightened awareness pertaining to health and safety initiatives in the workplace environment, with the ultimate objective of eliminating accidents and injuries. We have made steady progress in managing safety levels over the past few years and the reduction in injury frequency rates is evidence to the success we have achieved in this regard. PSV is pleased to report that there were no fatalities at any of its divisions for the year under review. Policies and procedures Central to OHSAS requirements, effective policies and procedures are in place to ensure compliance. Quality systems To ensure the supply of quality products and services, all divisions have an ISO 9001 accreditation. TUV Rhineland South Africa and the South African Bureau of Standards ("SABS") are the accreditation bodies for PSV Holdings and its divisions. Surveillance audits take place annually for all divisions to ensure continued compliance with the ISO 9001:2008 standards followed by recertification every three years. Quality systems are regularly reviewed for their adequacy and improvement programmes are implemented where required. Human resources management The management of human resources is key to the Group. Human resources works closely with the management of each division to ultimately ensure the effective management of our employees. We are committed, inter alia to maximising employees performance and enhancing their personal growth through effective development, training and support. PSV is committed to ensure compliance with South African labour and other relevant legislation, which includes, inter alia the Labour Relations Act, Basic Conditions of Employment Act, the Employment Equity Act, the Skills Development Act, the Unemployment Insurance Act, Broad-Based Black Economic Empowerment Act, Protection of Personal Information Act and the Occupational Health and Safety Act. Our demographic and male to female split is as follows: staff demographics (including Turbo Agencies) African Coloured Indian Male Female White Fair and sustained employment PSV treats all staff equitably and responsibly, in compliance with applicable legislation. The Group is committed to the principles of employment equity as well as achieving a productive and fair working environment that is free of discrimination and offers equal opportunity to all. The Group recognises the importance of employment equity and through recruitment and training, continuously strives to improve on previous employment equity standards. The Group makes every effort to remunerate staff and Directors fairly and equitably. We operate on a cost to company structure which includes retirement fund contributions, medical aid and other benefits. The annual increases for non-union employees is recommended by the Managing Director of each business unit and approved by the Remuneration Committee. Increases for employees that fall within the bargaining council are negotiated with representative trade unions, except in those instances where there are industry-wide bargaining agreements. The Group will continue to respect these agreements. External human resource consultants are utilised on an ad hoc basis. Policies and procedures guide business and employee conduct. Non-discrimination, industrial relations, recruitment, employment equity and grievance and dispute settlements are communicated to staff through induction programmes, on notice boards and in their employment contracts. PSV operates in an environment of trust and respect towards all employees. Misconduct or corruption by an employee is treated with appropriate disciplinary action without delay and in most cases the employee is suspended on full pay pending an investigation. Should an employee be found guilty of misconduct or corruption, dismissal may follow. In matters of a serious nature, legal action is taken against the employee. Human rights PSV is guided by human rights policies detailed in the South African Constitution. South Africa s endorsement of various International Labour PSV Integrated Annual Report

20 Operating context Sustainability report (continued) Organisation principles relating to child labour is also binding on the Group. There were no contraventions of these principles for the period under review. Skills development and retention Extensive internal training took place during the year under review. A key initiative of the Group is to nurture and develop its skills base internally to meet the current and future skills requirements. The Group encourages training and skills development to endow employees with enhanced skills to improve and increase efficiency levels and productivity. Corporate social initiatives The Group values the importance of CSI and supports the development and execution of strategies into sustainable, effective, enterprise development initiatives. Our core objectives underpinned by the recent enterprise development transaction concluded, are to build a long-term mutual beneficial relationship through the ED partnership, create sustainable economic growth and fuel potential job creation opportunities. The establishment of this partnership has paved the foundation for an exciting two-year intensive capacity building process for both parties. During the incubation period of two years, the Group will be intensively involved by providing continuous specialised support and thereby ensuring high performance standards are achieved. Economic performance PSV s objective is to create wealth for its stakeholders. The performance of the Group is discussed in the Chairman and CEO s report and is evidenced in the annual financial statements. PSV contributes to overall growth of the country through: investing in skills development and training; creating job opportunities; and supporting local and small business enterprises where possible. PSV does not get financial assistance from the Government. 18 PSV Integrated Annual Report 2017

21 Corporate governance The Board of Directors ( the Board ) is cognisant that corporate governance is essential to protect the interests of all stakeholders and remains committed to compliance with legal requirements and sound corporate governance principles. 20 Board of Directors and committees 21 Corporate governance report

22 Corporate governance Board of Directors and committees The Board of Directors ( the Board ) are cognisant that corporate governance is essential to protect the interests of all stakeholders and remains committed to compliance with legal requirements and sound corporate governance principles. Board of Directors and committees Executive Directors Independent Non-Executive Directors Abie da Silva CEO Tony Dreisenstock CFO Eric Ratshikhopha Chairperson Anthony de la Rue Lerato Mosiah** Ralph Patmore* Audit and Risk Committee Remuneration Committee Social and Ethics Committee Anthony de la Rue Chairperson Eric Ratshikhopha Lerato Mosiah** Ralph Patmore* Abie da Silva (by invitation) Tony Dreisenstock (by invitation) Anthony de la Rue Chairperson Eric Ratshikhopha Lerato Mosiah** Ralph Patmore* Abie da Silva (by invitation) Tony Dreisenstock (by invitation) Lerato Mosiah** Chairperson Eric Ratshikhopha Abie da Silva Executive Director Tony Dreisenstock Executive Director Sagren Sookanathan Group SHEQ Manager Christine du Preez Group HR & Administration Manager * Ralph Patmore resigned as Chairperson of the PSV Board 30 August ** Lerato Mosiah was appointed as Chairperson of the Social and Ethics Committee 1 October PSV Integrated Annual Report 2017

23 Corporate governance report Corporate governance The Board believes that the business will prosper in an environment of good and balanced corporate governance. The content of this document is aimed to inform internal and external stakeholders of the Group transparently and honestly through fair and understandable disclosure of the Group s governance practices. The Board firmly believes that good corporate governance is essentially about responsible leadership, and the Board realises the importance of their function to act as custodians in this regard. In all dealings the Group strives to ensure that the interests of stakeholders are foremost in all decisions. The Board is cognisant of its challenge in balancing the achievement of the Group s performance objectives within a framework of sound corporate governance principles. The Board believes that the business will prosper in an environment of good and balanced corporate governance. Statement of compliance The Board confirms that the Group has complied with the principles of the King Report, except where otherwise explained in the report. The Group will continue to improve corporate and operational practices to achieve sound corporate governance practices, through integrity and accountability. For ease of reference, the King Code compliance matrix is available on the website The Board is satisfied that PSV has complied with all King III recommendations and is in the process of assessing the provisions of King IV. The Board also confirms that the Group has complied with the provisions set out in the Listings Requirements of the JSE during the year under review. Board of Directors The leadership of the Group is provided by a unitary effective Board which at year-end comprised two Executive Directors and three Independent Non-Executive Directors. The Independent Non-Executive Directors are high-merit objective individuals who collectively contribute a wide range of skills and knowledge to the decision-making processes of the Board and also ensure proper deliberation of all matters requiring the Board s attention. Independence of the Board is monitored annually in terms of the requirements of the King Report on Corporate Governance, when formal mandatory declarations of personal interests are made by each Director. The Board is satisfied with its collective members levels of knowledge and skill in relation to the business of the Company and the Group. All Directors are required to attend the AltX Directors Induction Programme, hosted by the Institute of Directors. The Board continuously reviews the gender diversity of its members. In accordance with the latest amendments to the JSE Listings Requirements, the Board has formulated a gender diversity policy. In terms of the policy, the Board has resolved to always have at least one of its members being female. As a result, we have appointed Lerato Mosiah to the Board as an Independent Non-Executive Director. There is a clear differentiation between the running of the Board and the executive responsibility for the running of the Group s day-to-day business. This division of responsibilities ensures a balance of power and authority, such that no one individual has unfettered powers of decision-making. Chairperson During the year under review, Ralph Patmore resigned as a director to reduce his workload and Eric Ratshikhopha, an Independent Non-Executive Director, was appointed as Chairperson of the Board. The Chairperson provides leadership and guidance to the Board as a whole while encouraging proper deliberation on all matters and optimising input from the other Board members. He also takes responsibility for ensuring effective governance practices and represents the Company to its stakeholders. Chief Executive Officer The Chief Executive Officer ( CEO ), Mr Abie da Silva, accepts full responsibility for the sound and efficient operation of the business as well as the implementation of all strategies and policies adopted by the Board. Managing Directors of the various businesses in the Group assist him in this task. Board authority conferred on management is delegated through the CEO, in accordance with approved authority levels. Mr da Silva ensures the maintenance of good relations with all the shareholders of the Group. There is a separation between the responsibilities of the Board and management. Mr da Silva communicates Board directives to executive management ensuring that all strategic objectives of the Company are achieved. For this purpose he meets on a regular basis with his Executive Committee, which consists of strategic head office employees and Managing Directors of the business units in the Group. He ensures that the Group has an effective management team and actively participates in the development of management and succession planning. Board processes Board appointments Directors are appointed to the Board through a formal, fair and transparent process by the Board. In terms of the approved appointments to the Board, all Board members are required to assist with the identification and nomination of potential Board candidates. The Board specifically considers the independence of Directors and their commitments when appointed, as well as annually, to ensure PSV Integrated Annual Report

24 Corporate governance Corporate governance report (continued) the required competency levels in order to be efficient and in order to provide strategic guidance to the Group. Should the assessment indicate that there is a lack of competency in a certain area, the Board will consider the appointment of a Director to fulfil this need. Changes to the Board Mr Ralph Patmore resigned 30 August 2016 as he decided to reduce his responsibilities and workload. Mr Eric Ratshikhopha was appointed as Chairperson of the Board effective 1 October Ms Lerato Mosiah was appointed to the Board effective 1 October She chairs the Social and Ethics Committee and is a member of the Audit and Risk Committee and the Remuneration Committee. An abbreviated curriculum vitae in respect of each member appears on page 8 and page 9 of the Integrated Annual Report. Rotation of Directors One-third of the Non-Executive Directors are subject, by rotation, to retirement and re-election at the Annual General Meeting in terms of the Company s Memorandum of Incorporation. Biographical details of each Director are set out on pages 8 and 9 of this Integrated Annual Report. Board charter PSV is accountable to its shareholders and stakeholders by ensuring that a charter for the Board is in place. The primary responsibilities of the Board include, inter alia, the regular review of the strategic direction of investment decisions, performance against approved plans, budgets and best practice standards. Decisions on material matters are reserved for the Board which retains full and effective control of the Group. The purpose of the Board charter is to set out specific responsibilities that are to be discharged by the Board, and each of its members, while adhering to the highest standard of business conduct in accordance with the King Report on Corporate Governance. The Board charter is reviewed annually and has been reviewed during the past financial year to align the content thereof with the recommendations of King IV. Meeting attendance The Board meets at least quarterly, and more frequently if circumstances require. They furthermore confer through round robin deliberations when necessary. Meetings are conducted in accordance with formal agendas and annual work plans, ensuring that all substantive matters are properly addressed. Any Director may request that additional matters be added to the agenda. Copies of Board packs are circulated to the Directors well in advance of the meetings to ensure proper preparation to enhance constructive and informed deliberations. Attendance by Directors at Board meetings is provided below: Name of Director 25 May July October March 2017 AJD da Silva (CEO) AR Dreisenstock (CFO) RB Patmore (previous Chair) E Ratshikhopha (current Chair) A de la Rue L Mosiah A representative from the Company s Designated Adviser attends the Board meetings as required in terms of the JSE Listings Requirements. Self-evaluation Under the leadership of the Chairperson of the Board, self-evaluations of the Board members have been carried out. The Board continues to review processes in various areas, including its performance and strategic planning, Board composition, relationship with management and other stakeholders, and succession planning. Areas requiring improvement have been identified, and are receiving attention. No major concerns were raised by any Director in respect of the functioning of the Board or any of its committees. Induction and further training Newly appointed Directors are familiarised with the Group s operations, business environment and sustainability issues through a formal induction process. Newly appointed Directors are further required to attend the AltX Directors Induction Programme, hosted by the Institute of Directors. The Board and the respective committees meeting packs include relevant and useful information about topics relating to leadership, new developments in respect of legislation or requirements related to the specific Board committees for self-study by the Directors. 22 PSV Integrated Annual Report 2017

25 Director s share dealings and closed periods The Board keeps the Company Secretary advised of all their dealings in securities which are announced on SENS within 24 hours of receiving notice of the dealing from the relevant Director. The CEO and CFO may not deal in the Company s shares without first advising and obtaining clearance from the Chairman of the Board. Closed periods are exercised from the date of the financial year-end and interim period end until the Group s results are published on SENS. Additional closed periods are enforced as required in terms of any corporate activity or when Directors are in possession of price-sensitive information. The Board has an approved trading policy in terms of which Directors of the Company and its major business units, the Company Secretary, Senior Managers in the Group, their associates or members or immediate family, are not allowed to deal directly or indirectly, at any time, in the securities of the Company on the basis of unpublished price-sensitive information regarding the Company s business or affairs. These individuals are made aware of restricted or closed periods for dealings and the provision of insider trading legislation. Conflicts of interest Declaration of interests is a standing agenda item at all Board meetings. Directors are also required to formally update their directorships and other interests that are relevant to their office as Directors of PSV, at least annually. The Board appointment process includes an assessment of candidates other interests. Where Directors have an interest in particular matters discussed at Board or Board committee meetings, the Directors are recused from the meeting and required to leave the meeting room for the duration of the relevant discussion and/or decision. During the year ended 28 February 2017, none of the Directors had an interest in any contract or arrangement entered into by the Company or its business units, other than as disclosed in Note 24 to the annual financial statements. Internal controls The Board is responsible for the management of the Group s systems in respect of internal control and risk management and evaluates the adequacy and effectiveness of these processes. The Audit and Risk Committee ensures the efficiency and profitability of operations, the reliability of information, and adherence to rules and regulations. The independent external auditor, as recommended by the Audit and Risk Committee and appointed by the shareholders, is responsible for reporting on whether the annual financial statements are fairly presented in compliance with IFRS and the Companies Act. The preparation of the annual financial statements remains the responsibility of the Board. To ensure ongoing relevance, a formal risk assessment is conducted quarterly and the necessary updates are made to the risk register. In addition to this, changes in risk relative to the formal register are reported to the Audit and Risk Committee and the Board throughout the year, together with an impact assessment and a proposal of how the identified risk will be managed. The Board, assisted by the Audit and Risk Committee, is satisfied with the effectiveness of the risk management process. Board committees While the Board remains accountable and responsible for the performance and affairs of the Company, Board committees assist the Board in discharging its duties and responsibilities. However, the committees do not in any way mitigate or discharge the Board of its duties and responsibilities. Board committees observe the same rules of conduct and procedures as the Board unless the Board determines otherwise. Board committees will only speak to and act for the Board when so authorised. The authority conferred on a Board committee will not derogate from the authority delegated to the CEO by the Board. Members of the Board committees will ensure transparency and full disclosure to the Board, except where the Board committees have been mandated otherwise by the Board. In keeping with the recommendations of the King Report, Board committees currently comprise the following committees, the Audit and Risk Committee, the Social and Ethics Committee and the Remuneration Committee. The committees have formally determined terms of reference, clearly agreed upon reporting procedures and written scope of authority which are reviewed annually and approved by the Board. The Chairman of each Board committee is required to attend Annual General Meetings to answer questions raised by shareholders. Audit and Risk Committee The Audit and Risk Committee meets the requirements of section 94 of the Companies Act and the King Report in that it currently comprises three Independent Non-Executives, Anthony de la Rue (Chairman), Eric Ratshikhopha and Lerato Mosiah. The Board is satisfied that the three members of the Audit and Risk Committee are highly qualified individuals who, on a collective basis, have sufficient qualifications and experience to fulfil its duties. The members of the committee are also permitted by the Board to consult with specialists when required. The committee met four times during the year ending 28 February 2017 and the attendance of committee members is provided on the next page. PSV Integrated Annual Report

26 Corporate governance Corporate governance report (continued) Name of Director 25 May July October March 2017 A de la Rue (Chair) E Ratshikhopha L Mosiah** AJD da Silva (invitee) AR Dreisenstock (invitee) RB Patmore* * Resigned on 30 August ** Appointed on 01 October The Audit and Risk Committee operates in terms of a formal mandate and Charter which sets out the functions and duties of the committee. These functions are based on the relevant provisions of the Companies Act, as well as relevant corporate governance recommendations in terms of the King Report, and taking account of the relevant provisions of the JSE Listings Requirements. They include, inter alia, to: review the annual financial statements to ensure that they present a true, balanced and understandable assessment of the financial position and performance of the Company; ensure an effective internal control environment in the Company; nominate the external auditor for appointment as the registered independent auditor after satisfying itself through enquiry that the external audit firm and the designated audit partner are independent; determine the fees to be paid to the external auditor as well as its terms of engagement; ensure that the appointment of the external auditor complies with the provisions of the Companies Act and any other legislation relating to the appointment of auditors; evaluate the independence and effectiveness of the external auditors; approve a non-audit service policy which determines the nature and extent of any non-audit services which the external auditor may provide to the Company; pre-approve any proposed contract with the external auditor for the provision of non-audit services to the Company; and satisfy itself as to the appropriateness of the expertise and experience of the CFO. The committee has an independent role, operating as an overseer and maker of recommendations to the Board for consideration and final approval, paying particular attention to the adequacy of internal controls and the integrity of financial reporting. In fulfilling its function, the committee specifically oversees: financial reporting risks, internal financial controls, fraud risks and IT risks. The Audit and Risk Committee will also oversee the integrated reporting process of the Group from the ensuing year. The committee forms part of a unitary Board. Even though it has specific statutory responsibilities, over and above those assigned to it by the Board, through the discharge of these statutory responsibilities assists the Board in fulfilling its fiduciary responsibilities in respect of the governance of risk tolerance and risk appetite of the Group. PSV is exposed to certain risks, which are influenced by its specific choices and actions. The Board of PSV along with its Executive Committee and management, recognise that risk management is a critical management tool to ensure that the Group achieves its objectives. The committee has been formulated with the specific objective of identifying those risks and implementing policies to combat and mitigate those risks through the maintenance of a Group Risk Register. The committee does not assume the function of management, which remains the role of the Executive Directors, officers and other senior management members. The role of the committee is to assist the Board to ensure that the Group has implemented effective policies and plans, including but not limited to plans for risk management that therefore enhances the Group s ability to achieve strategic objectives, and ensures that the disclosure regarding risk is comprehensive, timely and relevant. The committee oversees the development and annual review of the policies and plans for risk management in order to recommend these to the Board for approval. The Group acknowledges the importance of risk management and corporate governance principles. Risk is an intrinsic part of all activities undertaken by PSV. The committee reviews the effectiveness of the system for monitoring compliance with laws and regulations and the results of management s investigation and follow-up (including disciplinary action) of any fraudulent acts or non-compliance, obtains regular updates from management and the Group s legal counsel regarding compliance matters and ensures that all regulatory compliance matters have been considered in the preparation of the financial statements. Remuneration Committee A Remuneration Committee has been established in compliance with the requirements of the King Report and met three times during the financial year ended 28 February The attendance by members at the Remuneration Committee meetings is provided on the next page. 24 PSV Integrated Annual Report 2017

27 Name of Director 29 July October March 2017 A de la Rue (Chair) E Ratshikhopha L Mosiah AJD da Silva (invitee) AR Dreisenstock (invitee) RB Patmore he/she is a member/chairman of, the proposed fee for 2018 is R per annum. Type of fee Approved annual fee for 2017 R Proposed annual fee for 2018 R Committee Chairperson Member The Remuneration Committee comprises the three Independent Non-Executive Directors as members, with the Chairman being Anthony de la Rue. The CEO and CFO attend the committee s meetings by invitation only. The role of the committee is to assist the Board in ensuring that the Company remunerates Directors and Executives fairly and responsibly; and that the disclosure thereof is accurate, complete and transparent. The committee performs, inter alia, the following functions: Oversees the establishment of a remuneration policy that will promote the achievement of strategic objectives at all levels in the Group and encourage individual performance; Ensures that the remuneration policy is put to a non-binding advisory vote at the general meeting of shareholders annually; Reviews the outcomes of the implementation of the remuneration policy on an annual basis; Ensures that the mix of fixed and variable payments, in cash, shares and other elements, meets the Company s needs and strategic objectives; Satisfies itself as to the accuracy of recorded performance measures that govern the vesting of incentives; Ensures that all benefits, including retirement benefits and other financial arrangements, are justified and correctly valued; Considers the results of the evaluation of the performance of the CEO and other Executive Directors, both as Directors and as Executives in determining remuneration; Regularly reviews incentive schemes to ensure continued contribution to shareholder value and that these are administered in terms of the rules; Advises the Board on the remuneration of Non-Executive Directors; Exercises governance over the HR function, inter alia, the setting of Group performance-based increases and bonuses, job grading, pay scales, and to provide general advice as required to the HR function; and Advises the Board on matters from time to time as required. Remuneration philosophy PSV is committed to its shareholders and therefore determines its remuneration policy and philosophy based on best practices within the market. The Group s Directors are remunerated on a cost to company basis, which includes benefits such as medical aid, life insurance, death cover, disability, funeral cover and retirement. Increases are based on individual performance and measured against defined targets for the Group. Remuneration of Non-Executive Directors The annual remuneration payable to any Non-Executive Director is R per annum (2017). Notwithstanding the number of committees Fees as set out above are subject to shareholder approval at the Annual General Meeting to be held on 24 August Directors remuneration is set out in Note 25 of the annual financial statements. The three highest paid members of management (excluding Executive Directors) are set out below: 2016 R 2017 R Employee Employee Employee Total Social and Ethics Committee The Social and Ethics Committee has also been established in compliance with the requirements of the King Report and met twice during the year, under the chairmanship of Eric Ratshikhopha and, after her appointment, Lerato Mosiah. PSV Integrated Annual Report

28 Corporate governance Corporate governance report (continued) Name of Director 29 July October 2016 L Mosiah (Chair) E Ratshikhopha (previous Chair) AJD da Silva AR Dreisenstock Christine du Preez Sagren Sookanathan The committee comprises six members including an Independent Non- Executive Director, who chairs the committee, two Executive Directors as well as the Group SHEQ Manager. The committee assists in the Board by monitoring, inter alia, the following: Social and economic development; Good corporate citizenship; The environment, health and public safety; and Labour and employment. Additional information relating to the points above can be found in the Sustainability Report. Company Secretary The appointment and removal of the Company Secretary is approved by the Board. The Company Secretary advises the Board on the appropriate procedures for the management of meetings and the implementation of governance procedures, and is further responsible for providing the Board collectively, and each Director individually, with guidance on the discharge of their responsibilities in terms of the legislation and regulatory requirements applicable to South Africa. The Board is satisfied that there is an arm s length relationship between the Company Secretary and PSV as the Company Secretary is not a Director of the Group and is itself a separate legal entity and at all times maintains open lines of communication with the Board. The Board has unlimited access to the Company Secretary, who advises the Board and its committees on issues including compliance with Group policies and procedures, statutory regulations and relevant governance principles and recommendations. The Company Secretary attends Board and committee meetings to ensure that comprehensive minutes of meetings are recorded. Merchantec Proprietary Limited was appointed in January 2011 as the Company Secretary of PSV. The Board has considered and is satisfied that the Company Secretary has the required qualifications, skills and knowledge through their many years of experience. The Board is satisfied with the considered advice received from the Company Secretary as well as the level of service provided to PSV. Furthermore the skills, competence and experience of the Company Secretary are verified through: monitoring, guiding and advising the Board on matters relating to governance, legislative and statutory requirements and their duties and responsibilities as Directors; secretarial and administrative procedures are performed promptly and efficiently by the Company Secretary; and the Company Secretary ensures that all Directors have declared in writing any conflicts of interests at every meeting. Relations with shareholders The Group maintains dialogue with its key financial audiences, especially institutional shareholders and analysts. For further information, refer to page 30 of this Integrated Annual Report. Stakeholders The stakeholders of the Group include suppliers, employees, Government and quasi Government organisations, shareholders and customers. Each stakeholder is communicated with by either the holding company or the division directly, and feedback is also encouraged in writing, telephonically or via the website. Fraud and illegal acts The Group does not engage in nor tolerates any illegal acts in the conduct of its business. The Directors policy is to actively pursue and prosecute the perpetrators of fraudulent or other illegal activities, should they become aware of any such acts. Code of Conduct The Group is committed to the highest ethical standards of business conduct. The key pillars of the code include adherence to the legal framework and ensuring that the Group is not brought into disrepute, against the overriding background of transparency in all transactions, complying fully with all applicable laws and regulations, ensuring that a relationship of trust and shared values is built up with both employees and external stakeholders. The Directors, employees, employees of outsourced functions, as well as suppliers to PSV, are all expected to comply with these principles and act in terms of the Code of Conduct. The Directors believe that the ethical standards of the Group, as stipulated in the Code of Conduct, are monitored and are being met. Where there is non-compliance with the Code of Conduct, the appropriate discipline is enforced with consistency as the Group responds to offences and prevents recurrences. 26 PSV Integrated Annual Report 2017

29 Shareholders The Group maintains a dialogue with key financial audiences, including institutional and private shareholders, analysts, fund and private client managers. 28 Analysis of shareholders 30 JSE share information 30 Interaction with shareholders 30 Shareholders diary

30 Shareholders Analysis of shareholders as at 28 February 2017 % of total Number of % of total Number of issued share Shareholder spread holders shareholders shares capital Over Totals Major shareholders (5% and more of the shares in issue) Windfall 28 Investments (Pty) Ltd Mr Abilio Jose Duarte Da Silva Mr Gutta Nassar Shareholder spread Non-public: Directors and associates (Direct holdings) Directors and associates (Indirect holdings) Treasury % of issued capital or more Public Totals PSV Integrated Annual Report 2017

31 % of total Number of % of total Number of issued share Shareholder spread holders shareholders shares capital Distribution of shareholders Control accounts Private companies Public companies Retail shareholders Custodians Hedge funds Managed funds Nominees and trusts Close corporations Share schemes Treasury Unclaimed scrip Totals Directors holdings identified as at 28 February 2017 Director Direct Indirect Total Abilio Jose Duarte Da Silva Anthony Robert Dreisenstock Totals PSV Integrated Annual Report

32 Shareholders JSE share information Interaction with shareholders Share price performance Opening price on 1 March c Closing price on 28 February c Highest closing price for period 1 March 2016 to 28 February c Lowest closing price for period 1 March 2016 to 28 February c Number of ordinary shares in issue at 28 February Total volume traded for the period 1 March 2016 to 28 February Total value traded for the period 1 March 2016 to 28 February 2017 R The Group maintains a dialogue with key financial audiences, including institutional and private shareholders, analysts, fund and private client managers. PSV manages the dialogue and feedback with and to these respective audiences through face-to-face meetings, presentations and telephonic conversations. The Group adopts a proactive stance in timely dissemination of appropriate information to stakeholders and shareholders through SENS as well as print and electronic news releases and the statutory publication of the Group s financial performance. The Group s website provides the latest and historical financial and other information, including the financial reports as well as information on the business units of the Company. The Board encourages shareholders to attend its Annual General Meeting, notice of which is contained in this Integrated Annual Report, where shareholders will have the opportunity to put questions to the Board, including the Chairmen of the Board committees and the Chairman of the Board. Shareholders are able to provide feedback to PSV via the website in the contact us section, where an is sent directly to the CEO s office. An investor relations consultancy has been appointed that further disseminates information to the market and shareholders. Shareholders diary Financial year-end 28 February 2017 Reports and profit announcements: Final results publication 31 May 2017 Integrated Annual Report publication July/August 2017 Annual General Meeting 24 August 2017 Interim results publication November PSV Integrated Annual Report 2017

33 Annual financial report The annual financial statements have been audited in compliance with Section 30 of the Companies Act of The annual financial statements were published on 25 July Audit and Risk Committee report 34 Director s responsibility statement 34 Certification by Company Secretary 35 Directors report 37 Report of independent auditors 39 Consolidated statement of comprehensive income 40 Consolidated statement of financial position 42 Statement of changes in equity 44 Consolidated statement of cash flows 46 Accounting policies 52 Notes to the annual financial statements 94 Notice of Annual General Meeting 99 Form of proxy 101 Administration 102 Glossary of terms PSV Integrated Annual Report