OVERVIEW INTEGRATED ANNUAL REPORT 2012 GROUP STRUCTURE ILIAD AFRICA LIMITED

OVERVIEW GROUP STRUCTURE I N T E G R AT E D ANNUAL ILIAD AFRICA LIMITED REPORT 2012 contents GROUP STRUCTURE 1 1 1 2012 Highlights Scope of t...
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OVERVIEW GROUP STRUCTURE

I N T E G R AT E D

ANNUAL

ILIAD AFRICA LIMITED

REPORT

2012

contents GROUP STRUCTURE

1 1 1

2012 Highlights Scope of the report Board responsibility

3 3 3 4 4 5 6 8 8 9

Profile Milestones Strategy alignment map Strategy roadmap Key strategic project update for 2013 Group structure Brand portfolio Target key financial indicators Material sustainability issues Investment case

OVERVIEW

BUSINESS STRUCTURE 10 12

Board of Directors Group Executive Committee

15 18 22 26 27

Chairman’s report Chief Executive Officer’s report Chief Financial Officer’s report Seven-year review Value-added statement

29 32

General Building Materials Specialised Building Materials

BUSINESS REPORTS

OPERATIONAL REVIEW

CORPORATE RESPONSIBILITY 37 40

Sustainability report Stakeholder engagement

42

Governance report

53 54 55 55 56 58 59 60 61 62 71

Statement of compliance Independent Auditor’s report Statement of Directors’ responsibility Report of the Audit Committee Directors’ report Statements of financial position Statements of comprehensive income Statements of cash flows Statements of changes in equity Accounting policies Notes to the annual financial statements

CORPORATE GOVERNANCE Annual FINANCIAL STATEMENTS

SHAREHOLDER INFORMATION 96 97 98 101 102 103 104

Shareholders’ analysis Shareholders’ statistics Notice of the Annual General Meeting Form of proxy Notes to the proxy Shareholders’ diary and corporate information Contact details

2012 HIGHLIGHTS  Revenue growth of 6,2% year-on-year  Operating profit (excluding impairments and restructuring costs)

up 53% to R105 million  EBITDA (before restructuring costs) up 29,4% to

R146 million  Headline earnings per share increased

387% to 46,3 cents per share

 Launch of the BUCO brand

Scope of the report This integrated report covers the financial year to 31 December 2012 and provides an overview of the Group’s financial and non-financial performance. It follows the annual and sustainability reports for the year ended 31 December 2011. This report discusses the economic, social and environmental performance of the Group, focusing on all divisions and areas of operation. Iliad currently only operates in South Africa. The report has not been independently verified by an external assurance provider. Sustainable development issues were compiled using the latest sustainability guidelines of the Global Reporting Initiative (GRI G3). Iliad has again declared a C level of reporting for 2012. In recent years, GRI has become the accepted international benchmark for reporting on sustainability and we believe it is a useful base in developing a reporting framework that addresses the most pertinent stakeholder issues. As the Group matures, the issues addressed in these reports will increasingly reflect our ongoing interaction with stakeholders. All data in this report was compiled by Iliad’s individual operations and reported to Group management. Good progress is being made in enhancing a standardised information system to support more meaningful and comparable annual reporting.

Board responsibility The Board of Directors acknowledges its responsibility for ensuring the integrity of the integrated report. The Directors confirm that they have collectively reviewed the contents of this report and agree that it addresses the material issues, and fairly represents the integrated performance of the Group. The Board authorised the release of the integrated report on 14 March 2013.

Howard Turner Chairman

Eugene Beneke Chief Executive Officer

Iliad Africa Limited Integrated Annual Report 2012

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OVERVIEW

PROFILE

MILESTONES

Iliad Africa Limited focuses on sourcing, distributing, wholesaling and retailing general and specialised building materials. Listed on the JSE Limited in 1998, the Group is a leading participant in a R59 billion sector (refer to diagram on page 20), servicing a range of customers from large-scale development and construction groups to do-ityourself homeowners through 92 stores. The Group’s divisions are headed by seasoned entrepreneurs capitalising on common pools of expertise and focused on achieving divisional growth targets:

•  General

Building Materials (GBM) markets a comprehensive range of products, primarily sourced locally, through its Inland and Coastal subdivisions mainly under the BUCO brand

•  Specialised

Building Materials (SBM) trades in differentiated and value-added products through its Retail and Wholesale subdivisions

•  Improved trading performance reflects the benefit of a focused strategy • Single brand for the General Building Materials division – BUCO – rolled out nationally to an excellent reception •  Implementation of a consolidated Group ERP platform is on schedule to be completed by the second half of 2014

STRATEGY ALIGNMENT MAP VALUES •  Customer focus •  Entrepreneurial •  Responsible •  Integrity

DRIVING FORCE Our strategy is to meet the product needs of the building industry through focused sourcing and redistribution of goods into selected markets

PHILOSOPHY Entrepreneurial ethos with strong incentives for performance Decentralised operating divisions Tight centralised financial control Focus on selected markets Leveraging common expertise between divisions and clusters

•  Diversity

CORE COMPETENCIES

STRATEGIC THEMES

•  Respect

To prosper we must excel at: Customer orientation Market intelligence Procurement Trading skills Business leadership

Market and brand Sales Procurement Effective cost base Human capital B-BBEE Governance

•  Engaging •  Energy and passion

Iliad Africa Limited Integrated Annual Report 2012

3

OVERVIEW Strategy roadmap Balanced portfolio contribution

Growth through a combination of organic and acquisitive expansion (RSA)

Achieve a revenue target of R6 billion

Consolidated brand portfolio

Integrated approach to procurement

Decentralised front-end trader focus

2015

Consolidated IT platform

Sustainable top of the industry profitability

Back-office consolidation and efficient support

Strategic themes and detail planning

Key strategic project update for 2013 The most important strategic projects for 2012 were implementing the BUCO brand in the General Building Materials division and implementing the ERP platform. A fundamental decision was made to replace our numerous regional brands with the BUCO brand to capitalise on the strength of a single identity, optimise marketing focus and spend, and provide a more consolidated offering to our customers. These regional launches, 90% of which were completed in the reporting year, exceeded all expectations and we look forward to taking the BUCO brand from strength to strength. The brand roll out will be completed by the second quarter of 2013. A key component of being sustainably competitive into the future is the need to operate the Group from a single ERP platform. In 2012 the process was initiated to convert all Iliad stores to the Kerridge 8.09 ERP platform and, to date, approximately 25% of the stores in the Group have been successfully converted. This project will be completed by mid 2014. As part of an ongoing process to maintain a balanced portfolio contribution, the assets and liabilities of the Timber Wholesale business were identified as for sale. Subsequent to the end of the financial year, these assets were purchased by Agentimber Proprietary Limited, a whollyowned subsidiary of York Timber Holdings Limited in March 2013 for the amount of R45,5 million. The transaction is subject to regulatory and competition commission approvals.

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Iliad Africa Limited Integrated Annual Report 2012

GROUP STRUCTURE

General Building Materials (GBM) markets a comprehensive range of products, primarily sourced locally, through its Inland and Coastal subdivisions mainly under the BUCO brand

Specialised Building Materials (SBM) trades in differentiated and value-added products through its Retail and Wholesale subdivisions

ILIAD AFRICA LIMITED

GENERAL BUILDING MATERIALS Inland

Coastal

Central

Western Cape

East

Eastern Cape

West North South

SPECIALISED BUILDING MATERIALS Retail

Wholesale

Ironmongery

Plumbing & Hardware

Ceramics

Timber Wholesale

Ceramics Cash & Carry

Boards

KwaZulu-Natal

Equipment Hire

With an extensive national structure, there is now continued opportunity to efficiently optimise the portfolio of brands.

Iliad Africa Limited Integrated Annual Report 2012

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OVERVIEW brand portfolio GENERAL BUILDING MATERIALS Brand

Changed to BUCO

Outlets

Currently trading as Rietpan Hardware, Ferreiras Building material, Builders Market and F&F Building Supplies. The Gauteng region comprises stores in Vaal, Krugersdorp, Honeydew, Rietpan and Wierda Park in Pretoria. Major revamps are planned for the two flagship stores in Rietpan and Honeydew.

April 2013

5

Suncol, founded in 1980, has been operating from Benoni. Specialising in retail of plumbing merchandise. Over the past years Suncol has been built to be a well established concern, serving both the private individual and corporate companies being large or small.

June 2005

1

The Laeveld Bou stores in Nelspruit, Malelane, White River, Hazyview, Hoedspruit and Lydenburg and also Builders Market Middelburg were the first stores to convert to the new BUCO brand in 2012. The flagship store in Middelburg underwent a complete revamp and the Laeveld Bou stores with their proud heritage of being “the biggest and the best building materials supplier” in the Lowveld paved the way for a smooth start to the BUCO launches.

March 2012

8

Rustenburg Building Materials, DOH Brits, DOH Thabazimbi and Builders Market Mafikeng are known as BUCO since 28 September 2012. These stores don’t really need any introduction when it comes to their loyal local client base; Rustenburg Building Materials began back in 1954 by Barney Cohen and the doors of DOH Brits was opened in 1921 by Sender Dreier. Although DOH Thabazimbi and Builders Market might not have such a long history as their counterparts in Rustenburg and Brits, all these stores offer the same excellent service, outstanding personnel and great value.

September 2012

7

Formerly known as Builders Market the stores are in Lephalale, Burgersfort, Shayandima, Giyani, Jane Furse, Embalenhle, with two stores in Polokwane. The flagship store is in Sapphire street and the second Polokwane store is conveniently located in Rissik street across the road from the taxi rank. The Limpopo stores are uniquely specialised and geared towards servicing the province’s rural areas, offering products such as solar geysers at highly competitive prices.

August 2012

3

July 2012

6

November 2012

9

June 2012

6

May 2012

4

GBM Cluster

Inland Central

INLAND East

Inland West

Inland North

Inland South Previously known as Builders Market serving the Northern Cape through the Kathu and Kimberley outlets, the Free State through the Bloemfontein and Welkom stores, and the Northwest through the Klerksdorp operation. These stores are living their ethos, knowing building materials as well as their customers’ needs. The region boasts revamped stores in Kimberley, Klerksdorp, Welkom and Bloemfontein as well as the Kathu operation relocation starting in the near future. coastal Western Cape Formerly known as Campwell, BUCO is represented in Athlone, Bergvliet, Nyanga, Plaza, Polka Place, Somerset West, Stellenbosch and Vasco. Since their inception in 1969, Campwell Hardware has become a household name in the Western Cape. Campwell began as a camping equipment store in Elsies River, and today they serve home builders and the building industry with everything from adhesives and bathroom ware to fireplaces, timber and flooring. Under the BUCO brand, these stores serve a huge area. coastal Eastern Cape USM Building Supplies and D&A Timbers merged under one banner as BUCO. Both Companies have a long proud trading record in the Eastern Cape and supply a vast area stretching from Cape St Francis to Umtata and as far north as Steynsburg, Cradock and Graaff-Reinet. BUCO operates from the existing branches of East London, Grahamstown, Port Alfred, Kenton-on-Sea, Uitenhage and Jeffreys Bay. Each branch carries an extensive range of DIY supplies as well as a complete range of building materials, backed by eager, friendly and well trained staff that will cater for all DIY and building needs. coastal KWAZULU-NATAL Builders Market Empangeni, D&A Timbers Pinetown and D&A Hardware Ballito are now operating as BUCO Empangeni, BUCO Pinetown and BUCO Ballito respectively. D&A Timbers Shelly Beach relocated at the end of May 2012 to Ramsgate where it launched as a BUCO store. The new outlet promises to offer contractors and DIY customers in the Ramsgate area an improved shopping experience.

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Iliad Africa Limited Integrated Annual Report 2012

SPECIALISED BUILDING MATERIALS Brand

Focus

Joined Iliad Outlets

RETAIL IRONMONGERY Based in the city of Pretoria, Buchel offers an extensive range of architectural ironmongery, tools and hardware products. With over 60 years of knowledge, they supply their products to various private and public entities.

2003

5

Design Hardware is a specialist supplier in architectural ironmongery.

2003

3

A well renowned brand in KwaZulu-Natal, Bildware provides a range of solutions in architectural ironmongery, hardware and building products.

2003

2

Celebrating its 100 years of experience, W&B Hardware, based in the Western Cape, are the leading suppliers of architectural ironmongery, hardware and building products.

2003

3

Being an established leader in electronic and access control solutions, Saflok offers a range of products in electronic locking, access management systems and in-room safes.

2003

1

With over 35 years of experience, Ferreiras is a supplier of exclusively branded premium products in ceramic, sanware and brassware. As part of their range of services, Ferreiras have their state-of-the-art showroom and expert advice Design Studio that assist in providing appropriate solutions to customer needs.

1998

2

National Tile Traders is a supplier that is focused on the mainstream market in the ceramic, sanware and brassware segment.

2008

9

With outlets around South Africa, incorporating the former Knob and Knocker retail outlets. Cachet International offers a wholesale range of plumbing, hardware and specialised ironmongery products.

2005

3

Thorpe Timber Company was acquired in July 2007. Located in Roodekop, Gauteng servicing Gauteng, South West, Mpumalanga and North West Province. Their operational focus is wholesale timber supply and manufacturing.

2007

1

Timber Preservation Services (TPS) was acquired in July 2009. Located in Epping, Cape Town servicing the Western Cape Metropole and Boland. Their focus is to supply treated structural timber.

2009

1

The Chipbase brand is a board merchant that specialises in the cutting and edging of all board products.

2005

8

A trusted brand in excess of 20 years, Citiwood is a wholesale and retail supplier of a various range of boards and board related products. Equipped with cutting edge hardware, they are able to offer their customers a comprehensive service.

1998

4

B-One provides hiring services in accommodation, sanitation and storage facilities for construction and civil engineering sites.

2008

1

CERAMICS

CERAMICS CASH AND CARRY

WHOLESALE PLUMBING AND HARDWARE

CACHET INTERNATIONAL

CACHE T INTERNATIONAL

TIMBER WHOLESALE

BOARDS

EQUIPMENT HIRE

Iliad Africa Limited Integrated Annual Report 2012

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OVERVIEW target Key financial indicators Actual 2012

Actual 2011

EBIT (%)

1,7

loss

EBITDA (%)

3,3

1,4

Revenue

R4,5 billion

R4,2 billion

Gross margin (%)

26,9

26,3

Gearing (%)

10,4

(5,6)

MaTERIAL SUSTAINABILITY ISSUES In line with the Group's risk management processes, the following inherent potential risks were identified, based on the business and industry dynamics. Mitigating actions were implemented to reduce these risks to acceptable levels.

Identified potential risks

8

Mitigating actions implemented

Misreading the market as a result of: • Interest rate fluctuations • Inaccessible finance •  Macro-economic factors • Insufficient market intelligence • Inadequate CRM processes

• Focus on cost structures, procurement, cash generation and appropriate acquisition/rollout opportunities • Adhere to agreed business parameters • Maintain gearing within self imposed target • Quarterly market/industry information updates • Quarterly Board review of industry KPI’s

Inadequate performance at cluster level

• • • • • •

Intense focus on inventory optimisation and ongoing review Appropriate incentive structures in place Quarterly management review meetings Established marketing expertise within the Group Enhanced performance management processes Detailed regular strategy and portfolio reviews

Over gearing due to the cyclical nature of the industry/market

• • • •

Adequate facility capacity Approved gearing limits adhered to Annual review of future financing structures Ongoing focus on working capital management

Ineffective procurement processes

• • • •

Finance structures inappropriate for future business requirements

• Reviewed Group financing structures • Ongoing constructive and frequent engagement with financial institutions • Group cash management initiatives identified and implemented by Exco

Iliad Africa Limited Integrated Annual Report 2012

Procurement identified as a key strategic area of focus Structured projects to review procurement processes initiated Effective Group procurement forum established Objective to maintain rebatable purchases target between 75% and 80% • Rationalised the Group national supplier list • Framework to review procurement processes issued

Investment case Iliad aims to generate sustainable returns for shareholders over the short, medium and longer-term, particularly those wanting exposure to the South African retail market. While material issues in the Group are reviewed and amended annually, the investment case focuses on a longer time horizon.

Focused strategy and business model

Experienced management team

• Focuses mainly on one industry: the supply of building materials and related merchandise • Focus on a balanced customer profile and not multiple market segments • Launched a monolithic brand (BUCO) in the GBM division, upgraded and branded stores accordingly • National implementation of a technology platform underway • Group profile page 3 • Our business philosophy page 3

• On average, Group Executive team members have over 15 years’ senior management experience • Strong divisional and executive management leadership team • Succession management plans for senior and middle management • Managers are selected and trained to identify opportunities for profitable business • Board and Executive management pages 10 and 12 • Human capital report page 38

Market leadership in contractor management • Private-label product range introduced • Each BUCO store has a dedicated contractors’ counter • Expanded its offering into the DIY segment

Ability to manage credit risk • • • • • • •

Credit used as an enabler to grow sales Debtors’ book managed to optimise profitability Focused credit-granting and approval process Debtors’ book internally funded and managed Credit insurance cover over selected customers Focused management via Group Credit Committee Managing the credit risk page 76

Adhering to governance best practice

Sustained performance and wealth creation • • • • • •

Revenue: 14-year compound growth of 20% Strong organic growth potential Dividend per share: 14-year compound growth of 6% Well-managed statement of financial position Did not require recapitalisation during economic downturn Chief Financial Officer’s report page 22

National retail presence • Portfolio of well-located stores across South Africa • Strategy of selective growth in trading space to grow market share • Brand portfolio page 6

PRACTICES

Portfolio rationalised/optimised

• • • • • •

• Disposal of the Timber Wholesale business • Certain underperformers closed/sold in 2011 and 2012

King III governance principles applied Strong independent Board and committee structure Track record of excellence in financial reporting Risk management process embedded across the business Chairman’s report page 15 Corporate governance report page 42

Iliad Africa Limited Integrated Annual Report 2012

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business structure BOARD OF DIRECTORS

The Board’s primary responsibility is to provide effective leadership and direction over the Company’s affairs for the benefit of its shareholders, creating sustainable stakeholder value by balancing the interests of all stakeholders.

Howard Turner (70) CA(SA) SEP (Stanford)

Tapiwa Njikizana (37) BCompt (Hons) (Unisa) CA(SA)

Ralph Ririe (59) BCom (Wits) CA(SA) OPM (Harvard)

Ashika Kalyan (43) BSc (Hons) (Univ KZN)

Independent Non-executive Chairman

Independent Non-executive Director

Independent Non-executive Director

Independent Non-executive Director

Howard is a chartered accountant and was the managing partner of Coopers and Lybrand, Johannesburg and a member of its National Executive Committee. He retired in 2004 as Deputy Chief Executive Officer of Group Five Limited. Howard was also a member of the Board of Consol Limited and Chairman of its Audit and Corporate Governance Committee. He is Chairman of the Board of the Automobile Association of South Africa.

Tapiwa is a Director at W Consulting, whose experience in professional services was gained primarily with one of the big four auditing firms globally, including the United Kingdom and Republic of Ireland. His industry experience includes financial services, mining, manufacturing, tourism, telecommunications, and transport and logistics.

Ralph has over 20 years’ experience in the medical industry as owner of a group of medical manufacturing and distribution companies purchased through leveraged buyouts. Subsequent to the sale of his medical businesses, Ralph acquired an interest in Topflite Asset Management (Pty) Limited and he is active in property development.

Ashika was the vice president and head of marketing (Middle East and Africa region) at Nokia. She has held various roles in global fast-moving consumer goods (FMCG) and technology companies including Nike (South Africa and rest of Africa), Microsoft’s e-commerce business (MSN), and SC Johnson Wax (USA and South Africa). Her local and international experience in the FMCG, sports and technology industries extends to Europe, India, the US and Middle East/Africa.

Appointed as a Director in 2003 and as Chairman of the Board in 2005.

Tapiwa serves on SAICA’s Technical Committee and Accounting Practices Committee. He was also a member of the GAAP monitoring panel of the JSE Limited. Tapiwa is an Independent Nonexecutive Director of JSE-listed Mercantile Bank Holdings Limited. Appointed as a Director in January 2010 and he chairs the IT Governance Committee and is a member of the Audit Committee and the Transformation, Social and Ethics Committee.

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Iliad Africa Limited Integrated Annual Report 2012

Ralph also has an interest in Lesco Manufacturing (Pty) Limited, a leading manufacturer of electrical adaptors, switches and sockets. Appointed as a Director in March 2003. Chairs the Audit Committee and is a member of the Remuneration Committee.

Appointed as a Director in December 2011. Chairs the Transformation, Social and Ethics Committee and is a member of the Audit Committee.

Prof Fatima Abrahams (50) B Econ (Hons) (Cum Laude) MCom (UWC) DCom (Unisa)

Andile Sangqu (45) BCom (Acc) (Rhodes), BCompt Hons (WSU), H Dip Tax Law (UJ), MBL UNISA SBL

Eugene Beneke (45) BCom (Pretoria) CA(SA)

Chris Booyens (56) BCompt (Hons) (Unisa) CA(SA)

Independent Non-executive Director

Independent Non-executive Director

Chief Executive Officer

Chief Financial Officer

Fatima is currently a part-time Senior Professor in the Department of Industrial Psychology at the University of the Western Cape, and has served as Dean of the Faculty of Economic and Management Sciences.

Andile is an Executive Director of Xstrata South Africa. He is a seasoned entrepreneur, visionary and well-rounded business leader. Andile is the former Group Executive Director at Kagiso Trust Investments, as well as the Chief Executive Officer of Prodigy-Coris Asset Management. Andile also filled the position of Managing Director of Budget Foods (Pty) Limited, trading as Multi Meats.

Eugene is a chartered accountant who started his career as the Financial Director of a construction and residential development company. He has held numerous managing executive positions in an 11-year career in the branded food manufacturing environment, mainly at Tiger Brands.

As a chartered accountant, Chris held numerous positions in financial management in a number of sectors, including engineering, transport and logistics, mining, food, pharmaceuticals and industrial gasses. He was a Director at Harmony Gold Mining Company, The Cold Chain, Enterprise Foods and Adcock Ingram Pharmaceuticals.

She is Chairperson of TSIBA Education and a Non-executive Director on the Boards of the Clicks Group, Foschini Group and Lewis Group. She was a Director of Transnet and Chairperson of Victoria and Alfred Waterfront Holdings. She is well known for her academic work, having presented papers at national and international conferences, and has published in a number of journals and academic texts.

Appointed as a Director in November 2008.

Appointed as a Director in November 2011.

Appointed as a Director in March 2013.

Appointed as a Director in December 2011. Chairs the Remuneration Committee and is a member of the Transformation, Social and Ethics Committee. Iliad Africa Limited Integrated Annual Report 2012

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business structure Group executive committee

The main purpose of the Committee is to assist the CEO with: • Responsibility for day-to-day management of the Group and its divisions • Reviewing Group risks and providing assurance to the CEO that risk management policies are operating effectively

Eugene Beneke (45) BCom (Pretoria) CA(SA)

Rowland Meek (53) Mkt Man (IMM) PMD (UCT)

Gerrit du Preez (47) BCom Law (Hons) (University of Johannesburg) AIPSA

Kim Davidson (43)

Chief Executive Officer

Managing Director General Building Materials Coastal

Managing Director General Building Materials Inland

Managing Director Specialised Building Materials Retail

Eugene is a chartered accountant who started his career as the Financial Director of a construction and residential development company. He has held numerous managing executive positions in an 11-year career in the branded food manufacturing environment, mainly at Tiger Brands.

Rowland’s career started in sales and marketing services. He spent 17 years in the timber industry, holding various executive positions. He entered the building materials market in 2000 when he joined Corpbuild.

Gerrit started his career at Metro Cash & Carry as industrial relations manager. He joined Iliad 17 years ago as HR manager and held numerous functional and operational executive positions until July 2010 when he was appointed to his current role.

Kim worked for Federated Timbers from 1992 to 1996, and then joined Corpgro Industrial & Building Supplies (Pty) Limited, which was acquired by Iliad in 2003. He has held numerous positions with the Group over the last nine years.

Appointed as a Director in November 2008.

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He has served in managing and regional executive roles at Iliad before being appointed to his current position in July 2010.

Iliad Africa Limited Integrated Annual Report 2012

Appointed to current position in July 2010.

• Reviewing Group performance as well as commercial and strategic issues affecting the Group • Providing assurance to the CEO that business strategy set by the Board is operating effectively

Judy Ragbar (37) MBA (Univ KZN), BTech Eng (Natal), Industrial Instrumentation and Process Control (MEIETB)

Stephen O’Connor (47) BCom LLB (Rhodes) LLM (Unisa) HDip Co Law (Wits)

Chris Booyens (56) BCompt (Hons) (Unisa) CA(SA)

Daan Esterhuyse (62) B Econ (University of Stellenbosch) AEP (UCT) Member SABPP

Group Marketing Executive

Company Secretary, Group Legal Advisor and Group Risk Officer

Chief Financial Officer

Group HR Executive

Judy has over 10 years’ in-depth practical and technical experience in the petrochemical, mining, power and pulp and paper sectors. She has held numerous roles in operations, sales, marketing and business development for multinational corporations. Judy also served on a global board based in Texas, for mining initiatives in South Africa. After completing her MBA, she joined the local construction industry in an executive position. Judy is currently a member of the Business Women’s Association of South Africa. She joined Iliad in February 2011.

Stephen is a qualified attorney and conveyancer. He has 16 years’ experience as a corporate legal advisor, and gained experience as company secretary at CNA and Advtech Limited. He joined Iliad in April 2011.

As a chartered accountant, Chris held numerous positions in financial management in a number of sectors, including engineering, transport and logistics, mining, food, pharmaceuticals and industrial gases. He was a Director at Harmony Gold Mining Company, The Cold Chain, Enterprise Foods and Adcock Ingram Pharmaceuticals.

Daan is a registered human resources practitioner (generalist) with extensive experience as HR Manager and Director in various industries.

Appointed as a Director in November 2011.

Since 1998, he has provided human resource services to a number of listed companies and as managing member of a closed corporation for 12 years. Daan joined Iliad in 2010.

Iliad Africa Limited Integrated Annual Report 2012

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business REPORTS CHAIRMAN’S report

As the building materials supply market continues to recover from the impact of the 2008/9 economic crisis, I am pleased to report on a year in which Iliad continued improving its performance. The Group’s key strategic initiatives over the past two years – achieving a balanced portfolio contribution, introducing a single

restructuring costs. Excluding these write-off, the profit before tax amounted to R94,0 million (2011: R55,6 million) a considerable improvement from the trading operations. Furthermore, the 2012 results have borne the costs of a number of key strategic initiatives necessary to achieve long-term growth, these costs will continue to affect results in the next few years.

brand in our General Building Materials division, and a consolidated IT platform – are delivering the expected results, with potential significant benefits for all our stakeholders. This is Iliad’s first integrated annual report, reflecting our longstanding commitment to incorporate the concept of sustainable development into our culture, operations and strategy. In line with the King Report on Governance for South Africa, 2009 (King III),

Despite a challenging economic period, management has maintained the Group’s balance sheet. Accordingly, the Board was able to declare a dividend of 20 cents per share to shareholders (2011: 20 cents per share), with the dividend covered 1,2 times. The level of cover is expected to normalise as the Group’s performance trends continue to improve.

we report to stakeholders on our progress in the various elements

Macro environment

of sustainability, specifically the impact of economic, social and

The review period presented renewed economic concerns as the US struggled to restore its financial imbalances and the Euro zone dealt with multiple sovereign debt crises. The International Monetary Fund believes recent policy actions by major central banks and European governments have eased financial stress to some extent and that economic conditions may be stabilising. However, the global economy remains vulnerable to new setbacks.

environmental issues on business performance. Where relevant, this includes opportunities presented by sustainability issues. Given the nature of our business, for Iliad, sustainable development is focused on people. Our environmental responsibilities are concentrated on our prudent use of resources.

Financial performance The year to 31 December 2012 was marked by improved performances in the key indicators for the Iliad Group. Revenue grew by 6,2% to R4 493 million (2011: 7,7% to R4  230  million), translating into a reported profit before taxation of R63 million (2011: loss of R246 million). The reported figures are stated after the write-off of intangible assets, impairments and

In South Africa, the economic growth rate slowed to 3,0% in the third quarter (seasonally adjusted and annualised) from 4,9% in the second quarter, dragged down by lower household expenditure growth, which eased to 2,6% from 3,1%, and a sharp rundown of inventories caused by strikes in the mining sector. Analysts believe the country’s unsustainably large current account deficit could put the rand under more pressure, with GDP growth in 2012 lowered to 2,5% (2011: 3,1%). Iliad Africa Limited Integrated Annual Report 2012

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business REPORTS CHAIRMAN’S report (continued)

The cumulative effect of protracted lower interest rates supported the marginal upturn in building plans passed that began in 2011. The caveat to this is that while real wage increases in recent years have supported consumption expenditure, the continued high level of household debt has mitigated this. As such, while we believe

most industry trends have bottomed, any gains are likely to be gradual. The South African Reserve Bank’s monetary policy committee is not expected to lower interest rates in the near future as monetary

BPP & BC Total Building (including A&A): 1993-2012 by month: m2 (Dec)

12 per. Mov. Avg. (BC TOTAL BUILDING: M ) 2

16

BC – Buildings completed

Iliad Africa Limited Integrated Annual Report 2012

12 per. Mov. Avg. (BPP TOTAL BUILDING: M2)

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

BPP TOTAL BUILDING: M2

BC TOTAL BUILDING: M2 BPP – Building plans passed

2002

2001

2000

1999

1998

1997

1996

1995

1994

2 200 000 2 100 000 2 000 000 1 900 000 1 800 000 1 700 000 1 600 000 1 500 000 1 400 000 1 300 000 1 200 000 1 100 000 1 000 000 900 000 800 000 700 000 600 000 500 000 1993

Square metres

(Source: StasSA; BMI-BRSCU: BC by month and type of building: Chart 30(14))

Iliad had a year of profitable growth Iliad’s strategic initiatives in recent years paid off during the review period as the Group resumed its growth trajectory, with substantial benefits for stakeholders.

First customer sale using K8.09 was completed at Northriding on 27 February 2012 at 08:02



policy has already reduced interest rates to their lowest level since 1974. If global demand deteriorates, however, and the South African economy contracts further, the Reserve Bank may reduce interest rates. Consensus seems to be that interest rates will start increasing later in 2013. Despite these historically low interest rates, we do not believe the building and construction sector benefited fully, given other factors at play such as constrained disposable income and access to finance. More positively, and despite recent sovereign downgrades, South Africa has weathered difficult economic circumstances in the past and we are confident it will do so again. We expect that a more stable political environment post the Mangaung elections will provide a platform for intended infrastructural spend to materialise. Against a challenging economic background, Iliad’s performance in 2012 is commendable as sales grew 6,2% against an industry inflation rate of approximately 2,5%.

Transformation Iliad’s empowerment shareholders hold 15,9% of the Group. Various initiatives, including a potential employee-based shareholding transaction, are being considered.

Appreciation Iliad’s strengthened management team, under the leadership of Eugene Beneke, has proved its mettle in the review period as we systematically implemented the Group’s strategy. Behind this team is a committed average workforce of 4 686 people – individuals who met the challenges of 2012 convincingly. We thank every one of you for your contribution to Iliad’s achievements during the year and for positioning the Group to capitalise on opportunities that will arise when growth returns to the market. There has been a new appointment to the Board effective 1 March 2013. Andile Sangqu joined the Board as an independent Nonexecutive Director. An abridged CV can be found on page 11. My sincere thanks to my Board colleagues for their valuable input and support in guiding Iliad through the challenges of recent years. As noted in the prior report, I will retire from the Board once my successor has been appointed. I have enjoyed my tenure as Director and Chairman, and remain confident that Iliad is well positioned for the future, given the quality of Board members and Management in place.

Our aim is to capitalise on our inclusive approach to improve Iliad’s B-BBEE contribution status from the current level 5 to 4 over time. Howard Turner Chairman

Iliad Africa Limited Integrated Annual Report 2012

17

business REPORTS CHIEF EXECUTIVE OFFICER’S report

For Iliad, 2012 was characterised by two key trends: strategic execution and improved trading performance.

Revenue (Rbn) 2012 2011 2010 2009 2008 0

1

2

3

4

5

The second key pillar of our strategy was a single enterprise resources planning (ERP) platform for the Group. This is expected to provide economies of scale, particularly in backoffice support functions, improved business information and procurement benefits. By year-end, one quarter of the store base, including three of our biggest stores, had been migrated onto the new platform.

EBITDA (Rm) 2012 2011 2010 2009 2008 0

18

50

The strategy developed after reviewing Iliad’s business in the midst of the financial crisis is now steadily unfolding, underscoring the Group’s evolution towards sustainable growth. Supported by meticulous planning and research, we have revitalised our General Building Materials division and launched a unifying brand – BUCO – across all regions. The primary objective of this initiative was to provide a more consistent offering across our store network that could capitalise on focused marketing. To date, we have invested approximately R50 million in rolling out the BUCO brand, including store refurbishments, and the buy-in from all stakeholders has been most encouraging. Marketing campaigns to entrench the BUCO brand are planned for the new financial year.

100

150

200

250

300

350

Iliad Africa Limited Integrated Annual Report 2012

400

The fragmented and competitive building materials supply industry has established a new base in recent years and confidence levels are gradually improving, aided by a slightly more facilitative funding approach by financial institutions. The lag in the building pipeline continues to impact on our industry, however, in tandem

Iliad had a year of improved performance This was a year of delivery for Iliad as our strategy translated into improved trading performance. Far-reaching initiatives in recent years have positioned the Group for sustainable growth off a solid and balanced base.

with subdued consumer confidence. The marginal upturn in the rate of building plans passed is therefore a welcome indicator of improving activity in our sector. Against this background, we believe Iliad’s revenue growth for the year is commendable. As illustrated on the following page, the Group services three distinct market segments – DIY, residential and non-residential – and we managed the cyclical nature of our industry through the diversity of our business and size of portfolio. Importantly, Iliad has established a new balance in its revenue mix, with two-thirds now coming from the contractor market, down from around 80% a few years ago. With better access to the steady DIY market, Iliad has developed a more sustainable balance between credit and cash revenue streams.

Financial performance The benefits of our strategic initiatives contributed to results in the review period despite difficult trading conditions in the building materials supply industry. Iliad recorded a 6,2% increase in revenue on the back of another strong performance by the Inland region of the General Building Materials division (GBM). Headline earnings rose 387,4%, reflecting the continued focus on managing gross margins and expenses. The increase in expenses was maintained in line with inflation. Gross margin improved to 26,9% in comparison to 26,3% for 2011 and EBITDA before restructuring costs increased by 29,4% to R146 million (2011: R113 million).

Cash resources were satisfactorily managed despite ongoing investments to fund growth specifically store upgrades as part of the project to introduce the BUCO brand to the GBM division. Net asset value per share increased to 571,5 cents (2011: 567,2 cents). Ensuring that the Group’s procurement remains effective and efficient, we continue to review these processes to ensure we optimise our buying power. Working with our key suppliers, we aim to compete in the market for mutual benefit. In addition to capitalising on intra-group synergies to control expenses and fund long-term initiatives, we have completed several feasibility studies for new stores in various regions, which are expected to be operational from 2014 onwards.

Operational review The General Building Materials division remains the hub of our business. The division reported a 7,1% increase in revenue and again improved operating profit. The split into Inland and Coastal regions has positioned this division well for steady growth. Although this performance reflects solid results from the Inland regions, there has also been an encouraging improvement in results from the Coastal regions, particularly the Eastern Cape. While the Western Cape has shown the slowest recovery, it is well placed for a stronger performance in 2013. The Specialised Building Materials division (SBM) delivered an improved performance for the year. Although this division continues to feel the impact of downtrading in the finishing end of the market, the Retail subdivision reversed the trend of recent years with a strong result from the Ironmongery cluster. In the

Iliad Africa Limited Integrated Annual Report 2012

19

BUSINESS REPORTS CHIEF EXECUTIVE OFFICER’S report (continued) Wholesale subdivision, notable performances were recorded by the Equipment Hire and Boards clusters, with improved prospects for the latter sector in the new financial year following industry consolidation.

Growth strategy Economic events of recent years required a fresh look at the operating environments in many sectors, including the fragmented and highly competitive building materials supply industry. For Iliad, this involved strategic portfolio adjustments to build a strong foundation for the sustained growth of our business. Our strategy is centred on meeting the product needs of the building industry through focused sourcing and redistribution of goods into selected markets. We are achieving this through our strategic roadmap, focused on: • A balanced portfolio contribution • Growth through expanding our footprint in South Africa • Consolidating our brand portfolio as well as our IT platform • An integrated approach to procurement • A decentralised front-end trader focus • Back-office consolidation and efficient support To summarise our recent strategic initiatives, we restructured our General Building Materials division into Inland and Coastal subdivisions, and the Specialised Building Materials division into Retail and Wholesale. This protected the entrepreneurial character of the Group while maximising support synergies and efficiencies. These benefits began to flow through to operating results during the review period, and the value added by launching a single brand, BUCO, in the GBM division and revamping stores is already evident. The second key pillar of our strategy is implementing an integrated IT platform throughout the Group. This will facilitate efficient value-

added services, particularly in back-office functions, to support our strategy into the future. Furthermore we continue to focus on ensuring a balanced business portfolio that will contribute to optimising Group results. As part of this process, we decided that our Timber Wholesale business was no longer a strategic fit and subsequently decided to sell the assets and liabilities of the business. Our strategic objectives depend, to a large extent, on the ongoing provision of effective skills training for staff, investing in future leaders and talent management, partly addressed through our Training Academy in Middelburg, Mpumalanga and our Leadership Development Academy. In 2012, some 656 employees (2011: 700) have completed courses in key aspects of sales, store management and leadership. Focused courses at the Iliad Training Academy equip our team with the knowledge to manage their areas of responsibility more effectively, and ensure an enhanced customer experience that translates into sales and growth throughout the Group. Collectively, as reflected in results for the year, these investments are contributing to our goal of sustainable profitability.

Sustainability Integrating the financial and non-financial aspects of our business has been under way for some time now. We keenly understand that economic, social and governance aspects are pivotal to the sustainability of our business, the jobs it creates and the indirect benefits it generates for all our stakeholders. In the South African context, sustainability includes corporate social investment (CSI), environmental concerns and transformation. These remain important business considerations for Iliad, and we are working with stakeholders to realise our vision for mutual benefit.

Building industry perspective 37% Residential

26% Additions, alterations and refurbishments

37% Non-residential

Total building industry R163 billion

20

Labour R65 billion

Materials R98 billion

Direct R39 billion 40%

Distribution R59 billion 60%

Iliad Africa Limited Integrated Annual Report 2012

As primarily a distributor of goods, Iliad’s environmental impact is limited but we are focused on the prudent use of resources. Each year Iliad renews its commitment to spending approximately 2% of profit after taxation on CSI. In 2012, the primary beneficiary of this investment was again non-profit organisation Africa Ablaze, while smaller contributions were made at store level to local communities. Please refer to our sustainability report on page 37 for details.

Appreciation Our people have risen to the challenges of 2012 with the passion and energy that have become the hallmarks of this Group. We deeply appreciate your sustained commitment and contribution. Chaired by Howard Turner, Iliad is fortunate to have a Board of Directors that provides wise counsel in a challenging economic climate. We are also grateful for the ongoing support of our customers and suppliers. In return, we are committed to providing superior service and competitive pricing for our customers, while ensuring suppliers receive steady volumes and security of payment.

the regional launch of the BUCO brand will be completed by the second quarter of 2013 and supplemented by a national marketing campaign to entrench the brand in the market. We will continue to review our portfolio, aiming for the optimal mix of products and services to meet and anticipate market demand. Although we expect the challenging trading environment to continue in the year ahead, the Group’s strong foundation should support continued growth into 2013. Any acceleration in the recovery in building plans passed will reinforce this growth, particularly in light of our ongoing focus on the expense base. Equally, continued focus on effective procurement will assist in maintaining gross margins. As the market returns to growth, Iliad is well placed to capitalise on business opportunities, drawing on the skills of seasoned entrepreneurs managing decentralised operations. We are confident that our long-term investments have paved the way for sustainable growth in the years ahead.

Outlook and prospects The year ahead will include the next phase of our ERP roll out, with completion scheduled for the second half of 2014. In addition,

Eugene Beneke Chief Executive Officer

Iliad Africa Limited Integrated Annual Report 2012

21

BUSINESS REPORTS CHIEF FINANCIAL OFFICER’S report

This report is intended to be read in conjunction with the financial statements to enhance understanding of the Group’s financial performance.

Gross margin percentage (%) 2012

The South African economy is slowly recovering amid the nationalisation debate, recent events in the mining and agricultural sectors and the downgrade of the country’s sovereign credit ratings. Although these factors fuelled negative perceptions about the country, Iliad’s growth rate in nominal revenue this year was 6,2%. Since listing in 1998, despite the recent subdued trading environment, cumulative revenue growth has been 20% per annum.

2011 2010 2009 2008 0

5

10

15

20

25

30

Although the second half, and particularly the last quarter, of 2012 showed a slowdown, results presented for the year are encouraging. Last year, portfolio rationalisation costs were incurred to close nine stores and dispose of the assets of two businesses. Through rationalisation, the level at which operating leverage becomes effective was lowered and those benefits were evident this year.

Capex (Rm) 2012 2011

Sales and gross margin

2010 2009 2008 0

22

10

20

30

40

50

60

Iliad Africa Limited Integrated Annual Report 2012

70

80

Revenue increased by 6,2% on the prior year to R4,5 billion, despite the closure and disposal of some operations in 2011. Revenue now approximates levels recorded in 2008. Compared to the prior year, gross margins improved somewhat, despite ongoing input cost pressures, a competitive trading environment and inventory shrinkage. This was complemented by a pleasing progress on optimising quantity purchase discounts with suppliers.

Iliad had a year of profitable growth Improved trading performance reflects the benefit of a focused strategy.

Expenses Expenses increased by 6,2%, in line with inflation. The main expense drivers remain employment costs, vehicle expenses and store occupancy costs. During 2012, trademarks were changed to finite life and are now amortised over 25 years. The amortisation cost was R2,5 million in 2012. Intangible assets are tested for impairment at each reporting period and this, together with the decision to dispose of the Timber Wholesale business, resulted in trademark impairments in 2012 of R30,4 million on the Timber and Cash-and-Carry Ceramics clusters. In 2011, intangible impairments amounted to R249,5 million.

Headline earnings per share (cents) 2012 2011 2010 2009 2008 0

25

50

75

100

125

150

175

200

Operating profit Operating profit for 2012, excluding impairment charges and restructuring losses, was R105,4 million compared to R68,9 million in 2011, representing year-on-year growth of 53%.

Finance charges Net finance charges in 2012 were R11,3 million, compared to R13,3 million in 2011 and reflect the lowest finance charges cycle in recent years.

Taxation The return to profitability resulted in a tax charge of R30,0 million in the 2012 statement of comprehensive income at an effective tax rate of 47,1%. The main contributors to the higher rate were impairment costs and the losses not recognised which accounted for 14,2% and 7,7% respectively.

Statement of financial position Profit before taxation Profit before taxation, excluding intangible impairment and restructuring costs, in 2012 was R94,0 million, year-on-year growth of 69% from R55,6 million in 2011.

The statement of financial position remained satisfactory, despite ending the year with a net borrowing of R82,4 million compared to a positive cash balance of R44,1 million at the end of 2011. In our view, this position facilitates growth.

Iliad Africa Limited Integrated Annual Report 2012

23

BUSINESS REPORTS CHIEF FINANCIAL OFFICER’S report (continued) Property, plant and equipment increased by R25,5 million in 2012 and represents net investments of R68,6 million, partially reduced by the depreciation charge of R38,6 million. The two strategic projects relating to the BUCO brand roll out and new IT platform were key drivers of the capital spend. Following the amortisation of trademarks which began in 2012 and the further impairment, intangibles are reflected at R234,2 million compared to R267,1 million in the previous year. An investment in working capital was required to facilitate growth. Despite the increase in values, inventory and accounts receivable ratios showed pleasing improvements on the previous year. Net working capital in monetary terms increased further due to a decrease in creditor funding at year-end, attributable to a slow rate of sales in the last quarter which resulted in inventory being paid for before being sold, which in addition to lower trade finance on imported inventory, adversely affected creditor funding.

Earnings and headline earnings per share Iliad recorded basic earnings per share of 24,3 cents for 2012 (2011: loss of 174,9 cents). After adjusting for the 2012 intangible impairment, headline earnings were 46,3 cents per share. The 2011 comparative is 9,5 cents per share.

Segmental results Segmental results reflect a commendable performance from the GBM division. The SBM division continued its pleasing profitability turnaround from marginally profitable EBITDA before restructuring costs in 2011 to R30,1 million profit in 2012 despite certain underperforming assets remaining in its portfolio.

Progress on underperforming assets is continually reviewed against specific objectives. These assets receive ongoing attention at each business review and Board meeting, as well as at specific meetings with the management teams of those businesses. At the November 2012 Board meeting, a decision was taken to dispose of the Timber Wholesale cluster. In March 2013 the Group accepted an offer from York Timber for a net asset value of R45,5  million. The transaction is subject to regulatory and competition commission approvals.

Financial focus areas for 2013 Identified potential risks are listed below: • Funding future growth: The cyclicality of funding requirements and growth plans necessitates access to appropriate funding facilities. During the past year, various funding options were explored and facilities will be structured to ensure future growth requirements are met. • Working capital management: Working capital in the Group comprises mainly accounts receivable due to creditors’ funding inventory. As a result, the working capital position is expected to remain unbalanced during the growth cycle. In 2012, the Group established a Credit Committee to oversee the credit processes. Working capital management will continue to receive high focus with various initiatives already in place. • Control environment: Commercial crime remains endemic in South Africa. Steps already taken to enhance the control environment include the appointment of additional financial controllers and outsourcing the Internal Audit function to PwC

Working capital (Rm)

Earnings per share (cents)

2012

2012

2011

2011

2010

2010

2009

2009

2008

2008 0

200

400

Accounts receivable

24

Underperforming assets

600

800

Accounts payable

Iliad Africa Limited Integrated Annual Report 2012

1 000 Inventory

-250

-200

-150

-100

-50

0

50

100 Final

150

200

Interim

effective from 1 January 2013. During the 2013 fiscal year, these measures will be embedded. • Group shared services: Opportunities exist to extract synergies using the ERP platform now being implemented as the enabling technology. A Steering Committee has identified various possible projects, which are being scoped and researched, including Group treasury and accounts payable functions. • Standardisation of business practices: Numerous legacy systems and disparate businesses resulted in a myriad of business practices throughout the Group. The ERP implementation creates the opportunity to standardise on best practice.

the corporate office to ensure the corporate finance function is adequately staffed to cope with additional requirements. This has enhanced the ability to comply with legislation and regulations, including new integrated reporting requirements and direct and indirect taxation. At operational level, financial expertise and maintaining a sound control environment remain the first line of defence in safeguarding the assets of the company.

Adequacy of the financial function The adequacy of the financial function is regularly evaluated. During the year, additional skilled resources were appointed in

Chris Booyens Chief Financial Officer

Iliad Africa Limited Integrated Annual Report 2012

25

BUSINESS REPORTS seven-YEAR REVIEW 2012 R’000

2011 R’000

2010 R’000

2009 R’000

2008 R’000

2007 R’000

2006 R’000

4 493 085

4 229 538

3 928 761

3 920 511

4 610 920

4 180 355

3 368 388

146 494

60 693

114 988

161 051

388 157

370 196

300 314

Depreciation and amortisation

41 141

44 352

37 918

36 815

33 760

22 763

22 254

Impairment of intangibles Operating profit before investment income (EBIT)

30 419

249 530

74 934

(233 189)

77 070

124 236

354 397

347 433

278 060

STATEMENT OF COMPREHENSIVE INCOME Revenue EBITDA

Net (finance costs)/investment income

(11 328)

(13 304)

(12 946)

(28 726)

(18 279)

EBT

63 606

(246 493)

64 124

95 510

336 118

339 559

280 370

Taxation

(29 963)

(10 455)

(22 050)

(84 524)

(92 126)

(78 186)

Total comprehensive income/(loss) for the year

33 643

(241 784)

53 669

73 460

251 594

247 433

202 184

Property, plant and equipment

134 158

108 660

112 420

111 162

108 861

71 899

56 498

Intangibles

234 161

267 103

516 633

503 075

580 703

468 288

373 461

4 709

(7 874)

2 310

STATEMENT OF FINANCIAL POSITION Non-current assets

Deferred taxation

43 933

40 760

33 446

23 648

19 246

23 041

20 798

Total current assets

1 457 568

1 570 120

1 524 961

1 253 616

1 328 607

1 301 799

1 146 128

Total assets

1 869 820

1 986 643

2 187 460

1 891 501

2 037 417

1 865 027

1 596 885

789 948

783 949

1 053 377

1 027 352

1 025 765

936 139

747 280

Non-current liabilities

3 971

2 519

2 825

5 148

65 981

68 286

53 209

Total current liabilities

1 075 901

1 200 175

1 131 258

859 001

945 671

860 602

796 396

Total equity and liabilities

1 869 820

1 986 643

2 187 460

1 891 501

2 037 417

1 865 027

1 596 885

Number of ordinary shares in issue at year-end

138 217 794

138 217 794

138 217 794

138 217 794

138 217 794

146 433 408

154 284 519

Weighted average number of ordinary shares in issue

Total equity

STATISTICS

26

138 217 794

138 217 794

138 217 794

138 217 794

141 329 209

146 433 408

146 240 876

Headline earnings per share (cents)

46,3

9,5

39,1

53,4

176,7

168,4

137,5

Earnings/(loss) per share (cents)

24,3

38,8

54,0

177,2

169,0

138,3

Diluted headline earnings per share (cents)

46,3

39,1

53,4

175,0

163,4

133,7

Diluted earnings/(loss) per share (cents)

24,3

(174,9)

38,8

54,0

175,5

163,9

134,4

Dividend distribution to owners of the parent (cents per share)

20,0

20,0

20,0

20,0

52,0

52,0

40,0

Iliad Africa Limited Integrated Annual Report 2012

(174,9) 9,5

VALUE-ADDED STATEMENT for the year ended 31 December 2012 “Value added” is the value which the Group has added to its products and services. This statement shows how the value so added has been distributed amongst our various stakeholders. 2012 R’000

Value added %

2011 R’000

Value added %

Creation of wealth Group turnover

4 493 085

4 229 538

Cost of merchandise and net expenses

(3 800 644)

(3 853 908)

Value added

375 630

692 441

Investment income

18 591

22 767

Finance charges

(29 918)

(36 071)

Total wealth created

681 114

362 326

Distribution of wealth To employees – salaries and benefits To government – taxation

564 467

155,79

576 367

84,94

29 963

4,42

(4 709)

(1,30)

27 644

4,07

27 644

7,63

To providers of capital –  Distributions to shareholders To maintain and expand the Group –  Depreciation and amortisation –  Retained for future growth

41 141

5,69

44 352

12,24

5 999

0,88

(269 428)

(74,36)

681 114

100,00

362 326

100,00

Average number of employees, which includes Executive Directors was 4 686 (2011: 4 453).

Distribution of wealth

Employees Government Providers of capital Maintain and expand Group

2012

Iliad Africa Limited Integrated Annual Report 2012

27

OPERATIONAL REVIEW General Building Materials

Positive turnover growth GENERAL BUILDING MATERIALS 49 Inland 30

Coastal 19

Central 6

Western Cape 9

East 8

Eastern Cape 6

West 7

KwaZulu-Natal 4

The General Building Materials division (GBM) accounts for 76,9% of Group revenue. With our Inland and Coastal subdivisions operating out of 30 and 19 stores respectively, Iliad markets a full range of non-differentiated products to customers throughout South Africa.

North 3 South 6

The General Building Materials division (GBM) accounts for 76,9% of Group revenue. With our Inland and Coastal subdivisions operating out of 30 and 19 stores respectively, Iliad markets a full range of non-differentiated products to customers throughout South Africa. The customer base is now a more balanced twothirds/one-third split between contractors and DIY enthusiasts, down from its historical level and providing a better hedge against a cyclical industry. By year-end, the BUCO brand had been rolled out to 45 of 49 stores at a cost of approximately R50 million including store revamps. The Gauteng launch is scheduled for the second quarter of 2013. Despite another challenging and competitive year for the building materials industry, the division produced a solid result with revenue growth of 7,1% (2011: 12,6%). The Inland regions maintained their strong performance trends, with a notable contribution from our Mpumalanga stores. The Coastal regions delivered improved results, particularly the Eastern Cape. The division continues to expand its sales base. Although the positive effect of turnover growth was negated to some extent by higher working capital demands to fund growth, margins improved slightly during the year. As in prior years, effective procurement assisted the Group in protecting gross margins. After rationalising four stores from the GBM portfolio in 2011, performance in the review period underscores a more balanced portfolio. The division is now well positioned to capitalise on the expected improvement in the market.

Divisional outlook High consumer debt levels, muted residential housing demand and slow government infrastructure spending are again the most significant challenges in the year ahead. With around 25% of the Group’s store base successfully converted onto a common ERP platform by year-end, limited operational efficiencies will start to materialise. This process will continue in the year ahead, with completion in GBM scheduled for the fourth quarter of 2013. As major groups continue to target market share growth, competition will certainly increase. We also anticipate further consolidation of independent operators, as competition intensifies in the contractor and DIY building materials markets. This level of competition highlights the importance of key relationships with suppliers and customers, which will remain a focus area in the year ahead, in tandem with protecting margins and effectively managing expenses. To support our various strategic initiatives, skills development remains a priority. Each year, a material proportion of GBM employees attend training programmes at the Leadership Development and Training Academies. In 2012, these included the new development programme for mid-level management. Iliad’s procurement forum is proving its value in generating sustainable benefits for the division and our suppliers. We also continue to maximise inter-group synergies. Procurement remains

Iliad Africa Limited Integrated Annual Report 2012

29

OPERATIONAL REVIEW General Building Materials (continued)

Gerrit du Preez MD – Inland a key strength of this division and therefore an area of ongoing focus. While capitalising on growth opportunities, we continue to consolidate our supplier base, to build a reliable network of suppliers and partnerships that link suppliers to customer needs.

We recorded muted sales performance in certain of the lowerincome and rural markets. Our rural cash-and-carry outlets again recorded a reasonable performance, with smaller outlets reflecting growth across the portfolio.

As we entrench our traditional regional brands under a single BUCO brand, reinforced by store revamps and an expanded product mix, our brand proposition of building partnerships is positioning our business for sustainable growth.

Following strong growth and expanded product ranges, working capital management remains a focus area. Progress was made in managing working capital levels through the continuous focus on debtors and inventory management.

Inland subdivision

Coastal subdivision

GBM Inland recorded strong top-line growth throughout the year. Revenue increased by 7,1% on the previous year, reflecting a commendable performance by all regions in an extremely competitive trading environment.

This business faced a challenging and competitive market, with pressure on both margins and top-line growth. The residential market remained subdued and development projects focused on low-cost and affordable housing. Despite this difficult trading environment, revenue for the period grew by 7,0% on the prior year.

Operating profits for the Central region (Johannesburg, Pretoria and surrounding areas) improved, partly reflecting the benefits of portfolio rationalisations in 2011. The IT platform conversion was successfully implemented at seven stores in the second half of 2012 with the balance to follow in 2013. The outlying regions again outpaced the Central region, with pleasing performances from operations in Mpumalanga and the Northern Cape. Results from regions more exposed to the North West mining industry reflected the challenges being experienced by mining companies in general. Slowing parastatal expenditure affected results from certain stores in Limpopo.

30

Iliad Africa Limited Integrated Annual Report 2012

This growth was largely due to the continued improvement in the Eastern Cape, off a solid platform established in the economic housing market. Commendable performances from the Uitenhage and East London stores were well supported by other branches in the region, which all posted significant improvements on the prior year. The KwaZulu-Natal operations recorded revenue growth of 8,3% on 2011. The Shelly Beach store was relocated to a new site in Ramsgate and has improved the DIY contribution while maintaining

Rowland Meek MD – Coastal its customer base. While the market remained under pressure, numerous projects were initiated in the latter half of 2012 and will provide opportunities for further growth in 2013. The Western Cape market remained challenging and the slowerthan-expected recovery is reflected in these operations maintaining year-on-year turnover levels. The appropriate management action, including consolidation and realigning structures, contributed to 2012 results. The region is well positioned for growth in 2013. The launch of the BUCO brand started with the Eastern Cape in March, followed by KwaZulu-Natal in April and the Western Cape in November 2012. The launch included significant revamps in most stores, including two relocations, and provided the platform to refresh merchandising and reposition the business to attract more of the growing DIY segment.

Iliad Africa Limited Integrated Annual Report 2012

31

OPERATIONAL REVIEW Specialised Building Materials

SPECIALISED BUILDING MATERIALS 43 Retail 25

Wholesale 18

Ironmongery 14

Plumbing & Hardware 3

Ceramics 2

Timber Wholesale 2

Ceramics Cash & Carry 9

Boards 12

Trading trends continue to improve The SBM division continued the turnaround noted at the half year, recording revenue growth of 3,5% for the year. A return to trading profitability reflected contributions by both its Retail and Wholesale subdivisions.

Equipment Hire 1

The SBM division continued the turnaround noted at the half year, recording revenue growth of 3,5% for the year (2011: -5,6%). A return to trading profitability reflected contributions by both its Retail and Wholesale subdivisions. Despite operating in a tough market during the year, we believe this improved performance is sustainable on the back of management initiatives to strengthen business fundamentals. The period was characterised by fluctuating consumer confidence, a slightly more accommodating approach to mortgage financing by banks and pressure on disposable income despite real wage increases. As a result, affordability remains an issue as both consumers and specifiers trade down in selected finishes and customers continue to review their ordering patterns. Iliad’s specialist ranges remain a reliable resource for architects and commercial specifiers, who benefit from the affordable solutions we offer. Ongoing emphasis on skills development and training across the SBM division is proving its value in terms of empowering team members, and providing an opportunity for staff to network, share knowledge, capitalise on synergies and improve customer service. Managers are being developed through the Iliad Leadership Programme and the new Iliad Management Development Programme.

Divisional outlook By restructuring the SBM division into Retail and Wholesale subdivisions two years ago, we have achieved our goal of improving customer focus and capitalising on intra-group synergies. Results for

32

Iliad Africa Limited Integrated Annual Report 2012

the year prove that strategic portfolio adjustments in the prior year, to drive efficiency and reduce cost, have positioned this division well for future growth. In tandem with the strong focus on strategic planning to support growth and increased returns for our stakeholders, ongoing staff development ensures our people are appropriately equipped to provide superior service levels in a competitive and price-sensitive market.

Wholesale subdivision This subdivision houses Iliad’s Plumbing and Hardware, Timber Wholesale, Boards and Equipment Hire clusters. Revenue grew by 9,5% in 2012 (2011: 1,3%), reflecting good results from Equipment Hire but a disappointing performance from the Timber Wholesale business, despite an improvement in turnover compared to the prior year. Trading trends continued to improve throughout the year, resulting in significant operating profit for the period compared to an operating loss in the prior year. Gross margin pressure in this subdivision reflects the competitive trading environment.

CACHET INTERNATIONAL

CACHE T INTERNATIONAL

In the Plumbing and Hardware clusters, gross margins remained under pressure in a competitive market, negating single-digit revenue growth. Any recovery in the retail sector of the building materials supply industry will impact positively on this business in 2013, supported by the focus on inventory optimisation.

Iliad Africa Limited Integrated Annual Report 2012

33

OPERATIONAL REVIEW Specialised Building Materials (continued)

Kim Davidson MD – Retail The Boards cluster delivered a commendable performance in a subdued industry segment, which faced significant pressure on margins amid continued high levels of competition. The cluster reported revenue growth of 7,9% and the benefits of rationalising and realigning the business were realised in 2012. This business is well positioned for further performance improvements in 2013.

Retail subdivision Following a year of consolidation and strategic portfolio adjustments into two clusters – Ceramics (including Ceramics cash-and-carry) and Ironmongery – the Ironmongery cluster performed well in 2012 while losses in the Ceramics business were reduced, returning this subdivision to profitability

Timber Wholesale operations again recorded a loss for the year despite achieving turnover growth in difficult trading conditions, which placed significant pressure on gross margins. As part of the strategic initiative to improve the balance of the Group portfolio, this business has been earmarked for disposal.

In the Ceramics cluster, the stores in our historical strength base, Gauteng, continued to improve their performance, with a major reduction in losses. Performance in the cash-and-carry business remains disappointing.

The Equipment Hire (B-One) cluster produced excellent results, successfully capitalising on opportunities in the various sales channels. This well-managed business is expected to continue generating a solid contribution to Group results.

The relocated NTT Vereeniging store was opened at the end of November 2012, and the lease of the Strijdom Park branch was not renewed at year-end. Positive results are emerging from the 2011 rationalisation of stores in Durban, Bloemfontein and Cape Town. The Ironmongery cluster delivered a solid result, recording double-digit growth in sales and operating profit for the year. Gross margins remained under pressure due to a competitive marketplace, with expenses well controlled in a cluster that is consistently a strong performer in the Group portfolio.

34

Iliad Africa Limited Integrated Annual Report 2012

CORPORATE RESPONSIBILITY SUSTAINABILITY REPORT Key sustainability indicators 2012

2011

2010

4 229 538

3 928 761

Revenue

R’000

4 493 085

Total comprehensive income/(loss) for the year

R’000

*33 643

*(241 784) *(174,9)

Earnings/(loss) per share

cents

*24,3

Headline earnings for the year

R’000

63 960

Headline EPS

53 669 38,8

13 149

53 995

9,5

39,1

cents

46,3

Return on net assets

%

10,1

(26,5)

Operating cash generated on EBITDA

%

16,3

26,9

208,4

Gearing (definition on page 97)

%

10,4

(5,6)

(11,9)

number

4 686

4 453

4 588

Revenue per average employee

R’000

958,8

949,8

856,3

Total comprehensive income/(loss) per employee

R’000

7,2

(54,3)

11,7

Historically disadvantaged individual (HDI) at Board level

%

50,0

42,8

33,3

HDI – group

%

70,3

71,3

67,0

–  senior management

%

14,3

17,7

8,5

–  middle management

%

27,4

24,3

41,1

–  junior management

%

50,4

52,2

60,3

Black female staff numbers

%

46,9

48,0

6,0

–  senior management

%

13,3

1,8

0,5

–  middle management

%

31,5

5,6

4,4

–  junior management

%

37,3

17,0

6,7

Rm

18,0

4,9

3,9

%

3,5

0,9

0,8

Average number of employees

Training and skills development spend Training and skills development spend (% of payroll) Overall B-BBEE rating

7,6

level

5

5

6

R’000

700

800

800

%

2,1

(0,3)

1,5

Diesel consumption

kilolitres

3 752

6 726

7 148

Petrol consumption

kilolitres

1 021

1 635

1 875

Water consumption

kilolitres

140

316

316

Paper consumption

tonnes

185

260

260

Corporate social investment spend Corporate social investment spend – % of total comprehensive income/(loss) for the year

* Affected by impairment of R30 million (2011: R250 million and restructuring costs of R53 million). Refer to page 73 for more information.

Iliad Africa Limited Integrated Annual Report 2012

37

CORPORATE RESPONSIBILITY SUSTAINABILITY REPORT (continued) Our business strategy is to meet the product needs of the building industry through focused sourcing and redistribution of goods into each identified segment of the market. In addition to the Group’s core business competencies, we must excel in key governance areas that ensure our sustainability: • Being a responsible corporate citizen • Taking care of the environment • Establishing excellent customer relationships • Managing relationships with analysts, institutional shareholders and finance providers • Adding value to the communities in which we operate • Employing best talent and developing people through appropriate programmes and human resources practices

Commitment to sustainability Iliad’s Executive Committee incorporated sustainable development into the Group’s strategic business philosophy in the 2009 reporting period. We recognise that Iliad’s long-term sustainability extends beyond the financial statements, and is affected by a number of interdependent non-financial issues. With this in mind, we continue to entrench the concept of sustainable development into our culture, understanding that our ongoing success will depend on our ability to manage and track sustainability performance, among other aspects. Our performance review is subdivided into economics, people and environment. We continue to integrate relevant sustainability indicators as measurable components in our business processes, and will incorporate these into our various performance assessments to ensure we do not compromise on our ability to generate future returns. An integral part of Iliad’s long-term sustainability is to: • Ensure earnings sustainability and the continued financial prosperity of each operation, cluster and division • Effectively use resources to reduce the impact we have on the environment • Continuously contribute to improving conditions in the communities in which we operate

ECONOMICS Broader economic contribution The Group contributed to the national economy by creating wealth for the benefit of all stakeholders, including shareholders, employees and communities. The statement on page 27 details the economic value Iliad adds to goods and materials purchased. The Group does not benefit directly from government projects, other than by partnering with local customers involved in constructing housing and similar infrastructure investment programmes driven by the state. Participation is open to all.

38

Iliad Africa Limited Integrated Annual Report 2012

Preferential procurement The Group’s procurement expenditure is divided into three categories: imported goods, locally sourced non-differentiated suppliers and discretionary procurement. All divisions are committed to increasing their procurement from empowered companies. At Group level, we are actively managing and improving our procurement spend to meet legislated targets.

PEOPLE Human capital strategies Understanding our dependency on human capital, we have adopted a comprehensive set of related strategies that are integral to the Iliad Group strategy. Key points of these strategies include: • Talent management • Leadership development • Skills training as a differentiator • Cultural transformation • Succession planning

Human rights Iliad applies the fundamental rights contained in the International Labour Organisation’s charter, namely: • Freedom of association • Abolition of forced labour • Equality • Elimination of child labour

Fair and equitable employment practices The Group complies with the Bill of Rights on labour relations as outlined in the Constitution of South Africa (clause 23 (1) to (6)) and all relevant legislation on employment practices. Iliad embraces the right to freedom of association. Around 36% of the Group’s employees are represented by labour unions, primarily CEPPWAWU and SACCAWU (respectively the Chemical Energy Paper Printing Wood and Allied Workers Union and South African Commercial, Catering and Allied Workers Union). Because we deal with reputable companies, Iliad does not currently consider human rights performance when making procurement or supplier selection decisions. Most of our suppliers are either publicly listed or large companies. The Group would not knowingly contract with any entity involved in human rights abuses.

Customer health and safety As a responsible corporate citizen, the health and safety of customers remains a priority at Iliad, with appropriate policies in place. Customers are advised of statutory health and safety requirements in line with legislation. Each operation is responsible for implementing these policies in its own environment. Occupational health and safety training and audits are performed by qualified in-house personnel in conjunction with our insurance broker’s risk management services.

Customer satisfaction

BUCO Building Blocks

Independent customer satisfaction surveys are regularly conducted, in conjunction with suppliers. Feedback has highlighted both areas of competence and the need to evolve service capabilities in line with changes in the market.

The launch of our new national brand required a national programme engagement, and Adopt-a-School was selected as the preferred partner.

Advertising and sponsorship Advertising is placed in a variety of media by operations in the Group, targeting markets and customers appropriate to each operation. No charges were laid by the public or competitors on misleading or unfair advertisements.

Supply chain Under a Group strategy aimed at building enduring partnerships, preferred partners are determined and reviewed periodically to accommodate both market conditions and performance. Iliad benefits from a stable panel of reputable suppliers and enhanced buying power, while encouraging suppliers to supply environmentfriendly products.

The Adopt-a-School Foundation was established in 2002. Over the last ten years, it has inspired both businesses and individuals to invest in holistic school development, endorsing the more efficient transformation of education in South Africa. This partnership with the private sector is vital for Adopt-a-School to achieve its aim of redressing physical, social and skills shortages in disadvantaged public schools in South Africa and creating an environment conducive to learning for all.

Ethics and transparency Iliad maintains a Group-wide, secure and independent channel to facilitate whistle-blowing. Iliad does not tolerate bribery or corruption and does not pay or receive bribes; it has adopted a zero-tolerance approach to criminal activity and will prosecute offenders. Comprehensive training on the relevant legislation, such as competition, consumer protection and general corporate governance principles continued during the year.

Corporate social investment We are aligning Iliad’s corporate social investment (CSI) strategy with its core business, understanding that to provide real business benefit, and thus advantages for stakeholders, there needs to be a strategic link to the Company overall. The CSI strategy seeks to enhance business culture and increase employee satisfaction, deepen relationships with partners, increase visibility in the community, and enable the Company to enter new markets. Iliad works primarily with Africa Ablaze and recently partnered with Adopt-a-School for the BUCO brand. In 2012, Iliad contributed R317 000 to Africa Ablaze for career camps and Sunrise camps, and sponsored R350 000 worth of building materials in various regions.

Africa Ablaze

Working from a list of schools throughout South Africa that need assistance, BUCO intends working with high schools close to its stores across the country. The programme also facilitates various businesses working together on regional or national initiatives. This gives BUCO a good opportunity to work with its suppliers that also sponsor this programme. Some learnerships will be sourced through these schools for 2014. In addition, selected bursaries will be offered to students who meet the necessary criteria, and will have the opportunity to join BUCO as employees on completing their studies. BUCO also intends offering students part-time vacation work during busy periods at some stores. This will give students the opportunity to learn about the business and build relationships with BUCO staff as well as possible full-time employment. BUCO staff will have the opportunity to become involved with projects as volunteers, for example, teams working together to paint a classroom.

For over three decades, Africa Ablaze has worked towards relieving the plight of poverty-stricken rural communities. Providing a few slices of bread for people on the brink of survival was just the beginning. Today, Africa Ablaze is a caring, organised team, focused on the specific needs of individuals – helping them, through job creation and upliftment, to become significant players in society. The Africa Ablaze Campus is on an eight-acre property near Lanseria Airport, Gauteng.

Iliad Africa Limited Integrated Annual Report 2012

39

CORPORATE RESPONSIBILITY SUSTAINABILITY REPORT (continued) ENVIRONMENT

Recycling

The key indicators on page 37 highlight the impact the Group had on the environment in the past year.

Iliad does not own any significant manufacturing plants and does not consume significant amounts of raw materials. We are assessing the availability and, where practical, installation of recycling bins at our stores.

Environmental laws The Group does not transport hazardous material and is not aware of any environmental incidents in the past year. We continue to monitor compliance as required by environmental laws relating to emissions, effluents and waste as well as occupational health and safety. Employees are informed and educated on environmental legislation.

Climate and energy Iliad’s operations contribute directly to the Group’s carbon footprint by consuming fossil fuel in Company-operated fleets and the products we distribute and sell, and indirectly through buying electricity, which is the largest indirect source of carbon dioxide (CO2) emissions by the Group. During the year, the cost of energy consumed increased in line with higher power costs. Nitrogen oxides (NOx) from our transport fleets have not yet been accurately quantified. The Group uses modern fuel-efficient equipment and recognises the effect CO2 emissions have on the environment. We remain committed to modifying our behaviour to minimise risks associated with polluting the environment. Through our various outlets, we also sell the latest technology in solar heating and other energy-efficient technologies and comply fully with all related regulatory requirements.

Diesel and petrol emissions All route plans are assessed to reduce travel distances and minimise diesel and petrol emissions from vehicles. Regular service schedules are maintained to ensure optimum fuel efficiency and only reputable service providers are used where this service is outsourced.

Water No fines were imposed for water usage, pollution or other waterrelated issues.

Waste management All waste generated by the Group is disposed of through specialised companies that either incinerate waste or transport it to recognised landfill sites. The waste generated by Iliad is not toxic.

Suppliers Environmental management requirements are addressed with suppliers whose products and manufacturing processes may fall into high environmental risk categories.

Biodiversity Iliad does not own any land in or adjacent to biodiversity-rich habitats or protected areas.

Stakeholder engagement We recognise that the continued success of our Group depends on sound relationships with our stakeholders, including:

• Employees – Iliad is built on the services of loyal, dedicated and experienced staff. We continue to nurture the entrepreneurial spirit of our divisions within a defined governance structure. Our people are encouraged to raise issues of concern and interest via formal and informal structures, including through the human resources discipline, line management, equity forums or union structures. • Investors – Iliad’s executive team believes in the value of proactive, honest and open shareholder communication. Executive Directors interact at least twice annually with a significant component of our shareholders. Shareholders are encouraged to participate in Iliad’s Annual General Meeting and raise issues of concern or interest. Financial results are published in the press and shareholders receive a copy of these results timeously. A website is maintained

40

Iliad Africa Limited Integrated Annual Report 2012

(www.iliadafrica.co.za), containing extensive information on the Group, an archive of annual and interim results, and an announcement section. • Financial institutions – as a geared Group, Iliad depends on the support of financial institutions. The Group has consistently remained within its self-imposed gearing ratio. The management team prides itself on maintaining good relations with all financial providers.

• Trade unions, customers, contractors, service providers and suppliers are considered equally important to a sustainable business. Frequent engagement with these stakeholders ensures all parties understand their interdependency. Iliad has a personal approach to all stakeholder engagements. Regular meetings ensure all parties have the opportunity to engage individually with senior management.

CORPORATE GOVERNANCE GOVERNANCE REPORT

“Iliad’s systems of sound corporate governance principles, which complements its entrepreneurial flair, are continually evolving as it strives for best practice and as the needs and expectations of stakeholders develop.”

Iliad maintains a strong culture of corporate governance, which is an important consideration in its day-to-day operations, and its Directors and Executive Management are fully committed to the highest standards of corporate governance in the conduct of the business.

detail the Group’s performance and divisional reviews. The Board believes these reports, along with the Chairman’s report and financial statements, reasonably reflect the Group’s position and prospects. The Directors’ responsibility for the financial statements is described on page 55.

Equally, Iliad and its subsidiaries are fully committed to the ethical principles of fairness, accountability, transparency and social responsibility underpinning good corporate governance.

Board of Directors

Iliad believes it has complied with King III in all material respects and also complies with the additional governance requirements of the JSE Limited, and all relevant aspects of the Companies Act (Act 71 of 2008). Iliad is committed, as recommended by King III and communicated previously, to continue the process of integrating our reporting to stakeholders in a more meaningful and transparent manner. In terms of non-financial aspects, Iliad continues to be guided by the Global Reporting Initiative’s (GRI) sustainability reporting guidelines on economic, environmental and social responsibility aspects. Iliad’s systems of sound corporate governance principles, which complements its entrepreneurial flair, are continually evolving as it strives for best practice and as the needs and expectations of stakeholders develop. The financial highlights, Chief Executive Officer’s (CEO) report, Chief Financial Officer’s (CFO) report and the Directors’ report

42

Iliad Africa Limited Integrated Annual Report 2012

Shareholders, in meeting, elect members of the Board of Directors. Iliad maintains a unitary Board structure, with the roles of Chairman and CEO being separate, each with clearly defined responsibilities. The Board is responsible for governance and its duties include the appointment and dismissal of the CEO. The Board’s primary responsibility is to provide effective strategic leadership and direction over the Group’s affairs for the benefit of its shareholders, creating sustainable stakeholder value by balancing the interests of all constituencies, including customers, employees, suppliers and local communities. The Board is guided by a formal charter setting out its duties and responsibilities. The Board has formally reserved the following functions for itself: • Approving and monitoring implementation of the strategic plan, setting objectives and reviewing key implementation risks and performance areas • Appointing the CEO and maintaining a succession plan • Quarterly review of the Group’s management of risks and risk policy • Approving annual financial statements, interim reports and related financial matters • Appointments to and removals from the Board

• Delegation of authority to the CEO • Board Committee mandates, authorities and terms of membership • Significant Group policies • Shareholder meeting notices, circulars to shareholders and dissemination of Group announcements through the Issuer Services division of the JSE Limited The Board comprised seven Directors during the review period, five of whom are Non-executive Directors – Howard Turner (Chairman), Ralph Ririe, Tapiwa Njikizana, Prof Fatima Abrahams and Ashika Kalyan – and two Executive Directors – Eugene Beneke (CEO) and Chris Booyens (CFO). Mr A Sangqu was appointed as Non-executive Director effective 1 March 2013. The Non-executive Directors have the necessary skills and varied experience to bring independent and balanced judgement to Group business. All new Directors receive appropriate orientation and induction training, focusing on Iliad’s business, its environment, key risks, fiduciary duties and sustainability issues. An information file containing all key Group documents and policies is also provided, and is updated from time to time. While the Board retains overall accountability and full and effective control of the Group, it has delegated the day-to-day affairs of the Group to the CEO. Non-executive Directors meet and communicate independently without Executive Directors present throughout the year. Additional meetings are convened should any matter arise that requires consideration by the Board outside scheduled quarterly meetings. The Chairman and CEO meet monthly or more often if and when required. One-third of Board members retire by rotation each year. If requested by the Board to serve a further term, retiring directors may offer themselves for re-election by shareholders at the Annual

General Meeting. Newly appointed Directors cease to hold office at the conclusion of the Annual General Meeting following their initial appointment. All Directors have access to the advice and services of the Chairman, CEO, CFO and Group Company Secretary. The Group Company Secretary is responsible to the Board for ensuring Board procedures are followed and applicable regulations are adhered to.

Number of Board members At the date of this report, the Board comprises two Executive Directors and six Non-executive Directors. The aim is to have a Board with an appropriate balance of skills and experience to support Iliad’s strategy and meet the requirements to lead the Company effectively.

Board operation The Board is responsible to shareholders for conducting the business of the Group. It provides leadership and vision to the Group so that shareholder value is enhanced and the Group’s long-term sustainable development and growth is achieved. The Board approves Group strategy, reviews Group performance, approves interim and annual financial statements, determines the Group’s authority levels, treasury policies and risk management policies, approves major investments or disinvestments and the remuneration of Non-executive Directors. Non-executive Directors are timeously provided with sufficient information to enable them to formulate independent conclusions on all matters brought to their attention at Board meetings. The Board is ultimately accountable for Iliad’s performance and affairs.

Board meetings Board meetings are held at least quarterly or as required. All Directors are invited to add items to agendas for Board meetings. Dates for Board meetings in the following year are set in November each year. During the review period, the Board met for five scheduled meetings:

22 March

31 May

27 July

23 August

22 November

HC Turner (Chairman)











RT Ririe











T Njikizana











F Abrahams











A Kalyan











E Beneke











CP Booyens











✓ – Attended Iliad Africa Limited Integrated Annual Report 2012

43

CORPORATE GOVERNANCE GOVERNANCE REPORT (continued) are delegated for clearly defined purposes. The Board, however, recognises that delegating various functions and authorities to committees does not absolve the Board of its duties and responsibilities. The chairs of the various committees are required to attend the Annual General Meeting to answer questions raised by shareholders. The Board is empowered to form or disband committees, as it may deem appropriate. The Board evaluates the performance and effectiveness of each of the committees every year. Details of the committees are presented in this report.

Annual strategic review At the meeting in July 2012, and in accordance with Iliad’s annual meeting plan, the Board reviewed the Group’s long-term strategic plan and principal issues it expects the Group may face in future.

Conflicts of interest Directors are required to inform the Board timeously of conflicts or potential conflicts of interest. Directors are obliged to recuse themselves from discussions or decisions on matters in which they have a conflict. Directors are required to disclose their shareholding in the Company and all other directorships at the beginning of the year by way of a declaration of interest, and changes are tabled when they occur.

AUDIT AND RISK COMMITTEE REPORT Report of the Audit and Risk Committee (Audit Committee) in terms of section 94(7)(f) of the Companies Act. The Audit Committee is an independent statutory committee appointed by the Board. Further duties are delegated to the committee by the Board of Directors of the Group. This report includes both sets of duties and responsibilities.

Evaluating the Board’s performance A formal self-assessment of the Board was carried out during the review period. This was conducted by individual questionnaires completed by each Board member. The Group Company Secretary collated the results of these questionnaires and reported to the Board in November 2012. The Board concluded that it continues to operate effectively. This annual assessment ensures the Board remains effective and relevant to the business objectives of the Group.

We are pleased to present our report for the financial year ended 31 December 2012.

Audit Committee Terms of Reference The Audit Committee has adopted formal Terms of Reference approved by the Board of Directors. The committee has conducted its affairs in compliance with its Terms of Reference and has discharged its associated responsibilities.

Independence of long-serving Non-executive Directors In line with the requirements of King III, the Board examined the independence of its long-serving Non-executive Directors, and the inquiry confirmed their independence for 2013. This inquiry will be conducted annually for long-serving (nine years or longer) Nonexecutive Directors.

Audit Committee members, meeting attendance and assessment The committee remains independent and for 2012 comprised of Ralph Ririe (Chairman and Independent Non-executive Director), Ashika Kalyan (Independent Non-executive Director) and Tapiwa Njikizana (Independent Non-executive Director). It meets at least three times per year as per the approved Terms of Reference.

Board Committees Specific responsibilities have been delegated to various Committees of the Board. The Audit and Risk, Transformation, Social and Ethics, Nomination, Remuneration and IT Governance Committees assist the Board in discharging its duties and report to the Board regularly on their activities.

The committee has complied with the requirements of King III with regard to Audit Committees. The CEO, CFO, Chief Audit Executive, External Auditor and other assurance providers attend meetings by invitation only. All invitees have unlimited access to the Audit Committee Chairman.

Each committee acts in accordance with its own written charter and terms of reference, under which certain functions of the Board

During the year, four Audit and Risk Committee meetings were held: 19 March

28 May

20 August

19 November

R Ririe (Chairman)









T Njikizana









A Kalyan









✓ – Attended

44

Iliad Africa Limited Integrated Annual Report 2012

The effectiveness of the Audit Committee and its individual members is assessed annually and were found to be operating effectively.

Role and responsibilities Statutory duties The committee’s role and responsibilities include statutory duties per the Companies Act, 2008, and further responsibilities as assigned by the Board.

External Auditor appointment and independence The committee has satisfied itself that the External Auditor was independent of the Group as envisaged in the Companies Act, which includes consideration of previous appointments of the Auditor, the extent of other work undertaken by the Auditor for the Group, and compliance with criteria relating to independence or conflicts of interest as prescribed by the Independent Regulatory Board for Auditors. Requisite assurance was sought and provided by the Auditor that internal governance processes within the Audit firm support and demonstrate its claim to independence. The committee ensured that the appointment of the Auditor complied with the Companies Act, 2008, and other applicable legislation. The committee, in consultation with Executive Management, agreed to the engagement letter, terms, audit plan and budgeted audit fees for the 2012 year. A formal procedure governs the process whereby the External Auditor is considered for non-audit services. The committee approved the terms of a Master Service Agreement for the External Auditor to provide non-audit services, and approved the nature and extent of non-audit services the External Auditor may provide in terms of the agreed pre-approval policy. The committee has nominated, for re-appointment at the Annual General Meeting, Deloitte & Touche as the External Audit firm and Martin Bierman as the designated Auditor responsible for performing the functions of the Auditor, for the 2013 year. The Audit Committee has satisfied itself that the Audit firm and designated Auditor are accredited as such on the JSE Limited list of Auditors and their advisors.

Financial statements and accounting practices The committee has reviewed the accounting policies and financial statements of the Group and is satisfied they are appropriate and comply with International Financial Reporting Standards.

A process has been established to receive and deal appropriately with any concerns and complaints on the reporting practices of the Group. No matters of significance have been raised in the current financial year.

Internal financial controls The committee has overseen a process by which Internal Audit performed a written assessment of the effectiveness of the Group’s system of internal control and risk management, including internal financial controls. This assessment formed the basis for the Audit Committee’s recommendation to the Board, in order for the Board to report on this matter. The Board report on the effectiveness of the system of internal controls is included in the Directors’ responsibility report. The Audit Committee supports the opinion of the Board in this regard.

Tip-off anonymous The committee receives and deals with any major concerns or complaints, from within or outside the Group, relating to its accounting practices and Internal Audit, the content or auditing of the Group’s financial statements, internal financial controls and related matters.

Duties assigned by the Board In addition to the statutory duties of the Audit Committee, as reported above, and in accordance with the provisions of the Companies Act, 2008, the Board has determined further functions for the Audit Committee to perform, as set out in the committee’s Terms of Reference. These functions include:

Integrated reporting and combined assurance The committee fulfils an oversight role on the Group’s integrated report and the reporting process. The committee has considered the Group’s sustainability information as disclosed in the integrated report and assessed its consistency with operational and other information known to Audit Committee members, and for consistency with the annual financial statements. The committee is satisfied that the sustainability information is reliable and consistent with the financial results. The Audit Committee is satisfied that the Group has optimised the assurance coverage obtained from management, as well as internal and external assurance providers in accordance with an appropriate combined assurance model.

Iliad Africa Limited Integrated Annual Report 2012

45

CORPORATE GOVERNANCE GOVERNANCE REPORT (continued) Going concern The Audit Committee has reviewed a documented assessment, including key assumptions, prepared by management in respect of the going-concern status of the Group and has, accordingly, made recommendations to the Board in this regard.

Risk The Board has assigned oversight of the Group’s risk management function to the Audit Committee. The Chairman of the Audit Committee periodically attends the Operational Risk Committee meetings by standing invitation to ensure that information relevant to the committee is transferred regularly. The Audit Committee fulfils an oversight role on financial reporting risks, internal financial controls, fraud risk as it relates to financial reporting risks and information technology risks as it relates to financial reporting.

Internal Audit The Audit Committee is responsible for ensuring the Group’s Internal Audit function is independent and has the necessary resources, standing and authority in the Group to discharge its duties. The committee oversees cooperation between the Internal and External Auditors, and serves as a link between the Board of Directors and these functions. The Audit Committee considered and recommended the Internal Audit Charter for approval by the Board. Internal Audit function’s annual audit plan was approved by the Audit Committee. The Internal Audit function reported centrally with responsibility for reviewing and providing assurance on the adequacy of the internal and financial control environment across all the Group’s operations. The Chief Audit Executive is responsible for regularly reporting the findings of Internal Audit work against the agreed plan to the Audit Committee. The Chief Audit Executive has direct access to the Audit Committee, primarily through its Chairman. The Internal Audit function is regularly assessed by a firm of External Auditors who are not the Company’s Auditors. During the year, the committee met with the External Auditors and with the Chief Audit Executive without management being present. During the year under review a decision was taken by management, in conjunction with the Audit Committee, to assess whether the existing Internal Audit structure was appropriate going forward or whether the function should be outsourced. A stringent evaluation was performed and, in November 2012,

46

Iliad Africa Limited Integrated Annual Report 2012

the Audit Committee recommended to the Board, which in turn appointed PwC to provide Internal Audit services to the Group from 1 January 2013. The Audit Committee is satisfied that it complied with its legal, regulatory or other responsibilities.

Evaluation of the expertise and experience of the Chief Financial Officer The Audit Committee has satisfied itself that the Chief Financial Officer has the appropriate expertise and experience.

RT Ririe Chairman

14 March 2013

REMUNERATION COMMITTEE The committee comprises Prof Fatima Abrahams (Chairman and Independent Non-executive Director) and Ralph Ririe (Independent Non-executive Director). The CEO, Eugene Beneke, attends these committee meetings ex officio, and does not participate in discussions on his own remuneration, which is set by the committee. This committee operates in terms of a written charter approved by the Board. The committee meets at least twice a year.

Remuneration philosophy Our employees are recognised by the Board as stakeholders and are key to achieving our objectives. Our remuneration policy is accordingly overseen by the Board in conjunction with the Remuneration Committee. The policy is implemented and administered by Executive Management. In terms of this policy, remuneration must be equitable between all employees, and the overall quantum of remuneration directly related to the value added to our products and services by our employees. As a general principle, above-average rewards will only accrue to those employees who accept the challenge of achieving our strategic objectives and who excel in achieving these.

Remuneration policy and governance The Remuneration Committee assists the Board in discharging its responsibilities in relation to the remuneration policy, and in determining the remuneration of Executive Directors and senior executives.

The components of remuneration

Long-term performance incentive scheme

Remunerating employees comprises a basic salary, employment benefits and performance-based incentives. These are regulated as follows: • The guaranteed package consists of a basic salary plus a number of employment benefits and allowances within a total cost-to-company amount, using the 50th and 75th market percentiles as reference points. • Variations between employees in different roles in the organisation are based on the principle that higher levels of variable pay will be awarded to employees required to put a greater proportion of total pay at risk, and to assume greater levels of responsibility in achieving organisational/strategic goals. • A range of performance-based incentive schemes, including sales bonuses, commissions and performance bonuses, support and drive the performance management system and give line managers a tool to influence behaviours.

In line with the practices of other listed companies and in compliance with the requirements of King III, which calls for annual grants and other charges, a share appreciation rights incentive scheme was introduced for senior executives from 1 January 2011.

Senior management motivation and retention strategy The following arrangements apply to all senior managers and senior professional staff, including Executive Directors: • Guaranteed package A guaranteed package (comprising basic salary and employment benefits) is awarded to each senior manager and reviewed annually from 1 January. Iliad’s policy is to position the guaranteed package of each manager at market-related levels that reflect individual competency. • Performance incentives Annual incentives based on the targeted return on capital employed have been awarded to nominated senior executives and senior line managers in the past, and this arrangement will extend into the future. • Share appreciation rights scheme The Iliad share option scheme (2008) was replaced by a share appreciation rights scheme in January 2011. Holders of phantom shares were offered the opportunity to exchange their rights under the old scheme to rights under the new scheme, and all chose to accept.

Variable incentive schemes In terms of the performance incentive scheme and as part of the overall remuneration package, an on-target incentive is provided for each senior manager, bringing the total cost of employment, including variable pay, to the assessed market worth of the individual at the level where targets have been achieved. The package structure on this basis differs at different organisational levels: 80% of the incentive (for line executives) is based on business unit performance and 20% on individual job-related strategic objectives and key performance areas.

The main features of the scheme include: • Options are granted annually up to nominated multiples of the guaranteed package. • Options vest during a five-year cycle (i.e. one-third each in years three, four and five) and a benefit is awarded to the accumulated value of the options. • Each vesting date may be extended by a maximum of one year at the discretion of the participant and subject to Remuneration Committee approval. • At no stage do the actual shares vest, and a cash bonus based on the value of the appreciation rights is paid in September each year after being exercised.

Periods of notice Standard periods of notice to terminate the contractual employment of Group Executive Management are at least three months. For individuals with critical skills and knowledge, risk has been mitigated by longer-term retention mechanisms.

Board fees Non-executive Directors are remunerated for their membership of the Board and its committees. These fees are benchmarked annually against companies of similar size and complexity and take into account the increasing level of responsibilities and risks associated with directorships. The Executive Directors of Iliad are not entitled to fees. In terms of Iliad’s Memorandum of Incorporation, fees payable to Non-executive Directors for their services as Directors are to be ratified and approved by shareholders at the Annual General Meeting. For each Director, details are given in note 23 to the Group annual financial statements on fixed remuneration, bonus and other benefits. Details of Directors’ shareholdings are disclosed on page 57 in the Directors’ report. 75% of the Non-executive Director’s fee is earned as a retainer, and 25% for attending meetings.

Iliad Africa Limited Integrated Annual Report 2012

47

CORPORATE GOVERNANCE GOVERNANCE REPORT (continued) Remuneration Committee meetings The activities of the Remuneration Committee are reported to the Board. During the period the committee met for three scheduled meetings: 19 March

23 August

22 November

F Abrahams (Chair)







R Ririe







E Beneke (ex officio)







✓ – Attended

The Board has determined that the Remuneration Committee has satisfied its responsibilities for the year under review in compliance with its Terms of Reference.

TRANSFORMATION, SOCIAL AND ETHICS COMMITTEE Ashika Kalyan (Non-executive Director) was mandated to address all transformation, social and ethics issues and chairs this committee. In keeping with the requirement of the Companies Act, 2008, this committee’s mandate was broadened to include social and ethics considerations in 2011 and this was refined during the year under review. Other members include Tapiwa Njikizana, Prof Fatima Abrahams, Eugene Beneke (CEO) and, by invitation, the Group Human Resources Executive. In line with accepted practice, this committee also operates in terms of a written Terms of Reference approved by the Board. During the period under review, the full committee met for the following meetings: 19 March

31 May

23 August

22 November

A Kalyan (Chair)









T Njikizana









F Abrahams









E Beneke









✓ – Attended

The objectives of the committee are, inter alia, to ensure smooth, systematic and meaningful transformation of employment, acceptable ethical conduct standards and social responsibility practices in the Group that are aligned with industry charters, legislation, business profitability and growth objectives. In line with the Codes of Good Practice on Black Economic Empowerment (the Codes), the Group has its Broad-Based BEE status independently verified annually. The Group is currently at a level 5 but is striving to improve to a level 4 over time. While we consider all pillars of the scorecard, focus in the short- and medium-term will be on employee equity, skills development, procurement and enterprise development.

NOMINATION COMMITTEE This committee is chaired by Prof Fatima Abrahams with other members being Howard Turner, Ralph Ririe and Eugene Beneke (ex officio). Acting under a separate written Charter approved by

48

Iliad Africa Limited Integrated Annual Report 2012

the Board, the committee meets as and when required. Factors that are required to be taken into account when considering a prospective Board candidate include: • Leadership and ability to act as a role model • Transformational requirements • Wisdom and experience in Iliad’s field • Good governance • Personality fit and complementary skills to existing Board members • Energy and commitment • Availability • For Executive Directors, proven ability to manage and lead in the designated portfolio as a member of Exco The committee is responsible for overseeing the process of appointing new Directors to the Board. Any proposed appointment is considered and approved by the Board as a whole, on the recommendation of the Nomination Committee.

INFORMATION TECHNOLOGY GOVERNANCE COMMITTEE This committee, appointed by the Board in 2011, oversees governance and the management of risk of all information technology (IT) in the Group. The committee comprises Tapiwa Njikizana (Non-executive Director), as Chairman, the CEO and CFO as executive members and the CIO as a permanent invitee. The committee meets at least twice a year, or more frequently should the committee Chairman deem it appropriate. During the year the committee met for the following meetings: 28 May

20 August

19 November

T Njikizana (Chair)







E Beneke







CP Booyens







✓ – Attended

A formal Charter has been finalised, and approved by the Board. The Iliad Board is ultimately responsible for the governance of information technology. These responsibilities are delegated to the Group Chief Information Officer for the implementation of the strategy approved by the Board. Ultimately, the objective of this information technology strategy is to enable the Iliad business strategy by implementing and addressing the priorities raised in the business strategy document. These priorities have been identified to ensure compliance and alignment to the strategy and will be examined within the existing Information Technology framework.

projects. The team is rotated with each implementation to ensure the appropriate amount of skill is available for support functions, and the skill level is enhanced by practical experience during roll out.

Information services report Information technology governance

Executive Management structures

The mission of the IT team is to provide integrated, accurate and stable solutions to facilitate strategic business opportunities that drive efficiency and effectiveness. In 2012, the IT Governance Committee, a subcommittee of the Board and chaired by Tapiwa Njikizana, met three times. It is scheduled to meet quarterly during 2013. Prioritisation of governance projects, as outputs from the IT forum, are focused on strategic business requirements and improving transparency and service levels to the business. In addition, a benchmark against COBIT was undertaken to prioritise governance activities. The Enterprise Architecture team is responsible for aligning the IT strategy with the business strategy and is accountable for the successful and accurate roll out of the ERP initiative. In addition, they are currently leading a Lean/Six Sigma proof of concept that has demonstrated direct saving to the business units involved.

With the ERP rollout project, a business intelligence and reporting team has been established. This team is responsible for accurate and consistent reporting activities across the Group, and reflects heightened demand for improved reporting across Iliad.

The Board has delegated specific authorities to the CEO to ensure the effective day-to-day management of the Group. The CEO has established an Executive Committee to assist in this task. He is accountable to the Board for managing the Group and reports to the Board of Directors.

Executive Committee The Executive Committee comprises the following members (an asterisk denotes those who are Directors of the main trading subsidiary of the Company): Eugene Beneke* – Chief Executive Officer, Committee Chairman Chris Booyens* – Chief Financial Officer Stephen O’Connor – Group Legal Advisor and Company Secretary Gerrit du Preez* – MD General Building Materials Inland Rowland Meek* – MD General Building Materials Coastal Kim Davidson* – MD Specialised Building Materials Retail Daan Esterhuyse – Group Human Resources Executive Judy Ragbar – Group Marketing Executive

The IT Operations team currently serves a dual purpose: supporting the business and being involved in all ERP rollout

Iliad Africa Limited Integrated Annual Report 2012

49

CORPORATE GOVERNANCE GOVERNANCE REPORT (continued) The main purpose of the committee is to assist the CEO with: • Responsibility for day-to-day management of the Group and its divisions, which report directly to the CEO • Reviewing Group risks and providing assurance to the CEO that risk management policies are operating effectively • Reviewing Group performance as well as commercial and strategic issues affecting the Group • Providing assurance to the CEO that business strategy set by the Board is operating effectively The Executive Committee meets monthly. Additional ad hoc meetings are convened when necessary.

Other governance elements Reporting controls The Group has comprehensive monthly financial accounting and reporting routines for its operating divisions. Management of cash, banking relationships, human capital and property-related matters are centralised. Formal quarterly meetings are attended by the CEO and CFO with each of the operating executives to review performance, commercial and strategic issues. These are in addition to monthly or shorter-term review meetings between divisional Managing Directors and business management teams. An Operational Audit Committee was established to closely manage and monitor Internal Audit reports including those business units where the relevant financial controls are not being consistently adhered to. Chris Booyens, the CFO, chairs this committee which met three times in 2012. The minutes of these meetings are distributed to the Chairman of the Audit Committee.

Internal Audit The systems of internal control require Directors and employees to maintain the highest ethical standards, ensuring business practices are conducted in a manner that, in all reasonable circumstances, is beyond reproach. Iliad’s formal organisational structure incorporates suitable segregation of authority, duties and reporting lines, and promotes effective communication of information. The Internal Audit function reports directly to the CEO on day-today matters and undertakes the function of Internal Audit of the operating divisions. The Internal Audit function reports to the Audit Committee on its findings and has unrestricted access to this committee and its Chairman.

50

Iliad Africa Limited Integrated Annual Report 2012

Internal Audit activities principally address the following key issues at each of the business units of the Group: • Appraising systems, procedures and management controls • Assessing the effectiveness of risk management processes • Assessing the control over assets • Reviewing compliance with policies and procedures, and evaluating the integrity of management and financial information • Recommending improvements in procedures and systems to enhance efficiencies and prevent fraud • Alignment of the IT strategy and the implementation of the single ERP platform Members of the Audit Committee met informally throughout the year with the chief Internal Audit Executive service provider. Audit plans are drawn up annually and take account of changing business needs and risk assessment. Cognisance is taken of issues highlighted by the Audit Committee, External Auditors and management. Follow-up audits are performed in areas where weaknesses or concerns are identified. The Audit Committee approves the annual Internal Audit plan. Internal Audit responsibilities are clearly defined and approved by the Audit Committee. Internal Audit continued to function throughout the Group during the year, but is being replaced with effect 1 January 2013 by an outsourced service (PwC) (refer to page 46). Internal Audit provides management with an independent, objective assurance service that reviews matters relating to control, risk management, corporate governance and operational efficiencies. The Group’s External Auditors are involved in this process if required. During the year, no major breakdowns in internal controls were identified.

Risk management Group risk management is achieved by identifying the main business and operational risks and ensuring effective risk management procedures and controls are in place to minimise or eliminate risks that could affect the accomplishment of the Group’s business objectives. The Group is committed to managing its risks in the interests of all stakeholders. Every business unit and each employee has a responsibility to act proactively to achieve this objective.

The management of Group risks and ensuring that policies and strategies set by the Board are operating effectively is the responsibility of the Group’s Executive Committee in conjunction with a broader Operational Risk Committee under the chairmanship of the CEO. The Group Company Secretary and Compliance Officer was appointed Chairman of the committee in November 2012. The Group consists of 92 stores and managing risks in these units takes place in the operating clusters to which these business units report. As part of the process of managing risk, certain categories of risk have been identified to be suitably mitigated by taking out adequate insurance cover, these include: • Director and officers’ liability • Product liability • Asset all risks (including business interruption) • Fidelity guarantee • Group personal accident • Contractors all risks • Marine (imports) • SASRIA • Professional indemnity Marsh Africa Risk Advisory Services was appointed as the Group’s insurance broker for 2012. The Internal Audit function is responsible for assessing the effectiveness of the Group’s risk management processes and reports its findings to the Audit Committee. Every Audit Committee and Board meeting has a standard agenda item dealing with risk management.

Litigation and legal In the normal course of business, Iliad is subject to various proceedings, actions and claims. Legal matters are subject to risk and uncertainties that cannot be reliably predicted. A litigation report is tabled at each Board meeting for ongoing assessment. The Board does not believe there is any pending legal action that may have a material effect on the Group’s financial position.

External Audit The External Auditors provide an independent assessment of internal and financial controls and express an independent opinion on the conformity of the audited financial statements and related schedules with IFRS and its judgements and the acceptability of the Group’s accounting principles. The External Audit function offers reasonable, but not absolute, assurance that the annual financial statements are fairly presented inclusive of financial

disclosures. The External Auditors’ plan is reviewed by the Audit Committee to ensure significant areas of concern are addressed, without infringing on the External Auditors’ independence and right to audit. The Audit Committee monitors fees paid to the External Auditors, which again remained within acceptable levels for the year under review. There is cooperation between Internal and External Auditors, to ensure appropriate combined audit coverage and minimisation of duplicated effort.

Going concern The annual financial statements set out on pages 54 to 97 have been prepared on the going-concern basis. The Directors, after due deliberation at the most recent meeting of the Board, have every reason to believe the Company and the Group have adequate resources to continue operating for the foreseeable future.

Compliance with laws, codes and standards Our codes of conduct, ethics and corporate values are emphasised in every operation of the Group and assist to create a culture of compliance. We recognise that the greatest risk of non-compliance stems from ignorance of the law. In our continued efforts to escalate awareness on legislative changes and how these affect our business units, the Group Company Secretary presented training on the Consumer Protection Act, Competition Act, Companies Act and other relevant legal aspects. The services of Deloitte will be retained to ensure tax compliance. Each division in the Group is encouraged to identify legislation applicable to the environment in which it operates.

Fraud and theft Non-material frauds are dealt with at divisional level. These are recorded and either reported immediately or at the following quarterly review meeting. Frauds above this limit are reported to the Audit Committee and, if necessary, dealt with at Board level. All instances of fraud and theft are reported to the SAPS for investigation. No material issues were raised to Group level or remained unresolved at year-end.

Whistle-blowing In addition to other enforcement and compliance activities, the Board recognises the need for confidential reporting (whistleblowing) of theft, fraud and other risks. Employees are encouraged to report any activity they believe to be illegal or in breach of the code of ethics and there is unrestricted access to a toll-free phone number. All calls are investigated.

Iliad Africa Limited Integrated Annual Report 2012

51

CORPORATE GOVERNANCE GOVERNANCE REPORT (continued) Customer satisfaction Customer relationship management is driven at business unit and divisional level. The National Credit Act compels Iliad to ensure that potential customers have sufficient financial means. This is of particular importance to operations in Iliad that assist customers with credit terms. The Consumer Protection Act came into full effect in April 2011. Seminars have been hosted with branch management to ensure the provisions of the Act are met in full. South Africa’s Protection of Personal Information Bill underlines a consumer’s right to privacy and a company’s duty to guard personal information. Access to personal information for unsolicited direct marketing campaigns is strictly controlled at business unit and divisional level in accordance with the proposed Act.

Ethics Iliad has adopted a code of ethics to ensure the Group operates, in all respects, as a good corporate citizen. The code requires Group employees to perform their duties in good faith and to be uncompromisingly honest in all their dealings with customers, suppliers, each other and all other stakeholders, thereby maintaining a reputation for integrity and responsible behaviour.

The Chairman may not deal in the Company’s shares without first advising and obtaining clearance from the CEO. Details of all share dealings in the Company’s shares by Directors and officers are disclosed in accordance with the JSE Limited Listings Requirements and at each Board meeting. Directors of the Company and its major subsidiaries, the Group Company Secretary, their associates or members of their immediate families may not deal, either directly or indirectly, at any time, in the securities of the Company on the basis of unpublished price-sensitive information. These people are made aware of restricted or closed periods for dealing in Iliad shares and the provisions of insider-trading legislation. Dealing in the Company’s securities at any other time is permitted but approval must be obtained from the CEO or Chairman in advance.

Company Secretary All Directors have access to the Group Company Secretary. The Group Company Secretary provides guidance to the Board as a whole and to individual Directors on discharging their responsibilities. The Group Company Secretary oversees the induction of new Directors and also assists in setting Board and committee plans for the year. During the year the Board has evaluated the qualifications and competencies of the Group Company Secretary and has found him to have the appropriate expertise and experience.

The Group continues to adopt a zero-tolerance approach to theft, fraud and offering or accepting bribes and/or favours.

Dealing in securities The Securities Services Act and the JSE Limited Listings Requirements regulate transactions by Directors and officers in securities issued by the Company. Directors and officers may not deal in the Company’s shares without first advising and obtaining clearance from the Chairman.

52

Iliad Africa Limited Integrated Annual Report 2012

KING III COMPLIANCE A register containing King III compliance is available on the Group website. This register addresses the 75 principles of the King Code indicating how each principle has been applied or explained where there are noncompliance. This register is reviewed on a regular basis. (www.iliadafrica.co.za)

ANNUAL FINANCIAL STATEMENTS for the year ended 31 December 2012

contents Annual FINANCIAL STATEMENTS 53 Statement of compliance 54 Independent Auditor’s report 55 Statement of Directors’ responsibility 55 Report of the Audit Committee 56 Directors’ report 58 Statements of financial position 59 Statements of comprehensive income 60 Statements of cash flows 61 Statements of changes in equity 62 Accounting policies 71 Notes to the annual financial statements

SHAREHOLDER INFORMATION 96 Shareholders’ analysis 97 Shareholders’ statistics 98 Notice of the Annual General Meeting 101 Form of proxy 102 Notes to the proxy 103 Shareholders’ diary and corporate information 104 Contact details

Statement of compliance by the Group company secretary In terms of section 88 (2)(e) of the Companies Act, Act 71 of 2008 (the Act) as amended, I certify that to the best of my knowledge and belief, the Company and the Group have filed the required returns and notices in terms of the Act, for the financial year ended 31 December 2012, and that all such returns are true, correct and up to date.

SC O’Connor Group Company Secretary 14 March 2013

These annual financial statements have been prepared under the supervision of the Chief Financial Officer, Chris Booyens BCompt (Hons) CA(SA). These annual financial statements have been audited by Deloitte & Touche in terms of section 30 (2) of the Act. Iliad Africa Limited Integrated Annual Report 2012

53

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF ILIAD AFRICA LIMITED

We have audited the consolidated annual financial statements and separate annual financial statements of Iliad Africa Limited set out on pages 58 to 95, which comprise the statements of financial position as at 31 December 2012, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes, comprising a summary of significant accounting policies and other explanatory information. Directors’ responsibility for the financial statements The Company’s Directors are responsible for the preparation and fair presentation of these consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the Directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ responsibility Our responsibility is to express an opinion on these consolidated and separate financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of Iliad Africa Limited as at 31 December 2012, and its consolidated and separate financial performance and 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. Other reports required by the Companies Act As part of our audit of the consolidated and separate financial statements for the year ended 31 December 2012, we have read the Directors’ Report, the Report of the Audit Committee and the Company Secretary’s Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited consolidated and separate financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between these reports and the audited consolidated and separate financial statements. However, we have not audited these reports and accordingly do not express an opinion on these reports.

Deloitte & Touche Registered Auditors Per JM Bierman Partner 14 March 2013 Buildings 1 and 2, Deloitte Place, The Woodlands Office Park, Woodlands Drive, Woodmead, Sandton National Executive: LL Bam Chief Executive, AE Swiegers Chief Operating Officer, GM Pinnock Audit DL Kennedy Risk Advisory, NB Kader Tax, TP Pillay Consulting, K Black Clients & Industries JK Mazzocco Talent & Transformation, CR Beukman Finance, M Jordan Strategy S Gwala Special Projects, TJ Brown Chairman of the Board MJ Comber Deputy Chairman of the Board A full list of partners and Directors is available on request

B-BBEE rating: Level 2 contributor in terms of Chartered Accountancy Profession Sector Code Member of Deloitte Touche Tohmatsu Limited

54

Iliad Africa Limited Integrated Annual Report 2012

STATEMENT OF DIRECTORS’ RESPONSIBILITY for the year ended 31 December 2012

The Directors are responsible for the maintenance of proper accounting records and the preparation, integrity and fair presentation of the Group annual financial statements and annual financial statements of Iliad Africa Limited and its subsidiaries. The annual financial statements, presented on pages 56 to 97 have been prepared in accordance with International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council and in the manner required by the Companies Act 71 of 2008 (amended), of South Africa and include amounts based on judgements and estimates made by management. The Directors also prepared the other information included in the integrated annual report and are responsible for both its accuracy and its consistency with the annual financial statements. The Directors acknowledge that they are ultimately responsible for the process of risk management and the systems 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 sets standards for internal control aimed at reducing the risk of error or loss in a cost-effective manner. These standards include the proper delegation of responsibilities within a clear framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. The controls are monitored throughout the Group and all employees are required to maintain the highest ethical standards in ensuring the Group’s business are conducted in such a manner that 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 estimated, the Group endeavours to minimise it by ensuring 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 and the internal auditors that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the financial statements. However, any system of internal financial control can provide only reasonable, and not absolute assurance against material misstatement or loss. The going concern basis has been adopted in preparing the financial statements. The Directors have no reason to believe that the Group will not be a going concern in the foreseeable future based on forecast and available cash facilities. The viability of the Group is supported by the financial statements. The financial statements have been audited by the independent accounting firm Deloitte & Touche, who have been given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the Board of Directors and the committees of the Board. The Directors believe that all representations made to the independent auditors during their audit were valid and appropriate. Deloitte & Touche’s unmodified audit report is presented on page 54. The Group annual financial statements and Company annual financial statements of Iliad Africa Limited, were approved by the Board of Directors on 14 March 2013 and are signed on their behalf by:

Eugene Beneke Chief Executive Officer Johannesburg

Chris Booyens Chief Financial Officer

14 March 2013

REPORT OF THE AUDIT COMMITTEE for the year ended 31 December 2012 The Audit Committee, appointed by the Board in respect of the year ended 31 December 2012, comprised Mr RT Ririe (the Chairman), Mr T Njikizana and Mrs A Kalyan, who are Independent Non-executive Directors of the Company. The Committee is satisfied that, in respect of the financial year, it has performed all the functions required to be performed by an Audit Committee as set out in the Companies Act, 2008 (as amended) and the Committee’s Terms of Reference and as more fully set out in the Corporate Governance report on pages 42 to 52.

The Audit and Risk Committee has evaluated the consolidated annual financial statements for the year ended 31 December 2012 and considers that they comply, in all material aspects, with the requirements of the Companies Act and International Financial Reporting Standards. The Committee therefore recommended the annual financial statements for approval by the Board. The Board has subsequently approved the financial statements which will be presented at the forthcoming Annual General Meeting.

The Committee has satisfied itself that the external auditors, Deloitte & Touche, are independent of the Group, having given due consideration to the parameters enumerated in section 90 (1A) (a) to ( c), (2) and (3) of the Companies Act, 2008 (as amended) and that the appointment of Mr JM Bierman as the designated Auditor is in compliance with the Auditing Profession Act, 2005 and the Listings Requirements of the JSE Limited. The Committee has also considered and satisfied itself that the Chief Financial Officer, Mr CP Booyens, has the appropriate expertise and experience to fulfil his role.

RT Ririe Chairman of the Committee 14 March 2013 Iliad Africa Limited Integrated Annual Report 2012

55

DIRECTORS’ REPORT for the year ended 31 December 2012

The Directors have pleasure in submitting the Group and Company annual financial statements for the year ended 31 December 2012. In the context of the financial statements, the term Group refers to Iliad Africa Limited (Iliad) as the Company and its subsidiaries. A list of the subsidiaries appears on page 95. This report deals with matters not specifically dealt with elsewhere in the Integrated report. Nature of business Iliad Africa Limited is the holding company of Iliad Africa Investments (Proprietary) Limited and Iliad Africa Trading (Proprietary) Limited, which has operating divisions and subsidiaries that focus on the sourcing, distribution, retailing and wholesaling of a comprehensive range of building materials.

Set out below are the salient dates applicable to the final dividend:

Iliad supplies the full spectrum of building materials in both the residential and non-residential segments of the market through a well-established geographic footprint and strong national and regional brands. Proven trading skills, as well as the entrepreneurial philosophy at operational level, remain positive contributors to Iliad’s future success. Listings Iliad has its primary listing on the JSE Limited (JSE). The abbreviated name under which the Company is listed on the JSE is “ILA”. The Company’s JSE clearing code is ISIN: ZAE000015038. Audit Committee report In line with its terms of reference approved by the Board of Directors and the requirements of section 94 of the Companies Act, the Audit Committee confirms that it has discharged all of its responsibilities contained therein (refer to page 44 for details of functions performed by the Audit Committee). Financial results The results of operations for the year are set out in the financial statements, on pages 54 to 97. A seven-year review of the Group financial results are presented on page 26. The results for the year ended 31 December 2012 show revenue of R4,5 billion (2011: R4,2 billion) with earnings before interest and tax (EBIT) at R75 million (2011: loss of R233 million) and net profit attributable to the equity holders of the Company at R34 million (2011: loss of R242  million). Basic and diluted earnings per share were 24,3 cents and headline earnings per share were 46,3 cents (2011: 9,5 cents). The statement of financial position remains strong with operating cash flows for the period at R146 million (2011: R66 million). Gearing is at a very acceptable 10,4% (2011: (5,6%)). Distribution to shareholders Details of dividends are set out in note 21 to the financial statements. No interim dividend was declared. The Board is pleased to announce a final dividend to shareholders of 20 cents per share (2011: 20 cents per share). The authority to make this payment to shareholders is in terms of the Company’s Memorandum of Incorporation. The Board is satisfied that the capital remaining after the payment of the final dividend will be sufficient to support the current operations and to facilitate future development of the business.

56

The dividend is payable from income reserves. Iliad utilised 20 cents per share secondary tax on companies credits to cover the South African dividend tax (DT) rate of 15% on shareholders not exempt. The net amount payable to all shareholders who are not exempt from DT is 20 cents per share while the gross amount payable to those shareholders who are exempt from DT is 20 cents per share. The issued share capital at the declaration date is 138 217 794 ordinary shares. Iliad Africa Limited’s tax reference number is 9269/002/71/4.

Iliad Africa Limited Integrated Annual Report 2012

2013 Declaration date

Thursday

14 March

Last date to trade in order to participate

Friday

12 April

Trading commences ex-dividend

Monday

15 April

Record date

Friday

19 April

Payment date

Monday

22 April

Share certificates may not be dematerialised or rematerialised between Monday, 15 April 2013 and Friday, 19 April 2013, both dates inclusive. Stated capital There was no change to the authorised and issued stated capital during the year. Refer to page 78 for detail as at 31 December 2012. Special resolutions No material special resolutions were passed during the year except those passed at the Annual General Meeting held on 31 May 2012. No special resolutions were passed by the subsidiary companies during the year under review. Board of Directors The Board currently comprises two Executive Directors and six Independent Non-executive Directors. An abbreviated curriculum vitae of each Director can be found on pages 10 and 11. Executive Directors Eugene Beneke – Chief Executive Officer Chris Booyens – Chief Financial Officer Independent Non-executive Directors Howard Turner – Chairman Ralph Ririe Tapiwa Njikizana Ashika Kalyan Prof Fatima Abrahams Andile Sangqu In terms of the Company’s Memorandum of Incorporation, Andile Sangqu was appointed an independent Non-executive Director on 1  March 2013, and having been appointed since the last Annual General Meeting and who, in terms of the Memorandum of Incorporation, retires from office at the conclusion of the AGM, and being eligible, has offered himself for re-election. Ralph Ririe and Chris Booyens retire by rotation at the forthcoming Annual General Meeting, and being eligible, offer themselves for re-election.

Directors’ shareholding and significant shareholding The total direct and indirect beneficial and non-beneficial interest of Directors in the shares of the Company are: Beneficial Direct

Non-beneficial Indirect

2012

2011

HC Turner

200 000

200 000

E Beneke

100 000

100 000

Total

300 000

300 000

2012

The shareholdings have not changed between 31 December 2012 and the date of this Integrated report. No Director held in excess of 1% of the Company’s stated capital. All major shareholders with beneficial interest in Iliad greater than 5% at 31 December 2012 are disclosed on page 96. Directors’ emoluments and service contracts Details of Directors’ emoluments are disclosed on page 86. No service contracts exist between the Company and any of its Directors having a notice period exceeding three months or providing for compensation and benefits in excess of three months’ salary. Secretary The office of Company Secretary was held by Mr SC O’Connor. Information concerning the Company Secretary is reflected below. The Company Secretary’s business, postal and email address is as below: Business address: Iliad House Unit 7, Thornhill Office Park 94 Bekker Road Vorna Valley, Midrand Postal address: PO Box 2572 Honeydew 2040 Email: [email protected] Administration Link Market Services South Africa (Pty) Ltd is the share transfer secretary of the Company. The JSE sponsor is Bridge Capital Advisors (Pty) Ltd.

Direct 2011

2012

Indirect 2011

2012

2011

Subsidiaries Information regarding the interest in subsidiaries is set out on page 95. Subsidiary companies’ profit after tax was R56,8 million (2011: R12,3  million). Subsidiary companies’ aggregate amount of losses after tax was R57,3 million (2011: R278,7 million). Independent auditors The independent auditors, Deloitte & Touche will continue in office for the ensuing period in accordance with section 84(4)(b) of the Companies Act. At the Annual General Meeting shareholders will be requested to appoint Deloitte & Touche as the Group’s auditors for the 2013 financial year and it is noted that Mr JM Bierman will be the individual registered auditor who will undertake the audit. The policy regarding the approval of non-audit services provided by the external auditors is the responsibility of the Audit Committee and this is included within the Committee’s Terms of Reference. Borrowing facilities The Group’s net borrowing position at December 2012 amounted to R77  million (2011: R48  million cash). Details of the long-term borrowings are set out in note 11 on page 80. No restrictions on borrowings are set in the Memorandum of Incorporation. Litigation statement To the best of our knowledge no material formal litigation has been instituted against the Company. Material events after reporting date At the Board meeting the disposal of the assets and liabilities of the Timber Wholesale business was approved. Disposal agreements are to be finalised in due course and regulatory approval is required.

Iliad Africa Limited Integrated Annual Report 2012

57

STATEMENTS OF FINANCIAL POSITION as at 31 December 2012

GROUP

COMPANY

Notes

2012 R’000

2011 R’000

2012 R’000

2011 R’000

2

134 158

108 660





234 161

267 103

ASSETS Non-current assets Property, plant and equipment Intangible assets

3

Investment in subsidiaries

4

Deferred taxation

5

Total non-current assets





1

1

43 933

40 760

900



412 252

416 523

901

1

Current assets Inventories

6

694 452

719 634





Trade and other receivables

7

461 581

467 418

465

450

15 866

2 009

357

329

8

212 958

381 059

113 259

108 312

Taxation Cash and cash equivalents

72 711







Total current assets

Assets classified as held-for-sale

12

1 457 568

1 570 120

114 081

109 091

Total assets

1 869 820

1 986 643

114 982

109 092

EQUITY AND LIABILITIES Equity Stated capital

9

Retained income Attributable to owners of the parent Non-controlling interest

10

Total equity

122

122

122

122

789 826

783 827

114 831

108 351

789 948

783 949

114 953

108 473









789 948

783 949

114 953

108 473

3 971

2 519





3 971

2 519





Non-current liabilities Long-term borrowings

11

Total non-current liabilities Current liabilities Trade and other payables and provisions

15

757 355

865 784

29

44

Short-term borrowings

11

1 503

1 550





8

289 875

332 841



575

12

27 168







Total current liabilities

1 075 901

1 200 175

29

619

Total equity and liabilities

1 869 820

1 986 643

114 982

109 092

Bank overdraft Liabilities classified as held-for-sale

58

Iliad Africa Limited Integrated Annual Report 2012

STATEMENTS OF COMPREHENSIVE INCOME for the year ended 31 December 2012

GROUP Notes Revenue

16

Cost of sales

2012 R’000

COMPANY 2011 R’000

2012 R’000

2011 R’000

4 493 085

4 229 538





3 283 864

3 115 669





Gross margin

1 209 221

1 113 869





Administration, selling and distribution expenses

1 062 727

1 000 637

614

478 (478)

EBITDA before restructuring costs

146 494

113 232

(614)

Loss on disposal of business assets

17



6 547





Restructuring costs

17



45 992





146 494

60 693

(614)

(478)

EBITDA Depreciation

17

38 618

44 352





Amortisation of intangibles

17

2 523







Intangible asset impairments

17

30 419

249 530





Operating profit/(loss) before investment income (EBIT)

17

74 934

(233 189)

(614)

(478)

Investment income

18

18 591

22 767

33 847

27 995

93 525

(210 422)

33 233

27 517

Operating profit/(loss) before finance charges Finance charges

19

Profit/(loss) before taxation Taxation

20

Profit/(loss) for the year Other comprehensive income for the year Total comprehensive income/(loss) for the year

(29 919)

(36 071)

(37)



63 606

(246 493)

33 196

27 517

(29 963)

4 709

928

(353)

33 643

(241 784)

34 124

27 164









33 643

(241 784)

34 124

27 164

Attributable to: –



Owners of the parent

33 643

(241 784)

Total comprehensive income/(loss) for the year

33 643

(241 784)

Non-controlling interest

10

Earnings/(loss) per share (cents) Basic

22

24,3

(174,9)

Diluted

22

24,3

(174,9)

Iliad Africa Limited Integrated Annual Report 2012

59

STATEMENTS OF CASH FLOWS for the year ended 31 December 2012

GROUP Notes

2012 R’000

COMPANY 2011 R’000

2012 R’000

2011 R’000 27 143

Cash flows from operating activities

(30 334)

(1 728)

33 166

Profit/(loss) before taxation

63 606

(246 493)

33 196

27 517

Adjustments:

82 746

312 276

(33 810)

(27 995)

Depreciation and amortisation

41 141

44 352

Intangible impairment

30 419

249 530

(27 995)

(Profit)/loss on disposal of property, plant and equipment

(142)

957



4 133

Investment income

(18 591)

(22 767)

(33 847)

Finance charges

29 919

36 071

37

Other non-cash movements

Operating cash flow before working capital changes

146 352

65 783

(614)

(478)

Working capital changes during the year

(118 366)

(49 466)

(30)

(322)

(Increase)/decrease in inventories

(25 481)

(36 935)

(Increase)/decrease in trade and other receivables

(11 624)

(42 789)

(15)

(337)

(Decrease)/increase in trade and other payables

(81 261)

30 258

(15)

15

Cash generated from operations

27 986

16 317

(644)

(800)

Investment income

18 591

21 832

33 847

27 995

Finance charges

(29 919)

(35 675)

(37)



(46 992)

(4 202)



(52)



86 583



86 583

(27 644)

(27 644)

(27 644)

(27 644)

86 082

Taxation paid

27.1

(68 562)

(52 175)

Purchase of business

27.2



(22 710)

Proceeds on disposal of business assets

27.2



13 300

Cash flows from investing activities

Repayments by subsidiaries Additions to property, plant and equipment

(71 242)

(47 590)

Additions to property, plant and equipment – expansion

(47 571)

(32 349)

Additions to property, plant and equipment – replacement

(23 671)

(15 241)

Proceeds on disposal of property, plant and equipment

27.3

Cash flows from financing activities Decrease in short-term borrowings

2 680

4 825

(26 239)

(28 762)

(47)

(812)

Dividends and distributions to shareholders

(27 644)

(27 644)

Increase/(decrease) in long-term borrowings

1 452

(306)

(125 135)

(82 665)

5 522

48 218

130 883

107 737

21 655

(76 917)

48 218

113 259

107 737 108 312

Net (decrease)/increase in cash and cash equivalents for the year Cash and cash equivalents at the beginning of the year Cash and cash equivalents at end of the year

8

Comprising:

60

Cash and cash equivalents

212 958

381 059

113 259

Bank overdrafts

(289 875)

(332 841)



(575)

(76 917)

48 218

113 259

107 737

Iliad Africa Limited Integrated Annual Report 2012

STATEMENTS OF CHANGES IN EQUITY for the year ended 31 December 2012

Group

Balance at 1 January 2011

Stated capital R’000

“A” shares R’000

Retained income R’000

Attributable to owners of the parent R’000

Total R’000



122

1 053 255

1 053 377

1 053 377

(241 784)

(241 784)

(241 784)

Total comprehensive loss Dividends to owners of the parent (Note 21) Balance at 1 January 2012



122

(27 644)

(27 644)

(27 644)

783 827

783 949

783 949

Total comprehensive income

33 643

33 643

33 643

Dividends to owners of the parent (Note 21)

(27 644)

(27 644)

(27 644)

789 826

789 948

789 948

Balance at 31 December 2012



122

COMPANY

Balance at 1 January 2011

Stated capital R’000

“A” shares R’000

Retained income R’000

Total R’000



122

108 831

108 953

Total comprehensive income

27 164

27 164

Dividends to owners of the parent (Note 21)

(27 644)

(27 644)

108 351

108 473

Balance at 1 January 2012



122

Total comprehensive income

34 124

34 124

Dividends to owners of the parent (Note 21)

(27 644)

(27 644)

114 831

114 953

Balance at 31 December 2012



122

Iliad Africa Limited Integrated Annual Report 2012

61

ACCOUNTING POLICIES for the year ended 31 December 2012

Basis of preparation Corporate information Iliad Africa Limited (the Company) is a South African registered company. The registered address of the Company is Thornhill Office Park, 94 Bekker Road, Vorna Valley, Midrand. The consolidated financial statements of the Company for the year ended 31 December 2012 comprise the Company and its subsidiaries (together referred to as “the Group”). Statement of compliance The consolidated financial statements for Iliad Africa Limited and its subsidiaries have been prepared in compliance with International Financial Reporting Standards (IFRS), The SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, and the requirements of the South African Companies Act 71 of 2008 (as amended). Changes in accounting policies and adoption of new and revised standards The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Adoption of these revised standards and interpretations did not have any effect on the financial performance or position of the Group. They did, however, give rise to additional disclosures, including in some cases, revisions to accounting policies or adjustments to the financial statements on an entity level.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, except as detailed above and have been applied by all the Group entities. Significant accounting policies 1 Basis of preparation of financial results The consolidated annual financial statements are presented in South African Rands (Rands), which is the Company’s functional and presentation currency. All financial information presented in South African Rands has been rounded to the nearest thousand (R’000) except for when otherwise indicated. The consolidated financial statements are prepared using the historical cost basis, except derivative financial instruments that have been measured at fair value and liabilities for cashsettled share-based payment arrangements that are required to be measured at fair value. The financial statements are prepared on the going concern basis in accordance with the historic cost convention, except for certain financial instruments, which are carried at fair value.

Accounting policies The financial statements set out on pages 54 to 97 have been prepared in accordance with International Financial Reporting Standards (IFRS) and the Companies Act of South Africa 2008. IFRS is continuing to evolve through the issue and/or endorsement of new standards and interpretations as well as developments in the application of recently issued standards. This may impact on future reported results and disclosure. The basis of preparation is consistent with the prior year. The Group has adopted the following new interpretations, revisions and amendments to IFRS issued by the International Accounting Standards Board, which are relevant to and effective for the Group’s financial statements for the annual period beginning 1 January 2012:

1.1

Judgements, estimates and assumptions In preparing the financial statements, management is required to make estimates and assumptions that affect reported expenses, assets, liabilities, and disclosure of contingent assets and liabilities. Use of available information and the application of judgement are inherent in the formation of estimates. Actual results in the future could differ from these estimates, which could be material to the financial statements.

The adoption of the standards or interpretations is described below: Deferred Tax: Recovery of Underlying Assets (Amendments to IAS 12) Amends IAS 12 Income Taxes to provide a presumption that recovery of the carrying amount of an asset measured using the fair value model in IAS 40 Investment Property will, normally, be through sale. As a result of the amendments, SIC-21 Income Taxes — Recovery of Revalued Non-depreciable Assets would no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance previously contained in SIC-21, which is accordingly withdrawn. Presentation of Items of Other Comprehensive Income (OCI) (Amendments to IAS 1) Amends IAS 1 Presentation of Financial Statements to revise the way other comprehensive income is presented. The amendments Preserve the amendments made to IAS 1 in 2007 to require profit or loss and OCI to be presented together, i.e. either as a single ‘statement of profit or loss and comprehensive income’, or a separate ‘statement of profit or loss’ and a ‘statement of comprehensive income’ – rather than requiring a single continuous statement as was proposed in the exposure draft. Require entities to group items presented in OCI based on whether they are potentially reclassifiable to profit or loss subsequently. i.e. those that might be reclassified and those that will not be reclassified. Require tax associated with items presented before tax to be shown separately for each of the two groups of OCI items (without changing the option to present items of OCI either before tax or net of tax).

62

Iliad Africa Limited Integrated Annual Report 2012

The following have been identified as being areas where management has made significant judgements or estimates: 1.1.1 Impairment of assets An assessment of each independent cash-generating unit at an entity and intangible asset level is performed at each reporting period. Discounted cash flows are used to assess the cash operating units. All material assumptions and estimates used relating to the discount and growth rates are disclosed in note 3.3.

Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company.

1.1.2 Deferred taxation Deferred tax assets are recognised to the extent that it is probable that taxable income will be available in the future against which they can be utilised. Future taxable profits are estimates based on business plans, which include estimates and assumptions regarding economic growth, interest, inflation, taxation rates and competitive forces. 1.1.3 Contingent liabilities Management applies its judgement to facts and advice it receives from its attorneys, advocates and other advisors in assessing if an obligation is probable, i.e. more likely than not or remote. This judgement is used to determine if the obligation is recognised as a liability or disclosed as a contingent liability.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or jointly controlled entity.

1.1.4 Residual values and useful lives The Group depreciates its assets over their estimated useful lives taking into account residual values, which, following the adoption of IAS 16 Property, plant, and equipment, are reassessed on an annual basis. The actual lives and residual values of these assets vary depending on a variety of factors. 1.1.5 Allowance for accounts receivable impairments Allowance is made for accounts receivable impairments based on management’s estimate of the prospect of recovering the debt. Where management has determined that a debt is no longer recoverable, the amount is written off. 1.1.6 Allowance for slow-moving inventory Inventory is counted at least once a year and any shortages and obsolete stock identified are written off immediately. An allowance is made for slow-moving inventory based on historical trends. 1.2

Basis of consolidation The consolidated financial statements incorporate the assets, liabilities, income, expenses, and cash flows of the holding Company and its subsidiaries. The results of subsidiaries acquired or disposed of during the period are included in the consolidated statement of comprehensive income from the date of acquisition up to the date of disposal. Inter-company transactions, resulting profit and losses and balances between Group companies are eliminated on consolidation. On acquisition, the Group recognises the subsidiary’s identifiable assets, liabilities and contingent liabilities at fair value from the effective date of acquisition. Non-controlling interest in the net assets of consolidated subsidiaries is shown separately from the Group equity therein. It consists of the amount of those interests at acquisition plus the non-controlling interest’s subsequent share of changes in the equity of the subsidiary. On acquisition the non-controlling interest is measured at the proportion of the pre-acquisition fair values of the identifiable assets and liabilities acquired.

1.3

Business combinations Business combinations are accounted for using the purchase method. The purchase method involves the recognition of the acquirer’s identifiable assets and liabilities, including contingent liabilities, regardless of whether they were recorded in the financial statements prior to acquisition. On initial recognition, the assets and liabilities of the acquired subsidiary are included in the consolidated statement of financial position at their fair values, which are also used as the basis for subsequent measurements in accordance with the Group’s accounting policies. Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the Group’s share of the identifiable net assets of the acquiree at the date of acquisition. Any excess of identifiable net assets over acquisition cost is recognised in the statement of comprehensive income immediately after acquisition. Acquisition-related costs are recognised in the statement of comprehensive income as incurred. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of the contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs. Changes in the fair value of the contingent consideration classified as equity are not recognised.

Iliad Africa Limited Integrated Annual Report 2012

63

ACCOUNTING POLICIES Continued for the year ended 31 December 2012

Where a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of.

Assets are stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. The useful lives and residual values and depreciation method are assessed at each statement of financial position date, and adjusted if appropriate, with the effect of any changes in estimate accounted for on a prospective basis.

The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (2008) are recognised at their fair value at the acquisition date, except that: •  deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; •  liabilities or equity instruments related to the replacement by the Group of an acquiree’s share-based payment awards are measured in accordance with IFRS 2 Share-based Payment; and •  assets (or disposal groups) that are classified as held-forsale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. 1.4

Comparative figures Comparative figures are restated in the event of a change in accounting policy or material prior period error.

1.5

Subsequent events Recognised amounts in the financial statements are adjusted to reflect events arising after the statement of financial position date that provide evidence of conditions that existed at the year-end date. Events after the year-end date that are indicative of conditions that arose after that date are dealt with by way of a note.

1.6

1.7

64

Investment in subsidiaries Shares in subsidiaries are accounted for in the Company’s separate annual financial statements, at cost less accumulated impairment losses. Loans to subsidiaries are capitalised to the net investment in subsidiaries where settlement is neither planned nor likely in the foreseeable future. Loans are disclosed as cost less accumulated impairment losses. Property, plant and equipment The cost of an item of property, plant and equipment is recognised as an asset when it is probable that the future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

Iliad Africa Limited Integrated Annual Report 2012

Depreciation on property, plant and equipment is calculated using the straight-line basis to write down their cost over their estimated economic useful lives to estimated residual values. This best reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity. The following rates were used during the year to depreciate property, plant and equipment to estimated residual values: Machinery and warehouse equipment 3 to 6 years Vehicles 4 to 5 years Computer equipment and software 2 to 3 years Furniture and fixtures 7 to 10 years Improvements to leased premises and renovations to showrooms are depreciated over the lesser of their useful life and the lease period. The gain or loss arising on the scrapping of property, plant and equipment and the depreciation charge for each period is recognised in the statement of comprehensive income. 1.8

Intangible assets An intangible asset is an identifiable non-monetary asset without physical substance. It includes patents, trademarks and goodwill.

1.8.1 Goodwill Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the

recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

income over the relevant period. The effective-interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

1.8.2 Trademarks Trademarks are initially recognised at cost if acquired separately or at fair value if acquired as part of a business combination.

Income is recognised on an effective-interest basis for debt instruments other than those financial assets classified as at FVTPL.

Trademarks are assessed at the individual asset level as having either a finite or indefinite life. If assessed as having an indefinite useful life, the trademark is not amortised but is tested for impairment on an annual basis, or more frequently if there is an indication that the carrying value may be impaired, and is impaired if necessary. If assessed as having a finite useful life, trademarks are amortised over their useful lives using a straight-line basis and tested for impairment if there is an indication that they may be impaired. All trademarks currently held by the Group have been assessed as having finite lives and are amortised over a period of 25 years. Expenditure incurred to maintain these brands is recognised in the statement of comprehensive income. 1.9

Financial instruments

1.9.1 Recognition The Group classifies financial instruments or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial assets and liabilities are recognised in the Group’s statement of financial position when the Group becomes party to the contractual provisions of the instrument. Financial assets and liabilities are offset and the net amount reported in the financial statements when the Group has a currently enforceable legal right to set off the recognised amounts and either intends to realise the assets and settle the liabilities simultaneously, or to settle on a net basis. 1.9.2 Financial assets Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held-to-maturity’ investments, ‘availablefor-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Effective-interest method The effective-interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are subsequently measured at amortised cost using the effective-interest method, less provision for impairment. Any change in their value is recognised in the statement of comprehensive income. Cash and cash equivalents comprise cash and balances with banks net of bank overdrafts, short-term borrowings and acceptance credits, all of which are available for the Group and are readily convertible into known amounts of cash. Cash and cash equivalents are measured at fair value. Loans between companies within the Group are measured at amortised cost less any impairment loss. An impairment loss is recognised in the statement of comprehensive income of the Company when there is objective evidence that a subsidiary loan receivable is impaired. Intra-group loans and related impairments are eliminated on consolidation. The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. 1.9.3 Financial liabilities The Group’s principal financial liabilities include borrowings (including finance lease liabilities), and trade and other payables. These financial liabilities are initially recognised at fair value, net of transaction costs. Short-term payables are measured at original invoice amount when the effect of discounting is immaterial. Iliad Africa Limited Integrated Annual Report 2012

65

ACCOUNTING POLICIES Continued for the year ended 31 December 2012

These liabilities are subsequently measured at amortised cost using the effective interest method. All interest related charges reported are included in the statement of comprehensive income. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. Derecognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. 1.9.4 Derivative financial instruments The Group uses foreign exchange contracts to hedge its exposure to fluctuations in foreign currency exchange rates. These derivative instruments are initially recognised at fair value on the date a derivative contract is entered into and subsequently remeasured at their fair value at the balance sheet date. Changes in the fair value of these derivative instruments are recognised immediately through the statement of comprehensive income. 1.10 Impairment of assets At each reporting date the carrying amounts of the tangible and intangible assets are assessed to determine whether there is any indication that those assets may have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Irrespective of whether there is an indication of impairment, the Group also: •  tests trademarks with an indefinite life for impairment annually by comparing its carrying amount with its recoverable amount. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Where it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the cashgenerating unit to which the asset belongs is estimated. Value in use, included in the calculation of the recoverable amount, is estimated taking into account future cash flows, forecast market conditions and the expected lives of the assets.

66

Iliad Africa Limited Integrated Annual Report 2012

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, its carrying amount is reduced to the recoverable amount. The impairment loss is first allocated to goodwill and then to the other assets of the cash-generating unit. Subsequent to the recognition of an impairment loss, the depreciation or amortisation charge for assets is adjusted to allocate its remaining carrying value, less any residual value, over its remaining useful life. Impairment losses are recognised immediately through the statement of comprehensive income. Impairment losses on trade and other receivables is determined based on specific and objective evidence that such assets are impaired and measured as the difference between the carrying amount of assets and the present value of the estimated future cash flows discounted at the effective interest rate computed at initial recognition. Individual receivables are considered for impairment when they are past due at the statement of financial position date or when objective evidence is received that a specific counterparty will default. All other receivables are reviewed for impairment in groups, which are determined by reference to the industry and region of a counterparty. The percentage of the write down is then based on recent historical counterparty default rates for each identified group. If any impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount but limited to the carrying amount that would have been determined had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised in profit or loss. 1.11 Leases Leases are classified as finance leases or operating leases at the inception of the lease. 1.11.1 Finance leases Assets held under finance lease agreements are capitalised and are depreciated over their expected useful lives or the term of the relevant lease, where shorter. Leases are classified as finance leases whenever the terms of the lease transfer substantially all of the risks and rewards of ownership to the lessee, whereas all other leases are classified as operating leases. At the commencement of the lease, these assets are reflected at the lower of the fair value of the asset and the present value of the minimum lease payments at the date of acquisition. The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease. Any initial direct costs are added to the amount recognised as an asset. Finance costs represent the difference between the total lease commitments and the fair value of the assets acquired. Finance costs are charged to profit and loss over the term of the lease and at interest rates applicable to the lease on the remaining balance of outstanding lease commitments based on the effective rates of interest.

1.11.2 Operating leases Rentals payable under operating leases are charged to profit and loss on a straight-line basis over the term of the relevant lease. 1.12 Inventories Inventories, comprising merchandise, raw materials and finished goods are valued at the lower of cost and estimated net realisable value. Estimated net realisable value is the selling price in the ordinary course of business less the estimated cost necessary to make the sale when inventories are sold. The carrying amount of the inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all the losses of inventories are recognised as an expense in the period the write-down or loss occurs. Cost is determined on a first-in first-out basis. Obsolete, redundant and slow-moving inventories are identified and written down to their estimated net realisable value. Cost includes costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Provision is made for slow-moving, obsolete and redundant inventories. 1.13 Taxation 1.13.1 Current taxation assets and liabilities Current taxation liabilities and assets for the current and prior periods are measured at the amount expected to be paid or recovered from the tax authorities, using the taxation rates that have been enacted or substantively enacted by the reporting date. 1.13.2 Deferred taxation A deferred taxation asset or liability is recognised for all deductible or taxable timing differences except to the extent that they arise from the initial recognition of goodwill or an asset or liability in a transaction that: •  is not a business combination; and •  at the time of the transaction, affects neither accounting profit nor taxable profit or tax loss. Deferred taxation assets are recognised for all deductible temporary differences and unused taxation losses to the extent that it is probable that taxable profit will be available in future against which they can be utilised. Future tax profits are estimated based on business plans, which include estimates, and assumptions regarding economic growth, interest rates, inflation, taxation rates and competitive forces. The carrying amount of deferred taxation assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred taxation liabilities are recognised for taxable temporary differences associated with investments in

subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred taxation assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred taxation is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on taxation rates that have been enacted or substantively enacted by the reporting date. 1.13.3 Taxation expenses Current and deferred taxation is recognised as income or as an expense and included in profit and loss for the period except to the extent that the taxation arises from: •  a transaction, or event which is recognised in the same or different period directly in equity, or •  a business combination. Current taxation and deferred taxes are charged or credited directly to equity if the taxation relates to items that are credited or charged, in the same or a different period, directly to equity. 1.14 Revenue recognition Revenue from the sale of goods is recognised when all the following conditions are satisfied: •  The Group has transferred to the buyer the significant risks and rewards of ownership of the goods. •  The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold. •  The amount of revenue can be measured reliably. •  It is probable that the economic benefits associated with the transaction will flow to the entity. •  The costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for inventory sold and services provided in the normal course of business, net of trade discounts, volume rebates and value-added tax. Sales within the Group are eliminated on consolidation. Dividend revenue from investments is recognised when the shareholder’s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably). Interest revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest revenue is accrued on a time basis, by reference to the principal outstanding and

Iliad Africa Limited Integrated Annual Report 2012

67

ACCOUNTING POLICIES Continued for the year ended 31 December 2012

at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance.

Rental income arising from operating leases on equipment on a straight-line basis over the lease terms and included in revenue due to its operating nature.

1.18.2 Defined-contribution plans Contributions to defined-contribution plans in respect of service in a particular period are recognised as an expense in the period concerned.

1.15 Cost of sales Cost of sales consists of the cost of inventory sold during the period net of trade discounts, volume rebates and valueadded tax. Any write-down of inventories to net realisable value and all losses of inventories or reversals of previous write-downs or losses are recognised in cost of sales in the period the write-down, loss or reversal occurs. 1.16 Borrowing costs Borrowing costs that are directly attributable to qualifying assets form part of the costs of that asset. Other borrowing costs shall be recognised as an expense in the period in which they have occurred. 1.17 Translation of foreign currencies Foreign currency transactions are recorded, on initial recognition in Rand, by applying to the foreign currency the exchange rate between the Rand and the foreign currency at the date of the transactions. Uncovered foreign currency transactions are translated at the spot rates ruling on the date of the transactions. The related monetary assets and liabilities at year-end are translated at the spot rates ruling at the reporting date.

68

By virtue of the types of schemes operated in the Group no past service costs or experience adjustments will arise in the retirement funding arrangements. 1.18.3 Defined-benefit plans The Group’s contributions to the defined-benefit plan are charged to the statement of comprehensive income in the year to which they relate. Contribution rates are adjusted for any unfavourable experience adjustments through the statement of comprehensive income. Favourable experience adjustments are retained within the fund. The legal obligation for any benefits remains with the Group, even if plan assets for funding the defined-benefit plan have been set aside. For defined-benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

The retirement-benefit obligation recognised in the statement of financial position represents the present value of the definedbenefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.

Where forward exchange contracts have been entered into to denominate transactions in Rand, the transactions are translated at the spot rates at transaction date. The year-end monetary balances of liabilities are translated at the spot rates at year-end. Open forward exchange contracts are revalued at market rates for equivalent period exchange contracts. Exchange differences are recognised in the results for the year.

1.19 Share capital and equity Any repurchases by the Group of its own equity instruments are treated as treasury shares and are deducted from equity on consolidation. No gain or loss is recognised in the profit and loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Considerations paid or received are recognised directly in equity.

1.18 Employee benefits 1.18.1 Short-term employee benefits The cost of short-term employee benefits, (those payable within one year after the service is rendered, such as paid leave, sick leave and bonuses) are recognised in the period in which the service is rendered and is not discounted. The expected cost of compensated leave is recognised as an expense as the employees render services that increase their entitlement or, in the case of non-accumulating leave, when the leave occurs.

1.20 Share-based payments Goods and services received or acquired in a share-based payment transaction are recognised when the goods or services are received. A corresponding increase in equity is recognised if the goods or services were received in an equity-settled share-based payment transaction or a liability if the goods or services were acquired in a cash-settled sharebased payment transaction.

Iliad Africa Limited Integrated Annual Report 2012

For equity-settled share-based payment transactions, the goods or services received are measured, and the corresponding increase in equity is recognised, at the fair value of the goods or services received, unless the fair value cannot be measured reliably in which case the value is measured by reference to the fair value of the equity instruments granted.

Management anticipated that all of the pronouncements would be adopted in the Group’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group’s financial statements is provided below.

For cash-settled share-based payment transactions, the goods or services received and the liability incurred are measured at the fair value of the liability. Until the liability is settled the fair value of the liability is remeasured at each reporting date and at the date of settlement, with any changes in the fair value recognised in the statement of comprehensive income for the period.

The following standards and interpretations may have an impact on the Group’s operations when they become effective, however, the Group is of the opinion that this impact will not be material to the Group results:

1.21 Segment reporting Segment accounting policies are consistent with those adopted for the preparation of the Group financial statements. The principal segments of the Group have been identified on a primary basis by business segment, which is representative of the internal reporting used for management purposes as well as the source and nature of business risks and returns. All segment revenue and expenses are directly attributable to the segments and are subsequently adjusted for Group costs. Segment assets include all operating assets used by a segment, and consist principally of property, plant and equipment and current assets. Segment liabilities include all operating liabilities. These assets and liabilities are all directly attributable to the segments and are subsequently adjusted for Group assets and liabilities. All intra-segment transactions are eliminated on consolidation. The basis of segmental reporting is set out on page 91. 1.22 Assets held-for-sale Assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily through sale rather than through continuing use are classified as held-forsale. Immediately before classification as held-for-sale, the assets (or components of a disposal group) are measured in accordance with the Group’s accounting policies. Thereafter the assets (or disposal group) are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group is first allocated to goodwill, and then to remaining assets and liabilities on a pro-rata basis, except that no loss is allocated to inventories, financial assets and deferred tax assets, which continue to be measured in accordance with the Group’s accounting policies. Impairment losses on initial classification as held-for-sale and subsequent gains or losses on remeasurement are recognised in profit or loss as capital items. Gains are not recognised in excess of any cumulative impairment loss. 1.23 Statements and interpretations issued but not yet effective At the date of approval of these annual financial statements, certain new accounting standards, amendments, and interpretations to existing standards had been published that are mandatory for accounting periods beginning on or after 1  January 2013 which the Group has elected not to adopt early.

IFRS 7 Financial Instruments: Disclosure Amended in December 2011 and relates to the offsetting of assets and liabilities. This standard becomes effective for the year-ends beginning on or after 1 January 2013. This standard will have no financial impact but may have a disclosure impact on the Group’s results. IFRS 9 Financial Instruments (2010) Phase One – Classification and measurement of financial assets and liabilities is effective for year-ends beginning on or after 1 January 2015. IFRS 9, once completed, will replace IAS 39 Financial Instruments: Recognition and Measurement. The second and third phases of the project will deal with the impairment of financial instruments and hedge accounting, respectively. This standard will have no financial impact but may have disclosure impact on the Group’s results. IFRS 10 Consolidated Financial Statements Replaces the consolidation requirements in IAS 27 Consolidated and Separate Financial Statements and SIC12 Consolidation – Special-purpose Entities. The standard builds on the existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company and provides additional guidance to assist in the determination of control where this is difficult to assess. This standard is effective for the reporting periods beginning on or after 1 January 2013. This standard will have no financial impact but may have disclosure impact on the Group’s results. IFRS 11 Joint Arrangements Deals with the accounting for joint arrangements and focuses on the rights and obligations of the arrangement, rather than its legal form. The standard requires a single method for accounting for interests in jointly controlled entities. Applicable to annual reporting periods beginning on or after 1 January 2013. As the Group has no joint arrangements, this standard will have no financial or disclosure impact on the Group’s results.

Iliad Africa Limited Integrated Annual Report 2012

69

ACCOUNTING POLICIES Continued for the year ended 31 December 2012

IFRS 12 Disclosure of Interests in Other Entities Extensive disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special-purpose vehicles and other off-balance sheet vehicles. IFRS 12 requires sufficient transparency to enable users of financial statements to evaluate the nature of, and the risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. Applicable to annual reporting periods beginning on or after 1 January 2013. This standard will have no financial impact on the Group’s results, but may result in additional disclosure.

Applicable to annual reporting periods beginning on or after 1 January 2013. This standard will have no financial impact on the Group’s results. The impact on the Group’s disclosure is still under review. IAS 28 Investments in Associates and Joint Ventures (2011) Was amended in May 2011 to take into account the changes required in this standard due to the introduction of IFRS 11 Joint Arrangements.

IFRS 13 Fair-value Measurement Provides guidance on fair-value measurement and provides additional disclosure requirements.

Applicable to annual reporting periods beginning on or after 1 January 2013.

Applicable to annual reporting periods beginning on or after 1 January 2013.

This standard will have no financial or disclosure impact on the Group’s results.

This standard will have no financial impact on the Group’s results, but may result in additional disclosure.

IAS 32 Financial Instruments: Presentation Amended in December 2011 and relates to the offsetting of assets and liabilities.

IAS 1 Presentation of Financial Statements Issued in June 2011 and contains an amendment to revise the way other comprehensive income is presented. This standard requires other comprehensive income to be separated into items that may in a future period be classified to profit or loss, and items that may never be reclassified to profit or loss. This standard becomes effective for year-ends beginning on or after 1 July 2012. This standard will have no financial or disclosure impact on the Group’s results. IAS 12 Income Taxes Issued in December 2010 and contains a limited scope amendment relating to the recovery of the underlying assets. This standard becomes effective for year-ends beginning on or after 1 January 2012. This standard will have no financial or disclosure impact on the Group’s results. IAS 19 Employee Benefits (2011) Amended in June 2011 resulting from the post-employment benefits and termination benefits projects. A significant amendment is the removal of the corridor approach for recognising actuarial gains and losses, requiring full balance sheet recognition for surpluses and deficits. This standard becomes effective for year-ends beginning on or after 1 January 2013. The Group anticipates this standard to have a limited financial and disclosure impact.

70

IAS 27 Separate Financial Statements (2011) Was amended in May 2011 to take into account the changes required in this standard due to the introduction of IFRS 10 Consolidated Financial Statements.

Iliad Africa Limited Integrated Annual Report 2012

Applicable to annual reporting periods beginning on or after 1 January 2014. This standard will have no financial or disclosure impact on the Group’s results. ED 288 Exposure Draft of an Amendment to Statements of Generally Accepted Accounting Practice Leases Issued in August 2010, remains an area of focus. This ED contains various proposals to improve the financial reporting of lease contracts. The accounting treatment under the existing standard IAS 17 Leases is determined by the classification of the lease. Classification as an operating lease results in the lessee not recording any assets or liabilities in the statement of financial position under IFRS. This results in many investors having to adjust the financial statements to estimate the effects of lessees’ operating leases for the purpose of investment analysis. The proposed ED would result in a consistent approach to lease accounting for both lessees and lessors – a ‘right-of-use’ approach. Among other changes, this approach would result in the liability for payments arising under the lease contract and the right to use the underlying asset being included in the lessee’s statement of financial position, thus providing more complete and useful information to investors and other users of financial statements. We are currently unable to estimate accurately the financial impact on the Group.

NOTES TO THE ANNUAL FINANCIAL STATEMENTS for the year ended 31 December 2012

Group 2011

2012 Accumulated Cost depreciation R’000 R’000 2

Net carrying value R’000

Cost R’000

Accumulated depreciation R’000

Net carrying value R’000

Property, plant and equipment Owned assets – Machinery and warehouse equipment

90 978

48 312

42 666

79 234

39 613

39 621

– Vehicles

72 740

43 521

29 219

61 954

35 074

26 880

– Computer equipment and software

61 243

45 386

15 857

46 798

40 367

6 431

–  Furniture and fixtures

82 579

64 589

17 990

73 900

56 838

17 062

– Improvements to leasehold premises

54 515

27 925

26 590

40 343

22 199

18 144

8 749

6 913

1 836

7 003

6 481

522

370 804

236 646

134 158

309 232

200 572

108 660

Capitalised leased assets – Machinery, vehicles and warehouse equipment Total

Group

2.1

2012 R’000

2011 R’000

71 242

47 590

Movements during the year Capital expenditure Owned assets –  Machinery and warehouse equipment

16 792

11 464

– Vehicles

12 456

13 774

–  Computer equipment and software

16 342

4 851

9 359

7 602

14 477

9 899

1 816



(2 538)

(6 998)

(1 528)

(2 298)

(419)

(1 174)

–  Furniture and fixtures –  Improvements to leasehold premises Capitalised leased assets –  Machinery and warehouse equipment, and vehicles Disposals Owned assets –  Machinery and warehouse equipment – Vehicles –  Computer equipment and software

(61)

(558)

–  Furniture and fixtures

(294)

(1 627)

–  Improvements to leasehold premises

(236)

(828)



(513)

Capitalised leased assets –  Machinery and warehouse equipment, and vehicles Disclosed as held-for-sale Depreciation for the year (refer note 17)

(4 588)



(38 618)

(44 352)

25 498

(3 760)

Iliad Africa Limited Integrated Annual Report 2012

71

NOTES TO THE ANNUAL FINANCIAL STATEMENTS Continued for the year ended 31 December 2012

2

Property, plant and equipment (continued) Fair value of property, plant and equipment The fair value of property, plant and equipment equals its carrying value. Replacement and insurance values Property, plant and equipment have an estimated replacement cost and insurance value of R292,2 million (2011: R293,0 million). Capitalised leased assets Assets with a net carrying value of Nil (2011: R0,5 million) are hypothecated under finance lease and instalment sale agreements (see note 11). Encumbrances No owned property, plant and equipment is encumbered – the Group’s borrowings are unsecured (refer to note 11). Impairment testing Property, plant and equipment is assessed for impairment at each reporting date to determine whether there is any objective evidence that it is impaired. Property, plant and equipment is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows generated by that asset. Iliad performed impairment tests on individually significant items of property, plant and equipment at 31 December 2012 by discounting the estimated future pre-tax cash flows to their present value using a post-tax discount rate that reflected the current market assessment of the time value of money and the risks specific to the asset. An average sales value growth of 6% was assumed with the gross margin percentage, based on actual results to date, being applied to the calculation and discounted at a rate of 14%. The value in use was compared to the fair value less costs to sell. No impairments were required. Fully depreciated assets Cost of assets fully depreciated but still in use amounted to R97,5 million (2011: R100,9 million). Due to closures of retail premises there may be temporary idle assets. The Directors are of the opinion that the values of these assets are not significant. Residual values It is the Group’s accounting policy to reassess residual values on an annual basis. The Group estimates residual values on plant and equipment to be nil, as there is no history of recoveries on these assets when their economic life is completed. Residual values are only assigned to assets that produce rental income. Group

3

2011 R’000

203 441

204 028

Intangible assets Goodwill (refer note 3.1) Trademarks (refer note 3.2)

3.1

2012 R’000

30 720

63 075

234 161

267 103

Goodwill At the beginning of the year Impairments At end of the year

204 028

391 458

(587)

(187 430)

203 441

204 028

Goodwill represents the excess of the purchase consideration over the Group’s interest in the net fair value of the identifiable assets, liabilities, and contingent liabilities at the date of acquisition as part of a business combination.

72

Iliad Africa Limited Integrated Annual Report 2012

Group

3

Intangible assets (continued)

3.1

Goodwill (continued)

2012 R’000

2011 R’000

116 804

116 804

Allocation of goodwill to the divisions: The carrying amounts of goodwill balance at a segmental level were: General Building Materials Specialised Building Materials 3.2

86 637

87 224

203 441

204 028

63 075

125 175

Trademarks Finite useful lives At beginning of the year Amortisation

(2 523)



Impairments

(29 832)

(62 100)

At end of the year

30 720

63 075





30 720

63 075

30 720

63 075

Trademarks represent registered rights to the exclusive use of certain trademarks and brand names that have been acquired as part of a business combination and have been stated at their fair value determined by external trademark valuation specialists, at the time of acquisition. In the current year trademarks were assessed to have finite lifes, and are amortised over a period of maximum of 25 years. Up to 2011 all trademarks were classified as having infinite lifes. No value has been placed on internally generated trademarks in the Iliad operations. Allocation of trademarks to the divisions: The carrying amounts of trademarks balance at a segmental level were: General Building Materials Specialised Building Materials

3.3

Impairment testing of goodwill and trademarks Trademarks and goodwill acquired through acquisitions have been allocated to various operations within divisions and subsidiaries representing the underlying cash-generating units and have been tested for impairment accordingly. The recoverable amount of the underlying cash-generating units has been determined based on a value-in-use calculation using cash flow projections for the forthcoming seven years adjusted for expected annual growth. In determining the cash flow projections for the forthcoming financial years, sales, gross margins, costs and working capital movements were based on historical performance and adjusted for expected future performance. The after-tax discount rate applied to the cash flow projections was 14,0% (2011: 14,0%) being the weighted average cost of capital of Iliad. The average annual growth rate for the following seven years used for the cash-generating units ranged from 6% (2011: 6% to 8%). Thereafter an average range of the perpetuity growth rate was 0% (2011: 6%) which approximates the estimated future growth rate of the business. Management believes that any reasonable and possible change in the key assumptions would not cause the carrying amounts of the cashgenerating units to exceed the recoverable amounts. These calculations indicated that there was no need to impair the carrying value of trademarks and goodwill at 31 December 2012 other than the specific impairments as accounted for.

Iliad Africa Limited Integrated Annual Report 2012

73

NOTES TO THE ANNUAL FINANCIAL STATEMENTS Continued for the year ended 31 December 2012

3 3.4

Intangible assets (continued) Impairment of goodwill and trademarks Although the Group implemented business plans at the various divisions to achieve a positive turnaround, these interventions did not have the required results in some businesses and trading performance remained subdued. The Group decided to take a more conservative view on the long-term growth prospects and reduced the valuation of intangibles that arose on acquisition. In the current financial year the goodwill and trademarks of the Timber and Ceramic Cash-and-Carry clusters were impaired, while Campwell Hardware and Thorpe Timbers amongst others were impaired last year. Group

2012 R’000

2011 R’000

Shares at cost

1

1

Loans to subsidiaries





1

1

900



2012 R’000 4

Company 2011 R’000

Investment in subsidiaries Investment in subsidiaries

There are no fixed terms for repayment. No interest is charged on loans. Recoverability is assessed at each reporting date. Details of subsidiaries are presented in note 29. 5

Deferred taxation Deferred tax assets

5.1

5.2

40 760

Deferred taxation by temporary timing difference Lease smoothing accrual

4 158

4 855

Estimated tax losses

5 620

2 456

Allowances for future expenditure

(11 164)

(8 048)

Provisions relating to debtors interest, inventory, bad debts, leave pay and credit notes

32 741

33 285

Income received in advance

15 007

10 833

Other

(2 429)

(2 621)

43 933

40 760

40 760

33 446



(629)

(697)

(620)

Estimated tax losses

3 164

(2 882)

Allowances for future expenditure

(3 116)

2 402

900

900



Movements of deferred tax assets Balance at beginning of year Reversing temporary differences on trademarks Lease smoothing accrual

Provisions relating to debtors interest, inventory, bad debts, leave pay and credit notes Income received in advance Prepayments and other movements At end of the year

74

43 933

Iliad Africa Limited Integrated Annual Report 2012

(544)

14 136

4 174

(1 271)

192

(3 822)

43 933

40 760

900

900



Group

5 5.2

2012 R’000

2011 R’000

20 794

12 496

Deferred taxation (continued) Movements of deferred tax assets (continued) The estimated tax losses not taken into account in calculating deferred taxation (assessed losses not raised as recoverability uncertain)

Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity where there is no intention to settle the balances on a net basis or to realise assets and settle payables simultaneously. The deferred tax assets arise due to taxable temporary differences and unused tax losses. Given both recent and forecast trading, the Directors are of the opinion that the level of profits in the foreseeable future is more likely than not to be sufficient to recover these assets. Group

6

Company

2012 R’000

2011 R’000

687 162

661 971

2012 R’000

2011 R’000

Inventories Merchandise and finished goods Raw materials

7 290

57 663

694 452

719 634

Merchandise and finished goods

28 513

25 856

Balance at end of period

28 513

25 856

Trade receivables

382 160

403 826

Less: Impairment allowance

(18 735)

(18 071)

Net trade receivables

363 425

385 755

Inventory obsolescence (taken into account in the carrying value of inventories above)

Inventory balances are net of write-downs and provisions The cost of inventories recognised as an expense and included in cost of sales amounted to R3,3 billion (2011: R3,1 billion). The cost of inventories written off and included in cost of sales amounted to R13,8 million (2011: R22,4 million). 7

Trade and other receivables

Other receivables

98 156

81 663

465

450

461 581

467 418

465

450

All of the Group’s trade and other receivables are short-term. The carrying value of trade receivables is considered a reasonable approximation of fair value. The trade receivables have been reviewed for indicators of impairment. Certain trade receivables were found to be impaired and a provision of R18,7 million (2011: R18,1 million) has been recorded accordingly. The impaired trade receivables are mostly due from customers in the business market that are experiencing financial difficulties. The increase in the impairment allowance in the current year is due to the current market conditions in the industry that the Group operates in.

Iliad Africa Limited Integrated Annual Report 2012

75

NOTES TO THE ANNUAL FINANCIAL STATEMENTS Continued for the year ended 31 December 2012

7

Trade and other receivables (continued) Trade receivables comprise a widespread customer base. The on-going credit evaluation of the financial position of customers is performed, and where appropriate, credit guarantee insurance is purchased. The granting of credit is subject to the Group’s credit policy which prescribes that all applications are first offered for credit insurance, where credit insurance cannot be obtained the risk is mitigated by definitive securities. Major accounts are reviewed monthly by the Group’s Credit Committee. At year-end, the Group did not consider there to be any significant concentration of credit risk that has not been insured or adequately provided for. No one customer represents more than 5% of the total balance of trade receivables. All trade receivables are denominated in South African Rands. Credit quality of trade receivables As at 31 December 2012 trade receivables of R103,1 million (2011: R99,9 million) were past due but not impaired. A large portion of these customers fall within the categories of government, contractors, developers and insurance houses where delays are experienced in the processing of claims in order to receive payment. These customers are not perceived to be of risk due to the nature of trade agreements in place. The ageing of these trade receivables are shown below: Group

Company

2012 R’000

2011 R’000

Not past due date

118 055

139 710

Due within 30 days from statement

142 251

146 141

Past due within 30 – 60 days from statement

50 124

48 438

Past due within 60 – 90 days from statement

20 209

19 510

Past due within 90 – 120 days from statement

38 658

37 067

Past due within 120 – 150 days from statement

7 780

6 253

Past due in excess of 150 days from statement

5 083

6 707

382 160

403 826

18 071

16 230

1 127

4 155

2012 R’000

2011 R’000

Listings of overdue customer balances are reviewed monthly and compared against their credit terms/limits. Appropriate action is taken to recover long overdue debts. Trade receivables are not committed as security for debt. Where appropriate, collateral has been provided by a number of overdue customers. The increase in trade receivables past due but not impaired for the current year is mainly due to decreased levels of receivable collection from government and quasi-government business through independent contractors. Payment cessions over the contractors and credit insurance exist over these trade receivables. Reconciliation of impairment allowance Balance as at beginning of year Charge for the year Utilised Balance as at end of year

(463)

(2 314)

18 735

18 071

The creation and release of the impaired allowance has been included in net operating expenses in the statements of comprehensive income.

76

Iliad Africa Limited Integrated Annual Report 2012

Group 2012 R’000 8

Company 2011 R’000

2012 R’000

2011 R’000

Cash and cash equivalents Cash and bank balances

212 958

381 059

113 259

108 312

Bank borrowings (refer note 11.3)

(289 875)

(332 841)



(575)

(76 917)

48 218

113 259

107 737

204 716

224 722

6 255

155 436

113 259

108 312

Cash and bank balances consist of: Investec Grayston Trust Investment (refer note 8.1) Favourable balances with banks Cash on hand

1 987

901





212 958

381 059

113 259

108 312

Cash and cash equivalents include deposits in dividend income funds. The carrying amount of cash and cash equivalents approximates fair value due to the short-term maturity of these financial instruments. The effective interest rate on cash and cash balances averaged 6,7% for the year (2011: 6,1%). The Group had undrawn demand overdraft facilities at 31 December 2012 of R255 million (2011: R187 million). Bank overdraft facilities carry an interest rate that approximate the prime lending rate (2011: prime). Other short-term banking facilities carry an interest rate of 1% below prime (2011: 1% below prime). 8.1

Investec Grayston Trust Investment Investment in AEL Investment Holdings (Pty) Ltd constitute preference shares through the Investec Grayston Trust for an amount of R205 million at year-end. Return on the preference shares is linked to prime and as such mitigates any valuation risk, however, returns are subject to interest rate risk as a result of exposure to prime. During the current financial year a withdrawal of R31 million was made. A put option agreement has been entered into with Investec whereby, in certain circumstances, such as default on payment or sequestration of the trust, or at any time by choice of Iliad, the holding can be sold to Investec at the amount currently accrued for in the trust for Iliad. Exposure to credit risk (unable to make payments on preference shares) is managed through a put option agreement for sale of the consideration at its nominal value. The fair value of the investment approximates its carrying amount as a result of the variable rates of return per the agreement with Investec. The liquidity risk associated with the instrument is not high as it has a short notice period before it can be redeemed. As such, while it is not as liquid as a bank account, it is still a cash equivalent. The investment has been classified as a loan and receivable as a result of its determinable payments. The maximum exposure to credit risk at year-end is R205 million (2011: R225 million). No return earned on the instrument is found to have been paid past the due date. The instrument provides for a change in return that is linked to a change in the taxation law of Southern Africa relating to taxation on dividends. The put option agreement relating to the investment’s put price is linked to the outstanding amount calculated in terms of the agreement and as such carries no value until a default is made on the payment of the preference shares.

Iliad Africa Limited Integrated Annual Report 2012

77

NOTES TO THE ANNUAL FINANCIAL STATEMENTS Continued for the year ended 31 December 2012

Group

Company

2012 R’000

2011 R’000

2012 R’000

2011 R’000

12 243 804 (2011: 12 243 804) “A” shares

122

122

122

122

Total issued share capital

122

122

122

122

9

Share capital

9.1

Authorised 300 000 000 ordinary shares of no par value 12 243 804 “A” shares of no par value

9.2

Issued ordinary shares 138 217 794 (2011: 138 217 794) ordinary shares of no par value

9.3

9.4

Issued “A” shares

Rights of “A” shares The following rights, privileges and restrictions attach to the “A” shares of no par value issued on 1 April 2005 in terms of the BEE transaction: 1  The “A” shares will rank as regards voting rights pari passu in all respects with the ordinary shares in the capital of Iliad. 2 The holders of the “A” shares shall be entitled to receive notice of all meetings of members of Iliad and shall be entitled to be present and/ or to vote, either in person or by proxy, at any meeting of shareholders of Iliad. 3 The “A” shares shall not confer any rights to receive any dividend or distribution out of any capital or revenue profits of Iliad. 4 The “A” shares shall not confer any rights to dividends or return on capital, nor shall they confer any rights to participate in any surplus assets of Iliad, on a winding up. 5 Iliad shall at its option, and within its sole discretion, be entitled to redeem, convert or acquire all or any of the “A” shares at the stated capital in respect of the “A” shares divided by the number of “A” shares being redeemed, at any time after 31 December 2009 and prior thereto, only in the following circumstances: 5.1 In the event of Iliad exercising its call option in terms of the BEE agreement, at any time after payment (in terms of the BEE agreement) has been made to the holder of the shares in the issued share capital of Iliad which are the subject matter of the call option. 5.2 In the event of any options which are the subject matter of the BEE agreement being exercised by the holder thereof, Iliad shall be entitled to cause to be redeemed, converted or acquired at any time following the date of issue of ordinary shares in respect of options exercised, so many “A” shares as correspond with the number of options, which are exercised. 6 Iliad shall, at the option of the holder of the “A” shares, be obliged to redeem, convert or acquire all or part of the “A” shares at the stated capital in respect of the “A” shares divided by the number of “A” shares being redeemed, at any time falling on a date that is after that specified in 5 above, which shall apply mutatis mutandis. 7 The terms of the “A” shares may not be modified, altered, varied, added to or abrogated from. 8 The voting rights as referred to in 1 above, shall terminate forthwith upon redemption or purchase of the “A” shares by Iliad.

78

Iliad Africa Limited Integrated Annual Report 2012

9

Share capital (continued)

9.5

Unissued shares The unissued ordinary shares, held in reserve for the share incentive scheme, are the only unissued ordinary shares in terms of a resolution of members passed at the last Annual General Meeting of members, under the control of the Directors. This authority remains in force until the next Annual General Meeting.

9.6

Share Appreciation Rights Scheme The Company has issued share appreciation rights (SARS) to various employees as a long-term performance incentive. These rights are issued at the prevailing market price at the date of issue. The rights are valid for five years and become vested in equal parts after three, four and five years. At the election of the grantee, the right can be extended for another year. The right holders are entitled to the appreciation in the share price from the date of issue to the date the right is exercised and this will be settled in cash. There are no other share-linked incentive schemes at the subsidiary level. Employees of subsidiaries participate in this scheme. 2012 2011 R’000 R’000 Conditions of exercise Number of SARS allocated at the beginning of the year Allocations during the period SARS terminated

3 789 213 8 339 433 (235 645)

– 3 789 213 –

Number of SARS allocated at the end of the year Number of SARS vested at the end of the year

11 893 001 –

3 789 213 –

Number of SARS unvested at the end of the year The following expiry dates applied to the SARS in issue at 31 December: Expiry date The following SARS were issued during the financial year: Number of SARS issued Issue price Fair value of Share Appreciation Rights Scheme (R’000) Share-linked incentives granted to employees have been valued using the Binomial model: Share price Expected volatility Dividend yield Risk-free interest rate Maximum vesting estimate (R’000) SARS cost recognised in Statement of Comprehensive Income

11 893 001

3 789 213

2016 & 2017

2016

8 339 433 R4,87 4 182

3 789 213 R8,11 175

R5,50 44,75% 3,60% 6,00% 4 819 4 007

R4,75 14,64% 3,80% 7% 335 175

Iliad Africa Limited Integrated Annual Report 2012

79

NOTES TO THE ANNUAL FINANCIAL STATEMENTS Continued for the year ended 31 December 2012

Group

10

Company

2012 R’000

2011 R’000





2012 R’000

2011 R’000

Non-controlling interest Balance at the beginning of the year Share of attributable earnings for the year





Balance at the end of the year





5 474

4 069

The equity attributable to a non-controlling interest is in deficit due to continued losses incurred by United Metal Processors (Pty) Ltd (UMP), the only subsidiary in which the non-controlling interest arises. Iliad is the only equity participant guaranteeing the losses of the subsidiary through the subordination of its loan advanced to UMP, and hence no allocation of the deficit balance at year-end and current year losses has been made to the non-controlling interest. Cumulative un-allocated losses amount to R4,8 million (2011: R1,3 million) 11

Borrowings

11.1 Secured liabilities Secured by finance lease and instalment sale agreements over vehicles and equipment indicated in note 2. The liabilities bear interest at 7,25% per annum (2011: 7,1% to 9% per annum), which are linked to the prime bank overdraft rate and are repayable in monthly instalments of approximately R0,1 million (2011: R0,3 million) (inclusive of finance charges). 11.2 Bank borrowings (refer note 8) 11.3 Less: Amounts payable within one year included with current liabilities Secured liabilities

332 841



575

295 349

336 910



575

(291 378)

(334 391)



(575)

(1 503)

(1 550)





(289 875)

(332 841)



(575)

3 971

2 519





4 586



Inventories

50 664



Trade and other receivables

17 461



Total assets

72 711



Trade and other payables

27 168



Total liabilities

27 168



Bank borrowings (refer note 8) Long-term borrowings 12

289 875

Assets and liabilities classified as held-for-sale Assets and liabilities classified as held-for-sale comprise of the following components: Assets Property, plant and equipment

Liabilities

The disposal group comprises of the Group’s Timber Wholesale Cluster. In view of the Group continually revisiting the portfolio, it has been decided to dispose of the assets and liabilities of this cluster. (Refer to subsequent events page 57)

80

Iliad Africa Limited Integrated Annual Report 2012

Group 2012 R’000 13

Company 2011 R’000

2012 R’000

2011 R’000

Commitments

13.1 Operating leases Estimated future rentals – Property –  Vehicles and equipment

Operating leases payable –  within one year –  in second to fifth year inclusive

13.2 Capital expenditure approved Contracted for Authorised but not contracted for

Commitment for acquisition and roll-out of businesses Contracted for Authorised but not contracted for Total commitments

188 309 7 851

272 594 13 255

196 160

285 849

71 488 124 672

116 639 169 210

196 160

285 849

4 477 48 028

10 836 37 284

52 505

48 120



17 956

248 665

351 925

Property commitments are for fixed-rate escalation leases for operating and trading premises with an average term of three years. Many lease contracts include a renewal option at the end of the term at fair market rates. Rentals escalate at rates that are in line with historical interest rates applicable to the South African environment. Lease periods do not exceed five years. Motor vehicle and equipment commitments are fixed-rate leases in operating business units with an average lease term of four years. These commitments will be financed from available cash resources, funds generated from operations and available borrowing capacity.

Iliad Africa Limited Integrated Annual Report 2012

81

NOTES TO THE ANNUAL FINANCIAL STATEMENTS Continued for the year ended 31 December 2012

Group 2012 R’000 14

Company 2011 R’000

2012 R’000

2011 R’000

545 000

520 000

29

44

29

44

Contingent liabilities Contingent liabilities at reporting date include:

14.1 Guarantees issued in the normal course of business for finance facilities granted to subsidiaries Management has assessed the fair value of these overdraft guarantees to be immaterial based on a probable weighted outcome and is of the opinion that due to the high net asset value of the companies involved, losses under the guarantees are unlikely. 14.2 The Group is dealing with certain legal and other claims that arise out of normal trading activities. The Directors have assessed these claims and have provided for their estimate of the probable outcome of these matters (refer note 15.2). There is no indication of when the outflows relating to these contingent liabilities will realise. 15

Trade and other payables and provisions

15.1 Trade and other payables Trade payables

634 254

732 334

Other payables

107 263

116 740

Leave pay accrual

15 638

15 710

757 155

864 784

All amounts are short-term. The carrying values are considered to be a reasonable approximation of fair value. 15.2 Provisions for legal claims (refer note 14.2) At beginning of the year Movement Trade and other payables and provisions – current

200

1 000

1 000

1 500

(800)

(500)

757 355

865 784

29

44

581 174

635 247

29

44

6 915

4 178

46 165

92 909

634 254

732 334

29

44

No individual vendor represents more than 10% of the Group’s trade payables. The carrying amounts of trade payables are denominated in the following currencies: SA Rand Euro US Dollar 15.3 Interest bearing trade payables Included in trade payables is an interest bearing component to the value of R37 million (2011: R73 million) repayable within six months at an interest rate of 4,93%.

82

Iliad Africa Limited Integrated Annual Report 2012

Group

16

17

Company

2012 R’000

2011 R’000

2012 R’000

2011 R’000

Sale of goods

4 439 368

4 185 235

Rental income

53 717

44 303

4 493 085

4 229 538

469

573

Auditors’ remuneration

4 946

6 832

250

250

–  Audit fees

4 850

5 296

250

250



1 200





96

336





Consulting fees

6 190

8 338

122

43

Amortisation of intangibles – Trademarks

2 523



38 618

44 352

–  Machinery and warehouse equipment

8 794

8 482

– Vehicles

9 292

8 766

–  Computer equipment

6 259

4 988

–  Furniture and fixtures

7 976

16 387

–  Improvements to leased premises

5 795

4 974

502

755

Revenue

Operating profit before finance charges After taking into account the following: Income Foreign exchange profit Expenditure

–  Under (over) accrual prior year –  Other services

Depreciation of property, plant and equipment

–  Capitalised leased assets (Profit)/loss on disposal of property, plant and equipment

(142)

957

Operating lease rentals

145 374

152 215

– Property

138 372

139 455

7 002

12 760

–  Vehicles and equipment Intangible asset impairments (refer note 3)

30 419

249 530

Restructuring cost



45 992

–  Closure cost Specialised Building Materials



21 411

–  Closure cost General Building Materials



24 581

Loss on disposal of business assets



6 547

Staff costs

576 367

564 467

–  Salaries and wages

536 683

525 571

32 387

30 459

7 297

8 437

10 615

13 973

–  Retirement benefit fund contributions –  Medical aid contributions 18

Investment income Dividends received – external Dividends received – subsidiaries (refer note 28) Interest received – accounts receivable Interest received – loans and receivables

4 894

2 585

28 700

25 400

7 898

8 604

78

190

253

10

18 591

22 767

33 847

27 995

Iliad Africa Limited Integrated Annual Report 2012

83

NOTES TO THE ANNUAL FINANCIAL STATEMENTS Continued for the year ended 31 December 2012

Group

19

Bank and short-term borrowings

2012 R’000

29 697

35 618

37



222

453





29 919

36 071

37



29 973

855

(28)

353

Normal taxation – adjustment to prior years

3 163

1 750





Deferred taxation – current

(2 143)

(8 615)

49



Deferred taxation – adjustment to prior years

(1 030)

1 301

(949)



Income tax reported in comprehensive income

29 963

(4 709)

(928)

353

Reconciliation of tax rate

%

%

%

%

Standard tax rate

28,00

(28,00)

28,00

28,00

Reduction in tax rate:

(7,77)

(6,69)

(30,48)

(28,48)

Exempt income

(4,67)

(5,40)

(30,48)

(28,48)

Other

(3,10)

(1,29)

Increase in tax rate: Disallowable charges Impairment

26,88

32,78

(18,17)

1,77

1,60

0,11

3,59

1,77

14,24

28,34 (21,76)



(20,65)

1,29

Other

3,35

2,72

Tax loss not recognised

7,69

1,61

Effective rate of taxation

47,11

(1,91)

Distributions out of stated capital and dividends Dividends to owners of the parent – Declared on 22 March 2012 at 20,0 cents per share payable on 23 April 2012 to shareholders registered at 13 April 2012

27 644

Dividends to owners of the parent – Declared on 10 March 2011 at 20,0 cents per share payable on 18 April 2011 to shareholders registered at 8 April 2011

No interim dividend was declared or paid.

Iliad Africa Limited Integrated Annual Report 2012

27 644

27 644 27 644

84

2011 R’000

Taxation Normal taxation – current

21

2011 R’000

Finance charges Capitalised finance leases

20

Company

2012 R’000

27 644

27 644 27 644

27 644

Group

22

2012 R’000

2011 R’000

Weighted average number of ordinary shares

138 217 794

138 217 794

Diluted weighted average number of ordinary shares at 31 December

138 217 794

138 217 794

33 643

(241 784)

Earnings/(loss) per share (cents)

24,3

(174,9)

Diluted earnings/(loss) per share (cents)

24,3

(174,9)

0,0

0,0

Attributable profit/(loss) for the year (R’000)

33 643

(241 784)

Impairment of goodwill and trademarks

30 419

249 530

Earnings and dividends per share Earnings per share are based on the consolidated earnings attributable to shareholders of the parent being a profit of R33 642 386 (2011: Loss: R241 784 000) and headline earnings are calculated on headline profit of R63 959 147 (2011: Profit: R13 149 000) and are calculated using the weighted average number of 138 217 794 (2011: 138 217 794) ordinary shares in issue. Diluted earnings and diluted headline earnings per share are based on the consolidated earnings and headline earnings as stated above and are calculated using 138 217 794 (2011: 138 217 794) ordinary shares in issue.

22.1 Diluted weighted average number of shares

22.2 Earnings per share Attributable profits/(losses) for the year (R’000)

Percentage dilution (%) 22.3 Headline earnings per share

(Profit)/loss on disposal of plant and equipment Taxation on (profit)/loss on disposal of plant and equipment

(142)

957

39

(268)

Loss on disposal of components of businesses



6 547

Taxation on loss on disposal of components of businesses



(1 833)

63 959

13 149

Headline earnings per share (cents)

46,3

9,5

Diluted headline earnings per share (cents)

46,3

9,5

0,0

0,0

20,0

20,0

Number of ordinary shares in issue at year-end

138 217 794

138 217 794

Weighted average number of ordinary shares in issue

138 217 794

138 217 794

Diluted weighted average number of ordinary shares in issue

138 217 794

138 217 794

Net asset value per share attributable to equity holders of the parent (cents)

571,5

567,2

Net tangible asset value per share attributable to equity holders of the parent (cents)

402,1

373,9

Headline earnings (R’000)

Percentage dilution (%) 22.4 Dividend per share – declared post year-end from current year’s profit (cents)

Iliad Africa Limited Integrated Annual Report 2012

85

NOTES TO THE ANNUAL FINANCIAL STATEMENTS Continued for the year ended 31 December 2012

23

Months paid R’000

Directors’ fees R’000

12 12 12 12 12

518 300 322 300 300

Directors’ emoluments 2012 Non-executive Directors HC Turner T Njikizana RT Ririe F Abrahams A Kalyan Executive Directors – paid by a subsidiary E Beneke CP Booyens Executive management and prescribed officers – paid by a subsidiary Prescribed officer No 2 Prescribed officer No 3 Prescribed officer No 4 Prescribed officer No 5 Prescribed officer No 7 Prescribed officer No 9

Benefits and allowances R’000

Share option scheme R’000

Total R’000

518 300 322 300 300

12 12

2 538 1 685

3 500 828

527 461

6 565 2 974

12 12 12 12 12 12

1 220 1 439 1 334 1 045 901 1 000

303 1 508 803 385 424 550

279 315 292 233 305 308

1 802 3 262 2 429 1 663 1 630 1 858

11 162

8 301

2 720

1 740 2011 Non-executive Directors HC Turner T Njikizana RT Ririe F Abrahams A Kalyan Executive Directors – paid by a subsidiary E Beneke NP Goosen – Resigned 30 June 2011 CP Booyens – Appointed 1 November 2011 Executive management and prescribed officers – paid by a subsidiary Prescribed officer No 1 Prescribed officer No 2 Prescribed officer No 3 Prescribed officer No 4 Prescribed officer No 5 Prescribed officer No 6 Prescribed officer No 7 Prescribed officer No 8 Prescribed officer No 9

Fixed remune- Performance ration bonuses R’000 R’000

12 12 12 1 1



493 263 307 8 8

493 263 307 8 8

12 6 2

2 689 673 302

6 12 12 12 12 9 11 5 3

– 1 227 1 480 1 510 998 780 990 560 201 1 079

23 923

11 410

600

556 750 600 377 271 361

3 515

120 78 15

3 409 751 317

1 502 156 60

1 502 1 939 2 290 2 110 1 495 1 096 1 461 617 201

120 45 110 57 2 263



18 267

The remuneration of Directors is reviewed annually by the Remuneration Committee for approval by the Board. Non-executive Directors are paid a basic fee with an additional fee payable for their level of responsibility and committee membership. They do not participate in any Group incentive plans or share schemes. They are reimbursed for any Group-related expenditure. All Executive Directors’ contracts are subject to a three calendar month’s notice and restraint of trade agreements. Non-executive Directors’ service contracts have no notice periods.

86

Iliad Africa Limited Integrated Annual Report 2012

24

Retirement benefit information The Group contributes to defined-contribution funds covering approximately 60% of the Group’s employees. The funds are administered in terms of the Pension Funds Act 1956. Contributions to retirement funding during the year amounted to R32,4 million (2011: R30,5 million). As the funds are defined contribution funds, no actuarial shortfalls can arise in the future. All permanent employees are required to become members of the fund unless they are obliged by legislation to be members of various industry funds. In addition, the Group contributes to a defined-benefit fund for 13 active members. The last statutory actuarial valuation was performed as at 31 August 2010 by PJ Theunissen, a registered actuarial services provider. This valuation indicated that the defined-benefit reserve account had excess funding of R9,8 million. The next valuation will be completed in 2013. The defined-benefit fund is funded by employer contributions, as well as personal contributions made to the Outsource Solutions Pension Fund before 1998. The principal assumptions used in determining the fair value of the plan assets and the present value of the liabilities were as follows: Discount rate

2,49%

Expected return on plan assets

4,5% in excess of CPI

Salary increases

1% above CPI

No asset has been recognised on the statement of financial position in respect of the defined-benefit fund due to the surplus of R9,8 million being limited to the refunds expected of Rnil. This surplus can be reconciled as follows: Present value of funded defined-benefit obligation

17 298  

Fair value of plan assets

(27 123)

Surplus 25

R’000

(9 825)

Financial risk management In the normal course of business, the Group is exposed to the following risks: –  Credit risk –  Liquidity risk –  Interest rate risk –  Fair value –  Foreign currency risk –  Capital risk –  Treasury cash and capital management This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and conditions systems are reviewed regularly to reflect changes in the market and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and responsibilities. The Group Audit Rsk Committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit Committee is assisted in its oversight by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

25.1 Credit risk The Group’s exposure to credit risk is limited to the carrying amount of financial assets recognised at the reporting date, as summarised below: Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers, cash and cash equivalents, and derivative financial instruments. Derivative financial instruments Cash-settled call options are only acquired from the top five South African financial institutions in order to limit the Group’s exposure to credit risk arising from the use of derivative financial instruments. The Group does not consider there to be any significant concentration of credit risk related to derivative financial instruments.

Iliad Africa Limited Integrated Annual Report 2012

87

NOTES TO THE ANNUAL FINANCIAL STATEMENTS Continued for the year ended 31 December 2012

25 Financial risk management (continued) 25.1 Credit risk (continued) Cash and cash equivalents The Group limits its exposure to financial institutions by dealing with only the top financial institutions in South Africa. Trade and other receivables There is no significant concentration of credit risk with respect to trade receivables as the Group has a large customer base spread across various geographical areas and industries. The Group has credit policies that require appropriate credit checks on potential customers before sales commence, with on-going reviews at regular intervals. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main component of these allowances is a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. The Group monitors the financial position of its customers on an on-going basis. Where considered appropriate, use is made of credit guarantee insurance. The granting of credit is controlled by application and account limits, reviewed regularly. Refer to note 7 for further information on impairment of trade and other receivables that are past due. The Group’s management considers that all the above financial assets that are not impaired for the reporting dates under review are of good credit quality, including those that are past due. Provision is made for bad debts and at the year-end management did not consider there to be any material credit risk exposure that was not already covered by credit guarantee insurance or a bad debt provision. None of the Group’s trade and other receivables have been pledged as collateral. The Group considers its maximum credit risk to be R654 million (2011: R834 million) which is the total of the Group’s financial assets. At 31 December 2012, the Group did not consider there to be a significant concentration of credit risk for which an impairment allowance had not adequately been made. Group 2012 R’000

2011 R’000

Exposure to credit risk – carrying amounts Loans and receivables Cash and cash equivalents

212 958

381 059

Trade and other receivables (excluding VAT and prepayments)

440 821

452 782

653 779

833 841

The Group only deposits cash with banks and financial institutions of quality credit standing so the credit risk for liquid funds and other shortterm financial assets is considered negligible, since counterparties are reputable banks and financial institutions with high-quality external credit ratings. 25.2 Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group is financed through cash generated by the business and a mixture of call borrowings and other short-term funding. The Group is not over reliant on a particular liquidity source. The Group manages liquidity needs by monitoring daily borrowing levels, cash flow forecasts and ensuring that adequate unutilised borrowing facilities are maintained. There is no restriction on borrowing powers in terms of the Memorandum of Incorporation and at 31 December 2012, the Group’s banking facilities substantially exceeded its forecast requirements for the forthcoming year. The Group has a concentration of credit risk as it has an investment in Investec Grayston Trust which constitute 11% of the Group’s total assets.

88

Iliad Africa Limited Integrated Annual Report 2012

25 Financial risk management (continued) 25.2 Liquidity risk (continued) As at 31 December 2012, the Group’s liabilities have contractual maturities, which are summarised below: Group Current Within 6 months

Non-current 6 to 12 months

1 to 5 years

Total

2012

2011

2012

2011

2012

2011

2012

2011

289 875

332 841









289 875

332 841

827

852

676

698

3 971

2 519

5 474

4 069

744 645

852 216

12 710

13 568





757 355

865 784

1 035 347 1 185 909

13 386

14 266

3 971

2 519

Financial liabilities measured at amortised cost Bank borrowings Finance lease obligations Trade and other payables Total

1 052 704 1 202 694

25.3 Interest rate risk The Group’s interest rate risk is that future cash flows will be adversely affected by interest rate movements. Interest is payable on short-term borrowings at variable rates linked to prime lending rate. The Group’s policy is to minimise interest rate cash flow exposures on its long-term financing. At 31 December 2012, the Group was exposed to changes in market interest rates through its bank borrowings and long- and short-term borrowings, which fluctuate during the year, and are subject to variable interest rates. The following table illustrates the sensitivity of the net result for the year to a reasonably possible change in rates of +1% and -1% (2011: +1%/-1%) with effect from the beginning of the year. These changes are considered to be reasonably possible based on observations of current market conditions. The calculations are based on the Group’s financial instruments held at the statement of financial position date. All other variables are held constant. 2011

2012

Impact on net result for the year (R’000)

-1%

+1%

-1%

+1%

789

(789)

473

(473)

25.4 Fair value of financial assets and liabilities All financial instruments are carried at amortised cost or amounts that approximate fair value, except for payables and interest-bearing borrowings, which are carried at amortised cost. The carrying amounts for investments, cash, cash equivalents, as well as the payables and interest-bearing borrowings, approximate fair value due to the short-term nature of these instruments. The fair values have been determined using available market information and appropriate valuation methodologies.

Iliad Africa Limited Integrated Annual Report 2012

89

NOTES TO THE ANNUAL FINANCIAL STATEMENTS Continued for the year ended 31 December 2012

25 Financial risk management (continued) 25.5 Foreign currency risk Approximately 6% (2011: 9%) of the Group’s purchases are denominated in foreign currency. Iliad’s foreign transactions are carried out mainly in US Dollars and Euros. Exposures to currency exchange rates arise from the Group’s purchases of goods denominated in foreign currencies and hence exposures to exchange rate fluctuations arise. Foreign currency denominated financial assets and liabilities in US Dollars and Euros are translated to Rands at the closing rate: GROUP 2012

2011

Due within six months 6 915

4 178

US Dollar denominated financial liabilities (trade payables)

Euro denominated financial liabilities (trade payables)

33 609

65 018

Short-term exposure (due within six months)

40 524

69 196

Due after six months –

27 891

US Dollar denominated financial liabilities (trade payables)

Financial liabilities (trade payables)

12 556



Long-term exposure (due after six months)

12 556

27 891

Exchange rate at year-end: US$1 = R8,51 (2011: R8,10) Euro 1 = R11,223 (2011: R10,47) Foreign denominated purchases do not comprise a major portion of the Group’s purchases. To mitigate the Group’s exposure to foreign currency risk, forward exchange contracts or appropriate foreign exchange stop loss contracts are entered into at the date of placing the order. The Group accounts for FECs as fair value hedges (i.e. all changes in the value are accounted for in the statement of comprehensive income).

Outstanding contracts

Average year-end FEC rates

Foreign currency values

Notional value

Fair value

(USD ’000)

R’000

R’000

Bought FECs US Dollars Less than three months

8,41

418

3 518

3 595

Three to six months

8,85

3 400

30 091

29 671

Six to twelve months

8,53

1 470

12 556

12 713

Euros Three to six months Total

(Euro ’000) 10,95

631

6 915

7 108

53 080

53 087

The fair value at the year-end of unmatched open foreign exchange contracts (i.e. there is no underlying transaction), which are included in trade and other receivables amounted to Nil (2011: R0,2 million). Foreign currency sensitivity analysis if the currency fluctuates by 10% indicates an increase or decrease of R5,3 million on net results for the year.

90

Iliad Africa Limited Integrated Annual Report 2012

25 Financial risk management (continued) 25.6 Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide adequate returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders and issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of a targeted gearing ratio. This ratio is calculated as net debt divided by total equity. Net debt is calculated as total borrowings less cash and cash equivalents. All covenants with existing financial institutions have been adhered to. Group 2012 R’000

2011 R’000

The gearing ratios at 31 December were as follows: Total borrowings (refer note 11)

295 349

336 910

Less: Cash and cash equivalents (refer note 8)

212 958

381 059

Net debt/(asset) Total equity Gearing ratio (%) 26

82 391

(44 149)

789 948

783 949

10,4%

(5,6%)

Segment report Business segments for the Group The business segments are based on internal reports, which are regularly utilised by the Executive Committee (EXCO) to assess the Group’s performance and allocate resources to the segments. The Group’s internal primary format for reporting segment information is business segments as all its operations are located within the borders of South Africa. Segments have been determined by business segments: General Building Materials and Specialised Building Materials. General Building Materials – This division caters for the broad market – from large-scale developers and contractors to homeowners and do-it-yourself enthusiasts. A full product range, competitive pricing and technical expertise are the hallmarks our customers have come to expect from outlets across the country. Specialised Building Materials – This division supplies, through market niche-focused clusters, the finishes that enhance your quality of life. Exclusivity or value-added, fashion-orientated choice and availability are the key elements for success. Segment revenue and expenses: All segment revenue and expenses are directly attributable to the segments and are disclosed at the operating profit level (EBIT). Segment assets and liabilities: Segment assets include all operating assets used by a segment and consist principally of inventories, accounts receivable, property, plant and equipment, income taxes (including deferred) and cash and cash equivalents. Segment liabilities include all operating liabilities and consist principally of accounts payable and provisions for liabilities and charges, income taxes (including deferred) and bank overdrafts. No operating segments have been aggregated to form the reportable operating segments. Inter-segment pricing is determined on an arm’s length basis. Inter-segment revenues are eliminated upon consolidation. The Group does not manage the operations based on geographic segments.

Iliad Africa Limited Integrated Annual Report 2012

91

NOTES TO THE ANNUAL FINANCIAL STATEMENTS Continued for the year ended 31 December 2012

26

Segment report (continued) Segment revenue and expenses Revenue and expenses that are directly attributable to segments are allocated to those segments. General Building Materials

Group

Revenue EBITDA before restructuring

2012 R’000

2011 R’000

2012 R’000

2011 R’000

2012 R’000

2011 R’000

4 493 085

4 229 538

3 454 283

3 226 192

1 038 802

1 003 346

146 494

113 232

116 351

113 165

30 143

67



6 547



6 547

Loss on disposal of business assets Restructuring costs EBITDA Depreciation

Specialised Building Materials



45 992



24 581



21 411

146 494

60 693

116 351

88 584

30 143

(27 891)

38 618

44 352

22 050

20 054

16 568

24 298

Amortisation

2 523







2 523



Impairments

30 419

249 530



164 627

30 419

84 903

EBIT

74 934

(233 189)

94 301

(96 097)

(19 367)

(137 092)

Total assets*

1 869 820

1 986 643

1 080 926

1 203 475

788 894

783 168

Total liabilities*

1 079 872

1 202 694

640 269

765 544

439 603

437 150

71 242

47 590

45 758

28 461

25 484

19 129

Capital expenditure

* Recompiled due to the portfolio adjustments during the current and prior financial year.

Information reported to the Group’s chief operating decision-maker for purposes of resource allocation and assessment of segment performance is more specifically focused on the category of customer for each type of goods sold. The principal categories of customers for these goods are those seeking non-differentiated locally sourced goods with a wide range of product but limited choice per range (GBM) versus differentiated or value-added mainly imported product with a specialised and extensive choice per product range (SBM). Adjustments and eliminations Finance income and expenses, investment income, current taxes, deferred taxes and certain financial assets and liabilities are not allocated to individual segments as the underlying instruments are managed on a Group basis. Capital expenditure consists of additions of property, plant and equipment, intangible assets and investment properties. Group 2012 R’000

2011 R’000

(233 189)

Reconciliation of profit Segment profit/(loss)

74 934

Investment income

18 591

22 767

Finance charges

(29 919)

(36 071)

Taxation

(29 963)

4 709

Profit/(loss) for the year

33 643

(241 784)

1 079 872

1 202 694

Reconciliation of liabilities Segment operating liabilities Equity Group operating liabilities and equities

92

Iliad Africa Limited Integrated Annual Report 2012

789 948

783 949

1 869 820

1 986 643

Group 2012 R’000 27

Company 2011 R’000

2012 R’000

2011 R’000

Notes to the cash flow statements The following conventions apply to figures other than adjustments: Outflows of cash are represented by figures in brackets. Inflows of cash are represented by figures without brackets.

27.1 Taxation paid 2 009

412

329

630

Amounts charged to the statement of comprehensive income

Amounts paid in advance at the beginning of the year

(33 135)

(2 605)

28

(353)

Amount paid in advance at the end of the year

(15 866)

(2 009)

(357)

(329)

(46 992)

(4 202)



(52)

Property, plant and equipment



1 216

Net current assets



18 631



19 847



6 547



13 300

27.2 Disposal of businesses comprises the following: During the previous financial year the assets of two nonperforming businesses were disposed of. The proceeds on disposal consideration has been allocated to the underlying fair value of the identifiable assets, liabilities and contingent liabilities as follows:

Loss on disposal of business assets Satisfied by: Cash and cash equivalents received



19 847

Proceeds on disposal of business assets



13 300

Purchase of business



(22 710)

2 538

5 734

The contingent consideration required the Group to pay the vendors an additional R22 million when the conditions precedent and the warranted profit as per the sales agreement had been achieved. This was finalised in 2011. 27.3 Proceeds on disposal of property, plant and equipment Book value on disposals Profit/(loss) on disposal

142

(909)

2 680

4 825

Iliad Africa Limited Integrated Annual Report 2012

93

NOTES TO THE ANNUAL FINANCIAL STATEMENTS Continued for the year ended 31 December 2012

Group

28

Company

2012 R’000

2011 R’000

Subsidiaries Revenue from sale of goods: United Metal Processors Proprietary Limited United Tube Proprietary Limited Campwell Hardware Proprietary Limited Iliad Africa Trading Proprietary Limited

165 13 649 6 618 215 118

436 4 415 14 418 228 864

Amounts outstanding on trade payables United Metal Processors Proprietary Limited Campwell Hardware Proprietary Limited Iliad Africa Trading Proprietary Limited

1 563 1 922 23 097

Loan accounts United Metal Processors Proprietary Limited Campwell Hardware Proprietary Limited Iliad Africa Trading Proprietary Limited

12 000 29 383 153 139

2012 R’000

2011 R’000

Related-party transactions Various transactions between related parties are entered into by the Company and its subsidiaries during the period. Unless specifically disclosed, these transactions occurred under terms that are no less favourable than those entered into with third parties. Related-party transactions Shareholders Details on the shareholders of the Company are disclosed on page 96 (shareholders’ profile). Directors’ and key management emoluments Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any Director of that entity. Details on the remuneration of the Directors and senior management are disclosed on page 86. No loans were made to or received from any Director or key manager. Iliad Africa Limited investments Investments in subsidiary companies are detailed on page 95.

Management fees paid Campbell Hardware Proprietary Limited Interest paid United Tube Proprietary Limited Dividends received Iliad Africa Investments Proprietary Limited

339

220

2 928

1 581

28 700

25 400

Amounts outstanding on trade receivables and payables are to be settled in cash within the 30-day credit terms offered to third parties. The amounts due by related parties will be settled in cash within the normal 30-day credit period. None of the balances are secured. There was no expense for bad debt of related parties. All outstanding amounts from related parties are unsecured, of which some have been subordinated and/or impaired.

94

Iliad Africa Limited Integrated Annual Report 2012

29

Nature of business

Issued share capital R

% held 2012

% held 2011

Cost of shares 2012 R

Cost of shares 2011 R

Amount owing 2012 R000

Amount owing 2011 R000

R

1

100

100

1

1





I

1 000

100

100

1 000

1 000





D

100

100

100

1 001

1 001





2012 R’000

2011 R’000

Profits

56 812

12 287

Losses*

57 293

278 736

Investment in subsidiary companies Held directly Iliad Africa Trading Proprietary Limited Iliad Africa Investments Proprietary Limited Held indirectly BYM Building Supplies Proprietary Limited Campwell Hardware Proprietary Limited

R

100

100

100

CMG Holdings Proprietary Limited

D

1 000

100

100

D&A Timbers Proprietary Limited

D

1

100

100

D&A Truss Proprietary Limited

D

100

100

100

United Metal Processors Proprietary Limited

R

1 000

80

80

United Steel & Pipe Supplies Proprietary Limited

D

20 000

100

100

United Tube Proprietary Limited

R

100

100

100

Attributable profits and losses after taxation of subsidiaries

Directors’ value of investment in subsidiaries exceed original investment value. All subsidiaries are incorporated in South Africa. * Affected by impairments Nature of business R – Sourcing, distribution, retailing and wholesaling of building materials I  – Investment holding company D – Dormant

Iliad Africa Limited Integrated Annual Report 2012

95

SHAREHOLDERS’ ANALYSIS as at 31 December 2012

2012 Number of shares

% of issued shares

Number of shareholders

% of shareholders

2 005

80,88

1 722 840

1,25

187

7,54

2 119 184

1,53

Portfolio size 1 – 5 000 5 001 – 20 000 20 001 – 100 000

149

6,01

7 428 769

5,37

100 001 – 1 000 000

105

4,24

35 583 232

25,74

33

1,33

91 363 769

66,10

2 479

100,00

138 217 794

100,00

1 925

77,65

4 929 241

3,57

552

22,27

132 988 553

96,22

2

0,08

300 000

0,22

Totals

2 479

100,00

138 217 794

100,00

Public

Over 1 000 000 Totals Category Individuals Companies and other corporate bodies Directors

2 477

99,92

137 917 794

99,78

Non-public

2

0,08

300 000

0,22

Directors

2

0,08

300 000

0,22

2 479

100,00

138 217 794

100,00

41 078 183

29,72 22,35

Totals Major shareholders – (Major shareholders with beneficial interest in Iliad greater than 5% of its issued stated capital) at 31 December 2012 Coronation Fund Managers Sanlam Investment Management

30 895 111

Regarding Capital Management

20 624 988

14,92

Afena Capital

13 817 273

10,00

106 415 555

76,99

Totals * Supplied by Link Market Services South Africa (Pty) Ltd.

96

Iliad Africa Limited Integrated Annual Report 2012

SHAREHOLDERS’ STATISTICS

Statistics Share price (cents) – Closing Ordinary shares in issue Earnings yield (%) Ordinary dividend yield (%) Price: basic earnings ratio Price: headline earnings ratio Gearing ratio Definitions Earnings yield Ordinary dividend yield Price: basic earnings ratio Price: headline earnings ratio Gearing ratio

2012

2011

2010

2009

2008

550 138 217 794 4,42 3,64 22,63 11,88 10,43

476 138 217 794 8,16 4,20 12,26 12,17 (5,63)

1 150 138 217 794 4,70 1,74 21,30 21,54 (11,93)

980 138 217 794 18,08 5,31 5,53 5,55 1,27

670 138 217 794 26,45 7,76 3,78 3,79 8,78

Basic earnings divided by closing share price Dividends declared per share divided by closing share price Closing price divided by basic earnings Closing price divided by headline earnings Net borrowings divided by total capital employed

Iliad Africa Limited Integrated Annual Report 2012

97

NOTICE OF THE ANNUAL GENERAL MEETING

ILIAD AFRICA LIMITED Registration number 1997/011938/06 (Incorporated in the Republic of South Africa) Share code: ILA ISIN: ZAE000015038 (Iliad or the Company)

6 Ordinary resolution number six To resolve that the re-appointment of Deloitte & Touche as Auditors, until the conclusion of the next Annual General Meeting and further, to appoint Mr JM Bierman as the individual and designated auditor who will undertake the audit of the Company, be authorised and confirmed.

Notice is hereby given that the Annual General Meeting of ordinary shareholders and “A” shareholders (shareholders) of Iliad Africa Limited will be held at Iliad House, Unit 7 Thornhill Office Park, 94 Bekker Road, Vorna Valley, Midrand at 13:00 on Thursday, 23 May 2013 (the last Date to Trade will be Friday, 10 May 2013 and Record date will be Friday, 17 May 2013) for the purposes of transacting the following business:

7 Ordinary resolution number seven To resolve that the appointment of the members of the Audit Committee, until the conclusion of the next Annual General Meeting be confirmed. A brief CV of each member can be found on page 10 of this report:

To consider and, if thought fit, to pass the following resolutions with or without modifications as ordinary resolutions:





1 Ordinary resolution number one To consider and adopt the annual financial statements for the year ended 31 December 2012, together with the Directors’ report and the report of the auditor thereon. 2 Ordinary resolution number two To resolve that the re-appointment of Mr RT Ririe as a Nonexecutive Director, who retires by rotation in accordance with the provisions of the Company’s Memorandum of Incorporation, and being eligible, has offered himself for re-election for a further term of office, be authorised and confirmed. (A brief CV appears on page 10 of this report.)

8 Ordinary resolution number eight To resolve that the Remuneration Policy of the Company in respect of the year ended 31 December 2013, as set out in this report on page 46, be approved. 9 Special resolution number one: General repurchases To consider and, if deemed fit, to pass with or without modification, the following special resolution to give a general authority for the Company to repurchase its own shares:

3 Ordinary resolution number three To resolve that the reappointment of Mr CP Booyens as an Executive Director, who retires by rotation in accordance with the provisions of the Company’s Memorandum of Incorporation, and being eligible, has offered himself for re-election for a further term of office, be authorised and confirmed. (A brief CV appears on page 11 of this report.) 4 Ordinary resolution number four To confirm the appointment of Mr AH Sangqu, who has been appointed as Non-executive Director since the last Annual General Meeting and who, in terms of the Company’s Memorandum of Incorporation, retires from office at the conclusion of the AGM, and being eligible, has offered himself for re-election. (A brief CV appears on page 11 of this report). 5 Ordinary resolution number five To resolve that the remuneration paid to the Directors of the Company, in respect of the year ended 31 December 2012, as set out on page 86 of the annual financial statements, be approved.

98

Iliad Africa Limited Integrated Annual Report 2012

7.1 To confirm the appointment of Mr RT Ririe as a member of the Audit Committee; 7.2 To confirm the appointment of Mr T Njikizana as a member of the Audit Committee; and 7.3 To confirm the appointment of Ms A Kalyan as a member of the Audit Committee.

RESOLVED THAT Iliad, or a subsidiary of Iliad, be and is hereby authorised, by way of a general authority, to acquire shares issued by the Company in terms of sections 48(8)(b) of the Act, as amended, and in terms of the JSE Listings Requirements and that any Director of the Company be and is hereby authorised to sign all such documents and do all such things as may be necessary for or incidental to the implementation of this special resolution. The JSE Listings Requirements currently require that the Company may make a general repurchase of its shares only if: • Any such repurchase of shares is effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the Company and the counterparty (reported trades are prohibited); • The Company is authorised thereto by its Memorandum of Incorporation; • The general authority shall be valid only until the Company’s next Annual General Meeting provided that it shall not extend beyond 15 months from the date of passing of this special resolution; • In determining the price at which the ordinary shares issued by Iliad are acquired by it or its subsidiary in terms of this

• •



• •



general authority, the maximum price at which such shares may be acquired will be 10% above the weighted average of the market value for such ordinary shares for the five business days immediately preceding the date on which the repurchase of such shares is effected; At any point in time, the Company may appoint only one agent to effect any repurchase(s) on the Company’s behalf; The Company or its subsidiary may not repurchase shares during a prohibited period as defined in paragraph 3.67 of the JSE Listings Requirements; Acquisitions of shares in any one financial year may not exceed 10% of the Company’s issued share capital pursuant to this general authority; Subsidiaries of the Company shall not acquire, in aggregate, more than 10% of the Company’s issued share capital; and The Company publishes an announcement when it has cumulatively repurchased 3% of the initial number (the number of that class of shares in issue at the time that general authority is granted) of the relevant class of securities, and for each 3% in aggregate of the initial number of that class acquired thereafter. Such announcement must be made not later than 08:30 on the second business day following the day on which the relevant threshold is reached or exceeded.

The Directors have considered the impact of a repurchase of 10% of Iliad shares, it being the maximum permissible of a particular class in any one financial year, under a general authority in terms of the JSE Listings Requirements, and are of the opinion that such repurchase will not result in: • The Company and the Group in the ordinary course of business being unable to pay its debts for a period of 12  months after the date of this notice of Annual General Meeting; • The liabilities of the Company and the Group exceeding the assets of the Company and the Group for a period of 12 months after the date of the notice of Annual General Meeting, calculated in accordance with the accounting policies used in the audited financial statements for the year ended 31 December 2012; • The ordinary capital and reserves of the Company and the Group, for a period of 12 months after the date of the notice of Annual General Meeting, being inadequate; and • The working capital of the Company and the Group, for a period of 12 months after the date of this notice of Annual General Meeting, being inadequate.



Reason and effect The effect of the special resolution and the reason therefore is to grant Directors of the Company a general authority in terms of the Act, as amended, for the acquisition by Iliad, or any subsidiary of Iliad, of Iliad shares.



At present, the Directors have no specific intention with regard to the utilisation of this authority, which will be used only if the circumstances are appropriate. No repurchase of shares under this authority will be implemented until such time as the Company’s sponsor has confirmed in writing to the JSE that the above working capital statement is valid.

10 Special resolution number two: Non-executive Director remuneration To resolve that the remuneration payable to Non-executive Directors for the period 1 January 2013 to 31 December 2013 as set out below, be approved.

HC Turner RT Ririe T Njikizana F Abrahams A Kalyan A Sangqu

2013

2012

R548 709 R341 691 R318 000 R318 000 R318 000 R500 000

R517 650 R322 350 R300 000 R300 000 R300 000 –



Material changes At the Board meeting dated 14 March 2013, the disposal of the assets and liabilities of the Timber Wholesale business was approved. Disposal agreements are to be finalised in due course and regulatory approval is required.



Litigation statement The Directors, whose names are given on pages 10 and 11 of the integrated annual report, are not aware of any legal or arbitration proceedings, including proceedings that are pending or threatened, that may have or in the previous 12 months had, a material effect on the Group’s financial position.



Directors’ responsibility statement The Directors, whose names are given on pages 10 and 11 of the integrated annual report, collectively and individually accept full responsibility for the accuracy of the information pertaining to the resolutions and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that these resolutions contain all information required by the JSE Listings Requirements.



Voting and proxies Any member entitled to attend and vote at a meeting of the Company may appoint one or more proxy/ies to attend, speak and vote in his/her stead. A proxy need not be a member of the Company.

Iliad Africa Limited Integrated Annual Report 2012

99



Shareholders, which are companies or other bodies corporate, may, in terms of section 58 of the Act, by resolution of its Directors or other governing body, authorise any person to act as its representative at the Annual General Meeting.



The ordinary resolutions are subject to a simple majority vote of shareholders present or represented by proxy at the Annual General Meeting. Every shareholder present in person or by proxy at the Annual General Meeting shall, on a show of hands, have one vote only, and on a poll, have one vote for each share of which he/she is the registered holder.

Certificated shareholders and own-name dematerialised shareholders who are unable to attend the Annual General Meeting but wish to be represented there at must complete and return the attached form of proxy in accordance with the instructions contained therein so as to be received by the Company’s transfer secretaries, Link Market Services South Africa (Pty) Ltd, 13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein 2001 (PO Box 4844, Johannesburg 2000), by no later than 13:00 on Tuesday, 21 May 2013.

100



Dematerialised shareholders, other than those with own-name registration, who wish to attend the Annual General Meeting, must request their Central Securities Depository Participant (CSDP) or broker to issue them with a letter of representation to enable them to attend the Annual General Meeting in person. Alternatively, such dematerialised shareholders must instruct their CSDP or broker as to how they wish to vote in this regard. This has to be done in terms of the agreement entered into between the shareholder and his/her CSDP or broker.



In terms of section 63(1) of the Companies Act, Act 71 of 2008, any person attending or participating In the Annual General Meeting must present reasonably satisfactory identification and the person presiding at the meeting must be reasonably satisfied that the right of any person to participate in and vote (whether a shareholder or as proxy for a shareholder) has been reasonably verified.



By order of the Board



Stephen O’Connor Group Company Secretary 14 March 2013



Transfer secretaries Link Market Services South Africa (Pty) Ltd 13th Floor, Rennie House 19 Ameshoff Street Braamfontein 2001 PO Box 4844, Johannesburg 2000

Iliad Africa Limited Integrated Annual Report 2012

FORM OF PROXY ILIAD AFRICA LIMITED Registration number 1997/011938/06 (Incorporated in the Republic of South Africa) Share code: ILA ISIN: ZAE000015038 (Iliad or the Company) For use by certificated and own-name dematerialised ordinary shareholders and “A” shareholders (shareholder) at the Annual General Meeting to be held at Iliad Africa Ltd, Thornhill Office Park, Unit 7, 94 Bekker Road, Vorna Valley, Midrand at 13:00 on Thursday, 23 May 2013. I/We (full names in block letters) of (address) being the holder/s of

ordinary shares in the Company,

and/or

“A” shares in the Company appoint: (see note 1)

1

or failing him/her

2

or failing him/her

3 the Chairman of the Annual General Meeting, as my/our proxy to attend, speak and vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held at Iliad Africa Ltd, Thornhill Office Park, Unit 7, 94 Bekker Road, Vorna Valley, Midrand at 13:00 on Thursday, 23 May 2013, and at any adjournment thereof. I/we desire to vote as indicated below (see note 2): Number of votes (one vote per ordinary share) In favour of

Resolution

Against

Abstain

Ordinary Resolution Number One To receive and adopt the Annual Financial Statements of the Company and the Group for the year ended 31 December 2012 Ordinary Resolution Number Two Re-appointment of Mr RT Ririe Ordinary Resolution Number Three Re-appointment of Mr CP Booyens Ordinary Resolution Number Four Confirm the appointment of Mr AH Sangqu Ordinary Resolution Number Five Approval of Directors’ fees Ordinary Resolution Number Six Re-appointment of Deloitte & Touche as auditors and Mr JM Bierman as the designated auditor Ordinary Resolution Number Seven Appointment of the members of the Audit Committee for 2013: 7.1  Mr RT Ririe 7.2  Mr T Njikizana 7.3  Ms A Kalyan Ordinary Resolution Number Eight Approval of the Group Remuneration Policy Special Resolution Number One General authority for the acquisition of shares issued by the Company Special Resolution Number Two Approve the Non-executive Director’s remuneration (Indicate instructions to proxy by way of a cross in space provided above). Unless indicated above, my proxy may vote as he/she thinks fit. Signed at

on

2013

Signature Assisted by (where applicable) Each shareholder is entitled to appoint one or more proxies (who need not be members of the Company) to attend, speak and vote in place of that member at the Annual General Meeting. (Instructions overleaf). Iliad Africa Limited Integrated Annual Report 2012

101

NOTES TO THE PROXY

Instructions on signing and lodging the Annual General Meeting Proxy Form: 1 A shareholder may insert the names of two alternative proxies (neither of whom need be a shareholder of the Company) in the space provided, with or without deleting the words “Chairman of the Annual General Meeting”. The person whose name appears first on the form of proxy and has not been deleted and who is present at the Annual General Meeting will be entitled to act as proxy to the exclusion of those whose names follow. In the event that no names are indicated, the proxy shall be exercised by the Chairman of the Annual General Meeting. 2 A shareholder’s instructions to the proxy must be indicated by the insertion of an “X” or the relevant number of votes exercisable by that shareholder in the appropriate box/boxes provided. If a proxy form, fully signed, is lodged without specific directions as to which way the proxy is to vote, the Chairman of the Annual General Meeting will be deemed to have been authorised as he/ she thinks fit. A shareholder or the proxy is obliged to use all the votes exercisable by the shareholder or by the proxy. 3 A deletion of any printed matter and the completion of any blank spaces need not be signed or initialled. Any alteration or correction must be initialled by the authorised signatory/ies. 4 When there are joint holders of Iliad shares, all joint shareholders must sign the form of proxy.

102

Iliad Africa Limited Integrated Annual Report 2012

5 The completion and lodging of this form of proxy will not preclude the shareholder, who grants this proxy, from attending the Annual General Meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such shareholder wish to do so. 6 Documentary evidence establishing the authority of the person signing this form of proxy in a representative capacity must be attached to this form unless previously recorded by the transfer secretaries. 7 Where this form is signed under power of attorney, such power of attorney must accompany this form unless it has been previously registered with the Company or the transfer secretaries. 8 A minor must be assisted by his/her parent or guardian unless the relevant document establishing his/her legal capacity has been produced or registered by the transfer secretaries. 9 Completed forms of proxy must be forwarded to the Company’s transfer secretaries, Link Market Services South Africa (Pty) Ltd, 13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein, or PO Box 4844, Johannesburg 2000 so as to be received by no later than 13:00 on Tuesday, 21 May 2013. 10 The Chairman of the meeting may reject or accept a proxy that is completed other than in accordance with these instructions, provided that he/she is satisfied as to the manner in which a shareholder wishes to vote.

SHAREHOLDERS’ DIARY AND CORPORATE INFORMATION

Financial year-end

31 December 2012

Declaration of final distribution

14 March 2013

Publication of financial results on SENS

18 March 2013

Annual report posted on website

30 March 2013

Annual report posted to shareholders

11 April 2013

Payment of final distribution

22 April 2013

Annual General Meeting

23 May 2013

Publication of interim results

28 August 2013

Iliad Africa Limited Incorporated in the Republic of South Africa Registration number 1997/011938/06 Share code: ILA ISIN: ZAE000015038

Attorneys Fullard Mayer Morrison Incorporated 4 Morris Street West Rivonia Johannesburg 2191 PO Box 4475 Rivonia 2128

Group Company Secretary SC O’Connor PO Box 2572 Honeydew 2040 Email: [email protected] Business address and registered office Unit 7 Thornhill Office Park 94 Bekker Road Vorna Valley, Midrand PO Box 2572 Honeydew 2040 Transfer secretaries Link Market Services South Africa (Pty) Ltd 13 Floor Rennie House 19 Ameshoff Street Braamfontein 2001 PO Box 4844 Johannesburg 2000 Website www.iliadafrica.co.za

Principal bankers ABSA Bank Limited Investec Bank Limited First National Bank of South Africa ­Mercantile Lisbon Bank, a division of Mercantile Lisbon Bank Holdings Limited Nedbank, a division of Nedcor Bank Limited Sponsor Bridge Capital Advisors (Pty) Ltd 27 Fricker Road, Second Floor Illovo 2196 PO Box 651010 Benmore 2010 Auditors Deloitte & Touche Registered Auditors Audit – Johannesburg Buildings 1 and 2 Deloitte Place The Woodlands Woodlands Drive Woodmead Sandton Private Bag X6 Gallo Manor 2052

Iliad Africa Limited Integrated Annual Report 2012

103

CONTACT DETAILS STORES AND BRANCHES General Building Materials Branches BRAND INLAND CENTRAL BUCO BUCO BUCO BUCO BUCO SUNCOL INLAND EAST BUCO BUCO BUCO BUCO BUCO BUCO BUCO BUCO INLAND WEST BUCO BUCO BUCO BUCO BUCO BUCO BUCO INLAND NORTH BUCO BUCO BUCO INLAND SOUTH BUCO BUCO BUCO BUCO BUCO BUCO COASTAL WESTERN CAPE BUCO BUCO BUCO BUCO BUCO BUCO BUCO BUCO BUCO COASTAL EASTERN CAPE BUCO BUCO BUCO BUCO BUCO BUCO COASTAL KWAZULU-NATAL BUCO BUCO BUCO BUCO

104

OPERATION

TELEPHONE

Vaal Wierda Park Honeydew Krugersdorp Rietpan Benoni

016 986 2224 012 653 0241 011 795 3733 011 762 4316 011 571 6440 011 421 6331

Burgersfort Nelspruit Malelane White River Hazyview Hoedspruit Lydenburg Middelburg

013 231 7578 013 753 5300 013 790 1670 013 750 2090 013 737 7142 015 793 0560 013 235 1106 013 283 6500

Brits Lephalale Polokwane Rissik Polokwane Sapphire Embalenhle Rustenburg Thabazimbi

012 252 3203 014 763 1332 015 297 6814 015 292 0614 017 685 3201 014 590 8400 014 772 1407

GiyanI Jane Furse Shayandima

015 812 4140 013 265 1876 015 964 1664

Bloemfontein Kathu Kimberley Klerksdorp Mafikeng Welkom

015 434 2241 053 723 2670 053 833 4214 018 462 2521 018 381 5195 057 355 4225

Athlone Bergvliet Nyanga Plaza Polka Place Stellenbosch Vasco Truss Plant Somerset West

021 696 5167 021 712 4400 021 691 2206 021 391 5555 021 392 7004 021 887 6830 021 592 4119 021 931 5500 021 851 2660

East London Grahamstown Kenton-on-Sea Port Alfred Jeffreys Bay Uitenhage

043 743 3733 046 622 7301 046 648 1300 046 624 1103 042 293 4480 041 922 9920

Empangeni Ballito Pinetown Ramsgate

035 787 1416 032 947 0151 031 713 7500 039 314 0790

Iliad Africa Limited Integrated Annual Report 2012

STORES AND BRANCHES Specialised Building Materials Branches BRAND

OPERATION

TELEPHONE

Pretoria Central Zambezi Drive Pretoria Fearie Glen Pretoria Central Pretoria Central Northcliff Strijdom Park Woodmead Umhlanga KZN Bellville Claremont Port Elizabeth Johannesburg

012 300 2700 012 543 7500 012 998 4687 012 300 2800 012 300 2700 011 782 3629 011 792 9900 011 804 4293 031 566 5566 031 332 5764 021 948 4881 021 670 7270 041 581 3281 011 452 1344

North Riding Montana

011 699 3500 087 754 0500

Alberton Bloemfontein Boksburg Centurion Randfontein Roodepoort Rustenburg Southgate Vereeniging

011 907 1383 051 430 3426 011 823 3340 012 661 6527 011 693 6525 011 760 2315 014 597 0391 011 942 5978 016 931 2456

Johannesburg KwaZulu-Natal Cape Town

011 201 4600 031 240 8100 021 934 1991

Germiston Epping

011 724 4200 021 534 7001

Durbanville North Riding George Montague Gardens Retreat Somerset West Stikland Topform – Somerset West Cape Town Denver Durban Vereeniging

021 982 7810 011 462 8081 044 874 1753 021 551 2035 021 701 1128 021 854 6810 021 949 1794 021 854 4005 021 930 5923 011 622 9360 031 579 2274 016 421 1683

Centurion

0861 008 009

SBM RETAIL IRONMONGERY Buchel Hardware Buchel Hardware & Tool Centre Buchel Designa Buchel Tool Centre Buchel Menlyn (Hardware) Design Hardware Design Hardware Design Hardware Bildware Bildware W&B Hardware W&B Hardware W&B Hardware Saflok SA CERAMICS Ferreiras Ferreiras CERAMICS CASH AND CARRY National Tile Traders National Tile Traders National Tile Traders National Tile Traders National Tile Traders National Tile Traders National Tile Traders National Tile Traders National Tile Traders SBM WHOLESALE PLUMBING AND HARDWARE Cachet/K&K Cachet/K&K Cachet/K&K TIMBER WHOLESALE Thorpe Timber Company Timber Preservation Services BOARDS Chipbase Chipbase Chipbase Chipbase Chipbase Chipbase Chipbase Chipbase Citiwood Citiwood Citiwood Citiwood EQUIPMENT HIRE B-One