Governance report 2017 - Corporate · • Liquor • Livestock • Lubricants • Mechanisation •...
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Governance report 2017
1Kaap Agri Governance report 2017
2Governance
Approach to ethical and effective governance 2
King IV™ 2
Who are our stakeholders? 3
How does Kaap Agri create an ethical culture? 4
How does Kaap Agri ensure effective control? 5
How does Kaap Agri ensure good performance? 6
How does Kaap Agri ensure legitimacy? 6
King IV™ principles disclosure map 7
Governance structure 7
Board structure 7
Composition and expertise 7
Board meeting attendance 8
Board profiles as at 30 September 2017 9
Governance report for 2017 12
Key governance initiatives for the year 12
Committees and their roles in the governance 13
Board efficiency 17
Company Secretary 19
Executive committee 19
Evolving our stakeholder engagement 20
Information technology (IT) 23
Outlook 24
Contents
2
Approach to ethical and effective governance
Kaap Agri is committed to responsible and effective corporate
governance. The role of the Kaap Agri Board is to provide ethical and
effective leadership to the Group, and ensure a consistently high
level of business performance. There is a range of mechanisms,
policies, procedures, committee structures and values that enable
this, the most material of which are described in this report.
King IV™
In completing this governance report, the Board reviewed our
alignment to and application of the King IV™ Report on Corporate
Governance™ for South Africa 2016 (“King IV™”) principles. We
asked ourselves five questions:
• Who are our stakeholders?
• How does Kaap Agri create an ethical culture?
• How does Kaap Agri ensure effective control?
• How does Kaap Agri ensure good performance?
• How does Kaap Agri ensure legitimacy?
Governance
3Kaap Agri Governance report 2017
Governance
Who are our stakeholders?
The Group identifies its stakeholders according to the products we provide through our various business segments. These stakeholders
include those involved in the creation and delivery of the products, to the ultimate end-users.
We have nine distinct stakeholder groups with whom we interact:
Priority Stakeholder
AClients: This is a broad term for all end-users. For example, a farmer may be the primary purchaser of a product, but the primary user could be a labourer on the farm using the product. Our client base is predominantly determined by our geographic representation, with the emphasis on participants in the commercial agricultural industry, covering all income groups and market segments.
AEmployees: All persons employed by the business to enable value creation activities of Kaap Agri. They represent skills that range from retail sales to logistics, procurement, seed processing and support services.
ASuppliers: Due to our diverse product offering, the Group has a range of suppliers who supply, among other things:
• Agricultural production equipment
• Animal feed
• Building material
• Chemicals
• Clothing
• Fencing
• Fertiliser
• Fuel
• Gardening
• Gas
• Grain and seed
• Groceries and homeware
• Hardware
• Liquor
• Livestock
• Lubricants
• Mechanisation
• Outdoor products
• Packaging material
• Paint
• Pet nutrition
• Tools
• Water storage
AFinanciers: Our ability to provide financing solutions for our clients depends on the relationships we have with credit providers. These are primarily through loans from a South African bank.
AShareholders: 65% of the Group’s shares are held by three shareholders: Zeder Financial Services Limited, Plurispace (Pty) Ltd, and Empowerment and Transformation Investments (Pty) Ltd (“ETI”). The Group listed on the “speciality retailer” sector of the main board of the JSE on 26 June 2017. From the listing date to 31 October 2017, there were 1 351 trades of 1 561 199 shares to the value of R83 million.
AGovernment and regulators: The Group adheres to regulations and laws prescribed for the various industry segments in which it operates. These include licences to operate our fuel business, and compliance with B-BBEE requirements.
BSociety: Kaap Agri defines society as the farming and local communities surrounding our operations. These include those stakeholders influenced by our corporate social investment activities, such as learning institutions. In many areas and towns, the Group is the largest and only employer and provider of products and services, often outside its usual product and business parameters. This underlines its contribution to society.
BIndustry bodies: Effective operation across a broad geography is leveraged through affiliation and associations with relevant industry bodies such as BUSA and Agribiz.
BBargaining councils: Kaap Agri needs to comply with the collective agreements negotiated with the various bargaining councils, and views them as valued partners. Kaap Agri liaises with officials in these councils to obtain clarity on various employee matters and to ensure that it applies all agreements in a fair manner. These engagements support our business by prompting employee support offerings.
A Primary B Secondary
In applying effective governance, all our stakeholders are considered in the decisions made at Board level. Refer to the section on stakeholders
on page 22 for examples of our engagement activities.
4
How does Kaap Agri create an ethical culture?
Ethical and accountable behaviour is encouraged through a distinct Group culture that is captured through a commitment to the following values:
C A R E
Communicate Alignment Relationships Empowerment
Open
Clear
Honest
Shared service
Results
Authentic
Recognition
Time
Development
Better off
Ownership
Grow
Ethical decisions are rooted in a commitment to a robust Code of
Ethics that applies to every employee. The Board charter stipulates
ethical expectations for the behaviour of its members. The Internal
Audit function furthermore aligns all activities with the Code of Ethics
and the International standards for the professional practice of
internal auditing.
Clear guidelines from the Group’s Code of Ethics support ethical
behaviour throughout the Group with mechanisms for correction where
needed. An example is the internal whistle-blowing facility operated by
the Internal Audit function. Transgressions are addressed and remedial
action applied in terms of the disciplinary code of the Group.
The Trade agreement and conditions of supply policy contains a
specific section on ethics, and suppliers are expected to take
specific actions in the case of any breach.
As a number of non-executive directors are direct or indirect customers
of the Group and have ongoing business with the Group, Kaap Agri
discloses the value of such related party transactions in the annual
financial statements starting on page 73 of the integrated report.
5Kaap Agri Governance report 2017
1st line of defence
2nd line of defence
3rd line of defence
Operational departments
Annual capital budgets are approved by management and the Board. Authority to act on behalf of the company is determined by the decision-making framework with the finance department providing final approval. Day-to-day operations executed by employees are overseen by middle management.
Finance department
The Financial Director acts as gatekeeper. Any payments have to be approved by the finance department.
Executive committee
On an operational level, final responsibility rests with the Executive committee. All managers report to executive directors.
Financing Services department
Applications for credit are evaluated by officials at branch level.
Group manager: Financing and Financial director
Applications are evaluated and approved at central office.
Financial director must sign off on applications exceeding particular amounts as set out in credit policy.
Finance committee
The credit policy is approved by the Finance committee. Applications exceeding certain amounts must be approved by Finance Committee. Underlying securities are subjected to an annual review by external attorneys.
Information technology
Infrastructure availability and maintenance is continuously monitored. Security coverage is provided for 91.9% of endpoints. Email and firewall security is of a high standard, with proper back-up and business continuity plans in place.
Compliance and legal department
The compliance office is responsible for the compliance function in cooperation with Internal Audit and the legal department. Contracts are negotiated and entered into in line with the decision-making framework and in cooperation with the legal department.
Executive committee
Final responsibility rests with Executive committee.
Auditing processes
Day-to-day operations are overseen by managers at all levels, and final responsibility rests with executive directors.
Internal Audit Internal Audit is responsible for monitoring effective compliance with policies.
External Auditors
Responsible for executing audit in line with accepted accounting practices.
General
Insurance
Board and board committees
Risks are evaluated and insurance cover negotiated annually with a reputable insurer.
Directors have unlimited access to all personnel and information
How does Kaap Agri ensure effective control?
Effective control means that risks at Kaap Agri are properly managed and mitigated, and decisions are based on quality information within clearly defined roles and responsibilities. To support effective control, Kaap Agri has a decision-making framework that defines clear levels of accountability and authority.
Kaap Agri uses a combined assurance model to ensure the accuracy of information used in key decision-making activities.
Governance
6
The Group has various committees that are mandated to ensure a
level of control and governance in various areas of the business.
Refer to page 14 for an overview of their purpose and composition.
In addition to the verification role of Internal Audit, Kaap Agri has a
range of clearly defined policies that cover key operational and risk
areas. Kaap Agri developed a strategic risk register, identifying and
rating risks according to their likelihood and potential impact on its
strategic goals. Ratings were done on the inherent risks (before
mitigating measures) as well as the residual risks (after mitigating
measures were taken into consideration). More details about risk
policies and approaches are available in the risk report, which forms
part of the integrated report.
Policies on the following subjects are widely available to internal
stakeholders:
• Affirmative action
• Code of Ethics
• Competition
• Competition Act
• Credit
• Dealing in securities
• Disciplinary and grievance procedure
• Donations
• Gender and race diversity
• Gifts
• HIV
• Internal Audit – Terms of Mandate
• Marketing competitions
• Private interests, extramural activities and external remuneration
• Remuneration
• Remuneration and external directorships
• Smoking
• Stakeholder relations
• Theft
• Training and development
• Whistle-blowing
How does Kaap Agri ensure good performance?
Kaap Agri believes that good performance can only be achieved by
employing the right people. This means recruiting individuals with
the right skills and attitude and who display the values that align to
our high-performance culture.
Value-generating performance starts with the Board, where the
Chairman currently takes responsibility for ensuring adequate
capacity and expertise to support effective Board performance.
The Executive committee’s performance is annually assessed with remuneration incentives linked directly to performance and attainment of specific objectives. These objectives are derived from the Group’s strategy and appropriate KPIs developed for each. Refer to our remuneration report on page 20 of the integrated report for details.
Individual employee performance is reviewed through an annual performance management process. Performance requirements cascade into higher levels of management and ultimately align to the Group’s strategy. For example, the performance of branch managers hinge on store performance, which aligns to segmental and ultimately Group performance objectives. Each business segment in Kaap Agri uses a strategic map with financial and non-financial KPIs aligned to remuneration and linked to the Group’s strategy.
Performance is further incentivised through a short-term incentive scheme in which every permanent employee is a participant. Management-level employees may partake in long term-share incentive based schemes. Both forms of incentive schemes ensure that individual performance in meeting Group objectives are aligned and adequately compensated.
The Executive committee presents the proposed strategy to the Board for discussion and review at an annual strategy session. The strategic objectives include clearly defined targets for implementation. All business segments report on outcomes of the strategy execution through the Group’s electronic management tool. In addition, the information derived from the reports provides valuable business intelligence to direct improvements and corrective actions.
How does Kaap Agri ensure legitimacy?
Our legitimacy is based on our ability to create value for a broad range of stakeholders. The Group prides itself on a reputation of being relatable to our clients and customers, and always seeking to resolve problems within our sphere of business influence ethically. The Group will always seek to provide access to products at a fair price to enable clients to do business with us. We support our stakeholders’ interests throughout our value chain and expand market opportunities for suppliers. Refer to our “evolving our stakeholder engagement” section on page 22.
Kaap Agri also earns legitimacy through our brand, and our people are essential to the Group’s reputation of quality. The Kaap Agri brand is firmly rooted in stakeholder recognition or “die mens-mense” principle. This principle defines the business as an accountable and highly engaged corporate citizen that genuinely considers the needs and interests of our stakeholders. We ensure that our activities align with the views and attitudes of our primary stakeholders while continuously forging mutually beneficial relationships with suppliers and other stakeholders.
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King IV™ principles disclosure map
Having recently adopted King IV™, the Group endeavours to explain its application of appropriate principles and is transparent in areas of non-compliance. The website contains a King IV™ principles disclosure map: a table that provides a high-level overview of responses to the 16 applicable King IV™ principles. Where relevant, reference is made to other areas of the integrated or governance report where detailed information can be found. The table further contains an indication of the level of application and an explanation of the Group’s King IV™ disclosure with icons to indicate the maturity of such disclosure.
Governance structure
The key roles and responsibilities of the Board include acting as the focal point for, and custodian of, corporate governance, determining the strategic objectives of the Kaap Agri Group and monitoring the implementation of its approved strategies, decisions, values and policies. The Board is satisfied that it has fulfilled the responsibilities required by its mandate in the year.
The Kaap Agri Board is chaired by a non-executive director and has 11 members. The Board is supported by five committees with clear terms of reference that aid the execution of their duties and determine the due governance required in each area of the business.
The roles of the Chairman and the Chief Executive Officer are clear
and separate in terms of duties and responsibilities. The Chief
Executive Officer is tasked with the day-to-day operations of the
business in line with the Group’s decision-making framework. The
Chief Executive Officer is supported in this role by the Executive
committee, two members of which are Board members. The Board is
satisfied that the decision-making framework provides a basis for
clear exercising of duties, and contributes to clarity and accountability.
In addition, the Board charter ensures that there is appropriate balance
of power in the deliberations of the Board. There is a clear balance of
power and authority at Board level which ensures that no single
director has unlimited or unfettered powers of decision-making.
Governance
KAAP AGRI GROUP BOARD
Audit and Risk committee
Remunerationcommittee
Nominationcommittee
Social and Ethicscommittee
Finance committee
Executive committee
Board structure
Composition and expertise
81,8% Male 18,2% Female1 8 Independent non-executive directors 18,2% Black1 81,8% White 1 Non-executive director
2 Executive directors
1 The Board of Kaap Agri has taken active steps to modify the composition of the Board to better reflect the demographics of South Africa, with particular focus on black and female representation. Refer to page 8.
8
Expertise
Field of expertiseNumber of
board members
Financial markets and investments 6
Agriculture 8
General business 10
Mergers and acquisitions 7
Retail operations 5
Marketing 6
Logistics/supply chain 6
Transformation 9
Risk management 8
Legal 4
Human resources 7
Sustainability 9
Governance 10
The Board is satisfied that the current composition enables ethical and effective leadership, but it will seek to improve diversity further.
In terms of tenure, the Board members’ profiles indicate appointment dates since the unbundling in 2011 and the establishment of Kaap Agri Limited
in its current form. Some Board members were involved with Kaap Agri prior to the unbundling.
Board meeting attendance
Overall Board meeting attendance was high despite several changes in anticipation of the listing, following the annual general meeting
(“AGM”) and in line with King IV™ requirements, which is evidence of the Board’s commitment to high levels of governance and performance.
MemberMeetings attended
BS du Toit 4/4
D du Toit (Appointed: 1 March 2017)+ 2/4
JH le Roux 4/4
SJ Liebenberg (Retired: 1 March 2017)+* 2/4
NC Loubser (Retired: 1 March 2017)+ 2/4
HS Louw (Retired: 1 March 2017)+ 2/4
EA Messina (Appointed: 1 March 2017)+ 1/4
WC Michaels (Appointed: 1 August 2017)+ 1/4
CA Otto 4/4
GW Sim* 4/4
HM Smit 3/4
GM Steyn 4/4
S Totaram (Resigned: 30 January 2017)+ 1/4
JH van Niekerk 4/4
S Walsh* 4/4
Key* Executive+ Did not fulfil role as a Board member for the full year
Refer to the Rotations on page 18 for details of changes to the Board.
During the financial year, one Board member resigned due to work commitments, and two directors retired by rotation. A further executive director retired during the year as an employee of Kaap Agri. New members were recruited and appointed during March and August 2017.
In support of the Gender and race diversity policy, two women (of whom one was black) were appointed to the board during the financial year, comprising 18% of the board and two black persons were appointed.
9Kaap Agri Governance report 2017
Board profiles as at 30 September 2017
BS du Toit (60) Independent non-executive director
Appointment dates: Board in November 2011
Audit and Risk committee in February 2012
Qualifications: BAgric (Management)
Committee membership: Audit and Risk
Other board memberships: Freshgold SA Exports (Pty) Ltd 32 Degrees South Fruit (Pty) Ltd
Wydekloof (Pty) Ltd Langrivier Boerdery (Pty) Ltd
Langrivier Beleggings (Pty) Ltd Aartappels SA
D du Toit (41) Independent non-executive director
Appointment dates: Board in March 2017
Audit and Risk committee in May 2017
Qualifications: BComm (Hons)
Committee membership: Audit and Risk
Other board memberships: De Keur Beherend (Pty) Ltd De Keur Berries (Pty) Ltd
De Keur Agri (Pty) Ltd Tipmar (Pty) Ltd
De Keur Landgoed (Pty) Ltd Witzenberg Pals (Partners in Agri Land Solutions) PBO
De Keur Marketing (Pty) Ltd Breyton Paulse Foundation NPC
De Keur Verpakking (Pty) Ltd
JH le Roux (42) Non-executive director
Appointment dates: Board in April 2014
Qualifications: BAcc (CTA), HDip (Tax) and CA(SA)
Committee membership: Finance
Other board memberships: Cerula 23 (Pty) Ltd Zeder Financial Services Limited
Zeder Corporate Services (Pty) Ltd Zeder Investments Limited
French Rose 24 (Pty) Ltd Zeder Africa Limited
Zaad Holdings Limited Zeder Management Services (Pty) Ltd
Paternoster Pumphouse (Pty) Ltd Bakenskraal Investments (Pty) Ltd
Capespan Group Limited The Logistic Company (Pty) Ltd
EA Messina (59) Independent non-executive director
Appointment date: Board in March 2017
Qualifications: BA (Hons), MA Southern African Studies, MA (History) (Cum laude) and DPhil (History)
Committee membership: Social and Ethics (chairman)
Other board memberships: SBI (formerly AHI) The Du Toit Group
Groot Constantia Trust Isipani Construction
Cape Town Radio
WC Michaels (44) Independent non-executive director
Appointment date: Board in August 2017
Qualifications: BSc, BSc (Hons), MSc and PhD (Polymer Chemistry)
Committee membership: Social and Ethics
Other board memberships: N/A
Governance
10
CA Otto (68) Independent non-executive director
Appointment dates: Board in November 2011
Audit and Risk committee in May 2017 (chairman)
Qualifications: BComm, LLB
Committee membership: Audit and Risk (chairman)
Remuneration (chairman)
Nomination
Other board memberships: PSG Financial Services Limited Zeder Financial Services Limited
PSG Group Limited Capevin Holdings Limited
Capitec Bank Limited Remgro-Capevin Beleggings Limited
Capitec Bank Holdings Limited Distell Group Limited
Zeder Investments Limited
GW Sim (47) Financial Director (executive)
Appointment date: Board in August 2015
Qualifications: BComm (Acc), BComm (Acc) (Hons) CA(SA)
Committee membership: Finance
Other board memberships: TFC Ventures (Pty) Ltd Kaap Agri Bedryf Limited
TFC Strand (Pty) Ltd Empowerment and Transformation Investments (Pty) Ltd
TFC Properties (Pty) Ltd Kaap Agri (Namibia) (Pty) Ltd
TFC Operations (Pty) Ltd Kaap Agri (Aussenkehr) (Pty) Ltd
Agriplas (Pty) Ltd Mirage Motors (Pty) Ltd
HM Smit (54) Independent non-executive director
Appointment date: Board in November 2011
Qualifications: BEcon, MA (Town and Regional Planning)
Committee membership: Finance
Other board memberships: N/A
GM Steyn (58) Independent non-executive director (chairman)
Appointment date: Board in June 2012
Qualifications: BA (Law), LLB
Committee membership: Remuneration
Nomination
Other board memberships: Du Toit Group (Pty) Ltd (chairman) GMS Beleggings (Pty) Ltd
RCL Foods Limited NS Beleggings (Pty) Ltd
Leopard Creek 21 (Beleggings) (Pty) Ltd Neusberg Boerdery
11Kaap Agri Governance report 2017
JH van Niekerk (61) Independent non-executive director
Appointment dates: Board in November 2011
Audit and Risk committee in February 2017 (resigned September 2017)
Qualifications: Served as a pilot in the SADF
Committee membership: Finance (chairman)
Remuneration
Nomination
Other board memberships: Kosie van Niekerk Boerdery (Edms) Bpk
S Walsh (51) Chief Executive Officer (executive)
Appointment dates: Board in November 2011
Qualifications: BEcon (Hons)
Committee membership: N/A
Other board memberships: Newco Water (Pty) Ltd TFC Properties (Pty) Ltd
Kaap Agri Bedryf Limited TFC Strand (Pty) Ltd
Agriplas (Pty) Ltd TFC Ventures (Pty) Ltd
Kaap Agri (Namibia) (Pty) Ltd
RH Köstens (60) Company Secretary
Appointment date: November 2011
Qualifications: BA (Law), LLB, LLM, Postgraduate diploma in Taxation and an MBA
Governance
12
March to July 2017
August 2017
August 2017
Recruitment of new Board members due
to retirement of two members by rotation.
Registration and restructuring of the
new Fuel Company (“TFC”), resulting
in larger representation by black persons
at shareholder, director, management
and employee levels.
One of the Group’s subsidiaries,
Kaap Agri Namibia (Pty) Ltd, entered
into a joint venture agreement with
a leading Namibian retail business.
The purpose of the joint venture is to
improve operational control and client
offerings in Namibia. The joint venture
will be governed by a Board with
representatives from both businesses.
The Board engaged with a leading
audit firm to evaluate the effectiveness
of the current external audit offering.
Governance report for 2017
Key governance initiatives for the year
The Board undertook the following key activities for the period:
Approach to compliance
The Board recognises its responsibility to ensure compliance with all
applicable laws and adherence to industry charters, codes and
standards.
The Group’s Compliance officer is responsible for updating the Audit
and Risk committee on matters of possible compliance contravention.
The broad nature of compliance in the Group requires the Compliance
officer to operate in tandem with the Internal Audit function. Both
obtain support from subject-matter experts on speciality focus areas
such as environmental law or B-BBEE compliance. These experts
filter appropriate information to the Compliance officer for further
action. The Audit and Risk committee monitors actions taken by the
Compliance officer and/or Internal Audit.
The Audit and Risk committee further evaluates the internal audit
plan according to its mandate. The committee also considers the
material findings of Internal Audit and management’s response. The
committee ensures that internal auditors function independently and
meet at least once a year with the internal auditors without the
external auditors, executive officials, head of finance, Managing
Director or any other director present.
There were no contraventions of agricultural law, penalties or fines
reported in the year. To the Group’s knowledge, there are no material
legal, arbitration or other proceedings pending or in progress. Refer
to the report of the Audit and Risk committee on page 51 of the
integrated report.
Conflicts of interest
Board members are required to state any possible conflicts of
interest, financial or otherwise, at the start of each Board meeting.
This includes directorships or positions in any other form of business.
Board members are prohibited from gaining any undue benefit from
their position as outlined in the Board mandate subscribed to by
each member.
The strong stakeholder-focused nature of our evolving Board means
that we have a number of members with interests in peripheral
businesses that interact with the Group. These include roles as
customers or service providers. Periodic scrutiny ensures that none
of these interests pose an undue influence on the individual’s
relationship with the Board, and the Group deems these relationships
currently to be negligible. Details are available in the notes to the
annual financial statements on page 73.
A register of directors’ interests in and outside the Group is kept and
updated at each Board meeting. A conflict of interest declaration form
is available to Board members. The Chairman of the Group is not
prohibited from serving on other Boards, provided this is disclosed to
the Kaap Agri Board. The Kaap Agri Dealings in securities policy has
an annexure stating that directors need to obtain permission to deal in
securities, and details of any dealings must be disseminated on the
JSE Stock Exchange News Service (“SENS”). No dealing is permitted
during prohibited periods. Employees are further directed by policies
on private interests, extramural activities and external remuneration to
avoid conflicts of interest.
13Kaap Agri Governance report 2017
Governance
In the three years preceding the listing of the Group on the JSE, Kaap
Agri had not paid any amounts or given any benefits to any director
or company in which a director has interests, in order to induce them
to become a director or, for services rendered by them or by the
associate entity.
The Group has a gift register for recording receipt of tangible and
intangible gifts. The purpose of this register is to protect employees
from possible attempts by any interest group or supplier, to exert
undue influence by means of gifts. Executive directors have to disclose
any gifts and recorded these in the register. Non-executive directors
also disclose gifts and will in future record these in the gift register.
Committees and their roles in the governance
The Group’s committees facilitate the discharge of certain Board
responsibilities with oversight, guidance and governance application
in mandated areas. Each committee chairman reports to the Board
to ensure comprehensive insight and appropriate decision-making at
Board level. The qualifications and experience of each member are
disclosed on pages 9 to 11.
Committee Members1
Meetingsattended Mandate
Audit and Risk
committee
Total meetings: 2
Chairman: CA Otto2 1/2
S Totaram3 1/2
JH van Niekerk4 1/2
BS du Toit5 2/2
D du Toit6 0/2
JH Le Roux7 1/2
Invitees:
• GM Steyn – independent
non-executive director
• S Walsh – executive
director (Chief Executive
Officer)
• GW Sim – executive
director (Financial Director)
• GC Victor – Group Manager:
Finance
The Audit and Risk committee assists the Board by providing an objective and
independent view on the Group’s finance, accounting and control mechanisms.
During the year, the following was actioned:
• The accounting policies of the Group were reviewed and the committee is
satisfied that the policy is in line with generally accepted accounting principles.
• The effectiveness of the Group’s information systems and internal controls
was established.
• The external auditors were appointed and their effectiveness monitored. This
included ensuring that the use of external auditors for non-audit services was
kept to a minimum.
• The integrated report and specifically the annual financial statements included
therein were reviewed and approved.
• With regard to the annual financial statements, the Audit and Risk committee
considered the following as significant: credit risk (in particular debtors),
management of stock, ethics and governance, controls, provisioning,
impairment, tax compliance, correctness and accuracy. The Group has
addressed these considerations through proper provisioning in terms of
existing policies.
Summarised committee feedback
14
Committee Members1 Mandate
Audit and Risk
committee (continued)
Invitees (continued):
• P Steyl – Executive
Manager: Internal Audit
• K Arendse – External
auditor, PwC
• H Zeelie – External auditor,
PwC
• The committee considered presentations by Internal Audit on ethics,
governance and controls, and management reports on operational and financial
matters. Recommendations were made to the Board on several matters. The
committee deems the internal financial controls of the Group to be adequate.
• The committee reviewed the Group’s risk assessment, assessment of the
controlled environment and governance. This was done to ensure that risks
are properly addressed and that the level of compliance, with proper
governance, is in line with expectations. The committee is satisfied with
the outcome of these evaluations.
• The reports of the external auditors were reviewed and appropriate
action taken.
• The JSE letter dated 14 February 2017 regarding the JSE Proactive Monitoring
Process (2016 report) was considered and appropriate action was taken to
respond to the findings in the report.
• The Group’s going concern status and compliance with applicable legislation
and requirements of regulatory authorities was confirmed.
• In terms of risk management (through consultation with the external auditors),
the committee ensured that management’s processes and procedures are
adequate to identify, assess, manage and monitor Group-wide risks.
• The committee appointed the external auditors and determined their
compensation. The external auditor is PricewaterhouseCoopers (PwC), who
has provided audit services to the Group for 81 years. The committee remains
satisfied that the external auditor is independent. The audit partner used by
PwC is rotated regularly, and the committee is satisfied with the arrangements
for the external audit, and the effectiveness of the designated auditor,
Hugo Zeelie. The committee is pleased with the experience shown and advice
provided by the Chief audit executive. The quality of the audit performed this
year was deemed satisfactory by the committee and the independent auditors
report indicates that the Group’s financial statements fairly reflect the financial
state of the company in accordance with International Financial Reporting
Standards and requirements of the Companies Act, No. 71 of 2008, as
amended. The Group complies with legislative and JSE requirements, rotating
to a new audit partner every five years. The last rotation of the audit partner
was in 2015.
• The committee appraised and is satisfied with the appropriateness, expertise
and experience of the Financial Director, who is driving the overall effectiveness
of the Group’s finance function.
• The committee is satisfied that appropriate financial reporting procedures are
in place and are operating.
• The Group’s combined assurance model provides comfort that actions are in
line with good governance management and the committee is of the view that
it is effective. 1 All the members of the Audit and Risk committee are independent non-executive directors.2 Chairman from 4 May 2017. 3 S Totaram resigned on 30 January 2017. Chairperson until 30 January 2017.4 Appointed to the committee at the AGM held 16 February 2017. Due to work commitments, JH van Niekerk resigned as member of the committee
on 20 September 2017.5 Re-appointed to the committee at the AGM held 16 February 2017. 6 Appointed to the committee at the Board meeting on 4 May 2017. 7 Re-appointed to the committee, at the AGM held 16 February 2017, and resigned on 4 May 2017. Due to King IV™ alignment, JH Le Roux was
subsequently replaced with CA Otto as he was not independent.
15Kaap Agri Governance report 2017
Governance
Committee Members1
Meetingsattended Mandate
Remuneration
committee
Total meetings: 2
Chairman: CA Otto 2/2
GM Steyn 2/2
JH van Niekerk 2/2
S Walsh2 1/2
Invitees:
• S Walsh – executive
director (Chief Executive
Officer)
• GW Sim – executive
director (Financial Director)
• DC Gempies – director HR
(subsidiary – Kaap Agri
Bedryf Limited)
The Remuneration committee is primarily responsible for reviewing and approving
the remuneration of executive directors’ and senior management, and for
succession planning.
The committee assisted the Board in reviewing non-executive directors’
remuneration recommendations in line with local and international best practices.
This was done to ensure that such total remuneration is fair and reasonable to both
the directors and the Group.
More information about the committee and remuneration is available in the
Remuneration report on page 20 of the integrated report.
1 A majority of the members of the specified committee are non-executive directors, most of whom are independent.2 Resigned from the committee on 20 September 2017 in terms of King IV™ requirements.
Committee Members1
Meetingsattended Mandate
Nomination
committee
Total meetings: 1
Chairman: GM Steyn 1/1
CA Otto 1/1
JH van Niekerk 1/1
Invitees:
• S Walsh – executive
director (Chief Executive
Officer)
The role of the Nomination committee is to assist the Board in ensuring that it has
the appropriate composition in terms of structure, size, diversity, skills and
independence for it to execute its duties effectively.
This year, the committee actioned its mandate by making recommendations for
new directors and ensuring that recruited directors were appointed through a
formal process.
The Nomination Committee adopted and approved a Gender Diversification Policy.
Identifying suitable candidates for appointment to the Board, the committee will
consider candidates on merit against objective criteria and with due regard for the
potential benefits of gender diversity at Board level. The committee will continue to
discuss and annually agree all measurable targets for achieving gender diversity on
the Board.
1 All the members are independent, non-executive directors.
16
Committee Members1
Meetingsattended3 Mandate
Social and Ethics
committee
Total meetings: 1
Chairman: EA Messina2 0/1
WC Michaels2 0/1
DC Gempies 1/1
S Totaram3 1/1
GW Sim4 1/1
Invitees:
• S Walsh – executive
director (Chief Executive
Officer)
• P Steyl – Executive
Manager: Internal Audit
• J Engelbrecht – Executive
Manager: Communication
The purpose of the Social and Ethics committee is to monitor the Group’s
activities regarding its social and economic standing and development, good
corporate citizenship, the environment, health and public safety, consumer
relationships and compliance to applicable laws.
The committee reported to shareholders on matters within its mandate and
raised matters of relevance to the attention of the Board.
Read more about social and community investments in the Social and Ethics report
on page 41 of the integrated report.
Focus areas for the year:
• B-BBEE, ethics, governance, transformation and the Group’s social
responsibility activities were reviewed.
• The necessary steps to improve the Groups B-BBEE score were considered.
• With regard to ethics, governance, the environment health and safety, relevant
policies and actions were evaluated.
• When reviewing transformation, the committee paid particular attention to
employment equity and reviewed the Group’s contributions to social
responsibility.
Focus areas for the future:
• The number of Social and Ethics committee meetings will increase from one to
at least two in 2018. The Group intends to increase the frequency of meetings
to three annually to ensure adequate oversight.
• The agenda of the Social and Ethics committee will be formalised and
structured to include measurable reporting on ethics and stakeholders.
• Transformation and ethics will remain core focus areas in future.
1 A majority of the members of the specified committee are non-executive directors, most of which are independent.2 EA Messina and WC Michaels were only appointed on 20 September 2017.3 S Totaram was the chairperson from May 2012 until resignation on 30 January 2017.4 GW Sim resigned as member on 20 September 2017.
17Kaap Agri Governance report 2017
Governance
Committee Members1
Meetingsattended Mandate
Finance committee
Total meetings: 3
Chairman: JH van Niekerk 3/3
NC Loubser2 3/3
HS Louw2 3/3
GW Sim 3/3
HM Smit 3/3
JH le Roux3 0/3
Invitees:
• LI Human – Group Manager:
Financing Services
• S Walsh – executive
director (Chief Executive
Officer)
• Other members of financing
services department as and
when needed
The mandate of the committee is to ensure that the financing activities of the
Group are managed efficiently.
The committee is responsible for approving and refining the Credit policy, and
approves certain high-value applications, where the amount exceeds the authority
of the officials.
Another key committee responsibility is the establishment of a decision-making
framework for the financing services department and exercising final authority
on financing where certain amounts are exceeded. In terms of the Credit policy,
the financing services department has the authority to obtain underlying securities
from individuals who apply for credit. Accordingly, it is the task of the committee
to conduct credit screenings, evaluate credit risks and to register underlying
securities in line with the Credit policy approved by the committee.
1 A majority of the members of the specified committee are non-executive directors, most of whom are independent.2 NC Loubser and HS Louw are not Board directors and retired during February 2017. Both are still members of the committee.3 Appointed on 20 September 2017.
All the Group’s committees are satisfied they have fulfilled their responsibilities according to their respective mandates.
Board efficiency
Ethical and effective leadership rests on the appropriate recruitment, evaluation, training and rotation of the Group’s Board members. Although
the Group recently listed on the Johannesburg Stock Exchange (“JSE”), governance structures have been embedded for many years. The
most significant challenge for the business is to formalise and document practices that have been effective in governing Kaap Agri until now.
This is the essence of our journey towards full compliance with King IV™ principles.
18
Recruitment
• The Nominations committee provides clear policies on recruitment and criteria for selection of appropriate
candidates in line with the provisions of the Memorandum of Incorporation (“MOI”). Directors are
nominated by the Board and elected at the annual general meeting (“AGM”) for three years. One third of
the directors must rotate annually.
• Induction for new Board members will be formalised.
Evaluation
• The Chairman evaluates the individual Board members based on their experience and expectations.
To date, the Group is satisfied that the performance evaluations have been fair, and the results and actions
implemented were appropriate, developing individual capabilities and performance in the process. Future
evaluation criteria, scopes and processes will be formalised, and an external service provider will be
considered in setting a performance baseline. The evaluation will also include performance and
behavioural criteria aligned to the Code of Ethics and Board commitment to governance standards.
• Future evaluations will include an evaluation of the Chairman and the various committees.
Training
• Training for skills development and applicable legislation is carried out intermittently with voluntary
attendance for Board members. The following training and development programmes took place this year:
– The Group’s sponsor, PSG Capital conducted JSE Listings Requirements training in June 2017.
– Competition Commission training started during September 2017 and involves an online process
facilitated by an independent institution, Compliance Online.
• Board members have access to the Company Secretary to provide any training deemed necessary, and
are free to approach external service providers for training as and when required. A formal Board training
programme is being considered in the Board plan for implementation in 2018.
Rotation
• The Group’s Nominations committee is responsible for reviewing the composition of the Board in terms
of race and gender diversity, tenure, expertise, skills and independence.
– NC Loubser and HS Louw were due to rotate at the AGM on 16 February 2017, but both did not make
themselves available for a new term. This provided an opportunity to diversify the Board’s composition.
– Three new directors were appointed: D du Toit (1 March 2017), EA Messina (1 March 2017), and
WC Michaels (1 August 2017).
– S Totaram resigned on 30 January 2017 due to work commitments. SJ Liebenberg retired from the
Board on 1 March 2017.
With the exception of SJ Liebenberg, all directors who retired or resigned were non-executive directors.
• The Board is comfortable with the progress made regarding diversity and intends to continue adjusting the
composition of the Board. This will be achieved through clear targets for gender and race diversity to be
implemented through the Gender and race diversity policy.
19Kaap Agri Governance report 2017
Governance
Company Secretary
The Company Secretary is responsible for co-ordinating the
functioning of the Board and its committees. This includes advising
the Board on matters of legal and regulatory compliance. The Group is
satisfied that these arrangements are effective. The Board is further
satisfied that RH Köstens is suitably qualified and experienced to
continue as the Group’s Company Secretary, with unencumbered
access to the Board. Kaap Agri believes that an appropriate arm’s-
length relationship exists between the Group’s Company Secretary
and the Board. Refer to page 11 for the Company Secretary’s
experience and skills.
The Board’s mandate allows for professional corporate governance
training to be accessed independently or through the Company
Secretary.
Executive committee
Kaap Agri’s Executive committee meets bi-monthly and is
responsible for assisting the Managing Director in implementing the
Group’s strategy. The CEO is further responsible for operational
planning, control and implementation. The CEO is appointed by
the Board on the recommendation of the Nominations committee.
The notice period for the CEO is three months and termination
conditions are in line with market norms.
Our succession planning and development activities have
facilitated a steady development of Executive committee members
and expertise over the last five years:
Growth in skills and capacity
Years Number of members People added
2012 3 S Walsh, JJ Matthee, SJ Liebenberg
2013 3
2014 3
2015 5 GW Sim, HJ Smit, DC Gempies. JJ Matthee resigned.
2016 5 AJ Griesel
2017 6
20
Evolving our stakeholder engagement
The place where people still count.
The Group has a stakeholder relations document that outlines the Group’s philosophy for relationships with stakeholders. Executive
management reports to the Social and Ethics committee, which in turn functions according to regulation 43 of the Companies Regulations,
2011. The Group is formalising its approach to stakeholder engagement to ensure that appropriate stakeholder management and reporting
continues within the appropriate frameworks.
Notable stakeholder engagements and activities are:
Bursaries with reputable institutions are provided to promising learners with financial constraints.
Kaap Agri uses a mystery shopper who visits various outlets and purchases products while measuring the overall experience according to set criteria. This data is subsequently used for evaluation of customer relationships.
A B-BBEE survey has been completed among certain clients to establish the relevance and value of the B-BBEE scorecard and to identify areas of improvement.
Through job creation and development, the Group recruited 400 new employees during the 2016/17 financial year. Kaap Agri intends to create up to 500 jobs in the next year through generic growth and new positions.
A survey on the benefits of online shopping was completed with 250 customers. The results will be used to assess the demand and viability of an online shopping platform.
The Group hosts an annual supplier recognition award ceremony. The supplier of the year awards follows extensive supplier evaluation. The winners are chosen after meeting certain rankings and adhering to the service level agreements in place with Kaap Agri. Acknowledging the performance of our partners builds positive relationships for mutual growth.
The Group is formalising a Corporate Social Investment (“CSI”) policy for the socio-economic development programmes we undertake. The policy will clearly define how CSI programmes will be developed, rolled out and the criteria for such.
Every Agrimark participates in a social development programme and our internal Care & Grow newsletter highlights these interactions.
The Group prides itself on remunerating employees fairly. Employees at minimum wage level are paid more than the minimum wage required.
The Kaap Agri Academy in Porterville provides free education and technical training courses that are SETA accredited.
Refer to the Social and Ethics committee report on page 40 of the integrated report respectively.
21Kaap Agri Governance report 2017
Governance
B-BBEE
The Board believes that B-BBEE is a political, social and economic
imperative, and supports and encourages all initiatives in this regard.
The Group’s B-BBEE score is measured according to the AgriBEE
Sector Code. The Group’s Corporate Affairs function is responsible
for B-BBEE programmes.
In terms of the B-BBEE assessment performed during 2017, Kaap
Agri’s was awarded a score of 85,12, thereby obtaining a Level 2
contributor status. This allows for 110% procurement recognition.
It should be noted that amendments to the AgriBEE sector codes are
expected in the near future, and can materially affect Kaap Agri’s
rating and status, as the number of points required to achieve a
particular level will change.
Kaap Agri’s B-BBEE 2017 scorecard summary
Element Score Weighting
Ownership 18,84 20,00
Management control 5,74 10,00
Employment equity 0,45 10,00
Skills development 20,94 20,00
Procurement 16,15 20,00
Enterprise development 12,00 10,00
Socio-economic development 11,00 10,00
Total 85,12 100,00
Ownership
Black ownership is currently at 25% and the black female ownership
is 7.65%, an increase on the previous year. 5% of Kaap Agri’s shares
have been issued to the Kaap Agri Employee and Farmworker Trust.
The beneficiaries are farmworkers, their families and local
communities, as well as Kaap Agri employee members. Currently,
the Trust is managed by four Trustees, of which two are independent.
The income received in the form of dividends is used to redeem the
Trust’s debt, with 10% of the amount available for distribution
amongst beneficiaries. The Trust makes funds available to qualifying
employees of the designated group through a revolving housing loan
fund. During 2016, 47 employees were beneficiaries of this fund of
which 32% were women.
The Trust also supported eight projects in rural areas catering mainly
for women and children of farmworkers. The total number of
beneficiaries for the year was 2 925, of which 51% were female.
Management control
Following a recent appointment, one of the six members of the
Executive committee is black. We intend to appoint another black
person in the new financial year.
Employment equity
Employment equity is the most significant area of transformation for
Kaap Agri. New appointments and promotions are made in
accordance with the guidelines of the Employment Equity Act and
are measured against internally set targets to accelerate
representation. Representation at senior management, although still
falling short due to a low staff turnover, has improved and remains an
ongoing priority.
There is no distinction between employees in the workplace or in
terms of policy or conditions of service, and all employees have
equal access to all benefits or schemes offered. The only exception
relates to situations where the bargaining councils, which regulate
certain sectors of Kaap Agri’s business, determine otherwise.
Skills development
The Group is an active participant in the AgriSETA. Kaap Agri
complies with the Skills Development Act in terms of payroll paid to
the South African Revenue Services as a training levy. Several
learnerships are conducted on an ongoing basis under the SETA and
more than 700 internal learnerships have already been completed.
The company is an accredited training services provider for AgriSETA
and also provides training to external people.
About 65% of the total training budget is spent on employees from
the designated category.
Preferential procurement
Kaap Agri is a retail services group which supplies a variety of
products and services mainly to the agricultural sector, but also the
general public. The Group purchased more than 75% of their
products in 2016 from B-BBEE-accredited suppliers.
Enterprise development
Interest-free loans with no security were made available to black
owned enterprises to obtain shares within group and other entities.
22
Socio-economic development
Below are some key activities undertaken by Kaap Agri to support
socio-economic development:
The Fuel Company
The Fuel Company (“TFC”) is a stand-alone retail fuel business which
has furthered employment equity at director, management and
employee levels since its launch in 2016. At an operational level, TFC
Operations (Pty) Ltd manages a number of filling stations and related
businesses such as convenience shops and quick service
restaurants. TFC Operations (Pty) Ltd has a black Managing Director
and the majority of the businesses directors are black. TFC
Operations (Pty) Ltd issued 12% of its shares to The Empowerment
and Transformations (Pty) Ltd in July 2017 and has successfully
negotiated with other B-BBEE entities that have a majority black
shareholding to improve transformation.
The Kaap Agri Academy
In 2009, Kaap Agri opened an academy in Porterville. This academy
provides training to developing farmers as well as farmworkers.
During 2017, the academy presented two learnership programmes –
one in mixed farming on NQF 2 level, and the other in animal
production on NQF 3 level.
The programme in mixed farming, which is attended annually by
approximately 25 learners, is an intensive farming development
programme stretching over several months, and includes theoretical
and practical training. The aim of this course is to fully equip existing
and prospective farmers with practical and management skills so
that they can develop into commercial farmers.
The programme in animal production is an advanced course which is
attended by a selected group of learners who successfully completed
the programme in mixed farming.
Since its inception, the Academy has already trained more than
240 students, and three of its students won the AgriSETA award for
Best Performing Learner of a Skills Programme. The top student for
2015 was also selected as the vice-chairperson of Grain SA for 2016.
Due to the excellent results of the Kaap Agri Academy, the
Department of Agriculture: Western Cape came on board as a
partner and co-sponsor of the mixed farming programme.
The academy also trains farmworkers in a range of short courses
such as welding, chemical handling, first aid, maintenance of tractors
and implements, pruning, forklift training, identification of diseases
and productivity management.
Education
Kaap Agri supports several schools by providing bursaries for
promising but impoverished students. The bursaries are only for
black people (defined as black, coloured, or Indian persons) and are
allocated for school funds and hostel fees. These are paid once a
year into a designated school account.
Kaap Agri also sponsors two learners in each grade at Boland
Agricultural School. The sponsorship is for a period of five years,
starting at grade 8. The Group also provides a bursary for a student
studying for a commercial degree at the University of the Western
Cape and supports a number of learners in informal areas.
In total, Kaap Agri provides R1,6 million to 38 learners and one
university student. The Group continues to form relationships with
credible institutions to develop opportunities for further learning in
the areas in which we do business. In addition to developing an
appropriate affirmative action policy, the Group has a database of
more than 650 emerging farmers and potential partners identified for
training. This is yet another initiative that indicates how we are rooted
in agriculture and development thereof.
Refer to the governance and sustainability chapter on page 27
of the integrated report for further detail.
23Kaap Agri Governance report 2017
Governance
Metrics and reporting
Core processes
Organisation structure
Governance
• Performance management
• Service level agreements (“SLAs”)
• Operational level agreements (“OLAs”)
• Annual and monthly oversight with reporting to the Audit committee and Board
• Clear roles and responsibilities according to reporting lines
• Key interface points with external functions
COBIT:
• 5 domains
• 37 processes
• 208 sub-processes
ITIL – operations domain
• Service delivery
and support
Information technology (IT)
The Group seeks to govern technology and information in a way that supports our ability to achieve our strategic objectives. The purpose of
the Group’s IT division is to enable the Group by using cost-effective and proven technologies with the applicable functionality to support
business growth and the stability of operations.
Kaap Agri believes that an effective information management (“IM”) governance model must articulate an allocation of “decision rights” that
is optimal for each operation. This means providing select individuals with clear accountability and decision-making authority concerning
changes or priorities in the IM process. The Board is ultimately accountable for the governance and management of IT.
The Group uses Information Technology Infrastructure Library (“ITIL”) and Control Objectives for Information and Related Technologies (“COBIT”)
as guidance for effective IT governance and management at a process level. ITIL is a set of detailed practices for IT service management, and
COBIT is a good-practice framework created by international professional association ISACA for IT management and IT governance.
The Group uses three main perspectives to govern IT:
• Direct
• Evaluate
• Monitor effectively
This process is performed through consideration of four analytical perspectives: financial; customer; internal; and learning and growth.
This ensures a holistic view of the needs and opportunities related to IT.
Kaap Agri's information management operating model describes how information management elements interact and relate in the delivery
of the function.
24
Management
GROUP NEEDS
Plan RunBuild Monitor
Direct Management feedback
Evaluate
Monitor
Governance
The identification and approval of Group-wide IT capital investment needs, including maintenance and project development, forms part of the annual budget.
Criteria for measuring IT performance monthly relate to, for example, connectivity, security and fingerprint scanning. Infrastructure availability has been maintained at an average of 99% across 13 different areas of measurement. With regards to security, the Group has security coverage for 91,9% of our endpoints. Email and firewall security are of a high standard. Suppliers are evaluated with a performance scorecard monthly.
IT risks are reviewed annually and where necessary, escalated to the Board for further action via Audit committee. Remedial actions for incidents are addressed through help desk processes. Key IT risks include:
Risk description Mitigating actions
Business interruption due to system unavailability for an extended period
A business continuity plan, offline alternatives, identification of priority users, satellite technology, backups and training initiatives are examples of measures in place to reduce the impact of system unavailability.
Sub optimal business use of applications or processes impact competitiveness
We are able to mitigate this risk by using global best practice baselines, ensuring technical expertise and capacity while continuously training end users on available functionality.
Kaap Agri’s reputation and business sustainability can be at risk due to IT misuse or abuse
Digital access control, security measures and discipline combined with the identification of sensitive areas, assist in proactively managing this risk.
We have developed an information management roadmap for 2017 to 2021 that aims to provide value to the business through cost-effective,
applicable and proven technology. The roadmap directs specific activities related to growth, basic information management, people, customer
focus and finance. The short to medium-term focus will therefore be on roadmap implementation throughout the Group.
Outlook
As a recently JSE-listed Group, Kaap Agri intends to continuously assess and mature its alignment to, and disclosure of King IV™ principles in the coming years.
Specific focus areas for the next financial year have been identified, and include:
• compliance with the provisions of King IV™ and the JSE with regard to the Remuneration policy which will be voted on as required; and • evaluation of Chairman and committees.
Beyond 2018, our intent is to address gender diversity, B-BBEE and transformation.
M E C H A N I S AT I O N
www.kaapagri.co.za