Freeworld Coatings annual report `09

Transcription

Freeworld Coatings
annual report ’09
www.freeworldcoatings.com
Ideas can change the world
FREEWORLD COATINGS LIMITED Annual Report 2009
In reporting back to our stakeholders on our performance, strategy and prospects, we aim to disclose material information transparently,
comparatively and understandably. As part of our sustainable approach to managing our business, we measure our performance
against the triple bottom line, providing increasingly focused sustainability information as part of our annual report. Stakeholders
are directed to our website www.freeworldcoatings.com for further information to complement our annual report, periodic SENS
announcements and presentations of our interim and annual results.
contents
01
02
03
04
06
10
11 14 17 19 20 22
26
33
40
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58
59 143
144
147
ibc
About Freeworld Coatings
Our ethos
Highlights
Our group at a glance
Our brands
Chairman’s report
Chief executive officer’s report
Vision
Innovation
Business philosophy
Our board
Our executives
24 How South Africa scored
Operational review: Decorative Coatings
Operational review: Performance Coatings
35 Going for gold
38 Where there’s a wall there’s a way
Sustainability report
Corporate governance
Chief financial officer’s report
Annual financial statements
Shareholder information
Notice of annual general meeting
Form of proxy
Company information
Company
information
Company Secretary
Sponsor
Eleanor Chamberlain
Rand Merchant Bank (A division of FirstRand Bank Limited)
(Registration number 1929/001225/06)
1 Merchant Place
Cnr Fredman Drive and Rivonia Road
Sandton, 2196
(PO Box 786273, Sandton, 2146)
Tel: +27 11 282 8000
Registered office
Balvenie, Kildrummy Office Park
Umhlanga Drive
Paulshof
Postal address
PostNet Suite 263
Private Bag X87
Bryanston, 2021
Tel: +27 11 549 8000
Website: www.freeworldcoatings.com
Company Registration Number
2007/021624/06
Country of incorporation
Republic of South Africa
Transfer secretaries
Link Market Services South Africa (Pty) Limited
16th Floor, 11 Diagonal Street
Johannesburg, 2001
(PO Box 4844, Johannesburg, 2000)
Tel: +27 11 630 0800
We are committed to contribute to better lives and living spaces in the markets in which we operate through our
products and propositions, our ideas and actions – never afraid to find better ways to do things. We understand that
a vibrant society and healthy natural environment are intrinsic to our lasting success. This understanding provides the
foundation for the way we have chosen to structure and manage our business – which requires that we do business in
a commercially sensible and socially responsible manner, mindful that we are custodians of the earth’s resources.
Attorneys
Read Hope Phillips Thomas & Cadman Inc.
2nd Floor, 30 Melrose Boulevard
Melrose Arch, Gauteng, 2196
(PO Box 757, Northlands, 2116)
Tel: +27 11 344 7800
Auditors
Deloitte & Touche
Deloitte Place, The Woodlands
Woodlands Drive, 2052
(Private Bag X6, Gallo Manor, 2052)
About
Freeworld
Coatings
With its origin dating back 119 years, Freeworld Coatings is today a leading
manufacturer and marketer of decorative and performance coatings in southern
Africa and with a presence in other parts of the world. The company markets its
products internationally and is one of the world’s 24 largest coatings businesses,
with operations that meet high global standards. Freeworld Coatings is strongly
positioned to grow, based on its longstanding experience, extensive product
base, iconic brands and leading edge technologies.
01
our Vision
our Purpose
Our vision is to be a world class, commercially
sensible and socially responsible coatings
multinational with a presence in selected
regions and segments that promise superior
growth. We will acknowledge our part in
custodianship of the earth and its resources
in an environmentally responsible way and
play, within our means, a progressive role in the way we do business.
T o offer appearance, décor and ambience
that beautify, protect and improve the value
of buildings and vehicles, and solutions
that protect and enhance the longevity
and functionality of assets.
our VALUES
Free thinking
Passion for customers
Empowered people
Integrity and care
Diversity as a strength
our desired culture
We aim to build a free thinking organisation that has a deep passion
for its customers.
Our people are empowered, self disciplined, have integrity and are caring.
We believe that diversity is our strength.
Through our culture we enthusiastically drive success.
Our brand
Our three foundational concepts
Free thinking – with self discipline.
You can change your world if you change the way you see the world.
Find a better way of doing things, and not just for effect.
Our
Ethos
02
FREEWORLD COATINGS Annual Report 2009
Our three brand pillars
Self discipline and accountability as opposed to bureaucracy.
Creative exploration
a sense of adventure independently and with our consumers, adding
value to peoples’ lives.
Dependability and integrity through real transparency.
Highlights
•Revenues of R2 703 million maintained
at last year’s record levels.
•EBITDA, excluding fair value adjustments on
financial instruments, at R425 million was
5% down on last year’s record result.
•Cash flows from operations remained strong
at R375 million, the same as last year.
•Final dividend of 7 cents per share;
total dividend of 12 cents per share.
•Acquired the intellectual property rights
of Napier Environmental Technologies for
North America to complement the rights
for the rest of world which we already own.
•Three new product ranges successfully
launched.
03
market segments
divisions
DECORATIVE
holding company
COMPLEMENTARY PRODUCTS
PERFORMANCE
SPECIALISED COATINGS
COLOURANT SYSTEMS
04
operating companies and locations
plascon
South Africa
freeworld plascon
Botswana, Namibia,
Malawi, Swaziland,
Zambia
freeworld coatings
australia
Australia
freeworld coatings
shanghai
China
Freeworld automotive
coatings
marouns group
South Africa
hamilton’s
South Africa
midas earthcote
South Africa
icc
South Africa
PLASCON
South Africa
FREEWORLD COATINGS
AUSTRALIA
Australia
product brands
05
Our
Brands
As a market leader in the South African coatings industry, many of our products
are regarded as iconic brands, with reputations for the highest quality and proven
customer loyalty. Some of our best known brands include Plascon, Crown,
Polycell, Midas, Earthcote and Hamilton’s.
PLASCON
Being the leading supplier of premium interior and exterior decorative
paint, Plascon has a long established reputation as an iconic South African
brand. In 2009, Plascon focused on marketing Freeworld Coatings’
Décor Effect™. The Décor Effect™ means that for a modest cost it is
possible to significantly elevate the value of one’s environment. Aesthetic
metamorphosis has a multiplier effect and people are deeply influenced by
the aesthetic values that surround them. We believe it is possible to uplift
people by improving aesthetics, using imaginative, cost effective coatings.
In 2009, Plascon once again proved its mettle as an innovator, and was
nominated for five finalist awards in the Product of The Year Awards.
Cavendish Square, Cape Town – Plascon refurbishment
06
AUTOMOTIVE GROUP
The Automotive group consists of three entities, each targeted at a specific sector of the automotive coatings and related markets. DuPont
Freeworld focuses on the supply of coatings to original equipment manufacturers, has a leading market position and is 51% owned by DuPont.
Freeworld Automotive Coatings is the manufacturing arm of the business for both the OEM sector and the refinish market, and distributes to
independent and Freeworld Coatings owned refinish distributors. Our product range is directed at the premium sector of this market ie manufacturer
approved body shops, using licenced technology from DuPont under the Spies Hecker and Standox brand names, as well as the mid range market
using own technology under the Acryline, Mastermix, Cargoline and Flowline brands. The group has a majority share in Prostart Investments,
a leading distributor of refinish paint, panel and body shop equipment and anciliaries with eight branches around South Africa.
Gautrain
Growth opportunities for the Automotive
coatings businesses are considered
significant in South Africa and in southern
Africa. We already have refinish distributors in
Swaziland, Zimbabwe, Mozambique, Malawi,
Zambia, Botswana, Namibia and Angola.
Picture courtesy of Murray & Roberts Limited
ICC
ICC (International Colour Corporation) produces and supplies colourant
systems throughout southern Africa, and exports them to an increasing
number of global paint companies. Colourants are primarily used at
point of sale in retail stores. ICC systems allow exact matching of colours
requested by shoppers. The formulations are crucial to the process,
driven by state of the art computer systems. ICC continues to reflect
Freeworld Coatings’ leadership position with regard to environmental
responsibility. In South Africa, ICC is the only manufacturer of a zero
VOC (volatile organic compounds) range of colourants which meets
EU standards and 2010 compliance criteria.
07
Our brands continued
MIDAS
Midas Paints has consolidated its position as a supplier of specialist coatings and
customised solutions to the construction industry. The Midas Paints team tendered for
and completed numerous prestigious projects in 2009 including, among others, the
Department of Foreign Affairs, Cape Grace, The Bay Hotel in Camps Bay, The V&A Marina
Apartments, Cape Royale Hotel, Allan Gray Head Office in Cape Town, Polokwane Stadium
and Cape Town Stadium in Green Point.
Boutique Hotel, France
Cape Grace Hotel, Midas Earthcote refurbishment
EARTHCOTE
Having already established a presence in Namibia, Mauritius, Zambia
and Botswana, Earthcote is expanding its footprint in the international
market, following opportunities in the high end European market for
textured coatings. Market research has uncovered promising prospects
in Europe for the earthy, contemporary aesthetic that has become
the signature of the brand. Having trialled pilot retail concepts in
Amsterdam, the South African marketing team will launch some exciting
initiatives in the complementary channel in the year ahead. There are
already well advanced plans to strengthen these initiatives further.
08
HAMILTON’S
RemovALL Aviation Grade Products
In 2009, Hamilton’s began rolling out its
refreshed brand image, introducing clear,
contemporary graphic solutions in packaging
to make it easier for consumers to grasp the
product benefits of its wide range of brushes
and specialist painting tools. By early 2010,
this new consumer friendly design approach
will be seen in most major channels. Hamilton’s
recently acquired “Squeepa” technology to
produce a range of rubber based sweepware
specifically for cleaning.
Hamilton’s re branding
FREEWORLD ENVIRONMENTAL
TECHNOLOGIES
Freeworld Environmental Technologies recently launched its RemovALL range
of internationally patented, biodegradable, water based and non toxic coating
removers; the most environmentally benign and user friendly means of removing
coatings, restoring wood and cleaning surfaces. Based on adhesion release
technology, RemovALL provides a solution to the worldwide problem of removing
graffiti from public areas. In November 2009, Freeworld Environmental
Technologies received official vendor status with the City of Cape Town for its
graffiti removal products. The company is also engaged in well advanced
negotiations for the distribution of RemovALL aviation grade coatings removers in
the aviation industry both locally and in surrounding regions.
09
Chairman’s
report
It is pleasing that the management team,
under the able leadership of our CEO, has
used the tough times to increase efficiencies
and advance strategy.
Bobby Godsell
The effective management of costs has been impressive. So too
has been management’s defence of its customer base in both the
Decorative Coatings and Performance Coatings markets, with turnover
only marginally down in the first case and slightly up in the second.
This positions the company well to benefit from the economic upturn
when it comes.
As anticipated, in 2009 the global economy experienced its deepest
economic recession since 1929. The recession was truly global with
all major economies experiencing sharp falls in activity, and most
entering negative growth territory. Though the impact on the South
African economy was somewhat delayed, it was emphatic when it
arrived. Recent economic data suggest signs of recovery in most
major economies. The indicators in South Africa’s case are mixed.
History suggests the upturn will come, but both the level and nature
of economic growth are likely to be different going forward.
Against this background, Freeworld Coatings has done well to
maintain revenues at the 2008 level. Higher costs, particularly in the
early part of the year, saw margins come under pressure and a
modest (5%) decline in EBITDA, excluding fair value adjustments on
financial instruments, was the result. The company has a longstanding
policy of taking exchange rate cover on imported materials and
capital goods. This policy continues to seem wise in the context
of significant volatility of the global reserve currency, the US Dollar,
as well as the South African Rand. However, the fair value of these
instruments resulted in a loss of some R26 million in 2009 in contrast
to a profit of R15 million the year before.
10
The board is particularly encouraged by the company’s progress in
implementing its strategic vision. Two aspects of progress merit
mention. Freeworld Coatings offers products that enable its customers
to renew and enhance their habitat. This product range is being
improved, and important foundation stones were laid in the last year
to enhance the delivery channels for these products. Further, a marketing
focus on a broader scope of LSM levels promises real expansion in
the company’s customer base. A second area of strategic advance
has been to introduce a range of products that are environmentally
friendly, effective and much easier to apply in removing old coatings
and treating surfaces. These advances enhance what Freeworld
Coatings has to offer individual customers, institutions and public
authorities, both in South Africa and beyond its borders.
It is pleasing that the management team, under the able leadership
of our CEO, has used the tough times to increase efficiencies and
advance strategy.
It has been a pleasure to work with the young Freeworld Coatings
board. We have done our work in ensuring that not only the systems
but also the habits of good governance are built into the behaviour
of the company. We look forward to the year ahead confident of
competitive performance, and in the expectation of further progress
towards ensuring that Freeworld Coatings is indeed an excellent
coatings company by global standards. RM Godsell
Chairman
Trading environment
In the past year, government and business leaders were forced to act
decisively to stem the unprecedented erosion of economic wealth in
societies the world over. Through significant reform, they sought to
lay the foundations for future wealth creation in the hope of better
circumstances for all their citizens and brighter prospects for economic
recovery.
Chief executive
officer’s report
“Although the tough economic conditions
continued, Freeworld Coatings produced a
solid set of results. We continued to invest
in the business with over R100 million in
capital investment over the past year and
the launch of three exciting new product
ranges. We also remained focused on
efficiency gains across the business. With
our strong portfolio of coatings brands, the
company is well positioned to benefit from
any upturn in the economy.”
André Lamprecht
The global economic storm demanded urgent responses from our
company too. The adverse conditions, in which dwindling demand
resulted in volumes declining 20% to 40% in some areas of the
industry, here and abroad, called for a highly considered approach.
Pleasingly though, the conditions underscored the relevance of our
strategic vision and resilience of our corporate culture, which is defined
by our desire to find better ways of doing things. Nothing focuses the
organisational mind like the stark reality of recession and the synergies
that were achieved in 2009 through coordinated effort in the Freeworld
Coatings group were pleasing. In hindsight, we may well look back on
2009 as having in some ways the elements of best of times, rather
than only the worst of times.
The group’s trading environment, in the aftermath of the global
financial crisis, was particularly difficult given the double edged
sword of the economic downturn and the negative impact of the credit
crunch on discretionary consumer spending, which cut into the demand
for coatings products. In our case, single digit volume decline was
accompanied by product mix changes.
When we released our 2008 results, our prognosis for 2009 was that
it would be a tough year. While we anticipated that the slowdown in
consumer spending would impact our targets in the Decorative Coatings
segment, we expected this to be offset at least to some extent by
increases in public infrastructure spending. Unfortunately, however,
this offset was constrained by the slowing pace, and in some instances
delay, of public spending.
Strategic highlights
In spite of the difficulty we faced in the year under review, the group
made substantive strategic progress on a number of fronts.
Freeworld Environmental Technologies launched its world leading
range of environmentally responsible cleaning, preparation and graffiti
removal products under the RemovALL brand name. This is testament
to our commitment to greener product technologies. Similarly, Plascon’s
Professional Evolution products and Midas Earthcote’s EnviroLite
ranges are setting new standards and fulfilling the growing demand
for better, healthier, more environmentally responsible coatings.
We started addressing the untapped lower LSM market by focusing
on providing products that are not only suitable for low cost housing
but offer superior value compared to other products in this market
segment. We progressed from being a minor to being a major paint
11
CHIEF EXECUTIVE OFFICER’S REPORT continued
supplier to Cashbuild, the largest retailer of building materials and
associated products to cash customers in South Africa, Namibia,
Lesotho, Botswana, Swaziland and Malawi.
Our largest manufacturing unit, Plascon, received a number of
respected awards. Besides retaining its place in the top three in the
manufacturing category of Deloitte “Best Company to Work For”
survey, Plascon won a Prism Award, an Advantage Gold and a Silver
Loerie for its advertising. It also received the Jack’s Paint “Supplier of
the Year” award and the “Most Improved Supplier” award from the
Steinhoff Group.
Skills advancement is an urgent priority, nationally and in our sector.
We have continued to grow the intake of learners at the Freeworld
Coatings Paint Academy at its various locations and are pleased to
report that the upgrading and expansion of the Cape training facilities
is progressing well.
We continued to expand our automotive refinishing business despite
the recessionary pressures. We launched the Duxone range of products
and this resulted in 90 additional mixing banks being installed at
panel beating facilities. Freeworld Automotive Coatings extended its
distribution base by opening a successful new refinishing outlet
in Bloemfontein.
We opened six new Midas Earthcote franchise stores, and progressed
our plans to retail Earthcote textured products in Belgium and The
Netherlands.
We launched the Terraco range of plaster related products, which
are proving to be very competitive against certain generic products
used widely on dry walling. We also developed a comprehensive
new range of proprietary protective coatings products, which is now
market ready.
The Hamilton’s range of brushes and painting accessories is poised
for growth following a complete brand design and packaging overhaul
in combination with exciting new merchandising.
We also consolidated our new, integrated approach to corporate
branding. The addition of the Freeworld Coatings brand to individual
company branding on packaging is well on track and gaining
momentum.
Financial results
In the face of the prevailing economic conditions, we believe the group
posted a solid performance and we express our sincere appreciation
to all our staff for their unwavering dedication.
The uncertainty and volatility in financial markets, in particular
currency markets, had a significant impact on the group’s results, and
consequently, we have presented EBITDA excluding and including fair
value adjustments on financial instruments as separate line items.
12
Income statement
Revenue from operations for the year ending 30 September 2009
was R2,7 billion, in line with last year which was an all time high for
the group.
EBITDA, excluding fair value adjustments on financial instruments,
at R425 million was down only 5% on last year’s record result of
R449 million. Input costs remained at relatively high levels for most
of the year. In view of the tough market conditions, we absorbed
these costs and did not raise prices so as not to further impact
demand. Management’s focus on managing the expense base
limited the decline in EBITDA margin, excluding fair value adjustments,
to 100 basis points at 15,7% from 16,7% last year.
The stronger Rand in the financial year – which for instance
appreciated by 41% between March and October 2009 against
the US Dollar – resulted in the group recording a mark-to-market
fair value loss on financial instruments of R26,3 million, as against
last year’s profit of R15,4 million.
Operating profit of R322 million was down 19% on last year due to
the 5% lower trading result, a R10 million higher depreciation charge
as a consequence of our capital expenditure programme, and
the negative mark-to-market fair value adjustments on financial
instruments. Excluding these fair value adjustments, operating profit
would have been 9% lower at R348 million.
Income from associates at R8,6 million was substantially lower
than last year’s after tax income from associates of R22,4 million.
This was due mainly to the performance of the DuPont Freeworld
joint venture, which supplies OEM paint products to the vehicle
manufacture industry. The joint venture was severely affected by
significantly lower activity in vehicle manufacturing.
Net profit at R147 million was 32% lower than last year. This was mainly
due to the adverse pre tax swing of R42 million in mark-to-market fair
value adjustments to financial instruments, a R14 million shortfall in
after tax profits from associates and the 5% lower trading result.
Headline earnings per share of 69 cents were down 35%, based on
203,9 million shares in issue as against last year’s weighted average
of 201,1 million shares.
The directors declared a final dividend of 7 cents per share in line with
Freeworld Coatings’ positioning as a growth company. This brought the
total dividend for the year to 12 cents per share, which the directors
considered prudent in the prevailing economic climate.
Balance sheet
Total assets of R4,5 billion at 30 September 2009 were in line with
last year. Interest bearing debt net of cash at R831 million reduced
by R42 million, which translates into a debt to equity ratio of 29%.
Cash flow and capital expenditure
Cash generated from operations amounted to R375 million, similar to
last year, with the cash inflow from operating activities of R150 million
being used to acquire property, plant and equipment totalling
R101 million and intangibles of R22 million. The latter was largely
attributable to exercising our option to acquire the intellectual property
rights of Napier Environmental Technologies for North America to
complement our ownership of the rights for the rest of the world.
Our R101 million investment in capital expenditure included rejuvenating
a number of our sites, implementing an ERP system in the Automotive
business and the replacement of outdated equipment.
Looking ahead
economic recovery. The year is therefore likely to be more a case of
receding recession than confident upturn.
Given this outlook, it is important that the group retains its firm focus
on limiting input costs and making further productivity improvements
to lower our cost base and build a trading platform that can support
higher volumes without losing margin.
The launch of exciting market relevant products is well on track for
2010, which will further demonstrate the group’s commitment to
delivering genuinely innovative solutions. In the lower LSM market,
we will continue to explore unconventional ways of penetrating
deeper into this important segment, leveraging the group’s expertise
to formulate appropriate product ranges and offerings.
At this juncture in South Africa’s socio economic and political history,
it seems appropriate to consider our company’s place within this
broader framework. Freeworld Coatings is a multinational company
domiciled in South Africa and, depending on currency movements, we
rank 24th in the world in the coatings category; a relevant position in
the industry. Although we continue to seek international expansion
opportunities, our South African home base necessitates careful
consideration of the prospects and priorities relating to the region.
On the whole, the group is well positioned to take advantage of the
upturn when it comes. We have strong brands, a comprehensive
product range and a wide distribution network in South Africa and
regionally. In the year ahead we will also invest further in our
distribution capacity. We will continue to evaluate the extension of
our footprint and pursue suitable acquisition opportunities that
accord with our strategic direction. We are investigating a number of
opportunities, including some outside of South Africa.
The country is currently ranked 24th on the global list of contributors
to world gross national product (GNP) according to BER. On the face
of it, this ranking seems noteworthy. Yet it is important to understand
that 80% of the world’s GNP is produced by the top 20 countries and
South Africa contributes 0,7% to global GNP. At its current size the
economy is too small to realistically and meaningfully deliver on the
full aspirations and hopes of its citizens. It also impacts the scale of
the home base for businesses that hail from here and consequently
can detract from their global opportunities Other societies, for instance
China, India and Brazil, faced similar challenges in earlier times.
Like 2009, the year ahead will no doubt be intensely challenging.
However, I remain optimistic that with the resilience we have shown,
the growth potential we see and with the people that make Freeworld
Coatings extraordinary, we will continue to perform credibly and
competitively.
It is critical that leaders in all spheres of our society set, as a national
priority, a goal to achieve higher growth and set a meaningful target
of say 1,4% of world GNP so as to gain the scale required. All our
collective conduct then needs to assist, not detract, from a focused,
coordinated national effort to achieve this. Only in this way will South
Africa galvanise its ability to deliver meaningfully on the hopes and
aspirations of its citizens, in particular the poor and the unemployed,
and build a meaningful and lasting competitive position in the
community of nations.
AJ Lamprecht
Chief executive officer
The interest and the scrutiny that the 2010 FIFA World Cup will bring
to South Africa will provide an enormous opportunity to enhance our
global profile and establish a higher growth trajectory, or in counter, it
may pose a real risk if we do not use the opportunity wisely.
Looking to the trading environment in the year ahead, while there are
signs of upturn in the global economy, conditions remain fragile and
concerns linger about the stability of financial markets and pace of
13
Vision:
Enhancing the beauty and value
of life through change
The cornerstones of our brand positioning are:
1
cale: we will grow our business
S
significantly via organic growth and
commercially sensible acquisitions that
promise excellent shareholder returns.
2
Quality: we will add value to life with
products that demonstrate Freeworld
Coatings’ Décor Effect™.
3
Innovation: we will find better ways of
doing things, thereby contributing to a
vibrant society and a healthy, natural
environment – knowing that both are
fundamental to our success.
We seek to grow not only in reaction to
market demand but by creating and shaping
demand. We provide inspirational, practical
and cost effective products through channels
relevant both to our existing customers and
new markets.
The concept of creating value for customers, far beyond the cost of the
actual product and application, has become a core business principle
at Freeworld Coatings. Known as the Décor Effect™, this principle
extends beyond a decorative solution.
The Décor Effect™ multiplies the perceptual value of an environment
and boosts the economic value of any property and its surroundings,
well beyond its cost. This principle holds true also in relation to the
enhancement and protection of other assets, such as vehicles and
equipment, through the application of specialised coatings.
14
Plascon Living Concepts Showroom
Nerina Residence Stellenbosch, showcasing the Décor Effect™
The award winning Plascon Living Concepts showroom in Johannesburg was designed with the Décor
Effect™ in mind: inviting consumers to explore the almost limitless possibilities offered by our paint.
Staffed by expert colourists and décor professionals, the showroom allows visitors to imagine their
home and work environments by using Plascon Colour Visualiser simulation software. The success of
the first concept store has galvanised our intention to take the concept to all major centres in South
Africa, establishing a complementary channel to market.
An example of how the Décor Effect™ vividly brings an environment
to life was the Freeworld Coatings’ sponsored function in honour
of the 40th anniversary of Nerina Residence at the University of
Stellenbosch. With a minimal budget, using our paint décor, horticulture
and décor accessories, a traditional, well worn 1960s students’ dining
hall was transformed overnight into a contemporary Japanese tea
garden, demonstrating the power of a simple, single minded theme.
The impact on the guests was profound.
Experiential brand activity such as this is a core marketing thrust,
as it allows customers to engage with our brands in multi sensory
and multi dimensional ways, conveying the brand essence far more
powerfully than conventional advertising.
15
Vision continued
While the delivery of homes to economically disadvantaged communities is of national importance and answers to a fundamental
human need, we believe these housing projects create an even greater sense of dignity for their communities when enhanced with an
appropriate decorative finish, even for modest cost.
Midas Earthcote has responded innovatively to the need for cost effective coatings to enhance low cost homes. Mass Home 6 is a roller
applied product with advanced binder content which provides adequate coverage with a single application. Midas Earthcote supplied
this cost effective solution to Imison, a company responsible for a number of rapid build low cost housing projects in Gauteng, using
injection moulded, energy efficient polystyrene panels.
Several housing projects in the affordable housing sector are in the pipeline for 2010, many of which will have this product specified
as a finish. The group continues to forge mutually beneficial business relationships with government agencies and commercial
enterprises engaged in the delivery of housing.
The Earthcote brand expanded in earnest in 2009, finding a footing
in the European market for its innovative range of high end textured
coatings. Since 2008, Earthcote has trialled its acrylic and textured
coatings in the European market. Market research confirmed that many
of Earthcote’s textured products are unique to the European market,
and there is significant demand for the earthy yet contemporary
aesthetic that has become the brand’s signature. A standalone Earthcote
store will be launched in Amsterdam during 2010, followed by more
versions in terms of a roll out plan.
Boutique Hotel, France
16
Innovation:
Finding a better way
We accept and acknowledge our
responsibility, not only in creating better
products but also in fostering a culture
that is dedicated to progressive ideas
and sustainable solutions.
“The great companies of these times
all have one thing in common. They’re
dealing with change by innovating
innovation. By focusing on giving
back, they keep gaining. We believe
in reinventing some of the rules
of the change game, which is the
one constant in today’s business
environment. We believe this approach
is making it possible to strike ‘gold’ in
unexpected places. The new gold rush
is about how we value our people, the
people who buy our products and our
suppliers, who partner us in making
extraordinary things possible.”
André Lamprecht, chief executive officer
Corporate and individual citizens of the world cannot ignore the
calls for a more conservationist, more environmentally responsible
approach.
We are deeply aware of the need to maintain our market leadership
by focusing on the fast growing demand for more environmentally
responsible coatings solutions. Our business philosophy is rooted in
the idea that we will always seek better ways of doing things. Not as
a marketing strategy, or for effect, but because we subscribe to the
deeply held view that the future of life, societies and business itself,
depends on it.
In 2009, Freeworld Environmental Technologies launched the
RemovALL range of internationally patented, biodegradable,
water based and non toxic coating removers. These are the most
environmentally benign and user friendly means of removing
coatings, restoring wood and cleaning surfaces, based upon
unique, cutting edge adhesion release technology.
Plascon worked with an industry participant fulfilling demanding
criteria, for some six months, doing tests with RemovALL SV35pma
aviation grade coating remover. After successfully trialling the
product on several test panels and aircraft, negotiations are now
well advanced for the appointment of a leading distributor in
the region.
17
Innovation continued
Plascon has pre empted market demand for some world
leading green products and processes.
It has achieved ISO 14001 certification of all its manufacturing
plants, and ensures that waste is minimised and waste disposal
is carried out by reputable waste management companies.
Plascon has also ensured it is able to sustain high manufacturing
standards while applying environmentally responsible practices.
In creating better products, Plascon continuously reviews and
innovates its product lines in accordance with international
legislation, often going beyond the legal minimum in its effort to
create industry leading offerings.
In the manufacturing of colourants, ICC continues to reflect Freeworld
Coatings’ leadership position with environmentally friendly solutions. In
South Africa, ICC is the only manufacturer of a completely zero VOC
range of colourants which meets EU standards and 2010 compliance
criteria.
A testament to our success as innovators and our skill in creating
better products that make a real difference in the lives of consumers
was the awarding of finalist status to several Plascon products
entered into the 2009 Product of the Year Awards. These awards
acknowledge and stimulate innovation, and in 2009 paint was added
as a new product category. Plascon had all three finalists in the Paint
category. It also had a finalist in each of the Paint Removers and
Paint Preparation categories. Consumer voting led by A.C. Nielsen
will decide the winners.
We believe our world view should follow the example set by nature.
Working with nature, observing natural cycles, and reflecting a natural
aesthetic in our products, work environment and consumer offerings,
is a simple yet logical approach – one often overlooked. As one
example, our group office building was internally designed to frame the
natural environment in which it is located. Simple, intelligent solutions,
like using windows to frame the natural environment, literally “bring
nature inside”.
V&A Marina Apartments – Midas refurbishment
The world’s most innovative raw materials and technologies
have been used in manufacturing the made-to-order Plascon
Professional Evolution range. The range delivers the same
product performance expected from Plascon’s high quality
trade products, with the added benefit that these products
exceed all green building requirements, being completely
solvent free, VOC free and containing no APEOs, CITs,
formaldehyde, glycols, lead or ammonia.
Midas Earthcote has produced an environmentally responsible
product offering with its made-to-order EnviroLite range, in
response to the market demand for healthier, greener products.
18
Business philosophy:
Value Based Management
Freeworld Coatings is a free thinking
organisation with a genuine passion for our
customers. Our people are empowered, self
disciplined, caring and have integrity, and
diversity is our strength. These principles
define our culture and drive our success.
Value Based Management is at the heart of our organisation. It is a
philosophy that inspires behaviour at all levels that aligns the daily activities
of our teams and individuals with the goal of value creation.
Our intention is to be world class in every aspect of our business.
Our well developed performance management system is linked to
a gain share scheme. Employees are rewarded also in the form of
bonuses according to their individual and team contribution to the
achievement of targets and objectives. This is motivated by a desire
to create a supportive and empowering working environment, free
from bureaucracy and unfettered by unwieldy structures. The result
is a vibrant personnel whose efforts result in meaningful personal
rewards, added value for our customers and, ultimately, considerable
gains for our shareholders.
In the midst of the chemical industry strike in 2009, our largest
manufacturing unit, Plascon, retained its position as one of the top
three in the prestigious Deloitte “Best Company to Work For” award in
the manufacturing sector. It is gratifying to receive an award such as
this, which reflects the commitment and loyalty of Plascon employees.
To ensure that all group companies align with our culture, values and
goals, we held an intensive three day management workshop in
Hermanus. Attended by 90 delegates comprising executive leadership
from all Freeworld Coatings companies, this goal setting initiative
resulted in a further inculcation of the spirit and business principles of
the group. Delegates engaged in professionally guided vision building
workshops and strategic management sessions which captured insights
and valuable business ideas to take the group forward with single
minded focus despite the turbulent economic times.
Our investment case
• A unique operating philosophy – our vision is to
be a world class, commercially sensible and socially
responsible coatings multinational present in
selected geographies or segments where there
is superior growth available.
• Conscious of the need to protect the earth’s
resources.
• Value Based Management: creates value for all
stakeholders, including the communities in which
we operate.
• Commitment to the highest quality standards,
including appropriate ISO accreditations in all
significant operations.
• Demonstrating the value of the décor Effect™ and
its potential to add beauty and considerably more
economic value than the product cost.
• Leading market shares in the segments in which
we operate.
• Innovation driven.
• Access to international partners and strong
partnerships and license arrangement with global
technology partners.
• Exploring innovative ways to lower the business
system cost.
• Excellent track record in strategic acquisitions.
19
Our
BOARD
1 André Jacobus Lamprecht (57)
BCom, LLB, PED-IMD
During his student years André was president of the SRC of Rhodes University and president of NUSAS. He practiced as an advocate of the High Court of
South Africa prior to joining the Barloworld group in 1981. From 1983 he played a leading role in steering the group through a turbulent decade of political
transition into a post apartheid South Africa. During this time he played an important role not only in the establishment of, but also participated extensively in
the processes that assisted in the political transition. He was appointed to the board of Barlow Rand (subsequently known as Barloworld) in 1993. For the next
11 years his portfolio of responsibilities included chairmanship of the company’s interests in Botswana and Namibia. In 2003 he was appointed CEO of the
coatings division of Barloworld. He retired from the Barloworld board in 2007. He has served on numerous public bodies and is a past chairman of Business
South Africa, a past president of the AHI and its board of trustees and a former business convener of the Trade and Industry Chamber of Nedlac. He is also a
non executive director of PPC, the National Business Initiative (NBI), trustee of the Business Trust and a member of the Retirement Funds Advisory Committee
of the Minister of Finance. He serves on the Council of Business Unity SA (BUSA) and was recently elected chairman of that organisation. He is a member of
the Council of Business Leadership South Africa and a member of its executive committee. He is a member of the Millennium Labour Council (MLC) and is
also a former senior member of the Standards Committee of the International Labour Organisation (ILO).
2Babalwa Ngonyama (35)
BCom CA(SA), MBA, Higher
4 Dumisa Buhle Ntsebeza (60) 5 Dr Elias Links (Eltie) (63)
Independent non executive
chairman
LLB, BProc, BA, LLM
(International Law)
director
BCom, MCom, MA, PhD
(Economics)
director
Babalwa joined Freeworld Coatings
in October 2007 and is chairperson
of the Audit, Risk & Compliance
committee. Recently appointed chief
financial officer of Safika Holdings (Pty)
Ltd, Babalwa was previously the group
chief internal auditor of Nedbank Ltd.
Other board memberships include
Sasol Inzalo Public Limited and the
University of Stellenbosch Business
School. She was an audit partner in
Deloitte’s Financial Institutions Services
Team (FIST) from 2003 to 2007.
Babalwa completed the Women in
Leadership Programme at Harvard
University in Boston in 2008 and in
August was awarded BBQ business
woman of the year. Babalwa was the
founding chairperson of the African
Women Chartered Accountants
and is currently a member of its
advisory board.
Bobby was appointed chairman
of Freeworld Coatings
in October 2007.
He joined Anglo American
Corporation in 1974 serving
in different roles until he retired
in September 2007. He served
as CEO of AngloGold Ashanti
from 1998.
He has been active in business
organisations both nationally and
internationally, serving as president
of the South African Chamber of
Mines and chairman of the World
Gold Council among other positions.
Bobby served as Chairman of Eskom
Holdings Limited from July 2008 to
November 2009. He is chairman of
Business Leadership SA.
Dumisa joined Freeworld Coatings in
October 2007. He was admitted as
attorney in 1984 and is an advocate
of the High Court of South Africa.
In 2000 Dumisa was called to the Bar
and in 2005 was appointed as Senior
Counsel by the State President. He
became the first African advocate
in the history of the Cape Bar to
be conferred with the status of silk.
Dumisa joined the Barloworld board
in 1999 and became chairman in
June 2007. He is also chairman of
media group Avusa Limited and the
Desmond Tutu Peace Trust and is
a trustee of the Nelson Mandela
Foundation, among other
directorships. He was recently
appointed a commissioner of the
Judicial Service Commission.
Eltie joined Freeworld Coatings
in October 2007. From 1996 to
2000 Eltie was the South African
ambassador to the European Union
in Brussels and ambassador to
Belgium and Luxembourg. He was
chief negotiator for South Africa
in the negotiations on a Trade,
Development and Co operation
Agreement. As ambassador,
he was a prominent player in
the African Caribbean and Pacific
Group of Countries. He is chair:
“Doing Business in Africa” at the
University of Stellenbosch Business
School. He is also chairman of
AfriSam (Pty) Ltd, the largest
buildings material company
in Southern Africa.
6 Noluthando Dorian Bahedile
Orleyn (Thandi) (52)
7Douglas Thomas (Doug)
(51)
8 Moses Modima Ngoasheng
(Moss) (52)
9 Peter Montagu Surgey (55)
BJURIS (Fort Hare University),
BProc, LB (UNISA)
director
(Australian)
BAcc, CA(SA)
Chief financial officer
BA, BSocSci, MPhil
director
Thandi joined the Freeworld Coatings
in October 2007.
Thandi is a director and shareholder
of Peotona Group Holdings, and a
mediator and arbitrator for Tokiso
Dispute Settlement. She is a member
of the Competition Tribunal and
Adjunct Professor of Law at the
University of Cape Town. Thandi
holds directorships on the boards
of the South African Reserve Bank,
Toyota SA, Implats Ltd, Reunert Ltd,
Arcelor Mittal South Africa Ltd and
Ceramic Industries Ltd. Thandi was
an attorney and regional director
of the LRC, national director of the
CCMA and director of a commercial
law firm.
Doug was appointed chief financial
officer of Freeworld Coatings in
October 2007. He joined Barloworld
in 1981 where he held various
senior financial management
positions. He was appointed to
the Barloworld Coatings board in
his current role as chief financial
officer in December 2003.
Moss joined Freeworld Coatings
in October 2007. He has degrees
in economics and politics, and
industrial sociology honours from
the University of Natal in 1988, and
a MPhil in development studies from
the University of Sussex in 1990.
He was pivotal in industrial policy
development for the African National
Congress as economic advisor to
ex president and ex deputy president
Thabo Mbeki from 1995 to 2000.
He is a co founder and director
of Safika Holdings. He is currently
chairman of the Coega Development
Corporation and is on the board of
South African Breweries Limited and
Dimension Data Plc, among others.
Diploma in Banking Law
director
20
3 Robert Michael Godsell
(Bobby) (57)
BA, MA
BA, LLB
director
Peter joined Freeworld Coatings in
October 2007. He joined Barloworld
in 1983 and was appointed to the
board in 1995. He was managing
director of Plascon Packaging
Coatings from 1990 to 1992 and
of Plascon from 1992 to 1998.
He was CEO of Barloworld Coatings
from 1998 until 2003. He held
multiple portfolios as a Barloworld
director and retired from Barloworld
in September 2008. Peter is currently
a director of the National Business
Initiative and a trustee of the
President’s Trust and the Duke of
Edinburgh Trust, and a non executive
director of Nampak Limited.
1
2
3
4
5
6
7
8
9
21
1
2
3
4
5
6
7
8
9
10
11
12
Our chief internal audit executive and group company secretary
22
Besky Ngunjiri (33)
Eleanor Chamberlain (49)
Chief internal audit executive
BCompt (Hons), CIA, CCSA
Group company secretary
FCIS
Besky joined Freeworld Coatings
in August 2008 to head up the
newly formed group internal audit
division. She is responsible for the
design and implementation
of comprehensive risk based
internal audit processes, including
working hand in hand with other
assurance providers such as
external auditors. She has more
than eleven years experience in
both internal and external audit.
Eleanor joined Freeworld Coatings
in September 2007 as group
company secretary before the
listing of the group on the JSE.
She has been instrumental in the
formulation and implementation
of the group’s corporate
governance and administrative
processes and is also responsible
for the administration of the
group’s intellectual property
matters and share plans.
Our
EXECUTIVES
1 Neil Davies (55)
Executive: Finance Africa
BCom, CA(SA)
2 Rob Frans (53)
Executive: Human Resources
BA (Hons) in Industrial Psychology
& Organisational Psychology
3 Marius Minnie (44)
Executive: Strategy and business
development and divisional
synergies
BCompt (Hons), CA(SA)
4 Ebrahim Mohamed (55)
Executive: Managing director,
complementary products
businesses and relationship
marketing, Africa
BA, BCom
Neil joined Barlow Rand Ltd in 1980
in the Barlow Appliance Company.
He went on to work for Barlow
Manufacturing Company and
Barloworld Equipment Company
before joining Barloworld Plascon
(then Plascon Paints (Tvl)) in 1991.
Neil was financial director in a
number of Coatings operations
between April 1991 and October
2005 when he was appointed
into his current role as financial
director Africa. He brings a wealth
of operational and financial
management knowledge to
the executive team.
Rob joined Barlow Rand Ltd in 1981
as Human Resources Officer at
Middleburg Steel and Alloys. In 1990
he moved to Barlows Equipment
Manufacturing Co SA and was
promoted to the position of Human
Resources Director at Robor Tube
in 1999. Rob then transferred to
Barloworld Limited’s corporate office
as Organisational Performance
Manager and joined Freeworld
Coatings in April 2008.
Marius joined the Barloworld Limited in
1991 working in a variety of positions
in Barloworld Motor, Barloworld
Logistics and Barloworld Group
Strategy. In 2003 he joined Coatings
as Business Strategy and Development
Executive. Marius was appointed to
the Barloworld Coatings board in 2005
in the role of director responsible for
strategic business development and
group synergies.
Ebrahim was a high school teacher
before joining Barloworld Plascon in
April 1982, where he held various
positions including human resources
director, operations director and
general manager. From 1997 to
2006 he was responsible for African
operations and Exports. Currently he
is managing director Complementary
Products, responsible for Hamilton
Brands and Midas Earthcote.
5 Simon Fraser (50)
6 Trudi Neill (47)
7 Mike Vadas (59)
Managing director:
8 Baron Schreuder (42)
Executive: Marketing
Managing director, ICC
BCom
Midas Earthcote
MCIOB
Managing director:
Plascon South Africa
BSc (Hons)
Following his many successes as
a retail entrepreneur in the textile
industry, Simon founded Earthcote
in 1997 in conjunction with Midas
Paint. Earthcote merged with Midas
in 2005, whereupon Simon assumed
the position of marketing director,
a position he has held ever since.
With the acquisition of Midas
Earthcote by Barloworld Limited in
2006, and the unbundling and
formation of Freeworld Coatings
in 2007, Simon has been
responsible for the group’s
marketing and creative functions.
Prior to joining Barloworld Plascon in
1989, Trudi worked for Tiger Brands,
Times Media and Colgate Palmolive
in sales and marketing roles. She
joined Barloworld Plascon as senior
brand manager and was appointed
to the board as marketing director
in January 1995. She subsequently
held the role of strategy and business
development director, Barloworld
Plascon, for seven years. Trudi was
appointed managing director, ICC,
in May 2004.
Mike joined paint manufacturer
Vadek Paints in 1977 after spending
nine years in the construction
industry. In 1989 he founded Midas
Paints in Cape Town and together
with Simon Fraser launched
Earthcote Traditional Paints in 1997.
Mike served on the Executive of the
Master Builders’ Association in the
Cape Peninsula and was recently
appointed as a Chartered Institute
of Building ambassador.
Baron joined Plascon in 1987 as a
bursary student and began working
fulltime in January 1991. He worked
in various capacities within the
Coatings joint venture business with
Akzo Nobel. He was seconded to Akzo
Nobel Powder Coatings in the UK and
working with Akzo Nobel International
Coatings in the US. He returned to
Plascon in 2002 and was appointed
managing director of Plascon South
Africa in 2006.
9 Doug Swanson (57)
10 Garth Smart (52)
11 Carlos Costa (51)
12 Rodney Tweed (39)
Managing director: Freeworld
Automotive Coatings
BA, MBA
Doug joined Barlow Rand Ltd
in 1974 and held a number of
positions in human resources until
he joined the Coatings division
in 1993 as general manager for
Courtaulds (later Akzo Nobel),
a powder coatings joint venture
with Barloworld Plascon. He was
appointed managing director of
Barloworld Automotive Coatings
in 2000. Based in Port Elizabeth,
Doug is responsible for Freeworld
Automotive Coatings and Prostart
Investments (Pty) Ltd as well as the
DuPont Freeworld joint venture.
Chief operating officer
and managing director:
Freeworld Coatings Australia
BA, LLB, MBA
Garth practiced as an advocate of
the High Court of South Africa prior
to joining Barlow Rand Ltd in 1987.
He worked in an Industrial Relations
Advisory capacity in a number of
Barloworld Divisions. He joined
Barloworld Plascon in 1994 as
human resources executive and
subsequently held the role of
managing director, Barloworld
Automotive Coatings, for four years
before being appointed managing
director of Barloworld Coatings
Australia in 2000. Retaining the role
of managing director of Barloworld
Coatings Australia, Garth was
appointed chief operating officer
of Barloworld Coatings in 2003.
(Portuguese)
Executive: Technical
MSc Chemistry
Prior to joining Barloworld Plascon
as sales director for Industrial
Coatings in 2006, Carlos worked
at BASF in Portugal, Germany and
South Africa in the technical and
commercial fields for 21 years.
In 2006 he was appointed technical
director of Plascon and joined the
executive team of Freeworld
Coatings in 2008.
(Australian)
Executive: Business
development manager,
Coatings Asia Pacific
BBus
Rod Tweed joined Coatings when
Barloworld Coatings purchased
White Knight Paints in 1997. Prior
to joining Coatings in 1991, Rod’s
business background included six
years as the national marketing
manager at White Knight Paints,
Australia and market analyst with
JI Case International, Australia.
Rod continued to work for Coatings
Australia in a number of senior
sales and marketing positions and
in 2003 took responsibility for the
implementation of the China Project
in Shanghai. Rod was appointed
business development manager,
Australia in the same year.
During the year André Naudé, Executive: marketing, left to pursue a private opportunity. We thank him for his contribution and wish him success in his new endeavour.
23
How
South Africa
scored
Inspired by all things African, from baobabs
and calabashes to giraffes and zebras,
South Africa’s iconic world class stadia
were conceptualised by imaginative architects
and brought to life by tens of thousands
of committed construction workers.
Green Point Stadium – picture courtesy of Murray & Roberts Limited
Products supplied
Orlando STADIUM, GAUTEng
Decorative Coatings: 100%
Plascon Professional Range
Industrial Coatings: Plascon
used on the seating frames
Protective Coatings: 25 000m²
covered by coatings supplied
by Plascon
Rand Stadium, GAUTENG
Refurbishment and main stadium
Protective Coatings:
10 000m² covered by coatings
supplied through Plascon
Coca Cola Park,
GAUTENG
Extension to the stadium
and new car park
Plascon Professional Range;
plus Plascon Terraco Ez-Skim
preparation coatings
MbombelA,
mpumalanga
Plascon – Wall & All; Velvaglo;
MOSES MABHIDA STADIUM,
kwazulu natal
Protective Coatings:
45 000m² covered by
through Plascon
Athlone Stadium,
Western CAPE
Phase 2
(east, north and south stand)
Decorative Coatings: Plascon
Professional Range
by Plascon
Green Point stadium,
western CAPE
Decorative Coatings: 6 540m²
supplied by Midas: Midas
Multicolour
by Plascon
Royal Bafokeng,
north west
Peter Mokaba Stadium,
limpopo
Decorative Coatings:
63 000m² supplied by Midas:
Midas Natureplast, Midas
Multicolour, Midas Stippletex,
Midas 190/240 acrylic
NELSON MANDELA BAY STADIUM,
eastern cape
Decorative Coatings: 100% Plascon
Professional Range (85 000m² wall
area); Velvaglo on doors and frames
through Plascon
24
Soccer City,
gauteng
Decorative Coatings:
Plascon Professional used
in certain sections
through Plascon
“To be part of the 2010 nation building initiative was an honour and
an exciting achievement for our company,” said Plascon managing
director Baron Schreuder.
Plascon’s 360 degree Partnership Pledge came into its own, providing
not only detailed paint specifications and product, but also quality
assurance, technical back up and large scale painting project
management.
“To maintain the integrity of these structures, sophisticated protective
coatings systems were necessary. Substantial quantities of innovative
corrosion protection for steelwork were supplied by Plascon, providing
lifespan in excess of fifteen years to first maintenance,” said Graeme
Carr of Plascon, commenting on a process which has been a long
time in the making, having begun with planning and project scoping
in 2005.
The protective coating systems were designed to meet the ISO 12944
C 5 M standards for the coastal stadia and ISO 12944 C 4 for the
inland stadia. The final coats for the coastal stadia were unique in
their flexibility and gloss retention capabilities.
Plascon also supplied significant volumes of decorative coatings. The
Rand Stadium underwent a R76 million revamp. Bold use of colour
played a big role in the successful makeover. The grandstand is striking.
Painted bright red with blue tinted glass, the modernised structure is
a far cry from its well worn predecessor.
“At Coca Cola Park, the sponsor’s colour, Coca Cola red, is vibrantly
showcased in Plascon Professional. In this project, as with all the
stadia, cost was a primary consideration and Plascon came in with
cost effective products like our Professional range and Plascon Terraco
Ez Skim,” said Plascon’s 2010 project co ordinator, Garry Leighton.
At the Mbombela Stadium in Nelspruit, supportive roof structures that
resemble giraffes and zebra style seating serve to integrate this structure
with the natural surroundings. The sculptural form of the stadium, with
its cantilever roof, looks like a cut gemstone. Adding to its lustre are
Plascon products like Wall & All, Velvaglo and Plascon Professional.
Freeworld Coatings’ part in getting
ready for 2010
While the local construction and public works
industry pushes ahead to 2010, we’re taking
stock of our contribution as a supplier
of coatings in this nation building endeavour.
Plascon and Midas Earthcote provided finishes
used in the new work and refurbishment
of several of the stadia around the country.
Midas Earthcote won the pitch to supply solutions for Cape Town’s
Green Point Stadium and the Peter Mokaba Stadium in soccer mad
Limpopo. At Green Point Stadium, an ultra durable spay coating was
specified for the maze of corridors and change rooms. Midas Multicolour,
a low maintenance spray paint, offered a cost effective alternative
to tiling high traffic areas in the 68 000 seater stadium.
The stadia illustrate Freeworld Coatings’ capacity to provide innovative
solutions that are not only cost effective but also add to the ambitious
architectural vision behind these multi faceted developments. The
inauguration of these iconic venues, the new landmarks on South
African city skylines, heralds a significant moment in the future of
South African soccer.
25
Operational review
decorative
coatings
The Decorative Coatings segment had a challenging year with the global economic crisis
and its impact on the South African market impacting negatively on its performance.
The impact was felt across all sectors including both retail and trade. A significant part
of the challenge related to adverse movements in oil, exchange rates and commodity
prices which were not fully recoverable.
Building on a strong performance last year, the export and African operations posted a
solid result with an 8,3% increase in turnover on a marginal increase in volumes. Operating
profit was affected by adverse currency exchange movements, particularly in Zambia.
The China Project now in its commercial testing phase, showed creditable growth under
the circumstances. The expansion programme was put on hold due to the world wide
financial climate of uncertainty. The Australian operation continued to toll manufacture
some product at its Melbourne facility.
Turnover of R2 billion was at similar levels to last year while margins remained under pressure
during the year. Trading EBITDA, excluding fair value adjustments, was R296,3 million,
only 3% down on last year’s record level.
Plascon
At our primary manufacturing unit, Plascon, net turnover was the
same as last year, while sales volumes were down accompanied by
product mix changes. All sectors showed similar declines, indicating
an overall market impact as opposed to difficulty in any one segment.
Good direct export volumes helped to bolster trading in the year.
The significant impact of oil, exchange rates and commodity price
increases on our raw material costs from July 2008 to March 2009
were not fully recovered through price increases introduced in
the prior year. The declining volumes resulted in no product price
increases mid year. As a result, the contribution margin dropped two
percentage points. However, a focus on operating expense management
and product mix changes allowed us to minimise the impact of the
above on operating profit.
26
Thesen Island – Plascon project
Plascon, our largest manufacturing operation, maintained its
position in the top three of the Deloitte “Best Company to
Work For” survey in the manufacturing sector. This remains
a significant accolade after many years of sustained work to
embed a culture which creates value for employees through
the creation of value for the organisation.
27
OPERATIONAL REVIEW DECORATIVE COATINGS continued
Plascon continued
highlights
The hallmark of the year was undoubtedly the extremely prudent management of costs and,
in particular, working capital which improved by R80 million in stock alone.
Other highlights included:
•The successful launch of our Professional Evolution range of environmentally responsible solutions; the RemovALL
range under Freeworld Environmental Technologies; and the Terraco brand products.
•The launch of a new Plascon TV advert and our 2010 Colour Forecast.
•Consistent improvement in our Individual Perception Monitor and maintaining our place in the top three in the Deloitte
“Best Company to Work For” awards in the manufacturing sector. Although we slipped a place in the Deloitte awards,
it was extremely gratifying to have improved in employee responses across the board relative to last year.
•Achieving the “Supplier of the Year” award from Jack’s Paint and receiving the “Most Improved Supplier” award from
the Steinhoff Group.
•Winning a Silver Loerie for the Prism Award “Moss Poster” and an Advantage Gold award (Best décor/home magazine)
for the Plascon Colour magazine, demonstrating our sharpened focus on quality brand communications.
Market comment
Mounting recessionary pressure in the South African market during
the year, coupled with deteriorating general trading conditions, posed
new challenges in defending volumes. Nevertheless, tough times
present unique opportunities which we were well placed to take
advantage of. Our decorative paint solutions offer a relatively inexpensive
way for people to transform their living environments during times
when other décor purchases might be out of reach. Our intention
going forward is to continue to focus on this sentiment in marketing
our products to consumers.
Key ongoing activities
In light of the economic uncertainty, our focus will remain on
controlling and managing input costs, as well as margin management.
Optimum expense control and employee productivity will be crucial
over the next year, to allow us to reset our expense base and support
a trading platform that allows us to rebuild volumes at acceptable
margins.
As far as brand management is concerned, we will continue to focus
on consolidating the Plascon brand image and rolling out our new
positioning to all customer segments.
Product innovation will continue. We will, however, be looking at
simplifying our business and educating the consumer both directly
and in store, to drive sales and value.
28
In the retail channel, we will continue to expand our channels and
geographic reach while maintaining our leadership position in
existing market segments.
We intend to expand our presence in the decorative trade market by
focusing on environmentally responsible systems and technologies
with our Professional Evolution and Terraco ranges. The RemovALL
range of environmentally friendly products will also help to achieve
this goal.
The protective coatings, general industrial and road marking segments
promise significant growth opportunities, following a few years of
sluggish trading.
Outlook
We expect volumes to remain subdued as the global economy struggles
to recover. In South Africa, we anticipate that the impact of Eskom price
increases will exacerbate consumer inflation and hamper higher
disposable income, even if the broader economic outlook improves.
There is still some momentum in the construction sector in the lead up
to 2010 FIFA World Cup which will keep the trade business healthy
and we expect a shift towards the redecoration of commercial spaces
and further investment in road marking as we edge closer to the World
Cup. Our focus on infrastructural development projects, together with
vigorous exploitation of export opportunities, will help to compensate
for continuing economic sluggishness.
Umhlanga Cabanas – Plascon refurbishment
African operations
Our African operations produced a generally credible result with a
marginal increase in sales volumes over last year, coupled with an
8% increase in Rand denominated turnover.
highlights
•All countries, except Botswana, improved sales volumes. This was due to increased infrastructure spending as
well as improvements in marketing and service delivery. Improved logistics have achieved a “just in time” approach
to product delivery, with better stock availability from reduced stockholdings. All markets, with Zambia and
Botswana, in particular, felt the impact of the fall in commodity prices and the slowdown in their mining sectors.
•Market share was maintained in all countries except Namibia, where local manufacturers have a competitive
advantage in certain product ranges over those that are imported from South Africa. The strategy is being reviewed
and local manufacturing capability will be enhanced to improve competitiveness. We will also take advantage of
export opportunities into southern Angola.
•Malawi and Swaziland performed extremely well, albeit from low bases, and are in a good position to maintain this
growth into the future.
•The South African export division had another excellent year, with turnover growing 73%. Most of the growth came
from Mozambique, with direct and indirect exports to Zimbabwe making an increasing contribution.
•Our relationships with customers in Ghana have been renewed. Together with opportunities in Angola, DRC,
Rwanda and the Indian Ocean Islands, prospects for continued growth are good.
29
OPERATIONAL REVIEW DECORATIVE COATINGS continued
African operations continued
Waterford Estate
Key ongoing activities
Our constant focus on input costs as well as margin management
is crucial to the success of all our businesses. Rationalisation of our
product offering, coupled with new focused marketing initiatives in
areas where our marketing investment was previously negligible, are
already paying dividends. This approach will ensure our competitiveness
in the very diverse markets which we service.
Outlook
The price of copper has recovered substantially and the prospect
of a recovery in mining augers well for the Zambian operation as
well as higher exports into the copper belt of the DRC.
Diamond sales remain relatively slow and this will continue to
impact negatively on Botswana and Namibia.
The recent opening of a uranium mine in the far north of Malawi
should stimulate the local economy and alleviate the pressures
caused by frequent severe shortages of foreign exchange.
30
China project
highlights
Besides the strong volume growth, there were a number of highlights for the China project:
•Completion of the first phase of a project to broaden the product portfolio for the construction sector. The availability
of an improved textured offering provided significant avenues for growth.
•Our strong focus on building up a local management team for the project has progressed well, with key
appointments being made.
•Significant project contract wins were secured west of Shanghai in the Sichuan province and in the Tianjin
Municipality in the north of the country.
•Expansion of the key distributor base in Chendgu, Chongqing and Shanxi.
•The maintenance of both ISO 9001, ISO 14001 and Green Label certification.
•Strengthening of our project technical and customer support teams in providing a seamless solution from tendering
through to application.
Our project in China which is now in its commercial testing phase,
progressed well, posting significantly higher volumes than last year,
despite a slow start to the year due to the deteriorating global and
local economic conditions.
Project revenue improved 47% on the previous period, while volume
growth related to new construction projects was up 84%. This
reflected an advantageous change in product mix with a higher
percentage of sales in exterior textured products.
Gross contribution increased primarily as a result of effective
management of planned operational changes which reduced costs
in sourcing materials and manufacturing processes.
Outlook
Earthcote Panadomo, Cape Town, SA
In the short term, conditions for the trial phase are expected to
remain flat. While some improvements are anticipated in the
construction market in the second half of 2010, the extent of the
activity and the intensity of competition could bring margin pressure.
We are looking to introduce Freeworld Coatings’ new paint assembly
technology and a new business model in this complex and exciting
region at the completion of the commercial trial phase.
For the project feasibility to attain commercial status, initiatives to grow
our customer base are underway, while we continue with plans to
harness real growth opportunities by forging closer working alliances
via the new business model.
In this phase of the project we are investigating the opportunity for
our growth in the China coatings market as well as expansion in the
greater Asia Pacific region. While this market comes with challenges,
it also offers exciting potential to build on our experience and learnings
in the territory and deliver unique paint solutions when we finish the
commercial trial phase and advance to the establishment of a fully
fledged business presence.
31
32
Operational review
performance
coatings
All businesses in this segment felt the effect of the economic slowdown. Turnover increased
slightly by 1% to R1 billion for the first time with EBITDA, excluding fair value adjustments,
declining 13% to R129,5 million due to margin pressure, particularly with customers abroad.
The Automotive group
The joint venture business with DuPont felt the full bite of the
downturn, with the vehicle manufacturing sector being hard hit.
The commercial vehicle building, repair and refurbishment sector,
the refinish market and the body shop industry were all negatively
affected to differing degrees.
Even so, sales were 3% higher than last year, although price recoveries
were insufficient to fully offset input cost increases. Refinish sales
to distributors showed some volume impact, with volumes to direct
customers such as trailer manufacturers impacted to a greater extent.
In Prostart, given the constrained credit market, equipment sales
were affected due to the reluctance of body shops to invest in new
equipment, particularly where financing was required.
Gross profit margins remained at acceptable levels, only marginally
below last year.
33
OPERATIONAL REVIEW performance COATINGS continued
The Automotive group continued
highlights
•A significant step in securing premium technology and products was made with the signing of further agreements
with DuPont. These agreements, which relate to the refinish sector, cover licensed manufacturing, and importing
and distribution of products in specified sub Saharan countries. As part of the extended contract, the Duxone
range of economy products was successfully launched. These products are also aimed at body shops not approved
by motor manufacturers.
•The signing of a contract by the joint venture to supply Ford Motor Corporation was a positive development which
represents important future income to our joint venture business.
•Challenges during the year included bedding down the new ERP system introduced in August, as well as managing
book debt as a result of the difficult cash flow position of a number of customers due to credit limitations. However,
due to the prudent actions taken, which included securing tangible security, no material debt had to be written off.
Market comment
The premium end of the refinish market has been slow to respond to
the requirement of major motor manufacturers to move to waterborne
technology, in spite of the product being widely available.
These testing times have seen the closure of certain distribution
competitors, resulting in stock shortages. We were in a position to
supply the shortfall in the market, which cushioned the impact of the
downturn for our Automotive group.
Commercial vehicle body builders have experienced a severe
downturn in business in general. However, due to the inability of
some competitors to supply products, we have been able to seize
opportunities. We look forward to consolidating these gains in the
period ahead.
range provided expansion opportunities and 90 new mixing banks
were installed in panelshops during the year.
Outlook
We do not expect the first half of 2010 to yield any real growth in this
sector. However, we are well positioned to take advantage of the
upturn when it comes, as we have a comprehensive product range
and a wide distribution network in South Africa and surrounding
territories.
We constantly assess our footprint to ensure appropriate reach and,
in this regard, a branch of Prostart was opened in Bloemfontein
earlier in the year. We are evaluating a number of further opportunities,
including some outside South Africa.
The reluctance to acquire and finance body shop equipment was a
negative feature in the year. However the launch of the new Duxone
Freeworld Colourant Systems
This business achieved a reasonable performance despite the particularly
tough trading environment. Turnover was slightly lower than last year
with pleasing sales levels recorded in Australia, Kenya and Greece.
With almost 50% of sales volumes and close on 65% of input costs
denominated in foreign currency, the business has significant foreign
currency exposure. The weakening of both the Rand and Australian
Dollar against the US Dollar and the Euro had a significant negative
impact on both turnover and margins. A large proportion of our export
sales are in Australian Dollars which weakened on average by 4%
against the Rand compared to last year. The bulk of our raw materials
are purchased in Euro which strengthened by 10% on average
against the Rand.
Margins are expected to remain under considerable pressure with
input cost increases not fully recoverable by price increases. However,
our substantial capital investment in replacing production equipment
is beginning to deliver significantly improved production efficiencies.
34
Two litigation proceedings concerning the protection of our intellectual
property were successfully concluded and settlement was received in
this financial year.
Outlook
We expect prospects for 2010 to remain fairly positive despite
tough trading conditions, and continued pressure on paint volumes
and higher raw material costs. Our planned investment in production
equipment will result in a state-of-the-art production facility and
provide further efficiency improvements. The ISO 9001 Quality
Management, ISO 14001 Environmental Management and OHSAS
18001 Occupational Health and Safety Management System
certifications remain well embedded. Real growth opportunities exist
in the export markets and in Africa, further growth among existing
customers and positive local prospects are expected to entrench our
leadership position in South Africa.
Going
for gold
Getting aboard on the
Gautrain express
Bombardier’s requirements. Spies Hecker’s wide range of premium
When the wheels of the Gautrain are set in motion and commuters
can catch an express ride between Johannesburg and Tshwane and
from OR Tambo International Airport to Sandton, the flashes of gold
that light up the skyline will be the upshot of South Africa’s vision of
world class public transport and the dedication of a province and its
partner, Bombela. The impressive colouristics will be, in part, thanks
to Spies Hecker and our enduring promise of quality. A premium
international brand in the Freeworld Automotive Coatings stable,
Spies Hecker was chosen as the brand of choice for the Gautrain.
Spies Hecker is owned by DuPont Performance Coatings in Germany,
Spies Hecker, an international brand manufactured and marketed
locally by Freeworld Automotive Coatings, was selected by UK based
Bombardier, a partner to Bombela. This was as a result of an intensive
auditing process, undertaken to appoint a supplier that would meet
Intercity Paint and Panel, in Springs. Its close proximity to the site
products, designed to provide superior performance and to suit diverse
applications and working conditions, made it ideal for the high
profile project.
which was also advantageous to the scope and requirements of
the project. The original parts for the Gautrain are being supplied by
Bombarder and DuPont technology is being used. A local supplier was
needed to refinish repairs to the various components prior to assembly.
Spies Hecker was therefore an obvious choice and so far only positive
feedback has been received.
The distributor selected for the task was local Spies Hecker distributor,
where repairs to the Gautrain are being done, as well as its successful
working relationship with Freeworld Automotive Coatings, also made
Intercity a natural choice.
Two colours are being
used: champagne and
effect gold, to represent
the colour most commonly
associated with Gauteng,
“the place of gold”.
Picture courtesy of Murray & Roberts Limited
35
OPERATIONAL REVIEW performance COATINGS continued
Hamilton’s
The downturn in the building industry and the retail recession also had
an impact on sales at Hamilton’s. Retailers experienced pressure on
cash flows due to outstanding customer debt as well as excess stock
due to lower sales. Even so, the team managed to deliver pleasing
results. Our product offering was carefully scrutinised by our marketing
team and Hamilton’s will be launching a rejuvenated brush and
roller range in the near future with exciting new packaging that
communicates more clearly with consumers at point of sale. New
product ranges in line with the group’s environmental goals will be
launched to complement our current products.
Through product value engineering, range rationalisation and local
sourcing of material, raw material price movement and exchange rate
fluctuations were largely kept under control.
36
Outlook
The coming year will be exciting in terms of innovative product
development and range extensions. Ensuring superior, consistent
brand quality will be a priority as we roll out these new offerings.
We expect the first six months to be challenging as independent
retailers continue to come under pressure from tough conditions
and competition from chains and larger groups. Alternative distribution
channels in the Industrial sector of the business will be a focus
together with a renewed focus on the contractor market.
We are confident that the new product ranges will provide inroads to
potential customers that currently do not support Hamilton’s.
Afrofunk caravan
Midas Earthcote
highlights
•Six new Midas Earthcote franchises were launched, including in Botswana and Zambia.
•We have made significant progress in developing environmentally friendly coatings. While approximately 25%
of our products were formerly solvent based, we have reduced these to just 10% of our total product inventory.
•Midas Earthcote successfully launched a new online training facility, Fuel-on-Line, which allows a direct interface
between franchised stores and the Midas Earthcote head office.
•To achieve improved synergy between group companies, Midas Earthcote migrated to the Freeworld Coatings IT
platform during the year.
Midas Earthcote had a challenging year with turnover down on last
year. Margins remained under pressure during the year. The impact
of tough conditions on the building industry affected sales, with trading
volumes becoming very tight. This situation was exacerbated by even
more competitive pricing in the market. These conditions are expected
to prevail into the new financial year, with margins remaining under
pressure.
The Midas brand launched a unique colour selection system,
Midas 300, a fan deck which is a world first and the only one of its
kind manufactured locally. It is also one of the most user friendly
approaches to selecting and combining colour.
Certain construction projects, including certain stadia and some large
tenders in the leisure industry, yielded some prestigious opportunities
for Midas to showcase its specialist solutions to developers.
On the Earthcote side, a notable highlight was the launch of the
Down To Earth “Heritage” range of acrylics through Herbert Evans.
Already trading in Namibia, Mauritius, Zambia and Botswana, the
Earthcote brand recently launched certain textured products in The
Netherlands and Belgium. Current plans include the opening of a
fully fledged standalone Earthcote store in Amsterdam during 2010,
followed by more versions in terms of a roll out plan. Logistics relating
to the European expansion plan are being managed by a dedicated
marketing team in Holland, driven and overseen by Earthcote’s
marketing team based in South Africa.
The South African marketing team has developed a unique concept
store to be launched during 2010.
37
Where there’s
a wall
there’s
a way
While coatings innovation grew in leaps and bounds during the building boom that began
in early 2000, paint artisan skills lagged. Paint contractors and artisans now need better
knowledge and skills to produce lasting, quality applications.
The Paint Academy is a Freeworld Coatings initiative that aims to improve applicator
knowledge and skills, making it possible to produce more, better skilled artisans. Provided
and funded by Freeworld Coatings, The Paint Academy has training facilities in Cape Town
and Gauteng. Many graduates have been successfully absorbed into the industry.
38
Developing skills, developing lives
The Paint Academy offers training programmes in paint application
and tinting, which is listed as a scarce skill in the coatings industry.
The project provides small, medium and micro enterprises (SMMEs)
involved in painting and decorating with the necessary support,
technical expertise and project management skills to remain
competitive in the industry.
The Construction Painting Learnership provides apprentices with
all the necessary skills to complete a coatings application, from
identification of the type of surface to be coated, to the correct
application and methods for application, as well as quality assurance
methods, stock control and storage.
All painting application skills required by paint contractors are
covered in this programme, which gives learners an advantage when
applying for a job with an established contractor. The learnership is
run in collaboration with MLG Consultants, a fully accredited training
service provider.
Achievements of the Paint Academy since
its launch:
Basic Brush Hand Skills Programme:
National qualification framework (NQF) level 1 (one month course)
•44 Learners were trained, found competent and certified.
•Some learners were employed – placements included Plascon,
Midas, Game, RMS, N2 Gateway project, and some candidates
started their own painting businesses.
LENNOX TYALI
This opportunity came at the right time of my
life. I remember turning someone down who
was offering me a job but up to this day I don’t
regret it. I always said to myself that I’ll never
stop trying, and there you came along and
made me a new person. People will forget
what you said or did but they will never forget
how you made them feel.
CRAIG L. GERTZE
I learned a lot here about how to conduct
myself in public, normal life skills for the
everyday experience. When I came here I was
the only person of non Xhosa ancestry, I felt
National Certificate in Construction Painting
Learnership, National qualification framework (NQF) level 3
(one year course)
•Pre selection of 50 unemployed learners was completed in
May 2008.
•Learners were divided into four groups and training commenced
in June 2008 with MLG trainers focusing on fundamental skills
and Freeworld Coatings trainers on core competencies.
•Learners received two weeks’ theoretical training at the Paint
Academy, followed by six weeks of practical on-the-job training
and experience with host contractors.
•Two groups were placed with host contractors: Schneider-Bruce,
Paragon, Van Deventer and Whiteheads. Learners progressed
well, with positive feedback on both theoretical training in the
classroom and practical training with hosts.
•The learnerships were completed in May 2009, and 39 graduates
received their certificates of learnership at a memorable graduation
ceremony held at the Cape Town International Convention Centre.
•A further 50 learners were recruited for the Cape Town facility.
In 2008, Freeworld Coatings extended the academy concept to Gauteng.
The Gauteng academy is situated at the Plascon Luipaardsvlei head
office in Krugersdorp. The first skills programme offered at the academy
is the Basic Brush Hand Skills Programme and commenced in April
2009. In total the academy had 120 applicants from which 54 learners
were chosen to complete the five week programme. A total of 44
learners completed the skills programme and were certified. Some
of the learners who completed the skills programme are involved in
Plascon CSI projects and others found jobs at retail stores.
left out but I was made welcome and even
learned a few new words. I met a group of
people I will remember for a long time,
different people with different views about
the world and their place in it.
actually travel this big distance to attend a
course that I was totally oblivious to. Well, at
the end of the day, I can truthfully say that it
was worth it. Thank you Freeworld Coatings,
thank you everyone.
JACQUES FREDERICKS
QUEN NEL
I was a person who always believed that “if at
first you don’t succeed, skydiving is not for
you”. You turned that around with your
motivation and testimony of your life. I now
believe that it’s not a shame to fall, but it’s a
shame to stay down. Virtuous – The only word
that can apply to Freeworld Coatings Paint
Academy staff members. I had my misgivings
about leaving my refuge called home to
I have never met more caring people that
opened my mind to the world out there.
For me this wasn’t just a basic skills
programme, this is where I obtained the
strength to break the walls that were keeping
me in this small room, where I was
accompanied by depression and self pity.
In doing this course I learnt about other
cultures and the way they see and do things.
39
SUSTAINABILITY
report
At Freeworld Coatings, our approach to
business is founded on a commitment to
being a good corporate citizen of the world,
by operating in a profitable and sustainable
way. Our visions and values, which are
intrinsic to our operating ethos, put
sustainability at the heart of our business.
We believe this sets us apart from many
other companies in our sector.
Freeworld Coatings is pleased to present to stakeholders our second
sustainability report. This report highlights our broader economic,
social and environmental impacts and contributions for the 2009
financial year. This report builds on our 2008 sustainability report,
and we have begun the journey towards reporting against the Global
Reporting Initiative (GRI) indicators, although we are not yet in a
position to declare a reporting level in this regard. The quality of
our reporting will continue to improve as our sustainability reporting
processes mature across our businesses.
We continue to inculcate the tenets of our vision (which are set out
on pages 14 to 19) in our businesses through the Value Based
Management philosophy which seeks to generate value for all our
stakeholders – shareholders, employees, customers, suppliers and the
communities and governments in the countries in which we operate.
We acknowledge the magnitude of our responsibility to operate
innovatively and responsibly in our sector, and we believe there are
many important steps we can take as a coatings provider to produce
quality products and solutions that minimise the impact on our
environment.
Our sustainable development strategy aims to build economic,
social and environmental value by meeting the needs and wants of
customers and consumers in a way that ensures we are commercially
sustainable and environmentally responsible. A reporting and oversight
structure, chaired by the group executive: finance Africa and assisted
by the group’s environmental consultant provides monitoring and
guidance in this respect.
40
V&A Residence
41
Sustainability report continued
Economic performance
Recognising the broader economic value of our operations, Freeworld Coatings’ approach to
economic performance remains focused on ensuring sustainable profits and value creation for
our stakeholders. In line with our vision, we aim to sustain this in a way which is commercially
sensible and socially responsible, while ensuring we treat all stakeholders as important to our
business. To this end, we continue to monitor our performance against internally generated
targets as well as benchmarking against our peers through the Holt Valuad database and
our involvement as a member of the Nova Paint Club.
Economic value generated and distributed (EC 1)
Value Added Statement
2009
R’000
2008
R’000
2 703 164
2 696 744
Operating costs
781 493
790 544
Employee compensation
552 918
569 330
2 007
1 618
Revenue
Net sales
Donations
Retained earnings
111 474
190 119*
Taxes – income tax
– assessment rates
– VAT
– PAYE
69 413
2 278
101 949
100 630
89 270
3 623
80 679
89 933
33 744
21 915*
Dividends
* 2008 numbers restated to align with financial statements.
Despite the difficult conditions of the past year, shareholders still
received a dividend payment and employees retained their jobs
although incentive bonuses and gain share were reduced. Our standing
with customers and suppliers remained intact.
Financial implications of climate change (EC 2)
The potential effects of climate change, through changed rain patterns,
differing temperature patterns and the excess or shortage of water,
presents a number of opportunities and risks that can impact the
group financially, such as:
•Variations in sales of exterior decorative and industrial paint
products due to extended rainy seasons (reduction) or extended
dry seasons (increase).
•Increased sales of automotive refinish products due to increased
road accidents in rainy conditions.
42
•Higher humidity negatively affecting the chemical properties
of paint causing potentially increased product failure and
increased development work to find solutions, increasing costs
in the respective businesses.
•Restrictions on the use of scarce water resources that could
limit capacity within our water based production plants and
increase costs due to needing to import any shortfall in the form
of finished products from elsewhere in the group.
During 2010, we will attempt to create a sensitivity table that highlights
the possible impacts of these scenarios.
Market presence
Wage levels (EC 5)
All salaries and wages paid by the group exceed the minimums
specified through legislation and other regulations, and are subject to
collective bargaining.
Local spending (EC 6)
Wherever possible, we source the bulk of goods and services locally.
This is not always achievable in the case of chemicals and raw
materials, some of which can only be imported. We are investigating
establishing a local spending quantum in each operation for 2009,
as a base to enable us to monitor the level of local spending in each
operation within our geographic footprint.
Local community hiring (EC 7)
Where our operations are near residential areas, we are able to draw
labour directly from these areas. Some of our operations are located
in industrial areas in larger cities, which require us to source labour
from residential areas further afield, although this is always within a
reasonable distance from these operations.
Indirect economic impact (EC 9)
Our operations have a positive indirect impact on the economic
wellbeing of the communities near our factories, depots and distribution
outlets in South Africa, Swaziland, Botswana, Namibia, Zambia,
Malawi, Australia and China, due primarily to the economic multiplier
effect of our employees’ salaries and the taxes they pay to national
governments. Indirect impacts extend further to local government
departments near our operations and where our employees reside,
due to rates and other municipal service charges levied on and paid
by us and our employees’ households.
While we are able to indicate economic contribution in terms of taxes
deducted from our employees’ salaries and the income tax and
assessment rates paid by our operations in the Value Added Statement,
we are unable to obtain or estimate the assessment rate and other
municipal charges paid by our employees’ households.
Social performance
Occupational health and safety
As our sustainability reporting journey enters its second year, the
health and safety of our employees remains a central focus of
our Employee Value Creation (EVC) philosophy which is aligned to
our strategic business objectives to sustain the wellbeing of our
employees.
The company has garnered detailed knowledge of all health and
safety risks our employees may encounter and has put various
mitigation plans in place.
In maintaining our existing management systems to enhance our
internationally recognised occupational health and safety (OH&S)
compliance, we have established a legacy of high standards that all
our stakeholders can be proud of.
Safety performance (LA 6/LA 7)
As we operate in eight countries worldwide, we subscribe to the
relevant legislation that governs the wellbeing of employees in those
territories as well as the International Labour Organization (ILO)
Guidelines on Occupational Health and Safety Management Systems.
To this end, 92% (2008: 77%) of our employees are represented
by workplace health and safety forums.
In terms of external assurance, the company utilises Willis South
Africa Limited to conduct audits to ensure we comply with our
statutory duties.
Our average lost time injury frequency rate (LTIFR) was 0.89 (2008:
1.66) in our core operations, below our target of 1 set in 2008. It is
anticipated that the company will remain below this target in the
medium term. LTIFR is a calculation of the number of occupational
injuries which result in an employee being unable to perform his or
her duties for one full shift or more on the day following the injury,
whether it is a scheduled workday or not. Training, safety awareness
programmes and the appropriate use of personal protective equipment
has contributed to the reduction in injuries during the year.
A number of our sites including Plascon and International Colour
Corporation have maintained OHAS 18001, ISO 14001 and ISO 9001
certifications. Midas Earthcote has retained their ISO 9001 certification
and Freeworld Automotive Coatings has maintained the ISO 14001
and ISO/TS 16949 certificates. We take pride in sustaining these
international standards.
Health and wellness performance (LA 8)
To retain a sustainable and productive team, the company recognises
the importance of providing access to sound healthcare and access
to reputable wellness programmes. Our onsite clinics play a critical
role in achieving this objective.
Our African operations have adopted a comprehensive HIV/Aids
awareness campaign. Preventative programmes are run at most
operations and we ensure that employees are well informed on all
aspects of the disease.
The majority of our employees have undergone voluntary counselling
and testing (VCT). We have experienced an increase in the uptake of
VCT year on year, with counselling and testing of 1 815 (2008: 1 514)
employees during the year. The prevalence of HIV among employees
has unfortunately increased to 6,2% (2008: 4,4%).
43
Human capital performance
Freeworld Coatings is a performance based organisation that firmly entrenches its Value
Based Management philosophy and culture, aligning the organisation to continuously enhancing
value for all stakeholders. We achieve this through new ways of thinking and acting to align
the daily activities of all our people with the goal of value creation.
To this end, we strive for our people to be empowered and self disciplined, to have integrity
and to act in a caring manner. Our culture is one of enthusiastically driving success.
Deloitte “Best Company to Work For” survey
Plascon employees have voted Plascon as one of the best companies
to work for in South Africa in the Deloitte “Best Company to Work For”
survey. While we remained in the top three in the manufacturing sector
there has been a further improvement in our mean score from 3,67
to 3,75.
Frans Germishuizen, director: organisational performance – Plascon,
says the improvement in every dimension measured is also reflected
in this year’s individual perception monitor (IPM) result: “The Best
Company to Work For result confirms the trends we saw in the IPM,
which is in line with the improvement we have seen over the past
year,” he confirms.
44
“In addition to our top three position in the manufacturing category we
were also recognised for five years of participation and as one of the
companies with an exceptional rating – a mean score of 3,70 and
above. This is a super achievement, especially considering what a
tough year it’s been for us. The results confirm that the hard work and
effort being put into building a sustainable employee value proposition
(a better life for all), is starting to bear fruit.”
Valuing and empowering our human capital
To remain an employer of choice and add value to people’s lives, we
constantly strive to attract, develop, reward and retain talented people
who have the desire and passion to ensure the sustainable growth
and continuous improvement of the organisation. Effective use of
performance appraisal techniques and counselling help us identify
those people who make a significant contribution to the group. We
ensure that we pay a competitive remuneration package to all staff by
performing a formal benchmarking exercise annually.
Human capital development
The group continues to enthusiastically drive the development of its
employees in the knowledge that it is incumbent on companies to help
address skills gaps that may exist.
We believe that diversity is our strength, and are committed to playing
our part in building a non racial democratic society and, wherever
we are present, reflecting in our conduct that human progress and
commercial success can be reciprocal.
The following are examples of the efforts and achievements of our
learning and development departments in the period under review:
Employment equity in South Africa is a strategic and business
imperative. We will continue to address inequalities with regard to
ethnicity, gender and disability present within our workforce and strive
to accelerate progress through structured skills and developmental
programmes. The group complies with all the requirements of the
Employment Equity Act.
Sales and marketing leanership
Plascon
We introduced a sales and marketing learnership to enhance the
customer relationship management skills and competence of our
sales consultants in 2007.
Subsequently 19 sales consultants have completed the National
Certificate: Customer Management NQF 4.
45
Human capital performance continued
A further 19 sales consultants are due to qualify shortly and the third
intake of learners will commence during 2010.
current employees, a programme titled ‘Second Coat’ was designed
and implemented.
Plascon was granted funding from the Chemical Sector Education
Training Authority (CHIETA) for the education and training of 151
learners, of which projects involving 119 learners were successfully
completed during the year.
Freeworld Automotive Coatings
Bursaries
During 2009, six bursaries were offered to students, up from five
in 2008. One of the 2008 bursars was employed by Plascon on
completion of their studies.
Leadership development
Plascon has a strong focus on developing leadership capacity within
the company. A two day workshop was held for leaders during which
the conventional understanding of leadership was challenged. The
workshops were found to be extremely valuable and provided the
company with the necessary feedback to inform further initiatives to
continue building leadership capacity.
Induction programmes
Plascon has successfully implemented an improved and com
prehensive induction programme for new employees. To ensure
relevant information and refresher training is conducted with all
Operational development
We embarked on our second intake of Chemical Operations Level 1
Learnerships in February 2009. These five students are on track to
complete their training in November 2009. We are considering
offering Chemical Operations Level 2 in 2010, which will allow
students who have completed Level 1 to progress to the next level.
We continue to encourage South African Paint Manufacturers
Association (SAPMA) training among our staff and during the year
under review, 15 learners registered for various modules. Two
production employees were promoted to the laboratory this year
partly as a result of their SAPMA studies, where they can use their
newly acquired skills.
We have also continued to support employees who had previously
embarked on tertiary studies in various programmes ranging from
Bachelor of Technology degrees to Accounting degrees.
We are also continuing with the development of two apprentices, an
electrician who will embark on his third year of apprenticeship next
year and a fitter who will be progressing to his second year of
apprenticeship.
Leadership development
Our leadership development initiatives for this year included
supporting three employees who are at various stages of completing
their MBAs as well as two employees, who embarked on the
management development programme at the Nelson Mandela
Metropolitan University.
Social responsibility and community development
This year we have supported two analytical chemistry students
through their second year of studies. Providing they are successful
in their final examinations they will join us as in-service trainees
in 2010. In this way we are ensuring that we secure good quality
students in our in service trainee pool from which we often recruit
permanent staff.
We continue to support employees’ children with higher and further
education and this year six employees’ children were supported at
various levels, from school learners to technical colleges, schools of
technology and universities.
International Colour Corporation
Legislative training
The company concentrated mostly on statutory type training for the
period under review. In total 26 employees attended various legislative
type training and health and safety training.
46
Developmental training
A further 26 employees attended a variety of developmental
programmes throughout the year.
Technical skills
The nature of our business requires a high level of technical input to
maintain the technical skills levels at the company. To this end nine
employees attended technical skills training.
Enterprise development
Freeworld Coatings Paint Academy and its facilities have been
accredited by the CHIETA. The company also increased the reach of
the Paint Academy through a facility at its Krugersdorp manufacturing
facility.
During the period under review, the Paint Academy achieved the
following:
Cape Town facility
Basic Brush Hand Skills Programme:
National qualification framework (NQF) level 1 (one month course)
• 44 students were trained and accredited (2008: 52)
•Some of the students have worked on various corporate social
investment (CSI) projects in the Western Cape area.
National Certificate in Construction Painting:
Learnership, NQF level 3 (one year course)
• 39 learners graduated in June 2009.
•Retail Merchandising Services (RMS) will be recruiting from this
pool of graduates for employment in the retail sales environment
in the Western Cape area.

–A second intake of 50 beneficiaries has commenced with the
group showing good progress to date. It is expected that this
group will graduate in March 2010.
Krugersdorp facility
T his facility only caters for the Basic Brush Hand Skills
Programme:
National qualification framework (NQF) level 1 (one month’s course)
•During the reporting period 54 students were accredited and
are working as applicators on various corporate social investment
(CSI) projects.
Employee complement
As at the end of the year under review, we employed a total of 2 395
employees in the eight countries we operate in (2008: 2 503). The
group’s labour turnover rate has increased slightly to 10,5% (2008:
10,4%), below the industry average of 12% (Source: PE Corporate
Human Resources Practitioners Handbook, September 2009 ).
47
Corporate social investment programmes
Freeworld Coatings believes that we can use our business strengths and products for the
greater good of the communities in which we operate. We supported a considerable number
of social upliftment programmes in 2009. Our coatings products and solutions can transform
public spaces in ways that can have a material effect on uplifting communities, simply by
cleaning up and rejuvenating the appearance of buildings. A key focus area is on improving
crèches and schools in poor communities, who may not be in a position to dedicate their
scarce budgets towards aesthetic improvements.
We support the National Council of the Blind in providing
cataract operations, and our support to date has assisted in
providing hundreds of people with this operation. Plascon
is the primary sponsor of the Décor Morning programme, now
its fifth year, where eminent speakers address an audience
interested in décor and charitable events, in support of
Johannesburg Child Welfare. We also provide paint to several
children’s homes and orphanages.
As a supplier of paint and allied products we are drawn to the
arts, and are a member of Business Arts South Africa (BASA)
which promotes the growth and well being of local arts
communities. One of our employees is also involved as a
mentor to BASA’s Visual Arts Network.
CSI HIGHLIGHTS IN 2009
Examples from 27 of these projects:
1
DANCE UMBRELLA
The Dance Umbrella, founded 20 years ago, was recently
given new premises in Newtown which provides an outlet
and platform for emerging artists. Plascon, as a member and
supporter of Business Arts South Africa, assisted with the
refurbishments.
2
EYE CARE AWARENESS WEEK
For the third consecutive year, Plascon donated R220 000 to
fund cataract operations for the elderly. In 2009, our funding
facilitated 100 cataract operations in Port Elizabeth and 70
in Taung. Several eminent surgeons and nursing staff donate
their time to the eye care awareness week. These operations,
which restore sight to virtual perfection within minutes, can
be described as miraculous for many people. In 2010, our
intention is to sponsor cataract operations in two other areas
and to increase our number of sponsored operations to 200.
3
DEPARTMENT OF HOUSING: HELPING A CHILD
HEADED HOME
Several years ago, the Minister of Housing approached various
corporates to assist with advice and interaction. Plascon got
involved in the initiative and, in our 2009 financial year,
participated in completing a home for a child headed household
that was featured on the television series Breaking New Ground.
4
2
48
The Africa Meets Africa Project
Plascon provided paint for the extraordinary mural painting in
The Africa Meets Africa Project. This was a large undertaking
that involved bringing rural Ndebele artists to Newtown to paint
a mural on the facade of the Sci-Bono Discovery Centre for the
launch of its educators’ resource Africa meets Africa: Ndebele
Women designing Identity. The project embraces contrasting
urban and rural realities, allowing new possibilities to emerge.
It brings South Africa’s rich rural cultural heritage into the urban
domain, creating a visual language that is both accessible and
sophisticated. The project illustrates the use of mathematical
theorems in art and is used as a teaching medium for both
teachers and learners, attempting to convey to the public that
maths can be fun.
5
JOHANNESBURG CHILD WELFARE & ELTON JOHN’S
HIV/AIDS HOME
In addition to a R100 000 donation to Johannesburg Child
Welfare we also provided paint for an HIV/Aids children’s home
that is largely funded by Elton John, as well as the Ontadeweni
Home in Soweto.
6
3
4
ROTARY CAPE TOWN
Plascon responded to a request to supply paint for Rotary’s
train on the Sea Point Promenade. The train is used to generate
funds for the disadvantaged members of the local community
and is also used to entertain their children on seaside outings.
7 Soutpan Primary School, Port Elizabeth
The Soutpan Primary School in Port Elizabeth will benefit from
upgraded grounds through assistance from Plascon and Touch
Africa. Although located in an impoverished area, the school
has maintained high learning standards. Plascon also provided
paint to upgrade the school’s ablution facilities which were in
a poor condition. Paint has also been given to the school for
the classrooms. Over the years the teachers themselves have
paid for and painted their own classrooms. Plascon is proud
to support to this deserving educational environment.
5
6
7
8 CAPE ACADEMY
Freeworld Coatings has upgraded the hostel of the Cape
Academy. This school draws students from all over the Western
Cape to accelerate their studies in maths, science and physics
in grades 10, 11 & 12, enabling them to enter and cope with the
rigours of university or tertiary educational life. Plascon donated
the bulk of the paint, with Midas paints providing the specials
for the feature walls, of which all was applied onto the walls
with brushes and painting tools from Hamilton’s. The painters
came from our new Paint Academy and the painter apprentices
were paid by Freeworld Coatings; they were supervised by a
lady from a previously disadvantaged community who runs her
own SME company.
This was truly a group effort encompassing all aspects of the
Freeworld Coatings business in the Cape region.
49
Green Building Exhibition
Environmental performance
Great strides have been made in Freeworld Coatings’ commitment to environmental stewardship
in its operations and product offerings. Spearheading the drive has been the formalisation during
2009 of a group wide Ecoforum with representation from all businesses and the Freeworld
Coatings executive.
Meeting every six weeks, the forum is mandated with the oversight of
all environmental sustainability issues facing the group. These include:
products. Freeworld Coatings is keeping abreast of international
• Tracking the measurement of key environmental indicators.
legislation in export markets such as the European Union Registration,
•Developing appropriate targets for reduction of impact in key areas.
•Benchmarking Freeworld Coatings against best environmental
practice in the international and local coatings industry.
trends in this regard, with particular attention to increasingly stringent
Evaluation, Authorisation and Restrictions of Chemicals (REACH)
regulations, and the power of consumer demand and awareness
through eco labelling initiatives.
• Marketing new products that hold environmental benefit.
Locally, Freeworld Coatings has worked extensively with the Green
•The control of products containing harmful or hazardous
substances.
Building Council of South Africa to ensure that many of its product
ranges subscribe to local rating systems that will continue to be of
growing importance in all coatings markets.
A separate VOC forum supports the Ecoforum, meeting on a
quarterly basis to analyse issues relating to ingredient integrity and
Volatile Organic Compounds (VOC) content in Freeworld Coatings’
50
Emanating from the work of the Ecoforum is an increased focus
on improving the measurement of environmental impact across all
Freeworld Coatings’ businesses. This has, for the first time, been
conducted in alignment with the reporting standards of the Global
Reporting Initiative (GRI) and reporting of environmental measurements
are now conducted on a monthly basis in all businesses. In many
instances, environmental impacts are being reported for the first time
in different unit volumes, resulting in greater accuracy of measurement
of key environmental indicators (including raw materials, energy,
electricity, water and waste). Of note has been the measurement
of previously unreported environmental impacts such as the use of
recycled water in operations and the transportation of hazardous
waste from operational sites. The improvement and standardisation
of measurement has allowed Freeworld Coatings to improve the
management of its environmental impacts in relation to fluctuating
production volumes and the costs associated with such impact.
This is increasingly critical to the company as input resource costs
continue to escalate in South Africa.
All Plascon sites were covered in the report, including:
Location
Province
Mobeni
Luipaardsvlei
Epping
KwaZulu Natal
Gauteng
Western Cape
Newcastle
Linbro Park
Polokwane
Port Elizabeth
Nelspruit
Bloemfontein
East London
Mthatha
KwaZulu Natal
Gauteng
Limpopo
Eastern Cape
Mpumalanga
Free State
Eastern Cape
Eastern Cape
Head office
Luipaardsvlei
Gauteng
Research and
development
Alberton
Stellenbosch
Gauteng
Western Cape
Manufacturing
Depots
During 2009, South Africa’s electricity utility Eskom, increased factory
gate prices by 33%, and has requested further large increases per
year for the next three years to meet the utility’s urgent expansion
programme expenditure.
ISO 14001 Environmental Management Systems remain in place
in our Plascon, Freeworld Automotive Coatings and International
Colour Corporation businesses, and we remain committed to
implementing the system in all businesses by 2011.
Of particular note during 2009 was the conducting of a limited
greenhouse gas inventory (carbon footprint report) at Plascon, based
on the 2008 financial year. Conducted with the aim of understanding
the risks and opportunities of carbon emissions as they relate to
the local coatings industry, the intention is for all businesses to
ultimately conduct their own carbon footprints and for the Freeworld
Coatings group to report consolidated carbon emissions.
Results from the report indicate total carbon emissions of 18 318 tonnes
of carbon dioxide equivalent (CO2e) at a relative emissions value of
0,255 kg CO2e per litre of production.
Contributors
Tonne CO2e
Electricity
Diesel
Product distribution
Petrol
Heavy duty furnace oil
Raw material transport
Natural gas
Waste removal by road
11 230
1 932
1 471
1 215
1 192
800
372
106
Total
18 318
Freeworld Coatings will continue to meet its environmental goals through continued and improved measurement, including more complete
carbon footprint reporting and the development of appropriate and realistic targets for improved environmental performance in all businesses
during 2010. In addition, product development will be tasked with introducing increasingly environmentally beneficial offerings, and compliance
with various market requirements.
51
Freeworld Coatings environmental indicators
Indicator
GRI
Production volumes
Raw materials used
Additives
Emulsions
Extenders
Fatty acids
Monomers
Pigment
Resin
Resin raw material
Solvent
Timber/wood
Bristle
Thinners
Paper
Metal cans and pails
Paper labels and cartons
Cardboard/paper packaging
Plastic containers
(t)
(t)
(t)
(t)
(t)
(t)
(t)
(t)
(t)
(t)
(t)
(t)
(t)
(units)
(units)
(t)
(units)
Direct energy consumption
Heavy duty furnace oil
Diesel
Petrol
Natural gas
LPG
(kl)
(kl)
(kl)
(t)
(t)
Indirect energy consumption
Electricity
(kWh)
Water Consumption
Borehole water
Total municipal water
(kl)
(kl)
Total water recycled and reused
(kl)
Water discharge
Total discharge
(kl)
Waste by type
Metal cans and pails
Steel drums
Pallets
Paper and cardboard
Plastic containers
Solid and general waste
Solvents
Paint
Sludge
Environmental expenditure
ZAR
2009
5 652
12 387
29 040
1 937
2 769
8 430
7 689
919
162 915
20
19
DNR
10
17 283 307
16 582 394
DNR
7 215 248
5 108
11 701
28 349
1 730
2 056
7 520
5 846
2 168
14 947
176
9
203
9
2 684
139
95
2 135
488
1 022
1 970
149
DNR
357
1 096
1 680
101
4 812
18 687 706
15 381 967
DNR
*
668
117 362
DNR
3 947
111 600
52 038
296
34 298
25 302
403
23 068
3 007
818
104
2 301
327
489
563
265
359
765
1 143
1 132
1 469
EN3
Notes
2009 Includes pallets
In tonnes for 2009
In tonnes for 2009
In tonnes for 2009
EN4
EN8
EN10
EN21
EN22
(t)
(units)
(units)
(t)
(units)
(t)
(kl)
(kl)
(kl)
EN23
DNR
30
0
EN24
(kg)
DNR
DNR
2 288 467
45
3 103 919
3 709 021
EN30
* The water consumption figure in 2008 was distorted by some operations reporting in litres instead of kilolitres.
DNR = Did not report
52
Recycled
EN1
Spills and fines
Total tonnes of spills
Fines
Transportation of hazardous waste
Total weight of waste transported
Medical waste from on site clinics
2008
250
489
378
219
274
176
In tonnes for 2009
In tonnes for 2009
In tonnes for 2009
In tonnes for 2009
In tonnes for 2009
In tonnes for 2009
Corporate
Governance
Freeworld Coatings and its subsidiaries
are fully committed to establishing and
maintaining effective structures, policies
and practices that continue to improve
corporate governance and enhance value
for our shareholders and all stakeholders.
Eleanor Chamberlain
The company is incorporated in South Africa under the provisions of
the Companies Act 61 of 1973, as amended. It is listed on the JSE
Limited, and subscribes to the principles contained in the Code of
Corporate Practices and Conduct as set out in the second King Report
and the JSE Listings Requirements. The board is ultimately responsible
for ensuring that an adequate and effective process of corporate
governance is established and maintained, and ensuring these
processes are consistent with the nature, complexity and risk inherent
in the company’s activities. Details of material compliance are set
out in this report.
The company’s systems for corporate governance continue to evolve
as the needs and expectations of stakeholders develop.
Board of directors
The group has a unitary board structure with seven independent non
executive directors, including the chairman of the board, and two
executive directors. The curriculum vitae for each director of the
company are published on page 20. The board has overall responsibility
and accountability for the activities and operations of the Freeworld
Coatings group.
Responsibilities of the board
The board’s responsibilities are set out in the board charter and include
but are not limited to:
•Retaining effective control over the company;
•Giving strategic direction to the company;
•Reviewing, approving and monitoring fundamental financial and
business strategies, plans and major corporate actions;
•Assessing processes and procedures to ensure the effectiveness
of internal systems of control on a regular basis, and accept
responsibility for the total process of risk management;
•Identifying and regularly monitoring key risk areas and key
performance indicators of the business;
•Reviewing and monitoring the risk management process;
•Ensuring compliance with all relevant laws, regulations and codes
of business practice; and
•Ensuring transparent, relevant and prompt communication with
stakeholders.
Composition of the board
The majority of the board consists of independent non executive
directors. This ensures that independent thinking is present in all
board decisions. All board members are required to have adequate
strategic, analytical, communication and knowledge competencies.
Furthermore, they should be individuals of calibre and credibility who
have integrity in personal and business dealings, bring judgement to
bear, are independent of management, have the best interests of the
company at heart and are able to appreciate the broader perspective
of business and society. The board is of the view that the size,
diversity and demographics of the board are appropriate for the
company.
53
CORPORATE GOVERNANCE continued
Chairman and chief executive officer
The functions of chairman and chief executive officer are separate
and independent. The chairman, Mr Godsell, is an independent non
executive director as defined in the second King Report and is
responsible for the working of the board. He provides overall leadership
of the board without limiting the principle of collective responsibility,
and ensures that the directors receive accurate, timely and clear
information. The task of the chief executive officer, Mr Lamprecht, is
to provide leadership to the executive team, run the business and
implement the policies and strategies of the board.
Date
Apologies tendered
14 November 2008
DB Ntsebeza, B Ngonyama
1 December 2008*
E Links, NDB Orleyn, DB Ntsebeza,
DA Thomas
30 January 2009
DB Ntsebeza, B Ngonyama
19 February 2009*
DB Ntsebeza, PM Surgey
Appointment of new directors
19 March 2009
None
The board has, through the considerations of the remuneration and
nomination committee, drafted a paper outlining its view on the role,
nature and composition of the Freeworld Coatings board. To date no
appointments have been made to the board, however any appointments
will be made following the guidelines set out in this paper and will be
formal and transparent. Even though recommendations are made
by the remuneration and nomination committee, appointments are a
matter for the board as a whole, assisted by the remuneration and
nomination committee.
21 May 2009
NDB Orleyn
25 June 2009
NDB Orleyn, PM Surgey
20 August 2009
MM Ngoasheng
Directors’ induction and training
The company holds an induction programme for new directors
which sets out their fiduciary duties and responsibilities, and
where necessary director development training is provided through
the Institute of Directors. The induction programme is adapted
to directors’ board experience. It is the group’s policy that all
directors of subsidiary companies undergo director development
training through the Institute of Directors as well as an orientation
programme for their respective company.
Directors’ meetings
The agenda and supporting papers are distributed to all directors
ahead of each board meeting. Explanations and motivations for items
of business requiring decisions are provided in the meeting by the
appropriate director. Discussions at board meetings are open and
constructive, and consensus is sought on items requiring decisions.
No one director has unfettered powers of decision making. When
necessary, decisions are also made by directors between meetings
by written resolution as provided for in the company’s articles of
association. Directors are entitled to have access to all relevant
company information and records and to executive officers and
senior management. Directors are appraised whenever relevant,
and kept abreast of any new legislation and changing commercial
risks that may affect the business interests of the company. In
fulfilling their responsibilities directors may seek professional advice
at the company’s expense.
54
The board meets at least four times per year. During the year under
review seven board meetings were conducted. All directors attended
these meetings, except as indicated in the table below:
* Meeting called at short notice.
Conflict of Interest
To uphold their independence and integrity, directors disclose all
material interests as they arise. A process has been set in place
to formally and regularly record directors’ interests. Directors are
required to declare and update their activities as well as business
interests at every board meeting. A possible conflict of interest
shall be declared as soon as a director becomes aware of the
conflict and the director shall not vote on the subject matter.
Retirement of directors
In terms of the company’s articles of association, one third of the
non executive directors are required to retire at the annual general
meeting of the company. Ms Ngonyama, Mr DB Ntsebeza and
Mr PM Surgey will retire at the forthcoming meeting. All retiring directors
are eligible and have offered themselves for re election. A director may
not hold office for more than three consecutive years before standing
for re election. All members of the board are required to attend annual
general meetings to address questions raised by shareholders.
Company secretary
The board has appointed a secretary to serve the board. The company
secretary provides the board as a whole and directors individually with
guidance on the discharge of their duties. The directors have unlimited
access to the advice and services of the company secretary. The
company secretary acts as secretary for the committees of the board,
as required by the second King Report. The secretary ensures that all
directors are adequately inducted and trained, and that the proceedings
and affairs of the board, its committees and the company itself and
where appropriate, owners of securities in the company, are properly
administered in accordance with the pertinent laws. The secretary
engages with directors of subsidiary boards with regard to the
implementation of corporate governance processes throughout the
group. The statutory requirements of the company and its subsidiaries
in South Africa are administered by the secretary.
Directors’ emoluments and interests
Directors’ emoluments
There are no service contracts between any directors and the company.
The following annual fees are in place for non executive directors.
Fee per annum (R)
Chairman of the board, inclusive of fees payable as chairman of board committees
Non executive directors
Chairman of a board committee
Member of a board committee
350 000
150 000
80 000
40 000
Emoluments to non executive directors of Freeworld Coatings during the year ended 30 September 2009 are set out below:
Non executive directors’ fees (R)
Name
RM Godsell
E Links
MM Ngoasheng
B Ngonyama
NDB Orleyn
PM Surgey
DB Ntsebeza
Total
Chairman
350 000
200 000
220 000
260 000
190 000
150 000
150 000
350 000
Non executive
director
150 000
150 000
150 000
150 000
150 000
150 000
Chairman
board
committee
80 000
Member
board
committee
50 000
70 000
20 000
40 000
1 520 000
Emoluments to executive directors of Freeworld Coatings during the year ended 30 September 2009 are set out below:
Executive directors’ emoluments 2009
Car
allowances
Total
*Share
options
exercised/
ceded
Salary
Bonus
Retirement
and medical
contribution
AJ Lamprecht
DA Thomas
3 000
2 600
1 663
479
769
277
327
359
5 759
3 715
1 212
–
Total
5 600
2 142
1 046
686
9 474
1 212
Executive directors’ emoluments 2008
AJ Lamprecht
DA Thomas
2 500
2 170
2 827
1 077
595
268
273
408
6 195
3 923
2 111
999
Total
4 670
3 904
863
681
10 118
3 110
R’000
* These amounts relate to the gain made on share options in terms of the Barloworld Share Option Scheme and issued in previous years in terms of prior
employment and exercised or ceded during the year.
In terms of the company’s remuneration policy a significant portion of the directors’ remuneration is performance related, to align directors’
interests with those of shareholders.
55
CORPORATE GOVERNANCE continued
Directors’ interests
Control framework
As at the end of the year under review, the directors directly or
indirectly held the following shares in the company’s ordinary issued
share capital:
A formal delegation of authority sets out categories of business
decisions that require approval by the board or subsidiary boards.
Ongoing corporate governance activities
Directors’ interests 2009
Name
Direct
beneficial
Indirect
beneficial
Total
E Links
MM Ngoasheng
PM Surgey
DB Ntsebeza
2 800
810
106 278
2 500
–
–
–
–
2 800
810
106 278
2 500
Executive directors
AJ Lamprecht
DA Thomas
110 000
15 884
–
–
110 000
15 884
Total
238 272
–
238 272
Directors’ interests 2008
E Links
MM Ngoasheng
PM Surgey
DB Ntsebeza
2 800
810
106 278
2 500
–
–
–
–
2 800
810
106 278
2 500
3 000
15 884
–
–
3 000
15 884
131 272
–
131 272
Executive directors
AJ Lamprecht
DA Thomas
Total
Associates of directors do not hold any shares. During the course
of the year, no director had a material interest in any contract of
significance with the company or any of its subsidiaries that could
have given rise to a conflict of interest.
Insider trading
No director, officer, employee, nominee or member of his/her immediate
family may deal either directly or indirectly, at any time, in the securities
of the company based on unpublished price sensitive information
about the company’s business or affairs.
With regard to dealing in the company’s shares, a sharedealing policy
for its directors, officers and employees has been put in place which
sets out in which manner the shares of the company may be traded.
The policy adheres to the JSE Listings Requirements and the Securities
Services Act. A list of persons who are restricted in trading in Freeworld
Coatings shares in terms of this policy has been approved by the board
and is revised from time to time. The company secretary provides all
communications in this regard.
56
The King III report has been released and in the interim Freeworld
Coatings is gearing itself to be ready for the implementation date of
1 March 2010. The Companies Act has been enacted and is expected
to take effect in the latter part of 2010. Workshops have been
arranged to keep employees abreast of changes in legislation which
affect our business and more workshops are planned for the early
part of 2010 which will focus on the changes in the legislative and
governance landscape.
Board committees
A number of board committees assist the board in fulfilling its stated
objectives. The role and responsibilities of each committee are set
out in formal terms of reference, which will be reviewed annually to
ensure that they remain relevant in a rapidly changing legislative
and regulatory environment. Board committees may take independent
professional advice at the company’s expense when necessary. The
committees will be subject to regular evaluation by the board with
regard to performance and effectiveness. The chairpersons of the
committees and the lead client services partner of the external
auditors of the company are required to attend annual general
meetings to answer questions raised by shareholders. During the
year an audit, risk and compliance committee and a remuneration
and nomination committee were established. In accordance with the
board’s requirements, ad hoc committees may be set up to review
specific matters for the board. Depending on the task allocated to
such a committee, verbal or written terms of reference are given.
Audit, risk and compliance committee
This committee comprises the following independent non executive
directors:
•Ms B Ngonyama (chairperson)
•Prof E Links
Four meetings were held during the period under review and the
Chairperson has reported more comprehensively on its activities in
a separate report found on page 64.
Remuneration and nomination committee
This committee comprises the following independent non executive
directors:
• Mr RM Godsell (chairperson)
•Mr MM Ngoasheng
• Ms NDB Orleyn
Two meetings were conducted during the period under review. All
committee members attended all meetings.
3.Deferred Annual Bonus Plan (DABP)
No shares were purchased under the deferred annual bonus plan.
The remuneration and nomination committee assists the board in:
Integrated sustainability reporting
•Ensuring alignment of the remuneration strategy and policy
with the company’s business strategy, remuneration philosophy,
desired culture, shareholders’ interests and commercial well
being;
•Determining market related remuneration packages needed to
attract, retain and motivate high level, top performing executives;
•Ensuring adequate retirement and healthcare funding for senior
executives; and
•Identifying candidates and making recommendations for the
appointment of directors.
Readers are referred to the sustainability report on page 40 for a review
of the nature and extent of the company’s social, transformation, safety,
health and environmental management policies and practices.
The remuneration and nomination committee also:
•Reviews remuneration levels of senior executives;
•Reviews performance based incentive schemes and related
performance criteria and measurements, including share
option allocations;
Ethics
Freeworld Coatings creates a climate of high ethical standards in
the workplace and has an independent, anonymous ethics line
which enables employees and others to report any irregularities and
misconduct without fear of victimisation or recrimination. The group’s
code of ethics is enforced with appropriate discipline on a consistent
basis and action is taken to prevent the recurrence of an offence.
There are codes of conduct agreed upon between management and
employees at each operation to govern conduct between employees,
suppliers and customers.
•Reviews fees payable to non executive directors (as a separate
process from executive remuneration reviews) for confirmation
by the board ahead of seeking shareholder approval;
•Makes recommendations on the size and composition of the board
and the balance between executive and non executive directors
appointed to the board; and
•Makes recommendations to the board on the appointment of
new executive and non executive directors, with skills, experience,
demographics and diversity being taken into account in this
process.
The committee has written terms of reference which include the group’s
remuneration philosophy. The remuneration philosophy is set in the
context of the company’s Value Based Management philosophy which
aligns the efforts of the entire group’s workforce with the strategic,
operational and financial objectives of the business.
Incentive schemes
The Freeworld Coatings Executive Share Schemes 2007 (“the scheme”)
is currently in place. The maximum number of shares to be utilised
for the scheme is envisaged to not be more than 10% of issued share
capital of Freeworld Coatings Limited, ie shares utilised for the scheme
shall not exceed 20 387 193 ordinary shares. The scheme comprises:
1.Share Appreciation Rights (SAR)
No further allocations of SARs were made during the year under
review.
2. Performance Share Plan (PSP)
No annual conditional awards were made under this plan.
57
results. A mark-to-market fair value loss on financial instruments
of R26,2 million was recorded for the year, against a profit of
R15,4 million the year before.
Operating profit at R321,7 million was 19% down on last year, as a
result of the lower trading result and the negative swing in fair value
adjustments, coupled with a higher depreciation charge due to the
capital expenditure programme.
Net finance costs, as a consequence of decreases in JIBAR, and a
slightly lower level of borrowings were 5% lower than last year at
R114,9 million.
The effective tax rate at 31,7%, excluding STC, compared adversely
with last year’s rate of 28,8%, which included a rate change
adjustment of R8,7 million, following the reduction in the corporate
tax rate, equivalent to 3,1% of profit before tax.
Chief financial
officer’s report
Income from associates at R8,6 million was substantially lower than
last year’s after tax income of R22,4 million. A major contributor to
this shortfall was the performance of DuPont Freeworld which was
severely impacted by motor manufacturers cutting back significantly
on unit builds.
“Revenue from operations for the financial
year ending 30 September 2009 was
R2,7 billion, slightly up on the prior year,
despite the depressed economic conditions
which impacted demand for paint products
and led to single digit volume declines
accompanied by product mix changes.”
The net profit attributable to shareholders of Freeworld Coatings
Limited amounted to R142 million, with headline earnings per share
(HEPS) at 69 cents, 35% lower than in the prior year.
Doug Thomas
The Decorative Coatings segment reported turnover at a similar level
to last year, and the Performance Coatings segment recorded a marginal
increase of 1%.
Margins came under increasing pressure as a result of continuing
high input costs, although these moderated over the last quarter
of the financial year. Given the harsh market conditions, no price
increases were implemented so as not to further impact demand.
This meant that the input cost increases were not recovered.
Management’s focus on managing the expense base paid dividends
and limited the decline in the EBITDA margin, excluding fair value
adjustments, to 100 basis points (15,7% versus 16,7%). As a result
EBITDA, excluding fair value adjustments, at R425 million was 5%
lower than the record profit posted in the prior year.
The uncertainty and increased volatility in financial markets and in
particular currency markets had a significant impact on the group’s
58
Total assets remained static at R4,5 billion with the reduction in
inventories compensating for higher property, plant and equipment,
and higher trade and other receivables.
Cash generated from operations amounted to R375 million with the
cash inflow from operating activities of R150 million used to acquire
property, plant and equipment totalling R101 million and intangibles
of R22 million. The bulk of the latter was attributable to the group
exercising its option to acquire the intellectual property rights of
Napier Environmental Technologies for North America.
The R101 million investment in capital expenditure included expenditure
on the new raw material warehouse and material handling equipment
at Mogale City, the finished goods warehouse in Mobeni, the Syspro
ERP system for the Automotive business and the usual phased
replacement of outdated equipment. Freeworld Coatings plans
to continue the rejuvenation of its sites in South Africa in the next
few years.
Annual financial
Statements
59
contents
61Directors’ responsibilities and approval
and certificate of the company secretary
62 Report of the independent auditor
63 Directors’ report
64 Audit, risk and compliance committee report
66 Consolidated balance sheet
67 Consolidated income statement
68 Consolidated statement of changes in equity
70 Consolidated cash flow statement
71 Notes to the consolidated cash flow statement
72 Segment reporting
75 Notes to the consolidated annual financial
statements
134 Company balance sheet
135 Company income statement
136 Company cash flow statement
137Notes to the company cash flow statement
138 Company statement of changes in equity
139 Notes to the company annual financial statements
60
Directors’
responsibilities and approval
for the year ended 30 September 2009
The directors of Freeworld Coatings Limited (“Freeworld”) have pleasure
in presenting the annual financial statements for the year ended
30 September 2009.
In terms of the Companies Act 61 of 1973, as amended, the directors
are required to prepare annual financial statements that fairly present
the state of affairs and business of the company and of the group at
the end of the financial year and of the profit or loss for that year. To
achieve the highest standards of financial reporting, these annual
financial statements have been drawn up to comply with International
Financial Reporting Standards.
The annual financial statements comprise:
• The balance sheets;
• The income statements;
appropriateness of the accounting policies, and concluded that
estimates and judgements are prudent. They are of the opinion that
the annual financial statements fairly present the state of affairs and
business of the company at 30 September 2009 and of the profit for
the year to that date.
In addition, the directors have also reviewed the cash flow forecast
for the year to 30 September 2009 and believe that the Freeworld
Coatings group has adequate resources to continue in operation for
the foreseeable future. Accordingly, the annual financial statements
have been prepared on a going concern basis and the external
auditors concur.
The annual financial statements were approved by the board of directors
and were signed on their behalf by:
• The cash flow statements;
• Segmental analyses.
The reviews by the chairman, the chief executive officer, chief financial
officer and the detailed segmental reviews discuss the results of
operations for the year and those matters which are material for an
appreciation of the state of affairs and business of the company and
of the Freeworld group.
RM Godsell
Chairman
Supported by the audit committee, the directors are satisfied that
the internal controls, systems and procedures in operation provide
reasonable assurance that all assets are safeguarded, that transactions
are properly executed and recorded, and that the possibility of material
loss or misstatement is minimised. The directors have reviewed the
AJ Lamprecht
DA Thomas
Chief financial officer
Paulshof
16 November 2009
Certificate of the
company secretary
In terms of section 268G(d) of the Companies Act 61 of 1973, as amended (“the Act”), I certify that Freeworld Coatings Limited has lodged
with the Registrar of Companies all such returns as are required of a public company in terms of the Act. Further, that such returns are true,
correct and up to date.
ELA Chamberlain
Group company secretary
Paulshof
16 November 2009
61
Report of the
independent auditor
TO THE MEMBERS OF FREEWORLD COATINGS LIMITED
Opinion
We have audited the annual financial statements and group annual
financial statements of Freeworld Coatings Limited which comprise
the directors’ report, the audit, risk and compliance committee report,
the balance sheet and consolidated balance sheet at 30 September
2009, the income statement and consolidated income statement,
the statement of changes in equity and consolidated statement of
changes in equity and cash flow statement and consolidated cash
flow statement for the year then ended, a summary of significant
accounting policies and other explanatory notes, as set out on pages 63
to 142.
In our opinion the financial statements present fairly, in all material
respects, the financial position of the company and the group as at
30 September 2009, and of their financial performance and cash flows
for the year then ended in accordance with International Financial
Reporting Standards, and in the manner required by the Companies
Act of South Africa.
Directors’ responsibility for the
financial statements
Deloitte & Touche
Per LT Taljaard
Partner
Registered Auditor
The company’s directors are responsible for the preparation and
fair presentation of these financial statements in accordance with
International Financial Reporting Standards, and in the manner
required by the Companies Act of South Africa. This responsibility
includes: designing, implementing and maintaining internal control
relevant to the preparation and fair presentation of financial statements
that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making
accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on these 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 whether the 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 the directors, 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.
62
16 November 2009
Buildings 1 and 2
Deloitte Place
The Woodlands
Woodlands Drive
Woodmead, Sandton
National executive: GG Gelink Chief Executive, AE Swiegers Chief
Operating Officer, GM Pinnock Audit, DL Kennedy Tax & Legal and
Risk Advisory, L Geeringh Consulting, L Bam Corporate Finance,
CR Beukman Finance, TJ Brown Clients & Markets, NT Mtoba
Chairman of the Board, CR Qually Deputy Chairman of the Board.
A full list of partners and directors is available on request.
Directors’ report
The directors are pleased to present this report on the financial
statements of the company and the group for the year ended
30 September 2009.
Postal address
Nature of business
Details of principal subsidiary companies appear in note 32 to the
annual financial statements.
Freeworld Coatings Limited, the holding company of the Freeworld
Coatings group (“Freeworld Coatings”), is incorporated in South Africa.
Freeworld Coatings is a leading manufacturer and marketer of
decorative and performance coatings in Southern Africa, with operations
that meet the highest global standards. The company markets its
products internationally and has been listed on the JSE Limited
since 3 December 2007 in the speciality chemicals sub sector of the
chemicals sector on the main board of the JSE Limited.
Financial results
The financial results for the year ended 30 September 2009 are set
out in these annual financial statements.
Share capital
Details of the authorised and issued share capital, together with details
of the shares issued during the year, can be found in note 14 to the
annual financial statements. The company has no unlisted securities.
Dividends
Details of the dividends and distributions declared and paid are
shown in note 25 to the annual financial statements.
Changes in directorate
During the year under review, there have been no changes to the
directorate of the company. According to the company’s articles of
association, at the forthcoming annual general meeting Ms B Ngonyama,
Mr DB Ntsebeza and Mr PM Surgey retire by rotation. All are eligible
and have offered themselves for re-election at the annual general
meeting.
Repurchase of shares
PostNet Suite 263, Private Bag X87, 2021, Bryanston, South Africa.
Subsidiary companies
International Financial Reporting Standards
The company’s financial statements were prepared in terms of
International Financial Reporting Standards (IFRS).
Directors’ responsibility statement for annual
financial statements
The directors are responsible for preparing the annual financial
statements and other information presented in the annual report in
a manner that fairly represents the financial position and the results
of the operations of the company and the group for the year ended
30 September 2009.
Going concern
The directors are of the opinion that the company has adequate
resources to continue operating for the foreseeable future, and that it
is therefore appropriate to adopt the going concern basis in preparing
the company’s financial statements. The directors are satisfied
that the company is in a sound financial position and that it has
access to sufficient borrowing facilities to meet its foreseeable cash
requirements.
Borrowings
Details of the group’s borrowings are set out in note 15 to the annual
financial statements. In terms of the articles of association, the borrowing
powers of the company are unlimited; however, annual debt covenant
proofs are required by our financiers. Neither the company nor any
of its subsidiaries have increased their borrowings during the year
under review.
At the annual general meeting on 30 January 2009, the company was
granted a general authority by shareholders to acquire shares issued
by the company. The authority was granted in terms of the company’s
articles of association and on, inter alia, the following conditions:
Major shareholders
• This
general authority will only be valid until the company’s next
annual general meeting, provided that it does not extend beyond
15 (fifteen) months from the date of passing of this special
resolution.
Events subsequent to the balance sheet date
• T he acquisitions of ordinary shares in the aggregate in any one
financial year do not exceed 20% (twenty percent) of the company’s
issued ordinary share capital in any one financial year.
Special resolutions
The company has not exercised this authority during the year under
review.
Company secretary and registered office
The company secretary is Mrs ELA Chamberlain and her address
and that of the registered office are as follows:
Business address
Balvenie, Kildrummy Office Park, Umhlanga Drive, Paulshof, South Africa.
Details of the significant shareholder of the company are reflected
on page 143.
Events subsequent to the balance sheet date are set out in note 37
to the annual financial statements.
At the annual general meeting on 30 January 2009, the company
was granted a general approval to repurchase shares issued by the
company. This authority was granted by special resolution of the
shareholders and was registered by the Companies and Intellectual
Property Registrations Office (CIPRO) on 3 March 2009.
Only one subsidiary passed a special resolution during the year under
review. On 2 November 2008 Blajohn Properties Limited (registration
no 1936/008617/06) was converted from a public to a private
company and simultaneously changed its name to Hamilton Brands
(Proprietary) Limited (registration no 1936/008617/07).
63
Audit, risk and
compliance committee report
Background
The risk management committee regularly undertakes a review
The audit, risk and compliance committee (“the Committee”) is
of the risk management policies. The monitoring of the risk
pleased to present this report on its activities during the financial
management policies is regularly disclosed to the committee and
year ended 30 September 2009 as recommended by the Corporate
any deviation from risk management policies is communicated
Laws Amendment Act No 24 of 2006.
to and noted by the board.
Membership
of internal controls. An annual risk assessment is performed at
The Committee is comprised of the following independent non
subsidiary level. This is then consolidated at group level and
executive directors:
additional risks added. The top 10 risks for the group are then
• Ms B Ngonyama (Chairperson)
established by the executive and submitted to the board for review
• Prof E Links
and approval.
Objective and scope
The main purpose of the audit, risk and compliance committee is to
review and report back to the board on all financial matters of the group.
It also has the responsibility to encourage continuous improvement
of, and foster adherence to, the company’s policies, procedures,
and practices at all levels. The audit committee should also provide
for open communication among the independent auditor, financial
and senior management, the internal audit function, and the board
of directors.
The Committee assists the board inter alia in:
• Overseeing the integrity of the company’s financial statements
and the company’s accounting and financial reporting processes
and financial statement audits;
• Overseeing the company’s compliance with legal and regulatory
requirements;
• Overseeing the registered public accounting firm’s (independent
auditor’s) qualifications and independence;
• Overseeing the performance of the company’s independent
auditor and internal audit function;
The Committee performed the following activities during the year
under review:
• Four meetings were held during the period under review. All
committee members attended all meetings. The chief executive
officer, chief financial officer, finance director Africa, chief internal
audit executive, lead audit partner and senior audit manager of
the external auditors attend meetings of this committee but have
no voting rights. At each board meeting, the Chairperson reported
on the activities and recommendations made by the Committee.
• The Committee held regular separate meetings with management,
external audit and internal audit to ensure that all relevant
matters were identified and discussed without undue influence.
• Since its tenure in office, the Committee has undertaken site visits
to the operations from time to time. In line with this process, during
the period under review, it undertook a site visit to Freeworld
Automotive Coatings in Port Elizabeth.
• Received and reviewed reports from both internal and external
auditors concerning the effectiveness of the internal control
environment, systems and processes.
• Considered the independence and objectivity of the external
• Overseeing the company’s systems of disclosure controls and
auditors and ensured that the scope of their additional services
procedures, internal controls over financial reporting, and compliance
provided was not such that they could be seen to have impaired
with ethical standards adopted by the company.
their independence.
Risk management
• The total process of risk management is the responsibility of
the board and the board ensures that management implements
appropriate risk management processes and controls through the
• Reviewed and recommended for adoption by the board such
financial information which is publicly disclosed and included the
annual financial statements for the year ended 30 September 2009
and the interim results for the six months ended 31 March 2009.
audit committee. Risk management is undertaken at subsidiary
• Considered the effectiveness of internal audit, approved the audit
board level and managed through the risk management committee
plan for the year under review and monitored adherence of internal
which reports to the Committee.
audit to its year plan.
• Formalised risk management policies are in place within the group
and these have been clearly communicated to all employees.
64
• The total process of risk management includes a related system
The Committee is of the opinion that the objectives of the Committee
were met during the year under review.
External audit
• T he Committee satisfied itself through enquiry that the external
auditor of Freeworld Coatings Limited is independent as defined
by the Act.
The audit, risk and compliance committee has evaluated the annual
financial statements for the year ended 30 September 2009 and
considers that they comply in all material aspects, with the requirements
of the Companies Act 61 of 1973, as amended, and International
Financial Reporting Standards. The Committee has therefore
recommended the annual financial statements for approval to the
board. The board has subsequently approved the annual financial
statements which will be open for discussion at the forthcoming annual
general meeting.
• B
oth audit and non audit services by the external auditors were
reviewed and pre approved. Non audit services are defined in
the terms of reference of the Committee and all non audit services
performed by the external auditors are approved in terms of
the Committee’s non audit services policy. The nature and extent
of the of non audit services is determined in the non audit
services policy.
• T he Committee, in consultation with management, agreed the
audit fee for the 2009 financial year. The fee is considered
appropriate for the work as foreseen at the time. Audit fees are
disclosed in note 20 of the financial statements.
Deloitte & Touche, the external auditors, has provided stakeholders
with an independent opinion on whether the annual financial statements
for the year ended 30 September 2009 fairly present, in all material
respects, the financial results for the year and the position of the
company and the group at 30 September 2009.
• T he Committee reviewed the performance of the external auditors
and nominated, for approval at the annual general meeting,
Deloitte & Touche as the external auditor for the 2010 financial
year, and Mr LT Taljaard as the designated lead auditor. This will
be his third year as auditor of the company.
Chief financial officer review
The Committee has reviewed the performance, appropriateness and
expertise of the chief financial officer, Mr DA Thomas, and confirms
his suitability for appointment as financial director in terms of the
JSE Listings Requirements.
B Ngonyama
Chairperson of the audit, risk and compliance committee
Paulshof
16 November 2009
65
Consolidated
balance sheet
at 30 September
2009
R’000
2008
R’000
3 568 671
3 527 594
646 733
1 893 868
794 847
181 613
98
9 558
41 954
605 184
1 898 141
795 194
193 009
315
9 906
25 845
921 365
985 064
398 725
473 647
10 538
38 455
460 129
451 723
2 030
71 182
4 490 036
4 512 658
2 583 409
(31 078)
301 593
2 583 409
(20 579)
190 119
Interest of shareholders of Freeworld Coatings Limited
Minority interest
2 853 924
25 140
2 752 949
23 313
Total equity
2 879 064
2 776 262
948 421
911 573
664 044
264 054
16 237
4 086
624 691
265 314
21 568
–
662 551
824 823
426 833
17 008
13 353
205 357
477 416
7 800
20 243
319 364
4 490 036
4 512 658
Notes
Assets
Non current assets
Property, plant and equipment
Goodwill
Intangible assets
Investment in associates
Finance lease receivables
Long term loans and receivables
Deferred taxation assets
4
5
6
7
8
9
10
Current assets
Inventories
Trade and other receivables
Taxation
Cash and cash equivalents
11
12
13
Total assets
Equity and liabilities
Capital and reserves
Share capital and premium
Other reserves
Retained income
14
Non current liabilities
Interest bearing liabilities
Deferred taxation liabilities
Provisions
Other non interest bearing liabilities
15
10
16
31
Current liabilities
Trade and other payables
Provisions
Current tax payable
Short term loans and bank overdrafts
Total equity and liabilities
66
17
16
18
Consolidated
income statement
for the year ended 30 September
Notes
2009
R’000
2008
R’000
Revenue
19
2 703 164
2 696 744
Earnings before interest, tax, depreciation, amortisation and fair value adjustments
Fair value adjustments
21
Earnings before interest, tax, depreciation and amortisation (EBITDA)
Depreciation and amortisation
424 583
(26 248)
449 148
15 429
398 335
(76 685)
464 577
(67 655)
Operating profit
Finance costs
Income from investments
20
22
23
321 650
(125 259)
10 358
396 922
(141 808)
21 381
Profit before taxation
Income tax expense
24
206 749
(68 270)
276 495
(81 944)
7
138 479
8 566
194 551
22 359
147 045
216 910
4 990
142 055
4 931
211 979
147 045
216 910
Profit after taxation
Income from associates
Profit for the year
Attributable to:
Minority shareholders
Freeworld Coatings Limited shareholders
26
Earnings per share (basic and diluted in cents)
27
70
105
Dividends per share (cents)
25
15
10
67
Consolidated
statement of changes in equity
Share
capital and
premium
R’000
Foreign
currency
translation
reserve
R’000
Net actuarial
gains/(losses)
on postretirement
benefits
R’000
2 418 796
–
–
–
–
–
–
17 789
–
–
–
–
–
843
–
–
173 840
(9 227)
–
–
–
–
–
–
–
–
–
17 789
–
–
–
–
–
–
–
–
–
–
–
843
–
–
–
–
–
–
–
–
–
–
–
2 583 409
17 789
843
Movement on foreign currency translation reserve
Net actuarial gains and losses
Profit for the year
–
–
–
(18 399)
–
–
–
4
–
Total recognised income and expense for the year
Increase in fair value of hedging instruments
Freeworld Coatings Limited SARs expense recognised in equity
Barloworld Limited Share Options/Rights expense recognised in equity
Other reserve movements
Dividends on ordinary shares
–
–
–
–
–
–
(18 399)
–
–
–
–
–
4
–
–
–
–
–
2 583 409
(610)
847
Balance acquired at corporatisation
Changes in equity recognised during 2008
Movement on foreign currency translation reserve
Net income/(loss) recognised directly in equity
Net actuarial gains and losses
Profit for the year
New shares issued during the year
Costs written off against share premium
Shareholder loans repaid during the year
Increase in fair value of hedging instruments
Transfer to initial carrying amount of non financial hedged item on cash flow hedge
Barloworld Share Option reserve
Freeworld Coatings Limited SARs expense recognised in equity
Barloworld Limited Share Options/Rights expense recognised in equity
Transfer of cash settled liability to equity
Other reserve movements
Dividends on ordinary shares
Balance at 30 September 2008
Foreign currency translation reserve
The financial results of foreign operations are translated into South African Rands for incorporation into the consolidated results. Assets and
liabilities are translated at the foreign exchange rates ruling at balance sheet date. Income, expenditure and cash flow items are translated at
the actual foreign exchange rate or average foreign exchange rates for the period. The foreign exchange differences arising from the translation
of the financial results is included in equity.
Equity compensation reserve
Equity compensation reserve comprises the net fair value of equity instruments granted to employees expensed under share incentive schemes.
Cash flow hedge reserve
The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments
as well as any transfers to carrying amounts of the non financial hedged item.
Actuarial gains/losses on post-retirement benefits
Actuarial gains and losses on post retirement benefits are recognised in equity.
68
Cash flow
hedge
reserve
R’000
Equity
compensation
reserves
R’000
Total other
reserves
R’000
Total retained
income
R’000
Attributable
to Freeworld
Coatings
Limited
shareholders
R’000
–
–
–
–
2 418 796
–
–
–
–
–
–
–
–
17 789
–
843
–
–
(1 473)
–
211 979
17 789
(1 473)
843
211 979
–
–
–
4 931
–
–
–
–
17 789
(1 473)
843
216 910
–
–
–
–
2 179
(2 179)
–
–
–
–
–
–
–
–
–
–
–
–
(44 999)
2 784
2 002
1 002
–
–
18 632
–
–
–
2 179
(2 179)
(44 999)
2 784
2 002
1 002
–
–
210 506
–
–
–
–
–
–
–
–
–
–
(20 387)
229 138
173 840
(9 227)
–
2 179
(2 179)
(44 999)
2 784
2 002
1 002
–
(20 387)
4 931
–
–
–
–
–
–
–
–
–
(234)
(1 528)
–
–
–
(22 187)
–
–
–
–
–
–
–
–
234 069
173 840
(9 227)
(22 187)
2 179
(2 179)
(44 999)
2 784
2 002
1 002
(234)
(21 915)
–
(39 211)
(20 579)
190 119
23 313
–
2 752 949
Minority
interest
R’000
Shareholder
loans
R’000
Total
equity
R’000
20 144
22 187
2 461 127
2 776 262
–
–
–
–
–
–
(18 399)
4
–
–
–
142 055
(18 399)
4
142 055
–
–
4 990
–
–
–
(18 399)
4
147 045
–
(9 618)
–
–
–
–
–
–
3 622
1 426
12 467
–
(18 395)
(9 618)
3 622
1 426
12 467
–
142 055
–
–
–
–
(30 581)
123 660
(9 618)
3 622
1 426
12 467
(30 581)
4 990
–
–
–
–
(3 163)
–
–
–
–
–
–
128 650
(9 618)
3 622
1 426
12 467
(33 744)
(9 618)
(21 696)
(31 078)
301 593
25 140
–
2 853 924
2 879 064
69
Consolidated
cash flow statement
Notes
2009
R’000
2008
R’000
Cash flows from operating activities
2 681 790
(2 307 328)
2 684 779
(2 309 005)
374 462
(136 289)
19 962
10 358
(84 811)
375 774
(107 180)
6 215
21 381
(82 136)
Cash flow from operations
Dividends paid (including minority shareholders)
183 682
(33 744)
214 054
(21 915)
Net cash inflow from operating activities
149 938
192 139
565
(100 950)
3 614
(125 997)
Replacement capital expenditure
Expansion capital expenditure
(68 082)
(32 868)
(80 130)
(45 867)
Acquisition of intangible assets
Proceeds on disposal of property, plant and equipment
(21 979)
3 323
(48 027)
4 507
(119 041)
(165 903)
30 897
26 236
–
–
85 042
(148 666)
(9 227)
(868 769)
563 880
312 390
(63 624)
(1 726)
Cash receipts from customers
Cash paid to employees and suppliers
Cash generated from operations
Finance costs
Dividends received from associates
Interest received
Income tax paid
A
B
Cash flow from investing activities
Proceeds on decrease in long term financial assets
Acquisition of property, plant and equipment
C
Net cash used in investing activities
Net cash inflow before financing activities
Cash flows from financing activities
Share issue costs
Repayment of amount due to Barloworld Capital (Pty) Limited
Increase in long term interest bearing borrowings
(Decrease)/increase in short term interest bearing liabilities
D
Net cash used in financing activities
70
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
13
(32 727)
71 182
24 510
46 672
Cash and cash equivalents at end of year
13
38 455
71 182
Notes to the consolidated
cash flow statement
A
2009
R’000
2008
R’000
Cash generated from operations is calculated as follows:
Adjustments for:
Depreciation
Amortisation of intangible assets
Share option expense
Loss on disposal of plant and equipment including rental assets
Interest received
Finance costs
Fair value adjustments on financial instruments
Impairment losses
Other non cash flow items
206 749
276 495
54 100
22 585
5 048
465
(10 358)
125 259
8 826
222
(9 234)
47 351
20 304
5 788
1 204
(21 381)
141 808
(3 017)
–
6 811
Operating cash flows before movements in working capital
403 662
475 363
Movements in working capital
(29 200)
(99 589)
Decrease/(increase) in inventories
Increase in trade and other receivables
(Decrease)/increase in trade and other payables
61 404
(23 996)
(66 608)
(98 534)
(11 965)
10 910
374 462
375 774
Amounts unpaid less overpaid at beginning of year
Income tax expense (excluding deferred tax)
Amounts unpaid less overpaid at end of year
(18 213)
(69 413)
2 815
(11 079)
(89 270)
18 213
Cash amounts paid
(84 811)
(82 136)
B Income tax paid
C Proceeds on decrease in long term financial assets
Proceeds on decrease in long term financial assets
565
3 614
Cash proceeds on decrease in long term financial assets
565
3 614
Short term loan at beginning of the year
Shareholder loan at beginning of the year
–
–
981 555
22 187
Total amount owing at beginning of the year
Barloworld share options acquired
Other movements during the year
Shares issued as part payment
–
–
–
–
1 003 742
44 999
(6 357)
(173 615)
Cash payment
–
868 769
D Repayment of amount due to Barloworld Capital (Pty) Limited
71
Segment
reporting
Segment information is reported for the purposes of resource allocation and assessment of performance into two major operating divisions,
namely Decorative Coatings and Performance Coatings.
Decorative coatings covers the architectural and decorative customer and product segments describing products used primarily in the do it
yourself (‘DIY’) and building/construction sectors of the coatings market. It covers interior and exterior broad wall.
Performance coatings describing high technology products used for applications primarily in the construction, industrial and automotive industries.
Performance coatings are typically utilised to safeguard against:
• chronic exposure to corrosive, caustic or acidic agents, chemical mixtures or solutions;
• repeated exposure to high temperatures;
• exterior exposure of steel and non ferrous metal structures; and
• repeated heavy abrasion, including mechanical wear and repeated scrubbing with industrial grade solvents, cleansers or scouring agents.
Information regarding the group’s reportable segments is presented below.
Segment revenues and results
Decorative
Coatings
R’000
Performance
Coatings
R’000
1 973 993
1 004 330
(275 159)
EBITDA before fair value adjustments
296 263
(23 963)
129 486
(2 285)
(1 166)
424 583
(26 248)
EBITDA
272 300
(55 138)
127 201
(21 547)
(1 166)
398 335
(76 685)
Segmental operating profit
217 162
105 654
(1 166)
321 650
2009
Consolidated segment revenue
Eliminations
R’000
Total
group
R’000
2 703 164
Segment result
Finance costs
Income tax expense
(125 259)
10 358
(68 270)
Profit after tax
138 479
8 566
Profit for the year
147 045
Attributable to minority shareholders
Attributable to Freeworld Coatings Limited shareholders
72
4 990
142 055
Segment revenues and results
2008
Decorative
Coatings
R’000
Performance
Coatings
R’000
Consolidated segment revenue
1 967 704
994 796
(265 756)
2 696 744
EBITDA before fair value adjustments
306 755
14 988
148 293
441
(5 900)
449 148
15 429
EBITDA
321 743
(48 065)
148 734
(19 590)
(5 900)
464 577
(67 655)
Segmental operating profit
Finance costs
Income tax expense
273 678
129 144
(5 900)
396 922
(141 808)
21 381
(81 944)
Eliminations
R’000
Total
group
R’000
Segment result
Profit after tax
194 551
22 359
Profit for the year
216 910
Attributable to minority shareholders
4 931
211 979
Attributable to Freeworld Coatings Limited shareholders
Revenue reported above represents revenue generated both from external customers and inter-segment revenue.
Inter segment revenue is priced on an arms length basis.
The accounting policies of the reportable segments are the same as the group’s accounting policies described in note 3. Segment profit represents
the profit earned by each segment without allocation of finance costs, income from investments, income tax expense, income from associates
and profit attributable to minority shareholders.
Segment balance sheet
Decorative
Coatings
R’000
Performance
Coatings
R’000
Segmental total assets
Segmental non interest bearing liabilities
3 436 608
(470 915)
833 360
(270 656)
4 269 968
(741 571)
Segmental net operating assets
Segmental interest bearing liabilities
Segmental cash and cash equivalents
2 965 693
(847 186)
32 121
562 704
(22 215)
6 334
3 528 397
(869 401)
38 455
Segmental net assets
2 150 628
546 823
2 697 451
181 613
2009
Net assets
Eliminations
R’000
Total
group
R’000
2 879 064
73
Segment reporting continued
Segment balance sheet
2008
Decorative
Coatings
R’000
Performance
Coatings
R’000
Segmental total assets
Segmental non interest bearing liabilities
3 403 254
(540 804)
845 212
(251 536)
4 248 466
(792 340)
Segmental net operating assets
Segmental interest bearing liabilities
Segmental cash and cash equivalents
2 862 450
(919 340)
54 081
593 676
(24 715)
17 101
3 456 126
(944 055)
71 182
Segmental net assets
1 997 191
586 062
2 583 253
193 009
Eliminations
R’000
Total
group
R’000
2 776 262
Net assets
For the purposes of monitoring segment performance and allocating resources between segments, the chief operating decision maker monitors
the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments.
Capital expenditure
2009
2008
74
Decorative
Coatings
R’000
Performance
Coatings
R’000
Total
group
R’000
76 074
24 876
100 950
76 074
24 876
100 950
Decorative
Coatings
R’000
Performance
Coatings
R’000
Total
group
R’000
104 936
21 060
125 996
104 936
21 060
125 996
Notes to the consolidated
annual financial statements
1 Accounting policies
General information
Freeworld Coatings Limited (the company) is a limited company incorporated in South Africa. The address of its registered office and
principal place of business are disclosed in the introduction to the annual report. The principal activities of the company and its subsidiaries
(the group) are described in the director’s report.
The accounting policies are consistent with those used in the prior year.
2
Standards and interpretations effective in the current period and early adoption
The group has a policy of not early adopting standards and interpretations for which early adoption is allowed. There were no standards
and interpretations that became effective during the current financial year that has resulted in a change in accounting policy.
3
Significant accounting policies
3.1 Statement of compliance
The financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”), International Financial
Reporting Interpretations Committee (“IFRIC”) Interpretations and the Companies Act of 1973, applicable to companies reporting
under IFRS.
3.2 Basis of preparation
The financial statements have been prepared on the historical cost basis except for certain financial instruments that are stated at fair
value and adjustments. The principal accounting policies are set out below.
3.3 Basis of consolidation
3.3.1
Investments in subsidiaries
The consolidated financial statements incorporate the financial statements of the company (Freeworld Coatings Limited) and
entities (including special purpose entities) controlled by the company (its subsidiaries).
Control is achieved where the company has the power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the
effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line
with those used by other members of the group.
All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.
Minority interests in the net assets of consolidated subsidiaries are shown separately from the group’s equity therein. It consists
of the amount of those interests at acquisition plus the minority’s subsequent share of changes in equity of the subsidiary. On
acquisition the minorities’ interest is measured at the proportion of the pre acquisition fair values of the identifiable assets and
liabilities acquired.
Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests
of the group except to the extent that the minority has a binding obligation and is able to make an additional investment to
cover the losses.
75
Notes to the consolidated annual financial statements continued
3
Significant accounting policies (continued)
3.3 Basis of consolidation (continued)
3.3.2
Investments in associates
An associate is an entity over which the group has significant influence and that is neither a subsidiary nor an interest in a joint
venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is
not control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of
accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for postacquisition changes in the group’s share of the net assets of the associate, less any impairment in the value of individual
investments. The most recent managements accounts of associates are used in these calculations.
Losses of an associate in excess of the group’s interest in that associate (which includes any long term interests that, in
substance, form part of the group’s net investment in the associate) are recognised only to the extent that the group has
incurred legal or constructive obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the group’s share of the net fair value of the identifiable assets, liabilities and contingent
liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the
carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the group’s share
of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment,
is recognised immediately in profit or loss.
Where a group entity transacts with an associate of the group, profits and losses are eliminated to the extent of the group’s
interest in the relevant associate.
3.4 Business combinations
76
Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured
as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued
by the group in exchange for control of the acquiree, plus any costs directly attributable to the business combination.
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business
Combinations are recognised at their fair values at the acquisition date, except for non current assets (or disposal groups) that are classified
as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and
measured at fair value less costs to sell. The difference between the cost of acquisition and the share of the net assets acquired is
capitalised as goodwill.
On the subsequent disposal or termination of a previously acquired business, the results of the business are included in the group’s
results up to the effective date of disposal. The profit and loss on disposal or termination is calculated after charging or crediting any
amount of any related goodwill to the extent that it has not previously been taken to the income statement.
3
3.5 Goodwill
Goodwill arising on the acquisition of a subsidiary or a jointly controlled entity represents the excess of the cost of acquisition over the
group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary recognised at the date
of acquisition. If, after assessment, the group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent
liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses and
is reviewed for impairment on an annual basis.
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. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, 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 for goodwill is recognised in profit and
loss and is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
The group’s policy for goodwill arising on the acquisition of an associate is described in 3.3.2 above.
3.6 Revenue recognition
Revenue represents the gross inflow of economic benefits during the period arising in the course of the ordinary activities when those
inflows result in increases in equity, other than increases relating to contributions from equity participants. Included in revenue are net
invoiced sales to customers for goods and services, rentals from leasing fixed and movable property, commission, hire purchase and
finance lease income.
Revenue is measured at the amount received or receivable. Revenue is reduced for settlement discounts, rebates, VAT and other indirect
taxes. Where extended terms are granted, interest received is accounted for over the term until payment is received.
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been transferred, when delivery
has been made and title has passed, when the amount of revenue and the related costs can be reliably measured and it is probable
that the economic benefits associated with the transaction will flow to the entity.
3.6.1
Interest income
Interest income is accrued on a time basis by reference to the principal outstanding and at the 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.
3.6.2
Dividend income
Dividend income from investments is recognised when the shareholders’ right to receive payment has been established.
3.6.3
Royalties
Royalty revenue is recognised on an accrual basis in accordance with the substance of the relevant agreement. Royalties
determined on a time basis are recognised on the straight-line basis over the period of the agreement.
3.6.4
Operating leases
The group’s policy for recognition of revenue from operating leases is described in 3.7 below.
77
3
3.7 Leasing
3.7.1
Classification
Leases are classified as finance leases or operating leases at the inception of the lease.
3.7.2
In the capacity of a lessor
Amounts due from lessees under finance leases are recognised as receivables at the amount receivable under the lease or the
net investment in the lease, which includes initial direct costs. Where assets are leased by a manufacturer or dealer, the initial
direct costs are expensed. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of
return on the net investment outstanding in respect of the leases.
Rental income from operating leases is recognised on the straight line basis over the term of the relevant lease or another basis
if more representative of the time pattern of the user’s benefit. Initial direct costs incurred in negotiating and arranging an
operating lease are added to the carrying value of the leased asset and recognised on the straight-line basis over the term of
the lease.
3.7.3
In the capacity of lessee
Finance leases are recognised as assets and liabilities at the lower of the fair value of the asset and the present value of the
minimum lease payments at the date of acquisition. Finance costs represent the difference between the total leasing commitments
and the fair value of the assets acquired. Finance costs are charged to profit or loss over the term of the lease and at interest
rates applicable to the lease on the remaining balance of the obligations.
Rentals payable under operating leases are charged to income on the straight-line basis over the term of the relevant lease or
another basis if more representative of the time pattern of the user’s benefit. Benefits received and receivable as an incentive
to enter into an operating lease are also spread on a straight-line basis over the term of the lease.
3.8 Cost of sales
When inventories are sold, the carrying amount is recognised as part of cost of sales. 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.
3.9 Foreign currencies
Transactions
The functional currency at each entity within the group is determined based on the currency of the primary economic environment in
which that entity operates. Transactions in currencies other than the entity’s functional currency are recognised at the rates of exchange
ruling on the date of the transaction. Monetary assets and liabilities denominated in such currencies are translated at the rates ruling
at the balance sheet date.
Gains and losses arising on exchange differences are recognised in profit or loss
Translation of foreign subsidiary financial statements
78
The financial statements of entities within the group whose functional currencies are different to the group’s representative presentation
currency, which is South African Rand, are translated as follows:
– assets, including goodwill, and liabilities at exchange rates ruling on the balance sheet date;
– income items, expense items and cash flows at the average rates for the period; and
– equity items at the exchange rate ruling when they arose.
Exchange differences arising, if any, are classified as equity and recognised in the group’s foreign currency translation reserve. Such
exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.
3
3.10 Borrowing costs
All borrowing costs, including borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily
take a substantial period of time to get ready for their intended use or sale, are expensed in the period in which they are incurred.
3.11 Post-employment benefit obligations
Payments to defined contribution plans are recognised as an expense when employees have rendered service entitling them to the
contributions.
Payments to defined contribution plans are recognised as an expense as they fall due. Payments made to industry managed retirement
plans are dealt with as defined contribution plans where the group’s obligations under the schemes are equivalent to those arising in a
defined contribution retirement benefit plan.
The cost of providing benefits is determined using the projected unit credit method. Valuations are conducted every three years and
interim adjustments to those valuations are made annually.
Actuarial gains and losses are recognised immediately in the statement of recognised income and expense.
Gains or losses on the curtailment or settlement of a defined benefit plan are recognised in profit and loss when the group is demonstrably
committed to the curtailment or settlement.
Past service costs are recognised immediately to the extent that the benefits have already vested. Otherwise they are amortised on the
straight-line basis over the average period until the amended benefits become vested.
The amount recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised
actuarial gains and losses and the unrecognised past service costs and reduced by the fair value of plan assets. Any asset is limited to
unrecognised actuarial losses, plus the present value of available refunds and reductions in future contributions to the plan.
To the extent that there is uncertainty as to the entitlement to the surplus, the asset is not recognised.
3.12 Share-based payments
Equity-settled share-based payments to executive directors and senior executives are measured at the fair value of the equity instruments
at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in the notes.
Refer note 14.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on the straight-line basis over the
vesting period, based on the group’s best estimate of equity instruments that will eventually vest and is adjusted for the effect of non
market vesting conditions.
The accounting policy above has been applied to all equity instruments that have been granted in terms of the Barloworld and PPC Share
Option Schemes and the Freeworld Share Appreciation Rights Scheme (SAR Scheme).
79
3
3.13 Taxation
3.13.1 Current taxation
The tax currently payable is based on the taxable profit for the year. Taxable profit differs from profit as reported in the income
statement as it excludes items of income and expense that are taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The group’s tax liability is calculated using tax rates that have been enacted or substantively
enacted by the balance sheet date.
3.13.2 Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are
generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available
against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the
temporary differences arises from goodwill or from the initial recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates,
and interests in joint ventures, 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 tax 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.
The carrying amount of deferred tax assets are reviewed at each balance sheet date 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 tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is
settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance
sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the
manner in which the group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current
tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends to settle its
current tax assets and liabilities on a net basis.
3.13.3 Current and deferred tax for the year
Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items credited
or debited directly to equity, in which case the tax is also recognised directly in equity.
3.13.4 Secondary Taxation on Companies (“STC”)
80
Secondary tax on companies (“STC”) is recognised in the year dividends are declared, net of dividends received. A deferred tax
asset is recognised on unutilised STC credits when it is probable that such unused STC credits will be utilised in the future.
3
3.14 Property, plant and equipment
Property, plant and equipment represents tangible items that are held for use in the production or supply of goods or services, or for
administrative purposes and are expected to be used during more than one period.
Items of property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost
includes the estimated cost of dismantling and removing the assets.
Owner properties and properties in the course of construction for production, rental or administrative purposes, or for purposes not yet
determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees. Depreciation of these assets, on
the same basis as other property assets, commences when the assets are ready for intended use.
Depreciation is charged so as to write off the cost or valuation of assets, other than freehold land and properties under construction,
over their estimated useful lives, using the straight line method. The estimated useful lives, residual values and depreciation method are
reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.
Where significant parts of an item have different useful lives to the item itself, these parts are depreciated over their estimated
useful lives.
The methods of depreciation, useful lives and residual values are reviewed annually. The following methods and rates were used during
the year to depreciate property, plant and equipment to estimate residual values.
Buildings – Straight line 0 to 50 years
Plant – Straight line 5 to 17 years
Vehicles – Straight line 4 to 5 years
Equipment – Straight line 5 to 10 years
Furniture – Straight line 3 to 6 years
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter,
the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference
between the sale proceeds and the carrying amount of the asset and is recognised in profit or loss.
3.15 Investment property
Investment property is either land or a building or part of a building held by the owner or by the lessee under a finance lease to earn rentals
and/or for capital appreciation.
Investment property is measured initially at cost, including transaction costs. Subsequent to initial recognition, investment property is
recorded at cost less any accumulated depreciation and impairment losses.
3.16 Intangible assets
An intangible asset is an identifiable non monetary asset without physical substance. It includes brands, patents, trademarks, capitalised
development cost and certain costs of purchase and installation of major information systems (including packaged software).
3.16.1 Intangible assets acquired separately
Intangible assets acquired separately are reported at cost less accumulated amortisation and accumulated impairment losses.
Amortisation is charged on the straight-line basis over their estimated useful lives. The estimated useful life and amortisation
method are reviewed at the end of each financial year, with the effect of any changes in estimate being accounted for on a
prospective basis.
81
3
3.16 Intangible assets (continued)
3.16.2 Internally generated intangible assets – research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally generated intangible asset arising from development (or from the development phase of an internal project) is
recognised if, and only if, all of the following have been demonstrated:
– the technical feasibility of completing the intangible asset is such that it will be available for use or sale,
– the intention is to complete the intangible assets and use or sell them,
– the ability to use or sell the intangible asset is proven,
– how the intangible asset will generate probable future economic benefits is established,
– the availability of adequate technical, financial and other resources to complete the development and to use or sell the
intangible asset is proven,
– and the ability to measure reliably the expenditure attributable to the intangible asset during its development is proven.
The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date
when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can
be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and
accumulated impairment losses, on the same basis as intangible assets acquired separately.
3.16.3 Intangible assets acquired in a business combination
Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy
the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their
fair value at the acquisition date.
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately.
3.17 Impairment of assets
82
At each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is
any indication that those assets 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 (if any). Where it is not possible to estimate the recoverable amount
of an individual asset, the group estimates the recoverable amount of the cash generating unit to which the asset belongs. Where a
reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to the individual cash generating
units, or otherwise they are allocated to the smallest group of cash generating units for which a reasonable and consistent allocation
basis can be identified.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, future cash flows, forecast
market conditions and the expected lives of assets are used. 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.
If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the
asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Where an 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 so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset (or cash generating unit) in prior years. A reversal of an
impairment loss is recognised immediately in profit or loss.
Impairment losses on trade and other receivables are determined based on specific and objective evidence that the assets are impaired
and is 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.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever
there is an indication that the asset may be impaired.
3
3.18 Inventories
Inventories are assets held for sale in the ordinary course of business, in the process of production for such sale or in the form of
materials or supplies to be consumed in the production process or in the rendering of services.
Inventories are stated at the lower of cost and net realisable value. Costs include all purchasing costs, costs of conversion and other
costs incurred in bringing the inventories to their present location and condition, net of discount and rebates received.
Net realisable value represents the estimated selling price for inventories less further costs expected to be incurred to completion
and disposal.
Items that are not interchangeable are valued based on the specific identification basis. Otherwise, the first in first out method and the
weighted average method is used for to arrive at the cost for items that are interchangeable.
3.19 Provisions
Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that
the group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance
sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash
flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
Provisions for warranty costs are recognised at the date of sale of the relevant products, at the director’s best estimate of the expenditure
to be incurred to settle the group’s obligation.
Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to
exist where the group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the
economic benefits expected to be received under it.
3.20 Financial instruments
3.20.1Measurement
Non derivative financial instruments are initially measured at fair value, plus transaction costs, except for those financial assets
and liabilities classified as fair value through profit or loss, which are initially measured at fair value. Subsequent to initial
recognition, the assets are measured as follows:
3.20.2 Financial assets
A financial asset is an asset that is cash, equity investments of another entity, a contractual right to receive cash or another
financial instrument from another entity, or to exchange financial assets or financial liabilities with another entity under
conditions that are potentially favorable to the entity.
Financial assets are categorised into the following four categories:
3.20.2.1 Financial assets at fair value through profit or loss
Financial assets are classified as fair value through profit or loss (FVTPL) where the financial asset is either held for
trading or designated as at FVTPL. Financial assets at FVTPL is initially measured at fair value at trade date.
Subsequently, financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit
or loss. Fair value is determined based on the manner described in note 31.
3.20.2.2 Loans and receivables
Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted
in an active market. Loans and receivables are initially measured at fair value, including transactions costs, and
subsequently measured at amortised cost using the effective interest method, less any impairment losses.
Loans and receivables includes trade receivables, accrued income and cash and cash equivalents.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on
demand and form an integral part of the group’s cash management are included as a component of cash and cash
equivalents for the purposes of the cash flow statement.
83
3
3.20 Financial instruments (continued)
3.20.2 Financial assets (continued)
3.20.2.3 Available for sale investments
Available for sale investments are non derivative financial assets that are either designated in this category or not
classified as financial assets at FVTPL, or loans and receivables. Investments in this category are included in
non‑current assets unless management intends to dispose of the investments within twelve months of the balance
sheet date.
Available for sale investments are initially recognised at fair value, including transaction costs, and subsequently
measured at fair value with any gains and losses arising from changes in fair value, recognised directly in equity.
On disposal or impairment of available for sale investments, any gains and losses in equity are recycled through
profit and loss.
3.20.2.4 Held to maturity investments
Investments where the group has the positive intent and ability to hold to maturity are classified as held to maturity
investments. Held to maturity investments are recorded at amortised cost using the effective interest method less
any impairment losses.
3.20.3 Financial liabilities
A financial liability is a liability that is a contractual obligation to deliver cash or another financial asset to another entity or to
exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity.
Financial liabilities are classified into the following two categories:
3.20.3.1 Financial liabilities at FVTPL
Financial liabilities are classified as FVTPL where the financial liability is either held for trading or it is designated
as at FVTPL. Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit
or loss. Fair value is determined in the manner described in note 31.
3.20.3.2 Financial liabilities at amortised cost
Financial liabilities at amortised cost includes trade payables, borrowings, accruals and other payables.
Financial liabilities at amortised cost are initially measured at fair value, including transaction costs. Subsequently
it is measured at amortised cost using the effective interest method. 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.
Financial liabilities at amortised cost are analysed between current and non current on the face of the balance sheet,
depending on when the obligation to settle will realise.
3.20.4 Derecognition
The group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers
the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
The group derecognises financial liabilities when, and only when, the group’s obligations are discharged, cancelled or expire.
3.20.5 Offset
84
Financial assets and financial liabilities are only offset and the net amount reported in the balance sheet when the company
has a legally enforceable right to set off the recognised amounts, and intends either to settle on a net basis, or to realise the
asset and settle the liability simultaneously.
3
3.21 Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity
instruments issued by the group are recorded at the proceeds received, net of direct issue costs.
3.22 Derivatives
The group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk,
including foreign exchange forward contracts, interest rate swaps and options.
Derivative financial assets and liabilities are financial instruments whose value changes in response to an underlying variable, require
little or no initial investment and are settled in future.
The group uses derivative financial instruments (foreign currency forward contracts and interest rate swaps) to hedge its risks associated
with foreign currency fluctuations relating to forecast transactions and firm commitments and forecast transactions. The significant interest
rate risk arises from bank loans. When appropriate the group converts a proportion of its floating rate debt to fixed rates. The group
designates these as cash flow hedges of interest rate risk.
The use of financial derivatives is governed by the group’s policies, which provide written principles on the use of financial derivatives
consistent with the group’s risk management strategy. The group does not use derivative financial instruments for speculative purposes.
Derivatives are initially measured at fair value at the date a derivative contract is entered into and are subsequently remeasured to their
fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss.
Derivatives also include embedded derivatives. Derivatives embedded in other financial instruments or other host contracts are treated
as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts
are not measured at fair value with changes in fair value recognised in profit or loss.
Derivative financial assets and liabilities are analysed between current and non current assets and liabilities on the face of the balance
sheet, depending on when they are expected to mature.
3.23 Hedging
The group designates certain hedging instruments, which include derivatives, embedded derivatives and non derivatives in respect of
foreign currency risk, as either fair value hedges, cash flow hedges, or hedges of net foreign investments in foreign operations. Hedges
of foreign exchange risk on firm commitments are accounted for as cash flow hedges.
At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item,
along with its risk management objectives and strategy for undertaking various hedge transactions. Furthermore, at the inception of the
hedge and on an ongoing basis, the group documents whether the hedging instrument that is used in a hedging relationship is highly
effective in offsetting changes in fair values or cash flows of the hedged item.
3.23.1 Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss
immediately, together with changes in the fair value of the hedged item that are attributable to the hedged risk. The change in
the fair value of the hedged instrument and the change in the hedged item attributable to the hedged risk are recognised in
the line of the income statement relating to the hedged item.
Hedge accounting is discontinued when the group revokes the hedging relationship, the hedging instrument expires or is sold,
terminated, or exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged
item arising from the hedged risk is amortised to profit or loss from that date.
3.23.2 Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred
in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the
“other gains and losses” line of the income statement.
Amounts deferred in equity are recycled to profit or loss in the periods when the hedged item is recognised in profit or loss, in
the same line of the income statement as the recognised hedged item. However, when the forecast transaction that is hedged
results in the recognition of a non financial asset or a non financial liability, the gains and losses previously deferred in equity
are transferred from equity and included in the initial measurement of the cost of the asset or liability.
85
3
3.23 Hedging (continued)
3.23.2 Cash flow hedges (continued)
Hedge accounting is discontinued when the group revokes the hedging relationship, the hedging instrument expires or is sold,
terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time
remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast
transaction is no longer expected to occur, the cumulative gains or loss that was deferred in equity is recognised immediately
in profit or loss.
3.23.3 Hedges of net investments in foreign operations
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the
hedging instrument relating to the effective portion of the hedge is recognised in equity in the foreign currency translation
reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the
‘other gains and losses’ line of the income statement.
Gains and losses deferred in the foreign currency translation reserve are recognised in profit or loss on disposal of the
foreign operation.
3.24 Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and options are recognised
as a deduction from equity, net of tax effects.
Preference shares
Preference share capital is classified as equity if it is nonredeemable and any dividends are discretionary, or is redeemable but only at
the company’s option. Dividends on preference share capital classified as equity are recognised as distributions within equity.
Preference share capital is classified as a liability if it is redeemable on a specific date or at the option of the shareholders or if dividend
payments are not discretionary. Dividends thereon are recognised in the income statement as interest expense.
Repurchase of shares
When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is
recognised as a deduction from equity. Shares held by subsidiaries are classified as treasury shares and presented as a deduction from
total equity.
3.25 Earnings per share
The group represents basic and diluted earnings per share (EPS) data for its ordinary shares and participating preference shares. Basic
EPS is calculated by dividing the profit or loss attributable to ordinary and participating preference shareholders of the company by the
weighted average number of ordinary and participating preference shares outstanding during the period. Diluted EPS is determined by
adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary and participating
preference shares outstanding for the effects of all dilutive potential ordinary and participating preference share.
3.26 Segmental reporting
86
A reportable segment is a distinguishable business or geographical component of the group that provides products or services that are
different from those of other segments.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis.
Segment accounting policies are consistent with those adopted for the preparation of the group financial statements. The primary basis
for reporting segment information is business segments and the secondary basis is by significant geographical region, which is based
on the location of assets. The basis is consistent with internal reporting for management purposes as well as the source and nature of
business risks and returns. All intra-segment transactions are eliminated on consolidation.
3
3.27 Government grants
Government grants are not recognised until there is reasonable assurance that the group will comply with the conditions attaching to
them and that the grants will be received.
Government grants are recognised as income over the periods necessary to match them with the costs for which they are intended to
compensate, on a systematic basis. Government grants that are receivable as compensation for expenses or losses already incurred or
for the purpose of giving immediate financial support to the group with no future related costs are recognised in profit or loss in the
period in which they become receivable.
3.28 Judgments made by management
In the application of the group’s accounting policies, the directors are required to make judgments, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions
are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the
revision affects both current and future periods.
The following accounting policies have been identified that involves particularly complex or subjective judgments or assessments:
Asset lives and residual values
Property, plant and equipment is depreciated over their useful lives taking into account residual values, where appropriate. The actual
lives of the assets and residual values are assessed annually and may vary depending on a number of factors.
In re-assessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken
into account.
Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected
disposal values.
Intangible assets
Patents, trademarks and trade and brand names, which are considered to be well established growing brands and product lines are
reviewed on a annual basis to assess the remaining useful lives and residual values.
In re-assessing the remaining useful life of these assets, factors such as expected usage of the intangibles and technical or commercial
obsolescence are taken into account.
Deferred taxation assets are recognised to the extent it is probable that taxable income will be available in future against which they
can be utilised. Five year business plans are prepared annually and approved by the boards of the company and its major operating
subsidiaries. These plans include estimates and assumptions regarding economic growth, interest rates, inflation and competitive forces.
The plans contain profit forecasts and cash flows and these are utilised in the assessment of the recoverability of deferred tax assets.
Deferred tax assets are also recognised on STC credits to the extent it is probable that future dividends will utilise these credits.
Management also exercises judgment in assessing the likelihood that business plans will be achieved and that the deferred tax assets
are recoverable.
Post-employment benefit obligations
Post-retirement defined benefits are provided for certain existing and former employees. Actuarial valuations are based on assumptions
which include employee turnover, mortality rates, the discount rate, the expected long term rate of return of retirement plan assets,
healthcare inflation cost and rate of increase in compensation costs.
Judgment is exercised by management, assisted by advisors, in adjusting mortality rates to take account of actual mortality rates within
the schemes.
87
3
3.28 Judgments made by management (continued)
Warranty claims
Warranties are provided on certain products supplied to customers. Management exercises judgment in establishing provisions required
on the basis of claims notified and past experience.
Impairment of assets
Goodwill is considered for impairment at least annually. Property, plant and equipment, and intangible assets are considered for impairment
if there is a reason to believe that an impairment may be necessary. Factors taken into consideration in reaching such decisions include
the economic viability of the asset itself and where it is a component of a larger economic unit, the viability of that unit itself.
Future cash flows expected to be generated by the assets of a cash generating units are projected, taking into account market conditions
and the expected useful lives of the assets. The present value of these cash flows, determined using an appropriate discount rate, is
compared to the current net asset value and, if lower, the assets are impaired to the present value. The impairment loss is first allocated
to goodwill and then to the other assets of a cash generating unit.
Cash flows which are utilised in these assessments are extracted from formal five year business plans which are updated annually. The
company utilises the CFROI valuation model to determine asset and cash generating unit values supplemented, where appropriate, by
discounted cash flow and other valuation techniques.
Allowance for doubtful debts
The allowances for doubtful debts are based on a combination of specifically identified doubtful debtors and providing for older debtors.
3.29 Sources of estimation uncertainty
88
There are no significant assumptions made concerning the future of other sources of estimation uncertainty that has been identified as giving
rise to a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.
Cost
R’000
4
2009
Accumulated
depreciation
and
impairments
R’000
Net
book
value
R’000
Cost
R’000
2008
Accumulated
depreciation
and
impairments
R’000
Net
book
value
R’000
Property, plant and
equipment
Freehold and leasehold land
and buildings
Investment property
Plant, equipment and furniture
Vehicles
Capitalised leased assets
475 809
–
444 492
89 159
723
(48 104)
–
(269 580)
(45 710)
(56)
427 705
–
174 912
43 449
667
438 826
52
401 292
82 820
640
(40 481)
(27)
(241 249)
(36 240)
(449)
398 345
25
160 043
46 580
191
1 010 183
(363 450)
646 733
923 630
(318 446)
605 184
The registers of land and buildings are open for inspection at the premises of the various companies of the group.
Movement of property,
plant and equipment
Freehold
and
leasehold
land and
buildings
R’000
Plant
equipment
Investment
and
property
furniture
R’000
R’000
Vehicles
R’000
Capitalised
leased
assets
R’000
Net
book
value
R’000
2009
Balance at 1 October 2008
Additions
Transfers
Transfers to intangible assets
Impairment of assets
Translation differences (net)#
398 345
36 298
205
–
–
307
25
–
(25)
–
–
–
160 043
52 656
(180)
(263)
(222)
(562)
46 580
11 443
21
–
–
(773)
191
553
(21)
–
–
–
605 184
100 950
–
(263)
(222)
(1 028)
Disposals
Depreciation
435 155
(290)
(7 160)
–
–
–
211 472
(1 811)
(34 749)
57 271
(1 687)
(12 135)
723
–
(56)
704 621
(3 788)
(54 100)
Net balance at 30 September 2009
427 705
–
174 912
43 449
667
646 733
2008
Additions
Translation differences (net)#
346 893
54 544
2 037
26
–
–
140 756
52 681
1 009
40 862
18 772
435
232
–
–
528 769
125 997
3 481
Disposals
Depreciation
403 474
–
(5 129)
26
–
(1)
194 446
(2 336)
(32 067)
60 069
(3 376)
(10 113)
232
–
(41)
658 247
(5 712)
(47 351)
398 345
25
160 043
46 580
191
605 184
Movement of property,
plant and equipment
89
4
2009
R’000
2008
R’000
(1 745)
717
6 636
(3 155)
(1 028)
3 481
10 185
13 094
Property, plant and equipment (continued)
Translation differences#
Translation differences are made up as follows:
Cost
Accumulated depreciation
Assets with net book value have been encumbered as detailed in note 15
During the current financial year, the group reviewed the estimated useful lives and residual
values of freehold and leasehold land and buildings. This has resulted in a decrease of R84k
in the current year’s depreciation charge and will result in a decrease of R503k in the 2010
financial year.
5
Goodwill
Cost
At 1 October
Translation differences
1 898 141
(4 273)
1 890 208
7 933
At 30 September
1 893 868
1 898 141
Carrying amount
At 30 September
1 893 868
1 898 141
The goodwill was created in terms of the rules around IFRS 3 and represents the difference between the market value and the carrying
value of the assets and liabilities of each cash generating unit at date of corporatisation.
During the financial year, the group assessed the recoverable amount of goodwill, and determined that none of the goodwill associated
with the group’s operations was impaired. The recoverable amounts of the relevant cash generating units was assessed by reference
to value in use. Various nominal discount factors, dependent on the size of and risks associated with each operation, were applied in
the value in use model.
No writedowns of carrying amounts of other assets in the cash generating unit were necessary. The goodwill is included in the segmental
total assets disclosed in the note on segments.
Goodwill has been allocated to the following groups of cash generating units:
Decorative segments
Freeworld Plascon Namibia (Pty) Limited
Freeworld Plascon Botswana (Pty) Limited
Freeworld Plascon Zambia Limited
Freeworld Plascon Malawi Limited
Plascon South Africa (Pty) Ltd
Performance segments
International Colour Corporation (Pty) Limited
Automotive Coatings Group
Midas Paints (Pty) Limited
Hamilton Brands (Pty) Limited
Total group
90
2009
R’000
2008
R’000
1 278 118
12 689
17 264
23 608
1 500
1 219 397
3 660
1 282 391
12 689
17 264
23 608
1 500
1 219 397
7 933
615 750
290 500
246 750
46 000
32 500
615 750
290 500
246 750
46 000
32 500
1 893 868
1 898 141
5
Goodwill (continued)
Goodwill is allocated to groups of cash generating units based on the two business segments.
The group has not recognised any significant intangible assets with indefinite useful lives.
During the current year, all significant recoverable amounts were based on value in use. A discounted cash flow valuation model as well
as a Holt valuation model was applied using five year strategic plans as approved by the board. The financial plans are the quantification
of strategies derived from the use of a common strategic planning process followed across the group. The process ensures that all
significant risks and sensitivities are appropriately considered and factored into strategic plans. Key assumptions are based on industry
specific performance levels as well as economic indicators approved by the executive. These assumptions are generally consistent with
external sources of information.
Cash flows for the terminal value beyond the explicit forecast period of five years is estimated by using economic returns (CFROI)®*, asset
base, growth rate and fade principles. Growth rates are aligned to the long term sustainable level of growth in the economic region in
which cash generating units operate.
Discount rates applied to cash flow projections are based on a country or region specific real cost of capital, dependent upon the location
of cash generating segment operations. The cost of capital is adjusted for size and leverage and other known risks.
The cost of capital rates applied as at September are as follows:
Country
2009
2008
South Africa
6,15%
7,85%
*CFROI (Cash flow return on investment) represents an internal rate of return calculation for the business as a whole using the following components:
®
– Gross cash flow (the after-tax cash flow from the company’s operations consisting of accounting operating profit before depreciation, amortisation
and other non cash items adjusted for the add back of lease costs) (Pmt).
– Recurring annually over the estimated harmonic economic asset life of the asset base (n).
– Working capital and other non depreciating assets (e.g. land) realised at the end of the life (FV).
– Expressed as a return on current inflation adjusted gross assets (both depreciating and non depreciating and including operating leases capitalised
at today’s real interest rate) (PV).
The above definition does not contain all the adjustments processed in the CFROI calculation. For further authoritative reading please refer to the book ‘CFROI
VALUATION’ a Total system approach to Valuing the Firm by Bartley J Madden published by Butterworth – Heinemann Finance (ISBN 0 7506 3865 6).
Cost
R’000
6
2009
Accumulated
depreciation
and
impairments
R’000
Net
book
value
R’000
Cost
R’000
2008
Accumulated
depreciation
and
impairments
R’000
Net
book
value
R’000
Intangible assets
Capitalised software
Brands
Trademarks
Distribution channels
29 668
728 891
67 988
30 277
(17 206)
(28 865)
(3 337)
(12 569)
12 462
700 026
64 651
17 708
17 961
686 100
57 222
73 068
(14 829)
(13 722)
(392)
(10 214)
3 132
672 378
56 830
62 854
856 824
(61 977)
794 847
834 351
(39 157)
795 194
91
6
Distribution
channels
R’000
Net
book
value
R’000
56 830
10 216
–
21 200
–
–
795 194
21 979
263
714 032
–
(14 006)
67 046
–
(2 395)
21 200
–
(3 492)
817 436
(4)
(22 585)
12 462
700 026
64 651
17 708
794 847
2008
Additions
4 740
805
686 100
–
10 000
47 222
66 631
–
767 471
48 027
Amortisation
5 545
(2 413)
686 100
(13 722)
57 222
(392)
66 631
(3 777)
815 498
(20 304)
Net balance at 30 September 2008 as
previously stated
3 132
672 378
56 830
62 854
795 194
Reclassification
Adjusted balance at 30 September 2008
–
3 132
41 654
714 032
–
56 830
(41 654)
21 200
–
795 194
Capitalised
software
R’000
Brands
R’000
2009
Movement of intangible assets
Opening balance
Additions
Transfers from property, plant and equipment
3 132
11 763
263
714 032
–
–
Disposals
Amortisation
15 158
(4)
(2 692)
Trademarks
R’000
Intangible assets (continued)
Intangible assets were acquired at corporatisation as well as during the year.
Capitalised software has a finite life of two years and is amortised on a straight-line basis.
Brands comprise of the various trade names the group supplies the consumers and commercial enterprises and includes the following:
Plascon, Plascon Professional, Crown, Polycell, Midas and Midas Earthcote. Brands are amortised over 50 years. Brands have a remaining
useful life of 48 years (2008: 49 years).
Trademarks are amortised over 20 years. At 30 September 2009, significant trademarks included the Napier and Weathermaster
trademarks. Napier has a remaining useful life of 19 years (2008: 20 years).
Distribution channels were in place for a number of years prior to the corporatisation and are maintained to attract and keep a loyal
customer base. Distribution channels are amortised over periods between 10 and 15 years.
There was a reclassification between distribution channels and brands as a result of the Midas Earthcote and Hamilton Brush brands
being incorrectly included under distribution channels in 2008. This is purely a disclosure issue and has no financial impact.
92
7
2009
R’000
2008
R’000
138 278
43 335
138 278
54 731
Investment
Cost of investment
Share of associates reserves
Beginning of year
Increase in retained earnings for the year:
Profit for the year
Dividends paid
54 731
38 587
8 566
(19 962)
22 359
(6 215)
Carrying value at 30 September
181 613
193 009
Carrying value by category
Unlisted associates – shares at carrying value
181 613
193 009
Valuation of shares
Directors’ valuation of unlisted associate companies
199 851
212 980
Aggregate of group associate companies net assets, revenue and profit
Property, plant and equipment and other non current assets
Current assets
Long term liabilities
Current liabilities
Revenue Profit after taxation
113 879
288 476
(12 687)
(57 402)
668 766
28 148
124 567
466 585
(1 349)
(130 394)
777 285
60 212
Our share of aggregate of group associate companies net assets, revenue and profit
Property, plant and equipment and other non current assets
Current assets
Long term liabilities
Current liabilities
Revenue Profit after taxation
29 839
118 051
(7 917)
(39 198)
255 361
8 566
34 960
186 945
(1 123)
(78 993)
306 122
22 359
* Refer note 33 for a detailed list of associate companies.
*2008 Aggregate of group associate companies net assets, revenue and profit has been grossed up to 100% in terms of IAS 28 requirements.
93
Note
8
2009
R’000
2008
R’000
Amounts receivable under finance leases:
Gross investment
Less: Unearned finance income
256
(23)
640
(103)
Present value of minimum lease payments receivable
233
537
Receivable as follows:
Present value
Within one year (note 12)
Non current portion
135
98
222
315
In the second to fifth year inclusive
98
315
Minimum lease payments
Within one year
In the second to fifth year inclusive
After five years
154
102
–
284
356
–
Less: Unearned finance income
256
(23)
640
(103)
233
537
233
537
8 771
9 203
6 261
2 510
6 301
2 902
787
–
579
124
9 558
9 906
Fair value of finance lease receivables
The finance leases comprise leases of machinery to franchises (3 to 5 years).
The interest rate inherent in the leases is linked to prime less 1% (2008: prime
less 1%). The average effective interest rate contracted is approximately 12%
(2008: 14,5%).The average monthly rentals are R28 567 (2008: R25 088) and
the lessees will acquire the machinery at the end of the lease for R5. The
finance leases are secured by assets leased under lease agreements.
9
Long term loans and receivables
Long term financial assets
Long term loans and advances at amortised cost
– Loans to other entities
– Loans to related parties (directors)
Long term receivable
Other
Total group
9.1
9.1
Loans to related parties
Loans to related parties relate to the Barloworld Share Purchase Scheme. Included in this amount are loans to executives within the
group for the purchase of shares amounting to R2,510k (2008: R2,902k). The loans are secured by pledge of the shares and are
repayable within 10 years of granting of the option or within nine months of death or immediately on ceasing to be an employee, except
in the case of retirement. Interest rates vary in accordance with the terms and provisions of the trust deed and range from 3,17% to
8,5% p.a.
94
2009
R’000
10
2008
R’000
Deferred taxation
Movement of deferred taxation
Opening balances/balances acquired at corporatisation
– deferred taxation assets
– deferred taxation liabilities
25 845
(265 314)
25 520
(264 881)
Net opening balance/balance acquired at corporatisation
Recognised in income statement this year
Rate change adjustment
Accounted for directly in equity
Other movements
(239 469)
1 143
–
171
16 057
(1)
(239 361)
(1 383)
8 709
1 110
(1 952)
(6 592)
Net liability at end of the year
(222 099)
(239 469)
– deferred taxation assets
– deferred taxation liabilities
41 954
(264 054)
25 845
(265 314)
(41)
19 501
11 405
3 121
3 747
4 221
1 032
10 933
8 513
1 164
4 203
–
41 954
25 845
(263 582)
144
(616)
(263 028)
(34)
(2 252)
(264 054)
(265 314)
414
(1 528)
422
1 957
91
(213)
145
(4 256)
1 517
(1 066)
2 277
–
1 143
(1 383)
Analysis of deferred taxation by type of temporary difference
Capital allowances
Provisions and payables
Allowances granted
Effect of tax losses
Retirement benefit obligations
Other temporary differences
Deferred taxation liabilities
Capital allowances
Prepayments and other receivables
Amount of deferred taxation income/(expense) recognised in the income statement
Capital allowances
Prepayments and other receivables
Effect of tax losses
Retirement benefit obligations
Other temporary differences
95
11
2009
R’000
2008
R’000
Raw materials and components
Work in progress
Finished goods
Consumable stores
Other inventories
125 156
22 888
229 127
19 569
1 985
157 928
26 220
255 145
20 340
496
Total inventories
398 725
460 129
The value of inventories has been determined on the following basis:
– First-in first-out and specific identification
– Weighted average
283 908
114 817
327 868
132 261
398 725
460 129
2 508
4 095
3 142
(20 583)
7 352
(22 062)
Trade receivables
Less: Allowance for doubtful debts
Finance lease receivables (note 8)
Fair value of derivatives
– Forward exchange contracts
Other receivables and prepayments
433 455
(11 343)
135
412 275
(6 179)
222
–
51 400
2 072
43 333
Total trade and other receivables
473 647
451 723
Inventories
Inventory pledged as security for liabilities
The secured liabilities are included under amounts due to bankers and short term loans
(note 15).
Amount of write down of inventory to net realisable value and losses of inventory
Inventory provisions included in inventory values above
12
The average credit period on sale of goods is 30 – 75 (2008: 30 – 74,5) days. No interest is charged on the trade receivables overdue.
Specific provisions are used as management assesses each debtor for recoverability.
Before accepting any new customer, the company uses an external credit rating system to assess the potential customer’s credit quality
and defines credit limits by customer. Limits and scoring attributed to customers are reviewed between once or twice a year. Some of
the factors considered is size, feasibility, financial information and security. Of the trade receivables balance at the end of the year,
R57,9 million (2008: R59,4 million) is due from the company’s largest customer. There are no other customers who represent more
than 5% of the total balance of trade receivables.
Included in the company’s trade receivable balances are debtors with carrying amounts of R74,6 million (2008: R61,3 million) which
are past due at the reporting date for which the company has not provided as there has not been a significant change in credit quality
and the amounts are still considered to be recoverable. The company does not hold any collateral over these balances.
96
12
2009
R’000
2008
R’000
Ageing of past due but not impaired
0 – 30 Days
30 – 60 Days
60 – 90 Days
90 Days +
8 696
37 866
12 309
15 691
5 889
39 644
8 189
7 576
Total
74 562
61 298
(6 179)
(8 118)
2 537
417
(6 483)
(253)
524
33
(11 343)
(6 179)
Trade and other receivables (continued)
Credit terms have remained the same however the company has allowed 90 days credit terms
for customers opening new stores or upgrading existing stores.
Movement in the allowance for doubtful debts
Opening balance at beginning of the year
Impairment losses provided on receivables
Impairment losses reversed during the year
Other
Balance at the end of the year
In determining the recoverability of a trade receivable, the group considers any change in the credit quality of the trade receivable from
the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being
large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for
doubtful debts.
Included in the allowance for doubtful debts are individually impaired trade receivables with balances of R492k (2008: R6k) which have
been placed under liquidation. The impairment recognised represents the difference between the carrying amount of these trade
receivables and the present value of expected liquidation proceeds. The group does not hold collateral over these balances.
13
2009
R’000
2008
R’000
Ageing of impaired trade receivables
60 – 90 Days
90 – 120 Days
120 + Days
–
891
11 151
2 975
3 520
3 642
Total
12 042
10 137
36 996
1 459
55 044
16 138
38 455
71 182
8 584
29 871
54 315
16 867
38 455
71 182
Cash on deposit
Other cash and cash equivalent balances
Cash and cash equivalents are comprised as follows:
South African Rand
Foreign currencies
Cash and cash equivalents in foreign currencies include: Botswana Pula, Namibian Dollar, Malawian Kwacha, Zambian Kwacha, Chinese
Yuan and the Australian Dollar.
97
14
2009
R’000
2008
R’000
3 000
3 000
3 000
3 000
2 038
2 038
2 038
2 038
Share premium:
2 581 371
2 581 371
Balance at beginning of year
Cost written off against share premium
Shares issued during the year
2 581 371
–
–
2 416 983
(9 227)
173 615
Total issued share capital and premium
2 583 409
2 583 409
Issued shares:
Total number of shares in issue at beginning of year (’000)
Issued during the year (’000)
203 872
–
181 320
22 552
Total number of shares in issue at end of year (’000)
203 872
203 872
Authorised share capital
Ordinary
300 000 000 ordinary shares of 1c each
Issued share capital
Ordinary
203 871 939 (2008: 203 871 939) fully paid ordinary shares of 1c (2008: 1c) each
The directors do not have authority over unissued shares in terms of section 221 of the Companies Act.
14.1
SHARE INCENTIVE SCHEMES AND SHARE-BASED PAYMENTS
Equity-settled share option schemes
14.1.1 Barloworld Share Option Scheme
Financial effect of share-based payment transactions
2009
R’000
2008
R’000
Share-based payment expense per the income statement
Expense arising from share-based payment transactions
1 426
2 003
Total share-based payment expense
1 426
2 003
13 893
41 995
Balance sheet effect
Net reduction in shareholders’ interest as a result of share-based payment transactions
Equity-settled share options were granted to executive directors and senior executives in terms of the Barloworld Share
Option Scheme.
The options have a total contractual life of 10 years, with the exception of the most recent grant which has a 6 year contractual
life. The options are equity settled and vest one third after three years from the date of grant, a further one third after four
years and the final third after five years.
98
14
Share capital and premium (continued)
Fair value estimates
Barloworld options granted after 7 November 2002 are to be expensed over their vesting period in terms of IFRS2. The estimated fair
value of these options were calculated using a binomial option pricing model with the following inputs:
Date of grant
Number of options granted
Additional options granted
Exercise price (R)
Share price at grant date (R)
Modified price post PPC unbundling
Modified price post Coatings unbundling
Expected volatility (%)
Expected dividend yield (%)
Risk free rate (%)
Exercise multiple (Share price at exercise date/option exercise price)
1 April 2003
26 May 2004
1 July 2007
245 500
66 117
47,50
47,50
25,46
14,59
35,00
5,80
10,40
2,00
257 000
79 676
67,80
67,80
36,35
25,48
35,00
4,30
10,90
2,00
65 291
–
123,88
121,50
–
–
35,00
3,00
8,60
2,00
16,59
25,37
46,41
Estimated fair value per option (R)
Total share options and appreciation rights unexercised
The following Barloworld options or rights granted to directors and executives in terms of the Barloworld Share Option Scheme relating
to their prior employment are unexercised:
Date of grant
Date
from which
exercisable
Expiry date
Contractual
life
remaining
(years)
29 May 00
25 Sep 01
1 Apr 03
26 May 04
12 Jul 07
29 May 03
25 Sep 04
1 Apr 06
26 May 07
12 Jul 10
29 May 10
25 Sep 11
1 Apr 13
26 May 14
12 Jul 13
0,70
2,00
3,50
4,70
3,80
Original
option
price
(R)
Modified
price after
Coatings
unbundling
(R)
Directors
Executives#
36,70
45,70
47,50
67,80
123,88
8,80
13,63
14,59
25,48
n/a
–
–
4 665
12 441
65 291
16 794
16 905
73 424
156 808
–
–
–
–
26 823
–
82 397
263 931
26 823
Number of options
Ceded*
The following options or rights granted to directors and executives in terms of the Barloworld Share Option Scheme relating to the
unbundling of PPC are unexercised:
Date of grant
25 Sep 01
1 Apr 03
26 May 04
Date
from which
exercisable
25 Sep 04
1 Apr 06
Expiry date
Contractual
life
remaining
(years)
Original
option
price
(R)
Modified
price after
Coatings
unbundling
(R)
Directors
25 Sep 11
1 Apr 13
26 May 14
2,00
3,50
4,70
45,70
47,50
67,80
11,43
11,88
16,95
–
–
–
1 856
39 281
98 656
–
–
–
–
139 793
–
Number of options
Executives#
Ceded*
The weighted average share price at the date of exercise for share options exercised during the period was R47,50 and R67,80.
During 2007 65 291 rights were issued in terms of the Barloworld Cash settled Share Appreciation Right Scheme 2007. In terms of
the scheme, no shares are issued and all amounts payable will be settled in cash. As Barloworld confirmed that they will carry the
liability for these cash settled SARs, the rights have been accounted for as equity in the records of Freeworld Coatings.
* In terms of the rules of the Barloworld Share Option Scheme options may be ceded to an approved financial institution.
#The unexercised share options granted to retired directors and employees are included in this column.
99
Number of
options
14
100
Weighted
average
exercise
price (R)
Barloworld share options movement for the year
2009
Options at the beginning of the year
Options lapsed
Options exercised/ceded
405 794
(25 179)
(34 287)
22,38
22,16
25,48
Options unexercised at year end
346 328
22,04
Held by:
Directors and executives
346 328
22,04
346 328
22,04
2008
572 590
(166 796)
20,16
18,82
405 794
22,38
Held by:
405 794
22,38
405 794
22,38
PPC related share options movement for the year
2009
Options lapsed
222 679
(34 022)
(48 864)
15,69
14,83
16,95
139 793
15,46
Held by:
139 793
15,46
139 793
15,46
2008
276 798
(54 119)
15,53
14,89
222 679
15,69
Held by:
222 679
15,69
222 679
15,69
14
14.1.2 Freeworld Coatings Executive Share Schemes 2007
Financial effect of share-based payment transactions
Share-based payment expense per the income statement
2009
2008
Expense arising from share-based payment transactions
3 622
2 784
Total share-based payment expense
3 622
2 784
Balance sheet effect
Net reduction in shareholder’s interest as a result of share-based payment transactions
3 622
2 784
Freeworld Coatings implemented its Share Appreciation Rights Scheme (‘SAR Scheme’) in 2007 to facilitate the implementation
of share based incentive plans for eligible employees. The SAR Scheme provides an eligible employee with a
potential entitlement.
The SARs are exercisable at any time after the vesting period. The number of SARs vesting as well as the vesting periods are
as follows:
– A third of the particular grant after the third anniversary of the grant date;
– A third of the particular grant after the fourth anniversary of the grant date;
– A third of the particular grant after the fifth anniversary of the grant date.
The contractual period of any SAR is the period ending no later than the sixth anniversary of the end of the financial year in
which a particular grant was made.
Fair value estimates
The rights are to be expensed over their vesting period in terms of IFRS 2. The estimated fair value of these rights were
calculated using the Black-Scholes Option pricing model with the following inputs.
Date of grant
31 Jan 08
Number of rights granted
Additional rights granted
Exercise price (R)
Weighted average share price at grant date (R)
Expected volatility (%)
Expected dividend yield (%)
Risk free rate (%)
Exercise multiple (Share price at exercise date/option exercise price)
7 785 344
nil
9,12
9,12
22,10
2,50
8,80
0,93
Estimated fair value per option (R)
3,79
101
14
Total share options and appreciation rights unexercised
The following rights granted to directors and executives are unexercised:
Date of grant
Date from
which
exercisable
31 Jan 08
31 Jan 11
Expiry
date
Contractual
life
remaining
(years)
Option
exercise
price (R)
Directors
Executives
30 Sep 14
6,00
9,12
1 005 263
6 283 852
1 005 263
6 283 852
Number of options
No share appreciation rights were exercised during the year.
Share appreciation rights movement for the year
102
Number
of SARs
Weighted
average
exercise
price (R)
2009
SARs at beginning of the year
SARs lapsed
7 785 344
(496 229)
9,12
9,12
SARs unexercised at year end
7 289 115
9,12
Held by:
Directors
Executives
1 005 263
6 283 852
9,12
9,12
7 289 115
9,12
2008
SARs granted
7 785 344
9,12
SARs unexercised at year end
7 785 344
9,12
Held by:
Directors
Executives
1 005 263
6 780 081
9,12
9,12
7 785 344
9,12
15
2009
R’000
2008
R’000
741 648
667 636
(77 604)
(42 945)
664 044
624 691
Total South African Rand and foreign currency
long term borrowings
Less: Current portion redeemable and
repayable within one year (note 18)
Included above are secured liabilities as follows:
Net book value of assets
encumbered
Liabilities secured
Secured liabilities
Secured loans
South African Rand
Foreign currencies
Liabilities under capitalised finance leases
South African Rand
Foreign currencies
Total secured liabilities
Assets encumbered are made up as follows:
Leased land and buildings
Vehicles purchased as part of finance leases
Inventories (note 11)
2009
R’000
2008
R’000
2009
R’000
2008
R’000
618
7 069
2 261
9 642
1 994
10 176
4 085
12 380
–
597
610
195
–
523
554
170
8 284
12 708
12 693
17 189
7 668
2 517
2 508
8 285
4 809
4 095
12 693
17 189
Unsecured loans
Long term loan with Nedbank Limited with a value of R711 765k (2008: R634 627k), which bears interest at Jibar + 1,3 – 1,95%
(2008: Jibar + 1,6% – 1,95%). The loans are repayable over 7 years.
Long term loan with Makalani Holdings Limited with a value of R21 549k (2008: R21 834k), which bears interest at a variable rate of
76% of the South African prime interest rate. The loan is repayable over 10 years from 2007.
Secured loans
South Africa
Instalment sale obligations are secured over (motor vehicles) with a net book value of R1 994k (2008: R4 085k) and bear interest at
8,5% (2008: 13,5%). The lease terms vary between three and four years.
103
15
Interest bearing liabilities (continued)
Foreign currencies
Secured loans in foreign currencies consists out of the following:
Long term loan with First National Bank which is secured over land and buildings with a net book value of BWP6 661k (2008: BWP7 050k)
and bears interest at 10,5% (2008: 15%). The loan is repayable in monthly installments of BWP163k (2008: BWP163k) over five years.
Long term loan with Nedbank Ltd which is secured over inventory with a net book value of MWK48 223k (2008: MWK69 524k) and bears
interest at 19,5% (2008: 19,5%). The loan is repayable in monthly installments of MWK1 590k (2008: MWK1 590k) over four years.
South African
Capitalised finance leases from Nedbank Limited were repaid during the year. In 2008 these leases were secured over motor vehicles
with a net book value of R554k and bore interest at 15,6% p.a.
Foreign currencies
Capitalised finance leases from Avis Leases Namibia which is secured over motor vehicles with a net book value of N$114k (2008:
N$170k) and bear interest at Namibian prime interest rate 11,5% less 1,5% (2008: Namibian prime interest rate 13,75% less 1,5%)
linked to Namibia money market rates. The loans are repayable in monthly instalments of N$8 205 (2008: N$8 457).
Capitalised finance leases from Microsoft Financing Limited which is secured over computer equipment with a net book value of
AUD 84k (2008: 0) and bear interest at 9,1%. The loans are repayable in monthly instalments of AUD 3k over 3 years.
For details surrounding these future minimum lease payments refer to note 28.
16
2008
R’000
16 237
17 008
21 568
7 800
33 245
29 368
Warranty
claims
R’000
Other
R’000
Provisions
Non current
Current
Total
R’000
2009
Movement of provisions
Balance at the beginning of the year
Amounts recognised during the year
Amounts utilised during the year
Amounts reversed unused
Unwinding of discount on present valued
amounts
Translation adjustments
104
2009
R’000
29 368
5 899
(1 511)
(512)
(535)
536
Leases
R’000
806
406
–
(8)
–
–
Postretirement
benefits
R’000
22 823
1 834
–
(249)
3 407
3 506
(858)
–
2 332
153
(653)
(255)
(535)
–
–
(369)
–
905
Balance at end of year
33 245
1 204
23 873
5 686
2 482
To be incurred
Within one year
Between two to five years
More than five years
17 008
4 263
11 974
332
853
19
8 694
3 224
11 955
5 686
–
–
2 296
186
–
33 245
1 204
23 873
5 686
2 482
16
Provisions (continued)
Total
R’000
Leases
R’000
Postretirement
benefits
R’000
28 422
5 832
(2 892)
(100)
378
443
(15)
–
23 107
1 800
–
(100)
4 937
1 257
(2 877)
–
–
2 332
–
–
(1 984)
90
–
–
(1 984)
–
–
90
–
–
Balance at end of year
29 368
806
22 823
3 407
2 332
To be incurred
Within one year
Between two to five years
More than five years
7 868
2 821
18 679
46
739
21
2 083
2 082
18 658
3 407
–
–
2 332
–
–
29 368
806
22 823
3 407
2 332
2008
Movement of provisions
Amounts recognised during the year
Amounts utilised during the year
Amounts reversed unused
Unwinding of discount on present valued
amounts
Translation adjustments
Warranty
claims
R’000
Other
R’000
Post-retirement benefits
The provisions comprise mainly post-retirement benefits for some existing and former employees. An actuarial valuation is used
to determine the value of the provision where necessary. The most recent valuation of the obligation were carried out as at
30 September 2009 by Alexander Forbes. The present value of the obligation, and the related current service cost and past service
cost, were measured using the Projected Unit Credit Method prescribed by IAS 19. The actuarial valuation is based on assumptions
which include health care inflation rate, discount rates and the expected retirement age.
Warranty claims
The provisions relate principally to warranty claims on paint sales. The estimate is based on claims notified and past experience.
Leases
The provision is to account for operating lease agreements in terms of IAS 17 that requires that lease payments should be recognised
on the straight line basis over the term of the lease agreement and not when the operating lease payments are made.
105
17
2009
R’000
2008
R’000
408 914
17 919
–
475 893
680
843
426 833
477 416
Fair value of derivatives
Bills of exchange
The group has negotiated favourable terms with suppliers, which enable the group to utilise its operating cash flow to full effect. The
suppliers’ age analysis is reviewed by management on a regular basis to ensure that credit terms are adhered to and suppliers are
paid when due.
Details on Financial risk management can be found on note 31.
18
2008
R’000
7 753
120 000
77 604
8 119
268 300
42 945
205 357
319 364
202 973
2 384
313 915
5 449
205 357
319 364
Short term loans and bank overdrafts
Bank overdrafts and acceptances
Short term loans
Current portion of long term borrowings (note 15)
Amounts due to bankers and short term loans are comprised as follows:
South African Rand
Foreign currencies
18.1
2009
R’000
Short term loans
Short term loans with Nedbank Limited with a current interest rate of Prime less 1.25% (2008: Jibar + 1.2%), unsecured and repayable
on demand.
18.2
Additional information
2009
R’000
Short term loan and overdraft facilities
Utilised
Available
19
457 991
(163 982)
422 000
(276 419)
294 009
145 581
2 690 840
12 294
30
2 660 514
36 201
29
2 703 164
2 696 744
Revenue
Sale of goods
Rendering of services
Rentals received
106
2008
R’000
20
2009
R’000
2008
R’000
Operating profit is arrived at as follows:
Revenue
Less: Net expenses
2 703 164
2 381 514
2 696 744
2 299 822
Cost of sales
Distribution costs
Administrative costs
Other operating costs
Other operating income
1 573 772
510 853
266 940
69 534
(65 833)
26 248
1 524 707
486 741
275 901
60 486
(32 584)
(15 429)
321 650
396 922
Expenses include the following:
Depreciation (note 4)
Amortisation of intangibles (note 6)
Operating lease charges:
54 100
22 585
19 343
47 351
20 304
14 442
Land and buildings
Plant, vehicles and equipment
13 795
5 548
10 813
3 629
Research and development costs
Administration, management and technical fees paid
Auditors’ remuneration:
8 465
10 525
5 743
7 113
4 457
5 435
5 710
33
5 099
336
10 993
9 474
11 589
10 118
Salaries
Bonuses
Retirement and medical contributions
Car allowances
5 600
2 142
1 046
686
4 670
3 904
863
681
Non executive directors (note 35)
1 520
1 470
Fees
1 520
1 470
24 076
26 650
9 134
8 896
1 874
2 709
1 232
231
11 981
8 734
1 759
2 169
1 772
235
386 307
354 943
41 133
34 892
465
222
1 204
–
Impairment losses recognised on financial assets
5 581
70
Loans and receivables (incl. trade receivables)
5 581
70
(1 008)
2 007
(1 582)
1 618
Operating profit
Audit fees
Fees for other services
Directors’ emoluments paid by holding company
Total directors’ emoluments
Executive directors (note 35)
Key management personnel*
Salaries
Bonuses and incentives
Retirement and medical contributions
Share options
Car allowances
Other benefits
Staff costs (excluding directors’ emoluments and key management personnel)
Amounts recognised in respect of retirement benefit plans:
Defined contribution funds
Loss on disposal of plant and equipment
Impairment losses on property, plant and equipment
Government grants received
Donations
* Key management personnel consist of all members of the executive team that are not on the Freeworld Coatings Limited company board of directors.
107
21
22
2009
R’000
2008
R’000
(Losses)/Gains on financial assets classified as loans and receivables
Gains on financial liabilities at amortised cost
(Losses)/Gains on financial assets/liabilities held for trading
(713)
353
(25 888)
1 351
264
13 814
Total fair value adjustments on financial instruments
(26 248)
15 429
77 821
49 414
153
240
83 785
56 265
168
1 590
Finance costs
Interest paid:
Long term borrowings
Bank and other short term borrowings
Capitalised finance leases
Other
Fair value gains transferred from equity on interest rate swaps designated as cash flow
hedges of floating rate debt
–
125 259
141 808
Interest received
10 358
21 381
Total income from investments
10 358
21 381
Available for sale financial assets
Loans and receivables (including cash and bank balances)
Held to maturity investments
18
10 340
–
–
21 061
108
Investment income earned on non financial assets
10 358
–
21 169
212
10 358
21 381
Total interest paid
23
(2 368)
Investment income earned on financial assets, analysed by category of asset, is as follows:
108
24
2009
R’000
2008
R’000
66 732
(1 529)
87 706
(1 166)
65 203
86 540
1 371
395
1 371
395
Income tax expense
South African normal taxation
Current year
Prior year
Foreign and withholding taxation
Current year
Deferred taxation
Current year
Prior year
Attributable to a change in the rate of income tax
(2 441)
1 298
–
(3 874)
5 257
(8 709)
(1 143)
(7 326)
2 839
2 335
2 839
2 335
68 270
81 944
2009
%
2008
%
Reconciliation of rate of taxation:
South Africa normal taxation rate
Reduction in rate of taxation
28,0
(3,9)
28,0
(6,6)
Exempt income
Unprovided temporary differences
Rate change adjustment
Tax losses of prior periods
Special deductions
Prior year taxation
(1,7)
–
–
(1,4)
(0,1)
(0,7)
(0,5)
(0,8)
(3,1)
(1,5)
–
(0,7)
Increase in rate of taxation
8,9
8,2
Disallowable charges
Unprovided temporary differences
Foreign tax differential
Current year tax losses not utilised
Prior year taxation
Capital gains
Secondary taxation on companies
2,8
0,1
0,2
3,1
0,6
0,7
1,4
2,4
0,6
0,1
2,1
2,2
–
0,8
33,0
29,6
Current year
Total group
Taxation
Deferred taxation as well as normal taxation was calculated at 28% (2008: 28%) for all South African entities.
109
24
25
2009
R’000
2008
R’000
Group tax losses and STC credits at the end of the year:
South African – taxation losses
South African – unutilised STC credits
Foreign – taxation losses
5 828
25
33 102
12 919
6 215
14 012
Utilised to reduce deferred taxation liabilities or create deferred taxation assets
38 955
(5 761)
33 146
–
Losses on which no deferred taxation assets raised due to uncertainty regarding utilisation
33 194
33 146
20 386
–
10 195
30 581
3 163
20 387
20 387
1 528
33 744
21 915
Attributable interest in the aggregate amount of profits and losses of subsidiaries,
after taxation, including associate companies
Less: Dividends received from subsidiaries
148 973
(6 918)
277 090
(65 111)
Freeworld Coatings Limited shareholders’ interest
142 055
211 979
Weighted average number of ordinary shares
203 872
201 136
Fully converted weighted average number of shares
203 872
201 136
Profit for the year attributable to equity holders of Freeworld Coatings Limited
142 055
211 979
Total earnings
142 055
211 979
203 872
70
201 136
105
203 872
70
201 136
105
Income tax expense (continued)
Dividends
Ordinary shares
Final dividend no 2 paid on 19 January 2009: 10 cents per share (2008: nil)
Interim dividend no 3 paid on 22 June 2009: 5 cents per share
(2008: no 1 – 10 cents per share)
Paid to Freeworld Coatings Limited shareholders
Paid to minorities of Freeworld Coatings Limited
An ordinary dividend of 7 cents per share is payable in January 2010.
26
Freeworld Coatings Limited shareholders’ attributable interest
in subsidiaries
27
Earnings per share
27.1
Fully converted weighted average number of shares
27.2
Earnings
Earnings per share (cents)
Basic
Diluted
The share appreciation rights are anti-dilutive as they do not result in a decrease of earnings per share.
110
2009
R’000
2008
R’000
Profit for the year attributable to Freeworld Coatings Limited shareholders
Adjusted for the following
– Share of profit on sale of associate’s assets
– Impairment of investments
– Impairment of property, plant and equipment
– Loss on disposal of plant and equipment and intangible assets
– Other
Tax effect of above
142 055
211 979
Headline earnings
139 675
212 906
Weighted average number of shares in issue for the year
203 872
201 136
Headline earnings per share – basic (cents)
69
106
Headline earnings per share – diluted (cents)
69
106
25 628
7 304
51 913
24 503
32 932
76 416
27
Earnings per share (continued)
27.3
Headline earnings per share
28
(4 000)
–
222
465
7
926
–
83
–
1 204
–
(360)
Commitments
Capital expenditure commitments to be incurred:
Contracted
Approved but not yet contracted
Commitments will be spent substantially during 2010. Capital expenditure will be financed by funds generated by the business, existing
cash resources and borrowing facilities available to the group.
Lease commitments:
2009 Financial year
Operating lease commitments
Land and buildings
Motor vehicles
Other
Lease commitments:
2008 Financial year
Operating lease commitments
Land and buildings
Land and buildings correction*
Motor vehicles
Other
Other correction*
Long term
>5 years
R’000
Medium term
2 – 5 years
R’000
Short term
<1 year
R’000
2009
Total
R’000
50
–
–
13 680
303
2 841
10 183
691
2 687
23 913
994
5 528
50
16 824
13 561
30 435
Long term
>5 years
R’000
Medium term
2 – 5 years
R’000
Short term
<1 year
R’000
2008
Total
R’000
93
–
–
–
–
7 860
9 384
1 049
3 872
396
6 128
2 046
816
2 528
216
14 081
11 430
1 865
6 400
612
93
22 561
11 734
34 388
* A correction of R12 042 has been processed covering all the lease terms as a result of a consolidation error in the operating lease commitments as
stated in the September 2008 financial report.
111
28
Commitments (continued)
Land and building commitments include the following items:
Commitments for the operating and administrative facilities used by the majority the of business segments. The average lease term is
five years. Many lease contracts contain renewal options at fair market rates.
Properties used for office accommodation. Rentals escalate at rates which are in line with the historical inflation rates applicable in the
geographical regions in which there are operations. Lease periods do not exceed five years.
Finance lease commitments:
2009 Financial year
Present value of minimum lease payments
Motor vehicles
Other
Medium term
2 – 5 years
R’000
Short term
<1 year
R’000
2009
Total
R’000
–
–
87
273
70
167
157
440
–
360
237
597
Motor vehicles
Other
–
–
89
288
80
212
169
500
Total including future finance charges
–
377
292
669
Future finance charges
(72)
Present value of lease commitments (note 15)
597
Long term
>5 years
R’000
Medium term
2 – 5 years
R’000
Short term
<1 year
R’000
2008
Total
R’000
–
–
118
416
77
194
195
610
–
534
271
805
Motor vehicles
Other
–
–
118
474
77
271
195
745
Total including future finance charges
–
592
348
940
Finance lease commitments:
2008 Financial year
Present value of minimum lease payments
Motor vehicles
Other
112
Long term
>5 years
R’000
Future finance charges
(135)
Present value of lease commitments (note 15)
805
29
2009
R’000
2008
R’000
11 536
6 255
Contingent liabilities
Guarantees to third parties
Freeworld Coatings Ltd has bank guarantees totalling R5,5 million with Nedbank. (R4 million guarantee for the JBCC nominated principle
building and various other small guarantees relating to SARS Customs Departments, Landlords and Suppliers).
Freeworld Plascon Namibia (Pty) Ltd has agreed to provide surety of R2 million to FNB Namibia for overdraft facilities supported by a
cession over the debtors’ book.
Freeworld Coatings Ltd guarantees its 20% portion of the Valspar corporation bank overdraft. This totals R4 million.
In terms of the Unbundling Agreement, Freeworld Coatings Limited has guaranteed the first A$5 million of any environmental claim
made on Barloworld Limited by the purchaser of the Australian business for a maximum period of 8 years. An environmental insurance
policy is in place in this regards.
Barloworld Plascon Swaziland (Pty) Ltd has a bank guarantee in place for Customs and Excise duties for R25 000.
30 Changes in accounting policy and disclosures
At the date of authorisation of these financial statements the following Statements and Interpretations were in issue but not yet effective
and have not been applied in preparing these financial statements.
IFRS 2 – Share-based payments – vesting conditions and cancellations
The amendments to the standard are effective from 1 January 2009. The amendments to IFRS 2 clarifies the definition of vesting
conditions and provides guidance on the accounting treatment of cancellations by other parties. The adoption is not expected to have
a material impact on the group’s results.
IFRS 3 – Business combinations
The amendments to the standard are effective from 1 July 2009.
The amendments to the standard include:
– a greater emphasis on the use of fair value, potentially increasing the judgment and subjectivity around business combination
accounting, and requiring greater input by valuation experts;
– focusing on changes in control as a significant economic event – introducing requirements to remeasure interests to fair value at
the time when control is achieved or lost, and recognising directly in equity the impact of all transactions between the controlling
and non controlling shareholders not involving a change of control;
– focusing on what is given to the vendor as considerations, rather than what is spent to achieve the acquisition. Transaction costs,
changes in the value of contingent consideration, settlement of pre existing contracts, share-based payments and similar items will
generally be accounted for separately from business combinations and will generally be charged to income; and
– the option to recognise any non controlling interest in the acquiree either at fair value or at the non controlling interest’s proportionate
share of the net identifiable assets of the entity acquired.
The amendments are expected to affect the group’s accounting for business combinations that arise after the date on which the
amendments are adopted.
IFRS 8 – Operating segments
This standard is effective from 1 January 2009, with the restatement of comparatives required. Segment reporting will be made based
on the components of the entity that management monitors in making decisions about operating matters. The adoption is not expected
to have a material impact on the group’s current segmental reporting.
113
30 Changes in accounting policy and disclosures (continued)
IAS 1 – Presentation of financial statements
The revised IAS 1 superseded the 2003 version of IAS 1 and is effective from 1 January 2009. The main change in the revised IAS 1
is the requirement to present all non owner changes in equity either as:
– a single statement of comprehensive income which includes income statement line items; or
– a statement of comprehensive income which includes only non owner equity changes. In addition, an income statement is also
disclosed.
The revised IAS 1 will not impact the results of the group but will impact upon the format of the income statement and the statement
of changes in equity.
IAS 23 – Borrowing costs
The revision is effective for the group from 1 January 2009. IAS 23 Revised eliminates the option of immediate recognition as an expense
of borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset.
The group’s current policy is not to capitalise borrowing costs attributable to the acquisition, construction or production of a qualifying
asset and as such this revision is anticipated to have an effect on the group’s results in future periods.
IAS 27 – Consolidated and separate financial statements
The amendments to this standard are effective for the group from 1 July 2009.
The amendments to IAS 27 require changes in a parent’s ownership interest in a subsidiary that does not result in a loss of control to
be accounted for within equity transactions with owner in their capacity as owners. At the time at which control is lost, a parent shall
derecognise all assets, liabilities and non controlling interest at their carrying amounts. Any retained interest in the former subsidiary
is recognised at its fair value at the date control is lost. A gain or loss on the loss of control is recognised in the profit or loss. The
revised standard also requires an entity to attribute its share of total comprehensive income to the non controlling interest even if this
results in the non controlling interest having a negative balance.
The effect on the financial statements will be due to transactions that result in a loss of control over subsidiaries after the implementation
of the new standard.
IAS 32 and IAS 1 amendments – Financial instruments: Preparation and IAS 1 Presentation of financial
statements – puttable financial instruments and obligations arising on liquidation
The amendments to the standards are effective from 1 January 2009.
The amendments to IAS 32 requires the classification of certain financial instruments and puttable financial instruments that impose
on the issuer an obligation to deliver a pro rata share of the entity only on liquidation as equity. The amendment sets out specific criteria
that are to be met to present the instruments as equity together with related disclosure requirements. This amendment is not expected
to have a significant impact on the group’s results.
IFRIC 15 – Agreements for the construction of real estate
IFRIC 15 is applicable for annual periods beginning on or after 1 January 2009.
IFRIC 15 provides guidance on how to determine whether an agreement for the construction of real estate is within the scope of IAS 11
Construction contracts or IAS 18 Revenue and, accordingly, when revenue from the construction should be recognised.
114
This interpretation is not applicable to the business of the group.
30 Changes in accounting policy and disclosures (continued)
IFRIC 17 – Distribution of non cash assets to owners
IFRIC 17 is applicable for the group for annual periods beginning on or after 1 July 2009.
This interpretation provides guidance on non cash transfers to owners. Notably, it provides guidance on the following issues:
– a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity.
– an entity should measure the dividend payable at the fair value of the net assets to be distributed.
– an entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in profit
or loss.
– an entity to provide additional disclosures if the net assets being held for distribution to owners meet the definition of a discontinued
operation.
This interpretation is not expected to have a significant impact on the group.
IFRIC 18 – Transfers of assets from customers
IFRIC 18 is applicable for the group for annual periods beginning on or after 1 July 2009.
This Interpretation applies to the accounting for transfers of items of property, plant and equipment by entities that receive such
transfers from their customers.
This interpretation is not expected to have an impact on the group.
General Amendments
On 22 May 2008, the International Accounting Standards Board (IASB) issued its latest Standards, titled Improvements to International
Financial Reporting Standards 2008. The Standard included 35 amendments to various Standards.
Annual period
beginning on or after
Standard
IFRS 1
IFRS 5
IAS 1
IAS 16
IAS 19
IAS 20
IAS 27
IAS 28
IAS 29
IAS 31
IAS 32
IAS 36
IAS 38
IAS 39
IAS 40
IAS 41
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
First time Adoption of International Financial Reporting Standards
Non-current Assets held for sale and Discontinued Operations
Presentation of Financial Statements
Property, Plant and Equipment
Employee Benefits
Accounting for Government Grants and Disclosure of Government Assistance
Consolidated and Separate Financial Statements
Investment in Associates
Financial Reporting in Hyperinflationary Economies
Interests in Joint Ventures
Financial Instruments – Presentation
Impairment of Assets
Intangible Assets
Financial Instruments – Recognition and Measurement
Investment Property
Agriculture
1 January 2009
1 July 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
T he group is in the process of evaluating the effects of these improvements and, whilst they are not expected to have a significant
impact on the group’s results, additional disclosures may be required.
115
31
Financial risk management
31.1 Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and
the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instruments
are disclosed in note 3 to the financial statements.
31.2 Categories of financial Instruments
Financial assets
Fair value through profit or loss
– Held for trading
Loans and receivables (including cash and cash equivalents)
Financial assets pledged as security
Financial liabilities
Fair value through profit or loss
– Held for trading
Derivative instruments in designated hedge accounting relationships
Financial liabilities at amortised cost
2009
R’000
2008
R’000
–
521 758
2 072
531 054
521 758
533 126
10 961
–
8 648
13 357
1 278 315
680
–
1 421 471
1 300 320
1 422 151
31.3 Financial risk management objectives
Exposure to currency, interest rate, liquidity and credit risk arises in the normal course of the group’s business.
The 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. Further quantitative disclosures are included throughout
these consolidated financial statements.
The board of directors has overall responsibility for the establishment and oversight of the group’s risk management framework. The
board is supported by the audit committee of the board, who reviews the internal control environment and risk management system
within the group. The committee reports regularly to the board of directors on its activities.
A treasury function provides treasury and related services to the group, including access to local money markets and the managing of
various risks relating to the group’s operations. These risks are managed and a finance committee consisting of senior executives of
the group meets on a regular basis to analyse currency and interest rate exposure and to re-evaluate treasury management strategies
in the context of most recent economic conditions and forecasts.
The group uses a number of derivative instruments that are transacted for risk management purposes only. The group does not trade
in financial instruments for speculative purposes.
116
31
Financial risk management (continued)
31.4 MARKET RISK MANAGEMENT
The group’s activities expose it primarily to risk fluctuations in foreign currency exchange rates and interest rate risk. The group enters
into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including:
– foreign exchange forward contracts to manage exchange risk arising on foreign denominated transactions.
Market risks are measured using sensitivity analysis. A sensitivity analysis shows how profit before taxation and equity would have been
affected by changes in the relevant risk variable that were reasonably possible at reporting date.
There has been no change in the group’s exposure to market risks or the manner in which it manages and measures the risk.
Foreign currency risk
The group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise.
Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts.
The following table represents the extent to which the group has monetary assets and liabilities in currencies other than the group
companies local currency.
The information is shown inclusive of the impact of forward contracts to hedge foreign currency exposures.
Net foreign currency monetary assets/(liabilities)
Currency of assets/(liabilities)
British
Australian
Sterling US Dollar
Dollar
R’000
R’000
R’000
Other
African
Other
currencies currencies
R’000
R’000
SA Rand
R’000
Euro
R’000
(777 853)
–
–
(8 085)
–
(8 242)
–
–
–
–
(123)
–
–
–
–
128 909
6 062
(5 269)
(212)
–
5 497
–
(1 612)
–
789
–
–
–
21 804
–
(177) (651 990)
–
6 062
–
(6 881)
–
13 507
5 503
6 292
As at 30 September 2009 (785 938)
(8 242)
(123)
129 490
4 674
21 804
5 326 (633 009)
SA Rand
US Dollar
(823 233)
–
(9 899)
–
(84)
93 147
– (126 476)
5 781
(17 943)
–
131 396
(224) (734 512)
(52) (13 075)
As at 30 September 2008 (823 233)
(9 899)
(84)
(12 162)
131 396
(276) (747 587)
Functional currency of
group operation:
SA Rand
US Dollar
Australian Dollar
Other African currencies
Other currencies
(33 329)
Total
R’000
117
31
Foreign currency sensitivity analysis
The group is exposed to the following currencies: US Dollar, Euro, Australian Dollar, Japanese Yen, Chinese Yuan, Botswana Pula, Zambian
Kwacha and Malawian Kwacha. The British Pound, Japanese Yen and Chinese Yuan being small in quantum, have been combined under
“other” while the Pula, Zambian Kwacha and Malawian Kwacha have been combined under “Other African currencies”.
The following table details the group’s sensitivity to a 5% increase and decrease in the Rand against the relevant foreign currencies.
5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s
assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign
currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates.
A positive number below indicates an increase in profit and other equity where the functional currency (SA Rand) strengthens 5%
against the relevant currency. For a 5% weakening of the functional currency (SA Rand) against the relevant currency, there would be
a decrease in profit and other equity and the balances below would be negative.
Net foreign currency monetary assets/(liabilities)
Currency of assets/(liabilities)
SA Rand
R’000
Euro
R’000
British
Sterling
R’000
Other
Australian
African
Other
US Dollar
Dollar currencies currencies
R’000
R’000
R’000
R’000
Total
R’000
Functional currency of
group operation:
SA Rand
US Dollar
Japanese Yen
Other African currencies
Other currencies
–
–
–
(404)
–
(412)
–
–
–
–
(6)
–
–
–
–
6 445
303
(263)
(11)
–
275
–
(81)
–
39
–
–
–
1 090
–
(9)
–
–
–
275
6 293
303
(344)
675
315
As at 30 September 2009
(404)
(412)
(6)
6 475
234
1 090
266
7 242
SA Rand
US Dollar
–
–
(495)
–
(4)
–
4 657
(6 324)
289
(897)
–
6 570
(11)
(3)
4 436
(654)
As at 30 September 2008
–
(495)
(4)
(1 666)
(608)
6 570
(14)
3 782
Forward foreign exchange contracts
It is the policy of the group to enter into forward foreign exchange contracts to cover specific foreign currency payments and receipts.
The group also enters into forward foreign exchange contracts to manage the risk associated with anticipated foreign purchase transactions
and sales. Basis adjustments are made to the carrying amounts of non financial hedged items when the anticipated sale or purchase
transaction takes place.
118
31
The following table details the forward exchange contracts outstanding as at the reporting date:
2009
Average
exchange Foreign Contract
rate currency
value
2008
Fair
value
Average
exchange
rate
Foreign
currency
Contract
value
Fair
value
Outstanding contracts
Contracts bought
Australian Dollars
Less than 3 months
3 – 6 months
6,55
6,65
308
500
2 017
3 325
2 057
3 388
–
–
–
–
–
–
–
–
US Dollar
Less than 3 months
3 – 6 months
Greater than 6 months
8,31
8,22
8,34
5 274
3 422
846
43 816
28 127
7 059
40 271
26 653
6 671
8,09
7,83
–
5 129
1 700
–
41 485
13 303
–
43 309
14 358
–
Euro
Less than 3 months
3 – 6 months
11,62
11,49
5 710
4 391
66 378
50 466
63 535
49 795
12,69
12,01
3 886
2 750
49 316
33 035
46 822
33 146
British Pound
Less than 3 months
3 – 6 months
13,44
12,13
16
30
215
364
201
371
16,31
–
36
–
587
–
541
–
Japanese Yen
Less than 3 months
3 – 6 months
11,65
–
11 587
–
995
–
992
–
13,17
–
13 484
–
1 024
–
1 084
–
Contracts sold
Australian Dollars
Less than 3 months
3 – 6 months
6,51
6,46
719
417
4 687
2 697
4 786
2 790
6,97
–
834
–
5 848
–
5 584
–
US Dollar
Less than 3 months
3 – 6 months
7,77
7,55
421
26
3 281
197
3 184
200
8,19
–
371
–
3 023
–
3 100
–
Euro
Less than 3 months
3 – 6 months
11,17
–
470
–
2 931
–
2 811
–
11,99
–
210
–
2 518
–
2 489
–
119
31
Interest rate management
The group is exposed to interest rate risk as entities in the group borrow funds at both fixed and floating rates. The risk is managed by
the group by maintaining an appropriate mix between fixed and floating rate borrowings.
The group’s interest rate profile can be summarised as follows:
Year of
redemption/
repayment
Interest
rate (%)
2009
R’000
2008
R’000
2010
2013
19,5
10,5
2011
2011
10,0
9,1
810
6 259
–
157
440
1 728
7 914
4 063
195
–
7 666
13 900
618
861 117
–
2 261
927 284
610
Total South African Rand financial liabilities
861 735
930 155
Total South African Rand and foreign
currency financial liabilities
869 401
944 055
Loans at fixed rates of interest
Loans linked to variable rates
6 259
863 142
7 914
936 141
869 401
944 055
3 449
13 968
12 454
–
14 679
2 188
29 871
16 867
8 584
233
54 315
537
8 817
54 852
Total South African and foreign currency
financial assets
38 688
71 719
Interest rates
Loans granted and bank deposits at
variable rates of interest
38 688
71 719
38 688
71 719
Currency
Financial liabilities in foreign currency
Secured loans
Unsecured loans
MKW
BWP
AUD
NAD
AUD
Total foreign financial liabilities
Financial liabilities in South African Rand
Secured loans
Unsecured loans
Financial assets
Financial assets in foreign currency
Bank deposits
2010
2014
2011
USD
Other Africa
Other
–
–
–
13,5
(8,821 – 9,917)
15,6
–
–
–
Total foreign currency financial assets
Financial assets in South African Rand
Bank deposits
Finance leases
Total South African financial assets
120
–
2010 – 2013
5,5
10
31
Interest rate derivatives
In order to minimise the risk on two R150 million loans from a bank, the group has entered into interest rate swaps (Effective date:
1 November 2008), which swaps out the floating six month Jibar# interest rate for fixed interest rates.
The interest rate swaps are designated as cash flow hedges in order to reduce the group’s cash flow exposure resulting from the
variable interest rate borrowings. The interest rate swaps and the interest rate payments on the loan occur simultaneously and the
amount is deferred in equity until it is recognised in profit and loss over the period that the floating rate interest payments on debt
impact profit or loss.
As at September 2009, the group had two interest rate swap contracts. Details are as follows:
Fair value gain/(loss)
recognised in equity
Designated cash flow hedge interest
rate swap contract
Designated cash flow hedge interest
rate swap contract
Notional
(000’s)
Interest
rate %
Maturity
date
ZAR
150 000
10,85%/Jibar
01 Nov 10
(6 976)
–
ZAR
150 000
10,91%/Jibar
01 Nov 10
(6 381)
–
(13 357)
–
(4 086)
(9 271)
–
–
(13 357)
–
Total
Non current
Current
Total
#
2009
Rm
Currency
2008
Rm
Jibar – Johannesburg inter-bank acceptance rate.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and non derivative
instruments at the balance sheet date. For floating rate instruments, the analysis is prepared assuming the amount of the instrument
outstanding at the balance sheet date, was outstanding for the whole year.
A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents
managements assessment of the reasonably possible change in interest rates.
Changes in prevailing market interest rates are based on economic forecasts as published by Reuters.
A positive number below indicates an increase in profit before taxation if interest rates were higher by the basis points indicated below
in a net financial position.
A negative number below indicates a decrease in profit before taxation if interest rates were higher by the basis points indicates below
in a net financial liability position.
121
31
If interest rates were lower by the basis points indicated below, there would be an equal and opposite impact on the profit before
taxation.
RSA prime rates
– Basis point increase
– Profit before taxation (R’000)
50bps
507
Jibar
50bps
1 985
Botswana prime rate
50bps
31
31.5 Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group. The
group has adopted a policy of only dealing with credit worthy counterparties and obtaining sufficient collateral, where appropriate, as
a means of mitigating the risk of financial loss from defaults. The group only transacts with entities that are rated the equivalent of
investment grade and above. This information is supplied by independent rating agencies where available and, if not available, the group
uses other publicly available financial information. The group’s exposure and the credit rating of its counterparties are continuously
monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled
by counterparty limits that are reviewed and approved by the credit committee annually.
Financial assets, which potentially subject the group to credit risk, consist principally of cash and cash equivalents, short term deposits,
derivative contracts, loans and trade and other receivables, including finance lease receivables.
Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements, which is net
of impairment losses, represents the group’s maximum exposure to credit risk without taking into account the value of any
collateral obtained.
2009
R’000
2008
R’000
Financial assets
521 758
533 126
The maximum credit exposure for financial assets for the year ended by type of customer was:
Industry
Government
Consumers
Other
455 918
833
16 896
9 656
411 904
7 077
32 742
10 220
The group limits its exposure to financial institutions by placing cash and cash equivalents, derivative instruments and short term
deposits only with high credit quality financial institutions. The group does not have any significant credit risk exposure to trade and
other receivables as the group has a large number of customers comprising the customer base. The group has policies in place that
require that appropriate credit checks on potential customers be made before sales commence. Credit risk is managed by limiting the
aggregate amount of exposure to any one counterparty. Some of the operations also have credit insurance through CGIC in place.
122
31
31.6 Liquidity risk management
Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due.
Ultimate responsibility for liquidity risk management rests with the board of directors, which has policies and procedures in place, for
the management of the group’s short, medium and long term funding and liquidity management requirements. The group manages
liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast
and actual cash flows and matching the maturity profiles of financial assets and liabilities.
The following table details the groups remaining contractual maturity for its non derivative financial liabilities. The tables have been
drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the group can be required
to pay. The table includes both interest and principal payments.
The maturity profile of the financial instruments is summarised as follows:
<1 year
R’000
2 – 4 years
R’000
>4 years
R’000
Total
R’000
2009
Other non interest bearing liabilities
Amounts due to bankers and short term borrowings
77 604
–
426 833
127 753
327 496
4 086
–
–
336 548
–
–
–
741 648
4 086
426 833
127 753
2008
Amounts due to bankers and short term borrowings
42 945
477 416
8 119
141 880
–
268 300
482 810
–
–
667 635
477 416
276 419
The following table details the group’s liquidity analysis for its derivative financial instruments. The table has been drawn up based
on the undiscounted net cash inflows/outflows on the derivative instruments that settle on a gross basis.
<1 year
R’000
2 – 4 years
R’000
>4 years
R’000
Total
R’000
2009
Gross settled
Foreign exchange forward contracts
188 971
–
–
188 971
2008
Gross settled
Foreign exchange forward contracts
150 139
–
–
150 139
123
31
31.7 Fair value of financial assets and liabilities
The fair value of financial assets and liabilities are determined as follows:
The fair values of financial assets and liabilities, together with the carrying amounts are shown in the balance sheet as follows:
30 Sep 09
Carrying
amount
R’000
30 Sep 09
Trade and other receivables, including derivatives
Other long term financial assets
Trade and other payables, including derivatives
Bank borrowings and short term loans
Interest bearing loans
30 Sep 08
Fair value
R’000
30 Sep 08
Carrying
amount
R’000
473 647
38 455
98
9 558
473 647
38 455
98
9 558
451 723
71 182
315
9 906
451 723
71 182
315
9 906
426 833
205 357
664 044
426 833
205 357
664 044
477 416
319 364
624 691
477 416
319 364
624 691
Fair value
R’000
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it
is practicable to estimate that value:
Cash and short term investments
The carrying amount approximates the fair values due to the short term maturity of those instruments.
Trade receivables/Trade payables
The carrying amount approximates the fair values due to the short term maturity of those instruments.
Derivatives
The fair value of foreign exchange contracts are marked to market by comparing the contracted forward rate to the present value of
the current forward rate of an equivalent contract with the same maturity date.
Fixed interest rate instruments are fair valued based on the present value of future principal and interest cash flows, discounted at the
market rate of interest at the reporting date.
124
31
31.8 Capital disclosures
The group manages its capital to ensure that entities in the group will be able to continue as a going concern while maximising return
to shareholders.
The capital structure of the group consists of debt, cash and cash equivalents and adjusted equity.
The group monitors capital on the basis of debt to equity. The ratio is calculated as net debt to adjusted equity.
Net debt comprises interest bearing debt, shareholder loans, outside shareholder’s loans, any other long term liabilities, shareholder
for dividends, secondary tax on companies (“STC”) payable and cash and cash equivalents.
Adjusted equity comprises share capital, distributable reserves, non distributable reserves less minority interest.
The group reviews its net debt objectives on a semi-annual basis to ensure objectives are being met.
The net debt to equity ratio at year end was as follows:
2009
R’000
2008
R’000
Debt
869 401
(38 455)
944 055
(71 182)
Net debt
830 946
872 873
2 879 064
2 776 263
%
%
29
31
Adjusted equity
Net debt to adjusted equity ratio
There were no changes in the group’s objectives, policies or processes for managing capital.
The group is not exposed to externally imposed capital requirements, other than the debt covenants from Nedbank Limited.
Note – Certain of the comparative figures have been adjusted to reflect the corrected interpretation of financial assets and liabilities. None of the adjustments
are material.
125
32
Principal subsidiary companies
Company name
Freeworld Coatings South Africa (Pty) Limited
Freeworld Coatings Global (Pty) Limited
Freeworld Coatings CMA (Pty) Limited
Plascon Property Holdings (Pty) Limited
Freeworld Coatings Capital (Pty) Limited
Plascon Cape (Pty) Limited
Plascon Coastal (Pty) Limited
Plascon South Africa (Pty) Limited
International Colour Corporation (Pty) Limited
Hamilton Brands (Pty) Limited
Prostart Investments 93 (Pty) Limited
Midas Coatings Group (Pty) Limited
Midas Paints (Pty) Limited
Barloworld Plascon Swaziland (Pty) Limited
Freeworld Automotive Coatings (Pty) Limited
Freeworld Coatings Australia (Pty) Limited
Foresston Limited
Freeworld Coatings Mauritius (Pty) Limited
Freeworld Coatings (Shanghai) Co., Limited
Freeworld (Shanghai) Coatings Trading Co., Limited
Freeworld Plascon Botswana (Pty) Limited
Freeworld Plascon Malawi Limited
Freeworld Plascon Namibia (Pty) Limited
Freeworld Plascon Zambia Limited
126
Date of
name
change
06/02/2008
06/02/2008
06/02/2008
06/02/2008
06/02/2008
08/02/2008
08/02/2008
05/02/2008
06/02/2008
19/02/2008
18/02/2008
20/09/2008
03/04/2008
04/04/2008
21/02/2008
05/03/2008
Registration
number
Type
Country of
incorporation
2007/023790/07
2007/024684/07
1922/014245/07
1920/002108/07
2007/027508/07
1948/029629/07
1967/005384/07
1945/019549/07
1991/002191/07
1936/008617/07
2001/009265/07
2005/041915/07
1989/004153/07
145/1972 – Swaziland
1947/024248/07
A.C.N. 075273595
3609010 – Hong Kong
074472 – CI/GBL
39495 – Shangai
42551 – Shangai
83/4542 – Botswana
5989 – Malawi
12/10264 – Namibia
38753 – Zambia
H
O
H
O
O
O
O
O
O
O
H
H
O
O
O
O
H
H
O
O
O
O
O
O
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
Swaziland
South Africa
Australia
Hong Kong
Mauritius
China
China
Botswana
Malawi
Namibia
Zambia
Keys to type of subsidiary
H– Holding companies
O– Operating companies
Any material changes which have taken place during the year are dealt with in the appropriate operational reviews.
* A full list of subsidiaries is available from the company’s registered office of the company.
Effective percentage
holding
Interest of holding
company at cost/
valuation
Indebtedness
Amounts owing to
subsidiaries
Currency
Issued capital
local currency
amount
2009
%
2008
%
2009
R’000
2008
R’000
2009
R’000
2008
R’000
2009
R’000
2008
R’000
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
AUD
HKD
US$
RMB
RMB
BWP
MKW
NAD
ZMK
1 248
100
12 752
36 000
976 005
9 312
10 000
42 000
1 398
100 000
100
100
4 000
2
800 000
35 454 783
66 295 000
19 409 974
9 525 291
6 678 775
100 000
100 000
100
1 747 553 000
100
100
100
100
100
100
100
100
100
100
70
100
100
100
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
100
100
100
100
70
100
100
100
100
100
100
100
100
100
100
51
100
100
1 247 972
1 247 972
179 120
64 527
976 005
10 283
15 421
25 726
383 883
44 092
136 084
93 867
5 002
179 120
64 527
976 005
10 283
15 421
25 726
383 883
44 092
136 084
93 867
5 002
239 708
6
6 926
142 057
3 078
4 787
26 331
5 594
31 916
41 872
239 708
6
31 371
106 065
4 837
988
26 331
5 594
31 916
41 872
906 362
633
–
–
–
–
–
–
–
42 000
–
93 867
–
–
–
–
–
–
–
–
–
–
–
–
964 982
–
–
–
–
–
–
–
–
65 646
–
93 867
–
–
–
–
–
–
–
–
–
–
–
–
1 099
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31 848
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3 684 257
3 670 670
1 042 862
1 124 495
1 099
31 848
127
33
Investment in associate companies
Investor company/associate
Principal products or activities
DuPont Freeworld (Proprietary) Limited
International Paints (Proprietary) Limited
Sizwe Paints (Proprietary) Limited
Valspar (SA) (Proprietary) Limited
Automotive coatings
Industrial coatings
Decorative paint distributor
Can coatings manufacturer
Issued
share
capital
R’000
21
20
1
17
Percentage held by investors
2009
2008
49
49
30
20
49
49
30
20
All companies are incorporated in (or operate principally in) the Republic of South Africa.
34
Related party transactions
Various transactions are entered into by the company and its subsidiaries during the year with related parties. Unless specifically
disclosed these transactions occurred under terms that are no less favourable than those entered into with third parties. Intra-group
transactions are eliminated on consolidation.
The following is a summary of other transactions with related parties during the year and balances due at year end:
Associates of the group
Goods and services sold to
Sizwe Paints (Pty) Limited
International Paints (Pty) Limited
Valspar (SA) (Pty) Limited
DuPont Freeworld (Pty) Limited
Goods and services purchased from
DuPont Freeworld (Pty) Limited
Leasing, finance arrangements & other transactions with related parties
Other transactions
Management fees received from associates
Amounts due from related parties as at end of year*
DuPont Freeworld (Pty) Limited (Herberts)
Sizwe Paints (Pty) Limited
128
2009
R’000
2008
R’000
28 054
41 552
–
76 696
25 189
37 827
292
76 030
146 302
139 338
2 256
–
4 676
1 930
40
1 652
6 932
3 622
1 050
1 888
910
1 509
2 938
2 419
6 614
6 123
6 614
6 123
7 578
2 990
25 109
679
4 058
4 060
23 368
95
36 356
31 581
34
Related party transactions (continued)
Terms on outstanding balances
Unless otherwise noted, all outstanding balances are payable within 30 days, unsecured and not guaranteed.
Associates and joint ventures
Details of investments in associates are disclosed in note 7 and 33.
Income from associates is disclosed on the income statement.
Subsidiaries
Details of investments in subsidiaries are disclosed in note 32.
Directors
Details regarding directors’ remuneration and interests are disclosed in note 35.
Transactions with key management and other related parties (excluding directors)
Details regarding key management remuneration are disclosed in note 20.
Other than in the normal course of business, there have been no significant transactions during the year, except for a settlement that
has been reached with Akzo Nobel (R29,2 million) in respect of compensation for the loss of income and stranded costs arising from
the early termination of the protective coatings license agreement with International Paint Limited and the termination of the marine
coatings toll manufacturing agreement with International Paint (Pty) Limited and our share of profit on sale of a portion of an associate’s
asset (R4 million).
Shareholders
A significant shareholder of the company is VVT Infrastructure Investments who holds 18.86% of the total share capital of the company.
* There are no doubtful debt provisions raised in respect of amounts due to/from related parties and no bad debts incurred during the year on these balances.
35
Directors’ emoluments
The directors’ remuneration for the year ended 30 September 2009 was as follows:
Barloworld
share
options
exercised^
R’000
Salary
R’000
Bonus
R’000
Retirement
and medical
contribution
R’000
2009
Executive directors
AJ Lamprecht
DA Thomas
3 000
2 600
1 663
479
769
277
327
359
5 759
3 715
1 212
–
Total directors’
remuneration
5 600
2 142
1 046
686
9 474
1 212
2008
Executive directors
AJ Lamprecht
DA Thomas
2 500
2 170
2 827
1 077
595
268
273
408
6 195
3 923
2 111
999
Total directors’
remuneration
4 670
3 904
863
681
10 118
3 110
^
Car
allowances
R’000
Total
R’000
T hese amounts relate to the gain made on share options in terms of the Barloworld Share Option Scheme and issued in previous years in terms of
prior employment and exercised or ceded during the year.
129
35
Directors’ emoluments (continued)
RM Godsell
E Links
MM Ngoasheng
B Ngonyama
NDB Orleyn
PM Surgey
DB Ntsebeza
Total directors’ remuneration
Total fees
2009
R’000
Total fees
2008
R’000
350
200
220
260
190
150
150
350
190
200
240
190
150
150
1 520
1 470
Interest of directors in contracts
The directors have certified that they don’t have any material interest in any transaction of any significance with the company or its
subsidiaries. A register detailing directors’ and officers’ interests is available for inspection at the company’s registered office.
Interests of directors of the company in share capital
The aggregate beneficial holdings at 30 September 2009 of the directors of the company and their immediate families (none of which
has a holding in excess of 1%) in the issued ordinary shares of the company are detailed below. There have been no material changes
in these shareholdings since that date. Associates of directors do not hold any shares.
Number of shares at
30 September
130
2009
Direct
2008
Direct
Executive directors
AJ Lamprecht
DA Thomas
110 000
15 884
3 000
15 884
DB Ntsebeza
E Links
MM Ngoasheng
PM Surgey
2 500
2 800
810
106 278
2 500
2 800
810
106 278
35
Interests of directors of the company in share options
The interests of the executive and non executive directors provided in the form of options are shown in the table below:
Share options in Barloworld Limited
Executive directors
AJ Lamprecht
DA Thomas
Executive directors
AJ Lamprecht
DA Thomas*
Number of
options at
30 Sept
2008
Number of
options
granted
during
the year
Number of
options
ceded
during
the year
Number of
options at
30 Sept
2009
65 291
23 334
–
–
–
23 334
65 291
–
2 500
2 165
5 774
6 667
–
–
–
–
–
–
–
–
2 500
2 165
5 774
6 667
105 731
–
23 334
82 397
Number of
options at
30 Sept
2007
Number of
options
granted
during
the year
Number of
options
exercised/
ceded
during
the year
Number of
options at
30 Sept
2008
11 667
10 104
65 291
23 334
–
–
–
–
11 667
10 104
–
–
–
–
65 291
23 334
5 000
4 330
8 660
10 000
–
–
–
–
2 500
2 165
2 886
3 333
2 500
2 165
5 774
6 667
138 386
–
32 655
105 731
Cession
price on day
ceded (R)
Option
price (R)
Date from
which
exercisable
64,18
25,48
12 Jul 10
26 May 07
14,59
14,59
25,48
25,48
1 Apr 06
1 Apr 06
26 May 07
26 May 07
Option
price (R)
Date from
which
exercisable
96,98
98,98
14,59
14,59
64,18
25,48
1 Apr 06
1 Apr 06
12 Jul 10
26 May 07
123,50
123,50
123,50
123,50
14,59
14,59
25,48
25,48
1 Apr 06
1 Apr 06
26 May 07
26 May 07
46,95
Share price
on day
exercised/
cession
price on day
exercised (R)
*After the publication of the prior year results, the company became aware of a misallocation disclosure for options exercised by DA Thomas between
his different tranches of share options in Barloworld Limited.
131
35
Share options or rights in terms of the Barloworld Share Option Scheme relating to the unbundling of Pretoria Portland Cement
(“PPC”)
Executive directors
AJ Lamprecht
Executive directors
AJ Lamprecht
Number of
options at
30 Sept
2008
Number of
options
granted
during
the year
Number of
options
ceded
during
the year
Number of
options at
30 Sept
2009
43 296
–
43 296
–
43 296
–
43 296
–
Number of
options at
30 Sept
2007
Number of
options
granted
during
the year
Number of
options
exercised/
ceded
during
the year
Number of
options at
30 Sept
2008
43 296
–
–
43 296
43 296
–
–
43 296
Cession
price on day
ceded (R)
Date from
Option
which
price (R) exercisable
33,38
16,95
26 May 07
Share price
on day
exercised/
cession
price on day
exercised (R)
Option
price (R)
Date from
which
exercisable
16,95
26 May 07
Share Appreciation Rights in Freeworld Coatings Limited
Executive directors
AJ Lamprecht
DA Thomas
Number of
options at
30 Sept
2008
Number of
options
granted
during
the year
Number of
options
exercised/
ceded
during
the year
Number of
options at
30 Sept
2009
657 895
347 368
–
–
–
–
657 895
347 368
1 005 263
–
–
1 005 263
Number of
options at
30 Sept
2007
Number of
options
granted
during
the year
Number of
options
exercised/
ceded
during
the year
–
–
657 895
347 368
–
1 005 263
Executive directors
AJ Lamprecht
DA Thomas
132
Share price
on day
exercised/
cession
price on day
exercised (R)
Date from
Option
which
price (R) exercisable
–
–
9,12
9,12
31 Jan 11
31 Jan 11
Number of
options at
30 Sept
2008
Share price
on day
exercised/
cession
price on day
exercised (R)
Option
price (R)
Date from
which
exercisable
–
–
657 895
347 368
–
–
9,12
9,12
31 Jan 11
31 Jan 11
–
1 005 263
36 Post retirement benefits
It is the policy of the group to encourage, facilitate and contribute to the provision of retirement benefits for all permanent employees.
To this end the group’s permanent employees are usually required to be members of a contribution driven retirement fund, generally in
the from of a provident fund, depending on local legal requirements.
All employees belong to a defined contribution retirement fund or provident fund in which group employment is a prerequisite for
membership. Only a minority of the funds are located outside of South Africa and accordingly are not subject to the provisions of the
Pension Funds Act of 1956.
Defined contribution plans
The total cost charged to profit or loss of R41 133 000 (2008: R34 892 000) represents contributions payable to these schemes by
the group at rates specified in the rules of the schemes.
Historically, qualifying employees were granted certain post-retirement medical benefits. The obligation for the employer to pay medical
aid contributions after retirement is not part of the conditions of employment for new employees. A number of pensioners and employees
in the group remain entitled to this benefit, the cost of which has been fully provided (note 16).
37 Post balance sheet events
There are no post balance sheet events in terms of IAS 10.
133
Company
balance sheet
at 30 September
2009
R’000
2008
R’000
2
2 604 887
–
2 592 541
1
3
7 124
66 132
2 612 011
2 658 674
2 583 409
25 198
2 583 409
42 720
2 608 607
2 626 129
Current liabilities
3 404
32 545
Current tax payable
2 046
1 358
32 531
14
2 612 011
2 658 674
Notes
Assets
Non current assets
Deferred taxation asset
Current assets
Total assets
Equity and liabilities
Capital and reserves
Retained income
Total equity
Total equity and liabilities
134
4
Company
income statement
Notes
2009
R’000
2008
R’000
Revenue
5
5 125
3 298
Operating profit
6
7
10 288
7 023
49
65 111
Income tax expense
8
17 311
(4 252)
65 160
(2 053)
13 059
63 107
Profit for the year
135
Company
cash flow statement
Notes
2009
R’000
2008
R’000
64 133
(25 322)
(62 834)
29 282
38 811
6 918
105
(2 907)
(33 552)
65 111
–
(2 040)
42 927
(30 581)
29 519
(20 387)
12 346
9 132
Cash flows from operating activities
Cash inflow/(outflow) from customers
Cash (outflow)/inflow from suppliers
Cash generated from/(used in) operations
Dividends received
Interest received
Income tax paid
Cash flow from operations
Dividends paid (including minority shareholders)*
Cash inflow from operating activities
A
B
Cash flows from financing activities
Increase in long term financial assets
Equity loans receivable settled
Additional equity funding
(35 993)
23 647
–
(173 745)
–
164 613
Net cash used in financing activities
(12 346)
(9 132)
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
–
–
–
–
Cash and cash equivalents at end of year
–
–
* The company has no bank accounts and therefore the dividend was paid by Freeworld Coatings Global (Pty) Limited, a wholly owned subsidiary of the company.
136
Notes to the company
cash flow statement
A
2009
R’000
2008
R’000
Adjustments for:
Dividends received
Interest received
17 311
65 160
(6 918)
(105)
(65 111)
–
Operating cash flows before changes in working capital
10 288
49
Movement in working capital
28 523
(33 601)
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
59 008
(30 485)
(66 132)
32 531
38 811
(33 552)
(14)
(4 251)
1 358
–
(2 054)
14
2 907
2 040
Cash generated from operations is calculated as follows:
B Income tax paid
Amounts unpaid less overpaid at beginning of year
Income tax expense (excluding deferred tax)
Amounts unpaid less overpaid at end of year
Cash amount paid
137
Company
statement of changes in equity
Share capital
and premium
R’000
Total retained
income
R’000
Total
equity
R’000
Unbundling restructuring issue of shares (’000)
2 418 796
–
2 418 796
2 418 796
–
2 418 796
–
63 107
63 107
–
–
173 840
(9 227)
63 107
(20 387)
–
–
63 107
(20 387)
173 840
(9 227)
2 583 409
42 720
2 626 129
Profit for the year
–
13 059
13 059
Dividends paid
–
–
13 059
(30 581)
13 059
(30 581)
Profit for the year
Dividends paid
New shares issued during the year
Costs written off against share premium
138
2 583 409
25 198
2 608 607
Notes to the company
annual financial statements
1
2009
R’000
2008
R’000
2 604 887
2 592 541
2 604 887
2 592 541
1 569 149
1 035 738
1 533 156
1 059 385
2 604 887
2 592 541
Unlisted investments opening balance
Share capitalisations
1 533 156
35 993
1 533 156
–
Total carrying value of unlisted investments at end of the year
1 569 149
1 533 156
Valuation of shares
Directors’ valuation of unlisted shares
3 704 427
2 925 204
Intercompany current accounts
Short term loan
Other receivables and prepayments
7 124
–
–
65 111
95
926
Total trade and other receivables
7 124
66 132
Accounting policies
Refer to the group accounting policies on pages 75 to 88.
2
Investments in subsidiaries
Interest in subsidiaries
Shares as originally stated
Amounts owing by subsidiaries
3
All of the above balances are current and none of the above balances are past due nor impaired.
139
Notes to the company annual financial statements continued
4
2009
R’000
2008
R’000
3 000
3 000
3 000
3 000
2 038
2 038
2 038
2 038
Share premium:
2 581 371
2 581 371
Balance at beginning of year
Cost written off against share premium
Shares issued during the year
2 581 371
–
–
2 416 983
(9 227)
173 615
Total issued share capital and premium
2 583 409
2 583 409
Issued shares:
Total number of shares in issue at beginning of year (’000)
Issued during the year (’000)
203 872
–
181 320
22 552
Total number of shares in issue at end of year
203 872
203 872
5 125
3 298
5 125
3 298
5 125
5 163
3 298
(3 249)
Other operating costs
Other operating income
(5 054)
10 217
(3 249)
–
Operating profit
10 288
49
2 858
659
844
443
659
443
1 520
1 470
Authorised share capital
Ordinary
300 000 000 ordinary shares of 1c each
Issued share capital
203 871 939 fully paid ordinary shares of 1c
For further information refer to note 14 in the consolidated financial statements
5
Revenue
Rendering of services
Dividends received from subsidiaries are not included in revenue, but reflected as income
under operating profit.
6
Operating profit
Operating profit is arrived at as follows:
Revenue
Less: Net expenses
Expenses include the following:
Administration, management and technical fees paid
Auditors’ remuneration:
Audit fees
Directors’ emoluments paid by holding company
Fees
140
7
8
2009
R’000
2008
R’000
Interest received
Dividend income
105
6 918
–
65 111
7 023
65 111
Investment income earned on financial assets, analysed by category of asset, is as follows:
Available for sale financial assets
Loans and receivables (including cash and bank balances)
6 918
105
65 111
–
7 023
65 111
2 212
15
2 212
15
1
(1)
1
(1)
2 039
2 039
2 039
2 039
4 252
2 053
2009
%
2008
%
28,0
28,0
(27,7)
(27,9)
4,2
8,3
11,8
0,0
0,0
3,1
24,6
3,2
Income tax expense
South African normal taxation
Current year
Deferred taxation
Current year
Current year
Total company
Reconciliation of rate of taxation:
South Africa normal taxation rate
Reduction in rate of taxation
Exempt income
Increase in rate of taxation
Disallowable charges
Capital gains
Taxation as a percentage of profit before taxation
Deferred taxation as well as normal taxation was calculated at 28%.
141
Notes to the company annual financial statements continued
9
Related parties
Various transactions are entered into by the company and its subsidiaries during the year with related parties. Unless specifically disclosed
these transactions occurred under terms that are no less favourable than those entered into with third parties. Intra-group transactions
are eliminated on consolidation.
The following is a summary of other transactions with related parties during the year and balances due at year end:
Subsidiaries of the group
2009
R’000
2008
R’000
Other transactions
Dividends received from related parties
Management fees received from subsidiaries
6 918
5 125
65 111
3 298
12 043
68 409
7 124
(1 099)
65 111
(31 848)
6 025
33 263
Amounts due from/(to) related parties as at end of year*
Intergroup loans due from related parties as at end of year
Intergroup loans due to related parties as at the end of year
* There are no doubtful debt provisions raised in respect of amounts due to/from related parties and no bad debts incurred during the year on
these balances.
The following notes are dealt with in the consolidated financial statements:
– Dividends
– Financial risk management
– Directors’ remuneration and interest
– Freeworld shareholders’ attributable interest in subsidiaries
142
Shareholder
information
Shareholder calendar
Financial year end
Reporting:
Annual report
Annual general meeting
Interim report
Annual results
Dividend declared (if applicable):
Interim
May
Final
November
Dividend payable (if applicable):
Interim
July
Final
January
September
December
February
May
November
Shareholder information as at 30 September 2009
1
Number of
shareholders
%
Number of
shares
%
8 319
2 313
295
99
31
75,24
20,92
2,67
0,90
0,28
2 866 889
6 810 949
8 464 762
30 911 884
154 817 455
1,41
3,34
4,15
15,16
75,94
11 057
100
203 871 939
100
76
9 086
10
153
1 467
95
169
1
0,69
82,17
0,09
1,38
13,27
0,86
1,53
0,01
29 501 841
9 542 570
11 603 515
76 954 561
7 087 344
68 074 748
628 670
478 690
14,47
4,68
5,69
37,75
3,48
33,39
0,31
0,23
11 057
100
203 871 939
100
9
7
1
1
11 048
0,08
0,06
0,01
0,01
99,92
39 165 057
238 272
478 690
38 448 095
164 706 882
19,21
0,12
0,23
18,86
80,79
38 448 095
18,86
11 062 909
15 952 822
14 563 894
5,43
7,82
7,14
Analysis of shareholdings
Range
1 – 1 000
1 001 – 10 000
10 001 – 100 000
100 001 – 1 000 000
1 000 001 – and more
Totals
2
Distribution of shareholders
Banks
Individuals
Insurance companies
Investment companies
Nominees and trusts
Pension funds
Private companies
Share trust
Totals
3
Shareholder spread
Non public
Directors
Share trust
Holdings 10% +
Public
4
Beneficial shareholders owning 10% or more
VVT Infrastructure Investments
5
Beneficial shareholders owning 5% or more
State Street Bank and Trust
GEPF Equity
GEPF Stanlib Asset Management
Market information for year ended 30 September 2009
High (cps)
Low (cps)
Value
Volume
948
425
656 908 799
103 827 145
Number of transactions
Shares issued
Market capitalisation
9 972
203 871 939
1 830 770 012
143
Notice of
annual general meeting
Freeworld Coatings Limited
(Incorporated in the Republic of South Africa)
Registration number 2007/021624/06
JSE code: FWD
ISIN code: ZAE000109450
(“the company” or “Freeworld Coatings”)
Notice is hereby given that the second annual general meeting of the
members of the company will be held at The Saxon, 36 Saxon Road,
Sandhurst, Sandton on Friday, 5 February 2010 at 12:00 to consider
and if deemed fit, to pass, with or without amendment, the following
resolutions:
Ordinary business
1. ORDINARY RESOLUTION 1
Confirmation of Annual Financial Statements
“Resolved that the annual financial statements of the company
and the group, incorporating the directors’ report and the report
of the auditors, for the year ended 30 September 2009, be and
are hereby received and confirmed.”
company and Mr LT Taljaard as the individual registered auditor
who will undertake the audit for the company for the ensuing
year, and to determine the remuneration of the auditors.”
Special business
4. Special resolution number 1
a) The acquisitions of ordinary shares in the aggregate in any
one financial year do not exceed 20% (twenty per cent) of the
company’s issued ordinary share capital as at the beginning
of the financial year;
In accordance with the provisions of articles 21.1, Ms B Ngonyama,
Mr DB Ntsebeza and Mr PM Surgey, all non executive directors
of the company, retire at the second annual general meeting of
the company. All retiring directors are eligible and have offered
themselves for re-election.
b) The general repurchase of securities will be effected through
the order book operated by the JSE trading system and done
without any prior understanding or arrangement between
the company and the counter party (reported trades are
prohibited);
Shareholders are referred to page 20 of the annual report for
the curriculum vitae of the non executive directors.
c) This general authority shall only be valid until the company’s
next annual general meeting, provided that it shall not
extend beyond 15 (fifteen) months from the date of passing
of this special resolution;
d) General repurchases may not be made at a price greater
than 10% (ten per cent) above the weighted average of the
market value for the securities for the 5 (five) business days
immediately preceding the date on which the transaction
is effected. The JSE should be consulted for a ruling if the
applicant’s securities have not traded in such 5 day business
day period;
e)At any point in time, the company may only appoint one
agent to effect any repurchases on the company’s behalf;
f) After such repurchase the company will still comply with
the JSE Listings Requirements concerning shareholder
spread requirements;
g)The company or its subsidiary may not repurchase securities
during a prohibited period as defined in the JSE Listings
Re-election of Directors
2.1“Resolved that Ms B Ngonyama who retires in terms of
article 21.1 of the articles of association of the company
and is eligible and available for re-election, be and she is
hereby re-appointed as a director of the company.”
2.2“Resolved that Mr DB Ntsebeza who retires in terms of
and is eligible and available for re-election, be and he is
2.3“Resolved that Mr PM Surgey who retires in terms of
and is eligible and available for re-election, be and he is
Re-election and remuneration of auditors
“Resolved that the directors be and they are authorised to reappoint Deloitte & Touche as the independent auditors of the
144
General authority to repurchase shares
“Resolved that, as a general approval contemplated in sections 85
to 89 of the Companies Act 61 of 1973, as amended (“the Act”),
the acquisitions by the company, and/or any subsidiary of the
company, from time to time of the issued ordinary shares of the
company, upon such terms and conditions and in such amounts
as the directors of the company may from time to time determine,
be and is hereby authorised, but subject to the articles of association
of the company, the provisions of the Act and the JSE Limited
(“JSE”) Listings Requirements, when applicable, and provided
that:
Requirements unless they have in place a repurchase
programme where the dates and quantities of securities to be
traded during the relevant period are fixed (not subject to any
variation) and full details of the programme have been
disclosed in an announcement over SENS prior to the
commencement of the prohibited period;
h)When the company has cumulatively repurchased 3%
(three per cent) of the initial number of the relevant class of
securities, and for each 3% (three per cent) in aggregate
of the initial number of that class acquired thereafter, an
announcement will be made; and
i)Before entering the market to proceed with the general
repurchase, the company’s sponsor will confirm the adequacy
of the company and the group’s working capital in writing
to the JSE.
The directors undertake that they will not effect a general repurchase
of shares as contemplated above unless the following can be met:
• The company and the group are in a position to repay their debt
in the ordinary course of business for a period of twelve months
after the date of the general repurchase;
• The company and the group’s assets, fairly valued in accordance
with the accounting policies used in the latest audited consolidated
annual financial statements, will exceed the liabilities of the
company and the group for a period of twelve months after the
date of the general repurchase;
• The share capital and reserves of the company and the group are
adequate for ordinary business purposes for the next twelve months
after the date of the general repurchase; and
• The available working capital of the company and the group will
be adequate for ordinary business purposes for a period of
twelve months after the date of the general repurchase.
The reason for proposing special resolution number 1 is to grant the
directors a general authority in terms of the Act, as amended, and
subject to the JSE Listings Requirements for the acquisition by the
company or one of its subsidiaries of the company’s own shares on
the terms set out above. The effect will be to authorise the directors
to purchase shares in Freeworld Coatings.
Statement of board’s intention
The directors of the company have no specific intention to effect the
provisions of special resolution number 1, but will however continually
review the company’s position, having regard to prevailing circumstances
and market conditions, in considering whether to effect the provisions
of special resolution number 1.
Other disclosure in terms of the JSE Listings Requirements
Section 11.26 applying to the special resolution number 1
For the purposes of considering special resolution number 1, and in
compliance with the JSE Listings Requirements, the information
listed below has been included in the annual report, to which this
notice forms part, on the pages indicated:
Directors and executive – pages 20 and 23
Major shareholders of the company – page 143
Directors’ interests in securities – page 130
Share capital of the company – page 98.
Directors’ responsibility statement
The directors, whose names are given on page 20 of the annual
report, collectively and individually accept full responsibility for the
accuracy of the information pertaining to this resolution 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 this resolution contains all information
required by law and the JSE Listings Requirements.
Material change
Other than the facts and developments reported on in the annual
report, there have been no material changes in the financial or trading
position of the company and its subsidiaries since the date of
signature of the audit report and the date of this notice.
Litigation
In terms of section 11.26 of the JSE Listings Requirements, the
directors, whose names are given on page 20 of the annual report of
which this notice forms part, are not aware of any legal or arbitration
proceedings, including proceedings that are pending or threatened, that
may have or have had in the recent past, being at least the previous
twelve months, a material effect on the group’s financial position.
VOTING AND PROXIES
Shareholders who have not dematerialised their shares or who have
dematerialised their shares with “own name” registration are entitled
to attend and vote at the meeting and are entitled to appoint a proxy
or proxies to attend, speak and vote in their stead. The person so
appointed need not be a shareholder. Proxy forms must be forwarded
to reach the company’s transfer secretaries, Link Market Services
South Africa (Pty) Limited, 16th floor, 11 Diagonal Street, Johannesburg,
or posted to the transfer secretaries at PO Box 4844, Johannesburg,
2000, by 12:00 on Wednesday, 3 February 2010. Proxy forms must
only be completed by shareholders who have not dematerialised
their shares or who have dematerialised their shares with “own
name” registration.
145
Notice of annual general meeting continued
On a show of hands, every member of the company present in
person or represented by proxy shall have one vote only. On a poll,
every shareholder of the company shall have one vote for every
share held in the company by such shareholder.
Shareholders who have dematerialised their shares, other than
those shareholders who have dematerialised their shares with “own
name” registration, should contact their Central Securities Depository
Participant (CSDP) or broker in the manner and time stipulated in
their agreement:
• to furnish them with their voting instructions; and
• in the event that they wish to attend the meeting, to obtain the
necessary authority to do so.
Equity securities held by a share trust or scheme will not have their
votes taken into account at the annual general meeting for the purposes
of resolutions proposed in terms of the JSE Listings Requirements.
Please note that unlisted securities, if applicable, and shares held as
treasury shares may also not vote.
By order of the board
ELA Chamberlain
Company secretary
Paulshof
16 November 2009
146
Form
of proxy
Freeworld Coatings Limited
(Incorporated in the Republic of South Africa)
Registration number 2007/021624/06
JSE code: FWD
ISIN code: ZAE000109450
(“the company” or “Freeworld Coatings”)
Only for use by shareholders who have not dematerialised their shares or shareholders who have dematerialised their shares with “own
name” registration, at the second annual general meeting of the company to be held at 12:00 on Friday 5 February 2010, at The Saxon,
36 Saxon Road, Sandhurst, Sandton.
If you are a shareholder referred to above, entitled to attend and vote at the second annual general meeting, you can appoint a proxy or proxies
to attend, vote and speak in your stead at the second annual general meeting. A proxy need not be a shareholder of the company.
If you are a shareholder and have dematerialised your share certificate through a CSDP and have not selected “own name” registration in the
sub register maintained by the CSDP, do not complete this form of proxy but instruct your CSDP to issue you with the necessary authority to
attend the annual general meeting, or if you do not wish to attend, provide your CSDP with your voting instructions in terms of your custody
agreement entered into with it.
I/We,
of (address )
being a holder(s) of ordinary shares in the company,
hereby appoint or failing him
of or failing him
of or failing him,
the chairman of the annual general meeting as my/our proxy to attend, speak and vote for me/us and on my/our behalf or to abstain from
voting at the annual general meeting of the company and at any adjournment thereof, as follows (see note 2):
Insert an X or the number of votes exercisable
(one vote per ordinary share)
In favour of
1.
Ordinary resolution 1 to receive and confirm the group annual financial statements,
incorporating the directors’ report and the report of the auditors, for the year ended
30 September 2009.
2.
Ordinary resolution 2 to re-elect directors in accordance with the provisions of the
company’s articles of association:
Against
Abstain
2.1 re-elect Ms B Ngonyama as a director of the company.
2.2 re-elect Mr DB Ntsebeza as a director of the company.
2.3 re-elect Mr PM Surgey as a director of the company.
3.
To re-appoint Deloitte & Touche as independent auditors of the company and
Mr LT Taljaard as the individual registered auditor who will undertake the audit for the
company for the ensuing year, and to determine the remuneration of the auditors.
4.
Special resolution number 1
To approve a general authority authorising the company and or its subsidiaries to
acquire shares issued by the company.
Signed this day of 20
Signature/s
Assisted by (where applicable)
147
Notes to
proxy
1. A member may insert the name of a proxy or the names of
two alternative proxies of the member’s choice in the space/s
provided overleaf, with or without deleting “the chairman of the
meeting”, but any such deletion must be initialled by the member.
Should this space be left blank, the proxy will be exercised by
the chairman of the meeting. The person whose name appears
first on the form of proxy and who is present at the annual
general meeting will be entitled to act as proxy to the exclusion
of those whose names follow.
2. A member’s voting instructions to the proxy must be indicated
by the insertion of an “X”, or the number of votes exercisable
by that member, in the appropriate spaces provided overleaf.
Failure to do so will be deemed to authorise the proxy to vote or
to abstain from voting at the annual general meeting, as he/she
thinks fit in respect of all the member’s exercisable votes. A
member or his/her proxy is not obliged to use all the votes
exercisable by him/her or by his/her proxy, but the total number
of votes cast, or those in respect of which abstention is recorded,
may not exceed the total number of votes exercisable by the
member or by his/her proxy.
3. A minor must be assisted by his/her parent or guardian unless
the relevant documents establishing his/her legal capacity are
produced or have been registered by the transfer secretaries.
4. To be valid, the completed forms of proxy must be lodged with
the transfer secretaries of the company, Link Market Services
South Africa (Pty) Limited, 16th Floor, 11 Diagonal Street,
Johannesburg, 2001, or posted to the transfer secretaries at
PO Box 4844, Johannesburg, 2000, to reach the company by
Wednesday 3 February 12:00, at least 48 hours before the time
appointed for the holding of the annual general meeting.
148
5. Documentary evidence establishing the authority of a person
signing this form of proxy in a representative capacity must be
attached to this form of proxy unless previously recorded by the
transfer secretaries or waived by the chairman of the meeting.
6. The completion and lodging of this form of proxy will not preclude
the relevant member 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 member wish
to do so.
7. The completion of any blank spaces need not be initialled. Any
alterations or corrections to this form of proxy must be initialled
by the signatory/ies.
8. The chairman of the meeting shall be entitled to decline to accept
the authority of a person signing the proxy form:
a) under a power of attorney; or
b) on behalf of a company,
unless his power of attorney or authority is deposited at the
offices of the company or that of the transfer secretaries not
later than 48 hours before the annual general meeting.
contents
01
02
03
04
06
10
11 14 17 19 20 22
26
33
40
53
58
59 143
144
147
ibc
Our ethos
Highlights
Our brands
Chairman’s report
Vision
Innovation
Business philosophy
Our board
Our executives
35 Going for gold
Form of proxy
Company information
Company
information
Company Secretary
Sponsor
Eleanor Chamberlain
1 Merchant Place
Sandton, 2196
Tel: +27 11 282 8000
Registered office
Umhlanga Drive
Paulshof
Postal address
PostNet Suite 263
Private Bag X87
Bryanston, 2021
Tel: +27 11 549 8000
2007/021624/06
Johannesburg, 2001
Tel: +27 11 630 0800
Attorneys
Tel: +27 11 344 7800
Auditors
Deloitte & Touche
contents
01
02
03
04
06
10
11 14 17 19 20 22
26
33
40
53
58
59 143
144
147
ibc
Our ethos
Highlights
Our brands
Chairman’s report
Vision
Innovation
Business philosophy
Our board
Our executives
35 Going for gold
Form of proxy
Company information
Company
information
Company Secretary
Sponsor
Eleanor Chamberlain
1 Merchant Place
Sandton, 2196
Tel: +27 11 282 8000
Registered office
Umhlanga Drive
Paulshof
Postal address
PostNet Suite 263
Private Bag X87
Bryanston, 2021
Tel: +27 11 549 8000
2007/021624/06
Johannesburg, 2001
Tel: +27 11 630 0800
Attorneys
Tel: +27 11 344 7800
Auditors
Deloitte & Touche
Freeworld Coatings
annual report ’09
www.freeworldcoatings.com
Ideas can change the world
FREEWORLD COATINGS LIMITED Annual Report 2009