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Freeworld Coatings Limited annual report 2008
www.freeworldcoatings.com
the first year of our journey
annual report ’08
Company information
Company secretary
Eleanor Chamberlain
Registered office
Balvenie
Kildrummy Office Park
Umhlanga Drive
Paulshof 2191
PostNet Suite 263
Private Bag X87
Bryanston 2021
Tel: +27 86 125 2846
Website: www.freeworldcoatings.com
Company registration number
2007/021624/06
Country of incorporation
Republic of South Africa
Transfer secretaries
Link Market Services South Africa (Proprietary) Limited
(Registration number 2000/007239/07)
5th Floor
11 Diagonal Street
Johannesburg 2001
PO Box 4844
Johannesburg 2000
Tel: +27 11 630 0800
contents
This is our first annual report to stakeholders as
a listed entity and covers the financial year
ending 30 September 2008.
In reporting back to our stakeholders on our
performance, our 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 focused sustainability
information as part of our annual report.
Stakeholders are directed to our website
www.freeworldcoatings.co.za for further
information in complement to our annual report,
periodic SENS announcements and presentations
held at the time of our interim and annual results.
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About Freeworld Coatings
Highlights
Our ethos
Group structure at a glance
Our products
Chairman’s report
Chief executive officer’s report
Our board
Our executives
Inspiring a life less ordinary
Operational review
Protecting the vibrancy and value of our assets
Sustainability report
Corporate governance
Chief financial officer’s report
43 Annual financial statements
117 Shareholder information
118 Notice of annual general meeting
Form of proxy (loose)
Ibc Company information
Sponsor
Rand Merchant Bank (A division of FirstRand Bank Ltd)
1 Merchant Place
Cnr Fredman Drive and Rivonia Road Sandton 2196
PO Box 786273
Sandton 2146
Tel: +27 11 282 8000
Attorneys
Read Hope Phillips & Cadman Inc
2nd Floor Melrose Boulevard
Melrose Arch 2196
PO Box 757
Northlands 2116
Auditors
Deloitte & Touche
Deloitte Place
The Woodlands
Woodlands Drive 2052
Private Bag X6
Gallo Manor 2052
Milestones in an
illustrious history
In the journey of our lives, the mark of our progress is in the
difference we make, the beauty we create, and the conviction
with which we make our own way through the world. Freeworld
Coatings is a free thinking company not afraid to think and act
differently, never for effect but to find a better way to do things.
We strive to innovate in every sphere of our business. Whether
this is to find new high-value solutions for our customers, or to
give back more than we take in the communities and countries
in which we operate, or our impassioned stewardship of our
world and its resources; we seek to differentiate our company
by our Value Based Management approach and investment in
advanced technology.
about
Freeworld Coatings
1891
Proud owner Herbert Evans
establishes his own paint
manufacturing business
known as Herbert Evans
(Pty) Ltd in the bustling mining
town of Johannesburg.
1915
Parthenon Paints becomes the
trademark of Herbert Evans –
he also develops a revolutionary
carriage varnish.
1949
The company combines its
operations with Chrome
Chemicals to form Plascon.
1970
Barlows Group
acquires Plascon.
2001
Barlows Group changes its
name to Barloworld, leading
to the formation of
Barloworld Coatings.
2004
Barloworld Coatings enters
the colourant systems
market with the acquisition
of ICC (International Colour
Corporation).
With its origin dating back 118 years, Freeworld Coatings is today a leading manufacturer and
marketer of decorative and performance coatings in southern Africa. The company markets its
products internationally and is one of the world’s 24 largest coatings businesses, with operations
that meet the highest global standards. Freeworld is strongly positioned to grow, based on its
longstanding experience, extensive product base and iconic brands, and leading-edge technologies.
Previously Barloworld Coatings and re-established as Freeworld Coatings Limited, the company was
listed on the JSE Limited on 3 December 2007. In the five years to 2007, under the current
management team, the company almost doubled its turnover, comfortably doubled its operating
margin and quadrupled operating profit. We built on these achievements in 2008.
Our historical performance and top-quintile shareholder returns have been validated once again in our
first year as a listed entity, despite a difficult operating environment. Tough conditions notwithstanding,
as our journey progresses we look to the road ahead with great excitement.
01
Freeworld Annual Report 2008
highlights
> Revenue up 15% to R2 697 million
> EBITDA up 10% to R465 million
> Operating profit up 10% to R397 million
> HEPS up 15% to 106 cents per share
> Operating cash flows of R376 million
> Six years of consecutive profit growth
> Final dividend 10 cents per share; Total dividend 20 cents per share
> Acquisition of Napier intellectual property
> Plascon awarded Deloitte’s Best Manufacturing Company to Work For
* Note: for illustrative visual purposes the 2008 operating profit of R397 million has been adjusted
by R14 million so as to exclude the amortisation of the brands which arose on unbundling in order
to provide a more meaningful visual comparison against the performance of the southern African
operations of the Barloworld Coatings Division in prior years, as reflected in the Prelisting Statement
and presentation.
02
our ethos
Milestones in an
illustrious history
(continued)
Vision
• A world class, commercially sensible and socially responsible coatings
2005
Barloworld Coatings acquires
Hamilton Brush, a supplier of
premium brand paint brushes
and rollers.
2006
Barloworld Coatings acquires
Midas Earthcote which opens
the door for the group’s
participation in the cementious
and textured coatings segment.
multinational with a presence in selected regions that promise superior growth.
•
We will acknowledge 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.
Purpose
• To offer appearance, décor and ambience that beautify, protect and improve
The group acquires Prostart
Investments, a distributor of
refinish products, strengthening
our position in the automotive
coatings sector.
the value of buildings and vehicles, and solutions that protect and enhance
the longevity and functionality of assets.
Business philosophy
2007
Value Based Management is our business philosophy:
It underpins everything we do...
•
•
At the heart of our business is Value Based Management. It is a culture,
a way of life that aligns the organisation towards continuously enhancing
value for shareholders, employees, customers, suppliers and the environment
through new ways of thinking and acting.
for its customers.
•
•
Plascon was recognised as
a leading industrial innovator
in South Africa for its
vesiculated beads invention
when it received the 2007
SPII Award from the DTI.
It brings about behaviour at all levels of the organisation that aligns daily
activities of teams and individuals with the goal of value creation.
Our desired culture
• We aim to build a free-thinking organisation that has a deep passion
Our people are empowered and have self-discipline, integrity and care.
Diversity is our strength.
‘Our culture will drive success.’
Freeworld Coatings lists on
the JSE – the market leader in
the manufacture of decorative,
automotive and industrial
coatings with the majority
of our assets in southern Africa.
2008
Freeworld Coatings crowns six
successive years of record
profits and becomes the world’s
24th largest coatings business.
Plascon is named Deloitte’s
Best Manufacturing Company
to Work For.
Values
• Free thinking
• Passion for customers
• Empowered people
• Integrity and care
• Diversity as a strength
03
MARKET
SEGMENTS
HOLDING COMPANY
TERRITORIES
OPERATING COMPANIES
DIVISIONS
DECORATIVE
PLASCON
SOUTH AFRICA
FREEWORLD
PLASCON
BOTSWANA
NAMIBIA
MALAWI
SWAZILAND
ZAMBIA
FREEWORLD
COATINGS
AUSTRALIA
FREEWORLD
COATINGS
SHANGHAI
AUSTRALIA*
CHINA
PRODUCT BRANDS
* Limited operations
04
group structure at a glance
PERFORMANCE
COMPLEMENTARY PRODUCTS
FREEWORLD
AUTOMOTIVE
COATINGS
SOUTH AFRICA
HAMILTON’S
SPECIALISED COATINGS
MIDAS
COLOURANT SYSTEMS
ICC
EARTHCOTE
SOUTH AFRICA
SOUTH AFRICA
BOTSWANA
NAMIBIA
MAURITIUS
UNITED KINGDOM
THE NETHERLANDS
SOUTH AFRICA
05
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.
our products
Plascon
Midas Earthcote
As the leading supplier of premium quality decorative paint in the trendinspired colours for interior and exterior applications, Plascon has a
long-established track record in the South African paint industry. It is also
well established in the industrial and furniture markets across southern Africa
under the brand of Plascon. Supplying paint to the retail, trade and commercial
markets has made Plascon an iconic brand in southern Africa. This leadership
position has been made possible by a strong synergy of research, technology,
people, products and partners.
Midas and Earthcote products are retailed through 60 franchised paint
boutiques in South Africa, Botswana, Namibia, Mauritius and the Netherlands.
Plascon also produces a wide range of coatings and related products for
wood furniture, as well as general industrial coatings for mobile and static
machinery and a range of road marking products supplied to users throughout
southern Africa. We manufacture and distribute heavy duty coatings used for
stadia, ships, refineries and other industrial applications. In conjunction with
Akzo Nobel, we also manufacture powder coatings and marine coatings.
www.plascon.co.za
Since 1989, Midas has leveraged its strong trade relationships, particularly
in the Western Cape, to create specialist customised coatings solutions for the
construction industry. Midas amalgamated with Earthcote in 2005, in a
business structure that allows both brands to create unique products in their
own niches. Earthcote launched Cement Paint in South Africa in 1997, filling
a gap in the consumer market for alternatives to regular flat paint. The brand
has achieved enormous success in the super-premium market and enjoys
loyal support from creative home makers at the high end. Earthcote designer
finishes are also well entrenched with architects and decorators and, more
recently, in the European export market where there is high demand for
uniqueness and products with provenance. The acquisition in 2006 by
Freeworld Coatings made it possible for Midas Earthcote to focus on service
delivery and new product innovation. It brings to the group
extensive knowledge of the construction industry and
the management skill required to
action complex coating projects.
www.midaspaints.co.za
www.earthcote.co.za
06
ICC
ICC (International Colour Corporation) specialises in colourant tinting systems, offering an
extensive range of colourants for tinting architectural and industrial paint. ICC exports almost half
of the colourant it produces, while maintaining its leadership position in the South African market.
ICC applies a comprehensive approach, which integrates all the components
and disciplines necessary to achieve the accurate production of colour.
Colourant manufacturing requirements are extremely precise, with very tight
manufacturing tolerances and standards a prerequisite to achieve the
highest level of quality and consistency.
The company has achieved the highest levels of accreditation: ISO 9001
Quality Management System; ISO 14001 Environmental Management System;
and OHSAS 18001 Occupational Health and Safety Management System.
Hamilton Brush
A manufacturer, importer and distributor of premium quality paint brushes, paint rollers and
associated products, marketed to commercial enterprises and the DIY market under the
Hamilton’s brand. Cherry Sales, the sales and distribution arm of Hamilton Brush has a welldeveloped sales and distribution structure comprising in-house sales staff and sales agents.
Cherry Sales also sells and distributes a range of 3M products, such as: coated abrasives and
adhesive tapes, and the Energizer range of batteries and flashlights, to hardware distributors. The
acquisition of Hamilton Brush in 2004 brought a high quality range of complementary products
to Freeworld Coatings, creating potential for considerable synergies. These include the
consolidation of research and distribution, and transfer of technical and marketing know-how and
best practices across traditional industry lines.
www.hamiltonbrush.co.za
Freeworld Automotive Coatings
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 the automotive 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 the refinish distributors, both
independent and Freeworld-owned. We also have a leading market share in the refinish sector.
Our product range is directed at the premium sector of this market i.e. the manufacturer approved
body shops, using licenced technology from DuPont under the Spies Hecker and Standox brand
names, as well as into the mid range of this 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 ancillaries with seven
branches around South Africa. A black economic empowerment partner, Izingwe Capital, has
recently acquired a share of Prostart. Growth opportunities for the automotive coatings businesses
are considered significant in South Africa and in southern
Africa where we already have refinish distributors in
Swaziland, Zimbabwe, Mozambique, Malawi, Zambia,
Botswana, Namibia and Angola.
www.spieshecker.co.za
www.standox.co.za
07
a new world of opportunity
The financial results reported
by the company attest to a
Freeworld Coatings team that
has worked hard to control costs,
advance product, protect markets,
and defend margins.
Bobby Godsell chairman
This report marks the first year of Freeworld Coatings’ existence
as a publicly listed company. It has been a year of both challenge
and achievement.
Throughout this period global markets have operated under the
increasingly menacing shadow of the US sub-prime financing crisis.
With each passing week the problems in US financial markets
became more severe, and the consequences spread both into the
‘real economy’ and also across oceans and national borders. Today
few would disagree that the global economy faces its most arduous
test in a generation, if not since 1929.
Against this background the financial results reported by the
company attest to a Freeworld Coatings team that has worked hard
to control costs, advance product, protect markets, and defend
margins. This has been done with the main purpose of ensuring the
long-term prospects of the company. And it has been done in a way
that is consistent with Freeworld Coatings’ purpose to produce real
value for each of its key stakeholder groups.
The new Freeworld Coatings board has been active in the year, with
the board meeting on seven occasions during the reporting period.
The audit, risk and compliance committee and the remuneration
and nomination committee of the board functioned well and ensured
that governance in these important areas was effective. It has been
a pleasure for the non-executive members of the board to partner
with management in delivering on the Freeworld Coatings promise.
08
Freeworld Coatings, like all participants in both the South African
and global economy, faces very uncertain times. It is impossible
now to know either the depth or timeframe of the current economic
slowdown. In this uncertainty, the board takes encouragement from
some critical aspects of Freeworld Coatings’ character. Firstly,
Freeworld Coatings manufactures products that are, relatively
speaking, recession robust. Public institutions, commercial entities
and private households will continue to need and use coating
products. Secondly, South Africa’s major infrastructure renewal
programme is already designed, largely funded and in many parts
underway. Thirdly, the company has a diverse set of customers
which spreads the risk of changing demand in any single
customer category.
Freeworld Coatings has produced solid results for the period under
review. The board believes that the company will produce a
competitive performance, not only in relation to other market
participants in the coatings sector but also compared to other
industrial sectors, in the year ahead.
RM Godsell
the journey so far...
Thankfully, and more so in modern times, it is mostly possible for
people to challenge unsustainable systems, and to choose to
change the way society is organised. In 1994, with the adoption of
democracy, South Africa set about challenging the old order and
building a new organisation model for its society and economy. With
this new freedom came access to new opportunities.
Over this time the forerunners of our business pioneered many firsts
in the South African coatings market. Served by a reputation for
innovation, quality and service, expansion was steady and the
Plascon brand developed, achieving iconic status in South Africa.
Timely corporate activity and acquisitions from 2002 led to the
business expanding into synergistic markets, most recently into the
colourant, complimentary products and expanded contractor
markets, and into new geographies beyond Africa including China.
André Lamprecht chief executive officer
Dear stakeholder,
In our first annual report as a separately listed company, I believe it
is appropriate to begin with the counterpoint of our organisation’s
118-year history, and the contemporary philosophical basis on
which Freeworld Coatings now rests. This is pertinent as it is both
these characteristics – the ability to organise a business to handle
constant change and to endure, and to inculcate the forwardthinking precepts of a new ‘era’ which continue to shape our growth.
As we review our first financial year and contemplate the journey
ahead, I am confident that our pioneering heritage, of sustained
growth through innovation and prudent growth by acquisition, and
our philosophical grounding in the form of a defined vision and
effective organisational model, are evident and decisive in all our
intentions and actions.
A distinguished heritage
Freeworld Coatings’ history goes back to 1891 – to Johannesburg,
after the discovery of gold, which had given the society the
opportunity to transform from an agrarian base into an industrialised
economy, and to begin to enjoy the associated growth in economic
and social prosperity. In South Africa, however, society was for a
long period organised on exclusionary and exploitative principles,
and the majority of its people were denied access to opportunities
and a better quality of life.
Today, as the leading southern African contender in its category,
Freeworld Coatings is capable of providing full systems solutions
and approaches across the decorative coatings and performance
coatings sectors and related products. Ranking in the top 24
coatings businesses in the world in scale, with operations in
eight countries and exports to a number of others, we have the
experience, product offering and access to leading-edge technology
to expand our presence in chosen markets and locations offering
superior growth.
The Freeworld Coatings ethos supports the free society that South
Africa has striven for since 1994. We are committed to contribute
to better lives and better 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.
Setting the direction
In 2003, as a new management team, we set about implementing
an aggressive positioning strategy based on a deeply held philosophy.
The premise of our way of seeing the world is that businesses exist
and succeed by virtue of a symbiotic relationship with society and,
by logical extension, the natural environment. Differently put, it is
our understanding that a vibrant society and healthy natural
environment are intrinsic to our lasting success and provide the
foundation for the way we have chosen to structure and manage
our business.
The organisational principles that govern Freeworld Coatings stem
from our desire to be a progressive citizen of the world that operates
commercially sensibly and sustainably. Perforce, this requires that we
do business in a socially responsible manner and mindful that
we are also custodians of the earth’s resources, of capital and other
resources entrusted to us, including our employees’ working lives.
09
Chief executive officer’s report (continued)
This approach requires free thinking and approaches that often
challenge the more conventional; and the confidence and creativity
to stand apart from the usual, to discover new and better ways of
doing things. Whether it is the way we bring our products to our
customers, the products themselves, investing in environmentally
friendly technologies, uplifting skills and supporting entrepreneurship,
or seeking to reduce consumption of inputs and optimise the
management of scare resources; we are convinced that there is
always the opportunity to innovate and improve.
Based on this groundwork, we formulated a new vision, values and
purpose for the organisation (provided on page 3). These were
concretised in strategic and financial objectives, related to realising
over time world-class scale and operating standards. This included
setting our sights on achieving universally acknowledged standards
in all our significant operations: ISO 9000 for operations; ISO 14000
for environmental management; and ISO 18000 for occupational
health and safety, which we have now achieved.
To enable us to realise our vision and meet our objectives, we
remain committed to the Value Based Management organisational
model. The basis of this model is to structure our organisation to
create value for all our stakeholders: for shareholders, by delivering
competitive returns on their capital; for customers, by delivering on
the promise of a better quality of life for an affordable price; for
suppliers, who help us deliver quality products to customers; and for
our employees who are undoubtedly our most valuable resource.
We are very pleased with the progress we have made since 2003,
culminating in Plascon receiving the highest accolade in the
respected Deloitte survey and named Best Company to Work For in
the manufacturing sector in South Africa. In relation to this award,
it is worth noting that Freeworld Coatings effectively trades on its
intellectual property – which is where the major share of our value
is derived – in our thought models and hence our people.
Progress on our journey
In the five years from 2003, we passed many milestones and growth
targets as we re-organised the business to be world class in all its
affairs. Some of these included the implementation of all targeted
operating standards in less time than initially anticipated, and a
pleasing endorsement from the Department of Trade and Industry
who in 2006 named Freeworld Coatings as the winner of its large
South African company innovation award.
In December 2007, following the unbundling from Barloworld
Limited, our journey as a separately listed company began when
Freeworld Coatings Limited was successfully listed on the JSE
Limited on 3 December 2007. Our first financial year has been one
10
of building on the achievements of the past five years, as well as
consolidating the business and addressing the uncertainties that
inevitably arose during the unbundling process and transition to a
separately listed company. This consolidation included ensuring that
all necessary systems and controls were in place for our journey as
a listed company, and and preparing for future expansion.
Much energy in the year was devoted to developing the Freeworld
Coatings brand and distilling what it should represent for all its
stakeholders. In terms of the brand structure developed, the
Freeworld Coatings brand provides the philosophical grounding and
assurance of world-class standards, on which our product brands
stand as leaders in the segments in which they compete. Our
product brands are also tied together by the reputation of the
corporate brand they are part of. Our new product branding,
which is on track to be rolled out in 2009, will reflect this brand
architecture and ensure consistency in our brand identity and
approach to market.
Against a background of rapidly deteriorating economic conditions, the
financial results posted by the group represented an excellent
performance. We increased our revenues in all operations and margins
were maintained at high levels. Revenue from operations for the
financial year to September 2008 at R2.7 billion was 15% higher than
the prior year. EBITDA increased by 10% to R465 million as margins
came under some pressure, declining from 18.1% to 17.2% of sales.
This was attributable to higher input costs, compounded by a devaluing
currency and pressure from customers to hold or reduce prices in an
environment of slowing economic growth, somewhat offset by
favourable fair value adjustments on foreign exchange contracts.
Operating profit increased by 10% to R397 million. Net finance
costs, as a consequence of increases in JIBAR, were 17% higher
than the prior year. The tax charge was favourably impacted by a
reduction in the corporate tax rate.
Income from associates increased by 51% to R22 million with both
International Paint and DuPont Freeworld performing strongly.
Net profit was R217 million, with headline earnings per share (HEPS)
rising 15% to 106 cents against the prior year.
The directors declared a final dividend of 10 cents per share as
Freeworld Coatings remains positioned as a growth company.
Dividends declared for the year totalled 20 cents, which the directors
considered prudent, particularly in the prevailing economic climate.
Total assets grew by 6% to R4.5 billion as a result of our capital
expenditure programme and increases in working capital, in
particular stock which was 27% higher than last September. The
increase in inventory was due largely to higher input costs as
The organisational principles that govern Freeworld
Coatings stem from our desire to be a progressive
citizen of the world that operates commercially sensibly
and sustainably.
evidenced by our raw material index increasing more than 20%
from last year. Higher inventory levels were also purposely built to
generate stock ahead of the peak period.
of the concept stores to all the major cities as part of a complementary
channel to market, and to expand these at a sensible pace in the
years ahead.
Interest bearing debt (net of cash) at R873 million reduced by
R73 million, translating into a debt to equity ratio of 31%.
An important feature of innovative product development is the
increasing demand for environmentally friendly coatings, an area in
which we intend to be a leader. In the year under review, it was the
strong demand for waterborne coatings at a number of motor
manufacturers that bolstered volumes in the DuPont Freeworld
Automotive business in a challenging year characterised by the
slowdown in economic activity. This demand has also spilled over
into the refinish aftermarket where motor manufacturer approved
body shops are demanding similar technology. Likewise in our
colourants business, where export volumes continue to reflect the
move to zero-VOC (volatile organic compounds) compliance in
product manufacture in Europe.
Cash generated from operations amounted to R376 million with the
cash inflow from operating activities of R192 million used to acquire
property, plant and equipment totalling R126 million and intangibles
of R48 million, the bulk of which was attributable to the acquisition
of intellectual property.
Innovation for growth
The culture of innovation within Freeworld Coatings, which has been
fundamental to our growth, is based on being inspired to continually
improve and set new boundaries, and to find new ways to
demonstrate to customers what is possible and indeed obtainable.
We seek to grow not only in reaction to market demand but by
creating and shaping demand through innovative product and
channel development. We seek to do this with determination to
create value for customers far beyond the cost of the product and
application, by enabling them to enhance their living environment
and their quality of life. We call this the ‘décor effect’.
Our project in China is another mark of our willingness to take
acceptable risks to grow though innovation. It has provided us with
a unique opportunity to explore an alternative technology to deliver
paint to this fast-growing market in future, and indeed to other
markets. This technology is currently being further developed and is
intended to allow us to enter new and existing markets with a lower
system cost.
The décor effect means that for modest cost, you can meaningfully
improve the appearance of your environment – at home, in the
workplace or in public spaces – in a way that multiplies the
perceptional value of that environment and the economic value of
the underlying property. In turn, this appeal has an effect on the way
the people inhabiting that space perceive their world and ultimately
themselves. This effect also holds true to an extent in the case of
enhancing and protecting other assets, such as vehicles or
equipment, by applying specialised coatings.
Given its importance to our sustainable profitable growth, we
recognise our employees for being innovative through a number of
awards programmes across the businesses, including Plascon’s
pathfinder award. Included in the innovations of employees that
have garnered this award was the invention of vesiculated bead
technologies, and a project to take out costs and reduce
consumption of utilities that saved the group more than R1 million.
The opportunity for Freeworld Coatings in marketing our decorative
coatings offering is that this multiplier effect can be de-linked from
the underlying product and application costs. To realise this
opportunity means we need to create a visual reference point for
customers – to demonstrate to them final décor effects and all the
possibilities – in relation to a competitively priced range of products.
In the last year, the rapid consolidation of the global coatings
industry continued, which combined with the growth we achieved
took Freeworld Coatings from the position of 31st largest coatings
company internationally (based on sales turnover) at the beginning
of the year to 24th by year end. The activity in the industry was
dominated by the world’s largest paint manufacturer, Akzo Nobel,
acquiring the number three, UK-based ICI, owner of the Dulux brand
in most countries. The market rationalisation extended to the
suppliers of raw materials to the coatings industry, an example being
Dow Chemical’s acquisition of Rohm and Haas. The consolidation
trend points to the continued need for scale to drive down operating
and input costs.
This was the inspiration for further developing the Plascon concept
store, which continues the innovative approach that has been a
hallmark of building the Plascon brand. The success of the first
Plascon concept store in Johannesburg (read more in the case
study on page 19), has been crowned by many prestigious retail
awards. These accolades have endorsed our plan to take the idea
Acquisitions for growth
11
Chief executive officer’s report (continued)
Against this backdrop, we evaluated a number of potential
acquisition opportunities during the year, guided by our stated
intention not to do a transaction for the deal’s sake. We have been
steadfast in ensuring that when we buy, it is consistent with our
ethos and focus on value creation for all our stakeholders. Our
criteria being the opportunity to build scale, the fit with our existing
businesses, and the commercial and return merit of the transaction.
Earlier in the year, we announced the acquisition of a unique
environmentally friendly technology, applied in the surface preparation
and wood restoration segments. While the acquisition made business
sense, it also met the specific objectives for our first corporate action
after listing. It was global in scope and focused on complementary
products at the start of the coatings system – paint removal and
wood restorer, in preparation for further protective coatings. The
acquisition was also underpinned by the environmental benefit.
Reflecting our intentions in the environmental space, this has been
named Freeworld Environmental Technologies and we will launch
the new product range in the new financial year.
As the market continues to move to textured and other specialty
application finishes, Freeworld Coatings has reached agreement
with Terraco, a specialty textured coatings supplier in selected
global geographies, for supply in South Africa and later in the
region. There is considerable synergy with our existing products.
our investment case
• A unique operating philosophy – vision to be a world-class, commercially
sensible and socially responsible coatings multinational.
• Conscious of our role in protecting the earth’s resources.
• Focus on Value Based Management – creating 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.
• Focus on the décor effect and adding considerably more economic value
through our products brands than the product cost.
• Focus on growth in selected high growth segments and geographies.
• Leading market shares in the segments in which we operate.
• Focus on innovation.
• Access to international partners and strong partnerships and license
arrangements with global technology partners.
• Exploring innovative ways to lower the system business cost.
• Excellent track record in strategic acquisitions.
12
The joint venture agreement is structured on a distribution basis
and as volumes warrant it will also include local manufacture.
Capacity for growth
Like most companies in South Africa, the skills shortage remains a
challenge in ensuring that we have sufficient talent in the
organisation to achieve our growth objectives. However, we are
fortunate to have been successful in retaining and attracting the
right people in increasingly competitive circumstances. We ascribe
this success to our Employee Value Creation model assisted by our
Value Based Management approach. We are confident we have the
available capacity to resource our current growth demands and
those in the foreseeable future.
A feature of our organisational model is that it provides the blueprint
into which every role in the organisation fits, allowing employees
to situate their individual deliverables within the context of the
company’s strategic direction. We have a well-developed performance
management system in place, linked to a gain share scheme. This
rewards employees in the form of bonuses according to their
individual and team contribution to achieving targets and objectives.
At the heart of this approach is our desire to create an inspiring and
supportive workplace that is free of bureaucracy and which promotes
self discipline, while ensuring that the attitudes, actions, skills and
capacity of our people are aligned to our vision and values.
In view of our focused efforts to be an employer of choice in our
sector and to invest in our people, a major highlight of the year was
for our largest manufacturing unit, our Plascon subsidiary, to win
the Deloitte Best Company to Work For award in the manufacturing
sector. This has provided strong endorsement of our people
management model.
Freeworld Coatings’ investment in developing people extends
beyond the organisation into the communities in which we operate.
A notable initiative is our Coatings Academy, which focuses on
application training and building entrepreneurial skills. We continue
to receive overwhelmingly positive feedback from trainees who have
completed the programme. As part of our continued focus on
enterprise development and skills transfer, we plan to increase the
number of learners as well as the number of accredited learnership
courses offered at the Academy. We will continue to place these
learners, on completing their training, at suitable contractors and
thereby also foster our ‘brand ambassador’ business initiative.
We are currently in the process of establishing the Midas
Consortium, a network of entrepreneurs who have attended the
Academy, who will be organised into local co-operative structures.
In due course, we will seek to partner with respective co-operatives
in tendering for local government business.
In terms of our production capacity, we continue to focus on a
systematic process of renewal of our systems and infrastructure,
which provides the opportunity for constant improvement. In
addition to more efficient operating facilities, this focus also extends
to work spaces.
Outlook
In an environment of significant uncertainty in global financial
markets, the Decorative Coatings segment will maintain its firm
focus on limiting input costs and closely managing prices and
margins. High fuel and electricity costs are placing an increasing
burden on overall cost management, reinforcing our approach of
strict expense control and increased productivity throughout the
organisation. In line with our approach to be willing to do things
differently to find a better way, we continue to look at new ways of
improving our overall levels of productivity.
Proactive and positive brand management remains a strategic
theme for all our businesses, and in the year ahead we plan to
integrate the strong Plascon brand and its sub-brands with the
Freeworld Coatings corporate brand. The same holds true for the
other brands in our stable. Product innovation remains a cornerstone
of our strategy to build on our strong brand equity.
While we face an economic outlook of most uncertain circumstances,
we are very well positioned in a sector that has somewhat more
robust prospects. Fixed domestic investment with particular focus
on infrastructural investment will remain a significant driver in South
Africa and in a number of African countries in which we have
interests. In all these societies the economies are also now
significantly larger than a few years ago and have reached a level
where investment and disposable income can sustain larger
demand despite the current pressure.
In South Africa, we believe construction activity will provide good
growth opportunities for Freeworld Coatings, even beyond 2010
when the country will host the 2010 FIFA World Cup, in line with the
South African government’s fixed domestic investment programmes,
some of which have already commenced.
We will continue to pursue suitable acquisition opportunities that fit
with our strategic direction.
The year ahead will be challenging but we remain optimistic that the
company will continue to perform competitively.
... the journey ahead
In the medium term, we will look to enter new markets at lower income levels, making the décor effect and its value multiplying impact
available to a broader base of people for an affordable price. This will be explored with customary commercial sense but consistent with
our innovative approach, which implies managing acceptable risk to find new avenues for growth.
The creation of value for all our stakeholders is intrinsic to our business, as I have described, which leaves me only to extend our
appreciation to our customers for your ongoing support, to our suppliers for your partnership and to our employees for your dedication
to excellence and innovation and to the chairman and members of the board for their guidance and support.
The forerunners of Freeworld Coatings have endured through different eras, and we inherit the positive associations from this distinguished
heritage. However, we have also taken the opportunity to adopt a contemporary approach fitting for our times in an increasingly interconnected world. We will continue to evolve our business guided by our conviction that a better way can always be found, and focused
on creating value for all our stakeholders.
André Lamprecht
13
our board
1
1
6
3
André Jacobus Lamprecht (56)
Chief executive officer B Com, LLB, PED-IMD
André served in a number of student leadership positions in the 1970s, inter alia, as
the President of the National Union of South African Students in 1976. He practiced
as an advocate of the High Court of South Africa prior to being invited to join
Barloworld in 1981. From 1983 he played a leading role in steering the group through
the political transition into a post-apartheid South Africa. He was appointed to the
board of Barlow Rand (subsequently Barloworld) and subsidiary boards in 1993. In
2003 he was appointed CEO of the coatings division and retired from the Barloworld
board in 2007. He has served on numerous public bodies and is inter alia a past
chairman of Business South Africa and a past president of the AHI and its board of
trustees. He is a non-executive director of Pretoria Portland Cement Company Limited
(PPC), the National Business Initiative (NBI), and the Business Trust. He is a member
of the retirement funds advisory committee of the Minister of Finance and serves on
the Council of Business Unity SA (BUSA) and the Millennium Labour Council.
2
Douglas Andrew Thomas (Doug)
(50) (Australian)
Chief financial officer BAcc, CA(SA)
Doug joined Barloworld 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 and was appointed as chief financial officer
of Freeworld Coatings in October 2007.
3
Robert Michael Godsell (Bobby) (56)
Chairman (Non-executive) BA, MA
Bobby was appointed as chairman of Freeworld Coatings Limited in October 2007.
He joined Anglo American Corporation in 1974 and served in various roles before his
departure in September 2007, including as chief executive officer of AngloGold
Ashanti since 1998. He has been active in business organisations both nationally
and internationally, serving, inter alia, as president of the South African Chamber of
Mines and chairman of the World Gold Council. He is currently chairman of Business
Unity South Africa, the country’s leading business organisation. In July 2008 he was
appointed chairman of Eskom Holdings Limited.
14
8
4
4
Dr Elias Links (Eltie)
(62)
(Non-executive director)
B Com, M Com (Economics), MA (Economics),
PhD (Economics)
Eltie joined Freeworld Coatings Limited in October 2007. From 1996 to 2000 he
was the South African ambassador to the European Union in Brussels as well as
ambassador to Belgium and Luxembourg. He was chief negotiator for South Africa
in the completion of 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 currently holding the chair: Doing Business in Africa,
at the University of Stellenbosch Business School. He is also chairman of AfriSam (Pty)
Limited, the largest building materials company in southern Africa.
5
Moses Modima Ngoasheng (Moss)
(51)
BA, BSocSci, MPhil
Moss joined Freeworld Coatings Limited in October 2007. He obtained degrees in
economics and politics from UNISA in 1984, industrial sociology honours from the
University of Natal in 1988, and a MPhil in development studies at the University of
Sussex in 1990. He was pivotal in the industrial policy development of the African
National Congress (ANC) and was the economic advisor to ex-president and exdeputy president Thabo Mbeki from 1995 to 2000. He is also a co-founder of Safika
Holdings and is an appointed director to the organisation. He is currently chairman
of the Coega Development Corporation board, and a member of numerous other
boards including South African Breweries Limited and Dimension Data Plc.
2
6
7
Babalwa Ngonyama
(34)
B Com CA(SA), MBA, Higher Diploma in Banking Law
Babalwa joined Freeworld Coatings Limited in October 2007. She is currently group
chief internal auditor of Nedbank Limited. Previously she was audit partner in
Deloitte’s financial institutions services team from 2003 to 2007. Babalwa was the
founding chairperson of African Women Chartered Accountants (AWCA) and is
currently a member of its advisory board.
7
Dumisa Buhle Ntsebeza
(59)
BA, B Proc, LLM (International Law)
Dumisa joined Freeworld Coatings Limited in October 2007. He was appointed to the
Barloworld board in May 1999, becoming chairman in 2007. He is an advocate of
the High Court of South Africa and a member of the Johannesburg Bar. In 2005 he
was conferred the status of silk; the first black African advocate in the history of the
Cape Bar to do so. He served as a commissioner on the Truth and Reconciliation
Commission and has been appointed, from time to time, as acting judge of the High
Court of South Africa.
9
8
5
Noluthando Dorian Bahedile Orleyn (Thandi)
(51)
B JURIS, B Proc, LLB, Hon PhD
Thandi joined Freeworld Coatings Limited in October 2007. She is a director and
shareholder of Peotona, an investment holding company owned and managed by
women. She also holds various directorships including at the South African Reserve
Bank, Reunert Limited, Implats, Arcelor Mittal SA, Toyota SA and Ceramic Industries.
Thandi is adjunct professor in labour law at the University of Cape Town and a
member of the Competition Tribunal.
9
Peter Montagu Surgey (54)
BA, LLB
Peter was appointed to the Freeworld Coatings Limited board in October 2007. He
joined Barloworld in 1983 and was appointed to the Barloworld board in 1995. He
was managing director of Plascon Packaging Coatings from 1990 to 1992 and
managing director of Plascon from 1992 to 1998, after which he was appointed as
chief executive officer of Barloworld Coatings from 1998 until 2003. He thereafter
held multiple portfolios as a Barloworld director and retired from Barloworld in
September 2008, having been appointed human resources director in 2003. He is
a past founding and board member of the Business Against Crime initiative in South
Africa and a past president of the Nova Paint Club. Peter is currently a director of the
National Business Initiative and a trustee of the President’s Trust and the Duke of
Edinburgh Trust.
15
our executives
1
1
2
3
Neil Davies (54)
Executive: finance, Africa B Com, CA(SA)
Neil joined Barloworld in 1980 with 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 of a number of coatings operations between April 1991 and October 2005,
when he was appointed to his current role. He has also served in a number of
community support roles.
2
Robert Frans (Rob) (52)
Executive: human resources services BA (Hons)
Rob joined Barloworld in 1981 as human resources officer at Middleburg Steel and
Alloys. In 1990 he was moved to Barlows Equipment Manufacturing Co SA as the
human resources executive and was promoted to the position of human resources
director at Robor Tube in 1999. Rob spent five years at Barloworld Limited’s corporate
office as organisational performance manager. Rob joined Freeworld Coatings in
April 2008.
3
Marius Minnie (43)
Executive: strategy and business development and
divisional synergies B Compt (Hons), CA(SA)
Marius joined the Barloworld group in 1991, and has worked in numerous positions
in Barloworld Motor, Barloworld Logistics and Barloworld Group Strategy. In 2003 he
joined the coatings operation 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.
16
5
4
7
Ebrahim Mohamed (54)
Executive: managing director, complementary products
businesses and relationship marketing, Africa
BA, B Com
Ebrahim was a high school teacher before joining Barloworld Plascon in April 1982,
where he acted in various roles including human resources director, production
director and subsequently general manager. From 1997 to 2006 he was responsible
for the African operations and exports. In his current role as managing director
complementary products, he is responsible for Hamilton Brush and Midas Earthcote.
Ebrahim is actively involved in his community, voluntarily working with numerous
organisations in the Western Cape.
5
André Naudé (55)
Executive: marketing B Com, MBA
Andre joined Barloworld in 2002 and the Coatings division in 2004. Before that he
was with Tiger Brands where he held a number of senior marketing, sales and
general management positions as well as directorships. His last position being that
of brand director for the Tiger Brands group.
6
Trudi Neill (46)
Managing director: ICC B Com
Prior to joining Barloworld Plascon in 1989, Trudi worked for Tiger Foods, Times
Media and Colgate Palmolive in sales and marketing roles, and ended her working
period with Colgate Palmolive as brand category manager. She joined Barloworld
Plascon as senior brand manager and was appointed to the Barloworld Plascon board
as marketing director in January 1995. She subsequently held the role of strategy
and business development director at Barloworld Plascon for seven years. Trudi was
appointed managing director: ICC in May 2004. In this role she is responsible for
the division’s colourants business globally.
6
7
8
Baron Schreuder (41)
Managing director: Plascon South Africa BSc (Hons)
Baron joined Plascon in 1991, working in various capacities within the Coatings joint
venture business with Akzo Nobel. He has had international experience in the coatings
industry, having been seconded to Akzo Nobel Powder Coatings in the United Kingdom
and working with Akzo Nobel International Coatings in the United States. He returned
to Plascon in 2002 and was appointed managing director of Plascon South Africa in
2006. He is the current chairman of the South African Paintmakers Association
(SAPMA).
Kendal Shand (52) (not pictured)
Executive: human resources services LLB
Kendal joined the Barloworld Group in 1985, working in the Tiger Brands and ICS
divisions in human resources managerial roles until 1995. Following the ICS
unbundling from Barlow Rand in 1994, she rejoined Barloworld in 1995 as human
resources executive for BarCep, transferring to Barloworld Plascon in 1996 as human
resources executive. She worked as human resources director for Barloworld Plascon
from 1998 to 2004, when she was appointed as executive, human resources
services, Coatings, serving as part of the Coatings executive committee, a position
she held until she retired in March 2008.
8
Garth Smart (51)
Chief operating officer and managing director:
Freeworld Coatings Australia BA, LLB, MBA
9
9
10
4
Doug Swanson (56)
Managing director: Freeworld Automotive Coatings
BA, MBA
Doug joined Barloworld in 1974, holding a number of positions in human resources
until he joined the Coatings division in 1993, when he was appointed general
manager of Courtaulds (later Akzo Nobel), a powder coatings joint venture with
Barloworld Plascon. He was appointed as managing director of Barloworld Automotive
Coatings in 2000. Based in Port Elizabeth, Doug is responsible for the performance
of Freeworld Automotive Coatings and Prostart Investments as well as the Freeworld
interest in DuPont Freeworld.
10
Rodney Tweed (38) (Australian)
Executive: business development manager,
Coatings Asia Pacific B Bus
Rod joined the Coatings division when Barloworld Coatings purchased White Knight
Paints in 1997. Prior to this, Rod’s business background includes six years as the
national marketing manager at White Knight Paints, Australia and as market analyst
with J I Case International, Australia. Rod continued to work for Coatings Australia in
a number of senior sales and marketing positions, and in 2003 he acquired
responsibility for implementing the China Project in Shanghai. Rod was appointed
business development manager, Australia, in the same year, responsible for
investigating and evaluating new business opportunities for organic acquisition and
growth for Barloworld Coatings Australia and for the development of the company’s
strategy in China.
Garth practiced as an advocate of the High Court of South Africa prior to joining
Barloworld in 1987. He worked in an industrial relations advisory capacity in a
number of Barloworld divisions. Garth 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 this role, Garth was appointed chief
operating officer of the coatings division in 2003. His responsibilities in this role
include the performance of all the group’s operations and, as managing director, for
the performance of the coatings business in Australia and China.
17
Adding texture to living spaces
Modern design trends have moved to allowing people to express their unique individual sense
of style, away from plain-old generic design. This shift in customers’ expectations contributed to
the unequalled success of Freeworld Coatings’ range of Earthcote wall and floor coatings which
add texture to living spaces.
Initially synonymous with the weathered, lived-in aesthetic of coatings such as Cement Paint,
Limecote, Distemper & Antiquing Liquid and Stucco, the Earthcote brand has evolved to include
contemporary naturals such as Tidalcote and Stone Paint. These design-led finishes give
architects, decorators and creative homemakers alternatives to conventional flat paint, turning
walls and floors into canvases for inspired expression.
Shown above is a contemporary refurbishment of a 1970s Camps Bay beach bungalow, which
used a selection of Earthcote textured finishes to update the look of both the interior and exterior.
This project is an example of the many ways in which the Earthcote range of traditional and
contemporary finishes can inspire a shift from ordinary to extraordinary.
18
inspiring a life less
ordinary
Bringing the décor effect to life
Choosing the décor for your home or office is much less of a daunting task when you have
access to the right information and expert advice. The Plascon Living Concepts showroom is a
unique retail concept specialising in paint, colour and technique advice. It is designed to inspire
you to create something extraordinary with your next decorating project, and to demonstrate to
you the dazzling possibilities.
Plascon Living Concepts in Johannesburg is staffed by decorative painter and interior stylist
Claire Bond and her professional team of colour consultants. Using the Plascon Colour Visualiser
simulation software, which allows customers to really experience the final décor effect in their
living spaces, and large paint swatches, consultants can help customers make the right choice
in selecting their preferred colours and finishes.
In recognition of Living Concepts’ exceptional service and design the showroom was awarded
a 2006 Johannesburg Retailer of the Year Award by the SA Council of Shopping. Switch Design
Group received a Qb Award for Interior Design in the category Retail as an Extension of Branding,
as well as a Silver Loerie Award for the design, identity and visual language of the Living
Concepts showroom.
A prime example of the power of the décor effect –
Brighton Court in Camps Bay
When this building needed more than a facelift, Plascon developed alternative Art Deco design
options for the client, suitable for the building’s historic Art Deco style. Once this colour palette
was applied, the positive effect on the beautification, ambience and uplift in economic value of
the building and its surrounds was significant and immediate.
19
Operational review
decorative coatings
Product innovation
remains a cornerstone of
our strategy to build on
our strong brand equity.
A resilient performance in a tough year
The Decorative Coatings segment increased sales and profits in the
year despite challenging economic conditions, particularly in our
South African home market where rising inflation and interest rates
weighed on the retail sector. However, a strong performance in the
trade sector helped offset this pressure in the retail and DIY (‘Do It
Yourself’) segments.
The award to Plascon, our largest manufacturing operation, of the
Deloitte Best Company to Work For in the manufacturing sector was
a significant accolade after many years of sustained work to embed
a culture which truly creates value for employees through the creation
of value for the organisation.
Notwithstanding higher global oil and commodity prices and mostly
unfavourable exchange rates, our operations in the rest of southern
Africa also performed well, with exports to a number of African
countries from our home base increasing by nearly 50%. We have
made further headway in establishing an alternative business model
in China, and we will continue to progress this project in the new year.
The Australian operation continued to toll manufacture Bristol product
for PPG at its Melbourne facility.
Cost control, productivity gains, brand management and product
innovation, as well as supply chain management, remained key focus
areas throughout our operations.
Turnover for the segment rose 15.3% to R1 967.7 million in the year
to 30 September 2008. Gross margins reduced, reflecting the
continued squeeze from high input costs and pressure from
customers to hold or reduce prices in an environment of slowing
economic growth. Despite rising international commodity prices, we
controlled overall expenses well, limiting their increase to just over
7% year on year.
Net turnover for Plascon South Africa rose almost 10% in the year. In
the second half, retail sales felt the pinch of the economic slowdown.
However, this was offset by a strong volume performance from the
trade market sector – primarily new construction, industrial and
protective coatings projects in the mining and infrastructure sectors
– as well as good growth in export volumes. The significant impact of
the higher oil price, weaker foreign exchange rates and higher
commodity prices on our cost of sales was countered somewhat by
timely increases in our selling prices and a concerted cost control
effort in all aspects of the business.
Operating profit at R273.7 million was 12% up on last year.
A milestone in the period was the commencement of the capital
projects at the factory site in Mogale City in South Africa’s industrial
and commercial heartland of Gauteng. In the first phase the new
offices, which can accommodate all Plascon staff, have been
completed. The old office site will house the new raw materials
finished goods warehouse which, with the growth in the existing
business, will eliminate bottlenecks. Following on from this project,
Plascon plans to further rejuvenate all its sites in South Africa in the
next few years.
Net assets rose 16.2% to R1 997.2 million, reflecting increased
working capital levels resulting from higher stock and debtor
requirements. These, in turn, were a function of higher inflation and
credit pressure on our smaller trade and retail customers.
Plascon remained at the forefront of innovative design in the year,
garnering a number of further accolades for the state-of-the-art
Plascon Concept Store in the stylish Design Quarter in Fourways,
Johannesburg.
Earnings before interest, taxation, depreciation and amortisation
(EBITDA) increased 9.9% to R321.7 million, principally derived from
South Africa and business with the rest of the continent.
20
Leading the way with Plascon
While our flagship brands cater mainly to the requirements of the
upper end of the market, we are also pleased to report good growth
in volumes in Plascon’s range of value paints, as well as in the
contractor segment of the market.
Plascon’s operations in the rest of southern Africa performed strongly
in the year, with the strong growth in volumes lifting sales well above
those of the previous year. Profitability improved mainly due to
particularly pleasing performances in Botswana and Zambia.
Operations in these countries, as well as those in Namibia, Swaziland
and Malawi, have benefited from increased spending on infrastructure
as well as economic growth. In Zambia, continued investment in the
Copper Belt contributed to a robust result for Plascon there. Despite
a slow first half, business in Malawi recovered sharply in the second
half to end the year slightly ahead of 2007. Post year end, the
remaining minorities in this business have, subject to South African
Reserve Bank approval, been bought out.
corporate brand. Product innovation remains a cornerstone of our
At our Melbourne factory in Australia, Freeworld Coatings Australia
strategy to build on our strong brand equity. We are rolling out an
continued to manufacture the Bristol brand of paints on behalf of PPG.
initiative to simplify our product offerings and educate retailers and
Benefiting from our Chinese initiative
In China, we continued with the assessment of the new paint delivery
system. Our evaluation was focused on the operational testing of the
paint technology and dispensing equipment. As a broader Freeworld
Coatings initiative we are now continuing to refine the paint technology
as well as the suitability of the delivery equipment for application in
various markets, including the important Chinese market.
customers appropriately in-store on the role and application of our
products. In the year ahead, we will continue to focus on education as
the key to driving value.
The substantial pace of infrastructure development in South Africa,
as well as that occurring north of the country’s borders, offers an
important opportunity to that part of our business working with the
trade sector. We believe that this construction activity will provide good
growth opportunities to Freeworld Coatings even beyond 2010, when
Freeworld Coatings Shanghai achieved quality and environmental
South Africa is scheduled to host the 2010 FIFA World Cup football
certifications in the year. We were awarded the Green Label Certificate
tournament, in line with the South African government’s fixed
from the government’s Environmental Protection Bureau representing
domestic investment programme of more than R600 billion over the
official recognition of our products and processes as environmentally
next few years.
compliant. We also received certification for ISO 9001, the
international quality management standard, for our production and
R&D procedures, as well as ISO 14001.
The Decorative Coatings segment considers supply chain
management and cross-border logistics as areas of significant
opportunity to unlock further business value and growth. In the year
Prospects for the year ahead
ahead, we plan to upgrade our manufacturing facilities by adding
In an environment of significant uncertainty in global financial markets,
warehouse capacity in Mobeni and Luipaardsvlei, and rejuvenating
the Decorative Coatings segment will maintain its firm focus on
the premises in Epping. We also plan to continue enhancing the
limiting input costs and closely managing prices and margins. High
skills of our people, as well as the skills of applicators in all our
fuel and electricity costs are placing an increasing burden on overall
markets. Part of the Epping investment relates to further investment
cost management, reinforcing the need for strict expense control and
in the Paint Academy, which provides skills development.
increased productivity throughout the organisation. We continue to
In our 2009 financial year, we believe retail volumes will remain
look at new ways of improving our overall level of productivity.
depressed until stability returns to global financial markets and interest
Proactive and positive brand management remains a strategic theme
rates decline. However, the trade business is expected to remain strong
for all our businesses, and in the year ahead we plan to integrate the
in the lead up to 2010, helped by the momentum in the construction
strong Plascon brand and its sub-brands with Freeworld Coatings’
sector. Ahead of South Africa’s hosting of the 2010 FIFA World Cup we
21
Operational review decorative coatings (continued)
expect a shift towards redecoration of commercial spaces and further
our business in 2009 to ensure improved returns in the years ahead.
investment in roadmarking. We believe the segment’s focus on
Our Namibian business is expected to produce a steady performance,
infrastructure development projects and markets beyond South Africa’s
with increasing exports into southern Angola offering growth potential.
borders will help to counter any shortfalls in the retail sector. While the
As Swaziland’s coatings market has relatively limited potential for
retail segment remains an important part of the business, it represents
growth, we will be looking for efficiency savings in our supply chain
less than 35% of the overall Freeworld Coatings composition.
there in the year ahead.
However, a volatile rand exchange rate and fluctuating commodity
In Australia, we will continue to assess future opportunities for
prices will likely put pressure on margins and mean that 2009 will be
our business.
a challenging year for earnings growth.
décor design centre at our Shanghai facility in the Xinzhuang Industry
remain good, provided that donor projects and aid to the continent is
Park. This will provide greater support to our customers, allow
not disrupted by the international financial crisis. In Botswana, the
localised R&D initiatives as well as enhanced quality control of our
government has increased spending on infrastructure ahead of the
manufacturing process. We expect that this will help to further develop
2009 general election and we are pleased to report that we have
our reputation as a quality coatings supplier in the region.
already secured some of this business. In Zambia, despite the recent
drop in copper prices, sentiment remains positive and there are many
construction projects in the pipeline. In Malawi, we plan to restructure
22
In China, we plan to develop a new technical support laboratory and
Prospects for continued growth in our operations in the rest of Africa
performance coatings
The Performance Coatings
segment produced solid
results lifting turnover
and profit.
Freeworld Automotive Coatings weathered a challenging year well
as South African economic activity decelerated, however it reported
a steady improvement in its business with vehicle manufacturers,
and a satisfactory performance in the auto refinish and distribution
business. Demand for environmentally friendly waterborne coatings
at a number of motor manufacturers boosted volumes and this trend
extended to the refinish aftermarket, where motor manufacturerapproved body shops have now started to demand similar
technologies. In our continuing drive for greater national market
presence, we appointed a number of additional refinish distribution
outlets in the year.
Lifting performance through innovation
The Performance Coatings segment produced solid results lifting
turnover and profit. Higher raw material costs and adverse foreign
exchange fluctuations pressured margins in the segment
which includes our Automotive Coatings, Specialised Coatings,
Complementary Products and Colourant System businesses.
Turnover rose 8.4% to R994.8 million with EBITDA increasing by
3% to R148.7 million as a consequence of stringent cost control.
Operating profit at R129.1 million was 2.3% higher, due to an
increase in the depreciation and amortisation charge.
During the year the transfer of production in automotive OEM
coatings from solvent borne to waterborne products, which is
produced by DuPont Freeworld, continued. This transfer is partly
reflected in the 50% increase in profit from associates. Without this
effect, EBITDA in performance coatings would have been around
8% higher than in the prior year.
Net assets expanded 3.7% to R586.1 million, mainly as a result of
higher working capital requirements in a number of operations. This
was due to increases in raw material costs, compounded by the
devaluation of the currency, and higher stock levels to mitigate the
power outages across South Africa as we moved into the peak
painting season, coupled with higher-than-planned debtor balances
as the economy slowed and credit conditions tightened.
23
Operational review performance coatings (continued)
Midas Earthcote store, Hyde Park
Freeworld Colourant Systems achieved an excellent performance,
improving profits and volumes on strong demand – particularly in
the export market – for our colourants. We made significant
progress in the year in the development and launch to customers
of environmentally compliant products. This is an important
strategic advance, as demand from markets outside South Africa
for products that are Zero VOC-compliant grows (VOC refers to
volatile organic compounds).
Freeworld Specialised Coatings’ Midas Earthcote business continued
to prosper, adding 10 new franchise stores in the year to bring to
60 the total number of stores operating worldwide. A particular
highlight in 2008 was the supply of paint to the new library and
archive being built in Timbuktu, Mali for the renowned Ahmed Baba
Institute. This will house and preserve some 25 000 invaluable
historical manuscripts and other documents. By being part of this
important initiative we believe we are assisting to preserve a
significant African heritage.
Our brushware and related application range, under the umbrella of
Freeworld Complementary Products, showed pleasing growth in
independent hardware stores in the year.
24
Prospects for the year ahead
Careful management of margins will be maintained in the year ahead
as we focus particularly on controlling input costs. The Performance
Coatings segment is more exposed to fluctuations in exchange rates
because of its higher level of export sales and imported raw
materials. Training directed at customers and end-users will also
remain a priority to ensure the continued successful use of our
products, specifically in those areas where application knowledge is
vital to the success of the product. We also plan to continue
appointing new distributors to assist in growing our brand footprint.
While the automotive refinish and colourant businesses remain
reasonably buoyant, the OEM (Original Equipment Manufacturer) side
serviced through DuPont Freeworld shows signs of slowing down
as the reduction in new vehicle sales both at home and abroad
will potentially impact on paint sales to motor manufacturers in the
period ahead. Tighter economic conditions may also increase
the risk of smaller distributors and customers not being able to meet
their payment obligations. This is taken into consideration in our
trading activities.
We believe that further growth opportunities exist in export markets
for our environmentally friendly technology. At home, the outlook for
demand for industrial colourants is also good. However, we are
aware that these opportunities may be restrained by the increasingly
challenging global economic environment.
We believe that further growth
opportunities exist in export
markets for our environmentally
friendly technology.
In the year ahead, we plan to introduce new product ranges,
particularly in the refinish market and in segments which traditionally
have not been a priority. We believe these products will over time
contribute significant volume to the business.
Our Midas Earthcote business intends to continue establishing new
Earthcote franchises in South Africa and abroad in the year ahead.
New franchisees will benefit from the recently introduced initiative
which offers online training to support franchisees with their business
start-up. We also plan to step up training of Earthcote applicators, to
help improve the growth in these products, as well as assist
franchisees in offering a complete painting service to their customers.
In Freeworld Complementary Products, we believe opportunities exist
to expand the footprint of the Hamilton’s brand further into the
southern African region. This will allow a more comprehensive offering
of paint and allied products in our operations in these countries, as
well as provide additional throughput in the Hamilton’s factory.
25
Architectural model of the Ahmed Baba Institute
Partnership to protect our African heritage
With its origins traced to around 1100 C.E. the Malian town of Timbuktu has a rich history as a centre for
scholarship, through the centuries attracting people from diverse cultures throughout the region and
abroad. Timbuktu’s prominence as a place of learning led to a thriving industry in the manufacturing of
books and manuscripts, recording subjects inter alia traditional medicine, astronomy, musicology,
mathematics and the sciences.
In 1973 the Ahmed Baba Institute, named after the town’s most famous scholar, was established to
formalise the collection and preservation of Timbuktu’s literary heritage. Due to the large number and
fragile condition of manuscripts, the Malian and South African governments initiated a partnership through
which training, technical support and assistance for the development of conservation facilities was
provided, including the building of a new library.
As a partner to this initiative, Freeworld Coatings supplied the Earthcote paint for the Ahmed Baba Institute’s
new library, which will house some 25 000 manuscripts and other documents. We are proud to be
associated with the preservation of this significant African heritage, and confident that our products will
not only protect the value of the Institute’s new asset, but also enhance the vibrancy of this display of an
illustrious heritage, to the world.
protecting the vibrancy
and value of our assets
Protecting value through quality finishes
The first indication of a vehicle’s value is the quality of its exterior finishes. Respected as the leading local
manufacturer and marketer of automotive coating systems for over 50 years, Freeworld Automotive
Coatings produces and distributes a range of vehicle coatings to protect the longevity and enhance the
vibrancy of automotive assets.
Freeworld Automotive Coatings directly services South Africa’s automotive manufacturing and aftermarket
vehicle refinishing sectors through our extensive distributor network. Our locally-produced automotive
coatings include Plascon Acryline, Plascon 2K, Cargoline and Flowline. We also market and distribute
premium global brands approved by numerous international motor manufacturers, including Spies Hecker
and Standox under license from DuPont Performance Coatings.
DuPont offers advanced eco-friendly waterborne systems and super-quick drying ultraviolet technology.
DuPont Freeworld’s E Coat, primer and topcoat finishes provide ultimate corrosion protection and aesthetic
vibrancy for vehicle exteriors.
From bare metal through to the final colour finish, Freeworld Automotive Coatings’ quality product range
will enhance and protect the value of your vehicle.
26
finding a better way through
innovation
“I believe that this acquisition is an exciting opportunity and
furthers our intentions of growing our international presence
and building on the essence of our brand, as a world-class
multinational coatings company that is commercially sensible,
socially responsible and a custodian of the environment.”
André Lamprecht
Napier technology acquisition –
investing in innovative environmental technologies
Freeworld Coatings constantly strives to find new ways of implementing our commitment to being a custodian of the earth’s
resources. In line with this commitment we have acquired the global rights outside North America to the intellectual property of a
provider of coating removal and wood restoration products, based on advanced environmentally friendly technology.
This acquisition enables Freeworld Coatings to locally manufacture a range of innovative, environmentally friendly decoating and
wood restoration products including paint strippers, cleaners, varnishes and etchers. These products will help consolidate our
market leading position in the South African coatings sector and allow further expansion of our footprint internationally.
The golden thread that runs through all of these imperatives is innovation, a hallmark of the Freeworld Coatings approach.
27
sustainability
Overview
The business case for sustainability
At Freeworld Coatings, our approach to business is founded on a
28
We acknowledge the magnitude of our responsibility to operate
innovatively and responsibly in the chemical sector, and we
commitment to being a good corporate citizen of the world, by
believe there are many important steps we can take as a coatings
operating in a profitable and sustainable way. Our vision and values,
provider to produce quality products that minimise the impact on
which are intrinsic to our operating ethos, put sustainability at the
the environment.
heart of our business. We believe this sets us apart from many other
Our sustainable development strategy aims to build economic,
companies in the chemical sector.
social and environmental value; to meet the needs and wants of
The tenets of our vision are to be world class, commercially sensible
customers in a commercially sustainable way, which implies
and socially responsible; to acknowledge that we are custodians of
operational excellence and optimal efficiency, as well as social and
the earth and its resources, and conduct our business in an
environmental dimensions. Increasingly, regulators, consumers and
environmentally responsible way. We also seek to play, within our
customers expect our products to meet social and environmental
means, a progressive role in the way we do business.
needs or at least not to do harm to people or the environment.
These principles are built into a unique operating model, Value Based
We strive to design and produce superior products that are
Management, through which our business is organised to create value
differentiated through their positive impact on social and
for all our stakeholders: shareholders and providers of capital,
environmental wellbeing. We foster long-term relationships with
suppliers and other business partners, employees and organised
customers and suppliers, working closely with them to inform the
labour, the communities and governments in the countries in which
sustainability of our business. We choose suppliers with care,
we operate; and to do this in a way that is consistent with our
ensuring that their vision, integrity and approach to sustainability
commitment to stewardship of the earth’s resources.
match our own.
Our vision 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 the chemical sector.
Among others, we envisage the following benefits to our
sustainability approach:
• Margin improvement – cost savings through more
efficient use of energy, labour and material resources.
• Global market access – access to markets through
developing products that meet and conform to international
environmental standards.
• Product differentiation – introducing products with
distinctive environmentally friendly characteristics.
Our approach to ensuring that our business is sustainable rests
finally on creating value for our people. Our desire is to create an
inspiring and supportive workplace that rewards self discipline and
is intolerant of bureaucracy, while ensuring that the attitudes,
actions, skills and capacity of our people are aligned to our vision
and values.
Economic performance
Introduction
We seek to manage our business to ensure sustainable profitable
growth. This allows us to create value for our shareholders, customers,
employees, suppliers and the communities and countries in which
we operate. We believe that sustainable profits are the result of
balancing the interests of all stakeholders and not prejudicing
any stakeholder group in any way. We monitor our economic
performance against internally generated targets as well as peer
group comparisons through the Holt Valuad database, and our
involvement as a member of the Nova Club group of independent
paint manufacturers.
Our Employee Value Creation model, an element of Value Based
Management, has been successful in retaining and attracting the
right people to resource our current growth demands and those in
the foreseeable future.
Sustainability reporting
Sustainability is intrinsic to the way our business is organised and
managed, as indicated in the management and operational reviews
elsewhere in this annual report. However, as a newly listed entity
we continue to develop our sustainability reporting processes.
We recognise we are at the beginning of this journey, but we
remain committed to continual improvement in the management,
measurement and disclosure of our performance across the
economic, social and environmental dimensions of sustainability.
A specific commitment has been taken to implement best practice
environmental reporting standards, which will follow the Global
Reporting Initiative’s G3 guidelines as a framework. We have
included a table of environmental performance indicators to set the
baseline for future environmental reporting. Our reporting on the
economic and social dimensions of sustainability will be given
specific focus in due course.
In presenting our first sustainability report to stakeholders, we
encourage stakeholder feedback, especially related to the issues
that stakeholders believe are most material to cover in future. Please
refer to the inside back cover for a list of relevant contact details.
Economic value generated
R’000
Net sales
Unit of
measure
2007 – 2008
Rands
2 696 744
Operating costs
Rands
790 544
Employee compensation
Rands
569 330
Donations
Rands
1 618
Retained earnings
Rands
189 885
Taxes
– income tax
Rands
89 270
– assessment rates
Rands
3 623
– VAT
Rands
80 679
– PAYE
Rands
86 189
Rands
41 915
Dividends
29
Sustainability economic performance (continued)
Financial implications of climate change
Local community hiring
We recognise that climate change creates opportunities and poses
risks to our business through changing rain and temperature
patterns and potential water shortages, which would have the
following financial impact:
In all instances where our operations are in close proximity to
residential areas, we are able to draw labour directly from those
areas. However, we also have operations in industrial areas in the
larger cities, and in these cases the majority of labour is sourced
from residential areas that are further away.
• Variations in our sales of exterior paint products due to extended
rainy seasons (reduction) or extended dry seasons (increase).
• Increased sales of automotive refinish products due to increased
incidence of road accidents in rainy conditions.
• Higher humidity negatively affecting the chemical properties of
paint causing increased product failure, necessitating increased
development work to remedy the situation and adding increased
costs.
• Restrictions on the use of water would cause capacity limitations
in our water-based production plants, resulting in increased costs
to import the shortfall in the form of finished products.
Further detail on measuring our environmental performance can be
found in the Environmental Performance section on page 34.
Wage levels
We compensate our employees at salary and wage levels that exceed
legislative and other regulatory minima, and many of these are
subject to collective bargaining. Our relationships with the respective
unions representing our employees, which include the Chemical,
Energy, Paper, Printing, Wood and Allied Workers Union, the General
Industries Worker Union of South Africa and the South African
Chemical Workers Union, are constructive and assist us in building
sound shop-floor relationships.
Local spending
We contribute indirectly to the economic wellbeing of the
communities in and around our factories, depots and distributors
in South Africa, Swaziland, Botswana, Namibia, Zambia, Malawi,
Australia and China, due to the economic multiplier effect of the
salaries our employees take home and the taxes they pay to national
government. There is also an indirect impact on the local
government departments in the areas in which our operations are
located, due to rates and other municipal service charges levied on
our employees’ households.
Social performance
Health and safety performance
Occupational Heath and Safety (OH&S) is concerned with protecting the
safety, health and welfare of people engaged in work or employment,
and may also protect co-workers, family members, employers,
customers, suppliers, nearby communities, and other members of the
public who are impacted by the workplace environment.
OH&S can involve interaction among many disciplines, including
occupational medicine, occupational hygiene, public health, safety
engineering, ergonomics, toxicology, industrial relations and public policy.
It is essential to have sound OH&S standards in place for the
following reasons (Source: www.SHER– q.co.za):
Efforts are made to source the bulk of our goods and services locally.
Local purchases are defined as any goods or services purchased from
a supplier that is permanently established in the countries in which we
operate. However, this is not always achievable as some of our raw
materials can only be imported directly.
• Moral basis – an employee should not have to risk injury at
work, nor should others associated with the work environment.
Locally based suppliers
• Economic impact – a company can sustain significant
costs and reputational damage in the event of workplace
incidents (such as legal fees, fines, compensatory damages,
investigation time, lost production, lost goodwill from employees,
customers and communities).
Unit of
measure
2007 – 2008
%
82.8%
Local purchases of
goods and services
Rand
1 382 267
Total purchases of
goods and services
Rand
1 669 404
R’000
Average % of locally
based suppliers
30
Indirect economic impact
• Legal risk – OH&S requirements may be reinforced in civil
law and/or criminal law, with the associated regulatory sanction
or litigation if organisations do not act upon their moral obligation.
Therefore the health and safety of our employees is critically
important to the group and OH&S management forms an integral
part of our Value Based Management approach. The oversight and
implementation of our OH&S strategies and objectives are the direct
responsibility of business unit managing directors.
As a group operating in different selected geographies, we subscribe
to the principles contained in the International Labour Organisation
(ILO) Guidelines on Occupational Safety and Health Management
Systems which include:
• Identification, elimination or control of work-related hazards
or risks.
• Training of line managers to take responsibility for health and
safety, and engage employees through various workplace forums
and committees.
• Setting targets for continuous improvement.
• Complying with relevant laws and regulations.
In South Africa, we operate in accordance with the Occupational
Health and Safety Act, and elsewhere in the world our operations
comply with the applicable local legislation. The group has formalised
joint health and safety committees made up of management and
employee representatives, to ensure broad consultation regarding
health and safety in the workplace. Some 77% of our employees
take part in these joint committees.
Management systems are in place to monitor OH&S compliance.
OH&S hazards and risks are identified through the Freeworld
Coatings OH&S management system as well as through the joint
health and safety committees. Additional OH&S risk management
programmes are implemented at group and business unit level as
required. These include the elimination or substitution of hazardous
substances, or developing processes and engineering practices to
accommodate better management of OH&S risk. The recording and
notification of occupational accidents and diseases across the group
complies with local and international requirements. Regular audits
of the OH&S management system are conducted by Marsh (SA)
Limited. During the reporting period, no material fines or instances
of non-compliance with regulations were recorded.
Occupational health and safety training
To ensure that OH&S issues are decisively addressed, training and
communication are considered integral to the OH&S management
system. In this regard we comply with all relevant legislation.
Safety performance
Our average lost-time injury frequency rate (LTIFR) was 1.66 against
a medium term target of 1 in our core operations. LTIFR is a
calculation of the number of occupational injuries which resulted in
an employee being unable to perform his or her duties for one full
shift or more on the day following that on which the injury occurred,
whether it is a scheduled workday or not. The organisation has plans
in place to achieve or approach our target rate of 1 in 2009.
A number of our sites, including Plascon SA and International Colour
Corporation, have achieved OHAS 18001 accreditation and take
pride in maintaining this international standard.
As part of our safety management programme, we ensure that all
accidents and incidents are reported, monitored and analysed to
prevent re-occurrences. We continue to enforce the relevant safety
rules and regulations within all operations, and high safety
expectations are standard in all our operations. These include
wearing personal protective equipment (PPE), monitoring the
wearing of PPE, the appropriate signage to warn people of potential
hazards and a culture of vigilance in the workplace.
During the reporting period one individual was compensated for an
occupational disease which related to hearing loss.
Health and wellness
The health and wellness of our employees is a vital component of
sustaining our growth. We have a wide range of wellness programmes,
including the provision of medical aid and employee assistance
programmes. We also have on-site clinics at some business units
which provide occupational health programmes and primary healthcare
to employees.
HIV/Aids
The group recognises its responsibility to manage HIV/Aids in the
workplace, and has various programmes in place consisting of
interventions in the following key areas:
• Prevention;
• Education;
• Voluntary counselling and testing (VCT); and
• Disease management.
Preventative programmes include poster campaigns, ongoing
awareness programmes, and dispensers with free condoms at most
workplaces. Most employees in Plascon South Africa and Freeworld
Automotive Coatings have access to counselling, medical advice
and the appropriate treatment. In some instances these are covered
by medical aid schemes but also through company-sponsored
disease management and treatment programmes, which include
the provision of anti-retroviral (ARV) treatment.
Health educators, wellness committees and awareness programmes
have been established at some business units such as Plascon
South Africa, Freeworld Automotive Coatings and International
Colour Corporation to provide employees with information on
HIV/Aids as well as other disease programmes like tuberculosis.
The company ensures ongoing communication with employees that
can be shared with their families and friends to maintain awareness
of HIV/Aids.
31
Sustainability social performance (continued)
Currently, the majority of our employees have undergone VCT, and
we have plans to roll out further VCT programmes during 2009.
Employees
2 503
Employees in Africa who have undergone VCT
1 544
Number HIV-positive employees
109
% HIV-positive in the group
4.4
Human resources report
Introduction
Our Value Based Management philosophy is predicated on building
successful relationships with all our stakeholders. It is imperative
that we value and manage these relationships, which includes
engaging effectively with stakeholders.
To support our desire to be an employer of choice we encourage all
our employees to participate either individually or collectively in the
numerous structures we have within the business units. Our people
management framework, defined by Mission Directed Work Teams
Transfers within the group
We seek to promote integration and knowledge sharing across
business units in different geographies, to cross-pollinate diverse
skills and talents. As such, our policy is to advertise all vacant
positions internally first in the local geographies that we operate in.
Employment equity
Within the South African context we subscribe to the provisions of the
Employment Equity Act and firmly believe in the fair representation
of historically disadvantaged South Africans (HDSAs) at all levels
within our organisation. We are committed to working towards a
workforce profile that reflects the demographics of South Africa.
In terms of gender equality the organisation ensures that it practices
gender fairness in all facets of the business and its operations. Our
ratio of female employees at middle management and technical
levels are reasonably good.
Attracting and retaining talent
The attraction and retention of key skills and talent to ensure the
sustainability and growth of our organisation is an important part of
our people management strategy across the group.
(MDWT) and Employee Value Creation (EVC), ensures that all our
employees’ decisions and outputs are aligned to business strategies
and objectives.
Our MDWT and EVC model encapsulates the vital elements of a
high performing organisation, and is designed to engage the hearts
and minds of all employees so that they come to work with a sense
of purpose, and leave with a sense of achievement. Employees are
trained according to our identified external and internal value drivers,
aiming to sustain predictive value creation through innovation and
continuous improvement. It is crucial that we create an environment
We have a well-developed performance management process in
place, which provides each employee with a scorecard aligned to the
organisation’s strategy and objectives. Annual performance reviews
assess progress against those objectives. Employees are remunerated
competitively and every employee takes part in the group’s incentive
(gain share) scheme, which pays out annual bonuses according to
individual and team contributions to performance.
We ensure that key employees have an individual development plan
and access to a range of training programmes to enhance their
skills further, to fast track the advancement of talented individuals.
where our employees have fun at work and feel that their
contributions are recognised and valued.
We comply with all the relevant labour legislation in managing
our people.
Staff complement
As at the end of September 2008, we employed 2 503 people in
Our commitment to learning and development is demonstrated by
a number of initiatives conducted in 2008, which were targeted at
addressing the skills gaps we have identified in our organisation.
While one initiative can not be deemed more important than another,
the following are notable.
eight countries worldwide.
Plascon South Africa business communication (ABET)
The group’s labour turnover rate is 10.4% and this considered
The business communication programme ensures employees are
developed to ABET (Adult Basic Education and Training) level 4. This
is the level of literacy and numeracy required to be involved in our
Mission Directed Work Teams model, which is a vehicle to drive
performance and involves employees in workplace planning,
implementation, problem solving and continuous improvement
in their business areas. The programme enables employees to
understand organisational goals and assess results in their own
well below the average for the categories of staff that we employ.
(Source: PE Corporate Human Resources Practitioners Handbook –
September 2008.) The turnover of staff was relatively low, the most
notable movement being 210 resignations experienced in the year.
This was caused mainly by the skills shortage in the industry and
staff moving to better positions or relocating.
32
People development
teams, and to participate and contribute more effectively. In addition,
employees who complete this programme would qualify to participate
in a National Qualifying Framework (NQF) 1 learnership in future.
The Academy offers training programmes in coatings application as
Learnership in customer relationship
management
small, medium and micro enterprises (SMMEs) involved in painting
well as tinting, which is listed as a scarce skill in the coatings
industry, as well as an accredited learnership. The project provides
and decorating with the necessary support, technical expertise and
project management skills to be successful in the industry. The
This learnership aims to address two problem areas within our
sales force:
facility is funded by Freeworld Coatings and the Chemical Sector
• The shortage of suitably qualified customer relationship managers
in the coatings industry.
The Construction Painting Learnership provides learners with all the
• The shortage of black employees represented.
of the type of surface to be coated, the correct application and
We have identified Customer Relationship Management (CRM) as a
scarce and critical skill in our industry. Through the learnership we
aim to improve the competence of selected sales consultants who
will be placed in the newly profiled CRM positions. The learnership
also creates opportunities for black sales consultants and CRMs to
be placed on an accelerated learning path, with graduates acting as
coaches. Since this project started in 2006, 38 sales consultants
have participated in the learnership.
methods for application, to quality assurance methods, stock control
Leadership development
We are committed to improve leadership skills, an objective that
was supported by two specific initiatives in the year. Senior leaders
underwent LIQ (Leadership IQ), which provides a unique opportunity
for self-discovery for senior leaders through a number of
assessments that provide insight into their leadership styles and
support the development of relevant leadership skills.
Education Training Authority (CHIETA).
necessary skills to complete a coatings application from identification
and storage. All painting application skills required by a contractor
are covered in this programme making it a good basis for placement
with an established contractor. The learnership is run in collaboration
with MLG Consultants, a fully accredited training service provider.
The Academy has provisional accreditation with the CHIETA.
During the reporting period, the Paint Academy achieved the following:
• Basic brush hand skills programme – national qualification
framework (NQF) level 1 (three-month course):
– A total of 52 learners were trained and accredited.
– All learners were employed – placements included Plascon
South Africa, Midas, Game, RMS, N2 Gateway project, and
three candidates started their own painting business.
• National Certificate in Construction Painting – Learnership, NQF
Junior leaders participated in the DYNA Core programme, which
covers practical skills required by supervisors to do their jobs
competently, including improving team performance, time
management, role clarification, team motivation, performance
management, running effective meetings, coaching, team dynamics
and labour legislation. Our junior leaders find this programme
extremely useful in executing their daily responsibilities.
Bursaries
Five students were awarded bursaries in the year. Our bursary
scheme assists students to complete their studies and enhances
our skills pipeline, ensuring we continue to develop qualified people
who know our business and processes, who can be placed in
positions requiring scarce and critical skills.
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
Academy followed by six weeks of practical on-the-job training
and experience with host contractors.
– To date, two groups have been placed with host contractors,
which include Schneider-Bruce, Paragon, Van Deventer
and Whiteheads.
Enterprise development
Freeworld Coatings established a Paint Training Academy on
the Plascon South Africa site in Cape Town as a way to support
broad-based black economic empowerment (BBBEE) by creating
employment opportunities through skills development.
– Learners are progressing well with positive feedback on both
theoretical training in the classroom and practical training
with hosts.
– The learnership will be completed in May 2009.
33
Sustainability social performance (continued)
Corporate Social Investment
Freeworld Coatings has a comprehensive Corporate Social
Investment (CSI) strategy, implemented under the Plascon South
Africa brand, which has the following objectives:
• To support organisations and initiatives in the communities where
our employees live and work.
• To sensitise employees to the fragility of the environment and to
encourage a caring attitude towards the environment.
• To educate employees in general health, specifically HIV/Aids.
As a company operating extensively in southern Africa, Plascon
South Africa is committed to ongoing investment in local
communities. While embracing worthy causes, we also believe it is
important to be a true part of the communities in which we operate.
Plascon South Africa’s CSI approach
Through our CSI contribution, Plascon South Africa strives to assist
indigent people to improve their surroundings through the
application of quality paint, with a key focus being the improvement
of crèches and schools in poor condition. We try to diversify our
support to include schools in every province.
We support the National Council of the Blind in providing cataract
operations. Our support has to date assisted to provide over 600
people with this operation. Some of our employees have been
fortunate to be invited into theatre to witness a cataract operation.
Although many elderly people suffer from cataracts and the operation
to remove them is a simple procedure, lack of access to medical
facilities means many poor people endure failing eyesight for years.
In our support of restoring vision to these people, we hope that we are
helping to brighten up their lives by putting colour back in their world.
Plascon South Africa is the main sponsor of the Décor Morning
programme, now in its fourth year, which involves well-known guest
speakers who address a target market comprising of people who
are interested in décor and have an interest in charitable events, in
support of Child Welfare South Africa. In lieu of sending Christmas
presents and cards to customers, we make a cash donation to Child
Welfare South Africa, while also providing paint to some of their
children’s homes.
As a provider of paint we have a natural affiliation for the arts, and
we are a member of Business Arts South Africa (BASA), which
promotes the growth of the local art industry. One of our employees
is also involved as a mentor in BASA’s Visual Arts Network.
Notable CSI programmes in 2008
Crèches
Plascon South Africa funded and supplied the paint to upgrade 18
crèches in Kagiso, given that many of our staff at the main factory
in Luipaardsvlei live in this area. Many of these crèches cater for
34
100 children or more from impoverished backgrounds. Crèche
mothers look after and feed many of these children free of charge.
Through an association with READ, we have sought to encourage
the training of educators in the crèches in which we are involved.
Children’s homes
Plascon South Africa contributed R100 000 to Child Welfare, besides
supporting the upgrading of various orphanages around the country,
including the SA Children’s Home in Cape Town which celebrated 200
years in existence, and three large homes in Marlboro, Johannesburg,
adjacent to Alexandra township. We have also provided support to
Cotlands, an organisation offering shelter for abused, abandoned, HIVpositive, orphaned and terminally ill children.
Schools
Plascon South Africa provided paint for toilets and classrooms to the
Soutpan Primary school in Port Elizabeth, with the school raising the
funds for the labour. Due to severe funding shortages, the teachers
of the school have in the past paid for paint out of their own pockets.
Universities
Plascon South Africa has provided support to CIDA University in the
Johannesburg CBD, a free university that caters to impoverished
students. Plascon South Africa supplied paint for various buildings
at the university and trained 48 students to carry out the work.
We also train students at the Master Academy of Construction
campus CIDA, who have been instrumental in building their own
dormitory with funding from the Dell Foundation.
The elderly
Plascon South Africa contributes R220,000 a year to the National
Council for the Blind in order to support 100 cataract operations in
Port Elizabeth, and this year we extended that donation to Taung in
the Free State province where 70 cataract operations were covered.
Environmental and animal welfare organisations
Plascon South Africa sponsored a cash donation and product to the
Wilderness Leadership Foundation, Endangered Wildlife Trust and the
Society for the Prevention of Cruelty to Animals so that the
environment in which these animals live can be improved. Plascon
South Africa also sponsors a penguin in East London called Molly,
who was rescued from an oil spill and now lives in the local aquarium.
Environmental performance
At Freeworld Coatings we specify custodianship of the earth and its
resources as fundamental to our approach to business. In our first
year of independent operation, we have set about establishing
environmental performance monitoring and reporting as a
cornerstone of current and future activities.
Testimonials from learners at the paint academy
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 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. I met a lot of interesting individuals who always made my day
fun and bearable. I became more streetwise and smarter as I grew to learn and love the guys.
Mr Solker, Sir! If ever there was a paragon of virtue, you would be it. You are so firm in your
perceptions and principles and your enthusiasm is contagious. 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.
Jacques Fredericks
The paint academy has taught me many skills and the different ways of handling a brush etc.
The academy has also taught me to respect our fellow students and to have the correct attitude.
Samuel Monakaii
I have learnt to wake up
Guys keep on learning
Way before seven
Always concerning
Listen to Mr Solker
For there’s a yearning,
From nine to eleven
Flames in our Hearts Burning
Mumbling to the guys
To go out money earning
About solvent, pigment and resin
Just to smell our B.M.W’s Tyres Burning
Please!!! God Bless Him!!!
Thanks for the experience guys
With three coats of Top Coat
And whenever you’re in doubt,
For his mansion in heaven
Just look back at yesterday,
For what he has taught me,
And you’ll see enough,
I could never imagine
To make it through tomorrow.
Derrick Jacobs
I have never met more caring people that opened my mind to the world out there. The academy
is a place where knowledge is obtained by asking a simple question, that is how clever our
instructors are, but clever is not the right word to use, ‘wise’ describes them better.
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 they see and do things.
Quen Nel
35
Sustainability environmental performance (continued)
Through our CSI contribution,
Plascon South Africa strives to
assist indigent people to improve
their surroundings through the
application of quality paint.
A group-wide environmental initiative has been put in place with
the aim of moving Freeworld Coatings beyond environmental
compliance to become an industry leader in product processing and
product development, and environmental care.
Our Plascon, Freeworld Automotive Coatings and ICC businesses are
all operated with accredited ISO 14001 and ISO 9001 environmental
management systems. We have set 2011 as the target date to
implement this system in all other group businesses. Increasingly
stringent environmental regulation in some of our export markets
requires that all relevant products meet these standards. Of particular
note is the EU directive on volatile organic compound (VOC) levels
in paints and coatings, as well as the Registration, Evaluation,
Authorisation and Restrictions of Chemicals (REACH) regulations
which are coming into force.
The next year promises to be critical in our environmental activities
with all business units committing to full reporting on a monthly
basis according to the latest generation of GRI indicators (G3). This
will allow for the early identification of environmental trends and,
the setting of firm targets for reduction in intensity of environmental
resource use across the group. Included in these activities will be
the first full carbon footprint report for the group, covering all
greenhouse gases associated with our production processes.
Product innovation
Freeworld Coatings was awarded the 2007 Department of Trade
and Industry’s Support Programme for Industrial Innovation Award
to Large Companies for our vesiculated (air-filled) bead technology,
which allows our paint production processes to significantly reduce
their dependency on titanium dioxide (TiO2). This is an expensive
pigment extracted through energy intensive and high polluting
methods from Ilmenite ore deposits. The same technology also
allows for superior water and stain resistance, washability and
exterior durability from our paint products as well as improved ability
to cover plaster defects.
Product responsibility
All our products are tested at various stages of their production to
ensure compliance with health and safety regulations in the country
of manufacture. Similar compliance is upheld in information contained
on product packaging and labelling, including consumer and
application safety guidelines. No customer complaints were received
during the reporting period, no breach of regulation was incurred and
no fines received for non-compliance with any relevant regulation.
The Best Company to Work For
Plascon South Africa has been named the top company to work for in South Africa’s manufacturing sector according
to Deloitte SA Best Company to Work for Survey 2008. Plascon’s business philosophy of building employee value –
which reflects that of all Freeworld Coatings group companies – has paid dividends.
Commenting on the award André Lamprecht, CEO of Freeworld Coatings, said: “Our business philosophy of Value
Based Management underpins everything we do in the group. It is a way of life that aligns our organisation to
continuously enhancing value for shareholders, employees, customers, suppliers and care for the environment, through
new ways of thinking and acting. This award clearly demonstrates Plascon’s success in creating value for its people,
and we are justly proud of the Plascon team’s achievement.”
This award has to be seen against the backdrop of one of the more challenging business and economic environments
the country has faced.
Baron Schreuder, managing director of Plascon, said: “This is truly a great accolade. It is particularly rewarding amid
difficult and challenging conditions in that we have just come through one of the most difficult operating years we’ve
had in the last decade, given load shedding, significant oil price increases as well as interest rate pressures and
exchange rate fluctuations.
Our employees have demonstrated their unique talents and abilities which have pulled us through this period and
when it came to them voting, they chose Plascon to be the best company to work for. A true reflection of a great team
of employees, which demonstrates the effectiveness of our Employee Value Creation strategy.”
In conducting its annual survey, Deloitte’s premise is that employees are the stakeholders who can establish whether
or not a company is an employer of choice. Deloitte sends its survey separately to employees and the executive team,
with employees’ responses weighted at 100%. Responses are returned directly to Deloitte and are evaluated by a
panel of corporate industry representatives in South Africa.
36
Setting the baseline
The following table presents the key environmental indicators of raw material usage, energy consumption, water usage and discharge, waste,
significant spills and environmental expenditure for 2008. Accurate figures for previous years, prior to the formation of Freeworld Coatings, are
not available for comparative purposes. However, this will change as we move forward, as 2008 will provide the baseline year for future
environmental reporting for the Freeworld Coatings group.
Key environmental indicators 2008
(all Freeworld Coatings business operations, including African operations but excluding Australia):
Raw materials used
Water discharge
Additives
5 652t
Emulsions
12 387t
Extenders
29 040t
Fatty acids
1 937t
Monomers
2 769t
Metal cans and pails
Pigment
8 430t
Steel drums
34 298 units
Resin
7 689t
Pallets
25 302 units
Resin raw material
Solvent
919t
162 915t
Total discharge
111 600kl
Waste by type
Paper and cardboard
Plastic containers
296t
403t
23 068 units
Timber/wood
20t
Solid and general waste
Bristle
19t
Solvents
818kl
Paper
10t
Paint
104kl
Metal cans and pails
17 283 307 units
Paper labels and cartons
16 582 394 units
Plastic containers
Sludge
3 007t
2 301kl
7 215 248 units
Spills and fines
Direct energy consumption
Heavy duty furnace oil
488kl
Diesel
1 022kl
Petrol
1 970kl
Natural gas
149t
• Midas Earthcote reported one effluent discharge which
was dealt with.
– No fines were levied.
• Plascon reported one spill at their Luipaardsvlei plant.
– Remediation was undertaken and no fines incurred.
• ICC reported a spill of 27kl of Monoethylene Glycol.
– Remediation was undertaken and no fines were incurred.
Indirect energy consumption
Electricity
18 687 706kWh
Waste disposal costs, consultancy
and monitoring fees, environmental
rehabilitation costs
Water consumption
Total water
Environmental expenditure
R3 103 919
2 131 399kl
37
corporate governance
Eleanor Chamberlain company secretary
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.
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 board was constituted in October 2007 ahead of the company’s
unbundling from Barloworld Limited. 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 pages 14 to 15. 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;
38
• 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. 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. The board is of the view that
the size, diversity and demographics of the board are appropriate
for the company.
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.
Appointment of new directors
To date the need to consider the appointment of new directors has
not arisen. A formal nomination procedure is currently under review
by the remuneration and nomination committee.
Directors’ induction and training
Throughout the year, the executive directors have facilitated the
orientation of non-executive directors at board and committee
meetings. 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. 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.
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:
Date
Apologies tendered
26 October 2007
No apologies
29 February 2008
No apologies
22 April 2008
NDB Orleyn, PM Surgey
21 May 2008
No apologies
27 June 2008
MM Ngoasheng
DB Ntsebeza
NDB Orleyn
23 July 2008
E Links, PM Surgey
23 September 2008
NDB Orleyn
The board’s first year
As a newly constituted board, the primary focus during its first year
was to familiarise itself with the business to ensure that the overall
direction of the board is effective. While the board is new, it fully
understands its duties and obligations and applies itself to all
matters before it in a fair and sensible manner. It is cognisant at all
times of its duty to give strategic direction to the company. The
board has been given appropriate time to formalise group policies.
Aside from approving the board charter and terms of reference for
its committees, the board has considered the approval of various
group policies. 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.
A formal delegation of authority sets out categories of business
decisions that require approval by the board or subsidiary boards.
A formal self-evaluation of the board and its committees’
performance and effectiveness will be carried out in due course.
The assessment will include an evaluation of the performance of
the chairman and the chief executive officer.
Retirement of directors
In terms of the company’s articles of association, all non-executive
directors retire at the first annual general meeting of the company.
Accordingly, at the forthcoming meeting Messrs RM Godsell,
MM Ngoasheng, DB Ntsebeza, PM Surgey, Prof E Links, Ms Ngonyama
and Ms NDB Orleyn are required to retire. All retiring directors are
eligible and have offered themselves for re-election. In future, at
every annual general meeting, in terms of the company’s articles of
association, at least one third of the directors will retire from the
board. 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.
In October 2007, fees payable to non-executive directors were fixed
for a period of two years by the shareholders of the company prior
to its unbundling from Barloworld Limited. At the expiration of the
two-year period, the fees for non-executive directors will be
recommended by the board and approved by the shareholders at
the annual general meeting.
39
Corporate governance (continued)
The following annual fees were set in October 2007 for nonexecutive directors for the two financial years 2008 and 2009:
Fee per annum (R)
• Registered public accounting firm’s (independent auditor’s)
qualifications and independence;
Chairman of the board, inclusive of fees
payable as chairman of board committees
350 000
• Performance of the company’s independent auditor and internal
audit function; and
Non-executive directors
150 000
• Company’s systems of disclosure controls and procedures,
internal controls over financial reporting, and compliance with
ethical standards adopted by the company.
Chairman of a board committee
80 000
Member of a board committee
40 000
The directors’ emoluments for the year ended 30 September 2008
are set out on pages 101 to 103.
Directors’ interests
Details of the directors’ interests in contracts and in the
company’s share capital are set out on page 102.
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.
At each board meeting, the chairperson reports to the board on the
activities and recommendations made by the committee.
After consideration of the competence, suitability and independence
of Deloitte & Touche, the committee ratified the appointment of
Deloitte & Touche as auditors of the company with effect from its
incorporation. At the end of the year under review, the committee
confirmed that the external auditor had remained independent
throughout the year. Both audit and non-audit services by the
external auditors are reviewed and pre-approved. Non-audit
services are defined in the terms of reference of the committee and
a non-audit services policy was approved by the committee during
the year. As part of the corporatisation of the coatings business
ahead of the unbundling from Barloworld Limited, certain nonaudit services by Deloitte & Touche had been initiated and were
completed during the year.
Mr Thomas was appointed as chief financial officer on 15 October
2007. According to a JSE Listings Requirement that came into
effect on 1 September 2008, the committee is bound to formally
satisfy itself of the appropriateness of the expertise and experience
of the chief financial officer. While this was informally undertaken in
the normal course, it was formalised subsequent to the year end
according to the new requirement.
Four meetings were held during the period under review. All
committee members attended all meetings. The chief executive
officer, chief financial officer, executive: finance Africa, lead audit
partner and senior audit manager of the external auditors attend
meetings of this committee but have no voting rights. The audit,
risk and compliance committee operates according to a written
terms of reference. The committee assists the board, inter alia, in
overseeing the:
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
audit risk and compliance committee. Risk management is
undertaken at subsidiary board level and managed through the
risk management committee which reports to the audit, risk and
compliance committee. Formalised risk management policies are
in place within the group and these have been clearly communicated
to all employees. The risk management committee regularly
undertakes a review of the company’s risk management policies.
The monitoring of the risk management policies is regularly
disclosed to the committee and any deviation from risk management
policies is noted by the board. The total process of risk management
includes a related system of internal controls. An annual risk
assessment is performed at subsidiary level which is then
consolidated at group level and additional risks added. The top 20
risks for the group are then established by the executive and
submitted to the board for review and approval.
• Integrity of the company’s financial statements and the
company’s accounting and financial reporting processes
and financial statement audits;
Internal audit
Prior to the unbundling from Barloworld Limited, the group internal
control function was performed by Barloworld Group Internal Audit
Audit, risk and compliance committee
This committee was established at the board meeting held on
27 October 2007. It is required to have a minimum of two directors
and comprises the following independent non-executive directors:
• Ms B Ngonyama (chairperson)
• Prof E Links
40
• Company’s compliance with legal and regulatory requirements;
during the year under review. During the year under review the
external auditors were assisted in their compliance and substantive
work by cross-company reviews which were conducted by senior
financial personnel throughout the group. The audit, risk and
compliance committee reviews and advises on the selection of the
internal audit manager and at the close of the financial year a
group internal audit manager was appointed to lead the internal
audit function. A group internal audit policy and the internal audit
work plan have been approved by the audit, risk and compliance
committee subsequent to year end. Guidelines on the interface
between work done by external and internal audit functions have
been provided by the audit, risk and compliance committee.
Remuneration and nomination committee
This committee was established at the board meeting held on
27 October 2007. It comprises the following independent nonexecutive directors:
• Mr RM Godsell (chairperson)
• Mr MM Ngoasheng
• Ms NDB Orleyn
Three meetings were conducted during the period under review.
All committee members attended all meetings with the exception
of Ms Orleyn who was not able to attend the meeting held on
22 September 2008, and tendered her apologies accordingly.
The remuneration and nomination committee assists the board in:
• Ensuring alignment of the remuneration strategy and policy with
the company’s business strategy, remuneration philosophy, desired
culture, shareholders’ interests and commercial wellbeing;
• 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.
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;
• 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
The remuneration and nomination committee has a 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
Prior to the unbundling from Barloworld Limited, shareholders
approved the Freeworld Coatings Executive Share Schemes 2007
(the scheme). The maximum number of shares to be utilised for the
scheme is envisaged to not be more than 10% of the issued share
capital of Freeworld Coatings Limited. This currently equates to
20 387 193 ordinary shares. The scheme comprises:
1. Share Appreciation Rights (SARs)
Employer companies nominated eligible employees for participation
in the SAR scheme and two allocations of SARs were considered
and approved by the remuneration and nomination committee
during the year under review.
Allocation
Date
Number of
SARs
Grant price
(R)
1
31/01/2008
7 785 344
9.12
2*
22/09/2008
11 496 344
7.55
* The second allocation is in the process of being issued and granted.
2. Performance Share Plan (PSP)
No annual conditional awards were made under this plan.
3. Deferred Annual Bonus Plan (DABP)
No shares were purchased under the deferred annual bonus plan.
Integrated sustainability reporting
Readers are referred to the sustainability report on page 28 for
a review of the nature and extent of the company’s social,
transformation, safety, health and environmental management
policies and practices.
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
ethics line took 21 calls during the period, resulting in four reports
that required further action. 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.
• 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.
41
chief financial officer’s report
Doug Thomas chief financial officer
As this is our first year as a separately listed company, performance
has been measured against the restated pro-forma financial
information, which was made available at the time of announcing our
interim results.
Profit
Revenue from operations for the financial year ending 30 September
2008 was at R2.7 billion, 14.8% higher than last year. The Decorative
Coatings segment grew sales by 15.3%, despite challenging
economic conditions as the slowdown in demand in retail and DIY
was offset by stronger sales in the Trade segment, whilst the
Performance Coatings segment had a solid year, recording a sales
increase of 8.4%.
EBITDA increased by 9.5% to R464.6 million, as margins came
under some pressure declining from 18.1% to 17.2% of sales. This
is attributable to higher input costs, compounded by a devaluing
currency, and pressure from customers to hold or reduce prices in
an environment of slowing economic growth. This was alleviated to
a certain degree by favourable fair value adjustments on foreign
exchange contracts.
Operating profit likewise increased by 9.7% to R396.9 million.
Net finance costs, as a consequence of increases in JIBAR, were
17.4% higher than last year.
The tax charge was favourable, impacted by a reduction in the
corporate tax rate.
Income from associates increased by 51.3% to R22.4 million
with both the International Paints and the DuPont Freeworld joint
ventures performing strongly. The increase in the results of the
DuPont Freeworld joint venture is partly attributable to the transfer
of production from solvent borne to water products, which are
produced in the joint venture.
The net profit attributable to shareholders of Freeworld Coatings
Limited amounted to R212 million, with headline earnings per share
(HEPS) at 106 cents being 15.2% higher than the pro forma HEPS.
42
Balance sheet
Total assets grew by 6.2% to R4.5 billion, as a result of the capital
expenditure programme which net of depreciation saw property,
plant and equipment increase by 14.5%; coupled with a 27.2%
increase in inventory. The increase in inventory is due largely to
higher input costs, as evidenced by the fact that our raw material
index has increased by more than 20% from last September.
Higher inventory levels was also purposely built to generate stock
ahead of the peak period.
Cash flow and capital expenditure
Cash generated from operations amounted to R375.8 million. The
cash inflow from operating activities of R192.1 million was used to
acquire property, plant and equipment totaling R126 million and
intangibles of R48 million, the bulk of which was attributable to
the acquisition of intellectual property from Napier Environmental
Technologies.
Our R126 million investment in capital expenditure includes the
commencement of the capital projects at the factory site in Mogale
City. In the first phase, the new offices which can now accommodate
all Plascon staff have recently been completed. On the site a new
raw material and packaging warehouse is being built, which with
the growth of the existing business, will eliminate a critical logistical
bottleneck in manufacturing. The old office site will in future also
house the new finished goods warehouse. The investment also
includes the purchase of a building for our Newcastle depot, the
establishment of our new corporate offices in Paulshof, upgrades
to the Mobeni Trade Centre and Port Elizabeth offices, as well as
continued expenditure on the upgrading and modernisation of our
manufacturing facilities.
annual financial statements
43
contents
45Directors’ responsibilities and approval
and certificate of the company secretary
46
Audit, risk and compliance committee report
47
Report of the independent auditor
48
Directors’ report
50
Consolidated balance sheet
51
Consolidated income statement
52
Consolidated cash flow statement
54
Consolidated statement of recognised income and expense
55
Segment reporting
56
Notes to the consolidated annual financial statements
104
Company financial statements
104
Company balance sheet
105
Company income statement
106
Company cash flow statement
108
Company statement of recognised income and expense
109
Notes to the company annual financial statements
113
Definitions
44
directors’ responsibilities and approval
for the year ended 30 September
The directors of Freeworld Coatings Limited (“Freeworld Coatings”) have pleasure in presenting the annual financial statements for the year ended
30 September 2008.
In terms of the South African Companies Act, 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;
• 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
Coatings group.
Supported by the audit, risk and compliance 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 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
2008 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 Freeword 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:
RM Godsell
Chairman
AJ Lamprecht
Chief Executive Officer
Paulshof
18 November 2008
certificate of the company secretary
In terms of Section 268G(d) of the South African 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
Company Secretary
Paulshof
18 November 2008
45
audit, risk and compliance committee report
The Corporate Laws Amendment Act, 24 of 2006 (“CLAA”) which came into effect on 14 December 2007, imposes certain conditions on the establishment
of audit committees. The audit, risk and compliance committee of Freeworld Coatings comprises Ms B Ngonyama (Chairperson) and Prof E Links, both
of whom are independent non-executive directors, as required by the JSE Listing Requirements.
The duties of the audit, risk and compliance committee include the following:
• N ominate for appointment as auditor of the company, a registered auditor, who in the opinion of the audit committee is independent of
the company;
• Determine the fees to be paid to the auditor and their terms of engagement;
• Ensure that the appointment of the auditor is complied with in terms of the CLAA and any other legislation relating to the appointment of auditors;
• Approve a non-audit services policy which determines the nature and extent of any non-audit services which the auditor may provide to the
company; and
• Pre-approve any proposed contract with the auditor for the provision of non-audit services to the company.
The audit, risk and compliance committee is of the view that it has discharged its duties in terms of the CLAA. More detail on how the audit committee
carried out its duties is contained in the Corporate Governance section of the report. Further, the committee has satisfied itself that Deloitte & Touche
and Mr Leon Taljaard, the designated auditor, are independent of the company.
The audit, risk and compliance committee recommended the annual financial statements for the year ended 30 September 2008 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 Ngonyama
Audit, Risk and Compliance Committee Chairperson
18 November 2008
46
report of the independent auditor
TO THE SHAREHOLDERS OF FREEWORLD COATINGS LIMITED
We have audited the group annual financial statements and annual financial statements of Freeworld Coatings Limited, which comprise the directors’
report, the consolidated and separate balance sheets as at 30 September 2008, the consolidated and separate income statements, the consolidated and
separate statements of changes in equity and the consolidated and separate cash flow statements for the year then ended, a summary of significant
accounting policies and other explanatory notes, as set out on pages 48 to 112.
Directors’ responsibility for the financial statements
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.
Opinion
In our opinion, these consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial
position of Freeworld Coatings Limited as at 30 September 2008, and its consolidated and separate financial performance and its consolidated and
separate cash flows for the year then ended in accordance with International Financial Reporting Standards, an in the manner required by the Companies
Act of South Africa.
Deloitte & Touche
Per LT Taljaard
Partner
Registered Auditor
18 November 2008
Building 1
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 Financial Advisory,
L Geeringh Consulting, L Bam Corporate Finance, CR Beukman Finance, TJ Brown Clients & Markets, NT Mtoba Chairman of the Board.
A full list of partners and directors is available on request.
47
directors’ report
The directors are pleased to present this first report on the financial
statements of the company and the group for the year ended
30 September 2008.
Nature of business
Freeworld Coatings Limited, the holding company of the Freeworld
Coatings group, 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 is one
of the 24 largest coatings businesses in the world. Previously known as
Barloworld Coatings and re-established as Freeworld Coatings Limited,
the company was listed on the JSE Limited on 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 2008 are set out
in detail on pages 50 to 112 of this annual report.
Acquisitions for growth
Earlier in the year under review the company announced its acquisition
of the intellectual property of Napier Environmental Technologies Inc.
This acquisition gives the group access to advanced technologies with
which to manufacture products that are environmentally friendly. The
acquisition supports Freeworld Coatings’ intention to be a leader in the
environmental space.
As the market moves toward texture and other specialty application
finishes, Freeworld Coatings has reached agreement with Terraco, a
specialty texture coatings supplier in selected global markets, for local
supply in South Africa. There is considerable synergy between these
products and our existing products.
Year under review
A full review of our first year as a listed entity can be found in the
chairman’s statement and the chief executive officer’s report on pages
8 to 13 of this report.
Share capital
Changes in directorate
The directors during the year and at the date of this report were:
RM Godsell
–
AJ Lamprecht
MM Ngoasheng –
B Ngonyama –
DB Ntsebeza –
NDB Orleyn
–
PM Surgey
–
DA Thomas
–
DG Wilson
–
IG Stevens
–
J van Wyk
–
appointed 25 October 2007
resigned 25 October 2007
According to the company’s articles of association, all non-executive
directors appointed during the financial year under review will retire at
the forthcoming annual general meeting. Accordingly Messrs Godsell,
Ngoasheng, Ntsebeza, Surgey, Prof Links, Ms Ngonyama and Ms Orleyn
will retire at the annual general meeting to be held on 30 January 2009.
All are eligible and have offered themselves for re-election.
Repurchase of shares
At a shareholders’ general meeting on 30 October 2007, the company
was granted a general authority by shareholders to acquire shares
issued by the company. The authority was granted prior to the unbundling
from Barloworld Limited, in terms of the company’s articles of association
and on, inter alia, the following conditions:
• 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;
and
• The acquisitions of ordinary shares in the aggregate in any one
financial year do not exceed 10% (ten percent) of the company’s
issued ordinary share capital in any one financial year.
The company has not exercised this authority during the year under
review.
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.
Company secretary and registered office
Dividends
Business address
Postal address
Balvenie, Kildrummy Office Park
Umhlanga Drive
Paulshof 2191
South Africa
PostNet Suite 263
Private Bag X87
Bryanston 2021
South Africa
Details of the dividends and distributions declared and paid are shown
in note 27 to the annual financial statements on page 85.
Directors
Curriculum vitae for current directors are provided on pages 14 to 15.
Details of directors’ remuneration, share appreciation rights and options
appear on pages 101 to 103.
The company secretary is Mrs ELA Chamberlain and her address and
that of the registered office are as follows:
Subsidiary companies
Details of principal subsidiary companies appear on pages 98 to 99 of
the annual financial statements.
International Financial Reporting Standards
The company’s financial statements were prepared in terms of
International Financial Reporting Standards (IFRS).
48
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 2008.
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 on page 80 of 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.
Major shareholders
Shareholders holding beneficially, directly or indirectly, in excess of 5% of the issued share capital of the company are detailed on page 117 of the
annual report.
Events subsequent to the balance sheet date
Events subsequent to the balance sheet date are set out in note 40 to the annual financial statements.
Special resolutions
Following the unbundling from Barloworld Limited, new articles of association were adopted by the company and its subsidiaries and many subsidiary
companies changed their names in line with the Freeworld Coatings name. A comprehensive list of the company’s subsidiaries and, where applicable,
their former names is provided on page 98. The following special resolutions were passed:
Special resolution registered by
companies and intellectual property
registrations office (CIPRO)
Registration number
Company name
Description of
special resolution
2007/021624/06
Aletris Investment Holdings
No1 Limited
Name changed to:
Freeworld Coatings Limited
15/10/2007
General authority to repurchase
shares and adoption of new
articles of association
30/10/2007
49
consolidated balance sheet
at 30 September
Notes
2008
R’000
Restated
2007
R’000
3 527 594
3 399 651
605 184
1 898 141
795 194
193 009
315
9 906
25 845
528 769
1 890 208
767 471
176 864
536
10 283
25 520
985 064
848 539
460 129
451 723
2 030
71 182
361 595
439 758
514
46 672
4 512 658
4 248 190
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
15
15
2 583 409
(20 579)
190 119
2 418 796
–
–
Interest of shareholders of Freeworld Coatings Limited
Minority interest
Shareholder loans
15
16
2 752 949
23 313
–
2 418 796
20 144
22 187
2 776 262
2 461 127
911 573
313 513
624 691
265 314
21 568
–
4 349
264 881
21 501
22 782
824 823
1 473 550
477 416
7 800
20 243
319 364
466 505
6 921
11 593
988 531
4 512 658
4 248 190
Interest of all shareholders
Non-current liabilities
Interest-bearing liabilities
Deferred taxation liabilities
Provisions
Other non-interest-bearing liabilities
17
10
18
Current liabilities
Trade and other payables
Provisions
Current tax payable
Short term loans and bank overdrafts
Total equity and liabilities
50
19
18
20
consolidated income statement
Notes
2008
R’000
21
2 696 744
Continuing operations
Revenue
464 577
(67 655)
Earnings before interest, tax, depreciation and amortisation
Depreciation and amortisation
Operating profit
Finance costs
Income from investments
22
24
25
396 922
(141 808)
21 381
Profit before taxation
Income tax expense
26
276 495
(81 944)
Profit after taxation
Income from associates
7
194 551
22 359
Profit for the year
Attributable to:
Minority shareholders
Freeworld Coatings Limited shareholders
216 910
29
4 931
211 979
216 910
Earnings per share (cents)
29
105
Diluted earnings per share (cents)
29
105
Dividend per share (cents)
27
10
51
consolidated cash flow statement
Notes
2008
R’000
Cash flows from operating activities
2 684 779
(2 309 005)
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
375 774
(107 180)
6 215
21 381
(82 136)
Cash flow from operations
Dividends paid (including minority shareholders)
214 054
(21 915)
Cash inflow from operating activities
192 139
Cash flows from investing activities
Proceeds on decrease in long term financial assets
Acquisition of other property, plant and equipment
C
3 614
(125 997)
Replacement capital expenditure
Expansion capital expenditure
(80 130)
(45 867)
Acquisition of intangible assets
Proceeds on disposal of property, plant and equipment
(48 027)
4 507
Net cash used in investing activities
(165 903)
Net cash inflow before financing activities
26 236
Cash flows from financing activities
Share issue costs
Repayment of amount due to Barloworld Capital (Pty) Limited
Increase in long-term interest-bearing borrowings
Increase in short-term interest-bearing liabilities
D
Net cash used in financing activities
52
(9 227)
(868 769)
563 880
312 390
(1 726)
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
13
24 510
46 672
Cash and cash equivalents at end of year
13
71 182
notes to the consolidated cash flow statement
2008
R’000
A.
B.
C.
D.
Cash generated from operations is calculated as follows:
276 495
Profit before taxation – continuing operations
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
Other non-cash flow items
47 351
20 304
6 633
1 204
(21 381)
141 808
(3 017)
5 966
Operating cash flows before movements in working capital
Movements in working capital
475 363
(99 589)
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
(98 534)
(11 965)
10 910
Cash generated from operations
375 774
Income tax paid
Amounts unpaid less overpaid at beginning of the year
Income tax expense (excluding deferred tax)
Amounts unpaid less overpaid at end of the year
(11 079)
(89 270)
18 213
Cash amounts paid
(82 136)
3 614
Cash proceeds on decrease in long term financial assets
3 614
Repayment of amount due to Barloworld Capital (Pty) Limited
Short term loan at beginning of the year
Shareholder loan at beginning of the year
Total amount owing at beginning of the year
Barloworld share options acquired
Other movements during the year
Shares issued as part payment
Cash payment
981 555
22 187
1 003 742
44 999
(6 357)
(173 615)
868 769
53
consolidated statement of recognised income
and expense
2008
R’000
Exchange gains on translation of foreign operations
Other reserve movements – losses
Net actuarial gains on post-retirement benefit obligations
17 789
(1 473)
843
Net income recognised directly in equity
Profit for the year
17 159
216 910
Total recognised income and expense for the year
234 069
Attributable to:
4 931
229 138
234 069
54
segment reporting
For management purposes, the group is organised into two major operating divisions, namely Decorative Coatings and Performance Coatings. These
divisions are the basis on which the group reports its primary segmental information. 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 paints, roof paints and specialist decorative paints,
including non-drip enamels.
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;
• repeated heavy abrasion, including mechanical wear and repeated scrubbing with industrial grade solvents, cleansers or scouring agents.
R’000
2008
Business segments
Decorative
Coatings
Performance
Coatings
Eliminations
Total
Group
Consolidated segment revenue
1 967 704
994 796
(265 756)
2 696 744
Segment result
2008
Earnings before interest, tax, depreciation and amortisation (EBITDA)
Depreciation and amortisation
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)
Profit after tax
Income from associates
Attributable to minority shareholders
194 551
22 359
(4 931)
Attributable to Freeworld Coatings Limited shareholders
211 979
Segment balance sheet
2008
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
Net assets
2 776 262
2007
Segmental total assets
Segmental non-interest-bearing liabilities
3 240 919
(649 955)
783 734
(144 227)
4 024 653
(794 182)
Segmental net operating assets
2 590 964
639 507
3 230 471
(897 347)
25 445
(95 533)
21 227
(992 880)
46 672
1 719 062
565 201
2 284 263
Segmental interest-bearing liabilities
Segmental cash and cash equivalents
Segmental net assets
176 864
Net assets
2 461 127
2008
Segmental capital expenditure
104 936
21 061
125 997
Inter segment revenue is priced on an arms length basis.
Geographical segments
The group's two segments operate mainly in Southern Africa at present and therefore a geographical split is not meaningful.
55
notes to the consolidated annual financial statements
1
Accounting policies
General information
Freeworld Coatings Limited (the company) is a public 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.
2
Standards and interpretations effective in the current period
In the current year, the group has adopted IFRS 7 Financial Instruments: Disclosures which is effective for annual reporting periods beginning on
or after 1 January 2007, and the consequential amendments to IAS 1 Presentation of Financial Statements.
The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements
regarding the group’s financial instruments and management of capital (see note 34).
3
Significant accounting policies
3.1 Statement of compliance
The financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”), IFRIC Interpretations and the
Companies Act 61 of 1973, as amended, 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.
As this is the first trading year for Freeworld Coatings Limited, no comparatives have been shown on the income statement and cash
flow statement.
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.
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 post-acquisition
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 management 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,
forms 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.
56
3
Significant accounting policies (continued)
3.4 Business combinations
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.
3.5 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 at 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 a 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 overleaf.
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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 lessee under finance lease are recognised as receivable at the amount 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 a 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 a 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 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.
Rental payable under operating leases are charged to income on a 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
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.
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.
– 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.
3.10 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 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.
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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 a 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
Scheme and the Freeworld Share Appreciation Rights Scheme (SAR Scheme).
3.13 Income tax expense
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 consolidated
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”)
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.
3.14 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.
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3.14 Property, plant and equipment (continued)
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 bases.
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, which 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 patents, trademarks, distribution channels,
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 a 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.
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 so that it will be available for use or sale,
– the intention to complete the intangible assets and use or sell it,
– the ability to use or sell the intangible asset,
– how the intangible asset will generate probable future economic benefits,
– the availability of adequate technical, financial and other resources to complete the development and to use or sell the
intangible asset;
– and the ability to measure reliably the expenditure attributable to the intangible asset during its development.
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.
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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
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.
3.18 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 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 directors’ best estimate of the expenditure 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.
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3.20 Financial instruments
3.20.1 Measurement
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, an equity investment 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 favourable 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 FVTPL. Financial assets at FVTPL are 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 34.
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.
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 unfavourable 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 34.
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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 they expire.
3.20.5 Offset
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.
3.21 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.
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 includes 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.
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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 in 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.
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.
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
A reportable segment is a distinguishable business 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. 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.
3.27 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.
Other 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.
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3.28 Judgments made by management (continued)
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 life and residual values
Property, plant and equipment is depreciated over its useful life 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.
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 decision 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 unit 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
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.
3.30 Comparatives
Prior period errors are retrospectively restated unless it is impracticable to do so, in which case they are applied prospectively.
65
2008
Accumulated
depreciation
and
Cost impairments
R’000
R’000
4
Net
Cost
book purchased at
value corporatisation
R’000
R’000
2007
Accumulated
Net
depreciation
book
and
value
impairments
purchased at purchased at
corporatisation corporatisation
R’000
R’000
Property, plant and equipment
Freehold and leasehold land
and buildings
Investment property
Plant, equipment and furniture
Vehicles
Capitalised leased assets
438 826
52
401 292
82 820
640
(40 481)
(27)
(241 249)
(36 240)
(449)
398 345
25
160 043
46 580
191
384 356
52
356 950
71 680
640
(37 463)
(26)
(216 194)
(30 818)
(408)
346 893
26
140 756
40 862
232
923 630
(318 446)
605 184
813 678
(284 909)
528 769
Net
book
value
R’000
The registers of land and buildings are open for inspection at the premises of the various companies of the group.
Freehold
and
leasehold
land and
buildings
R’000
Investment
property
R’000
Plant,
equipment
and furniture
R’000
Vehicles
R’000
Capitalised
leased
assets
R’000
2008
Balance acquired at corporatisation
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)
Net balance at
30 September 2008
398 345
25
160 043
46 580
191
605 184
Movement of property, plant
and equipment
2008
R’000
#
Translation differences
Translation differences are made up as follows:
Cost
Accumulated depreciation
6 636
(3 155)
3 481
Assets with net book value have been encumbered as detailed in note 17
66
2008
R’000
2007
R’000
17 189
9 396
5
2008
R’000
Restated
2007
R’000
1 890 208
–
–
1 721 356
–
–
7 933
260 413
(91 561)
–
At 30 September
1 898 141
1 890 208
Carrying amount
At 30 September
1 898 141
1 890 208
Goodwill
Cost
At 1 October
Goodwill created at corporatisation, prior to unbundling by Barloworld Limited
Adjustments to goodwill created at corporatisation in terms of IFRS 3 and IAS 12
– Deferred tax liabilities on property revaluations and brands at fair value
– Investments in associates at fair value
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. Further information around the goodwill is available in the notes
to the historical financial information in the prelisting statement.
Adjustments were made to goodwill created at corporatisation in terms of IFRS 3 and IAS 12. These adjustments refer to the raising of deferred
taxation on the property revaluations and deferred tax on brands at fair value, as well as adjusting the investment in associates to fair value. (Refer
to note 32 for further information).
Goodwill has been allocated for impairment testing purposes to the following groups of cash-generating units:
2008
R’000
Decorative segments
Freeworld Plascon Namibia (Pty) Limited
Freeworld Plascon Botswana (Pty) Limited
Freeworld Plascon Zambia Limited
Freeworld Plascon Malawi Limited
Plascon South Africa (Pty) Limited
Performance segments
International Colour Corporation (Pty) Limited
Automotive Coatings Group
Midas Paints (Pty) Limited
Blajohn Properties Limited
Total group
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
1 898 141
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 is 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 cashgenerating 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 2008 are as follows:
Country
South Africa
Discount rate
7.85%
67
6
Trademarks
2008
R’000
Distribution
channels
2008
R’000
Total
intangible
assets
2008
R’000
686 100
–
–
10 000
47 222
–
73 068
–
–
787 277
48 027
(953)
17 961
686 100
57 222
73 068
834 351
Accumulated amortisation and impairment
Charge for the year (note 22)
Disposals
13 369
2 413
(953)
–
13 722
–
–
392
–
6 437
3 777
–
19 806
20 304
(953)
At 30 September
14 829
13 722
392
10 214
39 157
Carrying amount
At 30 September 2008
3 132
672 378
56 830
62 854
795 194
At 30 September 2007
4 740
686 100
10 000
66 631
767 471
Capitalised
software
2008
R’000
Brands
2008
R’000
Cost
Additions
Disposals
18 109
805
(953)
At 30 September
Intangible assets
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 consist of the various trade names the group is supplying to consumers and commercial enterprises and include the following:
Plascon, Plascon Professional, Crown, Polycell, Midas and Midas Earthcote. Brands are amortised over 50 years.
At 30 September 2008, significant trademarks include the Napier and Weathermaster trademarks. Both these trademarks have a remaining
amortisation period of 20 years.
Distribution channels have been 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 – 15 years.
68
7
2008
R’000
Restated
2007
R’000
138 278
–
54 731
–
85 303
–
38 587
–
22 359
(6 215)
–
–
–
91 561
193 009
176 864
Investment
Cost of investment
Share of associates reserves
Beginning of year
Increase in retained earnings for the year:
Profit for the year
Dividends received
Corporatisation adjustment on investment in associates (refer note 32)
Carrying value at 30 September
Carrying value by category
Unlisted associates – shares at carrying value
Valuation of shares
Directors’ valuation of unlisted associate companies
193 009
176 864
212 980
176 864
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
34 960
186 945
1 123
78 993
306 122
22 359
15 482
72 168
397
32 204
272 727
14 778
*Refer note 36 for a detailed list of associate companies.
69
2008
R’000
2007
R’000
Amounts receivable under finance leases:
Gross investment
Less: Unearned finance income
640
(103)
926
(176)
Present value of minimum lease payments receivable
537
750
Receivable as follows:
Present value
Within one year (note 12)
Non-current portion
222
315
214
536
Notes
8
In the second to fifth year inclusive
Minimum lease payments
Within one year
In the second to fifth year inclusive
After five years
315
536
284
356
–
301
625
–
Less: Unearned finance income
640
(103)
926
(176)
537
750
537
750
9 203
10 283
6 301
2 902
6 942
3 341
579
124
–
–
9 906
10 283
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% (2007: prime less 1%).
The average effective interest rate contracted is approximately 14,5 % (2007: 12,95%).
The average monthly rentals are R25k (2007: R25k) and the lessees will acquire the
machinery at the end of the lease for R5. The finance leases are secured by assets
leased under instalment sales. (Refer note 4).
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
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 executive directors for
the purchase of shares amounting to R2 902k (2007: R3 341k). 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%.
70
10
2008
R’000
Restated
2007
R’000
Movement of deferred taxation
Balances acquired at corporatisation
– deferred taxation assets
– deferred taxation liabilities
25 520
(264 881)
–
–
Net liability acquired at corporatisation
Arising on acquisition and disposal of subsidiaries
Recognised in income statement this year
Rate change adjustment
Accounted for directly in equity
Other movements
(239 361)
–
(1 383)
8 709
1 110
(1 952)
(6 592)
–
(239 361)
–
–
–
–
–
Net liability at end of the year
(239 469)
(239 361)
– deferred taxation assets
– deferred taxation liabilities
25 845
(265 314)
25 520
(264 881)
1 032
10 933
8 513
1 164
4 203
–
13 085
5 444
2 311
4 680
25 845
25 520
(263 028)
(34)
(2 252)
–
(263 194)
(171)
(413)
(1 103)
(265 314)
(264 881)
145
(4 256)
1 517
(1 066)
2 277
–
–
–
–
–
(1 383)
–
Deferred taxation
Analysis of deferred taxation by type of temporary difference
Capital allowances
Provisions and payables
Prepayments and other receivables
Effect of tax losses
Retirement benefit obligations
Deferred taxation liabilities
Capital allowances
Other temporary differences
Amount of deferred taxation (expense)/income recognised in the income statement
Capital allowances
Effect of tax losses
Retirement benefit obligations
71
11
2008
R’000
Restated
2007
R’000
Raw materials and components
Work in progress
Finished goods
Merchandise
Consumable stores
Other inventories
157 928
26 220
255 145
–
20 340
496
115 087
19 697
218 178
7 767
866
–
Total inventories
460 129
361 595
The value of inventories has been determined on the following basis:
First-in first-out and specific identification
Weighted average
327 868
132 261
251 521
110 074
460 129
361 595
4 095
2 001
7 352
5 009
Trade receivables
Less: Allowance for doubtful debts
Finance lease receivables (note 8)
Fair value of derivatives
Other receivables and prepayments
412 275
(6 179)
222
2 072
43 333
382 697
(7 438)
214
22
64 263
Total trade and other receivables
451 723
439 758
Inventories
Inventory pledged as security for liabilities
The secured liabilities are included under amounts due to bankers and short term loans (note 20)
Amount of write down of inventory to net realisable value and losses of inventory
12
The average credit period on sale of goods varies between 30 – 74,5 days for its South African operations and between 30 – 53 days for its other
Southern African operations. Generally no interest is charged on trade receivables. The group has provided fully for receivables that are 120 days
and generally not recoverable. Trade receivables between 60 days and 120 days are provided for based on estimated irrecoverable amounts from
the sale of goods, determined by reference to past default experience.
Before accepting any new customer, the group uses an external credit rating system or credit guarantees to assess the potential customer’s credit
quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed between once and twice a year. Of the trade
receivables balance at the end of the year, R59 405k is due from the Massmart Group, 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 group’s trade receivable balances are debtors with carrying amounts of R61 298k (2007: R55 953k) which are past due at the
reporting date for which the group has not provided as there has not been a significant change in credit quality and the amounts are still
considered to be recoverable. The group does not hold any collateral over these balances.
72
12
2008
R’000
Restated
2007
R’000
Trade and other receivables (continued)
Ageing of past due but not impaired
0 – 30 days
30 – 60 days
60 – 90 days
90 + days
5 889
39 644
8 189
7 576
8 721
8 429
23 289
15 514
Total
61 298
55 953
Movement in the allowance for doubtful debts
Balance at corporatisation
Impairment losses recognised on receivables
Impairment losses reversed during the year
Other
(6 483)
(253)
524
33
(6 483)
–
–
–
Balance at the end of the year
(6 179)
(6 483)
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 R6k (2007: R9k) 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 all of these balances.
Restated
2008
2007
R’000
R’000
Ageing of impaired trade receivables
60 – 90 days
90 – 120 days
120 + days
Total
13
2 975
3 520
3 642
1 658
1 455
5 442
10 137
8 555
55 044
16 138
46 672
–
71 182
46 672
54 315
16 867
25 463
21 209
71 182
46 672
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, Hong Kong Dollar,
Chinese Renminbi and the Australian Dollar.
73
14
2008
R’000
2007
R’000
3 000
3 000
3 000
3 000
2 038
1 813
2 038
1 813
Share premium:
2 581 371
2 416 983
Balance at beginning of year
Cost written off against share premium
Shares issued during the year
Premium on new issue of shares
2 416 983
(9 227)
173 615
–
–
–
–
2 416 983
Total issued share capital and premium
2 583 409
2 418 796
181 320
22 552
–
–
–
181 320
203 872
181 320
Authorised share capital
Ordinary
300 000 000 ordinary shares of 1c each
Issued share capital
203 871 939 (2007: 181 319 000) fully paid ordinary shares of 1c each
Issued shares:
Total number of shares in issue at beginning of year (’000)
Issued during the year (’000)
Unbundling restructuring issue of shares (’000)
Total number of shares in issue at end of year (’000)
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
Share-based payment expense per the income statement
2008
R’000
Expense arising from share-based payment transactions
2 003
Total share-based payment expense
2 003
Balance sheet effect
Net reduction in shareholders’ interest as a result of share-based payment transactions
41 995
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.
74
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 was calculated using a binomial option pricing model with the following inputs:
Date of grant
1 April 2003
26 May 2004
1 July 2007
245 500
66 117
47,50
47,50
35,00
5,80
10,40
2,00
257 000
79 676
67,80
67,80
35,00
4,30
10,90
2,00
65 291
–
75,05
121,50
35,00
3,00
8,60
2,00
16,59
25,37
46,41
Number of options granted
Additional options granted
Exercise price (R)
Share price at grant date (R)
Expected volatility (%)
Expected dividend yield (%)
Risk free rate (%)
Exercise multiple (Share price at exercise date/option exercise price)
Estimated fair value per option (R)
Total share options and appreciation rights unexercised
The following Barloworld options or rights granted to directors and executives are unexercised:
Date of grant
29 May 00
25 Sep 01
1 Apr 03
26 May 04
12 Jul 07
Date
from which
exercisable
29 May 03
25 Sep 04
1 Apr 06
26 May 07
12 Jul 10
Contractual
life
Expiry remaining
date
(years)
29 May 10
25 Sep 11
1 Apr 13
26 May 10
12 Jul 13
1,70
3,00
4,50
1,70
4,80
Modified
price after
Original
Coatings
option unbundling
price (R)
(R)
36,70
45,70
47,50
67,80
123,88
8,80
13,63
14,59
25,48
n/a
Number of options
Directors Executives#
Ceded*
–
–
4 665
35 775
65 291
16 794
22 503
61 659
133 955
–
–
–
19 433
45 719
–
105 731
234 911
65 152
The following Pretoria Portland Cement (“PPC”) options or rights granted to directors and executives are unexercised:
Date of grant
25 Sep 01
1 Apr 03
26 May 04
Date
from which
exercisable
25 Sep 04
1 Apr 06
26 May 07
Contractual
life
Expiry remaining
date
(years)
25 Sep 11
1 Apr 13
26 May 10
3,00
4,50
1,70
Modified
price after
Original
PPC
option unbundling
price (R)
(R)
45,70
47,50
67,80
11,43
11,88
16,95
Number of options
Directors Executives#
Ceded*
–
43 296
–
1 856
10 213
167 314
–
–
–
43 296
179 383
–
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.
75
14
Number of
options
Weighted
average
exercise
price (R)
2008
Options at the beginning of the year
Options exercised
572 590
(166 796)
20,16
18,82
Options unexercised at year-end
405 794
22,38
Held by:
Directors and executives
Financial institutions
340 642
65 152
22,38
–
405 794
22,38
PPC share options movement for the year
2008
Options at the beginning of the year
Options exercised
276 798
(54 119)
20,16
18,82
Options unexercised at year-end
222 679
22,38
Held by:
Directors and executives
222 679
22,38
222 679
22,38
Barloworld share options movement for the year
14.1.2 Freeworld Coatings Executive Share Schemes 2007
Financial effect of share-based payment transactions
Share-based payment expense per the income statement
2008
R’000
Expense arising from share-based payment transactions
2 784
Total share-based payment expense
2 784
Balance sheet effect
Net reduction in shareholders’ interest as a result of share-based payment transactions
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 to ordinary shares in the issued
capital of Freeworld (or the cash equivalent), which entitlement is based on the appreciation in the market value of the shares.
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.
76
14
Fair value estimates
The rights are to be expensed over their vesting period in terms of IFRS2. The estimated fair value of these rights were calculated using the BlackScholes Option pricing model with the following inputs.
Date of grant
31 Jan 2008
7 785 344
nil
9,12
9,12
22,10
2,50
8,80
3,79
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 (%)
Estimated fair value per option (R)
As Freeworld Coatings Limited was only listed recently, no historical volatility information exists and historical volatility information of similar
companies listed in the same sector was used in estimating Freeworld’s expected volatility.
Total share options and appreciation rights unexercised
The following rights granted to directors and executives are unexercised:
Date of grant
31 Jan 08
Date
from which
exercisable
31 Jan 11
Expiry date
Contractual
life
remaining
(years)
Option
exercise
price (R)
30 Sep 14
6,0
9,12
Number of options
Directors
Executives
1 005 263
6 780 081
1 005 263
6 780 081
No share appreciation rights were exercised during the year.
A second allocation of SARs rights totalling 11 496 344 was approved by the remuneration committee on 22 September 2008 and is in the
process of being issued and granted.
Weighted
average
Number
exercise
Share appreciation rights movement for the year
of SARs
price (R)
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
77
15
Share capital
and premium
R’000
Foreign
currency
translation
reserves
R’000
Net actuarial
gains/(losses)
on postretirement
benefits
R’000
Cash flow
hedge reserve
R’000
2 418 796
–
–
–
–
–
–
17 789
–
–
–
–
–
843
–
–
–
–
–
–
173 840
(9 227)
–
–
17 789
–
–
–
–
843
–
–
–
–
–
–
–
–
2 179
–
–
–
–
–
–
(2 179)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2 583 409
17 789
843
–
Consolidated statement of changes in equity
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
15.1 Foreign currency 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.
15.2 Actuarial gains/losses on post-retirement benefits
Actuarial gains and losses on post retirement benefits are recognised in equity.
15.3 Equity compensation reserve
Equity compensation reserve comprises the net fair value of equity instruments granted to employees expensed under share incentive schemes.
15.4 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.
78
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
20 144
22 187
2 461 127
–
–
–
–
17 789
–
843
–
–
(1 473)
–
211 979
17 789
(1 473)
843
211 979
–
–
–
4 931
–
–
–
–
17 789
(1 473)
843
216 910
–
–
–
–
–
18 632
–
–
–
–
210 506
–
–
–
–
229 138
173 840
(9 227)
–
–
4 931
–
–
–
–
–
–
–
(22 187)
–
234 069
173 840
(9 227)
(22 187)
–
–
(44 999)
–
(44 999)
–
–
–
(44 999)
–
–
–
–
–
(44 999)
2 784
2 784
–
2 784
–
–
2 784
2 002
1 002
–
–
2 002
1 002
–
–
–
–
–
(20 387)
2 002
1 002
–
(20 387)
–
–
(234)
(1 528)
–
–
–
–
2 002
1 002
(234)
(21 915)
(39 211)
(20 579)
190 119
2 752 949
23 313
–
2 776 262
Minority
interest
R’000
Shareholder
loans
R’000
Interest of all
shareholders
R’000
79
16
17
2008
R’000
Restated
2007
R’000
Non-interest-bearing shareholders’ loans
–
22 187
Total non-interest-bearing liabilities
–
22 187
667 636
7 669
(42 945)
(3 320)
624 691
4 349
Shareholder loans
Total South African Rand and foreign currency
long term borrowings
Less: Current portion redeemable and
repayable within one year (note 20)
Included above are secured liabilities as follows:
Liabilities secured
2008
2007
R’000
R’000
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
Net book value of assets
encumbered
2008
2007
R’000
R’000
2 261
9 642
4 660
2 001
4 085
12 380
6 413
2 001
610
195
780
228
554
170
928
227
12 708
7 669
17 189
9 569
8 285
4 809
4 095
–
7 568
2 001
17 189
9 569
Unsecured loans
Long term loan with Nedbank Limited, interest rate at JIBAR + 1,8 % and repayable over seven years with years one and two having a
capital holiday.
Secured loans
South Africa
Instalment sale obligations are secured over fixed assets with a net book value of R4 085k (2007: R6 413k) and bear interest linked to R.S.A.
money market rates. The lease terms vary between three and five years.
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 BWP7 050k and bears interest at 15%.
The loan is repayable in monthly installments of BWP163k over five years.
Long term loan with Nedbank Limited and is secured over inventory with a net book value of MWK69 524k and bears interest at 19,5%. The loan
is repayable over two years.
80
17
Interest-bearing liabilities (continued)
South African
Liabilities under instalment sales from Nedbank Limited and Wesbank Corporate, a division of First National Bank Limited, are payable over
an average term of 1 to 5 years at an average effective borrowing rate of 15,6%. Interest rates are linked to prime rate. The group’s obligations
under instalment sales are secured by the assets acquired under the instalment sale, which for purposes of security have a value of R554k (2007: R928k).
Foreign currencies
The loans are secured over motor vehicles with a net book value of N$170k (2007: N$227k) and bear interest linked to R.S.A. money market
rates and Avis Fleet Services Full Maintenance Leases rates. The loans are repayable as follows:
– Monthly instalments of N$5k until January 2011
– Monthly instalments of N$4k until October 2010
18
2008
R’000
Restated
2007
R’000
21 568
7 800
21 501
6 921
29 368
28 422
Provisions
Non-current
Current
Total
R’000
Leases
R’000
Post-retirement
benefits
R’000
Warranty
claims
R’000
Other
R’000
Amounts recognised during the year
Amounts utilised during the year
Unused amounts reversed during the year
Unwinding of discount on present
valued amounts
Disposals provision
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
Movement of provisions
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 was carried out as at 30 September 2008 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 over the
term of the lease agreement and not when the operating lease payments are made.
81
19
2008
R’000
Restated
2007
R’000
475 893
680
843
464 718
1 787
–
477 416
466 505
Fair value of derivatives
Bills and leases discounted with recourse
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.
20
2008
R’000
Restated
2007
R’000
8 119
268 300
42 945
3 656
981 555
3 320
319 364
988 531
313 915
5 449
987 824
707
319 364
988 531
Short term loans and bank overdrafts
Bank overdrafts and acceptances
Short term loans
Current portion of long term borrowings (note 17)
Amounts due to bankers and short term loans are comprised as follows:
South African Rand
Foreign currencies
20.1 Short term loans
The short term loan is with Nedbank Limited with a current interest rate at 1 month JIBAR +1,2 %, unsecured and repayable on demand.
20.2 Additional information
2008
R’000
Restated
2007
R’000
Short term loan and overdraft facilities
Utilised
422 000
(276 419)
422 000
(3 656)
Available
145 581
418 344
2008
R’000
21
Revenue
Sale of goods
Rendering of services
Rentals received
2 660 514
36 201
29
2 696 744
82
2008
R’000
22
Operating profit
Operating profit is arrived at as follows:
Revenue
Less: Net expenses
2 696 744
2 299 822
Cost of sales
Distribution costs
Administrative costs
Other operating costs
Other operating income
1 524 707
486 741
275 901
60 486
(32 584)
(15 429)
396 922
Expenses include the following:
Depreciation (note 4)
Amortisation of intangibles (note 6)
Operating lease charges:
47 351
20 304
14 442
Land and buildings
Plant, vehicles and equipment
10 813
3 629
Research and development costs
Administration, management and technical fees paid
Auditors’ remuneration:
7 113
4 457
5 435
Audit fees
Fees for other services
5 099
336
Directors’ emoluments paid by holding company
Total directors’ emoluments
Executive directors
13 665
10 118
Salaries and benefits
Bonuses
Retirement and medical contributions
Car allowances
4 670
3 904
863
681
Fees
1 470
Key management personnel
26 650
Salaries
Bonuses and incentives
Retirement and medical contributions
Share options awarded
Car allowances
Other benefits
11 981
8 734
1 759
2 169
1 772
235
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 recognised on financial assets
Loans and receivables (incl. trade receivables)
Government grants received
Donations
354 943
34 892
1 204
70
(1 582)
1 618
83
2008
R’000
23
24
Gains on financial assets classified as loans and receivables
Gains on financial liabilities at amortised cost
Gains on financial assets/liabilities held for trading
1 351
264
13 814
Total fair value adjustments on financial instruments
15 429
Finance costs
Interest paid:
Long term borrowings
Bank and other short term borrowings
Capitalised finance leases
Other
Total interest paid
25
83 785
56 265
168
1 590
141 808
Interest received
21 381
Total income from investments
21 381
Investment income earned on financial assets, analysed by category of asset, is as follows:
Loans and receivables (including cash and bank balances)
Held-to-maturity investments
21 061
108
Investment income earned on non-financial assets
21 169
212
21 381
26
Income tax expense
South African normal taxation
Current year
Prior year
87 706
(1 166)
86 540
Foreign and withholding taxation
Current year
Prior year
395
–
395
Deferred taxation
Current year
Prior year
Attributable to a change in the rate of income tax
(3 874)
5 257
(8 709)
(7 326)
Secondary taxation on companies
Current year
2 335
2 335
Total group
84
81 944
2008
%
26
Income tax expense (continued)
Reconciliation of rate of taxation:
South Africa normal taxation rate
Reduction in rate of taxation
28.0
(6.6)
Exempt income
Unprovided temporary differences
Rate change adjustment
Tax losses of prior periods
Prior year taxation
(0.5)
(0.8)
(3.1)
(1.5)
(0.7)
Increase in rate of taxation
8.2
Disallowable charges
Unprovided temporary differences
Foreign tax differential
Current year tax losses not utilised
Prior year taxation
2.4
0.6
0.1
2.1
2.2
0.8
Taxation as a percentage of profit before taxation
29.6
Deferred taxation as well as normal taxation was calculated at 28 % for all South African entities at 30 September 2008, following a change in
the corporate taxation rate from 29 % to 28 %.
2008
R’000
27
Group tax losses and STC credits at the end of the year:
South African – taxation losses
South African – unutilised STC credits
Foreign – taxation losses
12 919
6 215
14 012
Utilised to reduce deferred taxation liabilities or create deferred taxation assets
33 146
–
Losses on which no deferred taxation assets raised due to uncertainty regarding utilisation
33 146
Dividends
Ordinary shares
Interim dividend paid at 10 cents per share
20 387
Paid to Freeworld Coatings Limited shareholders
Paid to minorities of Freeworld Coatings Limited
20 387
1 528
21 915
An ordinary dividend of 10 cents per share is payable in January 2009.
28
Freeworld Coatings Limited shareholders’ attributable interest in subsidiaries
Attributable interest in the aggregate amount of profits and losses of subsidiaries, after taxation, including associate companies
Less: Dividends received from subsidiaries
277 090
(65 111)
Freeworld Coatings Limited shareholders’ interest
211 979
85
2008
R’000
29
Earnings per share
29.1 Fully converted weighted average number of shares
Weighted average number of ordinary shares
201 136
Fully converted weighted average number of shares
201 136
29.2 Earnings
Profit for the year from continued operations attributable to equity holders of Freeworld Coatings Limited
211 979
Total earnings
211 979
Basic
105
201 136
105
Diluted
201 136
105
The share appreciation rights are anti-dilutive as they do not result in a decrease of earnings per share.
29.3 Headline earnings per share
Profit for the year from continued operations attributable to Freeworld Coatings Limited shareholders
Adjusted for the following
– Impairment of investments
– Loss on disposal of plant and equipment
Tax effect of above
211 979
Headline earnings
212 906
Weighted average number of shares in issue for the year
Headline earnings per share – basic (cents)
201 136
106
83
1 204
(360)
106
Headline earnings per share – diluted (cents)
30
2008
R’000
Restated
2007
R’000
51 913
24 504
29 123
14 590
76 417
43 713
Commitments
Capital expenditure commitments to be incurred:
Contracted
Approved but not yet contracted
Commitments will be spent substantially in 2009 and 2010. Capital expenditure will be financed by funds generated by the business, existing
cash resources and borrowing facilities available to the group.
86
30
Commitments (continued)
Lease commitments:
2008 Financial year
Operating lease commitments
Land and buildings
Motor vehicles
Other
Long term Medium term
> 5 years
2 – 5 years
R’000
R’000
Short term
<1 year
R’000
2008
Total
R’000
2007
Total
R’000
93
–
–
7 860
1 049
3 872
6 128
816
2 528
14 081
1 865
6 400
19 652
285
955
93
12 781
9 472
22 346
20 892
Land and building commitments include the following items:
Commitments for the operating and administrative facilities used by 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
2008 Financial year
Present value of minimum lease payments
Motor vehicles
Other
Long term Medium term
> 5 years
2 – 5 years
R’000
R’000
Short term
<1 year
R’000
2008
Total
R’000
2007
Total
R’000
–
–
118
416
77
194
195
610
227
781
–
534
271
805
1 008
Motor vehicles
Other
–
–
118
474
77
271
195
745
227
984
Total including future finance charges
–
592
348
940
1 211
Future finance charges
(135)
(203)
Present value of lease commitments (note 17)
805
1 008
Long term
> 5 years
R’000
Medium term
2 – 5 years
R’000
Short term
<1 year
R’000
2007
Total
R’000
–
–
168
608
59
174
227
781
–
776
233
1 008
Motor vehicles
Other
–
–
168
722
592
263
227
984
Total including future finance charges
–
890
855
1 211
Finance lease commitments
2007 Financial year
Present value of minimum lease payments
Motor vehicles
Other
Future finance charges
Present value of lease commitments (note 17)
(203)
1 008
87
31
2008
R’000
2007
R’000
6 255
54 242
Contingent liabilities
Guarantees to third parties
The back to back guarantee of R50 million to Barloworld Limited as security for the group’s overdraft was cancelled on arranging unsecured
financing through Nedbank Limited.
Freeworld Coatings Limited has agreed to subordinate R65 647k of its claim against Blajohn Properties Limited for the benefit of other creditors.
A subordination agreement is in place in this regard.
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 regard.
32
Effect of restatements
R’000
Goodwill
Deferred taxation liability
As previously
reported
Adjustment
Restated
1 721 356
(4 468)
85 303
168 852
(260 413)
91 561
1 890 208
(264 881)
176 864
1 802 191
–
1 802 191
Adjustments were made to goodwill created at corporatisation in terms of IFRS 3 and IAS 12. These adjustments refer to the raising of deferred
tax on the property revaluations and deferred tax on brands at fair value, as well as adjusting the investment in associates at fair value.
33 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 for the group from 1 July 2009.
The amendments to the standard includes:
– 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 equity the impact of all transactions between the controlling and non-controlling shareholders
not involving a loss of control;
– focusing on what is given to the vendor as consideration, 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 affect profit and loss; 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.
88
33 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 the format of the income statement and 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.
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 deficit
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 for the group 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 12 – Service concession arrangements
The interpretation is effective for the group for annual periods beginning on or after 1 January 2008.
Service concessions are contractual service arrangements whereby a government or other public sector entity grants contracts for the supply of
public services such as roads, airports, prison, energy and water supply distribution facilities to private sector operators. This interpretation
provides guidance on how service concession operators should apply existing IFRS to account for the obligations they undertake and the rights
they receive in service concession arrangements. This interpretation is not applicable to the business of the group.
IFRIC 13 – Customer loyalty programmes
IFRIC 13 is applicable for the group for annual periods beginning on or after 1 July 2008.
The interpretation addresses the recognition and measurement of obligations to provide customers with free or discounted goods or services if and
when they choose to redeem their loyalty award credits. The interpretation requires entities to allocate some of the proceeds of the initial sale to the
award credits and recognise these proceeds as revenue only when the obligations have been fulfilled. They may fulfill their obligations by supplying
awards themselves, or engaging and paying a third party to do so. This interpretation is not expected to impact the group’s results significantly.
IFRIC 14 – IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction
IFRIC 14 is applicable for the group for annual periods beginning on or after 1 January 2008.
IFRIC 14 provides a clearer interpretation of the amount of a pension fund surplus that can be recognised as an asset. The availability
of a refund of surplus or a reduction in future contributions (economic benefits) is determined based on the terms and conditions of the plan and
any relevant statutory requirements.
Any changes in the defined benefit asset will be recognised immediately in profit or loss. The impact of this interpretation has not yet
been assessed.
89
33 Changes in accounting policy and disclosures (continued)
IFRIC 15 – Agreements for the construction of real estate
IFRIC 15 is applicable for the group 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.
This interpretation is not applicable to the business of the group.
IFRIC 16 – Hedges of a net investment in a foreign operation
IFRIC 16 is applicable for the group for annual periods beginning on or after 1 October 2008.
The Interpretation clarifies the accounting for net investment hedges under IFRS. Notably, it provides guidance on the following issues:
– which foreign currency risks qualify for hedge accounting, and what amount can be designated;
– where within the group the hedging instrument can be held; and
– what amount should be reclassified to profit or loss when the foreign operation is disposed of.
On 22 May 2008, the International Accounting Standards Board (IASB) issued its latest Standard, titled Improvements to International Financial
Reporting Standards 2008. The Standard included 35 amendments to various Standards.
Annual period
Standard
beginning on or after
IFRS 1 – First-time adoption of International Financial Reporting Standards
IFRS 5 – Non-current assets held for sale and discontinued operations
IAS 1 – Presentation of financial statements
IAS 16 – Property, plant and equipment
IAS 19 – Employee benefits
IAS 20 – Accounting for government grants and disclosure of government assistance
IAS 27 – Consolidated and separate financial statements
IAS 28 – Investment in associates
IAS 29 – Financial reporting in hyperinflationary economies
IAS 31 – Interests in joint ventures
IAS 32 – Financial instruments – presentation
IAS 36 – Impairment of assets
IAS 38 – Intangible assets
IAS 39 – Financial instruments – recognition and measurement
IAS 40 – Investment property
IAS 41 – Agriculture
34
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
Financial risk management
34.1 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.
34.2 Categories of financial instruments
Financial assets
Fair value through profit or loss
– Held for trading
Loans and receivables (including cash and cash equivalents)
Financial liabilities
Fair value through profit or loss
– Held for trading
Financial liabilities at amortised cost
90
2008
R’000
2007
R’000
2 072
441 124
–
442 765
443 196
442 765
680
1 421 471
1 787
406 387
1 422 151
408 174
34
Financial risk management (continued)
34.3 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.
34.4 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 contract to hedge foreign currency exposures.
Net foreign currency monetary assets/(liabilities)
Currency of assets/(liabilities)
Other
Australian
African
Other
US Dollar
Dollar currencies currencies
R’000
R’000
R’000
R’000
SA Rand
R’000
Euro
R’000
British
Sterling
R’000
Functional currency of
group operation
SA Rand
US Dollar
(823 233)
–
(9 899)
–
(84)
–
93 147
(126 476)
5 781
(17 943)
–
131 396
(224)
(52)
(734 512)
(13 075)
As at 30 September 2008
(823 233)
(9 899)
(84)
(33 329)
(12 162)
131 396
(276)
(747 587)
Total
R’000
91
34
Foreign currency sensitivity analysis
The group is exposed to the following currencies: US Dollar, Euro, Australian Dollar, Japanese Yen, Chinese Renminbi, Botswana Pula, Zambian
Kwacha and Malawian Kwacha. The British Pound, Japanese Yen and Chinese Renminbi being small in quantum, have been combined under
“other” while the Botswana 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)
US
Dollar
R’000
Other
Australian
African
Other
Dollar currencies currencies
R’000
R’000
R’000
SA Rand
R’000
Euro
R’000
British
Sterling
R’000
Functional currency of
group operation
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)
(1 667)
(608)
6 570
(14)
3 782
Total
R’000
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.
In the current year, the group has designated forward exchange contracts as a hedge to purchase the Napier trademark, which was denominated
in Canadian Dollar. The carrying amount of the investment was adjusted and the ineffective portion relating to the cash flow hedge was recognised
in the income statement.
92
34
The following table details the forward exchange contracts outstanding as at the reporting date:
Average
exchange
rate
Outstanding contracts
Contracts bought
Australian Dollars
Less than 3 months
2008
Foreign Contract
currency
value
’000
R’000
Fair
value
R’000
Average
exchange
rate
2007
Foreign
Contract
currency
value
’000
R’000
Fair
value
R’000
–
–
–
–
6,12
1
3
3
US Dollar
Less than 3 months
3 – 6 months
8,09
7,83
5 129
1 700
41 485
13 303
43 309
14 358
6,97
–
5 975
–
41 647
–
41 647
–
Euro
Less than 3 months
3 – 6 months
12,69
12,01
3 886
2 750
49 316
33 035
46 822
33 146
9,91
–
3 397
–
33 658
–
33 658
–
British Pound
Less than 3 months
16,31
36
587
541
14,10
117
1 645
1 645
Japanese Yen
Less than 3 months
13,17
13 484
1 024
1 084
16,30
5 625
345
345
Contracts sold
Australian Dollars
Less than 3 months
6,97
834
5 848
5 584
6,11
1 112
6 786
6 786
US Dollar
Less than 3 months
8,19
371
3 023
3 100
6,93
265
1 835
1 835
Euro
Less than 3 months
11,99
210
2 518
2 489
9,72
150
1 458
1 458
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.
93
34
The group’s interest rate profile can be summarised as follows:
Currency
Year of
redemption/
repayment
Interest
rate (%)
2008
R’000
2007
R’000
MKW
BWP
NAD
2010
2013
2011
19,5
15,0
15,25
1 728
7 914
195
2 229
–
228
9 837
2 457
2 261
654 928
610
4 660
20 000
780
Total South African Rand financial liabilities
657 799
25 440
Total South African Rand and foreign
currency financial liabilities
667 636
27 897
Loans at fixed rates of interest
Loans linked to variable rates
7 914
659 722
–
27 897
667 636
27 897
537
749
Total South African financial assets
537
749
Total South African and foreign currency
financial assets
537
749
–
–
537
749
537
749
Finanial liabilities in foreign currency
Secured loans
Total foreign financial liabilities
Financial liabilities in South African Rand
Secured loans
Unsecured loans
2010
2014
2011
13,5
12,52 – 12,87
15,6
Financial assets
Finance leases
Interest rates
Loans granted and bank deposits at fixed rates
of interest
Loans granted and bank deposits at variable
rates of interest
94
2009 – 2013
15
34
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
management’s 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 indicated below in a net
financial liability position.
If interest rates were lower by the basis points indicated above, there would be an equal and opposite impact on the profit before taxation.
RSA prime rates
– Basis point increase
– Profit before taxation (R’000)
JIBAR
Malawi prime rate
50bps
302
50bps
(4 325)
50bps
(9)
34.5 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, consists principally of cash and cash equivalents, short term deposits, derivative
contracts, loans and receivables 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.
2008
R’000
2007
R’000
495 217
380 672
The maximum credit exposure for trade receivables for the year ended by type of customer was:
Industry
Government
Consumers
349 540
7 077
32 742
290 196
–
28 060
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 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.
95
34
34.6 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 rest 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 group’s 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:
2008
Amounts due to bankers and short term borrowings
2007
<1
year
R’000
2–4
years
R’000
>4
years
R’000
Total
R’000
42 945
477 416
8 119
141 880
–
268 300
482 810
–
–
667 635
477 416
276 419
<1
year
R’000
2–4
years
R’000
>4
years
R’000
Total
R’000
988 531
466 505
4 349
22 782
–
–
992 880
489 287
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.
2008
Gross settled
Foreign exchange forward contracts
2007
Gross settled
Foreign exchange contracts
96
<1
year
R’000
2–4
years
R’000
>4
years
R’000
Total
R’000
150 139
–
–
150 139
<1
year
R’000
2–4
years
R’000
>4
years
R’000
Total
R’000
87 377
–
–
87 377
34
34.7 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 Sept 2008
Carrying amount
R’000
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
451 723
71 182
315
9 906
477 416
319 364
624 691
30 Sept 2007
30 Sept 2008
Fair value Carrying amount
R’000
R’000
451 723
71 182
315
9 906
477 416
319 364
624 691
439 758
46 672
536
10 283
466 505
988 531
4 349
30 Sept 2007
Fair value
R’000
439 758
46 672
536
10 283
466 505
988 531
4 349
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is
practible 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.
Investments
Unlisted equity investments are fair valued based on director’s valuations using the discounted cash flow method.
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.
34.8 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 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:
2008
R’000
2007
R’000
Debt
944 055
(71 182)
1 037 849
(46 672)
Net debt
872 873
991 177
2 776 263
2 461 127
%
%
31
40
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.
97
35
Principal subsidiary companies
Date of
name change
Company name
Former 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
Longridge Colourant (Pty) Limited
Blajohn Properties Limited
Prostart Investments 93 (Pty) Limited
Midas Coatings Group (Pty) Limited
Midas Paints (Pty) Limited
Barloworld Plascon Swaziland (Pty) Limited1
Freeworld Automotive Coatings (Pty) Limited
Freeworld Coatings Australia (Pty) Limited8
Foresston (Hong Kong) (Pty) Limited7
Freeworld Coatings Mauritius (Pty) Limited6
Barloworld Coatings (Shanghai) Co. Limited9
Freeworld Coatings (Shanghai) Trading Co.
Limited9
Freeworld Plascon Botswana (Pty) Limited3
Freeworld Plascon Malawi Limited5
Freeworld Plascon Namibia (Pty) Limited4
Freeworld Plascon Zambia Limited2
Aletris Investment Holdings No 2 Limited
Loophole Trading and Investment 91 (Pty) Limited
Barloworld Coatings (Pty) Limited
06/02/2008
06/02/2008
06/02/2008
Aletris Trade and Investments No 1 (Pty) Limited
Barloworld Plascon Cape (Pty) Limited
Barloworld Plascon Coastal (Pty) Limited
Barloworld Plascon South Africa (Pty) Limited
International Chemical Corporation (Pty) Limited
06/02/2008
06/02/2008
08/02/2008
08/02/2008
05/02/2008
Barloworld Automotive Coatings (Pty) Limited
Barloworld Coatings Australia (Pty) Limited
06/02/2008
19/02/2008
Coatings Mauritius (Pty) Limited
18/02/2008
Barloworld Coatings (Shanghai) Trading Co. Limited
Barloworld Plascon Botswana (Pty) Limited
Barloworld Plascon Malawi (Pty) Limited
Barloworld Plascon Namibia (Pty) Limited
Barloword Plascon Zambia Limited
20/09/2008
03/04/2008
04/04/2008
21/02/2008
05/03/2008
All companies are incorporated in (or operate principally in) the Republic of South Africa except where otherwise indicated as follows:
1. Swaziland
6. Mauritius
2. Zambia
7. Hong Kong
3. Botswana
8. Australia
4. Namibia
9. China
5. Malawi
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.
98
Type
Registration
number
H
2007/023790/07
O
2007/024684/07
H
1922/014245/07
O
1920/002108/07
O
2007/027508/07
O
1948/029629/07
O
1967/005384/07
O
1945/019549/07
O
1991/002191/07
H
1998/007068/07
O
1936/008617/06
H
2001/009265/07
H
2005/041915/07
0
1989/004153/07
O 145/1972-Swaziland
O
1947/024248/07
O
A.C.N.075273595
H 360901-Hong Kong
H
074472-CI/GBL
O
39495-Shangai
O
O
O
O
O
42551-Shangai
83/4542-Botswana
5989-Malawi
12/10264-Namibia
38753-Zambia
Issued capital
Country of
local currency
incorporation Currency
amount (R)
Effective percentage
holding
2008
2007
%
%
Interest of holding
company at cost
2008
2007
R’000
R’000
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
South Africa
Swaziland
South Africa
Australia
Hong Kong
Mauritius
China
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
ZAR
AUD
AUD
US$
RMB
1 247 972
100
12 752
36 000
976 005
9 312
10 000
42 000
685 000
100
100 000
100
100
4 000
2
800 000
31 454 783
1 098 130
15 111 859
7 820 591
100
100
100
100
100
100
100
100
100
100
100
70
100
100
100
100
100
100
100
100
100 1 247 972 1 247 972
100
100
179 120
179 120
100
64 527
64 527
100
976 005
976 005
100
10 283
10 283
100
15 421
15 421
100
25 726
25 726
100
383 883
383 883
100
–
–
100
44 092
44 092
70
136 084
136 084
100
93 867
93 867
100
5 002
5 002
100
100
239 708
239 708
100
6
6
100
31 371
31 371
100
106 065
106 065
100
4 837
4 837
China
Botswana
Malawi
Namibia
Zambia
RMB
BWP
MKW
NAD
ZMK
1 564 800
100 000
100 000
100
1747 553 000
100
100
51
100
100
100
100
51
100
100
Indebtedness
2008
2007
R’000
R’000
964 982
726 126
65 646
65 646
93 867
93 867
3 670 770 3 690 770 1 124 495
885 639
988
26 331
5 594
31 916
41 872
Amounts owing to
subsidiaries
2008
2007
R’000
R’000
31 848
–
31 848
–
988
26 331
5 594
31 916
41 872
99
36
Investment in associate companies
Investor company/associate
Du Pont Freeworld (Pty) Limited
International Paints (Pty) Limited
Jatran Logistics (Pty) Limited
Sizwe Paints (Pty) Limited
Valspar (SA) (Pty) Limited
Principal products or activities
Automotive coatings
Industrial coatings
Transport
Decorative paint distributor
Can coatings manufacturer
Issued share
capital
R’000
Percentage held by investors
2008
2007
21
20
1
17
49
49
–
30
20
49
49
25
30
20
All companies are incorporated in (or operate principally in) the Republic of South Africa.
37
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
2008
R’000
25 189
37 827
292
76 030
139 338
Goods and services purchased from
1 930
40
1 652
3 622
Leasing, finance arrangements & other transactions with related parties
910
1 509
2 419
Amounts due (to)/from related parties as at end of year*
4 058
4 060
23 368
95
31 581
100
37
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 36.
Income from associates is disclosed on the income statement.
Subsidiaries
Details of investments in subsidiaries are disclosed in note 35.
Directors
Details regarding directors’ remuneration and interests are disclosed in note 38.
Transactions with key management and other related parties (excluding directors)
Details regarding key management remuneration are disclosed in note 22.
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 were incurred during the year on these balances.
38
Directors’ emoluments
The directors’ remuneration for the year ended 30 September 2008 was as follows:
2008
Salary
R’000
Bonus
R’000
Retirement
and medical
contribution
R’000
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
Barloworld
share options
exercised^
R’000
Total fees
2008
R’000
RM Godsell
E Links
MM Ngoasheng
B Ngonyama
NDB Orleyn
PM Surgey
D B Ntsebeza
Total directors’ remuneration
350
190
200
240
190
150
150
1 470
These amounts relate to the gain made on Barloworld share options issued in previous years exercised during the year.
^
101
38
Directors emoluments (continued)
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 2008 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
2008
20071
Direct
Direct
Executive directors
AJ Lamprecht
DA Thomas^
DB Ntsebeza*
E Links
MM Ngoasheng*
PM Surgey
3 000
15 884
2 500
2 800
810
106 278
3 000
5 000
2500*
2 800
810*
106 278
* After the publication of the prior year results, the company became aware of the following information and the comparatives have been corrected to reflect these
changes.
– Mr MM Ngoasheng actually held 810 shares in Barloworld Limited.
– Mr DB Ntsebeza held 2 500 shares in Barloworld Limited and not 1 700 shares as previously reported.
On 21 November 2007, after the publication of the company’s prelisting statement, Mr DA Thomas exercised 10 884 Barloworld share options.
^
Directors’ interest in Barloworld Limited, prior to the unbundling.
1
Interests of directors of the company in share options
The interests of the executive and non-executive directors in shares of the company provided in the form of options are shown in the
table below:
Share options in Barloworld Limited
Number of
options at
30 Sept 2007
Executive directors
AJ Lamprecht
DA Thomas
102
Number
Number of
of options
options
granted
exercised/
Number of
during ceded during
options at
the year
the year 30 Sept 2008
11 667
10 104
65 291
23 334
5 000
4 330
8 660
10 000
–
–
–
–
–
–
–
–
11 667
10 104
–
–
2 500
3 333
2 886
2 165
–
–
65 291
23 334
2 500
997
5 774
7 835
138 386
–
32 655
105 731
Share price
on day
exercised/
cession
price on day
exercised (R)
Option
price (R)
96,98
98,98
14,59
14,59
123,50
123,50
123,50
123,50
25,48
14,59
14,59
25,48
25,48
Date from
which
exercisable
1 Apr 06
1 Apr 06
12 Jul 10
26 May 07
1 Apr 06
1 Apr 06
26 May 07
26 May 07
38
Directors emoluments (continued)
Share options in Pretoria Portland Cement Limited (PPC)
Number of
options at
30 Sept 2007
Executive directors
AJ Lamprecht
Number
Number of
of options
options
granted
exercised/
Number of
during ceded during
options at
the year
Share price
on day
exercised/
cession
price on day
exercised (R)
Option
price (R)
Date from
which
exercisable
16,95
26 May 07
43 296
–
–
43 296
–
43 296
–
–
43 296
–
Number of
rights
exercised
Number of
during
rights at
Share price
on day
exercised (R)
Rights
price (R)
Date from
which
exercisable
9,12
9,12
31 Jan 11
31 Jan 11
Share Appreciation Rights in Freeworld Coatings Limited
Number of
rights at
30 Sept 2007
Number
of rights
granted
during
the year
–
–
657 895
347 368
–
–
657 895
347 368
–
–
–
1 005 263
–
1 005 263
–
Executive directors
AJ Lamprecht
DA Thomas
39
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 contributuion driven retirement fund, generally in the form 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 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 18).
40
Post balance sheet events
Post year-end, the remaining minorities in Freeworld Plascon Malawi Limited have, subject to Reserve Bank approval, been bought out. The
expected cost of acquisition is estimated to be between R3.5 million and R4.0 million.
There were no other events post year-end that requires additional disclosure.
103
company balance sheet
at 30 September
2008
R’000
2007
R’000
2
2 592 541
1
2 418 796
–
3
66 132
–
2 658 674
2 418 796
2 583 409
42 720
2 418 796
–
2 626 129
2 418 796
Current liabilities
32 545
–
Current tax payable
32 531
14
–
–
2 658 674
2 418 796
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
104
4
5
company income statement
Notes
2008
R’000
Revenue
6
3 298
Operating profit
7
65 160
Income tax expense
Profit for the year
65 160
8
(2 053)
63 107
105
company cash flow statement
2008
R’000
Notes
Cash flows from operating activities
(62 834)
29 282
Cash outflow from customers
Cash inflow from suppliers
Cash used in operations
Dividends received
Income tax paid
Cash flow from operations
Dividends paid (including minority shareholders)*
A
B
(33 552)
65 111
(2 040)
29 519
(20 387)
9 132
Net cash from operating activities
Cash flows from financing activities
Increase in long-term financial assets
Additional equity funding
(173 745)
164 613
Net cash used in financing activities
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.
106
(9 132)
notes to the company cash flow statement
2008
R’000
A
Cash used in operations is calculated as follows:
Adjustments for:
Dividends received
Operating cash flows before changes in working capital
B
65 160
(65 111)
49
Movement in working capital
(33 601)
Increase in trade and other receivables
Increase in trade and other payables
(66 132)
32 531
Cash used in operations
(33 552)
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
–
(2 054)
14
Cash amount paid
2 040
107
company statement of recognised income and expense
2008
R’000
Profit for the period
63 107
63 107
Attributable to:
–
63 107
63 107
108
notes to the company annual financial statements
1
2008
R’000
2007
R’000
2 592 541
2 418 796
2 592 541
2 418 796
1 533 156
1 059 385
1 533 156
885 640
2 592 541
2 418 796
Unlisted investments opening balance
Unlisted investments acquired during the year
1 533 156
–
–
1 533 156
Total carrying value of unlisted investments at end of the year
1 533 156
1 533 156
Valuation of shares
Directors’ valuation of unlisted shares
2 925 204
1 533 156
Intercompany current accounts
Short term loan
Other receivables and prepayments
65 111
95
926
–
–
–
Total trade and other receivables
66 132
–
3 000
3 000
3 000
3 000
2 038
1 813
2 038
1 813
Share premium:
2 581 371
2 416 983
Balance at beginning of year
Cost written off against share premium
Shares issued during the year
Premium on new issue of shares
2 416 983
(9 227)
173 615
–
–
–
–
2 416 983
Total issued share capital and premium
2 583 409
2 418 796
Issued shares:
Total number of shares in issue at beginning of year (’000)
Issued during the year (’000)
Unbundling restructuring issue of shares (’000)
181 320
22 552
–
–
–
181 320
Total number of shares in issue at end of year (’000)
203 872
181 320
Accounting policies
Refer to the group accounting policies on pages 56 to 65.
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 or impaired.
4
Authorised share capital
Ordinary
300 000 000 ordinary shares of 1c each
Issued share capital
203 871 939 fully paid ordinary shares of 1c each
Notes: For further information refer to note 14 in the consolidated financial statements
109
notes to the company annual financial statements (continued)
5
Share capital
and premium
R’000
Total retained
income
R’000
Total
equity
R’000
Unbundling restructuring issue of shares
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
Company statement of changes in equity
Profit for the year
Dividend paid
New shares issued during the year
Costs written off against share premium
2008
R’000
6
Revenue
Rendering of services
3 298
3 298
Dividends received from subsidiaries are not included in revenue, but reflected as income under operating profit.
2008
R’000
7
Operating profit
Operating profit is arrived at as follows:
Revenue
Less: Net expenses
3 298
61 862
Other operating costs
Dividends received
(3 249)
65 111
Operating profit
65 160
Expenses include the following:
Administration, management and technical fees paid
Auditors’ remuneration:
Audit fees
Directors’ emoluments paid by holding company
Fees
110
844
443
443
1 470
2008
R’000
8
Income tax expense
South African normal taxation
Current year
15
15
Deferred taxation
Current year
(1)
(1)
Current year
2 039
2 039
Total company
2 053
2008
%
Reconciliation of rate of taxation:
South Africa normal taxation rate
Reduction in rate of taxation
Exempt income
Increase in rate of taxation
Taxation as a percentage of profit before taxation
28.0
(27.9)
3.1
3.2
Deferred taxation as well as normal taxation was calculated at 28% on 30 September 2008, following a change in the corporate taxation rate
from 29% to 28%.
111
notes to the company annual financial statements (continued)
9
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:
Subsidiaries of the group
Other transactions
Dividends received from related parties
Management fees received from subsidiaries
2008
R’000
65 111
3 298
68 409
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
65 111
(31 848)
33 263
*There are no doubtful debt provisions raised in respect of amounts due to/from related parties and no bad debts were 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
112
definitions
Below is a list of key definitions of financial terms used in the annual report of Freeworld Coatings Limited (the company) and the group.
Accounting policies
The specific principles, bases, conventions, rules and practices applied in preparing and presenting financial statements.
Accrual accounting
The effects of transactions and other events are recognised when they occur rather than when the cash is received
or paid.
Actuarial gains
and losses
The effects of differences between the previous actuarial assumptions and what has actually occurred as well as changes
in actuarial valuations.
Amortised cost
The amount at which a financial asset or financial liability is measured at initial recognition, minus principal repayments,
plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount
and the maturity amount, and minus any reduction for impairment and collectibility.
Asset
A resource controlled by the entity as a result of a past event from which future economic benefits are expected to flow.
Associate
An entity over which the investor 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 associate but is not
control or joint control over those policies.
Available-for-sale
investments
Those non-derivative financial assets that are designated as available for sale or are not classified as loans and receivables,
held-to-maturity investments or financial assets at fair value through profit or loss.
Borrowing costs
Interest and other costs incurred in connection with the borrowing of funds.
Business combination
A business is an integrated set of activities and assets conducted and managed for the purpose of providing a return to
investors or lower costs or other economic benefits directly and proportionately to participants.
A business combination is the bringing together of separate entities or businesses into one reporting entity.
Carrying amount
The amount at which an asset is recognised after deducting any accumulated depreciation or amortisation and accumulated
impairment losses.
Cash and cash
equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents are short term, highly liquid investments and are
readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.
Cash flow hedge
A hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with an asset, or a
liability that could affect profit or loss or a highly probable forecast transaction that could affect profit or loss.
Cash flow return on
investment (CFROI®)
CFROI® 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 of capital
In terms of the Credit Suisse Holt methodology, cost of capital is an empirically market derived real discount rate which is
company-specific with adjustments for size (proxy for liquidity) and financial leverage (proxy for financial risk) differentials.
The HOLT calculated rate is used for valuation purposes.
For performance management purposes the group’s CFROI returns are measured against an internal minimum hurdle rate
of 8% which may be different from the HOLT calculated rate at a point in time.
CFROI is a registered trademark of Credit Suisse or its subsidiaries or affiliates, in the United States of America.
Cash-generating unit
The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from
other assets or groups of assets.
Change in accounting
estimate
An adjustment to the carrying amount of an asset, liability or the amount of the periodic consumption of an asset that
results from new information or new developments.
Constructive obligation
An obligation that derives from an established pattern of past practice, published policies or a sufficiently specific current
statement such that it created a valid expectation on the part of other parties that the obligation will be met.
113
definitions (continued)
114
Consolidated financial
statements
The financial statements of a group presented as those of a single economic entity.
Contingent asset
A possible asset that arises from past events and whose existence will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within the control of the entity.
Contingent liability
A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or
non-occurrence of one or more uncertain future events not wholly within the control of the entity, or a present obligation
that arises from past events but is not recognised because it is not probable that an outflow of resources embodying
economic benefits will be required to settle the obligation, or the amount of the obligation cannot be measured with
sufficient reliability.
Costs to sell
The incremental costs directly attributable to the disposal of an asset (or disposal group), excluding finance costs and
income tax expense.
Date of
transaction
The date on which the transaction first qualifies for recognition in accordance with International Financial
Reporting Standards.
Depreciation or
amortisation
The systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount of an asset is
the cost of an asset, or other amount substituted for cost, less its residual value.
Derecognition
The removal of a previously recognised asset or liability from the balance sheet.
Derivative
A financial instrument whose value changes in response to an underlying item, requires no initial or little net investment
in relation to other types of contracts that would be expected to have a similar response to changes in market factor and
is settled at a future date.
Diluted earnings per
share
Profit or loss attributable to ordinary equity holders of the parent entity divided by the weighted average number of ordinary
shares outstanding during the period, both adjusted for the effects of all dilutive potential ordinary shares.
Dilution
A reduction in earnings per share or an increase in loss per share resulting from the assumption that convertible
instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the
satisfaction of specified conditions.
Employee benefits
All forms of consideration (excluding share options granted to employees) given in exchange for services rendered
by employees.
Equity instrument
A contract or certificate that evidences a residual interest in the total assets after deducting the total liabilities.
Equity method
A method in which the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in
the share of net assets of the investee. Profit or loss includes the share of the profit or loss of the investee.
Equity settled sharebased payment
transaction
A share-based payment transaction on which the entity received goods or services as consideration for equity instruments
of the entity (including share or share options).
Expenses
The decreases in economic benefits in the form of outflows or depletions of assets or incurrence of liabilities that result in
decreases in equity, other than those relating to distributions to equity participants.
Fair value
The amount for which an asset could be exchanged or a liability settled, between knowledgeable and willing parties at an
arm’s length transaction.
Finance lease
A lease that transfers substantially all the risks and reward incidental to ownership of an asset. Title may or may not
eventually be transferred.
Financial asset or
liability at fair value
through profit or loss
A financial asset or financial liability that is classified as held for trading or is designated as such on initial recognition other
than investments in equity instruments that do not have a quoted market price in an active market and whose fair value
cannot be reliably measured.
Financial instrument
A contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial risk
The risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity
price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of
a non-financial variable that the variable is not specified to a party to the contract.
Firm commitment
A binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date
or dates.
Forecast transaction
An uncommitted but anticipated future transaction.
Going concern basis
The assumption that the entity will continue in operation for the foreseeable future.
Gross investment
in lease
The aggregate of the minimum lease payments receivable by the lessor under a finance lease and any unguaranteed
residual value accruing to the lessor.
Hedged item
An asset, liability, firm commitment, highly probable forecast transaction or net investment in foreign operation that exposes
the entity to risk of changes in fair value or future cash flows and is designated as being hedged.
Hedging instrument
A designated derivative or non-derivative financial asset or non-derivative financial liability whose fair value or cash flows
are expected to offset changes in the fair value or cash flows of a designated hedged item.
Hedge effectiveness
The degree to which changes in the fair value or cash flows of the hedge item that are attributable to a hedged risk are
offset by changes in the fair value or cash flow of the hedging instrument.
Held for trading
financial asset or
financial liability
One that is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or as part
of a portfolio of identified financial instruments that are managed together and for which there is evidence of a
recent actual pattern of short term profit taking or a derivative (except for a derivative that is designated an effective
hedging instrument).
Held-to-maturity
investment
A non-derivative financial asset with fixed or determinable payments and fixed maturity where there is a positive intention
or ability to hold to maturity.
Immaterial
If individually or collectively it would not influence the economic decisions of the users of the financial statements.
Impairment loss
The amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount.
Impracticable
Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so.
Income
Increase in economic benefits in the form of inflows or enhancements of assets or decreases of liabilities that result
in increases in equity, other than those relating to contributions from equity participants.
Key management
personnel
Those persons having authority and responsibility for planning, directing and controlling the activities of the entity.
Legal obligation
An obligation that derives from a contract, legislation or other operation of law.
Liability
A present obligation of the entity arising from a past event, the settlement of which is expected to result in an outflow from
the entity of resources embodying economic benefits.
Loans and receivables
Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
Minimum lease
payments
Payments over the lease term that the lessee is or can be required to make, excluding contingent rent, costs for services
and taxes to be paid by and reimbursed to the lessor including, in the case of a lessee, any amounts guaranteed
by the lessee or by a party related to the lessee or in the case of a lessor, any residual value guaranteed to the lessor by
the lessee, a party related to the lessee or a third party unrelated to the lessor that is financially capable of discharging the
obligations under the guarantee.
Net assets
Net operating assets plus cash and cash equivalents.
Net investment in
the lease
The gross investment in the lease discounted at the interest rate implicit in the lease.
Net operating assets
Segment assets less segment liabilities.
Operating lease
A lease other than a finance lease.
Owner-occupied
property
Property held by the owner or by the lessee under a finance lease for use in the production or supply of goods or services
or for administrative purposes.
Past due
A financial asset is past due when a counterparty has failed to make a payment when contractually due.
Post-employment
benefits
Employee benefits (other than termination benefits) that are payable after the completion of the employment.
Post-employment
benefit plans
Defined-contribution benefit plans are where there are no legal or constructive obligations to pay further contributions if
the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current
and prior periods.
Presentation currency
The currency in which the financial statements are presented.
Present value
A current estimate of the present discounted value of the future net cash flows in the normal course of business.
Projected unit credit
method
An actuarial valuation method that sees each period of service as giving rise to an additional unit of benefit entitlement and
measures each unit separately to build up the final obligation.
115
definitions (continued)
Prospective application
Applying a new accounting policy to transactions, other events and conditions occurring after the date the policy changed
or recognising the effect of the change in an accounting estimate in the current and future periods.
Recoverable amount
The higher of an asset’s or cash-generating unit’s fair value less cost to sell and its value in use.
Regular way purchase
or sell
A purchase or sale of a financial asset under a contract, the terms of which require delivery of the asset within the time
frame established by regulation or convention in the marketplace concerned.
Research
The original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge
and understanding.
Residual value
The estimated amount which an entity would currently obtain from disposal of an asset, after deducting estimated costs of
disposal, if the asset was already of the age and in the condition expected at the end of its useful life.
Retrospective
application
Applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied.
Retrospective
restatement
Correcting the recognition, measurement and disclosure of amounts as if a prior period error had never occurred.
Segment assets
Total assets less cash on hand, deferred and current taxation assets.
Segment liabilities
Non-interest bearing current and non-current liabilities, (excluding deferred and current taxation liabilities).
Segment result
Segment result represents operating profit plus any other items that are directly attributable to segments including fair
value adjustments on financial instruments.
Share-based payments
transactions
An equity-settled share-based payment transaction is a share-based payment transaction where goods or services
are received and settled in equity instruments of the entity (including shares or share options).
Tax base
The tax base of an asset is the amount that is deductible for tax purposes if the economic benefits from the asset are
taxable or is the carrying amount of the asset if the economic benefits are not taxable.
The tax base of a liability is the carrying amount of the liability less the amount deductible in respect of that liability in
future periods.
The tax base of revenue received in advance is the carrying amount less any amount of the revenue that will not be taxed
in future periods.
116
Temporary differences
The differences between the carrying amount of an asset or liability and its tax base.
Transaction costs
Incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability,
i.e. those that would not have been incurred if the entity had not acquired, issued or disposed of the financial instrument.
Unearned finance
income
The difference between the gross investment in the lease and the net investment in the lease.
Useful life
The period over which an asset is expected to be available for use or the number of production or similar units expected
to be obtained from the asset.
Value in use
The present value of the future cash flows expected to be derived from an asset or cash-generating unit.
Vest
To become an entitlement. Under a share-based payment arrangement, a counterparty’s rights to receive cash, other
assets, or equity instruments of the entity vests upon satisfaction of any specified vesting condition.
Vesting conditions
The conditions that must be satisfied for the counterparty to become entitled to receive cash, other assets or equity
instruments of the entity, under a share-based payment arrangement. Vesting conditions include service conditions, which
require the other party to complete a specified period of service , and performance conditions, which require specific
performance targets to be met (such as a specified increase in the entity’s profit over a specified period of time).
Vesting period
The period during which all the specified vesting conditions of a share-based payment arrangement are to be satisfied.
shareholder information
Shareholder calendar
Financial year end
September
Reporting
Annual Report
Annual general meeting
Interim report
Annual results
December
January
May
November
Dividend declared
Interim
May
Final
November
Dividend payable
Interim
July
Final
January
Shareholder information as at 30 September 2008
1
2
3
Number of
shareholders
%
Number
of shares
%
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
10 141
2 837
377
119
29
75.10
21.01
2.79
0.88
0.22
3 603 277
8 268 936
11 478 365
37 668 795
142 852 566
1.77
4.06
5.63
18.48
70.06
Totals
13 503
100
203 871 939
100
Distribution of shareholders
Banks
Individuals
Insurance companies
Investment companies
Nominees and trusts
Pension funds
Private companies
Share trust
81
10 893
25
274
2 037
73
119
1
0.60
80.67
0.19
2.03
15.09
0.54
0.87
0.01
24 987 111
92 645 027
7 645 074
43 009 917
17 186 884
8 539 413
9 079 577
778 936
12.26
45.44
3.75
21.10
8.43
4.19
4.45
0.38
Totals
13 503
100
203 871 939
100
11
0.07
79 642 627
39,07
6
1
1
3
0.04
0.01
0.01
0.02
131 272
778 936
38 448 095
40 284 324
0.06
0.38
18.86
19.76
Public
13 492
99.93
124 229 312
60.93
Totals
13 503
100
203 871 939
100
Beneficial shareholders owning 10% or more
VVT Infrastructure Investments
38 448 095
18.86
Beneficial shareholders owning 5% or more
State Street Bank and Trust
SL Colla – Merrill Lynch
PIC Int Equity
10 278 551
10 393 013
19 612 760
5.04
5.10
9.62
Shareholder spread
Non-public
Directors
Share trust
Holdings 10% +
Holdings 5% +
4
5
Market information for year ended 30 September 2008
High (cps)
Low (cps)
Value
Volume
No. of transactions
Shares in issue
Market capitalisation
1 340
600
1 802 027 238
194 330 303
21 957
203 871 939
1 608 549 599
117
notice of annual general meeting
Registration number 2007/021624/06
JSE code: FWD
ISIN code: ZAE000109450
(“the company”) (“Freeworld Coatings”)
2.7“Resolved that Ms NDB Orleyn 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.”
3.
Ordinary resolution 3
Notice is hereby given that the first annual general meeting of the
members of the company will be held at The Saxon, 36 Saxon
Road, Sandhurst, Sandton on Friday, 30 January 2009 at 12:00 to
consider and if deemed fit, to pass, with or without amendment, the
following resolutions:
Re-election and remuneration of auditors
“Resolved that the directors be and they are authorised to
re-appoint Deloitte & Touche as the independent auditors of the
company and Mr L 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.”
Ordinary business
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 2008, be and
are hereby received and confirmed.”
2.
Re-election of directors
In accordance with the provisions of articles 21.1 and 26.2, all
the non-executive directors of the company retire at the first
annual general meeting of the company. Messrs RM Godsell,
MM Ngoasheng, DB Ntsebeza, PM Surgey, Prof E Links,
Ms Ngonyama and Ms NDB Orleyn are required to retire. All
retiring directors are eligible and have offered themselves
for re-election.
Approval to issue shares for cash
(This resolution requires a 75% majority by all holders of
ordinary shares present or represented by proxy at the first
annual general meeting.
Prior to unbundling from Barloworld Limited the company was
authorised, subject to certain conditions, to issue 15% of the
ordinary shares in the authorised share capital for cash. It
requires the same authority to be granted for another year to
assist in its intended BEE transaction.)
Shareholders are referred to page 14 of the annual report for
the curriculum vitae of the non-executive directors.
“Resolved that the directors of the company be and they are
hereby authorised by way of a general authority, to issue all or
any of the authorised but unissued shares in the capital of the
company for cash, as and when they in their discretion deem fit,
subject to the Act, the articles of association of the company, the
JSE Listings Requirements, when applicable, and the following
limitations, namely that:
2.1“Resolved that Mr RM Godsell who retires in terms of
article 21.1of the articles of association of the company
and is eligible and available for re-election, be and he is
hereby re-appointed as a director of the company.”
a)the equity securities which are the subject of the issue
for cash must be of a class already in issue, or where
this is not the case, must be limited to such securities or
rights that are convertible into a class already in issue;
2.2“Resolved that Mr MM Ngoasheng who retires in terms
of article 21.1 of the articles of association of the company
b)any such issue will only be made to “public shareholders”
as defined in the JSE Listings Requirements and not to
related parties;
c)in respect of securities which are the subject of the
general issue of shares for cash:
• in the aggregate in any one financial year may not
exceed 15% (fifteen per cent) of the company’s
relevant number of equity securities in issue of that
class (for purposes of determining the securities
comprising the 15% number in any one year, account
must be taken of the dilution effect, in the year of
issue of options/convertible securities, by including
the number of any equity securities which may be
issued in future arising out of the issue of such
options/convertible securities);
• of a particular class, will be aggregated with any
securities that are compulsorily convertible into
securities of that class, and, in the case of the issue
of compulsorily convertible securities, aggregated
with the securities of that class into which they are
compulsorily convertible;
2.3“Resolved that Mr DB Ntsebeza who retires in terms of
2.4“Resolved that Mr PM Surgey who retires in terms of
2.5“Resolved that Prof E Links 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 he is hereby
re-appointed as a director of the company.”
118
4.
2.6“Resolved that Ms B Ngonyama who retires in terms of
and is eligible and available for re-election, be and she
is hereby re-appointed as a director of the company.”
• as regards the number of securities which may be
issued (the 15% number), shall be based on the
number of securities of that class in issue added to
those that may be issued in future (arising from the
conversion of options/convertible securities), at the
date of such application:
– less any securities of the class issued, or to be
issued in future arising from options/convertible
securities issued, during the current financial year;
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 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.
– plus any securities of that class to be issued
pursuant to:
– a rights issue which has been announced, is
irrevocable and is fully underwritten; or
– acquisition (which has had final terms
announced) may be included as though they
were securities in issue at the date of
application;
d)this authority is valid until the company’s next annual
general meeting, provided that it shall not extend beyond
15 (fifteen) months from the date that this authority
is given;
e)a paid press announcement giving full details, including
the impact on the net asset value and earnings
per share, will be published at the time of any issue
representing, on a cumulative basis within 1 (one)
financial year, 5% (five per cent) or more of the number
of shares in issue prior to the issue; and
f)in determining the price at which an issue of shares
may be made in terms of this authority post the listing
of the company, the maximum discount permitted will
be 10% (ten per cent) of the weighted average traded
price on the JSE of those shares over the 30 (thirty)
business days prior to the date that the price of the issue
is agreed between the issuer and the party subscribing
for the securities.”
Special business
5.
system and done without any prior understanding or
arrangement between the company and the counter
party (reported trades are prohibited);
Special resolution number 1
General authority to repurchase shares
“Resolved that, as a general approval contemplated in sections
85 to 89 of 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 Listings Requirements, when applicable,
and provided that:
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;
(b) the general repurchase of securities will be effected
through the order book operated by the JSE trading
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
12 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
12 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;
119
notice of annual general meeting (continued)
• the available working capital of the company and the group
will be adequate for ordinary business purposes for a period
of 12 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.
ther disclosure in terms of the JSE Listings Requirements
O
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:
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, 5th
floor, 11 Diagonal Street, Johannesburg, or posted to the
transfer secretaries at PO Box 4844, Johannesburg, 2000, by
12:00 on Wednesday, 28 January 2009. Proxy forms must only
be completed by shareholders who have not dematerialised
their shares or who have dematerialised their shares with “own
name” registration.
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.
Directors and executives – pages 14 to 17
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:
Major shareholders of the company – page 117
• to furnish them with their voting instructions; and
Directors’ interests in securities – page 102
Share capital of the company – page 74
• in the event that they wish to attend the meeting, to obtain
the necessary authority to do so.
Directors’ responsibility statement
The directors, whose names are given on pages 14 to 15 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 publication of the company’s annual results.
Litigation
In terms of section 11.26 of the JSE Listings Requirements, the
directors, whose names are given on pages 14 to 15 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 12 months, a material
effect on the group’s financial position.
120
By order of the board
ELA Chamberlain
Company Secretary
Paulshof
18 November 2008
form of proxy
Registration number 2007/021624/06
JSE code: FWD
ISIN code: ZAE000109450
(“the company”) (“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 first annual general meeting of the company to be held at 12:00 on Friday 30 January 2009, at The Saxon, 36 Saxon Road, Sandhurst, Sandton.
If you are a shareholder referred to above, entitled to attend and vote at the first annual general meeting, you can appoint a proxy or proxies to attend,
vote and speak in your stead at the first 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
of, 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 2008.
2.
Ordinary resolution 2 to re-elect directors in accordance with the provisions of the company’s
articles of association:
2.1
re-elect Mr RM Godsell as a director of the company.
2.2
re-elect Mr MM Ngoasheng as a director of the company.
2.3
re-elect Mr DB Ntsebeza as a director of the company.
2.4
re-elect Mr PM Surgey as a director of the company.
2.5
re-elect Prof E Links as a director of the company.
2.6
re-elect Ms B Ngonyama as a director of the company.
2.7
re-elect Ms NDB Orleyn as a director of the company.
3.
Ordinary resolution 3 to re-appoint Deloitte & Touche as independent auditors of the company and
Mr L 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.
Ordinary resolution 4 to approve the issue of shares for cash.
5.
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
Signature/s
Assisted by (where applicable)
day of Against
Abstain
20
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, 5th Floor, 11 Diagonal Street, Johannesburg 2001, (PO Box 4844, Johannesburg, 2000) Republic of South Africa, to reach the company
at least 48 hours (excluding Saturdays, Sundays and Public holidays) before the time appointed for the holding of the annual general meeting.
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 or 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 meeting.
Company information
Company secretary
Eleanor Chamberlain
Registered office
Balvenie
Kildrummy Office Park
Umhlanga Drive
Paulshof 2191
PostNet Suite 263
Private Bag X87
Bryanston 2021
Tel: +27 86 125 2846
Website: www.freeworldcoatings.com
Company registration number
2007/021624/06
Country of incorporation
Republic of South Africa
Transfer secretaries
Link Market Services South Africa (Proprietary) Limited
5th Floor
11 Diagonal Street
Johannesburg 2001
PO Box 4844
Johannesburg 2000
Tel: +27 11 630 0800
contents
This is our first annual report to stakeholders as
a listed entity and covers the financial year
ending 30 September 2008.
In reporting back to our stakeholders on our
performance, our 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 focused sustainability
information as part of our annual report.
Stakeholders are directed to our website
www.freeworldcoatings.co.za for further
information in complement to our annual report,
periodic SENS announcements and presentations
held at the time of our interim and annual results.
01
02
03
04
06
08
09
14
16
18
20
26
28
38
42
About Freeworld Coatings
Highlights
Our ethos
Group structure at a glance
Our products
Chairman’s report
Chief executive officer’s report
Our board
Our executives
Inspiring a life less ordinary
Operational review
Protecting the vibrancy and value of our assets
Sustainability report
Corporate governance
Chief financial officer’s report
43 Annual financial statements
117 Shareholder information
118 Notice of annual general meeting
Form of proxy (loose)
Ibc Company information
Sponsor
Rand Merchant Bank (A division of FirstRand Bank Ltd)
1 Merchant Place
Cnr Fredman Drive and Rivonia Road Sandton 2196
PO Box 786273
Sandton 2146
Tel: +27 11 282 8000
Attorneys
Read Hope Phillips & Cadman Inc
2nd Floor Melrose Boulevard
Melrose Arch 2196
PO Box 757
Northlands 2116
Auditors
Deloitte & Touche
Deloitte Place
The Woodlands
Woodlands Drive 2052
Private Bag X6
Gallo Manor 2052
Freeworld Coatings Limited annual report 2008
www.freeworldcoatings.com
the first year of our journey
annual report ’08

freeworld cover:Layout 1

Transcription

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