The Tongaat-Hulett Group is committed to conformance with good corporate governance, upholding the principles of openness, integrity, accountability, transparency and social responsibility. The Group continues to support the Code of Corporate Practices and Conduct embodied in the 2002 King Report and believes that it complies, in all material respects, with its provisions.
The terms of reference of the board and board committees, roles and responsibilities of the directors, as well as the Group's code of ethics for directors and employees, are detailed in a Corporate Governance Manual. This, together with established Group policies on matters such as safety, health and environment, social investment, black economic empowerment and employment equity, provide a sound framework for good corporate governance within the Group.
The Board Charter, which forms part of the Corporate Governance Manual, records the board's continued objective to provide responsible business leadership with due regard to the interest of shareholders and other stakeholders, including present and future customers, suppliers, employees, as well as the community and the environment within which the Group operates. The Board Charter also details the fiduciary duties and responsibilities of individual directors toward the company.
The Board Charter further addresses the approval of strategy and policies, as well as the selection and orientation of directors. In assisting the board to discharge its duties, board committees have been established which provide, through transparency, disclosure and review, the assurance that operational performance and risk management are monitored. In this regard there is also a record of matters specifically reserved for the board's decision.
Thirteen non-executive and eight executive directors, drawn from both genders and a broad spectrum of the business community, make up the unitary board representing a wide range of skills, knowledge and experience, and bringing independent judgement to the board deliberations and decisions. A formal self-evaluation of the board and committees is carried out and the findings are addressed.
The roles of Mr C M L Savage as the non-executive Chairman and Mr P H Staude as the Chief Executive Officer are separate with a clear division of responsibilities. In accordance with the company's articles of association, directors are subject to election by shareholders at the first opportunity after appointment and thereafter retire from office and are subject to re-appointment at intervals of three years. Retiring directors may be re-elected at the annual general meeting at which they retire. There are no term contracts of service between any of the directors and the company or any of its subsidiaries.
The board of directors is responsible to its shareholders for the performance and the affairs of the company, retaining effective control over the company and giving strategic direction to the Group's management. The levels of authority delegated to management are approved by the board and are clearly recorded in the Authorities Framework contained in the Corporate Governance Manual, which is utilised by all Group companies.
The board normally meets six times a year, with comprehensive papers on all agenda items. All directors have access to appropriate Group information and to the advice and services of the Group Secretary. Independent professional advice is available to directors in appropriate circumstances at the company's expense.
| Director | Board | Audit & Compliance Committee | Remuneration Committee | |||
| A | B | A | B | A | B | |
| D D Barber | 6 | 5 | ||||
| P M Baum | 6 | 6 | 3 | 3 | ||
| I Botha | 6 | 6 | 3 | 3 | ||
| L Boyd | 6 | 3 | 3 | 3 | ||
| E le R Bradley | 6 | 6 | 3 | 3 | 3 | 3 |
| B E Davison | 6 | 3 | ||||
| B G Dunlop | 6 | 6 | ||||
| A Fourie | 6 | 6 | ||||
| G R Hibbert | 6 | 6 | ||||
| M W King | 6 | 5 | 3 | 3 | ||
| G P N Kruger | 6 | 6 | ||||
| J B Magwaza | 6 | 6 | ||||
| M Mia | 6 | 6 | 3 | 3 | ||
| M H Munro | 6 | 6 | ||||
| T H Nyasulu | 6 | 4 | ||||
| S J Saunders | 6 | 6 | ||||
| C M L Savage | 6 | 6 | 3 | 3 | ||
| M Serfontein | 6 | 6 | ||||
| P H Staude | 6 | 6 | ||||
| R H J Stevens | 6 | 3 | ||||
| A M Thompson | 6 | 4 | ||||
| A: | Indicates the number of meetings held during the year the director was a member of the board and/or committee. |
| B: |
Indicates the number of meetings attended during the year the director was a member of the board and/or committee. |
In accordance with its Charter, the board has approved and delegated authority for specific matters to a number of committees, all of which have formal terms of reference. Through regular reporting by the committees, the board is able to monitor, inter alia, key risk areas and non-financial aspects relevant to the Group's various businesses. The formal terms of reference and the delegated authority regarding each committee are set out in the Corporate Governance Manual.
The executive committee consists of all the executive directors and any other member appointed by the board. The current members are P H Staude (Chairman), P M Baum, B G Dunlop, A Fourie, G R Hibbert, G P N Kruger, M H Munro, S J Saunders and M Serfontein, with the Group Secretary, M M L Mokoka, in attendance.
The overall objective of the committee is to assist the Group board in discharging its responsibilities, while acting within the parameters of the agreed authority limits. Matters outside the agreed authority limits are referred to the board, and in circumstances where time is of essence, by way of round robin.
The Audit and Compliance Committee comprises non-executive directors, the majority of whom are independent. The current members are E le R Bradley (Chairman), I Botha, M W King and M Mia. The Chief Executive Officer, P H Staude; the Group Financial Director, M H Munro; the Internal Audit manager, M M Jean-Louis and representatives of the internal and external auditors attend by invitation. The Group Secretary, M M L Mokoka, is the secretary for this committee. The committee normally meets three times a year.
The Audit and Compliance Committee's terms of reference, which have been approved by the board, include financial reporting and operational matters such as the monitoring of controls, loss prevention, litigation, reputational issues, and JSE, statutory and regulatory compliance matters. In addition, the committee is responsible for ensuring that the Group has an effective risk management process. Each operating company has its own audit committee, which subscribes to the same Group audit philosophies and reports to the Group Audit and Compliance Committee.
The committee provides a forum through which the external and internal auditors report to the board. It is responsible for the consideration, appointment and review of external and internal auditors, the maintenance of a professional relationship with them, reviewing accounting principles, policies and practices adopted in the preparation of public financial information and examining documentation relating to the interim and annual financial statements. In addition, it reviews procedures and policies of internal control, including internal financial control and internal audit reports. The adequacy and capability of the Group's internal and external audit functions are also subject to continuous review.
The external and internal auditors have unrestricted access to members of the Audit and Compliance Committee and its chairman at all times, ensuring that their independence is in no way impaired. Both the internal and external auditors have the opportunity, at each of the meetings, of addressing the committee and its chairman without management being present.
The Audit and Compliance Committee determines the purpose, authority and responsibility of the internal audit function in an Internal Audit Charter, which has been approved by the committee and the board. The charter sets out the terms of reference of the Group's internal audit function, its reporting line to the chairman of the committee and the fact that the internal auditors have unrestricted Group wide access to all functions, records, property and personnel. While the Group has outsourced the internal audit function to professional firms of public accountants and auditors, co-ordinated by the Group's internal audit manager, the Group's independent external auditors do not assist in the performance of any internal audit assignments.
Details of all non-audit services provided by the independent external auditors, are monitored by the committee, to ensure compliance with the Group's written policy.
Risk management is considered to be a key performance area for line management throughout the Group and attention is focused on the identification of the major risks facing the Group, the risk reduction actions developed to address the major risk areas and the review and auditing of the risk control processes.
While the board is ultimately accountable for risk management in the Group, there is clear responsibility for risk management by operational managers across the Group.
Risk Committees have been operational at each of the Group's operating companies and during 2005 seventeen meetings were held at this level. Operating company risk committees report to the Group Risk Committee, which normally meets four times a year. The current members of the Group Risk Committee are M H Munro (Chairman), P M Baum, B G Dunlop, A Fourie, G R Hibbert, M M Jean-Louis, G P N Kruger, S J Saunders, M Serfontein and P H Staude, with the Group Secretary, M M L Mokoka, in attendance.
Strategic and business risk management processes, including reputational, compliance, financial and operational risks which could undermine the achievement of the Group's business objectives, are covered by the Group Risk Committee's terms of reference.
The risk management system has been designed to ensure that it is flexible enough to be adapted to the specific requirements of each of the operations. Managers are supported in giving effect to their risk responsibilities through sound policies and guidelines on risk and control management. Operating company management provides ongoing monitoring of company specific risks as well as risks that are considered to have a Group wide impact. Details of the results of such reviews are provided to the operating company risk committee, operating company board, as well as the Group Risk Committee.
Where a particular operation is exposed to a potential risk which could constitute a disaster, recovery plans have been formulated and the necessary resources have been identified to ensure their implementation.
The board has established a Group wide system of internal control in all key operations to manage significant Group risks. This system supports the board in discharging its responsibility of ensuring that the risks associated with the Group's operations are effectively managed. Regular management reporting, which provides a balanced assessment of key risks and controls, is an important component of board assurance. Quarterly reports are presented to the board.
The Group's internal audit function provides independent assurance to the Risk Committee and the board on the effectiveness of the appropriate internal control process throughout the Group. The board also receives assurance from the Audit and Compliance Committee that derives its information in part from regular internal and external audit reports throughout the Group on risk and internal control.
The Group Safety, Health and Environment (SHE) Committee normally meets three times a year. Its members are P H Staude (Chairman), T Chetty, S J M Cleasby, J M Clelland, B G Dunlop, A Fourie, B A Henderson, G R Hibbert, G P N Kruger, R McMartin, M N Mohale, D S Mudly, M Serfontein, W G Streek and D F Timmerman.
The Group SHE Committee reviews the major SHE risks identified by the SHE committees at each of the Group's operating companies and the progress against SHE targets, thus providing a facility for the development of an overall perspective on SHE matters and for the sharing of information and experiences across the Group. It is also a forum for considering, and where appropriate, responding to material national and international regulatory and technical developments in the fields of SHE management.
The Employment Equity Committee normally meets twice a year. Its current members are P H Staude (Chairman), J Bhana, S Bhayat, N P Dingaan, B G Dunlop, A Fourie, B R Gumede, G R Hibbert, M M Jean-Louis, G P N Kruger, C V Macu, M M L Mokoka, M Mia, M N Mohale, T K Mshengu, N R Nyandeni, S J Saunders and M Serfontein.
The broad composition of this committee ensures that it benefits from Group wide experience and expertise in achieving its objectives. Its main objective is to set targets and review progress throughout the Group on all employment equity related matters, and, where necessary, to make recommendations to the board on the implementation of the Group's employment equity policies. These policies are based on equal opportunity for all within a diverse workforce with a substantial number of members of designated groups at all levels. The implementation of these policies is facilitated by appropriate performance and talent management processes, recruitment targets, development and training programmes, coaching and mentoring and innovative management development practices.
These programmes, targets and practices enjoy priority as a key business objective and constitute an integral part of management's performance assessment.
The Remuneration Committee which normally meets three times a year, is chaired by an independent non-executive director and comprises only non-executive directors. The current members are L Boyd (Chairman), E le R Bradley, P M Baum and C M L Savage. P H Staude attends by invitation and M Serfontein is the secretary.
The Group's reward philosophy, which has been approved by the board, is formulated to attract, motivate and retain directors, executives and employees needed to run the Group successfully. The Remuneration Committee is responsible for considering and making recommendations to the board on the policy and on the quantum, structure and composition of remuneration packages of executive directors and senior executives. In addition, it reviews general salary increases for management and the operation of the Group's incentive schemes. Independent external studies and comparisons are used to ensure that compensation is market related and linked to both individual performance and the performance of the Group.
The Nomination Committee, which comprises only non-executive directors, meets as required. Its members are L Boyd (Chairman), E le R Bradley, P M Baum and C M L Savage. P H Staude attends by invitation and M Serfontein is the secretary.
This committee's terms of reference ensure that, for board appointments, a rigorous, fair and open nomination and appointment process is established which will provide a balance of appropriate skills in the boardroom and support strong corporate performance. The committee leads that process and makes recommendations to the board, ensuring that there is a diversity of experience and backgrounds to create a cohesive and effective board.
The directors are required by the Companies Act to maintain records and prepare financial statements which fairly present the state of affairs of the Group as at the end of the financial year and the results of its operations for that year, in conformity with International Financial Reporting Standards. The financial statements are the responsibility of the directors and it is the responsibility of the independent auditors to report thereon.
To enable the directors to meet these responsibilities, standards have been set and systems of internal control implemented to reduce the risk of error or loss in a cost effective manner. These controls include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties. They are monitored throughout the Group and all employees are required to maintain the highest ethical standards in ensuring that the Group's business practices are conducted in an appropriate manner which is above reproach.
The Group's internal audit function operates independently in all operations to appraise and evaluate the effectiveness of the operational activities and the attendant business risks. Where necessary recommendations are made for improvements in the systems of internal control and accounting practice based on internal audit plans and reports which take cognisance of relative degrees of risk of each function or aspect of business.
Comprehensive management reporting disciplines are in place, which include the preparation of annual budgets by all operating entities. Individual operational budgets are approved by the operating boards, while the Group budget is reviewed and approved by the Group board. Monthly results and the financial status of the operations are reported against budgets and forecasts and compared to the results of the prior year. Profit projections and cash flow forecasts are regularly updated, taking into account various economic scenarios, and working capital and borrowing levels are monitored on an ongoing basis.
The Group has adopted a Code of Ethics, which supports its commitment to a policy of fair dealing, honesty and integrity in the conduct of its business. The Code of Ethics has been actively endorsed by the board and distributed to all employees across all levels in the Group.
Compliance by all employees to the high moral, ethical and legal standards of the Code is mandatory, and if employees become aware of, or suspect, a contravention of the Code, they must promptly and confidentially report it in the prescribed manner. Appropriate action has been taken in respect of all instances of non-compliance with the Code by employees, reported during 2005.
The cash package of the executive directors is subject to annual review by the Remuneration Committee and the board, and is set with reference to relevant external market data.
The annual executive bonus scheme is based on a combination of the achievement of targets, which are set each year on an individual basis for each executive director, and a general assessment of the individual's overall performance. These targets include measures of corporate (and, where applicable, operational) performance as well as the achievement of individual targets. Overall safety performance is also an important factor in bonus determination. An individual's bonus payable in any year will not exceed 50 percent of the annual cash package.
Recent developments in the regulatory environment and best practice in local and global share schemes required that the company's original share option scheme be reviewed in 2005. This original share option scheme was discontinued, with the previous awards continuing to run their course and no new awards being made.
A set of new share incentive schemes was adopted in 2005 comprising the Share Appreciation Right Scheme 2005 (SARS), Long Term Incentive Plan 2005 and Deferred Bonus Plan 2005. The schemes were approved at the annual general meeting of shareholders in April 2005, following the circulation of a detailed explanation of the workings, rules, limits and performance conditions of these schemes.
Under these new schemes, executive directors and employees of the company are awarded rights to receive shares in the company based on the value of these awards (after the deduction of employees' tax) when performance conditions have been met, the awards have vested, and, in the case of the SARS, when the share appreciation rights have been exercised.
The primary intent is to settle the awards by acquiring shares in the market and delivering them to the employee. Consequently no dilution of equity is intended. The accounting charges to the income statement required by IFRS 2 Share-based Payment are accounted for as equity-settled instruments. The costs associated with the settlement of awards under the new share schemes qualify for a tax deduction by the company.
Details of the schemes and awards made in 2005, after approval by the Remuneration Committee and the board, are detailed in the notes to the annual financial statements.
Performance conditions governing the vesting of the scheme instruments are related to growth in earnings per share, share price, total shareholder return and return on capital employed, relative to targets that are intended to be challenging but achievable. Targets are linked, where applicable, to the company's medium term business plan, over three year performance periods, with actual grants being set each year considering the job level of the participating employee, their individual performance, and appropriate benchmarks of expected combined value of awards.
It is expected that the schemes will strengthen the alignment of shareholder and management interests and assist in the attraction, retention and appropriate reward of management.
Membership of the Tongaat-Hulett Pension Fund is compulsory for all senior management, and pension and life insurance benefits are provided. Other benefits constitute the provision of medical aid, gratuity at retirement and death and disability insurance.
Non-executive directors receive fees for their services on the Group board, board committees and operational boards. Directors' fees are recommended by the Remuneration Committee and submitted to both the board and the shareholders for approval.
No part of the Group's business was managed during the year by any third party in which any director had an interest.
No director, officer or employee may deal either directly or indirectly in the company's shares on the basis of unpublished price-sensitive information regarding its business or affairs. In addition, no director or officer may trade in the company’s shares during closed periods. Closed periods are from the end of the interim and annual reporting periods to the announcement of financial and operating results for the respective periods, and while the company is under a cautionary announcement.
The directors confirm that they are satisfied that the Group has adequate resources to continue in business for the foreseeable future. Financial gearing, cash flows and access to equity and loan capital are considered to be sufficient to fund any chosen opportunities to expand or restructure the business cost effectively.
The directors also believe that the depth of human and other intellectual capital is adequate to drive the future value creation of the business. In addition to its tangible assets, the brands and reputation of the organisation remain intact, while the product mix is seen as competitive in the markets and regions in which the Group continues to operate or has determined to enter. The Group has implemented an effective risk management process that is designed to maximise strategic opportunity within tolerable levels of residual business, process and dependency risks.
The assumptions upon which this assessment is made are recorded at the time of approval of the annual financial statements by the board. For this reason, it continues to adopt the going concern basis for preparing the financial statements.