iliad africa LiMited integrated annual report 2014

Transcription

1 ILIAD AFRICA LIMITED integrated ANNUAL REPORT 2014

2 contents OVERVIEW 2 Profile 3 Milestones 3 Strategy alignment map 4 Strategy roadmap 4 Key strategic project update for Group structure 6 Iliad Africa Footprint 7 Brand portfolio 8 Key financial indicators 8 Material sustainability issues 9 Investment case BUSINESS STRUCTURE 10 Board of Directors 12 Group Executive Committee BUSINESS REPORTS 14 Chairman s report 16 Chief Executive Officer s report 20 Chief Financial Officer s report 24 Five-year review 25 Value-added statement OPERATIONAL REVIEW 26 General Building Materials 28 Specialised Building Materials CORPORATE RESPONSIBILITY 30 Sustainability report 38 Stakeholder engagement CORPORATE GOVERNANCE 39 Governance report Annual FINANCIAL STATEMENTS 52 Statement of compliance 53 Independent Auditor s report 54 Statement of Directors responsibility 55 Report of the Audit Committee 56 Directors report 59 Statements of financial position 60 Statements of comprehensive income 61 Statements of cash flows 62 Statements of changes in equity 63 Accounting policies 74 Notes to the annual financial statements SHAREHOLDER INFORMATION 107 Shareholders analysis 108 Shareholders statistics 109 Notice of the Annual General Meeting 112 Shareholders diary and corporate information 113 Form of proxy 114 Notes to the proxy 115 Contact details Iliad Africa Limited Integrated Annual Report 2014

3 Scope AND BOUNDARY of the report This integrated report covers the financial year to 31 December It provides an overview of the Group s financial and non-financial performance and follows the integrated and sustainability reports for the year ended 31 December This report discusses the economic, social and environmental performance of the Group, focusing on all Divisions and areas of operation. Iliad currently only operates in South Africa. An external assurance provider has not independently verified this report; however, certain sustainability indicators have been reviewed internally by the finance function. In preparing this integrated report, the principles in the International Integrated Reporting Council s Draft Prototype Framework, and its Consultation Draft published in April 2013, were acknowledged. Our integrated report conforms to the requirements of local and international integrated reporting frameworks, including those of the South African Companies Act 2008 (as amended) and the Johannesburg Stock Exchange (JSE) Listings Requirements. We continue to use Global Reporting Initiative (GRI) G4 guidelines to inform our sustainable development reporting. A detailed GRI table providing responses to each of the GRI G4 criteria can be found on our website at All data in this report was compiled by Iliad s individual operations and reported to Group management. Good progress is being made in enhancing a standardised information system to support more meaningful and comparable annual reporting. DETERMINING MATERIALITY The Iliad integrated report aims to provide a balanced, accurate and accessible assessment of our strategy, performance and prospects in relation to material financial, economic, social, environmental and governance issues. The material focus areas that are dealt with in our integrated report were determined by: Qualitative and quantitative criteria Matters that are critical in relation to achieving our strategic objectives and the sustainability of our business model and integrated value chain Matters covered in reports submitted to the Board of Directors for approval or discussion Key risks identified by our risk management process Feedback obtained from our key stakeholders during the course of the year 2014 HIGHLIGHTS Increase in HEPS of 80,8% to 72,3 cents Operating profit (excluding portfolio adjustments) up 0,4% to R139,0 million Year-on-year increase in net cash R58,3 million to R97,1 million Year-on-year decrease in net finance charges of 36,6% to R9,1 million Year-on-year increase in distribution to shareholders of 10,0% to 22,0 cents per share Board responsibility The Board of Directors acknowledges its responsibility for ensuring the integrity of the integrated report. The Directors confirm that they have collectively reviewed the contents of this report and agree that it addresses the material issues, and fairly represents the integrated performance of the Group. The Board authorised the release of the integrated report on 12 March Andile Sangqu Chairman eugene Beneke Chief Executive Officer 1

4 PROFILE Iliad focuses on the sourcing, retailing and redistribution of goods into selected markets. Listed on the JSE Limited in 1998, the Group is a leading participant in a R194 billion industry sector (refer to diagram on page 18), servicing a range of customers from large-scale development and construction groups to do-it-yourself homeowners through its 70 stores and approximately people nationally. The Group s Divisions are headed by experienced entrepreneurs capitalising on common pools of expertise and focused on achieving divisional growth targets. 2 Iliad Africa Limited Integrated Annual Report 2014

5 MILESTONES The significantly improved financial performance reflects the benefit of a focused strategy Brand equity building initiatives in progress Implementation of a consolidated Group ERP platform was completed on time and within budget The sound balance sheet structure is a key growth enabler STRATEGY ALIGNMENT MAP Driving force: Our strategy is to meet the product needs of the building industry through sourcing, retailing and redistribution of goods into selected markets Philosophy: Maximise stakeholder value, through a decentralised front end, supported by an integrated back office Values: Customer focus Entrepreneurial Responsible Integrity Stakeholders: Customers Community Employees Suppliers Shareholders Core competencies: Customer orientation Market intelligence Product knowledge Trading skills Procurement Leadership/Managerial Excellence Diversity Respect Engaging Energy & Passion 3

6 Strategy roadmap Balanced portfolio contribution Growth through a combination of organic and acquisitive expansion Building brand equity Strategic technology enhancement Centre-led approach to procurement 2020 Sustainable top of the industry profitability Achieve B-BBEE compliance targets Back-office consolidation and efficient support Key strategic project update for 2014 The most important strategic projects for 2014 were: Completing the implementation of the ERP platform across the business. Building the BUCO brand in General Building Materials Division. The disposals of 2013 have been fully implemented. The Group retained its level five rating for B-BBEE. Centre-led procurement model in progress. 4 Iliad Africa Limited Integrated Annual Report 2014

7 GROUP STRUCTURE General Building Materials (GBM) markets a comprehensive range of products, primarily sourced locally, through its Inland and Coastal Sub-divisions, mainly under the BUCO brand. Specialised Building Materials (SBM) trades in differentiated and value-added products. ILIAD GROUP GENERAL BUILDING MATERIALS SPECIALISED BUILDING MATERIALS Inland Coastal Ironmongery Central East West/North Western Cape Eastern Cape KwaZulu-Natal Free State/ Northern Cape Wholesale Plumbing & Hardware Boards Equipment Hire 5

8 iliad africa footprint General Building Materials Specialised Building Materials Limpopo North West Gauteng Mpumalanga Swaziland Free State KwaZulu-Natal Lesotho Northern Cape Eastern Cape Western Cape 6 Iliad Africa Limited Integrated Annual Report 2014

9 brand portfolio Suncol commenced business in 1980 as a solar manufacturer and distributor. It has now become a well-established plumbing merchant, servicing a range of clients, from the private individuals to the large corporations. Based in the city of Pretoria, Buchel offers an extensive range of architectural ironmongery, tools and hardware products. With over 60 years of experience, they supply their products to various private and public entities. Incorporating the former Knob & Knocker outlets, Design Hardware is a specialist supplier in architectural ironmongery. 1 A well-renowned brand in KwaZulu-Natal, Bildware provides a range of solutions in architectural ironmongery, hardware and building products. Being an established leader in electronic and access control solutions, Saflok offers a range of products in electronic locking and access management systems and in-room safes Celebrating its 100 years of experience, W&B Hardware, based in the Western Cape, are the leading suppliers of architectural ironmongery, hardware and building products. Defined by entrepreneurship, authenticity, expertise and collaboration, BUCO offers a broad range of general building materials and value-added services to its customers throughout South Africa. Cachet International offers a range of plumbing, hardware and specialised ironmongery products Chipbase is a board business that specialises in the cutting and edging of all board products. A trusted brand, for longer than 20 years, Citiwood is a wholesale and retail supplier of various ranges of board and boardrelated products. Equipped with the latest technical hardware, they are able to offer their customers a comprehensive service. B-One provides hiring services in building site accommodation, sanitation and storage facilities for construction and civil engineering sites. 7

10 key financial indicators Key financial indicators Actual 2014 Actual 2013 EBIT (Rm) 133,0 6,9 EBIT (%) 3,0 0,2 EBITDA (%) 3,9 1,1 Revenue (Rb) 4,4 4,5 Gross margin (%) 27,9 26,7 Net cash (Rm) 97,1 38,8 MaTERIAL SUSTAINABILITY ISSUES To ensure the long-term sustainability of the Group, issues which could materially affect our successful continued existence are identified through a formal process (refer Risk Management approach page 43) and actively managed. In line with the Group s risk management processes, the following inherent potential risks were identified, based on business and industry dynamics. Mitigating actions were implemented to reduce these risks to acceptable levels. Identified potential inherent risks Mitigating actions implemented Misreading the market as a result of: Interest rate fluctuations Inaccessible finance and increased cost of funding Macro-economic factors Insufficient market intelligence Inadequate CRM processes Inadequate performance at cluster level Over-gearing due to the cyclical nature of the industry/market Ineffective procurement processes Finance structures inappropriate for future business requirements Focus on cost structures, procurement, cash generation and appropriate acquisition/roll out opportunities Adhere to agreed business parameters Maintain gearing within self-imposed targets Quarterly market/industry information updates Quarterly Board review of industry KPIs Intense focus on inventory optimisation and ongoing review Appropriate incentive structures in place Quarterly Executive management review meetings Enhanced performance management processes Detailed regular strategy and portfolio reviews Adequate facility capacity headroom Approved gearing limits adhered to Annual review of future financing structures Ongoing focus on working capital management Procurement identified as a key strategic area of focus Structured projects to review procurement processes initiated Effective Group procurement forum established Objective to maintain rebatable purchases target between 80% and 85% Rationalised the Group s national supplier list Framework to review procurement processes issued Reviewed Group financing structures Constructive engagement with financial institutions Successful Group cash management initiatives identified and implemented by Exco 8 Iliad Africa Limited Integrated Annual Report 2014

11 Investment Case Iliad aims to generate sustainable returns for shareholders over the short, medium and longer term, particularly to those wanting exposure to the South African retail market. While material issues in the Group are reviewed annually, the investment case focuses on a longer time horizon. Focused strategy and business model Focuses mainly on one industry: the supply of building materials and related merchandise Focus on a balanced customer profile and not multiple market segments Launched a monolithic brand (BUCO) in the GBM Division, upgraded and branded stores accordingly National implementation of a technology platform completed Group profile, page 2 Our business philosophy, page 3 Portfolio optimised Business strategy adjusted, resulting in an increasing emphasis on growth Positive view on economic growth prospects and positive sentiments on future performance BUCO Lydenburg integrated with BUCO Middelburg and BUCO Burgersfort BUCO Stellenbosch integrated with BUCO Somerset West BUCO Komatipoort opened in Q BUCO Kathu and BUCO Jane Furse relocated to more suitable locations BUCO Paarl store opened in Q Cachet Johannesburg integrated with Cachet Durban Design Hardware Woodmead integrated with Strydom Park Market leadership in contractor management Private-label product range introduced Most BUCO stores have a dedicated contractors counter Expanded the offering into the DIY segment Ability to manage credit risk Credit used as an enabler to grow sales Debtors book managed to optimise profitability Focused credit-granting and approval process Debtors book internally funded and managed Credit insurance cover and security over selected customers Focused management via Group Credit Committee Managing the credit risk page 95 Adhering to governance best practice King III governance principles applied Strong independent Board and Committee structure Track record of excellence in financial reporting Risk management processes embedded across the business Chairman s report page 14 Corporate governance report page 39 Experienced management team On average, Group Executive team members have over 15 years senior management experience Strong divisional and Executive management leadership team Succession management plans for senior and middle management Managers are selected and trained to identify opportunities for profitable business Board and Executive management pages 10 and 12 Human capital strategic report page 33 Sustained performance and wealth creation Revenue: 15-year compound growth of 16,6% Strong organic growth potential Well-managed statement of financial position Did not require recapitalisation during economic downturn Cost containment and improved operational efficiencies Chief Financial Officer s report page 20 National retail presence Portfolio of well-located stores across South Africa Strategy of selective growth in trading space to grow market share Brand portfolio page 7 9