Bidvest Group Limited

Governance for a sustainable business

HOW WE GOVERN OUR BUSINESS
Bidvest embraces corporate governance as a way of life rather than a set of rules. Stakeholders can only derive full, sustained value from a business founded on honesty, integrity, accountability and transparency. Bidvest values simplicity. Improved focus makes it easier to manage our businesses, which is fundamental for transparency and good governance.

An appropriate structure that captures the talent and the energy needed for continued growth without becoming unwieldy. This is the rationale behind the Bidvest Group structure consisting of seven operating divisions, Bidvest Namibia and Bidvest Properties.

Divisional leadership consists of a chief executive and finance director tasked with guiding and directing each operating business within that division. At divisional level, internal audit and risk management structures exist to support the divisional leadership team. The functions of risk and audit are therefore fully entrenched in the businesses and dealt with on a quarterly basis, as part of the agenda, in every executive and board committee meeting. All divisions report into the Group structure to ensure appropriate information and ultimate accountability is brought to the Bidvest board of directors.

Bidvest’s entrepreneurial culture has been the driving force that has fostered growth in a variety of sectors, creating the Bidvest Group as we know it today. Bidvest believes in empowering people, building relationships and improving lives. Entrepreneurship, incentivisation, decentralised management and communication are key to delivering excellence and innovation in all our business interactions.

HOW WE INTEGRATE – THE BIDVEST FOUR PILLARS
Bidvest recognises the value of an integrated approach to assurance and compliance. The adopted governance, risk and compliance framework continues to form the basis for how Bidvest manages governance in a decentralised environment.

The framework shows the achievement of a sustainable business underpinned by the integration of four basic pillars, being governance, assurance, risk management and compliance, in accordance with legislated requirements and reported through the established structures.

1. Governance
Bidvest is fully committed to the four values underpinning good governance – responsibility, accountability, fairness and transparency. The board charter, which is reviewed annually, expresses the board’s commitment to meeting its responsibilities. While retaining overall accountability, Bidvest has spread the burden of responsibility carried by the Group board committees to within the divisional structures where management teams are able to focus on the needs of the business itself. Suffice to say, each division has its own audit committee and risk committee operating under a delegated authority of the Group committees. Reporting is consolidated and reported to these committees and the board is therefore able to focus on the high-risk, high-impact areas.

Bidvest’s governance portfolio consists of the required charters, codes, policies and documents which are designed to guide the composition and responsibilities of the divisional governing bodies. In line with Bidvest’s decentralised structure, divisional management will establish additional policies and procedures as are applicable to its specific environment.

Role and function of the board
Executive directors implement strategies and operational decisions. Non-executive directors provide an independent perspective and complement the skills and experience of executive directors. They objectively assess strategy, budgets, performance, resources, transformation, diversity, employment equity and standards of conduct. They also contribute to strategy formulation and decision making.

The board believes the current mix of knowledge, skill and experience meets the requirements to lead Bidvest effectively. The board comprises seven independent non-executive directors, one non-executive director and five executive directors. The board is chaired by an independent non-executive director. During the current year, there were several changes made to the composition of the board, mainly as a result of the unbundling of Bidcorp. Mr Alfred da Costa retired from the board at the AGM in November 2015. Messrs Bernard Larry Berson and David Edward Cleasby resigned as executive directors upon the unbundling in May 2016. Mr Donald Masson passed away after a short illness on March 20 2016. Mr Paul Kambo Baloyi resigned during August 2016 and Mr Hans Peter Meijer was appointed as an executive director in the position of chief financial officer in May 2016. Considerable thought is given to board balance and composition.

In terms of Bidvest’s Memorandum of Incorporation (MoI), the directors who retire by rotation at the forthcoming AGM are Messrs Brian Joffe, Anthony William Dawe, Mrs Mpumi Madisa and Mrs Bongi Masinga. All retiring directors are eligible for re-election.

The board functions in accordance with the requirements of King III and within the context of the Companies Act, the Listings Requirements of the JSE Limited and other applicable laws, rules and codes of governance. The board is responsible for, among other things, the governance of risk and information technology and has ensured that Bidvest has an effective, independent audit committee and an effective risk-based internal audit function. On the recommendation of the audit committee and the risk committee, the board has considered and approved the annual integrated report. Based on the report of the audit committee and the written assessment of the internal auditor, the board is satisfied that the system of internal controls is effective.

Bidvest’s remuneration philosophy promotes its entrepreneurial culture within a decentralised environment. The main objective is to achieve effective and sustainable growth within all Bidvest businesses. The board defines the remuneration philosophy to ensure that the business strategy and objectives are aligned with the overall goal of creating shareholder value. A balance between employee and shareholder interests, while supporting entrepreneurial drive to ensure fair and responsible remuneration practices, is a key area of focus. The board carries ultimate responsibility for the remuneration policy, and the remuneration committee operates in accordance with a board-approved mandate. The board may refer matters for shareholder approval; for example, new and amended share-based incentive schemes and committee fees. During the year, the board accepted the recommendations made by the remuneration committee. Refer to the directors’ report and the remuneration committee report.

The full remuneration report can be found online www.bidvest.com

 

2. Assurance
Bidvest over the last four years has made a significant investment in developing and growing a robust, independent, risk-focused internal audit function that delivers real value and benefit to the Group. An integrated risk-based internal audit methodology has been applied, with input from divisional management and aligned to the organisation’s risk management processes. Although not reliant on external auditors for any resource support, the internal audit function, in accordance with the Group’s combined assurance model, continues to liaise with the external auditors, and other assurance providers identified, to maximise efficiencies in assurance coverage on key risks.

The annually prepared internal audit plan embraces the principle of combined assurance, and is presented to the audit committee for review and approval. The audit committee considers the objectives and rationale that drive the plan in order to achieve the objectives of internal audit processes. Internal audit plans are reviewed quarterly assessing the ability of the plan to meet the objectives of the Group audit committee.

The Bidvest internal audit vision is to provide a progressive and responsive service that objectively evaluates the business processes and internal controls. It strengthens and supports management’s efforts in creating a strong control environment to achieve operational excellence. The significant investment in training and the skills injection through recruitment of highly qualified internal audit managers has seen a marked improvement in the overall quality and standard of assurance provided to management by internal audit. Given the increasing dependencies of businesses on information technology (IT), specialised IT auditing and consulting skills are being developed within the internal audit team, and will continue to be a major area of focus and development.

The purpose, authority and responsibility of the internal audit function are defined in a board-approved charter that is consistent with the Institute of Internal Auditors’ definition of internal auditing, and the principles of King III. Internal audit has focused on the following main areas, as required by King III:

• Objectively assessing the effectiveness of the risk management process, internal financial control (including an assessment of the adequacy of accounting records) and overall operational internal control
• Systematically analysing and evaluating business processes and associated controls
• Evaluating the Group’s governance processes
• Providing a source of information, as appropriate, on instances of fraud, corruption, unethical behaviour and irregularities.

Refer to the audit committee report.

Internal audit continued to function independently and objectively throughout the Group in the past year. The internal audit manager within each division, as well as at Group level, reports functionally to the chairman of the respective divisional audit committee. Unrestricted access to members of the audit committee and executives of the organisation is available to the internal audit function. In addition, regular separate meetings between internal audit and the chairman of the divisional and Group audit committees took place during the year under review.

3. Compliance
Bidvest recognises that its greatest risk of non-compliance stems from a weakness within the impact of the legislation on each business. Each company is required to identify legislation that applies to the environments in which it operates, as well as the categories of information held relating to this legislation. Awareness programmes from a Group level update management on legislative changes that are pervasive to the Group.

Bidvest is listed on the JSE Limited, and as such, the board annually confirms that it complies with the Listings Requirements of the JSE Limited. The board places strong emphasis on the highest standards of financial management, accounting and reporting. The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). For non-financial aspects, the Company has adopted the Global Reporting Initiatives’ (GRI G3.1) sustainability reporting guidelines on economic, environmental and social performance. The board has appointed a social and ethics committee. The board has placed the compliance of these Group-wide acts as well as industry and regional acts on the agenda of both the Group risk committee where exposures have been identified and on the Group social and ethics committee where compliance is monitored.

Refer to the social and ethics committee report.

The Group is committed to implementing King III principles and best practice recommendations. Bidvest performs an annual review to assess the extent to which Bidvest continues to apply the principles and recommended practices in King III. This analysis identifies the actions taken to ensure application of the governance principles and those principles which will require ongoing attention and action.

The Bidvest Group Limited’s detailed King III Governance Register and The Bidvest Group Limited’s detailed JSE Listings Requirements Compliance Register, can be found online at www.bidvest.com

Bidvest has made use of the Institute of Directors Southern Africa (IoDSA) recommended Governance Assessment Instrument (GAI) as a self-assessment tool to assess the extent of application of the King III recommended principles and practices.

The board confirms its compliance with specific governance requirements in the disclosures set out below:

	Appointment, induction and ongoing training of directors			Any new appointment of a director is considered by the board on the recommendation of the nominations committee, to ensure a rigorous and transparent procedure. The selection process involves considering the existing balance of skills and experience, and an ongoing process of aligning board composition with the strategy of the Group as a whole. The Bidvest company secretary arranges an appropriate induction programme for new directors.
	Board and board committees’ performance assessment			The performance of the board as a whole and the board committees individually is appraised annually. The recent performance assessment indicated that the board and the board committees are functioning effectively and efficiently.
	Independence of non-executive directors			The board comprises a majority of independent non-executive directors. The board considered the issue of independence of directors in accordance with the rationale and meaning of the requirements of independence according to King III. An assessment, considering the salient factors and unique circumstances of each director, was performed for each non-executive director. The independence of non-executives who have served on the board for longer than nine years was assessed. The board is satisfied that all six non-executive directors are independent.
	Chairman and chief executive			No individual has unfettered powers of decision making. Responsibility for running the board and executive responsibility for conducting the business are differentiated. Mrs CWL Phalatse, an independent non-executive director, is chairman of the board and Mr LP Ralphs, an executive director, is the chief executive.
	Prescribed officers			Due to the nature and structure of the Group and the number of executive directors on the board of the Company, the directors have concluded that there are no prescribed officers.
	Directors’ service contracts			Directors do not have fixed-term service contracts.
	Directors’ and officers’ disclosure of interest in contracts			None of the current directors had a material interest in any contract of significance to which Bidvest or any of its subsidiaries was a party during the financial year. During the financial year, no contracts were entered into in which directors and officers had an interest and which significantly affected the business of the Group. The directors had no interest in any third party or company responsible for managing any of the business activities of the Group.
	Conflict of interest			The board recognises the importance of acting in the best interest of the Group and protecting the legitimate interests and expectations of its stakeholders. The board consistently applies the provisions of the Companies Act on disclosing or avoiding conflicts of interest. Directors are required to declare their interests in general annually and specifically at each meeting of the board.
	Statutory powers			Section 66(1) of the Companies Act provides that the business and affairs of a company must be managed by or under the direction of its board which has the authority to exercise all the powers and perform all the functions of the Company, except to the extent that the Companies Act or the Memorandum of Incorporation provides otherwise. The general powers of the directors are set out in the Memorandum of Incorporation. The directors have further unspecified powers and authority for matters that may be exercised and dealt with by the Group, which are not expressly reserved to shareholders in general meeting.
	Insider trading			Through appropriate procedures, the board ensures that no director, manager, employee or nominees or members of their immediate family deal directly or indirectly in the securities of Bidvest on the basis of unpublished price-sensitive information nor during the embargo period determined by the board in terms of a formal policy implemented by the company secretary. A list of people who are restricted for this purpose has been approved by the board and is revised from time to time. Dealings in Bidvest’s securities by directors and officers are listed and circulated at every board meeting for noting. The Listings Requirements of the JSE Limited extend obligations on transactions in Bidvest’s securities to include those of any major subsidiary. Directors or officers of the Group’s major subsidiaries, whether wholly or partially owned, are also included in the list of directors, company secretary and other officers.
	Company secretary			Mr CA Brighten is the Group company secretary, duly appointed by the board in accordance with the Companies Act. The secretariat is available to provide a central source of guidance and advice on matters of business ethics and good governance. The secretariat also aims to provide the highest standard of compliance with the statutory and regulatory requirements.

The following table represents the high-level King III application register.

King III governance register at June 30 2016

	The Bidvest Group Limited – 1946/021180/06			IoDSA GAI score			Applied/partially applied/not applied
	Chapter 1: Ethical leadership and corporate citizenship			AAA			Applied
	Chapter 2: Boards and directors			AAA			Applied
	Chapter 3: Audit committees			AAA			Applied
	Chapter 4: The governance of risk			AAA			Applied
	Chapter 5: The governance of information technology			AAA			Applied
	Chapter 6: Compliance with laws, rules, codes and standards			AAA			Applied
	Chapter 7: Internal audit			AAA			Applied
	Chapter 8: Governing stakeholder relationships			AAA			Applied
	Chapter 9: Integrated reporting and disclosure			AAA			Applied
	Overall score			AAA

AAA Highest application

AA High application

BB Notable application

B Moderate application

C Application to be improved

L Low application

	King III principle			Status update			Areas of focus
	1. Ethical leadership and corporate citizenship			Code of ethics is annually reviewed. Tip-offs line is operational, managed by an independent third party supporting the values and principles stated in the code of ethics.			An awareness campaign is planned to the Group highlighting the positive role that has been played by the tip-offs line to date and into the future.
	2. Boards and directors			Principles relating to performance assessments have been applied and continue to develop as more stringent performance measuring processes are adopted. Remuneration policy has been approved and adopted, with King III principles notably being applied.			Bidvest has engaged in a board level self-assessment, reviewed by an independent party reporting to the nominations committee.
	3. Audit committees			Bidvest has reviewed and updated the composition of the Group audit committee in line with King III recommendations.			Reporting templates and guidance is currently under review to ensure optimal benefits are achieved through this key governing body.
	4. The governance of risk			Divisional risk committee structures have been established, meeting quarterly and reviewed by the divisional audit committee structure.			Ongoing reviews of the key material risk exposures are performed and where necessary interventions initiated by the board.
	5. The governance of information technology			Group IT forum has been established creating an environment for divisional IT teams to engage, share best practice and drive ongoing innovation. IT governance framework is in place, with assurance function being performed by internal audit.			Internal audit assurance and review will continue reporting in to both the risk and audit committee structures. A group-wide focus has been given to risk mitigation strategies against cybersecurity.
	6. Compliance with laws, rules, codes and standards			Risk management focuses on the identification and management of the ever-increasing onerous regulatory environment, the decentralised structure of Bidvest facilitates close management of this process at grassroots level.			Ongoing investment into training and updates for all staff is an annual focus of the management teams. Review of online solutions to provide updates as regulatory environment changes is under way.
	7. Internal audit			Internal audit provides an opinion to the audit committee with regards to the current state of internal control, internal financial control and risk management. Internal audit adopts an integrated risk-based audit approach, with exposure to the risk management process throughout the Group.			Internal audit continuously reviews the audit approach to ensure the key risks of the environment in which they are operating are the key focus driving their approach. Upskilling, training and adapting to a changing operating environment and evolving technology landscapes, which is increasing in complexity. These are key to keeping internal audit relevant and value adding.
	8. Governing stakeholder relationships			Management teams identify key stakeholder groups and report to the Group risk and social and ethics committees the communication processes in place to monitor and strengthen these relationships.			There are pockets of excellence both divisionally and across the spread of stakeholders that exist. Where weaknesses have been identified, Bidvest Group is assisting the individual management teams to put in place workshops, communication plans and reporting mechanisms to ensure these are addressed.
	9. Integrated reporting and disclosure			Bidvest has successfully made use of a variety of mediums for better reporting and disclosure, using printed and soft copy materials, as well as web-based content.			Bidvest annually proactively seeks out feedback from third-party sources to continue to grow and develop the annual integrated report.

4. Risk management
Bidvest’s commitment to building and sustaining an ethical organisational culture is entrenched in its vision, mission, strategies and operations. While the board has ultimate responsibility for the Group’s ethics performance, executive management is responsible for setting up a well-designed and properly implemented ethics management process.

A prime duty of the board, its committees, directors, officers of the Group and managers is to ensure the code of conduct is honoured. Annually, the board reviews the code of ethics and ensures continued alignment of this code with the Bidvest values. The code demands the highest standards of integrity, ethics and behaviour in all conduct and dealings; non-discriminatory employment and promotion practices; supporting employees through training and development to reach their full potential; and proactive engagement on environmental, social and sustainability matters.

As an outward measure of support and protection of this code and the Bidvest values, the board continues to support the process of confidential reporting of fraud, theft, breach of ethics and other risks. This is an outsourced independent and confidential system for stakeholders to report unethical, dishonest or improper behaviour, including non-compliance with policies, as well as corruption and fraud. All reported incidents are investigated by management and, where appropriate, action is taken in line with legislation. Bidvest’s well-communicated commitment not to victimise whistle-blowers ensures transparency and promotes ethical conduct. The identity of whistle-blowers is protected by the service provider.

The board has appointed a risk committee to assist in recognising all material risks to which the Group is exposed and ensuring that the requisite risk management culture, policies and systems are progressively implemented and functioning effectively. Management is accountable to the board for implementing and monitoring the processes of risk management and integrating this into day-to-day activities. Divisionally, risk committees and risk registers are engaged to actively focus management on critical issues faced at a business and industry level. The key strategic risks are reported to the Group risk committee for consideration at board level. The risk committee membership is annually reviewed.

Refer to the risk committee report.

Bidvest has integrated King III recommendations and these, along with other identified Group requirements, make up the overall function of the committee in terms of an enterprise-wide risk assessment process. This ensures risks and opportunities are adequately identified, evaluated and managed at the appropriate level in each division, and that their individual and joint impact on the Group is considered. The internal auditors assist in evaluating the effectiveness of the risk management process and comment on this in their own assessment reports.

KEY MATERIAL ISSUES SUMMARY
Closely linked to those driving the decentralised strategy within the Group’s operations are those responsible for driving the risk identification and mitigation processes. The key material issues identified below have emerged as a result of analysing and understanding the direction in which each entity is moving. Set out below is a summary of the more material areas of focus emerging from the Group’s deliberations over the past period and areas of focus as we look ahead. Refer to the business mode.

							Material focus areas			Commentary
	PEOPLE			Our human and intellectual capital is our people’s competencies, their experience and business knowledge			Small talent pool and limited skilled resources			Management continually seeks talent and identifies skills within its businesses with the aim of growing talented individuals into new roles. Job creation remains a core objective. In South Africa, B-BBEE regulation increases the focus on black talent management risk in view of the country’s skills shortage. However, graduate and learnership programmes give impetus to staff development.
							Succession planning			Successful career planning and promotion are evident as new management teams are driving stronger performance. Key employees are identified possessing skills and relationships that may be difficult to replicate or replace.
							Industrial action			As a service provider, we are affected by industrial action in key sectors such as mining, transport, municipalities, and metal workers. Management keeps open communication lines with unions and staff.
	PERFORMANCE			Our financial capital (manufacture/infrastructure) comprises a 51% international shareholder base, a vote of confidence in Bidvest and its people			Increasingly complex business environment			Globally, legislative developments increasingly create a more complex environment. The proliferation of regulatory requirements across all industries and territories add to costs, while consuming a growing amount of management time and resources.
							Increasingly onerous and challenging tax regulations			To achieve the organisation’s objectives, Bidvest has adapted its IT governance framework to support the effective and efficient management of people, technology and information. Specific attention is given to cybercrime, which is one of the top IT risks in business today. Management remains closely involved and is increasingly supported by internal audit, specifically the risk and audit committee, to ensure adherence to Group IT frameworks and guidelines.
							Cost-effective IT systems and support structures			As a service provider, we are affected by industrial action in key sectors such as mining, transport, municipalities, and metal workers. Management keeps open communication lines with unions and staff.
							Asset management			Management actively monitors and drives performance in asset management specifically through ambitious working capital targets that are required to be achieved in each business. Working capital management receives focused attention of the audit committee structures; management of debtors remains a priority; collection discipline is well maintained and the incidence of bad debt well controlled; inventory levels are closely monitored. Credit risk has become crucial. We respond by staying close to customers and the project market while having recourse to credit guarantees and insurance. Creditors’ terms are robustly negotiated. Instances of fraud and theft are a reality, and are dealt with on a zero-tolerance basis as proactively as possible; early detection and mitigation is a vital element.
	PRODUCTS AND SERVICES			Our social and relationship capital goes to brand reputation and working together with our customers and suppliers to find valueadding solutions within their specific industries			Remaining competitive and relevant			Critical to the Group’s success is the ability of management to ensure its businesses remain relevant in rapidly evolving environments. Management needs to anticipate the impact of market change and respond promptly. The entrepreneurial spirit within Bidvest facilitates an environment that thrives on innovation and change; embracing the ability to adapt quickly and proactively to changing customer and economic requirements. In order to remain competitive, Bidvest is constantly evaluating its digital strategies.
							Fostering positive long-term relationships with key suppliers and customers			This remains a cornerstone of the way Bidvest does business and is recognised as a major Bidvest strength. Management is constantly challenged to manage and further grow these relationships. Communication with customers is key as they look to us to implement smart solutions that improve efficiency and create savings. Similarly, we constantly look for new sources of supply; we are particularly interested in developing local sources to cut emissions and fuel bills.
							Nurturing long-term ongoing relationships with government			Relationships with government departments continue as significant contracts are renegotiated. More onerous B-BBEE requirements require innovative solutions.
	PLANET			We have a low carbon footprint. In our definition of natural capital we continually strive to minimise our environmental impact and leave our planet in good working order for future generations			Energy risk			The disruption of electricity supply in South Africa continues to have a major impact on an already struggling economy. Efforts are continuing in the area of alternative power solutions; special attention is being paid to large-scale solar systems; roll out of back-up generating capacity has been completed to our large operations while inverters had been installed at all operations of significant size. Growth opportunities have been identified in power factor correction; these systems optimise power transmission efficiency, correct faults, prevent spikes and minimise damage to electronics; growing demand is expected for technology such as this as power tariffs rise.
							Environmental impact consciousness			Our companies seek win-win gains through cost savings that deliver environmental gains; fuel costs have been contained through route optimisation; businesses make increasing use of video and telephone conferencing to reduce travel costs; we scan the new technology horizon for new ideas. Environmental and recycling initiatives have been in place for many years.