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FREEWORLD COATIN

GS LIMITED

Annual Report 2009

www.freeworldcoatings.com Freeworld Coatings annual report ’09

Ideas can change the world

We are committed to contribute to better lives and living spaces in the markets in which we operate through our products and propositions, our ideas and actions – never afraid to find better ways to do things. We understand that a vibrant society and healthy natural environment are intrinsic to our lasting success. This understanding provides the foundation for the way we have chosen to structure and manage our business – which requires that we do business in a commercially sensible and socially responsible manner, mindful that we are custodians of the earth’s resources.

In reporting back to our stakeholders on our performance, strategy and prospects, we aim to disclose material information transparently, comparatively and understandably. As part of our sustainable approach to managing our business, we measure our performance against the triple bottom line, providing increasingly focused sustainability information as part of our annual report. Stakeholders are directed to our website www.freeworldcoatings.com for further information to complement our annual report, periodic SENS announcements and presentations of our interim and annual results.

01 About Freeworld Coatings 02 Our ethos 03 Highlights 04 Our group at a glance 06 Our brands 10 Chairman’s report 11 Chief executive officer’s report 14 Vision 17 Innovation 19 Business philosophy 20 Our board 22 Our executives 24 How South Africa scored 26 Operational review: Decorative Coatings 33 Operational review: Performance Coatings 35 Going for gold 38 Where there’s a wall there’s a way 40 Sustainability report 53 Corporate governance 58 Chief financial officer’s report 59 Annual financial statements 143 Shareholder information 144 Notice of annual general meeting 147 Form of proxy ibc Company information

contents

SpONSOR

Rand Merchant Bank (A division of FirstRand Bank Limited)(Registration number 1929/001225/06)1 Merchant PlaceCnr Fredman Drive and Rivonia RoadSandton, 2196(PO Box 786273, Sandton, 2146)Tel: +27 11 282 8000

ATTORNEyS

Read Hope Phillips Thomas & Cadman Inc.(Registration number 2000/022080/21)2nd Floor, 30 Melrose BoulevardMelrose Arch, Gauteng, 2196(PO Box 757, Northlands, 2116)Tel: +27 11 344 7800

AuDITORS

Deloitte & ToucheDeloitte Place, The WoodlandsWoodlands Drive, 2052(Private Bag X6, Gallo Manor, 2052)

COMpANy SECRETARy

Eleanor Chamberlain

REGISTERED OFFICE

Balvenie, Kildrummy Office ParkUmhlanga DrivePaulshof

pOSTAL ADDRESS

PostNet Suite 263Private Bag X87Bryanston, 2021Tel: +27 11 549 8000Website: www.freeworldcoatings.com

COMpANy REGISTRATION NuMbER

2007/021624/06

COuNTRy OF INCORpORATION

Republic of South Africa

TRANSFER SECRETARIES

Link Market Services South Africa (Pty) Limited(Registration number 2000/007239/07)16th Floor, 11 Diagonal StreetJohannesburg, 2001(PO Box 4844, Johannesburg, 2000)Tel: +27 11 630 0800

Company information

With its origin dating back 119 years, Freeworld Coatings is today a leading manufacturer and marketer of decorative and performance coatings in southern Africa and with a presence in other parts of the world. The company markets its products internationally and is one of the world’s 24 largest coatings businesses, with operations that meet high global standards. Freeworld Coatings is strongly positioned to grow, based on its longstanding experience, extensive product base, iconic brands and leading edge technologies.

AbouT

Freeworld Coatings

01

our ethos

We aim to build a free thinking organisation that has a deep passion for its customers.

our people are empowered, self disciplined, have integrity and are caring.

We believe that diversity is our strength.

Through our culture we enthusiastically drive success.

Our three foundational concepts

Free thinking – with self discipline.

You can change your world if you change the way you see the world.

Find a better way of doing things, and not just for effect.

Our three brand pillars

self discipline and accountability as opposed to bureaucracy.

Creative exploration a sense of adventure independently and with our consumers, adding value to peoples’ lives.

dependability and integrity through real transparency.

our brand

our desired Culture

our Values

our Vision our PurPose

our vision is to be a world class, commercially sensible and socially responsible coatings multinational with a presence in selected regions and segments that promise superior growth. We will acknowledge our part in custodianship of the earth and its resources in an environmentally responsible way and play, within our means, a progressive role in the way we do business.

To offer appearance, décor and ambience that beautify, protect and improve the value of buildings and vehicles, and solutions that protect and enhance the longevity and functionality of assets.

Free thinking Passion for customers empowered people integrity and care diversity as a strength

FREEWORLD COATINGS Annual Report 200902

highlights • Revenues of R2 703 million maintained

at last year’s record levels.

• EbITDA, excluding fair value adjustments on financial instruments, at R425 million was 5% down on last year’s record result.

• Cash flows from operations remained strong at R375 million, the same as last year.

• Final dividend of 7 cents per share; total dividend of 12 cents per share.

• Acquired the intellectual property rights of Napier Environmental Technologies for North America to complement the rights for the rest of world which we already own.

• Three new product ranges successfully launched.

03

market segments diVisions

our group at a glance

COMPLEMENTARY PRODUCTS

SPECIALISED COATINGS

COLOURANT SYSTEMS

PERFORMANCE

DECORATIVE

holding ComPany


pLASCON

FREEWORLD pLASCON

FREEWORLD COATINGS AuSTRALIA

FREEWORLD COATINGS ShANGhAI

hAmILTON’S

FREEWORLD AuTOmOTIvE COATINGS mAROuNS GROup

mIDAS EARThCOTE

ICC

South Africa

botswana, Namibia, Malawi, Swaziland, Zambia

Australia

China

South Africa

South Africa

South Africa

South Africa

oPerating ComPanies and loCations ProduCt brands

FREEWORLD COATINGS AuSTRALIA

pLASCON

Australia

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 brands

PLASCON

being the leading supplier of premium interior and exterior decorative paint, Plascon has a long established reputation as an iconic South African brand. In 2009, Plascon focused on marketing Freeworld Coatings’ Décor Effect™. The Décor Effect™ means that for a modest cost it is possible to significantly elevate the value of one’s environment. Aesthetic metamorphosis has a multiplier effect and people are deeply influenced by the aesthetic values that surround them. We believe it is possible to uplift people by improving aesthetics, using imaginative, cost effective coatings. In 2009, Plascon once again proved its mettle as an innovator, and was nominated for five finalist awards in the Product of The Year Awards.

Cavendish Square, Cape Town – plascon refurbishment


AUTOMOTIVE GROUP

ICC (International Colour Corporation) produces and supplies colourant systems throughout southern Africa, and exports them to an increasing number of global paint companies. Colourants are primarily used at point of sale in retail stores. ICC systems allow exact matching of colours requested by shoppers. The formulations are crucial to the process, driven by state of the art computer systems. ICC continues to reflect Freeworld Coatings’ leadership position with regard to environmental responsibility. In South Africa, ICC is the only manufacturer of a zero VoC (volatile organic compounds) range of colourants which meets Eu standards and 2010 compliance criteria.

ICC

Gautrain

Growth opportunities for the Automotive coatings businesses are considered significant in South Africa and in southern Africa. We already have refinish distributors in Swaziland, Zimbabwe, Mozambique, Malawi, Zambia, Botswana, Namibia and Angola.

Picture courtesy of Murray & Roberts Limited

The Automotive group consists of three entities, each targeted at a specific sector of the automotive coatings and related markets. DuPont Freeworld focuses on the supply of coatings to original equipment manufacturers, has a leading market position and is 51% owned by DuPont. Freeworld Automotive Coatings is the manufacturing arm of the business for both the oEM sector and the refinish market, and distributes to independent and Freeworld Coatings owned refinish distributors. our product range is directed at the premium sector of this market ie manufacturer approved body shops, using licenced technology from DuPont under the Spies Hecker and Standox brand names, as well as the mid range market using own technology under the Acryline, Mastermix, Cargoline and Flowline brands. The group has a majority share in Prostart Investments, a leading distributor of refinish paint, panel and body shop equipment and anciliaries with eight branches around South Africa.

07

OuR bRANDS CoNTINuED

Cape Grace hotel, midas Earthcote refurbishment

Having already established a presence in Namibia, Mauritius, Zambia and botswana, Earthcote is expanding its footprint in the international market, following opportunities in the high end European market for textured coatings. Market research has uncovered promising prospects in Europe for the earthy, contemporary aesthetic that has become the signature of the brand. Having trialled pilot retail concepts in Amsterdam, the South African marketing team will launch some exciting initiatives in the complementary channel in the year ahead. There are already well advanced plans to strengthen these initiatives further.

EARTHCOTE

Midas Paints has consolidated its position as a supplier of specialist coatings and customised solutions to the construction industry. The Midas Paints team tendered for and completed numerous prestigious projects in 2009 including, among others, the Department of Foreign Affairs, Cape Grace, The bay Hotel in Camps bay, The V&A Marina Apartments, Cape Royale Hotel, Allan Gray Head office in Cape Town, Polokwane Stadium and Cape Town Stadium in Green Point.

MIDAS

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Freeworld Environmental Technologies recently launched its RemovALL range of internationally patented, biodegradable, water based and non toxic coating removers; the most environmentally benign and user friendly means of removing coatings, restoring wood and cleaning surfaces. based on adhesion release technology, RemovALL provides a solution to the worldwide problem of removing graffiti from public areas. In November 2009, Freeworld Environmental Technologies received official vendor status with the City of Cape Town for its graffiti removal products. The company is also engaged in well advanced negotiations for the distribution of RemovALL aviation grade coatings removers in the aviation industry both locally and in surrounding regions.

FREEWORLD ENVIRONMENTAL TECHNOLOGIES

In 2009, Hamilton’s began rolling out its refreshed brand image, introducing clear, contemporary graphic solutions in packaging to make it easier for consumers to grasp the product benefits of its wide range of brushes and specialist painting tools. by early 2010, this new consumer friendly design approach will be seen in most major channels. Hamilton’s recently acquired “Squeepa” technology to produce a range of rubber based sweepware specifically for cleaning.

HAMILTON’S

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hamilton’s re branding

09

As anticipated, in 2009 the global economy experienced its deepest

economic recession since 1929. The recession was truly global with all major economies experiencing sharp falls in activity, and most entering negative growth territory. Though the impact on the South African economy was somewhat delayed, it was emphatic when it arrived. Recent economic data suggest signs of recovery in most major economies. The indicators in South Africa’s case are mixed. History suggests the upturn will come, but both the level and nature of economic growth are likely to be different going forward.

Against this background, Freeworld Coatings has done well to maintain revenues at the 2008 level. Higher costs, particularly in the early part of the year, saw margins come under pressure and a modest (5%) decline in EbITDA, excluding fair value adjustments on financial instruments, was the result. The company has a longstanding policy of taking exchange rate cover on imported materials and capital goods. This policy continues to seem wise in the context of significant volatility of the global reserve currency, the uS Dollar,

as well as the South African Rand. However, the fair value of these

instruments resulted in a loss of some R26 million in 2009 in contrast

to a profit of R15 million the year before.

It is pleasing that the management team, under the able leadership of our CEO, has used the tough times to increase efficiencies and advance strategy. bobby Godsell

The effective management of costs has been impressive. So too has been management’s defence of its customer base in both the Decorative Coatings and Performance Coatings markets, with turnover only marginally down in the first case and slightly up in the second. This positions the company well to benefit from the economic upturn when it comes.

The board is particularly encouraged by the company’s progress in implementing its strategic vision. Two aspects of progress merit mention. Freeworld Coatings offers products that enable its customers to renew and enhance their habitat. This product range is being improved, and important foundation stones were laid in the last year to enhance the delivery channels for these products. Further, a marketing focus on a broader scope of LSM levels promises real expansion in the company’s customer base. A second area of strategic advance has been to introduce a range of products that are environmentally friendly, effective and much easier to apply in removing old coatings and treating surfaces. These advances enhance what Freeworld Coatings has to offer individual customers, institutions and public authorities, both in South Africa and beyond its borders.

It is pleasing that the management team, under the able leadership of our CEo, has used the tough times to increase efficiencies and advance strategy.

It has been a pleasure to work with the young Freeworld Coatings board. We have done our work in ensuring that not only the systems but also the habits of good governance are built into the behaviour of the company. We look forward to the year ahead confident of competitive performance, and in the expectation of further progress towards ensuring that Freeworld Coatings is indeed an excellent coatings company by global standards.

rm godsellChairman

Chairman’s report


trading environmentIn the past year, government and business leaders were forced to act

decisively to stem the unprecedented erosion of economic wealth in

societies the world over. Through significant reform, they sought to

lay the foundations for future wealth creation in the hope of better circumstances for all their citizens and brighter prospects for economic recovery.

The global economic storm demanded urgent responses from our company too. The adverse conditions, in which dwindling demand resulted in volumes declining 20% to 40% in some areas of the industry, here and abroad, called for a highly considered approach. Pleasingly though, the conditions underscored the relevance of our strategic vision and resilience of our corporate culture, which is defined by our desire to find better ways of doing things. Nothing focuses the organisational mind like the stark reality of recession and the synergies that were achieved in 2009 through coordinated effort in the Freeworld Coatings group were pleasing. In hindsight, we may well look back on 2009 as having in some ways the elements of best of times, rather than only the worst of times.

The group’s trading environment, in the aftermath of the global financial crisis, was particularly difficult given the double edged sword of the economic downturn and the negative impact of the credit crunch on discretionary consumer spending, which cut into the demand for coatings products. In our case, single digit volume decline was accompanied by product mix changes.

When we released our 2008 results, our prognosis for 2009 was that it would be a tough year. While we anticipated that the slowdown in consumer spending would impact our targets in the Decorative Coatings segment, we expected this to be offset at least to some extent by increases in public infrastructure spending. unfortunately, however,

this offset was constrained by the slowing pace, and in some instances

delay, of public spending.

strategic highlightsIn spite of the difficulty we faced in the year under review, the group

made substantive strategic progress on a number of fronts.

Freeworld Environmental Technologies launched its world leading range of environmentally responsible cleaning, preparation and graffiti removal products under the RemovALL brand name. This is testament to our commitment to greener product technologies. Similarly, Plascon’s Professional Evolution products and Midas Earthcote’s EnviroLite ranges are setting new standards and fulfilling the growing demand for better, healthier, more environmentally responsible coatings.

We started addressing the untapped lower LSM market by focusing on providing products that are not only suitable for low cost housing

but offer superior value compared to other products in this market

segment. We progressed from being a minor to being a major paint

“Although the tough economic conditions continued, Freeworld Coatings produced a solid set of results. We continued to invest in the business with over R100 million in capital investment over the past year and the launch of three exciting new product ranges. We also remained focused on efficiency gains across the business. With our strong portfolio of coatings brands, the company is well positioned to benefit from any upturn in the economy.”André Lamprecht

Chief executive officer’s report

11

ChIEF EXECuTIvE OFFICER’S REpORT CoNTINuED

INCOmE STATEmENTRevenue from operations for the year ending 30 September 2009

was R2,7 billion, in line with last year which was an all time high for

the group.

EbITDA, excluding fair value adjustments on financial instruments,

at R425 million was down only 5% on last year’s record result of

R449 million. Input costs remained at relatively high levels for most

of the year. In view of the tough market conditions, we absorbed

these costs and did not raise prices so as not to further impact

demand. Management’s focus on managing the expense base

limited the decline in EbITDA margin, excluding fair value adjustments,

to 100 basis points at 15,7% from 16,7% last year.

The stronger Rand in the financial year – which for instance

appreciated by 41% between March and october 2009 against

the uS Dollar – resulted in the group recording a mark-to-market

fair value loss on financial instruments of R26,3 million, as against

last year’s profit of R15,4 million.

operating profit of R322 million was down 19% on last year due to

the 5% lower trading result, a R10 million higher depreciation charge

as a consequence of our capital expenditure programme, and

the negative mark-to-market fair value adjustments on financial

instruments. Excluding these fair value adjustments, operating profit

would have been 9% lower at R348 million.

Income from associates at R8,6 million was substantially lower

than last year’s after tax income from associates of R22,4 million.

This was due mainly to the performance of the DuPont Freeworld

joint venture, which supplies oEM paint products to the vehicle

manufacture industry. The joint venture was severely affected by

significantly lower activity in vehicle manufacturing.

Net profit at R147 million was 32% lower than last year. This was mainly

due to the adverse pre tax swing of R42 million in mark-to-market fair

value adjustments to financial instruments, a R14 million shortfall in

after tax profits from associates and the 5% lower trading result.

Headline earnings per share of 69 cents were down 35%, based on

203,9 million shares in issue as against last year’s weighted average

of 201,1 million shares.

The directors declared a final dividend of 7 cents per share in line with

Freeworld Coatings’ positioning as a growth company. This brought the

total dividend for the year to 12 cents per share, which the directors

considered prudent in the prevailing economic climate.

bALANCE ShEETTotal assets of R4,5 billion at 30 September 2009 were in line with

last year. Interest bearing debt net of cash at R831 million reduced

by R42 million, which translates into a debt to equity ratio of 29%.

supplier to Cashbuild, the largest retailer of building materials and

associated products to cash customers in South Africa, Namibia, Lesotho, botswana, Swaziland and Malawi.

our largest manufacturing unit, Plascon, received a number of respected awards. besides retaining its place in the top three in the manufacturing category of Deloitte “best Company to Work For” survey, Plascon won a Prism Award, an Advantage Gold and a Silver Loerie for its advertising. It also received the Jack’s Paint “Supplier of the Year” award and the “Most Improved Supplier” award from the Steinhoff Group.

Skills advancement is an urgent priority, nationally and in our sector. We have continued to grow the intake of learners at the Freeworld Coatings Paint Academy at its various locations and are pleased to report that the upgrading and expansion of the Cape training facilities is progressing well.

We continued to expand our automotive refinishing business despite the recessionary pressures. We launched the Duxone range of products and this resulted in 90 additional mixing banks being installed at panel beating facilities. Freeworld Automotive Coatings extended its distribution base by opening a successful new refinishing outlet in bloemfontein.

We opened six new Midas Earthcote franchise stores, and progressed our plans to retail Earthcote textured products in belgium and The Netherlands.

We launched the Terraco range of plaster related products, which are proving to be very competitive against certain generic products used widely on dry walling. We also developed a comprehensive new range of proprietary protective coatings products, which is now market ready.

The Hamilton’s range of brushes and painting accessories is poised for growth following a complete brand design and packaging overhaul in combination with exciting new merchandising.

We also consolidated our new, integrated approach to corporate branding. The addition of the Freeworld Coatings brand to individual company branding on packaging is well on track and gaining momentum.

Financial resultsIn the face of the prevailing economic conditions, we believe the group posted a solid performance and we express our sincere appreciation to all our staff for their unwavering dedication.

The uncertainty and volatility in financial markets, in particular

currency markets, had a significant impact on the group’s results, and

consequently, we have presented EbITDA excluding and including fair

value adjustments on financial instruments as separate line items.


CASh FLOW AND CApITAL EXpENDITuRECash generated from operations amounted to R375 million, similar to last year, with the cash inflow from operating activities of R150 million being used to acquire property, plant and equipment totalling R101 million and intangibles of R22 million. The latter was largely attributable to exercising our option to acquire the intellectual property rights of Napier Environmental Technologies for North America to complement our ownership of the rights for the rest of the world.

our R101 million investment in capital expenditure included rejuvenating a number of our sites, implementing an ERP system in the Automotive business and the replacement of outdated equipment.

looking aheadAt this juncture in South Africa’s socio economic and political history, it seems appropriate to consider our company’s place within this broader framework. Freeworld Coatings is a multinational company domiciled in South Africa and, depending on currency movements, we rank 24th in the world in the coatings category; a relevant position in the industry. Although we continue to seek international expansion opportunities, our South African home base necessitates careful consideration of the prospects and priorities relating to the region.

The country is currently ranked 24th on the global list of contributors to world gross national product (GNP) according to bER. on the face of it, this ranking seems noteworthy. Yet it is important to understand that 80% of the world’s GNP is produced by the top 20 countries and South Africa contributes 0,7% to global GNP. At its current size the economy is too small to realistically and meaningfully deliver on the full aspirations and hopes of its citizens. It also impacts the scale of the home base for businesses that hail from here and consequently can detract from their global opportunities other societies, for instance China, India and brazil, faced similar challenges in earlier times.

It is critical that leaders in all spheres of our society set, as a national priority, a goal to achieve higher growth and set a meaningful target of say 1,4% of world GNP so as to gain the scale required. All our collective conduct then needs to assist, not detract, from a focused, coordinated national effort to achieve this. only in this way will South Africa galvanise its ability to deliver meaningfully on the hopes and aspirations of its citizens, in particular the poor and the unemployed, and build a meaningful and lasting competitive position in the community of nations.

The interest and the scrutiny that the 2010 FIFA World Cup will bring to South Africa will provide an enormous opportunity to enhance our global profile and establish a higher growth trajectory, or in counter, it may pose a real risk if we do not use the opportunity wisely.

Looking to the trading environment in the year ahead, while there are signs of upturn in the global economy, conditions remain fragile and concerns linger about the stability of financial markets and pace of

economic recovery. The year is therefore likely to be more a case of receding recession than confident upturn.

Given this outlook, it is important that the group retains its firm focus on limiting input costs and making further productivity improvements to lower our cost base and build a trading platform that can support higher volumes without losing margin.

The launch of exciting market relevant products is well on track for 2010, which will further demonstrate the group’s commitment to delivering genuinely innovative solutions. In the lower LSM market, we will continue to explore unconventional ways of penetrating deeper into this important segment, leveraging the group’s expertise to formulate appropriate product ranges and offerings.

on the whole, the group is well positioned to take advantage of the upturn when it comes. We have strong brands, a comprehensive product range and a wide distribution network in South Africa and regionally. In the year ahead we will also invest further in our distribution capacity. We will continue to evaluate the extension of our footprint and pursue suitable acquisition opportunities that accord with our strategic direction. We are investigating a number of opportunities, including some outside of South Africa.

Like 2009, the year ahead will no doubt be intensely challenging. However, I remain optimistic that with the resilience we have shown, the growth potential we see and with the people that make Freeworld Coatings extraordinary, we will continue to perform credibly and competitively.

aJ lamprechtChief executive officer

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The cornerstones of our brand positioning are:

scale: we will grow our business significantly via organic growth and commercially sensible acquisitions that promise excellent shareholder returns.

Quality: we will add value to life with products that demon strate Freeworld Coatings’ Décor Effect™.

innovation: we will find better ways of doing things, thereby contributing to a vibrant society and a healthy, natural environment – knowing that both are fundamental to our success.

Vision:Enhancing the beauty and value of life through change

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We seek to grow not only in reaction to market demand but by creating and shaping demand. We provide inspirational, practical and cost effective products through channels relevant both to our existing customers and new markets.

The concept of creating value for customers, far beyond the cost of the

actual product and application, has become a core business principle

at Freeworld Coatings. Known as the Décor Effect™, this principle

extends beyond a decorative solution.

The Décor Effect™ multiplies the perceptual value of an environment and boosts the economic value of any property and its surroundings, well beyond its cost. This principle holds true also in relation to the enhancement and protection of other assets, such as vehicles and equipment, through the application of specialised coatings.

plascon Living Concepts ShowroomFREEWORLD COATINGS Annual Report 200914

The award winning Plascon Living Concepts showroom in Johannesburg was designed with the Décor

Effect™ in mind: inviting consumers to explore the almost limitless possibilities offered by our paint. Staffed by expert colourists and décor professionals, the showroom allows visitors to imagine their home and work environments by using Plascon Colour Visualiser simulation software. The success of the first concept store has galvanised our intention to take the concept to all major centres in South Africa, establishing a complementary channel to market.

An example of how the Décor Effect™ vividly brings an environment to life was the Freeworld Coatings’ sponsored function in honour of the 40th anniversary of Nerina Residence at the university of Stellenbosch. With a minimal budget, using our paint décor, horticulture and décor accessories, a traditional, well worn 1960s students’ dining hall was transformed overnight into a contemporary Japanese tea garden, demonstrating the power of a simple, single minded theme. The impact on the guests was profound.

Experiential brand activity such as this is a core marketing thrust, as it allows customers to engage with our brands in multi sensory and multi dimensional ways, conveying the brand essence far more powerfully than conventional advertising.

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The Earthcote brand expanded in earnest in 2009, finding a footing in the European market for its innovative range of high end textured coatings. Since 2008, Earthcote has trialled its acrylic and textured coatings in the European market. Market research confirmed that many of Earthcote’s textured products are unique to the European market, and there is significant demand for the earthy yet contemporary aesthetic that has become the brand’s signature. A standalone Earthcote store will be launched in Amsterdam during 2010, followed by more versions in terms of a roll out plan.

While the delivery of homes to economically disadvantaged communities is of national importance and answers to a fundamental human need, we believe these housing projects create an even greater sense of dignity for their communities when enhanced with an appropriate decorative finish, even for modest cost.

Midas Earthcote has responded innovatively to the need for cost effective coatings to enhance low cost homes. Mass Home 6 is a roller applied product with advanced binder content which provides adequate coverage with a single application. Midas Earthcote supplied this cost effective solution to Imison, a company responsible for a number of rapid build low cost housing projects in Gauteng, using injection moulded, energy efficient polystyrene panels.

Several housing projects in the affordable housing sector are in the pipeline for 2010, many of which will have this product specified as a finish. The group continues to forge mutually beneficial business relationships with government agencies and commercial enterprises engaged in the delivery of housing.

boutique hotel, France

Vision continued


Innovation:Finding a better way

Corporate and individual citizens of the world cannot ignore the calls for a more conservationist, more environmentally responsible approach.

We are deeply aware of the need to maintain our market leadership

by focusing on the fast growing demand for more environmentally

responsible coatings solutions. our business philosophy is rooted in

the idea that we will always seek better ways of doing things. Not as

a marketing strategy, or for effect, but because we subscribe to the

deeply held view that the future of life, societies and business itself,

depends on it.

We accept and acknowledge our responsibility, not only in creating better products but also in fostering a culture that is dedicated to progressive ideas and sustainable solutions.

“The great companies of these times all have one thing in common. They’re dealing with change by innovating innovation. By focusing on giving back, they keep gaining. We believe in reinventing some of the rules of the change game, which is the one constant in today’s business environment. We believe this approach is making it possible to strike ‘gold’ in unexpected places. The new gold rush is about how we value our people, the people who buy our products and our suppliers, who partner us in making extraordinary things possible.” André Lamprecht, chief executive officer

In 2009, Freeworld Environmental Technologies launched the RemovALL range of internationally patented, biodegradable, water based and non toxic coating removers. These are the most environmentally benign and user friendly means of removing coatings, restoring wood and cleaning surfaces, based upon unique, cutting edge adhesion release technology.

Plascon worked with an industry participant fulfilling demanding criteria, for some six months, doing tests with RemovALL SV35pma aviation grade coating remover. After successfully trialling the product on several test panels and aircraft, negotiations are now well advanced for the appointment of a leading distributor in the region.

17

In the manufacturing of colourants, ICC continues to reflect Freeworld Coatings’ leadership position with environmentally friendly solutions. In South Africa, ICC is the only manufacturer of a completely zero VoC range of colourants which meets Eu standards and 2010 compliance criteria.

A testament to our success as innovators and our skill in creating better products that make a real difference in the lives of consumers was the awarding of finalist status to several Plascon products entered into the 2009 Product of the Year Awards. These awards acknowledge and stimulate innovation, and in 2009 paint was added as a new product category. Plascon had all three finalists in the Paint category. It also had a finalist in each of the Paint Removers and Paint Preparation categories. Consumer voting led by A.C. Nielsen will decide the winners.

We believe our world view should follow the example set by nature. Working with nature, observing natural cycles, and reflecting a natural aesthetic in our products, work environment and consumer offerings, is a simple yet logical approach – one often overlooked. As one example, our group office building was internally designed to frame the natural environment in which it is located. Simple, intelligent solutions, like using windows to frame the natural environment, literally “bring nature inside”.

innovation continued

midas earthcote has produced an environmentally responsible product offering with its made-to-order envirolite range, in response to the market demand for healthier, greener products.

v&A marina Apartments – midas refurbishment

Plascon has pre empted market demand for some world leading green products and processes.

It has achieved ISo 14001 certification of all its manufacturing plants, and ensures that waste is minimised and waste disposal is carried out by reputable waste management companies. Plascon has also ensured it is able to sustain high manufacturing standards while applying environmentally responsible practices. In creating better products, Plascon continuously reviews and innovates its product lines in accordance with international legislation, often going beyond the legal minimum in its effort to create industry leading offerings.

The world’s most innovative raw materials and technologies have been used in manufacturing the made-to-order Plascon Professional Evolution range. The range delivers the same product performance expected from Plascon’s high quality trade products, with the added benefit that these products exceed all green building requirements, being completely solvent free, VoC free and containing no APEos, CITs, formaldehyde, glycols, lead or ammonia.


business philosophy:Value based Management

Freeworld Coatings is a free thinking organisation with a genuine passion for our customers. Our people are empowered, self disciplined, caring and have integrity, and diversity is our strength. These principles define our culture and drive our success.

our intention is to be world class in every aspect of our business. our well developed performance management system is linked to a gain share scheme. Employees are rewarded also in the form of bonuses according to their individual and team contribution to the achievement of targets and objectives. This is motivated by a desire to create a supportive and empowering working environment, free from bureaucracy and unfettered by unwieldy structures. The result is a vibrant personnel whose efforts result in meaningful personal rewards, added value for our customers and, ultimately, considerable gains for our shareholders.

In the midst of the chemical industry strike in 2009, our largest manufacturing unit, Plascon, retained its position as one of the top three in the prestigious Deloitte “best Company to Work For” award in the manufacturing sector. It is gratifying to receive an award such as this, which reflects the commitment and loyalty of Plascon employees.

To ensure that all group companies align with our culture, values and goals, we held an intensive three day management workshop in Hermanus. Attended by 90 delegates comprising executive leadership from all Freeworld Coatings companies, this goal setting initiative resulted in a further inculcation of the spirit and business principles of the group. Delegates engaged in professionally guided vision building workshops and strategic management sessions which captured insights and valuable business ideas to take the group forward with single minded focus despite the turbulent economic times.

Value Based Management is at the heart of our organisation. It is a philosophy that inspires behaviour at all levels that aligns the daily activities of our teams and individuals with the goal of value creation.

Our investment case

• A unique operating philosophy – our vision is to be a world class, commercially sensible and socially responsible coatings multinational present in selected geographies or segments where there is superior growth available.

• Conscious of the need to protect the earth’s resources.

• Value based Management: creates value for all stakeholders, including the communities in which we operate.

• Commitment to the highest quality standards, including appropriate ISo accreditations in all significant operations.

• Demonstrating the value of the Décor Effect™ and its potential to add beauty and considerably more economic value than the product cost.

• Leading market shares in the segments in which we operate.

• Innovation driven.

• Access to international partners and strong partnerships and license arrangement with global technology partners.

• Exploring innovative ways to lower the business system cost.

• Excellent track record in strategic acquisitions.

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our board

2 babalwa ngonyama (35) BCom CA(SA), MBA, Higher

Diploma in Banking Law independent non executive

director

3 robert michael godsell (bobby) (57)

BA, MA independent non executive

chairman

4 dumisa buhle ntsebeza (60) LLB, BProc, BA, LLM

(International Law) independent non executive

director

5 dr elias links (eltie) (63) BCom, MCom, MA, PhD

(Economics) independent non executive

director

babalwa joined Freeworld Coatings in october 2007 and is chairperson of the Audit, Risk & Compliance committee. Recently appointed chief financial officer of Safika Holdings (Pty) Ltd, babalwa was previously the group chief internal auditor of Nedbank Ltd. other board memberships include Sasol Inzalo Public Limited and the university of Stellenbosch business School. She was an audit partner in Deloitte’s Financial Institutions Services Team (FIST) from 2003 to 2007. babalwa completed the Women in Leadership Programme at Harvard university in boston in 2008 and in August was awarded bbQ business woman of the year. babalwa was the founding chairperson of the African Women Chartered Accountants and is currently a member of its advisory board.

bobby was appointed chairman of Freeworld Coatings in october 2007.

He joined Anglo American Corporation in 1974 serving in different roles until he retired in September 2007. He served as CEo of AngloGold Ashanti from 1998.

He has been active in business organisations both nationally and internationally, serving as president of the South African Chamber of Mines and chairman of the World Gold Council among other positions. bobby served as Chairman of Eskom Holdings Limited from July 2008 to November 2009. He is chairman of business Leadership SA.

Dumisa joined Freeworld Coatings in october 2007. He was admitted as attorney in 1984 and is an advocate of the High Court of South Africa. In 2000 Dumisa was called to the bar and in 2005 was appointed as Senior Counsel by the State President. He became the first African advocate in the history of the Cape bar to be conferred with the status of silk. Dumisa joined the barloworld board in 1999 and became chairman in June 2007. He is also chairman of media group Avusa Limited and the Desmond Tutu Peace Trust and is a trustee of the Nelson Mandela Foundation, among other directorships. He was recently appointed a commissioner of the Judicial Service Commission.

Eltie joined Freeworld Coatings in october 2007. From 1996 to 2000 Eltie was the South African ambassador to the European union in brussels and ambassador to belgium and Luxembourg. He was chief negotiator for South Africain the negotiations on a Trade, Development and Co operation Agreement. As ambassador, he was a prominent player in the African Caribbean and Pacific Group of Countries. He is chair: “Doing business in Africa” at the university of Stellenbosch business School. He is also chairman of AfriSam (Pty) Ltd, the largest buildings material company in Southern Africa.

6 noluthando dorian bahedile orleyn (thandi) (52)

BJURIS (Fort Hare University), BProc, LB (UNISA)

independent non executive director

7 douglas thomas (doug) (51)

(australian) BAcc, CA(SA)

Chief financial officer

8 moses modima ngoasheng (moss) (52)

BA, BSocSci, MPhil independent non executive

director

9 Peter montagu surgey (55) BA, LLB independent non executive

director

Thandi joined the Freeworld Coatings in october 2007.

Thandi is a director and shareholder of Peotona Group Holdings, and a mediator and arbitrator for Tokiso Dispute Settlement. She is a member of the Competition Tribunal and Adjunct Professor of Law at the university of Cape Town. Thandi holds directorships on the boards of the South African Reserve bank, Toyota SA, Implats Ltd, Reunert Ltd, Arcelor Mittal South Africa Ltd and Ceramic Industries Ltd. Thandi was an attorney and regional director of the LRC, national director of the CCMA and director of a commercial law firm.

Doug was appointed chief financial officer of Freeworld Coatings in october 2007. He joined barloworld in 1981 where he held various senior financial management positions. He was appointed to the barloworld Coatings board in his current role as chief financial officer in December 2003.

Moss joined Freeworld Coatings in october 2007. He has degrees in economics and politics, and industrial sociology honours from the university of Natal in 1988, and a MPhil in development studies from the university of Sussex in 1990. He was pivotal in industrial policy development for the African National Congress as economic advisor to ex president and ex deputy president Thabo Mbeki from 1995 to 2000. He is a co founder and director of Safika Holdings. He is currently chairman of the Coega Development Corporation and is on the board of South African breweries Limited and Dimension Data Plc, among others.

Peter joined Freeworld Coatings in october 2007. He joined barloworld in 1983 and was appointed to the board in 1995. He was managing director of Plascon Packaging Coatings from 1990 to 1992 and of Plascon from 1992 to 1998. He was CEo of barloworld Coatings from 1998 until 2003. He held multiple portfolios as a barloworld director and retired from barloworld in September 2008. Peter is currently a director of the National business Initiative and a trustee of the President’s Trust and the Duke of Edinburgh Trust, and a non executive director of Nampak Limited.

1 andré Jacobus lamprecht (57) BCom, LLB, PED-IMD Chief executive officer

During his student years André was president of the SRC of Rhodes university and president of NuSAS. He practiced as an advocate of the High Court of South Africa prior to joining the barloworld group in 1981. From 1983 he played a leading role in steering the group through a turbulent decade of political transition into a post apartheid South Africa. During this time he played an important role not only in the establishment of, but also participated extensively in the processes that assisted in the political transition. He was appointed to the board of barlow Rand (subsequently known as barloworld) in 1993. For the next 11 years his portfolio of responsibilities included chairmanship of the company’s interests in botswana and Namibia. In 2003 he was appointed CEo of the coatings division of barloworld. He retired from the barloworld board in 2007. He has served on numerous public bodies and is a past chairman of business South Africa, a past president of the AHI and its board of trustees and a former business convener of the Trade and Industry Chamber of Nedlac. He is also a non executive director of PPC, the National business Initiative (NbI), trustee of the business Trust and a member of the Retirement Funds Advisory Committee of the Minister of Finance. He serves on the Council of business unity SA (buSA) and was recently elected chairman of that organisation. He is a member of the Council of business Leadership South Africa and a member of its executive committee. He is a member of the Millennium Labour Council (MLC) and is also a former senior member of the Standards Committee of the International Labour organisation (ILo).


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besky ngunjiri (33) Chief internal audit executive BCompt (Hons), CIA, CCSA

besky joined Freeworld Coatings in August 2008 to head up the newly formed group internal audit division. She is responsible for the design and implementation of comprehensive risk based internal audit processes, including working hand in hand with other assurance providers such as external auditors. She has more than eleven years experience in both internal and external audit.

eleanor Chamberlain (49) group company secretary FCIS

Eleanor joined Freeworld Coatings in September 2007 as group company secretary before the listing of the group on the JSE. She has been instrumental in the formulation and implementation of the group’s corporate governance and administrative processes and is also responsible for the administration of the group’s intellectual property matters and share plans.

our chief internal audit executive and group company secretary

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our eXeCutiVes1 neil davies (55)

executive: Finance africa BCom, CA(SA)

2 rob Frans (53) executive: human resources BA (Hons) in Industrial Psychology & Organisational Psychology

3 marius minnie (44) executive: strategy and business development and divisional synergies BCompt (Hons), CA(SA)

4 ebrahim mohamed (55) executive: managing director, complementary products businesses and relationship marketing, africa BA, BCom

Neil joined barlow Rand Ltd in 1980 in the barlow Appliance Company. He went on to work for barlow Manufacturing Company and barloworld Equipment Company before joining barloworld Plascon (then Plascon Paints (Tvl)) in 1991. Neil was financial director in a number of Coatings operations between April 1991 and october 2005 when he was appointed into his current role as financial director Africa. He brings a wealth of operational and financial management knowledge to the executive team.

Rob joined barlow Rand Ltd in 1981 as Human Resources officer at Middleburg Steel and Alloys. In 1990 he moved to barlows Equipment Manufacturing Co SA and was promoted to the position of Human Resources Director at Robor Tube in 1999. Rob then transferred to barloworld Limited’s corporate office as organisational Performance Manager and joined Freeworld Coatings in April 2008.

Marius joined the barloworld Limited in 1991 working in a variety of positions in barloworld Motor, barloworld Logistics and barloworld Group Strategy. In 2003 he joined Coatings as business Strategy and Development Executive. Marius was appointed to the barloworld Coatings board in 2005 in the role of director responsible for strategic business development and group synergies.

Ebrahim was a high school teacher before joining barloworld Plascon in April 1982, where he held various positions including human resources director, operations director and general manager. From 1997 to 2006 he was responsible for African operations and Exports. Currently he is managing director Complementary Products, responsible for Hamilton brands and Midas Earthcote.

5 simon Fraser (50) executive: marketing

6 trudi neill (47) managing director, iCC BCom

7 mike Vadas (59) managing director: midas earthcote MCIOB

8 baron schreuder (42) managing director: Plascon south africa BSc (Hons)

Following his many successes as a retail entrepreneur in the textile industry, Simon founded Earthcote in 1997 in conjunction with Midas Paint. Earthcote merged with Midas in 2005, whereupon Simon assumed the position of marketing director, a position he has held ever since. With the acquisition of Midas Earthcote by barloworld Limited in 2006, and the unbundling and formation of Freeworld Coatings in 2007, Simon has been responsible for the group’s marketing and creative functions.

Prior to joining barloworld Plascon in 1989, Trudi worked for Tiger brands, Times Media and Colgate Palmolive in sales and marketing roles. She joined barloworld Plascon as senior brand manager and was appointed to the board as marketing director in January 1995. She subsequently held the role of strategy and business development director, barloworld Plascon, for seven years. Trudi was appointed managing director, ICC, in May 2004.

Mike joined paint manufacturer Vadek Paints in 1977 after spending nine years in the construction industry. In 1989 he founded Midas Paints in Cape Town and together with Simon Fraser launched Earthcote Traditional Paints in 1997. Mike served on the Executive of the Master builders’ Association in the Cape Peninsula and was recently appointed as a Chartered Institute of building ambassador.

baron joined Plascon in 1987 as a bursary student and began working fulltime in January 1991. He worked in various capacities within the Coatings joint venture business with Akzo Nobel. He was seconded to Akzo Nobel Powder Coatings in the uK and working with Akzo Nobel International Coatings in the uS. He returned to Plascon in 2002 and was appointed managing director of Plascon South Africa in 2006.

9 doug swanson (57) managing director: Freeworld automotive Coatings BA, MBA

10 garth smart (52) Chief operating officer and managing director: Freeworld Coatings australia BA, LLB, MBA

11 Carlos Costa (51) (Portuguese) executive: technical MSc Chemistry

12 rodney tweed (39) (australian) executive: business development manager, Coatings asia Pacific BBus

Doug joined barlow Rand Ltd in 1974 and held a number of positions in human resources until he joined the Coatings division in 1993 as general manager for Courtaulds (later Akzo Nobel), a powder coatings joint venture with barloworld Plascon. He was appointed managing director of barloworld Automotive Coatings in 2000. based in Port Elizabeth, Doug is responsible for Freeworld Automotive Coatings and Prostart Investments (Pty) Ltd as well as the DuPont Freeworld joint venture.

Garth practiced as an advocate of the High Court of South Africa prior to joining barlow Rand Ltd in 1987. He worked in an Industrial Relations Advisory capacity in a number of barloworld Divisions. He joined barloworld Plascon in 1994 as human resources executive and subsequently held the role of managing director, barloworld Automotive Coatings, for four years before being appointed managing director of barloworld Coatings Australia in 2000. Retaining the role of managing director of barloworld Coatings Australia, Garth was appointed chief operating officer of barloworld Coatings in 2003.

Prior to joining barloworld Plascon as sales director for Industrial Coatings in 2006, Carlos worked at bASF in Portugal, Germany and South Africa in the technical and commercial fields for 21 years. In 2006 he was appointed technical director of Plascon and joined the executive team of Freeworld Coatings in 2008.

Rod Tweed joined Coatings when barloworld Coatings purchased White Knight Paints in 1997. Prior to joining Coatings in 1991, Rod’s business background included six years as the national marketing manager at White Knight Paints, Australia and market analyst with JI Case International, Australia. Rod continued to work for Coatings Australia in a number of senior sales and marketing positions and in 2003 took responsibility for the implementation of the China Project in Shanghai. Rod was appointed business development manager, Australia in the same year.

During the year André Naudé, Executive: marketing, left to pursue a private opportunity. We thank him for his contribution and wish him success in his new endeavour.

23

How South Africa

SCOREDInspired by all things African, from baobabs and calabashes to giraffes and zebras, South Africa’s iconic world class stadia were conceptualised by imaginative architects and brought to life by tens of thousands of committed construction workers.

CoCA CoLA PARK,GAuTENGExtension to the stadium and new car parkdecorative Coatings: 100% Plascon Professional Range; plus Plascon Terraco Ez-Skim preparation coatings

MboMbELA,MPuMALANGAdecorative Coatings: 100% Plascon – Wall & All; Velvaglo; Plascon Professional Range

oRLANDo STADIuM, GAuTENGdecorative Coatings: 100% Plascon Professional Rangeindustrial Coatings: Plascon used on the seating framesProtective Coatings: 25 000m² covered by coatings supplied by Plascon

RAND STADIuM, GAuTENGRefurbishment and main stadiumdecorative Coatings: 100% Plascon Professional RangeProtective Coatings: 10 000m² covered by coatings supplied through Plascon

MoSES MAbHIDA STADIuM, KWAZuLu NATAL Protective Coatings: 45 000m² covered by covered by coatings supplied through Plascon

RoYAL bAFoKENG, NoRTH WESTdecorative Coatings: 100% Plascon Professional Range

PETER MoKAbA STADIuM, LIMPoPodecorative Coatings: 63 000m² supplied by Midas: Midas Natureplast, Midas Multicolour, Midas Stippletex, Midas 190/240 acrylic

ATHLoNE STADIuM, WESTERN CAPEPhase 2 (east, north and south stand)decorative Coatings: Plascon Professional RangeProtective Coatings: 2 000m² covered by coatings supplied by Plascon

GREEN PoINT STADIuM,WESTERN CAPEdecorative Coatings: 6 540m² supplied by Midas: Midas MulticolourProtective Coatings: 59 500m² covered by coatings supplied by Plascon

NELSoN MANDELA bAY STADIuM, EASTERN CAPEdecorative Coatings: 100% Plascon Professional Range (85 000m² wall area); Velvaglo on doors and framesProtective Coatings: 12 500m² covered by coatings supplied through Plascon

SoCCER CITY,GAuTENGdecorative Coatings: Plascon Professional used in certain sectionsProtective Coatings: 15 000m² covered by coatings supplied through Plascon

Products supplied

Green Point Stadium – picture courtesy of Murray & Roberts Limited


Freeworld Coatings’ part in getting ready for 2010

While the local construction and public works industry pushes ahead to 2010, we’re taking stock of our contribution as a supplier of coatings in this nation building endeavour. Plascon and Midas Earthcote provided finishes used in the new work and refurbishment of several of the stadia around the country.

“To be part of the 2010 nation building initiative was an honour and

an exciting achievement for our company,” said Plascon managing

director baron Schreuder.

Plascon’s 360 degree Partnership Pledge came into its own, providing

not only detailed paint specifications and product, but also quality

assurance, technical back up and large scale painting project

management.

“To maintain the integrity of these structures, sophisticated protective

coatings systems were necessary. Substantial quantities of innovative

corrosion protection for steelwork were supplied by Plascon, providing

lifespan in excess of fifteen years to first maintenance,” said Graeme

Carr of Plascon, commenting on a process which has been a long

time in the making, having begun with planning and project scoping

in 2005.

The protective coating systems were designed to meet the ISo 12944

C 5 M standards for the coastal stadia and ISo 12944 C 4 for the

inland stadia. The final coats for the coastal stadia were unique in

their flexibility and gloss retention capabilities.

Plascon also supplied significant volumes of decorative coatings. The

Rand Stadium underwent a R76 million revamp. bold use of colour

played a big role in the successful makeover. The grandstand is striking.

Painted bright red with blue tinted glass, the modernised structure is

a far cry from its well worn predecessor.

“At Coca Cola Park, the sponsor’s colour, Coca Cola red, is vibrantly

showcased in Plascon Professional. In this project, as with all the

stadia, cost was a primary consideration and Plascon came in with

cost effective products like our Professional range and Plascon Terraco

Ez Skim,” said Plascon’s 2010 project co ordinator, Garry Leighton.

At the Mbombela Stadium in Nelspruit, supportive roof structures that

resemble giraffes and zebra style seating serve to integrate this structure

with the natural surroundings. The sculptural form of the stadium, with

its cantilever roof, looks like a cut gemstone. Adding to its lustre are

Plascon products like Wall & All, Velvaglo and Plascon Professional.

Midas Earthcote won the pitch to supply solutions for Cape Town’s

Green Point Stadium and the Peter Mokaba Stadium in soccer mad

Limpopo. At Green Point Stadium, an ultra durable spay coating was

specified for the maze of corridors and change rooms. Midas Multicolour,

a low maintenance spray paint, offered a cost effective alternative

to tiling high traffic areas in the 68 000 seater stadium.

The stadia illustrate Freeworld Coatings’ capacity to provide innovative

solutions that are not only cost effective but also add to the ambitious

architectural vision behind these multi faceted developments. The

inauguration of these iconic venues, the new landmarks on South

African city skylines, heralds a significant moment in the future of

South African soccer.

25

operational review deCoratiVeCoatings

The Decorative Coatings segment had a challenging year with the global economic crisis and its impact on the South African market impacting negatively on its performance. The impact was felt across all sectors including both retail and trade. A significant part of the challenge related to adverse movements in oil, exchange rates and commodity prices which were not fully recoverable.

Building on a strong performance last year, the export and African operations posted a solid result with an 8,3% increase in turnover on a marginal increase in volumes. Operating profit was affected by adverse currency exchange movements, particularly in Zambia. The China Project now in its commercial testing phase, showed creditable growth under the circumstances. The expansion programme was put on hold due to the world wide financial climate of uncertainty. The Australian operation continued to toll manufacture some product at its Melbourne facility.

Turnover of R2 billion was at similar levels to last year while margins remained under pressure during the year. Trading EBITDA, excluding fair value adjustments, was R296,3 million, only 3% down on last year’s record level.

At our primary manufacturing unit, Plascon, net turnover was the same as last year, while sales volumes were down accompanied by product mix changes. All sectors showed similar declines, indicating an overall market impact as opposed to difficulty in any one segment.

Good direct export volumes helped to bolster trading in the year. The significant impact of oil, exchange rates and commodity price increases on our raw material costs from July 2008 to March 2009 were not fully recovered through price increases introduced in the prior year. The declining volumes resulted in no product price increases mid year. As a result, the contribution margin dropped two percentage points. However, a focus on operating expense management and product mix changes allowed us to minimise the impact of the above on operating profit.

Plascon


Plascon, our largest manufacturing operation, maintained its position in the top three of the Deloitte “Best Company to Work For” survey in the manufacturing sector. This remains a significant accolade after many years of sustained work to embed a culture which creates value for employees through the creation of value for the organisation. th

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27

OpERATIONAL REvIEW DECORATIvE COATINGS CoNTINuED

market commentMounting recessionary pressure in the South African market during the year, coupled with deteriorating general trading conditions, posed new challenges in defending volumes. Nevertheless, tough times present unique opportunities which we were well placed to take advantage of. our decorative paint solutions offer a relatively inexpensive way for people to transform their living environments during times when other décor purchases might be out of reach. our intention going forward is to continue to focus on this sentiment in marketing our products to consumers.

key ongoing activitiesIn light of the economic uncertainty, our focus will remain on controlling and managing input costs, as well as margin management. optimum expense control and employee productivity will be crucial over the next year, to allow us to reset our expense base and support a trading platform that allows us to rebuild volumes at acceptable margins.

As far as brand management is concerned, we will continue to focus on consolidating the Plascon brand image and rolling out our new positioning to all customer segments.

Product innovation will continue. We will, however, be looking at simplifying our business and educating the consumer both directly and in store, to drive sales and value.

In the retail channel, we will continue to expand our channels and

geographic reach while maintaining our leadership position in

existing market segments.

We intend to expand our presence in the decorative trade market by

focusing on environmentally responsible systems and technologies

with our Professional Evolution and Terraco ranges. The RemovALL

range of environmentally friendly products will also help to achieve

this goal.

The protective coatings, general industrial and road marking segments

promise significant growth opportunities, following a few years of

sluggish trading.

outlookWe expect volumes to remain subdued as the global economy struggles

to recover. In South Africa, we anticipate that the impact of Eskom price

increases will exacerbate consumer inflation and hamper higher

disposable income, even if the broader economic outlook improves.

There is still some momentum in the construction sector in the lead up

to 2010 FIFA World Cup which will keep the trade business healthy

and we expect a shift towards the redecoration of commercial spaces

and further investment in road marking as we edge closer to the World

Cup. our focus on infrastructural development projects, together with

vigorous exploitation of export opportunities, will help to compensate

for continuing economic sluggishness.

The hallmark of the year was undoubtedly the extremely prudent management of costs and, in particular, working capital which improved by R80 million in stock alone.

other highlights included:

• The successful launch of our Professional Evolution range of environmentally responsible solutions; the RemovALL range under Freeworld Environmental Technologies; and the Terraco brand products.

• The launch of a new Plascon TV advert and our 2010 Colour Forecast.

• Consistent improvement in our Individual Perception Monitor and maintaining our place in the top three in the Deloitte “best Company to Work For” awards in the manufacturing sector. Although we slipped a place in the Deloitte awards, it was extremely gratifying to have improved in employee responses across the board relative to last year.

• Achieving the “Supplier of the Year” award from Jack’s Paint and receiving the “Most Improved Supplier” award from the Steinhoff Group.

• Winning a Silver Loerie for the Prism Award “Moss Poster” and an Advantage Gold award (best décor/home magazine) for the Plascon Colour magazine, demonstrating our sharpened focus on quality brand communications.

highlights

Plascon continued


our African operations produced a generally credible result with a marginal increase in sales volumes over last year, coupled with an 8% increase in Rand denominated turnover.

african operations

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• All countries, except botswana, improved sales volumes. This was due to increased infrastructure spending as well as improvements in marketing and service delivery. Improved logistics have achieved a “just in time” approach to product delivery, with better stock availability from reduced stockholdings. All markets, with Zambia and botswana, in particular, felt the impact of the fall in commodity prices and the slowdown in their mining sectors.

• Market share was maintained in all countries except Namibia, where local manufacturers have a competitive advantage in certain product ranges over those that are imported from South Africa. The strategy is being reviewed and local manufacturing capability will be enhanced to improve competitiveness. We will also take advantage of export opportunities into southern Angola.

• Malawi and Swaziland performed extremely well, albeit from low bases, and are in a good position to maintain this growth into the future.

• The South African export division had another excellent year, with turnover growing 73%. Most of the growth came from Mozambique, with direct and indirect exports to Zimbabwe making an increasing contribution.

• our relationships with customers in Ghana have been renewed. Together with opportunities in Angola, DRC, Rwanda and the Indian ocean Islands, prospects for continued growth are good.

highlights

29

OpERATIONAL REvIEW DECORATIvE COATINGS CoNTINuED

key ongoing activities our constant focus on input costs as well as margin management is crucial to the success of all our businesses. Rationalisation of our product offering, coupled with new focused marketing initiatives in areas where our marketing investment was previously negligible, are already paying dividends. This approach will ensure our competitiveness in the very diverse markets which we service.

outlook The price of copper has recovered substantially and the prospect of a recovery in mining augers well for the Zambian operation as well as higher exports into the copper belt of the DRC.

Diamond sales remain relatively slow and this will continue to impact negatively on botswana and Namibia.

The recent opening of a uranium mine in the far north of Malawi should stimulate the local economy and alleviate the pressures caused by frequent severe shortages of foreign exchange.

waterford estate

african operations continued


China project

reflected an advantageous change in product mix with a higher percentage of sales in exterior textured products.

Gross contribution increased primarily as a result of effective management of planned operational changes which reduced costs in sourcing materials and manufacturing processes.

outlook In the short term, conditions for the trial phase are expected to remain flat. While some improvements are anticipated in the construction market in the second half of 2010, the extent of the activity and the intensity of competition could bring margin pressure. We are looking to introduce Freeworld Coatings’ new paint assembly technology and a new business model in this complex and exciting region at the completion of the commercial trial phase.

For the project feasibility to attain commercial status, initiatives to grow our customer base are underway, while we continue with plans to harness real growth opportunities by forging closer working alliances via the new business model.

In this phase of the project we are investigating the opportunity for our growth in the China coatings market as well as expansion in the greater Asia Pacific region. While this market comes with challenges, it also offers exciting potential to build on our experience and learnings in the territory and deliver unique paint solutions when we finish the commercial trial phase and advance to the establishment of a fully fledged business presence.

besides the strong volume growth, there were a number of highlights for the China project:

• Completion of the first phase of a project to broaden the product portfolio for the construction sector. The availability of an improved textured offering provided significant avenues for growth.

• our strong focus on building up a local management team for the project has progressed well, with key appointments being made.

• Significant project contract wins were secured west of Shanghai in the Sichuan province and in the Tianjin Municipality in the north of the country.

• Expansion of the key distributor base in Chendgu, Chongqing and Shanxi.

• The maintenance of both ISo 9001, ISo 14001 and Green Label certification.

• Strengthening of our project technical and customer support teams in providing a seamless solution from tendering through to application.

highlights

our project in China which is now in its commercial testing phase, progressed well, posting significantly higher volumes than last year, despite a slow start to the year due to the deteriorating global and local economic conditions.

Project revenue improved 47% on the previous period, while volume growth related to new construction projects was up 84%. This

earthcote Panadomo, C

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operational review PerFormanCeCoatingsAll businesses in this segment felt the effect of the economic slowdown. Turnover increased slightly by 1% to R1 billion for the first time with EBITDA, excluding fair value adjustments, declining 13% to R129,5 million due to margin pressure, particularly with customers abroad.

The joint venture business with DuPont felt the full bite of the downturn, with the vehicle manufacturing sector being hard hit. The commercial vehicle building, repair and refurbishment sector, the refinish market and the body shop industry were all negatively affected to differing degrees.

Even so, sales were 3% higher than last year, although price recoveries were insufficient to fully offset input cost increases. Refinish sales to distributors showed some volume impact, with volumes to direct customers such as trailer manufacturers impacted to a greater extent. In Prostart, given the constrained credit market, equipment sales were affected due to the reluctance of body shops to invest in new equipment, particularly where financing was required.

Gross profit margins remained at acceptable levels, only marginally below last year.

the automotive group

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OpERATIONAL REvIEW pERFORmANCE COATINGS CoNTINuED

market commentThe premium end of the refinish market has been slow to respond to the requirement of major motor manufacturers to move to waterborne technology, in spite of the product being widely available.

These testing times have seen the closure of certain distribution competitors, resulting in stock shortages. We were in a position to supply the shortfall in the market, which cushioned the impact of the downturn for our Automotive group.

Commercial vehicle body builders have experienced a severe downturn in business in general. However, due to the inability of some competitors to supply products, we have been able to seize opportunities. We look forward to consolidating these gains in the period ahead.

The reluctance to acquire and finance body shop equipment was a negative feature in the year. However the launch of the new Duxone

• A significant step in securing premium technology and products was made with the signing of further agreements with DuPont. These agreements, which relate to the refinish sector, cover licensed manufacturing, and importing and distribution of products in specified sub Saharan countries. As part of the extended contract, the Duxone range of economy products was successfully launched. These products are also aimed at body shops not approved by motor manufacturers.

• The signing of a contract by the joint venture to supply Ford Motor Corporation was a positive development which represents important future income to our joint venture business.

• Challenges during the year included bedding down the new ERP system introduced in August, as well as managing book debt as a result of the difficult cash flow position of a number of customers due to credit limitations. However, due to the prudent actions taken, which included securing tangible security, no material debt had to be written off.

highlights

This business achieved a reasonable performance despite the particularly tough trading environment. Turnover was slightly lower than last year with pleasing sales levels recorded in Australia, Kenya and Greece.

With almost 50% of sales volumes and close on 65% of input costs denominated in foreign currency, the business has significant foreign currency exposure. The weakening of both the Rand and Australian Dollar against the uS Dollar and the Euro had a significant negative impact on both turnover and margins. A large proportion of our export sales are in Australian Dollars which weakened on average by 4% against the Rand compared to last year. The bulk of our raw materials are purchased in Euro which strengthened by 10% on average against the Rand.

Margins are expected to remain under considerable pressure with input cost increases not fully recoverable by price increases. However, our substantial capital investment in replacing production equipment is beginning to deliver significantly improved production efficiencies.

Freeworld Colourant systems

the automotive group continued

range provided expansion opportunities and 90 new mixing banks were installed in panelshops during the year.

outlookWe do not expect the first half of 2010 to yield any real growth in this sector. However, we are well positioned to take advantage of the upturn when it comes, as we have a comprehensive product range and a wide distribution network in South Africa and surrounding territories.

We constantly assess our footprint to ensure appropriate reach and, in this regard, a branch of Prostart was opened in bloemfontein earlier in the year. We are evaluating a number of further opportunities, including some outside South Africa.

Two litigation proceedings concerning the protection of our intellectual property were successfully concluded and settlement was received in this financial year.

outlookWe expect prospects for 2010 to remain fairly positive despite tough trading conditions, and continued pressure on paint volumes and higher raw material costs. our planned investment in production equipment will result in a state-of-the-art production facility and provide further efficiency improvements. The ISo 9001 Quality Management, ISo 14001 Environmental Management and oHSAS 18001 occupational Health and Safety Management System certifications remain well embedded. Real growth opportunities exist in the export markets and in Africa, further growth among existing customers and positive local prospects are expected to entrench our leadership position in South Africa.


getting aboard on the gautrain express

When the wheels of the Gautrain are set in motion and commuters can catch an express ride between Johannesburg and Tshwane and from oR Tambo International Airport to Sandton, the flashes of gold that light up the skyline will be the upshot of South Africa’s vision of world class public transport and the dedication of a province and its partner, bombela. The impressive colouristics will be, in part, thanks to Spies Hecker and our enduring promise of quality. A premium international brand in the Freeworld Automotive Coatings stable, Spies Hecker was chosen as the brand of choice for the Gautrain.

Spies Hecker, an international brand manufactured and marketed locally by Freeworld Automotive Coatings, was selected by uK based bombardier, a partner to bombela. This was as a result of an intensive auditing process, undertaken to appoint a supplier that would meet

bombardier’s requirements. Spies Hecker’s wide range of premium

products, designed to provide superior performance and to suit diverse

applications and working conditions, made it ideal for the high

profile project.

Spies Hecker is owned by DuPont Performance Coatings in Germany,

which was also advantageous to the scope and requirements of

the project. The original parts for the Gautrain are being supplied by

bombarder and DuPont technology is being used. A local supplier was

needed to refinish repairs to the various components prior to assembly.

Spies Hecker was therefore an obvious choice and so far only positive

feedback has been received.

The distributor selected for the task was local Spies Hecker distributor,

Intercity Paint and Panel, in Springs. Its close proximity to the site

where repairs to the Gautrain are being done, as well as its successful

working relationship with Freeworld Automotive Coatings, also made

Intercity a natural choice.

Two colours are being used: champagne and effect gold, to represent the colour most commonly associated with Gauteng, “the place of gold”.

Going for GOLD

Picture courtesy of Murray & Roberts Limited

35

OpERATIONAL REvIEW pERFORmANCE COATINGS CoNTINuED

The downturn in the building industry and the retail recession also had an impact on sales at Hamilton’s. Retailers experienced pressure on cash flows due to outstanding customer debt as well as excess stock due to lower sales. Even so, the team managed to deliver pleasing results. our product offering was carefully scrutinised by our marketing team and Hamilton’s will be launching a rejuvenated brush and roller range in the near future with exciting new packaging that communicates more clearly with consumers at point of sale. New product ranges in line with the group’s environmental goals will be launched to complement our current products.

Through product value engineering, range rationalisation and local sourcing of material, raw material price movement and exchange rate fluctuations were largely kept under control.

hamilton’s

outlookThe coming year will be exciting in terms of innovative product development and range extensions. Ensuring superior, consistent brand quality will be a priority as we roll out these new offerings. We expect the first six months to be challenging as independent retailers continue to come under pressure from tough conditions and competition from chains and larger groups. Alternative distribution channels in the Industrial sector of the business will be a focus together with a renewed focus on the contractor market.

We are confident that the new product ranges will provide inroads to potential customers that currently do not support Hamilton’s.


Midas Earthcote had a challenging year with turnover down on last year. Margins remained under pressure during the year. The impact of tough conditions on the building industry affected sales, with trading volumes becoming very tight. This situation was exacerbated by even more competitive pricing in the market. These conditions are expected to prevail into the new financial year, with margins remaining under pressure.

The Midas brand launched a unique colour selection system, Midas 300, a fan deck which is a world first and the only one of its kind manufactured locally. It is also one of the most user friendly approaches to selecting and combining colour.

Certain construction projects, including certain stadia and some large tenders in the leisure industry, yielded some prestigious opportunities for Midas to showcase its specialist solutions to developers.

• Six new Midas Earthcote franchises were launched, including in botswana and Zambia.

• We have made significant progress in developing environmentally friendly coatings. While approximately 25% of our products were formerly solvent based, we have reduced these to just 10% of our total product inventory.

• Midas Earthcote successfully launched a new online training facility, Fuel-on-Line, which allows a direct interface between franchised stores and the Midas Earthcote head office.

• To achieve improved synergy between group companies, Midas Earthcote migrated to the Freeworld Coatings IT platform during the year.

highlights

on the Earthcote side, a notable highlight was the launch of the Down To Earth “Heritage” range of acrylics through Herbert Evans.

Already trading in Namibia, Mauritius, Zambia and botswana, the Earthcote brand recently launched certain textured products in The Netherlands and belgium. Current plans include the opening of a fully fledged standalone Earthcote store in Amsterdam during 2010, followed by more versions in terms of a roll out plan. Logistics relating to the European expansion plan are being managed by a dedicated marketing team in Holland, driven and overseen by Earthcote’s marketing team based in South Africa.

The South African marketing team has developed a unique concept store to be launched during 2010.

afro

funk

car

avan

midas earthcote

37

While coatings innovation grew in leaps and bounds during the building boom that began in early 2000, paint artisan skills lagged. Paint contractors and artisans now need better knowledge and skills to produce lasting, quality applications.

The Paint Academy is a Freeworld Coatings initiative that aims to improve applicator knowledge and skills, making it possible to produce more, better skilled artisans. Provided and funded by Freeworld Coatings, The Paint Academy has training facilities in Cape Town and Gauteng. Many graduates have been successfully absorbed into the industry.

where there’s a wall

ThERE’S A WAy


LENNoX TYALI

This opportunity came at the right time of my life. I remember turning someone down who was offering me a job but up to this day I don’t regret it. I always said to myself that I’ll never stop trying, and there you came along and made me a new person. People will forget what you said or did but they will never forget how you made them feel.

CRAIG L. GERTZE

I learned a lot here about how to conduct myself in public, normal life skills for the everyday experience. When I came here I was the only person of non Xhosa ancestry, I felt

developing skills, developing livesThe Paint Academy offers training programmes in paint application

and tinting, which is listed as a scarce skill in the coatings industry.

The project provides small, medium and micro enterprises (SMMEs)

involved in painting and decorating with the necessary support,

technical expertise and project management skills to remain

competitive in the industry.

The Construction Painting Learnership provides apprentices with

all the necessary skills to complete a coatings application, from

identification of the type of surface to be coated, to the correct

application and methods for application, as well as quality assurance

methods, stock control and storage.

All painting application skills required by paint contractors are

covered in this programme, which gives learners an advantage when

applying for a job with an established contractor. The learnership is

run in collaboration with MLG Consultants, a fully accredited training

service provider.

achievements of the Paint academy since its launch:

basic brush hand Skills programme: National qualification framework (NQF) level 1 (one month course)

• 44 Learners were trained, found competent and certified.

• Some learners were employed – placements included Plascon,

Midas, Game, RMS, N2 Gateway project, and some candidates

started their own painting businesses.

National Certificate in Construction painting Learnership, National qualification framework (NQF) level 3 (one year course)

• Pre selection of 50 unemployed learners was completed in May 2008.

• Learners were divided into four groups and training commenced in June 2008 with MLG trainers focusing on fundamental skills and Freeworld Coatings trainers on core competencies.

• Learners received two weeks’ theoretical training at the Paint Academy, followed by six weeks of practical on-the-job training and experience with host contractors.

• Two groups were placed with host contractors: Schneider-bruce, Paragon, Van Deventer and Whiteheads. Learners progressed well, with positive feedback on both theoretical training in the classroom and practical training with hosts.

• The learnerships were completed in May 2009, and 39 graduates received their certificates of learnership at a memorable graduation ceremony held at the Cape Town International Convention Centre.

• A further 50 learners were recruited for the Cape Town facility.

In 2008, Freeworld Coatings extended the academy concept to Gauteng. The Gauteng academy is situated at the Plascon Luipaardsvlei head office in Krugersdorp. The first skills programme offered at the academy is the basic brush Hand Skills Programme and commenced in April 2009. In total the academy had 120 applicants from which 54 learners were chosen to complete the five week programme. A total of 44 learners completed the skills programme and were certified. Some of the learners who completed the skills programme are involved in Plascon CSI projects and others found jobs at retail stores.

actually travel this big distance to attend a course that I was totally oblivious to. Well, at the end of the day, I can truthfully say that it was worth it. Thank you Freeworld Coatings, thank you everyone.

QuEN NEL

I have never met more caring people that opened my mind to the world out there. For me this wasn’t just a basic skills programme, this is where I obtained the strength to break the walls that were keeping me in this small room, where I was accompanied by depression and self pity. In doing this course I learnt about other cultures and the way they see and do things.

left out but I was made welcome and even learned a few new words. I met a group of people I will remember for a long time, different people with different views about the world and their place in it.

JACQuES FREDERICKS

I was a person who always believed that “if at first you don’t succeed, skydiving is not for you”. You turned that around with your motivation and testimony of your life. I now believe that it’s not a shame to fall, but it’s a shame to stay down. Virtuous – The only word that can apply to Freeworld Coatings Paint Academy staff members. I had my misgivings about leaving my refuge called home to

39

At Freeworld Coatings, our approach to business is founded on a commitment to being a good corporate citizen of the world, by operating in a profitable and sustainable way. Our visions and values, which are intrinsic to our operating ethos, put sustainability at the heart of our business. We believe this sets us apart from many other companies in our sector.

V&a residence

Freeworld Coatings is pleased to present to stakeholders our second sustainability report. This report highlights our broader economic, social and environmental impacts and contributions for the 2009 financial year. This report builds on our 2008 sustainability report, and we have begun the journey towards reporting against the Global Reporting Initiative (GRI) indicators, although we are not yet in a position to declare a reporting level in this regard. The quality of our reporting will continue to improve as our sustainability reporting processes mature across our businesses.

We continue to inculcate the tenets of our vision (which are set out on pages 14 to 19) in our businesses through the Value based Management philosophy which seeks to generate value for all our stakeholders – shareholders, employees, customers, suppliers and the communities and governments in the countries in which we operate.

We acknowledge the magnitude of our responsibility to operate innovatively and responsibly in our sector, and we believe there are many important steps we can take as a coatings provider to produce quality products and solutions that minimise the impact on our environment.

our sustainable development strategy aims to build economic, social and environmental value by meeting the needs and wants of customers and consumers in a way that ensures we are commercially sustainable and environmentally responsible. A reporting and oversight structure, chaired by the group executive: finance Africa and assisted by the group’s environmental consultant provides monitoring and guidance in this respect.

sustainabilityreport


SuSTAINAbILITy REpORT CoNTINuED

• Higher humidity negatively affecting the chemical properties

of paint causing potentially increased product failure and

increased development work to find solutions, increasing costs

in the respective businesses.

• Restrictions on the use of scarce water resources that could

limit capacity within our water based production plants and

increase costs due to needing to import any shortfall in the form

of finished products from elsewhere in the group.

During 2010, we will attempt to create a sensitivity table that highlights

the possible impacts of these scenarios.

market presenceWAGE LEvELS (EC 5)

All salaries and wages paid by the group exceed the minimums

specified through legislation and other regulations, and are subject to

collective bargaining.

LOCAL SpENDING (EC 6)

Wherever possible, we source the bulk of goods and services locally.

This is not always achievable in the case of chemicals and raw

materials, some of which can only be imported. We are investigating

establishing a local spending quantum in each operation for 2009,

as a base to enable us to monitor the level of local spending in each

operation within our geographic footprint.

LOCAL COmmuNITy hIRING (EC 7)

Where our operations are near residential areas, we are able to draw

labour directly from these areas. Some of our operations are located

in industrial areas in larger cities, which require us to source labour

from residential areas further afield, although this is always within a

reasonable distance from these operations.

economic performance

Recognising the broader economic value of our operations, Freeworld Coatings’ approach to economic performance remains focused on ensuring sustainable profits and value creation for our stakeholders. In line with our vision, we aim to sustain this in a way which is commercially sensible and socially responsible, while ensuring we treat all stakeholders as important to our business. To this end, we continue to monitor our performance against internally generated targets as well as benchmarking against our peers through the Holt Valuad database and our involvement as a member of the Nova Paint Club.

economic value generated and distributed (eC 1)

Value added statement

2009R’000

2008R’000

revenueNet sales 2 703 164 2 696 744

operating costs 781 493 790 544

Employee compensation 552 918 569 330

Donations 2 007 1 618

Retained earnings 111 474 190 119*

Taxes – income tax 69 413 89 270 – assessment rates 2 278 3 623 – VAT 101 949 80 679 – PAYE 100 630 89 933

Dividends 33 744 21 915*

* 2008 numbers restated to align with financial statements.

Despite the difficult conditions of the past year, shareholders still

received a dividend payment and employees retained their jobs

although incentive bonuses and gain share were reduced. our standing

with customers and suppliers remained intact.

Financial implications of climate change (eC 2)The potential effects of climate change, through changed rain patterns, differing temperature patterns and the excess or shortage of water, presents a number of opportunities and risks that can impact the group financially, such as:

• Variations in sales of exterior decorative and industrial paint

products due to extended rainy seasons (reduction) or extended

dry seasons (increase).

• Increased sales of automotive refinish products due to increased

road accidents in rainy conditions.

42 FREEWORLD COATINGS Annual Report 2009

occupational health and safetyAs our sustainability reporting journey enters its second year, the

health and safety of our employees remains a central focus of

our Employee Value Creation (EVC) philosophy which is aligned to

our strategic business objectives to sustain the wellbeing of our

employees.

The company has garnered detailed knowledge of all health and

safety risks our employees may encounter and has put various

mitigation plans in place.

In maintaining our existing management systems to enhance our

internationally recognised occupational health and safety (oH&S)

compliance, we have established a legacy of high standards that all

our stakeholders can be proud of.

safety performance (la 6/la 7)As we operate in eight countries worldwide, we subscribe to the

relevant legislation that governs the wellbeing of employees in those

territories as well as the International Labour organization (ILo)

Guidelines on occupational Health and Safety Management Systems.

To this end, 92% (2008: 77%) of our employees are represented

by workplace health and safety forums.

In terms of external assurance, the company utilises Willis South

Africa Limited to conduct audits to ensure we comply with our

statutory duties.

our average lost time injury frequency rate (LTIFR) was 0.89 (2008:

1.66) in our core operations, below our target of 1 set in 2008. It is

INDIRECT ECONOmIC ImpACT (EC 9)our operations have a positive indirect impact on the economic

wellbeing of the communities near our factories, depots and distribution

outlets in South Africa, Swaziland, botswana, Namibia, Zambia,

Malawi, Australia and China, due primarily to the economic multiplier

effect of our employees’ salaries and the taxes they pay to national

governments. Indirect impacts extend further to local government

departments near our operations and where our employees reside,

due to rates and other municipal service charges levied on and paid

by us and our employees’ households.

While we are able to indicate economic contribution in terms of taxes

deducted from our employees’ salaries and the income tax and

assessment rates paid by our operations in the Value Added Statement,

we are unable to obtain or estimate the assessment rate and other

municipal charges paid by our employees’ households.

anticipated that the company will remain below this target in the medium term. LTIFR is a calculation of the number of occupational injuries which result in an employee being unable to perform his or her duties for one full shift or more on the day following the injury, whether it is a scheduled workday or not. Training, safety awareness programmes and the appropriate use of personal protective equipment has contributed to the reduction in injuries during the year.

A number of our sites including Plascon and International Colour Corporation have maintained oHAS 18001, ISo 14001 and ISo 9001 certifications. Midas Earthcote has retained their ISo 9001 certification and Freeworld Automotive Coatings has maintained the ISo 14001 and ISo/TS 16949 certificates. We take pride in sustaining these international standards.

health and wellness performance (la 8)To retain a sustainable and productive team, the company recognises the importance of providing access to sound healthcare and access to reputable wellness programmes. our onsite clinics play a critical role in achieving this objective.

our African operations have adopted a comprehensive HIV/Aids awareness campaign. Preventative programmes are run at most operations and we ensure that employees are well informed on all aspects of the disease.

The majority of our employees have undergone voluntary counselling and testing (VCT). We have experienced an increase in the uptake of VCT year on year, with counselling and testing of 1 815 (2008: 1 514) employees during the year. The prevalence of HIV among employees has unfortunately increased to 6,2% (2008: 4,4%).

social performance

43


“In addition to our top three position in the manufacturing category we were also recognised for five years of participation and as one of the companies with an exceptional rating – a mean score of 3,70 and above. This is a super achievement, especially considering what a tough year it’s been for us. The results confirm that the hard work and effort being put into building a sustainable employee value proposition (a better life for all), is starting to bear fruit.”

Valuing and empowering our human capitalTo remain an employer of choice and add value to people’s lives, we constantly strive to attract, develop, reward and retain talented people who have the desire and passion to ensure the sustainable growth and continuous improvement of the organisation. Effective use of

human capital performance

Freeworld Coatings is a performance based organisation that firmly entrenches its Value Based Management philosophy and culture, aligning the organisation to continuously enhancing value for all stakeholders. We achieve this through new ways of thinking and acting to align the daily activities of all our people with the goal of value creation.

To this end, we strive for our people to be empowered and self disciplined, to have integrity and to act in a caring manner. Our culture is one of enthusiastically driving success.

deloitte “best Company to work For” surveyPlascon employees have voted Plascon as one of the best companies

to work for in South Africa in the Deloitte “best Company to Work For”

survey. While we remained in the top three in the manufacturing sector

there has been a further improvement in our mean score from 3,67

to 3,75.

Frans Germishuizen, director: organisational performance – Plascon,

says the improvement in every dimension measured is also reflected

in this year’s individual perception monitor (IPM) result: “The best

Company to Work For result confirms the trends we saw in the IPM,

which is in line with the improvement we have seen over the past

year,” he confirms.


human capital developmentThe group continues to enthusiastically drive the development of its employees in the knowledge that it is incumbent on companies to help address skills gaps that may exist.

The following are examples of the efforts and achievements of our learning and development departments in the period under review:

pLASCON

sales and marketing leanership

We introduced a sales and marketing learnership to enhance the customer relationship management skills and competence of our sales consultants in 2007.

Subsequently 19 sales consultants have completed the National Certificate: Customer Management NQF 4.

performance appraisal techniques and counselling help us identify those people who make a significant contribution to the group. We ensure that we pay a competitive remuneration package to all staff by performing a formal benchmarking exercise annually.

We believe that diversity is our strength, and are committed to playing our part in building a non racial democratic society and, wherever we are present, reflecting in our conduct that human progress and commercial success can be reciprocal.

Employment equity in South Africa is a strategic and business imperative. We will continue to address inequalities with regard to ethnicity, gender and disability present within our workforce and strive to accelerate progress through structured skills and developmental programmes. The group complies with all the requirements of the Employment Equity Act.

45


current employees, a programme titled ‘Second Coat’ was designed

and implemented.

FREEWORLD AuTOmOTIvE COATINGS

operational development

We embarked on our second intake of Chemical operations Level 1

Learnerships in February 2009. These five students are on track to

complete their training in November 2009. We are considering

offering Chemical operations Level 2 in 2010, which will allow

students who have completed Level 1 to progress to the next level.

We continue to encourage South African Paint Manufacturers

Association (SAPMA) training among our staff and during the year

under review, 15 learners registered for various modules. Two

production employees were promoted to the laboratory this year

partly as a result of their SAPMA studies, where they can use their

newly acquired skills.

We have also continued to support employees who had previously

embarked on tertiary studies in various programmes ranging from

bachelor of Technology degrees to Accounting degrees.

We are also continuing with the development of two apprentices, an

electrician who will embark on his third year of apprenticeship next

year and a fitter who will be progressing to his second year of

apprenticeship.

leadership development

our leadership development initiatives for this year included

supporting three employees who are at various stages of completing

their MbAs as well as two employees, who embarked on the

management development programme at the Nelson Mandela

Metropolitan university.

social responsibility and community development

This year we have supported two analytical chemistry students

through their second year of studies. Providing they are successful

in their final examinations they will join us as in-service trainees

in 2010. In this way we are ensuring that we secure good quality

students in our in service trainee pool from which we often recruit

permanent staff.

We continue to support employees’ children with higher and further

education and this year six employees’ children were supported at

various levels, from school learners to technical colleges, schools of

technology and universities.

INTERNATIONAL COLOuR CORpORATION

legislative training

The company concentrated mostly on statutory type training for the

period under review. In total 26 employees attended various legislative

type training and health and safety training.

A further 19 sales consultants are due to qualify shortly and the third

intake of learners will commence during 2010.

Plascon was granted funding from the Chemical Sector Education

Training Authority (CHIETA) for the education and training of 151

learners, of which projects involving 119 learners were successfully

completed during the year.

bursaries

During 2009, six bursaries were offered to students, up from five

in 2008. one of the 2008 bursars was employed by Plascon on

completion of their studies.

leadership development

Plascon has a strong focus on developing leadership capacity within

the company. A two day workshop was held for leaders during which

the conventional understanding of leadership was challenged. The

workshops were found to be extremely valuable and provided the

company with the necessary feedback to inform further initiatives to

continue building leadership capacity.

induction programmes

Plascon has successfully implemented an improved and com-

prehensive induction programme for new employees. To ensure

relevant information and refresher training is conducted with all

human capital performance continued


National Certificate in Construction painting:Learnership, NQF level 3 (one year course)

• 39 learners graduated in June 2009.

• Retail Merchandising Services (RMS) will be recruiting from this

pool of graduates for employment in the retail sales environment

in the Western Cape area.

– A second intake of 50 beneficiaries has commenced with the

group showing good progress to date. It is expected that this

group will graduate in March 2010.

krugersdorp facility

This facility only caters for the basic brush hand Skills programme:National qualification framework (NQF) level 1 (one month’s course)

• During the reporting period 54 students were accredited and

are working as applicators on various corporate social investment

(CSI) projects.

employee complementAs at the end of the year under review, we employed a total of 2 395

employees in the eight countries we operate in (2008: 2 503). The

group’s labour turnover rate has increased slightly to 10,5% (2008:

10,4%), below the industry average of 12% (Source: PE Corporate

Human Resources Practitioners Handbook, September 2009 ).

developmental training

A further 26 employees attended a variety of developmental

programmes throughout the year.

technical skills

The nature of our business requires a high level of technical input to

maintain the technical skills levels at the company. To this end nine

employees attended technical skills training.

enterprise developmentFreeworld Coatings Paint Academy and its facilities have been

accredited by the CHIETA. The company also increased the reach of

the Paint Academy through a facility at its Krugersdorp manufacturing

facility.

During the period under review, the Paint Academy achieved the

following:

Cape town facility

basic brush hand Skills programme:

National qualification framework (NQF) level 1 (one month course)

• 44 students were trained and accredited (2008: 52)

• Some of the students have worked on various corporate social

investment (CSI) projects in the Western Cape area.

47


Corporate social investment programmes

Freeworld Coatings believes that we can use our business strengths and products for the greater good of the communities in which we operate. We supported a considerable number of social upliftment programmes in 2009. Our coatings products and solutions can transform public spaces in ways that can have a material effect on uplifting communities, simply by cleaning up and rejuvenating the appearance of buildings. A key focus area is on improving crèches and schools in poor communities, who may not be in a position to dedicate their scarce budgets towards aesthetic improvements.

We support the National Council of the blind in providing cataract operations, and our support to date has assisted in providing hundreds of people with this operation. Plascon is the primary sponsor of the Décor Morning programme, now its fifth year, where eminent speakers address an audience interested in décor and charitable events, in support of Johannesburg Child Welfare. We also provide paint to several children’s homes and orphanages.

As a supplier of paint and allied products we are drawn to the arts, and are a member of business Arts South Africa (bASA) which promotes the growth and well being of local arts communities. one of our employees is also involved as a mentor to bASA’s Visual Arts Network.

CSI HIGHLIGHTS IN 2009

Examples from 27 of these projects:

1 DANCE umbRELLA

The Dance umbrella, founded 20 years ago, was recently

given new premises in Newtown which provides an outlet and platform for emerging artists. Plascon, as a member and supporter of business Arts South Africa, assisted with the refurbishments.

2 EyE CARE AWARENESS WEEK

For the third consecutive year, Plascon donated R220 000 to fund cataract operations for the elderly. In 2009, our funding facilitated 100 cataract operations in Port Elizabeth and 70 in Taung. Several eminent surgeons and nursing staff donate their time to the eye care awareness week. These operations, which restore sight to virtual perfection within minutes, can be described as miraculous for many people. In 2010, our intention is to sponsor cataract operations in two other areas and to increase our number of sponsored operations to 200.

3 DEpARTmENT OF hOuSING: hELpING A ChILD hEADED hOmE

Several years ago, the Minister of Housing approached various corporates to assist with advice and interaction. Plascon got involved in the initiative and, in our 2009 financial year, participated in completing a home for a child headed household that was featured on the television series breaking New Ground.

4 ThE AFRICA mEETS AFRICA pROjECT

Plascon provided paint for the extraordinary mural painting in The Africa Meets Africa Project. This was a large undertaking that involved bringing rural Ndebele artists to Newtown to paint a mural on the facade of the Sci-bono Discovery Centre for the

2


3

7

4

5

launch of its educators’ resource Africa meets Africa: Ndebele Women designing Identity. The project embraces contrasting urban and rural realities, allowing new possibilities to emerge. It brings South Africa’s rich rural cultural heritage into the urban domain, creating a visual language that is both accessible and sophisticated. The project illustrates the use of mathematical

theorems in art and is used as a teaching medium for both

teachers and learners, attempting to convey to the public that

maths can be fun.

jOhANNESbuRG ChILD WELFARE & ELTON jOhN’S hIv/AIDS hOmE

In addition to a R100 000 donation to Johannesburg Child Welfare we also provided paint for an HIV/Aids children’s home that is largely funded by Elton John, as well as the ontadeweni Home in Soweto.

ROTARy CApE TOWN

Plascon responded to a request to supply paint for Rotary’s train on the Sea Point Promenade. The train is used to generate funds for the disadvantaged members of the local community and is also used to entertain their children on seaside outings.

SOuTpAN pRImARy SChOOL, pORT ELIzAbETh

The Soutpan Primary School in Port Elizabeth will benefit from upgraded grounds through assistance from Plascon and Touch Africa. Although located in an impoverished area, the school has maintained high learning standards. Plascon also provided paint to upgrade the school’s ablution facilities which were in a poor condition. Paint has also been given to the school for the classrooms. over the years the teachers themselves have paid for and painted their own classrooms. Plascon is proud to support to this deserving educational environment.

CApE ACADEmy

Freeworld Coatings has upgraded the hostel of the Cape Academy. This school draws students from all over the Western Cape to accelerate their studies in maths, science and physics in grades 10, 11 & 12, enabling them to enter and cope with the rigours of university or tertiary educational life. Plascon donated the bulk of the paint, with Midas paints providing the specials for the feature walls, of which all was applied onto the walls with brushes and painting tools from Hamilton’s. The painters came from our new Paint Academy and the painter apprentices were paid by Freeworld Coatings; they were supervised by a lady from a previously disadvantaged community who runs her own SME company.

This was truly a group effort encompassing all aspects of the

Freeworld Coatings business in the Cape region.

6

7

8

5

6

49


environmental performance

Great strides have been made in Freeworld Coatings’ commitment to environmental stewardship in its operations and product offerings. Spearheading the drive has been the formalisation during 2009 of a group wide Ecoforum with representation from all businesses and the Freeworld Coatings executive.

Meeting every six weeks, the forum is mandated with the oversight of

all environmental sustainability issues facing the group. These include:

• Tracking the measurement of key environmental indicators.

• Developing appropriate targets for reduction of impact in key areas.

• benchmarking Freeworld Coatings against best environmental

practice in the international and local coatings industry.

• Marketing new products that hold environmental benefit.

• The control of products containing harmful or hazardous

substances.

A separate VoC forum supports the Ecoforum, meeting on a

quarterly basis to analyse issues relating to ingredient integrity and

Volatile organic Compounds (VoC) content in Freeworld Coatings’

products. Freeworld Coatings is keeping abreast of international

trends in this regard, with particular attention to increasingly stringent

legislation in export markets such as the European union Registration,

Evaluation, Authorisation and Restrictions of Chemicals (REACH)

regulations, and the power of consumer demand and awareness

through eco labelling initiatives.

Locally, Freeworld Coatings has worked extensively with the Green

building Council of South Africa to ensure that many of its product

ranges subscribe to local rating systems that will continue to be of

growing importance in all coatings markets.

Emanating from the work of the Ecoforum is an increased focus

on improving the measurement of environmental impact across all

gre

en b

uild

ing

exhi

bitio

n


Freeworld Coatings’ businesses. This has, for the first time, been

conducted in alignment with the reporting standards of the Global

Reporting Initiative (GRI) and reporting of environmental measurements

are now conducted on a monthly basis in all businesses. In many

instances, environmental impacts are being reported for the first time

in different unit volumes, resulting in greater accuracy of measurement

of key environmental indicators (including raw materials, energy,

electricity, water and waste). of note has been the measurement

of previously unreported environmental impacts such as the use of

recycled water in operations and the transportation of hazardous

waste from operational sites. The improvement and standardisation

of measurement has allowed Freeworld Coatings to improve the

management of its environmental impacts in relation to fluctuating

production volumes and the costs associated with such impact.

This is increasingly critical to the company as input resource costs

continue to escalate in South Africa.

During 2009, South Africa’s electricity utility Eskom, increased factory

gate prices by 33%, and has requested further large increases per

year for the next three years to meet the utility’s urgent expansion

programme expenditure.

ISo 14001 Environmental Management Systems remain in place

in our Plascon, Freeworld Automotive Coatings and International

Colour Corporation businesses, and we remain committed to

implementing the system in all businesses by 2011.

of particular note during 2009 was the conducting of a limited

greenhouse gas inventory (carbon footprint report) at Plascon, based

on the 2008 financial year. Conducted with the aim of understanding

the risks and opportunities of carbon emissions as they relate to

the local coatings industry, the intention is for all businesses to

ultimately conduct their own carbon footprints and for the Freeworld

Coatings group to report consolidated carbon emissions.

All Plascon sites were covered in the report, including:

Location Province

manufacturing Mobeni KwaZulu Natal

Luipaardsvlei Gauteng

Epping Western Cape

depots Newcastle KwaZulu Natal

Linbro Park Gauteng

Polokwane Limpopo

Port Elizabeth Eastern Cape

Nelspruit Mpumalanga

bloemfontein Free State

East LondonMthatha

Eastern CapeEastern Cape

head office Luipaardsvlei Gauteng

research and development

AlbertonStellenbosch

GautengWestern Cape

Results from the report indicate total carbon emissions of 18 318 tonnes of carbon dioxide equivalent (Co2e) at a relative emissions value of 0,255 kg Co2e per litre of production.

Contributors Tonne CO2e

Electricity 11 230

Diesel 1 932

Product distribution 1 471

Petrol 1 215

Heavy duty furnace oil 1 192

Raw material transport 800

Natural gas 372

Waste removal by road 106

total 18 318

Freeworld Coatings will continue to meet its environmental goals through continued and improved measurement, including more complete carbon footprint reporting and the development of appropriate and realistic targets for improved environmental performance in all businesses during 2010. In addition, product development will be tasked with introducing increasingly environmentally beneficial offerings, and compliance with various market requirements.

51


Freeworld Coatings environmental indicators

INDICATOR GRI 2008 2009 Recycled Notes

Production volumesraw materials used EN1

Additives (t) 5 652 5 108Emulsions (t) 12 387 11 701Extenders (t) 29 040 28 349Fatty acids (t) 1 937 1 730Monomers (t) 2 769 2 056Pigment (t) 8 430 7 520Resin (t) 7 689 5 846Resin raw material (t) 919 2 168Solvent (t) 162 915 14 947Timber/wood (t) 20 176 2009 Includes palletsbristle (t) 19 9Thinners (t) DNR 203Paper (t) 10 9Metal cans and pails (units) 17 283 307 2 684 In tonnes for 2009Paper labels and cartons (units) 16 582 394 139 In tonnes for 2009Cardboard/paper packaging (t) DNR 95Plastic containers (units) 7 215 248 2 135 In tonnes for 2009

direct energy consumptionHeavy duty furnace oil (kl) EN3 488 357Diesel (kl) 1 022 1 096Petrol (kl) 1 970 1 680Natural gas (t) 149 101LPG (t) DNR 4 812

indirect energy consumption EN4Electricity (kWh) 18 687 706 15 381 967

water Consumption EN8borehole water (kl) DNR 668Total municipal water (kl) * 117 362

total water recycled and reused (kl) EN10 DNR 3 947

water discharge EN21Total discharge (kl) 111 600 52 038

waste by type EN22Metal cans and pails (t) 296 327 250Steel drums (units) 34 298 489 489 In tonnes for 2009 Pallets (units) 25 302 563 378 In tonnes for 2009 Paper and cardboard (t) 403 265 219Plastic containers (units) 23 068 359 274 In tonnes for 2009Solid and general waste (t) 3 007 765Solvents (kl) 818 1 143 176 In tonnes for 2009 Paint (kl) 104 1 132 In tonnes for 2009Sludge (kl) 2 301 1 469 In tonnes for 2009

spills and fines EN23 DNRTotal tonnes of spills 30 Fines 0

transportation of hazardous waste EN24Total weight of waste transported (kg) DNR 2 288 467Medical waste from on site clinics DNR 45

environmental expenditure EN30ZAR 3 103 919 3 709 021

* The water consumption figure in 2008 was distorted by some operations reporting in litres instead of kilolitres.DNR = Did not report


CorporategoVernanCe

Eleanor Chamberlain

• Assessing processes and procedures to ensure the effectiveness

of internal systems of control on a regular basis, and accept

responsibility for the total process of risk management;

• Identifying and regularly monitoring key risk areas and key

performance indicators of the business;

• Reviewing and monitoring the risk management process;

• Ensuring compliance with all relevant laws, regulations and codes

of business practice; and

• Ensuring transparent, relevant and prompt communication with

stakeholders.

ComPosition oF the board

The majority of the board consists of independent non executive

directors. This ensures that independent thinking is present in all

board decisions. All board members are required to have adequate

strategic, analytical, communication and knowledge competencies.

Furthermore, they should be individuals of calibre and credibility who

have integrity in personal and business dealings, bring judgement to

bear, are independent of management, have the best interests of the

company at heart and are able to appreciate the broader perspective

of business and society. The board is of the view that the size,

diversity and demographics of the board are appropriate for the

company.

The company is incorporated in South Africa under the provisions of

the Companies Act 61 of 1973, as amended. It is listed on the JSE

Limited, and subscribes to the principles contained in the Code of

Corporate Practices and Conduct as set out in the second King Report

and the JSE Listings Requirements. The board is ultimately responsible

for ensuring that an adequate and effective process of corporate

governance is established and maintained, and ensuring these

processes are consistent with the nature, complexity and risk inherent

in the company’s activities. Details of material compliance are set

out in this report.

The company’s systems for corporate governance continue to evolve

as the needs and expectations of stakeholders develop.

board of directors The group has a unitary board structure with seven independent non

executive directors, including the chairman of the board, and two

executive directors. The curriculum vitae for each director of the

company are published on page 20. The board has overall responsibility

and accountability for the activities and operations of the Freeworld

Coatings group.

resPonsibilities oF the board

The board’s responsibilities are set out in the board charter and include

but are not limited to:

• Retaining effective control over the company;

• Giving strategic direction to the company;

• Reviewing, approving and monitoring fundamental financial and

business strategies, plans and major corporate actions;

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.

53

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

The board has, through the considerations of the remuneration and

nomination committee, drafted a paper outlining its view on the role,

nature and composition of the Freeworld Coatings board. To date no

appointments have been made to the board, however any appointments

will be made following the guidelines set out in this paper and will be

formal and transparent. Even though recommendations are made

by the remuneration and nomination committee, appointments are a

matter for the board as a whole, assisted by the remuneration and

nomination committee.

direCtors’ induCtion and training

The company holds an induction programme for new directors

which sets out their fiduciary duties and responsibilities, and

where necessary director development training is provided through

the Institute of Directors. The induction programme is adapted

to directors’ board experience. It is the group’s policy that all

directors of subsidiary companies undergo director development

training through the Institute of Directors as well as an orientation

programme for their respective company.

direCtors’ meetings

The agenda and supporting papers are distributed to all directors

ahead of each board meeting. Explanations and motivations for items

of business requiring decisions are provided in the meeting by the

appropriate director. Discussions at board meetings are open and

constructive, and consensus is sought on items requiring decisions.

No one director has unfettered powers of decision making. When

necessary, decisions are also made by directors between meetings

by written resolution as provided for in the company’s articles of

association. Directors are entitled to have access to all relevant

company information and records and to executive officers and

senior management. Directors are appraised whenever relevant,

and kept abreast of any new legislation and changing commercial

risks that may affect the business interests of the company. In

fulfilling their responsibilities directors may seek professional advice

at the company’s expense.

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

14 November 2008 Db Ntsebeza, b Ngonyama

1 December 2008* E Links, NDb orleyn, Db Ntsebeza, DA Thomas

30 January 2009 Db Ntsebeza, b Ngonyama

19 February 2009* Db Ntsebeza, PM Surgey

19 March 2009 None

21 May 2009 NDb orleyn

25 June 2009 NDb orleyn, PM Surgey

20 August 2009 MM Ngoasheng

* Meeting called at short notice.

ConFliCt oF interest

To uphold their independence and integrity, directors disclose all

material interests as they arise. A process has been set in place

to formally and regularly record directors’ interests. Directors are

required to declare and update their activities as well as business

interests at every board meeting. A possible conflict of interest

shall be declared as soon as a director becomes aware of the

conflict and the director shall not vote on the subject matter.

retirement oF direCtors

In terms of the company’s articles of association, one third of the

non executive directors are required to retire at the annual general

meeting of the company. Ms Ngonyama, Mr Db Ntsebeza and

Mr PM Surgey will retire at the forthcoming meeting. All retiring directors

are eligible and have offered themselves for re election. A director may

not hold office for more than three consecutive years before standing

for re election. All members of the board are required to attend annual

general meetings to address questions raised by shareholders.

Company secretary The board has appointed a secretary to serve the board. The company

secretary provides the board as a whole and directors individually with

guidance on the discharge of their duties. The directors have unlimited

access to the advice and services of the company secretary. The

company secretary acts as secretary for the committees of the board,

as required by the second King Report. The secretary ensures that all

directors are adequately inducted and trained, and that the proceedings

and affairs of the board, its committees and the company itself and

where appropriate, owners of securities in the company, are properly

administered in accordance with the pertinent laws. The secretary

engages with directors of subsidiary boards with regard to the

implementation of corporate governance processes throughout the

group. The statutory requirements of the company and its subsidiaries

in South Africa are administered by the secretary.

CORpORATE GOvERNANCE CoNTINuED


directors’ emoluments and interests direCtors’ emoluments

There are no service contracts between any directors and the company.

The following annual fees are in place for non executive directors.

Fee per annum (R)

Chairman of the board, inclusive of fees payable as chairman of board committees 350 000

Non executive directors 150 000

Chairman of a board committee 80 000

Member of a board committee 40 000

Emoluments to non executive directors of Freeworld Coatings during the year ended 30 September 2009 are set out below:

non executive directors’ fees (r)

Name Total Chairman Non executive

director

Chairman board

committee

Member board

committee

RM Godsell 350 000 350 000

E Links 200 000 150 000 50 000

MM Ngoasheng 220 000 150 000 70 000

b Ngonyama 260 000 150 000 80 000 20 000

NDb orleyn 190 000 150 000 40 000

PM Surgey 150 000 150 000

Db Ntsebeza 150 000 150 000

1 520 000

Emoluments to executive directors of Freeworld Coatings during the year ended 30 September 2009 are set out below:

executive directors’ emoluments 2009

R’000 Salary Bonus

Retirement and medical contribution

Car allowances Total

*Share options

exercised/ceded

AJ Lamprecht 3 000 1 663 769 327 5 759 1 212 DA Thomas 2 600 479 277 359 3 715 –

total 5 600 2 142 1 046 686 9 474 1 212

executive directors’ emoluments 2008

AJ Lamprecht 2 500 2 827 595 273 6 195 2 111

DA Thomas 2 170 1 077 268 408 3 923 999

total 4 670 3 904 863 681 10 118 3 110

* These amounts relate to the gain made on share options in terms of the Barloworld Share Option Scheme and issued in previous years in terms of prior employment and exercised or ceded during the year.

In terms of the company’s remuneration policy a significant portion of the directors’ remuneration is performance related, to align directors’ interests with those of shareholders.

55

CORpORATE GOvERNANCE CoNTINuED

direCtors’ interests

As at the end of the year under review, the directors directly or

indirectly held the following shares in the company’s ordinary issued

share capital:

directors’ interests 2009

NameDirect

beneficial Indirect

beneficial Total

non executive directors

E Links 2 800 – 2 800MM Ngoasheng 810 – 810PM Surgey 106 278 – 106 278Db Ntsebeza 2 500 – 2 500

executive directors

AJ Lamprecht 110 000 – 110 000 DA Thomas 15 884 – 15 884

total 238 272 – 238 272

directors’ interests 2008


E Links 2 800 – 2 800

MM Ngoasheng 810 – 810

PM Surgey 106 278 – 106 278

Db Ntsebeza 2 500 – 2 500

executive directors

AJ Lamprecht 3 000 – 3 000

DA Thomas 15 884 – 15 884

Total 131 272 – 131 272

Associates of directors do not hold any shares. During the course

of the year, no director had a material interest in any contract of

significance with the company or any of its subsidiaries that could

have given rise to a conflict of interest.

insider trading No director, officer, employee, nominee or member of his/her immediate

family may deal either directly or indirectly, at any time, in the securities

of the company based on unpublished price sensitive information

about the company’s business or affairs.

With regard to dealing in the company’s shares, a sharedealing policy

for its directors, officers and employees has been put in place which

sets out in which manner the shares of the company may be traded.

The policy adheres to the JSE Listings Requirements and the Securities

Services Act. A list of persons who are restricted in trading in Freeworld

Coatings shares in terms of this policy has been approved by the board

and is revised from time to time. The company secretary provides all

communications in this regard.

Control framework A formal delegation of authority sets out categories of business

decisions that require approval by the board or subsidiary boards.

ongoing corporate governance activitiesThe King III report has been released and in the interim Freeworld

Coatings is gearing itself to be ready for the implementation date of

1 March 2010. The Companies Act has been enacted and is expected

to take effect in the latter part of 2010. Workshops have been

arranged to keep employees abreast of changes in legislation which

affect our business and more workshops are planned for the early

part of 2010 which will focus on the changes in the legislative and

governance landscape.

board committees A number of board committees assist the board in fulfilling its stated

objectives. The role and responsibilities of each committee are set

out in formal terms of reference, which will be reviewed annually to

ensure that they remain relevant in a rapidly changing legislative

and regulatory environment. board committees may take independent

professional advice at the company’s expense when necessary. The

committees will be subject to regular evaluation by the board with

regard to performance and effectiveness. The chairpersons of the

committees and the lead client services partner of the external

auditors of the company are required to attend annual general

meetings to answer questions raised by shareholders. During the

year an audit, risk and compliance committee and a remuneration

and nomination committee were established. In accordance with the

board’s requirements, ad hoc committees may be set up to review

specific matters for the board. Depending on the task allocated to

such a committee, verbal or written terms of reference are given.

audit, risk and ComPlianCe Committee

this committee comprises the following independent non executive

directors:

• Ms b Ngonyama (chairperson)

• Prof E Links

Four meetings were held during the period under review and the

Chairperson has reported more comprehensively on its activities in

a separate report found on page 64.

remuneration and nomination Committee

this committee comprises the following independent non executive

directors:

• Mr RM Godsell (chairperson)

• Mr MM Ngoasheng

• Ms NDb orleyn


Two meetings were conducted during the period under review. All

committee members attended all meetings.

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 well

being;

• Determining market related remuneration packages needed to

attract, retain and motivate high level, top performing executives;

• Ensuring adequate retirement and healthcare funding for senior

executives; and

• Identifying candidates and making recommendations for the

appointment of directors.

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

• Makes recommendations to the board on the appointment of

new executive and non executive directors, with skills, experience,

demographics and diversity being taken into account in this

process.

The committee has written terms of reference which include the group’s

remuneration philosophy. The remuneration philosophy is set in the

context of the company’s Value based Management philosophy which

aligns the efforts of the entire group’s workforce with the strategic,

operational and financial objectives of the business.

inCentiVe sChemes

The Freeworld Coatings Executive Share Schemes 2007 (“the scheme”)

is currently in place. The maximum number of shares to be utilised

for the scheme is envisaged to not be more than 10% of issued share

capital of Freeworld Coatings Limited, ie shares utilised for the scheme

shall not exceed 20 387 193 ordinary shares. The scheme comprises:

1. share appreciation rights (sar)

No further allocations of SARs were made during the year under

review.

2. Performance share Plan (PsP)

No annual conditional awards were made under this plan.

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 40 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 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.

57

The Decorative Coatings segment reported turnover at a similar level

to last year, and the Performance Coatings segment recorded a marginal

increase of 1%.

Margins came under increasing pressure as a result of continuing

high input costs, although these moderated over the last quarter

of the financial year. Given the harsh market conditions, no price

increases were implemented so as not to further impact demand.

This meant that the input cost increases were not recovered.

Management’s focus on managing the expense base paid dividends

and limited the decline in the EbITDA margin, excluding fair value

adjustments, to 100 basis points (15,7% versus 16,7%). As a result

EbITDA, excluding fair value adjustments, at R425 million was 5%

lower than the record profit posted in the prior year.

The uncertainty and increased volatility in financial markets and in

particular currency markets had a significant impact on the group’s

“Revenue from operations for the financial year ending 30 September 2009 was R2,7 billion, slightly up on the prior year, despite the depressed economic conditions which impacted demand for paint products and led to single digit volume declines accompanied by product mix changes.”Doug Thomas

results. A mark-to-market fair value loss on financial instruments of R26,2 million was recorded for the year, against a profit of R15,4 million the year before.

operating profit at R321,7 million was 19% down on last year, as a result of the lower trading result and the negative swing in fair value adjustments, coupled with a higher depreciation charge due to the capital expenditure programme.

Net finance costs, as a consequence of decreases in JIbAR, and a slightly lower level of borrowings were 5% lower than last year at R114,9 million.

The effective tax rate at 31,7%, excluding STC, compared adversely with last year’s rate of 28,8%, which included a rate change adjustment of R8,7 million, following the reduction in the corporate tax rate, equivalent to 3,1% of profit before tax.

Income from associates at R8,6 million was substantially lower than last year’s after tax income of R22,4 million. A major contributor to this shortfall was the performance of DuPont Freeworld which was severely impacted by motor manufacturers cutting back significantly on unit builds.

The net profit attributable to shareholders of Freeworld Coatings Limited amounted to R142 million, with headline earnings per share (HEPS) at 69 cents, 35% lower than in the prior year.

Total assets remained static at R4,5 billion with the reduction in inventories compensating for higher property, plant and equipment, and higher trade and other receivables.

Cash generated from operations amounted to R375 million with the cash inflow from operating activities of R150 million used to acquire property, plant and equipment totalling R101 million and intangibles of R22 million. The bulk of the latter was attributable to the group exercising its option to acquire the intellectual property rights of Napier Environmental Technologies for North America.

The R101 million investment in capital expenditure included expenditure on the new raw material warehouse and material handling equipment at Mogale City, the finished goods warehouse in Mobeni, the Syspro ERP system for the Automotive business and the usual phased replacement of outdated equipment. Freeworld Coatings plans to continue the rejuvenation of its sites in South Africa in the next few years.

Chief financial officer’s report


59

Annual financialStatementS


61 Directors’ responsibilities and approval and certificate of the company secretary

62 Report of the independent auditor 63 Directors’ report 64 Audit, risk and compliance committee report 66 Consolidated balance sheet 67 Consolidated income statement 68 Consolidated statement of changes in equity 70 Consolidated cash flow statement 71 Notes to the consolidated cash flow statement 72 Segment reporting 75 Notes to the consolidated annual financial

statements 134 Company balance sheet 135 Company income statement 136 Company cash flow statement 137 Notes to the company cash flow statement 138 Company statement of changes in equity 139 Notes to the company annual financial statements

contents

61

appropriateness of the accounting policies, and concluded that estimates and judgements are prudent. They are of the opinion that the annual financial statements fairly present the state of affairs and business of the company at 30 September 2009 and of the profit for the year to that date.

In addition, the directors have also reviewed the cash flow forecast for the year to 30 September 2009 and believe that the Freeworld Coatings group has adequate resources to continue in operation for the foreseeable future. Accordingly, the annual financial statements have been prepared on a going concern basis and the external auditors concur.

The annual financial statements were approved by the board of directors and were signed on their behalf by:

Rm Godsell Da thomasChairman Chief financial officer

aJ LamprechtChief executive officer

Paulshof

16 November 2009

The directors of Freeworld Coatings Limited (“Freeworld”) have pleasure in presenting the annual financial statements for the year ended 30 September 2009.

In terms of the Companies Act 61 of 1973, as amended, the directors are required to prepare annual financial statements that fairly present the state of affairs and business of the company and of the group at the end of the financial year and of the profit or loss for that year. To achieve the highest standards of financial reporting, these annual financial statements have been drawn up to comply with International Financial Reporting Standards.

The annual financial statements comprise:

• Thebalancesheets;

• Theincomestatements;

• Thecashflowstatements;

• Segmentalanalyses.

The reviews by the chairman, the chief executive officer, chief financial officer and the detailed segmental reviews discuss the results of operations for the year and those matters which are material for an appreciation of the state of affairs and business of the company and of the Freeworld group.

Supported by the audit committee, the directors are satisfied that the internal controls, systems and procedures in operation provide reasonable assurance that all assets are safeguarded, that transactions are properly executed and recorded, and that the possibility of material loss or misstatement is minimised. The directors have reviewed the

In terms of section 268G(d) of the Companies Act 61 of 1973, as amended (“the Act”), I certify that Freeworld Coatings Limited has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the Act. Further, that such returns are true, correct and up to date.

eLa ChamberlainGroup company secretary

Paulshof

16 November 2009

for the year ended 30 September 2009

Directors’ responsibilities and approval

Certificate of the company secretary


OpinionIn our opinion the financial statements present fairly, in all material respects, the financial position of the company and the group as at 30 September 2009, and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa.

Deloitte & touchePer LT TaljaardPartnerRegistered Auditor

16 November 2009

Buildings 1 and 2Deloitte PlaceThe WoodlandsWoodlands DriveWoodmead, Sandton

national executive: GG Gelink Chief Executive, AE Swiegers Chief Operating Officer, GM Pinnock Audit, DL Kennedy Tax & Legal and Risk Advisory, L Geeringh Consulting, L Bam Corporate Finance, CR Beukman Finance, TJ Brown Clients & Markets, NT Mtoba Chairman of the Board, CR Qually Deputy Chairman of the Board.

A full list of partners and directors is available on request.

TO THE MEMBERS OF FREEWORLD COATINGS LIMITED

We have audited the annual financial statements and group annual financial statements of Freeworld Coatings Limited which comprise the directors’ report, the audit, risk and compliance committee report, the balance sheet and consolidated balance sheet at 30 September 2009, the income statement and consolidated income statement, the statement of changes in equity and consolidated statement of changes in equity and cash flow statement and consolidated cash flow statement for the year then ended, a summary of significant accounting policies and other explanatory notes, as set out on pages 63 to 142.

Directors’ responsibility for the financial statementsThe 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 thatarefreefrommaterialmisstatement,whetherduetofraudorerror;selectingandapplyingappropriateaccountingpolicies;andmakingaccounting estimates that are reasonable in the circumstances.

auditor’s responsibilityOur 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 appropriate ness 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.

Report of the independent auditor

63

POSTAL ADDRESSPostNet Suite 263, Private Bag X87, 2021, Bryanston, South Africa.

Subsidiary companiesDetails of principal subsidiary companies appear in note 32 to the annual financial statements.

International Financial Reporting StandardsThe company’s financial statements were prepared in terms of International Financial Reporting Standards (IFRS).

Directors’ responsibility statement for annual financial statements The directors are responsible for preparing the annual financial statements and other information presented in the annual report in a manner that fairly represents the financial position and the results of the operations of the company and the group for the year ended 30 September 2009.

Going concernThe directors are of the opinion that the company has adequate resources to continue operating for the foreseeable future, and that it is therefore appropriate to adopt the going concern basis in preparing the company’s financial statements. The directors are satisfied that the company is in a sound financial position and that it has access to sufficient borrowing facilities to meet its foreseeable cash requirements.

Borrowings Details of the group’s borrowings are set out in note 15 to the annual financial statements. In terms of the articles of association, the borrowing powersofthecompanyareunlimited;however,annualdebtcovenantproofs are required by our financiers. Neither the company nor any of its subsidiaries have increased their borrowings during the year under review.

major shareholdersDetails of the significant shareholder of the company are reflected on page 143.

events subsequent to the balance sheet dateEvents subsequent to the balance sheet date are set out in note 37 to the annual financial statements.

Special resolutionsAt the annual general meeting on 30 January 2009, the company was granted a general approval to repurchase shares issued by the company. This authority was granted by special resolution of the shareholders and was registered by the Companies and Intellectual Property Registrations Office (CIPRO) on 3 March 2009.

Only one subsidiary passed a special resolution during the year under review. On 2 November 2008 Blajohn Properties Limited (registration no 1936/008617/06) was converted from a public to a private company and simultaneously changed its name to Hamilton Brands (Proprietary) Limited (registration no 1936/008617/07).

The directors are pleased to present this report on the financial statements of the company and the group for the year ended 30 September 2009.

nature of businessFreeworld Coatings Limited, the holding company of the Freeworld Coatings group (“Freeworld Coatings”), is incorporated in South Africa. Freeworld Coatings is a leading manufacturer and marketer of decorative and performance coatings in Southern Africa, with operations that meet the highest global standards. The company markets its products internationally and has been listed on the JSE Limited since 3 December 2007 in the speciality chemicals sub sector of the chemicals sector on the main board of the JSE Limited.

Financial resultsThe financial results for the year ended 30 September 2009 are set out in these annual financial statements.

Share capitalDetails 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.

DividendsDetails of the dividends and distributions declared and paid are shown in note 25 to the annual financial statements.

Changes in directorateDuring the year under review, there have been no changes to the directorate of the company. According to the company’s articles of association, at the forthcoming annual general meeting Ms B Ngonyama, Mr DB Ntsebeza and Mr PM Surgey retire by rotation. All are eligible and have offered themselves for re-election at the annual general meeting.

Repurchase of shares At the annual general meeting on 30 January 2009, the company was granted a general authority by shareholders to acquire shares issued by the company. The authority was granted in terms of the company’s articles of association and on, inter alia, the following conditions:

• Thisgeneralauthoritywillonlybevaliduntilthecompany’snextannual general meeting, provided that it does not extend beyond 15 (fifteen) months from the date of passing of this special resolution.

• Theacquisitionsofordinarysharesintheaggregateinanyonefinancial year do not exceed 20% (twenty 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.

Company secretary and registered officeThe company secretary is Mrs ELA Chamberlain and her address and that of the registered office are as follows:

BuSINESS ADDRESSBalvenie, Kildrummy Office Park, Umhlanga Drive, Paulshof, South Africa.

Directors’ report


The risk management committee regularly undertakes a review

of the risk management policies. The monitoring of the risk

management policies is regularly disclosed to the committee and

any deviation from risk management policies is communicated

to and noted by the board.

• Thetotalprocessofriskmanagementincludesarelatedsystem

of internal controls. An annual risk assessment is performed at

subsidiary level. This is then consolidated at group level and

additional risks added. The top 10 risks for the group are then

established by the executive and submitted to the board for review

and approval.

The Committee performed the following activities during the year

under review:

• Fourmeetingswereheldduringtheperiodunderreview.All

committee members attended all meetings. The chief executive

officer, chief financial officer, finance director Africa, chief internal

audit executive, lead audit partner and senior audit manager of

the external auditors attend meetings of this committee but have

no voting rights. At each board meeting, the Chairperson reported

on the activities and recommendations made by the Committee.

• TheCommitteeheldregularseparatemeetingswithmanagement,

external audit and internal audit to ensure that all relevant

matters were identified and discussed without undue influence.

• Sinceitstenureinoffice,theCommitteehasundertakensitevisits

to the operations from time to time. In line with this process, during

the period under review, it undertook a site visit to Freeworld

Automotive Coatings in Port Elizabeth.

• Receivedandreviewedreportsfrombothinternalandexternal

auditors concerning the effectiveness of the internal control

environment, systems and processes.

• Consideredthe independenceandobjectivityof theexternal

auditors and ensured that the scope of their additional services

provided was not such that they could be seen to have impaired

their independence.

• Reviewed and recommended for adoption by the board such

financial information which is publicly disclosed and included the

annual financial statements for the year ended 30 September 2009

and the interim results for the six months ended 31 March 2009.

• Consideredtheeffectivenessofinternalaudit,approvedtheaudit

plan for the year under review and monitored adherence of internal

audit to its year plan.

The Committee is of the opinion that the objectives of the Committee

were met during the year under review.

Background The audit, risk and compliance committee (“the Committee”) is

pleased to present this report on its activities during the financial

year ended 30 September 2009 as recommended by the Corporate

Laws Amendment Act No 24 of 2006.

membership The Committee is comprised of the following independent non

executive directors:

• MsBNgonyama(Chairperson)

• ProfELinks

Objective and scopeThe main purpose of the audit, risk and compliance committee is to

review and report back to the board on all financial matters of the group.

It also has the responsibility to encourage continuous improvement

of, and foster adherence to, the company’s policies, procedures,

and practices at all levels. The audit committee should also provide

for open communication among the independent auditor, financial

and senior management, the internal audit function, and the board

of directors.

The Committee assists the board inter alia in:

• Overseeingtheintegrityofthecompany’sfinancialstatements

and the company’s accounting and financial reporting processes

andfinancialstatementaudits;

• Overseeingthecompany’scompliancewithlegalandregulatory

requirements;

• Overseeingtheregisteredpublicaccountingfirm’s(independent

auditor’s)qualificationsandindependence;

• Overseeing the performance of the company’s independent

auditorandinternalauditfunction;

• Overseeing thecompany’ssystemsofdisclosurecontrolsand

procedures, internal controls over financial reporting, and compliance

with ethical standards adopted by the company.

Risk management • Thetotalprocessofriskmanagement istheresponsibilityof

the board and the board ensures that management implements

appropriate risk management processes and controls through the

audit committee. Risk management is undertaken at subsidiary

board level and managed through the risk management committee

which reports to the Committee.

• Formalisedriskmanagementpoliciesareinplacewithinthegroup

and these have been clearly communicated to all employees.

Audit, risk and compliance committee report

65

annual financial statements The audit, risk and compliance committee has evaluated the annual

financial statements for the year ended 30 September 2009 and

considers that they comply in all material aspects, with the requirements

of the Companies Act 61 of 1973, as amended, and International

Financial Reporting Standards. The Committee has therefore

recommended the annual financial statements for approval to the

board. The board has subsequently approved the annual financial

statements which will be open for discussion at the forthcoming annual

general meeting.

Deloitte & Touche, the external auditors, has provided stakeholders

with an independent opinion on whether the annual financial statements

for the year ended 30 September 2009 fairly present, in all material

respects, the financial results for the year and the position of the

company and the group at 30 September 2009.

B ngonyama

Chairperson of the audit, risk and compliance committee

Paulshof

16 November 2009

external audit • TheCommitteesatisfieditselfthroughenquirythattheexternal

auditor of Freeworld Coatings Limited is independent as defined

by the Act.

• Bothauditandnonauditservicesbytheexternalauditorswere

reviewed and pre approved. Non audit services are defined in

the terms of reference of the Committee and all non audit services

performed by the external auditors are approved in terms of

the Committee’s non audit services policy. The nature and extent

of the of non audit services is determined in the non audit

services policy.

• TheCommittee, inconsultationwithmanagement,agreed the

audit fee for the 2009 financial year. The fee is considered

appropriate for the work as foreseen at the time. Audit fees are

disclosed in note 20 of the financial statements.

• TheCommitteereviewedtheperformanceoftheexternalauditors

and nominated, for approval at the annual general meeting,

Deloitte & Touche as the external auditor for the 2010 financial

year, and Mr LT Taljaard as the designated lead auditor. This will

be his third year as auditor of the company.

Chief financial officer review The Committee has reviewed the performance, appropriateness and

expertise of the chief financial officer, Mr DA Thomas, and confirms

his suitability for appointment as financial director in terms of the

JSE Listings Requirements.


Notes2009

R’0002008

R’000

assetsnon current assets 3 568 671 3 527 594

Property, plant and equipment 4 646 733 605 184

Goodwill 5 1 893 868 1 898 141

Intangible assets 6 794 847 795 194

Investment in associates 7 181 613 193 009

Finance lease receivables 8 98 315

Long term loans and receivables 9 9 558 9 906

Deferred taxation assets 10 41 954 25 845

Current assets 921 365 985 064

Inventories 11 398 725 460 129

Trade and other receivables 12 473 647 451 723

Taxation 10 538 2 030

Cash and cash equivalents 13 38 455 71 182

total assets 4 490 036 4 512 658

equity and liabilitiesCapital and reserves

Share capital and premium 14 2 583 409 2 583 409

Other reserves (31 078) (20 579)

Retained income 301 593 190 119

Interest of shareholders of Freeworld Coatings Limited 2 853 924 2 752 949

Minority interest 25 140 23 313

total equity 2 879 064 2 776 262

non current liabilities 948 421 911 573

Interest bearing liabilities 15 664 044 624 691

Deferred taxation liabilities 10 264 054 265 314

Provisions 16 16 237 21 568

Other non interest bearing liabilities 31 4 086 –

Current liabilities 662 551 824 823

Trade and other payables 17 426 833 477 416

Provisions 16 17 008 7 800

Current tax payable 13 353 20 243

Short term loans and bank overdrafts 18 205 357 319 364

total equity and liabilities 4 490 036 4 512 658

at 30 September

Consolidated balance sheet

for the year ended 30 September

67

Notes2009

R’0002008

R’000

Revenue 19 2 703 164 2 696 744

earnings before interest, tax, depreciation, amortisation and fair value adjustments 424 583 449 148

Fair value adjustments 21 (26 248) 15 429

earnings before interest, tax, depreciation and amortisation (eBItDa) 398 335 464 577

Depreciation and amortisation (76 685) (67 655)

Operating profit 20 321 650 396 922

Finance costs 22 (125 259) (141 808)

Income from investments 23 10 358 21 381

Profit before taxation 206 749 276 495

Income tax expense 24 (68 270) (81 944)

Profit after taxation 138 479 194 551

Income from associates 7 8 566 22 359

Profit for the year 147 045 216 910

Attributable to:

Minority shareholders 4 990 4 931

Freeworld Coatings Limited shareholders 26 142 055 211 979

147 045 216 910

earnings per share (basic and diluted in cents) 27 70 105

Dividends per share (cents) 25 15 10

Consolidated income statement


Share capital and

premiumR’000

Foreign currency

translationreserveR’000

Net actuarial gains/(losses)

on post-retirement

benefitsR’000

Cash flow hedge

reserveR’000

Equity compensation

reservesR’000

Total otherreserves

R’000

Total retainedincomeR’000

Attributable to Freeworld

Coatings Limited

shareholdersR’000

MinorityinterestR’000

Shareholderloans

R’000

TotalequityR’000

Balance acquired at corporatisation 2 418 796 – – – – – – 2 418 796 20 144 22 187 2 461 127

Changes in equity recognised during 2008

Movement on foreign currency translation reserve – 17 789 – – – 17 789 – 17 789 – – 17 789 Net income/(loss) recognised directly in equity – – – – – – (1 473) (1 473) – – (1 473)Net actuarial gains and losses – – 843 – – 843 – 843 – – 843 Profit for the year – – – – – – 211 979 211 979 4 931 – 216 910

total recognised income and expense for the year – 17 789 843 – – 18 632 210 506 229 138 4 931 – 234 069 New shares issued during the year 173 840 – – – – – – 173 840 – – 173 840 Costs written off against share premium (9 227) – – – – – – (9 227) – – (9 227)Shareholder loans repaid during the year – – – – – – – – – (22 187) (22 187)Increase in fair value of hedging instruments – – – 2 179 – 2 179 – 2 179 – – 2 179 Transfer to initial carrying amount of non financial hedged item on cash flow hedge – – – (2 179) – (2 179) – (2 179) – – (2 179)Barloworld Share Option reserve – – – – (44 999) (44 999) – (44 999) – – (44 999)Freeworld Coatings Limited SARs expense recognised in equity – – – – 2 784 2 784 – 2 784 – – 2 784 Barloworld Limited Share Options/Rights expense recognised in equity – – – – 2 002 2 002 – 2 002 – – 2 002 Transfer of cash settled liability to equity – – – – 1 002 1 002 – 1 002 – – 1 002 Other reserve movements – – – – – – – – (234) – (234)Dividends on ordinary shares – – – – – – (20 387) (20 387) (1 528) – (21 915)

Balance at 30 September 2008 2 583 409 17 789 843 – (39 211) (20 579) 190 119 2 752 949 23 313 – 2 776 262


Movement on foreign currency translation reserve – (18 399) – – – (18 399) – (18 399) – – (18 399)Net actuarial gains and losses – – 4 – – 4 – 4 – – 4 Profit for the year – – – – – – 142 055 142 055 4 990 – 147 045

total recognised income and expense for the year – (18 399) 4 – – (18 395) 142 055 123 660 4 990 – 128 650 Increase in fair value of hedging instruments – – – (9 618) – (9 618) – (9 618) – – (9 618)Freeworld Coatings Limited SARs expense recognised in equity – – – – 3 622 3 622 – 3 622 – – 3 622 Barloworld Limited Share Options/Rights expense recognised in equity – – – – 1 426 1 426 – 1 426 – – 1 426 Other reserve movements – – – – 12 467 12 467 – 12 467 – – 12 467 Dividends on ordinary shares – – – – – – (30 581) (30 581) (3 163) – (33 744)

Balance at 30 September 2009 2 583 409 (610) 847 (9 618) (21 696) (31 078) 301 593 2 853 924 25 140 – 2 879 064

FOREIGN CuRRENCy TRANSLATION RESERvEThe financial results of foreign operations are translated into South African Rands for incorporation into the consolidated results. Assets and liabilities are translated at the foreign exchange rates ruling at balance sheet date. Income, expenditure and cash flow items are translated at the actual foreign exchange rate or average foreign exchange rates for the period. The foreign exchange differences arising from the translation of the financial results is included in equity.

EquITy COMPENSATION RESERvEEquity compensation reserve comprises the net fair value of equity instruments granted to employees expensed under share incentive schemes.

CASH FLOW HEDGE RESERvEThe cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments as well as any transfers to carrying amounts of the non financial hedged item.

ACTuARIAL GAINS/LOSSES ON POST-RETIREMENT BENEFITSActuarial gains and losses on post retirement benefits are recognised in equity.


Consolidated statement of changes in equity

69

Share capital and

premiumR’000

Foreign currency

translationreserveR’000

Net actuarial gains/(losses)

on post-retirement

benefitsR’000

Cash flow hedge

reserveR’000

Equity compensation

reservesR’000

Total otherreserves

R’000

Total retainedincomeR’000

Attributable to Freeworld

Coatings Limited

shareholdersR’000

MinorityinterestR’000

Shareholderloans

R’000

TotalequityR’000

Balance acquired at corporatisation 2 418 796 – – – – – – 2 418 796 20 144 22 187 2 461 127


Movement on foreign currency translation reserve – 17 789 – – – 17 789 – 17 789 – – 17 789 Net income/(loss) recognised directly in equity – – – – – – (1 473) (1 473) – – (1 473)Net actuarial gains and losses – – 843 – – 843 – 843 – – 843 Profit for the year – – – – – – 211 979 211 979 4 931 – 216 910

total recognised income and expense for the year – 17 789 843 – – 18 632 210 506 229 138 4 931 – 234 069 New shares issued during the year 173 840 – – – – – – 173 840 – – 173 840 Costs written off against share premium (9 227) – – – – – – (9 227) – – (9 227)Shareholder loans repaid during the year – – – – – – – – – (22 187) (22 187)Increase in fair value of hedging instruments – – – 2 179 – 2 179 – 2 179 – – 2 179 Transfer to initial carrying amount of non financial hedged item on cash flow hedge – – – (2 179) – (2 179) – (2 179) – – (2 179)Barloworld Share Option reserve – – – – (44 999) (44 999) – (44 999) – – (44 999)Freeworld Coatings Limited SARs expense recognised in equity – – – – 2 784 2 784 – 2 784 – – 2 784 Barloworld Limited Share Options/Rights expense recognised in equity – – – – 2 002 2 002 – 2 002 – – 2 002 Transfer of cash settled liability to equity – – – – 1 002 1 002 – 1 002 – – 1 002 Other reserve movements – – – – – – – – (234) – (234)Dividends on ordinary shares – – – – – – (20 387) (20 387) (1 528) – (21 915)

Balance at 30 September 2008 2 583 409 17 789 843 – (39 211) (20 579) 190 119 2 752 949 23 313 – 2 776 262


Movement on foreign currency translation reserve – (18 399) – – – (18 399) – (18 399) – – (18 399)Net actuarial gains and losses – – 4 – – 4 – 4 – – 4 Profit for the year – – – – – – 142 055 142 055 4 990 – 147 045

total recognised income and expense for the year – (18 399) 4 – – (18 395) 142 055 123 660 4 990 – 128 650 Increase in fair value of hedging instruments – – – (9 618) – (9 618) – (9 618) – – (9 618)Freeworld Coatings Limited SARs expense recognised in equity – – – – 3 622 3 622 – 3 622 – – 3 622 Barloworld Limited Share Options/Rights expense recognised in equity – – – – 1 426 1 426 – 1 426 – – 1 426 Other reserve movements – – – – 12 467 12 467 – 12 467 – – 12 467 Dividends on ordinary shares – – – – – – (30 581) (30 581) (3 163) – (33 744)

Balance at 30 September 2009 2 583 409 (610) 847 (9 618) (21 696) (31 078) 301 593 2 853 924 25 140 – 2 879 064

FOREIGN CuRRENCy TRANSLATION RESERvEThe financial results of foreign operations are translated into South African Rands for incorporation into the consolidated results. Assets and liabilities are translated at the foreign exchange rates ruling at balance sheet date. Income, expenditure and cash flow items are translated at the actual foreign exchange rate or average foreign exchange rates for the period. The foreign exchange differences arising from the translation of the financial results is included in equity.

EquITy COMPENSATION RESERvEEquity compensation reserve comprises the net fair value of equity instruments granted to employees expensed under share incentive schemes.

CASH FLOW HEDGE RESERvEThe cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments as well as any transfers to carrying amounts of the non financial hedged item.

ACTuARIAL GAINS/LOSSES ON POST-RETIREMENT BENEFITSActuarial gains and losses on post retirement benefits are recognised in equity.


Notes2009

R’0002008

R’000

Cash flows from operating activitiesCash receipts from customers 2 681 790 2 684 779

Cash paid to employees and suppliers (2 307 328) (2 309 005)

Cash generated from operations A 374 462 375 774

Finance costs (136 289) (107 180)

Dividends received from associates 19 962 6 215

Interest received 10 358 21 381

Income tax paid B (84 811) (82 136)

Cash flow from operations 183 682 214 054

Dividends paid (including minority shareholders) (33 744) (21 915)

net cash inflow from operating activities 149 938 192 139

Cash flow from investing activitiesProceeds on decrease in long term financial assets C 565 3 614

Acquisition of property, plant and equipment (100 950) (125 997)

Replacement capital expenditure (68 082) (80 130)

Expansion capital expenditure (32 868) (45 867)

Acquisition of intangible assets (21 979) (48 027)

Proceeds on disposal of property, plant and equipment 3 323 4 507

net cash used in investing activities (119 041) (165 903)

net cash inflow before financing activities 30 897 26 236

Cash flows from financing activitiesShare issue costs – (9 227)

Repayment of amount due to Barloworld Capital (Pty) Limited D – (868 769)

Increase in long term interest bearing borrowings 85 042 563 880

(Decrease)/increase in short term interest bearing liabilities (148 666) 312 390

net cash used in financing activities (63 624) (1 726)

net (decrease)/increase in cash and cash equivalents (32 727) 24 510

Cash and cash equivalents at beginning of year 13 71 182 46 672

Cash and cash equivalents at end of year 13 38 455 71 182


Consolidated cash flow statement

71

2009R’000

2008 R’000

a Cash generated from operations is calculated as follows:Profit before taxation 206 749 276 495

Adjustments for:

Depreciation 54 100 47 351

Amortisation of intangible assets 22 585 20 304

Share option expense 5 048 5 788

Loss on disposal of plant and equipment including rental assets 465 1 204

Interest received (10 358) (21 381)

Finance costs 125 259 141 808

Fair value adjustments on financial instruments 8 826 (3 017)

Impairment losses 222 –

Other non cash flow items (9 234) 6 811

Operating cash flows before movements in working capital 403 662 475 363

Movements in working capital (29 200) (99 589)

Decrease/(increase) in inventories 61 404 (98 534)

Increase in trade and other receivables (23 996) (11 965)

(Decrease)/increase in trade and other payables (66 608) 10 910

Cash generated from operations 374 462 375 774

B Income tax paid Amounts unpaid less overpaid at beginning of year (18 213) (11 079)

Income tax expense (excluding deferred tax) (69 413) (89 270)

Amounts unpaid less overpaid at end of year 2 815 18 213

Cash amounts paid (84 811) (82 136)

C Proceeds on decrease in long term financial assetsProceeds on decrease in long term financial assets 565 3 614

Cash proceeds on decrease in long term financial assets 565 3 614

D Repayment of amount due to Barloworld Capital (Pty) LimitedShort term loan at beginning of the year – 981 555

Shareholder loan at beginning of the year – 22 187

Total amount owing at beginning of the year – 1 003 742

Barloworld share options acquired – 44 999

Other movements during the year – (6 357)

Shares issued as part payment – (173 615)

Cash payment – 868 769


Notes to the consolidated cash flow statement


Segment information is reported for the purposes of resource allocation and assessment of performance into two major operating divisions, namely Decorative Coatings and Performance Coatings.

Decorative coatings covers the architectural and decorative customer and product segments describing products used primarily in the do it yourself (‘DIY’) and building/construction sectors of the coatings market. It covers interior and exterior broad wall.

Performance coatings describing high technology products used for applications primarily in the construction, industrial and automotive industries. Performance coatings are typically utilised to safeguard against:

• chronicexposuretocorrosive,causticoracidicagents,chemicalmixturesorsolutions;

• repeatedexposuretohightemperatures;

• exteriorexposureofsteelandnonferrousmetalstructures;and

• repeatedheavyabrasion,includingmechanicalwearandrepeatedscrubbingwithindustrialgradesolvents,cleansersorscouringagents.

Information regarding the group’s reportable segments is presented below.

Segment revenues and results

2009

Decorative Coatings

R’000

Performance Coatings

R’000Eliminations

R’000

Total groupR’000

Consolidated segment revenue 1 973 993 1 004 330 (275 159) 2 703 164

Segment result

eBItDa before fair value adjustments 296 263 129 486 (1 166) 424 583 Fair value adjustments (23 963) (2 285) (26 248)

eBItDa 272 300 127 201 (1 166) 398 335 Depreciation and amortisation (55 138) (21 547) (76 685)

Segmental operating profit 217 162 105 654 (1 166) 321 650

Finance costs (125 259)Income from investments 10 358 Income tax expense (68 270)

Profit after tax 138 479 Income from associates 8 566

Profit for the year 147 045

Attributable to minority shareholders 4 990

attributable to Freeworld Coatings Limited shareholders 142 055


Segment reporting

73

Segment revenues and results

2008

Decorative Coatings

R’000


R’000Eliminations

R’000

Total groupR’000

Consolidated segment revenue 1 967 704 994 796 (265 756) 2 696 744

Segment result

eBItDa before fair value adjustments 306 755 148 293 (5 900) 449 148

Fair value adjustments 14 988 441 15 429

eBItDa 321 743 148 734 (5 900) 464 577

Depreciation and amortisation (48 065) (19 590) (67 655)

Segmental operating profit 273 678 129 144 (5 900) 396 922 Finance costs (141 808)

Income from investments 21 381

Income tax expense (81 944)

Profit after tax 194 551

Income from associates 22 359

Profit for the year 216 910

Attributable to minority shareholders 4 931

attributable to Freeworld Coatings Limited shareholders 211 979

Revenue reported above represents revenue generated both from external customers and inter-segment revenue.

Inter segment revenue is priced on an arms length basis.

The accounting policies of the reportable segments are the same as the group’s accounting policies described in note 3. Segment profit represents the profit earned by each segment without allocation of finance costs, income from investments, income tax expense, income from associates and profit attributable to minority shareholders.

Segment balance sheet

2009

Decorative Coatings

R’000


R’000Eliminations

R’000

Total groupR’000

Segmental total assets 3 436 608 833 360 4 269 968 Segmental non interest bearing liabilities (470 915) (270 656) (741 571)

Segmental net operating assets 2 965 693 562 704 3 528 397 Segmental interest bearing liabilities (847 186) (22 215) (869 401)Segmental cash and cash equivalents 32 121 6 334 38 455

Segmental net assets 2 150 628 546 823 2 697 451 Investment in associates 181 613

net assets 2 879 064


Segment balance sheet

2008

Decorative Coatings

R’000


R’000Eliminations

R’000

Total groupR’000

Segmental total assets 3 403 254 845 212 4 248 466

Segmental non interest bearing liabilities (540 804) (251 536) (792 340)

Segmental net operating assets 2 862 450 593 676 3 456 126 Segmental interest bearing liabilities (919 340) (24 715) (944 055)

Segmental cash and cash equivalents 54 081 17 101 71 182

Segmental net assets 1 997 191 586 062 2 583 253 Investment in associates 193 009

net assets 2 776 262

For the purposes of monitoring segment performance and allocating resources between segments, the chief operating decision maker monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments.

Capital expenditure

2009

Decorative Coatings

R’000


R’000

Total groupR’000

Property, plant and equipment 76 074 24 876 100 950

76 074 24 876 100 950

2008

Decorative Coatings

R’000


R’000

Total groupR’000

Property, plant and equipment 104 936 21 060 125 996

104 936 21 060 125 996

for the year ended 30 September Segment reporting continued

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1 accounting policies GENERAL INFORMATION

Freeworld Coatings Limited (the company) is a limited company incorporated in South Africa. The address of its registered office and principal place of business are disclosed in the introduction to the annual report. The principal activities of the company and its subsidiaries (the group) are described in the director’s report.

The accounting policies are consistent with those used in the prior year.

2 Standards and interpretations effective in the current period and early adoption The group has a policy of not early adopting standards and interpretations for which early adoption is allowed. There were no standards

and interpretations that became effective during the current financial year that has resulted in a change in accounting policy.

3 Significant accounting policies3.1 STATEMENT OF COMPLIANCE

The financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”), International Financial Reporting Interpretations Committee (“IFRIC”) Interpretations and the Companies Act of 1973, applicable to companies reporting under IFRS.

3.2 BASIS OF PREPARATION

The financial statements have been prepared on the historical cost basis except for certain financial instruments that are stated at fair value and adjustments. The principal accounting policies are set out below.

3.3 BASIS OF CONSOLIDATION

3.3.1 Investments in subsidiaries

The consolidated financial statements incorporate the financial statements of the company (Freeworld Coatings Limited) and entities (including special purpose entities) controlled by the company (its subsidiaries).

Control is achieved where the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Minority interests in the net assets of consolidated subsidiaries are shown separately from the group’s equity therein. It consists of the amount of those interests at acquisition plus the minority’s subsequent share of changes in equity of the subsidiary. On acquisition the minorities’ interest is measured at the proportion of the pre acquisition fair values of the identifiable assets and liabilities acquired.

Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.


Notes to the consolidated annual financial statements

notes to the consolidated annual financial statements continuedfor the year ended 30 September


3 Significant accounting policies (continued)

3.3 BASIS OF CONSOLIDATION (continued)

3.3.2 Investments in associates

An associate is an entity over which the group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for 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 managements accounts of associates are used in these calculations.

Losses of an associate in excess of the group’s interest in that associate (which includes any long term interests that, in substance, form part of the group’s net investment in the associate) are recognised only to the extent that the group has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

Where a group entity transacts with an associate of the group, profits and losses are eliminated to the extent of the group’s interest in the relevant associate.

3.4 BuSINESS COMBINATIONS

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.

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3.5 GOODWILL

Goodwill arising on the acquisition of a subsidiary or a jointly controlled entity represents the excess of the cost of acquisition over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary recognised at the date of acquisition. If, after assessment, the group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses and is reviewed for impairment on an annual basis.

For the purpose of impairment testing, goodwill is allocated to each of the group’s cash generating units expected to benefit from the synergies of the combination. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. An impairment loss for goodwill is recognised in profit and loss and is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

The group’s policy for goodwill arising on the acquisition of an associate is described in 3.3.2 above.

3.6 REvENuE RECOGNITION

Revenue represents the gross inflow of economic benefits during the period arising in the course of the ordinary activities when those inflows result in increases in equity, other than increases relating to contributions from equity participants. Included in revenue are net invoiced sales to customers for goods and services, rentals from leasing fixed and movable property, commission, hire purchase and finance lease income.

Revenue is measured at the amount received or receivable. Revenue is reduced for settlement discounts, rebates, VAT and other indirect taxes. Where extended terms are granted, interest received is accounted for over the term until payment is received.

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been transferred, when delivery has been made and title has passed, when the amount of revenue and the related costs can be reliably measured and it is probable that the economic benefits associated with the transaction will flow to the entity.

3.6.1 Interest income

Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

3.6.2 Dividend income

Dividend income from investments is recognised when the shareholders’ right to receive payment has been established.

3.6.3 Royalties

Royalty revenue is recognised on an accrual basis in accordance with the substance of the relevant agreement. Royalties determined on a time basis are recognised on the straight-line basis over the period of the agreement.

3.6.4 Operating leases

The group’s policy for recognition of revenue from operating leases is described in 3.7 below.




3.7 LEASING

3.7.1 Classification

Leases are classified as finance leases or operating leases at the inception of the lease.

3.7.2 In the capacity of a lessor

Amounts due from lessees under finance leases are recognised as receivables at the amount receivable under the lease or the net investment in the lease, which includes initial direct costs. Where assets are leased by a manufacturer or dealer, the initial direct costs are expensed. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the net investment outstanding in respect of the leases.

Rental income from operating leases is recognised on the straight line basis over the term of the relevant lease or another basis if more representative of the time pattern of the user’s benefit. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying value of the leased asset and recognised on the straight-line basis over the term of the lease.

3.7.3 In the capacity of lessee

Finance leases are recognised as assets and liabilities at the lower of the fair value of the asset and the present value of the minimum lease payments at the date of acquisition. Finance costs represent the difference between the total leasing commitments and the fair value of the assets acquired. Finance costs are charged to profit or loss over the term of the lease and at interest rates applicable to the lease on the remaining balance of the obligations.

Rentals payable under operating leases are charged to income on the straight-line basis over the term of the relevant lease or another basis if more representative of the time pattern of the user’s benefit. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the term of the lease.

3.8 COST OF SALES

When inventories are sold, the carrying amount is recognised as part of cost of sales. Any write down of inventories to net realisable value and all losses of inventories or reversals of previous write downs or losses are recognised in cost of sales in the period the write down, loss or reversal occurs.

3.9 FOREIGN CuRRENCIES

transactions

The functional currency at each entity within the group is determined based on the currency of the primary economic environment in which that entity operates. Transactions in currencies other than the entity’s functional currency are recognised at the rates of exchange ruling on the date of the transaction. Monetary assets and liabilities denominated in such currencies are translated at the rates ruling at the balance sheet date.

Gains and losses arising on exchange differences are recognised in profit or loss

translation of foreign subsidiary financial statements

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,includinggoodwill,andliabilitiesatexchangeratesrulingonthebalancesheetdate;

– incomeitems,expenseitemsandcashflowsattheaverageratesfortheperiod;and

– equity items at the exchange rate ruling when they arose.

Exchange differences arising, if any, are classified as equity and recognised in the group’s foreign currency translation reserve. Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

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3.10 BORROWING COSTS

All borrowing costs, including borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to get ready for their intended use or sale, are expensed in the period in which they are incurred.

3.11 POST-EMPLOyMENT BENEFIT OBLIGATIONS

Payments to defined contribution plans are recognised as an expense when employees have rendered service entitling them to the contributions.

Payments to defined contribution plans are recognised as an expense as they fall due. Payments made to industry managed retirement plans are dealt with as defined contribution plans where the group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit plan.

The cost of providing benefits is determined using the projected unit credit method. Valuations are conducted every three years and interim adjustments to those valuations are made annually.

Actuarial gains and losses are recognised immediately in the statement of recognised income and expense.

Gains or losses on the curtailment or settlement of a defined benefit plan are recognised in profit and loss when the group is demonstrably committed to the curtailment or settlement.

Past service costs are recognised immediately to the extent that the benefits have already vested. Otherwise they are amortised on the straight-line basis over the average period until the amended benefits become vested.

The amount recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and the unrecognised past service costs and reduced by the fair value of plan assets. Any asset is limited to unrecognised actuarial losses, plus the present value of available refunds and reductions in future contributions to the plan.

To the extent that there is uncertainty as to the entitlement to the surplus, the asset is not recognised.

3.12 SHARE-BASED PAyMENTS

Equity-settled share-based payments to executive directors and senior executives are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in the notes. Refer note 14.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on the straight-line basis over the vesting period, based on the group’s best estimate of equity instruments that will eventually vest and is adjusted for the effect of non market vesting conditions.

The accounting policy above has been applied to all equity instruments that have been granted in terms of the Barloworld and PPC Share Option Schemes and the Freeworld Share Appreciation Rights Scheme (SAR Scheme).




3.13 TAxATION

3.13.1 Current taxation

The tax currently payable is based on the taxable profit for the year. Taxable profit differs from profit as reported in the income statement as it excludes items of income and expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s tax liability is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

3.13.2 Deferred tax

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends to settle its current tax assets and liabilities on a net basis.

3.13.3 Current and deferred tax for the year

Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items credited or debited directly to equity, in which case the tax is also recognised directly in equity.

3.13.4 Secondary taxation on Companies (“StC”)

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.

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3.14 PROPERTy, PLANT AND EquIPMENT

Property, plant and equipment represents tangible items that are held for use in the production or supply of goods or services, or for administrative purposes and are expected to be used during more than one period.

Items of property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes the estimated cost of dismantling and removing the assets.

Owner properties and properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for intended use.

Depreciation is charged so as to write off the cost or valuation of assets, other than freehold land and properties under construction, over their estimated useful lives, using the straight line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.

Where significant parts of an item have different useful lives to the item itself, these parts are depreciated over their estimated useful lives.

The methods of depreciation, useful lives and residual values are reviewed annually. The following methods and rates were used during the year to depreciate property, plant and equipment to estimate residual values.

Buildings – Straight line 0 to 50 years

Plant – Straight line 5 to 17 years

Vehicles – Straight line 4 to 5 years

Equipment – Straight line 5 to 10 years

Furniture – Straight line 3 to 6 years

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit or loss.

3.15 INvESTMENT PROPERTy

Investment property is either land or a building or part of a building held by the owner or by the lessee under a finance lease to earn rentals and/or for capital appreciation.

Investment property is measured initially at cost, including transaction costs. Subsequent to initial recognition, investment property is recorded at cost less any accumulated depreciation and impairment losses.

3.16 INTANGIBLE ASSETS

An intangible asset is an identifiable non monetary asset without physical substance. It includes brands, patents, trademarks, capitalised development cost and certain costs of purchase and installation of major information systems (including packaged software).

3.16.1 Intangible assets acquired separately

Intangible assets acquired separately are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is charged on the straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each financial year, with the effect of any changes in estimate being accounted for on a prospective basis.




3.16 INTANGIBLE ASSETS (continued)

3.16.2 Internally generated intangible assets – research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated:

– the technical feasibility of completing the intangible asset is such that it will be available for use or sale,

– the intention is to complete the intangible assets and use or sell them,

– the ability to use or sell the intangible asset is proven,

– how the intangible asset will generate probable future economic benefits is established,

– the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset is proven,

– and the ability to measure reliably the expenditure attributable to the intangible asset during its development is proven.

The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately.

3.16.3 Intangible assets acquired in a business combination

Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date.

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately.

3.17 IMPAIRMENT OF ASSETS

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.

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3.18 INvENTORIES

Inventories are assets held for sale in the ordinary course of business, in the process of production for such sale or in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Inventories are stated at the lower of cost and net realisable value. Costs include all purchasing costs, costs of conversion and other costs incurred in bringing the inventories to their present location and condition, net of discount and rebates received.

Net realisable value represents the estimated selling price for inventories less further costs expected to be incurred to completion and disposal.

Items that are not interchangeable are valued based on the specific identification basis. Otherwise, the first in first out method and the weighted average method is used for to arrive at the cost for items that are interchangeable.

3.19 PROvISIONS

Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that the group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

Provisions for warranty costs are recognised at the date of sale of the relevant products, at the director’s best estimate of the expenditure to be incurred to settle the group’s obligation.

Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

3.20 FINANCIAL INSTRuMENTS

3.20.1 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, equity investments of another entity, a contractual right to receive cash or another financial instrument from another entity, or to exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity.

Financial assets are categorised into the following four categories:

3.20.2.1 Financial assets at fair value through profit or loss

Financial assets are classified as fair value through profit or loss (FVTPL) where the financial asset is either held for trading or designated as at FVTPL. Financial assets at FVTPL is initially measured at fair value at trade date. Subsequently, financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. Fair value is determined based on the manner described in note 31.

3.20.2.2 Loans and receivables

Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are initially measured at fair value, including transactions costs, and subsequently measured at amortised cost using the effective interest method, less any impairment losses.

Loans and receivables includes trade receivables, accrued income and cash and cash equivalents.

Cash and cash equivalents

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 FINANCIAL INSTRuMENTS (continued)

3.20.2 Financial assets (continued)

3.20.2.3 Available for sale investments

Available for sale investments are non derivative financial assets that are either designated in this category or not classified as financial assets at FVTPL, or loans and receivables. Investments in this category are included in non-current assets unless management intends to dispose of the investments within twelve months of the balance sheet date.

Available for sale investments are initially recognised at fair value, including transaction costs, and subsequently measured at fair value with any gains and losses arising from changes in fair value, recognised directly in equity. On disposal or impairment of available for sale investments, any gains and losses in equity are recycled through profit and loss.

3.20.2.4 Held to maturity investments

Investments where the group has the positive intent and ability to hold to maturity are classified as held to maturity investments. Held to maturity investments are recorded at amortised cost using the effective interest method less any impairment losses.

3.20.3 Financial liabilities

A financial liability is a liability that is a contractual obligation to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity.

Financial liabilities are classified into the following two categories:

3.20.3.1 Financial liabilities at FVTPL

Financial liabilities are classified as FVTPL where the financial liability is either held for trading or it is designated as at FVTPL. Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. Fair value is determined in the manner described in note 31.

3.20.3.2 Financial liabilities at amortised cost

Financial liabilities at amortised cost includes trade payables, borrowings, accruals and other payables.

Financial liabilities at amortised cost are initially measured at fair value, including transaction costs. Subsequently it is measured at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Financial liabilities at amortised cost are analysed between current and non current on the face of the balance sheet, depending on when the obligation to settle will realise.

3.20.4 Derecognition

Thegroupderecognisesafinancialassetonlywhenthecontractualrightstothecashflowsfromtheassetexpire;orittransfersthe financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

The group derecognises financial liabilities when, and only when, the group’s obligations are discharged, cancelled or expire.

3.20.5 Offset

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.

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3.21 EquITy INSTRuMENTS

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the group are recorded at the proceeds received, net of direct issue costs.

3.22 DERIvATIvES

The group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including foreign exchange forward contracts, interest rate swaps and options.

Derivative financial assets and liabilities are financial instruments whose value changes in response to an underlying variable, require little or no initial investment and are settled in future.

The group uses derivative financial instruments (foreign currency forward contracts and interest rate swaps) to hedge its risks associated with foreign currency fluctuations relating to forecast transactions and firm commitments and forecast transactions. The significant interest rate risk arises from bank loans. When appropriate the group converts a proportion of its floating rate debt to fixed rates. The group designates these as cash flow hedges of interest rate risk.

The use of financial derivatives is governed by the group’s policies, which provide written principles on the use of financial derivatives consistent with the group’s risk management strategy. The group does not use derivative financial instruments for speculative purposes.

Derivatives are initially measured at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss.

Derivatives also include embedded derivatives. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value with changes in fair value recognised in profit or loss.

Derivative financial assets and liabilities are analysed between current and non current assets and liabilities on the face of the balance sheet, depending on when they are expected to mature.

3.23 HEDGING

The group designates certain hedging instruments, which include derivatives, embedded derivatives and non derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges, or hedges of net foreign investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item.

3.23.1 Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss immediately, together with changes in the fair value of the hedged item that are attributable to the hedged risk. The change in the fair value of the hedged instrument and the change in the hedged item attributable to the hedged risk are recognised in the line of the income statement relating to the hedged item.

Hedge accounting is discontinued when the group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to profit or loss from that date.

3.23.2 Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the “other gains and losses” line of the income statement.

Amounts deferred in equity are recycled to profit or loss in the periods when the hedged item is recognised in profit or loss, in the same line of the income statement as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non financial asset or a non financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.




3.23 HEDGING (continued)

3.23.2 Cash flow hedges (continued)

Hedge accounting is discontinued when the group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gains or loss that was deferred in equity is recognised immediately in profit or loss.

3.23.3 Hedges of net investments in foreign operations

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity in the foreign currency translation reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the ‘other gains and losses’ line of the income statement.

Gains and losses deferred in the foreign currency translation reserve are recognised in profit or loss on disposal of the foreign operation.

3.24 SHARE CAPITAL

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and options are recognised as a deduction from equity, net of tax effects.

Preference shares

Preference share capital is classified as equity if it is nonredeemable and any dividends are discretionary, or is redeemable but only at the company’s option. Dividends on preference share capital classified as equity are recognised as distributions within equity.

Preference share capital is classified as a liability if it is redeemable on a specific date or at the option of the shareholders or if dividend payments are not discretionary. Dividends thereon are recognised in the income statement as interest expense.

Repurchase of shares

When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from equity. Shares held by subsidiaries are classified as treasury shares and presented as a deduction from total equity.

3.25 EARNINGS PER SHARE

The group represents basic and diluted earnings per share (EPS) data for its ordinary shares and participating preference shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary and participating preference shareholders of the company by the weighted average number of ordinary and participating preference shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary and participating preference shares outstanding for the effects of all dilutive potential ordinary and participating preference share.

3.26 SEGMENTAL REPORTING

A reportable segment is a distinguishable business or geographical component of the group that provides products or services that are different from those of other segments.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Segment accounting policies are consistent with those adopted for the preparation of the group financial statements. The primary basis for reporting segment information is business segments and the secondary basis is by significant geographical region, which is based on the location of assets. The basis is consistent with internal reporting for management purposes as well as the source and nature of business risks and returns. All intra-segment transactions are eliminated on consolidation.

87


3.27 GOvERNMENT GRANTS

Government grants are not recognised until there is reasonable assurance that the group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognised as income over the periods necessary to match them with the costs for which they are intended to compensate, on a systematic basis. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the group with no future related costs are recognised in profit or loss in the period in which they become receivable.

3.28 JuDGMENTS MADE By MANAGEMENT

In the application of the group’s accounting policies, the directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following accounting policies have been identified that involves particularly complex or subjective judgments or assessments:

asset lives and residual values

Property, plant and equipment is depreciated over their useful lives taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors.

In re-assessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account.

Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values.

Intangible assets

Patents, trademarks and trade and brand names, which are considered to be well established growing brands and product lines are reviewed on a annual basis to assess the remaining useful lives and residual values.

In re-assessing the remaining useful life of these assets, factors such as expected usage of the intangibles and technical or commercial obsolescence are taken into account.

Deferred taxation assets

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.




3.28 JuDGMENTS MADE By MANAGEMENT (continued)

Warranty claims

Warranties are provided on certain products supplied to customers. Management exercises judgment in establishing provisions required on the basis of claims notified and past experience.

Impairment of assets

Goodwill is considered for impairment at least annually. Property, plant and equipment, and intangible assets are considered for impairment if there is a reason to believe that an impairment may be necessary. Factors taken into consideration in reaching such decisions include the economic viability of the asset itself and where it is a component of a larger economic unit, the viability of that unit itself.

Future cash flows expected to be generated by the assets of a cash generating units are projected, taking into account market conditions and the expected useful lives of the assets. The present value of these cash flows, determined using an appropriate discount rate, is compared to the current net asset value and, if lower, the assets are impaired to the present value. The impairment loss is first allocated to goodwill and then to the other assets of a cash generating unit.

Cash flows which are utilised in these assessments are extracted from formal five year business plans which are updated annually. The company utilises the CFROI valuation model to determine asset and cash generating unit values supplemented, where appropriate, by discounted cash flow and other valuation techniques.

allowance for doubtful debts

The allowances for doubtful debts are based on a combination of specifically identified doubtful debtors and providing for older debtors.

3.29 SOuRCES OF ESTIMATION uNCERTAINTy

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.

89

2009 2008

CostR’000

Accumulated depreciation

and impairments

R’000

Net bookvalueR’000

CostR’000

Accumulated depreciation

and impairments

R’000

Net bookvalue

R’000

4 Property, plant and equipmentFreehold and leasehold land and buildings 475 809 (48 104) 427 705 438 826 (40 481) 398 345

Investment property – – – 52 (27) 25

Plant, equipment and furniture 444 492 (269 580) 174 912 401 292 (241 249) 160 043

Vehicles 89 159 (45 710) 43 449 82 820 (36 240) 46 580

Capitalised leased assets 723 (56) 667 640 (449) 191

1 010 183 (363 450) 646 733 923 630 (318 446) 605 184

The registers of land and buildings are open for inspection at the premises of the various companies of the group.

movement of property, plant and equipment

Freeholdand

leaseholdland and buildings

R’000

Investmentproperty

R’000

Plant equipment

andfurniture

R’000Vehicles

R’000

Capitalised leasedassets R’000

Netbookvalue R’000

2009Balance at 1 October 2008 398 345 25 160 043 46 580 191 605 184 Additions 36 298 – 52 656 11 443 553 100 950 Transfers 205 (25) (180) 21 (21) –Transfers to intangible assets – – (263) – – (263)Impairment of assets – – (222) – – (222)Translation differences (net)# 307 – (562) (773) – (1 028)

435 155 – 211 472 57 271 723 704 621 Disposals (290) – (1 811) (1 687) – (3 788)Depreciation (7 160) – (34 749) (12 135) (56) (54 100)

Net balance at 30 September 2009 427 705 – 174 912 43 449 667 646 733

movement of property, plant and equipment

2008

Balance acquired at corporatisation 346 893 26 140 756 40 862 232 528 769

Additions 54 544 – 52 681 18 772 – 125 997

Translation differences (net)# 2 037 – 1 009 435 – 3 481

403 474 26 194 446 60 069 232 658 247

Disposals – – (2 336) (3 376) – (5 712)

Depreciation (5 129) (1) (32 067) (10 113) (41) (47 351)

Net balance at 30 September 2008 398 345 25 160 043 46 580 191 605 184



2009 R’000

2008 R’000

4 Property, plant and equipment (continued)

translation differences#

Translation differences are made up as follows:

Cost (1 745) 6 636

Accumulated depreciation 717 (3 155)

(1 028) 3 481

Assets with net book value have been encumbered as detailed in note 15 10 185 13 094

During the current financial year, the group reviewed the estimated useful lives and residual values of freehold and leasehold land and buildings. This has resulted in a decrease of R84k in the current year’s depreciation charge and will result in a decrease of R503k in the 2010 financial year.

5 GoodwillCost

At 1 October 1 898 141 1 890 208

Translation differences (4 273) 7 933

At 30 September 1 893 868 1 898 141

Carrying amount

At 30 September 1 893 868 1 898 141

The goodwill was created in terms of the rules around IFRS 3 and represents the difference between the market value and the carrying value of the assets and liabilities of each cash generating unit at date of corporatisation.

During the financial year, the group assessed the recoverable amount of goodwill, and determined that none of the goodwill associated with the group’s operations was impaired. The recoverable amounts of the relevant cash generating units was assessed by reference to value in use. Various nominal discount factors, dependent on the size of and risks associated with each operation, were applied in the value in use model.

No writedowns of carrying amounts of other assets in the cash generating unit were necessary. The goodwill is included in the segmental total assets disclosed in the note on segments.

Goodwill has been allocated to the following groups of cash generating units:

2009 R’000

2008 R’000

Decorative segments 1 278 118 1 282 391

Freeworld Plascon Namibia (Pty) Limited 12 689 12 689

Freeworld Plascon Botswana (Pty) Limited 17 264 17 264

Freeworld Plascon Zambia Limited 23 608 23 608

Freeworld Plascon Malawi Limited 1 500 1 500

Plascon South Africa (Pty) Ltd 1 219 397 1 219 397

Translation differences 3 660 7 933

Performance segments 615 750 615 750

International Colour Corporation (Pty) Limited 290 500 290 500

Automotive Coatings Group 246 750 246 750

Midas Paints (Pty) Limited 46 000 46 000

Hamilton Brands (Pty) Limited 32 500 32 500

total group 1 893 868 1 898 141

91

5 Goodwill (continued)

Goodwill is allocated to groups of cash generating units based on the two business segments.

The group has not recognised any significant intangible assets with indefinite useful lives.

During the current year, all significant recoverable amounts were based on value in use. A discounted cash flow valuation model as well as a Holt valuation model was applied using five year strategic plans as approved by the board. The financial plans are the quantification of strategies derived from the use of a common strategic planning process followed across the group. The process ensures that all significant risks and sensitivities are appropriately considered and factored into strategic plans. Key assumptions are based on industry specific performance levels as well as economic indicators approved by the executive. These assumptions are generally consistent with external sources of information.

Cash flows for the terminal value beyond the explicit forecast period of five years is estimated by using economic returns (CFROI)®*, asset base, growth rate and fade principles. Growth rates are aligned to the long term sustainable level of growth in the economic region in which cash generating units operate.

Discount rates applied to cash flow projections are based on a country or region specific real cost of capital, dependent upon the location of cash generating segment operations. The cost of capital is adjusted for size and leverage and other known risks.

The cost of capital rates applied as at September are as follows:

Country 2009 2008

South Africa 6,15% 7,85%

* CFROI ® (Cash flow return on investment) represents an internal rate of return calculation for the business as a whole using the following components:

– Gross cash flow (the after-tax cash flow from the company’s operations consisting of accounting operating profit before depreciation, amortisation and other non cash items adjusted for the add back of lease costs) (Pmt).

– Recurring annually over the estimated harmonic economic asset life of the asset base (n).

– Working capital and other non depreciating assets (e.g. land) realised at the end of the life (FV).

– Expressed as a return on current inflation adjusted gross assets (both depreciating and non depreciating and including operating leases capitalised at today’s real interest rate) (PV).

The above definition does not contain all the adjustments processed in the CFROI calculation. For further authoritative reading please refer to the book ‘CFROI VALUATION’ a Total system approach to Valuing the Firm by Bartley J Madden published by Butterworth – Heinemann Finance (ISBN 0 7506 3865 6).

2009 2008

CostR’000

Accumulateddepreciation

and impairments

R’000

Net bookvalueR’000

CostR’000

Accumulateddepreciation

and impairments

R’000

Netbookvalue

R’000

6 Intangible assetsCapitalised software 29 668 (17 206) 12 462 17 961 (14 829) 3 132

Brands 728 891 (28 865) 700 026 686 100 (13 722) 672 378

Trademarks 67 988 (3 337) 64 651 57 222 (392) 56 830

Distribution channels 30 277 (12 569) 17 708 73 068 (10 214) 62 854

856 824 (61 977) 794 847 834 351 (39 157) 795 194



Capitalisedsoftware

R’000Brands

R’000Trademarks

R’000

Distributionchannels

R’000

NetbookvalueR’000

6 Intangible assets (continued)

2009movement of intangible assets

Opening balance 3 132 714 032 56 830 21 200 795 194 Additions 11 763 – 10 216 – 21 979 Transfers from property, plant and equipment 263 – – – 263

15 158 714 032 67 046 21 200 817 436 Disposals (4) – – – (4)Amortisation (2 692) (14 006) (2 395) (3 492) (22 585)

net balance at 30 September 2009 12 462 700 026 64 651 17 708 794 847

2008

Balance acquired at corporatisation 4 740 686 100 10 000 66 631 767 471

Additions 805 – 47 222 – 48 027

5 545 686 100 57 222 66 631 815 498

Amortisation (2 413) (13 722) (392) (3 777) (20 304)

net balance at 30 September 2008 as previously stated 3 132 672 378 56 830 62 854 795 194

Reclassification – 41 654 – (41 654) –

adjusted balance at 30 September 2008 3 132 714 032 56 830 21 200 795 194

Intangible assets were acquired at corporatisation as well as during the year.

Capitalised software has a finite life of two years and is amortised on a straight-line basis.

Brands comprise of the various trade names the group supplies the consumers and commercial enterprises and includes the following: Plascon, Plascon Professional, Crown, Polycell, Midas and Midas Earthcote. Brands are amortised over 50 years. Brands have a remaining useful life of 48 years (2008: 49 years).

Trademarks are amortised over 20 years. At 30 September 2009, significant trademarks included the Napier and Weathermaster trademarks. Napier has a remaining useful life of 19 years (2008: 20 years).

Distribution channels were in place for a number of years prior to the corporatisation and are maintained to attract and keep a loyal customer base. Distribution channels are amortised over periods between 10 and 15 years.

There was a reclassification between distribution channels and brands as a result of the Midas Earthcote and Hamilton Brush brands being incorrectly included under distribution channels in 2008. This is purely a disclosure issue and has no financial impact.

93

2009 R’000

2008 R’000

7 Investment in associatesInvestment

Cost of investment 138 278 138 278

Share of associates reserves 43 335 54 731

Beginning of year 54 731 38 587

Increase in retained earnings for the year:


Dividends paid (19 962) (6 215)

Carrying value at 30 September 181 613 193 009

Carrying value by category

Unlisted associates – shares at carrying value 181 613 193 009

Valuation of shares

Directors’ valuation of unlisted associate companies 199 851 212 980

aggregate of group associate companies net assets, revenue and profit

Property, plant and equipment and other non current assets 113 879 124 567


Long term liabilities (12 687) (1 349)

Current liabilities (57 402) (130 394)

Revenue 668 766 777 285


Our share of aggregate of group associate companies net assets, revenue and profit

Property, plant and equipment and other non current assets 29 839 34 960


Long term liabilities (7 917) (1 123)

Current liabilities (39 198) (78 993)

Revenue 255 361 306 122


* Refer note 33 for a detailed list of associate companies.

* 2008 Aggregate of group associate companies net assets, revenue and profit has been grossed up to 100% in terms of IAS 28 requirements.



Note2009

R’0002008

R’000

8 Finance lease receivablesAmounts receivable under finance leases:

Gross investment 256 640

Less: Unearned finance income (23) (103)

Present value of minimum lease payments receivable 233 537

Receivable as follows:

Present value

Within one year (note 12) 135 222

Non current portion 98 315

In the second to fifth year inclusive 98 315

minimum lease payments

Within one year 154 284

In the second to fifth year inclusive 102 356

After five years – –

256 640

Less: Unearned finance income (23) (103)

233 537

Fair value of finance lease receivables 233 537

The finance leases comprise leases of machinery to franchises (3 to 5 years). The interest rate inherent in the leases is linked to prime less 1% (2008: prime less 1%). The average effective interest rate contracted is approximately 12% (2008: 14,5%).The average monthly rentals are R28 567 (2008: R25 088) and the lessees will acquire the machinery at the end of the lease for R5. The finance leases are secured by assets leased under lease agreements.

9 Long term loans and receivablesLong term financial assets

Long term loans and advances at amortised cost 8 771 9 203

– Loans to other entities 6 261 6 301

– Loans to related parties (directors) 9.1 2 510 2 902

Long term receivable 787 579

Other – 124

total group 9 558 9 906

9.1 LOANS TO RELATED PARTIESLoans to related parties relate to the Barloworld Share Purchase Scheme. Included in this amount are loans to executives within the group for the purchase of shares amounting to R2,510k (2008: R2,902k). The loans are secured by pledge of the shares and are repayable within 10 years of granting of the option or within nine months of death or immediately on ceasing to be an employee, except in the case of retirement. Interest rates vary in accordance with the terms and provisions of the trust deed and range from 3,17% to 8,5% p.a.

95

2009 R’000

2008 R’000

10 Deferred taxationmovement of deferred taxation

Opening balances/balances acquired at corporatisation

– deferred taxation assets 25 845 25 520

– deferred taxation liabilities (265 314) (264 881)

net opening balance/balance acquired at corporatisation (239 469) (239 361)

Recognised in income statement this year 1 143 (1 383)

Rate change adjustment – 8 709

Translation differences 171 1 110

Accounted for directly in equity 16 057 (1 952)

Other movements (1) (6 592)

net liability at end of the year (222 099) (239 469)

– deferred taxation assets 41 954 25 845

– deferred taxation liabilities (264 054) (265 314)

analysis of deferred taxation by type of temporary difference

Deferred taxation assets

Capital allowances (41) 1 032

Provisions and payables 19 501 10 933

Allowances granted 11 405 8 513

Effect of tax losses 3 121 1 164

Retirement benefit obligations 3 747 4 203

Other temporary differences 4 221 –

41 954 25 845

Deferred taxation liabilities

Capital allowances (263 582) (263 028)

Provisions and payables 144 (34)

Prepayments and other receivables (616) (2 252)

(264 054) (265 314)

Amount of deferred taxation income/(expense) recognised in the income statement

Capital allowances 414 145

Provisions and payables (1 528) (4 256)

Prepayments and other receivables 422 1 517

Effect of tax losses 1 957 (1 066)

Retirement benefit obligations 91 2 277

Other temporary differences (213) –

1 143 (1 383)



2009 R’000

2008 R’000

11 InventoriesRaw materials and components 125 156 157 928

Work in progress 22 888 26 220

Finished goods 229 127 255 145

Consumable stores 19 569 20 340

Other inventories 1 985 496

total inventories 398 725 460 129

The value of inventories has been determined on the following basis:

– First-in first-out and specific identification 283 908 327 868

– Weighted average 114 817 132 261

398 725 460 129

Inventory pledged as security for liabilities 2 508 4 095

The secured liabilities are included under amounts due to bankers and short term loans (note 15).

Amount of write down of inventory to net realisable value and losses of inventory 3 142 7 352

Inventory provisions included in inventory values above (20 583) (22 062)

12 trade and other receivablesTrade receivables 433 455 412 275

Less: Allowance for doubtful debts (11 343) (6 179)

Finance lease receivables (note 8) 135 222

Fair value of derivatives

– Forward exchange contracts – 2 072

Other receivables and prepayments 51 400 43 333

total trade and other receivables 473 647 451 723

The average credit period on sale of goods is 30 – 75 (2008: 30 – 74,5) days. No interest is charged on the trade receivables overdue. Specific provisions are used as management assesses each debtor for recoverability.

Before accepting any new customer, the company uses an external credit rating system to assess the potential customer’s credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed between once or twice a year. Some of the factors considered is size, feasibility, financial information and security. Of the trade receivables balance at the end of the year, R57,9 million (2008: R59,4 million) is due from the company’s largest customer. There are no other customers who represent more than 5% of the total balance of trade receivables.

Included in the company’s trade receivable balances are debtors with carrying amounts of R74,6 million (2008: R61,3 million) which are past due at the reporting date for which the company has not provided as there has not been a significant change in credit quality and the amounts are still considered to be recoverable. The company does not hold any collateral over these balances.

97

2009 R’000

2008 R’000

12 trade and other receivables (continued)

ageing of past due but not impaired

0 – 30 Days 8 696 5 889

30 – 60 Days 37 866 39 644

60 – 90 Days 12 309 8 189

90 Days + 15 691 7 576

total 74 562 61 298

Credit terms have remained the same however the company has allowed 90 days credit terms for customers opening new stores or upgrading existing stores.

movement in the allowance for doubtful debts

Opening balance at beginning of the year (6 179) (6 483)

Impairment losses provided on receivables (8 118) (253)

Impairment losses reversed during the year 2 537 524

Other 417 33

Balance at the end of the year (11 343) (6 179)

In determining the recoverability of a trade receivable, the group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.

Included in the allowance for doubtful debts are individually impaired trade receivables with balances of R492k (2008: R6k) which have been placed under liquidation. The impairment recognised represents the difference between the carrying amount of these trade receivables and the present value of expected liquidation proceeds. The group does not hold collateral over these balances.

2009 R’000

2008 R’000

ageing of impaired trade receivables

60 – 90 Days – 2 975

90 – 120 Days 891 3 520

120 + Days 11 151 3 642

Total 12 042 10 137

13 Cash and cash equivalentsCash on deposit 36 996 55 044

Other cash and cash equivalent balances 1 459 16 138

38 455 71 182

Cash and cash equivalents are comprised as follows:

South African Rand 8 584 54 315

Foreign currencies 29 871 16 867

38 455 71 182

Cash and cash equivalents in foreign currencies include: Botswana Pula, Namibian Dollar, Malawian Kwacha, Zambian Kwacha, Chinese Yuan and the Australian Dollar.



2009 R’000

2008 R’000

14 Share capital and premiumauthorised share capital

Ordinary

300 000 000 ordinary shares of 1c each 3 000 3 000

3 000 3 000

Issued share capital

Ordinary

203 871 939 (2008: 203 871 939) fully paid ordinary shares of 1c (2008: 1c) each 2 038 2 038

2 038 2 038

Share premium: 2 581 371 2 581 371

Balance at beginning of year 2 581 371 2 416 983

Cost written off against share premium – (9 227)

Shares issued during the year – 173 615

total issued share capital and premium 2 583 409 2 583 409

Issued shares:

Total number of shares in issue at beginning of year (’000) 203 872 181 320

Issued during the year (’000) – 22 552

total number of shares in issue at end of year (’000) 203 872 203 872

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 PAyMENTSEquity-settled share option schemes

14.1.1 Barloworld Share Option Scheme

Financial effect of share-based payment transactions

2009 R’000

2008 R’000

Share-based payment expense per the income statement

Expense arising from share-based payment transactions 1 426 2 003

Total share-based payment expense 1 426 2 003

Balance sheet effect

Net reduction in shareholders’ interest as a result of share-based payment transactions 13 893 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.

99

14 Share capital and premium (continued)

Fair value estimates

Barloworld options granted after 7 November 2002 are to be expensed over their vesting period in terms of IFRS2. The estimated fair value of these options were calculated using a binomial option pricing model with the following inputs:

Date of grant 1 April 2003 26 May 2004 1 July 2007

Number of options granted 245 500 257 000 65 291

Additional options granted 66 117 79 676 –

Exercise price (R) 47,50 67,80 123,88

Share price at grant date (R) 47,50 67,80 121,50

Modified price post PPC unbundling 25,46 36,35 –

Modified price post Coatings unbundling 14,59 25,48 –

Expected volatility (%) 35,00 35,00 35,00

Expected dividend yield (%) 5,80 4,30 3,00

Risk free rate (%) 10,40 10,90 8,60

Exercise multiple (Share price at exercise date/option exercise price) 2,00 2,00 2,00

Estimated fair value per option (R) 16,59 25,37 46,41

total share options and appreciation rights unexercised

The following Barloworld options or rights granted to directors and executives in terms of the Barloworld Share Option Scheme relating to their prior employment are unexercised:

DateContractual

life Original

option

Modified price after

Coatings from which remaining price unbundling Number of options

Date of grant exercisable Expiry date (years) (R) (R) Directors Executives# Ceded*

29 May 00 29 May 03 29 May 10 0,70 36,70 8,80 – 16 794 –

25 Sep 01 25 Sep 04 25 Sep 11 2,00 45,70 13,63 – 16 905 –

1 Apr 03 1 Apr 06 1 Apr 13 3,50 47,50 14,59 4 665 73 424 –

26 May 04 26 May 07 26 May 14 4,70 67,80 25,48 12 441 156 808 26 823

12 Jul 07 12 Jul 10 12 Jul 13 3,80 123,88 n/a 65 291 – –

82 397 263 931 26 823

The following options or rights granted to directors and executives in terms of the Barloworld Share Option Scheme relating to the unbundling of PPC are unexercised:

DateContractual

life Original

option

Modified price after

Coatings from which remaining price unbundling Number of options

Date of grant exercisable Expiry date (years) (R) (R) Directors Executives# Ceded*

25 Sep 01 25 Sep 04 25 Sep 11 2,00 45,70 11,43 – 1 856 –

1 Apr 03 1 Apr 06 1 Apr 13 3,50 47,50 11,88 – 39 281 –

26 May 04 26 May 14 4,70 67,80 16,95 – 98 656 –

– 139 793 –

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.



Number ofoptions

Weightedaverageexerciseprice (R)


Barloworld share options movement for the year

2009 Options at the beginning of the year 405 794 22,38Options lapsed (25 179) 22,16Options exercised/ceded (34 287) 25,48

Options unexercised at year end 346 328 22,04

Held by:

Directors and executives 346 328 22,04

346 328 22,04

2008

Options at the beginning of the year 572 590 20,16

Options exercised/ceded (166 796) 18,82


Held by:


405 794 22,38

PPC related share options movement for the year

2009 Options at the beginning of the year 222 679 15,69Options lapsed (34 022) 14,83Options exercised/ceded (48 864) 16,95


Held by:


139 793 15,46

2008

Options at the beginning of the year 276 798 15,53

Options exercised/ceded (54 119) 14,89


Held by:


222 679 15,69

101


14.1.2 Freeworld Coatings executive Share Schemes 2007

Financial effect of share-based payment transactions

Share-based payment expense per the income statement 2009 2008

Expense arising from share-based payment transactions 3 622 2 784

total share-based payment expense 3 622 2 784

Balance sheet effect

Net reduction in shareholder’s interest as a result of share-based payment transactions 3 622 2 784

Freeworld Coatings implemented its Share Appreciation Rights Scheme (‘SAR Scheme’) in 2007 to facilitate the implementation of share based incentive plans for eligible employees. The SAR Scheme provides an eligible employee with a potential entitlement.

The SARs are exercisable at any time after the vesting period. The number of SARs vesting as well as the vesting periods are as follows:

– Athirdoftheparticulargrantafterthethirdanniversaryofthegrantdate;

– Athirdoftheparticulargrantafterthefourthanniversaryofthegrantdate;

– A third of the particular grant after the fifth anniversary of the grant date.

The contractual period of any SAR is the period ending no later than the sixth anniversary of the end of the financial year in which a particular grant was made.

Fair value estimates

The rights are to be expensed over their vesting period in terms of IFRS 2. The estimated fair value of these rights were calculated using the Black-Scholes Option pricing model with the following inputs.

Date of grant 31 Jan 08

Number of rights granted 7 785 344

Additional rights granted nil

Exercise price (R) 9,12

Weighted average share price at grant date (R) 9,12

Expected volatility (%) 22,10

Expected dividend yield (%) 2,50

Risk free rate (%) 8,80

Exercise multiple (Share price at exercise date/option exercise price) 0,93

Estimated fair value per option (R) 3,79




total share options and appreciation rights unexercised

The following rights granted to directors and executives are unexercised:

Date of grant

Date fromwhich

exercisableExpiry

date

Contractuallife

remaining(years)

Optionexerciseprice (R)

Number of options

Directors Executives

31 Jan 08 31 Jan 11 30 Sep 14 6,00 9,12 1 005 263 6 283 852

1 005 263 6 283 852

No share appreciation rights were exercised during the year.

Share appreciation rights movement for the yearNumberof SARs

Weightedaverageexerciseprice (R)

2009 SARs at beginning of the year 7 785 344 9,12SARs lapsed (496 229) 9,12

SARs unexercised at year end 7 289 115 9,12

Held by:

Directors 1 005 263 9,12Executives 6 283 852 9,12

7 289 115 9,12

2008

SARs granted 7 785 344 9,12

SARs unexercised at year end 7 785 344 9,12

Held by:

Directors 1 005 263 9,12

Executives 6 780 081 9,12

7 785 344 9,12

103

2009R’000

2008R’000

15 Interest bearing liabilitiesTotal South African Rand and foreign currency

long term borrowings 741 648 667 636

Less: Current portion redeemable and

repayable within one year (note 18) (77 604) (42 945)

Interest bearing liabilities 664 044 624 691

Included above are secured liabilities as follows:

Liabilities securedNet book value of assets

encumbered

2009R’000

2008R’000

2009R’000

2008R’000

Secured liabilities

Secured loans

South African Rand 618 2 261 1 994 4 085

Foreign currencies 7 069 9 642 10 176 12 380

Liabilities under capitalised finance leases

South African Rand – 610 – 554


Total secured liabilities 8 284 12 708 12 693 17 189

assets encumbered are made up as follows:

Leased land and buildings 7 668 8 285

Vehicles purchased as part of finance leases 2 517 4 809

Inventories (note 11) 2 508 4 095

12 693 17 189

Unsecured loans

Long term loan with Nedbank Limited with a value of R711 765k (2008: R634 627k), which bears interest at Jibar + 1,3 – 1,95% (2008: Jibar + 1,6% – 1,95%). The loans are repayable over 7 years.

Long term loan with Makalani Holdings Limited with a value of R21 549k (2008: R21 834k), which bears interest at a variable rate of 76% of the South African prime interest rate. The loan is repayable over 10 years from 2007.

Secured loans

South Africa

Instalment sale obligations are secured over (motor vehicles) with a net book value of R1 994k (2008: R4 085k) and bear interest at 8,5% (2008: 13,5%). The lease terms vary between three and four years.



15 Interest bearing liabilities (continued)

Foreign currencies

Secured loans in foreign currencies consists out of the following:

Long term loan with First National Bank which is secured over land and buildings with a net book value of BWP6 661k (2008: BWP7 050k) and bears interest at 10,5% (2008: 15%). The loan is repayable in monthly installments of BWP163k (2008: BWP163k) over five years.

Long term loan with Nedbank Ltd which is secured over inventory with a net book value of MWK48 223k (2008: MWK69 524k) and bears interest at 19,5% (2008: 19,5%). The loan is repayable in monthly installments of MWK1 590k (2008: MWK1 590k) over four years.

Liabilities under capitalised finance leases

South African

Capitalised finance leases from Nedbank Limited were repaid during the year. In 2008 these leases were secured over motor vehicles with a net book value of R554k and bore interest at 15,6% p.a.

Foreign currencies

Capitalised finance leases from Avis Leases Namibia which is secured over motor vehicles with a net book value of N$114k (2008: N$170k) and bear interest at Namibian prime interest rate 11,5% less 1,5% (2008: Namibian prime interest rate 13,75% less 1,5%) linked to Namibia money market rates. The loans are repayable in monthly instalments of N$8 205 (2008: N$8 457).

Capitalised finance leases from Microsoft Financing Limited which is secured over computer equipment with a net book value of AUD 84k (2008: 0) and bear interest at 9,1%. The loans are repayable in monthly instalments of AUD 3k over 3 years.

For details surrounding these future minimum lease payments refer to note 28.

2009R’000

2008R’000

16 ProvisionsNon current 16 237 21 568

Current 17 008 7 800

33 245 29 368

TotalR’000

LeasesR’000

Post-retirement

benefitsR’000

Warranty claimsR’000

OtherR’000

2009movement of provisions

Balance at the beginning of the year 29 368 806 22 823 3 407 2 332Amounts recognised during the year 5 899 406 1 834 3 506 153Amounts utilised during the year (1 511) – – (858) (653)Amounts reversed unused (512) (8) (249) – (255)Unwinding of discount on present valued amounts (535) – (535) – –Translation adjustments 536 – – (369) 905

Balance at end of year 33 245 1 204 23 873 5 686 2 482

to be incurred

Within one year 17 008 332 8 694 5 686 2 296Between two to five years 4 263 853 3 224 – 186More than five years 11 974 19 11 955 – –

33 245 1 204 23 873 5 686 2 482

105

16 Provisions (continued)

TotalR’000

LeasesR’000

Post-retirement

benefitsR’000

Warranty claimsR’000

OtherR’000

2008

movement of provisions

Balance acquired at corporatisation 28 422 378 23 107 4 937 –

Amounts recognised during the year 5 832 443 1 800 1 257 2 332

Amounts utilised during the year (2 892) (15) – (2 877) –

Amounts reversed unused (100) – (100) – –

Unwinding of discount on present valued amounts (1 984) – (1 984) – –

Translation adjustments 90 – – 90 –

Balance at end of year 29 368 806 22 823 3 407 2 332

to be incurred

Within one year 7 868 46 2 083 3 407 2 332

Between two to five years 2 821 739 2 082 – –

More than five years 18 679 21 18 658 – –

29 368 806 22 823 3 407 2 332

Post-retirement benefits

The provisions comprise mainly post-retirement benefits for some existing and former employees. An actuarial valuation is used to determine the value of the provision where necessary. The most recent valuation of the obligation were carried out as at 30 September 2009 by Alexander Forbes. The present value of the obligation, and the related current service cost and past service cost, were measured using the Projected Unit Credit Method prescribed by IAS 19. The actuarial valuation is based on assumptions which include health care inflation rate, discount rates and the expected retirement age.

Warranty claims

The provisions relate principally to warranty claims on paint sales. The estimate is based on claims notified and past experience.

Leases

The provision is to account for operating lease agreements in terms of IAS 17 that requires that lease payments should be recognised on the straight line basis over the term of the lease agreement and not when the operating lease payments are made.



2009R’000

2008R’000

17 trade and other payablesTrade and other payables 408 914 475 893

Fair value of derivatives 17 919 680

Bills of exchange – 843

426 833 477 416

The group has negotiated favourable terms with suppliers, which enable the group to utilise its operating cash flow to full effect. The suppliers’ age analysis is reviewed by management on a regular basis to ensure that credit terms are adhered to and suppliers are paid when due.

Details on Financial risk management can be found on note 31.

2009R’000

2008R’000

18 Short term loans and bank overdraftsBank overdrafts and acceptances 7 753 8 119

Short term loans 120 000 268 300

Current portion of long term borrowings (note 15) 77 604 42 945

205 357 319 364

amounts due to bankers and short term loans are comprised as follows:

South African Rand 202 973 313 915


205 357 319 364

18.1 SHORT TERM LOANSShort term loans with Nedbank Limited with a current interest rate of Prime less 1.25% (2008: Jibar + 1.2%), unsecured and repayable on demand.

18.2 ADDITIONAL INFORMATION

2009R’000

2008R’000

Short term loan and overdraft facilities 457 991 422 000

Utilised (163 982) (276 419)

Available 294 009 145 581

19 RevenueSale of goods 2 690 840 2 660 514

Rendering of services 12 294 36 201

Rentals received 30 29

2 703 164 2 696 744

107

2009R’000

2008R’000

20 Operating profitOperating profit is arrived at as follows:Revenue 2 703 164 2 696 744Less: Net expenses 2 381 514 2 299 822

Cost of sales 1 573 772 1 524 707 Distribution costs 510 853 486 741 Administrative costs 266 940 275 901 Other operating costs 69 534 60 486 Other operating income (65 833) (32 584) Fair value adjustments on financial instruments 26 248 (15 429)

321 650 396 922

expenses include the following:Depreciation (note 4) 54 100 47 351Amortisation of intangibles (note 6) 22 585 20 304Operating lease charges: 19 343 14 442

Land and buildings 13 795 10 813 Plant, vehicles and equipment 5 548 3 629

Research and development costs 8 465 7 113Administration, management and technical fees paid 10 525 4 457Auditors’ remuneration: 5 743 5 435

Audit fees 5 710 5 099 Fees for other services 33 336

Directors’ emoluments paid by holding companyTotal directors’ emoluments 10 993 11 589Executive directors (note 35) 9 474 10 118

Salaries 5 600 4 670 Bonuses 2 142 3 904 Retirement and medical contributions 1 046 863 Car allowances 686 681

Non executive directors (note 35) 1 520 1 470

Fees 1 520 1 470

Key management personnel* 24 076 26 650

Salaries 9 134 11 981 Bonuses and incentives 8 896 8 734 Retirement and medical contributions 1 874 1 759 Share options 2 709 2 169 Car allowances 1 232 1 772 Other benefits 231 235

Staff costs (excluding directors’ emoluments and key management personnel) 386 307 354 943

Amounts recognised in respect of retirement benefit plans:

Defined contribution funds 41 133 34 892

Loss on disposal of plant and equipment 465 1 204Impairment losses on property, plant and equipment 222 –

Impairment losses recognised on financial assets 5 581 70

Loans and receivables (incl. trade receivables) 5 581 70

Government grants received (1 008) (1 582)Donations 2 007 1 618

* Key management personnel consist of all members of the executive team that are not on the Freeworld Coatings Limited company board of directors.



2009R’000

2008R’000

21 Fair value adjustments on financial instruments(Losses)/Gains on financial assets classified as loans and receivables (713) 1 351

Gains on financial liabilities at amortised cost 353 264

(Losses)/Gains on financial assets/liabilities held for trading (25 888) 13 814

total fair value adjustments on financial instruments (26 248) 15 429

22 Finance costsInterest paid:

Long term borrowings 77 821 83 785

Bank and other short term borrowings 49 414 56 265

Capitalised finance leases 153 168

Other 240 1 590

Fair value gains transferred from equity on interest rate swaps designated as cash flow

hedges of floating rate debt (2 368) –

total interest paid 125 259 141 808

23 Income from investmentsInterest received 10 358 21 381

total income from investments 10 358 21 381

Investment income earned on financial assets, analysed by category of asset, is as follows:

Available for sale financial assets 18 –

Loans and receivables (including cash and bank balances) 10 340 21 061

Held to maturity investments – 108

10 358 21 169

Investment income earned on non financial assets – 212

10 358 21 381

109

2009R’000

2008R’000

24 Income tax expenseSouth African normal taxation

Current year 66 732 87 706

Prior year (1 529) (1 166)

65 203 86 540

Foreign and withholding taxation

Current year 1 371 395

1 371 395

Deferred taxation

Current year (2 441) (3 874)

Prior year 1 298 5 257

Attributable to a change in the rate of income tax – (8 709)

(1 143) (7 326)

Secondary taxation on companies


2 839 2 335

total group 68 270 81 944

2009%

2008%

Reconciliation of rate of taxation:

South Africa normal taxation rate 28,0 28,0

Reduction in rate of taxation (3,9) (6,6)

Exempt income (1,7) (0,5)

Unprovided temporary differences – (0,8)

Rate change adjustment – (3,1)

Tax losses of prior periods (1,4) (1,5)

Special deductions (0,1) –

Prior year taxation (0,7) (0,7)

Increase in rate of taxation 8,9 8,2

Disallowable charges 2,8 2,4

Unprovided temporary differences 0,1 0,6

Foreign tax differential 0,2 0,1

Current year tax losses not utilised 3,1 2,1

Prior year taxation 0,6 2,2

Capital gains 0,7 –

Secondary taxation on companies 1,4 0,8

taxation 33,0 29,6

Deferred taxation as well as normal taxation was calculated at 28% (2008: 28%) for all South African entities.



2009R’000

2008R’000

24 Income tax expense (continued)

Group tax losses and StC credits at the end of the year:

South African – taxation losses 5 828 12 919

South African – unutilised STC credits 25 6 215

Foreign – taxation losses 33 102 14 012

38 955 33 146

Utilised to reduce deferred taxation liabilities or create deferred taxation assets (5 761) –

Losses on which no deferred taxation assets raised due to uncertainty regarding utilisation 33 194 33 146

25 DividendsOrdinary shares

Final dividend no 2 paid on 19 January 2009: 10 cents per share (2008: nil) 20 386 –

Interim dividend no 3 paid on 22 June 2009: 5 cents per share (2008: no 1 – 10 cents per share) 10 195 20 387

Paid to Freeworld Coatings Limited shareholders 30 581 20 387

Paid to minorities of Freeworld Coatings Limited 3 163 1 528

33 744 21 915

An ordinary dividend of 7 cents per share is payable in January 2010.

26 Freeworld Coatings Limited shareholders’ attributable interest in subsidiariesAttributable interest in the aggregate amount of profits and losses of subsidiaries, after taxation, including associate companies 148 973 277 090

Less: Dividends received from subsidiaries (6 918) (65 111)

Freeworld Coatings Limited shareholders’ interest 142 055 211 979

27 earnings per share27.1 FuLLy CONvERTED WEIGHTED AvERAGE NuMBER OF SHARES

Weighted average number of ordinary shares 203 872 201 136

Fully converted weighted average number of shares 203 872 201 136

27.2 EARNINGSProfit for the year attributable to equity holders of Freeworld Coatings Limited 142 055 211 979

Total earnings 142 055 211 979

earnings per share (cents)

Basic


Earnings per share (cents) 70 105

Diluted


Earnings per share (cents) 70 105

The share appreciation rights are anti-dilutive as they do not result in a decrease of earnings per share.

111

2009R’000

2008R’000

27 earnings per share (continued)

27.3 HEADLINE EARNINGS PER SHAREProfit for the year attributable to Freeworld Coatings Limited shareholders 142 055 211 979

Adjusted for the following

– Share of profit on sale of associate’s assets (4 000) –

– Impairment of investments – 83

– Impairment of property, plant and equipment 222 –

– Loss on disposal of plant and equipment and intangible assets 465 1 204

– Other 7 –

Tax effect of above 926 (360)

Headline earnings 139 675 212 906

Weighted average number of shares in issue for the year 203 872 201 136

Headline earnings per share – basic (cents) 69 106

Headline earnings per share – diluted (cents) 69 106

28 CommitmentsCapital expenditure commitments to be incurred:

Contracted 25 628 51 913

Approved but not yet contracted 7 304 24 503

32 932 76 416

Commitments will be spent substantially during 2010. Capital expenditure will be financed by funds generated by the business, existing cash resources and borrowing facilities available to the group.

Lease commitments: 2009 Financial year

Long term>5 years

R’000

Medium term2 – 5 years

R’000

Short term<1 year

R’000

2009 Total

R’000

Operating lease commitments

Land and buildings 50 13 680 10 183 23 913 Motor vehicles – 303 691 994 Other – 2 841 2 687 5 528

50 16 824 13 561 30 435

Lease commitments: 2008 Financial year

Long term>5 years

R’000


R’000

Short term<1 year

R’000

2008 Total

R’000

Operating lease commitments

Land and buildings 93 7 860 6 128 14 081

Land and buildings correction* – 9 384 2 046 11 430

Motor vehicles – 1 049 816 1 865

Other – 3 872 2 528 6 400

Other correction* – 396 216 612

93 22 561 11 734 34 388

* A correction of R12 042 has been processed covering all the lease terms as a result of a consolidation error in the operating lease commitments as stated in the September 2008 financial report.



28 Commitments (continued)

Land and building commitments include the following items:

Commitments for the operating and administrative facilities used by the majority the of business segments. The average lease term is five years. Many lease contracts contain renewal options at fair market rates.

Properties used for office accommodation. Rentals escalate at rates which are in line with the historical inflation rates applicable in the geographical regions in which there are operations. Lease periods do not exceed five years.

Finance lease commitments:2009 Financial year

Long term>5 years

R’000


R’000

Short term<1 year

R’000

2009 Total

R’000

Present value of minimum lease payments

Motor vehicles – 87 70 157 Other – 273 167 440

– 360 237 597


Motor vehicles – 89 80 169 Other – 288 212 500

total including future finance charges – 377 292 669

Future finance charges (72)

Present value of lease commitments (note 15) 597

Finance lease commitments:2008 Financial year

Long term>5 years

R’000


R’000

Short term<1 year

R’000

2008 Total

R’000

Present value of minimum lease payments

Motor vehicles – 118 77 195

Other – 416 194 610

– 534 271 805


Motor vehicles – 118 77 195

Other – 474 271 745

total including future finance charges – 592 348 940

Future finance charges (135)

Present value of lease commitments (note 15) 805

113

2009R’000

2008R’000

29 Contingent liabilitiesGuarantees to third parties 11 536 6 255

Freeworld Coatings Ltd has bank guarantees totalling R5,5 million with Nedbank. (R4 million guarantee for the JBCC nominated principle building and various other small guarantees relating to SARS Customs Departments, Landlords and Suppliers).

Freeworld Plascon Namibia (Pty) Ltd has agreed to provide surety of R2 million to FNB Namibia for overdraft facilities supported by a cession over the debtors’ book.

Freeworld Coatings Ltd guarantees its 20% portion of the Valspar corporation bank overdraft. This totals R4 million.

In terms of the Unbundling Agreement, Freeworld Coatings Limited has guaranteed the first A$5 million of any environmental claim made on Barloworld Limited by the purchaser of the Australian business for a maximum period of 8 years. An environmental insurance policy is in place in this regards.

Barloworld Plascon Swaziland (Pty) Ltd has a bank guarantee in place for Customs and Excise duties for R25 000.

30 Changes in accounting policy and disclosures At the date of authorisation of these financial statements the following Statements and Interpretations were in issue but not yet effective

and have not been applied in preparing these financial statements.

IFRS 2 – SHARE-BASED PAyMENTS – vESTING CONDITIONS AND CANCELLATIONS

The amendments to the standard are effective from 1 January 2009. The amendments to IFRS 2 clarifies the definition of vesting conditions and provides guidance on the accounting treatment of cancellations by other parties. The adoption is not expected to have a material impact on the group’s results.

IFRS 3 – BuSINESS COMBINATIONS

The amendments to the standard are effective from 1 July 2009.

The amendments to the standard include:

– a greater emphasis on the use of fair value, potentially increasing the judgment and subjectivity around business combination accounting,andrequiringgreaterinputbyvaluationexperts;

– focusing on changes in control as a significant economic event – introducing requirements to remeasure interests to fair value at the time when control is achieved or lost, and recognising directly in equity the impact of all transactions between the controlling andnoncontrollingshareholdersnotinvolvingachangeofcontrol;

– focusing on what is given to the vendor as considerations, rather than what is spent to achieve the acquisition. Transaction costs, changes in the value of contingent consideration, settlement of pre existing contracts, share-based payments and similar items will generallybeaccountedforseparatelyfrombusinesscombinationsandwillgenerallybechargedtoincome;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.



30 Changes in accounting policy and disclosures (continued)

IAS 1 – PRESENTATION OF FINANCIAL STATEMENTS

The revised IAS 1 superseded the 2003 version of IAS 1 and is effective from 1 January 2009. The main change in the revised IAS 1 is the requirement to present all non owner changes in equity either as:

– asinglestatementofcomprehensiveincomewhichincludesincomestatementlineitems;or

– a statement of comprehensive income which includes only non owner equity changes. In addition, an income statement is also disclosed.

The revised IAS 1 will not impact the results of the group but will impact upon the format of the income statement and the statement of changes in equity.

IAS 23 – BORROWING COSTS

The revision is effective for the group from 1 January 2009. IAS 23 Revised eliminates the option of immediate recognition as an expense of borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset.

The group’s current policy is not to capitalise borrowing costs attributable to the acquisition, construction or production of a qualifying asset and as such this revision is anticipated to have an effect on the group’s results in future periods.

IAS 27 – CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS

The amendments to this standard are effective for the group from 1 July 2009.

The amendments to IAS 27 require changes in a parent’s ownership interest in a subsidiary that does not result in a loss of control to be accounted for within equity transactions with owner in their capacity as owners. At the time at which control is lost, a parent shall derecognise all assets, liabilities and non controlling interest at their carrying amounts. Any retained interest in the former subsidiary is recognised at its fair value at the date control is lost. A gain or loss on the loss of control is recognised in the profit or loss. The revised standard also requires an entity to attribute its share of total comprehensive income to the non controlling interest even if this results in the non controlling interest having a negative balance.

The effect on the financial statements will be due to transactions that result in a loss of control over subsidiaries after the implementation of the new standard.

IAS 32 AND IAS 1 AMENDMENTS – FINANCIAL INSTRuMENTS: PREPARATION AND IAS 1 PRESENTATION OF FINANCIAL STATEMENTS – PuTTABLE FINANCIAL INSTRuMENTS AND OBLIGATIONS ARISING ON LIquIDATION

The amendments to the standards are effective from 1 January 2009.

The amendments to IAS 32 requires the classification of certain financial instruments and puttable financial instruments that impose on the issuer an obligation to deliver a pro rata share of the entity only on liquidation as equity. The amendment sets out specific criteria that are to be met to present the instruments as equity together with related disclosure requirements. This amendment is not expected to have a significant impact on the group’s results.

IFRIC 15 – AGREEMENTS FOR THE CONSTRuCTION OF REAL ESTATE

IFRIC 15 is applicable for annual periods beginning on or after 1 January 2009.

IFRIC 15 provides guidance on how to determine whether an agreement for the construction of real estate is within the scope of IAS 11 Construction contracts or IAS 18 Revenue and, accordingly, when revenue from the construction should be recognised.

This interpretation is not applicable to the business of the group.

115

30 Changes in accounting policy and disclosures (continued)

IFRIC 17 – DISTRIBuTION OF NON CASH ASSETS TO OWNERS

IFRIC 17 is applicable for the group for annual periods beginning on or after 1 July 2009.

This interpretation provides guidance on non cash transfers to owners. Notably, it provides guidance on the following issues:

– a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity.

– an entity should measure the dividend payable at the fair value of the net assets to be distributed.

– an entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in profit or loss.

– an entity to provide additional disclosures if the net assets being held for distribution to owners meet the definition of a discontinued operation.

This interpretation is not expected to have a significant impact on the group.

IFRIC 18 – TRANSFERS OF ASSETS FROM CuSTOMERS

IFRIC 18 is applicable for the group for annual periods beginning on or after 1 July 2009.

This Interpretation applies to the accounting for transfers of items of property, plant and equipment by entities that receive such transfers from their customers.

This interpretation is not expected to have an impact on the group.

General amendments

On 22 May 2008, the International Accounting Standards Board (IASB) issued its latest Standards, titled Improvements to International Financial Reporting Standards 2008. The Standard included 35 amendments to various Standards.

StandardAnnual period

beginning on or after

IFRS 1 – First time Adoption of International Financial Reporting Standards 1 January 2009

IFRS 5 – Non-current Assets held for sale and Discontinued Operations 1 July 2009

IAS 1 – Presentation of Financial Statements 1 January 2009

IAS 16 – Property, Plant and Equipment 1 January 2009

IAS 19 – Employee Benefits 1 January 2009

IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance 1 January 2009

IAS 27 – Consolidated and Separate Financial Statements 1 January 2009

IAS 28 – Investment in Associates 1 January 2009

IAS 29 – Financial Reporting in Hyperinflationary Economies 1 January 2009

IAS 31 – Interests in Joint Ventures 1 January 2009

IAS 32 – Financial Instruments – Presentation 1 January 2009

IAS 36 – Impairment of Assets 1 January 2009

IAS 38 – Intangible Assets 1 January 2009

IAS 39 – Financial Instruments – Recognition and Measurement 1 January 2009

IAS 40 – Investment Property 1 January 2009

IAS 41 – Agriculture 1 January 2009

The group is in the process of evaluating the effects of these improvements and, whilst they are not expected to have a significant impact on the group’s results, additional disclosures may be required.



31 Financial risk management31.1 SIGNIFICANT ACCOuNTING POLICIES

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instruments are disclosed in note 3 to the financial statements.

31.2 CATEGORIES OF FINANCIAL INSTRuMENTS

2009R’000

2008R’000

Financial assets

Fair value through profit or loss

– Held for trading – 2 072

Loans and receivables (including cash and cash equivalents) 521 758 531 054

521 758 533 126

Financial assets pledged as security 10 961 –

Financial liabilities

Fair value through profit or loss

– Held for trading 8 648 680

Derivative instruments in designated hedge accounting relationships 13 357 –

Financial liabilities at amortised cost 1 278 315 1 421 471

1 300 320 1 422 151

31.3 FINANCIAL RISk MANAGEMENT OBJECTIvES

Exposure to currency, interest rate, liquidity and credit risk arises in the normal course of the group’s business.

The note presents information about the group’s exposure to each of the above risks, the group’s objectives, policies and processes for measuring and managing risk, and the group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

The board of directors has overall responsibility for the establishment and oversight of the group’s risk management framework. The board is supported by the audit committee of the board, who reviews the internal control environment and risk management system within the group. The committee reports regularly to the board of directors on its activities.

A treasury function provides treasury and related services to the group, including access to local money markets and the managing of various risks relating to the group’s operations. These risks are managed and a finance committee consisting of senior executives of the group meets on a regular basis to analyse currency and interest rate exposure and to re-evaluate treasury management strategies in the context of most recent economic conditions and forecasts.

The group uses a number of derivative instruments that are transacted for risk management purposes only. The group does not trade in financial instruments for speculative purposes.

117

31 Financial risk management (continued)

31.4 MARkET RISk MANAGEMENT

The group’s activities expose it primarily to risk fluctuations in foreign currency exchange rates and interest rate risk. The group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including:

– foreign exchange forward contracts to manage exchange risk arising on foreign denominated transactions.

Market risks are measured using sensitivity analysis. A sensitivity analysis shows how profit before taxation and equity would have been affected by changes in the relevant risk variable that were reasonably possible at reporting date.

There has been no change in the group’s exposure to market risks or the manner in which it manages and measures the risk.

Foreign currency risk

The group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts.

The following table represents the extent to which the group has monetary assets and liabilities in currencies other than the group companies local currency.

The information is shown inclusive of the impact of forward contracts to hedge foreign currency exposures.

net foreign currency monetary assets/(liabilities)

Currency of assets/(liabilities)

SA RandR’000

EuroR’000

British Sterling

R’000US Dollar

R’000

Australian DollarR’000

Other African

currenciesR’000

Other currencies

R’000Total

R’000

Functional currency of group operation:

SA Rand (777 853) (8 242) (123) 128 909 5 497 – (177) (651 990)US Dollar – – – 6 062 – – – 6 062 Australian Dollar – – – (5 269) (1 612) – – (6 881)Other African currencies (8 085) – – (212) – 21 804 – 13 507 Other currencies – – – – 789 – 5 503 6 292

as at 30 September 2009 (785 938) (8 242) (123) 129 490 4 674 21 804 5 326 (633 009)

SA Rand (823 233) (9 899) (84) 93 147 5 781 – (224) (734 512)

US Dollar – – – (126 476) (17 943) 131 396 (52) (13 075)

as at 30 September 2008 (823 233) (9 899) (84) (33 329) (12 162) 131 396 (276) (747 587)




Foreign currency sensitivity analysis

The group is exposed to the following currencies: US Dollar, Euro, Australian Dollar, Japanese Yen, Chinese Yuan, Botswana Pula, Zambian Kwacha and Malawian Kwacha. The British Pound, Japanese Yen and Chinese Yuan being small in quantum, have been combined under “other” while the Pula, Zambian Kwacha and Malawian Kwacha have been combined under “Other African currencies”.

The following table details the group’s sensitivity to a 5% increase and decrease in the Rand against the relevant foreign currencies. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates.

A positive number below indicates an increase in profit and other equity where the functional currency (SA Rand) strengthens 5% against the relevant currency. For a 5% weakening of the functional currency (SA Rand) against the relevant currency, there would be a decrease in profit and other equity and the balances below would be negative.

net foreign currency monetary assets/(liabilities)

Currency of assets/(liabilities)

SA RandR’000

EuroR’000

British Sterling

R’000US Dollar

R’000

Australian DollarR’000

Other African

currenciesR’000

Other currencies

R’000Total

R’000

Functional currency of group operation:

SA Rand – (412) (6) 6 445 275 – (9) 6 293 US Dollar – – – 303 – – – 303 Japanese Yen – – – (263) (81) – – (344)Other African currencies (404) – – (11) – 1 090 – 675 Other currencies – – – – 39 – 275 315

as at 30 September 2009 (404) (412) (6) 6 475 234 1 090 266 7 242

SA Rand – (495) (4) 4 657 289 – (11) 4 436

US Dollar – – – (6 324) (897) 6 570 (3) (654)

as at 30 September 2008 – (495) (4) (1 666) (608) 6 570 (14) 3 782

Forward foreign exchange contracts

It is the policy of the group to enter into forward foreign exchange contracts to cover specific foreign currency payments and receipts. The group also enters into forward foreign exchange contracts to manage the risk associated with anticipated foreign purchase transactions and sales. Basis adjustments are made to the carrying amounts of non financial hedged items when the anticipated sale or purchase transaction takes place.

119


The following table details the forward exchange contracts outstanding as at the reporting date:

2009 2008

Average exchange

rateForeign

currencyContract

valueFair

value

Average exchange

rateForeign

currencyContract

valueFair

value

Outstanding contracts

Contracts bought

Australian Dollars

Less than 3 months 6,55 308 2 017 2 057 – – – –

3 – 6 months 6,65 500 3 325 3 388 – – – –

US Dollar

Less than 3 months 8,31 5 274 43 816 40 271 8,09 5 129 41 485 43 309

3 – 6 months 8,22 3 422 28 127 26 653 7,83 1 700 13 303 14 358

Greater than 6 months 8,34 846 7 059 6 671 – – – –

Euro

Less than 3 months 11,62 5 710 66 378 63 535 12,69 3 886 49 316 46 822

3 – 6 months 11,49 4 391 50 466 49 795 12,01 2 750 33 035 33 146

British Pound

Less than 3 months 13,44 16 215 201 16,31 36 587 541

3 – 6 months 12,13 30 364 371 – – – –

Japanese Yen

Less than 3 months 11,65 11 587 995 992 13,17 13 484 1 024 1 084

3 – 6 months – – – – – – – –

Contracts sold

Australian Dollars

Less than 3 months 6,51 719 4 687 4 786 6,97 834 5 848 5 584

3 – 6 months 6,46 417 2 697 2 790 – – – –

US Dollar

Less than 3 months 7,77 421 3 281 3 184 8,19 371 3 023 3 100

3 – 6 months 7,55 26 197 200 – – – –

Euro

Less than 3 months 11,17 470 2 931 2 811 11,99 210 2 518 2 489

3 – 6 months – – – – – – – –




Interest rate management

The group is exposed to interest rate risk as entities in the group borrow funds at both fixed and floating rates. The risk is managed by the group by maintaining an appropriate mix between fixed and floating rate borrowings.

The group’s interest rate profile can be summarised as follows:

Currency

Year of redemption/

repaymentInterest rate (%)

2009 R’000

2008 R’000


Financial liabilities in foreign currency

Secured loans MKW 2010 19,5 810 1 728

BWP 2013 10,5 6 259 7 914

Unsecured loans AUD – 4 063

Liabilities under capitalised finance leases NAD 2011 10,0 157 195

AUD 2011 9,1 440 –

Total foreign financial liabilities 7 666 13 900

Financial liabilities in South african Rand

Secured loans 2010 13,5 618 2 261

Unsecured loans 2014 (8,821 – 9,917) 861 117 927 284

Liabilities under capitalised finance leases 2011 15,6 – 610

Total South African Rand financial liabilities 861 735 930 155

total South african Rand and foreign currency financial liabilities 869 401 944 055

Loans at fixed rates of interest 6 259 7 914

Loans linked to variable rates 863 142 936 141

869 401 944 055

Financial assets

Financial assets in foreign currency

Bank deposits USD – – 3 449 –

Other Africa – – 13 968 14 679

Other – – 12 454 2 188

Total foreign currency financial assets 29 871 16 867

Financial assets in South african Rand

Bank deposits – 5,5 8 584 54 315

Finance leases 2010 – 2013 10 233 537

Total South African financial assets 8 817 54 852

Total South African and foreign currency financial assets 38 688 71 719

Interest rates

Loans granted and bank deposits at variable rates of interest 38 688 71 719

38 688 71 719

121


Interest rate derivatives

In order to minimise the risk on two R150 million loans from a bank, the group has entered into interest rate swaps (Effective date: 1 November 2008), which swaps out the floating six month Jibar# interest rate for fixed interest rates.

The interest rate swaps are designated as cash flow hedges in order to reduce the group’s cash flow exposure resulting from the variable interest rate borrowings. The interest rate swaps and the interest rate payments on the loan occur simultaneously and the amount is deferred in equity until it is recognised in profit and loss over the period that the floating rate interest payments on debt impact profit or loss.

As at September 2009, the group had two interest rate swap contracts. Details are as follows:

Fair value gain/(loss) recognised in equity

CurrencyNotional

(000’s)Interest rate %

Maturity date

2009 Rm

2008 Rm

Designated cash flow hedge interest rate swap contract ZAR 150 000 10,85%/Jibar 01 Nov 10 (6 976) –

Designated cash flow hedge interest rate swap contract ZAR 150 000 10,91%/Jibar 01 Nov 10 (6 381) –

total (13 357) –

Non current (4 086) –

Current (9 271) –

total (13 357) –

# Jibar – Johannesburg inter-bank acceptance rate.

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and non derivative instruments at the balance sheet date. For floating rate instruments, the analysis is prepared assuming the amount of the instrument outstanding at the balance sheet date, was outstanding for the whole year.

A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents managements assessment of the reasonably possible change in interest rates.

Changes in prevailing market interest rates are based on economic forecasts as published by Reuters.

A positive number below indicates an increase in profit before taxation if interest rates were higher by the basis points indicated below in a net financial position.

A negative number below indicates a decrease in profit before taxation if interest rates were higher by the basis points indicates below in a net financial liability position.




If interest rates were lower by the basis points indicated below, there would be an equal and opposite impact on the profit before taxation.

RSa prime rates

– Basis point increase 50bps

– Profit before taxation (R’000) 507

Jibar


– Profit before taxation (R’000) 1 985

Botswana prime rate


– Profit before taxation (R’000) 31

31.5 CREDIT RISk MANAGEMENT

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group. The group has adopted a policy of only dealing with credit worthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The group only transacts with entities that are rated the equivalent of investment grade and above. This information is supplied by independent rating agencies where available and, if not available, the group uses other publicly available financial information. The group’s exposure and the credit rating of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the credit committee annually.

Financial assets, which potentially subject the group to credit risk, consist principally of cash and cash equivalents, short term deposits, derivative contracts, loans and trade and other receivables, including finance lease receivables.

Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the group’s maximum exposure to credit risk without taking into account the value of any collateral obtained.

2009R’000

2008R’000

Financial assets 521 758 533 126

The maximum credit exposure for financial assets for the year ended by type of customer was:

Industry 455 918 411 904

Government 833 7 077

Consumers 16 896 32 742

Other 9 656 10 220

The group limits its exposure to financial institutions by placing cash and cash equivalents, derivative instruments and short term deposits only with high credit quality financial institutions. The group does not have any significant credit risk exposure to trade and other receivables as the group has a large number of customers comprising the customer base. The group has policies in place that require that appropriate credit checks on potential customers be made before sales commence. Credit risk is managed by limiting the aggregate amount of exposure to any one counterparty. Some of the operations also have credit insurance through CGIC in place.

123


31.6 LIquIDITy RISk MANAGEMENT

Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due.

Ultimate responsibility for liquidity risk management rests with the board of directors, which has policies and procedures in place, for the management of the group’s short, medium and long term funding and liquidity management requirements. The group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

The following table details the groups remaining contractual maturity for its non derivative financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the group can be required to pay. The table includes both interest and principal payments.

The maturity profile of the financial instruments is summarised as follows:

<1 yearR’000

2 – 4 yearsR’000

>4 yearsR’000

TotalR’000

2009Financial liabilities

Interest bearing liabilities 77 604 327 496 336 548 741 648 Other non interest bearing liabilities – 4 086 – 4 086Trade and other payables 426 833 – – 426 833 Amounts due to bankers and short term borrowings 127 753 – – 127 753

2008


Interest bearing liabilities 42 945 141 880 482 810 667 635

Trade and other payables 477 416 – – 477 416

Amounts due to bankers and short term borrowings 8 119 268 300 – 276 419

The following table details the group’s liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted net cash inflows/outflows on the derivative instruments that settle on a gross basis.

<1 yearR’000

2 – 4 yearsR’000

>4 yearsR’000

TotalR’000

2009Gross settled

Foreign exchange forward contracts 188 971 – – 188 971

2008

Gross settled

Foreign exchange forward contracts 150 139 – – 150 139




31.7 FAIR vALuE OF FINANCIAL ASSETS AND LIABILITIES

The fair value of financial assets and liabilities are determined as follows:

The fair values of financial assets and liabilities, together with the carrying amounts are shown in the balance sheet as follows:

30 Sep 09 30 Sep 09 30 Sep 08 30 Sep 08

Carrying amount

R’000Fair value

R’000

Carrying amount

R’000Fair value

R’000

Trade and other receivables, including derivatives 473 647 473 647 451 723 451 723

Cash and cash equivalents 38 455 38 455 71 182 71 182

Finance lease receivables 98 98 315 315

Other long term financial assets 9 558 9 558 9 906 9 906

Trade and other payables, including derivatives 426 833 426 833 477 416 477 416

Bank borrowings and short term loans 205 357 205 357 319 364 319 364

Interest bearing loans 664 044 664 044 624 691 624 691

the following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and short term investments

The carrying amount approximates the fair values due to the short term maturity of those instruments.

trade receivables/trade payables

The carrying amount approximates the fair values due to the short term maturity of those instruments.

Derivatives

The fair value of foreign exchange contracts are marked to market by comparing the contracted forward rate to the present value of the current forward rate of an equivalent contract with the same maturity date.

Interest bearing liabilities

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.

125


31.8 CAPITAL DISCLOSuRES

The group manages its capital to ensure that entities in the group will be able to continue as a going concern while maximising return to shareholders.

The capital structure of the group consists of debt, cash and cash equivalents and adjusted equity.

The group monitors capital on the basis of debt to equity. The ratio is calculated as net debt to adjusted equity.

Net debt comprises interest bearing debt, shareholder loans, outside shareholder’s loans, any other long term liabilities, shareholder for dividends, secondary tax on companies (“STC”) payable and cash and cash equivalents.

Adjusted equity comprises share capital, distributable reserves, non distributable reserves less minority interest.

The group reviews its net debt objectives on a semi-annual basis to ensure objectives are being met.

The net debt to equity ratio at year end was as follows:

2009 2008

R’000 R’000

Debt 869 401 944 055

Cash and cash equivalents (38 455) (71 182)

Net debt 830 946 872 873

Adjusted equity 2 879 064 2 776 263

% %

Net debt to adjusted equity ratio 29 31

There were no changes in the group’s objectives, policies or processes for managing capital.

The group is not exposed to externally imposed capital requirements, other than the debt covenants from Nedbank Limited.

Note – Certain of the comparative figures have been adjusted to reflect the corrected interpretation of financial assets and liabilities. None of the adjustments are material.



32 Principal subsidiary companies

Issued capital local currency

amount

Effective percentage holding

Interest of holding company at cost/

valuation IndebtednessAmounts owing to

subsidiaries

Company name

Date of name

changeRegistration

number TypeCountry of

incorporation Currency2009

%2008

%2009

R’0002008

R’0002009

R’0002008

R’0002009

R’0002008

R’000

Freeworld Coatings South Africa (Pty) Limited 06/02/2008 2007/023790/07 H South Africa ZAR 1 248 100 100 1 247 972 1 247 972 906 362 964 982 1 099 –

Freeworld Coatings Global (Pty) Limited 06/02/2008 2007/024684/07 O South Africa ZAR 100 100 100 633 – – 31 848

Freeworld Coatings CMA (Pty) Limited 06/02/2008 1922/014245/07 H South Africa ZAR 12 752 100 100 179 120 179 120 – – – –

Plascon Property Holdings (Pty) Limited 1920/002108/07 O South Africa ZAR 36 000 100 100 64 527 64 527 – – – –

Freeworld Coatings Capital (Pty) Limited 06/02/2008 2007/027508/07 O South Africa ZAR 976 005 100 100 976 005 976 005 – – – –

Plascon Cape (Pty) Limited 06/02/2008 1948/029629/07 O South Africa ZAR 9 312 100 100 10 283 10 283 – – – –

Plascon Coastal (Pty) Limited 08/02/2008 1967/005384/07 O South Africa ZAR 10 000 100 100 15 421 15 421 – – – –

Plascon South Africa (Pty) Limited 08/02/2008 1945/019549/07 O South Africa ZAR 42 000 100 100 25 726 25 726 – – – –

International Colour Corporation (Pty) Limited 05/02/2008 1991/002191/07 O South Africa ZAR 1 398 100 100 383 883 383 883 – – – –

Hamilton Brands (Pty) Limited 1936/008617/07 O South Africa ZAR 100 000 100 100 44 092 44 092 42 000 65 646 – –

Prostart Investments 93 (Pty) Limited 2001/009265/07 H South Africa ZAR 100 70 70 136 084 136 084 – – – –

Midas Coatings Group (Pty) Limited 2005/041915/07 H South Africa ZAR 100 100 100 93 867 93 867 93 867 93 867 – –

Midas Paints (Pty) Limited 1989/004153/07 O South Africa ZAR 4 000 100 100 5 002 5 002 – – – –

Barloworld Plascon Swaziland (Pty) Limited 145/1972 – Swaziland O Swaziland ZAR 2 100 100 – – – –

Freeworld Automotive Coatings (Pty) Limited 06/02/2008 1947/024248/07 O South Africa ZAR 800 000 100 100 239 708 239 708 – – – –

Freeworld Coatings Australia (Pty) Limited 19/02/2008 A.C.N. 075273595 O Australia AUD 35 454 783 100 100 6 6 – – – –

Foresston Limited 3609010 – Hong Kong H Hong Kong HKD 66 295 000 100 100 6 926 31 371 – – – –

Freeworld Coatings Mauritius (Pty) Limited 18/02/2008 074472 – CI/GBL H Mauritius US$ 19 409 974 100 100 142 057 106 065 – – – –

Freeworld Coatings (Shanghai) Co., Limited 39495 – Shangai O China RMB 9 525 291 100 100 3 078 4 837 – – – –

Freeworld (Shanghai) Coatings Trading Co., Limited 20/09/2008 42551 – Shangai O China RMB 6 678 775 100 100 4 787 988 – – – –

Freeworld Plascon Botswana (Pty) Limited 03/04/2008 83/4542 – Botswana O Botswana BWP 100 000 100 100 26 331 26 331 – – – –

Freeworld Plascon Malawi Limited 04/04/2008 5989 – Malawi O Malawi MKW 100 000 51 51 5 594 5 594 – – – –

Freeworld Plascon Namibia (Pty) Limited 21/02/2008 12/10264 – Namibia O Namibia NAD 100 100 100 31 916 31 916 – – – –

Freeworld Plascon Zambia Limited 05/03/2008 38753 – Zambia O Zambia ZMK 1 747 553 000 100 100 41 872 41 872 – – – –

3 684 257 3 670 670 1 042 862 1 124 495 1 099 31 848

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.

127

32 Principal subsidiary companies

Issued capital local currency

amount

Effective percentage holding

Interest of holding company at cost/

valuation IndebtednessAmounts owing to

subsidiaries

Company name

Date of name

changeRegistration

number TypeCountry of

incorporation Currency2009

%2008

%2009

R’0002008

R’0002009

R’0002008

R’0002009

R’0002008

R’000

Freeworld Coatings South Africa (Pty) Limited 06/02/2008 2007/023790/07 H South Africa ZAR 1 248 100 100 1 247 972 1 247 972 906 362 964 982 1 099 –

Freeworld Coatings Global (Pty) Limited 06/02/2008 2007/024684/07 O South Africa ZAR 100 100 100 633 – – 31 848

Freeworld Coatings CMA (Pty) Limited 06/02/2008 1922/014245/07 H South Africa ZAR 12 752 100 100 179 120 179 120 – – – –

Plascon Property Holdings (Pty) Limited 1920/002108/07 O South Africa ZAR 36 000 100 100 64 527 64 527 – – – –

Freeworld Coatings Capital (Pty) Limited 06/02/2008 2007/027508/07 O South Africa ZAR 976 005 100 100 976 005 976 005 – – – –

Plascon Cape (Pty) Limited 06/02/2008 1948/029629/07 O South Africa ZAR 9 312 100 100 10 283 10 283 – – – –

Plascon Coastal (Pty) Limited 08/02/2008 1967/005384/07 O South Africa ZAR 10 000 100 100 15 421 15 421 – – – –

Plascon South Africa (Pty) Limited 08/02/2008 1945/019549/07 O South Africa ZAR 42 000 100 100 25 726 25 726 – – – –

International Colour Corporation (Pty) Limited 05/02/2008 1991/002191/07 O South Africa ZAR 1 398 100 100 383 883 383 883 – – – –

Hamilton Brands (Pty) Limited 1936/008617/07 O South Africa ZAR 100 000 100 100 44 092 44 092 42 000 65 646 – –

Prostart Investments 93 (Pty) Limited 2001/009265/07 H South Africa ZAR 100 70 70 136 084 136 084 – – – –

Midas Coatings Group (Pty) Limited 2005/041915/07 H South Africa ZAR 100 100 100 93 867 93 867 93 867 93 867 – –

Midas Paints (Pty) Limited 1989/004153/07 O South Africa ZAR 4 000 100 100 5 002 5 002 – – – –

Barloworld Plascon Swaziland (Pty) Limited 145/1972 – Swaziland O Swaziland ZAR 2 100 100 – – – –

Freeworld Automotive Coatings (Pty) Limited 06/02/2008 1947/024248/07 O South Africa ZAR 800 000 100 100 239 708 239 708 – – – –

Freeworld Coatings Australia (Pty) Limited 19/02/2008 A.C.N. 075273595 O Australia AUD 35 454 783 100 100 6 6 – – – –

Foresston Limited 3609010 – Hong Kong H Hong Kong HKD 66 295 000 100 100 6 926 31 371 – – – –

Freeworld Coatings Mauritius (Pty) Limited 18/02/2008 074472 – CI/GBL H Mauritius US$ 19 409 974 100 100 142 057 106 065 – – – –

Freeworld Coatings (Shanghai) Co., Limited 39495 – Shangai O China RMB 9 525 291 100 100 3 078 4 837 – – – –

Freeworld (Shanghai) Coatings Trading Co., Limited 20/09/2008 42551 – Shangai O China RMB 6 678 775 100 100 4 787 988 – – – –

Freeworld Plascon Botswana (Pty) Limited 03/04/2008 83/4542 – Botswana O Botswana BWP 100 000 100 100 26 331 26 331 – – – –

Freeworld Plascon Malawi Limited 04/04/2008 5989 – Malawi O Malawi MKW 100 000 51 51 5 594 5 594 – – – –

Freeworld Plascon Namibia (Pty) Limited 21/02/2008 12/10264 – Namibia O Namibia NAD 100 100 100 31 916 31 916 – – – –

Freeworld Plascon Zambia Limited 05/03/2008 38753 – Zambia O Zambia ZMK 1 747 553 000 100 100 41 872 41 872 – – – –

3 684 257 3 670 670 1 042 862 1 124 495 1 099 31 848

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.



33 Investment in associate companies

Issued share

capitalR’000

Percentage held by investors

Investor company/associate Principal products or activities 2009 2008

DuPont Freeworld (Proprietary) Limited Automotive coatings 21 49 49

International Paints (Proprietary) Limited Industrial coatings 20 49 49

Sizwe Paints (Proprietary) Limited Decorative paint distributor 1 30 30

Valspar (SA) (Proprietary) Limited Can coatings manufacturer 17 20 20

All companies are incorporated in (or operate principally in) the Republic of South Africa.

34 Related party transactions Various transactions are entered into by the company and its subsidiaries during the year with related parties. Unless specifically

disclosed these transactions occurred under terms that are no less favourable than those entered into with third parties. Intra-group transactions are eliminated on consolidation.

The following is a summary of other transactions with related parties during the year and balances due at year end:

associates of the group

2009R’000

2008R’000

Goods and services sold to

Sizwe Paints (Pty) Limited 28 054 25 189

International Paints (Pty) Limited 41 552 37 827

Valspar (SA) (Pty) Limited – 292

DuPont Freeworld (Pty) Limited 76 696 76 030

146 302 139 338

Goods and services purchased from


Valspar (SA) (Pty) Limited – 40

DuPont Freeworld (Pty) Limited 4 676 1 652

6 932 3 622

Leasing, finance arrangements & other transactions with related parties

Valspar (SA) (Pty) Limited 1 050 910


2 938 2 419

Other transactions

Management fees received from associates 6 614 6 123

6 614 6 123

amounts due from related parties as at end of year*

DuPont Freeworld (Pty) Limited (Herberts) 7 578 4 058

Sizwe Paints (Pty) Limited 2 990 4 060


Valspar (SA) (Pty) Limited 679 95

36 356 31 581

129

34 Related party transactions (continued)

terms on outstanding balances

Unless otherwise noted, all outstanding balances are payable within 30 days, unsecured and not guaranteed.

associates and joint ventures

Details of investments in associates are disclosed in note 7 and 33.

Income from associates is disclosed on the income statement.

Subsidiaries

Details of investments in subsidiaries are disclosed in note 32.

Directors

Details regarding directors’ remuneration and interests are disclosed in note 35.

transactions with key management and other related parties (excluding directors)

Details regarding key management remuneration are disclosed in note 20.

Other than in the normal course of business, there have been no significant transactions during the year, except for a settlement that has been reached with Akzo Nobel (R29,2 million) in respect of compensation for the loss of income and stranded costs arising from the early termination of the protective coatings license agreement with International Paint Limited and the termination of the marine coatings toll manufacturing agreement with International Paint (Pty) Limited and our share of profit on sale of a portion of an associate’s asset (R4 million).

Shareholders

A significant shareholder of the company is VVT Infrastructure Investments who holds 18.86% of the total share capital of the company.

* There are no doubtful debt provisions raised in respect of amounts due to/from related parties and no bad debts incurred during the year on these balances.

35 Directors’ emoluments The directors’ remuneration for the year ended 30 September 2009 was as follows:

Salary R’000

Bonus R’000

Retirement and medical contribution

R’000

Car allowances

R’000Total

R’000

Barloworld share

options exercised^

R’000

2009executive directors

AJ Lamprecht 3 000 1 663 769 327 5 759 1 212 DA Thomas 2 600 479 277 359 3 715 –

total directors’ remuneration 5 600 2 142 1 046 686 9 474 1 212

2008

executive directors

AJ Lamprecht 2 500 2 827 595 273 6 195 2 111

DA Thomas 2 170 1 077 268 408 3 923 999

total directors’ remuneration 4 670 3 904 863 681 10 118 3 110

^ These amounts relate to the gain made on share options in terms of the Barloworld Share Option Scheme and issued in previous years in terms of prior employment and exercised or ceded during the year.



35 Directors’ emoluments (continued)

Total fees Total fees

2009 2008

R’000 R’000


RM Godsell 350 350

E Links 200 190

MM Ngoasheng 220 200

B Ngonyama 260 240

NDB Orleyn 190 190

PM Surgey 150 150

DB Ntsebeza 150 150

Total directors’ remuneration 1 520 1 470

Interest of directors in contracts

The directors have certified that they don’t have any material interest in any transaction of any significance with the company or its subsidiaries. A register detailing directors’ and officers’ interests is available for inspection at the company’s registered office.

Interests of directors of the company in share capital

The aggregate beneficial holdings at 30 September 2009 of the directors of the company and their immediate families (none of which has a holding in excess of 1%) in the issued ordinary shares of the company are detailed below. There have been no material changes in these shareholdings since that date. Associates of directors do not hold any shares.

Number of shares at 30 September

2009 2008

Direct Direct

executive directors

AJ Lamprecht 110 000 3 000

DA Thomas 15 884 15 884


DB Ntsebeza 2 500 2 500

E Links 2 800 2 800

MM Ngoasheng 810 810

PM Surgey 106 278 106 278

131

35 Directors’ emoluments (continued)

Interests of directors of the company in share options

The interests of the executive and non executive directors provided in the form of options are shown in the table below:

Share options in Barloworld Limited

Number of options at

30 Sept 2008

Number of options granted

during the year

Number ofoptions

ceded during

the year

Number ofoptions at

30 Sept 2009

Cession price on day

ceded (R)Option

price (R)

Date from which

exercisable

executive directors

AJ Lamprecht 65 291 – – 65 291 64,18 12 Jul 1023 334 – 23 334 – 46,95 25,48 26 May 07

DA Thomas 2 500 – – 2 500 14,59 1 Apr 062 165 – – 2 165 14,59 1 Apr 065 774 – – 5 774 25,48 26 May 076 667 – – 6 667 25,48 26 May 07

105 731 – 23 334 82 397


30 Sept 2007

Number of options granted during

the year

Number ofoptions

exercised/ceded during

the year

Number ofoptions at

30 Sept 2008

Share price on day

exercised/cession

price on day exercised (R)

Option price (R)

Date from which

exercisable

executive directors

AJ Lamprecht 11 667 – 11 667 – 96,98 14,59 1 Apr 06

10 104 – 10 104 – 98,98 14,59 1 Apr 06

65 291 – – 65 291 64,18 12 Jul 10

23 334 – – 23 334 25,48 26 May 07

DA Thomas* 5 000 – 2 500 2 500 123,50 14,59 1 Apr 06

4 330 – 2 165 2 165 123,50 14,59 1 Apr 06

8 660 – 2 886 5 774 123,50 25,48 26 May 07

10 000 – 3 333 6 667 123,50 25,48 26 May 07

138 386 – 32 655 105 731

* After the publication of the prior year results, the company became aware of a misallocation disclosure for options exercised by DA Thomas between his different tranches of share options in Barloworld Limited.



35 Directors’ emoluments (continued)Share options or rights in terms of the Barloworld Share Option Scheme relating to the unbundling of Pretoria Portland Cement (“PPC”)


30 Sept 2008


during the year

Number of options ceded during

the year

Number ofoptions at

30 Sept 2009

Cession price on day

ceded (R)Option

price (R)

Date from which

exercisable

Executive directors

AJ Lamprecht 43 296 – 43 296 – 33,38 16,95 26 May 07

43 296 – 43 296 –


30 Sept 2007


the year

Number ofoptions


the year

Number ofoptions at

30 Sept 2008

Share price on day

exercised/cession


Option price (R)

Date from which

exercisable

Executive directors

AJ Lamprecht 43 296 – – 43 296 16,95 26 May 07

43 296 – – 43 296

Share appreciation Rights in Freeworld Coatings Limited


30 Sept 2008


during the year

Number ofoptions


the year

Number ofoptions at

30 Sept 2009

Share price on day

exercised/cession


Option price (R)

Date from which

exercisable

Executive directors

AJ Lamprecht 657 895 – – 657 895 – 9,12 31 Jan 11DA Thomas 347 368 – – 347 368 – 9,12 31 Jan 11

1 005 263 – – 1 005 263


30 Sept 2007


the year

Number ofoptions


the year

Number ofoptions at

30 Sept 2008

Share price on day

exercised/cession


Option price (R)

Date from which

exercisable

Executive directors

AJ Lamprecht – 657 895 – 657 895 – 9,12 31 Jan 11

DA Thomas – 347 368 – 347 368 – 9,12 31 Jan 11

– 1 005 263 – 1 005 263

133

36 Post retirement benefits It is the policy of the group to encourage, facilitate and contribute to the provision of retirement benefits for all permanent employees.

To this end the group’s permanent employees are usually required to be members of a contribution driven retirement fund, generally in the from of a provident fund, depending on local legal requirements.

All employees belong to a defined contribution retirement fund or provident fund in which group employment is a prerequisite for membership. Only a minority of the funds are located outside of South Africa and accordingly are not subject to the provisions of the Pension Funds Act of 1956.

Defined contribution plans

The total cost charged to profit or loss of R41 133 000 (2008: R34 892 000) represents contributions payable to these schemes by the group at rates specified in the rules of the schemes.

Historically, qualifying employees were granted certain post-retirement medical benefits. The obligation for the employer to pay medical aid contributions after retirement is not part of the conditions of employment for new employees. A number of pensioners and employees in the group remain entitled to this benefit, the cost of which has been fully provided (note 16).

37 Post balance sheet events There are no post balance sheet events in terms of IAS 10.


Notes2009

R’0002008

R’000

assetsnon current assets

Long term financial assets 2 2 604 887 2 592 541

Deferred taxation asset – 1

Current assets

Trade and other receivables 3 7 124 66 132

total assets 2 612 011 2 658 674

equity and liabilitiesCapital and reserves

Share capital and premium 4 2 583 409 2 583 409

Retained income 25 198 42 720

total equity 2 608 607 2 626 129

Current liabilities 3 404 32 545

Trade and other payables 2 046 32 531

Current tax payable 1 358 14

total equity and liabilities 2 612 011 2 658 674

at 30 September

Company balance sheet


135

Notes2009

R’0002008

R’000

Revenue 5 5 125 3 298

Operating profit 6 10 288 49

Income from investments 7 7 023 65 111

Profit before taxation 17 311 65 160

Income tax expense 8 (4 252) (2 053)


Company income statement


Notes2009

R’0002008

R’000

Cash flows from operating activitiesCash inflow/(outflow) from customers 64 133 (62 834)

Cash (outflow)/inflow from suppliers (25 322) 29 282

Cash generated from/(used in) operations A 38 811 (33 552)

Dividends received 6 918 65 111

Interest received 105 –

Income tax paid B (2 907) (2 040)

Cash flow from operations 42 927 29 519

Dividends paid (including minority shareholders)* (30 581) (20 387)

Cash inflow from operating activities 12 346 9 132

Cash flows from financing activitiesIncrease in long term financial assets (35 993) (173 745)

Equity loans receivable settled 23 647 –

Additional equity funding – 164 613

net cash used in financing activities (12 346) (9 132)

net increase/(decrease) in cash and cash equivalents – –

Cash and cash equivalents at beginning of year – –

Cash and cash equivalents at end of year – –

* The company has no bank accounts and therefore the dividend was paid by Freeworld Coatings Global (Pty) Limited, a wholly owned subsidiary of the company.


Company cash flow statement

137

2009R’000

2008 R’000

a Cash generated from operations is calculated as follows:Profit before taxation 17 311 65 160

Adjustments for:

Dividends received (6 918) (65 111)

Interest received (105) –

Operating cash flows before changes in working capital 10 288 49

Movement in working capital 28 523 (33 601)

Decrease/(increase) in trade and other receivables 59 008 (66 132)

(Decrease)/increase in trade and other payables (30 485) 32 531

Cash generated from operations 38 811 (33 552)

B Income tax paidAmounts unpaid less overpaid at beginning of year (14) –

Income tax expense (excluding deferred tax) (4 251) (2 054)

Amounts unpaid less overpaid at end of year 1 358 14

Cash amount paid 2 907 2 040


Notes to the company cash flow statement


Share capital Total retained Totaland premium income equity

R’000 R’000 R’000


Unbundling restructuring issue of shares (’000) 2 418 796 – 2 418 796

Balance at 30 September 2007 2 418 796 – 2 418 796


Profit for the year – 63 107 63 107

total recognised income and expense for the year – 63 107 63 107Dividends paid – (20 387) (20 387)New shares issued during the year 173 840 – 173 840Costs written off against share premium (9 227) – (9 227)

Balance at 30 September 2008 2 583 409 42 720 2 626 129


Profit for the year – 13 059 13 059

total recognised income and expense for the year – 13 059 13 059Dividends paid – (30 581) (30 581)

Balance at 30 September 2009 2 583 409 25 198 2 608 607


Company statement of changes in equity


139

2009R’000

2008 R’000

1 accounting policiesRefer to the group accounting policies on pages 75 to 88.

2 Long term financial assetsInvestments in subsidiaries 2 604 887 2 592 541

2 604 887 2 592 541

Interest in subsidiaries

Shares as originally stated 1 569 149 1 533 156

Amounts owing by subsidiaries 1 035 738 1 059 385

2 604 887 2 592 541

Unlisted investments opening balance 1 533 156 1 533 156

Share capitalisations 35 993 –

total carrying value of unlisted investments at end of the year 1 569 149 1 533 156

Valuation of shares

Directors’ valuation of unlisted shares 3 704 427 2 925 204

3 trade and other receivablesIntercompany current accounts 7 124 65 111

Short term loan – 95

Other receivables and prepayments – 926

total trade and other receivables 7 124 66 132

All of the above balances are current and none of the above balances are past due nor impaired.

Notes to the company annual financial statements



2009R’000

2008 R’000

4 Share capital and premiumauthorised share capital

Ordinary

300 000 000 ordinary shares of 1c each 3 000 3 000

3 000 3 000

Issued share capital

203 871 939 fully paid ordinary shares of 1c 2 038 2 038

2 038 2 038

Share premium: 2 581 371 2 581 371

Balance at beginning of year 2 581 371 2 416 983

Cost written off against share premium – (9 227)

Shares issued during the year – 173 615

total issued share capital and premium 2 583 409 2 583 409

Issued shares:

Total number of shares in issue at beginning of year (’000) 203 872 181 320

Issued during the year (’000) – 22 552

total number of shares in issue at end of year 203 872 203 872

For further information refer to note 14 in the consolidated financial statements

5 RevenueRendering of services 5 125 3 298

5 125 3 298

Dividends received from subsidiaries are not included in revenue, but reflected as income under operating profit.

6 Operating profitOperating profit is arrived at as follows:

Revenue 5 125 3 298

Less: Net expenses 5 163 (3 249)

Other operating costs (5 054) (3 249)

Other operating income 10 217 –

Operating profit 10 288 49

expenses include the following:

Administration, management and technical fees paid 2 858 844

Auditors’ remuneration: 659 443

Audit fees 659 443

Directors’ emoluments paid by holding company

Non executive directors

Fees 1 520 1 470

notes to the company annual financial statements continued

141

2009R’000

2008 R’000

7 Income from investmentsInterest received 105 –

Dividend income 6 918 65 111


Investment income earned on financial assets, analysed by category of asset, is as follows:

Available for sale financial assets 6 918 65 111

Loans and receivables (including cash and bank balances) 105 –


8 Income tax expenseSouth African normal taxation

Current year 2 212 15

2 212 15

Deferred taxation

Current year 1 (1)

1 (1)

Secondary taxation on companies


2 039 2 039

total company 4 252 2 053

2009%

2008 %

Reconciliation of rate of taxation:

South Africa normal taxation rate 28,0 28,0

Reduction in rate of taxation

Exempt income (27,7) (27,9)

Increase in rate of taxation

Disallowable charges 4,2 0,0

Capital gains 8,3 0,0

Secondary taxation on companies 11,8 3,1

taxation as a percentage of profit before taxation 24,6 3,2

Deferred taxation as well as normal taxation was calculated at 28%.


notes to the company annual financial statements continuedfor the year ended 30 September

9 Related partiesVarious 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 group2009

R’0002008

R’000

Other transactions

Dividends received from related parties 6 918 65 111

Management fees received from subsidiaries 5 125 3 298

12 043 68 409

amounts due from/(to) related parties as at end of year*

Intergroup loans due from related parties as at end of year 7 124 65 111

Intergroup loans due to related parties as at the end of year (1 099) (31 848)

6 025 33 263

* There are no doubtful debt provisions raised in respect of amounts due to/from related parties and no bad debts incurred during the year on these balances.

The following notes are dealt with in the consolidated financial statements:

– Dividends

– Financial risk management

– Directors’ remuneration and interest

– Freeworld shareholders’ attributable interest in subsidiaries

143

Shareholder calendarFinancial year end September Dividend declared (if applicable): Reporting: Interim May Annual report December Final November Annual general meeting February Dividend payable (if applicable): Interim report May Interim July Annual results November Final January

Shareholder information as at 30 September 2009

Number of shareholders %

Number of shares %

1 ANALySIS OF SHAREHOLDINGSRange1 – 1 000 8 319 75,24 2 866 889 1,411 001 – 10 000 2 313 20,92 6 810 949 3,3410 001 – 100 000 295 2,67 8 464 762 4,15100 001 – 1 000 000 99 0,90 30 911 884 15,161 000 001 – and more 31 0,28 154 817 455 75,94

totals 11 057 100 203 871 939 100

2 DISTRIBuTION OF SHAREHOLDERSBanks 76 0,69 29 501 841 14,47Individuals 9 086 82,17 9 542 570 4,68Insurance companies 10 0,09 11 603 515 5,69Investment companies 153 1,38 76 954 561 37,75Nominees and trusts 1 467 13,27 7 087 344 3,48Pension funds 95 0,86 68 074 748 33,39Private companies 169 1,53 628 670 0,31Share trust 1 0,01 478 690 0,23

totals 11 057 100 203 871 939 100

3 SHAREHOLDER SPREADnon public 9 0,08 39 165 057 19,21Directors 7 0,06 238 272 0,12Share trust 1 0,01 478 690 0,23Holdings 10% + 1 0,01 38 448 095 18,86Public 11 048 99,92 164 706 882 80,79

4 BENEFICIAL SHAREHOLDERS OWNING 10% OR MOREVVT Infrastructure Investments 38 448 095 18,86

5 BENEFICIAL SHAREHOLDERS OWNING 5% OR MOREState Street Bank and Trust 11 062 909 5,43GEPF Equity 15 952 822 7,82GEPF Stanlib Asset Management 14 563 894 7,14

market information for year ended 30 September 2009

High (cps) 948 Number of transactions 9 972Low (cps) 425 Shares issued 203 871 939Value 656 908 799 Market capitalisation 1 830 770 012Volume 103 827 145

Shareholder information


company and Mr LT Taljaard as the individual registered auditor

who will undertake the audit for the company for the ensuing

year, and to determine the remuneration of the auditors.”

Special business

4. SPECIAL RESOLuTION NuMBER 1

General authority to repurchase shares

“Resolved that, as a general approval contemplated in sections 85

to 89 of the Companies Act 61 of 1973, as amended (“the Act”),

the acquisitions by the company, and/or any subsidiary of the

company, from time to time of the issued ordinary shares of the

company, upon such terms and conditions and in such amounts

as the directors of the company may from time to time determine,

be and is hereby authorised, but subject to the articles of association

of the company, the provisions of the Act and the JSE Limited

(“JSE”) Listings Requirements, when applicable, and provided

that:

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

ofthefinancialyear;

b) The general repurchase of securities will be effected through

the order book operated by the JSE trading system and done

without any prior understanding or arrangement between

the company and the counter party (reported trades are

prohibited);

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

ofthisspecialresolution;

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

dayperiod;

e) At any point in time, the company may only appoint one

agenttoeffectanyrepurchasesonthecompany’sbehalf;

f) After such repurchase the company will still comply with

the JSE Listings Requirements concerning shareholder

spreadrequirements;

g) The company or its subsidiary may not repurchase securities

during a prohibited period as defined in the JSE Listings

Freeworld Coatings Limited

(Incorporated in the Republic of South africa)

Registration number 2007/021624/06

JSe code: FWD

ISIn code: Zae000109450

(“the company” or “Freeworld Coatings”)

Notice is hereby given that the second annual general meeting of the

members of the company will be held at The Saxon, 36 Saxon Road,

Sandhurst, Sandton on Friday, 5 February 2010 at 12:00 to consider

and if deemed fit, to pass, with or without amendment, the following

resolutions:

Ordinary business1. ORDINARy RESOLuTION 1

Confirmation of annual Financial Statements

“Resolved that the annual financial statements of the company

and the group, incorporating the directors’ report and the report

of the auditors, for the year ended 30 September 2009, be and

are hereby received and confirmed.”

2. ORDINARy RESOLuTION 2

Re-election of Directors

In accordance with the provisions of articles 21.1, Ms B Ngonyama,

Mr DB Ntsebeza and Mr PM Surgey, all non executive directors

of the company, retire at the second annual general meeting of

the company. All retiring directors are eligible and have offered

themselves for re-election.

Shareholders are referred to page 20 of the annual report for

the curriculum vitae of the non executive directors.

2.1 “Resolved that Ms B Ngonyama who retires in terms of

article 21.1 of the articles of association of the company

and is eligible and available for re-election, be and she is

hereby re-appointed as a director of the company.”

2.2 “Resolved that Mr DB Ntsebeza who retires in terms of


and is eligible and available for re-election, be and he is


2.3 “Resolved that Mr PM Surgey who retires in terms of


and is eligible and available for re-election, be and he is


3. ORDINARy RESOLuTION 3

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

Notice of annual general meeting

145

Other disclosure in terms of the JSe Listings Requirements Section 11.26 applying to the special resolution number 1

For the purposes of considering special resolution number 1, and in compliance with the JSE Listings Requirements, the information listed below has been included in the annual report, to which this notice forms part, on the pages indicated:

Directors and executive – pages 20 and 23

Major shareholders of the company – page 143

Directors’ interests in securities – page 130

Share capital of the company – page 98.

Directors’ responsibility statement

The directors, whose names are given on page 20 of the annual report, collectively and individually accept full responsibility for the accuracy of the information pertaining to this resolution and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this resolution contains all information required by law and the JSE Listings Requirements.

material change

Other than the facts and developments reported on in the annual report, there have been no material changes in the financial or trading position of the company and its subsidiaries since the date of signature of the audit report and the date of this notice.

Litigation

In terms of section 11.26 of the JSE Listings Requirements, the directors, whose names are given on page 20 of the annual report of which this notice forms part, are not aware of any legal or arbitration proceedings, including proceedings that are pending or threatened, that may have or have had in the recent past, being at least the previous twelve months, a material effect on the group’s financial position.

vOTING AND PROxIES

Shareholders who have not dematerialised their shares or who have dematerialised their shares with “own name” registration are entitled to attend and vote at the meeting and are entitled to appoint a proxy or proxies to attend, speak and vote in their stead. The person so appointed need not be a shareholder. Proxy forms must be forwarded to reach the company’s transfer secretaries, Link Market Services South Africa (Pty) Limited, 16th floor, 11 Diagonal Street, Johannesburg, or posted to the transfer secretaries at PO Box 4844, Johannesburg, 2000, by 12:00 on Wednesday, 3 February 2010. Proxy forms must only be completed by shareholders who have not dematerialised their shares or who have dematerialised their shares with “own name” registration.

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

commencementoftheprohibitedperiod;

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

announcementwillbemade;and

i) Before entering the market to proceed with the general

repurchase, the company’s sponsor will confirm the adequacy

of the company and the group’s working capital in writing

to the JSE.

The directors undertake that they will not effect a general repurchase

of shares as contemplated above unless the following can be met:

• Thecompanyandthegroupareinapositiontorepaytheirdebt

in the ordinary course of business for a period of twelve months

afterthedateofthegeneralrepurchase;

• Thecompanyandthegroup’sassets,fairlyvaluedinaccordance

with the accounting policies used in the latest audited consolidated

annual financial statements, will exceed the liabilities of the

company and the group for a period of twelve months after the

dateofthegeneralrepurchase;

• Thesharecapitalandreservesofthecompanyandthegroupare

adequate for ordinary business purposes for the next twelve months

afterthedateofthegeneralrepurchase;and

• Theavailableworkingcapitalofthecompanyandthegroupwill

be adequate for ordinary business purposes for a period of

twelve months after the date of the general repurchase.

The reason for proposing special resolution number 1 is to grant the

directors a general authority in terms of the Act, as amended, and

subject to the JSE Listings Requirements for the acquisition by the

company or one of its subsidiaries of the company’s own shares on

the terms set out above. The effect will be to authorise the directors

to purchase shares in Freeworld Coatings.

Statement of board’s intention

The directors of the company have no specific intention to effect the

provisions of special resolution number 1, but will however continually

review the company’s position, having regard to prevailing circumstances

and market conditions, in considering whether to effect the provisions

of special resolution number 1.


notice of annual general meeting continued

On a show of hands, every member of the company present in person or represented by proxy shall have one vote only. On a poll, every shareholder of the company shall have one vote for every share held in the company by such shareholder.

Shareholders who have dematerialised their shares, other than those shareholders who have dematerialised their shares with “own name” registration, should contact their Central Securities Depository Participant (CSDP) or broker in the manner and time stipulated in their agreement:

• tofurnishthemwiththeirvotinginstructions;and

• intheeventthattheywishtoattendthemeeting,toobtainthenecessary authority to do so.

Equity securities held by a share trust or scheme will not have their votes taken into account at the annual general meeting for the purposes of resolutions proposed in terms of the JSE Listings Requirements.

Please note that unlisted securities, if applicable, and shares held as treasury shares may also not vote.

By order of the board

eLa ChamberlainCompany secretary

Paulshof

16 November 2009

147

Form of proxy

Freeworld Coatings Limited(Incorporated in the Republic of South africa) Registration number 2007/021624/06JSe code: FWDISIn code: Zae000109450(“the company” or “Freeworld Coatings”)

Only for use by shareholders who have not dematerialised their shares or shareholders who have dematerialised their shares with “own name” registration, at the second annual general meeting of the company to be held at 12:00 on Friday 5 February 2010, at the Saxon, 36 Saxon Road, Sandhurst, Sandton.

If you are a shareholder referred to above, entitled to attend and vote at the second annual general meeting, you can appoint a proxy or proxies to attend, vote and speak in your stead at the second annual general meeting. A proxy need not be a shareholder of the company.

If you are a shareholder and have dematerialised your share certificate through a CSDP and have not selected “own name” registration in the sub register maintained by the CSDP, do not complete this form of proxy but instruct your CSDP to issue you with the necessary authority to attend the annual general meeting, or if you do not wish to attend, provide your CSDP with your voting instructions in terms of your custody agreement entered into with it.

I/We,

of (address )

being a holder(s) of ordinary shares in the company,

hereby appoint or failing him

of or failing him

of or failing him,

the chairman of the annual general meeting as my/our proxy to attend, speak and vote for me/us and on my/our behalf or to abstain from voting at the annual general meeting of the company and at any adjournment thereof, as follows (see note 2):

Insert an X or the number of votes exercisable (one vote per ordinary share)

In favour of Against Abstain

1. Ordinary resolution 1 to receive and confirm the group annual financial statements, incorporating the directors’ report and the report of the auditors, for the year ended 30 September 2009.

2. Ordinary resolution 2 to re-elect directors in accordance with the provisions of the company’s articles of association:

2.1 re-elect Ms B Ngonyama as a director of the company.

2.2 re-elect Mr DB Ntsebeza as a director of the company.

2.3 re-elect Mr PM Surgey as a director of the company.

3. To re-appoint Deloitte & Touche as independent auditors of the company and Mr LT Taljaard as the individual registered auditor who will undertake the audit for the company for the ensuing year, and to determine the remuneration of the auditors.

4. Special resolution number 1To approve a general authority authorising the company and or its subsidiaries to acquire shares issued by the company.

Signed this day of 20

Signature/s

Assisted by (where applicable)


Notes to proxy

5. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy unless previously recorded by the transfer secretaries or waived by the chairman of the meeting.

6. The completion and lodging of this form of proxy will not preclude the relevant member from attending the annual general meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such member wish to do so.

7. The completion of any blank spaces need not be initialled. Any alterations or corrections to this form of proxy must be initialled by the signatory/ies.

8. The chairman of the meeting shall be entitled to decline to accept the authority of a person signing the proxy form:

a) underapowerofattorney;or

b) on behalf of a company,

unless his power of attorney or authority is deposited at the offices of the company or that of the transfer secretaries not later than 48 hours before the annual general meeting.

1. A member may insert the name of a proxy or the names of two alternative proxies of the member’s choice in the space/s provided overleaf, with or without deleting “the chairman of the meeting”, but any such deletion must be initialled by the member. Should this space be left blank, the proxy will be exercised by the chairman of the meeting. The person whose name appears first on the form of proxy and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose names follow.

2. A member’s voting instructions to the proxy must be indicated by the insertion of an “X”, or the number of votes exercisable by that member, in the appropriate spaces provided overleaf. Failure to do so will be deemed to authorise the proxy to vote or to abstain from voting at the annual general meeting, as he/she thinks fit in respect of all the member’s exercisable votes. A member or his/her proxy is not obliged to use all the votes exercisable by him/her or by his/her proxy, but the total number of votes cast, or those in respect of which abstention is recorded, may not exceed the total number of votes exercisable by the member or by his/her proxy.

3. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered by the transfer secretaries.

4. To be valid, the completed forms of proxy must be lodged with the transfer secretaries of the company, Link Market Services South Africa (Pty) Limited, 16th Floor, 11 Diagonal Street, Johannesburg, 2001, or posted to the transfer secretaries at PO Box 4844, Johannesburg, 2000, to reach the company by Wednesday 3 February 12:00, at least 48 hours before the time appointed for the holding of the annual general meeting.

We are committed to contribute to better lives and living spaces in the markets in which we operate through our products and propositions, our ideas and actions – never afraid to find better ways to do things. We understand that a vibrant society and healthy natural environment are intrinsic to our lasting success. This understanding provides the foundation for the way we have chosen to structure and manage our business – which requires that we do business in a commercially sensible and socially responsible manner, mindful that we are custodians of the earth’s resources.

In reporting back to our stakeholders on our performance, strategy and prospects, we aim to disclose material information transparently, comparatively and understandably. As part of our sustainable approach to managing our business, we measure our performance against the triple bottom line, providing increasingly focused sustainability information as part of our annual report. Stakeholders are directed to our website www.freeworldcoatings.com for further information to complement our annual report, periodic SENS announcements and presentations of our interim and annual results.

01 About Freeworld Coatings 02 Our ethos 03 Highlights 04 Our group at a glance 06 Our brands 10 Chairman’s report 11 Chief executive officer’s report 14 Vision 17 Innovation 19 Business philosophy 20 Our board 22 Our executives 24 How South Africa scored 26 Operational review: Decorative Coatings 33 Operational review: Performance Coatings 35 Going for gold 38 Where there’s a wall there’s a way 40 Sustainability report 53 Corporate governance 58 Chief financial officer’s report 59 Annual financial statements 143 Shareholder information 144 Notice of annual general meeting 147 Form of proxy ibc Company information

contents

SpONSOR

Rand Merchant Bank (A division of FirstRand Bank Limited)(Registration number 1929/001225/06)1 Merchant PlaceCnr Fredman Drive and Rivonia RoadSandton, 2196(PO Box 786273, Sandton, 2146)Tel: +27 11 282 8000

ATTORNEyS

Read Hope Phillips Thomas & Cadman Inc.(Registration number 2000/022080/21)2nd Floor, 30 Melrose BoulevardMelrose Arch, Gauteng, 2196(PO Box 757, Northlands, 2116)Tel: +27 11 344 7800

AuDITORS

Deloitte & ToucheDeloitte Place, The WoodlandsWoodlands Drive, 2052(Private Bag X6, Gallo Manor, 2052)

COMpANy SECRETARy

Eleanor Chamberlain

REGISTERED OFFICE

Balvenie, Kildrummy Office ParkUmhlanga DrivePaulshof

pOSTAL ADDRESS

PostNet Suite 263Private Bag X87Bryanston, 2021Tel: +27 11 549 8000Website: www.freeworldcoatings.com

COMpANy REGISTRATION NuMbER

2007/021624/06

COuNTRy OF INCORpORATION

Republic of South Africa

TRANSFER SECRETARIES

Link Market Services South Africa (Pty) Limited(Registration number 2000/007239/07)16th Floor, 11 Diagonal StreetJohannesburg, 2001(PO Box 4844, Johannesburg, 2000)Tel: +27 11 630 0800

Company information

FREEWORLD COATIN

GS LIMITED

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