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Governance report 2018

GOVERNANCE REPORT 2018 | 1

Governance

Approach to ethical and effective governance 2

King IV™ 2

Who are our stakeholders? 3

How does Kaap Agri create an ethical culture? 4

How does Kaap Agri ensure effective control? 5

How does Kaap Agri ensure good performance?

6

How does Kaap Agri ensure legitimacy? 7

King IV™ principles disclosure map 7

Governance structure 7

Board structure 7

Composition and expertise 7

Board meeting attendance 8

Board profiles as at 30 September 2018 9

Governance report for 2018 12

Key governance initiatives for the year 12

Committees and their roles in the governance 13

Board efficiency 17

Company Secretary 17

Executive committee 18

Evolving our stakeholder engagement 18

Stakeholder relations 18

Broad-based black economic empowerment (“B-BBEE”)

20

Information management (“IM”) 22

Outlook 24

Contents

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Approach to ethical and effective governanceKaap Agri is committed to responsible and effective corporate governance. The role of the Kaap Agri Board is to provide ethical and effective leadership to the Group and ensure a consistently high level of business performance. There is a range of mechanisms, policies, procedures, committee structures and values that enable this, the most material of which are described in this report.

King IV™In completing this governance report, the Board reviewed our alignment to and application of the King IV Report on Corporate Governance™ for South Africa 2016 (“King IV™”) principles. We asked ourselves five questions:

• Who are our stakeholders?• How does Kaap Agri create an ethical culture?• How does Kaap Agri ensure effective control?• How does Kaap Agri ensure good performance?• How does Kaap Agri ensure legitimacy?

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Governance


Who are our stakeholders?The Group identifies its stakeholders according to the products we provide through our various business segments. These stakeholders include those involved in the creation and delivery of the products, to the ultimate end users.

We interact with nine distinct stakeholder groups:

Priority Stakeholder

AClients: This is a broad term for all end users. For example, a farmer may be the primary purchaser of a product, but the primary user could be a labourer on the farm using the product. Our client base is predominantly determined by our geographic representation, with the emphasis on participants in the commercial agricultural and retail sector, covering all income groups and market segments.

AEmployees: All persons employed by the business to enable the value creation activities of Kaap Agri. They represent skills that range from retail sales to logistics, procurement, manufacturing, seed processing and support services.

ASuppliers: As a result of our diverse product offering, the Group has a range of suppliers who supply, among other things:

• Agri chemicals• Agri infrastructure• Animal feeds• Animal production• Fertilisers• Horticulture• Mechanisation• Packing material• Automotive and lubricants• Building material• Clothing and PPE• FMCG• Gas

• Hardware• Homeware and appliances• Irrigation• Lighting and electrical• Liquor• Outdoor• Paint• Pets and animals• Pool and gardening• Sanware and plumbing• Tools• Fuel

AFinanciers: Our ability to provide financing solutions to our clients depends on the relationships we have with credit providers. These are primarily through loans from a South African bank.

AShareholders: 65,88% of the Group’s shares are held by three shareholders: Zeder Financial Services Limited, Plurispace (Pty) Ltd, and Empowerment and Transformation Investments (Pty) Ltd (“ETI”). The Group listed on the “speciality retailer” sector of the main board of the Johannesburg Stock Exchange (“JSE”) on 26 June 2017. During the financial year, there were 7 031 234 shares to the value of R316 289 671 million traded.

AGovernment and regulators: The Group adheres to regulations and laws prescribed for the various industry segments in which it operates. These include licences to operate our fuel business, and compliance with B-BBEE requirements.

BSociety: Kaap Agri defines society as the farming and local communities surrounding our operations. These include those stakeholders influenced by our corporate social investment (“CSI”) activities, such as learning institutions. In many areas and towns, the Group is the largest and only employer and provider of products and services, often outside its usual product and business parameters. This underlines its contribution to society.

BIndustry bodies: Effective operation across a broad geography is leveraged through affiliation and associations with relevant industry bodies such as Business Unity South Africa (“BUSA”) and Agbiz.

BBargaining councils: Kaap Agri needs to comply with the collective agreements negotiated with the various bargaining councils and views them as valued partners. Kaap Agri liaises with officials in these councils to obtain clarity on various employee matters and to ensure that it applies all agreements in a fair manner. These engagements support our business by prompting employee support offerings.

A Primary B Secondary

4

How does Kaap Agri create an ethical culture?Ethical and accountable behaviour is encouraged through a distinct Group culture that is captured through a commitment to the following values:

C A R E

Communicate Alignment Relationships Empowerment

OpenClearHonest

Shared serviceResults

AuthenticRecognitionTime

DevelopmentBetter offOwnershipGrow

Ethical decisions are rooted in a commitment to a robust Code of Ethics that applies to every employee. The Board charter stipulates ethical expectations for the behaviour of its members. The Internal Audit function furthermore aligns all activities with the Code of Ethics and the International Standards for the Professional Practice of Internal Auditing.

Clear guidelines from the Group’s Code of Ethics support ethical behaviour throughout the Group with mechanisms for correction where needed. An example is the internal whistle-blowing facility operated by Deloitte & Touche. Transgressions are addressed and remedial action applied in terms of the disciplinary code of the Group.

The Trade agreement and conditions of supply policy contain a specific section on ethics, and suppliers are expected to take specific actions in the case of any breach.

As a number of non-executive directors are direct or indirect customers of the Group and have ongoing business with the Group, Kaap Agri discloses the value of such related party transactions in the annual financial statements starting on page 76 of the integrated report.

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How does Kaap Agri ensure effective control?Effective control means that risks at Kaap Agri are properly managed and mitigated, and decisions are based on quality information within clearly defined roles and responsibilities. To support effective control, Kaap Agri has a decision-making framework that defines clear levels of accountability and authority.

Kaap Agri uses a combined assurance model to ensure the accuracy of information used in key decision-making activities.

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Operational departments

Annual capital budgets are approved by management and the Board. Authority to act on behalf of the company is determined by the decision-making framework with the finance department providing final approval. Day-to-day operations executed by employees are overseen by middle management.

Finance department

The Financial Director acts as gatekeeper. Any payments have to be approved by the finance department.

Executive committee

On an operational level, final responsibility rests with the Executive committee. All managers report to executive directors.

Financing services department

Applications for credit are evaluated by officials at branch level.

Group Manager: Financing and Financial Director

Applications are evaluated and approved at central office.

Financial Director must sign off on applications exceeding particular amounts as set out in credit policy.

Finance committee

The credit policy is approved by the Finance committee. Applications exceeding certain amounts must be approved by Finance committee. Underlying securities are subjected to an annual review by external attorneys.

Information management

Infrastructure availability and maintenance are continuously monitored. Security coverage is provided for 99.5% of end points. Email and firewall security is of a high standard, with proper back-up and business continuity plans in place.

Compliance and legal department

The compliance office is responsible for the compliance function in cooperation with Internal Audit and the legal department. Contracts are negotiated and entered into in line with the decision-making framework and in cooperation with the legal department.

Executive committee

Final responsibility rests with the Executive committee.

Auditing processes

Day-to-day operations are overseen by managers at all levels, and final responsibility rests with executive directors.

Internal Audit Internal Audit is responsible for monitoring effective compliance with policies.

External auditors

Responsible for executing audit in line with accepted accounting practices.

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General

Insurance

Board and Board committees

Risks are evaluated and insurance cover negotiated annually with a reputable insurer.

Directors have unlimited access to all personnel and information.

The Group has various committees that are mandated to ensure a level of control and governance in various areas of the business. Refer to page 13 for an overview of their purpose and composition.

In addition to the verification role of Internal Audit, Kaap Agri has a range of clearly defined policies that cover key operational and risk areas. Kaap Agri developed a strategic risk register, identifying and rating risks according to their likelihood and potential impact on its strategic goals. Ratings were completed on the inherent risks (before mitigating measures) as well as the residual risks (after mitigating measures were taken into consideration). More details about risk policies and approaches are available in the risk report, which forms part of the integrated report.

Policies on the following subjects are widely available to internal stakeholders:

• Affirmative action• Code of Ethics • Competition • Competition Act• Credit • Dealing in securities• Disciplinary and grievance procedure• Donations• Gender and race diversity• Gifts• HIV • Internal Audit – Terms of Mandate• Marketing competitions• Private interests, extramural activities and external

remuneration• Remuneration• Remuneration and external directorships• Smoking• Stakeholder relations• Theft• Training and development• Whistle-blowing• Sexual harassment

How does Kaap Agri ensure good performance?Kaap Agri believes that good performance can only be achieved by employing the right people. This means recruiting individuals with the right skills and attitude and who display the values that align to our high-performance culture.

Value-generating performance starts with the Board, where the Chairman currently takes responsibility for ensuring adequate capacity and expertise to support effective Board performance.

The Executive committee’s performance is annually assessed with remuneration incentives linked directly to performance and attainment of specific objectives. These objectives are derived from the Group’s strategy and appropriate key performance indicators (“KPIs”) developed for each. Refer to our remuneration report on page 24 of the integrated report for details.

Individual employee performance is reviewed through an annual performance management process. Performance requirements cascade into higher levels of management and ultimately align to the Group’s strategy. For example, the performance of branch managers hinges on store performance, which aligns to segmental and ultimately Group performance objectives. Each business segment in Kaap Agri uses a strategic map with financial and non-financial KPIs aligned to remuneration and linked to the Group’s strategy.

Performance is further incentivised through a short-term incentive scheme in which every permanent employee is a participant. Management-level employees may partake in a long term share-based incentive scheme. Both forms of incentive schemes ensure that individual performance in meeting Group objectives are aligned and adequately rewarded.

The Executive committee presents the proposed strategy to the Board for discussion and review at an annual strategy session. The strategic objectives include clearly defined

Governance


targets for implementation. All business segments report on outcomes of the strategy execution via the Group’s electronic management tool. In addition, the information derived from the reports provides valuable business intelligence to direct improvements and corrective actions.

How does Kaap Agri ensure legitimacy?Our legitimacy is based on our ability to create value for a broad range of stakeholders. The Group prides itself on a reputation of being relatable to our clients and customers, and always seeking to ethically resolve problems within our sphere of business influence. The Group will always seek to provide access to products at a fair price to enable clients to do business with us. We support our stakeholders’ interests throughout our value chain and expand market opportunities for suppliers. Refer to our “evolving our stakeholder engagement” section on page 18.

Kaap Agri also earns legitimacy through our brand, and our people are essential to the Group’s reputation of quality. The Kaap Agri brand is firmly rooted in stakeholder recognition or the “mens-mense” principle. This principle defines the business as an accountable and highly engaged corporate citizen that genuinely considers the needs and interests of our stakeholders. We ensure that our activities align with the views and attitudes of our primary stakeholders while continuously forging mutually beneficial relationships with suppliers and other stakeholders.

King IV™ principles disclosure mapThe Group endeavours to explain its application of appropriate principles and is transparent in areas of non-compliance. The website contains a King IV™ principles disclosure map: a table that provides a high-level overview of responses to the 16 applicable King IV™ principles. Where

relevant, reference is made to other areas of the integrated or governance report where detailed information can be found. The table further contains an indication of the level of application and an explanation of the Group’s King IV™ disclosure, with icons to indicate the maturity of such disclosure.

Governance structureThe key roles and responsibilities of the Board include acting as the focal point for, and custodian of, corporate governance, determining the strategic objectives of the Kaap Agri Group and monitoring the implementation of its approved strategies, decisions, values and policies. The Board is satisfied that it has fulfilled the responsibilities required by its mandate in the year.

The Kaap Agri Board is chaired by a non-executive director and has 12 members. The Board is supported by five committees, each with clear terms of reference that aid the execution of their duties and determine the due governance required in each area of the business.

The roles of the Chairman and the Chief Executive Officer (“CEO”) are clear and separate in terms of duties and responsibilities. The CEO is tasked with the day-to-day operations of the business in line with the Group’s decision-making framework. The CEO is supported in this role by the Executive committee, two members of whom are Board members. The Board is satisfied that the decision-making framework provides a clear basis for exercising of duties and contributes to clarity and accountability. In addition, the Board charter ensures that there is appropriate balance of power in the deliberations of the Board. There is a clear balance of power and authority at Board level which ensures that no single director has unlimited or unfettered powers of decision-making.

KAAP AGRI GROUP BOARD

Audit and Risk committee

Remunerationcommittee

Nominationcommittee

Social and Ethicscommittee

Finance committee

Executive committee

Board structureComposition and expertise

83% Male 17% Female1 8 Independent non-executive directors

25% Black1 75% White 2 Non-executive directors

2 Executive directors

1 The Board of Kaap Agri has taken active steps to modify the composition of the Board to better reflect the demographics of South Africa, with particular focus on black and female representation.

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Expertise

Field of expertise

Number ofBoard members

Financial markets and investments 8Agriculture 8General business 12Mergers and acquisitions 9Retail operations 8Marketing 9Logistics/supply chain 9Transformation 12Risk management 9Legal 5Human resources 9Sustainability 12Governance 12

The Board is satisfied that the current composition enables ethical and effective leadership, but it will seek to improve diversity further.

In terms of tenure, the Board members’ profiles indicate appointment dates since the unbundling in 2011 and the establishment of Kaap Agri Limited in its current form. Some Board members were involved with Kaap Agri prior to the unbundling.

Board meeting attendanceOverall Board meeting attendance was high and in line with King IV™ requirements, which is evidence of the Board’s commitment to high levels of governance and performance.

Member

Meetingsattended

I Chalumbira** 0/4BS du Toit 4/4D du Toit 4/4JH le Roux 4/4EA Messina 4/4WC Michaels 4/4CA Otto 4/4GW Sim* 4/4HM Smit 4/4GM Steyn 4/4JH van Niekerk 4/4S Walsh* 4/4

* Executive** Mr Chalumbira was appointed during September 2018

Governance


Board profiles as at 30 September 2018I Chalumbira (47) Non-executive director

Appointment date: September 2018

Qualifications: BSc (Industrial Psychology) MBA (Strategy)

Committee membership: Not applicable

Other board memberships: AIH Properties (Pty) LtdAmber Cascades Trading 202 (*Pty) LtdArlozone (Pty) LtdBorder Auto Centre (Pty) LtdC-Max Investments 71 (Pty) LtdKaap Agri LimitedKebraware (Pty) LtdLionsecurity (Pty) LtdLionshare Developments (Pty) LtdLionshare Financial Services (Pty) LtdLionshare Holdings (Pty) LtdLionshare Logistics (Pty) LtdLionshare Management Services (Pty) Ltd

Lionshare New Properties 2 (Pty) LtdLionshare Properties (Pty) LtdLionshare Property Management (Pty) LtdLionshare Trading (Pty) LtdLionshare Venture Holdings (Pty) LtdMatoppi Investments (Pty) LtdMezibase (Pty) LtdMusina Intermodal Terminal (Pty) LtdNabuphase (Pty) LtdProc Corp 27 (Pty) LtdThovela Welkom Hospitality (Pty) LtdTungsten Bay (Pty) Ltd

BS du Toit (61) Independent non-executive director

Appointment dates: Board in November 2011Audit and Risk committee in February 2012

Qualification: BAgric (Management)

Committee membership: Audit and Risk

Other board memberships: Freshgold SA Exports (Pty) Ltd 32 Degrees South Fruit (Pty) LtdWydekloof (Pty) Ltd Langrivier Boerdery (Pty) LtdLangrivier Beleggings (Pty) Ltd Aartappels SA

D du Toit (42) Independent non-executive director

Appointment dates: Board in March 2017Audit and Risk committee in May 2017

Qualification: BComm (Hons)

Committee membership: Audit and Risk

Other board memberships: De Keur Beherend (Pty) Ltd De Keur Berries (Pty) LtdDe Keur Agri (Pty) Ltd Tipmar (Pty) LtdDe Keur Landgoed (Pty) Ltd Witzenberg Pals (Partners in Agri Land Solutions) PBODe Keur Marketing (Pty) Ltd Breyton Paulse Foundation NPCDe Keur Verpakking (Pty) Ltd

JH le Roux (43) Non-executive director

Appointment date: Board in April 2014

Qualifications: BAcc (CTA), HDip (Tax) and CA(SA)

Committee membership: Finance

Other board memberships: Cerula 23 (Pty) Ltd Zeder Financial Services (Pty) LtdZeder Corporate Services (Pty) Ltd Zeder Investments LimitedClean Air Nurseries Agri Global (Pty) Ltd Zeder Africa LimitedZaad Holdings Limited Zeder Management Services (Pty) LtdThe Logistics Group (Pty) Ltd Bakenskraal Investments (Pty) LtdCapespan Group Limited The Logistic Company (Pty) Ltd

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EA Messina (60) Independent non-executive director

Appointment date: Board in March 2017

Qualifications: BA (Hons), MA Southern African Studies, MA (History) (Cum laude) and DPhil (History)

Committee membership: Social and Ethics (chairman)

Other board memberships: SBI (formerly AHI) TFC Operations (Pty) LtdGroot Constantia Trust TFC Properties (Pty) LtdCape Town Radio The Du Toit Group

WC Michaels (45) Independent non-executive director

Appointment date: Board in August 2017

Qualifications: BSc, BSc (Hons), MSc and PhD (Polymer Chemistry)

Committee membership: Social and Ethics

Other board memberships: N/A

CA Otto (69) Independent non-executive director

Appointment date: Board in November 2011Audit and Risk committee in May 2017 (chairman)

Qualifications: BComm, LLB

Committee membership: Audit and Risk (chairman)Remuneration (chairman)Nomination

Other board memberships: PSG Financial Services Limited Zeder Financial Services (Pty) LtdPSG Group Limited Capitec Bank Limited Capitec Bank Holdings Limited Remgro-Capevin Beleggings LimitedZeder Investments Limited Distell Group LimitedPeter D Wimsey and Associates (Pty) Ltd Kalander Kapitaal (Pty) Ltd

GW Sim (48) Financial Director (executive)

Appointment date: Board in August 2015

Qualifications: BComm (Acc), BComm (Acc) (Hons) and CA(SA)

Committee membership: Finance

Other board memberships: TFC Ventures (Pty) Ltd Kaap Agri Bedryf LimitedTFC Strand (Pty) Ltd Empowerment and Transformation Investments (Pty) LtdTFC Properties (Pty) Ltd Kaap Agri (Namibia) (Pty) LtdTFC Operations (Pty) Ltd Kaap Agri (Aussenkehr) (Pty) LtdAgriplas (Pty) Ltd Mirage Motors (Pty) Ltd

HM Smit (55) Independent non-executive director

Appointment date: Board in November 2011

Qualifications: BEcon, MA (Town and Regional Planning)

Committee membership: FinanceSocial and Ethics

Other board membership: Not applicable

Governance


GM Steyn (59) Independent non-executive director (Chairman)

Appointment date: Board in June 2012

Qualifications: BA (Law), LLB

Committee memberships: RemunerationNomination

Other board memberships: Du Toit Group (Pty) Ltd (chairman) GMS Beleggings (Pty) LtdRCL Foods Limited NS Beleggings (Pty) LtdLeopard Creek 21 (Beleggings) (Pty) Ltd Neusberg Boerdery (Pty) LtdGeorge & Miets Beleggings (Pty) Ltd

JH van Niekerk (62) Independent non-executive director

Appointment dates: Board in November 2011

Qualification: Served as a pilot in the SADF

Committee memberships: Finance (chairman)Remuneration Nomination

Other board memberships: Kosie van Niekerk Boerdery (Edms) Bpk

S Walsh (52) Chief Executive Officer (executive)

Appointment date: Board in November 2011

Qualification: BEcon (Hons)

Committee membership: Not applicable

Other board memberships: Newco Water (Pty) Ltd TFC Properties (Pty) LtdKaap Agri Bedryf Limited TFC Strand (Pty) LtdAgriplas (Pty) Ltd TFC Ventures (Pty) LtdKaap Agri (Namibia) (Pty) Ltd

RH Köstens (61) Company Secretary

Appointment date: November 2011

Qualifications: BA (Law), LLB, LLM, Postgraduate diploma in Taxation and an MBA

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Governance report for 2018Key governance initiatives for the year

The Board undertook the following key activities for the period:

March to

July 2018

August

2018

August

2018

Enhancement of compliance function and responsibilities by appointing new, dedicated Compliance Officer.

Maturing of The Fuel Company as an independent subsidiary with B-BBEE credentials under own management as a major fuel retailer, resulting in larger representation by black persons as shareholders, directors, management and employee levels.

The outsourcing of the whistle-blowing function to an independent contractor.

Approach to compliance

The Board recognises its responsibility to ensure compliance with all applicable laws and adherence to industry charters, codes and standards.

The Group’s Compliance officer is responsible for updating the Audit and Risk committee on matters of possible compliance contravention. The broad nature of compliance in the Group requires the Compliance officer to operate in tandem with the Internal Audit function. Both obtain support from subject-matter experts on speciality focus areas such as environmental law or B-BBEE compliance. These experts filter appropriate information to the Compliance officer for further action. The Audit and Risk committee monitors actions taken by the Compliance officer and/or Internal Audit.

The Audit and Risk committee further evaluates the Internal Audit plan according to its mandate. The committee also considers the material findings of Internal Audit and management’s response. The committee ensures that internal auditors’ function independently and meet at least once a year with the internal auditors without the external auditors, executive officials, Head of Finance, Managing Director or any other director present.

There were no contraventions of agricultural law, penalties or fines reported in the year. To the Group’s knowledge, there are no material legal arbitration or other proceedings pending or in progress. Refer to the report of the Audit and Risk committee on page 55 of the integrated report.

Conflicts of interest

Board members are required to state any possible conflicts of interest, financial or otherwise, at the start of each Board meeting. This includes directorships or positions in any other form of business. Board members are prohibited from gaining any undue benefit from their position as outlined in the Board mandate subscribed to by each member.

The strong stakeholder-focused nature of our evolving Board means that we have several members with interests in peripheral businesses that interact with the Group. These include roles as customers or service providers. Periodic scrutiny ensures that none of these interests pose an undue influence on the individual’s relationship with the Board, and the Group currently deems these relationships to be negligible. Details are available in the notes to the integrated report on page 76.

A register of directors’ interests in and outside the Group is kept and updated at each Board meeting. A conflict of interest declaration form is available to Board members. The Chairman of the Group is not prohibited from serving on other Boards, provided this is disclosed to the Kaap Agri Board. The Kaap Agri Dealings in securities policy has an annexure stating that directors need to obtain permission to deal in securities, and details of any dealings must be disseminated on the JSE Stock Exchange News Service (“SENS”). No dealing is permitted during prohibited periods. Employees are further directed by policies on private interests, extramural activities and external remuneration to avoid conflicts of interest.

The Group has a gift register for recording receipt of tangible and intangible gifts. The purpose of this register is to protect employees from possible attempts by any interest group or supplier to exert undue influence by means of gifts. Executive directors must disclose any gifts and record these in the register. Non-executive directors also disclose gifts and will in future record these in the gift register.

Governance


Committees and their roles in the governanceThe Group’s committees facilitate the discharge of certain Board responsibilities with oversight, guidance and governance application in mandated areas. Each committee chairman reports to the Board to ensure comprehensive insight and appropriate decision-making at Board level. The qualifications and experience of each member are disclosed on pages 9 to 11.

Committee Members1

Meetingsattended Mandate

Audit and Risk committee

Total meetings: 2

Chairman: CA Otto2

BS du Toit3

D du Toit4

Invitees:• GM Steyn –

independent non-executive director

• S Walsh – executive director (CEO)

• GW Sim – executive director (Financial Director)

• GC Victor – Group Manager: Finance

• P Steyl – Executive Manager: Internal Audit

• K Arendse – external auditor, PwC

• H Zeelie – external auditor, PwC

2/2

2/2

2/2

The Audit and Risk committee assists the Board by providing an objective and independent view on the Group’s finance, accounting and control mechanisms.

During the year, the following was actioned:

• The accounting policies of the Group were reviewed, and the committee is satisfied that the policy is in line with generally accepted accounting principles.

• The effectiveness of the Group’s information systems and internal controls was established.

• The external auditors were appointed, and their effectiveness monitored. This included ensuring that the use of external auditors for non-audit services was kept to a minimum.

• The integrated report and specifically the annual financial statements included therein were reviewed and approved.

• With regard to the annual financial statements, the Audit and Risk committee considered the following as significant: credit risk (in particular debtors), management of stock and business combinations. The Audit and Risk committee also focuses on ethics and governance, controls, provisioning, impairment, tax compliance, correctness and accuracy. The Group has addressed these considerations through proper provisioning in terms of existing policies.

• The terms of reference of the committee were considered and approved.

• The committee considered presentations by Internal Audit on ethics, governance and controls, and management reports on operational and financial matters. Recommendations were made to the Board on several matters. The committee deems the internal financial controls of the Group to be adequate.

• The committee reviewed the Group’s risk assessment, assessment of the controlled environment and governance. This was done to ensure that risks are properly addressed and that the level of compliance, with proper governance, is in line with expectations. The committee is satisfied with the outcome of these evaluations.

• The reports of the external auditors were reviewed and appropriate action taken.

• The JSE letter dated 20 February 2018 regarding the JSE Proactive Monitoring Process (2017 report), as well as the JSE letter dated 25 July 2018 on information to be provided by audit firms to the Audit committee, were considered and appropriate action was taken to respond to the findings in the report.

• The Group’s going concern status and compliance with applicable legislation and requirements of regulatory authorities were confirmed.

• In terms of risk management (through consultation with the external auditors), the committee ensured that management’s processes and procedures are adequate to identify, assess, manage and monitor Group-wide risks.

• The Group's internal audit plan was approved.

14

Committee Members1


Audit and Risk committee (continued)

• The committee recommended the reappointment of the external auditor and determined their compensation. The external auditor is PricewaterhouseCoopers (“PwC”), who have provided audit services to the Group for 82 years. The committee remains satisfied that the external auditor is independent and suitable for reappointment by requesting and considering, inter alia, the information stated in paragraph 22.15(h) of the JSE Limited Listings Requirements. The audit partner used by PwC is rotated regularly, and the committee is satisfied with the arrangements for the external audit, and the effectiveness of the designated auditor, Hugo Zeelie. The quality of the audit performed this year was deemed satisfactory by the committee and the independent auditor’s report indicates that the Group’s financial statements fairly reflect the financial state of the company in accordance with International Financial Reporting Standards and requirements of the Companies Act, No. 71 of 2008, as amended. The Group complies with legislative and JSE requirements, rotating to a new audit partner every five years. The last rotation of the audit partner was in 2015.

• The committee appraised and is satisfied with the appropriateness, expertise and experience of the Financial Director, who is driving the overall effectiveness of the Group’s finance function.

• The committee is satisfied that appropriate financial reporting procedures are in place and are operating.

• The Group’s combined assurance model provides assurance that actions are in line with good governance management; the committee is of the view that it is effective.

1 All members of the Audit and Risk committee are independent, non-executive directors.2 Chairman from 4 May 2017.3 Re-appointed to the committee at the AGM held on 15 February 2018.4 Appointed to the committee at the Board meeting on 15 February 2018.

Committee Members1


Remuneration committee

Total meetings: 2

Chairman: CA Otto

GM Steyn

JH van Niekerk

Invitees:• S Walsh – executive

director (CEO)• GW Sim – executive

director (Financial Director)

• DC Gempies – director HR (subsidiary – Kaap Agri Bedryf Limited)

2/2

2/2

2/2

The Remuneration committee is primarily responsible for reviewing and approving the remuneration of executive directors and senior management, and for succession planning.

The committee assisted the Board in reviewing non-executive directors’ remuneration recommendations in line with local and international best practices. This was done to ensure that such total remuneration is fair and reasonable to both the directors and the Group.

More information about the committee and remuneration is available in the Remuneration report on page 24 of the integrated report.

1 All members are independent, non-executive directors.

Governance


Committee Members1


Nomination committee

Total meetings: 1

Chairman: GM Steyn

CA Otto

JH van Niekerk


director (CEO)

1/1

1/1

1/1

The role of the Nomination committee is to assist the Board in ensuring that it has the appropriate composition in terms of structure, size, diversity, skills and independence for it to execute its duties effectively.

The Nomination committee adopted and approved a gender and race diversity policy. When identifying suitable candidates for appointment to the Board, the committee will consider candidates on merit against objective criteria and with due regard of the potential benefits of gender and race diversity at Board level. The committee will continue to discuss and annually agree all measurable targets for achieving gender and race diversity on the Board.

1 All members are independent, non-executive directors.

Committee Members1


Social and Ethics committee

Total meetings: 3

Chairman: EA Messina

WC Michaels

DC Gempies2

T Sulaiman-Bray3

HM Smit4


director (CEO)• P Steyl – Executive

Manager: Internal Audit• J Engelbrecht –

Executive Manager: Communication5

• DC Gempies – Director HR (subsidiary Kaap Agri Bedryf Limited)

3/3

3/3

2/3

1/3

0/3

The purpose of the Social and Ethics committee is to monitor the Group’s activities regarding its social and economic standing and development, good corporate citizenship, the environment, health and public safety, consumer relationships and compliance to applicable laws.

The committee reported to shareholders on matters within its mandate and brought matters of relevance to the attention of the Board.

Read more about social and community investments in the Social and Ethics report on page 45 of the integrated report.

Focus areas for the year:

• B-BBEE, ethics, governance, transformation and the Group’s social responsibility activities were reviewed.

• The necessary steps to improve the Groups B-BBEE score were considered.

• Relevant policies and actions regarding ethics, governance, the environment and health and safety were evaluated.

• In reviewing transformation, the committee paid particular attention to employment equity and reviewed the Group’s contributions to social responsibility.

• Transformation and ethics will remain core focus areas in the future.• The number of Social and Ethics committee meetings was increased

from one to three.• A work plan was drafted, setting out the actions to be taken during this

year to reach the goals and objectives of the committee.

1 A majority of the members of the specified committee are independent, non-executive directors.2 DC Gempies resigned from the committee on 3 May 2018.3 T Sulaiman-Bray was appointed on 3 May 2018.4 HM Smit was appointed on 19 September 2018.5 J Engelbrecht resigned on 30 May 2018.

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Committee Members1


Finance committee

Total meetings: 2

Chairman: JH van Niekerk

NC Loubser2

HS Louw2

GW Sim

HM Smit

JH le Roux

Invitees:• DW Beukes – Group

Manager: Financing Services

• S Walsh – executive director (CEO)

• Other members of financing services department as and when needed

2/2

2/2

2/2

2/2

2/2

2/2

The mandate of the committee is to ensure that the financing activities of the Group are managed efficiently.

The committee is responsible for approving and refining the credit policy and approves certain high-value applications where the amount exceeds the authority of the officials.

Another key committee responsibility is the establishment of a decision-making framework for the financing services department and exercising final authority on financing where certain amounts are exceeded. In terms of the credit policy, the financing services department has the authority to obtain underlying securities from individuals who apply for credit. Accordingly, it is the task of the committee to conduct credit screenings, evaluate credit risks and to register underlying securities in line with the credit policy approved by the committee.

1 Three of the members of the specified committee are non-executive directors, two of whom are independent.2 NC Loubser and HS Louw are not Board directors and retired from the Board during February 2017. Both are still members of the committee.

All the Group’s committees are satisfied that they have fulfilled their responsibilities according to their respective mandates.

Governance


Board efficiencyEthical and effective leadership rests on the appropriate recruitment, evaluation, training and rotation of the Group’s Board members. Although the Group only listed on the JSE during 2017, governance structures have been embedded for many years. The most significant challenge for the business is to formalise and document practices that have been effective in governing Kaap Agri until now. This is the essence of our journey towards full compliance with King IV™ principles.

Recruitment• The Nomination committee provides clear policies on recruitment and criteria for selection of appropriate

candidates in line with the provisions of the Memorandum of Incorporation (“MOI”). Directors are nominated by the Board and elected at the AGM for three years. One third of the directors must rotate annually.

Evaluation

• The Chairman evaluates the individual Board members based on their experience and expectations. To date, the Group is satisfied that the performance evaluations have been fair and the results and actions implemented appropriate, developing individual capabilities and performance in the process. Future evaluation criteria, scopes and processes will be formalised, and an external service provider will be considered in setting a performance baseline. The evaluation will also include performance and behavioural criteria aligned to the Code of Ethics and Board commitment to governance standards.

• Future evaluations will include an evaluation of the Chairman and the various committees.

Training

• Training for skills development and applicable legislation is carried out intermittently with voluntary attendance for Board members.

• Board members have access to the Company Secretary to provide any training deemed necessary and are free to approach external service providers for training as and when required. Training is provided on a continuous basis.

Rotation

• Directors must rotate every three years.• The Nomination committee is responsible for reviewing the composition of the Board in terms of race and gender

diversity.• An induction policy was approved by the Nomination committee.

Company SecretaryThe Company Secretary is responsible for co-ordinating the functioning of the Board and its committees. This includes advising the Board on matters of legal and regulatory compliance. The Group is satisfied that these arrangements are effective. The Board is further satisfied that RH Köstens is suitably qualified and experienced to continue as the Group’s Company Secretary, with unencumbered access to the Board. Kaap Agri believes that an appropriate arm’s length relationship exists between the Group’s Company Secretary and the Board. Refer to page 11 for the Company Secretary’s experience and skills.

The Board’s mandate allows for professional corporate governance training to be accessed independently or through the Company Secretary.

18

Executive committeeKaap Agri’s Executive committee meets bi-monthly and is responsible for assisting the CEO in implementing the Group’s strategy. The CEO is further responsible for operational planning, control and implementation. The CEO is appointed by the Board on the recommendation of the Nomination committee. The notice period for the CEO is three months and termination conditions are in line with market norms.

Our succession planning and development activities have facilitated a steady development of Executive committee members and expertise over the last five years:

Growth in skills and capacity

Years Number of members People added

2012 3 S Walsh, JJ Matthee, SJ Liebenberg

2013 3

2014 3

2015 4 GW Sim, HJ Smit

JJ Matthee resigned

2016 6 AJ Griesel, DC Gempies

2017 8 T Sulaiman-Bray, J Abrams

2018 7 SJ Liebenberg resigned

Evolving our stakeholder engagementThe place where people still count

The Group has a stakeholder relations document that outlines the Group’s philosophy for relationships with stakeholders. Executive management reports to the Social and Ethics committee, which in turn functions according to regulation 43 of the Companies Regulations, 2011. The Group is formalising its approach to stakeholder engagement to ensure that appropriate stakeholder management and reporting continues within the appropriate frameworks.

Stakeholder relationsWe exist to ensure our stakeholders are better off than they would have been if Kaap Agri did not exist.

For this very reason Kaap Agri’s relationship with its stakeholders is anchored and supported by its code of ethics. It is Kaap Agri’s intention to ensure that a stakeholder-inclusive approach to corporate governance is followed at all times.

Effective communication with stakeholders using a wide variety of methods to obtain a better understanding and to respond to issues that are important to them, is a focus area of the way in which the business is operated.

Every effort is also made to ensure that communication with stakeholders is unambiguous, balanced, trustworthy and transparent.

Kaap Agri has many economic impacts on its stakeholders. This is done through the creation of wealth, employment, competitive remuneration of employees and corporate social investment.

Key stakeholders are government departments and regulatory authorities, customers, employees, investors/shareholders, suppliers, communities and the media.

Stakeholder groups that have a definite impact on Kaap Agri’s ability to create value are listed in the table below. The table provides an abbreviated synopsis as to how stakeholders impact on value. It also outlines some of their interests pertaining to Kaap Agri’s business activities.

Governance


Relationships Means of engagement Interests

Government and regulators

• Provides access to the business through operating licences, etc. which is the basis of creating value

• Regulatory measures are imposed with potential cost implications

• Provides business opportunities through tenders, networking and stakeholder engagement

• Consultation and participation in public forums

• Active engagement and submissions on draft regulations, white papers and bills

• Engagement with industry consultative bodies

• Publication of policy engagement and discussion papers

• Supporting valuable opportunities for job creation and socio-economic development, including transformation

• Protecting consumer interests on cost effectiveness, quality, privacy of information and world-class service

• Regulatory compliance on issues such as price, security, health, safety, and environmental quality

• Diligent contribution to the tax fiscus

Customers

• Customers purchase our products and services, which forms the basis for growth in revenue

• Online – Kaap Agri website• Social media – Facebook and

Instagram• Retail outlets• Print media and advertising on

various platforms

• Improved value proposition in terms of offerings to the customer

• Living the “mens-mense” culture and allowing the customer to experience it

• Being agile in our processes to make it simpler and more efficient to deal with Kaap Agri

Investors and shareholders

• Provide the capital necessary for sustainability and growth

• Annual and interim results publications

• Information with regard to investor relations on the Kaap Agri website

• SENS announcements• Annual general meeting

• Strategy to ensure a sustained financial performance and growth

• Responsible investment to ensure growth, manage risks and explore opportunities in various markets

• Transparent remuneration policy • Responsible allocation of capital for

investment and future growth• Sound corporate governance practices• Stable and responsible dividend policy

Employees

• Their skills, involvement, loyalty and “mens-mense” culture makes it possible to realise the reason for our existence, which is making stakeholders better off so that we can become a leading role player in the retail sector

• Internal website• Internal publications and electronic

communication• Visual communication boards• CEO roundtable

• Clear career paths and opportunities for career development

• CARE programme• Mobilise, execute and transform with agility• Competitive remuneration and the

recognition of talent• Profit-sharing scheme

Suppliers

• Impact on our ability to provide quality products available at market-related prices at the right places at all times

• Technology solutions for vendor management

• Regular visits to suppliers• Audits• Supplier information days and

networking opportunities• Supplier awards

• Timely payment and fair repayment terms• Broad-based black economic

empowerment (“B-BBEE”) compliance in line with the latest codes and measurements

• Improving health, safety and environmental quality standards

Media

• Regulatory: as per investor and shareholder relations

• Voluntary: crucial role in keeping stakeholders informed of our business, including our products and services

• Face-to-face, telephonic and electronic engagement

• Interviews with CEO and key executives

• Media releases and product-related publicity

• Transparency• Keeping stakeholders informed of key

activities and offerings

20

Relationships Means of engagement Interests

Communities

By nurturing and strengthening the socio-economic context within which we operate, we will ensure the long-term viability of our business

• “Mens-mense” approach to CSI programme

• Bursary programme• Kaap Agri Academy• Young Stars programme

• Access to education and training• Investment in infrastructure and upliftment

BROAD-BASED BLACK ECONOMIC EMPOWERMENT (“B-BBEE”)Kaap Agri’s transformation journey forms part of it’s strategic nine point plan.

The Board believes that B-BBEE is a social and economic imperative and it supports and encourages all initiatives in this regard.

Kaap Agri measures its B-BBEE status against the AgriBEE Sector Codes as set by the Department of Trade and Industry.

New amended AgriBEE Sector Codes were promulgated in December 2017. Amendments to the new AgriBEE Codes include the revision of the BEE recognition level scoring system, the consolidation of certain elements, the introduction of priority elements and the principle of discounting a level should 40% of the priority element scores not be achieved. Priority elements are Ownership (25 points), Skills Development (20 points) and Enterprise and Supplier Development (“ESD” – 40 points), which incorporates Preferential Procurement. The allocation of additional spend has also been catered for in the Socio Economic Development element increasing from 1% of net profit after tax to 1.5%.

Kaap Agri’s recognition level for the 2017 financial year was a Level 2 based on the old B-BBEE Codes. Subsequently the B-BBEE Codes have been amended and Kaap Agri is currently completing its verification under the new amended Codes for the 2018 financial year.

Ownership

Black ownership is currently at 26.22% and the black female ownership is at 9.40 %.

The Kaap Agri Bedryf Employee and Farm Worker BEE Trust

Five percent of Kaap Agri’s shares have been issued to The Kaap Agri Bedryf Employee and Farm Worker BEE Trust. The income beneficiaries are farm workers, their families and local communities, as well as Kaap Agri employees.

Currently, the Trust is managed by 5 Trustees, of which 3 are independent.

Ninety percent of the income received in the form of dividends is utilised to redeem the Trust debt, and the balance of 10% of the dividend amount is utilised for distribution amongst beneficiaries.

Management control (including employment equity)

Under the new amended Codes, management control and employment equity have been combined into one element.

The composition of the Board is structured in such a way so as to ensure that the collective skills and experience of directors are suitable to carry out their responsibilities and to achieve the company’s objectives. At Board level, 3 of the 12 members are black, of which 1 is a black female member.

Employment equity continues to be a significant focus area for transformation. New appointments and promotions are not only made in accordance with the guidelines of the Employment Equity Act but is also based on the internal plans to accelerate representation of previously disadvantaged individuals. Representation at senior management level, although still falling short due to a low staff turnover, has improved and remains an ongoing priority.

Skills development

The Group is an active participant in the AgriSETA and complies with the Skills Development Act, 97 of 1998 in terms of its payroll where training levies are paid over to the South African Revenue Services. Several learnerships are conducted on an ongoing basis under this SETA and 126 learnerships have been completed in 2018, of which 28 learners were absorbed into the business. The focus is to ensure that all companies conducting training are accredited service providers with the AgriSETA.

Approximately 60% of the total training budget was spent on employees from the designated group for the 2018 financial year.

Enterprise and supplier development (with preferential procurement)

Supplier development is a new element within the AgriBEE Codes and contributes 10 points to the ESD cluster.

Preferential procurement

Kaap Agri is a retail services group which supplies a variety of products and services mainly to the agricultural sector, but also to the general public. In 2018, the Group purchased more than 75% of their products from B-BBEE accredited suppliers, and the focus is to continue procuring from black owned companies that are at least 51% black owned and 30% black women owned.

Governance


Supplier development

Plans are underway for the identification of possible supplier development initiatives, aiming to conclude these in the 2019 financial year.

Enterprise development

A considerable amount of time and resources have been spent on enterprise development initiatives. Enterprise Development entails monetary or non-monetary contributions, that have the objective of contributing to the development and sustainability of the financial and operational independence of black owned enterprises. Empowerment and Transformation Investments as well as the Fruit Workers Development Trust are the existing enterprise development beneficiaries of Kaap Agri.

Socio Economic Development (“SED”)

The new amended AgriBEE Codes require an increased spend of 1.5% of net profit after tax.

The key pillar for SED programmes generally centre around education and educational support programmes.

An amount of R3.7 million was invested in various community upliftment programmes in Kaap Agri’s areas of operation.

22

Information management (“IM”)The Group seeks to govern technology and information in a way that supports our ability to achieve our strategic objectives. The purpose of the Group’s IT division is to enable the Group to support business growth and the stability of operations by using cost-effective and proven technologies with the applicable functionality.

Kaap Agri believes that an effective IM governance model must articulate an allocation of “decision rights” that is optimal for each operation. This means providing select individuals with clear accountability and decision-making authority concerning changes or priorities in the IM process. The Board is ultimately accountable for the governance and management of IT.

Metrics and reporting

Core processes

Organisation structure

Governance

• Performance management• Service level agreements (“SLAs”)• Operational level agreements (“OLAs”)

• Annual and monthly oversight with reporting to the Audit committee and Board

• Clear roles and responsibilities according to reporting lines• Key interface points with external functions

COBIT:• 5 domains• 37 processes• 208 sub-processes

ITIL:• Operations domain• Service delivery

and support

Kaap Agri's information management operating model describes how information management elements interact and relate in the delivery of the function.

The Group uses Information Technology Infrastructure Library (“ITIL”) and Control Objectives for Information and Related Technologies (“COBIT”) as guidance for effective IT governance and management at a process level. ITIL is a set of detailed practices for IT service management, and COBIT is a good-practice framework created by the international professional association, ISACA, for IT management and IT governance.

The Group uses three main perspectives to govern IM:

• Direct• Evaluate• Monitor effectively

This process is performed through consideration of four analytical perspectives: financial; customer; internal; and learning and growth. This ensures a holistic view of the needs and opportunities related to IM.

Governance


The identification and approval of Group-wide IT capital investment needs, including maintenance and project development, forms part of the annual budget.

Criteria for measuring IT performance monthly relate to, for example, connectivity, security and fingerprint scanning. Infrastructure availability has been maintained at an average of 99% across 13 different areas of measurement. With regards to security, the Group has security coverage for 99.5% of our end points. Email and firewall security are of a high standard. Suppliers are evaluated with a performance scorecard monthly.

IT risks are reviewed annually and, where necessary, escalated to the Board for further action via the Audit committee. Remedial actions for incidents are addressed through help desk processes. Key IT risks include:

Risk description Mitigating actions

Business interruption due to system unavailability for an extended period

A business continuity plan, offline alternatives, identification of priority users, satellite technology, backups and training initiatives are examples of measures in place to reduce the impact of system unavailability.

Suboptimal business use of applications or processes impact competitiveness

We are able to mitigate this risk by using global best practice baselines, ensuring technical expertise and capacity while continuously training end users on available functionality.

Kaap Agri’s reputation and business sustainability can be at risk due to IT misuse or abuse

Digital access control, security measures and discipline, combined with the identification of sensitive areas, assist in proactively managing this risk.

We have developed an IM roadmap for 2017 to 2021 that aims to provide value to the business through cost-effective, applicable and proven technology. The roadmap directs specific activities related to growth, basic information management, people, customer focus and finance. The short to medium-term focus will therefore be on roadmap implementation throughout the Group.

Management

GROUP NEEDS

Plan RunBuild Monitor

Direct Management feedback

Evaluate

Monitor

Governance

24

OutlookAs a recently JSE-listed Group, Kaap Agri intends to continuously assess and mature its alignment to, and disclosure of King IV™ principles in the coming years.

Specific focus areas have been identified for the next financial year, and include:

• compliance with the provisions of King IV™ and the JSE with regard to the Remuneration policy which will be voted on as required; and

• evaluation of the Chairman and committees.

Beyond 2018, our intent is to further address gender diversity, B-BBEE and transformation.

Governance


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