Post on 18-Oct-2020
transcript
annual report
2006
E N E R G Y
P A S S I O N
F O C U S
P E R F O R M A N C E
Contents
GROUP PROFILE 1
GROUP STRUCTURE AND DISTRIBUTION 2
FIVE-YEAR REVIEW 3
BOARD 4
GROUP STEERING AND EXECUTIVE COMMITTEE 5
CHAIRMAN’S REPORT 6
CHIEF EXECUTIVE’S REPORT 8
GENERAL BUILDING MATERIALS 11
SPECIALISED BUILDING MATERIALS 17
CORPORATE GOVERNANCE 24
VALUE-ADDED STATEMENT 30
ANNUAL FINANCIAL STATEMENTS 31
SHAREHOLDER ANALYSIS 64
CORPORATE INFORMATION 65
SHAREHOLDERS’ DIARY 66
FORM OF PROXY 67
NOTES TO THE PROXY 68
NOTICE OF ANNUAL GENERAL MEETING 69
CONTACT DETAILS 74
Turnover up 25% Profit for the year up 26%Distribution to shareholders up 25%Year-end cash and cash equivalents R156,8 million
Iliad Africa’s strategic intent
Salient features
Philosophy
• Owner-manager ethos with strong incentives for
performance
• Decentralised operating divisions
• Tight centralised fi nancial controls
• Focus on niche markets without dominating any one segment
• Leveraging common expertise between divisions
Driving force
Our strategy is to meet the
product needs of the building
industry through focused
sourcing and redistribution
of goods into each identified
segment of the market
Core competencies
To survive and prosper we
must excel at:
• Market intelligence
• Procurement
• Trading skills
Iliad Africa Limited focuses on sourcing, distributing, wholesaling and retailing general and specialised building
materials. A range of customers from large-scale contractors and developers to do-it-yourself homeowners
are serviced through 104 stores.
Following several years of strong organic and acquisitive growth, Iliad Africa has restructured into two focused divisions – general building materials and specialised
building materials. Headed by seasoned professionals, this structure heightens our ability to leverage common pools
of expertise, extends the depth of senior management, accelerates the process of succession planning and enables
each division to focus on its core market.
product supplies for building a complete creative lifestyle
GROUP PROFILE
Iliad Annual Report 2006 01
Group structure and distribution
02 Iliad Annual Report 2006
CONTINUED GROWTH
SPECIALISED BUILDING
MATERIALS
GENERAL BUILDING
MATERIALS
TRADING STRUCTURE
Iliad Annual Report 2006 03
Five-year review
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
Earnings and distribution per share (cents)
■ DISTRIBUTION* ■ EARNINGS
3 300
3 000
2 700
2 400
2 100
1 800
1 500
1 200
900
600
300
0
02 03 04 05 06
Turnover (Rm)
2006 2005 2004 2003 2002 R000 R000 R000 R000 R000
Turnover 3 368 388 2 683 398 2 145 571 1 140 019 752 764
Profit before interest and taxation 278 060 221 614 173 612 92 740 58 140Net investment income (costs) 2 310 5 389 4 041 (1 508) (3 818)
Profit before taxation 280 370 227 003 177 653 91 232 54 322Taxation (78 186) (65 983) (50 360) 24 680 13 818
Profit for the year 202 184 161 020 127 293 66 552 40 504
Headline earnings for the year 201 091 160 340 130 087 67 573 42 213
Number of ordinary shares in issue at year-end including treasury shares 154 284 519 153 427 519 150 737 519 147 200 000 75 269 000
Weighted average number of ordinary shares in issue net of treasury shares 146 240 876 144 933 286 141 995 454 88 478 042 68 104 952
Headline earnings per share (cents) 137,5 110,6 91,6 76,4 62,0Earnings per share (cents) 138,3 111,1 89,6 75,2 59,5Diluted headline earnings per share (cents) 133,7 107,1 89,6 71,7 57,6Diluted earnings per share (cents) 134,4 107,6 87,6 70,5 55,2Distribution per share (cents)* 40,0 32,0 24,0 19,0 12,0
In summary
CONTINUED GROWTH
02 03 04 05 06
Profit before and after taxation (Rm)
■ AFTER TAX ■ BEFORE TAX
280
260
240
220
200
180
160
140
120
100
80
60
40
20
0
02 03 04 05 06
* Includes prior year dividends
04 Iliad Annual Report 2006
Board
DIRECTORS
NON-EXECUTIVE DIRECTORS
Howard Charles TurnerCA (SA) SEP (Stanford)Non-executive chairmanAppointed as director in March 2003
Ralph Trevor RirieBCom (Wits) CA (SA) OPM (Harvard) Non-executive directorAppointed as director in March 2003
Makhosazana Khosi SibisiBA (City College of New York)Dip (Michigan, USA) Non-executive directorAppointed as director in September 2005
EXECUTIVE DIRECTORS
Ralph Bruce Patmore BCom (Wits) MBL (Unisa) Chief executive officer Appointed as director in June 1998Executive committee member
Neil Peter GoosenBCompt (UNISA) CA (SA) MBA (Wits) Financial director Appointed as director in September 1999Executive committee member
From L to R | Howard Turner | Neil Goosen | Khosi Sibisi | Ralph Patmore | Ralph Ririe
Iliad Annual Report 2006 05
Group steering and executive committee
ENHANCED STRATEGIC COMMUNICATION
GERRIT DU PREEZBuilders Market West
JOHN CARLILEBuilders Market East
CALIE OLIVIERLaeveldbou Mpumalanga
DAVE YOUNGD&A Eastern Cape
ROLAND MEEKD&A KwaZulu-Natal
ABU OSMANCampwell Western Cape
HARRY SMITProcurement
RHONE DIABPretoria (Ferreira’s)
ANDRÉ DE BEERBuilding Centre
PAUL DE KLERKGeneral building materials
Managing director
NEIL GOOSENGroup financial director
LUIS MENDESGroup company secretary
RALPH PATMOREChief executive officer
GROUP EXECUTIVE COMMITTEE
GRAEME MONTGOMERYSpecialised building materialsManaging director, joined 2007
STEPHEN SHUTZCeramics
LUKIE OELOFSEBoards
KIM DAVIDSONIronmongery
KIM DAVIDSONLighting
GAVIN ATKINSONWholesale Plumbing / Hardware
MAX SACKSWholesale Ironmongery
LEN STUCKEWholesale Hinges
JOHN LATHWOODPlumbing
Group steering committee
Chairman’s report
06 Iliad Annual Report 2006
The Iliad group has now successfully completed nine years of double-digit earnings growth and is positioned to continue this trend for the next few years.
Over the years, we have seen our store network increase from 18 to 104, our staff complement rise from 744 to 3 606 and our turnover exceed R3,3 billion from R350 million.
EPS has increased from 27 cents in 1998 to 137,5 cents in 2006. The year under review was 24% up on 2005.
Profitability and efficient working capital management again enabled Iliad to finance acquisitions during the year from internal resources.
The group has declared a distribution to shareholders for the year of 40 cents per share, which is 3,5 times covered, and 25% up on 2005. Given Iliad’s healthy balance sheet, strong cash generation and stated acquisition strategy, the directors amended the dividend cover policy in the prior reporting period and now annually determine the level of cover in line with corporate activity.
Iliad has a strong base of shareholders, with our largest institutional investor being Rand Merchant Bank. The good mix of other institutional investors is set out on page 64. The broad-based BEE transaction concluded in 2005 with the Women’s Private Equity Fund (One) and Vunani Capital for a 10% stake in Iliad has been a beneficial transaction – positioning the group competitively for tender work and extending our breadth of business experience.
In 2006, Iliad again featured amongst the top ten of the prestigious Sunday Times Business Times Top 100 survey, against considerably larger and more established companies. As the tangible benefits of our strategic focus in recent years to achieve critical mass unfold, we continue to capitalise on the numerous opportunities to prudently expand our geographic presence and diversify our activities into related niche sectors.
Iliad has operated since inception under the guidance of Ralph Patmore on a lean top management structure. The continuous growth of the group necessitated a review of our senior structures. We have put in place a new management structure, which has been bolstered to ensure that capacity exists for future expansion and that medium-term succession planning is catered for. The 2006 reporting period also marks the group’s transition to sustainable development reporting – the so-called triple bottom line of economic, social and environmental reporting to stakeholders. While Iliad has long been a responsible citizen, we will in future be guided by the recommendations of the Global Reporting Initiative guidelines in engaging with and reporting back to stakeholders. Throughout the group, the process of formally identifying stakeholders through engagement and communication is under way. Simultaneously, we are standardising systems and processes for meaningful disclosure and distilling our disparate corporate citizenship initiatives into a group approach. Full details will be included in our 2007 report and on the group website www.iliadafrica.co.za.
Iliad Annual Report 2006 07
Macro environment
Favourable trading conditions characterised the review period, with increased activity in the commercial market offsetting a slowing growth rate in the residential market.
The South African economy continues its growth trajectory, with expectations of a growth rate fuelled by rising fixed investment and infrastructural spending. This, together with the housing backlog, should increase demand for building material – general and specialised – and Iliad is well placed to capitalise on this trend.
Strategy
Our strategy is to meet the product needs of the building industry through focused sourcing and redistribution of goods into each identified segment of the market. Integral to this is acquiring suitable businesses that significantly expand our coverage in South Africa and complement our niche market operations. Our preference is for owner-managed operations and the funding of acquisitions through internal resources against stringent criteria.
Iliad made five acquisitions during the year, the largest being Campwell Hardware for R165 million. In recent years, Iliad has clearly demonstrated its ability to identify suitable acquisition targets, appropriately priced, and to integrate these operations smoothly into the existing group.
Appreciation
I thank my board colleagues, Ralph Patmore and his executive team for their valuable and consistent contribution to the success of our group. You truly epitomise the values of the Iliad group – energy, passion, focus, performance.
Howard TurnerChairman
Chief executive’s report
08 Iliad Annual Report 2006
Iliad’s solid operating results refl ect its unfolding strategic thrust, smooth integration of recent acquisitions and continued demand in the marketplace.
Overview
Results for 2006 continued the growth trend of recent years, with turnover up 25% and earnings up 24% in an inflationary environment of 8%.
For the 12 months to 31 December 2006, turnover increased to R3,3 billion. Operating profit improved to R278 million reflecting maintained margins and controlled costs. Profit after tax was 26% higher, with earnings per share improving by 24% on 2005.
Stringent working capital management culminated in the percentage of working capital to turnover ratio improving to 6,7% (2005: 7,9%).
Following several years of strong organic and acquisitive growth, we found it necessary to restructure the group into two focused divisions – general building materials and specialised building materials. The structure provides the platform to:
• Fully leverage procurement opportunities • Improve the efficiencies of the outsourced functions (e.g. import logistics)• Leverage common pools of expertise• Extend the depth of senior management• Accelerate the process of succession planning.
Although the two divisions operate in the same market, their infrastructural and logistical needs as well as their offering to the market are quite different.
Performance in context
As expected, in the second half of the year the overall growth rate in the new residential housing market continued to slow. Activity levels at the luxury end were below the prior year while those in the lower end of the market continue to rise, albeit slowly given pedestrian growth in state-subsidised housing. The middle-income market remains the driving force in the residential sector and continues to astound us in terms of its underlying strength and resilience. Although the quantum of off-plan sales continues unabated we believe the true level of demand will surface on transfer date when affordability factors may cause some buyers to forfeit their deposits and walk away. We do not see this as a major risk but more a reality check for the industry. The additions, refurbishment and alterations sector is showing resilience which is normal as the pace of new residential activity tapers off.
The commercial market continued its steady growth pattern from 2005 offsetting the slowdown in the pace of growth in the residential market to a large extent. Inflationary pressures in the marketplace are beginning to be felt and this could be the single most significant factor that places a lid on the industries growth. While the overall inflation figure approximated 8% we
Iliad Annual Report 2006 09
experienced inflation in some areas of around 14%. This was offset by deflation in the product lines imported from the East.
Significant activity levels in the construction market mark the start of an upward cycle in this industry, fuelled by numerous infrastructural projects and rising levels of disposable income. We anticipate a positive spin-off from this although our direct involvement is limited.
Operational review
Iliad’s solid operating results reflect its unfolding strategic thrust, smooth integration of recent acquisitions and continued demand in the marketplace. The restructuring completed in the second half of the year is expected to produce important and sustainable future benefits. For the review period, Iliad’s underlying clusters recorded generally satisfactory performance, with excellent results in some operations offsetting more muted performance in others.
During 2006, Iliad completed several small acquisitions in line with the stated strategic thrust which were funded from internal resources.
• KwaZulu-Natal-based Sanware and Plumbing and Cape-based Modern Bathrooms were acquired to extend geographic coverage to the Plumbing cluster of businesses. • Q Lite was acquired as the platform business for the new Lighting cluster. • SDT Cape was acquired to expand the geographical
coverage in the wholesale cluster.
The major transaction of the year was the R165 million acquisition of Western Cape-based building materials supplier Campwell Hardware. The conditions precedent were satisfied at the end of November, hence the group’s results only reflected one month’s trading from Campwell Hardware.
Campwell has an expected annual turnover of R330 million with a cash component of approximately 50%. The brand is highly respected in the Western Cape and provides the group with a fantastic platform in the region into which the W Miller operation in Somerset West will be incorporated post the warranty period.
Iliad purchased the assets and liabilities of the Campwell
Hardware businesses and incorporated these into a
new entity, 25% of which has been sold back on the
same terms to a black economic empowerment (BEE)
consortium led by key existing management. The major
benefit from this acquisition will be felt in the 2007
financial year.
SPECIALISED BUILDING MATERIALS
55 OUTLETS
GENERAL BUILDING MATERIALS
49 OUTLETS
TRADING STRUCTURE
■ BUILDERS MARKET WEST 7 OUTLETS
■ BUILDERS MARKET EAST 3 OUTLETS
■ LAEVELDBOU MPUMALANGA 5 OUTLETS
■ D&A EASTERN CAPE 4 OUTLETS
■ D&A KWAZULU-NATAL 3 OUTLETS
■ CAMPWELL WESTERN CAPE 12 OUTLETS
■ GREATER JOHANNESBURG
3 OUTLETS
■ PRETORIA (FERREIRA’S) 2 OUTLETS
■ BUILDING CENTRE 10 OUTLETS
■ CERAMICS 8 OUTLETS
■ BOARDS 13 OUTLETS
■ IRONMONGERY 16 OUTLETS
■ LIGHTING 5 OUTLETS
■ WHOLESALE 10 OUTLETS
■ PLUMBING 3 OUTLETS
10 Iliad Annual Report 2006
GENERAL BUILDING MATERIALS
This division caters for the broad market – from large-scale
developers and contractors to homeowners and do-it-yourself
specialists. A full product range, competitive pricing and technical
expertise are the hallmarks our customers have come to expect
from outlets across the country.
product supplies for building a complete creative lifestyle
Iliad Annual Report 2006 11
Chief executive’s report
12 Iliad Annual Report 2006
GENERAL BUILDING MATERIALS
Prospects for the coming year are extremely positive with new stores opening and further opportunities for geographic expansion in sight.
Iliad Annual Report 2006 13
PERIOD 2005 TO 2009
FIVE-YEAR TURNOVER GROWTH TARGET
Cluster Builders Market Builders Market Laeveldbou Campwell East West Mpumalanga Western Cape
Five-year R50 million R50 million R50 million R350 million turnover target geographic geographic geographic geographic (2009) expansion expansion expansion expansion
Progress to date Rolled out Acquired Hoedspruit Campwell Hardware
Achieved to date R30 million R330 million
Cluster D&A D&A Greater JHB Pretoria Building Centre KwaZulu-Natal Eastern Cape
Five-year R50 million R150 million Nil R100 million R500 million turnover target geographic geographic geographic turnover or (2009) expansion expansion expansion 35 stores
Progress to date Acquired D&A Acquired D&A Rolled out ten stores
Achieved to date R80 million R90 million R150 million
R680 million achieved to date Target R1,1 billion
Chief executive’s report
14 Iliad Annual Report 2006
GENERAL BUILDING MATERIALS
This division constitutes 62% of the group’s turnover and 61% of profits. The stores market a comprehensive range of product but with limited choice at the finishing end. Turnover was increased by 27% including inflation of 10% for the period.
The general building materials division was divided as part of the group restructuring into eight clusters or regions each astutely headed by a seasoned trader. The resulting performance was outstanding with the division achieving a 49% ROCE for the year. The restructure has bridged the gap between the smaller outlets and division without creating hierarchical structures. All the regional heads along with the divisional buyer occupy a position on the group executive committee.
The new structure under the leadership of Paul de Klerk was implemented seamlessly. Paul, along with his executive, has given the division new impetus off a very high base.
The truss plants in all the operations have performed well and are running with three to four-week lead times.
The newly formed clusters, all performed exceptionally well. All the underperforming outlets in 2005 were returned to 30% plus ROCE operations in 2006 as a direct result of the benefits derived from the new cluster structure.
The outstanding performance came from the Builders Market West cluster where all the stores showed above-average growth year on year. This is a direct result of the new structure and the focused, dedicated performance of its management. The stores contributing to this combined performance are the Builders Market stores situated in Polokwane, Welkom, Kimberley, Klerksdorp, Bloemfontein and Vaal.
Building Centre, the rural cash-and-carry cluster, saw the strategic penetration of the rural market continue as the roll-out gained momentum. Ten stores were trading at the end of December. Expectations are that these stores will contribute to profitability in 2007 while the ten planned for the new financial year will contribute in 2008.
Iliad Annual Report 2006 15
The product offering was finalised during the year based on the sales patterns of the first four stores.
The opportunity was also used to focus on and rectify the teething weaknesses in the centralised controls and systems.
We plan to open the next ten stores to facilitate geographic clustering which will provide the necessary critical mass for cost-efficient regional management.
The ongoing challenge in this store roll-out campaign remains finding suitable premises. We will not compromise on the positioning of the stores for the sake of meeting our targets.
Noteworthy performances during the year were recorded by Rustenburg Building Materials, Builders Market Welkom, Builders Market Klerksdorp, Builders Market Middelburg and Laeveldbou Nelspruit.
The divisional five-year turnover growth target of R1,1 billion was set in January 2005. After two years we have achieved R680 million and are confident of exceeding the target. Prospects for the coming year are extremely positive. Thirteen new stores are on the drawing board. Furthermore opportunities still exist in the greater Pretoria area and the Eastern Cape for further geographic expansion.
The areas for the ten new stores in the cash-and-carry clusters have been identified and the team is hard at work negotiating potential sites.
Demand patterns in the early part of the year have remained strong and look to continue at the same level well into the second half of the year.
Procurement remains one of the core competencies of the group and a focal point of this division. The cluster structure facilitates the communication and commitment process thereby enabling the divisional buyer to perfect his function. We anticipate that the strengths of the buyer, given the commitment of the cluster traders, will be accentuated bringing greater benefits to the division during 2007. The general building materials division houses Iliad’s commercial crime unit. The nature of our business makes theft and fraud an ongoing risk, and the diligent team manning this unit adopts a proactive and reactive approach to prevent and detect criminal activity thereby minimising losses to the group.
16 Iliad Annual Report 2006
SPECIALISED BUILDING MATERIALS
This division supplies, through market niche-focused clusters, the
fi nishes that enhance your quality of life. Exclusivity or value-add,
fashion orientated choice and availability are the key
elements for success.
product supplies for building a complete creative lifestyle
Iliad Annual Report 2006 17
Chief executive’s report
18 Iliad Annual Report 2006
SPECIALISED BUILDING MATERIALS
The structure affords the opportunity to leverage procurement and inward-bound logistics across the division.
Iliad Annual Report 2006 19
PERIOD 2005 TO 2009
FIVE-YEAR TURNOVER GROWTH TARGET
Cluster Ceramics Boards Ironmongery
Five-year R300 million R350 million Nil turnover target (2009) Cash-and-carry outlets Value added Retail
Progress to date Rolled out fi rst Tile Acquired Chipbase and Décor Mart cash- Acquired Timberland and-carry store Port Elizabeth
Achieved to date R10 million R110 million
Cluster Plumbing Lighting Wholesale
Five-year R100 million No target R600 million turnover target (2009) Insurance geysers Insurance gate motors
Progress to date Acquired Suncol Acquired Q Lite Acquired Cachet KZN Acquired Modern Acquired SDT Gauteng Bathrooms Acquired SDT Cape Acquired Sanware Rolled out Cachet Gauteng & Plumbing Rolled out Gate Motors
Achieved to date R100 million R50 million R210 million
R480 million achieved to date Target R1,35 billion
Chief executive’s report
20 Iliad Annual Report 2006
SPECIALISED BUILDING MATERIALS
The specialised building materials division constitutes 38% of the group turnover and 39% of profits. The division houses all the finishing or value-added product offerings in the group comprising the following clusters: Ceramics, Boards, Ironmongery, Plumbing, Lighting and Wholesale (plumbing, tools and hardware, hinges and draw slides, ironmongery). The division increased turnover by 22% compared to inflation of 5% for the period.
The motivation for consolidating these clusters into one division is twofold:
• Firstly, all the group’s importation of product lines is housed in this division and the critical mass can now be leveraged to improve the group’s inward-bound logistics as well as foreign exchange efficiencies.
• Secondly, whereas the general building materials division sells non-differentiated product sourced locally, this division sells predominantly differentiated product lines with a strong bias towards exclusivity or value add.
The divisional structure creates the environment for sharing modi operandi or best practices for marketing product offerings to the end user as well as leveraging procurement opportunities across the group for maximum benefit.
The cluster managing directors all have a seat on the group executive committee.
The Ceramics cluster is operating in a deflationary environment at present, which is expected to persist for the new financial year. Exciting new ranges are being imported from markets as far away as Dubai and China, in addition to traditional markets in Europe. The sourcing of product from the East is growing exponentially as a replacement for the more expensive product from Europe. The top-of-the-range offerings from Europe are still of prime importance to the group and the market, but pricing pressures are becoming more evident on a daily basis. This is advancing the deflationary environment.
Retail sales showed solid volume growth in the period under review but the commercial market was flat, year on year, due to the timing lags of large projects. This will rectify itself in the first half of 2007.
The entry into the cash-and-carry sector, where Iliad currently has no market share, will be driven through a new entity that has been formed with an experienced operator. BEE management will have a 20% percent stake in the new entity which will be sold to them on the same terms that Iliad acquired it.
The new entity took control of an existing outlet late in the year and implemented its proven formula which, although only fully implemented in February 2007,
Iliad Annual Report 2006 21
showed immediate results. Based on this potential, new sites are presently being sourced.
Although the roll-out will begin in 2007, meaningful profit contributions will only be forthcoming in 2008.
Prestigious commercial contracts specified and supplied during the year by Ferreiras Décor World included Jabulani Shopping Centre – Soweto; Greenstones Shopping Centre – Kempton Park; Ster Kinekor – Northgate; Bel Air Shopping Centre – North Riding and Cape Gate Shopping Centre – Cape Town.
With a highly focused and enhanced management team and infrastructural requirements now in place, prospects for this business cluster are promising.
Results for the Boards cluster were adversely affected by short-term delays in the flow of work from commercial projects. This phenomenon is expected to be reversed during the first half of 2007. Earlier acquisitions have been seamlessly integrated and are adding value and profitability to the cluster. The changing fundamentals noted in the previous year require a revised balance to be established between sourcing products from local manufacturers and imported ranges. Iliad is carefully monitoring market developments and entrenching its relationships with local suppliers while establishing direct foreign supply lines.
The strategic model for future expansion is approved and ready to be implemented but we are holding back until we have more certainty on the supply line side.
The Ironmongery cluster increased profits as a result of internal efficiency improvements after a stagnant period in 2005. As a result, new retail outlets have been approved for 2007.
The working capital management was exceptional in the period under review with the ratio to turnover dropping to well below 10%. This cluster remains a mainstream contributor to group performance with a ROCE of 48% being achieved for the year.
Iliad’s Plumbing cluster, primarily serving the needs of the short-term insurance industry, achieved commendable results and has been geographically strengthened with the acquisition of Modern Bathrooms in the Western Cape and Sanware and Plumbing in KwaZulu-Natal. The integration of these acquisitions is progressing well and their business models are being refined to suit the proven insurance market model.
Chief executive’s report
22 Iliad Annual Report 2006
SPECIALISED BUILDING MATERIALS
The new Lighting cluster, acquired early in the review period and trading as Q Lite, exceeded its post-acquisition profit warranties. The strategic plan to grow the business has been approved and is in the early stages of implementation.
The business will be focused on three areas:
• Specification and contract• Retail • Wholesale.
The existing expertise will be consolidated at the central office in Durban and will focus on procurement and specifications, being the highly specialised technical side of the business, and the source for the success of the other two arms. The day-to-day management of the retail and wholesale areas are different and will be carried out independently. This revised structure will ensure focus but leverage procurement.
As forecast, the Wholesale cluster began its turnaround producing profits for the period but only achieving an 8% ROCE. Following the unbundling of the consolidation strategy, which we quickly identified as being incorrect, the platform is now in place to grow from strength to strength.
The Cachet International plumbing, tool and hardware business operates from two regional warehouses for maximum efficiencies and economies of scale. Challenges experienced during the period were rectified, costs were absorbed and we are confident about prospects. The product ranges are now in place. The stock levels have been pushed up and will continue to be on the high side until we fully establish the patterns and levels of demand. The future prospects for this cluster remain hugely exciting.
The Knob & Knocker operations performed exceptionally well especially in view of the trauma it experienced during the ill-fated consolidation phase. Management did a superb job in remotivating the staff in an incredibly short period of time.
SDT, the hinge and draw slide cluster, continued its progress towards the full realisation of its potential. The small acquisition in Cape Town made at the start of the year, for geographic coverage, performed well in line with expectations. An exciting new opportunity will be launched in April which is expected to add to the profitability of the business.
The divisonal five year turnover growth of R1,3 billion was set in January 2005. After two years we have achieved R480 million and are confident of achieving the target.
Iliad Annual Report 2006 23
Prospects
Iliad enters FY 2007 on a sound footing. Despite an anticipated slowing of the growth rate in the residential market, the group is well positioned to capitalise on the commercial market as well as growth in the additions, refurbishment and alterations market.
Through the ongoing implementation of our strategy, growth will continue as a result of:
• Continued geographic expansion in both the general and specialised divisions • Growth of the Wholesale cluster from both an efficiency and a geographic roll-out perspective• Cash-and-carry roll-outs in the general building materials division and the specialised building materials division through the Ceramic cluster.
As such, given Iliad’s broad reach across the building materials supply sector and strong, fruitful relationships with its empowerment partners, the group is well positioned to continue delivering improved results.
Appreciation
Iliad’s steady and continued growth is only possible because of the sterling contribution made by its people – at every level and in every business. I thank you for the passion and commitment you bring to our group and to our customers. We are equally grateful for the loyalty and support of our customers.
Ralph PatmoreChief executive officer
Corporate governance
24 Iliad Annual Report 2006
AN ETHOS OF INTEGRITY
Iliad and its directors are fully committed to the principles of accountability, transparency and integrity in accordance with generally accepted corporate governance practices.
Iliad is incorporated in South Africa under the provisions of the Companies Act, 1973, as amended. It is listed on the JSE Limited and the board believes Iliad complies materially with the Code of Corporate Practices and Conduct contained in the King II report on corporate governance in South Africa. Iliad also complies with the spirit and form of continuing obligations of the JSE Listings Requirements.
The financial highlights, chief executive officer’s report and the directors’ report contain details of the group’s performance. The board believes these reports, along with the chairman’s report and financial statements, reasonably reflect the group’s position and prospects. The directors’ responsibility for the financial statements is described on page 34.
Board of directors
The chairman and a further two of the five directors of Iliad are non-executive and independent.
Non-executive directors have the necessary skills and varied experience to bring independent and balanced judgement to group business. Executive directors comprise the chief executive officer and the financial director.
The board meets at least four times a year and retains full and effective control of the group. Through a structured approach to reporting and accountability, the board monitors the activities of the steering and executive management. The board is responsible for the group’s overall strategy, acquisitions and disinvestment policy, approval of development projects and significant matters relating to finance and corporate governance. Management of the day-to-day affairs of the company has been delegated by the board to the chief executive officer.
Non-executive directors meet independently without executives present throughout the year, and communicate regularly both telephonically and electronically. Additional meetings are convened should any matter arise which requires consideration by the board outside of the quarterly meetings scheduled. The chairman and the chief executive officer meet at least once every month and also communicate regularly telephonically.
One third of the board retires by rotation each year. If requested to serve a further term by the board, retiring directors may offer themselves for re-election by shareholders. Newly appointed directors cease to hold office at the conclusion of the annual general meeting following their appointment. If requested to serve a further term by the board, those directors may offer themselves for re-election by shareholders.
All directors have access to the advice and services of the chairman, the chief executive officer, the financial director and the group company secretary. The group company secretary is responsible to the board for ensuring that board procedures are followed and applicable regulations are adhered to.
Board operation
The board is responsible to shareholders for the conduct of the business of the group. It provides leadership and vision to the group so that shareholder value is enhanced and the group’s long-term sustainable development and growth may be achieved. The board approves group strategy, reviews group performance, approves the interim and annual financial statements, determines the group’s authority levels, treasury policies and risk management policies and approves major investments and the remuneration of non-executive directors.
Financial reporting is routinely performed. Non-executive directors are provided with sufficient information to enable them to formulate independent conclusions on all matters brought to their attention at board meetings.
The board is ultimately accountable for Iliad’s performance and affairs.
Iliad Annual Report 2006 25
Board meetings
Board meetings are held at least quarterly or as required. All directors are invited to add items to agendas for board meetings. Dates for quarterly board meetings in the following year are set in November each year.
Conflicts of interest
Directors are required to inform the board timeously of conflicts or potential conflicts of interest they may have in relation to particular items of business. Directors are obliged to recuse themselves from discussions or decisions on matters in which they have a conflicting interest. Directors are required to disclose their shareholding in the company and all other directorships quarterly or as changes occur. Declarations of interest are tabled at each board meeting.
Board committees
Committees are established to assist the board in performing its duties, and the board is empowered to form or disband committees as appropriate. Details of the committees are presented below.
Audit and risk assessment committee
The audit and risk assessment committee comprises Ralph Ririe (chairman), Howard Turner (both independent non-executive directors), Ralph Patmore and Neil Goosen. The head of the internal audit department is invited to attend each committee meeting, and meets independently with the chairman during the year. The audit partner of the external auditors attends committee meetings where appropriate.
The committee functions under written terms of reference and meets three times per year. It reviews the interim and annual financial statements before submission to the board.
The committee maintains an objective and professional relationship with the external auditors.
In terms of a written risk management policy adopted by the board, Iliad is committed to managing its risks and opportunities in the best interests of all its stakeholders.
The board has determined that the audit and risk assessment committee has satisfied its responsibilities for the year under review in compliance with its terms of reference.
Remuneration committee
The committee comprises Ralph Ririe (chairman) and Howard Turner (independent non-executive directors). Ralph Patmore (chief executive officer) is invited to attend committee meetings but may not participate in discussion on his own remuneration.
The main purpose of the committee is to ensure that the company’s directors and senior executives are appropriately rewarded for their individual and joint contributions to the group’s overall performance, having due regard for the interests of the shareholders and the financial and commercial well-being of the group. The committee has authority for matters relating to employee remuneration, benefits and profit incentives. Employee incentive schemes, at both executive and divisional level, are subject to the approval of the committee and are based on market conditions and the achievement of prescribed, measurable performance targets.
The company’s philosophy is to set remuneration which is appropriate, taking into account levels of responsibility and the need to attract, motivate and retain directors, executives and individuals of high calibre. It also makes recommendations to the board on fees for independent and non-executive directors for services to the board. This committee meets at least twice a year.
The activities of the remuneration committee are reported to the board.
The board has determined that the remuneration committee has satisfied its responsibilities for the year under review in compliance with its terms of reference.
Corporate governance
26 Iliad Annual Report 2006
AN ETHOS OF INTEGRITY
Directors’ emoluments and share options are detailed in Note 15 to the financial statements.
Column A indicates the number of meetings held during the
period the director was a member of the board and/or committee.
Column B indicates the number of meetings attended.
Steering committee
The revised structure of the group as detailed on page 5 and in the CEO’s report has resulted in the formation of this committee post the period under review.
The current composition of the committee is as follows:
Committee chairman Ralph Patmore (chief executive officer)
Members Neil Goosen (group financial officer)Luis Mendes (group company secretary)Paul de Klerk (MD general building materials division)Graeme Montgomery (MD specialised building materials division) The committee is responsible for the day-to-day management of the group and its two divisions and reports directly to the chief executive officer.
The committee:• Provides assurance to the CEO that risk management policies and strategy set by the board are operating effectively;
• Reviews group performance as well as commercial and strategic issues affecting the group;• Considers all acquisitions and disinvestment proposals and manages the process of capital allocation by ensuring that investments and disinvestments increase shareholder value and meet Iliad’s financial criteria.
The steering committee meets monthly. Ad hoc meetings of the committee are convened whenever necessary.
The activities of the steering committee are reported to the board.
Executive committee
The composition of the executive committee is set out on page 5. The group human resources manager is invited to attend all meetings.
This broader forum committee gathers and consolidates information obtained from the fifteen operating entities, with particular emphasis placed on:• Inter-company synergies;• Market intelligence; and• Procurement opportunities.
All matters requiring strategic direction/decision are submitted to the steering committee for deliberation and subsequent referral to the board for final consideration/approval. Risk management is a day-to-day function of the executive management of every business in the group. All exceptions are reported to the steering committee for review and approval of appropriate action and then referred via the chief executive officer to the audit committee which assists the board in recognising all material risks to which the group is exposed and ensures the appropriate risk management culture, practice, and policies are adopted.
Transformation committee
Ms Khosi Sibisi (non-executive director) has been mandated to address all transformation issues and chairs the committee. Other members include the CEO and the group human resources manager. Selective
ATTENDANCE OF MEETINGS
Directors Board Audit & riskassessmentcommitee
Remunerationcommittee
HC Turner
RB Patmore
RT Ririe
NP Goosen
MY Sibisi
A B A B A B
4
4
4
4 4 3 3
4 3 3 2 2
4 3 3 2 2
4 3 3 2 2
4 3
Iliad Annual Report 2006 27
operational executives and senior managers are invited to attend meetings and co-opted to drive information gathering and assist with implementation. This committee was formed during the second half of the period under review and has met on two occasions.
The objectives of the committee are, inter alia, to ensure smooth, systematic and meaningful transformation of employment and social responsibility practices in the group in harmony with industry charters, legislation and business profitability and growth objectives. Reporting controls
The group has comprehensive monthly financial accounting and reporting routines for its operating divisions. Management of cash and banking relationships is centralised.
Formal monthly meetings are held between the chief executive officer, financial director and the divisional managing directors to review the group’s performance. Operating executives may be invited to attend these meetings. Formal quarterly meetings are held between the chief executive officer, financial director and each of the fifteen operating executives to review performance, commercial and strategic issues.
Internal audit
The systems of internal control require directors and employees to maintain the highest ethical standards, ensuring that business practices are conducted in a manner which, in all reasonable circumstances, is beyond reproach. Iliad’s formal organisational structure incorporates suitable segregation of authority, duties and reporting lines and promotes effective communication of information.
The internal audit division at the head office reports directly to the chief executive officer on day-to-day matters and undertakes the function of internal audit of the operating divisions.
Internal audit activities principally address the following key issues at each of the business units of the company:
• Appraising systems, procedures and management controls;• Assessing the effectiveness of risk management processes;• Assessing the control over assets;• Reviewing compliance with policies and procedures; and• Evaluating the integrity of management and financial information.
The internal audit function reports to the audit committee on its findings and has unrestricted access to the audit committee and its chairman.
Audit plans are drawn up annually and take account of changing business needs and risk assessment. Cognisance is taken of issues highlighted by the audit committee, external auditors and management. Follow-up audits are performed in areas where weaknesses or concerns are identified. The audit committee approves the internal audit plan.
Internal audit responsibilities are clearly defined and approved by the audit committee. Internal audit continued to function throughout the group during the year under review. Internal audit provides management with an independent, objective consulting and assurance service that reviews matters relating to control, risk management, corporate governance and operational efficiencies. The company’s external auditors are involved in this process if required.
During the year under review, no major breakdowns in internal controls were identified.
Risk management
Group risk management is achieved through the identification and control of the main business and operational risks, which could adversely affect the accomplishment of the group’s business objectives.
The group is committed to managing its risks and opportunities in the interests of all stakeholders. Every business unit and every employee has a responsibility to act proactively in this manner.
The parameters set are delegated to the audit committee from whom continuous feedback is received.
Corporate governance
28 Iliad Annual Report 2006
AN IMPORTANT BUSINESS PRIORITY
External audit
The external auditors provide an independent assessment of internal financial control and express an independent opinion on the annual financial statements. The external audit function offers reasonable, but not absolute, assurance on the accuracy of financial disclosures. The external auditors’ plan is reviewed by the audit and risk assessment committee to ensure that significant areas of concern are covered, without infringing on the external auditors’ independence and right to audit. The audit and risk assessment committee monitors fees paid to the external auditors, which again remained within acceptable levels. There is co-operation between internal and external auditors, to ensure appropriate combined audit coverage and minimisation of duplicated effort.
Remuneration policy
The company’s philosophy is to set remuneration which is appropriate, taking into account levels of responsibility and the need to attract, motivate and retain directors, executives and individuals of high calibre.
Going concern
The annual financial statements set out on pages 35 to 63 have been prepared on the going-concern basis since the directors, after due deliberation at the last meeting of the board, have every reason to believe that the company and the group have adequate resources to continue in operation for the foreseeable future.
Ethics
Iliad has adopted a code of ethics to ensure that the group operates, in all respects, as a good corporate citizen. The code requires group employees to perform their duties in good faith and to be trustworthy in all their dealings with customers, suppliers, each other and any other stakeholders, thereby maintaining a reputation of integrity and responsible behaviour.
Iliad accepts the recommendations of King II that the company should conduct its affairs with uncompromising honesty and integrity. The group continues to adopt a zero tolerance approach to theft, fraud and the offering of bribes and favours.
Shareholders
The chief executive officer and financial director regularly communicate with major shareholders, institutional investors and media analysts. Shareholders are encouraged to attend the annual general meeting. Financial results are published in the press and shareholders receive a copy of these results timeously. We maintain a comprehensive website (www.iliadafrica.co.za), containing extensive information on the company, an archive of annual and interim results as well as an announcement section.
Dealing in securities
The Securities Services Act and the JSE Listings Requirements regulate transactions by directors and officers in securities issued by the company.
Directors may not deal in the company’s shares without first advising and obtaining clearance from the chairman. The chairman may not deal in the company’s shares without first advising and obtaining clearance from the chief executive officer. Details of all share dealings in the company’s shares by directors and officers are disclosed in accordance with the JSE Listings Requirements and at each board meeting.
Directors of the company and its major subsidiaries, the group company secretary, their associate/s or members of their immediate family may not deal, either directly or indirectly, at any time, in the securities of the company on the basis of unpublished price-sensitive information regarding the company’s business or affairs. These persons are made aware of restricted or “closed” periods for dealing in Iliad shares and the provisions of insider trading legislation. Dealing in the securities of the company at any other time is permitted but approval must be obtained in advance of any transaction from the chairman or chief executive officer.
Social report
Human capitalIliad employs 3 606 people and regularly submits statutory reports to the relevant authorities.
Iliad Annual Report 2006 29
Employment equity Iliad provides equal employment opportunities and has a strong culture of internal promotion and development of its people. The company continues to pursue employment equity through implementation of the plan submitted to the relevant authorities, annual reports are submitted to the Department of Labour.
The group continues to make progress towards its employment equity targets: at the end of September 2006, 54,5% of the overall workforce was black, 7,8% coloured and 4,9% Asian. At management level, 42,1% are from designated groups.
The rate of progress made in achieving employment equity is partly determined by the rate of growth experienced in the divisional operations. In addition, skills shortages in the employment market of senior managers with the requisite technical and entrepreneurial experience makes it difficult for the group to meet targets in the top management band. Training and development Iliad annually spends 0,24% of payroll on training and development, mostly at divisional level. Training initiatives range from customer service to product knowledge and personal development.
Through the Iliad Africa Academy, run in partnership with UNISA, the group offers two-year courses with four modules, focused on skills development and technical competence at several levels. The third intake began in 2006. Iliad also conducts apprenticeships at two outlets in technical fields such as truss manufacturing.
Suppliers, support for SMMEs The nature of Iliad’s business dictates an unusually broad base of suppliers in a number of industries ranging from generic to highly specialised products. Where possible, Iliad supports South African companies, particularly BEE small, medium and micro-enterprises. The group’s BEE procurement policies are increasingly used to source goods from empowered companies and we are making progress, although this is clearly more challenging in specialised sectors where the only source is often abroad.
HIV/AIDS The executive committee has under consideration a “Life-Threatening Diseases Policy” which will in the future be adopted by all operating divisions. From a benefit point of view the policy will consider HIV/AIDS in the same light as any other life-threatening disease and will ensure non-discrimination against HIV-positive employees. Businesses will monitor the incidence of HIV to the extent that they are able to without transgressing the rules of confidentiality. Any employee wishing to attend training or education programmes on HIV/AIDS will be encouraged.
Safety, health and environment All businesses in the group are required to report to the executive committee on their compliance with applicable laws and regulations. The group is committed to best practice and each business is required to obtain the applicable ISO standards governing these issues.
The nature of our businesses is such that it has limited negative impact on the environment. We generate limited noise pollution and, as far as possible, we select our sites with sufficient facilities to prevent vehicle congestion in the surrounding neighbourhoods. All waste generated by the group is disposed of responsibly through waste management companies who either incinerate waste or use it as landfill. The group’s operations do not produce many effluent discharges and during the year none of the group’s operations reported any significant discharge of water and no fines were imposed for water pollution or other issues related to the use of water. Corporate social investment Corporate social investment is an important business priority and integral to achieving our overall business strategy. The group makes annual donations to a host of NGOs, including children’s welfare organisations, animal welfare organisations, care centres for the aged, associations for the disabled, health care projects and various community initiatives assisting the underprivileged.
Overall, the group contributed R1,3 million to CSI projects during the year.
30 Iliad Annual Report 2006
VALUE-ADDED STATEMENT
2006 2005
2006 Value added 2005 Value added
R000 % R000 %
FOR THE YEAR ENDED 31 DECEMBER 2006
“Value added” is the value which the group has added to its
products and services. This statement shows how the value
added has been distributed among our various stakeholders.
CREATION OF WEALTH
Group turnover 3 368 388 2 683 398
Cost of merchandise and net expenses 2 681 517 2 122 242
Value added 686 871 561 156
Income from investments 2 310 5 389
Total wealth created 689 181 566 545
DISTRIBUTION OF WEALTH
To employees - salaries and benefits 386 557 56,09 320 407 56,55
To government - taxation 78 186 11,34 65 983 11,65
To providers of capital
- Distribution to shareholders 46 859 6,80 34 863 6,15
To maintain and expand the group
- Depreciation 22 254 3,23 19 135 3,38
- Retained for future growth 155 325 22,54 126 157 22,27
689 181 100,00 566 545 100,00
■ Employees 56,09 56,55
■ Government 11,34 11,65
■ Providers of capital 6,80 6,15
■ Maintain and expand group 25,77 25,65
100,00 100,00
Average monthly number of employees which includes executive directors was 3 606 (2005: 3 198)
DISTRIBUTION OF WEALTH 20052006
Iliad Annual Report 2006 31
ILIAD AFRICA LIMITED
Annual Financial Statements 2006
STATEMENT OF COMPLIANCE BY THE COMPANY SECRETARY 32
REPORT OF THE INDEPENDENT AUDITORS 33
STATEMENT OF DIRECTORS’ RESPONSIBILITY 34
DIRECTORS’ REPORT 35
BALANCE SHEETS 38
INCOME STATEMENTS 39
CASH FLOW STATEMENTS 40
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY 41
ACCOUNTING POLICIES 42
NOTES TO THE ANNUAL FINANCIAL STATEMENTS 49
CONTENTS
FOR THE YEAR ENDED 31 DECEMBER 2006
STATEMENT OF COMPLIANCE BY THE COMPANY SECRETARY
In terms of section 268 6(d) of the Companies Act, Act 61 of 1973 [“the Act”] as amended, I certify that to the best of my knowledge and belief, the company and the group has lodged with the Registrar of Companies, for the financial year ended 31 December 2006, all such returns as are required of a public company in terms of the Act and that all such returns are true, correct and up to date.
Luis MendesGroup company secretary12 March 2007
Annual financial statements
32 Iliad Annual Report 2006
Iliad Annual Report 2006 33
STATEMENT OF DIRECTORS’ RESPONSIBILITY
The annual financial statements, set out on pages 35 to 63, and other financial information set out in this annual report, were prepared by management in conformity with International Financial Reporting Standards and fairly present the state of affairs of the group. They have been approved by the board of directors on 12 March 2007, and have been signed on their behalf by the undermentioned directors.
The manner of presentation of the annual financial statements, the selection of accounting policies and the integrity of the financial information are the responsibility of the board of directors.
To fulfil its responsibilities, the board has developed and continues to maintain a system of internal controls. These controls are based on established written policies and procedures, are implemented by trained, skilled personnel with an appropriate segregation of duties and are closely monitored by both the board of directors and the internal auditors.
We believe that the controls in use are adequate to provide reasonable assurance that assets are safeguarded from loss or unauthorised use and that the financial records may be relied on for preparing the financial statements and maintaining accountability for assets and liabilities.
Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review.
After conducting appropriate procedures, the directors are satisfied that the group will be a going concern for the foreseeable future and have continued to adopt the going concern basis in preparing the annual financial statements.
Although the board of directors is primarily responsible for the financial affairs of the group, they are supported by the group’s external auditors. The external auditors are responsible for independently reviewing and reporting on the group’s annual financial statements.
The annual financial statements have been examined by the group’s external auditors and their report is presented on page 33.
Ralph Patmore Neil Goosen
Chief executive officer Financial director
Annual financial statements
34 Iliad Annual Report 2006
Iliad Annual Report 2006 35
Your directors are pleased to present their ninth annual report which forms part of the audited financial statements of the company and the group for the year ended 31 December 2006. This report deals with matters not specifically dealt with elsewhere in the annual report.
1 Nature of business and review of activities
Iliad Africa Limited is the holding company of Iliad Africa Investments (Proprietary) Limited and Iliad Africa Trading (Proprietary) Limited which has operating divisions and subsidiaries that focus on the sourcing, distribution, retailing and wholesaling of a comprehensive range of building materials.
Iliad supplies the full spectrum of building materials in both the residential and non-residential segments of the market through a well-established geographic footprint and strong regional brands. Proven trading skills, as well as the owner-manager philosophy at operational level, have been positive contributors to Iliad’s continued success.
1.1 Acquisition of businesses
The trading results of the new businesses acquired during the year, as well as assets and liabilities, have been incorporated into the financial statements from the effective dates of acquisition. The total cost of the investments was as follows:
2006 2005R000
Net assets at fair value 29 954 38 839Trademarks 53 000
Goodwill 107 694 95 537Campwell Hardwareminority put option 51 482
242 130 134 376
Details of the acquisitions are as follows:1.1.1 On 6 February 2006, in line with the group’s stated strategic intent, Iliad Africa Trading (Proprietary) Limited acquired the business of Q Lite from M Wadsworth Lighting CC for cash. Q Lite is the first acquisition within
the newly established lighting division and provides a full range of lighting supplies and services. Q Lite has built up a reputation for innovative lighting solutions over the past 16 years, focuses on the retail and specification markets, and operates four outlets in KwaZulu-Natal and one in Gauteng.
1.1.2 On 3 March 2006, the business of Sanware & Plumbing in KwaZulu-Natal was purchased from Sanware & Plumbing (Proprietary) Limited for cash. This Pinetown-based business will be managed in the same manner as the Suncol operation in Benoni and will benefit from Suncol’s unique business model as well as the group’s core competencies.
1.1.3 On 3 March 2006, upon completion of all the conditions precedent, Iliad Africa Trading (Proprietary) Limited acquired the SDT business in Cape Town from Stucke Design & Technique (Cape) (Proprietary) Limited for cash. This business specialises in hinges, drawer slides and other kitchen fitting accessories and is well known for it’s “Grass” range of products. It will be managed in the same manner as existing Iliad operations in the wholesale division.
1.1.4 We stated last year that the drive in the plumbing division for 2006 was to roll out Suncol’s unique business model countrywide by opening new stores in the larger metropolitan areas as well as leveraging off the group’s existing infrastructure, market intelligence, procurement and trading skills. To complete this national roll-out in the Western Cape, the business of Modern Bathrooms was acquired for cash on 1 July 2006 from Gaduron Trading 1028 (Proprietary) Ltd.
1.1.5 On 1 December 2006, upon completion of all the conditions precedent, Campwell Hardware (Proprietary) Limited (“Campwell”), a wholly owned subsidiary of Iliad Africa Trading (Proprietary) Limited, acquired certain assets and liabilities of the Campwell businesses from the Campwell vendors for R165 million in cash.
Campwell, with 11 branches, is a building materials retailer and truss manufacturer in the Western Cape. The businesses are being managed by the Building
DIRECTORS’ REPORT
36 Iliad Annual Report 2006
Annual financial statements
DIRECTORS’ REPORT
Materials Division and are benefiting from the group’s core competencies, namely market intelligence, procurement and trading skills.
As part of the acquisition, agreements were entered into whereby the Campwell vendors acquired a 25% interest in Campwell for R41,25 million and at the same time were granted a put option whereby they are entitled to put the shares in and claims against Campwell back to Iliad in any year after December 2008 but before 30 December 2011 for a consideration to be calculated with reference to the profits earned by Campwell and the price earnings ratio of Iliad. This option has been valued at R51,5 million and has been accounted for as a contingent purchase consideration in terms of IFRS 3. See Notes 3 and 8 of the annual financial statements for further details.
2 Group results
The group results and state of affairs for the year under review are set out on pages 35 to 63 and further information relating thereto is set out in the chief executive’s report.
3 Distributions
The dividend declared and paid to shareholders of 32 cents per ordinary share during April 2006 is reflected in the statement of changes in equity.
In view of the good results, future growth opportunities, positive cash flows from operating activities and a strong balance sheet, the directors increased the distribution by 25% to 40 cents per share (2005: dividend of 32 cents per share).
The distribution will be by way of a capital distribution out of stated capital. The authority to make this payment to shareholders was obtained at the annual general meeting held on 9 May 2006.
Set out below are the salient dates applicable to the distribution:
• Last date to trade “cum” the distribution is Thursday, 29 March 2007.
• Trading commences “ex” the distribution Friday, 30 March 2007.
• Record date is Thursday, 5 April 2007.• Payment date is Tuesday, 10 April 2007.
Share certificates may not be dematerialised or rematerialised between Friday, 30 March 2007 and Thursday, 5 April 2007, both dates inclusive.
4 Stated capital
4.1 Iliad Africa LimitedDetails of the stated capital are as follows:
4.1.1 Issued ordinary sharesOn 31 December 2006 the company had 154 284 519 ordinary shares in issue and the stated capital amounted to R232 365 804. At the beginning of the year under review the company had 153 427 519 ordinary shares in issue and a stated capital account of R231 760 210.
During the year the company allotted and issued 857 000 shares at an average strike price of 70,66 cents per ordinary share. These shares were delivered in terms of options granted to employees prior to November 2002 in terms of the Iliad Africa Second Share Option Scheme and includes the shares allotted and issued to the executive directors during the year as set out in Note 16.2 of the financial statements.
All options granted in terms of this scheme have been exercised as at 31 December 2006.
The issued shares are widely held by the public. An analysis of shareholders and shareholdings at 31 December 2006 appears on page 64 of the annual report.
4.1.2 “A” sharesThere were no changes to the authorised and issued “A” shares during the year under review.
4.2 Iliad Africa Investments (Proprietary) Limited – subsidiary company holding treasury sharesAt 31 December 2006, Iliad Africa Investments (Proprietary) Limited, a subsidiary company, held 7 851 111 Iliad ordinary shares as treasury shares (2005: 7 851 111 Iliad ordinary shares).
The group’s stated capital has been reduced by the cost of these treasury shares.
Iliad Annual Report 2006 37
5 Special resolutions
No material special resolutions have been passed during the year except those passed at the annual general meeting held on 9 May 2006, which dealt with the repurchase of shares by the company.
6 Directors and secretary
Directors: Messrs HC Turner (non-executive chairman), RB Patmore, NP Goosen, RT Ririe and Ms MY Sibisi.
In terms of the company’s Articles of Association, Messrs RB Patmore and NP Goosen retire by rotation at the forthcoming annual general meeting.
Being eligible, both directors have offered themselves for re-election.
Group company secretary: Mr JLD Mendes. Information concerning the group company secretary is reflected on page 65.
There were no changes to the directors and secretary during the year.
7 Directors’ shareholding
The total direct and indirect beneficial and non-beneficial interests of directors in the shares of the company are:
Direct Indirect and
2006 beneficial non-beneficial
NP Goosen 1 034 400HC Turner 200 000
200 000 1 034 400
Direct Indirect and
2005 beneficial non-beneficial
NP Goosen 836 000HC Turner 200 000
200 000 836 000
The shareholdings above have not changed between 31 December 2006 and the date of the financial statements.
No director held in excess of 1% of the company’s stated capital. All major shareholders with beneficial interests in Iliad greater than 5% at 31 December 2006 are disclosed on page 64.
8 Subsidiaries
Information relating to the subsidiaries appears on page 63 of this report.
9 Auditors
Grant Thornton will continue in office in accordance with section 270 (2) of the Companies Act.
10 Non-current assets
There were no changes to the nature and policies relating to non-current assets of the group during the period.
11 Post-balance sheet events
The directors are not aware of any material matters or circumstances arising since the end of the financial year that require disclosure or adjustment in these financial statements.
38 Iliad Annual Report 2006
Annual financial statements
BALANCE SHEETS
GROUP COMPANY
2006 2005 2006 2005
Notes R000 R000 R000 R000
AT 31 DECEMBER 2006
ASSETS
Non-current assets
Property, plant and equipment 2 56 498 52 172
Intangible assets 3 373 461 161 285
Financial assets 4 229 724 230 397
Deferred taxation 5 20 798 14 363
Total non-current assets 450 757 227 820 229 724 230 397
Current assets
Inventories 6 584 638 463 074
Trade and other receivables 403 884 308 917 285
Cash and cash equivalents 156 854 192 623 1 5
Total current assets 1 145 376 964 614 1 290
Total assets 1 596 133 1 192 434 229 725 230 687
EQUITY AND LIABILITIES
Capital and reserves
Share capital 7 204 014 203 408 232 489 231 883
Retained income (deficit) 543 266 387 941 (2 194) (985)
Total shareholders’ equity 747 280 591 349 230 295 230 898
Non-current liabilities
Long-term borrowings 8 53 209 1 405
Total non-current liabilities 53 209 1 405
Current liabilities
Trade and other payables 764 552 558 933 182 117
Short-term borrowings 8 1 297 1 214
Taxation 29 795 39 533 (752) (328)
Total current liabilities 795 644 599 680 (570) (211)
Total equity and liabilities 1 596 133 1 192 434 229 725 230 687
Net asset value per share (cents) 510,3 406,2Net tangible asset value per share (cents) 255,3 295,4Based on 146 433 408 (2005: 145 576 408) ordinary shares in issue at year-end net of treasury shares
Iliad Annual Report 2006 39
GROUP COMPANY
Turnover 3 368 388 2 683 398
Cost of sales 2 398 881 1 888 730
Gross margin 969 507 794 668
Administration, selling and distribution expenses 691 447 573 054
Operating profit (loss) before net investment income 11 278 060 221 614 (899) (835)
Net investment income 2 310 5 389 49 371 36 638
– Interest paid (6 200) (21 100) (6)
– Interest received 3 355 26 489 15
– Dividends received 5 155 49 371 36 629
Profit before taxation 280 370 227 003 48 472 35 803
Taxation 12 (78 186) (65 983) (310) (3 129)
Profit for the year 202 184 161 020 48 162 32 674
Number of ordinary shares in issue at year-end
including 7 851 111 treasury shares 7 154 284 519 153 427 519
Weighted average number of ordinary shares
in issue net of treasury shares 14 146 240 876 144 933 286
Diluted weighted average number of ordinary
shares in issue net of treasury shares 14 150 403 056 149 702 713
Earnings per share (cents)
– Basic 14 138,3 111,1
– Diluted 14 134,4 107,6
Distribution per share declared post year-end from
current year’s profit (cents) 40,0 32,0
Distribution from stated capital 40,0
Dividend 32,0
2006 2005 2006 2005
Notes R000 R000 R000 R000
INCOME STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2006
40 Iliad Annual Report 2006
CASH FLOW STATEMENTS
GROUP COMPANY
2006 2005 2006 2005
Notes R000 R000 R000 R000
FOR THE YEAR ENDED 31 DECEMBER 2006
Cash flows from (utilised in) operating activities 197 874 178 228 48 088 31 887
Profit before taxation 280 370 227 003 48 472 35 803
Adjustments: 18 851 13 066 (49 371) (9)
Depreciation 22 254 19 135
Profit on disposal of property, plant and equipment (1 093) (680)
Net investment income (2 310) (5 389) (49 371) (9)
Working capital changes during the year (10 914) (1 443) 350 (569)
Increase in inventories (121 564) (55 881)
(Increase)/decrease in trade and other receivables (94 967) (11 668) 285 (285)
Increase/(decrease) in trade and other payables 205 617 66 106 65 (284)
Cash flows generated from operations 288 307 238 626 (549) 35 225
Net investment income 2 310 5 389 49 371 9
Taxation paid 21.1 (92 743) (65 787) (734) (3 347)
Cash flows from investing activities (208 128) (150 746) 673 2 763
Purchase of businesses 21.2 (190 648) (134 376)
Repayments by subsidiaries 673 2 763
Additions to property, plant and equipment to
maintain operations (20 531) (19 356)
Proceeds on disposal of property, plant and
equipment 21.3 3 051 2 986
Cash flows from financing activities (45 848) (70 180) (48 765) (34 677)
Net inflows/(outflows) from share issues and options exercised
less share issue expenses and share repurchases 606 (19 021) 606 1 952
Increase/(decrease) in short-term borrowings 83 (15 491)
Dividends paid (46 859) (34 863) (49 371) (36 629)
Increase/(decrease) in long-term liabilities 322 (805)
Net decrease in cash and cash equivalents
for the year (56 102) (42 698) (4) (27)
Cash and cash equivalents at the beginning of the year 192 623 225 895 5 32
Cash and cash equivalents acquired 20 333 9 426
Cash and cash equivalents at the end of the year 156 854 192 623 1 5
Annual financial statements
Iliad Annual Report 2006 41
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
GROUP COMPANY
Stated “A” Retained Stated “A” Accum-
capital shares income Total capital shares ulated
deficit Total
R000 R000 R000 R000 R000 R000 R000 R000
FOR THE YEAR ENDED 31 DECEMBER 2006
Balance at 1 January 2005 222 429 261 784 484 213 229 931 2 970 232 901
2 690 000 new shares issued in terms
of company’s share option scheme 1 830 1 830 1 830 1 830
Issue of “A” shares in terms of BEE
transaction 122 122 122 122
4 573 500 treasury shares acquired
by a subsidiary (44 537) (44 537)
Proceeds on sale of 4 081 268
treasury shares by a subsidiary (net
of tax) in terms of the BEE transaction 23 564 23 564
Proceeds 26 855 26 855
Capital gains tax (3 291) (3 291)
Profit for the year 161 020 161 020 32 674 32 674
Dividends paid (see Note 13) (34 863) (34 863) (36 629) (36 629)
Balance at 1 January 2006 203 286 122 387 941 591 349 231 761 122 (985) 230 898
857 000 new shares issued in terms of company’s
share option scheme 606 606 606 606
Profit for the year 202 184 202 184 48 162 48 162
Dividends paid (see Note 13) (46 859) (46 859) (49 371) (49 371)
Balance at 31 December 2006 203 892 122 543 266 747 280 232 367 122 (2 194) 230 295
Note 1 – Certain asset development costs totalling R653 000 have been considered to have no fair value and have been written off.
Note 2 – Goodwill applicable to the defunct steel business has been considered to have no fair value and has been written off.
Note 3 – Following circular 7 – 2005 issued by SAICA on 2 August 2005, there has been clarification of the interpretation of
IAS 17: Leases. Consequently lease rentals are now recognised as an expense over the lease term. Previously lease rentals were
recognised on a basis which reflected the cash flows during that period. The restatement decreased operating profit before finance
income and taxation by R11,8 million and the deferred tax expense by R3,5 million.
42 Iliad Annual Report 2006
Annual financial statements
1 Accounting policies
The financial statements set out on pages 35 to 63 have been
prepared in accordance with International Financial Reporting
Standards (IFRS) and the Companies Act of South Africa.
The group has adopted all of the new and revised Standards
and Interpretations issued by the International Accounting
Standards Board (IASB) and the International Financial
Reporting Interpretations Committee (IFRIC) of the IASB
that are relevant to its operations and that are effective for
accounting periods beginning on or after 1 January 2006. IFRS
is continuing to evolve through the issue and/or endorsement
of new standards and interpretations as well as developments
in the application of recently issued standards. This may
impact on future reported results and disclosure. The basis
of preparation is consistent with the prior year, except for
the effects of the new and revised standards adopted as per
Note 18 to the financial statements. The financial statements
are prepared on the going concern basis in accordance with
the historic cost convention, except for certain financial
instruments which are carried at fair value.
1.1 Use of estimates in the preparation of the financial
statements and assumptions made
In preparing the financial statements, management is required
to make estimates and assumptions that affect reported
expenses, assets, liabilities and disclosure of contingent assets
and liabilities. Use of available information and the application
of judgement are inherent in the formation of estimates. Actual
results in the future could differ from these estimates which
could be material to the financial statements. Significant
judgements made relate to the allowance for doubtful debts,
the allowance for slow-moving and obsolescent stock (see
Note 1.12), impairment testing of intangible assets (see
Note 3.3) and the valuation of options granted to WPEF (see
Notes 7.6 and 18) and the determination of the contingent
purchase consideration in respect of Campwell Hardware (see
Notes 8.2 and 21.2).
1.2 Basis of consolidation
The consolidated financial statements incorporate the assets,
liabilities, income, expenses and cash flows of the company
and all entities controlled by the company as if they were a
single economic entity. 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
period are included in the consolidated income statement from
the date of acquisition or up to the date of disposal.
Inter-company transactions and balances between group
entities are eliminated on consolidation.
On acquisition, the group recognises the subsidiary’s
identifiable assets, liabilities and contingent liabilities at
fair value.
Minority interests in the net assets of consolidated subsidiaries
are shown separately from the group equity therein. It
consists of the amount of those interests at acquisition plus
the minorities’ 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 minorities in excess of its interest in the subsidiaries’ equity
are allocated against the group’s interest except to the extent
that the minorities have a binding obligation and the financial
ability to cover losses.
1.3 Comparative figures
Comparative figures are restated in the event of a change in
accounting policy or prior period error.
1.4 Post-balance sheet events
Recognised amounts in the financial statement are adjusted
to reflect events arising after the balance sheet date that
provide evidence of conditions that existed at balance sheet
date. Events after the balance sheet date that are indicative
of conditions that arose after the balance sheet date are dealt
with by way of a Note.
1.5 Investment in subsidiaries
Shares in subsidiaries are accounted for at cost less
accumulated impairment losses. Loans to subsidiaries
that form part of the net investment in subsidiaries where
settlement is neither planned nor likely in the foreseeable
future, are reflected at full value.
1.6 Business combinations
In the case of businesses acquired during the year, the results
are included for the period that the group effectively obtained
unrestricted control of the businesses acquired, including
ACCOUNTING POLICIES
FOR THE YEAR ENDED 31 DECEMBER 2006
Iliad Annual Report 2006 43
the fulfilment of all conditions. The businesses acquired have
been accounted for in terms of the provisions of IFRS 3, which
requires that the group initially measures the identifiable
assets, liabilities and contingent liabilities acquired at their fair
values as at the date of acquisition.
A put option written as part of a business combination is
accounted for as a contingent consideration when the overall
terms of the arrangement indicate that it is highly probable
that the put option will be exercised. A financial liability is
raised for the present value of the redemption amount and no
minority interest is recognised for the shares subject to the
put. Exercise of the option is accounted for as settlement of the
put option liability.
1.7 Property, plant and equipment
The cost of an item of property, plant and equipment is
recognised as an asset when it is probable that the future
economic benefits associated with the item will flow to the
group and the cost of the item can be measured reliably.
Assets are stated at cost less accumulated depreciation and
any accumulated impairment losses. The useful lives and
residual values are assessed at each balance sheet date, and
adjusted if appropriate.
Depreciation on property, plant and equipment is calculated
using the straight-line basis to write down their cost over their
estimated economic useful lives to estimated residual values,
using a method that reflects the pattern in which the asset’s
future economic benefits are expected to be consumed by
the entity.
The following rates were used during the year to depreciate
property, plant and equipment to estimated residual values:
Machinery and warehouse equipment 3 to 6 years
Vehicles 4 to 5 years
Computer equipment 3 years
Furniture and fixtures 7 to 10 years
Improvements to leased premises and renovations to
showrooms are depreciated over the period of the lease.
The carrying value of owned assets is reviewed at each balance
sheet date to assess whether there is an indication of
impairment.
The gain or loss arising on the scrapping of property, plant
and equipment and the depreciation charge for each period are
recognised in profit and loss.
1.8 Intangible assets
1.8.1 Goodwill
Goodwill represents the future economic benefits arising from
assets that are not capable of being individually identified
and separately recognised in a business combination and is
determined as the excess of the cost of an acquisition over the
interest in the net fair value of the identified assets, liabilities
and contingent liabilities of the subsidiary or business unit at
the date of acquisition.
Goodwill is recognised as an asset and is carried at cost
less any accumulated impairment losses. Goodwill is
further written down to the extent that the balances will in
all probability no longer be recovered from expected future
economic benefits.
The group tests for impairment on an annual basis or more
frequently if there is an indication that the carrying value may
be impaired. At acquisition date, goodwill acquired is allocated
to cash-generating units and impairment is assessed in
relation to these units.
1.8.2 Trademarks
Acquired trademarks are capitalised and assessed at the
individual asset level as having either a finite or indefinite life.
Trademarks are carried at cost less any accumulated
amortisation and any impairment losses. Where a trademark
has a finite life, it is amortised on a straight-line basis over its
estimated useful life. Amortisation periods for trademarks with
a finite life are reviewed annually or earlier where an indicator
of impairment exists.
Trademarks having indefinite lives are not amortised, as there
is no limit to the period over which the asset is expected to
generate net cash inflows for the group. Trademarks with
indefinite lives are reviewed annually to ensure that the
carrying value does not exceed the recoverable amount,
regardless of whether an indicator of impairment is present
44 Iliad Annual Report 2006
Annual financial statements
ACCOUNTING POLICIES
FOR THE YEAR ENDED 31 DECEMBER 2006
and whether or not the trademarks continue to have an
indefinite life. Useful lives are also examined on an annual
basis and adjustments, where applicable, are made on a
prospective basis.
No valuation is made of internally developed and maintained
trademarks or brand names. Expenditure incurred to maintain
these brands is recognised in profit and loss.
1.9 Impairment of assets
At each reporting date the carrying amount of the tangible
and intangible assets is assessed to determine whether there
is any indication that those assets may 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.
Irrespective of whether there is an indication of impairment,
the group also:
- Tests trademarks with an indefinite life for impairment
annually by comparing its carrying amount with its
recoverable amount; and
- Tests goodwill acquired in a business combination for
impairment annually by comparing its carrying amount with
its recoverable amount.
Where it is not possible to estimate the recoverable amount
of an individual asset, the recoverable amount of the cash-
generating unit to which the asset belongs is estimated. Value
in use, included in the calculation of the recoverable amount,
is estimated taking into account future cash flows, forecast
market conditions and the expected lives of the assets.
If the recoverable amount of an asset (or cash-generating
unit) is estimated to be less than its carrying amount, its
carrying amount is reduced to the higher of its recoverable
amount and zero. The impairment loss is first allocated to
reduce the carrying amount of goodwill to zero and then to
the other assets of the cash-generating unit. Subsequent
to the recognition of an impairment loss, the depreciation
or amortisation charge for assets is adjusted to allocate its
remaining carrying value, less any residual value, over its
remaining useful life.
Impairment losses on held-to-maturity financial assets as well
as trade and other receivables are determined based on specific
and objective evidence that assets are impaired and 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.
Impairment losses are recognised in profit or loss. If any
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 limited to the
carrying amount that would have been determined had no
impairment loss been recognised in prior years. A reversal of
an impairment loss is recognised in profit or loss.
For the purpose of impairment testing, goodwill and
trademarks are allocated to each of the cash-generating units
expected to benefit from the synergies of the combination. No
goodwill or trademark impairment losses are subsequently
reversed. The attributable amount of goodwill and trademarks
is included in the profit or loss on disposal when the relevant
business is sold.
1.10 Leases
Leases are classified as finance leases or operating leases at
the inception of the lease.
1.10.1 Finance leases
Assets held under finance lease agreements are capitalised
and are depreciated over their expected useful lives or the
term of the relevant lease, where shorter. Leases are classified
as finance leases whenever the terms of the lease transfer
substantially all of the risks and rewards of ownership to the
lessee, whereas all other leases are classified as operating
leases. At the commencement of the lease, these assets are
reflected at the lower of the fair value of the asset and the
present value of the minimum lease payments at the date of
acquisition. The discount rate used in calculating the present
value of the minimum lease payments is the interest rate
implicit in the lease. Any initial direct costs are added to the
amount recognised as an asset. Finance costs represent the
difference between the total lease commitments and the fair
value of the assets acquired. Finance costs are charged to
profit and loss over the term of the lease and at interest rates
applicable to the lease on the remaining balance of outstanding
lease commitments based on the effective rates of interest.
Iliad Annual Report 2006 45
1.10.2 Operating leases
Rentals payable under operating leases are charged to
profit and loss on a straight–line basis over the term of the
relevant lease.
1.11 Financial instruments
The company classifies financial instruments or their
component parts, on initial recognition as a financial asset, a
financial liability or an equity instrument in accordance with
the substance of the contractual arrangement. Financial assets
and liabilities are recognised in the company’s balance sheet
when the company becomes party to the contractual provisions
of the instrument, and are stated at fair value.
Financial assets and liabilities are offset and the net amount
reported in the financial statements when the company has
a currently enforceable legal right to set off the recognised
amounts and either intends to realise the assets and settle the
liabilities simultaneously, or to settle on a net basis.
1.11.1 Available-for-sale financial instruments
These are measured at fair value with changes in fair value
being deferred in equity and recognised in the income
statement on disposal.
Fair value represents the current market value where a
regulated market exists, otherwise fair value is determined by
the directors. The directors’ valuation is calculated on the basis
of return or net asset value as deemed appropriate.
1.11.2 Derivative instruments
Derivative instruments, which comprise forward exchange
contracts, are recognised at fair value. Fair value adjustments
are recognised in profit and loss.
1.11.3 Trade and other receivables
Trade and other receivables originated by the group are stated
at the fair value of their consideration receivable less any
impairments.
1.11.4 Cash and cash equivalents
Cash and cash equivalents comprise cash and balances with
banks net of bank overdrafts, short-term borrowings and
acceptance credits, all of which are available for the group and
are readily convertible into known amounts of cash. Cash and
cash equivalents are measured at fair value.
1.11.5 Trade and other payables and financial liabilities
Trade and other payables and financial liabilities are measured
at amortised cost using the effective interest rate method.
1.11.6 Loans between companies within the group
Loans between companies within the group are measured at
amortised cost less any impairment loss. On loans receivable,
an impairment loss is recognised in the income statement
of the company when there is objective evidence that it is
impaired. Impairment losses are eliminated on consolidation.
Loans to subsidiaries forming part of the net investments in
the subsidiaries and being loans that are not repayable are
included in the carrying value of the investment in subsidiary.
1.11.7 Derecognition of financial instruments
Financial instruments are derecognised when the group no
longer controls the contractual obligations of the instrument.
1.12 Inventories
Inventories, comprising merchandise, raw materials and
finished goods, are valued at the lower of cost and estimated
net realisable value. Estimated net realisable value is the
selling price in the ordinary course of business less the
estimated cost necessary to make the sale when inventories
are sold. The carrying amount of the inventories is recognised
as an expense in the period in which the related revenue is
recognised. The amount of any write-down of inventories to net
realisable value and all the losses of inventories are recognised
as an expense in the period the write-down or loss occurs.
Cost is determined on a first-in, first-out basis. Obsolete,
redundant and slow-moving inventories are identified and
written down to their estimated net realisable value. Cost
includes costs of conversion and other costs incurred in
bringing the inventories to their present location and condition.
Provision is made for slow-moving, obsolete and redundant
inventories.
1.13 Provisions
Provisions are recognised when the company has a present
legal or constructive obligation as a result of past events, for
which it is probable that an outflow of economic benefits will
be required to settle the obligation, and a reliable estimate
can be made of the amount of the obligation. Where the
effect of discounting to present value is material, provisions
are adjusted to reflect the time value of money, and where
appropriate, the risk specific to the liability.
1.14 Taxation
1.14.1 Current tax assets and liabilities
Current tax liabilities and assets for the current and prior
periods are measured at the amount expected to be paid or
recovered from the tax authorities, using the tax rates that
have been enacted or substantively enacted by the balance
sheet date.
46 Iliad Annual Report 2006
Annual financial statements
ACCOUNTING POLICIES
FOR THE YEAR ENDED 31 DECEMBER 2006
1.14.2 Secondary taxation on companies
Secondary taxation on companies (STC) is recognised as
part of the current taxation charge when the related dividend
is declared.
1.14.3 Deferred tax
A deferred tax asset or liability is recognised for all deductible
or taxable timing differences except to the extent that they
arise from the initial recognition of goodwill or an asset or
liability in a transaction that:
• Is not a business combination; and
• At the time of the transaction, affects neither accounting
profit nor taxable profit or tax loss.
Deferred tax assets are recognised for all deductible
temporary differences and unused tax losses to the extent
that it is probable that taxable profit will be available in future
against which they can be utilised. Future tax profits are
estimated based on business plans which include estimates
and assumptions regarding economic growth, interest rates,
inflation, taxation rates and competitive forces.
Deferred tax is calculated at the tax rates that are expected to
apply to the period when the asset is realised or the liability
is settled, based on tax rates that have been enacted or
substantively enacted by the balance sheet date.
1.14.4 Tax expenses
Current and deferred taxation is recognised to the extent that
the tax arises from:
• A transaction, or an event which is recognised in the same or
different period directly in equity; or
• A business combination.
1.15 Revenue recognition
Revenue is recognised on the date of sale when significant
risks and rewards of ownership are transferred to the buyer.
Revenue is measured at the fair value of the consideration
received or receivable and represents the amounts receivable
for inventory sold and services provided in the normal course
of business, net of trade discounts, volume rebates and
value- added tax. Turnover comprises net sales to customers
and excludes value-added tax. Sales within the group are
eliminated on consolidation.
1.16 Cost of sales
Cost of sales consists of the cost of inventory sold during the
period net of trade discounts, volume rebates and value-added
tax. 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.
1.17 Income from investments
Interest is recognised on a time proportion basis that takes into
account the effective yield on the asset and the principal
outstanding.
Dividend income from investments is recognised when the
shareholders’ right to receive payment has been established.
1.18 Borrowing costs
Borrowing costs are expensed in the period in which they
are incurred.
1.19 Translation of foreign currencies
Foreign currency transactions are recorded, on initial
recognition, in rand by applying to the foreign currency the
exchange rate between the rand and the foreign currency
at the date of the transactions. Uncovered foreign currency
transactions are translated at the spot rates ruling on the date
of the transactions. The related monetary assets and liabilities
at year-end are translated at the spot rates ruling at the
balance sheet date.
Where forward exchange contracts have been entered into
to denominate transactions in rand, the transactions are
translated at the spot rates at transaction date. The year-end
monetary balances of liabilities are translated at the spot rates
at year-end. Open forward exchange contracts are revalued
at market rates for equivalent period exchange contracts.
Exchange differences are recognised in the results for the year.
1.20 Employee benefits
1.20.1 Short-term employee benefits
The cost of short-term employee benefits (those payable within
one year after the service is rendered, such as paid leave,
sick leave and bonuses) is recognised in the period in which
the service is rendered and is not discounted. The expected
cost of compensated leave is recognised as an expense as the
Iliad Annual Report 2006 47
employees render services that increase their entitlement or,
in the case of non-accumulating leave, when the leave occurs.
The expected cost of profit sharing and bonus payments is
recognised as an expense when there is a legal or constructive
obligation to make such payments as a result of past
performance.
1.20.2 Defined contribution plans
Contributions to defined contribution plans in respect of
service in a particular period and current service costs in
respect of a defined benefit plan are recognised as an expense
in the period concerned.
By virtue of the types of schemes operated in the group, no
past service costs or experience adjustments will arise in the
retirement funding arrangements.
1.20.3 Defined benefit plans
Gains or losses on defined benefit plans are recognised
when it can be demonstrated that the group is committed
to curtailment or settlements. The defined benefit plan is
externally fully funded and the group is under no obligation to
cover any unfunded liabilities.
The group’s contributions to the defined benefit plan are
charged to the income statement in the year to which they
relate.
1.21 Share capital and equity
Any repurchases by the group of its own equity instruments
are treated as treasury shares and are deducted from equity
on consolidation. No gain or loss is recognised in the profit and
loss on the purchase, sale, issue or cancellation of the group’s
own equity instruments. Considerations paid or received are
recognised directly in equity.
1.22 Share-based payments
Goods and services received or acquired in a share-based
payment transaction are recognised when the goods or
services are received. A corresponding increase in equity is
recognised if the goods or services were received in an equity-
settled share-based payment transaction or a liability if the
goods or services were acquired in a cash-settled share-based
payment transaction.
For equity-settled share-based payment transactions,
the goods or services received are measured, and the
corresponding increase in equity at the fair value of the goods
or services received, unless the fair value cannot be measured
reliably in which case the value is measured by reference to the
fair value of the equity instruments granted.
For cash-settled share-based payment transactions, the goods
or services received and the liability incurred are measured
at the fair value of the liability. Until the liability is settled, the
fair value of the liability is re-measured at each reporting date
and at the date of settlement, with any changes in the fair value
recognised in the income statement for the period.
1.23 Judgements made by management
Preparing financial statements in conformity with IFRS results
in management having to make estimates and assumptions
that impact reported amounts and the related disclosure. As a
consequence, actual results could differ from these estimates.
The following accounting policies have been identified as being
areas where management has made judgements or estimates:
1.23.1 Useful lives of tangible and intangible assets
The estimated useful lives as translated into depreciation rates
are detailed in the property, plant and equipment policy in the
annual financial statements. These rates and the residual lives
of the assets are reviewed annually taking cognisance of the
forecasted commercial and economic realities and through
benchmark accounting treatments in the industry.
1.23.2 Impairment of assets
An assessment of each independent cash-generating unit at an
entity and intangible asset level is performed at each reporting
period. Discounted cash flows are used to assess the cash-
operating units. All assumptions and estimates used relating to
the discount and growth notes are disclosed in Note 3.
1.23.3 Deferred taxation
Deferred tax assets are recognised to the extent that it is
probable that taxable income will be available in the future
against which they can be utilised. Future taxable profits are
estimates based on business plans which include estimates
and assumptions regarding economic growth, interest,
inflation, taxation rates and competitive forces.
48 Iliad Annual Report 2006
Annual financial statements
1.23.4 Contingent liabilities
Management applies its judgement to facts and advice it
receives from its attorneys, advocates and other advisors in
assessing if an obligation is probable, more than likely not or
remote. This judgement is used to determine if the obligation is
recognised as a liability or disclosed as a contingent liability.
1.23.5 Provisions
Management has applied judgement in estimating various
provisions raised in the operations.
1.24 Interpretations and amendments to standards
effective in 2006
The following amendments to and interpretations of standards
are mandatory for the group’s accounting periods beginning
on or after 1 January 2006:
• SIC 12 (Amendment), Consolidation - Special-purpose
entities (effective from 1 January 2005); and
• IFRIC 2 – Members’ shares in co-operative entities and
similar instruments (effective 1 January 2005).
Management assessed the relevance of these amendments
and interpretations with respect to the group’s operations and
concluded that they are not relevant to the group.
1.25 Statements and interpretations issued but not
yet effective
At the date of approval of these annual financial statements,
certain new accounting standards, amendments to and
interpretations of existing standards had been published that
are mandatory for accounting periods beginning on or after
1 January 2007 which the group has elected not to adopt early.
The following standards and interpretations may have an
impact on the group’s operations when they become effective,
however, the group is of the opinion that except for the impact
of AC503 that has been dealt with in Note 18, this impact will
not be material to the group results:
• Amendment to IAS 1- Presentation of financial
statements – capital disclosures
• Amendment to IAS 21- The effects of changes in foreign
exchange rates: Net investment in foreign operations
• Amendment to IAS 39 – Financial instruments - Recognition
and measurement: Cash flow hedge accounting of forecast
intragroup transactions
• Amendment to IFRS4: Insurance contracts and
IAS 39 – Financial instruments - Recognition and
measurement: Financial guarantee contracts
• IFRS 6 - Exploration for and evaluation of mineral resources
• IFRS 7 - Financial instruments - Disclosures
• IFRIC 4 - Determining whether an arrangement contains
a lease
• IFRIC 5 - Rights to interests arising from decommissioning,
restoration and environmental rehabilitation funds
• IFRIC 6 - Liabilities arising from participating in a specific
market - Waste, electric and electronic equipment
• IFRIC 8 - Scope of IFRS 2
• IFRIC 9 - Reassessment of embedded derivatives
• IFRIC 10 - Interim financial reporting and impairments
• IFRIC 11 - IFRS: Group and treasury share transactions
• AC503 - Accounting for black economic empowerment
(BEE) transactions. (see Note 18).
ACCOUNTING POLICIES
FOR THE YEAR ENDED 31 DECEMBER 2006
Iliad Annual Report 2006 49
2006 2005
R000 R000
2.1 Movements during the year
Capital expenditure including acquisitions (see Note 21.2) 28 539 32 621
Owned assets
– Machinery and warehouse equipment 3 995 9 893
– Vehicles 5 693 2 549
– Computer equipment 5 196 3 549
– Furniture and fixtures 7 653 7 366
– Improvements to leasehold premises 5 913 5 930
Capitalised leased assets
– Machinery and warehouse equipment 89 3 334
Disposals (1 958) (2 306)
Owned assets
– Machinery and warehouse equipment (296) (486)
– Vehicles (579) (627)
– Computer equipment (201) (160)
– Furniture and fixtures (511) (753)
– Improvements to leasehold premises (3) (81)
Capitalised leased assets
– Machinery and warehouse equipment (368) (199)
Depreciation for the year (22 254) (19 135)
4 327 11 180
2.2 Certain assets are hypothecated under finance lease and
instalment sale agreements (see Note 8).
2.3 Property, plant and equipment have an estimated replacement
cost and insurance value of R128 million (2005: R104 million)
GROUP
GROUP
2006 Net 2005 Net
Accumulated carrying Accumulated carrying
Cost Depreciation value Cost Depreciation value
R000 R000 R000 R000 R000 R000
2 Property, plant and equipment
Owned assets
– Machinery and warehouse equipment 26 408 14 402 12 006 21 689 8 926 12 763
– Vehicles 28 098 19 133 8 965 24 340 16 591 7 749
– Computer equipment 28 335 21 647 6 688 23 397 16 526 6 871
– Furniture and fixtures 30 837 15 274 15 563 24 041 10 761 13 280
– Improvements to leasehold premises 22 540 10 467 12 073 16 653 7 406 9 247
Capitalised leased assets
– Machinery and warehouse equipment 4 327 3 123 1 204 5 030 2 768 2 262
Total 140 545 84 046 56 499 115 150 62 978 52 172
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2006
50 Iliad Annual Report 2006
Annual financial statements
GROUP COMPANY
3 Intangible assets
Goodwill (see Note 3.1) 320 461 161 285 Trademarks (see Note 3.2) 53 000
373 461 161 285
3.1 Goodwill
Cost at the beginning of the year 161 285 65 748 Acquisitions 107 694 95 537 Contingent purchase consideration (see Note 8.2) 51 482
Cost at the end of the year 320 461 161 285
Goodwill represents the excess of the purchases consideration over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities at the date of acquisition purchased as part of a business combination.
Goodwill is tested annually for impairment or more frequently if there are indications that goodwill may need to be impaired in accordance with group accounting policy (see Note 3.3). There were no indications of impairment in the current year.
3.2 Trademarks
– Indefinite useful lives
Cost at beginning of the year
Acquisitions 53 000
Cost at end of the year 53 000
Trademarks represent registered rights to the exclusive use of certain trademarks and brand names that have been acquired as part of a business combination and have been stated at their fair value determined by external trademark valuation specialists.
Trademarks with an indefinite life are considered to be indefinite based on the following factors: – There is a high product life cycle for the trademark.
– There is a high level of maintenance expenditure required to obtain the future economic benefits; and
– The group has the intention and ability to reach the required level of maintenance expenditure.
Trademarks are tested annually for impairment or more frequently if there are indications that a trademark may need to be impaired in accordance with group accounting policy (see Note 3.3). There were no indications of impairment in the current year.
In terms of IAS 38 Intangible Assets no value has been placed on internally generated trademarks in the Iliad operations.
2006 2005 2006 2005
R000 R000 R000 R000
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2006
Iliad Annual Report 2006 51
3.3 Impairment testing of goodwill and trademarks with an
indefinite life
Trademarks and goodwill acquired through acquisitions have been allocated to various divisions representing cash-generating units and have been tested for impairment accordingly.
The recoverable amount of the underlying cash-generating units has been determined based on a value-in-use calculation using the cash flow projections for the forthcoming five years, as per the financial budgets approved by senior management, adjusted for expected annual growth thereafter. The average annual growth rate for the following five years used for the cash-generating units was 7%. Thereafter a perpetuity growth rate of 5% was used.
The after-tax discount rate applied to the cash flow projections was 14%, being the weighted average cost of capital of Iliad.
In determining the cash flow projections for the forthcoming financial year, sales, gross margins and costs were based on historical performance and adjusted for projected synergies arising from the acquisitions.
Management believes that any reasonable and possible changein the key assumptions would not cause the carrying amounts of the cash-generating units to exceed the recoverable amounts.
These calculations indicated that there was no impairment in the carrying value of trademarks and goodwill at 31 December 2006.
52 Iliad Annual Report 2006
Annual financial statements
GROUP COMPANY
2006 2005 2006 2005
R000 R000 R000 R000
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2006
4 Financial assets
Interest in subsidiaries (see Note 23)
Shares at cost 1 1 Loans 334 479 335 152
334 480 335 152 Amount written off (104 756) (104 756)
229 724 230 397
5 Deferred tax asset
5.1 – Future tax allowances for trademarks which have
been written off 4 406 5 954
– IAS 17 rental adjustment 6 490 5 180
– Other temporary differences 9 902 3 229
20 798 14 363
5.2 Movements of deferred tax assets
Balance at the beginning of year 14 363 12 937
IAS 17 rental adjustment 1 310 1 649
Reversing temporary differences on trademarks (1 548) (1 548)
Change in tax rate (431)
Other movements 6 673 1 756
At the end of the year 20 798 14 363
6 Inventories
Merchandise 561 340 418 877
Raw materials 10 177 8 458
Finished goods 13 121 35 739
584 638 463 074
Iliad Annual Report 2006 53
7 Share capital
7.1 Authorised
300 000 000 ordinary shares of no par value
12 243 804 “A” shares of no par value
7.2 Issued ordinary shares
154 284 519 (2005: 153 427 519) ordinary shares
of no par value
Balance at the beginning of the year 231 761 229 931 231 761 229 931
857 000 (2005: 2 690 000) new shares issued
in terms of company’s share option scheme 606 1 830 606 1 830
232 367 231 761 232 367 231 761
7 851 111 treasury shares (2005: 7 851 111) acquired by a
subsidiary, being approximately 5% (2005: 5%) of the total
issued shares (see Note 17) (28 475) (28 475)
203 892 203 286 232 367 231 761
7.3 Issued “A” shares
12 243 804 “A” shares issued on 1 April 2005 in terms of the
BEE transaction (see Note 7.6) 122 122 122 122
122 122 122 122
Total issued share capital 204 014 203 408 232 489 231 883
7.4 The following rights, privileges and restrictions attach to the “A” shares of no par value:
1 The “A” shares will rank as regards voting rights pari passu in all respects with the ordinary shares in the capital of Iliad;
2 The holders of the “A” shares shall be entitled to receive notice of all meetings of members of Iliad and shall be entitled to be
present and/or vote, either in person or by proxy, at any meeting of shareholders of Iliad;
3 The “A” shares shall not confer any rights to receive any dividend or distribution out of any capital or revenue profits of Iliad;
4 The “A” shares shall not confer any rights to dividends or return on capital, nor shall they confer any rights to participate in any
surplus assets of Iliad, on a winding up;
5 Iliad shall at its option, and within its sole discretion, be entitled to redeem, convert or acquire all or any of the “A” shares at the
stated capital in respect of the “A” shares divided by the number of “A” shares being redeemed, at any time after 31 December
2009 and prior thereto, only under the following circumstances:
5.1 In the event of Iliad exercising its call option in terms of clause 16 of the BEE agreement, at any time after payment (in
terms of clause 16 of the BEE agreement) has been made to the holder of the shares in the issued share capital of Iliad
which are the subject matter of the call option; or
5.2 In the event of any options which are the subject matter of the BEE agreement being exercised by the holder thereof, Iliad
shall be entitled to cause to be redeemed, converted or acquired at any time following the date of issue of ordinary shares
in respect of options exercised, so many “A” shares as correspond with the number of options which are exercised;
6 Iliad shall, at the option of the holder of the “A” shares, be obliged to redeem, convert or acquire all or part of the “A” shares at
the stated capital in respect of the “A” shares divided by the number of “A” shares being redeemed, at any time falling on a date
which is after that specified in 5 above, which shall apply mutatis mutandis;
7 The terms of the “A” shares may not be modified, altered, varied, added to or abrogated from; and
8 The voting rights as referred to in 1 above, shall terminate forthwith upon redemption or purchase of the “A” shares by Iliad.
GROUP COMPANY
2006 2005 2006 2005
R000 R000 R000 R000
54 Iliad Annual Report 2006
Annual financial statements
Salient features of the Iliad Africa Second Share Option Scheme are: – It makes provision for the granting of options to employees of the companies in the group and the offering of shares for
purchase as an incentive to promote the continued growth of and interest in the company. – The scheme shares shall in the aggregate not exceed 20% of the issued share capital of the company.
Currently the maximum number of shares available to this scheme is 11 000 000 shares of which options have been granted for 9 610 000 shares.
– The number of shares which any participant is entitled to acquire in terms of the scheme shall not exceed 22% of the maximum number of shares reserved for this scheme.
– The option will remain open for a period of ten (10) years after the date of granting thereof.
Employee and executive director beneficiaries can exercise their options granted after the adoption of this scheme as follows: – After the expiration of two years from the option date, 33% of such beneficiary scheme shares – After the expiration of three years from the option date, a further 33% of such beneficiary scheme shares – After the expiration of four years from the option date, the remainder of such beneficiary scheme shares.
Executive director beneficiaries can exercise their options granted under the previous scheme as follows: – After the expiration of two years from the option date, 33% of such beneficiary scheme shares – After the expiration of four years from the option date, a further 33% of such beneficiary scheme shares – After the expiration of six years from the option date, the remainder of such beneficiary scheme shares.
7.6 Women’s Private Equity Fund (WPEF)
On 18 March 2005 the group concluded a broad-based BEE transaction. In terms thereof, options were granted for 12 243 804 ordinary shares at a strike price to be calculated in accordance with the undermentioned formula.
Strike price = A + B - C
Where:
A = R6,58 (six rand and fifty-eight cents) being a ten percent discount to the volume weighted average share price of Iliad on the JSE as at 14 October 2004 (being the day after the letter of intent was executed by the parties);
B = The RSA 153 closing daily yield to maturity plus two and a half percent; and
C = The accumulated abnormal dividend for the period from the effective date to the payment date.
Based on the above formula, the calculated price at 31 December 2006 is 800 cents (2005: 723 cents). These options have not been accounted for in the group’s results (see Note 18).
7.7 The unissued ordinary shares are under the control of the directors in terms of a resolution of members passed at the
last annual general meeting of members. This authority remains in force until the next annual general meeting.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
GROUP AND COMPANY
2006 2005
R000 R000
FOR THE YEAR ENDED 31 DECEMBER 2006
7 Share capital (continued)
7.5 Iliad Africa second share option scheme
All options granted to executive directors and operational executives in terms of this scheme (which were granted prior to November 2002), have been exercised at 31 December 2006. No further options were granted to executive directors and operational executives during the year. Movement for the year:
Options granted and not yet excercised at the beginning of the year 857 000 3 547 000 Options exercised during the year (857 000) (2 690 000) Executive directors (see Note 15.2) (522 000) (617 000) Operational executives (335 000) (2 073 000)
Options granted but not yet exercised at the end of the year 857 000
Iliad Annual Report 2006 55
GROUP COMPANY
2006 2005 2006 2005
R000 R000 R000 R000
8 Long-term borrowings
8.1 Secured liabilities 3 024 2 619
Secured by finance lease and instalment sale agreements
over vehicles and equipment with a net book value of
R3 183 694 (2005: R3 395 101). The liabilities bear
interest at rates varying from 9,2% to 11,4% per annum
(2005: 8,5% to 10,6% per annum) which are linked to
the prime bank overdraft rate and are repayable in
monthly instalments of approximately
R120 000 (2005: R133 000) (inclusive of finance charges).
8.2 Contingent purchase consideration in respect of
Campwell Hardware vendors 51 482
Financial liability for present value of the estimated redemption
amount of the put option held by the minority shareholders in
Campwell Hardware (Proprietary) Limited. The option has been
provisionally valued by the directors based on the estimated
future profits of the business. A final valuation will be done
during 2007 at the end of the profit warranty period.
54 506 2 619
8.3 Less: Amounts payable within one year included with
current liabilities 1 297 1 214
53 209 1 405
9 Commitments
9.1 Operating leases
Estimated future rentals
– Property 260 829 240 097
– Vehicles and equipment 45 769 31 411
306 598 271 508
Operating leases payable
– Within one year 78 195 61 462
– In second to fifth year inclusive 180 866 181 689
– Later than five years 47 537 28 357
306 598 271 508
56 Iliad Annual Report 2006
Annual financial statements
GROUP COMPANY
2006 2005 2006 2005
R000 R000 R000 R000
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2006
9 Commitments (continued)
9.1 Operating leases
Property commitments are for fixed rate leases for
operating and trading premises with an average term
of five years. Many lease contracts include a renewal
option at the end of the term at fair market rates. Rentals
escalate at rates which are in line with historical interest
rates applicable to the South African environment.
Lease periods do not exceed ten years.
Motor vehicle and equipment commitments are fixed rate
leases in operating business units with an average lease
term of four years.
These commitments will be financed from available cash
resources, funds generated from operations and available
borrowing capacity.
9.2 Capital expenditure approved
Contracted for 20 150 14 250
Authorised but not contracted for 13 600 9 400
33 750 23 650
Capital expenditure will be financed from funds from available
cash resources, funds generated from operations and available
borrowing capacity.
Commitment for acquisition of business 18 000
Total commitments 340 348 313 158
10 Contingent liabilities
10.1 Guarantees issued in the normal course of
business for finance facilities granted to subsidiaries. 920 000 243 000
10.2 Litigation, current or pending is not considered likely
to have a material adverse effect on the group.
Iliad Annual Report 2006 57
GROUP COMPANY
2006 2005 2006 2005
R000 R000 R000 R000
11 Operating profit before finance income
After taking into account the following:
Income
Income from subsidiaries:
– Management fees 1 028
Foreign exchange (loss) profit (1 045) 3 074
Profit on disposal of property, plant and equipment 1 093 680
Expenditure Auditors’ remuneration 3 623 3 263 200 200
– Audit fees 3 620 3 250 200 200 – Other services 3 13
Consulting fees for administrative services 1 164 2 167 283 807
Depreciation of property, plant and equipment 22 254 19 135
– Machinery and warehouse equipment 4 478 3 153 – Vehicles 3 897 4 422 – Computer equipment 5 179 5 130 – Furniture and fixtures 4 859 3 356 – Improvements to leased premises 3 085 2 038 – Capitalised leased assets 756 1 036
Operating lease rentals 80 685 63 454
– Property 67 633 56 093 – Vehicles and equipment 13 052 7 361
Staff costs 386 557 320 407
– Salaries and wages 361 280 298 573 – Retirement benefits 16 606 13 279 – Medical aid contributions 8 671 8 555
58 Iliad Annual Report 2006
Annual financial statements
GROUP COMPANY
2006 2005 2006 2005
R000 R000 R000 R000
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2006
12 Taxation
Normal taxation – current 78 407 64 284 (261) 4 Adjust for prior years Deferred taxation – current (4 819) (1 426) Secondary tax on companies 4 598 3 125 571 3 125
78 186 65 983 310 3 129
Reconciliation of tax rate % % % % Standard tax rate 29,00 29,00 29,00 29,00 Reduction in tax rate: (3,80) (1,80) (29,54) (29,00)
Exempt income (3,80) (2,42) (29,54) (29,00)
Change in prior year estimate of deferred taxation 0,64 Utilisation of assessed losses (0,02)
Increase in tax rate: 2,68 1,86 1,18 8,74
Disallowable charges 1,04 0,48 0,01 Secondary tax on companies 1,64 1,38 1,18 8,73
Effective rate of taxation 27,88 29,06 0,64 8,74
13 Dividends
No. 8 – Declared on 3 March 2006 at 32,0 cents (2005: 24 cents)
per share payable on 3 April 2006 to shareholders registered
at 24 March 2006. 49 371 36 629 49 371 36 629
Dividend attributable to treasury shares 2 512 1 766
46 859 34 863 49 371 36 629
Iliad Annual Report 2006 59
GROUP COMPANY
2006 2005 2006 2005
R000 R000 R000 R000
14 Earnings, headline earnings, diluted earnings
and diluted headline earnings per share
Earnings and headline earnings per share are based
on the consolidated earnings and headline earnings
attributable to shareholders of R202 184 235
(2005: R161 019 984) and R201 091 094
(2005: R160 339 517) respectively and are calculated
using the weighted average number of 146 240 876
(2005: 144 933 286) ordinary shares in issue net of
treasury shares.
Diluted earnings and diluted headline earnings per share
are based on the consolidated earnings and headline
earnings as stated above and are calculated using
150 403 056 (2005: 149 702 713) ordinary shares in issue.
14.1 Diluted weighted average number of shares
Weighted average number of ordinary shares (net of
treasury shares) 146 240 876 144 933 286
Increase in number of ordinary shares as a result of
unexercised share options given to executive directors
and operational executives 800 402
Increase in number of ordinary shares as a result of
unexercised share options for the BEE transaction 4 162 180 3 969 025
Diluted weighted average number of ordinary shares
at 31 December 2006 150 403 056 149 702 713
Account is taken of the number of ordinary shares in issue
for the period in which they are entitled to participate in
the net profit of the group.
14.2 Earnings per share
Profits for the year (R000) 202 184 161 020
Earnings per share (cents) 138,3 111,1
Diluted earnings per share (cents) 134,4 107,6
Percentage dilution (%) 2,8 3,3
14.3 Headline earnings per share
Profits for the year (R000) 202 184 161 020
Profit on disposal of plant and equipment (1 093) (680)
Headline earnings (R000) 201 091 160 340
Headline earnings per share (cents) 137,5 110,6
Diluted headline earnings per share (cents) 133,7 107,1
Percentage dilution (%) 2,8 3,3
60 Iliad Annual Report 2006
Annual financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
Directors’ Fixed Performance
fees remuneration bonuses Total
R000 R000 R000 R000
15 Directors’ emoluments
15.1 Remuneration
2006
Non-executive directors
HC Turner 346 346
RT Ririe 216 216
MK Sibisi 89 89
Executive directors – paid by a subsidiary
RB Patmore 2 170 4 292 6 462
NP Goosen 774 1 551 2 325
651 2 944 5 843 9 438
2005
Non-executive directors
HC Turner 284 284
G Psillos (retired 10 May 2005) 182 182
BA Mabuza (appointed 31 March 2005 and resigned
28 September 2005)
RT Ririe 173 173
MK Sibisi (appointed 28 September 2005) 14 14
Executive directors - paid by a subsidiary
RB Patmore 2 000 3 661 5 661
NP Goosen 727 1 235 1 962
653 2 727 4 896 8 276
15.2 Directors’ interest in the share incentive scheme
The directors have entered into the following deferred delivery agreements in terms of the Iliad second share option scheme:
Out- Market Out- R000
standing price on standing Share
shares at Strike Exercised date of shares at incentive
December price during Delivery delivery December scheme
2005 (cents) the year date (cents) 2006 gains
RB Patmore 334 000 334 000 3 964 580
334 000 63 334 000 7 Mar 2006 1 250 3 964 580
NP Goosen 188 000 188 000 2 212 776
333 70 333 7 Mar 2006 1 250 3 929
53 667 63 53 667 7 Mar 2006 1 250 637 027
134 000 77 134 000 7 Mar 2006 1 250 1 571 820
2006 1 139 000 522 000 6 177 356
2005 1 139 000 617 000 522 000 5 632 190
All options were granted prior to November 2002. No options have been granted to any non-executive director.
Iliad Annual Report 2006 61
16 Retirement benefit information
The group contributes to defined contribution schemes covering approximately three fifths of the group’s employees. The schemes are administe red in terms of the Pension Funds Act, 1956. Contributions to retirement funding during the year amounted to R16,6 million(2005: R13,28 million). As the fund is a defined contribution scheme, no actuarial shortage can arise in the future. All permanent employees are required to become members of this plan unless they are obliged by legislation to be members of various industry funds.
In addition the group contributes to a defined benefit fund for 31 members which fund is currently in the process of being converted to a defined contribution fund. The last valuation performed in 2004 indicated that the fund had a surplus of approximately R5 million.
17 Treasury shares
Shares in Iliad Africa Limited held by a wholly-owned subsidiary are classified as treasury shares. The number of shares is treated as a deduction from the issued and weighted average number of shares and the cost price of the shares is deducted from the group equity. Dividends received on these treasury shares are eliminated on consolidation.
18 IFRIC 8 - Scope of IFRS 2 Share-based payment transactions
On 18 March 2005 the group concluded a broad-based BEE transaction. In terms thereof options were granted for 12 243 804 ordinary shares at a strike price to be calculated in accordance with a formula (see Note 7.6). These options have been independently valued at approximately R40 million.
In April 2006 the Accounting Practices Board issued AC 503 – Accounting for black economic empowerment (BEE) transactions, which is effective for annual periods beginning on or after 1 May 2006. The statement seeks to clarify certain issues specific to BEE transactions that arise on the application of IFRS 2 - Share-based payment. The group has elected not to early adopt the interpretation and will apply the interpretation retrospectively to the options granted in terms of the broad-based BEE transaction concluded on 18 March 2005 when the interpretation is adopted for the first time in the 2007 year.
The effect of the adoption in 2007 will be as follows: – The value of the options granted of approximately R40 million shall be expensed in the 2005 income statement with a corresponding
credit to shareholders’ equity – The earnings and headline earnings per share for 2005 will be restated – The effect of the statement will be a reduction of 27,8 cents per share – There will be no effect on the equity of the group or the earnings for 2006 or 2007.
These options have been independently valued at approximately R40 million.
19 Financial risk management
19.1 Credit risk
The group only deposits cash with banks of quality credit standing. Trade account receivables comprise a widespread customer base. Ongoing credit evaluation of the financial postion of customers is performed, and where appropriate, credit guarantee insurance is
purchased. The granting of credit is made on application and is approved by management. At year-end, the group did not consider there to be any significant concentration of credit risk which has not been insured or adequately provided for.
19.2 Liquidity risk
The group manages liquidity risk by monitoring daily borrowing levels and forecast cash flows and ensuring that adequate unutilised borrowing facilities are maintained. There is no restriction on borrowing powers in terms of the Articles of Association and at 31 December 2006 the group’s banking facilities substantially exceeded its forecast requirements for the forthcoming year.
19.3 Interest rate risk
Interest is payable on long and short-term borrowings at variable rates which are linked to the bank prime lending rate (see Note 8).
19.4 Foreign currency risk
The group undertakes certain purchases of goods denominated in foreign currencies and hence exposures to exchange rate fluctuations arise. The group has partly hedged, through the use of forward exchange contracts, all of its foreign currency exposure. The value of forward exchange contracts entered into at 31 December 2006 is as follows:
€3 326 637 – R32 095 394 (2005: R31 928 000) being at an exchange rate of €1 = ZAR9,648 (2005: €1 = ZAR7,982) US$8 805 580 – R61 567 734 (2005: R33 712 877) being at an exchange rate of US$1 = ZAR6,9919 (2005: US$1 = ZAR6,439) GB£14 022 – R192 101 being at an exchange rate of GB£1 = ZAR13,70.
All forward exchange contracts will mature and be settled by 28 June 2007.
62 Iliad Annual Report 2006
Annual financial statements
GROUP COMPANY
2006 2005 2006 2005
R000 R000 R000 R000
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
20 Segment reporting
Segmental information is not disclosed as the group
only operates in the building materials supply market segment
within the South African building materials industry.
21 Notes to the cash flow statements
The following convention applies to figures other than adjustments:
Outflows of cash are represented by figures in brackets. Inflows of
cash are represented by figures without brackets.
21.1 Taxation paid
Amounts (outstanding) advanced at the beginning of the year (39 533) (37 911) 328 110
Amounts charged to the income statement (83 005) (67 409) (310) (3 129)
Amounts outstanding (advanced) at the end of the year 29 795 39 533 (752) (328)
(92 743) (65 787) (734) (3 347)
21.2 Purchases of businesses comprise the following:
Details of the acquisitions made during the year are set out in the
directors’ report on pages 35 and 36. The estimated purchase
considerations totalling R242 million have been provisionally
allocated to the underlying fair value of the identifiable assets,
liabilities and contingent liabilities as follows:
Property, plant and equipment (8 008) (13 265)
Trademarks (53 000)
Goodwill (159 176) (95 537)
Net current assets (8 549) (18 736)
Long-term liabilities 5 535
Short-term liabilities 1 401 15 233
Cash and cash equivalents (20 333) (9 426)
(242 130) (121 731)
Satisfied by:
Cash and cash equivalents (190 648) (121 731)
Contingent purchase consideration (51 482)
(242 130) (121 731)
21.3 Proceeds on disposal of property, plant and equipment
Book value on disposals 1 958 2 306
Profit on disposal 1 093 680
3 051 2 986
Iliad Annual Report 2006 63
22 Related party transactions
The company and its subsidiaries have entered into various transactions with related parties as follows:
Subsidiaries
– Details of income from subsidiaries are disclosed in Note 11 and on page 57
– Details of investments in subsidiaries are disclosed in Notes 4 and 23 and on pages 52 and 63 respectively.
Directors
– Details of directors’ remuneration and directors’ interest in the share option scheme are disclosed in Note 15. Directors’ shareholdings
are disclosed in the directors’ report.
Key personnel
– Key personnel comprise the directors of the operating subsidiary and certain divisional managers. Remuneration paid to key personnel
during the year was R36 157 566 (2005: R36 766 779).
23 Interest in subsidiary companies Issued % % Cost of Cost of Amount Amount
share held held shares shares owing owing
capital 2006 2005 2006 2005 2006 2005
R R R R000 R000
Held directly
Iliad Africa Trading (Proprietary) Limited 1 100 100 1 1 170 337 183 008
Iliad Africa Investments (Proprietary) Limited 1 000 100 100 1 000 1 000 164 142 152 144
Held indirectly
BYM Building Supplies (Proprietary) Limited 100 100 100
Campwell Hardware (Proprietary) Limited 100 75*
CMG Holdings (Proprietary) Limited 1 000 100 100
D&A Timbers (Proprietary) Limited 1 100 100
D&A Truss (Proprietary) Limited 100 100 100
United Steel and Pipe Supplies (Proprietary) Limited 20 000 100 100
United Tube (Proprietary) Limited 100 100 100
1 001 1 001 334 479 335 152
* Although the group only holds 75% of Campwell
Hardware (Proprietary) Limited, the 25% minority
holds a put option on the shares held and this option
has been accounted for as a contingent purchase
consideration and therefore the group’s interest in
Campwell Hardware (Proprietary) Limited has been
recognised at 100%. (See Notes 3 and 8)
Attributable profits and losses after taxation of subsidiaries 2006 2005
R000 R000
Profits 203 083 161 930
64 Iliad Annual Report 2006
Number of % of Number of % of issued
shareholders shareholders shares capital
SHAREHOLDER ANALYSIS
FOR THE YEAR ENDED 31 DECEMBER 2006
Portfolio size:
Range
1 - 5 000 3 017 82,95 3 137 984 2,03
5 001 - 20 000 348 9,57 3 731 434 2,42
20 001 - 100 000 159 4,37 7 118 525 4,61
100 001 - 1 000 000 80 2,20 29 649 048 19,22
1 000 001 - and more 33 0,91 110 647 528 71,72
Totals 3 637 100 154 284 519 100
Category
Individuals 2 823 77,62 11 998 500 7,78
Companies and other corporate bodies 812 22,33 141 051 619 91,42
Directors 2 0,05 1 234 400 0,80
Totals 3 637 100 154 284 519 100
Shareholder spread
Public 3 634 99,92 145 199 008 94,11
Non-public 3 0,08 9 085 511 5,89
Directors 2 0,05 1 234 400 0,80
Wholly owned subsidiary 1 0,03 7 851 111 5,09
Totals 3 637 100 154 284 519 100
Major shareholders (5% or more of the shares in issue)*
Rand Merchant Bank Asset Management 30 545 864 19,79
Public Investment Commissioner 17 078 157 11,07
The Kalithea Trust 10 705 000 6,94
Old Mutual Asset Management 8 125 012 5,27
Iliad Africa Investments (Pty) Limited 7 851 111 5,09
Investec Fund Managers 7 785 636 5,05
* Supplied by Link Market Services South Africa (Pty) Limited.
Iliad Annual Report 2006 65
CORPORATE INFORMATION
Iliad Africa Limited
Incorporated in the Republic of South Africa
Registration number 1997/011938/06
Share code: ILA
ISIN: ZAE000015038
Group company secretary
Luis Mendes
PO Box 2572 Honeydew 2040
Business address and registered office
Iliad Africa Limited
First Floor, East Block
Pineslopes Office Park
cnr The Straight and Witkoppen Roads
Lonehill Sandton
(PO Box 2572 Honeydew 2040)
Transfer secretaries
Link Market Services South Africa (Pty) Limited
11 Diagonal Street
Johannesburg
(PO Box 4844 Johannesburg 2000)
Internet
http://www.iliadafrica.co.za
Attorneys
Fullard Mayer Morrison Incorporated
2nd Floor Office Towers Sandton City
cnr Rivonia Road and Fifth Street
Sandton 2146
(PO Box 78678 Sandton 2146)
Principal bankers
Nedbank, a division of Nedcor Bank Limited
First National Bank of South Africa
Mercantile Lisbon Bank, a division of
Mercantile Lisbon Bank Holdings Limited
Sponsor
Bridge Capital Advisors (Pty) Limited
First Floor Building 22 A
The Woodlands Woodlands Drive
Woodmead 2128
(PO Box 651010 Benmore 2010)
Auditors
Grant Thornton
Chartered Accountants (SA)
Registered Auditors
(Member firm of Grant Thornton International)
137 Daisy Street cnr Grayston Drive
Sandown 2196
(Private Bag X28 Benmore 2010)
66 Iliad Annual Report 2006
SHAREHOLDERS’ DIARY
Financial year-end 31 December 2006
Declaration of final distribution 12 March 2007
Publication of financial results 12 March 2007
Annual report posted to shareholders 30 March 2007
Payment of final distribution 10 April 2007
Annual general meeting 24 May 2007
Publication of interim results September 2007
Iliad Annual Report 2006 67
FORM OF PROXY
ILIAD AFRICA LIMITED
Registration number 1997/011938/06(Incorporated in the Republic of South Africa)Share code: ILA ISIN: ZAE000015038(“Iliad” or “the company”)
For use by certificated and own-name dematerialised ordinary shareholders and “A” shareholders (“shareholder”) at the annual general meeting to be held at East Block, First Floor, Pineslopes Office Park, cnr The Straight and Witkoppen Roads, Lonehill, Sandton at 12:00 on Thursday, 24 May 2007.
I/We (block letters]
of (address)
being the holder/s of ordinary shares in the company,
and/or “A” shares in the company appoint: (see Note 1)
1 or failing him/her
2 or failing him/her
3 the chairman of the annual general meeting,as my/our proxy to attend, speak and vote for me/us on my/our behalf at the annual general meeting of the company to be held atEast Block, First Floor, Pineslopes Office Park, cnr The Straight and Witkoppen Roads, Lonehill, Sandton at 12:00 on Thursday, 24 May 2007, and at any adjournment thereof. I/we desire to vote as indicated below (see Note 2):
Number of shares
In favour Against Abstain
of the the from
resolution resolution voting
Ordinary resolutions:
1 To consider and adopt the annual financial statements
2 Re-election of directors:
2.1 RB Patmore
2.2 NP Goosen
3 To approve directors’ remuneration as disclosed in the annual financial statements
4 Placing of unissued shares under the control of the directors for the purpose
of the share incentive scheme
5 General authority to make payments to ordinary shareholders
6 To re-appoint the external auditors
Special resolutions:
1 General authority to repurchase shares
2 Specific repurchase of shares
(Indicate instructions to proxy by way of a cross in the appropriate space(s) provided above. Unless indicated above, the proxy may vote as
he/she deems fit.)
Signed at on 2007
Signature
Assisted by (where applicable)Each shareholder is entitled to appoint one or more proxies (who need not be members of the company) to attend, speak and vote in place of that member at the annual general meeting, (Instructions overleaf )
68 Iliad Annual Report 2006
NOTES TO THE PROXY
INSTRUCTIONS ON SIGNING AND LODGING THE
ANNUAL GENERAL MEETING PROXY FORM:
1 A shareholder may insert the name(s) of two alternative proxies (neither of whom need be a shareholder of the company) in the space provided, with or without deleting the words “chairman of the annual general meeting”. The person whose name appears first on the form of proxy and has not been deleted and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of those whose names follow. In the event that no names are indicated, the proxy shall be exercised by the chairman of the annual general meeting.
2 A shareholder’s instructions to the proxy must be indicated by the insertion of an “X” or the relevant number of votes exercisable by that shareholder in the appropriate box/boxes provided. If a proxy form, fully signed, is lodged without specific directions as to which way the proxy is to vote, the chairman of the annual general meeting will be deemed to have been authorised as he/she thinks fit. A shareholder or the proxy is obliged to use all the votes exercisable by the shareholder or by the proxy.
3 A deletion of any printed matter and the completion of any blank spaces need not be signed or initialled. Any alteration or correction must be initialled by the authorised signatory/ies.
4 When there are joint holders of Iliad shares, all joint shareholders must sign the form of proxy.
5 The completion and lodging of this form of proxy will not preclude the shareholder, who grants this proxy, 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 shareholder wish to do so.
6 Documentary evidence establishing the authority of the person signing this form of proxy in a representative capacity must be attached to this form unless previously recorded by the transfer secretaries.
7 Where this form is signed under power of attorney, such power of attorney must accompany this form unless it has been previously registered with the company or the transfer secretaries.
8 A minor must be assisted by his/her parent or guardian unless the relevant document establishing his/her legal capacity has been produced or registered by the transfer secretaries.
9 Completed forms of proxy must be forwarded to the company’s transfer secretaries, Link Market Services South Africa (Pty) Limited, PO Box 4844, Johannesburg, 2000 so as to be received by no later than 12:00 on Tuesday, 22 May 2007.
10 The chairman of the meeting may reject or accept a proxy that is completed other than in accordance with these instructions, provided that he/she is satisfied as to the manner in which a shareholder wishes to vote.
Iliad Annual Report 2006 69
NOTICE OF ANNUAL GENERAL MEETING
ILIAD AFRICA LIMITED
Registration number 1997/011938/06
(Incorporated in the Republic of South Africa)
Share code: ILA
ISIN: ZAE000015038
(“Iliad” or “the company”)
Notice is hereby given that the annual general meeting
of ordinary shareholders and “A” shareholders
(“shareholders”) of Iliad Africa Limited will be held at East
Block, First Floor, Pineslopes Office Park, cnr The Straight
and Witkoppen Roads, Lonehill, Sandton at 12:00 on
Thursday, 24 May 2007 for the purposes of transacting the
following business:
As ordinary resolutions
1 To consider and adopt the annual financial statements
for the year ended 31 December 2006 together with the
directors’ and auditors’ reports.
2 To elect the following directors who retire in accordance
with the provisions of the company’s Articles of Association
and being eligible, offer themselves for re-election:
2.1 RB Patmore
2.2 NP Goosen
Set out below are brief CVs of the directors retiring
by rotation:
RB Patmore
BCom (University of the Witwatersrand), MBL (UNISA)
– chief executive officer
Ralph has operated in the building industry for a period in
excess of 25 years. He joined Iliad in June 1998 following
ten years with Everite Limited, the last seven years of
which he held the position of managing director. Prior
to joining Everite Limited, Ralph held managing director
positions at M&P Pumps (Pty) Limited, a subsidiary
of Malbak, and Exchange Engineering (Pty) Limited, a
member of the Unihold Group. In addition, Ralph also held
a directorship on the board of Group Five Limited.
NP Goosen
BCompt (UNISA), CA (SA), MBA (University of the
Witwatersrand) – financial director
Neil qualified as a chartered accountant after having
served articles at Deloitte & Touche. Thereafter, Neil
gained commercial experience in the financial field with
NEI Africa Limited and Roche Products (Pty) Limited.
During this period, Neil also completed an MBA at the
University of the Witwatersrand. Neil joined Iliad in June
1998 and was appointed to the board in September 1999.
3 To approve the remuneration paid to directors, as
disclosed in the annual financial statements.
4 To place the ordinary shares held in reserve for the
share incentive scheme under the control of the directors
who shall be authorised to allot and issue these shares
on such terms and conditions, at such times and for
such consideration, whether payable in cash or otherwise,
as they deem fit, subject to the Companies Act
(Act 61 of 1973) (“the Act”) as amended, and the Listings
Requirements of the JSE Limited (“JSE”) until the next
annual general meeting of the company.
5 General payments
To resolve that, in terms of Article 8.10 of the company’s
Articles of Association and subject to the company
obtaining a statement by the directors that after
considering the effect of such maximum payment the:
a Company and the group will be able in the ordinary
course of business to pay its debts for a period of
12 months after the date of the notice of the annual
general meeting;
b Assets of the company and the group will be in excess
of the liabilities of the company and the group for a
period of 12 months after the date of the notice of the
annual general meeting. For this purpose, the assets and
liabilities will be recognised and measured in accordance
with the accounting policies used in the latest audited
annual group financial statements;
c Share capital and reserves of the company and the
group will be adequate for ordinary business purposes for
a period of 12 months after the date of the notice of the
annual general meeting; and
d Working capital of the company and the group will be
adequate for ordinary business purposes for a period of
12 months after the date of the notice of the annual
general meeting.
70 Iliad Annual Report 2006
The directors of the company shall be entitled, from time to time, to pay, by way of a reduction of stated capital, capital distributions to ordinary shareholders of the company in lieu of a dividend. Such distributions shall be made pro rata to all shareholders and shall be amounts equal to the amounts which the directors would have declared and paid out of profits of the company as interim and final dividends. This authority shall not extend beyond the date of the next annual general meeting or 15 months from the date of this resolution, whichever period is shorter.
In terms of the JSE Listings Requirements any general payment(s) may not exceed 20% of the company’s issued share capital, including reserves but excluding minority interests, and revaluations of assets and intangible assets that are not supported by a valuation by an independent professional expert acceptable to the JSE prepared within the last six months, in any one financial year, measured as at the beginning of such financial year. The intention of the company is to utilise the general authority to make a general payment to ordinary shareholders by way of a reduction of stated capital in lieu of a dividend. In this regard the directors will take account of, inter alia, appropriate capitalisation structures for the company as well as the long-term cash needs of the company, and will ensure that any such payments are in the interests of shareholders.
General payments, from time to time, to pay, by way of a reduction of stated capital, capital distributions to ordinary shareholders for the company in lieu of a dividend, shall not be effected before the JSE has received written confirmation from the company’s sponsor to the effect that the directors have considered the solvency and liquidity of the company and the group as required in terms of section 90 (2) of the Act, as amended.
6 To reappoint the external auditors until the conclusion of the next annual general meeting.
As special resolutions
1 Special resolution 1: General repurchases
To consider and, if deemed fit, to pass with or without modification, the following special resolution to give a general authority for the company to repurchase its own shares:
RESOLVED THAT Iliad, or a subsidiary of Iliad, be and is hereby authorised, by way of a general authority, to acquire shares issued by Iliad in terms of sections 85 to 89 of the Act, as amended, and in terms of the JSE Listings Requirements and that any director of the company be and is hereby authorised to sign all such documents and do all such things as may be necessary for or incidental to the implementation of this special resolution. The JSE Listings Requirements currently require that the company may only make a general repurchase of its shares if:
• Any such repurchase of shares is effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the company and the counterparty (reported trades are prohibited);• The company is authorised thereto by its Articles of Association;• The general authority shall only be valid until the company’s next annual general meeting; provided that it shall not extend beyond 15 months from the date of passing of this special resolution;• In determining the price at which the ordinary shares issued by Iliad are acquired by it or its subsidiary in terms of this general authority, the maximum price at which such shares may be acquired will be 10% above the weighted average of the market value for such ordinary shares for the five business days immediately preceding the date on which the repurchase of such shares is effected;• At any point in time, the company may only appoint one agent to effect any repurchase(s) on the company’s behalf;• After such repurchase, the company still complies with paragraphs 3.37 to 3.41 of the JSE Listings Requirements concerning shareholder spread requirements;• The company or its subsidiary may not repurchase shares during a prohibited period as defined in paragraph 3.67 of the JSE Listings Requirements;• Acquisitions of shares in any one financial year may not exceed 10% of the company’s issued share capital pursuant to this general authority;• Subsidiaries of the company shall not acquire, in aggregate, more than 10% of the company’s issued share capital; and
NOTICE OF ANNUAL GENERAL MEETING
Iliad Annual Report 2006 71
• The company publishes an announcement when it has cumulatively repurchased 3% of the initial number (the number of that class of shares in issue at the time that general authority is granted) of the relevant class of securities, and for each 3% in aggregate of the initial number of that class acquired thereafter. Such announcement must be made not later than 08:30 on the second business day following the day on which the relevant threshold is reached or exceeded.
The directors have considered the impact of a repurchase of 10% of Iliad shares, it being the maximum permissible of a particular class in any one financial year, under a general authority in terms of the JSE Listings Requirements, and are of the opinion that such repurchase will not result in:• The company and the group in the ordinary course of business being unable to pay its debts for a period of 12 months after the date of this notice of annual general meeting;• The liabilities of the company and the group exceeding the assets of the company and the group for a period of 12 months after the date of the notice of annual general meeting, calculated in accordance with the accounting policies used in the audited financial statements for the year ended 31 December 2006;• The ordinary capital and reserves of the company and the group, for a period of 12 months after the date of the notice of annual general meeting, being inadequate; and• The working capital of the company and the group, for a period of 12 months after the date of this notice of annual general meeting, being inadequate.
Reason and effect
The effect of the special resolution and the reason therefor is to grant directors of the company a general authority in terms of the Act, as amended, for the acquisition by Iliad, or any subsidiary of Iliad, of Iliad shares.
At present, the directors have no specific intention with regard to the utilisation of this authority, which will only be used if the circumstances are appropriate. No repurchase of shares under this authority will be implemented until such time as the company’s sponsor has confirmed in writing to the JSE that the above working capital statement is valid.
2 Special resolution 2: Specific repurchase
To consider and, if deemed fit, to pass, with or without modification, the following special resolution to give a specific authority for the company to repurchase shares held by its wholly owned subsidiary Iliad Africa Investments (Pty) Limited:
RESOLVED THAT Iliad be and is hereby authorised, by way of a specific authority, to acquire 7 851 111 ordinary shares (“the Iliad shares”) at a price of 1 300 cents per share, issued by Iliad and held by its wholly owned subsidiary Iliad Africa Investments (Pty) Limited (“Iliad Investments”), in terms of sections 85 to 89 of the Act, as amended, and in terms of the JSE Listings Requirements and that any director of the company be and is hereby authorised to sign all such documents and do all such things as may be necessary for or incidental to the implementation of this special resolution.
The directors have considered the impact of the specific repurchase of the Iliad shares and are of the opinion that such repurchase will not result in:• The company and the group in the ordinary course of business being unable to pay its debts for a period of 12 months after the date of this notice of annual general meeting;• The liabilities of the company and the group exceeding the assets of the company and the group for a period of 12 months after the date of the notice of annual general meeting, calculated in accordance with the accounting policies used in the audited financial statements for the year ended 31 December 2006;• The share capital and reserves of the company and the group, for a period of 12 months after the date of the notice of annual general meeting, being inadequate; and• The working capital of the company and the group, for a period of 12 months after the date of this notice of annual general meeting, being inadequate.
Reason and effect
In terms of the company’s general authority to repurchase shares granted at all the annual general meetings held for the years ended 31 December 2001, 2002, 2003, 2004 and 2005, Iliad, through its wholly owned subsidiary Iliad Africa Investments (Pty) Limited (“Iliad Investments”),
72 Iliad Annual Report 2006
has over the years purchased 11 932 379 shares in the company which were held as “treasury shares”. These shares have been held by Iliad Investments as treasury shares. In 2005, the company disposed of 4 081 268 of these treasury shares to facilitate a BEE transaction, leaving 7 851 111 treasury shares, which shares the company now wishes to cancel.
The effect of the special resolution and the reason therefor is to grant directors of the company a specific authority in terms of the Act, as amended, for the acquisition by Iliad of 7 851 111 Iliad shares held by the company’s wholly owned subsidiary, Iliad Africa Investments (Pty) Limited.
Explanatory notes to ordinary resolution 5 and special
resolutions 1 and 2
Shareholders’ attention is drawn to the following additional disclosures which are required in terms of paragraphs 11.26 and 11.30 of the JSE Listings Requirements and which appear elsewhere in the annual report of which this notice forms part:• Directors and management (see pages 4 and 5 of the company’s annual report)• Major shareholders (see page 64 of the company’s annual report)• Directors’ interests in securities (see page 37 of the company’s annual report)• Share capital of the company (see page 53 of the company’s annual report).
Share capital
Authorised300 000 000 ordinary shares of no par value12 243 804 “A” shares of no par valueIn issue before the specific repurchase R000154 284 519 ordinary shares of no par value 232 36712 243 804 “A” shares of no par value 122In issue after the specific repurchase R000146 433 408 ordinary shares of no par value 203 89212 243 804 “A” shares of no par value 122
Material changes
There have been no material changes in the financial or trading position of Iliad and its subsidiaries between Iliad‘s financial year-end and the date of this notice.
Litigation statement
The directors, whose names are given on page 4 of the annual report, are not aware of any legal or arbitration proceedings, including proceedings that are pending or threatened, that may have or in the previous 12 months had, a material effect on the group’s financial position.
Directors’ responsibility statement
The directors, whose names are given on page 4 of the annual report, collectively and individually accept full responsibility for the accuracy of the information pertaining to the resolutions 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 these resolutions contain all information required by the JSE Listings Requirements.
Note Before the specific After the specific Percentage
repurchase1 repurchase change
(cents) (cents) (%)
Earnings per share 2 138,3 138,3 0%Headline earnings per share 2 137,5 137,5 0%Diluted earnings per share 2 134,4 134,4 0%Diluted headline earnings per share 2 133,7 133,7 0%Net asset value per share 3 510,3 510,3 0%Net tangible asset value per share 3 227,1 227,1 0%
NOTICE OF ANNUAL GENERAL MEETING
Iliad Annual Report 2006 73
Pro forma financial effects of the specific repurchase
Set out in the table on page 72 are the pro forma financial effects of the specific repurchase based on Iliad’s results for the year ended 31 December 2006. The pro forma financial effects have been prepared for illustrative purposes only to provide information of how the specific repurchase may have impacted on the results and financial position of Iliad. Because of their nature, the pro forma financial effects may not give a fair reflection of Iliad’s financial position after the specific repurchase or the effect on future earnings. The pro forma financial effects are the responsibility of the company’s directors.
Notes1 Extracted from Iliad’s published audited results for the year ended 31 December 2006.2 Earnings and headline earnings per share, diluted earnings and headline earnings per share in the “After the specific repurchase” column are based on the following assumptions:• The specific repurchase was effected on 1 January 2007; and• 7 851 111 Iliad shares were repurchased by Iliad from Iliad Investments at a price of 1 300 cents per share.3 Net asset value and net tangible asset value per share in the “After the specific repurchase” column are based on the following assumptions:• The specific repurchase was effected on 31 December 2006; and• 7 851 111 Iliad shares were repurchased by Iliad from Iliad Investments at a price of 1 300 cents per share.
7 To transact such other business as may be transacted at an annual general meeting.
Voting and proxies
Any member entitled to attend and vote at a meeting of the company may appoint one or more proxy to attend, speak and vote in his/her stead. A proxy need not be a member of the company.
Shareholders, which are companies or other bodies corporate, may, in terms of section 188(1) of the Act, by resolution of its directors or other governing body, authorise any person to act as its representative at the annual general meeting.
The ordinary resolutions are subject to a simple majority vote of shareholders present or represented by proxy at the annual general meeting. Every shareholder present in person or by proxy at the annual general meeting shall, on a show of hands, have one vote only, and on a poll, have one vote for each share of which he/she is the registered holder.
Certificated shareholders and own-name dematerialised shareholders who are unable to attend the annual general meeting but wish to be represented thereat must complete and return the attached form of proxy in accordance with the instructions contained therein so as to be received by the company’s transfer secretaries, Link Market Services South Africa (Pty) Limited, 11 Diagonal Street, Johannesburg, 2001 (PO Box 4844, Johannesburg, 2000), by no later than 12:00 on Tuesday, 22 May 2007.Dematerialised shareholders, other than those with own-name registration, who wish to attend the annual general meeting, must request their Central Securities Depository Participant (“CSDP”) or broker to issue them with a letter of representation to enable them to attend the annual general meeting in person. Alternatively, such dematerialised shareholders must instruct their CSDP or broker as to how they wish to vote in this regard. This has to be done in terms of the agreement entered into between the shareholder and his/her CSDP or broker.
By order of the board
Luis Mendes
Group company secretaryJohannesburg12 March 2007
Registered office
Iliad Africa LimitedEast Block, First FloorPineslopes Office ParkCnr The Straight and Witkoppen RoadsLonehill, Sandton(PO Box 2572, Honeydew, 2040)
Transfer secretaries
Link Market Services South Africa (Pty) Limited11 Diagonal StreetJohannesburg(PO Box 4844, Johannesburg, 2000)
Contact details General Building Materials Division
OPERATION TEL FAX
Laeveld Bouhandelaars – Nelspruit 013 753 5300 013 753 5301
Laeveld Bouhandelaars – Hoedspruit 015 793 0560 015 793 0695
Laeveld Bouhandelaars – Witrivier 013 750 2090 013 750 0279
Laeveld Bouhandelaars – Malelane 013 790 1670 013 790 1673
Laeveld Bouhandelaars – Hazyview 013 737 7142 013 737 6585
D&A Timbers – Pinetown 031 705 8451 031 705 8030
D&A Timbers – Shelly Beach 039 315 0790 039 315 0797
D&A Timbers – East London 043 743 3733 043 743 7561
D&A Timbers – Grahamstown 046 622 7301 046 622 8739
D&A Timbers – Kenton-On-Sea 046 648 1300 046 648 1117
D&A Timbers – Port Alfred 046 624 1103 046 624 2115
Builders Market – Bloemfontein 051 434 2241 051 435 2788
Builders Market – Empangeni 035 787 1416 035 787 1375
Builders Market – Kathu 053 723 2670 053 723 2670
Builders Market – Kimberley 053 833 4214 053 831 2840
Builders Market – Klerksdorp 018 462 2521 018 462 5122
Builders Market – Middelburg 013 283 6500 013 283 6511
Builders Market – Polokwane 015 292 0614 015 292 1446
Builders Market – Richards Bay 035 789 3592 035 789 3600
Builders Market – Welkom 057 352 8361 057 357 2035
Rustenburg Building Material – Rustenburg 014 597 1951 014 592 7352
Campwell Hardware – Athlone 021 696 5167 021 696 6637
Campwell Hardware – Bergvliet 021 712 4400 021 712 9866
Campwell Hardware – Durbanville 021 975 3585 021 976 5911
Campwell Hardware – Group X 021 376 5968 021 376 5970
Campwell Hardware – Nyanga 021 691 2206 021 691 5534
Campwell Hardware – Parklands 021 556 7631 021 556 7084
Campwell Hardware – Plaza 021 391 5555 021 392 2701
Campwell Hardware – Polka Place 021 392 7004 021 392 7010
Campwell Hardware – Stellenbosch 021 887 6830 021 887 6836
Campwell Hardware – Vasco 021 592 4119 021 592 4138
Campwell Tile & San 021 376 5968 021 376 5970
BM W Miller – Somerset West 021 851 2660 021 852 4312
Ferreira's – Honeydew 011 795 3733 011 795 2936
Ferreira's Express – Lyttelton 012 664 5687 012 644 2408
Building Centre – Burgersfort 013 231 7578 013 231 7578
Building Centre – Jane Furse 013 265 1876 013 265 1878
Building Centre – Brits 012 252 3619 012 252 3619
Building Centre – Shayandima 015 964 1664 015 964 1138
Building Centre – Bushbuckridge 013 799 0245 013 799 1657
Building Centre – Giyani 015 812 4140 015 812 1855
Building Centre – Isipingo 031 902 9390 031 902 8391
Building Centre – Mafikeng 018 381 5195 018 381 5140
Building Centre – Nelspruit 013 752 2386 013 753 3718
Building Centre – Polokwane 015 297 6814 015 297 4862
Rietpan Hardware – Benoni 011 571 6400 011 973 2996
BBS – Benoni 011 422 3005 011 422 4256
BBS – Vaal 016 986 2085 016 986 1320
F&F Building Supplies – Krugersdorp 011 762 4284/4316 011 762 7422
74 Iliad Annual Report 2006
Contact details Specialised Building Materials Division
OPERATION TEL FAX Ferreiras Décor World – North Riding 011 699 3500 011 699 3506 Ferreiras Décor World – Durban 031 303 8400 031 303 8576 Ferreiras Architectural – North Riding 011 699 3500 011 699 3506 Ferreiras Décor World – Cape Town 021 510 5555 021 510 5666 Just Tiles – Port Elizabeth 041 451 3602 041 451 1008 The Tile Depot – Alberton 011 907 1383 011 907 1494 The Tile Depot – North Riding 011 462 3774 011 462 9125 The Tile Depot – Cape Town 021 510 1248 021 511 7790 Citiwood – Denver 011 622 9360 011 622 7938 Citiwood – Vereeniging 016 421 1683 016 421 1337 Citiwood – Cape Town 021 930 5923 021 930 5625 Citiwood – Durban 031 579 2274 031 579 2293 Citiwood – Pretoria 012 804 3554 012 804 0582 Citiwood – Port Elizabeth 041 374 7414 041 373 0749 Chipbase – Durbanville 021 982 7810 021 982 7819 Chipbase – George 044 874 1753 044 874 1801 Chipbase – Montagu Gardens 021 551 2035 021 551 1926 Chipbase – Retreat 021 701 1128 021 701 5841 Chipbase – Somerset West 021 854 6810 021 854 6862 Chipbase – Stikland 021 949 1794 021 949 1712 Top Form – Somerset West 021 854 4005 021 854 3397 Buchel Designa – Faerie Glen 012 998 4687 012 998 3028 Buchel – Menlyn 012 361 8304 012 361 8305 Buchel Hardware – Pretoria 012 300 2700 012 325 5472 Buchel Tool Centre – Pretoria 012 300 3800 012 321 8120 Design Hardware – Strijdom Park 011 792 9900 011 792 5153 Design Hardware – Northcliff 011 782 3629 011 888 1025 Design Hardware – Woodmead 011 804 4293 011 804 6931 Design Hardware – Boksburg 011 894 1421 011 894 1422 Bildware Natal – Durban 031 332 5764 031 332 7895 Bildware Décor Centre – Umhlanga 031 566 5566 031 566 5568 W&B Hardware – Paarden Island 021 510 0700 021 510 0728 W&B Hardware – Claremont 021 670 7270 021 670 7288 W&B Hardware – Bellville 021 948 4881 021 948 0370 W&B – Port Elizabeth 041 373 5993 041 374 5396 B&B Locksmith Distributors – KwaZulu-Natal 031 240 8100 031 240 8111 B&B Locksmith Distributors – Johannesburg 011 201 4700 011 201 4701 B&B Locksmith Distributors (Keylok) – Cape Town 021 511 1500 021 511 6922 Saflok – Johannesburg 011 453 5375 011 453 5379 Saflok – Cape Town 021 791 0608 021 791 0608 Q Lite – Umbilo Road Durban 031 306 9015 031 306 9017 Q Lite – Umhlanga 031 566 4070 031 566 4074 Q Lite – Ballito 032 946 0660 032 946 0663 Q Lite – Strubens Valley 011 475 2412 011 675 2556 Q Lite – Pietermaritzburg 033 342 8292 033 342 6456 Cachet International – Gauteng 011 201 4600 011 201 4601 Cachet International – KwaZulu-Natal 031 240 8100 031 240 8111 The Knob & Knocker – KwaZulu-Natal 031 240 8100 031 240 8111 The Knob & Knocker – Johannesburg 011 201 4800 011 201 4801 SDT – Gauteng 011 392 5306 011 974 3455 SDT – Cape 021 762 5116 021 762 5164 Suncol – Benoni 011 421 6331 011 421 6539 Sanware & Plumbing – Pinetown 031 701 2288 031 701 1056 Modern Bathrooms 021 592 2190 021 591 4927
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