140
INTEGRATED ANNUAL REPORT for the year ending 31 March 2015
INTEGRATED ANNUAL REPORT for the year ending 31 March 2015
CSG
INTEG
RATED A
NN
UA
L REPORT for the year ending 30 June 2
015
SCOPE OF THEINTEGRATED REPORTCSG Holdings Limited’s (“CSG” or the “group” or the “company”) Integrated Report for the financial year ended 31 March 2015 covers the activities and performance of the group, which includes its subsidiaries. It aims to provide a balanced, comprehensive and complete view of the business by reporting on the financial and non-financial performance of the group, thereby enabling stakeholders to make an informed assessment. Our reporting reflects inputs from individuals at various levels and in different disciplines in the company, and we believe this provides more insight into how all the elements of our business work together.
The report highlights the opportunities, risks and material issues faced by the group in the normal course of business as well as its governance and social responsibilities.
The report is presented in accordance with IFRS, the requirements of the Companies Act, the JSE Listings Requirements and the principles of King III. The International Integrated Reporting Framework released on 8 April 2014 by the International Integrated Reporting Council, has also been taken into consideration. This framework has been adopted across the world and focuses on companies providing relevant, reliable, comparable and comprehensive information pertaining to their business operations and capital employed.
This year the application of principles in the King III code has been published on the company’s website www.csgholdings.co.za, and is not included in this report.
There are no material changes to the content of this report compared to the 2014 Integrated report, other than a greater emphasis on providing additional information on the group’s strategic direction and risks in an ongoing effort to track best practice.
DisclaimerThe Integrated Report may contain certain forward-looking statements concerning the group’s environment, financial performance, market and other conditions, strategy and growth expectations. Such views involve both known and unknown risks, assumptions, uncertainties and important factors that could materially influence the actual performance of the group. No assurance can therefore be given that these will prove to be correct and no representation or warranty expressed or implied is given as to the accuracy and completeness of such views.
assuranceCSG’s external Auditor, Grant Thornton, has assured the Audited Consolidated and separate Financial Statements, with a copy of their Independent Audit Report on the consolidated and separate financial statements contained in this report.
The sustainability review has not been independently assured; however, certain information contained in this review has been scrutinised by the group’s own internal control functions.
Simunye Resources and SME Verification, accredited empowerment rating agencies, has provided assurance on the Black Economic Empowerment scorecard for the financial year-end. The assurance on the CSG companies‘ B-BBEE ratings for the year ended 31 March 2015 ranges between a Level 1-4 Contributor status.
approval of this integrateD reportThe Board confirms its responsibility for the integrity of this Integrated Report. The content has been collectively assessed by the Board and in its opinion this report addresses the material issues that could potentially impact the performance of the group.
The board has accordingly authorised the release of this Integrated Report 2015.
BT Ngcuka PJJ DryChairman Chief Executive Officer
27 August 2015 27 August 2015
Any queries regarding CSG’s Investor Relations should be addressed to:
Anne DunnInvestor Relations Consultant
Anne Dunn CommunicationsEmail: [email protected]: +27 (0) 82 448 2684
Any queries regarding this Integrated Report or its contents should be addressed to:
Mark HattinghCompany Secretary
CSG Holdings LimitedEmail: [email protected]: +27 (0)12 664 7080
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FINANCIALHIGHLIGHTS
Profit after tax
45% to R83,77 millionHeadline earnings
11% to 17,76 cents per shareEarnings
11% to 17,95 cents per shareNet cash resources
203% to R81,86 millionNet asset value
21% to R317,31 millionDividend
12% to 4,48 cents per share
Revenue
21% to R1,29 billion
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INDEX
IFCScope of the Integrated Report
01This is CSGHighlights 01
Vision, values and investment proposition 03
Who we are 05
Our brands, geographic footprint and group structure 06
Our companies 08
How we create value 10
Stakeholder engagement 11
Value creation business model 12
Strategy 14
Material issues and opportunities 15
Performance indicators over time 18
Workforce profile 19
20Leadership reviewChairman’s letter 22
Directorate and executive management
24
CEO’s report 26
CFO’s report 28
30Governance and sustainabilityCorporate governance 32
Remuneration report 39
Directors’ shareholding 44
Shareholder information 45
46AssurancesDirectors’ responsibility and approval 48
Declaration by the company secretary 49
Directors’ report 50
Report of the audit and risk committee 53
Independent auditor’s report 55
56Annual financial statementsStatements of financial position 58
Statements of profit and loss and other comprehensive income 59
Statements of changes in equity 60
Statements of cash flow 62
Notes to the annual financial statements 63
120Shareholder informationNotice of annual general meeting 122
Form of proxy inserted
Corporate information IBC
02
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VISION, VALUES AND INVESTMENT PROPOSITION
VISIONTo establish a one-stop non-core outsourcing group with a national footprint, focusing on labour intensive and related services
VALUES ■ Commitment to employees
■ Providing a quality service
■ Superior customer service ■ Operational excellence ■ Respect and Integrity
INVESTMENT PROPOSITION
■ A leading outsourced service provider in Southern Africa
■ Strong financial position to exploit growth opportunities
■ Steady growth in revenue and earnings ■ Established national footprint ■ Management team with a long and successful track record
0
1
2
3
4
5Dividends per share (cents) declared
Maidendividend2013
2014 2015
4,244,48
4,00
0
5
10
15
20HEPS (cents)
2013 2014 2015
13,78
16,0217,76
04
THIS IS CSG
05
CSG is a contract services group that offers a wide range of services including outsourced personnel services, industrial and mining services and contract catering and food services to an array of mostly blue chip clients.
The workforce management division provides outsourced personnel services including the provision of temporary employees, permanent placements, time keeping, payroll, human resource development, industrial relations and most recently providing customers with a managed service provider (MSP) programme.
The mining, plant and construction site support services division include plant and factory cleaning, industrial site and office cleaning, equipment hire, mining construction and engineering services.
The facilities management division includes managing staff canteens and supplying meals to students, patients in hospitals, corporate head offices, mines and construction sites. It also includes remote site accommodation (village) construction, operation and management services.
WHO WE ARE
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06
Plenty Properties 115
Proprietary Limited
Phakamani Solutions Proprietary Limited
Significant Site Services
Proprietary Limited
ConinghamLee and Associates
Proprietary Limited
100% 55% 25.5% 100%
OUR BRANDS
Workforce management
Facilities management
Mining, plant and construction site support services
GROUP STRUCTURE
M&S Projects Proprietary Limited
Global Resources Education
Proprietary Limited
Safety Adherence Technology
Proprietary Limited
BDM Staffing Proprietary Limited
Ukweza Holdings Proprietary Limited
BDM Financing Proprietary Limited
BDM Management Proprietary Limited
CSG HoldingsLimited
100% 100% 100% 100% 61.9% 100% 100%
PROJECTSNORTHERN
Labour Hire
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GEOGRAPHIC FOOTPRINT
NORTHERN CAPE
WESTERN CAPE
EASTERN CAPE
FREE STATE
NORTH WEST
KWAZULU – NATAL
MPUMALANGA
GAUTENG
LIMPOPO
Polokwane
Lephalale
Steelpoort
Nelspruit
WitbankPretoriaRustenburg
LichtenburgJohannesburg
Secunda
Richards Bay
BallitoDurban
Bloemfontein
Kimberley
KathuPostmasburg
Vredendal
Saldana
Cape TownPort Elizabeth
East London
KEY:
Workforce managementFacilities managementMining, plant and construction site support services
BDM Staffing (Namibia)
Proprietary Limited
Global Cleaning andIndustrial Projects Proprietary Limited
Northern Jungle Trading 252
Proprietary Limited
African Sun Procurement
Proprietary Limited
Umdeni Safety Solutions
Proprietary Limited
Umdeni Maintenance Services
Proprietary Limited
100% 100% 49% 65% 100% 100%
74.5%
07
Sites in Southern Africa not reflected on the map:Swakopmund, Namibia | Moyoka Mine, CongoBlantyre, Malawi | Beira, Mozambique
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OUR COMPANIES
Workforce ManageMent DivisionM&S ProjectsM&S Projects was established in 1992, specialising in permanent placements and the supply of contract personnel. Fields of expertise include, inter alia the chemical and petro-chemical industries, power generation, coal mining, major capital projects, safety and maintenance of industry related equipment.
The spectrum of craft and job classification ranges from administrative personnel, managers, supervisors, foremen, technicians, artisans and semi-skilled personnel.
M&S Projects aim to provide a reliable, readily available, mobile and competent workforce at competitive rates and to charge fees on a sustainable basis, to contribute to productivity, to a work environment conducive to harmonious labour relations and to promote safety and health.
Umdeni MaintenanceUmdeni Maintenance provides safety solutions on a contracting basis, aligned with provisions of the OSH Act and client specifications. These services are mainly provided in the energy sectors such as petro-chemical plants, power stations and coal mines. Personnel are both white and blue collar workers in mechanical and civil disciplines and mainly focused on maintenance work.
BDM Staffing (Incl BDM Management)BDM Staffing was established more than 20 years ago specialising in temporary and outsourced contract staffing requirements.
Through effective recruitment, screening processes and a good understanding of clients’ business BDM Staffing is able to supply quality staff who integrate seamlessly into the existing workforce of the client.
This company focuses on blue and grey collar staffing needs of clients in South Africa and Namibia and have a database of 24 000 potential unskilled, semi-skilled and skilled employees including artisans.
Due to clients’ different requirements, both BDM Staffing and Management have different divisions each specialising in a specific industry including mining, mechanical, engineering, building, stevedoring, civil contracting, logistics and warehousing, industrial plants, food manufacturing, retail, hospitality and many more.
BDM FinancingBDM Financing provides financial assistance to personnel within the CSG group.
BDM Staffing (Namibia)(Previously BDM Plant Hire and Mining)The company is registered in Namibia and provides the administration of a full payroll function to companies.
Northern Jungle Projects (NJP)NJP is a black women managed company providing temporary employment solutions in the power generation industry.
Africa Sun Procurement(Previously Africa Sun Cleaning Services)Africa Sun provides customers with a Managed Service Provider (MSP) programme. MSP offers a company full visibility and control of its non-permanent workforce including temporary workers, contractors, consultants and even resources engaged under a statement of work. Under an MSP programme, all requests, vendors, workers, timesheets and spend are captured, managed and tracked through a single process and technology offering an enterprise level view of all activity, allowing processes to be standardised, best practices introduced, and policies enforced.
ConinghamLeeConinghamLee is a specialist recruitment organisation focussing specifically on banking and financial services recruitment, engineering recruitment and supply chain, logistics and freight recruitment. Employing a team of industry specialist consultants, ConinghamLee’s tailored and consultative approach allows the forging of solid, long term business relationships. Its market coverage means that it is ideally placed to meet the needs of both clients and candidates.
Extensive research is conducted ensuring that its market knowledge is current. ConinghamLee works with a range of clients, from JSE listed enterprises to smaller boutique houses on permanent and contract placements.
facility ManageMent DivisionUkwezaUkweza was established more than 20 years ago and offers contract catering, events management and contract cleaning to both the public and private sectors.
Ukweza’s mission is to deliver a customised service to its clients that fits their needs and budgets, while maintaining a high standard of service excellence.
The contract catering and food services include managing staff canteens and supplying meals to students, patients in hospitals, corporate head offices, mines and construction sites.
Ukweza offers various professional and specialised cleaning services ranging from office and commercial cleaning to specialist plant and high level cleaning programmes, including a dedicated cleaning team qualified in safe high level window cleaning.
An overview of each company within each of the three divisions
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Phakamani SolutionsPhakamani is a young, dynamic, proudly South African company offering mining and industrial contract catering and cleaning services. The company has been built by black individuals who dreamt of bringing together the knowledge and expertise they have gained over many years in their respective industries, to create a progressive and energetic company in the outsource service sector.
Significant Site Services (SSS)SSS offers companies a complete solution for the construction and maintenance of its remote site facility for the duration of a project’s life cycle. Whether a site is breaking ground or already in full swing, SSS will tailor its range of services for each project’s specific needs. From providing bespoke on-site facilities customised to fit the unique needs of employees to ongoing superior catering, housekeeping, procurement and administration services, SSS possesses vast experience in the industry and throughout Africa enabling it to offer a personalised solution.
Mining, plant anD construction site support services DivisionGlobal Cleaning and Industrial Projects (Previously BDM Industrial Projects)This company has vast experience in the cleaning of plants, mines and industrial sites. It maintains roads, gardens, villages and surrounding areas and offers customised ad hoc or permanent cleaning solutions for normal and abnormal spillages and debris.
Core to the excellence of their cleaning services is highly motivated and trained staff. The plant cleaning division utilises appropriately customised, cost effective and efficient systems. The various functions of site and plant cleaning require the operation of specialised equipment. The company operates a diverse range of equipment to suit a wide variety of different operations and client requirements. These include, but are not limited to vacuuming units, skeed steers, sweepers and brush cutters. It also operates the equipment needed for water cutting, removal of deposits of sludge, scale, and chemical residue from vessels, pipelines, storage tanks, towers, drums, wash pits and leaded gasoline tanks.
In addition the company owns and operates a large fleet of small to medium size earthmoving equipment available for rental to contractors and mining houses.
Safety Adherence Technology (SAT)SAT was established in 1999 to develop a concept that resulted in proved Health and Safety adherence, by means of an interactive electronic safety system.
This digital, interactive electronic safety surveillance and record-keeping system operates from a single control room per area. Strategically placed scanners and various types of
cameras relay the movements and activities of workmen to monitors in the control room and record entries and exits from confined spaces. The system is real-time, but activities are also recorded and stored to be studied later, should an incident occur. The system is both preventative and corrective in nature and is much more efficient and cost effective than the system of “standby’s”.
The concept provides interactive safety surveillance, continuous control, inspection and training of workmen with regards to wearing correct protective apparel, safe behaviour, such as a behaviour based approach to safety, analyses of trends, identification of hazards, proposals to engineer these hazards out and sensors which may also be provided to detect the presence of dangerous and noxious gases, i.e. CO, O2, LEL every hour or two hours according to specifications. This does not replace the primary and legal responsibility of the client.
These services are based on comprehensive safety and quality manuals, training modules and comprehensive policies and procedures. The management infrastructure includes emphases on strong financial and administrative systems based on technological utilisation.
Other companies within the groupPlenty Properties and Umdeni Exploration are property companies with assets in Lephalale and Rustenburg respectively.
Global Resource Education is a newly created company for training of employees through various programmes.
Africa Sun provides customers with a MSP programme which offers a company full visibility and control of its non-permanent workforce
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HOW WE CREATE VALUE
We create value by transforming the capitals that flow through our business model into outcomes which have a positive impact on our stakeholders.
The group value added statement measures wealth created by adding value to costs of goods and services purchased and details how this was distributed to stakeholders, or retained by the group:
Wealth createD
2015 2014 R’000 % R’000 %
Revenue 1 286 659 100 1 059 876 100 Less: cost of materials, facilities and services from outside the group (151 736) (12) (329 048) (32)
Value added (total wealth created) 1 134 923 88 730 828 68
Distributed to:Employees 1 004 200 88.5 636 677 87.1 Non-controlling interests 10 217 0.9 19 377 2.6 Community – donations 481 0.0 640 0.1 Financiers – net finance (income)/cost (463) (0.0) 1 903 0.3 Government – company taxation 31 237 2.8 24 291 3.3 Shareholders – dividends 22 965 2.0 11 390 1.6
Total wealth distributed 1 068 637 94.2 694 278 95.0 Retained in the group 66 286 5.8 36 550 5.0
– Profits retained 58 031 5.1 29 224 4.0 – Depreciation and amortisation 8 255 0.7 7 326 1.0
Total wealth created 1 134 923 100.0 730 828 100.0
We create value by transforming the capitals that flow through our business model into outcomes which positively impact our stakeholders
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STAKEHOLDER ENGAGEMENT
CSG supports the ethos of transparent and open communication with its stakeholders as encouraged by King III and the Companies Act and views this as critical to its long-term success.
CSG’s list of primary stakeholders is developed through a comprehensive process to ensure it reflects the key groupings that CSG interacts with.
The main stakeholders identified by CSG are:
• Employees, communities and trade unions• Customers• Providers of capital• Investors
INVESTORS
Types of engagement
•Annualandinterimresults
•Integratedreport
•Annualgeneralmeeting
•Mediareleases
•Website
•One-on-onemeetings
Reasons for engaging
•Communicationofgroupperformance
•Growthprospectsandforecasts
PROV
IDER
S OF C
APITA
L
Types
of en
gage
ment
•Annualandinterimresults
•Integratedreport
•Meetingsandconferences
Reas
ons f
or en
gagin
g
•Annualborrowingfacilitiesreview
•Reducecosto
ffunding
•Forecastsa
ndfundingof
impro
veme
nts/a
cquis
itions
CUSTOMERS
Types of engagement
•Customercalls
•One-on-onevisits
•Website
•Integratedreport
•Marketingmaterials
•Structuredoperational
reporting
Reasons for engaging
•Qualityand
service reviews
•Generalupdates
•Pricenegotiations
and follow ups
EMPLO
YEES
,
COMM
UNITI
ES
AND
TRAD
E UNI
ONS
Types
of en
gage
ment
•Staffm
eetings
•Website
•Engagementwithrelevant
trade
union
s
•Appraisals
•Awards
•Companynotices
•CSIinitiatives
•Bargainingcouncilmeetings
Reas
ons f
or en
gagin
g
•Skillsdevelopment
•Safeworkingpractices
•Transform
ation
•Remunerationand
perfo
rman
ce ap
praisa
ls
•Generalupdates
•Succession
•Educationandtraining
THE TYPES AND REASONS FOR ENGAGEMENT
12
BUSINESS MODEL
Financial capital: ■ Positive cash generation from operation ■ Reinvestment ■ Equity financing for SSS acquisition ■ Long term loan for ConinghamLee acquisition
Manufactured capital: ■ 22 branches nationwide ■ Offices in Malawi, Mozambique and Namibia ■ Head office and supporting facilities
Intellectual capital: ■ Employee knowledge and know-how ■ training facilities ■ proprietary software ■ licences ■ brands
Human capital: ■ 3 792 permanent employees ■ 6 227 temporary employees ■ skilled leadership team ■ service providers
Social and relationship capital: ■ Superior customer service ■ integrity and ethics in employees ■ community support ■ stakeholder relationships
A INPUTS
Workforce Management: ■ Labour outsourcing ■ Recruitment and Permanent placements ■ Integrated payroll management ■ International contract workers ■ Managed Service Provider (MSP)
Facility Management: ■ Contract Catering ■ Events management ■ Contract cleaning ■ Laundry services ■ Construction Camp management
Mining, plant and construction site support services: ■ Specialised industrial cleaning ■ Confined space safety surveillance – access control ■ Mining equipment and plant hire ■ Conveyor system design, manufacturing and installation ■ Shutdown maintenance and management
B BUSINESS ACTIVITIES
ONE STOP NON-CORE OUTSOURCING GROUP WITH
A NATIONAL FOOTPRINT, FOCUSING ON LABOUR
INTENSIVE SERVICES
INVESTO
RS PRO
VIDER
S OF
CAPI
TAL
Deliver sustainable fi nancial results
Ensu
re fundin
g is av
ailable
to
grow
and
mee
t ope
ratio
nal n
eeds
CUS
TO
MERS
EMPLOYEES & COM
MUN
ITIES
Focu
s on
our c
ustom
ers
Committed and loyal employees
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C OUTCOMES ■ R1,29 billion revenue ■ Profit after tax of R83,77 million ■ R22,97 million dividends paid ■ R12,65 million investment in plant and equipment ■ R39,61 million paid in taxation ■ R1billion paid in salaries and wages ■ Committed and skilled workforce ■ Safe working environment ■ Flexible labour management solutions for customers ■ Labour cost savings for customers ■ Administration of payroll function ■ Reliable source of skilled resources to meet customer needs ■ Recruitment of staff ■ Site set-up and management ■ Catering, cleaning and events management ■ Plant and industrial site cleaning and maintenance ■ Maintenance of roads, gardens and villages ■ Equipment hire ■ Safety surveillance and controlONE STOP NON-CORE
OUTSOURCING GROUP WITH A NATIONAL FOOTPRINT, FOCUSING ON LABOUR
INTENSIVE SERVICES
INVESTO
RS PRO
VIDER
S OF
CAPI
TAL
Deliver sustainable fi nancial results
Ensu
re fundin
g is av
ailable
to
grow
and
mee
t ope
ratio
nal n
eeds
CUS
TO
MERS
EMPLOYEES & COM
MUN
ITIES
Focu
s on
our c
ustom
ers
Committed and loyal employees
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STRATEGY
ObjectiveTo establish a one-stop non-core outsourcing group with a national footprint focusing on labour intensive and related services
PositionThe CSG group is uniquely positioned to form a demographically representative industrial contract services group that can enhance service levels to its customers and deliver value to shareholders
Business modelOur business model is to be invested in businesses covering a full range of services in our chosen fields that complement each other
our acquisition strategy: ■ Expand our African Footprint and increase the
basket of services being offered
■ Target successful well-established businesses with strong management teams
■ Mitigate our personnel outsourcing exposure by diversifying
■ Grow our one-stop offering to clients to provide specialised services
the groWth opportunities supporting our strategy:(organic and inorganic opportunities)
■ Growth through existing markets, including services through MSP (Managed Service Provider)
■ Significant growth potential in Africa
■ HR & IR services
■ Security services
■ Pest control and hygiene
■ Facilities management
■ Cleaning services
■ Identify potential acquisitions that meet the group’s strategic criteria in South Africa and Africa
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MATERIAL ISSUES ANDOPPORTUNITIESMaterial issuesRisk Management is a key business process within the group which is focused on consistently and proactively identifying, managing, monitoring and reviewing key risks on an on-going basis. It is a structured framework which aims to achieve the following:
■ Identifying, evaluating and managing risks in order to create and enhance stakeholder value;
■ Leveraging opportunities as much as avoiding or mitigating losses;
■ Improving decision making in key business processes based on risk profiles;
■ Creating an operating environment that aims to reduce surprises and repeats of events that are negative in nature;
■ Promoting and achieving a common sense of risk management and risk culture;
■ Creating the ability to be flexible and adapt to changes within our business environment;
■ Aligning the organisation’s risk management process to global best practice and accepted corporate governance principles.
The approach which was adopted for the integrated risk management process includes a methodical bottom up and top down process through which management identify strategic risks that were scoped and ranked and mitigation measures that were developed.
In this way, the most critical underlying material risks that the group faces are identified, and the mitigating actions to reduce these risks are assessed.
At the audit and risk committee meeting held on 28 May 2015, the committee approved the major risks as defined in the group’s risk register and an overview of our key risks is outlined in the heat map below.
LIKEL
IHO
OD
COnSEQuEnCE
High Significant Low
Negative organic growth
BEE legislation Economic risk Labour legislation
Operational performance
Medium
Leadership succession
Customer concentration
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MATERIAL ISSUES ANDOPPORTUNITIES (continued)
RISK UNDERLYING RISKS AND THEIR POTENTIAL IMPACTSMITIGATION ACTIONS TAKEN TO LIMIT IMPACTS
RISK RATING
Labour legislation
Changes to the labour legislation related to the Basic Conditions of Employment Amendment bill and other related bills have resulted in some key changes that affect the provisions dealing with temporary employment services and restriction in the use of fixed term employment.
Uncertainty in the treatment and solutions of these provisions by our customers and compliance thereto could lead to a potential impact on personnel outsourcing arrangements and consequent reduced demand for the group’s services. Challenges by the CCMA and bargaining councils, as well an increased risk of fines or penalties due to perceived non-compliance, pose a further risk.
Management continues to take all measures necessary to provide service innovation to both our existing market and new markets, as well as the management of industrial relations. This includes continuous engagement with customers and legal consultations.
The group conducts business on a contracting basis in some of our fields of expertise, which activities are not subject to the risks pertaining to labour legislation.
Economic risks The group is generally impacted by factors related to macro-economic conditions such as exchange rates, inflation, government policy, impact of commodity prices on clients requesting cost reductions, all of which could impact, revenue streams, operational costs and the ability to meet operational and growth targets.
In addition to cost containment initiatives as well as other efforts to retain earnings, management seeks ways to diversify its portfolio of investments by considering acquisitions and also by seeking ways to enhance competitive positioning on its current services.
Operational performance
As a result of changes in the economy as mentioned above and the impact of changes in labour legislation and subsequent reduction of margins, most of the companies within the group are facing challenges in meeting operational target levels. The inability to deliver on our operational performance targets will have a direct impact on our ability to meet commitments to our various stakeholders.
Aspects of mitigating this risk include management oversight of operational performance through regular briefings of senior management and includes current initiatives to ensure targets are met.
Leadership succession
Currently the group relies on a few key individuals in leadership positions. There is a potential risk of business continuity should key staff no longer be available for various reasons.
Over and above the use of share ownership plans and commission based structures for key staff, management has embarked on efforts to enhance its leadership pipeline specifically identifying key talents and training and implementation of succession planning. In addition, the group continues to find ways of creating a good working environment that will effectively complement its remuneration structure.
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RISK UNDERLYING RISKS AND THEIR POTENTIAL IMPACTSMITIGATION ACTIONS TAKEN TO LIMIT IMPACTS
RISK RATING
Customer concentration
The reliance on a few customers, particularly in the mining and industrial sector exposes the group to potential uncertainty should one of these customers scale down their operations internally, or should the relationship be terminated for some reason. This could result in decreased earnings for the group and could impact its liquidity and working capital viability, and ultimately also impact its long term sustainability.
In addition to ongoing efforts to manage relationships with its key clients, there is a strategic focus on enhancing the group’s drive to diversify and seek new businesses and customers.
Negative organic growth
Various business units within the group may face a potential risk of negative growth as a result of the inability to increase output, turnover and customer base from existing revenue streams.
The group has recently introduced a MSP model that will enhance its ability to grow existing business through the consolidation of its services. The group has also attained preferred supplier status with some of its customers and continues to actively manage its current relationships to sustain positive growth.
BEE Legislation Amendments to the BBBEE and Employment Equity regulatory framework will impose additional requirements for compliance by all companies within South Africa.
A significant effort has been made by management to investigate these requirements and to put in place measures to comply. This includes training of all relevant staff, implementation of score cards as well as strict reporting and tracking measures to ensure compliance.
opportunitiesThe group continuously identifies and pursues growth and expansion opportunities in order to unlock and create value for its stakeholders. With effect from 1 July 2014 the group acquired a further 49% interest in SSS and also 100% of the issued ordinary share capital of ConinghamLee effective 1 November 2014.
The changes in the labour legislation resulted in smaller labour broking companies disappearing and the group remaining a major role player within the industry.
CSG continues to benefit from access to the larger client base of the combined group to render a one-stop service.
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FIVE-YEAR FINANCIAL PERFORMANCE HISTORY
Audited year ended
31 Mar 2015
Audited 13 months ended
31 Mar 2014
Audited Year ended
28 Feb 2013
ReviewedYear ended
28 Feb 2012
ReviewedYear ended
28 Feb 2011
Profit performanceRevenue R’000 1 286 659 1 059 876 737 919 560 160 424 024 Operating profit R’000 112 446 87 389 53 645 31 218 20 970 Profit before tax R’000 115 003 82 216 52 292 28 606 18 430 Earnings attributable to the owners of the group R’000 73 549 38 548 25 327 12 170 9 007
Financial positionTotal assets R’000 466 570 378 331 175 601 140 661 90 875 Total equity R’000 317 313 261 481 85 113 48 256 29 788 Total liabilities R’000 149 257 116 850 90 488 92 405 61 087 Total operating assets R’000 332 411 271 363 150 873 116 242 73 103
cash flow informationNet cash from operations R’000 88 829 43 600 20 138 16 394 11 041 Net cash from investments R’000 (35 017) (17 750) (1 216) (4 511) (2 545) Net cash from financing activities R’000 1 024 (17 564) (12 467) (3 468) (6 465)
ratio and statisticsOperating profit margin % 9 8 7 6 5Basic EPS cents 17,95 16,17 13,84 6,65 4,92Basic HEPS cents 17,76 16,02 13,78 6,65 4,92Dividend per share cents 4,00 4,24 – – – Net asset value per share cents 76,1 67,4 46,5 26,4 16,3
Note 1: As previosuly communicated, the merger with BDM Holdings Proprietary Limited (“BDM”) concluded on 27 November 2013, resulted in a reverse listing of BDM via the acquisition by CSG as the shareholders of BDM became the majority shareholders. As a result the comparative information represents the continuation of the BDM group.
year ended 31 Mar 2015
13 months ended 31 Mar 2014
year ended 30 June 2013
year ended 30 June 2012
year ended 30 June 2011
stock exchange statistics (relating to csg holdings limited)Market value per share– At year end cents 200 265 88 38 40 – Highest (year to 31 March) cents 270 320 98 58 60– Lowest (year to 31 March) cents 154 80 25 31 30Closing PE ratio times 11.26 17.92 5.43 3.92 5.88Market capitalisation – close R’m 834 1028 137 59 81Weighted average number of shares ‘000 409 746 238 427 155 182 155 182 203 182Issued shares at year end ‘000 417 010 387 954 155 182 155 182 203 182
Revenue by geography 2015
6%3%
91%
South AfricaMalawiMozambique
Revenue by geography 2014
2%7%
91%
South AfricaMalawiMozambique
Operating pro�t by segment 2014
Workforce management division
55%
18%27%
Facility management divisionMining, plant and construction site supportdivision
Operating pro�t by segment 2015
Workforce management division
32%
16%
52%
Facility management divisionMining, plant and construction site supportdivision
THIS IS CSG
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WORKFORCEPROFILEAs a responsible corporate citizen, the group recognises the need to contribute to social and financial upliftment of historically disadvantaged individuals. The group is committed to providing fair and equitable treatment for all employees where individuals can develop rewarding careers at all levels, regardless of ethnicity or gender. In compliance with the Employment Equity Act (1998), the group has submitted reports and an action plan to government and is working towards achieving set targets.
The workforce profile as at 31 March 2015 and 31 March 2014 is set out below:
By gender By race Total
workforce Male Female African Coloured Indian White Foreign
2015Permanent Top management 14 8 6 2 – 14 – 22 Senior management 49 50 34 3 1 59 2 99 Professionally qualified 70 72 69 16 – 56 – 141 Skilled 320 311 406 40 4 176 8 634 Semi-skilled 384 313 585 50 – 37 23 695 Unskilled 575 1 626 1 956 97 1 8 139 2 201
Total permanent 1 412 2 380 3 056 208 6 350 172 3 792
Temporary placement employees Senior management 10 2 3 – – 9 – 12 Professionally qualified 157 8 120 8 1 30 6 165 Skilled 914 190 871 50 11 139 33 1 104 Semi-skilled 1 539 144 1 468 142 4 42 27 1 683 Unskilled 2 331 932 3 086 142 – 8 27 3 263
Total temporary 4 951 1 276 5 548 342 16 228 93 6 227
Total workforce 6 363 3 656 8 604 550 22 578 265 10 019
2014Permanent Top management 20 4 8 – – 16 – 24 Senior management 36 25 25 3 – 33 – 61 Professionally qualified 166 44 132 22 3 52 1 210 Skilled 471 130 438 51 4 100 8 601 Semi-skilled 1 006 154 1 008 98 4 44 6 1 160 Unskilled 2 162 996 2 901 215 3 21 18 3 158
Total permanent 3 861 1 353 4 512 389 14 266 33 5 214
Temporary placement employees Senior management 2 – 1 – – 1 – 2 Professionally qualified 9 4 9 – – 4 – 13 Skilled 351 120 396 17 4 54 – 471 Semi-skilled 1 013 127 1 083 28 – 29 – 1 140 Unskilled 1 142 541 1 636 42 – 4 1 1 683
Total temporary 2 517 792 3 125 87 4 92 1 3 309
Total workforce 6 378 2 145 7 637 476 18 358 34 8 523
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21
LEADERSHIP REVIEW
LEADERSHIP REVIEWChairman’s letter 22
Board of directors 24
CEO report 26
CFO report 28
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CHAIRMAN’S REVIEW
introDuctionManaged services can save time and money, and boost business performance by providing access to expertise, while allowing companies to focus on their core products and services – and this is where CSG offers a solution.
Looking back on the financial year ended 31 March 2015 the new combined group has accelerated the growth of the company as anticipated last year and headline earnings per share increased by 11%.
revision in strategyAs a growing business CSG has a clear strategy to be uniquely positioned and to form a demographically representative industrial contract services group to enhance service levels for its clients. CSG’s business model is to invest in businesses covering a full range of services that complement each other, to establish a one-stop non-core outsourcing group with a national footprint, focusing on labour intensive and related services.
In 2014, Africa was the second most attractive investment destination in the world, behind only North America. CSG will continue to pursue investment opportunities in the rest of the continent.
CSG has developed a defined but flexible strategy (see page 14): focusing on both new acquisitions and new service lines.
changes in legislationDuring the year under review there has been a number of changes in the legislative framework that have a bearing on our workforce management division. CSG has responded well to these, and has ensured our business continuity.
leaDership changesWe bade farewell to Liezel Grobler and Judy Malan who resigned as board members. We thank both Liezel and Judy for their invaluable contribution to the company and we wish them well.
At the same time we welcomed Mathukana Mokoka as our lead independent non-executive director and Willie Scott as Chief Financial Officer and look forward to their contribution to the CSG Group.
stakeholDer relationshipsOne of our highly valued drivers is the excellent relationship we build with a diverse group of stakeholders. A business cannot create and sustain value without strong partnerships and CSG is no different. We strive to build mutually beneficial relationships with all stakeholders and business partners, of which the primary ones are our employees, our investors and our customers.
sustainability anD corporate governanceThe Board of directors has a duty to the company to ensure it carries out its role to the best of its ability – by ensuring the company has a strategy in place that can adapt to changes; to set a tone at the highest level that translates into a culture embraced by the employees of CSG; and that it ensures compliance with the groups’s ethics and values. The combined effect of this is a company in which employees are motivated to achieve strategic goals while always acting ethically and safely.
I am pleased to report that the board and all of its committees functioned well during the year. The non-executive directors have an appropriate mix of business, financial, governance and human capital skills.
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The board regards its key functions as:
■ keeper of strategy; ■ monitor of risk; ■ custodian of management excellence; and ■ overseer of the performance of the company
The Board has reviewed and approved, among other things, the ConinghamLee acquisition, KPI s for the company, and this Integrated Report.
CSG’s sustainability depends on managing our activities, accepting our responsibilities and looking after our people in a manner that benefits all CSG’s stakeholders. CSG will not focus on short-term objectives to the detriment of the company’s long-term viability. Formal sustainability reporting structures are still evolving within the group.
The group confirms its commitment to the principles of fairness, integrity, accountability, responsibility and transparency as set out in the third King Report on Corporate Governance. This is discussed in more detail under Corporate Governance on page 32.
outlookIn order to extend the national footprint, acquisitions and mergers of similar and complementary companies will be a strategic priority over the next few years.
Despite the challenging economic environment affecting our country and the global markets, I am confident that the group’s strategy, sustainability and risk management processes will more than meet these challenges under the guidance of CSG’s experienced and motivated management team.
Bulelani NgcukaNon-executive Chairman
24
DIRECTORATE AND EXECUTIVE MANAGEMENT
1 2 3
4 5
7 8
10
6
9
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6 Jacobus Gerrit Nieuwoudt (52) COO (Appointed 27/11/2013)Business address: Equity Park, Block A, 257 Brooklyn Road, Brooklyn, 0181Kobus holds a B Acc (Hons) degree from the University of Stellenbosch and qualified in 1987 as a Chartered Accountant. He was one of the founders of the King Pie Franchise group which they sold to the Mvela group in 1997. Kobus was the CEO of RoyalSechaba until 2007 when he joined the BDM group as shareholder and MD of BDM Staffing.
7 Nicolaas Godfried Thiart (51) (Appointed 27/11/2013)Business address: Equity Park, Block A, 257 Brooklyn Road, Brooklyn, 0181Godfried is one of the founding members of the BDM group. He has a career in market development and sales in various industries. Godfried is directly involved in all client liaison activities and is well known in the various industries of the group. He has vast experience in human behaviour and analysis.
8 William Edward Scott (37) CFO (Appointed 31/03/2015)Business address: Equity Park, Block A, 257 Brooklyn Road, Brooklyn, 0181Willie qualified as a Chartered Accountant in 2004 after completing his articles in the mining division of PricewaterhouseCoopers (PwC). During his time at PwC he focused on IFRS implementations and was a member of PwC’s IFRS Advisory Committee. In 2009 he joined listed mining company, Kumba Iron Ore Limited (Kumba) where he was a key member responsible for successfully negotiating a multi-billion rand transport agreement. Willie’s most recent position was head of corporate and international finance at Kumba. He has extensive experience in financial management, corporate finance, commercial contract negotiation, governance, risk and assurance, capital investments, financial modelling and IFRS applications.
9 Mark Nico Hattingh (43) Company Secretary, non-directorBusiness address: 6 Topaz Avenue, Lyttelton Manor Ext 3, Centurion, 0157Mark is admitted as an Attorney, Notary and Conveyancer and has many years’ experience in Commercial Law, Property Law, Contracts and Litigation as a senior partner in a legal practice which he established. With his strong legal background he contributes in legal and management fields as well as corporate governance.
Executive committee5 Petrus Johannes Jacobus Dry (53) CEO
6 Jacobus Gerrit Nieuwoudt (52) COO
7 Nicolaas Godfried Thiart (51)
8 William Edward Scott (37) CFO
10 Francois Fouche Goosen (72)
Prop was the previous CEO of M&S Holdings and has extensive experience in human resource management.
11 Danie Elardus Engelbrecht (49)Danie is currently the CEO of significant subsidiary Significant Site Services. Danie obtained his BCom (Accounting) degree from the University of Pretoria, completed his articles and became a Chartered Accountant in 1991. He joined Eskom and was appointed as a Corporate Management Accountant and later moved to the Eskom Conference Centre firstly as the Financial Manager and later as the Assistant General Manager. He then joined Global Technology as the Services Manager for the company’s Business Intelligence Division and from there became the Chief Financial Officer for the Southern African Region. He later joined RoyalSechaba as Chief Financial Officer and was later appointed as Chief Operating Officer.
The full names, ages, business addresses, role and curriculum vitae of the directors and company secretary of CSG Holdings are outlined below:
Non-executive directors
1 Bulelani Thandabantu Ngcuka (61) Chairman (Appointed 28/9/2006)Business address: 21 Impala Road, Chiselhurston, Sandton, 2196Bulelani completed his BProc at the University of Fort Hare in 1977 and was admitted as an Attorney in June 1980. He completed his LLB at the University of South Africa in 1985. In 1987 he completed an MA (International Relations) at the Webster University, Geneva, Switzerland. Bulelani has had a distinguished career in public service, politics, law and business. As a prominent political activist in South African struggle politics in the 1980s – early 1990s, he rose to public prominence following the 1994 national democratic elections. His knowledge and passion were recognised with his appointment as Deputy Chairperson of the National Council of Provinces. In 1997 he was given the task of setting up the RSA’s first National Prosecuting Authority which, under his leadership, became the country’s leading agency in crime fighting and law enforcement. Since 2004 he has served as chairman and a board member of a number of listed companies and investment holding entities.
2 Pieter Nicolaas de Waal (40) (Appointed 1/6/2011)Business address: 1st Floor, Ou Kollege Building, 35 Kerk Street, Stellenbosch, 7600Nico holds a BEng (Mech) (cum laude) from the University of Stellenbosch, and an MBA from IESE Business School, University of Navarre (Spain). He began his engineering career with Baker Hughes Inc (USA) in Scotland and the Middle East in oil and gas exploration, then specialised in strategy and operations as a management consultant at McKinsey & Co and SAB Miller. Nico joined the PSG group in 2011 and is currently the CEO of PSG Private Equity.
3 Nona Ndiliseka Sonjani (49) (Appointed 19/9/2011)Business address: 23 Impala Road, Building B, Chiselhurston, Sandton, 2196Nona is a Chartered Accountant and holds a BCom (Accounting) degree from the University of the Transkei and a CTA from the University of Natal. After completing her articles at Transnet she gained experience in financial management and reporting at the South African Airways and the Airports Company of South Africa.
4 Mathukana Mokoka (41) (Appointed 25/05/2015)Business address: 146 West Road North, Morningside, Johannesburg, 2057Mathukana is a qualified Chartered Accountant who completed her articles with Arthur Andersen (KPMG), and has more than 10 years’ experience in strategic and financial management, corporate finance and dealmaking. Mathukana’s work experience includes, amongst others, employment by one of South Africa’s largest banks as a dealmaker, providing deal sourcing, financial structuring, negotiation and execution of leveraged financed type transactions in the business banking division. She has an understanding of corporate governance, the Public Finance Management Act and Treasury Regulations, and the Companies Act and their implications for public and private entities. She currently serves on various boards as an independent non-executive director, including Autopax Passenger Services, National Lotteries Board and Schindler Lifts SA.
Executive directors
5 Petrus Johannes Jacobus Dry (53) CEO (Appointed 27/11/2013)Business address: Equity Park, Block A, 257 Brooklyn Road, Brooklyn, 0181Pieter qualified as a Chartered Accountant in 1987 and holds a Masters’ degree in Taxation which he obtained from the University of Pretoria. He served four years at the Department of Finance – South African Revenue Services. Following his time at SARS, he practiced as a registered auditor from 1992 to 2000. He was involved in the establishment of the BDM group in 2001 in which he was a major shareholder and director.
26
CEO’S REPORT
the year in perspectiveThe past year has been one of industry-wide challenges and subdued markets. The industrial action across the mining and related sectors, staff reductions in many companies and, most importantly, changes to the labour legislation have necessitated the adaptation of the business model in our Workforce Management Division. Despite all these headwinds, I am pleased to report that CSG has achieved steady growth on many fronts.
There is no doubt that our ongoing focus on the controllable aspects of the business has contributed to the group’s good results for the year ended 31 March 2015. We have continued implementing our strategy, whilst specifically prioritising customer retention, cost control, new contracts in our Facility Management division and the acquisitions of ConinghamLee and additional shares in Significant Site Services (SSS).
financial revieWRevenue of R1,29 billion was 21% higher, compared to R1,06 billion for the 13 months ended March 2014. Underlying operating profit increased by 28.67% to R112,45 million.
Basic and headline earnings per ordinary share for the year were 17,95 cents (2014: 16,17 cents) and 17,76 cents (2014: 16,02 cents), respectively. Underlying earnings per share improved by 11% as a result of the increase in underlying operating profit from ConinghamLee and the additional minority interest acquired from SSS.
An increase of cash resources of R54,84 million was achieved during the year.
The board declared a final gross cash dividend of 4,48 cents per ordinary share, a 12% increase from 2014’s total dividend of 4,00 cents per share.
Divisional revieWWorkforce Management divisionThe Workforce Management division’s revenue increased by 26% to R741,48 million contributing R66,88 million to the operating profit of the group. The rise is due to the inclusion of M&S Projects for the full year compared to only four months in 2014, the inclusion of ConinghamLee for five months and improved trading in the BDM Staffing companies from new clients. The uncertainties surrounding the potential effect
of changes to labour legislation on temporary employment remain a risk. Management has adapted its business model to accommodate the changes.
Facility Management divisionThe Facility Management division’s revenue increased by 21% to R451,85 million contributing R41,41 million to operating profit of the group. The growing demand for facility management services in various African countries added significantly to the profit in the first part of the year, as margins in these remotes areas are materially higher than those in the domestic market. Two significant contracts ended during the second half of the year. Revenue from our South African catering and cleaning services has seen healthy growth with a number of new contracts in the private healthcare and private education sectors, commencing during the latter part of the year, the full impact of which was diluted by the start-up costs. The additional 49% interest acquired in SSS resulted in an increase in earnings attributable to equity shareholders of the company.
Mining, Plant and Construction Support Services divisionOperating profit rose to R20,78 million, despite a decrease in revenue, due to the inclusion of Safety Adherence Technology for the full year, compared to only four months in 2014, and the effect of cost cutting measures. Management continues to look for opportunities to expand this division, with the focus on non-capital intensive services.
Operating profit per division 2015 (R’million)
R66,88R41,41
R20,78
Facility management division
Workforce management division
Mining, plant and construction site support division
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leaDership changesI would like to add my thanks to those of the chairman, to Liezel Grobler, CFO, and lead independent non-executive director, Judy Malan who resigned in March. A warm welcome to our new CFO, Willie Scott and lead independent non-executive director, Mathukana Mokoka.
custoMer satisfactionThe group continually strives to be the preferred supplier. Customer satisfaction remains of utmost importance throughout the group. We continue to strive to fulfil our philosophy of commitment to our customers in providing quality products and exceptional service at the right price. Through constant communication, the group has established excellent relationships with customers, and maintaining these is our priority. I thank all our customers for their loyal support.
b-bbeeCSG’s transformation initiatives are driven by each of the subsidiaries, with the assistance and support of the group Transformation Manager, Murisha Alexander. The CSG Board monitors the BEE progress of each group company regularly through reports based on their status and progress against the B-BBEE codes. Ratings processes occur annually for all group companies.
CSG’s Group BEE Transformation initiatives have been successfully implemented and all group companies have ratings between level 1 and 4. We are proud that seven of the individual companies have achieved level 1 ratings.
CSG itself has three strategic BEE partners owning 26.23% of CSG. Subsequent to year-end the CSG Black Women Trust comprising four senior black employees was registered and will become the next strategic BEE partner of CSG’s subsidiary companies.
outlookWe are expecting stability to return to the temporary workforce industry as companies start to adapt to the changes in the labour legislation. We hope that Government will implement guidelines and measures to ensure that non-compliant service providers are prosecuted and removed from the labour industry as they have tarnished the reputation of credible and compliant companies. I believe that CSG has weathered the storm and that we are well positioned to benefit from the opportunities created in the market as a result of the new labour legislation.
The slowdown in infrastructure development on the African continent, mainly due to pressure on commodity prices, will remain a challenge and we will focus on other industries to increase revenue and earnings. We remain committed to our strategy of expanding into Africa and will exercise caution as Africa remains a difficult part of the world in which to do business. We will therefore enter new markets cautiously and only once we have completed in-depth due diligence.
We look forward to working closely with all our stakeholders and to achieving our strategy of becoming a one stop non-core outsourcing group with a national footprint, focussing on labour intensive and related services.
appreciationI wish to express my appreciation to all those who have contributed to CSG’s progress during the past year. I am grateful to all our employees for their dedication to the company and to the Board for its ongoing support and guidance. CSG is fortunate in having a skilled and committed team that can take the company confidently into the future.
Pieter DryChief Executive Officer
28
CFO’S REPORT
■ Revenue up 21% to R1,29bn (compared to 13 months to March 2014)
■ Profit after tax 45% higher at R83,77m ■ HEPS rose 11% to 17,76c ■ Cash resources improved by R54,84m ■ Final cash dividend of 4,48c increased by 12%
introDuctionCSG reported steady growth in revenue and earnings in the 12 months to 31 March 2015. All divisions have performed well during a difficult economic period in South Africa. New contracts and the additional 49% interest acquired in Significant Site Services (SSS) have led to positive growth in the Facility Management division.
overvieWThis report is intended to provide additional insight into the financial performance of CSG for the year under review. The report needs to be read in conjunction with the consolidated annual financial statements presented on pages 58 to 119 and the Chairman’s and the CEO’s reports on pages 22 and 26).
financial resultsWe are particularly pleased with the significant increase in our revenues to R1,29 billion (2014: R1,06 billion) and profit after tax to R83,77 million (2014: R57,93 million). Cash generated by the group’s operations increased to R127,98 million for the year (2014: R68,82 million). The cash was used to pay the dividend of R22,97 million in November 2014, income tax of R39,61 million and net investments in property, plant and equipment of R10,06 million. The group’s working capital position remains healthy, ensuring sufficient reserves to cover short term positions, and allowing us to accelerate our acquisition drive which we will be able to fund partly with own capital.
heaDline earnings anD hepsHeadline earnings grew by 90.45% amounting to R72,77 million (2014: R38,21 million) translating into headline earnings per share of 17,76 cents per share, an increase of 11% compared to the previous year.
Revenue history:
Profit after tax history:
Headline earning per share:
0
300
600
900
1 200
1 500(R’000)
28 Feb 2013
31 March2014
31 March2015
1 286 659
1 059 876
737 919
0
20 000
40 000
60 000
80 000
100 000(R’000)
28 Feb 2013
31 March2014
31 March2015
87 766
57 925
38 190
0
4
8
12
16
20(cents)
28 Feb 2013
31 March2014
31 March2015
17,7616,02
13,78
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net tangible asset value per shareThe net asset value per share increased by 12.91% to 76,1 cents per share (2014: 67,4 cents per share) primarily as a result of the acquisition of ConinghamLee during the year. The tangible asset value per share rose 4.61% to 45,3 cents (2014: 43,3 cents).
neW business coMbinationsConinghamLeeCSG acquired 100% of the issued ordinary share capital of ConinghamLee, effective 1 November 2014. The purchase consideration payable was an initial amount of R24 million, which may be increased by a maximum amount of R11 million based on the financial performance of ConinghamLee for the 12-month period immediately following the effective date of the acquisition (Performance Guarantee Period).
The R24 million was settled on 4 November 2014 utilising a Nedbank term funding facility bearing interest at prime rate and repayable over five years. Based on the projected profits for the Performance Guarantee Period an accrual for the full contingent consideration has been taken into account in calculating goodwill on date of acquisition.
ConinghamLee was acquired to provide diversification and to gain access to a specific market in the labour segment. The board is of the view that for this reason the excess on the purchase price relates to synergies and has therefore been accounted for as goodwill.
Significant Site ServicesAs detailed in the SENS announcements dated 23 June 2014 and 25 July 2014 respectively, the group acquired a further 49% interest in Significant Site Services Proprietary Limited for R48,29 million and Significant Site Services Mozambique Limitada for R12,95 million effective 1 July 2014.
The purchase consideration of R61,24 million was settled through a cash payment of R4 million and the balance on 5 December 2014 by the issue of 29 055 042 new CSG shares at a VWAP of 197 cents.
As CSG already controlled SSS at the date of acquiring the additional interest, the transaction for the 49% interest is not accounted for as a business combination in terms of IFRS 3, and the excess above SSS’s additional net asset value of R13,05 million, being R48,19 million, was accounted for in retained earnings.
gooDWill anD iMpairMentThe goodwill impairment review for the year was performed by management in terms of IAS 36. The implied fair value of goodwill was lower than the carrying value of the affected cash generating units, resulting in no impairment for the current year.
DiviDenD policy anD DeclarationAt the board meeting on 28 May 2015, after specifically looking at the capital structuring level, the directors approved the company’s dividend policy which is based on a dividend cover range of between three and four. A gross final cash dividend of 4,48 cents per share on the ordinary shares was declared and will be paid from income reserves.
The board will continue to review the dividend cover at each declaration date.
conclusionThe difficult market conditions and continued pricing pressure from our customers will call for stringent cost and capital management and cash flow generation.
thanks anD acknoWleDgeMentI would like to thank Liezel Grobler for the contribution she has made to CSG during her tenure as CFO as well as her continued support in her new role in the group. I would also like to convey my gratitude to the finance teams and head of companies for their support and commitment in delivering quality financial information to our stakeholders during the year under review. We look forward to another productive year in 2016.
Willie ScottChief Financial Officer
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GOVERNANCE AND SUSTAINABILITY
31
GOVERNANCE AND SUSTAINABILITYCorporate governance 32
Remuneration report 39
Directors’ shareholding 44
Shareholder information 45
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coMMitMent anD approach to corporate governanceThe board of directors endorses and accepts full responsibility for the application of corporate governance principles within the group. It is the board of director’s responsibility to lead the company effectively, ethically and transparently, and focuses on steering the company in the right direction through a combination of strategy, effective leadership and sound corporate governance. The board remains committed to adhering to the highest standards of corporate governance, including King III, the Companies Act, the JSE Listings Requirements and other applicable regulations.
CORPORATEGOVERNANCE REPORT
king iii, coMpanies act anD Jse listing’s requireMentsIn terms of paragraph 8.63(a) of the JSE Listings Requirements, the group has published its application of King III on its website, www.csgholdings.co.za. This report provides more detail regarding the group’s application of good governance principles in accordance with the JSE Listings Requirements.
Below is the snapshot of the group’s application of King III reflecting the group’s governance implementation and compliance status.
boarD of DirectorsRole of the boardThe board is a unitary body that is effective in leading and controlling the group. The board’s mandate is to provide the strategic direction needed to ensure that the company delivers sustainable value to all stakeholders. The directors combine their leadership, judgement and enterprise to determine the group’s strategies and direction and do this with personal integrity. They have overall responsibility for identifying and overseeing the management of key risks as well as for setting KPIs and managing performance against agreed targets.
Highest application AAA
High application AA
Notable application BB
Moderate application B
Application to be improved C
Low application L
Board composition
Remuneration Governanceof�ce bearers
Board role and duties
Accountability Performanceassessment
Boardcommittees
Group Boards
Applied Explained Not Applied
Executive committee
Delegation of Authority
FrameworkSocial and ethics committee Remuneration committee (Remco) Audit and Risk committee
CSG BOARD
WEIGHTING GRAPHIC
APPLICATION METEROVERALL SCORE COMPLETENESS METER SCORING KEY
AAA 100%
Board composition AA
Remuneration AAA
Governance office bearers AAA
Board role and duties AA
Accountability AAA
Performance assessment AAA
Board committees AAA
Group Boards AAA
GOVERNANCE AND SUSTAINABILITY
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Board charterThe CSG board charter is the overarching policy document that defines the board’s powers and operational parameters. It also provides for delegation of operational responsibilities to management and the board committees. Key features of the board charter include: overseeing the strategic direction and business plans; agreeing to both financial and non-financial targets for the group, as well as monitoring performance against those targets; ensuring effective risk management processes and regulatory compliance; supporting the CEO; and defining and reporting on material issues.
Appointment of directorsA formal and transparent procedure exists for the appointment of directors to the board and is a matter for the board as a whole. Responsibility for recommending board appointments and directors’ appraisals rests with the human resources remuneration and nomination committee (Remco). The choice of directors is guided by individual skills and competencies, as well as the contribution they will make to CSG’s achievement of its corporate, environmental and social objectives. The board is composed so as to deliver an appropriate mix of technical, financial, business and governance expertise. The nomination committee reviewed the composition of the board and committees of the board in accordance with King III recommendations and it considers the number of directors, the collective knowledge, skills and experience required for conducting the business of the board. The board has confirmed its satisfaction with the composition of the board and the committees.
Changes to the board during the yearCSG has a formal and transparent procedure for appointing board members, and this was followed with the appointment of both a new non-executive director and the group CFO during the year under review. Appointment of new directors is the responsibility of the board as a whole,
upon recommendation of the candidate to the board by Remco. Recommendation follows a careful appraisal of the candidate’s skills and experience and takes into account an appointee’s contribution to the board’s diversity.
On 13 March 2015 Willie Scott was appointed as CFO effective 31 March 2015 after the resignation of Liezel Grobler and on 25 May 2015 Mathukana Mokoka was appointed as lead independent, non-executive director after the resignation of Judy Malan on 12 March 2015.
New directors are taken through a formal induction programme and are provided with all the necessary background and information to familiarise them with issues affecting the board.
Conflict of interestAll board members, subsidiary directors, prescribed officers and the company secretary are required to disclose their shareholdings in the group, other directorships and potential conflicts of interest whenever such circumstances arise, and automatically before each board meeting. Where potential conflicts of interest exist, directors are expected to recuse themselves from relevant discussions and decisions.
The board is aware of the other commitments of its directors and is satisfied that all directors allocate sufficient time to enable them to discharge their responsibilities effectively. The company secretary maintains a register of directors’ interests, which is tabled to the board annually and any changes are submitted to the board as they occur. The group complies with the provisions of the Companies Act.
Board compositionThe board comprises eight directors, four of whom are executive directors. The remaining four directors,are all non-executive directors, with two directors being independent.
Director Designation Appointment date
BT Ngcuka Non-executive director (chairman) 28 September 2006PJJ Dry Executive director (CEO) 27 November 2013JG Nieuwoudt Executive director (COO) 27 November 2013SL Grobler Executive director (CFO) 29 February 2012
resigned 31 March 2015WE Scott Executive director (CFO) 31 March 2015NG Thiart Executive director 27 November 2013J Malan Lead independent non-executive director 27 November 2013
resigned 12 March 2015M Mokoka Lead independent non-executive director 25 May 2015NN Sonjani Independent non-executive director 19 September 2011
PN de Waal Non-executive director 1 June 2011
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Directors’ independenceRelevant non-executive directors are robustly reviewed on appointment to ensure they are truly independent. In terms of Principle 2.18 of King III, independent, non-executive directors may serve for nine years but CSG’s MOI requires that a third of its directors retires annually (see rotation and election of directors below). Mr Ncguka is not an independent director but as a result of his experience, it is felt that he is the most suited to chair the board. The board has appointed a lead independent director to provide leadership and advice to the board when the board chair has a conflict of interest without detracting from or undermining the authority of the chairman.
The audit committee consists of three non-executive directors, two of which are independent. The remuneration committee has two non-executive directors and the social and ethics committee consists of three directors, one being independent and two executive directors.
Non-executive directors do not hold service contracts with the group and their remuneration is not linked to the group’s financial performance.
All directors have access to the advice and services of the company secretary and are entitled, in terms of an agreed policy and after consultation with the chairman, to seek independent, professional advice on the affairs of the group, the costs of which will be borne by CSG.
Responsibilities of chairman and CEOThe responsibilities of the chairman and CEO are clearly defined and separately set out in the board charter. While the board may delegate authority to the CEO in terms of the board charter, the separation of responsibilities is designed to ensure that no single person or group can have unrestricted powers and that appropriate balances of power and authority exist on the board.
The chairman is responsible for leading the board and for ensuring the integrity and effectiveness of the board and its committees. In contrast the CEO is responsible for the efficient management and running of the company’s business in terms of strategies and targets approved by the board.
Rotation and election of directorsIn terms of the MOI, a third of non-executive directors retire annually and, if eligible for re-appointment, are recommended for re-appointment by the nomination and remuneration committee. The size and complexity of CSG at this time does not warrant the appointment of an additional independent non-executive director in order to ensure a majority of independent non-executive directors on the board.
FunctionsThe board of directors meets quarterly and additional meetings are arranged as and when necessary. In addition to being responsible for preparing an Integrated Annual Report, they are also responsible for monitoring executive management and exercising control over the group’s activities. The board sets overall group policy, provides input and makes decisions on matters of strategic importance and is responsible for setting appropriate authority levels in respect of all transactions of the group.
Powers of directors are set out in terms of formally delegated authority, and no individual director has unfettered powers of decision-making.
The board has unrestricted access to all company information, records, documents and resources to enable it to properly discharge its responsibilities. Management is tasked with ensuring that board members are provided with all relevant information and facts to enable the board to reach objective and informed decisions.
Directors are kept informed of key developments affecting the group between board meetings. Non-executive directors have access to management and may meet separately with management without the attendance of executive directors.
In accordance with the Companies Act, 71 of 2008 (as amended) (“the Act”), the directors are responsible for preparation of the annual financial statements, which fairly present the state of affairs of the group, ensuring that accounting policies are supported by reasonable and prudent judgements, estimates are applied consistently and that applicable accounting standards are adhered to. The external auditors are responsible for carrying out an independent examination of the financial statements and to report their findings thereon in accordance with International Financial Reporting Standards, the SAICA Financial Reporting guides as issued by the Accounting Practices committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, the JSE Listings Requirements and the Act.
CORPORATEGOVERNANCE REPORT (continued)
GOVERNANCE AND SUSTAINABILITY
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CSG
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Board appraisalA board appraisal has not been performed during the year under review. A board appraisal will be performed in the 2016 financial year.
Attendance of meetings
Director BoardAudit and risk
committeeRemuneration
committeeSocial and ethics
committee
BT Ngcuka* 4/4 n/a 4/4 n/aPJJ Dry 4/4 4/4$ 4/4 n/aSL Grobler 2/4^ 2/4^$ n/a n/aWE Scott+ 2/2 2/2$ n/a n/aJG Nieuwoudt 4/4 n/a n/a 4/4NG Thiart 4/4 n/a n/a 4/4NN Sonjani*# 4/4 4/4 n/a n/aJ Malan*# 4/4 4/4 n/a 4/4PN de Waal* 4/4 4/4 4/4 n/a* Non-executive director.# Independent non-executive director.n/a Not a member of the committee.^ Ms Grobler was on maternity leave and therefore did not attend 2 meetings.+ Appointed after the year end and thus not part of any committees during the year. Mr Scott was appointed the acting CFO while Ms Grobler was on maternity leave
and thus attended meetings on invitation.$ Only member of the risk committee.
Company secretaryThe company secretary is responsible for ensuring the availability of all information needed by the directors for the performance of their duties. This includes papers and documents needed for board meetings as well as public announcements or shareholder communications having a bearing on CSG and its operations. The company secretary is available to the directors, at all times, to provide assistance, guidance or advice in line with King III and the JSE Listings Requirements. Though the company secretary attends board meetings in an advisory capacity he is not a member of the board of directors, which ensures an arm’s length relationship with the board and independence. The company secretary is responsible for ensuring that board and company proceedings and affairs are carried out in compliance with current legal and regulatory requirements. The board is confident that the company secretary has the necessary skills, qualifications and experience to perform his duties proficiently.
Legal mattersWe endeavour to avoid litigation and legal disputes. However, in the normal course of business, the CSG group is subject to various proceedings, actions and claims which we aim to resolve in a timeous manner that results in the best long-term outcomes for the company and its stakeholders. These matters are subject to risks and uncertainties that cannot be reliably predicted. The company secretary monitors the legal and regulatory environment and communicates new legislation and any changes to existing legislation to the board and
operations. No significant fines were imposed in either the current, or prior financial year in respect of any legal non-compliance. The board does not believe there is any pending or threatening legal action that may have a material effect on the group’s financial position or that the group is not in compliance with any statutory or regulatory requirements.
Dealings in securitiesIn alignment with the JSE Listings Requirements, CSG has a defined policy of conduct for directors and employees dealing in the company’s securities. In terms of this policy and listings rules, directors and employees are required to obtain prior approval and, furthermore, directors publicly disclose any dealings in the company’s securities by themselves or their associates.
The JSE Listings Requirements define closed periods, generally around major results announcements, during which directors, executives and designated employees may not trade in the company’s shares. The prohibition applies equally to the individuals’ associates. At the start of a closed period directors and employees subject to the policy are formally advised of the start and duration of the closed period.
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Internal control systemsTo meet CSG’s responsibility to provide reliable financial information, the group maintains financial and operational systems of internal control. These controls are designed to provide reasonable assurance that transactions are concluded in accordance with management’s authority, that the assets are adequately protected against material losses; unauthorised acquisitions and use or disposals, and that all transactions are properly recorded.
The systems include a documented organisational structure and division of responsibilities, established policies and procedures which are communicated throughout the group, and the careful selection, training and development of people.
There are inherent limitations on the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, only an effective internal control system can provide reasonable assurance with respect to financial statement preparation and the safeguarding of assets.
Based on risk management and discussions with the external auditors on the result of their audit, nothing has come to the attention of the board that caused it to believe that the group’s system of internal control and risk management is not effective, or that the internal financial controls do not form a sound basis for the preparation of reliable financial statements. The board’s opinion is supported by the audit and risk committee.
IT governanceThe board has an IT governance policy and ensures adherence to King III’s IT governance principles. The board measures the implementation of the recommended principles against the detailed King III application register. The audit and risk committee assists the board with IT governance related matters. The committee is governed by an effective charter which gives guidance to the management team and ensures effective and efficient management of all IT resources.
boarD coMMitteesAudit and risk committeeA combined audit and risk committee is held at CSG.
Audit committeeThe audit committee has an independent role from management with accountability to the shareholders and to the board. The audit committee comprises of two independent non-executive directors and one non-executive director who possess the relevant qualifications and experience as determined by the board. The committee has terms of reference in place outlining its purpose and responsibilities, which include:
■ to review the principles, policies and practices adopted in the preparation of the financial statements of the company and to ensure that the interim and annual financial statements of the group and any other
formal announcements relating to the group’s financial performance comply with all statutory and stock exchange requirements;
■ to review the work of the group’s external auditors to ensure the adequacy and effectiveness of the group’s financial, operating, compliance and risk management controls;
■ to review the management of risk and the monitoring of compliance effectiveness within the group, in conjunction with the risk committee; and
■ to perform all the functions required by section 94(7) of the Companies Act.
The audit committee report is on page 53, which also elaborates on the activities of the committee.
CompositionThe committee, which meets at least twice a year, comprises Ms NN Sonjani (independent non-executive chairperson), Ms J Malan (resigned 12 March 2015) and Mr PN de Waal, a non-executive director representing PSG Private Equity. Ms M Mokoka was appointed as lead independent non-executive director on 25 May 2015 replacing Ms Malan. Although Mr De Waal is not an independent director, as recommended by King III, his expertise provides a valued contribution to the committee, and it is envisaged he will remain on the committee even if a further independent director may be appointed in future. Representatives of the Designated Advisor (as invitees) attend meetings of the committee. The external auditors, who attend committee meetings by invitation, have unrestricted access to the committee.
FunctionsOther than the committee’s principal functions as described above, in terms of legislation and its formal charter, the committee has reviewed for the year and satisfied itself with regards to:
■ the accuracy and appropriateness of the financial statements and accounting policies;
■ the appropriateness of the expertise and experience of the financial director of the Company;
■ at the date of this report no complaints have been received regarding the Company’s accounting policies, internal auditors and internal controls, content of auditing of its financial statements or any related matter;
■ compliance of the external auditors’ appointment with legislation;
■ scope and objectivity of the external auditors – non-audit services are approved and are not of sufficient s
