5013 Iliad 2006 AR FRONT - sharedata.co.za · Iliad Africa Limited focuses on sourcing,...

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


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


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


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


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.


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


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


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



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.






Prospects for the coming year are extremely positive with new stores opening and further opportunities for geographic expansion in sight.


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




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.


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.



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.






The structure affords the opportunity to leverage procurement and inward-bound logistics across the division.


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




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,


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.




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.


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


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.


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.



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


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.



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.


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.


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 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


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



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




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



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.


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.



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


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



CASH FLOW STATEMENTS

GROUP COMPANY

2006 2005 2006 2005

Notes R000 R000 R000 R000


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



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


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)


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


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.



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



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



ACCOUNTING POLICIES


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.


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.



ACCOUNTING POLICIES


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


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.



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



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)


– 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


– 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




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




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.



GROUP COMPANY

2006 2005 2006 2005

R000 R000 R000 R000



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


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



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.


GROUP AND COMPANY

2006 2005

R000 R000


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


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



GROUP COMPANY

2006 2005 2006 2005

R000 R000 R000 R000



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.


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



GROUP COMPANY

2006 2005 2006 2005

R000 R000 R000 R000



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


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




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.


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.



GROUP COMPANY

2006 2005 2006 2005

R000 R000 R000 R000


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


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


Number of % of Number of % of issued

shareholders shareholders shares capital

SHAREHOLDER ANALYSIS


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.


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)


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


FORM OF PROXY


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 )


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.


NOTICE OF ANNUAL GENERAL MEETING


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.


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



• 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”),


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%



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


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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