Corporate governance report
Governance framework and accountability
In pursuance of its ongoing commitment to ensure that the group is managed in an efficient, responsible and ethical manner and in the interests of all its stakeholders, Illovo remains committed to achieving the highest standards of corporate governance and corporate citizenship, by adhering to the relevant codes of best practice, principles of fairness, accountability, responsibility, transparency and integrity. We strive for continuous improvement, recognising that the achievement of a long-term sustainable business is dependent on stable, well-functioning and well-governed environmental, social, economic and governance practices.
Our governance framework is structured to ensure compliance with the laws, regulations and codes of best practice applicable in all the countries in which we operate, including the South African Companies Act 2008 and Companies Regulations 2011, the Listings Requirements of the JSE, and the requirements of King III.
In addition, our business operations are guided by the principles contained in the United Nations Global Compact (“UNGC”), the United Nations Guiding Principles on Business and Human Rights, the International Bill of Human Rights, the OECD (Organisation for Economic Co-operation and Development) recommendations regarding corruption, International Labour Organisation (“ILO”) Declaration on Fundamental Principles and Rights at Work and the Voluntary Principles on Security and Human Rights.
Our board of directors, committees and management are responsible for embedding practices into our businesses, consistent with these principles, in the six countries in which the group operates. This is achieved through group policies and guidelines, as well as audit and assurance procedures, which ensure compliance by all group companies with the applicable laws and regulations as well as the recognised codes of good practice. During the year under review, we embarked upon a restructuring of our group governance framework, with the aim of ensuring that the group businesses are well-managed and driven by socio-economic imperatives producing responsible, accountable and sustainable outcomes. The refinements include enhanced socio-economic impact audits, human rights impact assessments and due diligence processes in relation to our existing businesses and proposed new projects, as well as our supply-chain.
Board responsibilities
The company’s board of directors is ultimately responsible for the effective control of the group and its management and is involved in all decisions that are material for this purpose.
The board functions in terms of a formal Board Charter which requires that there is an appropriate balance of power and authority on the board, and in terms of which the board takes responsibility for, inter alia:
- exercising leadership, enterprise, integrity and judgement in directing the company so as to achieve its Strategic Intent, and goals and objectives;
- acting as a focal point for and custodian of corporate governance;
- approving the strategic direction, and the goals and objectives of the company; always appreciating that strategy, risk, performance and sustainability are inseparable;
- ensuring that the business is a going concern;
- considering and approving annually the company’s strategic plan and its operating and capital budgets;
- considering and approving all material investments, and acquisitions and disposals of business activities;
- defining and monitoring levels of materiality, reserving specific powers to itself and delegating other appropriate matters to the relevant board committees and/or management;
- determining the terms of reference of the board committees, and appointing or recommending the appointment of, as the case may be, the members of such committees;
- ensuring that appropriate policies, procedures and practices are in place and are duly observed;
- identifying and monitoring the non-financial sustainability issues relevant to the business of the company;
- ensuring that the company maintains and develops good corporate governance standards, the governance of risk, identifying and monitoring the company’s key risks and key performance indicators, ensuring that there is due compliance with all risk-related policies, procedures and standards, and that internal controls are effectively maintained and, where necessary, reviewed;
- ensuring that the company has an effective internal audit function;
- overseeing the preparation of and approving the company’s annual financial statements, and its interim and final results announcements, ensuring that these meet regulatory requirements, and determining distributions to shareholders;
- ensuring that succession planning is undertaken, the remuneration strategy of the company is appropriate to the business, and remuneration levels of directors and senior management are appropriate;
- recommending to shareholders at the annual general meeting, the level of fees payable to the non-executive directors; and
- ensuring that there is effective communication with the company’s shareholders and other key stakeholders.
The Board Charter is reviewed annually, and during the year under review, the board satisfied its responsibilities in compliance therewith.
Each group operating subsidiary company is governed by a board of directors, established in accordance with the laws and regulations of the country in which it operates. Certain of the members of the Illovo executive committee serve as directors on the boards of the subsidiary companies and report to the Illovo board on their activities at each board meeting.
Board of directors
Illovo has a unitary board of directors, which during the year under review, comprised 14 directors, 10 of whom are non-executive directors. As required by King III, the majority of the non-executive directors are independent and are chosen for their business acumen and skills pertinent to the business of the group. Brief curricula vitae of the directors appear here in this report.
New appointments to the board are made in accordance with the recommendations of the Remuneration/Nomination Committee and, following approval by the board, are subject to confirmation by shareholders at the next annual general meeting.
The roles of the chairman and chief executive are distinct and separate. The chairman is an independent non-executive director who is appointed annually by the board, on the recommendation of the Remuneration/Nomination Committee.
In accordance with the company’s Memorandum of Incorporation, at each annual general meeting, not less than one-third of the non-executive directors (being those who have been longest in office since their appointment or last re-election) must retire, but may be proposed for re-election. The Nomination Committee conducts an assessment of the performance of each of the retiring directors who makes himself or herself available for re-election and submits its recommendations to the board. In turn, the board makes appropriate recommendations to the shareholders relative to the re-election of directors.
At the 2015 annual general meeting, Messrs MacLeod and Hankinson, Prof Madi and Mrs Molope will retire. Mr Hankinson and Mrs Molope have made themselves available for re-election and, based on the favourable evaluations carried out in respect of each of them (annual evaluations), the board, on the recommendation of the Nomination Committee, recommends their re-appointment.
The non-executive directors do not have service contracts with the company and all remuneration paid to non-executive directors is in accordance with the approval given by the shareholders at each annual general meeting.
The executive directors are full-time employees of the company and, as such, each has an employment contract, the terms of which are substantially in accordance with the company’s standard conditions of service, but with a notice period of three months and more comprehensive confidentiality undertakings. The executive employment contracts undergo annual external and internal review. The Memorandum of Incorporation of the company provides that an executive director’s appointment as a director terminates immediately upon the termination of his employment for any reason.
At each meeting of the board and committees, directors are required to declare other directorships held and any other interests that might create a conflict of interest with their responsibilities as directors of Illovo, or in relation to any matter for discussion at a board or committee meeting.
Members of the board may, in appropriate circumstances, take independent professional advice at the company’s expense. The company provides insurance cover for directors’ and officers’ legal liabilities within the ambit of that permitted in terms of the Companies Act.
Provision is made for professional development programmes for directors if required, but having regard to the level of experience and expertise of the current members of the board, this has not been considered necessary during the year under review. The Company Secretary provides the directors with updates on amendments to relevant laws, regulations and the JSE Listings Requirements.
Board meetings
The board has six regular meetings each year and the company’s Memorandum of Incorporation makes provision for decisions to be taken between meetings by way of written resolutions, when required. During the year under review, six meetings were held.
Resignations from and appointments to the board
The board of directors has appointed Mr Trevor Munday as chairman of the board with effect from the close of the annual general meeting on 15 July 2015.
Attendance at board and committee meetings during the year ended 31 March 2015
| Board | Audit | Remuneration/ | Risk | Social & | Annual | |||||||
| Committee | Nomination | Management | Ethics | General | ||||||||
| Committee | Committee | Committee | Meeting | |||||||||
| A | B | A | B | A | B | A | B | A | B | A | B | |
| Abdool-Samad M H | 6 | 6 | 3 | 3++ | n/a | n/a | 3 | 3 | 2 | 2 | 1 | 1 |
| Carr Dr M I | 6 | 5 | n/a | n/a | 5 | 4 | n/a | n/a | n/a | n/a | 1 | 1 |
| Cowper J# | 1 | 1 | n/a | n/a | n/a | n/a | 1 | 1 | n/a | n/a | n/a | n/a |
| Dalgleish G B | 6 | 6 | 3 | 3++ | 5 | 5 | 3 | 2 | 2 | 2 | 1 | 1 |
| Hankinson M J | 6 | 6 | 3 | 3 | 5 | 5 | 3 | 2 | n/a | n/a | 1 | 1 |
| Hulley J P | 6 | 6 | n/a | n/a | n/a | n/a | 3 | 3 | 2 | 2 | 1 | 1 |
| Konar Dr D | 6 | 5 | 3 | 3 | n/a | n/a | 3 | 3 | n/a | n/a | 1 | 1 |
| Lister P A | 6 | 5 | n/a | n/a | n/a | n/a | n/a | n/a | 2 | 0 | 1 | 1 |
| MacLeod D G | 6 | 6 | 3 | 3** | 5 | 5 | 3 | 3 | 2 | 2 | 1 | 1 |
| Madi P M | 6 | 5 | n/a | n/a | 1 | 0 | n/a | n/a | 2 | 2 | 1 | 1 |
| Molope C W N | 6 | 4 | 3 | 1 | n/a | n/a | n/a | n/a | 2 | 2 | 1 | 0 |
| Mpungwe A R | 6 | 5 | n/a | n/a | n/a | n/a | 3 | 3 | 1 | 0 | 1 | 1 |
| Munday T S | 6 | 6 | 3 | 3 | 5 | 5 | 3 | 3 | 2 | 2 | 1 | 1 |
| Riddle L W | 6 | 6 | 3 | 2++ | n/a | n/a | n/a | n/a | 2 | 2 | 1 | 1 |
| Rhodes G M^ | 3 | 2 | 2 | 1+ | n/a | n/a | 2 | 2 | n/a | n/a | 1 | 0 |
| Column A indicates the number of meetings held during the year while the director was a member of the board/committee. |
| Column B indicates the number of meetings attended by the director. |
| ++ | Participation in his capacity as a member of the executive committee, as an attendee. |
| + | Participation in his capacity as a non-independent, non-executive director, as an attendee. |
| ** | Participation in his capacity as chairman of the board, as an attendee. |
| ^ | Mr Rhodes resigned as a director with effect from 31 October 2014. |
| # | Mr Cowper was appointed as a director with effect from 10 March 2015. |
Board committees
To assist the board in carrying out its responsibilities, various functions are delegated to board committees and management.
The board committees operate under board approved mandates and Terms of Reference, which define their functions and responsibilities. The Terms of Reference are reviewed annually and updated when necessary to keep them aligned with current best practice.
With the exception of the executive committee, all committees are chaired by independent non-executive directors who attend the annual general meeting to respond to any shareholder queries. The chairmen of the committees report to the board on all matters delegated to them.
Audit Committee
In compliance with the Companies Act, King III and the JSE Listings Requirements, the company has appointed an Audit Committee, whose responsibilities and activities are covered in the Audit Committee Report. Audit committees are also established at each of the operating subsidiaries.
Social and Ethics Committee
In terms of the Companies Act and the Companies Regulations, a Social and Ethics Committee was established in March 2012. The composition and responsibilities of the committee are covered in the Social and Ethics Committee Report.
Remuneration/Nomination Committee
The Remuneration Committee and Nomination Committee are combined to form the Remuneration/Nomination Committee which consists of four non-executive directors, three of whom are independent. The members of the committee are Messrs M J Hankinson, D G MacLeod, T S Munday, and Dr M I Carr. Prof P M Madi, who was also a member, resigned from the committee during the course of the year.
When dealing with remuneration matters, the committee is chaired by Mr M J Hankinson and when dealing with nomination matters, by Mr D G MacLeod, the Chairman of the board. The managing director (Mr G B Dalgleish) and the human resources executive (Mr N M Hawley) attend meetings by invitation. The group Company Secretary acts as secretary to the committee. The committee meets at least three times a year. In the past year, five meetings were held.
The committee acts under formal Terms of Reference approved by the board and is responsible for the assessment and approval of the remuneration strategy for the group.
The responsibilities and activities of the Remuneration Committee are set out in the Remuneration Report.
The Nomination Committee gives consideration to the composition of the board and board committees and makes appropriate recommendations in this regard to the board. On an annual basis, the committee reviews the group’s succession plan and plays an integral role in relation to senior executive appointments. In addition to the assessments mentioned above in this report, the committee also carries out formal assessments of the performance of the managing director, and considers the managing director’s reports on the performance of the executive directors and senior management.
For the year under review, the Remuneration/Nomination Committee met its responsibilities in compliance with its Terms of Reference.
Risk Management Committee
During the year under review, the Risk Management Committee comprised five non-executive directors (four of whom are independent) and three executive directors. Mr G Rhodes ceased to be a member of the committee with effect from 31 October 2014, when he resigned as a director, and Mr J Cowper was appointed as a committee member with effect from 10 March 2015.
The committee meetings are also attended by the Company Secretary and five members of senior management, one of whom acts as the secretary of the committee.
The committee meets at least twice a year and is responsible for reviewing the company’s risk philosophy, strategy and policies; ensuring compliance with such policies; reviewing the adequacy and overall effectiveness of the company’s risk management function; ensuring the implementation of an ongoing process for risk identification, mitigation and management; ensuring the establishment of a comprehensive system of controls; pursuing measures for increasing risk awareness throughout the group; reviewing any significant legal matters; reviewing the adequacy of insurance coverage; and providing reports and information to the board as well as the Social and Ethics Committee in relation to matters relevant to the latter. The committee gives particular focus to operational risks, including health and safety and compliance with the legislative and regulatory requirements in each country of operation.
The group ERM Policy, ERM Framework and Combined Assurance Framework which were implemented in 2013 for the purposes of procuring effective and consistent risk management across all group operations, is more fully dealt with in the Risk Management Report.
During the year under review, the committee satisfied its responsibilities under its Terms of Reference.
Executive Committee
The four executive directors constitute the Executive Committee, whose meetings are also attended by the human resource executive and the Company Secretary. Under the leadership of the managing director, the Executive Committee is responsible for pursuing the Strategic Intent, implementing the strategic plan and managing its business and affairs generally. It acts as a medium of communication and co-ordination between the board and the operations and functions of the company, and reports to the board and board committees on all pertinent matters.
The Executive Committee meets on a weekly basis and reviews operational performance, capital programmes, major investment and capital expenditure proposals, as well as issues of strategic importance to the group, for recommendation to the board. Daily involvement of the members of the Executive Committee with operational and functional executives ensures the interactive nature of the overall management reporting structure.
Annual evaluations
Formal annual evaluations, following the requirements outlined in the Companies Act and King III, are carried out to assess the performance of the board and the board committees, which are presented to and discussed at the meetings of the board and the relevant board committees. The evaluations undertaken in March 2015 concluded that the performance of the board and its committees was adjudged to be good and no deficiencies were identified.
Annual assessments are carried out to confirm the continued independence of each of the independent non-executive directors, including the chairman, and written confirmation is obtained that each of them continues to meet the requirements for independence contemplated in paragraph 67 of Chapter 2 of King III and the Companies Act. In addition, the Nomination Committee carried out separate assessments in respect of those directors who have served on the board as independent non-executive directors for more than nine years (ie, Dr D Konar and Mr A Mpungwe), both of whom were, after taking into account all relevant factors, found to remain independent and continue to have the necessary objectivity of business judgment, business acumen and skills pertinent to the businesses of the company.
The Nomination Committee also carried out assessments of the retiring directors who have made themselves available for re-election (ie, Mr M Hankinson and Mrs C W N Molope), which were favourable, taking into account the relevant factors mentioned above, and based on such assessments, the board recommends their re-appointment.
In accordance with King III and the JSE Listings Requirements, an annual evaluation of the Company Secretary was carried out by the board and an assessment of the appropriateness of the expertise and experience of the Financial Director, Mr M H Abdool-Samad, was carried out by the Audit Committee, both of which evaluations were favourable.
Company Secretary
The Company Secretary, Ms J A Kunst, is responsible for carrying out all the duties of a Company Secretary as prescribed by section 88 of the Companies Act, King III and the JSE Listings Requirements, which she is appropriately empowered by the board to fulfil. She is also responsible for overseeing the legal, secretarial, governance, compliance, sustainability and corporate citizenship functions. Ms Kunst holds a BA LLB, Dip Mar Law, was a practising attorney for 35 years, and is considered by the board to be suitably qualified to carry out her functions. All directors have access to the professional services and support of the Company Secretary, inter alia, with regard to legal, corporate governance and compliance matters.
In accordance with the JSE Listings Requirements the board carried out a formal annual evaluation of the Company Secretary’s performance during the year under review, which was favourable. The board also evaluated and concluded that the Company Secretary retains an arm’s length relationship with the board having regard to the fact that she is not a director or a major shareholder of the company or any of its subsidiaries; is not related to, or in any other manner connected with, any of the directors in any manner which could cause there to be a conflict of interest; is independent from management and does not have extensive executive duties and responsibilities in addition to the core responsibilities of a Company Secretary; is empowered by the board to act as the gatekeeper of good corporate governance; is not a party to any major contractual relationship which may affect her independence; and there are no matters affecting the Company Secretary’s ability to adequately and effectively perform her company secretarial duties. The board concluded that the Company Secretary continues to be competent to perform her duties as such and is a fit and proper person to hold the position.
JSE sponsor
J P Morgan Equities South Africa Proprietary Limited is appointed the company’s sponsor, in compliance with the JSE Listings Requirements.
Governance processes
Code of conduct and Business Ethics
Our Strategic Intent requires all group operations to conduct business with honesty, integrity and in accordance with the highest legal and ethical standards.
Our Code of Conduct and Business Ethics, which can be found on our website at www.illovosugar.com, embodies our key values and prescribes the conduct required of all employees to achieve these. The Code applies to all our businesses and business relationships. It prescribes the standards required not only from all our group employees, but also from our suppliers, service providers and representatives. The Code is reviewed annually to ensure that it keeps abreast of international best practice and latest practices in relation to the 10 principles of the UN Global Compact and other internationally recognised human rights and guidelines.
Anti-bribery and corruption
Our zero tolerance approach to all forms of bribery and corruption is enshrined in our Anti-Bribery and Corruption, Fraud and Whistle-blowing policies, which apply to all our business relationships, and require all our businesses to work against corruption in all its forms, including extortion and bribery. All our business units are assessed for bribery and corruption risks and are regularly monitored as part of Illovo’s Enterprise Risk Management process. We have a robust anti-bribery and corruption assessment procedure for our suppliers, which incorporates an ongoing risk assessment.
The giving and receiving of bribes and facilitation payments and the making of political donations is strictly forbidden. The stringent procedures prescribed by these policies are implemented throughout the group operations and all group businesses are audited for risks relating to bribery, corruption, fraud and theft. A group-wide monitoring process requires detailed registers of gifts and hospitality to be kept by Anti-Bribery and Corruption officers appointed at each of the group operations, which is reviewed by the internal audit personnel.
In compliance with section 159 of the Companies Act, Illovo has established and maintains a system to receive whistle-blowing disclosures. All reports are dealt with confidentially and routinely and the availability of the system is published regularly. The Illovo Tip-Offs Anonymous and Crime-line reporting process operates throughout the group and enables both internal and external stakeholders to report any suspected wrongdoings anonymously. The reporting line is operated by independent service providers, Deloitte & Touche, and all matters reported are appropriately investigated.
During the year under review, 78 reports were received through the Tip-Offs Anonymous line, all of which were investigated. This process resulted in 11 disciplinary enquiries which led to the dismissal of six employees. An investigation into corruption at the Swaziland operation was carried over from 2014. The allegations were substantiated and disciplinary enquiries are currently in progress.
Compliance
Illovo’s compliance methodology, whilst aligned to international best practice, has been formulated and adapted to meet the growing needs of our geographically diverse businesses throughout the group. Our methodology focuses on a number of key areas, with a view to ensuring the efficient and sustainable management of our businesses and underpinned by our commitment to comply with the myriad of local and international laws, rules, codes and standards that apply to our various operations. Given the challenging regulatory environments within which we operate, compliance is built into the fabric of our corporate governance structures and frameworks.
The compliance function monitors and assesses compliance with, and the impact of, the applicable laws and regulations on the business, as well as assessing compliance with our internal and external policies and procedures, including the implementation and monitoring of, and reporting on, the Anti-Bribery and Corruption procedures. Governance developments are monitored on an ongoing basis to ensure adherence to local regulatory requirements.
The compliance officers who are appointed at each of the operating group companies, report to the head office Compliance Manager, who in turn reports to the group Company Secretary. The reporting structure of the function enforces the independence of the compliance department and ensures that dedicated focus is given to compliance matters throughout all business areas in the group. This is an important component of good corporate governance and is a requirement of King III and other legislation.
Group compliance utilises a risk-based methodology for monitoring. Assessment of the group’s legal compliance is also embodied in, and forms an integral part of, our comprehensive ERM framework which is more fully reported here in this report.
Compliance and compliance risks are monitored and tracked by management, internal audit and group compliance.
The board monitors compliance by means of committee reports, which are supported by annual compliance certificates submitted by each of the operational group companies. Where required, external specialists are engaged to assist and advise in this regard.
During the year under review, the Audit Committee reviewed the Compliance Policy, Compliance Manual and Compliance Plan. In accordance with the Compliance Plan, various initiatives to embed effective compliance and governance practices throughout our business were initiated, with focus being given to the following areas:
- Identification and implementation of changes in regulatory requirements: The group operates in a dynamic and continuously evolving regulatory and supervisory environment. A regulatory universe is compiled annually and all key legislation is continually monitored.
- Compliance frameworks: Our group compliance framework has been developed to embed the group strategy of compliance with all applicable laws and regulations, adherence to ethical corporate behaviour, and managing compliance for business value.
- Compliance training: Annual compliance and governance training is carried out at all our operations, as part of our “Do the Right Thing” campaign.
- Revision of group policies and procedures: A group-wide project was implemented to review group policies and procedures in order to align these with the environmental, social and governance (ESG) principles espoused by the company, the UN Global Compact Principles and various other international standards.
During the year under review, no instances of material non-compliance were noted and no judgements, damages, penalties or fines were recorded or levied against any group company, its directors or employees for non-compliance with any legislation. No legal proceedings for anti-competitive behaviour, anti-trust or monopoly practices were instituted against any of the group companies.
Training
Since 2012 we have carried out an extensive training programme for employees and suppliers, aimed at eliminating corruption and promoting ethical behaviour on the part of employees and third party service providers, who are also contractually required to comply with the company’s Code of Conduct and Business Ethics and the policies and guidelines referred to therein.
To date, approximately one-third of our permanent employees have undergone governance, fraud, anti-corruption, and compliance training and all key employees have undergone dawn-raid and competition law training. This training also forms part of the induction process for new employees and the annual compliance and governance refresher training sessions conducted at all operations.
Supplier assessments
In pursuance of our commitment to adhere to high levels of compliance with both local and international law and best practice, our contracts with our contractors, service providers and representatives require them to comply with (and to seek to develop relationships with their own supply-chains consistent with) the principles set out in our Code of Conduct and the policies and guidelines referred to therein, and to be compliant with all the applicable local laws and codes of best practice in the countries in which they operate, failing which the contract may be terminated for breach.
As an initial step in our Ethical Supply-Chain assessment process, we have embarked upon assessments of our top seven suppliers (ie, those making up more than 50% of the total procurement spend) which assess them for their compliance with the United Nations Global Compact Principles, and other matters referred to in our Code of Conduct. We have also implemented measures to assess our supply-chain through eg, Fairtrade audits, educational programmes and awareness initiatives, to embed a culture that promotes human rights and is committed to abolishing all forms of human rights violations (including forced and child labour, land rights and fair labour practices).
Consumer and product legislation
Illovo manufactures a wide range of sugar and downstream products which are sold into domestic, regional and international markets. We endeavour to produce consistently high-quality products for our customers and as such have a formalised support structure to ensure an appropriate, ordered, group-wide response towards product stewardship. This includes a set of detailed standards relating to raw materials, packaging materials and to production processes.
The group’s adherence to the consumer protection laws in the countries in which it operates is monitored regularly, particularly with reference to the following:
- Customer health and safety
The health and safety of our customers is of utmost importance for Illovo. We comply with all relevant safety, health, environmental and quality legislation in the relevant countries of operation as well as industry best practice standards. All our production facilities have been certified under the ISO 9001:2008 quality management system. In South Africa, our Noodsberg and Umzimkulu operations, as well as our Eston syrup factory have received FSSC 22000 certification (Food Safety Management System), our downstream plants at Sezela and Merebank have achieved HACCP and ISO 22000 certification (Food Safety Management System) respectively, while the Eston and Sezela mill operations are currently making progress towards this FSSC 22000 certification. Our warehousing facilities in Germiston, Pietermaritzburg and Cape Town have also received ISO 22000 certifications. Our Nchalo (Malawi), Nakambala (Zambia) and Ubombo (Swaziland) operations have received the FSSC 22000 certification while other operations in Malawi, Tanzania and Mozambique are currently making progress towards this certification. Noodsberg, Umzimkulu, Illovo Syrup and the operations in Malawi and Zambia are registered with the Supplier Ethical Data Exchange (SEDEX), a membership organisation for businesses committed to continuous improvement of the ethical performance of their supply-chains.
Certain downstream products, ie, furfural, furfuryl alcohol, diacetyl, 2,3 Pentanedione, methanol and ethyl alcohol require specific handling and storage as they may be considered hazardous. To this end, all of our products are supported with Material Safety Data Sheet (MSDS) documentation, together with certificates of analysis which endorse the quality of the products, and provide recommended procedures relating to health, safety, handling and storage. This documentation is available on our website at www.illovosugar.com.
The growing sugar and health debate is of concern to us, particularly the linkage between sugar consumption and increasing obesity rates. Illovo advocates the promotion of a balanced and healthy lifestyle. AB Sugar’s “Making Sense of Sugar” campaign, which was launched last year, aims to educate people about sugar and the role it can play in a healthy balanced diet. We aim to provide factual information, based on robust science, so that everyone is able to make informed choices about what to consume. Further information can be found at www.makingsenseofsugar.com. - Product and service labelling
All products carry product labels containing pertinent product information, in compliance with the respective country legislation and labelling regulations. In addition, downstream products supplying the pharmaceutical industry are highly regulated and are required to meet the South African Food and Drugs Act standards. Any amendments to food labelling and advertising legislation is promptly adopted. - Market communications
We strive to conduct all marketing and communication activities in a responsible manner and in accordance with the relevant legislation and country-specific requirements. Together with our advertising agencies, we subscribe to good marketing practices and the code of responsible advertising, including the communication rules and guidelines as prescribed by the Advertising Association of South Africa. There were no incident reports relating to marketing and communications, including advertising, promotion and sponsorship during the year under review. Our annual Cane to Customer course was presented to our South African sugar operations’ customers at our Noodsberg mill and was attended by representatives from Nestle, National Brands, Unilever and Coca Cola franchise bottlers.
- Customer relations
Formal complaints from our customers are processed through an internal sugar customer care line facility in South Africa, Malawi and Zambia, contact details of which are reflected on all domestic sugar and syrup prepacks. This enables customers to contact Illovo directly to address any issues relating to products and/or service. Customer complaint procedures are implemented according to the company’s group complaints procedures, which provide guidelines and best practice on how customer complaints are required to be handled and resolved and for maintaining an accurate customer complaints register. Support for our industrial customers is provided by a specialised department, providing valuable assistance to the group’s industrial customers in all the countries in which we operate.
Regular supplier and customer audits are undertaken, while customer feedback mechanisms guarantee open communication between Illovo and our customers subsequent to complaints and investigations. All relevant customer queries and complaints are investigated internally by Illovo operations and rectified where appropriate.
During the year under review, we did not experience any incidents of material non-compliance with any laws, regulations, standards or voluntary codes concerning product responsibility, ie, customer health and safety, product and service labelling, marketing communications and customer privacy.
Combined assurance
In accordance with the combined assurance model introduced by King III, Illovo’s combined assurance framework provides for a comprehensive combined assurance process across the group, as more fully reported in the Risk Management Report.
The Audit Committee and the Risk Management Committee are each responsible for monitoring the appropriateness of the group’s combined assurance model, to ensure that it caters for the integration, coordination, and alignment of risk management and assurance processes, thereby optimising and maximising the level of risk, governance and control oversight across the group.
The Company Secretary ensures that the board receives an annual report on matters related to combined assurance.
Internal audit and controls
The group maintains internal controls and systems designed to provide reasonable assurance as to the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability for its assets. These controls and systems are based on established policies and procedures and are implemented by trained personnel with an appropriate segregation of duties. The effectiveness of these internal controls and systems is monitored in a number of ways, including internal audits and audit reports, internal control checks and reporting procedures, fraud, theft and defalcation reporting procedures.
The purpose, authority and responsibility of the internal audit department are defined in a formal charter approved by the Audit Committee and the board. The department acts as an independent appraisal function established to conduct reviews of operations and procedures and report findings and recommendations to management, the Audit Committee or the board, as may be appropriate. The head of the department reports functionally to the Chairman of the Audit Committee and administratively to the Financial Director, and also has unrestricted access to the managing director, the Audit Committee, and the Chairman of the board.
The independent auditors, through the audit work they perform, confirm that these monitoring procedures have been implemented. During the year under review, nothing has come to the attention of the directors or the independent auditors to indicate any material breakdown in the functioning of the group’s internal controls and systems.
Information technology (IT)
The IT policies and procedures cover, inter alia, the use and safeguarding of the company’s information and IT systems, the use of social media, disaster recovery plans, and the regular updating and improvement of IT technology.
The Audit Committee is responsible for monitoring IT governance. An IT Steering Committee, under the chairmanship of the Financial Director, is responsible for carrying out the responsibilities assigned to it in terms of an IT Steering Committee Charter, which includes, inter alia, motivating and monitoring IT project budgets, the IT governance framework, integrating a strategic IT planning process in line with the business strategy development process and identifying and exploiting opportunities for IT to improve the company’s performance and sustainability. The General Manager: Group IT reports to the Audit Committee on all these matters.
Management conducts an annual assessment of the relevant provisions of King III relative to its IT management philosophy, governance framework and processes.
Dealing in securities
In terms of the company’s Code of Conduct for Dealing in Securities, the directors and company secretaries of Illovo and its major subsidiaries are required to obtain clearance from either the group Chairman or managing director before dealing in the securities of the company and its listed subsidiaries. Directors and officers of the group who have access to unpublished, price-sensitive information in respect of any of these companies are prohibited from dealing in the shares of such companies during defined prohibited periods, including those periods immediately prior to the announcement of interim and final financial results and periods during which cautionary announcements are operative.
Access to information
The company has complied with the requirements of the Promotion of Access to Information Act, 2000. The relevant manuals are available on the company’s website at: www.illovosugar.com. No requests for access to records or other information were received during the year under review.
King III index
On an annual basis, the application of the King III principles is reviewed by the board, and in accordance with the recommendations of the JSE, a register recording the respects in which the 75 principles of King III are applied has been compiled and may be viewed on our website at www.illovosugar.com. The following table summarises the respects to which Illovo applies these principles:
King Code of Governance for South Africa 2009 – Compliance Assessment Summary
| Chapter 1 – Ethical leadership and corporate citizenship | |
| 1.1 | The board should provide effective leadership based on an ethical foundation |
| 1.2 | The board should ensure that the company is and is seen to be a responsible corporate citizen |
| 1.3 | The board should ensure that the company’s ethics are managed effectively |
| Chapter 2 – Boards and Directors | |
| 2.1 | The board should act as the focal point for the custodian of corporate governance |
| 2.2 | The board should appreciate that strategy, risk, performance and sustainability are inseparable |
| 2.3 | The board should provide effective leadership based on an ethical foundation |
| 2.4 | The board should ensure that the company is and is seen to be a responsible corporate citizen |
| 2.5 | The board should ensure that the company’s ethics are managed effectively |
| 2.6 | The board should ensure that the company has an effective and independent audit committee |
| 2.7 | The board should be responsible for the governance of risk |
| 2.8 | The board should be responsible for information technology (IT) governance |
| 2.9 | The board should ensure that the company complies with applicable laws and considers adherence to non-binding rules, codes and standards |
| 2.10 | The board should ensure that there is an effective risk-based internal audit |
| 2.11 | The board should appreciate that stakeholders’ perceptions affect the company’s reputation |
| 2.12 | The board should ensure the integrity of the company’s Integrated Annual Report |
| 2.13 | The board should report on the effectiveness of the company’s system of internal controls |
| 2.14 | The board and its directors should act in the best interests of the company |
| 2.15 | The board should consider business rescue proceedings or other turnaround mechanisms as soon as the company is financially distressed as defined in the Act (note 1) |
| 2.16 | The board should elect a chairman of the board who is an independent non-executive director. The CEO of the company should not also fulfil the role of chairman of the board |
| 2.17 | The board should appoint the chief executive officer and establish a framework for the delegation of authority |
| 2.18 | The board should comprise a balance of power, with a majority of non-executive directors. The majority of non-executive directors should be independent |
| 2.19 | Directors should be appointed through a formal process |
| 2.20 | The induction of, and ongoing training and development of, directors should be conducted through formal processes (note 2) |
| 2.21 | The board should be assisted by a competent, suitably qualified and experienced Company Secretary |
| 2.22 | The evaluation of the board, its committees and the individual directors should be performed every year |
| 2.23 | The board should delegate certain functions to well-structured committees but without abdicating its own responsibilities |
| 2.24 | A governance framework should be agreed between the group and its subsidiary boards (note 3) |
| 2.25 | Companies should remunerate directors and executives fairly and responsibly (note 4) |
| 2.26 | Companies should disclose the remuneration of each individual director and prescribed officer |
| 2.27 | Shareholders should approve the company’s remuneration policy |
| Chapter 3 – Audit committees | |
| 3.1 | The board should ensure that the company has an effective and independent audit committee |
| 3.2 | Audit committee members should be suitably skilled and experienced independent non-executive directors |
| 3.3 | The audit committee should be chaired by an independent non-executive director |
| 3.4 | The audit committee should oversee integrated reporting (note 5) |
| 3.5 | The audit committee should ensure that a combined assurance model is applied to provide a coordinated approach to all assurance activities (note 5) |
| 3.6 | The audit committee should satisfy itself of the expertise, resources and experience of the company’s finance function |
| 3.7 | The audit committee should be responsible for overseeing of internal audit |
| 3.8 | The audit committee should be an integral component of the risk management process |
| 3.9 | The audit committee is responsible for recommending the appointment of the external auditor and overseeing the external audit process |
| 3.10 | The audit committee should report to the board and shareholders on how it has discharged its duties |
| Chapter 4 – The governance of risk | |
| 4.1 | The board should be responsible for the governance of risk |
| 4.2 | The board should determine the levels of risk tolerance |
| 4.3 | The risk committee or audit committee should assist the board in carrying out its risk responsibilities |
| 4.4 | The board should delegate to management the responsibility to design, implement and monitor the risk management plan |
| 4.5 | The board should ensure that risk assessments are performed on a continual basis |
| 4.6 | The board should ensure that frameworks and methodologies are implemented to increase the probability of anticipating unpredictable risks |
| 4.7 | The board should ensure that management considers and implements appropriate risk responses |
| 4.8 | The board should ensure continual risk monitoring by management |
| 4.9 | The board should receive assurance regarding the effectiveness of the risk management process |
| 4.10 | The board should ensure that there are processes in place enabling complete, timely, relevant, accurate and accessible risk disclosure to stakeholders |
| Chapter 5 – The governance of information technology | |
| 5.1 | The board should be responsible for information technology (IT) governance |
| 5.2 | IT should be aligned with the performance and sustainability objectives of the company |
| 5.3 | The board should delegate to management the responsibility for the implementation of an IT governance framework |
| 5.4 | The board should monitor and evaluate significant IT investments and expenditure |
| 5.5 | IT should form an integral part of the company’s risk management |
| 5.6 | The board should ensure that information assets are managed effectively |
| 5.7 | A risk committee and audit committee should assist the board in carrying out its IT responsibilities |
| Chapter 6 – Compliance with laws, rules, codes and standards | |
| 6.1 | The board should ensure that the company complies with applicable laws and considers adherence to non-binding rules, codes and standards |
| 6.2 | The board and each individual director should have a working understanding of the effect of the applicable laws, rules, codes and standards on the company and its business |
| 6.3 | Compliance risk should form an integral part of the company’s risk management process |
| 6.4 | The board should delegate to management the implementation of an effective compliance framework and processes |
| Chapter 7 – Internal audit | |
| 7.1 | The board should ensure that there is an effective risk based internal audit |
| 7.2 | Internal audit should follow a risk-based approach to its plan |
| 7.3 | Internal audit should provide a written assessment of the effectiveness of the company’s system of internal controls and risk management |
| 7.4 | The audit committee should be responsible for overseeing internal audit |
| 7.5 | Internal audit should be strategically positioned to achieve its objectives |
| Chapter 8 – Governing stakeholder relationships | |
| 8.1 | The board should appreciate that stakeholders’ perceptions affect a company’s reputation |
| 8.2 | The board should delegate to management to proactively deal with stakeholder relationships |
| 8.3 | The board should strive to achieve the appropriate balance between its various stakeholder groupings, in the best interests of the company |
| 8.4 | Companies should ensure the equitable treatment of shareholders |
| 8.5 | Transparent and effective communication with stakeholders is essential for building and maintaining their trust and confidence |
| 8.6 | The board should ensure that disputes are resolved as effectively, efficiently and expeditiously as possible |
| Chapter 9 – Integrated reporting and disclosure | |
| 9.1 | The board should ensure the integrity of the company’s Integrated Annual Report |
| 9.2 | Sustainability reporting and disclosure should be integrated with the company’s financial reporting |
| 9.3 | Sustainability reporting and disclosure should be independently assured |
Notes to index
| 1. | It has not been necessary to consider business rescue proceedings during the year under review. However, in terms of paragraphs 2.15.1 and 2.15.2 of King III, the board ensures that the solvency and liquidity of the company are continuously monitored. |
| 2. | Given the level experience and expertise of the board members, mentorship and professional development programmes have not been considered necessary during the year under review. |
| 3. | A governance framework applies across the group, but as five of the company’s six operating subsidiaries are registered and operate in countries outside South Africa, those subsidiaries are guided by local reporting and listings requirements. |
| 4. | Fees are determined with due regard to relevant market surveys. However, given the high level of attendance at meetings and other input received, the non-executive directors’ fees do not comprise a meeting attendance fee in addition to a base fee. |
| 5. | The Audit Committee reviews all disclosures in this report. Non-financial sustainability matters are also dealt with by the Risk Management Committee. |
Reporting to stakeholders
As described in the Stakeholder Engagement section of this report and the Social and Ethics Committee Report, the company is committed to the timeous and transparent reporting of all relevant matters to its shareholders and other stakeholders as required in terms of the Companies Act, the JSE Listings Requirements and best practice guidelines, recognising that our long-term sustainability objectives are supported through engaging with our stakeholders to address matters of mutual interest.
Going concern assessment
The directors regularly assess the solvency and liquidity of the company as well as its ability to continue to operate as a going concern. Having conducted a review, the directors are of the opinion that the company’s business will be a going concern in the year ahead and the independent auditors concur with the opinion of the directors.
Financial statements
The company’s directors are responsible for overseeing the preparation of the financial statements and other information presented in reports to shareholders in a manner that fairly presents the state of affairs and results of the group’s business operations. The independent auditors are responsible for carrying out an independent examination of the financial statements in accordance with International Standards on Auditing and reporting their findings.
The annual financial statements are prepared in accordance with IFRS and the Companies Act. They are based on appropriate accounting policies which have been consistently applied, except when otherwise stated, in which case full disclosure is made.
Independent third-party assurance [To be replaced with the new IRAS certificate]
Integrated Reporting & Assurance Services (IRAS) has provided independent third-party assurance over the sustainability information contained within this report, confirming that it meets the GRI’s Application Level B requirements (B+ with its assurance). A summary of this assurance statement is provided below, and the full statement appears on our website.
IRAS was engaged by Illovo to provide Independent Third Party Assurance (ITPA) over the sustainability content within Illovo’s 2015 Integrated Annual Report.
Our engagement was limited to the sustainability content within the Integrated Annual Report. Based on our reviews of the Integrated Annual Report, as well as our interviews and desktop research exercises at both the group and operational level (inclusive of site visits to Nchalo, Ubombo and Noodsberg), the information contained within this Integrated Annual Report is deemed fair, factual and reflective of Illovo’s adherence to AccountAbility’s AA1000AS principles of Inclusivity, Materiality and Responsiveness and meets the GRI G3 Level B+. A comprehensive assurance statement has been submitted to Illovo, and will be available on the company’s website at www.illovosugar.com.
For information about our assurance processes and/or findings, please email michael@iras.co.za.
Michael H Rea, Managing Partner
Integrated Reporting & Assurance Services
May 2015
Johannesburg