Corporate governance

BOARD OF DIRECTORS

Non-executive directors



MICHAEL JOHN HANKINSON (65)

BCom, CA(SA)

Independent non-executive Chairman
Appointed to the board: September 2004

Chairman of Grindrod Limited and Brandcorp Holdings (Pty) Ltd. Non-executive director of Illovo Sugar Limited.

Chairman of the Remuneration and Nominations Committee



PETER KILBY HUGHES (68)

CIS

Independent non-executive director
Appointed to the board: September 1989

A former CEO of The SPAR Group Limited and a former regional and divisional director within the Barlow Group.

Member of the Audit Committee



ROWAN JAMES HUTCHINSON (67)

BCom (Hons), MBA

Independent non-executive director
Appointed to the board: October 2004

A former CEO of RMB Asset Management.

Member of the Remuneration and Nominations Committee



MZIWAKHE PHINDA MADI (50)

BProc (Unizul) EDP (HEC – Paris), EDP (Northwestern – Chicago, USA)

Independent non-executive director
Appointed to the board: October 2004

Chairman of Allcare Medical Aid Administrators (Pty) Ltd and Respiratory Care Africa (Pty) Ltd. Non-executive director of Illovo Sugar Limited, Nampak Limited, Sovereign Food Investments Limited and the Automobile Association of South Africa (AA). A ounding member and commissioner of South Africa’s Black Economic Empowerment Commission.

Member of the Risk Committee



PHUMLA MNGANGA (46)

BA, BEd, MBL

Independent non-executive director
Appointed to the board: January 2006

Managing Director of Lehumo Women’s Investment Holdings, Chairperson of the Council of the University of KwaZulu-Natal and the Siyazisiza Trust. Non-executive director of Tolcon-Lehumo (Pty) Ltd, Crookes Brothers Limited, Gold Circle (Pty) Ltd.

Chairperson of the Social and Ethics Committee



HARISH KANTILAL MEHTA (64)

BSc (USA), MBA (USA)

Independent non-executive director
Appointed to the board: October 2004

Executive Chairman of Clearwater Capital (Pty) Ltd, member of the Provincial Board ofFNB, Director of Redefine Properties Limited, Director of Times Media Group Limited, Director of Wasteman (Pty) Ltd and Chairman of Cibapac (Pty) Ltd.

Member of the Audit Committee, Risk Committee and Remuneration and Nominations Committee



CHRISTOPHER FRANK WELLS (65)

BCom, CA(SA)

Independent non-executive director
Appointed to the board: April 2011

Non-executive director of African Oxygen Limited, Executive Director of Oakbrook Holdings (Pty) Ltd and CEO of International Facilities Services South Africa (Pty) Ltd.

Chairman of the Audit Committee and Risk Committee and member of the Social and Ethics Committee

 

Executive directors



GRAHAM OWEN O’CONNOR (58)

BCom, CA(SA)

Group Chief Executive Officer
Appointed to the board: February 2014
Joined The SPAR Group Limited in 1986

Joined the SPAR Group as Group Accountant in 1986 and became the Head of the SPAR KwaZulu-Natal division in 1987. In 1997 he left the group to start his own industrial catering business and became a partner in five SPAR retail stores. He returned to the group in 2014 as Chief Executive Officer.

Member of the Risk Committee



MARK WAYNE GODFREY (49)

BCom, CA(SA)

Group Financial Director
Appointed to the board: October 2010
Joined The SPAR Group Limited in 1996

Served in financial management positions in various group operations.

Member of the Risk Committee and Social and Ethics Committee



WAYNE ALLAN HOOK (58)

BCom, CA(SA)

New Business and Support Services Director
Joined The SPAR Group Limited in 1984

Former CEO of The SPAR Group Limited. Served in financial, information technology and logistics management positions before being appointed Managing Director of SPAR KwaZulu-Natal division in 1997.



KEVIN JAMES O’BRIEN (52)

BA, LLB, BSocSc (Hons)

Group Company Secretary
Appointed Company Secretary: February 2006
Joined The SPAR Group Limited in 1993

Served in personnel, human resources and property management positions in various group operations. A former General Manager of Capper and Company, a SPAR distribution operation in the United Kingdom.

Member of the Risk Committee and Social and Ethics Committee



ROELF VENTER (57)

BCom (Hons), MBA

Group Retail Operations Director
Appointed to the board: February 2007
Joined The Spar Group Limited in 1983

Served in various marketing and buying management positions before being appointed Managing Director of SPAR West Rand and subsequently SPAR South Rand. Appointed Group Marketing Director in October 1999 and transferred to the position of Retail perations Director in 2006.

Chairman of The SPAR Guild of Southern Africa NPC

Executive management

GRAHAM OWEN O’CONNOR (58)

BCom, CA(SA)

Group Chief Executive Officer
Appointed to the board: February 2014
Joined The SPAR Group Limited in 1986

Joined the SPAR Group as Group Accountant in 1986 and became the Head of the SPAR KwaZulu-Natal division in 1987. In 1997 he left the group to start his own industrial catering business and became a partner in five SPAR retail stores. He returned to the group in 2014 as Chief Executive Officer.

 

MARK WAYNE GODFREY (49)

BCom, CA(SA)

Group Financial Director
Appointed to the board: October 2010
Joined The SPAR Group Limited in 1996

Served in financial management positions in various group operations.

 

DESMOND CRAIG BORRAGEIRO (40)

Managing Director SPAR North Rand division
Joined The SPAR Group Limited in 1995

Served in retail operations positions in various group operations before being appointed divisional Retail Operations Director at SPAR South Rand division.

 

BRETT WALKER BOTTEN (50)

BCom, CA(SA)

Managing Director SPAR South Rand division
Joined The SPAR Group Limited in 1994

Served as Managing Director of SPAR North Rand, SPAR Lowveld and SPAR Eastern Cape divisions.

 

TREVOR DUNCAN CURRIE (59)

Group Logistics Executive
Joined The SPAR Group Limited in 1985

Served in logistics management positions in various group operations. Previous Logistics Director at SPAR Western Cape and SPAR Eastern Cape divisions.

Member of the Risk Committee

ROBERT DE VOS (53)

Managing Director SPAR Lowveld division
Joined The SPAR Group Limited in 1988

Served in various retail operations positions before being appointed divisional Retail Operations Director at SPAR North Rand division.

 

WAYNE ALLAN HOOK (58)

BCom, CA(SA)

New Business and Support Services Director
Joined The SPAR Group Limited in 1984

Former CEO of The SPAR Group Limited. Served in financial, information technology and logistics management positions before being appointed Managing Director of SPAR KwaZulu-Natal division in 1997.

 

CONRAD LUKE ISAAC (53)

Managing Director SPAR Eastern Cape division
Joined The SPAR Group Limited in 1982

Previous Human Resources Director of SPAR Eastern Cape division.

 

KEVIN JAMES O’BRIEN (52)

BA, LLB, BSocSc (Hons)

Risk, Sustainability and Corporate Governance Executive
Joined The SPAR Group Limited in 1993

Served in personnel, human resources and property management positions in various group operations. A former General Manager of Capper and Company, a SPAR distribution operation in the United Kingdom.

 

ROBERT GRANT PHILIPSON (46)

Managing Director SPAR KwaZulu-Natal division
Joined The SPAR Group Limited in 1996

Served in retail operations positions in various group operations before being appointed divisional Retail Operations Director at SPAR KwaZulu-Natal division.

 

MIKE GRANT PRENTICE (47)

BCom, LLB

Group Marketing Executive
Joined The SPAR Group Limited in 1991

Served in marketing management positions in various group operations. Previous Marketing Director of SPAR North Rand division.

MARIO MENEZES SANTANA (41)

Managing Director SPAR Western Cape division
Joined The SPAR Group Limited in 1995

Served in retail operations positions in various group operations before being appointed as Managing Director of SPAR North Rand division.

 

ENNO PAUL STELMA (53)

BCom

Group IT Executive
Joined The SPAR Group Limited in 1989

Served in IT management positions in various group operations.

Member of the Risk Committee
 

THULISILE TABUDI (46)

PhD

Human Resources Executive
Joined The SPAR Group Limited in 1999

Previous HR Director at SPAR South Rand division.

Member of the Social and Ethics Committee
 

ROELF VENTER (57)

BCom (Hons), MBA

Group Retail Operations Director
Joined The Spar Group Limited in 1983

Served in various marketing and buying management positions before being appointed Managing Director of SPAR West Rand and subsequently SPAR South Rand. Appointed Group Marketing Director in October 1999 and transferred to the position of Retail Operations Director and Chairperson of The SPAR Guild of Southern Africa NPC in 2006.

 

RAYMOND EDWARD WHITMORE (59)

BCom, CA(SA)

Managing Director Build it division
Joined the SPAR Group Limited in 1983

Previous Managing Director of SPAR Western Cape division.

Chairman of the Build it Guild of Southern Africa NPC

INTRODUCTION

The governance approach at SPAR extends beyond the listed entity, The SPAR Group Limited, to include areas of influence that are material to the sustainability of the group. This includes The SPAR Guild of Southern Africa NPC (SPAR Guild) and The Build it Guild of Southern Africa NPC (Build it Guild).

Mike

Notes:

1. The CEO of SPAR is a member of the SPAR International board. SPAR International is responsible for the co-ordination and development of the worldwide SPAR organisation.
2. The SPAR Guild is a non-profit company incorporated in South Africa on 31 October 1962 with a board that is chaired by the Group Retail Operations Director. It has a board that comprises 10 retail and 10 distribution members, with the Chairman being appointed by SPAR. The SPAR Guild has six regional committees where SPAR is represented by executive management of the distribution centres.
3. The Build it Guild is also a non-profit company incorporated in South Africa on 13 November 2001 with a board that is chaired by the Managing Director of the Build it division. Its board comprises six retail members and six wholesale members, with the Chairman being appointed by SPAR. The Build it Guild has six regional committees where Build it is represented by executive management of the Build it Division.

The purpose of the guilds is to approve membership, the annual budget and to deal with any conflicts and drive the brand.

4. Social and Ethics Committees have been established at a SPAR Guild and Build it Guild level during the year, following the rejection by the Companies Tribunal for an exemption.

COMPLIANCE

The SPAR board is accountable for ethical leadership, sustainability and good corporate citizenship. In this, the board takes guidance from the:

Revised King Code of Governance Principles and the King Report on Governance (King III)
JSE Limited Listings Requirements
Companies Act, No 71 of 2008, as amended (Companies Act)
International Integrated Reporting Council’s <IR> Framework
Global Reporting Initiative (GRI) G4 sustainability reporting guidelines

The board fully supports the materiality approach which emphasises reporting based on issues and elements that can have a material impact on the sustainable performance of the business over the short, medium and long term.

Corporate governance compliance King III

SPAR has adopted the recommendations of King III as a minimum standard and utilises the Institute of Directors in Southern Africa’s (IoDSA) governance assessment instrument (GAI) to provide assurance that the board has considered every principle and practice as recommended by King III. Assurance of the accuracy and validity of these results is provided by SPAR executives, the Audit Committee and the board.

Instances where the King III requirements have not been applied have been explained in the governance register. The full King III register is available on the website.

Regulatory compliance

Compliance manuals for all relevant legislation and checklists have been completed during the year, and will be included into the risk management system during 2015 for ongoing monitoring.

The following legislation received priority attention during the year:

Liquor licensing
Taxation
Administrative Adjudication of Road Traffic Offences (AARTO)
Consumer protection legislation
Labour legislation
Employment equity
Anti-competitive behaviour
Food safety regulations and labelling

To stay abreast of industry trends and regulatory requirements, SPAR continued its engagement and collaboration with industry bodies in the following forums:

Consumer Goods Council of South Africa (CGCSA) and sub-committees
Retailers Association and, through their offices, Business Unity South Africa (BUSA) (thus represented on the Commission for Conciliation, Mediation and Arbitration)
Wholesale and Retail Sector Education and Training Authority and its Standards Generating Body (W&R SETA)
Transport Education and Training Authority (TETA)

Insider trading

Directors and employees (or their respective nominee/members of family) may not deal directly or indirectly, at any time, in securities of the company during a closed period or on the basis of unpublished price sensitive information.

THE BOARD

The board is the focal point for and custodian of corporate governance and plays a prominent role in the strategic development, risk management and sustainability processes of SPAR. The board has a fiduciary duty to act in good faith, with due care and diligence, in the best interests of all stakeholders. The general powers of the board and the directors are conferred in the company’s Memorandum of Incorporation (MOI) and board charter. The board charter was reviewed during the year and no changes were made. The charter sets out the powers and authority of the board and provides a clear and concise overview of the roles and responsibilities of the board members.

The MOI and Board charter are available on the website.

Conflict of interests

The board applies the provision of the Companies Act to disclose or avoid conflicts of interest. This is a permanent board meeting agenda item.

Delegation of authority

The board has a delegation of authority policy which is reviewed annually and sets out the matters reserved for determination by the board, and those matters delegated to management. The daily management of the group’s affairs is the responsibility of the CEO who co-ordinates the implementation of board policy and strategy through the Executive Committee, which he chairs.

The roles and functions of the Chairman, who is an independent non-executive, and the CEO are formalised and their individual performance is evaluated against criteria set out in these formalised documents.

The levels of authority policy cover the following areas:

Treasury
Capital expenditure
Loans to retailers
Property leases
Remuneration

The board meets formally four times a year and reviews strategy, operational performance, capital expenditure, risk management, internal controls, stakeholder communication and other material aspects pertaining to the group’s business.

Board highlights

SPAR appointed Mr GO O’Connor as the new Group Chief Executive Officer, following the stepping down of Mr WA Hook from his position due to his wife being diagnosed with a lifethreatening illness.
SPAR acquired 80% of BWG. The BWG is a leading SPAR food retail and wholesale distribution company operating in Ireland and South West England.
The whistleblowing hotline and the SPAR Code of Ethics were re-launched in June 2014. The hotline is independently managed and is accessible through various communication methods. Following the re-launch of the Code of Ethics, the Ethics Institute of South Africa will conduct a survey in 2015 measuring the company’s capacity to manage risk and promote responsible business conduct.
At the annual general meeting (AGM) held on 11 February 2014, all the resolutions, with the exception of the non-binding advisory vote, were passed by 67.73% of votable units present. The non-binding advisory vote, which relates to the group’s remuneration report, received 48.83% of votable units present. This vote was largely due to there not being specific performance targets in terms of the old 2004 share option scheme. This scheme is now closed to new entrants and no further options will be offered in terms of the scheme.
A new conditional share plan to replace the 2004 share option scheme was approved at the 2014 AGM.
The company implemented the BarnOwl Enterprise Risk Management (ERM) system, which will assist management to identify, assess, monitor and report on SPAR’s strategic objectives, risk and controls.

Board composition, training and evaluation

The board consists of seven independent non-executive directors and four executive directors. The roles of the Chairman and the Chief Executive Officer are separated and a clear division of authority exists between these roles. The policy for board appointments is implemented by the Remuneration and Nominations Committee, which ensures that board members’ skills, knowledge, background, experience and qualifications add to the capacity and diversity of the board. Details, qualifications and experience of individual Board members.

The board is committed to ensure the independence of directors. The independence of non-executives who have served on the board for more than nine years was assessed by the Remuneration and Nominations Committee during the year. The outcome indicated that the respective directors’ independence of character and judgement were not in any way affected or impaired by their length of service. In 2013, PricewaterhouseCoopers carried out an independent board evaluation for directors whose tenure exceeded nine years and such independent review will be conducted every three years.

SPAR has a formal induction programme to familiarise new directors with the history and structure of the group, to outline their fiduciary duties as directors and to inform them of their responsibilities in terms of the board charter. At least once a year, a board meeting is held at a distribution centre to further improve the non-executive directors’ understanding of the operating divisions.

Board members are kept apprised of changes to relevant legislation by the company’s sponsor and Company Secretary.

Board members performed a comprehensive evaluation of the performance of the board and its sub-committees with no significant problems identified during the process.

THE BOARD ATTENDANCE
Diversity Name Status 12 Nov 2013 11 Feb 2014 20 May 2014 13 Aug 2014
Male MJ Hankinson Independent non-executive Chairman
Male MW Godfrey Group Financial Director
Male WA Hook New Business and Support Services Director
Male PK Hughes Independent non-executive
Male RJ Hutchinson Independent non-executive
Male MP Madi Independent non-executive
Male H Mehta Independent non-executive
Female P Mnganga Independent non-executive
Male G O’Connor* Chief Executive Officer  
Male R Venter Group Retail Operations Director
Male CF Wells Independent non-executive
* Appointed on 1 February 2014

COMPANY SECRETARY

Mr KJ O’Brien is the Company Secretary and is responsible for ensuring that sound corporate governance procedures are in place and that the administration of statutory requirements is adhered to. All directors have unrestricted access to the advice and services of the Company Secretary and are provided with access to information that may be relevant to the proper discharge of their duties. The Company Secretary provides guidance to the directors on their responsibilities within the prevailing regulatory and statutory environment and the manner in which such responsibilities should be discharged.

Board members performed a comprehensive evaluation of the performance of the Company Secretary with no significant issues identified during the process. In accordance with the JSE Listings Requirements, the board has considered the competence, qualifications and experience of the Company Secretary and is satisfied that Mr KJ O’Brien is suitable for the role as the Company Secretary. The board is further satisfied that the role of Company Secretary is maintained at an arm’s length relationship with the board. Details of the Company Secretary are provided in this report.

BOARD COMMITTEES

The board delegates certain of its functions to the following board committees without relinquishing overall responsibility for monitoring the company’s performance:

Audit Committee
Remuneration and Nominations Committee
Risk Committee
Social and Ethics Committee
Executive Committee

The board acknowledges its accountability to the group’s stakeholders for the actions of these committees and is satisfied that they have met their respective responsibilities for the year under review. Each committee is chaired by an independent non-executive director.

The terms of reference and work plans of these committees are tabled and approved by the board annually and are available on the website. No changes were made to the respective terms of reference during the year.

Board members performed a comprehensive evaluation of the performance of the various committees, with no significant problems identified during the process.

The Company Secretary acts as secretary for each committee and the chairman of each committee reports its findings to the board after each formal committee meeting.

Fees paid to the Committee members are reflected in this integrated report.

AUDIT COMMITTEE REPORT

AUDIT COMMITTEE ATTENDANCE
Name Status 5 November
2013
19 May
2014
12 August
2014
PK Hughes Independent non-executive director
HK Mehta Independent non-executive director
CF Wells Independent non-executive chairman

The Audit Committee (the committee) is constituted as a statutory committee of the company in respect of its statutory duties in terms of section 94(7) of the Companies Act and a committee of the board in respect of all other duties assigned to it by the board.

The committee comprises of three independent non-executive directors, all of whom are suitably skilled, competent and experienced. The chairman and committee members were confirmed for appointment at the AGM on 11 February 2014. The CEO, Group Financial Director, internal auditor and external auditors are required to attend committee meetings. The group’s internal auditor and the external auditors have unrestricted access to members of the committee and the CEO. Members of the group’s executive management team attend meetings as required, while the Chairman of the board attends meetings by invitation. During the year the committee met with the external and internal auditors.

Role

The committee is required to ensure accurate financial reporting and the existence of adequate financial systems and controls. It does this by evaluating the operations and findings of both internal and external audits and assessing the appropriateness and adequacy of the accounting procedures and the systems of internal financial and operational controls.

An in-depth overview of the committee’s responsibilities is contained in its terms of reference.

Audit Committee Report

The following report was prepare by Mr CF Wells, the chairman of the Audit Committee.

The committee executed its duties in terms of the requirements of King III, as well as those assigned to it by the board, during the past financial year.

Statutory duties

Appointment and independence of external auditor

The committee has satisfied itself that the external auditor, Deloitte & Touche, was independent of the company, as set out in section 94(8) of the Companies Act. This includes consideration of previous appointments of the auditor, the extent of other work undertaken by the auditor for the company and compliance with criteria relating to independence or conflicts of interest as prescribed by the Independent Regulatory Board for Auditors (IRBA). Requisite assurance was sought and provided by the auditor that internal governance processes within the audit firm support and demonstrate its claim to independence.

The committee ensured that the appointment of the auditor complied with the Companies Act, and any other legislation relating to the appointment of auditors.

The committee, in consultation with executive management, agreed to the terms of the engagement letter, audit plan and budgeted audit fees for the 2014 financial year.

There is a formal procedure that governs the process whereby the auditor is considered for non-audit services. The committee approved the terms of a master service agreement for the provision of non-audit services by the external auditor, and approved the nature and extent of non-audit services that the external auditor may provide in terms of the agreed pre-approval policy.

The committee recommends and has nominated, for election at the AGM, Deloitte & Touche as the external audit firm, and Mr B Botes as the designated auditor responsible for performing the functions of auditor for the 2015 year. The committee has satisfied itself that the audit firm and designated auditor are accredited as such on the JSE list of auditors and their advisors.

Financial statements and accounting practices

The committee has reviewed the accounting policies and the financial statements of the company and is satisfied that they are appropriate and comply with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act.

A committee process has been established to receive and deal appropriately with any concerns and complaints relating to the reporting practices of the company. No matters of significance were raised in the past financial year.

Internal financial controls

The committee has overseen a process by which internal audit performed a written assessment of the effectiveness of the company’s system of internal control and risk management, including internal financial controls. This written assessment by internal audit formed the basis for the committee’s recommendation to the board, in order for the board to report thereon.

The committee receives and deals with any concerns or complaints, whether from within or outside the company, relating to the accounting practices and internal audit of the company, the content or auditing of the company’s financial statements, the internal financial controls of the company and related matters.

Duties assigned by the board

In addition to the statutory duties of the committee, as reported above, and in accordance with the provisions of the Companies Act, the board of directors has determined further functions for the committee to perform, as set out in the committee’s terms of reference. These functions include those discussed below.

The committee fulfils an oversight role regarding the company’s integrated annual report and the reporting process. The committee considered the company’s sustainability information as disclosed in the integrated annual report and has assessed its consistency with operational and other information known to committee members, and for consistency with the annual financial statements.

The committee discussed the sustainability information with management and is satisfied that the information is reliable and consistent with the financial results.

The committee is satisfied that the company has optimised the assurance coverage obtained from management, internal and external assurance providers in accordance with an appropriate combined assurance model.

At its meeting held on 10 November 2014, the committee recommended the integrated annual report for approval by the board of directors.

Going concern

The committee has reviewed a documented assessment, including key assumptions, prepared by management of the going concern status of the company. The Board’s statement on the going concern status of the company, as supported by the committee, is included in the Directors’ approval of annual financial statements of the integrated annual report.

Governance of risk

The board has assigned oversight of the company’s risk management function to the Risk Committee. The chairman of the Audit Committee is a member of the Risk Committee to ensure that information relevant to the Risk Committee is transferred regularly. The Audit Committee fulfils an overview role regarding financial reporting risks, internal financial controls, fraud risk as it relates to financial reporting risks, information technology risks, tax risks as well as compliance and regulatory risk as it relates to financial reporting. The committee is also responsible for the appointment, performance and dismissal of the external auditor.

Internal audit

The committee is responsible for ensuring that the company’s internal audit function is independent and has the necessary resources, standing and authority within the company to enable it to discharge its duties. Furthermore, the committee oversees co-operation between the internal and external auditors, and serves as a link between the board of directors and these functions. The internal audit function’s charter and annual audit plan were approved by the committee.

The internal audit function reports centrally with responsibility for reviewing and providing assurance on the adequacy of the internal control environment across all the company’s operations. The internal auditor is responsible for reporting the findings of the internal audit work against the agreed internal audit plan to the committee on a regular basis.

The Group Internal Auditor has direct access to the committee, primarily through its chairman. The committee is also responsible for the assessment of the performance of the Group Internal Auditor and the internal audit function.

During the year, the committee met with the external auditors and with the Group Internal Auditor without management being present.

The committee has satisfied itself that adequate procedures are in place to ensure that the group complies with its legal, regulatory and other responsibilities.

Evaluation of the expertise and experience of the Group Financial Director and finance function

The committee has satisfied itself that the Group Financial Director, Mr MW Godfrey, has the appropriate expertise and experience to act in this capacity.

The committee has considered, and has satisfied itself of the appropriateness of the expertise and adequacy of resources of the finance function and experience of the senior members of management responsible for the group financial function.

In conclusion, I would like to thank the members of the committee for their dedicated and constructive contributions to the functioning of the committee.

Mike

CF Wells
Chairman of the Audit Committee

11 November 2014

REMUNERATION AND NOMINATIONS COMMITTEE REPORT

Remuneration and Nominations Committee Attendance
Name Status 12 November
2013
11 February
2014
13 August
2014
MJ Hankinson Independent non-executive chairman
RJ Hutchinson Independent non-executive director
HK Mehta Independent non-executive director

The Remuneration and Nominations Committee (the committee) is constituted as a committee of the board of directors and consists of three independent non-executive directors. The committee approved the following during the year:

Revised remuneration policy
Non-executive directors’ fees
Directors retiring according to the group’s MOI were recommended for re-election at the annual general meeting.
Incentive bonuses for the 2013 year for all executives

 

Directors’ fees % increase 1 March
2013
1 March
2014
Chairman of the board (including committees) 6.6 R910 000 R970 000
Board member 7.0 R257 000 R275 000
Audit Committee chairman 5.7 R156 000 R165 000
Members of the Audit Committee 6.7 R75 000 R80 000
Chairmen of other committees 6.6 R91 000 R97 000
Members of other committees 6.8 R59 000 R63 000

Directors’ fees

Non-executive directors’ fees are not linked to the financial performance of the group, nor do they receive share options or bonuses. For details of non-executive directors’ interests in the share capital of the company, see note 28 of the integrated report.

Senior management compensation

Salary adjustments for the 2014 financial year were approved at 7% of basic salary.

The committee recommended a review of salaries for exceptional performance and those lagging the market to be conducted in February 2014. The incentive bonus scheme was also approved, based on functional, transformation and financial performance criteria.

Compensation of executive directors/ prescribed officers

Other than the directors, there are no employees of the company who are “prescribed officers” as defined in the Companies Act.

For details of remuneration of executive, directors see note 28 and note 29 for directors share option interests.

Post-retirement medical aid

The obligation of the company to pay medical aid contributions after retirement is not part of the conditions of employment for employees engaged after 1 March 1997.

For details of the post-retirement medical aid provision, see note 21 of the report.

Remuneration policy

Policy statement

The SPAR Group is committed to paying fair and market-related remuneration to ensure that the organisation is able to attract and retain top-quality people. Our remuneration policy therefore seeks to:

Position the remuneration levels appropriately and competitively in comparison with the labour market
Acknowledge the contribution of individual employees by rewarding them for the successful achievement of the company’s goals and objectives

Guiding principles

The SPAR Group strives to ensure that remuneration is free of unfair discrimination. Fair differentiation based on performance and skills shortage is applied.
The company takes cognisance of its external environment through an understanding of national remuneration trends and by regular benchmarking against comparable companies.
SPAR uses remuneration surveys conducted by reputable salary survey companies that have sufficient sample sizes and spread of positions, and an adequate representation in relevant industries comparable to SPAR.
Salary scales provide remuneration guidelines based on the Paterson grading system and are informed by market comparisons. The company strives to remunerate key positions and those positions where there is a shortage of skills (as defined annually) on at least the 75th percentile of the market and the rest of the positions on at least the 50th percentile of the market.
The use of a performance management system ensures that there is a positive correlation between individual and team performance and remuneration earned.

Management is tasked with responsibly managing remuneration and thus supporting the long-term sustainability of the company.

Remuneration governance

A Remuneration Committee (Remco) with clear terms of reference has been established by the board in accordance with the company’s Memorandum of Incorporation.

All members are non-executive directors and independent non-executive directors and the company’s executives attending the Remco meetings do so in an ex officio capacity. The Chairman of the board, Mike Hankinson is also the chairman of the Remuneration Committee and the board is of the view that his experience and business skills far outweigh the requirement of King III that the chairperson of the board should not be the chairperson of the remuneration committee.

Components of remuneration

Remuneration consists of guaranteed pay, benefits, a short-term incentive bonus scheme and a long-term incentive share scheme.

Guaranteed pay and benefits

Salary and benefits form the guaranteed component of the total reward structure. They form the basis of the company’s ability to attract and retain the required skills. The components are as follows:

Bands A to C receive a monthly salary and a guaranteed 13th cheque
Bands D and above receive a monthly salary
Other pensionable remuneration applicable to bands D and above includes a car allowance, vehicle insurance and fuel which are paid by the company
Other variable remuneration, such as allowances, will be paid, where applicable, and in accordance with the legislation and collective agreements entered into with the union(s), or workers’ committees
From date of engagement, permanent employees at all levels become members of one of the available retirement funds
Membership of a medical aid scheme is not compulsory but those who wish to become members can choose from a number of medical aid schemes available. The Tiger Brands medical aid is a group scheme while a number of other low cost medical aids have been negotiated at distribution centre level
The Remco is responsible for approving salary increases for executive directors and the executive management committee
The Chief Executive Officer, together with the executive management committee, is responsible for authorising specific increases for all employees below EU grade
While the Remco authorises overall percentage increases for staff below EU grade
Salary increases will be implemented on:
 
1 January each year for all staff below E band grade who are not members of the bargaining unit and 1 October each year for staff graded E band and above
As per collective agreements with the union(s) for employees in the bargaining unit

Short-term incentives

The main purpose of the short-term incentive scheme is to support a performance culture and to reward employees for achieving good annual results when compared with predetermined targets.

The performance bonus, which may be paid at the end of the financial year, is based on the achievement of financial, individual and transformation objectives approved by the Remco.

Non-management staff (A to C band)

A performance bonus of up to 50% of a month’s salary or part thereof may be paid at the end of the financial year, based on the achievement of set targets. The targets are based on key issues in the business plan and are mainly financial targets.

Management staff (D band and above)

The maximum incentive bonus which may be earned is as follows:

Paterson grade % of basic annual salary Bonus split – financial:
functional
F 100 75:25
EU 100 75:25
EL 60 60:40
DU 30 30:70
DL 15 30:70

The financial component of the short-term incentives for divisional managers is based on a targeted divisional profit before tax growth on the previous year.

For Central Office managers, short-term incentives are based on the group’s profit after tax growth on the previous year.

The functional component comprises objectives which include corporate objectives (for example, transformation) and individual objectives, which are specific to a manager’s sphere of influence.

The achievement of these objectives will result in a bonus payout subject to the achievement of a minimum profit level, which will not be less than the profit level achieved in the previous year.

This incentive scheme is solely at the discretion of the company and can be changed or withdrawn at any time. The short-term incentives are only paid to individuals who are in the employ of the company at the end of the financial year.

Long-term incentives

The company’s existing long-term incentive plan is a Share Option Plan (SOP) which closed to additional participants in 2013. The last share issue was allocated on 12 November 2013 and the remaining participants have 10 years from date of issue to exercise their option rights.

The new Conditional Share Plan (CSP) was approved by shareholders at the AGM held on 11 February 2014.

The CSP is differentiated from the SOP in that it has performance conditions governing the vesting of awards. In addition, whereas the SOP is generally settled by way of an issue of shares, the CSP is intended to be settled by way of a market purchase of shares and will therefore not cause dilution to shareholders.

Non-executive directors’ remuneration

The non-executive directors’ remuneration consists of a guaranteed basic annual fee. Additional fees are paid to various directors based on their membership of board committees.

Management recommends non-executive directors’ fees, based on industry benchmarks, to the Remco for onward recommendation to, and approval by, the board who in turn recommends the fees to shareholders for approval in accordance with Companies Act requirements.

Non-executive remuneration increases are implemented on 1 March each year:

Salient features of the approved conditional share plan
Details Conditional Share Plan
Description Under the CSP, employees receive a conditional right to receive a share in the company on the vesting date if certain conditions are met. Employees will only become shareholders to the extent that vesting occurs on the vesting date and will have no shareholder rights prior to this date.
Purpose The purpose of the CSP is to provide eligible employees with the opportunity to receive shares in the company based on personal or group performance. The primary intent is to make performance-related awards under the CSP by way of an award of shares which are subject to appropriate performance conditions. An award of restricted shares may be made in exceptional circumstances to address serious retention risks or to compensate prospective employees for the loss of long-term incentive awards with their existing employer.
Eligibility
CEO
Executive management committee members
Senior management
Company limit

The cumulative aggregate number of shares which may be allocated under the CSP shall not exceed 5 200 000 shares (approximately 3% of issued share capital). This limit excludes share purchases in the market and shares forfeited.

The aggregate number of restricted shares that may be allocated under the CSP may not exceed 1 300 000 shares.

Individual limit The cumulative aggregate number of shares which may be allocated to any one individual may not exceed 570 000 shares (approximately 0.33% of issued share capital).
Settlement method The intention of the company is to settle all CSP awards from a market purchase of shares. However, the rules of the CSP allow for settlement in any of the following ways:

Market purchase of shares
Issue of shares
Use of treasury shares
Termination of employment Bad leavers will forfeit all awards on the date of termination of employment. In the case of good leavers, a pro-rata portion of all unvested awards will vest. The pro-rata portion will reflect the number of months served since the award date and the extent to which the performance conditions (if any) have been met. The balance of the awards will lapse.
Allocation methodology

The CSP will be used for annual allocations. The company will define annual allocation levels expressed as a percentage of gross annual basic salary. In defining these levels the company will endeavour to maintain the fair value that participants would have maintained under the SOP.

To this end, the new allocation levels that may be made on an annual basis (expressed as a percentage of gross annual basic salary) are approximately as follows:

CEO: 60%
Executive Committee members: 50%
Senior managers: 35%
Grant price Not applicable
Vesting/employment period Three years for annual award of performance shares and in equal parts after years three, four and five for restricted shares.
Performance period Three years for annual award of performance shares and in equal parts after years three, four and five for restricted shares.
Performance conditions Continued employment and the following performance conditions are used for awards to the executive directors, Executive Committee and senior management:

Growth in headline earnings per share
Return on net assets
Total shareholder return relative to a peer group

The Remco will set targets which are fair taking into consideration prevailing and prospective business circumstances. Vesting will occur on the achievement of the three-year targets.

RISK COMMITTEE REPORT

Name Status 10 February
2014
5 August
2014
M Hankinson (R) Independent non-executive director
TD Currie Group Logistics Executive
MW Godfrey Group Financial Director
WA Hook (R) New Business and Support Services Director
MP Madi (A) Independent non-executive director Apology
HK Mehta Independent non-executive director
S Naidoo Group Internal Auditor
KJ O’Brien Risk, Sustainability and Corporate Governance Executive
G O’Connor (A) Group Executive Officer  
EP Stelman Group IT Executive
CJ Wells Independent non-executive Chairman
(R) Resigned but attends by invitation only (A) Appointed

The Risk Committee is constituted as a committee of the board of directors for the purposes of risk and IT governance and consists of three independent non-executive directors, executives and senior management.

The board is responsible for governing the risk management process of the group and discharges this duty through the Risk Committee.

The group believes that effective risk management is essential for improved performance, growth and sustainable value creation. To this end, the board has initiated an intensive and robust Enterprise Risk Management (ERM) process, whereby the materiality of risks and opportunities for the business have been identified, assigned to owners, linked to key risk indicators (KRIs) and are associated with action plans to take advantage of the opportunity or mitigate the risk. The KRIs and action plans will be reviewed bi-annually.

The group reviewed the strategic risks and revised the top 12 risks as follows:

Name Risk title
1 Loss of retailers and retail stores to competitors
2 Failure of financial model to provide retailer profitability jeopardising SPAR sustainability
3 Disruption of operations due to labour disputes and/or industrial and mass action
4 Poor individual retailer performance negatively impacting SPAR Group
5 Inability to develop new/greenfield sites stunts growth
6 New and existing competition takes market share
7 Failure to successfully develop new business in Africa stunts growth
8 Sourcing issues causing poor retail delivery of Fresh
9 Macro-economic factors causing decline in business
10 Inability to attract new retailers stunts growth
11 Significant physical damage to distribution centre and CO infrastructure causing business disruption
12 Rising personnel costs negatively impact profitability and resource base

The ERM process has been driven from the executive level to functional levels at distribution centres. This has allowed for various parts of the business to gain exposure to the critical risks and opportunities, and for risks and opportunities specific to the distribution centres to be identified. Since sustainability concepts are integrated into the group strategy, this risk framework takes into account both financial and non-financial risks and opportunities.

The Risk Committee is satisfied that the group’s assets are adequately insured against loss. Disaster recovery plans are in place to provide business continuity with the least amount of disruption, particularly from information technology and operational viewpoints.

The group’s IT disaster recovery plan was externally audited during the year with no significant issues reported. Additional improvements were suggested and were being considered by management.

Fraud policy

The board has adopted a fraud policy to protect the organisation from dishonest or unethical conduct, including financial or other unlawful gains, and to regulate its responses to fraudulent activities. We monitor and detect fraud, theft and other ethical breaches through the normal financial controls within the company and the activities of our internal audit department. Where fraud or theft are detected, we take strong action, which can include dismissal and criminal prosecution.

SOCIAL AND ETHICS COMMITTEE REPORT

Name Status 5 November
2013
10 February
2014
P Mnganga Independent non-executive Chairman
CJ Wells Independent non-executive director
MW Godfrey Group Financial Director
KJ O’Brien Group Company Secretary
SAT Tabudi Group Human Resources Executive

The Social and Ethics Committee is a statutory committee in terms of the Companies Act and consists of two independent non-executive directors, one executive director, the Group Company Secretary and the Group HR Executive. The committee provides guidance and an oversight role of the company’s activities on the environment, consumers, employees, communities, stakeholders and all members of the public and monitors the company’s sustainability and governance performance and reports to the board on matters within its mandate and to shareholders at the annual general meeting.

Social and Ethics Committee Report

The following report was prepared by Ms P Mnganga, Chair of the Social and Ethics Committee.

During the period under review, the committee has once again reviewed its terms of reference and Annual Work Plan. In terms of the terms of reference, the committee monitors the company’s sustainable development activities having regard to relevant legislation, other legal requirements or prevailing codes of practice. Specific areas of focus include the following:

a) Social and economic development including human rights, corruption, employment equity and transformation (including the company’s standing in terms of the UN Global Compact 10 Principles, the OECD recommendations regarding corruption and the ILO Protocol on decent work and working conditions)
b) Good corporate citizenship, including the company’s approach to preventing discrimination, contributing to community development and corporate social investment
c) The environment
d) Health and public safety
e) Consumer relationships
f) Labour and employment

During this financial year, the committee performed the following functions;

Presented its first report to the shareholders at the February 2014 AGM
Reviewed the following policies:
 
Code of Ethics
Employment Equity and Transformation Policies
Compliance Policy statement
Sustainability Policy
Supplier Code
Performed an evaluation of the performance of the committee. This evaluation raised no issues of concern
Reviewed the company’s CSI programmes to ensure that they are consistent with the company strategy
Reviewed the King III Application Register
Conducted a gap analysis between what is expected in terms of the regulatory environment and the actual environment in the organisation, inclusive of local and international regulation

The revised Code of Ethics and the whistleblowing hotline were re-launched during the year (the committee was encouraged to note that since its inception in June 2011 until 30 September 2014, the whistleblowing hotline had generated 74 calls of which only 16 resulted in reports being filed and all of these reports had been dealt with in terms of the company’s procedures). The review of the King III application register identified one area for review. This related to the board’s approach to promote a stakeholder inclusive approach to governance. This issue is being addressed in the Joint Business Planning meetings being undertaken with the top 10 suppliers.

All the areas covered in the integrated report that form part of the terms of reference of the committee were considered by the committee and formed part of the ongoing report back to the board during the course of the year. This report is a high level summary of the activities of the committee during the year under review. A more comprehensive report will be made available to the meeting of shareholders in February 2015 as recommended in the Companies Act.

Mike

P Mnganga
Chair of the Social and Ethics Committee

11 November 2014

IT GOVERNANCE REPORT

The board recognises that IT is an integral part of conducting business at SPAR. IT serves all aspects, components and processes in the organisation, and is therefore not only an operational enabler for the group, but a strategic business imperative which can be leveraged to create opportunities and to gain a competitive advantage.

The board is cognisant that, as much as IT is a strategic asset within the group, it also presents the organisation with significant risks. While the responsibility of IT governance ultimately resides with the board, this function has been delegated to the Risk Committee.

The most significant IT risks managed and mitigated effectively during the year under review include:

The availability of systems, including the destruction of systems and data
Ageing systems resulting in less agility and ability to implement changes
Loss of telecommunication
Loss of skills
Data quality

There is a formal decision-making process in place to manage and prioritise IT requests within the group. For each proposed project, a business case is developed and evaluated by executive management. The IT strategy has been developed based on the revised business strategy, and is aimed at enabling the successful outcomes of the strategy.

Any significant IT investments form part of the budget development process and are submitted to the board for final approval. The board subsequently oversees and monitors the return on investment from these projects.

Annual internal and external IT audits are based on the Cobit IT governance framework. Based on these audits and feedback from the Audit and Risk Committees, the board is satisfied that the SPAR Group has adequate resilience arrangements in place for disaster recovery.