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Corporate governance |
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KAP is committed to an open governance process, which provides shareholders and other stakeholders with the assurance that group resources are being managed ethically, within predetermined risk parameters and comply with sound and transparent business practices. The directors endorse the principles advocated by the Code of Corporate Practice and Conduct set out in the King Report on Corporate Governance (King II). During the course of the period under review, the board has made significant progress in its efforts to comply with the Code in full, and by year end complied in all material aspects. The key principles underpinning the governance of the group are set out in this statement. An effective system of control aimed at managing business risks forms an integral component of the group's governance practices, details of which are provided in the internal control section below. The group believes that a corporate culture of compliance with applicable laws, regulations and internal policies and procedures are the core component of good corporate governance. Board of directorsThe board of directors is appointed by the shareholders and is responsible for setting the direction of KAP through the establishment of strategic objectives and key policies. The board, which consists of two executive and six non-executive directors, has a dynamic charter covering the scope of its responsibilities. The members of the board have a variety of skills and experience, and their mix of geographic, technical, financial and commercial acumen is considered to be appropriately balanced to enhance the effectiveness of the board. The non-executive directors ensure impartial and objective viewpoints in the decision-making processes and standards of conduct. The board considers Markus Jooste, J B Magwaza, Ipeleng Moloto and Sandile Nomvete as independent non-executive directors. The roles of chairman and chief executive officer are separated. Claas Daun is chairman of the group and Paul Schouten is CEO. Claas Daun is a non-executive director, who is not independent. The chairman provides leadership and guidance to the board by obtaining optimum input from the other directors and encouraging proper deliberation of all matters requiring the board's attention. The board meets at least four times per annum to discuss strategies, planning, operational performance, compliance with all relevant laws and regulations, acquisitions and disposals, communication with stakeholders and to exercise control over other material matters with regard to the achievement of the group's objectives. The board is responsible for monitoring the performance of executive management. The board and its committees have unrestricted access to all company information, records, documentation and property, and they are supplied with full and timely information that enables them to discharge their responsibilities. Non-executive directors have full access to management and the company secretary. Directors are encouraged to stay fully abreast of the group's business through factory visits and meetings with senior management. The appointment of directors is considered by the board as a whole in an open and transparent manner. Board attendance The attendance of the directors at board meetings and sub-committee meetings for the year was as follows:
Major subsidiaries The board of directors of major operating subsidiaries is comprised of executive directors. Directors', officers' and employees' share dealings No employee may deal directly or indirectly in KAP shares on the basis of any unpublished price sensitive information regarding the business affairs of the group. Directors and officers are not permitted to deal directly or indirectly in the shares of the company for the period between the end of the interim and annual reporting periods to the announcement of the interim and final results, for any period during which they became aware of any negotiations, the details of which may affect the share price, or a period declared as a prohibited period in terms of JSE Securities Exchange South Africa (JSE) Listing Requirements. The company secretary communicates on a regular basis with the board on the status of dealing in the company's securities. All dealings by directors and senior executive management are pre-authorised by the CEO. Immediately after any transaction in the company's shares, directors are required to notify the company secretary in writing of the nature of the transaction, the date thereof, price and number of shares involved. These notifications, if appropriate, are forwarded to the JSE and tabled at the next board meeting. Directors' interest in contracts A process for noting directors' interest in contracts is in place and this is regularly updated. During the year under review, the only material contracts or arrangements entered into by the company or its subsidiary in which directors had a significant interest are: The contracts for the purchase by KAP of the issued share capital and claims against Casa Rosada Investments (Proprietary) Limited, Dano Textile Industries (Proprietary) Limited, Hosaf Fibres (Proprietary) Limited and Marker Investments (Proprietary) Limited. The affected directors were Claas Daun and Paul Schouten. Stakeholder communication The board is committed to balanced and prompt communication to all stakeholders regardless of the potentially positive or negative impact. Board committees The board has an audit committee and remuneration committee to assist in discharging the board's duty of ensuring good corporate governance. Audit committee A group audit committee comprising a majority of independent non-executive directors is in place. The chairman of the committee, Markus Jooste, is an independent non-executive director and the members are Paul Schouten and Sandile Nomvete. Messrs J B Gibbons, J P L Alberts and A Z Keyser resigned during the year. The external auditors have unrestricted access to the group audit committee, which ensures that its independence is in no way impaired. Meetings are held at least twice a year and are attended by the external auditors and appropriate members of executive management. The committee is accountable to the board and operates in accordance with written terms of reference confirmed by the board. Copies of minutes of the audit committee meetings are circulated to all members of the board. The main duties and responsibilities of the audit committee are to ensure:
Remuneration committee A group remuneration committee comprising a majority of independent non-executive directors is in place. The chairman of the committee, J B Magwaza, is an independent non-executive director and the members are Rob Radford and Ipeleng Moloto. The committee is accountable to the board and operates in accordance with written terms of reference, confirmed by the board. Copies of the minutes of the remuneration committee are available to all members of the board. The main duties and responsibilities of the remuneration committee are:
Financial statementsManagement reporting Management reporting disciplines include the preparation of annual budgets by operating entities. Monthly results and the financial status of operating entities are reported against approved budgets. Profit projections and cash flow forecasts are reviewed regularly, while working capital and borrowing levels are monitored on an ongoing basis. Financial control and reporting The directors are responsible for ensuring that group companies maintain adequate records for reporting on the financial position of the group and the results of its activities with reasonable accuracy and reliability. Financial reporting procedures are applied in the group at all levels to meet this responsibility. Executive directors meet regularly with the management of operating companies on a formal basis and are involved in the major decision-making processes of all group companies. Financial and other information is constantly reviewed and any action necessary is taken immediately. These financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and the consistent use of appropriate accounting policies (unless an accounting policy requires revision or adoption to new accounting standards, in which case proper disclosure is made), supported by reasonable and prudent judgement and estimates, to properly disclose the financial status of the company and the group. Internal control KAP and its subsidiaries maintain systems of internal control over financial reporting and safeguarding of assets against unauthorised acquisition, use or disposition, which are designed to provide reasonable assurance to the group and each subsidiary's management and board of directors regarding the preparation of reliable published financial statements and safeguarding of the company's assets. The system includes a defined organisational structure and division of responsibility, established policies and procedures, and a framework to foster a strong ethical climate, which is communicated throughout the group. It has been designed to manage, rather than eliminate, risk of failure or opportunity risk. Corrective actions are taken to address control deficiencies and other opportunities for improving the system as they are identified. The system of internal control is reviewed regularly for effectiveness. The board, operating through its group audit committee, oversees the financial reporting process. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention of overriding controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation and the safeguarding of assets. Furthermore, the effectiveness of an internal control system can change with circumstances. The group believes that its system of internal control has provided an acceptable, but not absolute, level of assurance over the reliability of the financial reporting and over the safeguarding of assets against unauthorised acquisition, use or disposition. Risk management The board is responsible for the total process of risk management. The focus of risk management in the group is on identifying, assessing, managing and monitoring material forms of risk. The process of risk management includes a review of non-financial matters. The daily management of risk and loss control is decentralised to operational management. Executive directors meet regularly with the management of operating companies to review risk issues and feed back to the board. Professional risk managers, together with senior executive management, review group insurance risks. Internal audit The group makes use of internal, independent staff members to carry out specific internal audit functions. The work carried out is primarily targeted at validating the accuracy and status of accounting records. A more comprehensive review process is in the process of being developed for implementation in 2005. Sponsor PSG Capital Limited acts as sponsor for the company providing advice on the interpretation and compliance with the JSE Securities Exchange South Africa (JSE) Listing Requirements and reviewing notices required in terms of the company's articles of association and the JSE's rules and regulations. Fraud and illegal acts The group does not engage in or accept or condone the engagement in any illegal acts in the conduct of its business. Code of ethics The group code of ethics framework commits the group to the highest standards of integrity, behaviour and ethics when dealing with all stakeholders including directors, management, employees, customers, suppliers, competitors, investors, shareholders and society at large. Directors and staff are expected to observe their ethical obligations to ensure all business is conducted through fair commercial competitive practices. Senior executives are required to exercise due care when delegating authority to subordinates. Procedures, systems and training are still to be developed to implement, oversee and enforce the code of ethics. The board is committed to the enforcement of discipline related to any breach of its ethics framework. No material breaches of ethics were brought to the attention of the board during the reporting period. The directors are of the opinion that the group is meeting its ethical standards. Human capital Human capital investment is a key strategy for the group to ensure it attracts and retains competent staff to achieve business plan objectives. The industrial relations structures of all group companies are well developed to promote effective employee relations and identify and resolve areas of potential conflict. Initiatives implemented throughout the group are:
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