COMPLIANCE WITH THE CODE OF CORPORATE PRACTICES AND CONDUCT

The board of directors is fully committed to the principles of openness, integrity, accountability, transparency and social responsibility. The implementation of sound corporate governance practices has been an integral part of the group’s business operations for many years, with changes and refinements being made from time to time to recognise international trends and best practices, where deemed appropriate.

During the year under review the directors participated in a self-evaluation exercise to determine the level of compliance with the recommendations of the King Report on Governance for South Africa (King III). The output of the exercise, in the form of a “King III Maturity Dashboard”, indicated that there is an appropriate level of adoption of the principles of King III, as summarised under the categories of:

• Ethical leadership and corporate citizenship;
• Boards and directors, audit committees;
• Governance of risk;
• Compliance with laws, rules, codes and standards;
• Internal audit;
• Governing stakeholder relationships; and
• Integrated reporting and disclosure.

The governance of information technology was the only area identified where the basic level of adoption has not yet been achieved. Urgent attention is being given to this aspect of the business to achieve an acceptable level of compliance with the setting up of an IT Steering Committee and the drafting of an Information Technology charter. This is particularly relevant as the group is embarking on a significant upgrade of its integrated enterprise resource planning and financial software systems over the next two years.

The directors are of the opinion that the group has complied, in all material respects, with King III and the related Listings Requirements of the JSE Limited (JSE), during the period under review. An exception is the membership of the Audit Committee where Mr Chris Chance, in his capacity as a trustee and beneficiary of a trust, has an indirect interest in the company which could be considered to be material to his financial position and has acted during the period under review as a consultant in the benchmarking aspect of the group’s agricultural operations. In the board’s considered opinion this does not impair his ability to act independently. The Audit Committee has a majority of members that are independent in terms of the King III guidelines.

BOARD OF DIRECTORS

The group has a unitary board structure which, at the date of this report, comprises two executive and nine non-executive directors, five of whom are independent.

The balanced composition of the board together with the preponderance of non-executive directors ensures that no individual director has unfettered powers of decision making. The responsibility for the functioning of the board and the executive responsibility for managing the business are separated and the chairman is an independent nonexecutive director.

The board’s objective is to ensure responsible business leadership in a manner which balances the interests of shareholders with the needs of all stakeholders. The board aims to retain full and effective control of the group and to give strategic direction to management. The detailed responsibilities of the board are set out in a formal charter which was updated during the period under review to align it with best practice and to take into consideration the recommendations set out in King III.

Mr Guy Clarke was appointed group managing director on 1 August 2006 and he is subject to a fixed-term service contract for a period of five years. His re-appointment for a further five-year contract, effective 1 August 2011, was confirmed at the board meeting held on 15 April 2011.

All non-executive directors are subject to retirement and re-election by shareholders at intervals of no more than three years. New directors appointed after the last annual general meeting must retire in terms of the memorandum of incorporation and stand for election at the first annual general meeting after their appointment. Biographical details of the directors are set out on pages 06 and 07.

Attendance at meetings

BOARD COMMITTEES

The board has established three committees on which non-executive directors play an active and pivotal role. All committees operate under board-approved terms of reference which were reviewed and updated during the period under review, with specific focus on compliance with the principles outlined in King III. The committees are chaired by independent non-executive directors who attend the annual general meeting in order to respond to shareholder queries. The committee charters and/or terms of reference are available from the company secretary on request. The chairmen and members of the board committees are appointed annually at the first board meeting after the annual general meeting. Audit Committee members are elected annually at the annual general meeting of shareholders.

Audit Committee
Members – Messrs Anthony Hewat (chairman), Chris Chance and Malcolm Rutherford.

Composition and proceedings – The committee is chaired by an independent non-executive director and consists exclusively of non-executive directors. The group managing director, group financial director, group financial manager and chief audit executive attend meetings by invitation but do not have a vote. In addition, representatives of the external and internal auditors attend committee meetings to answer queries. The committee is required to meet at least twice a year.

Role – The committee is governed by a charter which was revised and adopted in May 2010, and all statutory and delegated duties in terms of the charter were satisfied in the year under review.

The function of the committee is to assist the directors in discharging their responsibilities relating to the safeguarding of assets, the operation of adequate and effective systems and control processes, the preparation of fairly presented financial statements in compliance with all applicable legal and regulatory requirements and accounting standards, and the oversight of the external and internal audit appointments and functions.

The report of the Audit Committee provides comprehensive details of the terms of reference, composition, meetings, statutory duties and delegated duties with respect to internal financial controls and internal audit, regulatory compliance, external audit, the financial function and financial statements. This report can be found in the annual financial statements section of this integrated annual report.

Attendance at meetings

Risk Committee
Members – Messrs Malcolm Rutherford (chairman), Paul Bhengu, Guy Clarke and Phillip Barker.

Composition and proceedings – The committee consists of two non-executive directors, one of whom chairs the meetings, the group managing director and the group financial director. The committee is required to meet at least twice a year.

Role – The committee is governed by a charter, which was adopted in August 2010, and a formal risk policy and strategy document. The primary objective of the committee is to assist the board and the Audit Committee to fulfil their corporate governance responsibilities relating to the management of risk in the group. Their role is to oversee the identification of risks, ensure the development of policies, procedures and controls, evaluate risk mitigation strategies, promote effective and efficient risk management practices and to provide appropriate advice on risk issues to facilitate decision making by the board.

During the year under review two formal risk assessments were completed, in which strategic and operational/agriprocess risks were identified and evaluated and appropriate action plans developed to mitigate risks identified as being unacceptable. The risk assessment process was managed by external facilitators.

There is an ongoing process for identifying, evaluating and managing the strategic risks faced by the group. These are subject to review and discussion at both Risk Committee and board meetings.

Attendance at meetings

Remuneration/Nominations Committee Members – Messrs Guy Wayne (chairman), Chris Chance and Pierre Joubert.

Composition and proceedings – The committee is chaired by an independent non-executive director and consists exclusively of non-executive directors. The managing director attends the meetings by invitation, but does not participate in discussions regarding his own remuneration. The committee is required to meet at least once a year.

Role – The main purpose of the committee, which operates under formal terms of reference approved by the board, is to ensure that the executive directors and senior employees are appropriately rewarded for their individual and joint contributions to the group’s overall performance. The remuneration structure comprises three major elements, namely fixed remuneration package, short-term incentive scheme and long-term rewards (share options). Independent external studies and comparisons are used to ensure that compensation is market and industry related.

The group’s remuneration policy is reproduced at the end of this corporate governance report and, in line with the recommendations of the King Report on Governance for South Africa (King III), shareholders will be requested to signify their approval of the policy at the annual general meeting by way of a non-binding advisory resolution. The remuneration paid to executive and non-executive directors is disclosed in note 26 to the financial statements.

The Remuneration/Nominations Committee is also mandated to review and make representations to the board on the structure, size and composition of the board and its committees. New appointments to the board are subject to the recommendation of the committee and formal approval by the board.

Attendance at meetings

ACCOUNTABILITY AND CONTROL

The directors are responsible for the preparation and integrity of the annual financial statements and other information presented in the integrated annual report in a manner that fairly presents the state of affairs and results of the operations of the company and the group.

The external auditors are responsible for carrying out an independent examination of the financial statements in accordance with International Standards on Auditing and reporting their findings thereon.

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. Such controls and systems are based on established policies and procedures. These are implemented by trained personnel and are monitored in a number of ways, as set out below, dependent upon the particular circumstances, through:

• The utilisation by management of internal accounting control checklists;
• The establishment of defalcation reporting procedures;
• The use of the group’s external auditors (internal audit division) to assist with the conduct of internal audit reviews; and
• Independent reviews of the scope and approach of the group’s internal audit function.

There are comprehensive management reporting disciplines in place which include the preparation of annual budgets by all operating and service units. Individual and consolidated operational budgets are reviewed and approved by the board.

Monthly results and the financial status of operating units are reported against approved budgets and prior years. Profit projections and cash flow forecasts are updated on a quarterly basis; these are reviewed by the board.

In the opinion of the directors the group has adequate resources to continue in operational existence for the foreseeable future. Financial gearing, cash flows and access to equity and loan capital are considered to be sufficient to fund existing and any chosen opportunities to expand the business cost effectively. For this reason, the directors continue to adopt the going concern basis in preparing the annual financial statements.

ETHICS
The group has a written Code of Business Ethics and Professional Management Practices, with which all directors and employees are required to comply. The code requires all officers and employees to act with honesty and integrity and to maintain the highest ethical standards. The group adopts a zero tolerance approach to theft, fraud and the offering of bribes or favours. Instances reported during the year were appropriately investigated and acted on. The group notes the requirements in the newly promulgated Companies Act for the establishment of a Social and Ethics Committee and will take steps to implement this in the year ahead.

INSIDER TRADING
The group has a formal policy in place which governs the dissemination of price-sensitive information and only the chairman and the managing director may discuss matters which may involve price-sensitive information with third parties.

Directors and officers of the group who have access to unpublished and price-sensitive information, are prohibited from dealing in shares of the company during restricted periods covering those immediately prior to the announcement of the interim and final results, whilst the company is under a cautionary announcement, as well as at any other time the directors may deem it necessary. Directors and the company secretary may not deal in the company’s shares without first advising the chairman in advance and after receiving clearance from him. Share dealings by directors and officers of the company are notified to the JSE for publication via the Stock Exchange News Services (SENS).

REMUNERATION POLICY
As a listed agricultural company operating throughout southern Africa, the Crookes Brothers group (CBL) remuneration policy needs to be consistent throughout the group while at the same time taking account of regional and industry norms. This is achieved by offering a combination of fixed and incentive based remuneration to attract the right blend of expertise and experience to achieve the company’s goals.

The policy has the following key objectives:

• To reflect the group’s culture of equity and fairness, in correlating levels of remuneration with individuals’ contribution, roles and responsibilities;
• To support the group’s strategic objective of becoming a major player in the southern African agricultural sector;
• To support the group’s objective of becoming an employer of choice in the regions in which it operates;
• To attract people with the right skills, expertise, experience and commitment to achieve the required growth and financial performance to realise the group’s strategic objectives;
• To take account of scarce skills and regional variances in order to attract appropriate skills;
• To motivate employees and reward them for exceptional performance; and
• To enable employees to share in the financial success of the company.

The remuneration packages offered comprise the following elements, as appropriate for different job gradings:

• Fixed remuneration, including base pay and benefits (all permanent staff);
• Short-term incentive, based on achievement of financial and strategic objectives; and
• Long-term incentive, comprising share options, to reward senior executives for increasing returns to shareholders.

Fixed (guaranteed) remuneration
The following basic structure applies in terms of fixed remuneration:

• All permanent positions are defined by a job description;
• Seasonal jobs are remunerated on a task basis;
• All permanent positions are allocated a Paterson grading according to the job description;
• Salary bands generally ranging from 80% to 120% of a median are defined for each Paterson grade;
• The salary bands are adjusted periodically using the results of appropriate salary surveys;
• An employee’s position within a salary band depends on his or her performance, skills, experience, commitment and years of service, as well as the scarcity of skills in the relevant job category;
• Employees ranked Paterson C3 and below receive an annual 13th cheque which is paid in December each year;
• Remuneration for employees in the C band and above is defined as a “total-cost-to-company package”;
• Annual increases are awarded to compensate employees for the impact of inflation on the cost of living, also to adjust employees’ relative salaries within a salary band; and
• Apart from annual increases which are applied from 1 April each year, increases are also granted for promotions when these occur, or special adjustments to take account of the factors listed above.

Short-term incentive
Performance based incentive pay is offered to employees ranked Paterson C4 and above.

Performance is evaluated annually at year end and bonuses awarded accordingly. Bonuses are paid in May with the monthly salaries. Performance reviews are performed for all qualifying employees to ensure that problem areas are addressed, a transparent process is maintained and appropriate personal development plans are put in place.

Performance is rated according to a balanced scorecard which takes into account individual, divisional and company performance, with a blend of subjective and objective measures, as well as each individual’s achievement of specific strategic objectives and personal development targets.

The performance rating of employees ranked D2 and below is reviewed by the Executive Committee and those for executives by the Remuneration/Nominations Committee of the board to ensure that the ratings are equitable and consistent.

A detailed performance bonus policy outlines the philosophy and process in detail. The policy is updated by the Remuneration/Nominations Committee on a regular basis to meet the needs of the group and to maintain alignment with industry best practice.

Long-term incentive

The long-term incentive scheme is designed to retain senior executives in the medium to long-term, to focus their attention on long-term strategic imperatives and to ensure sustainable future growth of the group.

This scheme is governed by a detailed policy which is also updated as required by the Remuneration/Nominations Committee. In terms of the scheme share options may be offered to senior executives on an annual basis. Eligibility criteria, the quantum of the allocations and the conditions governing each allocation are determined by the Remuneration/Nominations Committee.

Governance
The board Remuneration/Nominations Committee meets regularly to consider strategic and policy issues, review remuneration of non-executive directors, approve promotions for executives, approve salary increases, approve the performance bonus and approve the granting of share options.

The board, in consultation with the Remuneration/ Nominations Committee, may amend the remuneration policy from time to time to comply with applicable legislation and/or industry best practice, or as circumstances may require.