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Governance report 2017

1Kaap Agri Governance report 2017

2Governance

Approach to ethical and effective governance 2

King IV™ 2

Who are our stakeholders? 3

How does Kaap Agri create an ethical culture? 4

How does Kaap Agri ensure effective control? 5

How does Kaap Agri ensure good performance? 6

How does Kaap Agri ensure legitimacy? 6

King IV™ principles disclosure map 7

Governance structure 7

Board structure 7

Composition and expertise 7

Board meeting attendance 8

Board profiles as at 30 September 2017 9

Governance report for 2017 12

Key governance initiatives for the year 12

Committees and their roles in the governance 13

Board efficiency 17

Company Secretary 19

Executive committee 19

Evolving our stakeholder engagement 20

Information technology (IT) 23

Outlook 24

Contents

2

Approach to ethical and effective governance

Kaap Agri is committed to responsible and effective corporate

governance. The role of the Kaap Agri Board is to provide ethical and

effective leadership to the Group, and ensure a consistently high

level of business performance. There is a range of mechanisms,

policies, procedures, committee structures and values that enable

this, the most material of which are described in this report.

King IV™

In completing this governance report, the Board reviewed our

alignment to and application of the King IV™ Report on Corporate

Governance™ for South Africa 2016 (“King IV™”) principles. We

asked ourselves five questions:

• Who are our stakeholders?

• How does Kaap Agri create an ethical culture?

• How does Kaap Agri ensure effective control?

• How does Kaap Agri ensure good performance?

• How does Kaap Agri ensure legitimacy?

Governance


Governance

Who are our stakeholders?

The Group identifies its stakeholders according to the products we provide through our various business segments. These stakeholders

include those involved in the creation and delivery of the products, to the ultimate end-users.

We have nine distinct stakeholder groups with whom we interact:

Priority Stakeholder

AClients: This is a broad term for all end-users. For example, a farmer may be the primary purchaser of a product, but the primary user could be a labourer on the farm using the product. Our client base is predominantly determined by our geographic representation, with the emphasis on participants in the commercial agricultural industry, covering all income groups and market segments.

AEmployees: All persons employed by the business to enable value creation activities of Kaap Agri. They represent skills that range from retail sales to logistics, procurement, seed processing and support services.

ASuppliers: Due to our diverse product offering, the Group has a range of suppliers who supply, among other things:

• Agricultural production equipment

• Animal feed

• Building material

• Chemicals

• Clothing

• Fencing

• Fertiliser

• Fuel

• Gardening

• Gas

• Grain and seed

• Groceries and homeware

• Hardware

• Liquor

• Livestock

• Lubricants

• Mechanisation

• Outdoor products

• Packaging material

• Paint

• Pet nutrition

• Tools

• Water storage

AFinanciers: Our ability to provide financing solutions for our clients depends on the relationships we have with credit providers. These are primarily through loans from a South African bank.

AShareholders: 65% of the Group’s shares are held by three shareholders: Zeder Financial Services Limited, Plurispace (Pty) Ltd, and Empowerment and Transformation Investments (Pty) Ltd (“ETI”). The Group listed on the “speciality retailer” sector of the main board of the JSE on 26 June 2017. From the listing date to 31 October 2017, there were 1 351 trades of 1 561 199 shares to the value of R83 million.

AGovernment and regulators: The Group adheres to regulations and laws prescribed for the various industry segments in which it operates. These include licences to operate our fuel business, and compliance with B-BBEE requirements.

BSociety: Kaap Agri defines society as the farming and local communities surrounding our operations. These include those stakeholders influenced by our corporate social investment activities, such as learning institutions. In many areas and towns, the Group is the largest and only employer and provider of products and services, often outside its usual product and business parameters. This underlines its contribution to society.

BIndustry bodies: Effective operation across a broad geography is leveraged through affiliation and associations with relevant industry bodies such as BUSA and Agribiz.

BBargaining councils: Kaap Agri needs to comply with the collective agreements negotiated with the various bargaining councils, and views them as valued partners. Kaap Agri liaises with officials in these councils to obtain clarity on various employee matters and to ensure that it applies all agreements in a fair manner. These engagements support our business by prompting employee support offerings.

A Primary B Secondary

In applying effective governance, all our stakeholders are considered in the decisions made at Board level. Refer to the section on stakeholders

on page 22 for examples of our engagement activities.

4

How does Kaap Agri create an ethical culture?

Ethical and accountable behaviour is encouraged through a distinct Group culture that is captured through a commitment to the following values:

C A R E

Communicate Alignment Relationships Empowerment

Open

Clear

Honest

Shared service

Results

Authentic

Recognition

Time

Development

Better off

Ownership

Grow

Ethical decisions are rooted in a commitment to a robust Code of

Ethics that applies to every employee. The Board charter stipulates

ethical expectations for the behaviour of its members. The Internal

Audit function furthermore aligns all activities with the Code of Ethics

and the International standards for the professional practice of

internal auditing.

Clear guidelines from the Group’s Code of Ethics support ethical

behaviour throughout the Group with mechanisms for correction where

needed. An example is the internal whistle-blowing facility operated by

the Internal Audit function. Transgressions are addressed and remedial

action applied in terms of the disciplinary code of the Group.

The Trade agreement and conditions of supply policy contains a

specific section on ethics, and suppliers are expected to take

specific actions in the case of any breach.

As a number of non-executive directors are direct or indirect customers

of the Group and have ongoing business with the Group, Kaap Agri

discloses the value of such related party transactions in the annual

financial statements starting on page 73 of the integrated report.


1st line of defence

2nd line of defence

3rd line of defence

Operational departments

Annual capital budgets are approved by management and the Board. Authority to act on behalf of the company is determined by the decision-making framework with the finance department providing final approval. Day-to-day operations executed by employees are overseen by middle management.

Finance department

The Financial Director acts as gatekeeper. Any payments have to be approved by the finance department.

Executive committee

On an operational level, final responsibility rests with the Executive committee. All managers report to executive directors.

Financing Services department

Applications for credit are evaluated by officials at branch level.

Group manager: Financing and Financial director

Applications are evaluated and approved at central office.

Financial director must sign off on applications exceeding particular amounts as set out in credit policy.

Finance committee

The credit policy is approved by the Finance committee. Applications exceeding certain amounts must be approved by Finance Committee. Underlying securities are subjected to an annual review by external attorneys.

Information technology

Infrastructure availability and maintenance is continuously monitored. Security coverage is provided for 91.9% of endpoints. Email and firewall security is of a high standard, with proper back-up and business continuity plans in place.

Compliance and legal department

The compliance office is responsible for the compliance function in cooperation with Internal Audit and the legal department. Contracts are negotiated and entered into in line with the decision-making framework and in cooperation with the legal department.

Executive committee

Final responsibility rests with Executive committee.

Auditing processes

Day-to-day operations are overseen by managers at all levels, and final responsibility rests with executive directors.

Internal Audit Internal Audit is responsible for monitoring effective compliance with policies.

External Auditors

Responsible for executing audit in line with accepted accounting practices.

General

Insurance

Board and board committees

Risks are evaluated and insurance cover negotiated annually with a reputable insurer.

Directors have unlimited access to all personnel and information

How does Kaap Agri ensure effective control?

Effective control means that risks at Kaap Agri are properly managed and mitigated, and decisions are based on quality information within clearly defined roles and responsibilities. To support effective control, Kaap Agri has a decision-making framework that defines clear levels of accountability and authority.

Kaap Agri uses a combined assurance model to ensure the accuracy of information used in key decision-making activities.

Governance

6

The Group has various committees that are mandated to ensure a

level of control and governance in various areas of the business.

Refer to page 14 for an overview of their purpose and composition.

In addition to the verification role of Internal Audit, Kaap Agri has a

range of clearly defined policies that cover key operational and risk

areas. Kaap Agri developed a strategic risk register, identifying and

rating risks according to their likelihood and potential impact on its

strategic goals. Ratings were done on the inherent risks (before

mitigating measures) as well as the residual risks (after mitigating

measures were taken into consideration). More details about risk

policies and approaches are available in the risk report, which forms

part of the integrated report.

Policies on the following subjects are widely available to internal

stakeholders:

• Affirmative action

• Code of Ethics

• Competition

• Competition Act

• Credit

• Dealing in securities

• Disciplinary and grievance procedure

• Donations

• Gender and race diversity

• Gifts

• HIV

• Internal Audit – Terms of Mandate

• Marketing competitions

• Private interests, extramural activities and external remuneration

• Remuneration

• Remuneration and external directorships

• Smoking

• Stakeholder relations

• Theft

• Training and development

• Whistle-blowing

How does Kaap Agri ensure good performance?

Kaap Agri believes that good performance can only be achieved by

employing the right people. This means recruiting individuals with

the right skills and attitude and who display the values that align to

our high-performance culture.

Value-generating performance starts with the Board, where the

Chairman currently takes responsibility for ensuring adequate

capacity and expertise to support effective Board performance.

The Executive committee’s performance is annually assessed with remuneration incentives linked directly to performance and attainment of specific objectives. These objectives are derived from the Group’s strategy and appropriate KPIs developed for each. Refer to our remuneration report on page 20 of the integrated report for details.

Individual employee performance is reviewed through an annual performance management process. Performance requirements cascade into higher levels of management and ultimately align to the Group’s strategy. For example, the performance of branch managers hinge on store performance, which aligns to segmental and ultimately Group performance objectives. Each business segment in Kaap Agri uses a strategic map with financial and non-financial KPIs aligned to remuneration and linked to the Group’s strategy.

Performance is further incentivised through a short-term incentive scheme in which every permanent employee is a participant. Management-level employees may partake in long term-share incentive based schemes. Both forms of incentive schemes ensure that individual performance in meeting Group objectives are aligned and adequately compensated.

The Executive committee presents the proposed strategy to the Board for discussion and review at an annual strategy session. The strategic objectives include clearly defined targets for implementation. All business segments report on outcomes of the strategy execution through the Group’s electronic management tool. In addition, the information derived from the reports provides valuable business intelligence to direct improvements and corrective actions.

How does Kaap Agri ensure legitimacy?

Our legitimacy is based on our ability to create value for a broad range of stakeholders. The Group prides itself on a reputation of being relatable to our clients and customers, and always seeking to resolve problems within our sphere of business influence ethically. The Group will always seek to provide access to products at a fair price to enable clients to do business with us. We support our stakeholders’ interests throughout our value chain and expand market opportunities for suppliers. Refer to our “evolving our stakeholder engagement” section on page 22.

Kaap Agri also earns legitimacy through our brand, and our people are essential to the Group’s reputation of quality. The Kaap Agri brand is firmly rooted in stakeholder recognition or “die mens-mense” principle. This principle defines the business as an accountable and highly engaged corporate citizen that genuinely considers the needs and interests of our stakeholders. We ensure that our activities align with the views and attitudes of our primary stakeholders while continuously forging mutually beneficial relationships with suppliers and other stakeholders.


King IV™ principles disclosure map

Having recently adopted King IV™, the Group endeavours to explain its application of appropriate principles and is transparent in areas of non-compliance. The website contains a King IV™ principles disclosure map: a table that provides a high-level overview of responses to the 16 applicable King IV™ principles. Where relevant, reference is made to other areas of the integrated or governance report where detailed information can be found. The table further contains an indication of the level of application and an explanation of the Group’s King IV™ disclosure with icons to indicate the maturity of such disclosure.

Governance structure

The key roles and responsibilities of the Board include acting as the focal point for, and custodian of, corporate governance, determining the strategic objectives of the Kaap Agri Group and monitoring the implementation of its approved strategies, decisions, values and policies. The Board is satisfied that it has fulfilled the responsibilities required by its mandate in the year.

The Kaap Agri Board is chaired by a non-executive director and has 11 members. The Board is supported by five committees with clear terms of reference that aid the execution of their duties and determine the due governance required in each area of the business.

The roles of the Chairman and the Chief Executive Officer are clear

and separate in terms of duties and responsibilities. The Chief

Executive Officer is tasked with the day-to-day operations of the

business in line with the Group’s decision-making framework. The

Chief Executive Officer is supported in this role by the Executive

committee, two members of which are Board members. The Board is

satisfied that the decision-making framework provides a basis for

clear exercising of duties, and contributes to clarity and accountability.

In addition, the Board charter ensures that there is appropriate balance

of power in the deliberations of the Board. There is a clear balance of

power and authority at Board level which ensures that no single

director has unlimited or unfettered powers of decision-making.

Governance

KAAP AGRI GROUP BOARD

Audit and Risk committee

Remunerationcommittee

Nominationcommittee

Social and Ethicscommittee

Finance committee

Executive committee

Board structure

Composition and expertise

81,8% Male 18,2% Female1 8 Independent non-executive directors 18,2% Black1 81,8% White 1 Non-executive director

2 Executive directors

1 The Board of Kaap Agri has taken active steps to modify the composition of the Board to better reflect the demographics of South Africa, with particular focus on black and female representation. Refer to page 8.

8

Expertise

Field of expertiseNumber of

board members

Financial markets and investments 6

Agriculture 8

General business 10

Mergers and acquisitions 7

Retail operations 5

Marketing 6

Logistics/supply chain 6

Transformation 9

Risk management 8

Legal 4

Human resources 7

Sustainability 9

Governance 10

The Board is satisfied that the current composition enables ethical and effective leadership, but it will seek to improve diversity further.

In terms of tenure, the Board members’ profiles indicate appointment dates since the unbundling in 2011 and the establishment of Kaap Agri Limited

in its current form. Some Board members were involved with Kaap Agri prior to the unbundling.

Board meeting attendance

Overall Board meeting attendance was high despite several changes in anticipation of the listing, following the annual general meeting

(“AGM”) and in line with King IV™ requirements, which is evidence of the Board’s commitment to high levels of governance and performance.

MemberMeetings attended

BS du Toit 4/4

D du Toit (Appointed: 1 March 2017)+ 2/4

JH le Roux 4/4

SJ Liebenberg (Retired: 1 March 2017)+* 2/4

NC Loubser (Retired: 1 March 2017)+ 2/4

HS Louw (Retired: 1 March 2017)+ 2/4

EA Messina (Appointed: 1 March 2017)+ 1/4

WC Michaels (Appointed: 1 August 2017)+ 1/4

CA Otto 4/4

GW Sim* 4/4

HM Smit 3/4

GM Steyn 4/4

S Totaram (Resigned: 30 January 2017)+ 1/4

JH van Niekerk 4/4

S Walsh* 4/4

Key* Executive+ Did not fulfil role as a Board member for the full year

Refer to the Rotations on page 18 for details of changes to the Board.

During the financial year, one Board member resigned due to work commitments, and two directors retired by rotation. A further executive director retired during the year as an employee of Kaap Agri. New members were recruited and appointed during March and August 2017.

In support of the Gender and race diversity policy, two women (of whom one was black) were appointed to the board during the financial year, comprising 18% of the board and two black persons were appointed.


Board profiles as at 30 September 2017

BS du Toit (60) Independent non-executive director

Appointment dates: Board in November 2011

Audit and Risk committee in February 2012

Qualifications: BAgric (Management)

Committee membership: Audit and Risk

Other board memberships: Freshgold SA Exports (Pty) Ltd 32 Degrees South Fruit (Pty) Ltd

Wydekloof (Pty) Ltd Langrivier Boerdery (Pty) Ltd

Langrivier Beleggings (Pty) Ltd Aartappels SA

D du Toit (41) Independent non-executive director

Appointment dates: Board in March 2017

Audit and Risk committee in May 2017

Qualifications: BComm (Hons)

Committee membership: Audit and Risk

Other board memberships: De Keur Beherend (Pty) Ltd De Keur Berries (Pty) Ltd

De Keur Agri (Pty) Ltd Tipmar (Pty) Ltd

De Keur Landgoed (Pty) Ltd Witzenberg Pals (Partners in Agri Land Solutions) PBO

De Keur Marketing (Pty) Ltd Breyton Paulse Foundation NPC

De Keur Verpakking (Pty) Ltd

JH le Roux (42) Non-executive director

Appointment dates: Board in April 2014

Qualifications: BAcc (CTA), HDip (Tax) and CA(SA)

Committee membership: Finance

Other board memberships: Cerula 23 (Pty) Ltd Zeder Financial Services Limited

Zeder Corporate Services (Pty) Ltd Zeder Investments Limited

French Rose 24 (Pty) Ltd Zeder Africa Limited

Zaad Holdings Limited Zeder Management Services (Pty) Ltd

Paternoster Pumphouse (Pty) Ltd Bakenskraal Investments (Pty) Ltd

Capespan Group Limited The Logistic Company (Pty) Ltd

EA Messina (59) Independent non-executive director

Appointment date: Board in March 2017

Qualifications: BA (Hons), MA Southern African Studies, MA (History) (Cum laude) and DPhil (History)

Committee membership: Social and Ethics (chairman)

Other board memberships: SBI (formerly AHI) The Du Toit Group

Groot Constantia Trust Isipani Construction

Cape Town Radio

WC Michaels (44) Independent non-executive director

Appointment date: Board in August 2017

Qualifications: BSc, BSc (Hons), MSc and PhD (Polymer Chemistry)

Committee membership: Social and Ethics

Other board memberships: N/A

Governance

10

CA Otto (68) Independent non-executive director


Audit and Risk committee in May 2017 (chairman)

Qualifications: BComm, LLB

Committee membership: Audit and Risk (chairman)

Remuneration (chairman)

Nomination

Other board memberships: PSG Financial Services Limited Zeder Financial Services Limited

PSG Group Limited Capevin Holdings Limited

Capitec Bank Limited Remgro-Capevin Beleggings Limited

Capitec Bank Holdings Limited Distell Group Limited

Zeder Investments Limited

GW Sim (47) Financial Director (executive)

Appointment date: Board in August 2015

Qualifications: BComm (Acc), BComm (Acc) (Hons) CA(SA)


Other board memberships: TFC Ventures (Pty) Ltd Kaap Agri Bedryf Limited

TFC Strand (Pty) Ltd Empowerment and Transformation Investments (Pty) Ltd

TFC Properties (Pty) Ltd Kaap Agri (Namibia) (Pty) Ltd

TFC Operations (Pty) Ltd Kaap Agri (Aussenkehr) (Pty) Ltd

Agriplas (Pty) Ltd Mirage Motors (Pty) Ltd

HM Smit (54) Independent non-executive director

Appointment date: Board in November 2011

Qualifications: BEcon, MA (Town and Regional Planning)


Other board memberships: N/A

GM Steyn (58) Independent non-executive director (chairman)

Appointment date: Board in June 2012

Qualifications: BA (Law), LLB

Committee membership: Remuneration

Nomination

Other board memberships: Du Toit Group (Pty) Ltd (chairman) GMS Beleggings (Pty) Ltd

RCL Foods Limited NS Beleggings (Pty) Ltd

Leopard Creek 21 (Beleggings) (Pty) Ltd Neusberg Boerdery


JH van Niekerk (61) Independent non-executive director


Audit and Risk committee in February 2017 (resigned September 2017)

Qualifications: Served as a pilot in the SADF

Committee membership: Finance (chairman)

Remuneration

Nomination

Other board memberships: Kosie van Niekerk Boerdery (Edms) Bpk

S Walsh (51) Chief Executive Officer (executive)


Qualifications: BEcon (Hons)

Committee membership: N/A

Other board memberships: Newco Water (Pty) Ltd TFC Properties (Pty) Ltd

Kaap Agri Bedryf Limited TFC Strand (Pty) Ltd

Agriplas (Pty) Ltd TFC Ventures (Pty) Ltd

Kaap Agri (Namibia) (Pty) Ltd

RH Köstens (60) Company Secretary

Appointment date: November 2011

Qualifications: BA (Law), LLB, LLM, Postgraduate diploma in Taxation and an MBA

Governance

12

March to July 2017

August 2017

August 2017

Recruitment of new Board members due

to retirement of two members by rotation.

Registration and restructuring of the

new Fuel Company (“TFC”), resulting

in larger representation by black persons

at shareholder, director, management

and employee levels.

One of the Group’s subsidiaries,

Kaap Agri Namibia (Pty) Ltd, entered

into a joint venture agreement with

a leading Namibian retail business.

The purpose of the joint venture is to

improve operational control and client

offerings in Namibia. The joint venture

will be governed by a Board with

representatives from both businesses.

The Board engaged with a leading

audit firm to evaluate the effectiveness

of the current external audit offering.

Governance report for 2017

Key governance initiatives for the year

The Board undertook the following key activities for the period:

Approach to compliance

The Board recognises its responsibility to ensure compliance with all

applicable laws and adherence to industry charters, codes and

standards.

The Group’s Compliance officer is responsible for updating the Audit

and Risk committee on matters of possible compliance contravention.

The broad nature of compliance in the Group requires the Compliance

officer to operate in tandem with the Internal Audit function. Both

obtain support from subject-matter experts on speciality focus areas

such as environmental law or B-BBEE compliance. These experts

filter appropriate information to the Compliance officer for further

action. The Audit and Risk committee monitors actions taken by the

Compliance officer and/or Internal Audit.

The Audit and Risk committee further evaluates the internal audit

plan according to its mandate. The committee also considers the

material findings of Internal Audit and management’s response. The

committee ensures that internal auditors function independently and

meet at least once a year with the internal auditors without the

external auditors, executive officials, head of finance, Managing

Director or any other director present.

There were no contraventions of agricultural law, penalties or fines

reported in the year. To the Group’s knowledge, there are no material

legal, arbitration or other proceedings pending or in progress. Refer

to the report of the Audit and Risk committee on page 51 of the

integrated report.

Conflicts of interest

Board members are required to state any possible conflicts of

interest, financial or otherwise, at the start of each Board meeting.

This includes directorships or positions in any other form of business.

Board members are prohibited from gaining any undue benefit from

their position as outlined in the Board mandate subscribed to by

each member.

The strong stakeholder-focused nature of our evolving Board means

that we have a number of members with interests in peripheral

businesses that interact with the Group. These include roles as

customers or service providers. Periodic scrutiny ensures that none

of these interests pose an undue influence on the individual’s

relationship with the Board, and the Group deems these relationships

currently to be negligible. Details are available in the notes to the

annual financial statements on page 73.

A register of directors’ interests in and outside the Group is kept and

updated at each Board meeting. A conflict of interest declaration form

is available to Board members. The Chairman of the Group is not

prohibited from serving on other Boards, provided this is disclosed to

the Kaap Agri Board. The Kaap Agri Dealings in securities policy has

an annexure stating that directors need to obtain permission to deal in

securities, and details of any dealings must be disseminated on the

JSE Stock Exchange News Service (“SENS”). No dealing is permitted

during prohibited periods. Employees are further directed by policies

on private interests, extramural activities and external remuneration to

avoid conflicts of interest.


Governance

In the three years preceding the listing of the Group on the JSE, Kaap

Agri had not paid any amounts or given any benefits to any director

or company in which a director has interests, in order to induce them

to become a director or, for services rendered by them or by the

associate entity.

The Group has a gift register for recording receipt of tangible and

intangible gifts. The purpose of this register is to protect employees

from possible attempts by any interest group or supplier, to exert

undue influence by means of gifts. Executive directors have to disclose

any gifts and recorded these in the register. Non-executive directors

also disclose gifts and will in future record these in the gift register.

Committees and their roles in the governance

The Group’s committees facilitate the discharge of certain Board

responsibilities with oversight, guidance and governance application

in mandated areas. Each committee chairman reports to the Board

to ensure comprehensive insight and appropriate decision-making at

Board level. The qualifications and experience of each member are

disclosed on pages 9 to 11.

Committee Members1

Meetingsattended Mandate

Audit and Risk

committee

Total meetings: 2

Chairman: CA Otto2 1/2

S Totaram3 1/2

JH van Niekerk4 1/2

BS du Toit5 2/2

D du Toit6 0/2

JH Le Roux7 1/2

Invitees:

• GM Steyn – independent

non-executive director

• S Walsh – executive

director (Chief Executive

Officer)

• GW Sim – executive

director (Financial Director)

• GC Victor – Group Manager:

Finance

The Audit and Risk committee assists the Board by providing an objective and

independent view on the Group’s finance, accounting and control mechanisms.

During the year, the following was actioned:

• The accounting policies of the Group were reviewed and the committee is

satisfied that the policy is in line with generally accepted accounting principles.

• The effectiveness of the Group’s information systems and internal controls

was established.

• The external auditors were appointed and their effectiveness monitored. This

included ensuring that the use of external auditors for non-audit services was

kept to a minimum.

• The integrated report and specifically the annual financial statements included

therein were reviewed and approved.

• With regard to the annual financial statements, the Audit and Risk committee

considered the following as significant: credit risk (in particular debtors),

management of stock, ethics and governance, controls, provisioning,

impairment, tax compliance, correctness and accuracy. The Group has

addressed these considerations through proper provisioning in terms of

existing policies.

Summarised committee feedback

14

Committee Members1 Mandate

Audit and Risk

committee (continued)

Invitees (continued):

• P Steyl – Executive

Manager: Internal Audit

• K Arendse – External

auditor, PwC

• H Zeelie – External auditor,

PwC

• The committee considered presentations by Internal Audit on ethics,

governance and controls, and management reports on operational and financial

matters. Recommendations were made to the Board on several matters. The

committee deems the internal financial controls of the Group to be adequate.

• The committee reviewed the Group’s risk assessment, assessment of the

controlled environment and governance. This was done to ensure that risks

are properly addressed and that the level of compliance, with proper

governance, is in line with expectations. The committee is satisfied with

the outcome of these evaluations.

• The reports of the external auditors were reviewed and appropriate

action taken.

• The JSE letter dated 14 February 2017 regarding the JSE Proactive Monitoring

Process (2016 report) was considered and appropriate action was taken to

respond to the findings in the report.

• The Group’s going concern status and compliance with applicable legislation

and requirements of regulatory authorities was confirmed.

• In terms of risk management (through consultation with the external auditors),

the committee ensured that management’s processes and procedures are

adequate to identify, assess, manage and monitor Group-wide risks.

• The committee appointed the external auditors and determined their

compensation. The external auditor is PricewaterhouseCoopers (PwC), who

has provided audit services to the Group for 81 years. The committee remains

satisfied that the external auditor is independent. The audit partner used by

PwC is rotated regularly, and the committee is satisfied with the arrangements

for the external audit, and the effectiveness of the designated auditor,

Hugo Zeelie. The committee is pleased with the experience shown and advice

provided by the Chief audit executive. The quality of the audit performed this

year was deemed satisfactory by the committee and the independent auditors

report indicates that the Group’s financial statements fairly reflect the financial

state of the company in accordance with International Financial Reporting

Standards and requirements of the Companies Act, No. 71 of 2008, as

amended. The Group complies with legislative and JSE requirements, rotating

to a new audit partner every five years. The last rotation of the audit partner

was in 2015.

• The committee appraised and is satisfied with the appropriateness, expertise

and experience of the Financial Director, who is driving the overall effectiveness

of the Group’s finance function.

• The committee is satisfied that appropriate financial reporting procedures are

in place and are operating.

• The Group’s combined assurance model provides comfort that actions are in

line with good governance management and the committee is of the view that

it is effective. 1 All the members of the Audit and Risk committee are independent non-executive directors.2 Chairman from 4 May 2017. 3 S Totaram resigned on 30 January 2017. Chairperson until 30 January 2017.4 Appointed to the committee at the AGM held 16 February 2017. Due to work commitments, JH van Niekerk resigned as member of the committee

on 20 September 2017.5 Re-appointed to the committee at the AGM held 16 February 2017. 6 Appointed to the committee at the Board meeting on 4 May 2017. 7 Re-appointed to the committee, at the AGM held 16 February 2017, and resigned on 4 May 2017. Due to King IV™ alignment, JH Le Roux was

subsequently replaced with CA Otto as he was not independent.


Governance

Committee Members1


Remuneration

committee

Total meetings: 2

Chairman: CA Otto 2/2

GM Steyn 2/2

JH van Niekerk 2/2

S Walsh2 1/2

Invitees:



Officer)

• GW Sim – executive

director (Financial Director)

• DC Gempies – director HR

(subsidiary – Kaap Agri

Bedryf Limited)

The Remuneration committee is primarily responsible for reviewing and approving

the remuneration of executive directors’ and senior management, and for

succession planning.

The committee assisted the Board in reviewing non-executive directors’

remuneration recommendations in line with local and international best practices.

This was done to ensure that such total remuneration is fair and reasonable to both

the directors and the Group.

More information about the committee and remuneration is available in the

Remuneration report on page 20 of the integrated report.

1 A majority of the members of the specified committee are non-executive directors, most of whom are independent.2 Resigned from the committee on 20 September 2017 in terms of King IV™ requirements.

Committee Members1


Nomination

committee

Total meetings: 1

Chairman: GM Steyn 1/1

CA Otto 1/1

JH van Niekerk 1/1

Invitees:



Officer)

The role of the Nomination committee is to assist the Board in ensuring that it has

the appropriate composition in terms of structure, size, diversity, skills and

independence for it to execute its duties effectively.

This year, the committee actioned its mandate by making recommendations for

new directors and ensuring that recruited directors were appointed through a

formal process.

The Nomination Committee adopted and approved a Gender Diversification Policy.

Identifying suitable candidates for appointment to the Board, the committee will

consider candidates on merit against objective criteria and with due regard for the

potential benefits of gender diversity at Board level. The committee will continue to

discuss and annually agree all measurable targets for achieving gender diversity on

the Board.

1 All the members are independent, non-executive directors.

16

Committee Members1

Meetingsattended3 Mandate

Social and Ethics

committee

Total meetings: 1

Chairman: EA Messina2 0/1

WC Michaels2 0/1

DC Gempies 1/1

S Totaram3 1/1

GW Sim4 1/1

Invitees:



Officer)

• P Steyl – Executive

Manager: Internal Audit

• J Engelbrecht – Executive

Manager: Communication

The purpose of the Social and Ethics committee is to monitor the Group’s

activities regarding its social and economic standing and development, good

corporate citizenship, the environment, health and public safety, consumer

relationships and compliance to applicable laws.

The committee reported to shareholders on matters within its mandate and

raised matters of relevance to the attention of the Board.

Read more about social and community investments in the Social and Ethics report

on page 41 of the integrated report.

Focus areas for the year:

• B-BBEE, ethics, governance, transformation and the Group’s social

responsibility activities were reviewed.

• The necessary steps to improve the Groups B-BBEE score were considered.

• With regard to ethics, governance, the environment health and safety, relevant

policies and actions were evaluated.

• When reviewing transformation, the committee paid particular attention to

employment equity and reviewed the Group’s contributions to social

responsibility.

Focus areas for the future:

• The number of Social and Ethics committee meetings will increase from one to

at least two in 2018. The Group intends to increase the frequency of meetings

to three annually to ensure adequate oversight.

• The agenda of the Social and Ethics committee will be formalised and

structured to include measurable reporting on ethics and stakeholders.

• Transformation and ethics will remain core focus areas in future.

1 A majority of the members of the specified committee are non-executive directors, most of which are independent.2 EA Messina and WC Michaels were only appointed on 20 September 2017.3 S Totaram was the chairperson from May 2012 until resignation on 30 January 2017.4 GW Sim resigned as member on 20 September 2017.


Governance

Committee Members1


Finance committee

Total meetings: 3

Chairman: JH van Niekerk 3/3

NC Loubser2 3/3

HS Louw2 3/3

GW Sim 3/3

HM Smit 3/3

JH le Roux3 0/3

Invitees:

• LI Human – Group Manager:

Financing Services



Officer)

• Other members of financing

services department as and

when needed

The mandate of the committee is to ensure that the financing activities of the

Group are managed efficiently.

The committee is responsible for approving and refining the Credit policy, and

approves certain high-value applications, where the amount exceeds the authority

of the officials.

Another key committee responsibility is the establishment of a decision-making

framework for the financing services department and exercising final authority

on financing where certain amounts are exceeded. In terms of the Credit policy,

the financing services department has the authority to obtain underlying securities

from individuals who apply for credit. Accordingly, it is the task of the committee

to conduct credit screenings, evaluate credit risks and to register underlying

securities in line with the Credit policy approved by the committee.

1 A majority of the members of the specified committee are non-executive directors, most of whom are independent.2 NC Loubser and HS Louw are not Board directors and retired during February 2017. Both are still members of the committee.3 Appointed on 20 September 2017.

All the Group’s committees are satisfied they have fulfilled their responsibilities according to their respective mandates.

Board efficiency

Ethical and effective leadership rests on the appropriate recruitment, evaluation, training and rotation of the Group’s Board members. Although

the Group recently listed on the Johannesburg Stock Exchange (“JSE”), governance structures have been embedded for many years. The

most significant challenge for the business is to formalise and document practices that have been effective in governing Kaap Agri until now.

This is the essence of our journey towards full compliance with King IV™ principles.

18

Recruitment

• The Nominations committee provides clear policies on recruitment and criteria for selection of appropriate

candidates in line with the provisions of the Memorandum of Incorporation (“MOI”). Directors are

nominated by the Board and elected at the annual general meeting (“AGM”) for three years. One third of

the directors must rotate annually.

• Induction for new Board members will be formalised.

Evaluation

• The Chairman evaluates the individual Board members based on their experience and expectations.

To date, the Group is satisfied that the performance evaluations have been fair, and the results and actions

implemented were appropriate, developing individual capabilities and performance in the process. Future

evaluation criteria, scopes and processes will be formalised, and an external service provider will be

considered in setting a performance baseline. The evaluation will also include performance and

behavioural criteria aligned to the Code of Ethics and Board commitment to governance standards.

• Future evaluations will include an evaluation of the Chairman and the various committees.

Training

• Training for skills development and applicable legislation is carried out intermittently with voluntary

attendance for Board members. The following training and development programmes took place this year:

– The Group’s sponsor, PSG Capital conducted JSE Listings Requirements training in June 2017.

– Competition Commission training started during September 2017 and involves an online process

facilitated by an independent institution, Compliance Online.

• Board members have access to the Company Secretary to provide any training deemed necessary, and

are free to approach external service providers for training as and when required. A formal Board training

programme is being considered in the Board plan for implementation in 2018.

Rotation

• The Group’s Nominations committee is responsible for reviewing the composition of the Board in terms

of race and gender diversity, tenure, expertise, skills and independence.

– NC Loubser and HS Louw were due to rotate at the AGM on 16 February 2017, but both did not make

themselves available for a new term. This provided an opportunity to diversify the Board’s composition.

– Three new directors were appointed: D du Toit (1 March 2017), EA Messina (1 March 2017), and

WC Michaels (1 August 2017).

– S Totaram resigned on 30 January 2017 due to work commitments. SJ Liebenberg retired from the

Board on 1 March 2017.

With the exception of SJ Liebenberg, all directors who retired or resigned were non-executive directors.

• The Board is comfortable with the progress made regarding diversity and intends to continue adjusting the

composition of the Board. This will be achieved through clear targets for gender and race diversity to be

implemented through the Gender and race diversity policy.


Governance

Company Secretary

The Company Secretary is responsible for co-ordinating the

functioning of the Board and its committees. This includes advising

the Board on matters of legal and regulatory compliance. The Group is

satisfied that these arrangements are effective. The Board is further

satisfied that RH Köstens is suitably qualified and experienced to

continue as the Group’s Company Secretary, with unencumbered

access to the Board. Kaap Agri believes that an appropriate arm’s-

length relationship exists between the Group’s Company Secretary

and the Board. Refer to page 11 for the Company Secretary’s

experience and skills.

The Board’s mandate allows for professional corporate governance

training to be accessed independently or through the Company

Secretary.

Executive committee

Kaap Agri’s Executive committee meets bi-monthly and is

responsible for assisting the Managing Director in implementing the

Group’s strategy. The CEO is further responsible for operational

planning, control and implementation. The CEO is appointed by

the Board on the recommendation of the Nominations committee.

The notice period for the CEO is three months and termination

conditions are in line with market norms.

Our succession planning and development activities have

facilitated a steady development of Executive committee members

and expertise over the last five years:

Growth in skills and capacity

Years Number of members People added

2012 3 S Walsh, JJ Matthee, SJ Liebenberg

2013 3

2014 3

2015 5 GW Sim, HJ Smit, DC Gempies. JJ Matthee resigned.

2016 5 AJ Griesel

2017 6

20

Evolving our stakeholder engagement

The place where people still count.

The Group has a stakeholder relations document that outlines the Group’s philosophy for relationships with stakeholders. Executive

management reports to the Social and Ethics committee, which in turn functions according to regulation 43 of the Companies Regulations,

2011. The Group is formalising its approach to stakeholder engagement to ensure that appropriate stakeholder management and reporting

continues within the appropriate frameworks.

Notable stakeholder engagements and activities are:

Bursaries with reputable institutions are provided to promising learners with financial constraints.

Kaap Agri uses a mystery shopper who visits various outlets and purchases products while measuring the overall experience according to set criteria. This data is subsequently used for evaluation of customer relationships.

A B-BBEE survey has been completed among certain clients to establish the relevance and value of the B-BBEE scorecard and to identify areas of improvement.

Through job creation and development, the Group recruited 400 new employees during the 2016/17 financial year. Kaap Agri intends to create up to 500 jobs in the next year through generic growth and new positions.

A survey on the benefits of online shopping was completed with 250 customers. The results will be used to assess the demand and viability of an online shopping platform.

The Group hosts an annual supplier recognition award ceremony. The supplier of the year awards follows extensive supplier evaluation. The winners are chosen after meeting certain rankings and adhering to the service level agreements in place with Kaap Agri. Acknowledging the performance of our partners builds positive relationships for mutual growth.

The Group is formalising a Corporate Social Investment (“CSI”) policy for the socio-economic development programmes we undertake. The policy will clearly define how CSI programmes will be developed, rolled out and the criteria for such.

Every Agrimark participates in a social development programme and our internal Care & Grow newsletter highlights these interactions.

The Group prides itself on remunerating employees fairly. Employees at minimum wage level are paid more than the minimum wage required.

The Kaap Agri Academy in Porterville provides free education and technical training courses that are SETA accredited.

Refer to the Social and Ethics committee report on page 40 of the integrated report respectively.


Governance

B-BBEE

The Board believes that B-BBEE is a political, social and economic

imperative, and supports and encourages all initiatives in this regard.

The Group’s B-BBEE score is measured according to the AgriBEE

Sector Code. The Group’s Corporate Affairs function is responsible

for B-BBEE programmes.

In terms of the B-BBEE assessment performed during 2017, Kaap

Agri’s was awarded a score of 85,12, thereby obtaining a Level 2

contributor status. This allows for 110% procurement recognition.

It should be noted that amendments to the AgriBEE sector codes are

expected in the near future, and can materially affect Kaap Agri’s

rating and status, as the number of points required to achieve a

particular level will change.

Kaap Agri’s B-BBEE 2017 scorecard summary

Element Score Weighting

Ownership 18,84 20,00

Management control 5,74 10,00

Employment equity 0,45 10,00

Skills development 20,94 20,00

Procurement 16,15 20,00

Enterprise development 12,00 10,00

Socio-economic development 11,00 10,00

Total 85,12 100,00

Ownership

Black ownership is currently at 25% and the black female ownership

is 7.65%, an increase on the previous year. 5% of Kaap Agri’s shares

have been issued to the Kaap Agri Employee and Farmworker Trust.

The beneficiaries are farmworkers, their families and local

communities, as well as Kaap Agri employee members. Currently,

the Trust is managed by four Trustees, of which two are independent.

The income received in the form of dividends is used to redeem the

Trust’s debt, with 10% of the amount available for distribution

amongst beneficiaries. The Trust makes funds available to qualifying

employees of the designated group through a revolving housing loan

fund. During 2016, 47 employees were beneficiaries of this fund of

which 32% were women.

The Trust also supported eight projects in rural areas catering mainly

for women and children of farmworkers. The total number of

beneficiaries for the year was 2 925, of which 51% were female.

Management control

Following a recent appointment, one of the six members of the

Executive committee is black. We intend to appoint another black

person in the new financial year.

Employment equity

Employment equity is the most significant area of transformation for

Kaap Agri. New appointments and promotions are made in

accordance with the guidelines of the Employment Equity Act and

are measured against internally set targets to accelerate

representation. Representation at senior management, although still

falling short due to a low staff turnover, has improved and remains an

ongoing priority.

There is no distinction between employees in the workplace or in

terms of policy or conditions of service, and all employees have

equal access to all benefits or schemes offered. The only exception

relates to situations where the bargaining councils, which regulate

certain sectors of Kaap Agri’s business, determine otherwise.

Skills development

The Group is an active participant in the AgriSETA. Kaap Agri

complies with the Skills Development Act in terms of payroll paid to

the South African Revenue Services as a training levy. Several

learnerships are conducted on an ongoing basis under the SETA and

more than 700 internal learnerships have already been completed.

The company is an accredited training services provider for AgriSETA

and also provides training to external people.

About 65% of the total training budget is spent on employees from

the designated category.

Preferential procurement

Kaap Agri is a retail services group which supplies a variety of

products and services mainly to the agricultural sector, but also the

general public. The Group purchased more than 75% of their

products in 2016 from B-BBEE-accredited suppliers.

Enterprise development

Interest-free loans with no security were made available to black

owned enterprises to obtain shares within group and other entities.

22

Socio-economic development

Below are some key activities undertaken by Kaap Agri to support

socio-economic development:

The Fuel Company

The Fuel Company (“TFC”) is a stand-alone retail fuel business which

has furthered employment equity at director, management and

employee levels since its launch in 2016. At an operational level, TFC

Operations (Pty) Ltd manages a number of filling stations and related

businesses such as convenience shops and quick service

restaurants. TFC Operations (Pty) Ltd has a black Managing Director

and the majority of the businesses directors are black. TFC

Operations (Pty) Ltd issued 12% of its shares to The Empowerment

and Transformations (Pty) Ltd in July 2017 and has successfully

negotiated with other B-BBEE entities that have a majority black

shareholding to improve transformation.

The Kaap Agri Academy

In 2009, Kaap Agri opened an academy in Porterville. This academy

provides training to developing farmers as well as farmworkers.

During 2017, the academy presented two learnership programmes –

one in mixed farming on NQF 2 level, and the other in animal

production on NQF 3 level.

The programme in mixed farming, which is attended annually by

approximately 25 learners, is an intensive farming development

programme stretching over several months, and includes theoretical

and practical training. The aim of this course is to fully equip existing

and prospective farmers with practical and management skills so

that they can develop into commercial farmers.

The programme in animal production is an advanced course which is

attended by a selected group of learners who successfully completed

the programme in mixed farming.

Since its inception, the Academy has already trained more than

240 students, and three of its students won the AgriSETA award for

Best Performing Learner of a Skills Programme. The top student for

2015 was also selected as the vice-chairperson of Grain SA for 2016.

Due to the excellent results of the Kaap Agri Academy, the

Department of Agriculture: Western Cape came on board as a

partner and co-sponsor of the mixed farming programme.

The academy also trains farmworkers in a range of short courses

such as welding, chemical handling, first aid, maintenance of tractors

and implements, pruning, forklift training, identification of diseases

and productivity management.

Education

Kaap Agri supports several schools by providing bursaries for

promising but impoverished students. The bursaries are only for

black people (defined as black, coloured, or Indian persons) and are

allocated for school funds and hostel fees. These are paid once a

year into a designated school account.

Kaap Agri also sponsors two learners in each grade at Boland

Agricultural School. The sponsorship is for a period of five years,

starting at grade 8. The Group also provides a bursary for a student

studying for a commercial degree at the University of the Western

Cape and supports a number of learners in informal areas.

In total, Kaap Agri provides R1,6 million to 38 learners and one

university student. The Group continues to form relationships with

credible institutions to develop opportunities for further learning in

the areas in which we do business. In addition to developing an

appropriate affirmative action policy, the Group has a database of

more than 650 emerging farmers and potential partners identified for

training. This is yet another initiative that indicates how we are rooted

in agriculture and development thereof.

Refer to the governance and sustainability chapter on page 27

of the integrated report for further detail.


Governance

Metrics and reporting

Core processes

Organisation structure

Governance

• Performance management

• Service level agreements (“SLAs”)

• Operational level agreements (“OLAs”)

• Annual and monthly oversight with reporting to the Audit committee and Board

• Clear roles and responsibilities according to reporting lines

• Key interface points with external functions

COBIT:

• 5 domains

• 37 processes

• 208 sub-processes

ITIL – operations domain

• Service delivery

and support

Information technology (IT)

The Group seeks to govern technology and information in a way that supports our ability to achieve our strategic objectives. The purpose of

the Group’s IT division is to enable the Group by using cost-effective and proven technologies with the applicable functionality to support

business growth and the stability of operations.

Kaap Agri believes that an effective information management (“IM”) governance model must articulate an allocation of “decision rights” that

is optimal for each operation. This means providing select individuals with clear accountability and decision-making authority concerning

changes or priorities in the IM process. The Board is ultimately accountable for the governance and management of IT.

The Group uses Information Technology Infrastructure Library (“ITIL”) and Control Objectives for Information and Related Technologies (“COBIT”)

as guidance for effective IT governance and management at a process level. ITIL is a set of detailed practices for IT service management, and

COBIT is a good-practice framework created by international professional association ISACA for IT management and IT governance.

The Group uses three main perspectives to govern IT:

• Direct

• Evaluate

• Monitor effectively

This process is performed through consideration of four analytical perspectives: financial; customer; internal; and learning and growth.

This ensures a holistic view of the needs and opportunities related to IT.

Kaap Agri's information management operating model describes how information management elements interact and relate in the delivery

of the function.

24

Management

GROUP NEEDS

Plan RunBuild Monitor

Direct Management feedback

Evaluate

Monitor

Governance

The identification and approval of Group-wide IT capital investment needs, including maintenance and project development, forms part of the annual budget.

Criteria for measuring IT performance monthly relate to, for example, connectivity, security and fingerprint scanning. Infrastructure availability has been maintained at an average of 99% across 13 different areas of measurement. With regards to security, the Group has security coverage for 91,9% of our endpoints. Email and firewall security are of a high standard. Suppliers are evaluated with a performance scorecard monthly.

IT risks are reviewed annually and where necessary, escalated to the Board for further action via Audit committee. Remedial actions for incidents are addressed through help desk processes. Key IT risks include:

Risk description Mitigating actions

Business interruption due to system unavailability for an extended period

A business continuity plan, offline alternatives, identification of priority users, satellite technology, backups and training initiatives are examples of measures in place to reduce the impact of system unavailability.

Sub optimal business use of applications or processes impact competitiveness

We are able to mitigate this risk by using global best practice baselines, ensuring technical expertise and capacity while continuously training end users on available functionality.

Kaap Agri’s reputation and business sustainability can be at risk due to IT misuse or abuse

Digital access control, security measures and discipline combined with the identification of sensitive areas, assist in proactively managing this risk.

We have developed an information management roadmap for 2017 to 2021 that aims to provide value to the business through cost-effective,

applicable and proven technology. The roadmap directs specific activities related to growth, basic information management, people, customer

focus and finance. The short to medium-term focus will therefore be on roadmap implementation throughout the Group.

Outlook

As a recently JSE-listed Group, Kaap Agri intends to continuously assess and mature its alignment to, and disclosure of King IV™ principles in the coming years.

Specific focus areas for the next financial year have been identified, and include:

• compliance with the provisions of King IV™ and the JSE with regard to the Remuneration policy which will be voted on as required; and • evaluation of Chairman and committees.

Beyond 2018, our intent is to address gender diversity, B-BBEE and transformation.

M E C H A N I S AT I O N

www.kaapagri.co.za

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