Corporate governance review

Introduction

PPC Ltd (the company) and its subsidiaries (the group) are committed to maintaining a high standard of corporate governance. As a listed public company, PPC complies with the King IV™ Code on Corporate Governance.

Please note that this report covers the financial year to 31 March 2018 only. To avoid duplication, we cross-reference to other sections, such as committee reports, or documents relevant to our corporate governance framework on our website (www.ppc.co.za/investors/governance).

This review is structured in two parts in line with best practice in governance reporting:

Part 1

The governance story of PPC

PPC Ltd was established in 1892 and our history is linked to the growth and development of South Africa in producing cement for many of the country's most famous landmarks and construction projects. Since its establishment, the global governance landscape has changed significantly as has the group's operational footprint.

In the past, governance may have been understood as meeting the legal and regulatory demands placed on companies by regulators and legislators. Today, governance in PPC involves taking proactive steps to:

Governance in the group is overseen by the PPC board of directors and its charter assigns responsibility for strategic direction and control of the company to the board. The board exercises this control via the company's governance framework, which includes detailed reporting to the group board and its committees, and a system of assurance of internal controls.

Key board membership changes

During the year, there were a number of changes to the board.

These appointments will be tabled at the upcoming annual general meeting for confirmation by shareholders.

Although Mr Tim Ross resigned on 9 April 2018, he acted as lead independent director of the group board for 2018.

At 31 March 2018, 12 directors served on the group board. The majority are non-executive directors, with an independent majority when classified against JSE Listings Requirements.

Membership of the board

As at 31 March 2018, members of the board comprised:

Non-executive     Status  
A Ball     Independent  
S Dakile-Hlongwane     Independent  
N Gobodo     Independent  
N Goldin     Independent  
T Leaf-Wright     Independent  
N Mkhondo     Independent  
J Moleketi     Independent  
T Moyo     Independent  
C Naude     Independent  
T Ross   Independent  
Executive directors        
J Claasen     Executive  
T Ramano     Executive  

Directors are appointed through a formal process and the nominations committee assists in identifying suitable candidates to be proposed to shareholders. This process is detailed in the company's selection and appointment policy. Its primary objective is to provide a transparent framework and set standards for selecting and appointing high-calibre executive and non-executive directors with the capacity and ability to lead the company towards sustainable value creation and long-term growth. The nominations committee oversees this policy.

A formal induction programme is in place for new directors, and directors with less experience are developed through training programmes. For continuing development, PPC encourages directors to attend the professional development programmes of the Institute of Directors in Southern Africa (IoDSA).

Potential conflicts of interest are closely monitored by the board. In this regard annual declarations are obtained from all members of the board. In addition, provision is made for specific declaration at the onset of each board and committee meeting. The board has also adopted a policy on conflicts of interest which clarify the procedures to be followed by board members in the event of a conflict arising.

While no limitations are imposed by the board charter, or otherwise, on the number of other appointments directors can have, approval must be obtained from the chairman prior to accepting additional commitments that may affect the time directors can devote to the group.

In accordance with best practice, the board has adopted a directive which provides guidance on access to professional and independent advice.

Board composition

The nominations committee annually evaluates whether the board's size, diversity and demographics make it effective. A number of studies have shown that the composition of the board can have a significant impact on company performance. Early studies on board composition focused on factors such as independence of directors, with the impact of cognitive diversity in decision-making gaining recognition only in recent years. Recent studies have focused on diversity.

The board has made notable progress in both racial and gender transformation as reflected below.

In support of gender diversity, the board has adopted the following policy statement:

The PPC board recognises the benefits of having a gender-diverse board, and sees increasing diversity at board level as a competitive advantage. Gender diversity will be considered in determining the optimum composition of the board and, when possible, should be balanced appropriately. All board appointments are made on merit, in the context of the skills, experience, independence and knowledge which the board as a whole requires to be effective.

The nominations committee discusses and agrees annual objectives for achieving gender diversity on the board and recommends them to the board for adoption. At the date of adopting this policy statement, the board's aim was to ensure that at least 30% of its members were women and for that percentage to exceed 35% by the end of 2018. As at 31 March 2018, 42% of the board comprised women.

The social, ethics and transformation committee annually approves a transformation roadmap for the group and this includes targets for racial transformation. As such, the racial balance of the board is closely managed by the board to ensure appropriate levels of racial diversity. At 31 March 2018, 54% of the directors on the board were classified as black directors.

Key roles on the board

Key roles in the corporate governance of PPC lie mainly in the responsibilities of three functionaries:

The chairman: Jabu Moleketi

The role of the chairman is set out in the board charter. He is expected to:

Jabu holds various other directorships (CV on page 88).

The CEO: Johannes Claassen

The role of the CEO is determined by the board, formalised in the board charter and managed through his annual scorecard:

Johannes has a permanent appointment with the company and a notice period of six months. His succession plan is overseen by the nominations committee and requires him to assist in developing identified candidates. Johannes has no external directorships and his contract requires him to obtain approval should he wish to join external boards.

The company secretary: Jaco Snyman

The role of the company secretary is largely determined in section 88 the Companies Act 2008 (the Act):

The group company secretary is a central source of information and advice to the board and in the company on matters of ethics and good governance. He also ensures the proceedings and affairs of the board, its committees, the company itself and, where appropriate, owners of securities in the company are properly administered in line with pertinent laws. Details of his qualifications and experience appear on page 91. The board evaluated the company secretary's performance as part of its annual evaluation and the outcome was very positive.

The group company secretary is responsible for compliance with the rules and Listings Requirements of the JSE and Zimbabwe Stock Exchange on which the company's securities are listed and administers the statutory requirements of the company and its subsidiaries in South Africa.

The company secretary is satisfied that he is able to effectively perform the role as gatekeeper of good governance in the company and to carry out his role and responsibilities as company secretary.

Key responsibilities of the board
Strategic planning

As a key performance area of the board, group strategy is mapped by the board in consultation with PPC's executive committee (exco). The board appreciates the fact that strategy, risk, performance and sustainability are inseparable and annually reviews the strategy. The group strategy is detailed on page 8.

Internal control

Reporting in the company is structured so that key issues are escalated through the management team and ultimately to the board, if appropriate.

The board has delegated to the audit committee responsibility for reviewing, in detail, the effectiveness of the company's system of governance, risk management and internal controls. After completing these reviews, the committee reports to the board on its findings so that the board can take a view on this matter. This has been subject to regular review over a number of years, resulting in several refinements. The report on risk and controls appears on page 96.

Delegation

The board delegates certain functions to committees and management, but without abdicating its own responsibilities. Delegation is formal and involves:

Board performance

The code requires annual board performance evaluations by the chairman or an independent service provider and that the results of these evaluations should identify training needs for directors. In the previous review cycle, the nominations committee appointed the IoDSA to conduct the board evaluation. The format was an independently facilitated self-appraisal process, evaluating the views of individual directors on the performance of the board as a whole (as contained in this report), the respective board committees and the chairman.

To place this in perspective, it should be noted that 88% of the areas tested were rated as "satisfactory" to "meets best practice" while only 12% were deemed to require some improvement. The board is taking the necessary steps to address issues requiring its attention.

The table summarises scheduled meeting attendance by board members over the period 1 April 2017 to 31 March 2018.

Board members     Board 
(total of 
5 meetings)
  AGM 
(1 meeting)
  Audit  
(5 meetings)
  Investment 
(2 meetings)
  Nomco 
(3 meetings)
  Remco 
(4 meetings)
  Risk and 
compliance 
(2 meetings)
  SET 
(2 meetings)
 
A Ball**     1                              
J Claassen*     4   1                   1      
S Dakile-Hlongwane     5   1                       2  
N Goldin     5   1   5   2       4          
N Gobodo***     5   1   5       1           1  
T Leaf-Wright     5   1       2           2   2  
J Moleketi**     1               1              
N Mkhondo**     1                              
T Moyo     5   1   5       3   4          
C Naude     5   1       2       3   2      
T Ramano**     5   1                       1  
T Ross     5   1   5   2           2      
* Appointed in August 2017.
** Appointed 1 March 2018.
*** Joined the nomco and SET committees in the second half of the year only.
Board committees

The board has six standing committees through which it operates. Committees play an important role in enhancing good corporate governance, improving internal controls and thus the sustainable performance of the company.

Membership at March 2018
Directors     SET   Audit   Nomco   Remco   Risk   Invest   Participation  
J Moleketi             XX               1  
S Dakile-Hlongwane     X                       1  
N Goldin         X       X       X   3  
T Leaf-Wright     X               XX   X   3  
A Ball                                
N Mkhondo                                
N Gobodo     XX   X   X               3  
T Moyo         X   X   XX           3  
C Naude                 X   X   XX   3  
T Ross         XX           X   X   3  
J Claassen                     X       1  
T Ramano     X                       1  
X – indicates membership
XX – indicates chairmanship

In the interest of free information flow and good oversight, full or summary minutes of all committee meetings are included in document packs for board meetings. In addition, each chairperson is required to present an annual report on the activities of that committee at the board’s meeting in June 2018.

Based on these reports and the minutes of the committees, their performance and conformance to terms of reference are annually evaluated by the board.

At its meeting in 15 June 2018, the board concluded that all committees had executed their responsibilities within the scope of their respective terms of reference in the review period.

About the audit committee
Membership     Status     Qualifications  
N Gobodo     Independent     CA(SA)  
N Goldin     Independent     BCom (hons) MBA  
T Moyo     Independent     CA(Z), CA(SA), RPA(Z), MCSZ  
T Ross (chair)     Independent     CA(SA)  
Meeting date     Attendance     Focus of the meeting  
29 May 2017     All present     Review of results  
15 June 2018     All present     Approval of financials for 2017  
18 September 2017     All present     Internal audit plan  
14 November 2017     All present     Interim results  
8 March 2018     All present     Audit updates for 2018  

All members are independent, as required by the code and the Act. The committee may obtain, at PPC's expense, independent professional advice on any matters covered by its terms of reference.

Tim Ross has been elected to chair the committee since 2009. Tim is a member of the South African Institute of Chartered Accountants.

Members of the executive team, including the chief financial officer (CFO), attend committee meetings by invitation. Similarly, external and internal auditors attend meetings by invitation and have no voting rights. The chairperson reports to the board on the committee's activities and recommendations. The chief audit executive reports functionally to the chairperson of the committee and administratively to the CEO. The latest minutes of committee meetings are included in board packs.

The audit committee has adopted formal terms of reference approved by the board of directors, and has executed its duties in the past financial year in line with these terms of reference. Its terms of reference include the following responsibilities:

Financial information

The committee reviews the annual financial statements, interim and preliminary announcements, accompanying reports to shareholders and any other announcements on the company's results or other financial information to be made public, prior to submission and approval by the board.

Integrated reporting

The committee oversees integrated reporting, particularly:

Internal audit

The committee is responsible for overseeing the internal audit function, in particular:

Risk management

The committee is an integral component of the risk management process. Specifically, its mandate includes the following risk oversight responsibilities:

External audit

The committee is responsible for recommending the appointment of the external auditor and overseeing the external audit process. In this regard, it must:

CFO

The committee must annually consider and satisfy itself of the appropriateness of the expertise and experience of the CFO and must confirm this to shareholders in its annual report.

Financial function

The committee reviews the expertise, resources and experience of the company's finance function, and discloses the results in the integrated report and to shareholders.

Internal controls

The chief audit executive has completed a report to the board on the effectiveness of controls and risk management, tabled at the board meeting in 15 June 2018. In this report, he concluded that, based on the processes and assurance obtained, internal audit was of the view that material internal financial controls were effective.

IT governance

In recent years, PPC has made appropriate investments to ensure its information technology (IT) systems and governance processes comply with the recommendations of King IV™.

The committee reported on its activities for the review period at the board meeting on 15 June 2018.

About the investment committee
Membership     Status     Qualifications  
N Goldin     Independent     BCom (hons), MBA  
T Leaf-Wright     Independent     Chartered Institute of Secretaries  
C Naude (chair)     Independent     BSc (hons) (geology, chemistry), MBL  
T Ross     Independent     CA(SA)  
Meeting date     Attendance     Focus of the meeting  
26 April 2017     All present     Investment reviews  
22 May 2017     All present     Investment reviews  
13 October 2017     All present     Investment reviews  

The committee performs all functions necessary to fulfil the role stated in its terms of reference, including:

Strategic investments (to enhance long-term sustainable income)
Strategic alliances (to position PPC strategically for future markets/benefits)
Operational investments (business unit growth objectives)
Other initiatives (improve efficiencies cost effectively)

The committee reported on its activities for the review period at the board meeting on 15 June 2018. At this meeting, the board confirmed that the committee has complied with its terms of reference.

About the nominations committee
Membership     Status     Qualifications  
N Gobodo     Independent     CA(SA)  
T Moyo     Independent     CA(Z), CA(SA), RPA(Z), MCSZ  
J Moleketi (chair)     Independent     Advanced management programme, MSc (financial economics), post-graduate diploma in economic principles  
Meeting date     Attendance     Focus of the meeting  
15 May 2017     All present     Board performance review and composition review  
10 October 2017     All present     Board and committee composition and succession  
16 March 2018     All present     Planning and succession  

Mr Moleketi was appointed chairman of the nomco following his appointment as chairman. The committee may obtain, at PPC's expense, independent professional advice on any matters covered by its terms of reference. The committee normally asks the CEO to attend its meetings, but he has no voting rights.

The committee has its own terms of reference, approved by the board and reviewed annually. The chairperson reports to the board on activities and recommendations made by the committee and the latest minutes of committee meetings are included in board packs.

The committee performs all the functions necessary to fulfil its role as stated in its terms of reference including:

The committee reported on its activities for the review period at the board meeting on 15 June 2018. At this meeting, the board confirmed that the committee has complied with its terms of reference.

About the remuneration committee
Membership     Status     Qualifications  
N Goldin     Independent     BCom (hons) MBA  
T Moyo (chair)     Independent     CA(Z), CA(SA), RPA(Z), MCSZ  
C Naude     Independent     BSc (hons) (geology, chemistry), MBL  
Meeting date     Attendance     Focus of the meeting  
15 May 2017     All present     Best practice and remuneration trends overview  
15 August 2017     All present     Incentive schemes and annual increases  
5 December 2017     All present     Salary and fee benchmarking and incentive reviews  
16 March 2018     All present     Planning for 2018  

All members are non-executive directors. PwC, appointed by the committee, acted as independent remuneration advisers to the committee and provided detailed information on market trends and the competitive positioning of remuneration.

The committee normally asks the CEO to attend its meetings but he has no voting rights. He does not participate in discussions on his own remuneration, which is set by the committee.

The committee performs all functions necessary to fulfil the role stated in its terms of reference, including:

The remuneration policy of the company is annually presented to shareholders to pass a non-binding advisory vote indicating support for this policy. PPC's remuneration report begins on page 105 and shareholders will be requested to pass a non-binding advisory vote on this policy at the AGM.

The committee has reviewed group remuneration policies to ensure these are aligned with the company's strategy and linked to individual performance.

The committee reported on its activities for the review period at the board meeting on 15 June 2018. At this meeting, the board confirmed that the committee has complied with its terms of reference.

About the risk and compliance committee
Membership     Status     Qualifications  
T Leaf-Wright (chair)     Independent     Chartered Institute of Secretaries  
C Naude     Independent     BSc (hons) (geology, chemistry), MBL  
T Ross     Independent     CA(SA)  
T Claassen     Executive     BEng, EDP  
Meeting date     Attendance     Focus of the meeting  
29 May 2017     All present     Risk register review, combined assurance, risk appetite matrix and insurance programme  
12 October 2017     All present     Risk reviews  

Mr Claassen, although an executive director, serves on the committee to align it with best-practice recommendations of the code. All other members are non-executive directors.

The committee may obtain, at PPC's expense, independent professional advice on any matters covered by its terms of reference.

Members of the executive team responsible for risk and compliance management attend committee meetings by invitation. Similarly, external and internal auditors attend meetings by invitation but have no voting rights. The latest minutes of committee meetings are included in board packs.

The committee has its own terms of reference approved by the board, to assist its members to understand their roles and enable them to add value in discharging their duties. These are reviewed annually, and include the responsibility to:

For a more detailed review on risk and compliance, refer to page 102.

The committee reported on its activities for the review period at the board meeting on 15 June 2018. At this meeting, the board confirmed that the committee has complied with its terms of reference.

About the social, ethics and transformation committee
Membership     Status     Qualifications  
S Dakile-Hlongwane     Independent     BA, MA  
T Leaf-Wright     Independent     Chartered Institute of Secretaries  
N Gobodo (chair)     Independent     CA(SA)  
T Ramano     Executive     CA(SA)  
Meeting date     Attendance     Focus of the meeting  
24 April 2017     All present     Reports on sustainability and transformation  
20 November 2017     All present     Review of sustainability and transformation  

Ms Ramano, although an executive director, serves on the committee to align it with best-practice recommendations. All other members are non-executive directors.

The committee has its own terms of reference approved by the board and reviewed annually. The chairperson reports to the board on activities and recommendations made by the committee and the latest minutes of meetings are included in board packs.

In line with its terms of reference, the committee's objectives are to assist the board in monitoring PPC's activities – against relevant legislation, other legal requirements or prevailing codes of best practice – on matters relating to:

The committee reported on its activities for the review period at the board meeting on 15 June 2018. At this meeting, the board confirmed that the committee has complied with its terms of reference.

Part 2

Corporate governance compliance

This section deals with disclosure on compliance with relevant and prescribed corporate governance principles.

Compliance with King IV™

King IV™ became effective for financial years from 1 April 2017. PPC has aligned its corporate governance practices with best-practice proposals in King IV™.

Further information is available at www.ppc.co.za/investors/governance/.

The King IV™ journey is closely connected to three paradigm shifts in the corporate world:

For the review period, PPC has complied with the King IV™ principles (also referred to as the code).

We describe how we have applied those principles in the following section, together with the sections on risk management, IT governance and directors' remuneration.