Statement of compliance | Integrity and ethical behaviour | The board of directors

Introduction

The board of directors of Aveng Limited (board) acts as the focal point for, and is the custodian of, corporate governance in the group. The board oversees processes which ensure that each business area and every employee of the group is responsible for acting in accordance with sound corporate governance principles in their relationships with management, shareholders and other stakeholders. The board has a formal charter which sets out its role and responsibilities and is satisfied that, for the year under review, it has complied with the terms of its charter. The charter includes the board’s responsibility to:

• Ensure that a code of conduct is developed and observed
• Act as the focal point for, and custodian of, corporate governance
• Recognise and manage relationships with stakeholders along sound principles of corporate governance
• Ensure that the company is, and is seen to be, a responsible corporate citizen
• Require members of the board to always act in the best interests of the company and to manage potential conflicts
• Delegate certain functions to well-structured committees without abdicating its own responsibilities
• Provide directors with ongoing training and development to meet new legislative, regulatory and best practice requirements
• Ensure that the board and its committees are properly evaluated on an annual basis.

Statement of compliance

JSE Limited
The company is subject to, and remains compliant with, the Listings Requirements of the JSE Limited.

King Report on Governance for South Africa, 2009
The board has seen the King Report on Governance for South Africa, 2009 (King III) bring a maturing of the approach to governance which takes into account the concerns and issues of its wider stakeholder community. The board is committed to the highest standards of corporate governance with sound governance principles remaining its top priority.

King III distinguishes between statutory provisions, voluntary principles and recommended practices. Following a formal process to implement the recommendations of King III, the majority of the principles have been applied, as is evidenced in the various sections of this report. A detailed exercise to benchmark the group’s practices against the principles set out in King III was undertaken and the details are set out in the following schedule here and here.

Companies Act 71 of 2008, as amended
The Companies Act 71 of 2008, as amended (Act) came into effect on 1 May 2011. Accordingly, the company was required to amend certain of its documentation to ensure compliance. The following actions have, among others, been taken to ensure that the company complies with the Act.

Loans and other financial assistance to directors
On 30 June 2011, the company called a general meeting of shareholders to approve a special resolution permitting the company to provide direct or indirect financial assistance to entities within the Aveng Group, in terms of section 45 of the Act.

Amendment of memorandum of incorporation
Schedule 5(4) of the Act provides for existing companies to change their articles of association by filing an amended memorandum of incorporation within two years of the Act coming into effect, in order to bring its current articles in line with the Act. Accordingly, the articles of association of the statutory entities in the group must be changed before 1 May 2013. It is anticipated that the articles of Aveng Limited will be amended and presented to shareholders for approval at its annual general meeting in October 2012. The articles of Aveng (Africa) Limited and Aveng Trident Steel (Pty) Limited will be amended in the same time frame. The articles of smaller entities will be considered on an individual basis over the period.

Prescribed officers
In accordance with the Act, the company has defined its prescribed officers. Prescribed officers are defined by the Act as those who exercise general executive control over, and management of the whole, or a significant portion of, the business and activities of the company; or regularly participate to a material degree in the exercise of general executive control over, and management of the whole, or a significant portion of, the business and activities of the company.

Financial reporting and going concern
Based on the recommendation of the audit committee, the board considers and confirms the going concern status of the group in preparation of the annual financial statements at both the interim reporting period and at year-end. The assumptions underlying the going concern statement include profitability, budgets, forecasts, cash flow and liquidity.

The board is also responsible for monitoring the preparation, integrity and reliability of the financial statements, accounting policies and the information contained in the integrated report.

A robust, integrated process exists to assist the board in identifying, evaluating and managing the significant risks posed to the group. This process has been in place for the year under review, and while management is responsible for this process, it is independently monitored by the audit committee and risk committee.

The financial statements of Aveng Limited are prepared on a going concern basis, taking into consideration the following indicators. No areas of concern were noted by the board.

Financial indicators
The board is confident that there are no known events or conditions which may give rise to business risks that, individually or collectively, may cast significant doubt about the group’s ability to continue as a going concern. Based on its knowledge of the group, key processes in operation and specific enquiries, the board is of the view that there are adequate resources to support it as a going concern for the foreseeable future.

The board is of the opinion that the group’s risk management processes and the systems of internal control are effective.

Legislative compliance
The board has noted its duty to ensure that the company complies with applicable laws and considers adherence to non-binding rules, codes and standards as an imperative part of doing business. The board has also ensured that compliance is included on the strategic risk dashboard of the group and it remains a key component of the group’s integral approach to governance, risk and compliance.

Integrity and ethical behaviour

The board is committed to providing effective leadership based on an ethical foundation and believes that responsible leadership is characterised by the ethical values of responsibility, accountability, fairness and transparency. The board accepts its responsibility for ensuring that management actively cultivates a culture of ethical conduct and establishes the correct tone at the top in respect of the group values.

The use of an independent hotline service, “Tip-Offs Anonymous”, that supplies reporting of all forms of unethical behaviour, is in place across the group.

The board of directors

The board of directors of Aveng Limited is the highest decision making body within the group and is the ultimate custodian of corporate governance. The board aspires to exercise leadership, integrity and judgement in the pursuit of the group’s strategic goals and objectives. The board members are appointed by shareholders.

In accordance with King III and the JSE Listings Requirements, the roles of Chairman and Chief Executive Officer are separated and there is a clear division of responsibilities within the company, ensuring a balance of power and authority. The position of Chairman is held by an independent non-executive director. The majority of the directors of the board are independent. The ratio of executive to non-executive directors ensures that the board is sufficiently informed by independent perspectives. Details of the directors appear on pages 26 and 27 of this report.

During the year under review, the board welcomed Peter Erasmus and Thoko Mokgosi-Mwantembe as members and noted the retirement of Vincent Mntambo. Simon Scott resigned as Financial Director and Kobus Verster was appointed to that position with effect from 27 September 2010.

The Chairman of the board is elected annually. The composition of the board and committees is considered by the remuneration and nomination committee on an annual basis and the board strives to ensure that it has the appropriate skills, experience and diversity.

Non-executive directors may accept appointments to other boards, including industry related organisations, government entities and charitable organisations, provided their other commitments do not impact on their ability to discharge their duties to the Aveng Group.

Non-executive directors are not awarded share options or any benefits other than directors’ fees, more fully set out in the remuneration report contained on pages 101 to 111 of this integrated report. No service contracts exist between the company and non-executive directors.

Independence
The independence of non-executive directors is evaluated on an annual basis by the remuneration and nomination committee against criteria set out in the Act and King III. The strong independent component of the board ensures that no one individual has unfettered powers of decision and authority. There are no shadow directors.

Nkululeko Sowazi is an executive director of the Kagiso Tiso Holdings Group. Kagiso Tiso Holdings Group has a material relationship with Aveng Limited as it holds 25% in Aveng (Africa) Limited and Aveng Trident Steel Holdings (Pty) Limited. Accordingly, Mr Sowazi is not considered independent.

Strategy
Management is responsible for developing and presenting the group strategy to the board annually. The board has a duty to ensure that the strategy takes account of associated risks and is aligned with the group’s code of business conduct. The board agrees the financial, governance and risk objectives and monitors performance against objectives. At each meeting of the board, management reports on its performance against these objectives.

Access to information and resources
From time to time, members of the executive committee attend board meetings by invitation. Non-executive directors also interact regularly with executive management through site visits and the tender risk committee.

All directors of the board are provided with unrestricted access to management and company information. Directors are also provided with the requisite resources to discharge their duties and responsibilities, including the access to external professional advisers, at the expense of the company.

Board meetings
The board meets on a quarterly basis and additional meetings are held when required. During the year under review, the board formally met a total of six times. These meetings are considered necessary for the board to properly apply itself to achieving its objectives and included meetings held to consider the group’s strategy and operational business plans. The nonexecutive directors meet independently of executive directors before each board meeting.

Board meetings held during the past financial year.

Share dealings by directors and officers
The company implements a voluntary closed period for two weeks prior to the mandatory closed period commencing at the company’s year-end on 1 July until the release of the yearend results.

During closed periods, directors and designated senior executives may not deal in the shares, or in any other instrument linked to the shares, of the company. In addition, directors and senior employees cannot trade in the company’s shares during any period where they have access to unpublished price sensitive information. To ensure effective compliance, it is a requirement that no trade in Aveng Limited securities may take place outside of the closed periods without prior written approval from the Chairman for directors and the Chief Executive Officer for officers of the group.

Directors and senior designated employees are required to instruct their portfolio or investment managers not to trade in Aveng Limited securities without their written consent. They are required to advise the Company Secretary immediately after the trade has taken place, who will then report that transaction to the JSE Limited through the Stock Exchange News Service within one working day.

Identical rules and restraints apply where Aveng Limited securities are held by immediate family of directors or senior designated employees or by trusts in which directors or senior designated employees or their families are beneficiaries.

Anti-corruption framework
During the year under review, the anti-corruption framework was updated and the posters, booklets and Z-cards updated and distributed to all the operations for dissemination to all their personnel. The group competition law compliance programme and the corporate governance framework were augmented and compliance refresher training was undertaken across the group. The legislative compliance framework will be implemented and rolled out across the group in the coming financial year.

Group competition law compliance programme
During the 2010 financial year the group formulated and implemented the group competition law compliance programme, which it continued during the year under review. This programme ensures that all employees, management and directors are made aware of the provisions of the Competition

Act 89 of 1998. Compliance officers appointed at Aveng Limited and at each of the operating groups and continue to champion this initiative.

The group is committed to continually develop and implement clear competition law compliance policies and procedures, with an approved awareness and appreciation of all aspects of competition law remaining an integral part of this compliance programme.

Board committees
In order to assist the board to discharge its duties and in line with legislative and regulatory compliance requirements, the board has constituted the following committees:
(1) Audit committee
(2) Risk committee
(3) Remuneration and nomination committee
(4) Safety, health and environmental committee
(5) Transformation committee
(6) Investment committee

Each committee is governed by a formal charter which is reviewed by the board on an annual basis and applies the recommendations of King III. The chairman of each committee reports to the board on its activities at each board meeting and the minutes are made available to all directors. On an annual basis, the committees assess whether they have complied with the terms of their charters and report back on compliance to the board.

The duties and responsibilities of the members of the committees as set out in each charter are in addition to those duties and responsibilities that they have as members of the board. The deliberations of the committees do not reduce the individual and collective responsibilities of the board members in regard to their fiduciary duties and responsibilities, and they must continue to exercise due care and judgement in accordance with their legal obligations. Charters are subject to the provisions of the Act, the memorandum of incorporation of Aveng Limited, as well as any other applicable law or regulatory provision.

Social and ethics committee
The Act accompanied by the Regulations, makes provision in section 72(4) and section 43 respectively, for listed companies to appoint a social and ethics committee.
This committee must be established within 12 months of the effective date of the Act and accordingly the group must have a social and ethics committee in place by 1 May 2012. The board has commenced a process to consider the duties and responsibilities of this committee in light of the functions performed by other board committees, in order to ensure that it complies with the Act in a practical and manageable manner.