Corporate governance report

The Board of directors recognises that good corporate governance is essential to protect the interests of all stakeholders. Business is conducted in accordance with the principles of openness, integrity and accountability, as advocated in the King Code of Governance for South Africa, 2009 (the King III Report). The Board is committed to applying and enforcing appropriate corporate governance principles, policies and practices within each of the Group’s operations. Ultimately, the Board is the focal point of the Group’s corporate governance system, and is accountable and responsible for ensuring compliance with the King III Report.

The Board acknowledges its responsibility to ensure that the principles of good governance are observed, and the directors collectively and individually acknowledge their responsibilities and duties in terms of the JSE Listings Requirements and other relevant legislation.

The Board has reviewed the Group’s organisational structures and corporate governance procedures and has implemented measures to ensure ongoing compliance with good corporate governance practices. Through this process, all stakeholders can be assured that the Group is being managed according to prudently determined risk parameters and in compliance with generally accepted corporate practices. The Group’s audit committee is mandated with monitoring the Group’s compliance with the
King reports.

Changes during the year

In the year under review, Mr JJ Dique and Mr SW Mncwango were appointed as independent non-executive directors with effect from 11 August 2010. Mr DL Eggers retired as an executive director on 31 August 2010. Mr HP Marais was appointed as a non-executive director in his capacity as an alternate director to Dr WT Marais with effect from
3 December 2010. Ms DC Radley resigned and Mr TR Scott retired as independent non-executive directors of the company on 3 December 2010. Mr JJ Dique resigned as an independent non-executive director on 8 February 2011. Ms D Naidoo was appointed as an independent non-executive director with effect from 31 March 2011.

Statement of compliance

The JSE Listings Requirements require JSE-listed companies to report on the extent to which they apply the principles set out in the King III Report. The Board believes that the Group applies the King III Report and the JSE Listings Requirements save in the following instances:

The Board appointed Mr R Havenstein as lead independent director on 30 September 2010.

The Board is of the opinion that Mr Crosse’s chairmanship of the remuneration committee, and his participation in decisions concerning remuneration of directors, helps to ensure that the Group’s remuneration policy is aligned with its strategic objectives.

In line with the King III Report, the Board has reviewed the risk management process and structure within the Group. The risk committee was restructured to comprise only Board members, the majority being non-executive, while the management risk committee comprises mainly members of top and senior management. The risk committee is now chaired by Mr FD Butler, an independent non-executive director.

The remuneration committee comprises non-executive directors. Executive directors attend committee meetings by invitation.

The Board of directors

As recommended by the King III Report, Omnia Holdings Limited has a unitary Board structure, comprising a majority of non-executive directors independent of management. As at 31 March 2011, the Board comprised 11 directors, of whom six are independent non-executive directors, two are non-executive directors, one alternate non-executive director and two are executive directors. The Board as a whole selects and appoints new directors. A formal procedure applies to all appointments which are confirmed by shareholders at the annual general meeting.

The guidelines contained in the JSE Listings Requirements are used to test the independence and category most applicable to each director. Prior to any appointment, potential Board appointees are subjected to a fit and proper test, as required by the Companies Act, 61 of 1973, and the JSE Listings Requirements.

To ensure that there is a clear division of responsibilities, the roles of chairman and group managing director are separate. The chairman and the group managing director jointly provide leadership and guidance to the Group.

The Board met seven times during the 2011 financial year. Details of directors’ attendance of Board meetings throughout the year are provided below.

The chairman

The Board appointed Mr Crosse as non-executive chairman in 2000. As chairman, he is responsible for ensuring the integrity and effectiveness of governance practices. His role is to provide continuity, experience, governance and strategic advice. He leads the Board and is responsible for representing the Board to shareholders. His particular areas of responsibility include strategic planning, maintaining relationships with principals, government and customers, transformation, corporate relations, toplevel contact with regulatory bodies, and advice and guidance on local and overseas acquisitions.

The chairman’s level of involvement is considered essential by the Board, given the intrinsic knowledge and experience he brings to the effective running of the Board and guidance of the management team.

Mr Crosse has been with Omnia for more than 30 years. His energy, enthusiasm and thorough knowledge of the chemical industry have helped guide the Group to its current success. He held the position of chairman of the Chemical and Allied Industries’ Association of South Africa (CAIA), the organisation responsible for administering Responsible Care^® in the South African chemical industry, for five years. He consults with and provides strategic input and advice to the Group managing director on a regular basis.

Non-executive directors

Omnia’s non-executive directors bring a diversity of experience, insight and independent judgement on issues of strategy, performance, resources and standards of conduct, while contributing to decision making through their knowledge and experience. They are individuals of high calibre and integrity who provide a depth of wisdom based on this knowledge and experience. To protect shareholders’ interests, the independent directors ensure that no one individual director has unfettered powers of decision making and authority.

Executive directors

Being involved in the day-to-day business activities of the Group, executive directors are responsible for ensuring that the decisions, strategies and views of the Board are implemented. Mr Humphris was appointed as Group managing director in 1999. He reports to the Board and is responsible for ensuring the smooth running of the day-to-day business of the Group, as well as guiding the implementation of policies and strategies adopted by the Board. In addition, he is responsible for developing and recommending to the Board a long-term strategy and vision for the Group that will generate stakeholder value, as well as developing and recommending to the Board annual business plans and budgets that support the Group’s long-term strategy.

The Board charter

The Board has adopted a charter defining its responsibilities, the terms of which include:

Directors’ interests in terms of other Board positions and contracts are regularly declared, recorded and updated. Board members are required to recuse themselves when participating in deliberations or decision-making processes that could in any way be affected by a conflict of interest. During the year under review, none of the directors declared a material interest in any contract or arrangement entered into by the Group.

The Board defines levels of materiality, reserving specific powers and delegating other matters with the necessary authority to management. The Board has adopted a formal resolution framework that serves as an authority matrix guideline.

Notwithstanding the mandate given to the audit, remuneration and risk committees, the Board is ultimately accountable and responsible for the performance and affairs of the Group. Delegating authority to Board committees or management does not in any way mitigate or discharge the Board and its directors of their duties and responsibilities.

Selection and appointment

In terms of the company’s articles of association, one-third of the directors retire annually and, if eligible, stand for re-election. Their names are submitted for re-election at the annual general meeting.

Mr R Havenstein, Ms HH Hickey and Mr NJ Crosse will be retiring at the annual general meeting this year and will stand for re-election. Brief CVs are provided on page 152 of this annual report.

Non-executive directors have no service contracts with the company and are appointed for specific terms. The Board has adopted a policy on the procedure for the appointment of directors. All directors are invited to assist in the identification and nomination of potential candidates. New appointments to the Board are confirmed at the following annual general meeting in terms of the company’s articles of association.

Mr HP Marais was appointed in December 2010 as an alternate director to Dr WT Marais and Ms D Naidoo was appointed in March 2011 as an independent non-executive director. Their appointments will be confirmed at the annual general meeting.

Induction and development

Newly appointed directors undergo an induction exercise appropriate to their needs. The company secretary assists the chairman with the induction and orientation of directors, including arranging specific training if required.

The company is committed to continuing director development in order to build on their expertise and develop a more detailed understanding of the business and the markets in which the company operates.

In addition, individual directors may, after consulting with the chairman and managing director, seek external independent professional advice on matters concerning the affairs of the Group, and in connection with the discharge of their responsibilities as directors, at the expense of the Group.

Board committees

While the Board remains accountable and responsible for the performance and affairs of the company, it delegates to management and Board committees certain functions to assist the Board in properly discharging its duties.

Each Board committee acts within agreed, written terms of reference that are reviewed and updated from time to time. The chairperson of each Board committee reports back to the Board on the deliberation of the committee meeting, and minutes of Board committee meetings are provided to the Board for comment and noting.

The chairperson of each Board committee is required to attend annual general meetings to answer questions raised by shareholders. The established Board committees are as follows:

Audit committee

This year, the audit committee comprised three independent non-executive directors.

The chairperson is an independent non-executive director. The Group managing director, Group finance director, head of internal audit and the external audit partner are invited to attend meetings. The audit committee met on four occasions during the year under review. Details of the attendance at meetings by members of the audit committee are provided below of this report. During the year, the following changes to the audit committee took place:

The audit committee operates according to written terms of reference approved by the Board, which were reviewed in the year in accordance with the King III Report and the Companies Act 2008. The responsibilities of the audit committee include:

The services rendered by the external auditors during the year under review, and approved by the audit committee, comprised mainly compliance and other assurance-based engagements, including opinion work not related to or associated with any prohibited services in terms of the adopted policy.

Both the internal and external auditors have unrestricted access to the audit committee. The external auditors may report findings to the committee in the absence of members of executive management. It is a duty of the audit committee to ensure that the independence of the external auditor is not impaired.

During the financial year under review, PricewaterhouseCoopers Inc. acted as the external auditors of the company. The audit committee is satisfied that the external auditors observe the highest levels of business and professional ethics and that their independence is not impaired. The audit committee has also reviewed the external auditor’s registration requirements in terms of the JSE Listings Requirements and is satisfied that the external auditors are compliant.

The audit committee is responsible for recommending to the Board and shareholders at the annual general meeting, for consideration, the approval and appointment of the external auditors.

The audit committee has, in accordance with the JSE Listings Requirements as amended, evaluated the experience and expertise of the finance director and is satisfied that he has the requisite experience and skills to fulfil his responsibilities competently.

Members of the audit committee conducted a selfevaluation exercise in order to identify areas that require attention and appropriate action to be taken in this regard. Based on this self-evaluation exercise, the audit committee will focus on strengthening its oversight role in relation to legal compliance and ensuring appropriate continuous development for audit committee members. At the end of each financial year, the audit committee reviews compliance with its terms of reference and makes appropriate recommendations to address any areas which may require improvement. During the year under review, the audit committee has satisfied its obligations in accordance with its terms of reference. The audit committee has also evaluated its compliance with the Corporate Laws Amendment Act, 2007, the Companies Act, 2008, and the amendments to the JSE Listings Requirements as and when applicable, and the members were satisfied that the committee met the requirements of all.

Internal controls

The Group maintains systems of internal control over financial reporting and the safeguarding of assets against unauthorised use, acquisition or disposal. The internal audit function monitors these systems of internal control and reports its findings and recommendations to management. Corrective action is taken as and when control deficiencies or opportunities for improvement in the systems are identified.

The purpose, authority and responsibility of the internal audit function are formally defined in an internal audit charter, which has been approved by the Board and which is consistent with the recommendation of the Institute of Internal Auditors.

The adequacy and capability of the Group’s internal audit structure is subject to review by the audit committee to ensure that adequate, objective internal audit assurance standards and procedures exist within the Group. In this regard, appropriate recommendations are made by the audit committee from time to time to ensure the continued improvement of the internal audit department.

The audit committee tables audit plans for each business annually. Follow-up audits are conducted in areas where major weaknesses are identified.

The system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide reasonable, but not absolute, assurance against material misstatement or loss.

The Group maintains a vigilant stance against corporate crimes and to that end a whistle-blowing mechanism has been implemented with reports submitted directly to the audit committee through internal audit.

The whistle-blowing line is intended to ensure that a proactive approach is applied to fraud with a focus on prevention, detection and investigation. This provides assurance to stakeholders that fraud risks within the company are being managed and mitigated.

Board risk committee

The Board reviewed the risk management process this year to comply with the King III code, reconstituting the risk committee that had been in place for a number of years, so as to comprise a majority of non-executive directors.
The management risk committee will deal with operational risk issues. Processes have been introduced, but not yet completed to fully implement integrated risk management in accordance with the requirements of the King III Report.

The Board risk committee oversees the overall risk management process within the Group, assists the Board in fulfilling its governance and exposure responsibilities, and monitors requirements relating to risk management as set out in the King III code, and its functions complement those of the management risk committee. The Board risk committee comprises non-executive directors and the Group managing director, and is chaired by Mr FD Butler, an independent non-executive director.

The management risk committee comprises members of executive and senior management, is chaired by the Group managing director and operates within the framework and guidelines of a documented risk policy. It is the Board’s view that the management risk committee remains a critical component of the risk management process as management has the requisite experience and knowledge to identify and appropriately manage the business risks of the Group. The Group’s SHEQ officer and other specialist employees attend management risk committee meetings by invitation.

The Board risk committee operates in accordance with written terms of reference and its responsibilities include:

The risk management philosophy of the Group is summarised as follows:

The Board risk committee met three times and the management risk committee met once during the year under review. Details of attendance by members of the Board risk committee are provided on below of this report.

While operational risk can never be fully eliminated, the Group endeavours to minimise it by ensuring that the appropriate infrastructure, controls, systems and human resources are in place throughout the business units.

At the operational level, top and senior management identify major risks, promote awareness, introduce an applicable control environment and procedures and apply risk monitoring. The philosophy of the Group’s short-term insurance programme is to self-insure inevitable and smaller losses which are not administratively cost effective to submit to insurers, and to develop self-insurance and aggregate deductibles over the longer term. The Group transfers only potential catastrophic losses to insurers. Apart from motor vehicles, assets are traditionally insured for full replacement values. The Group has profiled a wide range of risks, and the list is continually updated.

The Group has made great strides in recent years to reduce its risk exposures to any one product, industry or customer type by adopting a more balanced profile. The risk committee reviews the extent of compliance with its terms of reference and makes appropriate recommendations to address any gaps which are identified during such reviews.

Remuneration committee

To ensure sufficient impartiality, the remuneration committee comprises three non-executive directors. The Group managing director and the Group human resources director attend meetings by invitation. The chairman of the Board chairs the remuneration committee.

Although the remuneration committee does not determine the chairman’s remuneration, it is recognised that best practice dictates that the chairman of the Board should not chair the remuneration committee. As a result, the structure and composition of the remuneration committee is currently being reviewed. Other directors who do not serve on the committee may be invited to attend meetings for any special expertise they may have, or to explain the performance of an incumbent under review.

The committee met three times during the year. Details of the attendance of members of the remuneration committee are provided on below of this report. The remuneration committee operates under written terms of reference which are reviewed from time to time.

The main responsibilities of the remuneration committee are to:

The remuneration committee’s overall strategy is to ensure that employees are rewarded for their contribution to the Group’s operating and financial performance, by taking into account industry, market and country benchmarks. In order to promote an identity of interests with shareholders, share incentives are considered to be critical elements of executive incentive pay. Schedules setting out directors’ remuneration and equity interests appear in the directors’ report. Bonuses for senior executives are based on an economic value added (EVA) formula, which has been in place for many years. It is practice within the Group to spread payment of a portion of the bonus amount over a number of years. This rollover principle contributes to stable executive teams at Group and divisional levels. The Group chairman’s compensation does not form part of the mandate of the remuneration committee and is negotiated with non-executive members of the Board as and when required. Succession planning for the Group managing director is not dealt with by the remuneration committee, but by the Board as a whole.

Annual financial statements

The directors are responsible for the preparation of the annual financial statements. Management fulfils its responsibilities by maintaining adequate accounting records to ensure the integrity of these annual financial statements. This is accomplished by systems of internal control designed to provide reasonable assurance on the reliability thereof. Such controls provide the company with the assurance that the Group’s assets are safeguarded, transactions are executed in accordance with management’s authorisations and financial records are reliable. This is augmented by the Group’s ethics and prescribed policies and procedures which are regularly updated to take cognisance of changing circumstances in the financial and operational environment.

The company secretary

The company secretary is responsible for providing the Board collectively, and each director individually, with guidance on the discharge of their responsibilities in terms of the legislative, regulatory and governance requirements. All the directors have unlimited access to the advice and services of the company secretary. The company secretary plays a pivotal role in the company’s corporate governance process and ensures that, in accordance with the pertinent laws, the proceedings and affairs of the Board of directors, the company itself and, where appropriate, shareowners are properly administered. The company secretary also acts as the compliance officer and delegated information officer of the Group, and is responsible for the execution of statutory requirements applicable to those positions. In addition, individual directors may, after consulting with the chairman and managing director, seek external independent professional advice about the Group’s business and on any matters connected with the discharge of the responsibilities as directors, at the expense of the company.

Code of conduct

Omnia prides itself on its reputation for ethical conduct which it has built among all its stakeholders over many years. This stems from the uncompromising belief that honesty, integrity, professionalism and service must underpin every relationship entered into with employees, management, customers, suppliers, the government and the communities in which the Group operates.

The Group has developed a code of conduct (the code), which has been fully endorsed by the Board and applies to all directors and employees. The code is regularly reviewed and updated when necessary to ensure that it reflects the highest standards of behaviour and professionalism. The directors believe that the ethical standards of the Group as stipulated in the code are adequately monitored and are being met. Where there is non-compliance, the appropriate disciplinary procedures are consistently enforced as the Group responds to offences and prevents recurrence.

In summary, the code requires that, at all times, all company personnel act with the utmost integrity and objectivity and in compliance with the letter and the spirit of both the law and company policies. The code is provided to each employee as part of induction training, and employees are asked to sign a declaration confirming compliance with the code annually.

Dealing in securities

The Group has a policy in place to ensure that it is compliant with all laws and regulations governing insider trading and trading during prohibited periods. This policy and practice complies with the Securities Services Act, the JSE Listings Requirements and all other relevant legislation. In compliance with this policy and practice, the Group restricts its directors, officers and other employees from dealing in the company’s securities prior to any formal announcement in respect of its financial results or during any other period where such dealings may be considered price sensitive. The policy also regulates the dealings by directors in Omnia Holdings’ securities, as required by the JSE Listings Requirements. This policy is implemented and monitored by the company secretary. In compliance with the JSE Listings Requirements, the chairman approves all share transactions by company directors prior to the transaction. This policy is reviewed and updated from time to time to ensure that it is compliant with any changes in legislation.

Attendance at Board and Board committee meetings

The record of attendance by each director at Board meetings and Board committee meetings for the financial year ended 31 March 2011 is set out below:

Relations with shareholders

The Group pursues dialogue with institutional investors based on constructive engagement and the mutual understanding of objectives having regard to statutory, regulatory and other directives overseeing the dissemination of information by companies and their directors. Management is able to communicate the strategy and performance of the Group with investors and analysts through various presentations and meetings. The quality of this information is based on the standards of promptness, relevance and transparency.

The Group makes every effort to ensure that information is distributed via a broad range of communication channels, having regard to security and integrity while bearing in mind the need that critical financial information reaches all shareholders simultaneously and timeously. In communicating the Group’s strategy and results, the Group makes use of communication channels such as the Omnia website (www.omnia.co.za), Securities Exchange News Service (SENS), as well as print, radio and television media.

The Board accepts its duty to present a balanced and understandable assessment of the Group’s position in reporting to stakeholders. Greater demand for transparency and accountability regarding non-financial matters is always taken into account. All stakeholders with a legitimate interest in the Group’s affairs can obtain full, fair and frank accounts of its performance.

One Capital (Pty) Limited acted as the company sponsor during the year under review.

The Group acknowledges the importance of its shareholders attending the annual general meeting, as it offers an opportunity for shareholders to participate in discussions relating to agenda items and to raise additional issues. Explanatory notes setting out the effects of all proposed resolutions are included in the notice of the meeting.

Directors reconsider their assessment at the year-end of the Group’s ability to continue as a going concern and determine whether any of the significant factors in the assessment have changed to such an extent that the appropriateness of the going-concern assumption at the interim reporting stage has been affected. The directors have formed a judgement that there is a reasonable expectation that the Group has adequate resources to continue to operate for the foreseeable future, and therefore continue to adopt the going-concern basis in the preparation of the financial statements.