ANNUAL REPORT 2003 1.pdf · 03 Turnover (Rm) 600 700 800 1 000900 (cents) 02 99 Earnings and...

CONTENTS

Five-year review 1

Group at a glance 2

Group profile 3

Chairman’s report 4

Chief Executive’s report 5

Building materials division 8

Wholesale division 10

Ceramics division 12

Boards division 14

Ironmongery & hardware division 16

Corporate governance 18

Value added statement 19

Financial index 20

Report of the independent auditors 21

Statement of compliance by the company secretary 21

Directors’ report 22

Balance sheets 24

Income statements 25

Cash flow statements 26

Statements of changes in shareholders’ equity 27

Notes to the annual financial statements 28

Shareholder analysis 40

Shareholders’ diary 41

Corporate information 41

Notice of Annual General Meeting 42

Contact details 45

Form of proxy

STRATEGIC INTENT

To meet the product needs of the building industry

through focused sourcing and redistribution of goods

into each segment of the market

CORE COMPETENCIES

• Market intelligence

• Procurement

• Trading skills

ACHIEVEMENT THROUGH

• Owner manager ethos with strong

incentive for performance

• Decentralised operating divisions

• Tight centralised financial controls

• Focus on niche markets without

dominating any one segment

• Operating one platform business

in each segment

• Geographically roll out or acquire

“satellite operation” leveraging the

expertise of the platform businesses

• Leveraging common expertise

between operations

1ILIAD ANNUAL REPORT 2003

% 2003 2002 2001 2000 1999

change R000 R000 R000 R000 R000

Turnover 51 1 140 019 752 764 593 757 518 995 461 453

Profit before interest and taxation 60 92 740 58 140 35 065 35 600 35 728

Net financing costs 1 508 3 818 4 465 3 644 3 803

Profit before taxation 68 91 232 54 322 30 600 31 956 31 925

Taxation 24 680 13 818 4 911 7 510 9 341

Earnings for the year 64 66 552 40 504 25 689 24 446 22 584

Headline earnings for the year 60 67 573 42 213 24 080 24 446 22 584

Number of ordinary shares in issue

at year-end including 7 358 879

treasury shares (2002: 7 358 879) 147 200 000 75 269 000 74 658 982 77 239 582 69 492 381

Weighted average number of

ordinary shares in issue 88 478 042 68 104 952 74 582 728 81 778 873 82 592 982

Headline earnings per share (cents) 23 76,4 62,0 32,3 29,9 27,3

Earnings per share (cents) 26 75,2 59,5 34,4 29,9 27,3

Dividend per share (cents) 58 19 12,0 9,0 7,0 5,4

FIVE-YEAR REVIEW

0 100 400 500 1 100200 300

02

01

00

99

03

(Rm)Turnover

600 700 900800 1 000

(cents)

02

01

00

99

03

Earnings and dividends per share

Dividends Earnings

0 10 40 50 8020 30 60 70

| ENERGY | PASSION | FOCUS | PERFORMANCE |

2 ILIAD ANNUAL REPORT 2003

NORTHERN CAPE

WESTERN CAPE

NORTH WEST PROVINCE

GROUP AT A GLANCE

BUILDING MATERIALS DIVISION

WHOLESALE DIVISION

CERAMICS DIVISION

BOARDS DIVISION

IRONMONGERY & HARDWARE DIVISION

BuildingMaterials

Ironmongery &Hardware

Sourcing, distributing and retailingdoor knobs, handles, locks, accesscontrol and ironmongery accessories.

BoardsSuppliers of a comprehensive rangeof chipboard, melamine board,shutterboard, hardboard, formica,plywood, panelling, other relatedproducts and accessories.

CeramicsAn exclusive range of local andimported sanitaryware, bathroomfurniture, bathroom accessories, porcelain, ceramic tiles andother related products.

WholesaleSourcing and distributing acomprehensive range of tools,hardware, ironmongery, keys, locksand accessories to resellers.


Iliad Africa focuses on the sourcing, distributing and retailingof a comprehensive range of Building Materials including:• Roof trusses, cement, doors, windows, bricks and

related products.• Tools, hardware, ironmongery, keys, locks and accessories

to resellers• An exclusive range of local and imported sanitaryware,

bathroom furniture, bathroom accessories, porcelain andceramic tiles

• A range of chipboard, melamine board, shutterboard,hardboard and formica

• Door knobs, handles, locks, access control and ironmongeryaccessories

A range of customers, from large-scale companies anddevelopers, to do-it-yourself homeowners are serviced througha number of branded stores each concentrating their effortsinto an identified customer-focused market niche.

GROUP PROFILE

EASTERN CAPE

KWAZULU-NATAL

FREE STATE

GAUTENG

NORTHERN PROVINCE

MPUMALANGA

Divisions Products and services

Sourcing, distributing and retailinga comprehensive range of buildingmaterials.

BOARD

non-executive directorsGregory Psillos BCom MBA (UCT)

Non-executive Chairman. Appointed as director in June 1998

Estanislau Henriques (Stan) FerreiraNon-executive Director. Appointed as director in June 1998

Howard Charles Turner BCom (Wits) CA(SA) SEP (Stanford)

Non-executive Director. Appointed as director in March 2003

Ralph Trevor Ririe BCom (Wits) CA(SA) OPM (Harvard)

Non-executive Director. Appointed as director in March 2003

executive directorsRalph Bruce Patmore BCom (Wits) MBL (Unisa)

Chief Executive Officer. Appointed as director in June 1998

Neil Peter Goosen BCompt (Unisa) CA(SA) MBA (Wits)

Financial Director. Appointed as director in September 1999


CHAIRMAN’S REPORT

1 2

3 4

5 6

1 Greg Psillos 2 Stan Ferreira 3 Howard Turner 4 Ralph Ririe 5 Ralph Patmore 6 Neil Goosen

The year 2003 was a landmark year for Iliad. After five years of establishing a

solid foundation we achieved yet another milestone. We graduated from a small

capitalisation (under R200 million) to a market capitalisation of R800 million. In the

process we improved turnover to R1,1 billion and earnings from R40 million

to R66 million.

Our share price reached R5,50 in December 2003 (R2,50 in January 2003) and the

average daily trade increased from approximately 96 800 in 2002 to an average daily

trade of approximately 247 000 post the acquisition of Corpbuild. The acquisition

of Corpbuild attracted some of South Africas’ leading and most respected long-term

equity investors.

The next five years shows even greater promise. The group is well poised to take

advantage of further acquisition opportunities. We are virtually debt free and our

share price is on the move.

Based on the rating of some comparative businesses we could soon find our price

earnings ratio in double digit territory.

In line with our dividend policy of not exceeding a four times cover we are declaring

a dividend of 19 cents per share which represents an increase of 58%.

We are committed to a burgeoning new South Africa and in this respect we are

identifying suitable BEE shareholding partners. We have appointed a sub committee

to identify and negotiate with suitable prospects.

It is also important to recognise the leadership role of our two executive directors

and to thank the entire management team for their dedication, commitment and

enthusiasm. Furthermore I would like to extend a warm welcome to the Corpbuild

management team. We are privileged to have them on board and look forward to

their positive contribution.

Finally I would like to thank my colleagues on the Board for their immense

contribution and support.

Greg Psillos

Chairman

EXECUTIVE COMMITTEE

Ralph Patmore

Neil Goosen

Rhone Diab Wholesale

Mike Meskin Building materials

Manny de Canha Ceramics

Gordon Bayley Boards

Lukie Oelofse Boards

THE YEAR OF DELIVERY

The acquisition of the Corpbuild businesses from Corpcapital

allowed the group to deliver on the promise made in the 2002

annual report namely that a “significant acquisition“ would be

made to add “critical mass” to the group.

We are proud to report that the objectives set while

motivating the acquisition have all been met:

• To achieve a market capitalisation above R450 million

In December Iliad’s market capitalisation was R720 million

• To increase the share liquidity

The average number of shares traded per month has for the

period July to December increased from 1,1 million to

3,5 million for the last three months of 2003

• To strengthen the institutional share holding base

Rand Merchant Bank, Old Mutual and Sanlam are all now

significant shareholders

• To leverage operational efficiencies

Operating margins have increased from 7,7% to 8,1%.

PERFORMANCE

The gratifying results were achieved during a period when the

group was highly focused on an acquisition that on an

annualised basis will double its size.

This bears testimony to:

• The decentralised highly focused structure that allows the

traders to trade.

• The unbelievable level of commitment and support given

by the management team led by Mike Meskin that came

on board from Corpbuild.

The acquisition deal was effective 1 July 2003 but due to the

normal delays in gaining Competition Commission approval the

implementation date was 19 September 2003. For this reason

the financials only include the new operations for 104 days in

2003. This makes ratio analysis very difficult so we have

included an annualised analysis in another section of this

report to provide indicative values for comparison purposes.

In summary:Turnover up 51%

Profit before tax up 68%

Earnings for the year up 64%

Headline earnings per share up 60%

Year-end cash balance R69,9 million


CHIEF EXECUTIVE’S REPORT

1 2

3 4

5 6

1 Ralph Patmore 2 Neil Goosen 3 Rhone Diab 4 Mike Meskin 5 Manny de Canha 6 Gordon Bayley 7 Lukie Oelofse

7


The chart represents the Building material supply market in RSA. Each pie represents a cluster of products within

the market. (This is not meant to be complete but is for illustration purposes only).

Iliad’s Building Material division supplies the full product range. It carries a huge breadth of product range but

limited depth.

The Ceramics division has focused on a cluster of products and created depth of choice by extending the range

to about 20 000 line items, for the upper end of the finishes market.

Each of Iliad’s divisions are focussed on an identified niche.

Iliad’s drive is to structure the group to be highly focused on the differing needs of our customer base by

segmenting and fragmenting the market.

PO

TEN

TIA

LFU

TU

RE

GR

OW

TH LIGHTINGWHOLESALE

8 Outlets

CERAMICS8 Outlets

BOARDS5 Outlets

IRONMONGERY & HARDWARE

16 Outlets

BUILDING MATERIALS22 Outlets

PLUMBING

ELECTRICAL


BUILDING MATERIALS SUPPLY MARKET

Turnover growth was achieved in an environment of continued

robust demand, but one where locally sourced product inflation

was 3% while imported products saw deflation of 14%. Real

volume growth was 10%.

Management continued with tight controls on expenses

and working capital. Operating margins improved to 8,1%

(7,7%) and net finance costs decreased to R1,5 million

(R3,8 million).

Despite the R50 million cash portion of the acquisition

the group finished with a cash balance of R69,9 million

emphasising its continued powerful drive to generate strong

cash flows.

The acquisition has not changed Iliad’s strategic intent as

a highly focused supplier of building materials into niche

markets. The core competencies namely market intelligence,

procurement, and trading are continually being honed and

leveraged to strengthen the group’s position into the future.

The new experience base and the extensive expertise acquired

will further bolster the group’s strength.

The restructuring of the existing divisions and the creation of

the new Wholesale division has been completed. The details

are expanded upon under each divisional review.

The restructure involved splitting existing businesses and

moving segments of a business into another division. For

example, The Knob & Knocker was split into two businesses

and Saflok, a segment of B&B Distributors was moved into the

Ironmongery and hardware division as a stand alone entity.

Iliad now comprises five divisions with the smallest achieving

an annualised turnover of R150 million while the largest will

exceed R1 billion turnover in 2004.

The Wholesale division was created so as to provide focus

to those businesses selling to resellers rather than the end

user. The modus operandi is different and needs the right

mindset in order to be successful. This will be our biggest

challenge in 2004.

The Iliad Africa Academy run in conjunction with UNISA has

completed its first two modules with 12 students progressing

to module 3 of the 4 modules, (2 year) programme. We are

extremely satisfied with the results achieved and the growth

of the individuals in the programme.

TRADING ENVIRONMENT AND PROSPECTS

The residential sector of the market continues its robust

demand pattern. Our belief is that the pool of potential

homeowners is widening and that fixed property has become

a preferred investment.

The housing price boom is also driven by a correction of the

8 to 9 years of stagnation in prices. The media has been

vociferous about the “housing bubble” a view we do not

subscribe to.

We continue with the view that 2004 will produce a similar

volume demand to that experienced in 2003 in both the

residential and commercial markets.

Growth will be derived from the opening or acquiring of new

stores. This will be done prudently as we believe that the

market will slow in 2006 and a number of good value

acquisitions will appear.

We are well positioned to make a meaningful acquisition as the

balance sheet is strong and we have the ability to utilise debt

without pushing our gearing levels much beyond 30%.


RATIO ANALYSIS

2003 2002

Operating margin 8,1% 7,7%

Working capital to sales* 10,6% 10,2%

ROCE* 43,3% 55,2%

ROE* 30,5% 32,6%

Sales days outstanding* 36 36

Creditor days* 61 75

Stock days* 77 94

*Annualised for the year ending 2003.



BUILDING MATERIALS DIVISION

50%47%

Turnover Profit before taxation

50%

ESTABLISHED, STRONG

REGIONAL BRANDS

WILL BENEFIT FROM

IMPROVED SYNERGIES

AND PURCHASING

POWER


The 19 acquired Corpbuild businesses form the core

of the building materials division with Ferreira’s

Buildware, Ferreira’s Lyttleton Express and Rietpan

completing the picture.

The division showed strong growth on both the

turnover and profit lines. The businesses are extremely

well managed, both from a trading and administrative

view point. The truss plants operated at near full

capacity in the period with a new plant having been

installed at the Klerksdorp operation. The division is

said to be the largest truss producer in the country.

The concept of running small flexible truss plants

has worked exceptionally well for the division.

Special mention needs to be made of the small cash-

and-carry store situated in Shayandima, Venda. The

management has under difficult conditions produced

exceptional results which has created the base for

future roll-out expansion. This expansion will be

slow as location and the quality of management is

of prime importance.

Builders Market Middelburg successfully relocated

itself to a new mega store. Cash sales have shown

substantial growth and we are looking to 2004 to

realise the full value of this investment.

The new businesses bring with them expertise in

supplying Government in the field of schools and

clinics. Builders Market Pietersburg was highly

successful in securing the work and managing the

collection of monies due. This level of expertise can

be rolled out in the division over the next few years.

Businesses which made large contributions to divisional

profits and had an exceptionally good year were

Ferreira’s Buildware, Rietpan, Laeveld Bouhandelaars,

BBS Benoni, Builders Market Bloemfontein, Builders

Market Pietersburg, Rustenburg Building Supplies and

F&F Building Supplies.

The 22 outlets provide a substantial national footprint.

The strong and well-established regional brands will

benefit from the improved purchasing power and the

synergies the division will generate.

On an annualised basis turnover will be in excess

of R1 billion.

The geographic footprint for the division has two

glaring gaps namely Pretoria and the coastal strip from

Durban down to Cape Town (see map on page 2).

We are presently looking for premises in Pretoria to

leverage the success of the Ferreira’s Lyttleton Express

store. The new operation will be substantially larger

and will feed the Lyttleton store. As regards the

coastal gap we are looking for acquisitions of a

reasonable size where we can add value.

The average annual turnover per outlet stands the

division in a strong negotiating position as all stores

are able to take full loads from suppliers, making the

logistics for the suppliers far easier. This will provide

a cost advantage for the division and improve

profit margins.

The new combined level of expertise will help leverage

operational effectiveness in 2004. The commercial crime

unit has already helped to detect theft in the stockyards

more swiftly than was previously the case. Furthermore

the experience residing in the unit enables it to

prosecute perpetrators in conjunction with the SAP.

The division is in the process of upgrading their

computer software, standardising on KITE.

The resultant benefits should filter through in 2005

and 2006.

The management of working capital and expenses will

be given extra focus in 2004 so as to ensure that, if

and when the market does slow, we are in a position

to perform and are not caught unawares.

The trading activity for the new year is healthy and

augurs well for a solid performance in 2004.

A special mention must be made of the passion and

commitment demonstrated by Mike Meskin and his

team. The division could not have settled down so

smoothly had it not been for the supreme effort on

their part. Iliad is privileged to have them on board.



WHOLESALE DIVISION

Turnover Profit before taxation2%4%

DIVISION FORMED TO

FOCUS EXCLUSIVELY

ON SALES TO RESELLERS


The Wholesale division presents the biggest

opportunity for the group in the medium term while

at the same time providing the largest risk in the

short term.

Post the acquisition the necessary critical mass was

achieved to form a new division focused exclusively

on sales to resellers. The modus operandi is

significantly different to the retail operations and

requires a specific mindset.

Fortunately there are a number of solid businesses in

this division:

• The Knob & Knocker in Johannesburg, Durban and

Cape Town supplying ironmongery to resellers

• B&B Locksmiths in Johannesburg and Durban along

with Keylock in Cape Town who focus on supplies

to the locksmith industry

These operations put in strong performances in 2003

to produce highly acceptable returns.

The opportunity and risk lies in the B&B Distributors

businesses in Johannesburg and Durban. These

operations have been stripped of their non-wholesale

segments which have been repositioned in the

Ironmongery and Hardware division. The skeletons

that are left are being refocused. This exercise entails

a total resourcing of product lines and a critical

assessment of management’s commitment and

capabilities.

The opportunity is to become a profitable player in

the tool and hardware wholesale market. There is a

short-term risk of losses being incurred while

refocusing the business.

In terms of group performance this will have no

significant impact on results although the division

may take strain in 2004. In 2005 we expect the

division to be a significant contributor to the

group’s growth.

The initial product lines to be imported have been

identified and overseas suppliers have been engaged

with the first shipments due in the second quarter.

Management changes have already been implemented

at the Johannesburg operation and progress is well

under way to reposition the business. Furthermore, an

in-depth analysis of the Durban operation is nearing

completion and we are confident that focused trading

will start in both operations by the middle of the year.

The development of B&B Distributors is far less

risky than a new independent business starting out.

A number of product lines from local suppliers

have procurement deals in place within the group.

B&B Distributors will be able to leverage these deals

immediately. In other words, they don’t have to

convince suppliers of potential volumes to gain access

to better pricing.

The established wholesale businesses in the

ironmongery and locksmith markets are exceptionally

well run by competent managers. We have also given

one of our best managerial performers, Rhone Diab, the

task of growing this division. We are confident that,

with the support of his team, they will stabilise the

division in 2004 and turn it into one of the gems

in 2005.

The 2004 year will be used to further develop our

market intelligence so as to provide the correct input

when deciding the long-term vision for this division.



CERAMICS DIVISION

50%47%


27%

50%

28%

THE CUTTING EDGE OF

RETAIL DEVELOPMENT


The Ceramics division produced a strong performance

in an environment that felt the effects of the

strengthening rand. The imported product lines saw

deflation of around 14 percent. Management was able

to hold margins on the exclusive product lines while

working higher valued stock out of the system. Selling

more volume for less revenue also placed the expense-

to-sales ratios under pressure, but these were well

controlled during the year.

The working capital management was superb,

resulting in a phenomenal cash generation year for

the division.

Expansionary focus was on the Durban store where

the Just Tiles operation in Hunter Street was closed,

relocated to Lion Match Park and rebranded Ferreira’s

Décor World. The new store opened in April 2003 and

has proved to be a resounding success. The turnover

has doubled and the showroom has received stunning

reviews from clientele, architects, developers and other

professional buyers. The store is a smaller replica of

the cutting edge design at the Northriding flagship

store in Johannesburg. This lifestyle showroom concept

has to be continuously upgraded as the customer

relentlessly aims for greater sophistication.

In general a lively level of trade was experienced,

driven by new housing projects and a widespread

upgrading of existing residences.

The emerging black middle class is growing and they

bring a high level of sophistication and a demand

for quality products to the stores.

The Ferreira’s Décor World Northriding store continued

with its profitable growth trend and remains the

premier store in the country.

The Cape Town Just Tiles operation is a solid business

which has not reached its full potential. Management

changes are being made to drive and focus the efforts.

Due to the size and relative success of the Cape

operation we have strategically decided not to rebrand

the store. A Ferreira’s Décor World boutique outlet will

be opened this year once appropriate premises have

been identified. The success of running two brands

will be assessed over the next two years.

The Just Tiles Port Elizabeth operation continued its

journey towards acceptable returns following its

restructuring in 2001.

The Architectural department remained at the forefront

of a declining market. We are not dependant on huge

commercial projects and can supplement the turnover

with refurbishment of private lodges and small retail

outlets. On the back of this strategic focus the

department grew its sales and profitability.

A few examples of the higher profile projects are:

• Cresta Shopping Centre

• Elephant Hill Hotel, Zimbabwe

• Nestle Offices

• Group Five Housing 77 Grayston Drive

The division is expecting a solid year of trading buoyed

by a full year contribution from the new Durban outlet.

The senior management team remains highly motivated

and focused. They possess those special attributes that

set this division above its competitors.



BOARDS DIVISION


15% 19%PROCUREMENT

EXPERTISE AND

STRONG SUPPLIER

PARTNERSHIPS


The Boards division produced a strong performance in

a year that was clearly divided. The demand pattern in

the first six months was robust while the second six

months saw a severe drop off, an intensification of

price cutting, an oversupply of product from local

manufacturers and a flood of cheap imports.

It was a period during which our core competencies,

namely market intelligence, procurement and trading

abilities, were tested to the limit.

Management held onto volumes while improving gross

margins through their procurement expertise, to deliver

an above inflation performance on the bottom line for

the year.

Working capital levels came under pressure in the

middle of the year when we increased stock levels to

alleviate the expected price increase. The increases did

not materialise and we found ourselves operating in an

environment where small procurement deals were being

done in November at lower prices than the bulk deals

done in June. Management was able to restore the

working capital balance by year-end.

The KwaZulu-Natal operation continued into its fourth

consecutive year of aggressive growth while

maintaining the critical ratios. This operation needs

special mention as, on balance, it was the best

allround performing business in the group.

The Cape Town operation continued its good

performance for the second year improving its

profitability ratios. However the working capital came

under pressure due to the slow down of orders from a

customer who exports to Europe where the market has

slowed. Management is rectifying this imbalance.

One of the pleasing performances come from the

Vereeniging operation which conducts business in a

depressed environment. Management increased the

size of the premises and installed cutting and edging

facilities at the end of 2002 to improve the flexibility

of the service. The results in 2003 were outstanding.

This is not a large operation but it proved that a

business can perform well in a depressed economy

if the flexibility and level of service surpasses that

of its competitors.

The division operates off a solid base with an extremely

high level of credibility. It has representation in

Johannesburg, Pretoria, Cape Town, Durban and

Vereeniging. From this platform we will prudently look

to expand the network so as to leverage our proven

capabilities. The programme of geographic expansion

will be slow as we will only consider acquiring

operations where we can add value and which

provide a short-term return.

The strong supplier partnerships remain a feature of

this division and may present some form of opportunity

into the future. Steinhoff Limited has taken control of

PG Bison and once they have Competition Commission

clearance we will monitor their strategic direction

carefully.

The management team has the expertise and ability to

take the division into the future.



IRONMONGERY & HARDWARE DIVISION

Turnover Profit before taxation4%4%

POWERFULL BRANDS

SUPPLYING PRODUCTS

FROM BASIC 2 LEVER

LOCKS TO SOPHISTICATED

ACCESS CONTROL

The Ironmongery & hardware division was restructured

following the addition of six outlets from the Corpbuild

acquisition. This provided critical mass and the ability

to separate the wholesale businesses, leaving a retail-

based division with exceptionally strong regional

brands. The retail portion of the Knob & Knocker is

being rebranded on a regional basis leveraging the

existing powerful brands namely:

– Buchel in Pretoria

– Design Hardware in Johannesburg

– Bildware in KwaZulu-Natal

– W&B Hardware in Cape Town

All the brands house a retail, contract and specification

segment leveraging the newly acquired technical and

managerial expertise.

Saflok, the electronic access unit, has been positioned

as a stand-alone business in the division. This

completes the divisional range of product from the

basic two lever lock to the sophisticated access control

business of Saflok.

The Conway brands house the aluminium trading which

is not core and will be looked at in 2004.

The division produced a strong performance in a market

where commercial demand declined but residential

demand grew. All the operations were profitable, which

provides a strong base for the 2004 financial year.

Bildware in KwaZulu-Natal performed exceptionally

well during the period. Management had focused the

business predominantly into the niche market supplying

maintenance needs. The product range supplied had

ironmongery as the core but it was supplemented with

all the peripheral hardware requirements. The business

is growing from strength to strength.

The old Knob & Knocker Woodmead outlet now branded

Design Hardware Woodmead enjoyed substantial growth

during 2003.

The division is focusing on improving the shopping

experience in the stores. A mystery shopping exercise

carried out by Brainscan has highlighted some short-

comings in this regard.

The management of working capital will be high on the

agenda for 2004 in view of the potential rationalisation

of product brands and the direct import of some ranges.

The potential growth in cash sales out of the retail

stores will improve the divisions cash flows.

The division now has a national footprint, the

technical expertise, the product range and the manage-

ment to grow substantially in the next few years.

Management remains committed and is focused on

ensuring that the synergies available to the division

both inter and intra division are leveraged to the

full extent.


Ralph Patmore

Chief Executive Officer

APPRECIATION

The passion and commitment with which the senior

executives go about their business is refreshing.

I would like to thank them, the staff, the Chairman

and the Board for their continued support during 2003.

Bildware

CORPORATE GOVERNANCE

Iliad and its directors are fully committed to the principles of account-

ability, transparency and integrity in accordance with generally

accepted corporate governance practices.

The Board is of the opinion that Iliad complies materially with and is

implementing the recommendations of the King II Report and its Code

of Corporate Practices and Conduct.

Board of directors

Four of the six directors of the company are non-executive and

independent. The Executive Directors comprise the Chief Executive

Officer and the Financial Director.

The Board meets at least four times a year and retains full and effective

control over the group. The Board, through a structured approach to

reporting and accountability, monitors the activities of executive manage-

ment. The Board has the responsibility for the company’s overall strategy,

acquisitions and disinvestment policy, approval of development projects

and significant matters relating to finance and corporate governance.

All directors have access to the advice and services of the company

secretary, who is responsible to the Board for ensuring that Board

procedures are followed and applicable regulations are adhered to.

Audit committee

The Audit Committee consists of Messrs HC Turner (Chairman),

RT Ririe (both independent non-executive directors), RB Patmore and

NP Goosen. The audit partner of the external auditors attends the

committee meetings where appropriate. The committee functions under

written terms of reference and meets three times per year. The

committee reviews the interim and annual financial statements before

submission to the Board. The committee continues to maintain an

objective and professional relationship with the external auditors.

Remuneration committee

The committee consists of Messrs HC Turner (Chairman), G Psillos and

RT Ririe (both independent non-executive directors) and RB Patmore

and attends to all remuneration issues. The Chief Executive Officer

is not present when his remuneration is discussed. The director’s

emoluments and the share options granted to each director are detailed

and disclosed in note 16 to the financial statements.

Attendance at meetings

The following is a list of Board meetings and Board Committee meetings

attended by the directors during the year:Audit Remuneration

Directors Board committee committee

A B A B A B

G Psillos 5 5 1 1 1 1RB Patmore 5 5 2 2 1 1EH Ferreira 5 4NP Goosen 5 5 2 2RT Ririe 5 5 1 1 1 1HC Turner 5 4 1 1 1 1

Column A indicates the number of meetings held during the period the director wasa member of the Board and/or committee.Column B indicates the number of meetings attended.

Reporting and internal controls

The group has comprehensive monthly financial accounting and

reporting routines from its operating divisions. Management of cash and

banking relationships is centralised. Formal monthly meetings are held

between the Chief Executive Officer and Financial Director and the

operating executives to review performance and commercial and

strategic issues.

The accounting division at the central office, under the control of the

Financial Director of the company, undertakes the function of internal

audit of the operating divisions. The company’s external auditors are

involved in this process if the need for their participation arises.

Going concern

The company has sufficient resources to continue in operational

existence for the year ahead. Accordingly, the directors have adopted

the going concern basis in preparing the annual financial statements.

Code of ethics

Iliad accepts the recommendation of the King Report II that the company

should conduct its affairs with uncompromising honesty and integrity.

Employment Equity

The company continues to pursue employment equity through

implementation of the plan submitted to the relevant authorities

in February 2000.

Safety, Health and Environment

All businesses in the group are required to report to the Executive

Committee on their compliance with applicable laws and regulations.

Shareholders

The Chief Executive Officer and Financial Director regularly

communicate with major shareholders, institutional investors and media

analysts. Shareholders are encouraged to attend the Annual General

Meeting. Financial results are published in the press and shareholders

receive a copy of these results timeously.

Dealing in securities

Directors, officers and selected employees are made aware of the

restricted or ‘closed’ periods for dealing in Iliad shares and the

provisions of insider trading legislation.


ILIAD ANNUAL REPORT 2003 19

VALUE ADDED STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003

"Value added " is the value which the group has added to its products and services.

This statement shows how the value so added has been distributed amongst our

various stakeholders.

Creation of wealth

Group turnover 1 140 019 752 764

Cost of merchandise and net expenses 914 308 612 242

Value added 225 711 140 522

Distribution of wealth

To employees – salaries and benefits 124 548 77 259

To government – taxation 24 680 13 818

To providers of capital

– Interest on borrowings 1 508 3 818

– Dividends to shareholders 8 165 5 975

To maintain and expand the group

– Depreciation 8 423 5 123

– Retained for future growth 58 387 34 529

225 711 140 522

Employees 55,18 54,98

Government 10,93 9,83

Providers of Capital 4,29 6,97

To maintain and expand group 29,60 28,22

100,00 100,00

Number of employees which includes executive directors at 31 December 2003 was 2 314 (2002: 837)

Value Value2003 added 2002 addedR000 % R000 %

50%

2003

Profit before taxation

50%

2002

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