Integrated Report 2015

Waco International is a diversified equipment rental and industrial services business with rental, sales and manufacturing operations in the following key geographies: Africa (South Africa

and other sub-Saharan Africa), Australasia (Australia and New Zealand), the United Kingdom and Chile.

Waco International provides a range of products and services to a number of markets and industries, including:

• Formwork, shoring and scaffolding, suspended platforms and related services, including personnel supply, technical support services, insulation cladding, painting and blasting

• Relocatable modular buildings in which to live, work or learn, including technical support and project management

• Portable sanitation products and integrated hygiene services

About this report 2

Organisational overview 6

Business model 15

Investment case 22

Performance highlights 24

Material matters 26

Group strategy 37

Performance review and outlook 47

Remuneration report 62

Governance report 68

Summarised consolidated financial statements 76

Independent auditor's report 86

Independent assurance report 87

Useful terms 89

Glossary 92

Administration 95

Contents

2 Waco International / Integrated Report 2015

Reporting approachWaco International applied the principle of materiality to determine the content of this report. Matters that, in the board’s opinion, have the potential to substantively affect the Group’s ability to create value in the short, medium and long term have been included. The business model and strategy have been described in order to illustrate Waco International’s responses to material risks and opportunities in its operating environment, including the expectations of stakeholders.

Detail regarding the Group’s materiality determination process is provided on page 26, along with a discussion of its primary material matters.

AssuranceThe summarised consolidated financial statements provided in this integrated report were extracted from the full audited statutory annual financial statements. Waco International is confident that other data which has not been externally audited is an accurate reflection of the business’s performance and position based on the combined assurance process indicated in the reporting suite table.

Waco International views integrated reporting as a tool to improve communication with and between stakeholders. Waco International’s integrated report is intended to articulate and provide insight into the Group’s performance, strategy and future prospects.

The report is presented in accordance with the International Integrated Reporting Council’s (IIRC) International Integrated Reporting <IR> Framework (<IR> Framework) to ensure that matters material to the Group’s value creation process are communicated effectively. Waco International’s first integrated report, produced in 2014, formed the basis from which this report was developed and the Group is committed to continually improving in this area.

Reporting boundaryThe integrated report covers the African and international operations of Waco International Holdings Proprietary Limited (Waco International or the Group), for the period 1 July 2014 to 30 June 2015. Subsequent developments between 1 July 2015 and the date of this report that were considered relevant to matters dealt with have been included in this report.

Financial information is provided on a consolidated basis unless otherwise stated. All monetary amounts reflected in the report are expressed in South African rand (R), Australian dollars (AU$) or British sterling (£).

About this report

3Waco International / Integrated Report 2015

Reporting suiteThis integrated report should be read in conjunction with the sustainability overview and annual financial statements included in the suite of reports:

Integrated report Sustainability overview Annual financial statements

Contents • Concise overview of the Group’s material matters, business model, strategy, performance and prospects

• Remuneration report• Corporate governance report• Summarised consolidated

financial statements • Independent assurance report• Independent auditor’s report

• Greater detail on the five material social and environmental sustainability elements addressed in the integrated report:

• Safety and health• Human resources• Transformation• Environment• Corporate citizenship

• Full consolidated financial statements for the year ended 30 June 2015

• Directors’ report• Audit and risk committee report

Frameworks and guidelines applied

• IIRC International Integrated Reporting Framework V1.0

• King Code of Governance Principles for South Africa 2009 (King III)

• Group social and ethics committee charter

• International Financial Reporting Standards (IFRS)

• Companies Act of South Africa, 71 of 2008 as amended (Companies Act)

Assurance • Independent auditor’s report on the summarised consolidated financial statements

• Limited assurance on selected financial and non-financial information

• Group executive management oversight

• Audit and risk committee oversight

• Board oversight and approval


• Social and ethics committee oversight


• Independent auditor’s report on the consolidated financial statements


• Audit and risk committee oversight


Available Online at: www.wacointernational.co.za

Online at: www.wacointernational.co.za

Online at: www.wacointernational.co.za

Printed reports available on request

About this reportOrganisational overview

Business modelInvestment case

Performance highlightsMaterial matters

Group strategyPerformance review and outlook

Remuneration reportGovernance report

Financial statements


The diagram below demonstrates how the social and environmental matters dealt with in the sustainability overview are inextricably linked with the material issues, strategy and performance of the Group dealt with in the integrated report.

About this report (continued)

Integrated report

Government effectiveness in

South Africa

Transformation in South Africa

Sanitation in South Africa

Material matter

Safety and health

Contract execution

Accessing and retaining skills

Labour stability in South Africa

Retaining and developing skilled

human capital

Driving meaningful transformation

Identifying and targeting new

growth initiatives

Maintaining order book quality and contract delivery

Strategy

CEO's report Chairman's reportCEO's report

Governance

CEO's report

CFO's report

Chairman's report

CEO's report

CFO's report

Performance report back

Human resources Corporate citizenship

Transformation EnvironmentSafety and health

Sustainability overview


Forward-looking statementsCertain statements in this document may constitute ‘forward-looking statements’. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Waco International Holdings Proprietary Limited and its subsidiaries to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. The company undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of publication of this document, or to reflect the occurrence of anticipated events. These have not been reviewed or reported on by the Group’s auditors.

End-user marketsCertain information relating to Waco’s end-user markets contained in “Business of Waco”, including, but not limited to, the percentage of the Group’s revenues attributable to particular end-user markets, is based primarily on information collated by Waco’s branches, including input from customers concerning Waco’s products. In order to ensure that end-user markets best reflect the drivers of Waco’s business, such information is assessed and adjusted by management based on discussions with Waco’s business units. Waco, however, is not able to independently verify such information. Senior management has no reason to believe that this information is incorrect, although investors are cautioned that the actual composition of Waco’s end-user markets may differ from the information presented in this Integrated Report.

Market leadershipAccording to senior management's estimates, the Group is an established market leader in FSS (Forming, shoring and scaffolding) and PS (Portable sanitation) in South Africa and in access scaffolding in Australasia, and it has the second-largest R&MB (Relocatable and modular building) hire fleet in South Africa. It also has a niche position in R&MB in the United Kingdom and a small but growing share of South Africa’s IHS market. Senior Management views the size, quality and reach of the Group’s hire fleet as a significant competitive strength.

Board responsibility and approval statementThe board, with the assistance of the risk and controls committee, is responsible for the integrity of the integrated report. The board applied its collective mind to the preparation and presentation of the integrated report and is satisfied that the report is a fair and accurate representation of Waco International’s performance and prospects in accordance with the International Integrated Reporting <IR> Framework.

This integrated report was approved by the board and signed on its behalf by

Royden Vice

Chairman

7 December 2015

Request for feedbackFeedback on the contents and presentation of the 2015 integrated report will assist Waco International in improving the quality and relevance of future reports. Stakeholders are invited to contact Eben le Roux (chief financial officer) at [email protected].

NavigationA list of useful industry terms and a glossary are provided in the annexures at the end of this report.

Cross-references to information contained within this and other reports are indicated with this icon.








Waco International provides a range of products and services to a number of markets and industries, including:• Formwork, shoring and scaffolding, suspended platforms and

related services, including personnel supply, technical support services, insulation, cladding, painting and blasting

• Relocatable modular buildings in which to live, work or learn, including technical support and project management

• Portable sanitation solutions and integrated hygiene services

ProfileWaco International is a diversified equipment rental and industrial services business with rental, sales and manufacturing operations in the following key geographies: Africa (South Africa and other sub-Saharan Africa), Australasia (Australia and New Zealand), the United Kingdom and Chile.

Fact sheetFootprint Five principal geographies

12 countries

Over 100 branches

Over 14 000 customers

Approximately 100 000 tons of scaffolding

Approximately 44 000 tons of formwork

Approximately 24 000 portable toilets

Over 3 750 relocatable modular buildings

People 2 259 full-time equivalent (FTE) employees

4 165 permanent or limited duration contract (LDC) employees

Transformation Broad-based black economic empowerment (B-BBEE) level 2

Principal activities

Forming, shoring and scaffolding

Suspended platforms and hydraulic access

Insulation, painting and blasting

Relocatable modular buildings

Portable sanitation

Integrated hygiene services

Principal industries

Industrial maintenance

Infrastructure

Mining and resources

Oil and gas

Power generation

Construction and engineering

Healthcare

Education

Events

Informal settlements

Principal markets by geography

South Africa

Other sub-Saharan Africa (seven countries)

Australasia

United Kingdom

Chile

Organisational overview


TransparencyAll employees are appropriately informed about Waco International’s performance, current challenges and risk areas. Managers and employees are encouraged to highlight any problems encountered so that these can be resolved at an early stage.

AccountabilityWaco International holds its regional managers and employees accountable for their actions, within clear lines of responsibility. A relatively small head office complement is evidence of the reliance Waco International places on regional management in the running of the business.

PerformanceThe performance management process starts with managers and employees jointly agreeing on performance objectives for the year. In the context of the business plan, these objectives are set using the balanced scorecard approach. This approach ensures that financial and non-financial targets are set and formally appraised.

Best practiceWaco International strives to be the best at what it does. This is applicable to the products and services it offers its customers and its internal controls and processes. To this end, Waco International has a number of local and global peer groups who are mandated to identify areas of excellence (internal and external) and to promote these practices throughout the Group. Waco International’s Continuous Improvement ethos is a key contributor towards achieving this objective.

TeamworkWaco International recognises that teamwork produces superior performance. The different operating businesses learn from each other, provide support when required, share opportunities and optimise the resource base.

More information on the principles and organisational culture is provided in the sustainability overview, available online at www.wacointernational.co.za

Business principlesWaco’s business principles are management’s primary tool to bridge the gap between aiming for a high performance culture and actually achieving it in reality. The principles, known as TAP the Best Team, are integrated into the day-to-day management of the business and can be summarised as follows:








Organisational overview (continued)

Waco Africa

South Africa (27)Ghana (1)

Mauritius (1)Mozambique (1)

Namibia (2)Swaziland (1)

Zambia (1)Tanzania (1)

South Africa (9)Namibia (2)Ghana (1)

Mozambique (1)Zambia (1)Offshore (1)

South Africa (10) South Africa (18)Zambia (1)

South Africa (3)

Established in 1963 Established in 1945 Established in 1995Acquired in 2006

Established in 1982Acquired in 2007


• Hire and sale of scaffolding, formwork and falsework as well as associated services to a wide range of industries

• Manufacturing, design, technical advice and support

• Special projects requiring bespoke solutions

• All-in-one service provider of access scaffolding, industrial painting, industrial corrosion protection and thermal insulation and cladding

• Asbestos removal service and safety assessments

• Marine scaffolding and offshore personnel supply (Men on boats)

• Seating, platform and related infrastructure products for events

• Hire and sale of modular building solutions

• Creating space in which to live, work and learn, including accommodation, ablution facilities and communal buildings – from site offices to three-storey office complexes – and providing learners with attractive, safe and high-quality surrounds

• Turnkey hospitality camp solutions (contractor accommodation)

• Hire of portable chemical toilets

• Regular servicing of portable toilets as well as septic tank pumping

• Integrated hygiene services including rental and servicing of sanitisers, wipes, toilet tissue dispensers, sanitary bins and hand washing and drying components, as well as contract cleaning and pest control services

• Portable wastewater treatment plants

• Specialist access systems providing suspended platforms, hydraulic lifts and access scaffolding systems

• Design, installation, maintenance and after-sales services to the construction, mining, building and maintenance industries, as well as sporting arenas, the film industry and open-air spectaculars

1

Market leader

1

Market leader

2

In rental market

1

Market leader

1

Specialty market leader

19%✔

Group revenue share23%✔




Group revenue share1

1 Revenue for SkyJacks included from 1 January 2015.

Portfolio overview


Waco Kwikform Group

Australia (15) New Zealand (1) New Zealand (5) Australia (1)

Established in 1987 Established in 1999 Acquired in 2005



• All-in-one access scaffolding service provider as well as the hire of scaffolding, formwork and falsework and associated services to a wide range of industries

• Design, technical advice and support





• Scaffolding, portable toilets, materials site sheds and materials hoists servicing the low-rise housing construction market in Western Australia

• Associated services, including erection and transport

1

Market leader26%✔

Group revenue share

Form-Scaff Chile

Chile (1)

Established in 1996 • Hire and sale of scaffolding, formwork and falsework and associated services

Small 1%✔

Group revenue share

Premier Modular

United Kingdom (1)

Acquired in 1989 • Hire and sale of relocatable modular buildings

• Manufacturing, design and technical support

• Local team focused on research and development into product innovation

Niche – growing 17%✔

Group revenue share

More information on the operating businesses is provided in the performance review and outlook section beginning on page 47.









History

1952

Waco International was founded and listed on the JSE. The Group developed into an international conglomerate with operations both in South Africa and abroad.

2000

The Group was acquired by a private equity consortium led by Ethos Private Equity and delisted. The Group restructured its portfolio in the early 2000s to focus on the primary businesses of forming, shoring and scaffolding and relocatable modular buildings.

2002

New management was appointed to drive the optimisation of the Group’s financial and operational performance. Aspects of the strategy included diversifying the customer mix, expansion into new geographies and extending products and services into adjacent fields. Compound adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 23% for the period 2000 to 2005 was achieved.

2005

Waco International was acquired by private equity shareholders based in Hong Kong and London. The Group was affected by the global financial crisis which, combined with excessive gearing, hindered its ability to fund growth.

2011

The Group sold its highly successful relocatable modular buildings business in Australia and New Zealand, Ausco, in a substantial transaction. This freed up the balance sheet and enabled Waco International to refocus on growth. Initiatives and targets were identified from branch level throughout the organisation, underpinned by the Alchemy of Growth framework and Continuous Improvement ethos which are aimed at constantly pursuing excellence.

2012

The Group’s ownership structure changed when a consortium of equity shareholders, led by Ethos Private Equity (Ethos), RMB Ventures (RMB), Standard Bank and management shareholders, acquired Waco International. The new shareholders continued to invest in the business, supporting the growth agenda.

2013 – 2015

Substantial capital expenditure of R848 million invested into the hire fleet over three years, including R166 million ✔ in bolt-on acquisitions, contributed significantly to the strong performance of Waco International. The investment activity is a fundamental aspect of the Group’s well-honed optimisation and expansion strategy, which has produced exceptional growth of 39% in adjusted EBITDA compounded over three years.

11Waco International / Integrated Report 2015 11

Group structureThe following diagram is a simplified representation of the operating companies of Waco International and excludes non-material and dormant entities.

100% 74.9%100%

Companies registered in:• South Africa• Ghana• Mauritius• Mozambique• Namibia• Swaziland• Zambia

Kwikform Acquisition (Pty) Ltd

Chile

Pipes UK Holdings Ltd

Fund 1 (Pty) Ltd

25.1%








01Africa

JohannesburgHead office

UK

Chile

Australia

04

03

02


Geographic footprint


01Africa

JohannesburgHead office

UK

Chile

Australia

04

03

02

Over 100 branches strategically positioned, provides significant operating leverage and ensures Waco services its customers efficiently. Where possible, business units share branches, allowing for significant cross-selling and cost-reduction opportunities.







The Group’s operations benefit from significant advantages over its competitors

as a result of its business model. These include the scale and strategic positioning of its branch network, successful track record of innovation,

active management of its hire fleet and standardisation and flexibility across

its product range.


Inputs More detail

Financial capital

Growth recordA demonstrable track record of growth in revenue and adjusted EBITDA, with three-year 21% ✔ compound annual growth rate (CAGR) in revenue, 39% ✔ in adjusted EBITDA and return on net assets managed (RONAM) at 27% ✔. This indicates the ability of the business to outperform the market and deliver robust financial returns.

CEO's report: page 49

Access to capitalAccess to capital has been a competitive advantage and will be a key driver of future growth. The Group has increased its funding flexibility to pursue continued investment in organic and acquisitive expansion opportunities.

CFO's report: page 54

Investment in fleetNet capital expenditure (CAPEX) of R682 million ✔ invested in the Group over the past three years, which has delivered solid growth.


Bolt-on acquisitionsInvested R166 million ✔ in bolt-on acquisitions over the last three years, which have been successfully integrated, contributing to the profitability of the Group.


Operating marginsA rigorous approach to cost management and operating efficiencies is entrenched in the day-to-day running of the business, with particular emphasis on cost to serve. Healthy operating margins have been delivered in the African businesses in recent years.


Operational leverageIncreased revenue through the well-established branch network has resulted in margin and profitability gains.


Manufactured capital

Hire fleetThe scale, quality and geographic reach of the hire fleet provides the business with a substantial operating advantage and market access. The hire fleet is comprised of scaffolding equipment, formwork equipment, suspended platforms (including hoists), relocatable modular buildings and portable toilets.


LogisticsThe Group has access to an extensive logistics network in order to enable the effective delivery of its products to customers across its geographic footprint. The operating businesses collectively own or lease more than 600 trucks and vehicles, and utilise a number of subcontractors for this service.


Branch footprintWaco International’s extensive branch footprint ensures the Group is geographically close to customers and high utilisation levels are sustained. Owing to shared customers, different operations are able to benefit from a shared supply chain, including branch yards and logistics, thereby reducing overheads and cost to serve.


Information technologyThe Group’s various information technology (IT) systems, including in-house IT systems, meet the specific needs of the business. The Group has invested in both hardware and software upgrades to improve its IT capability to improve functionality, reduce risk and support the growth requirements of each of the businesses.


Business model

An effective business model relies on the utilisation and transformation of resources (capital inputs) through the activities of the business to achieve optimal results for stakeholders (outputs and outcomes). Waco International’s business model illustrates the Group’s strategic ability to be agile and dynamic in an ever-changing external environment through its diverse geographic footprint and product and service offering.

The tangible and intangible capitals or resources used and impacted by the business in the value creation process are outlined below.








Business model (continued)

Inputs More detail

Human capital

Joint performance management frameworkA key objective of the Group is to ensure that talented employees are retained by recognising and appropriately rewarding performance. Developing this pipeline of skilled and experienced individuals who are incentivised to sustain high levels of performance, is critical to long-term growth. The primary performance management mechanism remains the balanced scorecard.

Sustainability overview: online

Ownership profileManagement owns 12% ✔ of the Group, ensuring their continued alignment with the business’s prospects.


Talent management framework and employee developmentThe talent management framework is well established and designed to improve the competency, flexibility and effectiveness of employees and ensure a sustainable pipeline of leaders and, where appropriate, the development and promotion of historically disadvantaged South Africans (HDSAs). The primary development platforms are:• Adult Basic Education and Training (ABET)• Waco Africa Cadet Scheme (offered to HDSAs)• The Business Leaders Development Programme (BLDP) • Executive Development Programme (EDP) in partnership with the

Gordon Institute of Business Science (GIBS)• Senior executive development (IMD)


Employee engagement forums and Toolbox talksOn a regular basis, human resources and management meet with employees and their representatives to ensure that issues at the workplace are speedily resolved and that their safety at work is ensured.


Employee Wellness ProgrammeThe Employee Wellness Programme is available to all employees seeking assistance with private and work-related issues. The service is offered on a confidential basis and cases are referred for specialised assistance where appropriate.


Social and relationship capital

The following stakeholders contribute to the sustainability of the business, as their expectations and support impact the Group’s strategy and performance:• Customers• Employees• Labour broker employees• Trade unions• Investors and financiers• Contractors, suppliers and service providers• Small, micro and medium enterprises• Governments• Regulatory and industry bodies• Communities• Media

Stakeholder overview: page 27


Inputs More detail

Intellectual capital

Business longevity and market positionThe portfolio includes long-standing and established brands. Their strong leadership position with regard to scale, footprint, product quality, service excellence and technical expertise is a significant competitive advantage in terms of customer decision-making, particularly on large projects:• Form-Scaff is the market leader in South Africa with over five decades

of experience• SGB-Cape is the market leader in South Africa with over six decades

of experience• Sanitech is the market leader in South Africa with over three decades

of experience • Waco Kwikform Group is the market leader in Australasia with just short

of three decades of experience• Premier is a leading niche player in the United Kingdom with over six

decades of experience• SkyJacks is a market leader in South Africa in suspended platforms

with four decades of experience

Portfolio overview: page 8

Product portfolioThe Group has a substantial product portfolio that continues to grow as it invests in ongoing research and development into new products. This is particularly the case in sectors with high innovation potential, including sanitation and alternative building products.

Portfolio overview: page 8

Industry expertiseThe Group has a track record of operating successfully in highly technical industries. The necessary internal processes, including contract and order book management, as well as inventory and logistics management, have been well honed with experience over time.


Alchemy of Growth The Group’s growth agenda is underpinned by the Alchemy of Growth framework that was adopted in 2011. Implementing the principles of the Alchemy of Growth has instilled a culture of continually identifying and exploiting growth opportunities in existing and new markets.

Group strategy: page 37

Continuous Improvement ethosThe Continuous Improvement ethos is entrenched within the business and is built on the belief that better ways of working are waiting to be identified and implemented. This ethos has been a fundamental driver of the Group’s growth trajectory in the past and will continue to inform the way in which it strives to achieve its strategic objectives.


Natural capital

ResponsibilityThe Group generally has a low direct environmental impact. The major natural resources which the Group indirectly acquires and uses are fuel and steel commodities. The business uses them responsibly. Waste is disposed of in a responsible manner and each business investigates methods to either recycle or reduce waste.


OpportunityThe Group recognises the importance of natural resources to customers and communities. A major focus of innovation within the businesses is identifying opportunities to enable the responsible use of resources, for example low water use hygiene and sanitation products and portable wastewater treatment plants.










Core business activitiesOperating

businessesRevenue ✔(R million)

Number of employees ✔

Formwork, shoring and scaffolding and related services

Market differentiators• Well-established brands• Size and quality of hire fleet• Geographic footprint• Industry experience and expertise,

particularly on large, bespoke projects

877 1 103

Chile 34 29

1 058 3 149

923 272

35 132

93 26

New Zealand147 128


Market differentiators• Successful product innovation track

record into niche market opportunities• Ongoing investment in research and

development

170 161

788 210

Sanitation and integrated hygiene solutions

Market differentiators• Well-established brand• Size, quality and diversity of hire fleet• Innovation track record into new

products and service, including integrated hygiene solutions, water-saving toilets and portable wastewater treatment plants

409 1 317

4 534 6 527

Core business processes

Group support services

Strategy development

Treasury and corporate finance

Financial reporting

and taxation

Internal audit and risk

management

Compliance, legal and

governance

Human resources

Operational management

Safety and health

management

Environmental management

Procurement and logistics management

Sales and marketing

Fleet management

Operational risk management


OutputsOutputs are the resulting products of the activities of the business, and the industries served. Waco International provides equipment for rental and services across a number of principal industries, including mining and resources, oil and gas, power generation, infrastructure, construction and engineering, industrial maintenance, education, healthcare, events and informal settlements.

Optimise, defend and turn around

• Maintaining and growing profitability by managing pricing and cost to serve

• Optimising return on capital – existing fleet and new investment

• Maintaining order book quality and contract execution

• Retaining and developing skilled human capital

• Driving meaningful transformation

• Plan B turnaround

Expansion and growth

• Diversifying and expanding geographically

• Identifying and targeting new growth initiatives

Strategic objectives Strategic focus areas

Estimated revenue by end market3

Africa International Total

Indu

stria

l exp

osur

e Industrial maintenance – Power/Utility

15 – 20% 0 – 5% 5 – 10%

Industrial maintenance – Other 10 – 15% 10 – 15% 10 – 15%

Infrastructure4 25 – 30% 5 – 10% 15 – 20%

Construction and engineering 20 – 25% 60 – 65% 35 – 40%

Mining and resources 10 – 15% 0 – 5% 5 – 10%

Education 0 – 5% 5 – 10% 5 – 10%

Healthcare and events 5 – 10% 5 – 10% 5 – 10%

Informal settlements 0 – 5% 0 – 5% 0 – 5%

South African core with sizeable international exposure

International:

44% of revenue1

Australasia

26%United Kingdom

17%Chile

1%

South Africa

51%

Other sub-Saharan Africa(s)

5%Diversified revenue mix ✔

International:

19% of adjusted EBITDA1,2

United Kingdom

7%South Africa

72%

Profitable African operations with a growing contribution from international exposure ✔

1 BasedonFY2015Efigures2 EBITDAexcludingadjustingitems,fullydefinedon77or89ofthisreport3 ManagementestimatesbasedonFY2015Efigures4 Includes certain major projects such as Kusile Power Station5 Other sub-Saharan Africa revenue and adjusted EBITDA includes exports from South Africa to other sub-Saharan African countries

Other sub-Saharan Africa(s)

9% Australasia

12%







20 Waco International / Integrated report 2015


Group

Market competition – Barriers to entry in the sectors in which the Group operates are generally quite high and the Group is well positioned as the established market leader in key sectors in a number of geographies. The Group aims to expand its share in markets where other players are dominant or new entrants challenge its position.

Natural resource availability – The supply of water, fuel and energy to the world’s growing population is becoming steadily more uncertain. Large-scale industrial development projects to address shortages and supply constraints will comprise a significant portion of government spend going forward, particularly in developing nations.

Regulatory requirements – Each industry is characterised by a suite of regulatory requirements in the fields of financial management, health and safety and labour, including country-specific laws. Compliance with these requirements is mandatory to maintain the business’s legal licence to operate.

South Africa

Infrastructure development – While government has articulated its plans for significant infrastructure development, policy uncertainty has resulted in implementation delays, though some development is taking place, particularly in road infrastructure.

Water and power supply – Future projections anticipate increasing challenges in the context of steady population growth and urbanisation, which will require incremental investment into power generation and water infrastructure.

Urbanisation and the growth of informal settlements – Chronic underdevelopment and overpopulation in many peri-urban regions around major South African cities has resulted in a crisis of basic service delivery in informal settlements. This growth has outstripped government resources, creating the opportunity for solutions from the private sector.

Education – South Africa’s education system is under-resourced with a severe shortage of classrooms and other facilities. This creates an opportunity for the provision of quick-installation building products that are fire and safety compliant and fulfil the same function as bricks-and-mortar buildings, as well as sanitation products to service the needs of schools, particularly in rural and informal contexts.

Transformation – Pressure remains on South African businesses to align their employee representation and ownership with the demographics of the country, and the awarding of large procurement contracts is increasingly dependent on transformation imperatives.

Labour relations – The industrial environment faces high unemployment rates, rising cost of living, inadequate education and poor service delivery, resulting in a perfect storm to create a disenfranchised and marginalised working class. Organised labour unions function as the interlocutor between businesses and employees, often resulting in unrealistic wage demands and industry-wide labour unrest.

Low business confidence – Political, economic and social challenges in South Africa have impacted the country’s prospects as an investment destination. However, the South African economy has substantial growth potential and continues to represent a stepping stone into Africa for international companies looking for expansion opportunities on the continent.

Waco International’s business model in contextAs an international business with an extensive geographic footprint, the Group and its various businesses face a range of challenges and opportunities unique to its diverse operating environments. Management has a proven track record of navigating these according to a rigorous strategic risk management process and authority matrix within a framework of sound and ethical corporate governance.

The scale, diversity and quality of the hire fleet allow the Group to selectively pursue contracts in locations where conditions favour its product and service offering. Waco International invests significantly in research and development into new products, services and ways of operating to ensure it is continually optimising, expanding and innovating to appeal to new customers and markets.


Other sub-Saharan Africa

Growth opportunities – Governments across the continent are projected to invest significantly in infrastructure development, with mining and resources, associated construction and oil and gas contributing more and more to gross domestic product (GDP) every year. Spend in these sectors is expected to surpass that of other regions within the next decade.

Unpredictable political climates – Each African country is characterised by a unique set of socioeconomic and political challenges and opportunities, and extensive market research and experience is required to understand the dynamics of local business environments.

Operating obstacles – Many African economies are characterised by historic underinvestment in infrastructure. Limitations in freight and transport, basic services and technology present a challenge to doing business successfully on the continent. Fraud and corruption are regular components of the political and business environment.

Australia Construction sector – Key commercial and residential markets have experienced difficult trading conditions in recent years. However, improvements have come through in high-density residential markets in the larger urban centres, particularly Sydney and Brisbane.

Resources sector – The resources sector is gradually moving from investment to output phase, requiring protracted, regular industrial maintenance.

New Zealand Growth opportunities – The market is characterised by strong trading conditions across commercial, residential and industrial markets as the country continues to experience net migration and high population growth. The main challenge is related to sourcing suitably qualified scaffolders at a sustainable cost.

Christchurch rebuild – The city of Christchurch requires extensive investment following the destruction wreaked by the earthquake in 2011, with over US$11 billion of infrastructure spend earmarked for the purpose.

United Kingdom

Improved trading conditions – Trading conditions in the United Kingdom construction industry, which took a major downturn as a result of the global economic recession, have improved and construction and infrastructure spend has been robust.

Growth in urban centres – Major urban centres – London in particular – are experiencing elevated construction activity, spurred on by increasing returns in real estate development across all types.

Chile Growth opportunities – Chile continues to be one of South America’s fastest growing economies.

Market competition – A handful of large competitors control a significant share of the market, limiting the access of smaller players.








Investment case

Waco International’s diversified business model outlines the Group’s compelling investment proposition with an attractive combination of resilience and growth exposure.

MARKET LEADER WITH ESTABLISHED BRANDS

SCALE AND GEOGRAPHIC REACH

• A portfolio of long-standing and well-established brands• Market leader in most of Waco International’s core

geographies and products• Market leader in forming, shoring and scaffolding

and sanitation services in South Africa• Market leader in scaffolding in Australia and New Zealand

• Scale, diversity and quality of the hire fleet provide strong competitive advantage, including the ability to win and support major projects

• Extensive geographic branch network enables the Group to service long-standing, established customers in key sectors

• Ability to leverage off existing branch infrastructure for growth

• Group management actively monitors fleet utilisation and profitability across regions and regularly redeploys hire equipment to more lucrative markets

• Balanced and diversified across product, geography and end market, providing earnings stability through economic cycles

• Exposure to infrastructure spend without the contract risk• Broad service offering• Proven ability to move fleet between geographies to

optimise return• Scalable business model• Growth drivers:

º Operational expertise and efficiency

º High revenue visibility as a result of long-term contracts

º Predictable revenue from rental model

º Proven ability to innovate

Business model – page 15.


395

DIVERSIFIED BUSINESS MODEL WITH MULTIPLE GROWTH DRIVERS

Group strategy – page 37


ESTABLISHED PRESENCE IN CURRENT AND FUTURE GROWTH MARKETS

DEMONSTRABLE TRACK RECORD OF FINANCIAL PERFORMANCE

ESTABLISHED AND EXPERIENCED MANAGEMENT TEAM

• Organic growth driven by opportunities across geographies:

º South Africa – Continued growth in construction and infrastructure spend, underpinned by government support

º Other sub-Saharan Africa – Fast-growing economies with major potential development in infrastructure, mining, oil and gas

º Australia – Sustained growth in industrial maintenance with the resources sector moving from investment to output phase, complemented by the recovery in high-density residential markets

º New Zealand – Solid growth in commercial and residential construction and industrial maintenance markets, with focused activity in the Christchurch rebuild

º United Kingdom – Improving conditions in the construction sector with significant opportunities for relocatable modular building products in certain industries

• Potential for further mergers and acquisitions – continued consolidation and expansion into new markets

• Ongoing focus on research and development to innovate new products and services

• Significant investment resulting in three-year CAGR of 21% ✔ in revenues and 39% ✔ in adjusted EBITDA with RONAM at 27% ✔

• Continued investment in the hire fleet and expanding branch network across the operating footprint

• Developed South African “home market” as well as earnings across several currencies

Waco International’s business model in context – page 20

Performance review and outlook – page 47


• Senior management proven track record of leading numerous organic and acquisitive growth initiatives, both locally and offshore

• Well-established management development programmes and leadership development pipeline

• Senior management owns 12% ✔ of the business, ensuring alignment with stakeholders








Performance highlights

Waco International continued to outperform the economies in which it operates as a result of the traction of the optimisation and strategic growth initiatives throughout the business.

GrowthRevenue CAGR of 21% ✔ to R4.5 billion ✔ (2013 – 2015)1

Adjusted EBITDA CAGR of 39% ✔ to R768 million ✔ (2013 – 2015)

Continued investment in fleet Fleet investment of R682 million ✔ (2013 – 2015)

R166 million ✔ spent on bolt-on acquisitions (2013 – 2015)

Substantial cash generated strengthening the balance sheet

Net operating cash flow of R924 million ✔ (2013 – 2015)

Low gearing, 10% ✔ debt-to-equity and 0.25 times ✔ adjusted EBITDA2

Overall performanceGrowth

Continued investment in fleet

Substantial cash generated

1 (2013 – 2015) indicates three years performance data for the period 1 July 2012 – 30 June 2015.2 Net debt increased during October 2015. Refer to CFO report.

0

1 000

2 000

3 000

4 000

5 000

201520142013

Revenue (R million)

3 07

6

3 89

1

4 53

5

✔

0

50

100

150

200

250

300

201520142013

CAPEX (R million)

123

295

264

✔

0

100

200

300

400

500

600

201520142013

NOCF (R million)

100

242

582

✔

0

5

10

15

20

25

30

201520142013

RONAM (%)

16.9

21.2

27.3

✔

0

100

200

300

400

500

600

700

800

201520142013

EBITDA (R million)EBITDA margin (%)

395

572

768

10

12

14

16

18

20

13

15

17

✔

✔


Expansion and growthOther sub-Saharan African growth• Five new branches opened in 2015, bringing the total to

16 branches in seven countries

Acquisitions• R166 million ✔ allocated to acquisitions over the past three

years, including the acquisition of SkyJacks in January 2015

New products and services• Alternative Building Technology (ABT) modular building

product that is durable, quickly assembled, fire-rated and thermally insulated (Abacus)

• Expansion into integrated hygiene services including cleaning, servicing and pest control (Sanitech)

• Steam clean toilet (SCT) for deployment in informal settlements and new informal concept (NIC) toilet for underground mining use (Sanitech)

• Portable wastewater treatment plants (Sanitech)• Piloting of small plant rental offering (Form-Scaff)• Build Own Operate (BOO) camps (Abacus)• VIP Retro-fit toilet (Sanitech)• Introduction of formwork in Australia and New Zealand

(Kwikform Group)

Optimise, defend and turn aroundBusiness optimisation• Premier Modular achieved positive economic value add

(EVA) and year-on-year improvement in adjusted EBITDA of £1.3 million (R24 million) ✔

• The Australian operations benefited from a disciplined turnaround plan, including an extensive rightsizing exercise, and delivered adjusted EBITDA of AU$9.6 million (R91 million) ✔, an improvement of 208% ✔ on the prior year, with a milestone positive adjusted earnings before interest and tax (EBIT) at AU$5.9 million (R55 million) ✔

Employee safety• Lost-time injury frequency rate of 0.85 (2014: 0.91) ✔

Employee development• 22 HDSAs per year on the Waco Africa Cadet Scheme,

six promoted to branch managers• In excess of 190 branch managers and co-ordinators

completing the Business Leadership Development Programme

• 100 employees attended an Executive Development Programme at GIBS

• Eight senior executives on the International Management Development Programme

Transformation• Waco Africa was rated as a level 2 B-BBEE contributor

under the existing codes, with ongoing efforts to improve in key areas








Waco International’s definition of materiality is informed by the <IR> Framework: matters that substantially affect the organisation’s ability to create and sustain value over the short, medium and long term.

Materiality determination processMateriality determination and assessment is an ongoing process which requires appreciating that no organisation operates in a vacuum or in a static environment. A successful business model is achieved when material matters (risks, opportunities and stakeholder expectations) inform the strategy (how the business is responding). The process of determining material matters is therefore critical to the ability of the business to create value as the conditions in its external environment change over time.

A risk assessment at individual business level is undertaken annually, and the results are combined to arrive at a comprehensive list of strategic, financial, reporting, IT, compliance, reputational and operational risks with a rating of low, medium or high assigned to each. This database was measured from the perspective of the Group as a whole – considering conditions in the external environment and stakeholder expectations – and plotted against strategic targets.

The prioritisation process involved considering the risk and opportunity likelihood and potential impact within the quantitative and qualitative parameters set by the business, and reasonable time frame to ascertain the most material matters affecting the Group as a whole. These matters will form the foundation for the Group’s future materiality assessments as management seeks to align its strategic approach with the most critical factors in its operating environment over time.

The relationship between Waco International’s risk management, material matters and strategy development is illustrated in the diagram below:

Material matters

Strategy development• Responsive actions

• Long-term proactive management

Material mattersPerformance monitoring

External environmentreview

• Business environment analysis• Stakeholder expectations

• Enterprise risk management

• Relevance• Probability versus impact

• Expected time frame

• High probability• High impact

• TimingPrioritising risks

Assessing risks

Identifying risks


Stakeholder overviewThe expectations and support of stakeholders impact the extent to which Waco International is able to optimise and grow its business. Therefore, being responsive to stakeholders is a critical element of how the Group operates, and it is focused on strengthening its current relationships and collaborating with a widening network of role players through regular and meaningful engagement.

A high-level overview of the Group’s stakeholders is provided in the table below and the Group’s material matters are discussed on the pages that follow.

Stakeholder category and profile

Nature of engagement and status

Impact Key expectations Related material matters

CustomersCustomers range from small businesses to global companies and governments.

This relationship attracts the capital that allows the business to continue operating at sustainable levels.

Engagement takes place through standard business channels, formalised in the customer relationship management function at every business.

Each contract involves interaction before, during and after completion to maintain a productive relationship and ensure the customer’s satisfaction.

When a customer is satisfied with the service provided by the business, it is good for the Group’s professional reputation.

This increases the Group’s chance of renewing contracts, expanding its service offering and attracting new business.

• Fair product and service cost

• High product and service quality

• Safe and responsible business practices

• Responsible and reliable labour practices

• Expert technical support and experience

• Ability to provide solutions

Contract execution

Contract quality

Contract renewal

Reliance on key sectors and credit risk

EmployeesEmployees provide their labour on a full-time, long-term or short-term contract basis.

The leadership, including branch and middle management, make decisions that determine how the business is run.

Engagement takes place in the day-to-day operations of the business, with formalised structures in place that ensure fair remuneration and performance incentives to align with the Group’s strategy.

The Group relies on human capital to deliver a high-quality service to customers, thereby ensuring the sustainability of the business.

It strives to maintain an ethical, non-discriminatory and safe working environment and provides employees with opportunities to develop their professional skills and advance within the organisation.

• Fair remuneration• Performance

recognition and reward

• Safe and comfortable working environment

• Skills development and advancement opportunities

• Long-term wellbeing• Effective up and down

communication• Job security• Long-term

employment possibilities

Contract execution

Effectiveness of growth initiatives




Safety and health

Labour sourcing partnersThe business is involved in large-scale labour-intensive industries. The variable location, scale and duration of certain projects require the services of responsible labour brokers.

Waco Africa is a significant employer in the South African economy and relies on responsible labour sourcing partners.

Waco Africa, and SGB-Cape in particular, has established relationships with responsible labour sourcing partners.

The need to ensure labour costs are as variable as possible, while at the same time developing a pool of skilled, motivated labour, is an ongoing challenge and Waco Africa’s sustainability depends on its ability to achieve this balance.

• Return business and fair treatment

• Long-term relationships

• Fair remuneration

Contract execution










Material matters (continued)




Labour sourcing partners (continued)

Partners are engaged on a regular basis when projects require additional resources from the local community at particular locations on a short-term basis.

Regular audits are performed to ensure ethical practices and standards are adhered to in accordance with formalised partnership agreements.

The business pursues and maintains relationships built on responsible practices that comply fully with legislation.

Waco International does not outsource its responsibility as an employer and all labour broker employees receive fair and equal treatment in line with other employees.

Trade unionsThe most prominent trade unions in South Africa are the National Union of Metalworkers of South Africa (NUMSA), the National Union of Mineworkers (NUM), the United Association of South Africa (UASA) and Solidarity.

Beyond the formal recognition agreements and formal dispute resolution processes that are in place, the Group endeavours to engage with its employees and their representatives proactively and on an ongoing basis.

Industrial relations co-ordinators are embedded in the South African businesses, and workplace forums take place weekly to identify and resolve issues arising.

The Group respects and supports its employees’ rights to collective bargaining, and aims to facilitate a mutually value-adding relationship, which provides stable employment and supports the delivery of a high-quality service.

The perspectives of trade unions play a critical role in shaping employee perceptions about their work, and consequently in their productivity and morale.

• Fair remuneration practices for members

• Safe and comfortable working environment for members

• Non-discriminatory working environment for members

• Meaningful shop steward capacity and leadership

• Evidence of employment equity initiatives

Contract execution




Safety and health

Investors and financiersPrivate equity shareholders: Ethos, RMB, Standard Bank and senior management.

Extensive engagement with the private equity shareholders through monthly calls, board and other sub-committee meetings.

Investors provide the capital and funding that enables the business to grow.

It is essential that these relationships are built on a clear understanding of the Group’s business model, including risks, opportunities and growth potential.

• Strategic progress• Sustainable growth• Incentives• Responsible

governance• Regulatory

compliance• Safety and health

record• Social development• Demonstrable

transformation initiatives


Expansion into Africa

Safety and health





Small, micro and medium enterprises (SMMEs)The South African businesses enter into appropriate joint ventures with black-owned SMMEs.

Certain contracts are awarded by prioritising B-BBEE considerations, and these are best approached in partnership with SMMEs whose status adds credibility to that of the Group.

Engagements take place according to the requirements of each contract and the Group has developed various long-term, value-adding relationships with a number of its SMME partners.

The joint venture relationship is mutually beneficial as the Group provides equipment and expertise, while the corporate resources and labour are provided by the partner business.

• Long-term partnership• Safe and responsible

business practices• Expert technical

support and experience


Contract execution

Contract quality

Contractors, suppliers and service providersThe business relies on a range of contractors, suppliers and service providers at various points along the supply chain.

Engagements take place in the course of doing business, with formalised interaction in the scoping, evaluation and contract structuring phase.

The successful delivery of products and services requires the assistance of parallel products and services in order to meet the requirements of customers.

These relationships vary from long-standing business partnerships to project-by-project collaborations.

• Product and service cost

• Product and service quality

• Punctual and reliable payment process

• Return business• SMME business

development

Contract execution

Contract quality


GovernmentsThe Group has operations in 12 countries.

The Group engages directly with government representatives on public sector projects and complies with applicable legislation in order to maintain its licence to operate.

In South Africa, the Group markets certain of its sanitation and housing products that are well suited to assist in the provision of basic services, education and healthcare at municipal, provincial and national government level.

Government represents a key customer grouping as public sector infrastructure projects account for a major portion of the Group’s current and future business.

The Group is committed to fulfilling the expectations of prevailing local legislation, particularly in its efforts to achieve greater transformation.

• Regulatory compliance

• Responsible governance

• Safety and health record

• Social development• Evidence of

employment equity and transformation initiatives in South Africa













Regulatory and industry bodiesIndustry-specific regulations determine the boundaries within which the business is permitted to operate.

The most impactful regulations relate to financial management, safety and health, product quality and labour practices, and the Group undergoes the necessary accreditation processes to remain compliant.

The Group participates in the relevant forums in order to contribute to and influence the regulatory process.

A key component of the relationship involves benchmarking and sharing of knowledge with industry peers, particularly with regard to safety and health.

• Regulatory compliance

• Knowledge sharing

Safety and health


CommunitiesThe Group engages communities in close proximity to projects across its vast operating footprint.

The Group sources labour from local communities through responsible labour sourcing partners and identifies promising individuals for longer-term employment.

The Group endorses social upliftment activities and corporate social investment (CSI) is undertaken by each business at branch level for the community in which that branch operates.

The Waco Foundation is the primary vehicle of social investment activity. The Foundation provides bursaries for promising disadvantaged candidates to study at tertiary education level.

Local communities represent a labour resource in remote or new locations and the Group relies on their skill, support and local knowledge to execute its contractual commitments.

Some of the core products in the portfolio, including portable toilets and modular buildings, are well suited to benefit impoverished communities.

• Employment opportunities

• Long-term support• Employee community

satisfaction and involvement

• Return business• Engaging employees

at all levels to ensure a positive contribution is made to the community


MediaIndustry publications, customer publications and the general press represent those media channels with the highest potential impact on the business.

A formalised corporate communication structure is in place with the objective of ensuring meaningful and regular interaction with the relevant media channels.

The concept of “We are Waco” has been introduced as a branding strategy to show and cultivate unity and a consolidated identity among the brands in the Group.

Negative reports about the business can cause long-lasting reputational damage if not managed responsibly, thereby affecting investor confidence and the Group’s ability to attract and retain customers.

• Transparency and accountability

• Knowledge sharing• Access to information

and personnel


Contract execution

Safety and health


Low Medium High

Material matters overviewWaco International has identified the high priority risks and opportunities impacting the Group’s ability to create value sustainably and execute its growth objectives for the future. The matrix below illustrates how each of these material matters has been measured on a continuum of low, medium and high potential impact against a judgement as to the likelihood of its occurrence. Further detail is provided on each material matter in the table below.

Hig

hM

ediu

mLo

w

Material matter Specific risks, opportunities and impact Strategic response

Global market conditionsVolatile global economic dynamics and commodity cycles have an impact on local markets.

Waco International’s operations span diverse geographies and sectors that are variably impacted by global economic conditions and international investment activity, presenting the Group with a range of risks and opportunities. The scale, mobility and diversity of its hire fleet enables Waco International to respond to these appropriately by pursuing higher-margin contracts with acceptable levels of operational risk, built on sound relationships with local customers.

Volatile commodity prices indirectly impact the Group by threatening the sustainability of key sectors, such as construction and engineering, where rising costs and shrinking margins are inhibiting industrial growth and development. With steel as the primary input material, the Group is directly exposed to inflationary pressures, but this is limited as only a small portion of the hire fleet requires replacement on an annual basis.

Diversifying and expanding geographically

Identifying and targeting new growth initiatives

Impact

Like

lihoo

d Global market conditions

Contract renewal

Contract quality

Contract execution

Safety and health

Hire fleet managementIT effectiveness

Ongoing investment into the hire fleet


Reliance on key sectors and credit risk

Transformation in South AfricaCost pressuresSanitation and

water solutions

Expansion into Africa


Labour stability in South Africa Government

effectiveness in South Africa










Contract executionThe quality of the work performed on a contract impacts the Group’s reputation and ability to attract and retain business.

The successful execution of contracts requires effective collaboration among multiple role players, including subcontractors, labour brokers and service providers, facilitated through competent and experienced project management. The extent to which the operational teams manage the controllable factors over the course of a project has a major impact on its outcome and, therefore, the relationship with the customer.

Waco International appreciates the importance of rigorous quality assessments and monitoring over the lifetime of projects, with emphasis on the end of project debrief where key learnings are identified and shared.

Retaining and developing skilled human capital

Maintaining and growing profitability by managing pricing and cost to serve


Contract qualityThe effective scoping, planning and structuring of contracts has a direct impact on the profitability of projects.

While every project represents a unique set of challenges, careful scoping and planning can ensure that all controllable aspects are accounted for in the contract structuring process. Projects are often highly complex and technical, requiring the collaboration of multiple role players and the reliable supply of critical materials.

The quality of the contracting of technical requirements, access to resources, logistics, schedules and health and safety elements has a direct impact on returns.

The Group applies a risk-based approach to project selection and contract structuring to mitigate the impact of disruptions, and resources are allocated to ensure the effective deployment of equipment and personnel. Waco International’s products and services comprise a relatively small portion of the overall expense of large-scale projects, and the scale and quality of its hire fleet allows the Group to structure contracts to meet its cost and quality requirements while adding value for the customer.





Contract renewalCertain contracts contribute significantly to Group revenue and are subject to renewal processes at the end of the agreed contract period.

The scale of certain projects, particularly in the industrial sector, involves longer-term contractual engagements to which the Group commits significant resources and time. These large contracts are a source of predictable revenue for a substantial period of time, but are limited to the finite duration as agreed in the terms and conditions.

It is therefore important that the Group is able to renew large contracts or source alternative revenue streams in order to compensate for the loss of business. Waco International is constantly seeking new customers, products and services to diversify the revenue mix and achieve growth, thereby limiting the impact of existing large contracts not being renewed.




Effectiveness of growth initiativesThe effective execution against each of the identified initiatives will determine the Group’s ability to sustain its growth trajectory.

Waco International has established and maintained robust growth momentum in recent years, through the various initiatives implemented at all levels of its operations. Despite market conditions, the Group has successfully executed strategies to increase utilisation and expand margins, while effectively pursuing opportunities to add to the business acquisitively and through geographical expansion. A sustainable growth ethos is deeply ingrained throughout Waco International as enshrined in the Alchemy of Growth framework.

Maintaining this culture and track record will require the successful execution of each initiative collectively contributing to overall growth. Waco International’s comprehensive bottom-up approach to risk management and reporting ensures that leadership is able to manage and allocate resources in rapid response to operating challenges and opportunities, particularly in new markets.






Expansion into AfricaAs the site of major industrial activity and infrastructural development, the African continent offers unparalleled growth opportunities, currently and over the medium to long term.

African countries represent major growth prospects in terms of the latent infrastructure development projected to take place on the continent in response to rapid population growth, urbanisation and a burgeoning middle class. The Group is focused on leveraging opportunities as they arise in accordance with its rigorous pursuit of higher-margin contracts at acceptable levels of risk with positive escalation potential. The benefit of establishing and growing a network of operations across various geographies is significant, and Waco International is actively pursuing key relationships, building its reputation and leveraging off its existing footprint.

Every country presents its own set of challenges and the Group’s combined approach to sourcing the required human capital – by hiring locals and deploying existing resources from elsewhere – has proven to be effective. Waco International operates in countries that are relatively stable politically and economically, and complies with all regulatory requirements as part of its commitment to operating ethically at all times. Proactive, targeted interaction with key stakeholders, including customers, communities, regulators and service providers, takes place throughout the duration of contracts. This enables operational managers to understand the risks and opportunities of each context and respond appropriately.




Transformation in South AfricaTransformation is a social and economic imperative for all South African businesses.

A business’s ability to operate sustainably in South Africa is closely linked to how it measures against government’s B-BBEE targets, as these scores play a significant role in the awarding of tender contracts.

Changes to these codes will be implemented in April 2016 and are likely to impact the Group’s current level 2 rating. Progress has been made towards improving Waco International’s position through partnerships with black-owned businesses in mutually value-adding joint venture arrangements.

More detail is provided in the performance review and outlook section, beginning on page 47.

The Group also offers skills development to HDSAs through the Waco Africa Cadet Scheme and the ABET Programme.



Ongoing investment into the hire fleetCapital is allocated to maintain the quality and capacity of existing equipment and to innovate new products.

The hire fleet is the Group’s most valuable asset and requires regular maintenance and refurbishment to ensure it performs according to customer expectations and in line with Waco International’s reputation for quality. This is critical to successful contract execution, including the safety of the workforce, and the Group’s ability to attract new and return business.

Expansion and maintenance capital is allocated in a balanced and carefully managed fashion to respond to new market opportunities and maintain optimal utilisation levels, while ensuring the quality of the existing equipment. The modular building and sanitation sectors offer significant opportunities for innovation, and investment into developing niche products is ongoing.



Optimising return on capital – existing fleet and new investment









Safety and healthThe Group’s operations are labour intensive, often involving high-risk activities.

Waco International employs a vast workforce across its diverse geographic footprint, and is responsible for ensuring that working conditions at its operations are conducive to the safety and health of employees, contractors and customers. This includes some of the Group’s core industries, which involve high-risk activities such as working at heights and handling potentially hazardous waste material, where best practice safety measures, training and incident reporting is critical.

The Group participates in peer reviews and benchmarking exercises in an effort to maintain and improve on its track record for safety and health. This is a highly regulated and visible aspect of the business, closely connected with Waco International’s social and legal licences to operate. Incidents pose a risk to the Group’s reputation and relationship with existing and potential customers, and have a negative impact on employee morale and productivity.



Accessing and retaining skills The successful execution of contracts hinges on employees effectively contributing their expertise at each stage of the work process.

The Group’s operations rely on a dynamic workforce that is spread across multiple contexts, often for variable periods on a contract-by-contract basis. Sourcing the required human capital to deliver a high-quality service to customers involves collaborating with key role players, including labour brokers, and is managed in a sustainable and ethical manner.

The nature of the work is often highly technical, requiring specific skillsets that are scarce and therefore sought after in the market. Waco International has several performance management, training and development initiatives in place, designed to reward, upskill and empower existing employees, as well as attract new talent. The future sustainability of the business depends on a pipeline of competent and passionate leaders at operational level. The Group has developed appropriate remuneration and incentive schemes to encourage the retention of key leadership in the transition from private equity to the listed environment.




Government effectiveness in South Africa Ineffective leadership and delayed spending are stalling economic growth.

A lack of effective governance in South Africa is preventing the country’s economy from growing in line with expectations, which has led to a decline in business confidence both locally and in terms of foreign investment into the country. The resultant policy uncertainty and propensity for corruption have an effect at operational level, where tender contracting and budget allocation is inconsistent and critical infrastructural and industrial development is not taking place to the extent required.

Against this backdrop, the Group has observed an increase in cases of minor fraud and corruption and has responded appropriately. Waco International actively promotes an ethical business culture, as enshrined in its code of ethics (the Code).

Identify and target new growth initiatives

Diversify and expand geographically

Labour stability in South AfricaOngoing disputes over conditions of employment, compounded by union rivalry, jeopardise positive labour relations.

The increasingly politicised nature of labour relations in South Africa has led to a high incidence of industrial action in recent years, often taking place over a protracted period at industry level. Disruptive and sometimes violent labour unrest can cause costly delays on customer projects, with unsustainable expectations in terms of wages further compressing operating margins. For as long as these dynamics characterise the labour landscape, local and international investor confidence in the country’s industrial and economic prospects will be negatively affected.






Labour stability in South Africa (continued)

Waco International opts for a proactive rather than a reactive approach to maintaining positive labour relations through regular formal and informal interaction with employees and their representatives. The direct impact of disrupted projects on the Group is mitigated due to the nature of the hire service and appropriate contract structuring.

Cost pressuresHealthy operating margins are achieved when returns are carefully balanced with fluctuating input costs.

Escalating labour expenses remain the primary contributor to increasing cost pressures, particularly in South Africa where expectations for wage and salary increases are far removed from the limited actual growth taking place in the economy.

Waco International’s secondary cost drivers are steel and logistics costs which are exposed to fluctuations in commodity cycles, as well as inflation. The Group reinvests in the hire fleet on an ongoing basis and replaces a small portion annually as appropriate to maintain quality standards. Logistics is a significant component of the business as the Group actively deploys its equipment to specific locations where it will be optimally utilised. These costs are carefully managed to ensure profitable outcomes.



Sanitation and water solutionsAccess to clean water and sanitation is a key driver of global resource dynamics and will play a definitive role in the long-term sustainability of nations, particularly in the developing world.

Resource scarcity, particularly access to clean water, has been recognised as a major determinant of economic, political and social stability on a global scale as the world’s population continues to grow and urbanise. Water availability and sanitation infrastructure is especially lacking in developing nations, where limited access leads to poor sanitation and even water contamination, particularly in informal settlements.

Waco International is well positioned to respond to this impending crisis through its diverse range of products and services, including the potential for large-scale dam infrastructure projects and its multiple sanitation products that are designed specifically to use very little or no water. The Group is expanding into portable wastewater treatment plants as a logical, value-adding extension of the sanitation business that will reduce transport costs, while alleviating the negative impact of groundwater contamination on human health and the environment.


Reliance on key sectors and credit riskReliance on sectors in distress potentially exposes the Group to concentrated credit and commercial risks.

Conditions remain challenging in key sectors such as construction and engineering, where competitive pricing and escalating costs are threatening customers’ ability to cover operating risk and maintain sustainable cash flow levels.

Waco International maintains robust relationships with major customers and executes its services according to sound contract structuring, which mitigates exposure to credit risk. The Group’s footprint across broad sectors and geographies involves participating with a range of customers in a variety of different market conditions, thereby reducing its exposure to specific sectors and customers in distress.











Hire fleet managementThe size and quality of the hire fleet gives the Group its operating advantage.

The vast fleet of non-serialised equipment can be allocated as required at scale across various geographies, allowing the Group to benefit where market conditions are most favourable. Furthermore, the Group prioritises the innovation of new products to respond to niche opportunities, for example housing and sanitation applications.




IT effectivenessThe size and diversity of the Group increases its reliance on IT infrastructure.

Effective IT systems enable timeous communication and operational synchronicity.

As Waco International’s strategy is underpinned by global growth objectives, the Group has invested significantly in both hardware and software upgrades to strengthen the system in order to accommodate the required increases in scale and complexity. As a cross-cutting function that plays a core role in the day-to-day operations of the Group, IT systems and investment therein is a key enabler of each aspect of Waco International’s strategy.




Waco International’s overarching objective is to grow and diversify as a leading equipment rental and industrial services business, by taking advantage of opportunities in established and new markets where barriers to entry are high and access to capital is an advantage.

Strategy developmentThe Group’s strategic focus areas and initiatives throughout the business are developed to support the achievement of this objective.

Group and operational executive management report to the board on material matters impacting performance and the execution of the strategy. The board, together with management, is responsible for regularly assessing the appropriateness and effectiveness of the strategy against challenges and opportunities in the external environment, and allocating the required resources to sustain and grow profitability.

The Alchemy of GrowthWaco International’s growth agenda is encapsulated in the Alchemy of Growth framework, which the Group adopted in 2011. The framework, developed by McKinsey & Company, is based on the belief that growth is an inherently positive and value-adding process in terms of wealth creation, employment and stimulating a sense of purpose at work.

Stages of growth are divided into three horizons for business optimisation and creation to take place, in order to ensure that initiatives are being developed on an ongoing basis as a pipeline rather than a static set of targets.

Group strategy

Horizon 3 – Create options for future business

These contain the seeds of tomorrow’s businesses, including research projects, test-market pilots, alliances and minority stakes that mark the first steps towards actual businesses.

Horizon 2 – Build momentum of emerging new businesses

These are businesses on the rise – fast-moving, entrepreneurial ventures in which a concept is taking root or growth is accelerating. In a few years, these initiatives should complement or replace a company’s current core businesses.

Horizon 1 – Defend and extend current core business

These businesses are critical for near-term performance. The cash they generate and the skills they nurture provide resources for growth.

Time

Valu

e








Strategic goals and targets Progress Future focus areas

Minimum sustainable adjusted EBITDA growth rate of 15% per annum to June 2018 (set in July 2014)

✓ Adjusted EBITDA CAGR of 39% ✔

achieved from 2013 – 2015Maintain growth trajectory sustainably

Growing other sub-Saharan Africa earnings by 25% per annum

✓ Target remains achievable Focus on expanding branch network and services within existing countries of operation

Achieving positive EVA for international businesses

✓ United Kingdom operations achieved positive EVA in line with June 2015 goal

Achieve positive EVA for Form-Scaff Chile

? Australasian operations made solid progress in 2015. EBIT improved from AU$0.5 million (R4.6 million) ✔

to AU$5.9 million (R55.5 million) ✔

Australasian operations targeting achievement of positive EVA by June 2016

Diversifying the industrial services business across a number of industries and geographies

✓ Range of new products and services developed and offered to existing customers

Value realisation of newly developed products, services and branches

✓ Expansion of existing products and services to new customers and markets

Retention of talented leadership team following exit of private equity shareholders

✓ Motivated leadership with track record of delivering against the strategy

Share appreciation rights scheme and other incentive structures

✓ Management will retain some shareholding when current private equity shareholders exit

Group strategy (continued)

Each horizon provides a framework for growth and asks a number of questions to which an organisation must develop strategic responses in order to sustain growth momentum. Waco International responded to the framework of horizon 1, to defend and extend current core businesses by optimising the performance, utilisation, market share and reach of established businesses. This stage of growth also required reaching solutions for underperforming businesses to take advantage of latent market potential.

Horizon 2 requires a focus on building new businesses and seeking new revenue streams. Waco International has extended existing core offerings to new customers, markets and geographies, while at the same time introducing new products and services to existing customers, markets and geographies. The emphasis has been on investment in the hire fleet, as well as developing the necessary skills and experience to carry out the growth initiatives.

Opportunities for future businesses under horizon 3 are constantly being explored in various forms, from new product development, strategic alliances and partnerships, to creating new sales channels and bolt-on and strategic acquisitions.

Strategy overviewProgress to dateIn 2011, Waco International developed strategies to grow and diversify, enabling the Group to take advantage of opportunities in all economic cycles. Targets were set for the Group as a whole, and throughout each of the businesses at branch and regional level.

By the end of the 2014 financial year, these stated objectives had been substantively achieved and Waco International developed a set of strategic goals and targets from a 2015 baseline year. Progress against each objective is measured and monitored on an ongoing basis against a set of clearly articulated performance indicators, and changes to initiatives are made as appropriate. The contribution of the growth initiatives to Group revenue and Group adjusted EBITDA is measured separately for the first two years after inception to track the return on investment. Thereafter, they are accounted for as business as usual.

An overview of the core Group objectives is provided in the table below, including progress against the objectives and focus areas going forward. These are expanded upon in the following pages.


Summary of objectivesThe strategic objectives identified as part of the two overarching strategic focus areas are represented below, as well as their relationship to the three horizons of the Alchemy of Growth framework described above. The specific initiatives are described in the pages which follow, along with cross-references to where more data is disclosed in the report. The initiatives have been addressed to provide insight into the financial and non-financial performance indicators which the Group uses to measure its progress against each.

Alchemy of Growth Strategic focus Strategic objectives

Horizon 1 Defend and extend current core business


• Maintaining and growing profitability by managing pricing and cost to serve

• Optimising return on capital – existing fleet and new investment

• Maintaining order book quality and contract execution

• Retaining and developing skilled human capital

Horizon 2 Build momentum of emerging new businesses

Horizon 3Create options for future business

Expansion and growth centre • Diversifying and expanding geographically

• Identifying and targeting new growth initiatives



Rightsizing and growth of branch footprint and structure to market demand

• Monthly assessments of all branches, measuring current EVA against prevailing conditions in the operating environment

• Where the required returns are not delivered, branches are either closed, restructured, relocated or consolidated

• Equipment and personnel can be repositioned to respond to more favourable market conditions

Leveraging operational efficiencies and synergies between businesses

• Taking advantage of the Group’s agility in terms of sharing yards and resources, thereby improving overheads, including labour, logistics and rental

• Increased integration has a substantial impact on fleet utilisation and allows for cross-selling opportunities between the businesses

Key performance indicators

Reported Used internally

Revenue Profitability

RONAM and EVA

Gross margin

Fleet investment and utilisation

NOCF

Debtors days

Revenue per ton/unit

Payback period

Hire/labour/transport margins

Cost saving on redeployment vs new investment

Project margins: bid/actual percentage

Inventory days, creditors days and net working capital days










Maintaining and growing profitability by managing pricing and cost to serve (continued)

Working capital management

• Efficient turnaround of contract receivables and subcontractor payables supported by skilled management of sales and procurement activities

• Streamlined billing processes and contract structuring to ensure inflows and outflows are co-ordinated, thereby reducing debtors days


Hire fleet management and pricing

• Building on experience in the careful balancing of utilisation, maintenance and pricing

• Capital expenditure budget allocation takes place annually and is continually reassessed to respond to new opportunities, particularly hotspots

• Substantial focus on maintaining the quality of the hire fleet according to a well-established depreciation policy

Strategic allocation and relocation of hire fleet across operating geographies

• Equipment and personnel can be moved within the Group’s global network in order to participate in high-return, high-margin contracts and markets, particularly hotspots

• Scale, quality and diversity of the hire fleet, combined with depth of customer relationships, provides significant operational leverage



Revenue

Profitability

RONAM and EVA

Fleet utilisation

Revenue per ton/unit

Payback in years

Cost saving on redeployment vs new investment

Project margins: bid/actual percentage

Maintaining order book quality and contract execution

Contract selection

• Contracts which do not exceed the risk appetite and which will generate sustainable profit margins are pursued, while walking away from high-risk, unviable projects is an acceptable method to avoid unnecessary risk

• Project evaluation takes place according to a contract approval authority matrix which involves several rounds of assessment from operational to board level, depending on the scale and risk-involved

• Focus on maintaining win rates and project pipelines while ensuring that only safe and compliant projects at sustainable margins are accepted

Contract structuring with appropriate risk and pricing thresholds

• Successful formalisation of commercial manager role and operational contract managers, where necessary, to improve contract quality and ensure the terms and conditions of commercial contracts are suitable and executed or adhered to



Order book

Gross profit

Debtors days

Safety indicators*

B-BBEE rating

Contract win rate

Margins: bid/actual percentage

Project delivery KPIs



Maintaining order book quality and contract execution (continued)

Contract structuring with appropriate risk and pricing thresholds (continued)

• Significant achievements have been made in the structuring of contracts to include appropriate risk and pricing thresholds, as well as built-in opportunity costs for project overruns

Post-contract assessment process

• Formalised post-contract debrief process in place to assess and consolidate key learnings for the purpose of improving procedures

• KPIs of project execution include whether the business delivered on schedule, on specification and on budget

Safety and health

• Significant resources are allocated to the management of safety and health, with weekly engagement (known as Toolbox talks) to raise employee awareness on site

• Collaborative learning about performance, procedures and practices takes place between the businesses in the Group and in specific industry forums to share knowledge and improve practices

• Safety and health objectives are incorporated within the balanced scorecard remuneration process to incentivise individual focus on this indicator


Joint performance management framework

• Ensuring a pipeline of talented employees through appropriate recognition and reward structures

• The annual bonus scheme is based on the balanced scorecard, which considers key financial performance indicators (75%) as well as personalised goals (25%) as the basis for remuneration

• Investments in share and the Waco Growth Appreciation Rights Scheme (WGARS) offered at senior management and executive level, providing participants with the opportunity to share in the growth of the business over time

Training and development programmes

• A number of development programmes are available to employees at every level of the organisation

• Internal candidates are preferred for promotion to available positions to encourage commitment and performance and to sustain the organisational culture



Short and long-term incentive coverage

Number of participants per programme*

Employee turnover rates*

Employee Wellness Programme uptake*

Number of promotions of trained employees

Employee satisfaction surveys

* Discussed in detail in the sustainability overview, available online.










Retaining and developing skilled human capital (continued)

Innovation and execution-focused culture

• The Alchemy of Growth framework and the Continuous Improvement ethos promote a culture of innovation and performance necessary in challenging economic conditions

• Employees are encouraged to contribute towards the innovation of products and/or processes and a number of promising ideas have given rise to the new products and services in which the Group is investing for future growth

• Research and development is ongoing• Co-operation throughout the Group to share

know-how, save costs and sweat assets, leading to higher utilisation rates and RONAM

Employee engagement

• Employee engagement takes place in various forms at different levels throughout the business

• An overarching service provided is the Employee Wellness Programme which offers support to employees with personal or professional concerns

• Employee engagement is particularly important in terms of industrial relations and ensuring employees and their representatives are satisfied with their terms and conditions of employment

• Toolbox talks, workplace forums and dedicated industrial relations co-ordinators are some of the methods the Group applies to maintain regular and productive engagement with employees


Restructured B-BBEE ownership transaction

• Empowerment transaction with 100% black-owned Bopa Moruo with a 25.1% stake in Waco Africa

• Level 2 B-BBEE rating

Skills development programmes

• HDSA employees of Waco Africa are given the opportunity to improve their skills through the Cadet Scheme, enabling them to compete for more senior roles

• ABET is provided to employees to improve literacy and numeracy skills, thereby empowering individuals from historically disadvantaged backgrounds



B-BBEE rating* Number of promotions of trained employees

Revenue and adjusted EBITDA from joint ventures

* Discussed in detail in the sustainability overview, available online.



Driving meaningful transformation (continued)

Pursuing appropriate empowerment relationships through mutually value-adding joint ventures

• Select joint ventures with suitable empowerment partners to strengthen the Group’s ability to win contracts and support local enterprises in South Africa

• The Group provides the equipment and expertise on projects, as well as development and upskilling opportunities for personnel employed in the partner businesses

A number of the “optimise, defend and turn around” strategic initiatives have been incorporated in the Plan B turnaround for the international businesses, which are at various stages of fulfilment.


Plan B turnaround Premier Modular

In response to continued underperformance, the Group devised a Plan B strategy for the United Kingdom business in 2012. Since then, a more sustainable business model has been successfully embedded and Premier Modular is now reinvesting for growth on the back of improved local market conditions and high utilisation levels.

Focus areas

Sustain increasing utilisation trajectory

Investment in the fleet to grow rental profits

Waco Kwikform

A Plan B was devised for the Australasian businesses in 2014 with the goal of achieving positive EVA by June 2016. Substantial improve-ments have already been made in mitigating the impact of low margins from unsustainable contract pricing and muted market demand in Australia particularly. Major actions include:• Ongoing rationalisation of the branch footprint

and structure by closing and consolidating branches

• Reducing reliance on low-margin contract scaffolding work

• Introducing formwork and associated services to the market, including industrial labour

• Improved contracting processes through on-site project management and the formalisation of the commercial contract manager role

• Designated human resources (HR) co-ordinator role to focus on scaffolder staffing and logistical requirements

• Increasing straight hire contracts• Enforcing minimum job margin criteria to limit

hire jobs to maximum discounts and set minimum labour margins

• Focusing on opportunities in maintenance contracts in mining and resources sector

Grow market share in local formwork industry, focusing on commercial and civil engineering markets

Expand industrial services offering, utilising existing branch network where possible

Ensure appropriate returns are made in the commercial and residential scaffolding markets









Plan B turnaround (continued) Waco Kwikform (continued)

• Leveraging opportunities in recovering residential market, particularly high-density areas

• Relocating underutilised equipment to other geographies and markets

Form-Scaff Chile

The business performed significantly below expectations and a Plan B has been devised to achieve positive EVA and increase its contribution to adjusted Group EBITDA by June 2017. Major actions include:• Dedicated sales strategy to expand reach to

new customers, broadening the customer base• Reducing costs through strategic closure of

Copiapo branch, personnel reduction, project execution improvement and outsourcing certain refurbishment costs

Grow market share to double current position

Increase utilisation to reach targeted RONAM



Other sub-Saharan Africa expansion plan

• The African continent represents significant growth opportunity for South African businesses

• Form-Scaff and SGB-Cape have established operations in Africa, providing a platform for the strategic introduction of Sanitech and Abacus products to receptive markets

• Country-specific business plans are developed in response to risks and opportunities unique to each, with a focus on expanding in existing countries

• Key leadership roles are filled by Waco employees, with substantial investment in establishing local teams to drive operational excellence

• Designated role to drive major projects with engineering, procurement and construction companies

• Board oversight of Africa governance working group of the risk and controls committee with the assistance of external advisers to ensure necessary financial resources and compliance mechanisms are in place

Expansion of SGB-Cape offering (Men on boats)

• Marine scaffolding and offshore vessel personnel supply represents a promising line of business with substantial profit-making potential



Revenue

Adjusted EBITDA

Capital expenditure by country

Cost savings on redeployment vs new investment

RONAM by country




Diversifying and expanding geographically (continued)

Ability to move skills and fleet to markets/geographies to leverage optimal returns

• Operational leverage provided by the scale and diversity of the hire fleet, spread across a range of geographies, enabling the movement of skills and equipment between businesses, markets and locations

• Ongoing monitoring of fleet utilisation and profitability across regions to strategically redeploy hire equipment to more lucrative markets, particularly hotspots

Investing in scalable and efficient IT systems to support geographic expansion

• Increased focus on IT as a key enabler of growth through enhanced reporting and communication capability

• Software upgrades, new systems and centralised servers have been implemented in the operating businesses and outdated hardware has been replaced with superior technology


Acquisitions – pursuing appropriate targets

• Build on good track record of value-adding bolt-on acquisitions that complement the existing offering and support the Group’s positioning as a diversified industrial services business

• The Group remains alert to acquisition opportunities into adjacent and new businesses that align with its stated objectives and organisational culture

Access new products and customers through active research, development and innovation in each business

Abacus• BOO camps – A flexible accommodation product,

ideal for large construction projects requiring personnel accommodation over long periods

• ABT – A hybrid product between modular and bricks and mortar that is durable, quickly assembled, fire-rated and thermally insulated

• EzeeSpace – A unique, technically advanced modular building product that is scalable and flexible



Revenue and adjusted EBITDA from growth initiatives

Capital expenditure invested

NOCF

Research and development spend

Return on investment from acquisitions









Identifying and targeting new growth initiatives (continued)

Sanitech• Integrated hygiene services – Washroom

solutions, deep cleaning, daily cleaning, pest controls and septic tank pumping

• SCT – Ideal for informal settlements, the SCT uses steam and a rotating bowl, thereby saving water and bypassing the need for water infrastructure

• NIC toilet – Ideal for underground mining applications, the NIC uses nanotechnology to keep the bowl clean and minimise water usage

• Retro-fit kit – A standalone, flushable latrine with expandable bladder that can be fitted to existing latrines with minimal environmental impact

• Portable wastewater treatment plants – Modular, containerised plant, designed to respond to lack of existing infrastructure in this area and reduce Sanitech’s transport costs

SGB-Cape• Insulation and industrial painting – Extension

of industrial services offering• QuikDeck – A suspended access platform

product, for which the Group has obtained sole distribution rights in Africa

• Rope access – Providing access inspection, non-destructive testing and work-at-height maintenance solutions where scaffolding and suspended platforms cannot reach effectively

Form-Scaff• Tifa Flex – Circular formwork system for application

on rounded surfaces, for example dam walls• Small plant hire – Smaller, easily transported

construction tools for rental, using the existing branch footprint and customer relationships



Performance review and outlook

ingrained in the ethos of the business. The Alchemy of Growth framework provides the principles which ensure that growth continues to take place in a sustainable and meaningful manner.

Governance The board of Waco International is responsible for ensuring that the activities of the Group take place according to sound governance processes and structures that ensure ethical behaviour while supporting the growth strategy. Group executive management is accountable to the board for the Group’s performance and progress against stated targets. The directors are responsible for the oversight of compliance and assurance practices in the Group and ensure that engagement with stakeholders contributes to the building and strengthening of key relationships. Subcommittees of the board have clear mandates for the governance of the board’s major areas of responsibility, including audit and financial controls, risk, strategy development, remuneration, transformation and safety.

Safety is a major focus of governance in the Group as it is critical to the Group’s sustainability and determines its social and legal licence to operate. Waco International is continuously seeking safer ways of operating through rigorous incident reporting, sharing learnings among the businesses and weekly employee awareness sessions on site, known as Toolbox talks. Compliance in this area is a fundamental requirement, and the board is committed to establishing a safety culture that goes beyond compliance and supports individuals in the achievement of their own potential, thereby adding value to the Group’s human capital base to continue growing and improving into the future.

In memoriamWith sadness, Waco International reported two fatalities during the year. The Group views a tragedy of this nature as unacceptable and deeply regrets the loss of these capable and committed individuals. We extend our condolences to the families and loved ones of Avela Ivan Gumede and Khangelani Macaleni.

Greater detail on performance and projects in the area of safety and health has been communicated in the 2015 sustainability overview, which is available for download on the Group’s website.

Chairman’s statementMilestonesIt is pleasing to reflect on a year in which Waco International continued to realise the benefits of its focused growth strategy. The Group is executing against its objectives to optimise and defend its current business while pursuing new opportunities to diversify, expand and innovate. The successful turnaround in the United Kingdom and Australian businesses is a major milestone, reflecting the sustained commitment from management to optimise those businesses and a sound capital investment strategy from Group leadership. While there is still work to be done, the international businesses are now in a strong position to contribute significantly to Group profits going forward.

The fact that the African businesses produced stellar performances for another year is worth noting, particularly in the face of significant challenges in the local market. The sustained growth achieved in SGB-Cape, Sanitech and Form-Scaff is the outcome of various initiatives to defend and extend the Group’s position in well-established markets and to venture into new markets on the continent. Abacus performed beyond expectations this year as a result of a well-executed expansion plan with a promising trajectory for future growth.

Operating contextResults such as these are not easily achieved in a global economic environment characterised by muted growth and erratic commodity prices. In the South African context, industrial development has not taken place to the extent expected and there continues to be policy uncertainty in this area, leading to low business confidence. While developed international markets in which the Group operates are showing positive signs of recovery and future growth, they remain far from pre-financial crisis conditions. Against this backdrop, Waco International’s growth in recent years can be attributed to the elaborate and well-articulated strategy driven by committed leaders and

“ The Group is in a strong position, having demonstrated the potency of its growth strategy in recent years,

to offer investors credible long-term value accretion.”

Royden Vice | Chairman








Performance review and outlook (continued)

Corporate citizenshipThe Group embraces the need for businesses to be active role-players in society. This involves identifying opportunities within its means to meaningfully share value with a broad range of stakeholders over a sustained period of time. Management encourages the operating companies to invest in upliftment projects where their unique product offering will improve the lives of communities and groups in need, thereby benefiting the business while adding value to society. This is especially applicable to the modular building and sanitation offering, which lends itself to deployment in underdeveloped rural and peri-urban contexts where resources and infrastructure are in short supply. Through the Waco International Charitable Foundation, the Group also offers financial support to children of employees entering tertiary education, followed by employment opportunities upon graduation.

More information on the Group’s approach to and activities in support of corporate citizenship is provided in the sustainability overview, available online.

ListingWaco attracted significant interest and positive feedback on the company, its equity story and management, and the placement raised demand from a number of high quality institutional investors. However, in light of investor concerns arising from the tragic collapse of the M1 bridge in Sandton, the company has decided that it is at this time no longer appropriate to continue with the placement and listing.

The company wishes to offer its condolences to all those who were injured and to the relatives of the deceased.

Waco remains committed to bringing the company to market at the appropriate time and will continue to evaluate the timing for the proposed placement and listing.

GearingThe Group will seek to retain sufficient cash in order to fund its continued growth aspirations without resorting to excessive leverage and ensuring it maintains its strategic flexibility.

OutlookProspects are positive going forward, though conditions in the external environment, particularly in the South African economy, are expected to remain tough. In the international businesses and on the African continent, Waco International will continue to pursue growth and diversification opportunities as they arise to leverage the positive upswing in certain sectors and regions. Research and development into innovative new products is ongoing as the business seeks to cultivate a pipeline of new offerings and diversify the revenue mix.

AppreciationStephen Goodburn and his management team are to be commended for their commitment to the strategy and turning ideas into tangible, value-adding outcomes. Secondly, the board would like to acknowledge the significant efforts of the leadership of the two international businesses which have returned to profitability despite enormous challenges – Rodney Mill of Waco Kwikform in Australia and Eugenio de Sa of Premier Modular. Lastly, thanks to our shareholders and funders for their continued support.

Royden ViceChairman


Chief executive officer’s reportPerformance for the year was satisfactory as the Group continues to fulfil its dual vision of extending and defending business as usual while pursuing new and innovative growth opportunities. Waco International produced strong adjusted EBITDA growth for the third year, with a CAGR of 39% achieved in the past two years. The South African businesses performed well despite lacklustre local trading conditions and are poised to reap significant returns from the focused expansion into sub-Saharan Africa as those new ventures become established with time.

The United Kingdom operation is now achieving RONAM of above 30% and achieved positive EVA in line with the June 2015 goal. It has graduated from a business undergoing a restructure and is now investing in the growth of its fleet of modular buildings. The Australasian operation, having undergone a substantial restructuring, is targeting the achievement of positive EVA by this time next year. Management expertise from these successful turnaround strategies is being applied to Form-Scaff Chile, which remains a strategic toehold on the South American continent.

Strategic progressThe challenge of operating in the current global economy is profound – growth remains sluggish, commodity markets are increasingly depressed and price increases encroach on profit margins. However, significant opportunities remain across various geographies, markets and sectors. Businesses that are prepared to take calculated risks and strategically allocate financial, human and intellectual capital to respond to these opportunities will continue to see sustainable growth into the future. Waco International is one such business.

Ultimately, the Group’s success can be attributed to the small but focused strategic action plans at an array of key points throughout the operating businesses within a broader strategic growth framework driven at Group level. Waco International’s diversification across geographies, markets, customers and products enables the Group to maintain sustainable returns despite the challenging economic environment.

The Group has the collective reach to take its established diversified equipment rental and industrial services business to new customers, markets and geographies; conversely, it is expanding its exposure in already well-established markets through the introduction of new products and new businesses.

Since adopting the Alchemy of Growth framework in 2011, the Group has focused on ensuring that its core horizon 1 businesses remain robust generators of value. Success in this endeavour allows the Group to fund innovation into new products and sectors that represent new revenue streams which, in time, become part of its core business.

A fundamental component of this broad objective involves monthly EVA assessments at branch level, whereby management monitors returns relevant to assets under management and, in cases where a branch is underperforming, devises a restructuring plan to downscale, close, relocate or combine with other branches. In this way, the Group is involved in an ongoing rightsizing exercise to optimise the cost to serve and ensure its operational footprint is in prime position to respond to external opportunities and challenges. The Australian operation’s successful turnaround demonstrates the effectiveness of the exercise.

The hire fleet remains the Group’s most valuable asset – its scale and diversity are what differentiate Waco International as a global equipment rental and diversified industrial services player. The Group invests maintenance capital expenditure

“The Group’s success can be attributed to the ability of key people throughout the business to identify where change is needed, to innovate an appropriate solution and to action the necessary steps.”

Stephen Goodburn | Chief executive officer










of between R100 million and R120 million annually in the equipment to ensure it can service its customers from an availability and a quality perspective. By taking advantage of the mobility of the equipment, acceptable utilisation rates can be achieved, thereby contributing to RONAM at higher levels. During the year, approximately 2 000 m2 of underutilised scaffolding equipment was moved from Australia and reallocated to a major site in South Africa, resulting in an estimated saving of R25 million compared to purchasing new fleet.

This scale and agility gives the Group formidable operating leverage, enabling it to strategically deploy equipment to diverse locations across its geographic footprint where market conditions are most favourable, particularly hotspots. These large-scale, long-duration industrial projects often require access solutions, accommodation and sanitation infrastructure – all of which the Group is able to provide. The flexibility of this integrated offering allows the different businesses to leverage operational efficiencies and synergies by sharing yards, logistics and human resources, thereby reducing overheads and expanding market reach. The opportunity for cross-selling to existing and new customers has been a major driver of Waco Africa’s focused expansion across the continent.

As the management of contracts is key, the Group has invested much time, money and effort to improving its contracting capabilities in recent years, bolstering capability and formalising specific roles, accountability and authority in key areas which are critical to effective contract management, including the billing process. A direct outcome of this improvement can be seen in robust working capital levels for the year, with significantly increased net operating cash inflows despite substantial capital investment.

Contract selection takes place according to an extensive risk assessment process which considers the operational risk of each contract – including safety and environmental aspects – as well as the financial health of the customer concerned. Contracts are structured such that the Group faces limited exposure to credit risk, which is supported by the nature of the rental model. Where a potential contract falls outside of sustainable risk and return parameters, management takes the decision to walk away, while maintaining Waco International’s position as the leader in the market.

A handful of the Group’s bigger contracts reach the end of their terms in the coming financial year. While Waco International has been involved for a substantial period and is one of only a few businesses in terms of the scale of fleet and depth of experience that are capable of executing these projects, there is no guarantee that the contracts will be renewed. This could potentially impact on overall Group revenues if the substantial

returns from the various growth initiatives are not achieved and current potential projects in the pipeline are not secured. The Group actively pursues opportunities to upsell and expand its offering with existing private and public sector customers and focuses on further strengthening its relationship with these valued stakeholders.

The business is intensely reliant on human capital to deliver on customer expectations and see every contract through to completion, safely and on specification. The Group’s ability to execute and provide a high-quality service is critical to its reputation and is supported by a performance-driven culture ingrained in the business. The balanced scorecard remains the foundation on which this culture is built as it incentivises every employee to contribute to the Group’s overall success while at the same time being rewarded for fulfilling personalised growth plans. Internal candidates are favoured for promotion when positions become available, with the intention of retaining skilled people who already know and understand the business and its culture. Over the past four years, there have been 196 appointments to senior positions (branch manager and above). Of these, 60% were filled by internal promotion. For employees, this is tangible motivation to work hard and commit to the business.

The operating businesses employ vast numbers of people who receive core training in their respective roles, with a specific focus on safety and health. There are inherent safety risks to the Group’s core activities and the responsibility lies with Waco International to constantly emphasise the importance of safety through rigorous incident reporting, sharing knowledge and pursuing the ultimate goal of zero harm. This year, the Group as a whole reduced its lost-time injury frequency rate (LTIFR) from 0.91 to 0.85, a significant improvement. However, this achievement is marred by the loss of two employees of SGB-Cape in Port Elizabeth, Avela Ivan Gumede and Khangelani Macaleni. They had been working overtime and, contrary to Group policy, were being transported on the back of a light delivery vehicle – forgoing the formalised minibus service offered by the Group – which was involved in an unfortunate motor accident. To corroborate the chairman’s tribute, the Group mourns the deaths of these men and sends condolences to their families. Their loss is a failure for the Group and every effort is being made to safeguard against future incidents.

Waco International appreciates that it cannot rely solely on its current resources and must develop a pipeline of leaders to maintain the current trajectory and take the Group into the future. To this end, the Group has a number of employee development programmes offered at different levels and structured to achieve specific outcomes. The development


programmes offered at management and executive level require their participants to propose original business plans to optimise current products and services or innovate new offerings. Certain of the Group’s most promising growth initiatives are the outcomes of this process, including integrated hygiene services at Sanitech, EzeeSpace at Abacus and small plant hire at Form-Scaff, to name a few. This emphasis on innovation, supported by a focused research and development team, is a fundamental driver of growth and an overarching characteristic of the Group as a whole.

Transformation remains an area of strategic focus as it impacts the Group’s legal and social licences to operate in South Africa, where B-BBEE is a fundamental aspect of doing business in the country. Waco International embraces the need to transform its workforce, and aims to realise this goal through an organic and sustainable approach to performance management and employee development. HDSAs are able to benefit from an array of mentorship and learnership programmes in the form of the Cadet Scheme. The goal of the scheme is to give promising individuals (on average 15 per year) the opportunity to compete for leadership roles for which they would otherwise have been underqualified. Similarly, the Adult Basic Education and Training (ABET) Programme is available, with 128 students currently enrolled. The programme is aimed at broadening their employment opportunities and empowering employees with core skills. In this way, the Group aims to develop its human capital from within, building on the positive momentum that has already been achieved in advancing the careers of talented individuals as a result of their hard work, skills and experience.

The Group’s current level 2 B-BBEE contributor status is expected to decrease under the revised codes, which represents a risk to the Group and other market players in the medium term. Waco International partners with appropriate black-owned SMMEs in joint ventures to strengthen its ability to succeed in tender bidding processes. As a result, the Group has developed robust, mutually value-adding relationships in which it provides the requisite equipment, while the partner business benefits from the exposure to specialised commercial and technical skills.

The Group acknowledges that it is an imperative that Waco Africa sustains and optimises its B-BBEE status in compliance with and in the spirit of the codes.

On the international front, major strategic milestones have been achieved as a result of focused turnaround plans. The United Kingdom business is streamlined and geared for growth, having standardised its product, focused on higher-margin niche applications and honed in on its core

model as a rental business. Conditions are buoyant in the local construction environment, particularly London, where the industry is expected to continue growing at double digit rates into the medium term. In addition to this major market, the business continues to focus on its key sectors of education and healthcare. In Australia, year-on-year growth has been significant, indicating the traction of the restructure initiatives. The business is a far leaner operation with the potential to contribute substantially to Group revenue and profits. While there is room for improvement, the business is now in a stronger position to realise the latent potential of its business model as residential markets pick up, particularly in the big cities. The introduction of formwork and industrial labour as a logical extension of the scaffolding business is expected to add value to existing customers and contribute to expanded market share. In Chile, major work is required to expand the business’s exposure to more customers and grow market share. Management is applying what it learnt in the United Kingdom and Australia to the South American context and improvements have already been made.

At the same time as bolstering the core business driving the Group as it is today, Waco International is continuously seeking new revenue streams that will sustain and grow it into the future. The objective of horizon 2 and 3 initiatives is to acknowledge that the world is changing and the status quo never stays the same for long – and the business is responding by proactively investing in new geographies, businesses, products and ways of operating.

The Group has an established position in mature South African markets, providing it with a stable launch pad from which to drive growth of its rental equipment and diversified industrial services model into sub-Saharan Africa. The Africa governance working group reports to the board via the chief financial officer and they are jointly responsible for ensuring that the investment and set-up of businesses on the African continent takes place with minimal risk and in accordance with relevant regulations, including country-specific laws. Key individuals are assigned authority and accountability for each region, with dedicated business development managers targeting appropriate sectors and customers, and a designated role to drive collaboration with local and South African-based engineering, procurement and construction companies. The Group has reinforced its human resources in order to benefit from the exceptional GDP growth forecast in African countries, some already at levels of above 5% per annum. The Group’s rental equipment and diversified industrial services offering is









well positioned to service those sectors requiring significant infrastructural development, including mining and resources, power generation and oil and gas. Waco International has invested significantly in IT upgrades over the past year to ensure that, as the business grows geographically, standards of quality are maintained and channels of communication and reporting remain effective.

Form-Scaff and SGB-Cape have been active on the continent for over two decades with an established network in key locations. These existing branches provide a platform for the strategic introduction of Sanitech, Abacus and SkyJacks products to receptive markets, thereby leveraging the operational synergies inherent in the complementary nature of the products in the portfolio. The cost of expansion is therefore reduced, as all of the businesses that comprise Waco Africa can potentially share the same infrastructure (yards, offices and logistics) and benefit from existing customer relationships. This past year alone saw five new branches open across sub-Saharan Africa (excluding South Africa) – with Sanitech and Abacus both venturing out of South Africa for the first time – with plans for further branch openings at an advanced stage. The benefits of these investments are not immediately evident as the period required to bed down a new operation, including legal and regulatory hurdles, is approximately 18 months. Despite not reaching the targeted 25% CAGR in adjusted EBITDA from other sub-Saharan Africa this year, the Group can now conduct its growth strategy from 16 branches across seven countries and this footprint and exposure will drive substantial future returns.

The Group has a good track record of strategic acquisitions in recent years – Sanitech, through a series of bolt-ons from 2011 to 2015; United Scaffolding in New Zealand in 2012 which has increased its exposure on the South Island, particularly the Christchurch rebuild, and, most recently, SkyJacks in January 2015. SkyJacks is a logical and value-adding extension of the Waco Africa portfolio, offering power suspended scaffolding platforms and aluminium lightweight modular platforms to the construction, entertainment and industrial maintenance sectors. The business has three branches, servicing approximately 875 customers, and is the market leader in specialty access suspended platforms. Management approaches acquisitions in a disciplined and focused manner, based on substantial experience, to identify and seize the opportunities that will enhance the Group’s future growth prospects.

Research and development into new products and services has produced exciting opportunities for future growth and innovation. The expansion of the core formwork, shoring and scaffolding businesses to new applications has seen the addition of the Men on boats marine personnel project (which currently has nine SGB-Cape personnel stationed on 60% of the approximately 40 vessels off the African coastline),

QuikDeck (a suspended access platform for which SGB-Cape has the sole distribution rights in Africa) and the Tifa Flex and Tifa Lite products (a circular formwork system for application on rounded surfaces to which the New Zealand market has been particularly receptive). SGB-Cape is looking to add a rope access product to its offering of versatile access equipment, while Form-Scaff is piloting a small plant hire business to expand into the lucrative small-scale construction space.

While scaffolding and formwork equipment continues to function optimally in much the same way it did five decades ago, the scope for innovation in other areas – notably modular accommodation and sanitation – is vast. The EzeeSpace product developed by Abacus is unique in the South African market. It is scalable and flexible and can be flat-packed for easy transportation. Increased investment into the EzeeSpace product has been a major driver of the strategic growth of Abacus’s fleet and branch footprint, with over 600 units in the fleet (from 200 in June 2014) at an average utilisation of over 90%. Abacus is focused on achieving a market leadership position by the end of 2017 through its focused growth strategy across South Africa (it opened its first branches in KwaZulu-Natal and the Western Cape during the year) and into other sub-Saharan Africa.

The BOO camp concept is gaining traction, with a number of potential contracts in the pipeline. Trading at the existing Kendall camp improved as the number of beds was expanded from 72 to 202. The BOO camp concept uses mostly EzeeSpace products and has been designed with mega construction projects in mind, including dams, mines and power stations, and has the potential to yield substantial returns with increased uptake from these sectors.

Another major thrust of Abacus’s growth plan is also a unique product in the market. ABT represents the next generation of modular buildings and has the requisite fire rating and balanced thermal qualities that match those of conventional brick and mortar buildings. The major benefit of ABT, as opposed to conventional buildings, is the ease and speed of assemblage – an entire average-sized school takes three to four months to put together. During the year, Abacus built two full schools – comprising 32 classrooms, six boys’ and girls’ toilet blocks and admin offices – for the Department of Education. Success in this endeavour has profound implications for the education space in South Africa, for which there is a significant national budget but a lack of effective solutions. For Waco International, it opens up a new market in which the Group can compete with conventional building models for other commercial building contracts, for example, hospitals, offices and student accommodation.



Sanitech’s integrated hygiene services business continues to go from strength to strength. The business took strategic steps to extend its capabilities beyond supplying and servicing portable toilets and sanitation products to include washroom solutions, deep cleaning, daily cleaning, pest controls and septic tank pumping. All these functions are performed by one highly skilled service manager, thereby maximising available resources and reducing the cost to serve. Substantial investments in employee and branch infrastructure are already proving beneficial and Sanitech is on track to increase its hygiene division’s market share from approximately 1% to between 2% and 3% of the estimated R4.5 billion market by the end of 2016.

Another significant area of innovation is the development of resource-efficient next generation toilet products with multiple commercial applications. Shortage in water supply already represents a mega trend shaping global markets, presenting an opportunity to innovate solutions to provide for the future. Sanitech’s NIC toilets are ideal for deployment in underground mining and informal settlements as they do not require power and use a minimal amount of water per flush (up to 100 times less than a standard latrine). The NIC has a rotating bowl, treated with nanotechnology to ensure hygienic usage, with a built-in reservoir and sealed cartridge for easy and safe handling of waste. The product is one of a kind and is relevant for the mining and resource industry in a number of geographies. The SCT is a similar design which is well suited for underground mine applications, as well as the Repit retro-fit structure which can be fitted to existing pit latrines with a sealed drum that minimises environmental impact. In this way, the Group is servicing a dire societal need while adding value to the business. Intellectual and patent rights to the rotating bowl concept have been secured and Sanitech has recently secured its first order for 240 NICs.

Wastewater treatment is another area where existing infrastructure in South Africa is lacking, and therefore a major opportunity exists for a solution from the private sector. Sanitech has the capacity to assemble modular, containerised portable wastewater treatment plants in locations where it already does high volumes of pump-outs, thereby reducing transport costs and optimising resources. The saving per litre is significant, making this an attractive product for both private and public sector customers. The first plant will be installed in November 2015, with anticipated further installations to follow the demonstrable efficiency of the first. For this, as with many of the growth initiatives in their earliest stages of development, the future is bright.

OutlookWaco International is targeting sustained growth in adjusted EBITDA to 2018. The core businesses are expected to continue benefiting from the various optimisation actions, while the growth initiatives represent a pipeline of future value creation with increasing reach into existing and new markets. Some of these are still in their infancy stage with exciting potential returns in the medium and long term.

The Group will continue to prioritise certain sub-Saharan African countries outside of South Africa where it already has a footprint as major sites for growth and expansion. The international businesses have achieved much in recent years, and are in a stronger position to contribute significantly to Group earnings going forward. While the same cannot be said for Form-Scaff Chile, this business remains strategically valuable and will benefit from a focused turnaround strategy.

A track record of growth such as that demonstrated by Waco International is something to be proud of; at the same time, it comes with the challenge of maintaining that trajectory in a sustainable manner. The Group will continue to pursue expansion and innovation opportunities while optimising the efficiency and reach of its existing customer, product and branch footprint.

The Group’s success can be attributed to the ability of key people throughout the business to identify where change is needed, to innovate an appropriate solution and to action the necessary steps. Thank you to all Waco International employees who contribute to Waco International’s culture of going beyond ideas to achieving value-adding outcomes in actuality.

Stephen GoodburnChiefexecutiveofficer









Chief financial officer’s reportWaco International has come through another busy year with pleasing results on the back of continued strong performances from the African businesses and significant improvements in the international portfolio. The Group continued its calculated investment strategy to extend and defend the existing business, as well as drive the realisation of its growth ambitions, which have collectively contributed to the overall increase in profitability.

Waco International is an established diversified equipment hire and industrial services business with a unique profile of products and services. It is exposed to a wide range of end markets and end users diversified across sectors and geographies, with private as well as public customers. The Group has increased its specialised skills, services and rental products and focuses on expanding where barriers to entry are high and access to capital is an advantage. These steps will continue to make the Group less susceptible to cyclical downturns.

Highlights Group2015 % change 2014 2013

Revenue ✔ R4.5 billion 15.4 R3.9 billion R3.1 billion

Gross profit margin ✔ 37.7% 1.9 37.0% 36.6%

Total overheads ✔ R1 144 million1 13.8 R1 005 million R957 million

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) ✔

R768 million 34.3 R572 million R395 million

Adjusted EBITDA compound annual growth rate (CAGR) ✔ 39%

Adjusted EBIT (earnings before interest and tax) ✔ R617 million 36.8 R451 million R305 million

Adjusted EBIT as percentage of turnover ✔ 14% 16.7 12% 10%

Net CAPEX ✔ R264 million (10.5) R295 million R123 million

Net operating cash flow (NOCF) ✔ R582 million 141.3 R242 million R100 million

Return on net assets managed (RONAM) ✔ 27% 28.6 21% 17%

Economic value add (EVA) ✔ R346 million 76.5 R196 million R88 million

Days sales outstanding (DSO) ✔ 67.5 (12.0) 76.7 78.4

Net debt ✔ R193 million (60.0) R480 million R576 million1 Includes circa R45 million of costs relating to the restructure of the Australian business (redundancies and onerous leases etc.)

Group revenue grew by 15% ✔ from the prior year to R4.5 billion ✔. Overall revenue contribution is well diversified across the Group with no single business contributing more than 25% of Group revenue during the year. All businesses grew their revenues, with the exception of Kwikform Australia, whose turnaround plan was focused primarily on improving margins.

“The continued investment in capital and resources has enabled Waco International to grow revenue and profitability, delivering improved returns despite the limited growth in the economies in which we operate.”

Eben le Roux | Chief financial officer


Revenue by Geography2014

54%46%

Revenue by Geography2015

56%44%

EBITDA by Geography2014

88%

12%

EBITDA by Geography2015

82%

18%

Overall gross margin improved slightly to 37.7% ✔, on the back of the improved turnaround in the international businesses, with Africa slightly down as a result of SGB-Cape (contracting) growing its revenue by 24% ✔ and a larger than usual sale at Form-Scaff. These both contributed positively to the top line, but at lower margins than hire and related services.

This depth of the revenue mix, combined with improved pricing and contract controls that mitigated the impact of inflationary cost pressures, is reflected in adjusted EBITDA of R768 million ✔ in June 2015, an increase of 34% ✔ on the prior year.

Adjusted EBIT showed similar year-on-year growth at 37% ✔. The African businesses continue to contribute the majority of Group adjusted EBITDA, with R650 million of the total R768 million generated by Waco Africa. However, the geographical earnings mix is balancing over time as the international businesses gain in profitability. Premier Modular and Waco Kwikform Group in Australia reflect substantial year-on-year improvements, with the international businesses achieving an increase of 106% ✔ in adjusted EBITDA on the back of the turnaround previously noted. The gains in the international businesses provide some diversity to local earnings in rand.

Waco Africa2015 % change 2014 % change 2013

Revenue ✔ R2.5 billion 19.0 R2.1 billion 23.5 R1.7 billion

Adjusted EBITDA1 ✔ R650 million 24.3 R523 million 47.3 R355 million

Net capital expenditure ✔ R177 million (26.6) R241 million 143.4 R99 million

NOCF ✔ R498 million 102.4 R246 million 68.4 R152 million1 Excludes administration and eliminations.

Waco Africa showed solid growth off a strong base during the year. Revenue of R2.5 billion (2014: R2.1 billion) ✔ and adjusted EBITDA of R650 million (2014: R523 million) ✔ was achieved. SGB-Cape, in particular, performed admirably, accounting for 41% ✔ of the overall increase in Group adjusted EBITDA, followed closely by Form-Scaff (27%) ✔, Sanitech (17%) ✔ and Abacus (7%) ✔. SkyJacks, acquired in January 2015, has been successfully assimilated into the portfolio, bolstering the integrated industrial services offering.

Collectively, the African businesses contributed 56% ✔ to Group revenue and 82% ✔ to Group adjusted EBITDA. EVA amounted to R388 million (2014: R325 million) ✔, demonstrating the substantial value-add achieved by these businesses. Over the past three years, the other sub-Saharan African businesses have produced CAGR in adjusted EBITDA of 17% ✔.

Other sub-Saharan Africa contributed 5% ✔ to Group revenues and 9% ✔ of Group adjusted EBITDA in 2015. Profitability in the current year was, to some extent, affected by the opening of six new branches in Africa. Waco Africa now has 16 branches in seven countries, providing a solid platform for future growth. The strategic investment in the branch network and hire fleet is expected to yield significant returns as they become established in the short to medium term and provide the Group with the required operating footprint from which to grow on the continent.

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Africa International

Improvements in international businesses balancing

geographical earnings split.








Sanitech had a good year, benefiting from its profile as the only player in the South African market with a national footprint. The business grew its toilet hire fleet to approximately 23 000 toilets, adding 4 000 new units during the year. Its integrated hygiene services offering continues to go from strength to strength, contributing 19% of the business’s overall earnings for the year, up from 16% in 2014.

Abacus also had a solid year, benefiting from a focused strategic expansion exercise. The fleet has grown from approximately 1 108 units in June 2014 to 1 507 in June 2015, with the highly successful EzeeSpace product contributing the majority of the growth. The average utilisation of these products is above 90%, with Abacus’s overall utilisation at a satisfying average of 81%. Abacus has achieved a more sustainable operating model by focusing on its hire business at more attractive margins – hire and related services revenue for the year contributed 30% to Abacus’s overall revenue, compared to the 15% contribution in 2013.

International businesses2015 % change 2014 % change 2013

Revenue ✔ R2.0 billion 11.1 R1.8 billion 28.6 R1.4 billion

Adjusted EBITDA1 ✔ R144 million 105.7 R70 million 59.1 R44 million

Net capital expenditure ✔ R85 million 54.5 R55 million 31.0 R42 million

NOCF ✔ R102 million 343.5 R23 million 128.8 (R80 million)1 Excludes administration and eliminations.

Adjusted EBITDA increased to R144 million ✔ in the international business driven by strong improvements in Premier Modular and the Kwikform Group in Australasia. Premier Modular has made strong improvements, achieving positive EVA in line with the June 2015 strategic target. Revenue for the year was £44 million (R788 million) (2014: R586 million) ✔, with adjusted EBITDA of £2.9 million (R51 million) (2014: R27 million) ✔. Fleet utilisation is climbing towards 70%, compared to 52% in 2013, with RONAM above 30%.

Waco Kwikform Group has made substantial progress towards achieving positive EVA by June 2016. The New Zealand operation maintained its solid profitability track record of recent years, achieving revenue of NZ$27 million (R240 million) (2014: R197 million) ✔

in 2015, as that region continues to experience buoyant trading conditions. In Australia, where revenue of AU$97 million (R923 million) (2014: R960 million) ✔ was achieved, profitability improved substantially on the back of the turnaround plan implemented during the year. Overall, the Australasian business produced adjusted EBITDA of AU$9.5 million (R91 million) ✔, a massive improvement of 208% ✔ on the prior year.

The formwork, shoring and scaffolding operation in Chile consists of one branch operating out of Santiago. In the 2015 financial year, revenue at Form-Scaff Chile of R34 million (2014: R50 million) ✔ was disappointing. Management estimates that Form-Scaff Chile’s current market share is below 2%, but remains confident that there is growth potential in this market, and is aiming to broaden the business’s customer base to this end. While small, Form-Scaff Chile is part of Waco International’s global growth strategy and represents a strategic toehold in South America.

Strategic progress – Understanding Waco International’s growthThe strong performance is the outcome of Waco International’s proactive drive to sustain solid growth in returns from the existing businesses, while continuously pursuing new avenues of value accretion. The Group has strategically invested approximately R850 million ✔ in the business (including acquisitions) since 2013. Capital has been invested to grow the hire fleet, as well as to fund the various growth initiatives, which include expanding the branch footprint, innovating new products and services and acquisitions. The CAGR in adjusted EBITDA of 39% ✔ achieved since 2013 on CAGR in revenue of 21% ✔, shows the operational leverage that has been achieved through the branch network, combined with the operational efficiencies and synergies inherent in the portfolio.


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Margins – gross profit and adjusted EBITDAStable and increasing gross profit margins have been achieved across the Group in recent years. The increased contribution from the international businesses had a positive impact during the year, and the Group achieved a gross profit margin of 37.7% ✔ in 2015, up slightly from the 37.0% ✔ achieved in 2014. As these businesses continue to grow and optimise, greater gross margin gains are expected in the short to medium term. Waco International has achieved steady adjusted EBITDA margin uplift over three years from 12.8% ✔ in 2013 to 16.9% ✔ in 2015. This is supported by the integration potential inherent in Waco Africa, which enables the businesses to extract operating efficiencies, leverage existing infrastructure and save costs.

Strategic steps taken by the established core businesses to rightsize the footprint, optimise the cost base and improve margins have contributed to their profitability and relevance in challenging markets. The mobility of the equipment, combined with the Group’s extensive branch footprint, allows for the sharing of resources among businesses to optimise the use of capital and sustain a low cost to serve operating model.

Investment in the hire fleet The estimated replacement cost of the Group’s entire asset base is around R5 billion. Average annual capital expenditure spend to maintain the fleet is between R100 million and R120 million. The Group continues to invest in the various businesses, growing the fleet and finding opportunities for growth, with the bulk of investment in recent years allocated to Form-Scaff, SGB-Cape and Sanitech, the businesses with the highest RONAM.

Core operations – optimising, defending and extending

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36.6

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Return on net assets managed (RONAM)Ongoing investment, combined with the successful execution of the strategic initiatives, delivered overall RONAM of 27% ✔, well up from 21% ✔ in the prior year. RONAM continues to be a key indicator, measuring the return on assets managed for the Group and its various businesses. The increase in recent years reflects management’s focus on the balance sheet with all assets required to deliver a return.

Working capital managementStrong working capital management had a significant impact on the overall financial performance for the year, with R141 million ✔ in inflows, in comparison to R11 million ✔ in 2014. This inflow was achieved despite a 17% ✔ increase in revenues and is a positive indicator of the improvements in cash management across the Group. Substantial efforts have gone into ensuring the efficient structuring of sales and procurement contracts to co-ordinate inflows and outflows and to ensure cash flows on large contracts are positive, especially where there are large mobilisation costs. The last quarter also included some capital expenditure in the United Kingdom, which was settled after year end. A programme to reduce creditors’ payment terms in the United Kingdom will have a negative working capital outflow in 2016, but should lead to improved margins.

Net operating cash flowNet operating cash flow grew substantially from R242 million ✔ in 2014 to R582 million ✔ in 2015 – an increase of 141% ✔. This was achieved with the support of the positive working capital flows described above and represents a cash flow conversion rate of 76% ✔ in 2015. Over a three-year period since 2013, the Group achieved a CAGR in net operating cash flow of 170% ✔, demonstrating the positive impact on the balance sheet of strong EBITDA growth supported by high returns on capital expenditure.

Days sales outstanding (DSO)A major focus of the strategic drive to enhance overall contract management has been to improve debt collection, which remains challenging in current conditions. The Group has made progress in this area, with improved efficiencies in the billing process resulting in a reduction in DSO from 77 days ✔ in 2014 to 68 days ✔ in 2015. This continues to be an imperative going forward.


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Operations in the United Kingdom and Australia deteriorated as a result of the global financial crisis in 2008. The Group has implemented turnaround plans in the United Kingdom and Australia that have returned these businesses to profitability and contributed to the overall improvement in the Group’s financial performance.

Premier ModularAfter three years of a focused optimisation exercise, Premier Modular is achieving positive EVA. The business sold underperforming fleet, restructured the operations and focused on marketing its niche product range primarily for hire at more favourable margins. The reinforced business development team has been effective in responding to opportunities in the market, particularly as conditions in certain key sectors return to robust levels. Rental order intake continues to grow, with hire and related services representing 42% ✔ of the total revenue, compared to 41% ✔ in the prior year.

The business has improved and streamlined its production capability, with a facility that has the capacity to produce 140 new units per month, adding to the current fleet of approximately 2 300 units. The refurbishment facility enables the business to refurbish products to any standard, thereby extending their useful life and extracting maximum value from multiple applications. The product is highly versatile and is the only modular building technology in the United Kingdom market that can be built up to seven storeys high. With utilisation increasing, Premier Modular will need to invest further in its fleet to grow rental returns sustainably and capital expenditure has been budgeted to this end in 2016.

The graphs below indicate the traction of the turnaround strategy launched in 2012 and the impact on revenue, adjusted EBITDA and margins:

Waco KwikformThe Australian operations have benefited similarly from turnaround initiatives, with further improvements still to be made. The business has rationalised its operating footprint to better position the branches to respond to market opportunities – over the past year, one branch was closed, two restructured, two amalgamated and two consolidated in a new premises, reducing year-on-year overheads. In addition to the extensive rightsizing operation, the business has focused on eliminating labour margin leakage which has contributed to an improvement in labour gross margins from 5.8% in 2014 to 8.6% in 2015 with overall gross margins improving from 26% to 31%.

In order to take advantage of the mobility of the fleet and achieve optimum outcomes from the Group’s vast operating footprint, opportunities were identified to reallocate underutilised equipment to more favourable market contexts. During 2014 and 2015, the Group moved scaffolding equipment from Australia to South Africa in response to a commercial opportunity, which resulted in a saving of approximately 65% compared to purchasing new fleet as well as moving equipment to the buoyant New Zealand market.

Turnaround – international businesses

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In order to achieve positive EVA, the Australian operations need to generate additional adjusted EBITDA from it's core scaffolding operations going forward. Waco Kwikform has a broad range of customers from small-scale builders to larger contracts and is the market leader in access scaffolding in terms of the scale of the fleet and branch network. The business is focused on extracting the maximum benefits from this exposure by strategically increasing formwork stock in Australia and growing its industrial labour service, thereby increasing scale and competitiveness. This will be a key driver of Waco Kwikform’s future growth.

The graph below indicates the traction of the turnaround strategy launched in 2014 and the impact on adjusted EBITDA and margins:

Relevant performance indicators are identified for each of the growth initiatives and measured against their business plans and the delivery of the Group’s overall revenue and adjusted EBITDA growth targets on a monthly basis.

Capital expenditureCapital expenditure is allocated to meet the needs of the growing business while maintaining the existing assets, and whilst agreed on an annual basis is reassessed continually when new opportunities arise or business conditions change. The Group has reinvested significant amounts in the business over the last three years, with R682 million ✔ invested in net CAPEX. The substantial investment has been funded from internally generated cash and has contributed to the stellar earnings growth during the period.

Waco International continues to invest in IT infrastructure, with spend focused on upgrading existing software and purchasing new hardware, including computers and servers, to meet the growing needs of the business. A total of R7.4 million was allocated to IT upgrades during the year, with further investment expected over the next two years to optimise business processes and support further expansion.

AcquisitionsApproximately R166 million ✔ was spent on a number of acquisitions over the past three years, collectively adding between R40 million and R50 million to annual adjusted Group EBITDA. A number of small bolt-on acquisitions were made for Sanitech in South Africa in the period between 2013 and 2015, which have been integrated into the operations and contribute to Sanitech’s profitability. United Scaffolding, in New Zealand, was acquired in 2013 at a cost of NZ$4 million paid up front, with a further NZ$1 million payable per annum over three years upon achieving certain predetermined targets. United Scaffolding is a major player in the industrial market on the South Island with an extensive customer network and established track record, and is well positioned to capitalise on the Christchurch rebuild. SkyJacks, acquired for R89 million ✔ in January 2015, is the most recent addition to the portfolio. It operates a hire business of specialised access equipment which complements the access scaffolding products offered by SGB-Cape, thereby extending the Group’s diversified industrial services offering and adding value to existing and future customers.


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Expansion and growth – growth initiatives, including acquisitions


While no major deals are in the pipeline, management is continually looking for appropriate opportunities to increase the reach and depth of its portfolio offering.

Expanding the branch networkThe expansion of the branch network in South Africa and other sub-Saharan Africa has been conducted with a focus on optimising efficiencies and leveraging the existing footprint to reduce overheads. The expanded infrastructure is anticipated to yield significant returns. The table below provides an overview of the progress made by the African business in the form of the revenue achieved from the expanded footprint.

Number of branches in South Africa and other sub-Saharan Africa

Three-yearCAGR in

revenue ✔2015 2014 2013

Form-Scaff 35 34 32 19.8%

SGB-Cape 15 13 12 25.2%

Abacus 10 8 7 12.5%

Sanitech 19 17 15 24.9%

SkyJacks* 3 –

* SkyJacks was acquired in 2015, with two operational branches.

Research and development spendInnovation into new products is ongoing and the Group continues to invest in dedicated research and development resources to further its growth strategy, knowledge is shared among the businesses in order to take advantage of the skills and expertise of existing human capital, sharing best practices where possible.

Gearing and ability to fund growthThe investment cycle in capital expenditure and bolt-on acquisitions of recent years has been funded via internally generated cash. Net debt at the end of June 2015 was at R193 million, down from R480 million in 2014, with a debt:equity ratio of 10% (2014: 29%). On 1 October 2015, Waco International increased net debt to approximately R1 billion, which is less than 1.5 times 2015 adjusted EBITDA. In addition, various working capital facilities and an acquisition facility of R300 million was put in place. The Group is therefore well positioned to fund its investment in CAPEX and bolt-on acquisition.

OutlookThe high growth rate achieved over the last few years is expected to moderate going forward, given the higher base, with growth in sustainable adjusted EBITDA targeted at low double-digit to mid-teen levels. Management continues to look for value-adding acquisitions that could further add to growth.

The Group expects to see continued improvements in margins due to increased contribution from other sub-Saharan Africa, the turnaround of the international operations and the continued focus on reducing the cost to serve. Capital expenditure will be allocated in line with budget requirements, with additional resources available to respond to opportunities, and ensuring that RONAM is sustained at satisfactory levels.

Ultimately, the future sustainability of the Group is dependent on the ongoing diversification of the revenue and earnings mix and on management's balancing of growth and profitability objectives. Prospects remain positive, not because of any emergent improvements in the external environment, but rather as a result of a calculated and coherent strategy being executed by an experienced team of leaders across the Group’s extensive operating footprint.

Eben le RouxChieffinancialofficer








Remuneration report

Guaranteed total cost to company (GTCTC)

Remuneration philosophyThe realisation of Waco International’s strategic vision of growth and sustainable value creation relies on the quality and depth of its human capital, both currently and into the future. Many of the Group’s primary operating environments, most notably South Africa, are characterised by challenging labour conditions in terms of stability and access to skills, where attracting and retaining the required expertise at all levels is key to remaining competitive in the market.

It is therefore vital to the Group’s ability to retain talented individuals at every level that remuneration practices effectively reward and further incentivise performance and commitment. The board is ultimately responsible for ensuring that this takes place, with specific accountability assigned to the remuneration committee. The committee aims to foster a performance-driven culture, supported by remuneration practices which are: • market-related;• well-structured and balanced; and• transparent and fair.

Remuneration policy and structureWaco International’s remuneration policy is linked to the availability of the talent pool, and the weighting mix of the reward elements is determined according to seniority. Remuneration packages comprise a fixed element and variable incentive elements. All incentive schemes are self-funded; in other words, the cost of the reward is provided in the calculations of the financial targets to be met.

Fixed payGuaranteed total cost to company (GTCTC) comprises monthly salary and other benefits, the quantum of which is determined by skills, seniority (grading) and personal performance. Fees paid to non-executive directors are recommended by the remuneration committee for approval by the board.

The table below provides a summary of the fixed element of the total remuneration package.

Monthly salary Benefits Non-executive directors’ fees

Purpose Fixed monthly earnings to provide for everyday living expenses, proportionate to the skills, seniority (grading) and performance of the individual

Cost of benefits are included in the cost to company fixed portion

Fees paid to non-executive members of the board for their time and participation, including board and committee meetings

Applicable to All employees All permanent employees Non-executive directors

Commentary Individual performance, market movements and compa-ratio are the key elements in determining an individual’s pay

Pay rates for employees covered by a union recognition agreement and/or bargaining council agreements are subject to annual negotiations with the relevant parties

Benefits include:• Retirement funding• Medical aid• Car allowance (if applicable)

Labour broker employees receive benefits from their respective employers

Going forward, shareholders will vote on the proposed directors’ remuneration at the annual general meeting

Incentive payThe balanced scorecard remains the primary short-term incentive mechanism and is a critical underpin of the Group’s approach to performance and talent management. It is structured such that individuals are encouraged to contribute to specific initiatives that support the Group’s overall growth and profitability, and has been highly successful in benefiting high-performing individuals throughout the business.

The management share purchase scheme and the long-term incentive structures (namely WGARS) have had a positive impact on retention of management over the last three years and is expected to continue to do so.


Incentive schemes

Balanced scorecard rating scale

75%

25%

Key financial KPIs:– Adjusted EBITDA– RONAM– NOCF

Personal goals

Short-term incentive Long-term incentives

Balanced scorecard Waco Growth Appreciation Rights Scheme (WGARS)

Management co-investment trust

Summary of terms Applicable to all mid-level to senior employees and management

Clear line of sight to ensure demonstrable contribution to the Group’s strategic initiatives

At risk annual bonus calculated according to rating scale of general financial and individualised non-financial performance indicators

75% financial KPIs – delivery against targets for key financial measures at operating business level

25% personal goals – delivery according to a set of predetermined non-financial measures explicitly linked to the role played by the employee in achieving specific strategic growth objectives

Applicable to certain members of senior and middle management

When growth in the appreciation measure (EVA) is achieved, the participant is rewarded according to a predetermined allocated percentile for their seniority level

Vesting of the appreciation rights is staggered over a period of four years with partial vesting (one-third) after two and three years to encourage long-term retention

Rights are allocated at a new strike price on an annual basis

Management investment structures were available to senior management in their capacity as shareholders in the private equity structure

Senior management invested directly in the business via a co-investment trust, holding 11.8% direct ordinary equity in the Group








Remuneration in practiceSalary increases, directors’ remuneration, bonus payments and long-term incentive awards are reviewed and approved annually by the remuneration committee.

Salary increasesKey salary review elements are:• Market conditions in each of the geographies• Overall proposed increase by business unit• Year-on-year increase, taking into account increases and decreases in head count • Increase awarded to the top ten earners and bottom ten earners• Increases to the direct reports of the managing directors• Performance rating spread for each business unit• Ratio of salaries paid to turnover and adjusted EBITDA

Performance management frameworkWaco International has a results-driven approach to performance management, underpinned by the acknowledgement that work is performed by individuals and, therefore, should be managed and rewarded on an individualised basis. To facilitate this, a number of interactions take place at key points in the annual performance management cycle:1. Goal setting2. Support3. Review and assessment

At the end of the cycle, the manager is required to rate the employee on a five-point scale, which is used in part to determine the appropriate financial reward.

Directors’ remunerationThe table below provides details of the remuneration of directors during the 2015 financial year, with information pertaining to individual directors provided on page 52 of the annual financial statements.

Rand Executive Non-executive Total

Salaries ✔ 4 985 741 – 4 985 741

Fees ✔ – 975 000 975 000

Benefits (motor vehicle allowances) ✔ 333 600 – 333 600

Short-term performance bonus ✔ 7 261 500 – 7 261 500

Long-term benefits ✔ – – –

Pension scheme benefits ✔ 1 285 400 – 1 285 400

Medical aid contributions ✔ 78 298 – 78 298

13 944 539 975 000 14 919 539

Remuneration report (continued)


Bonus payments Key bonus review elements are:• Balanced scorecard weighted measures • Performance of the individual and the bonus scheme level of the individual

Given the business results and individual performance, there is total transparency as to the amount of bonus due to an individual. Bonuses due are as per a predetermined sliding scale and, as a result, can be calculated by the individual once the results are published. This achieves the desired line of sight, thereby aligning employee performance with the Group’s strategic objectives.

Bonuses awarded for 2015 were based on the EBITDA, RONAM, free cash flow and EVA results of the different operating businesses, and lower level region/branch results were used when applicable. Total bonuses amounted to R93.8 million.

Using historical constant currency, bonuses increased 30% on the prior year. This is mainly due to the improved performance of Kwikform Group, Abacus and Premier Modular. No bonuses for Form-Scaff Chile were awarded. All bonuses are self-funding (KPIs are measured after providing for bonuses).

Long-term incentive awardsWaco growth appreciation rights scheme (WGARS)Owing to the possible listing of the Group, no further WGARs were awarded. The WGARs EVA strike price for 2015 allocation was approved at R486.5 million, on the back of the substantial growth achieved by the Group over the past three years.

The history of the EVA strike price is as follows:

0

5

10

15

20

25

30

RONAM (%)Bonus payments (Provision used in year after targets)

16.9

21.2

27.3

0102030405060708090

100

201520142013

65.578.5

94

0

100

200

300

400

500

201520142013

WGAR EVA value (R million)

16.5

198

486.

5

0

100

200

300

400

500

600

700

800

900

EBITDA (R million)NOCF (R million)

395 80

572

242

582

768

0102030405060708090

100

201520142013

Bonus payments (Provision used in year after targets)

65.578.5

94








The following table summarises the WGARS vesting to date and total value:

Number of WGARs ✔ Allocation ✔ Already vested

Value per WGAR at 30 June 2015

2012 33 275 112 participants allocated at an EVA strike price of R0.00

Two-thirds at an allocation price of R0.00 R486.5

2013 42 500 153 participants allocated at an EVA strike price of R16.5 million

One third at an allocation price of 16.5 million R470.0

2014 48 025 185 participants allocated at an EVA strike price of R198 million Unvested R288.5

Future focus areasWaco International’s remuneration system has proven to be effective over a number of years and the Group does not anticipate fundamental changes under the current ownership structure. Going forward, Waco International will continue to monitor the market for shifts in best practices and market conditions, which will inform the structure and levels of reward accordingly.

Remuneration report (continued)

The Group invests a significant amount in training our talent management to ensure we have the necessary human resources to execute the growth agenda.


The board of directors is responsible for the governance of Waco International. Ensuring that the Group’s activities are conducted in a manner that is ethically sound, compliant within the relevant regulatory frameworks and considerate of stakeholder interests is vital to its sustainability. The achievement of the Group’s strategic goals depends on effective decision-making processes with clear lines of authority and accountability.

Governance assessmentWaco International was a listed company until 2000. In the period since, the business retained its corporate memory and has been governed as far as possible according to the structures and procedures required of a public entity. The Group is committed to sound corporate governance and performed an internal review to assess areas where action could be taken to better align with King III practices.

The most significant steps identified as a result of the assessment are summarised below:

Dedicated internal audit functionWhilst the internal audit was previously managed by the Group financial manager, a dedicated internal audit manager was appointed in November 2014.The internal audit function is responsible for monitoring and reporting on significant risks and has a direct reporting line to the chairman of the Group, as well as the independent non-executive chairman of the risk and controls committee.

Board compositionThe board of directors governed the Group effectively within the private equity structure for the past four years. The current composition of the board is not reflective of a public listed entity and will need to be reviewed.

Board committeesAs provided for in the Group’s memorandum of incorporation (MOI), the board is supported and assisted by four committees with clear mandates and oversight responsibility for various aspects of the business. Members of Group executive management participate in committee meetings by invitation to provide operational insights into matters arising.

LeadershipBoard of directors

Non-executive directors

Royden T Vice (Chairman) Various qualifications, including CA(SA) CEO of Waco International 2002 – 2011 Appointed as chairman in 2012Chairman of the remuneration committee and strategic committee

Geoff K Everingham (Independent)Various qualifications, including CA(SA)Emeritus Professor of Accounting at the University of Cape Town Appointed to the Waco International board in 2013Chairman of the risk and controls committee

Nick B Hudson Fellow of the Faculty of Actuaries (Edinburgh) RMB Ventures since 2005Appointed to Waco International board in 2012

Jonathan MatthewsVarious qualifications, including CA(SA) and CFAEthos Private EquityAppointed to Waco International board in 2015

Cassim Motala MBA and Associate in Management (AIM) RMB Ventures since 2007Appointed to Waco International board in 2012

Jos T van Zyl Various qualifications, including CA(SA) Ethos Private Equity since 2006Appointed to Waco International board in 2012 Chairman of the social and ethics committee

Executive directors

Stephen JM Goodburn (Chief executive officer)BCompt (Hons)Joined Waco International in 1990Held various positions throughout the Group including CFO 1998 – 2011Appointed as Group CEO in 2011

Eben D le Roux (Chief financial officer)Various qualifications, including CA(SA)Joined Waco International as corporate finance manager in 2004 Finance director for Australasia 2007 – 2013Appointed as Group CFO in 2013

Governance report


Group treasurer and company secretary

Mark R TowlerBComJoined Waco International in 1993

Outgoing non-executive directorsRichard Fienberg BSc Engineering (Chemical) and MBA Ethos Private Equity since 2011Appointed to Waco International board in 2012 and resigned in 2015

Stuart J MacKenzie Various qualifications, including CA(SA) CEO of Ethos Private Equity since 2013Appointed to Waco International board in 2012 and resigned in 2015

Executive management board

Group executive leadership

Stephen JM Goodburn (Chief executive officer)Joined Waco International in 1990

Eben D le Roux (Chief financial officer)Joined Waco International in 2004

Gregory J Hart (Group human resources executive)BSocSciJoined Waco International in 2003 as Group HR executive

Operating businesses leadership

Eugenio de Sa (Managing director of Premier Modular)CA(SA)Joined Premier Modular as financial director in 2000 Appointed as commercial and operations director in 2007 Appointed as managing director in December 2008

Michael Graham Els (Chief executive officer of Waco Africa)BSc (Quantity Surveying)Appointed as CEO of Waco Africa in 2010

Robert Erasmus (Managing director of Sanitech)MBAJoined Sanitech as business development director in 2008 Appointed as managing director in 2009

Rodney G Mill (Managing director of Kwikform) Various qualifications, including BAppSc Joined Waco Kwikform in 1987Appointed as executive general manager in 2002 Director of Kwikform 2006 – 2010Appointed as managing director in 2010

Alistair Bennett (Managing director of SkyJacks)Higher National Diploma in Civil EngineeringJoined SGB-Cape in 2006 and appointed as divisional director of SGB-Cape (Coastal Region) in June 2012Appointed as managing director of SkyJacks in May 2015

Mark Liquorish (Managing director of Abacus)CA(SA)Joined Abacus as managing director in 2015








Governance structureBoard of directorsThe board, as the highest governing body, has ultimate responsibility for the governance of the Group.

Board committeesThe board is supported and assisted by various committees with clear mandates and oversight responsibility for various aspects of the business. Members of Group executive management participate in committee meetings by invitation to provide operational insights into matters arising.

Executive management boardThe executive management board is made up of the Group executive management team and the managing directors of the following business units: Waco Africa, Abacus, Sanitech, SkyJacks, Waco Kwikform and Premier Modular.

Executive committee (exco) teamsExco teams comprise local management, divisional managing directors and Group executive management (CEO, CFO and HR executive), and are responsible for the day-to-day operations of the major business units.

Group support servicesWaco International has a small head office of 10 employees, including the Group CEO, CFO, HR executive, treasurer, corporate finance manager, finance manager, internal audit manager and support employees.

Board of directors

Board committees

Risk and controls committee

Strategic committee

Remuneration committee

Social and ethics committee

Group executive management

Executive management board

Exco teamsSGB-Cape, Form-Scaff, Abacus,

Sanitech, SkyJacks, Waco Kwikform and Premier Modular

Operating businesses

Executivedirectors

By invitation

Governance report (continued)


Board committee's overviewA summary of the mandate, along with members and attendance of meetings, for each of the board committees is provided in the table below. Current material focus areas and commentary on relevant changes to status going forward is also provided:

Committee Mandate summary Members and attendance Focus areas and relevant commentary


• Formulating and monitoring risk management policies and activities, including the annual Group-wide risk assessment

• Assessing and monitoring health and safety reporting and performance

• Ensuring governance compliance

• Recommending the appointment of the external auditors, overseeing the external audit scope and process, and determining audit fees

• Overseeing the scope and performance of internal audit

Geoff Everingham* (2/2)Royden Vice (2/2)Cassim Motala (2/2)Jos van Zyl (2/2)

By invitation:Stephen Goodburn (2/2)Eben le Roux (2/2) Greg Hart (2/2)

Current material focus areas• Africa governance working

group, ensuring adherence to legislation, appropriate governance and leveraging off existing footprint

• Assessment of feedback from support services, including tax advisers and external auditors

• Assessment of the impact of new IFRS pertaining to revenue recognition and implementation of appropriate actions

• Embedding designated internal audit process

Strategic committee • Reviewing and approving the strategic plan developed by management

• Monitoring the execution of the strategic plan by management

• Reviewing, approving and submitting the annual budget to the board of directors

Royden Vice* (2/2)Richard Fienberg (2/2)Stephen Goodburn (2/2)Nick Hudson (2/2)Eben le Roux (2/2)Stuart MacKenzie (1/1) Cassim Motala (2/2)

By invitation:Greg Hart (1/2)Julian Pienaar (1/2)Jos van Zyl (1/2)Jonathan Matthews (1/2)

Current material focus areas• Annual review of the

progress of the strategy to date, review of the strategic objectives and identification of new initiatives

• Ongoing focus on turnaround strategy for the Australian business and identification of key learnings from successful improvement in Premier Modular

• Monitoring of conditions in the external environment to identify new regional and product market opportunities with an emphasis on Africa








Committee Mandate summary Members and attendance Focus areas and relevant commentary

Remuneration committee • Reviewing remuneration and bonus policies of directors and senior management

• Reviewing overall annual salary increases of employees

• Developing and reviewing executive director succession plans

• Monitoring and approving allocations of grants to the Group long-term incentive scheme

• Nominating new directors and overseeing their orientation and evaluation

Royden Vice* (2/2)Nick Hudson (2/2)Stuart MacKenzie (2/2)

By invitation:Stephen Goodburn (2/2) Greg Hart (2/2)

Current material focus areas• Assessment and

benchmarking of remuneration practices for fairness and appropriateness

• Phasing out of WGAR incentive scheme

Social and ethics committee • Monitoring compliance with relevant laws, regulations, and codes of business practice

• Engaging meaningfully with relevant internal and external stakeholders

• Identifying key sustainability and ethics risks and monitoring relevant indicators

• Ensuring effective employee training and development programmes are in place

• Overseeing corporate citizenship activities, including the Waco International Charitable Foundation Trust

Jos van Zyl* (2/2)Mike Els (2/2)Greg Hart (2/2)Cassim Motala (1/2)

By invitation:Royden Vice (0/2)Stephen Goodburn (2/2) Eben le Roux (2/2)

Current material focus areas• Extend Waco Foundation

bursaries to school learners to increase impact of the available benefits

• Pursue opportunities to mitigate impact of new B-BBEE codes

* Indicates committee chairperson.

EthicsEthics is an essential component of doing business and formal responsibility in this area is assigned to the social and ethics committee. The Code for the Group as a whole was developed in order to articulate the behaviours and practices which are required for the business to function ethically and sustainably. Every employee is required to sign acceptance of the Code.

In addition, a values-based summary of the Code is distributed to give all managers and employees a clear understanding of what the Code is aiming to achieve.

The values-based summary of the Code is provided in the sustainability overview, available online. The full Code is available on the corporate website www.wacointernational.co.za



Whistle-blowers lineTo reinforce the Code, a whistle-blowers line is available to all employees and all relevant communications are reported directly to management to identify appropriate responses. The line is managed by an external service provider according to a defined policy, which guarantees the anonymity of callers.

Regulatory complianceThe markets in which Waco International operates are subject to a broad spectrum of regulatory requirements, many of which are industry-specific and country-specific. Managing compliance in key areas, including finance, tax, product and manufacturing accreditation, labour, environment and health and safety, is a major focus for the Group as it determines its licence to operate.

Each of the operating businesses is responsible for monitoring the local regulatory environment in which it does business. Operational management – with input from Group executive management – meets on a monthly basis to assess the impact of any material regulatory changes to determine how to align business practices accordingly and thereby maintain the necessary accreditation.

In terms of the other sub-Saharan African businesses, the responsibility for ensuring compliant practices is assigned to the Africa governance working group of the risk and controls committee. The committee was established in support of the Group’s strategic drive into Africa, ensuring that it takes place in accordance with the financial and legal requirements relevant to each specific country. Other regulatory elements, such as labour practices and collective bargaining, are managed under the supervision of the social and ethics committee.

The Group participates in the appropriate industry bodies to remain abreast of the latest regulatory frameworks impacting its core industries, and contributes to the development of these frameworks wherever possible.








AssuranceThe combined assurance model follows the five lines of defence approach depicted below:

The combined assurance process followed by the Group involves rigorous management controls and oversight responsibility at various authority levels, from operational executive management through to the board of Waco International. Risk management systems are embedded in each business, and are articulated in the relevant standard operating procedures and quality assurance processes, with KPIs assigned as appropriate.

Branch meetings and branch reviews are conducted on a regular basis throughout the operating businesses. The exco of each operating business is responsible for monitoring performance, risks and progress of the strategic initiatives, and reports these on a monthly basis to Group executive management. The CEO reports to the board and shareholders on a monthly basis, and submits a comprehensive quarterly report to the board, including material matters requiring the attention of the appropriate board committees.

The internal audit function supports the risk and controls committee, board and the Group as a whole by being responsible for monitoring the effectiveness of internal controls and assessing the risk appetite of the Group. The internal audit has a direct reporting line to the chairman of the Group as well as the independent non-executive chairman of the risk and controls committee.

In accordance with the annual audit plan, the independent external auditors are contracted to conduct a full scope audit of the Group in accordance with International Standards on Auditing, which involves regular interaction, including planning and debrief, with the risk and controls committee.


Risk management systems, policies, authority levels,

standard operating procedures, quality assurance

processes, internal controls and reportin

g

Management oversight and controls

1

2

3

4

5

Internal audit

External audit

Governance

oversight


Members of Group exco and the internal audit function were responsible for overseeing the integrated reporting process. The report was approved by the board upon assessing its contents and structure and upon recommendation from the risk and controls committee.

Furthermore, as the integrated reporting processes are becoming more defined, the Group is in the process of developing an integrated assurance framework around the respective elements as follows:

Integrated report

Stakeholder engagement

Risks and opportunities

Strategy Performance reporting

Governance Remuneration

Governance oversight

Board/risk and controls committee

Social and ethics committee


Board Risk and controls committee

Board Remuneration committee

External assurance

Financial statement auditLimited assurance on selected KPIs ISO accreditationB-BBEE scorecard verification

Internal assurance

Internal audit programme

Management controls and oversight

Integrated reporting steering committee, group reporting and oversight

Policy, processes and systems

Group information systems, policies, standard operating procedures and internal controls

Frameworks International <IR> FrameworkIFRSDTI B-BBEE codesISO, King IIIJSE Listings RequirementsUNGC 10 principlesOECD corruption recommendationsLabour Relations ActCode of Ethics

The integrated assurance framework seeks to ensure that the elements of integrated reporting and underlying business processes are operating effectively and with integrity in a co-ordinated manner.

The performance management processes and reported data are further managed within the respective reporting streams as follows:• Financial reporting• Safety and health• Transformation• Operational• Environment• Human capital

The integrated assurance framework will continue to be developed and enhanced.

The independent auditor’s report on the summarised consolidated financial statements and the independent assurance report on selected financial and non-financial information have been provided on page 86-88.








Summarised consolidated financial statements

Statement of profit or loss and other comprehensive incomefor the year ended 30 June 2015

GroupR thousand Note 2015 2014

Revenue 4 535 397 3 891 110 Cost of sales (2 823 536) (2 451 405)

Gross profit 1 711 861 1 439 705 Other income 2 1 906 – Distribution expenses (768 273) (657 707)Administration expenses (372 168) (342 445)Other operating expenses 3 (3 232) (4 438)

Results from operating activities 4 570 094 435 115

Finance expense (76 009) (80 869)Finance income 8 119 1 994

Net finance (expense)/income (67 890) (78 875)

Profit before income tax 502 204 356 240 Income tax (127 015) (110 554)

Profit for the year 375 189 245 686

Other comprehensive incomeItemsthatwillbereclassifiedsubsequentlytoprofitorlossForeign currency translation differences (net of tax) (48 257) 123 518

Other comprehensive income for the year (48 257) 123 518

Total comprehensive income for the year 326 932 369 204

Profit attributable to:Owners of the company 288 612 181 099 Non-controlling shareholders 86 577 64 587

375 189 245 686

Total comprehensive income attributable to:Owners of the company 240 132 304 549 Non-controlling shareholders 86 800 64 655

326 932 369 204

Basic and diluted earnings per share (Rand) 125.29 49.13


Reconciliation of profit for the year to adjusted EBIT and adjusted EBITDAThe non-recurring income and expense items which management believes are not in the ordinary course of business for the particular business unit in which they occur (“adjusting items”), and which have been excluded from profit for the year in order to calculate the adjusted EBITDA and adjusted EBIT, are set out below:

Group R thousand 2015 2014

Profit for the year 375 189 245 686Adjusting items 45 423 13 847

Cost related to the acquisition of subsidiaries 883 1 405Branch closure and retrenchment costs 22 144 5 925Onerous leases 21 485 –Equipment conversion costs – 5 592Other non-recurring expenses 911 925

Adjusted profit for the year 420 612 259 533Income tax 127 015 110 554Net finance expense 67 890 78 875

Adjusted EBIT 615 517 448 962

Amortisation 1 152 1 089Depreciation 150 832 122 008

Adjusted EBITDA 767 501 572 059








Statement of financial positionas at 30 June 2015


Equipment for hire 5 2 038 657 1 919 346 Property, plant and equipment 133 053 89 927 Investment property 18 208 18 764 Goodwill 43 088 43 826 Intangible assets 2 153 3 305 Deferred tax assets 32 068 2 527

Total non-current assets 2 267 227 2 077 695

Inventories 165 291 159 953 Trade and other receivables 884 621 847 585 Prepaid tax 18 053 5 824 Cash and cash equivalents 330 770 112 048

Total current assets 1 398 735 1 125 410

Total assets 3 665 962 3 203 105

Stated ordinary share capital 1 142 1 142 Preference shareholder capital 1 499 163 1 353 635 Foreign currency translation reserve 181 207 229 687 Accumulated profits/(losses) 105 567 (37 517)

Total equity attributable to equity holders of the Group 1 787 079 1 546 947

Non-controlling interest 195 517 108 717

Total equity 1 982 596 1 655 664

Interest-bearing borrowings 410 000 425 000 Other long-term liabilities 27 692 42 127 Deferred tax liabilities 80 568 45 067 Employee benefits 51 618 37 427 Provisions 20 143 18 237

Total non-current liabilities 590 021 567 858

Bank overdrafts – 277 Trade and other payables 820 542 646 927 Employee benefits 110 802 94 002 Provisions 14 246 12 213 Current portion of interest-bearing borrowings 113 365 166 430 Tax payable 34 390 59 734 Total current liabilities 1 093 345 979 583

Total liabilities 1 683 366 1 547 441

Total equity and liabilities 3 665 962 3 203 105

Summarised consolidated financial statements (continued)


Statement of changes in equityfor the year ended 30 June 2015

Group

R thousand

Statedordinary

sharecapital

Preference shareholder

capital

Foreign currency

translation reserve

Accumulated(losses)/

profit Total

Non-controlling

interest Total equity

Balance at 30 June 2013 1 142 1 228 644 106 237 (93 625) 1 242 398 44 062 1 286 460Total comprehensive income for the yearProfit for the year – – – 181 099 181 099 64 587 245 686Other comprehensive incomeForeign currency translation differences (net of tax) – – 123 450 – 123 450 68 123 518

Total comprehensive income for the year – – 123 450 181 099 304 549 64 655 369 204

Transactions with owners recorded directly in equityAccumulated reserves attributable to preference shareholders – 124 991 – (124 991) – – –

Balance at 30 June 2014 1 142 1 353 635 229 687 (37 517) 1 546 947 108 717 1 655 664

Total comprehensive income for the yearProfit for the year – – – 288 612 288 612 86 577 375 189Other comprehensive incomeForeign currency translation differences (net of tax) – – (48 480) – (48 480) 223 (48 257)

Total comprehensive income for the year – – (48 480) 288 612 240 132 86 800 326 932

Transactions with owners recorded directly in equityAccumulated reserves attributable to preference shareholders – 145 528 – (145 528) – – –

Balance at 30 June 2015 1 142 1 499 163 181 207 105 567 1 787 079 195 517 1 982 596








Statement of cash flowsfor the year ended 30 June 2015


Cash flows from operating activitiesOperating cash flow before working capital changes 705 194 526 854 Working capital changes 6 141 112 11 021 Finance costs paid (50 617) (91 415)Finance income received 8 119 1 994 Income tax paid (155 097) (42 201)

Net cash from operating activities 648 711 406 253

Cash flows from investing activitiesAdditions of property, plant and equipment (60 270) (46 146)Additions of equipment for hire 5 (303 302) (320 646)Proceeds from disposal of property, plant and equipment 1 408 3 784 Proceeds from disposal of equipment for hire 97 853 68 005 Acquisition of subsidiaries 7 (94 270) (4 986)

Net cash used in investing activities (358 581) (299 989)

Cash flows from financing activitiesInterest-bearing borrowings repaid (145 953) (88 873)Interest-bearing borrowings raised 85 000 46 454 Other long-term liabilities repaid (14 410) (9 488)

Net cash used in financing activities (75 363) (51 907)

Net increase in cash and cash equivalents 214 767 54 357 Cash and cash equivalents at 1 July 111 771 47 396 Effect of exchange rate fluctuations on cash held 4 232 10 018

Cash and cash equivalents at 30 June 330 770 111 771



Notes to the summarised consolidated financial statementsfor the year ended 30 June 2015

1. Basis of preparation to the summarised consolidated financial statementsWaco International Holdings Proprietary Limited (the company) is a company incorporated and domiciled in South Africa. The summarised consolidated financial statements of the company as at and for the year ended 30 June 2015 comprise the company and its subsidiaries (together referred to as the Group and individually as Group entities). The summarised consolidated financial statements were authorised for issue in accordance with a resolution of the directors on 7 December 2015.

The summarised consolidated financial statements are prepared in accordance with the framework concepts and the measurement and recognition requirements of IFRS, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, and presented in accordance with the minimum content, including disclosures, prescribed by IAS 34 Interim Financial Reporting applied to year-end reporting, and the requirements of the Companies Act of South Africa.

The accounting policies applied in the preparation of the audited consolidated financial statements, from which the summarised consolidated financial statements were derived, have been applied consistently by all Group entities to all periods presented in these financial statements, except for the adoption of new or revised standards. The application of said standards has had no effect on the financial statements.

The Group financial statements are presented in South African rand, which is the presentation currency of the Group. The functional currency of the holding company of the Group is South African rand. All the financial information presented in South African rand has been rounded to the nearest thousand unless indicated otherwise.

The summarised consolidated financial statements do not include all the statements, accounting policies and disclosures required in the consolidated annual financial statements and should therefore be read in conjunction with the Group’s audited consolidated annual financial statements as at 30 June 2015 that are available on request from Eben le Roux at [email protected] or for no charge at the company’s registered offices during normal business hours. This report was compiled under the supervision of Mr Eben le Roux CA(SA), chief financial officer, and Mr Dharishan Padiachy CA(SA), Group financial manager.








Notes to the summarised consolidated financial statements (continued)for the year ended 30 June 2015

2. Other incomeGroup

R thousand 2015 2014

Insurance claim proceeds 1 868 – Other 38 –

1 906 –

3. Other operating expensesAmortisation of intangible assets (1 152) (1 089)Acquisition of subsidiary costs (883) (1 405)Other (1 197) (1 944)

(3 232) (4 438)

4. Results from operating activitiesThe following items were charged/(credited) to results from operating activities:Depreciation– property, plant and equipment 21 367 13 650 – investment property 556 556 – equipment for hire 128 909 107 802 Amortisation of intangible assets 1 152 1 089 (Profit)/loss on disposal of:– property, plant and equipment (217) 816 – equipment for hire (26 607) (18 658)Operating lease expense 170 849 146 618 Recognition/(reversal) of impairment loss on equipment for hire 1 740 (5 607)Research and development cost 2 479 964 Professional fees 17 657 10 455 Auditor’s remuneration 7 660 7 786

Audit fee 5 745 5 812 Tax services 1 915 1 974

Other professional service fees 1 285 1 657 Employee costs 1 510 200 1 384 177

Salaries and wages 1 407 249 1 280 985 Defined contribution expense 59 241 59 138 Other long-term employee benefits 43 710 33 397 Other – 10 657

Number of employees 6 539 6 656



Group

R thousand Total

Scaffolding, shoring and

formworkModular

buildingsSanitation

equipmentMotorised

equipment

5. Equipment for hireCostBalance at 1 July 2013 1 711 446 1 468 926 189 994 52 526 –Acquisition of business 2 602 – – 2 602 –Additions 320 646 233 722 50 374 36 550 –Reclassification (91) (206) 115 – –Disposals (105 107) (69 292) (35 553) (262) –Effect of movements in exchange rates 117 964 100 876 17 088 – –

Balance at 30 June 2014 2 047 460 1 734 026 222 018 91 416 –

Acquisition of business 72 857 – – 3 307 69 550Additions 303 302 162 681 98 803 38 980 2 838Disposals (85 036) (80 576) (4 001) (459) –Effect of movements in exchange rates (55 870) (73 705) 17 835 – –

Balance at 30 June 2015 2 282 713 1 742 426 334 655 133 244 72 388

Accumulated depreciation and impairment lossesBalance at 1 July 2013 81 656 47 590 25 944 8 122 –Depreciation for the year 107 802 64 814 27 316 15 672 –Reversal of prior period impairment losses (5 607) (5 607) – – –Disposals (55 760) (24 757) (30 958) (45) –Effect of movements in exchange rates 23 8 554 (8 531) – –

Balance at 30 June 2014 128 114 90 594 13 771 23 749 –

Depreciation for the year 128 909 70 583 29 943 24 635 3 748Recognition of impairment losses 1 740 1 740 – – –Disposals (13 790) (11 132) (2 521) (137) –Effect of movements in exchange rates (917) (5 290) 4 373 – –

Balance at 30 June 2015 244 056 146 495 45 566 48 247 3 748

Carrying amountsAt 1 July 2013 1 629 790 1 421 336 164 050 44 404 –

At 30 June 2014 1 919 346 1 643 432 208 247 67 667 –

At 30 June 2015 2 038 657 1 595 931 289 089 84 997 68 640

5.1 Certain equipment for hire has been pledged to secure certain interest-bearing borrowings (see annexure A) of the annual financials statements.








Notes to the summarised consolidated financial statements (continued)for the year ended 30 June 2015

Group R thousand 2015 2014

6. Working capital changesIncrease in inventories (4 075) (16 104)Increase in trade and other receivables (44 845) (113 804)Increase in trade and other payables 190 032 140 929

141 112 11 021

7. Acquisition of subsidiaries The Group acquired the greater part of the assets and liabilities of SkyJacks Proprietary Limited and its subsidiaries for R88.9 million on 1 January 2015 to further expand its forming, shoring and scaffolding offerings. The Group also acquired a variety of smaller companies throughout the year for R5.4 million to expand its sanitation presence throughout South Africa.

Group R thousand Note 2015 2014

Identifiable assets acquired and liabilities assumedAssetsEquipment for hire 5 72 857 2 602Property, plant and equipment 5 401 695Intangible assets – 600Inventories 3 613 20Trade and other receivables 10 838 –

92 709 3 917

LiabilitiesTrade and other payables 952 35

952 35

91 757 3 882

Goodwill

Goodwill was recognised as a result of the acquisition as follows:

Total consideration transferred 94 270 4 986

Fair value of identifiable net assets (91 757) (3 882)

2 513 1 104

Taking control of SkyJacks will enable the Group to expand SkyJacks’ distribution network through use of the Group’s existing footprint. The acquisition is also expected to increase SkyJacks’ share of the suspended access platform and access systems market through access to the Group’s customer base. The Group expects to reduce costs through economies of scale.

In the six months to 30 June 2015, SkyJacks contributed revenue of R35.3 million and profit after tax of R7.2 million (R5.4 million of which is attributable to the owners of the company). If the acquisition had occurred on 1 July 2014, management estimates that the contribution to revenue would have been R72.1 million and the contribution to profit before tax would have been R8.8 million (R6.6 million of which would have been attributable to the owners of the company).

Per the signed purchase agreement for the acquisition of the greater part of the assets of SkyJacks Proprietary Limited, any trade and other receivables which were uncollectable as at 31 March 2015 were transferred back to SkyJacks Proprietary Limited and the fair value of the consideration related to such trade and other receivables would be deducted from the purchase price. The identifiable assets acquired and the consideration transferred per the note above is net of these adjustments. Management is therefore confident that the value presented above for trade and other receivables represents the gross value and fair value of trade and other receivables.



Forming, shoring,scaffolding andrelated services

Modular buildings,sanitation and

related services

Admini-stration

andeliminations Total R thousand International Africa International Africa

8. Segmental information2014Revenue 1 207 683 1 624 643 586 308 472 476 – 3 891 110Cost of sales (856 008) (853 768) (487 666) (253 963) – (2 451 405)

Gross profit 351 675 770 875 98 642 218 513 – 1 439 705

Adjusted EBITDA 43 126 399 464 27 238 123 847 (21 616) 572 059Adjusted EBIT 2 219 368 346 1 752 100 240 (23 595) 448 962

Non-current assets 1 080 431 1 065 008 310 705 215 118 (593 567) 2 077 695Current assets 351 706 264 839 225 723 146 098 137 044 1 125 410

Total assets 1 432 137 1 329 847 536 428 361 216 (456 523) 3 203 105

Non-current liabilities (76 469) (12 703) (49 722) – (428 964) (567 858)Current liabilities (358 749) (229 214) (242 517) (78 763) (70 340) (979 583)

Total liabilities (435 218) (241 917) (292 239) (78 763) (499 304) (1 547 441)

Capital employed 996 919 1 087 930 244 189 282 453 (955 827) 1 655 664

2015Revenue 1 197 335 1 970 921 788 373 578 768 – 4 535 397Cost of sales (803 547) (1 055 346) (641 485) (323 158) – (2 823 536)

Gross profit 393 788 915 575 146 888 255 610 – 1 711 861

Adjusted EBITDA 92 681 496 927 51 322 153 738 (27 167) 767 501Adjusted EBIT 49 863 451 936 25 214 116 887 (28 383) 615 517

Non-current assets 983 145 1 781 549 409 073 443 138 (1 349 678) 2 267 227Current assets 308 576 140 342 327 970 53 839 568 008 1 398 735

Total assets 1 291 721 1 921 891 737 043 496 977 (781 670) 3 665 962

Non-current liabilities (145 675) (136 299) (35 650) (11 690) (260 707) (590 021)Current liabilities (236 359) (263 803) (383 990) (85 899) (123 294) (1 093 345)

Total liabilities (382 034) (400 102) (419 640) (97 589) (384 001) (1 683 366)

Capital employed 909 687 1 521 789 317 403 399 388 (1 165 671) 1 982 596

9. Subsequent eventsAs noted in the Chairman's report, there was a tragic collapse of the M1 bridge in Sandton subsequent to year end. The matter is currently being investigated by a number of parties.








Independent auditor’s report on the summarised consolidated financial statements

To the shareholders of Waco International Holdings Proprietary Limited

The accompanying summarised consolidated financial statements, which comprise the statement of financial position as at 30 June 2015, the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and related notes, are derived from the audited financial statements of Waco International Holdings Proprietary Limited for the year ended 30 June 2015. We expressed an unmodified audit opinion on those financial statements in our report dated 10 September 2015.

The summarised consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards applied in the preparation of the audited financial statements of Waco International Holdings Proprietary Limited. Reading the summarised consolidated financial statements, therefore, is not a substitute for reading the audited financial statements of Waco International Holdings Proprietary Limited.

Director’s responsibility for the summarised consolidated financial statementsThe director’s are responsible for the preparation of a summary of the audited consolidated financial statements on the basis described in note 1.

Auditor’s responsibilityOur responsibility is to express an opinion on the summarised consolidated financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing 810, Engagements to Report on Summary Financial Statements.

OpinionIn our opinion, the summarised consolidated financial statements derived from the audited financial statements of Waco International Holdings Proprietary Limited for the year ended 30 June 2015, are consistent, in all material respects, with those financial statements, on the basis described in note 1.

KPMG Inc.

Per N BothaChartered Accountant (SA)Registered AuditorDirector7 December 2015

KPMG IncKPMG Crescent85 Empire Road, Parktown, 2193Private Bag 9, Parkview 2122, South Africa

Telephone +27 (0)11 647 7111Fax +27 (0)11 647 8000Docex 472 Johannesburg

KPMG Inc is a company incorporated under the South African Companies Act and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International”), a Swiss entity.

KPMG Inc is a registered Auditor, in public practice, in terms of the Auditing Profession Act, 26 of 2005.

Registration number 1999/021543/21

Policy Board:Chief Executive: TH Hoole

Executive Directors: M Letsitsi SL Louw, NKS Malaba, MM Mapaya, M Oddy, CAT Smith

Other Directors: LP Fourie, N Fubu, AH Jaffer (Chairman of the Board), FA Karreem, ME Magondo, AMS Mogabudi, GM Pickering, JN Pierce

The company’s principal place of business is at KPMG Crescent, 85 Empire Road, Parktown, where a list of the directors’ names is available for inspection.


Independent assurance report on selected financial and non-financial information included in the 2015 integrated report

To the directors of Waco International Holdings Proprietary Limited

We have undertaken a limited assurance engagement on selected financial and non-financial information, as described below, and presented in the 2015 Integrated Report to stakeholders of Waco International Holdings Proprietary Limited (“Waco International”) for the year ended 30 June 2015 (“the report”).

Subject matter and related assuranceWe are required to provide limited assurance on the following financial and non-financial information, prepared in accordance with Waco International’s internally developed guidelines, marked with a ✔ on the relevant pages in the report.

• Accuracy of financial ratios for the 2013 to 2015 financial periods;• Accuracy of 2013 to 2015 financial data;• Reportable segments and related disclosures ensuring compliance with IFRS 8;• Human resource information/indicators.

Management responsibility Management is responsible for the selection, preparation and presentation of the financial and non-financial information in accordance with Waco International’s internally developed guidelines. This responsibility includes the identification of stakeholders and stakeholder requirements, material issues for commitments with respect to performance, and for the design, implementation and maintenance of internal control relevant to the preparation of the report that is free from material misstatement, whether due to fraud or error.

Our independence and quality controlWe have complied with the International Federation of Accountants’ Code of Ethics for Professional Accountants, which includes comprehensive independence and other requirements founded on fundamental principles of objectivity, professional competence and due care, confidentiality and professional behaviour. Our engagement was conducted by a multidisciplinary team that included assurance specialists with extensive experience in integrated reporting as well as detailed knowledge of Waco International.

In accordance with International Standard on Quality Control, KPMG maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Our responsibilityOur responsibility is to express a limited assurance conclusion about whether the selected financial and non-financial information is free from material misstatement based on our work performed. We conducted our engagement in accordance with the International Standard on Assurance Engagements, Assurance Engagements Other than Audits or Reviews of Financial Information (“ISAE 3000”).

A limited assurance engagement undertaken in accordance with ISAE 3000 involves assessing the suitability in the circumstances of Waco International’s use of its internally developed guidelines as the basis of preparation for the selected financial and non-financial information, assessing the risks of material misstatement of the selected financial and non-financial information whether due to fraud or error, responding to the assessed risks as necessary in the circumstances, and evaluating the overall presentation of the selected financial and non-financial information. A limited assurance engagement is substantially less in scope than a reasonable assurance engagement in relation to both risk assessment procedures, including an understanding of internal control, and the procedures performed in response to the assessed risks. Accordingly, less assurance is obtained than in a reasonable assurance engagement.







KPMG Services Proprietary LimitedKPMG Crescent85 Empire Road, Parktown, 2193Private Bag 9, Parkview 2122, South Africa

Telephone +27 (0)11 647 7111Fax +27 (0)11 647 8000Docex 472 JohannesburgInternet http://www.kpmg.co.za/


Independent assurance report on selected financial and non-financial information included in the 2015 integrated report (continued)

The procedures we performed were based on our professional judgement and included enquiries, observation of processes performed, inspection of documents and system reports, evaluating the appropriateness of quantification methods and reporting policies, and agreeing or reconciling with underlying records.

The following are a summary of the procedures we performed:

• recalculate the stated financial ratios for the 2013 to 2015 financial periods from the underlying audited financial data for those periods;

• agree the human resources information stated in the report to the 2015 health and safety report; and• verify the mathematically accuracy and internal consistencies of the report.

The procedures performed in a limited assurance engagement vary in nature from, and are less in extent than for, a reasonable assurance engagement. As a result the level of assurance obtained in a limited assurance engagement is substantially lower than the assurance that would have been obtained had we performed a reasonable assurance engagement. Accordingly, we do not express a reasonable assurance opinion about whether Waco International’s selected financial and non-financial information has been prepared, in all material respects, in accordance with its internally developed guidelines.

Limited assurance conclusionBased on the procedures we have performed and the evidence we have obtained, nothing has come to our attention that causes us to believe that the selected financial and non-financial information set out above of Waco International for the year ended 30 June 2015, has not been prepared, in all material respects, in accordance with the entities internally developed guidelines.

Other matterOur report does not extend to any disclosures or assertions relating to future performance plans and/or strategies disclosed in the report.

Limitation on liabilityOur work has been undertaken to enable us to express a limited assurance conclusion on the selected financial and non-financial information to the directors of Waco International in accordance with the terms of our engagement, and for no other purpose. We do not accept or assume liability to any party other than Waco International for our work, for this report, or for the conclusion we have reached.

KPMG Services Proprietary Limited

Per N BothaChartered Accountant (SA)Registered AuditorDirector7 December 2015

KPMG Services Proprietary Limited is a company incorporated under the South African Companies Act and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International”), a Swiss entity.

KPMG Services Proprietary Limited is not a Registered Auditor in terms of the Auditing Profession Act, 26 of 2005 and does not provide audit services as defined in Section 1 of the Act.

Registration number 1999/012876/07

Policy Board:Chief Executive: TH Hoole

Executive Directors: N Dlomu, M Letsitsi, SL Louw, NLS Malaba, M Oddy, S Saloojee, CAT Smit

Other Directors: ZH De Beer, LP Fourie, N Fubu, AH Jaffer (Chairman of the Board), FA Karreem, ME Magondo, AMS Mokgabudi, GM Pickering, JN Pierce, T Rossouw, GCC Smith

The company’s principal place of business is at KPMG Crescent, 85 Empire Road, Parktown, where a list of the directors’ names is available for inspection.


Useful terms

Operational definitions

Alchemy of Growth

The Alchemy of Growth is a framework based on “three horizons” guiding companies on a strategy of sustainable growth through the management of current performance while maximising future opportunities. The Alchemy of Growth was written by Mehrdad Baghai, Stephen Coley and David White. Copyright 1999, 2000 by McKinsey & Company, Inc., United States.

Balanced scorecard

The fundamental mechanism driving the Group’s joint performance management framework. The Waco International balanced scorecard considers key financial indicators (75%) as well as personalised individual growth targets (25%) as the basis for remuneration.

Basket hire contracts

Contracts that are based on a fixed price for a specific project. In certain cases, additional per week rates are charged after the end of the contract period.

Cost to serve Cost to serve is the analysis of profitability of a customer account, based on the activities and overhead costs incurred to service the customer.

Fleet utilisation Operational efficiency measurement of the utility Waco International derives from its assets/fleet. Measured by units of fleet on site over total units of fleet.

Forming Formwork systems are primarily used in the in situ casting of concrete columns, walls and floor slabs in the construction of high-rise residential, commercial and industrial buildings as well as governmental infrastructure construction projects (such as bridges, dams and tunnels). Formwork systems consist of re-usable, standard fixtures and related accessories that are used to hold concrete in place while it sets. These fixtures define the shape of the concrete until it is self-supporting and vary in complexity, depending on the design composition of the structure being built.

Full-time employment (FTE) equivalent employees

Owing to the variability of the work, the majority of the workforce is employed on a contract-by-contract basis. Employee numbers are therefore calculated on an FTE basis; for example, two employees each working half a week’s worth of payable hours are counted as one full-time employee.

Hire fleet The equipment which the Group offers to customers to hire, including forming, shoring and scaffolding equipment, relocatable modular buildings and portable toilets.

Hotspots Large-scale diversified industrial projects and identified geographical locations that are expected to give rise to substantial opportunities over the next few years, to which the Group can provide a range of products and services.

Hygiene services

Integrated hygiene services include the rental and servicing of sanitisers, wipes, toilet tissue dispensers, sanitary bins and hand washing and drying components, as well as contract cleaning and pest control services.

Limited duration contract (LDC) employees

Employees who are employed directly by Waco International on a contract that has an end date that normally coincides with the end of a specific commercial project for which they were employed.

Lost-time injury frequency rate (LTIFR)

A lost-time injury (LTI) is defined as an incident that resulted in a fatality, permanent disability or time lost from work of one day/shift or more. LTIFR is a measurement of the number of lost-time injuries within a given period relative to the total number of hours worked in the same period. For ease of comparison across companies and industries, a standard rate of one LTI per 200 000 hours is assumed, i.e. LTI frequency rate = (LTIs/actual man-hours worked) x 200 000.

Other sub-Saharan Africa

Sub-Saharan African countries excluding South Africa.


Useful terms (continued)

Plan B Plan B is a specific turnaround plan implemented in the Group’s underperforming businesses in order to move these businesses to sustainable profitability.


Modular buildings consist of modules or sections that are linked together on site to form temporary or permanent structures. Modules are manufactured in a controlled factory environment and, as a result, many of the time delays associated with traditional building methods (including inclement weather, material shortages, delivery problems or labour shortages) are minimised. Due to the factory controlled environment, safety and health can be closely monitored, which minimises the probability of incidents. The buildings can be disassembled, relocated and utilised elsewhere.

Sanitation services

Sanitation services include the hire of portable chemical toilets, regular servicing of portable toilets as well as septic tank pumping.

Scaffolding Scaffolding is a framework system usually used to facilitate temporary access. It entails the provision of safe, elevated access platforms for workers to carry out a range of tasks in the construction and maintenance of buildings, civil engineering structures, industrial facilities, ships, oil rigs and other structures. It is also used as a stand-alone system, such as temporary spectator seating or platforms for public entertainment events.

Shoring Shoring (also referred to as falsework) refers to the use of scaffolding systems and other products to provide support at varying heights to horizontal formwork systems for casting floor slabs, bridge decks and other concrete structures.

Straight hire contracts

Projects in which billing is based on an agreed weekly rate.

Financial definitions

Adjusted EBITA/EBITDA

Adjusted EBITA/EBITDA for certain events that management believes are of a capital or non-recurring nature and not representative of Waco International’s ongoing business, and which the Group eliminates for the purpose of providing investors with a measure of its financial performance, which is in line with certain measures that management considers important in evaluating Waco International’s underlying performance, and which management relies upon in the day-to-day operation of the business.

Compound annual growth rate (CAGR)

Growth in key metrics over time.

Constant currency

A constant exchange rate that eliminates the effects of exchange rate fluctuations over different financial periods and is used to show financial performance numbers excluding currency fluctuations.

Days sales outstanding (DSO)

Days sales outstanding is a measure of the average number of days that it takes to collect cash from a customer after a sale has been made.

Debtor days Debtors days is a measure of the average number of days to receive payment from customers.

EBIT Earnings before interest and tax, as defined by IFRS.

EBITA Earnings before interest, tax and amortisation.

EBITDA Earnings before interest, tax, depreciation and amortisation.


Economic value add (EVA)

EVA is the operating profit earned by the business less the notional cost of financing the business’s capital (12%). Waco International evaluates the EVA of an investment over a number of years to drive sustainable long-term growth in shareholder value. This is managed by incorporating EVA as a long-term incentive measure.

Net capital expenditure

Investment in expansion initiatives and maintenance requirements less proceeds from fleet sales.

Net operating cash flow (NOCF)

The amount of cash generated from the business operations, calculated by adjusting net income (pre-tax and interest) for depreciation, amortisation, changes to net working capital and net capital expenditure.

Net working capital

Net working capital represents the difference between current assets, inventory and trade and other receivables, and the current liabilities, trade and other payables, of the Group.

Return on net assets managed (RONAM)

Operating profit as a percentage of the average net assets managed over the course of a reporting period.


Glossary

ABET Adult Basic Education and Training

ABT Alternative Building Technology

B-BBEE Broad-based black economic empowerment

BEE Black economic empowerment

BLDP Business Leaders Development Programme

Board The board of directors of Waco International Holdings Proprietary Limited

BOO Build Own Operate

CAGR Compound annual growth rate

CAPEX Net capital expenditure

CEO Chief executive officer

CFO Chief financial officer

Companies Act South African Companies Act, 71 of 2008, as amended

DSO Days sales outstanding

EBIT Earnings before interest and tax

EBITDA Earnings before interest, tax, depreciation and amortisation

EDP Executive Development Programme

EPC Engineering, procurement and construction

EVA Economic value add

Exco Executive committee

EzeeSpace A unique, technically advanced modular building product that is scalable and flexible

FTE Full-time equivalent employees

FSS Forming, sharing and scaffolding

GDP Gross domestic product

GIBS Gordon Institute of Business Science

GTCTC Guaranteed total cost to company

HDSAs Historically disadvantaged South Africans

HR Human resources

IFRS International Financial Reporting Standards


IIRC International Integrated Reporting Council

<IR> Framework Integrated Reporting Framework

IT Information technology

King III The revised King Code of Governance Principles for South Africa

KPI Key performance indicator

LDC Limited duration contracts

LTI Lost-time injury

LTIFR Lost-time injury frequency rate

MOI Memorandum of incorporation

NDP National Development Plan

NIC New informal concept

NOCF Net operating cash flow

NUM National Union of Mineworkers

NUMSA National Union of Metalworkers of South Africa

PS Portable sanitation

R&MB Relocatable and modular building

RMB Rand Merchant Bank

RONAM Return on net assets managed

SCT Steam clean toilet

SESPA Supplier evaluation, selection, and performance appraisal process

SMME Small, micro and medium enterprise

TAP the Best Team

Transparency, Accountability, Performance, Best practice and Teamwork (Waco International’s business principles)

The Code Code of ethics

UASA United Association of South Africa

WGARS Waco Growth Appreciation Rights Scheme


2015 2014 2013

Average Closing Average Closing Average Closing Constant currency rate

Australian dollar (AU$) 9.47 9.40 9.48 9.96 9.03 9.01 9.48

Great British pounds (GBP) 18.00 19.30 16.89 18.01 13.86 15.01 16.89

US dollar (USD) – – 10.37 10.58 8.86 9.87 10.37

New Zealand dollar (NZ$) 8.77 8.39 8.56 9.27 7.25 7.63 8.56

Currency conversion table


Administration

Waco International Registered office and business addressPhysical address: No 2 Harrowdene Office Park128 Western Service RoadWoodmead, Johannesburg, 2148Postal address: PostNet Suite #108Private Bag X23Gallo Manor, Johannesburg, 2052Switchboard: + 27 11 461 1400Web: www.wacointernational.co.za

Contact detailsChief executive officer: Stephen GoodburnEmail: [email protected] financial officer: Eben le RouxEmail: [email protected] secretary: Mark TowlerEmail: [email protected]

Registered auditorsKPMG Inc.85 Empire Road, Parktown, Johannesburg, 2193Switchboard: +27 11 647 7111

Principal bankerThe Standard Bank of South Africa Limited

Business unitsWaco AfricaPhysical address: 181 Barbara Road, ElandsfonteinJohannesburg, 1601Switchboard: +27 11 842 4000Web: www.wacoafrica.co.za

AbacusPhysical address: 2 Fonda Place, Yaldwyn Road, Jet ParkJohannesburg, 1459Switchboard: +27 11 397 8150Web: www.abacusspace.co.za

SanitechPhysical address: Unit 9, Lakeview Business ParkYaldwyn Road, Jet Park, Johannesburg, 1459Switchboard: +27 11 823 6060Web: www.sanitech.co.za

SkyJacksPhysical address: 5 Geertsema Road, Jet ParkJohannesburg, 1459Switchboard: +27 11 397 2730Web: www.skyjacks.co.za

Waco KwikformPhysical address: 12 Pike Street, RydalmereNSW, Australia, 2116Switchboard: +61 2 9684 8888Web: www.wacokwikform.com.au

APL KwikformPhysical address: 604 Rosebank Road, AvondaleAuckland, New Zealand, 1026Switchboard: +64 9 828 0211Web: www.aplkwikform.co.nz

Premier ModularPhysical address: Catfoss Lane, Brandesburton, DriffieldEast Yorkshire, United Kingdom, Y025 8EJSwitchboard: +44 1964 545 000Web: www.premiermodular.co.uk

Form-Scaff ChilePhysical address: Las Acacias 1031, Parque IndustrialEstrella del Sur, San Bernardo, Santiago, Chile, 9801Switchboard: +562 738 5019Web: www.formscaff.cl

GREYMATTER & FINCH # 9246

Africa

Africa

New Zealand

Africa

Africa

New Zealand

Australia

Africa

Australia

United Kingdom

Chile

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